PARADIGM MEDICAL INDUSTRIES INC, 424B1, 1996-07-25

PARADIGM MEDICAL INDUSTRIES INC
424B1, 1996-07-25
SURGICAL & MEDICAL INSTRUMENTS & APPARATUS

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Filed Pursuant to Rule 424(b)
Registration Statement No. 333-2496
PROSPECTUS 1,000,000 Units
Each Unit Consisting of One Share of Common Stock and
One Class A Warrant

PARADIGM MEDICAL INDUSTRIES, INC.

Paradigm Medical Industries, Inc., (the "Company") is
offering for sale 1,000,000 Units, each Unit consisting of one
share of the Company's Common Stock and one Class A Warrant.
Each Class A Warrant is exercisable by the holder thereof to
purchase one share of the Company's Common Stock at an exercise
price of $7.50 per share. Each Class A Warrant will be
immediately detachable from the Units in separate transfer and
will be immediately exercisable for a period of five years from
the date of this Prospectus. The Class A Warrants are subject to
redemption by the Company beginning one year from the date of
this Prospectus at a price of $.05 per Warrant, if the closing
bid price of the Company's Common Stock as reported by Nasdaq
SmallCap Market averages in excess of $8.50 per share for 30
consecutive business days ending within 15 days of the date of
redemption.

The Company is also registering on behalf of the Series B
Preferred stockholders (the "Registering Stockholders") a total
of 479,452 shares of Common Stock, assuming each of the
Registering Stockholders elects to exercise his conversion rights
to convert the Series B Preferred shares into shares of Common
Stock. Such registration is subject to certain lock-up
agreements restricting disposition of the shares of Common Stock
based on the lapse of time and the trading volume of shares. The
Registering Stockholders can only sell their shares as long as a
current Registration Statement is in effect and as long as they
deliver a current Prospectus to the purchaser. See "Stockholders
Registering Shares."

The Company is further registering for the Underwriter
Warrants entitling the holder to purchase 100,000 shares of
Common Stock at an exercise price of 130% of the offering price
of each Unit and 100,000 shares of Common Stock at an exercise
price of $7.50 per share. Finally, the Company is registering
for certain investors participating in the Company's bridge
financing (the "Note Holders") 300,000 Warrants as well as 25,000
Warrants for the Company's counsel, Mackey Price & Williams (the
"Attorney") pursuant to a warrant agreement, each Warrant
entitling the holder to purchase one share of Common Stock at
$3.33 per share, and the underlying Common Stock. The Underwriter's
Warrants are exercisable beginning two years from the date of this
Prospectus and expiring five years from the date of this Prospectus.
The Note Holders' Warrants are exercisable beginning on the dates the
Warrants were issued and expiring on December 1, 2000. The
Attorney's Warrants are exercisable beginning one year following
the date the Warrants were issued and expiring on December 1,
2000. The Underwriter's, Note Holders' and Attorney's Warrants are subject
to redemption by the Company at a price of $.05 per Warrant, if the Company's
Common Stock has been trading at a price equal to or above $10.00 per share
for a period of 30 consecutive business days on the Nasdaq SmallCap
Market or an establilshed exchange. The Underwriter's Warrants may be
redeemed beginning two years after the public offering and the Note
Holders' and Attorney's Warrants may be redeemed beginning one year after
the public offering. See "Description of Securities."

Prior to this offering there has been no public market for
the Company's Common Stock or any of the other securities of the
Company being offered hereby. The initial public offering price is $6.25
Unit. The public offering price of the Units and the exercise
price and other terms of the Class A Warrants have been
arbitrarily determined by negotiation between the Company and
Kenneth Jerome & Company, Inc. (the "Underwriter"), and are not
necessarily related to the Company's assets, book value,
financial condition or any other recognized criteria of value.
The Common Stock has not yet been approved for quotation on the
Nasdaq SmallCap Market but a Nasdaq SmallCap Market application
has been filed with the NASD for the Units under the proposed
symbol PMEDU, for the Common Stock under the proposed symbol
PMED, and for the Class A Warrants under the proposed symbol
PMEDW. See "Description of Securities."

THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH
DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION
See "Risk Factors" and "Dilution."

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

Underwriting Discounts Proceeds to
Price to Public and Commissions<F1> Company<F2>
<S> <C> <C> <C>
Per Unit $6.25 $.625 $5.625
Total<F3> $6,250,000 $625,000 $5,625,000

<FN>
<F1>
Does not reflect additional compensation to be received by the
Underwriter in the form of: (i) a non-accountable expense
allowance equal to $187,500 ($.1875 per Unit) ($215,625 if the
over-allotment option is exercised in full) and (ii) warrants
(the "Underwriter's Warrants") to purchase up to 100,000 shares
of Common Stock at 130% of the offering price of each Unit and up
to 100,000 shares of Common Stock at $7.50 per share, exercisable
for a period of three years commencing two years from the date of
this Prospectus. In addition, the Company has agreed to
indemnify the Underwriter against certain liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
<F2>
Before deducting expenses of the offering estimated at $475,000,
including the Underwriter's non-accountable expense allowance,
all of which are payable by the Company.
<F3>
The Company has granted the Underwriter a 45-day option to
purchase up to 150,000 additional Units at the same terms as set
forth above solely to cover over-allotments, if any. If the
over-allotment option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions and Proceeds to the
Company will be $7,187,500, $718,750 and $6,468,750, respectively.
See "Underwriting."

</TABLE>

The Units are offered by the Underwriter on a "firm
commitment" basis, when, as and if delivered to and accepted by
the Underwriter, and subject to the right of the Underwriter to
reject offers in whole or in part and to certain other
conditions. It is expected that delivery of certificates
representing the Units will be made at the offices of Kenneth
Jerome & Company, Inc., 147 Columbia Turnpike, Florham Park, New
Jersey 07932 on or about July 24, 1996.

KENNETH JEROME & COMPANY, INC.

The date of this Prospectus is July 10, 1996
<PAGE>
PARADIGM

Paradigm Medical Industries, Inc. develops and markets advanced
ophthalmic cataract surgery equipment, consumable accessories and
instruments worldwide. The Paradigm Photon (trademark) laser
cataract system is designed to be easier and safer to use than
present technology for minimally invasive outpatient cataract
surgery.

(Picture) The Paradigm Photon (trademark)
system performs cataract surgery
with solid-state Nd:YAG laser
energy. The system allows same
day, outpatient surgery and
supports medical cost-containment
programs with semi-disposable
accessories.

The Photon System integrates state-of-the-art
computer control with animated color graphics
in a modular platform for precise real-time
surgical control and monitoring.

The patented Paradigm Photon
(trademark) laser probe delivers
laser energy through a thin
fiber optic into the eye while
irrigating and removing the
diseased cataract tissue. The (Picture)
probe is one-third the weight
of conventional cataract probes
and requires no moving parts or
electrical current to be used in
the eye.

PHOTON (trademark) LaserPhaco (trademark) Probe

(Diagram)

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY
OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE
MARKET PRICE OF THE SECURITIES OFFERED HEREBY AT A LEVEL ABOVE
THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER
MARKET AND, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

The Company is currently not a reporting company.
Following the completion of this offering, the Company intends to
furnish to its stockholders annual reports containing audited
financial statements certified by its independent auditors and
such other periodic reports as may be appropriate or as may be
required by law.

The Company has not received regulatory approval from the
United States Food and Drug Administration (the "FDA") to market
the Photon (trademark) LaserPhaco (trademark) system for medical
use in the United States. Before regulatory approval can be
obtained, clinical trials which have begun under an approved FDA
Investigational Device Exemption must be completed.
<PAGE>
PROSPECTUS SUMMARY

The following summary does not purport to be complete and
is qualified in its entirety by more detailed information and
financial statements and the related notes thereto appearing
elsewhere in this Prospectus (the "Prospectus"). Unless
otherwise indicated, all information in this Prospectus assumes
no exercise of (i) the over-allotment option, (ii) the Class A
Warrants, (iii) conversion rights contained in the Company's
Series A and Series B Preferred Stock, (iv) the Underwriter's
Warrants, the Note Holders' or Attorney's Warrants, the La Jolla
Warrants or the FAS Warrants, as those terms are defined herein,
or (v) outstanding options that have been granted under the
Company's 1995 Option Plan. The Units offered hereby involve a
high degree of risk. See "Risk Factors" below.

The Company

The Company is engaged in the development and sale of
ophthalmic surgical systems designed for minimal invasive
cataract treatment. The Company's first commercial product, the
Precisionist (trademark), is an ultrasonic device used for the
treatment of cataractous lenses in the eye through a procedure
called phacoemulsification. This system utilizes a proprietary
"smart pump" software algorithm to control aspiration used to
remove the emulsified cataract in a manner that senses vacuum
build-up in the eye and adjusts the aspiration flow to eliminate
excess pressure in the eye. Further, the system is designed to
be effective, lower in price than competing systems, and less
expensive to operate on a per surgery basis because of its
economical use of reusable component parts.

Although the Company plans to continue marketing and selling
its Precisionist (trademark) system, the Company has developed a
laser cataract surgery system which it believes is superior to
current ultrasound technology and can become the preferred system
for cataract treatment in the future. The Company's solid-state
pulsed Nd:YAG (Neodymium: Yttrium-Aluminum-Garnet) laser system
and patented hand-held fiber optic laser probe are designed to be
more precise for removing cataract tissue from the eye and less
traumatic on surrounding tissues than the ultrasonic method
generally used. There is currently no device on the market that
utilizes lasers for cataract removal. Preclinical studies to
date indicate that the precision and accuracy afforded by the
Company's laser technology allows for significantly less trauma
to adjacent tissue and fewer adverse effects from thermal and
acoustic shock, which should lead to greater efficiency and
shorter patient recovery periods. There is, however, no
assurance that the Company will be able to market this product in
the United States. Before the Company can market the product in
the United States, it must obtain regulatory approval. By the
time regulatory approval is obtained, the technology could be
outdated or competitive products or technologies could be
available.

The Company's laser system provides for the insertion of a
probe directly into the eye and in direct contact with the
cataract, and performs three vital surgical functions
simultaneously: (i) plasmatization (disintegration) of the
opacified (cataractous) lens, (ii) irrigation of the surgical
area and (iii) removal of the plasmatized cataract from the eye
through aspiration (suction). To the Company's knowledge, there
is presently no integrated single laser probe available in 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 also believes that its laser systems could eventually
be applied to other ophthalmic uses, as well as non-ophthalmalic
medical applications.

The Company is currently conducting clinical trials under a
FDA-approved Investigational Device Exemption ("IDE") to test the
safety and efficiency of its first laser-based product, the
Photon (trademark) LaserPhaco (trademark) system, with respect to
cataract removal. Marketing of the laser system by the Company
for medical use in the United States will require prior
completion of clinical trials in the United States and approval
by the United States Food and Drug Administration (the "FDA").
The Company has received FDA approval to manufacture and export
its Photon (trademark) LaserPhaco (trademark) system and
currently has orders for machines from purchasers in 21 different
countries. The Company expects to have systems available for
delivery outside the United States by November 1996. The
aggregate purchase price of these orders exceeds $3,000,000.

The Company's business originated with Paradigm Medical,
Inc., a California corporation ("PMI") formed in October 1989.
In May 1993, PMI entered into a merger agreement with the Company
wherein 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. As part of the merger, the
Company changed its name to Paradigm Medical Industries, Inc. and
PMI's management assumed control of the Company. The Company was
incorporated in California in 1970 and redomesticated to Delaware
in February 1996 as part of a corporate reorganization. The
Company's executive offices are located at 1772 West 2300 South,
Salt Lake City, Utah 84119 and its telephone number is (801) 977-
8970.
<PAGE>
The Offering

Securities Offered to Public . 1,000,000 Units each
consisting of one share
of Common Stock and one
Class A Warrant. See
"Description of
Securities."

Registration of shares issuable
to Series B Preferred Stockholders
upon conversion. . . . . . . . 479,452

Common Stock outstanding prior
to the offering<F1>. . . . . . 2,131,598 shares

Common Stock outstanding
after the offering<F1><F2> . . 3,131,598 shares

Class A Warrants . . . . . . . Each Class A Warrant
entitles the holder to
immediately purchase one
share of Common Stock at
an exercise price of
$7.50 beginning as of
the date of this
Prospectus and expiring
five years from the date
of this Prospectus,
subject in certain
circumstances to earlier
redemption by the
Company. See
"Description of
Securities--Class A
Warrants."

Underwriter's Warrants . . . . Each such Warrant
entitles the holder to
purchase one share of
Common Stock at 130% of
the offering price of
each Unit beginning two
years from the date of
this Prospectus and
expiring five years from
the date of this
Prospectus and one share
of Common Stock at $7.50
per share beginning two
years from the date of
this Prospectus and
expiring five years from
the date of this
Prospectus. The Underwriter's
Warrants are subject in certain
circumstances to earlier redemption
by the Company. See "Description of
Securities -- Underwriter's Warrants"
and "Underwriting."

Note Holders' and
Attorney's Warrants. . . . . . Each such Warrant
entitles the holder to
purchase one share of
Common Stock at an
exercise price of $3.33
per share. The Note
Holders' Warrants are
exercisable beginning on
the date the Warrants
are issued and expire on
December 1, 2000. The
Attorney's Warrants are
exercisable beginning
one year following the
date the Warrants are
issued and expire on
December 1, 2000. The
Note Holders' and
Attorney's Warrants are
subject in certain
circumstances to earlier
redemption by the
Company. See
"Description of
Securities--Note
Holders' and Attorney's
Warrants."

Use of Proceeds . . . . . . . The net proceeds of the
offering will be used
for Photon (trademark)
LaserPhaco (trademark)
manufacturing costs,
sales and marketing,
research and
development, acquisition
of capital equipment,
repayment of debt,
repayment of Bridge
Notes, payment on
rescission offer, and
working capital. See
"Use of Proceeds."

Risk Factors/Dilution. . . . . The offering involves a
high degree of risk and
immediate substantial
dilution. See "Risk
Factors" and "Dilution."

Nasdaq Symbols
Units. . . . . . . . . . . . PMEDU
Common Stock . . . . . . . . PMED
Class A Warrants . . . . . . PMEDW

[FN]
<F1>
Does not include 147,317 shares of Common Stock issuable upon
conversion of 122,764 issued shares of Series A Preferred Stock
convertible immediately; 598,820 shares of Common Stock issuable
upon conversion of 499,017 issued shares of Series B Preferred
Stock convertible immediately; 21,525 shares of Common Stock
issuable upon exercise of the FAS Warrants; 13,920 shares of
Common Stock issuable upon conversion of the 11,600 Series A
Preferred Stock underlying the La Jolla Warrants; 325,000 shares
of Common Stock issuable upon conversion of the Note Holders' and
Attorney's Warrants; and 300,000 shares issuable pursuant to
options granted under the Company's 1995 Option Plan.
<F2>
Does not include 1,000,000 shares of Common Stock issuable upon
the exercise of the Class A Warrants offered hereby, 200,000
shares of Common Stock issuable upon the full exercise of the
Underwriter's Warrants offered hereby, and 150,000 shares of
Common Stock issuable upon full exercise of the over-allotment
option. See "Underwriting."

California Suitability Standards. Investors living in California
must satisfy either one or both of the following suitability
standards: (A) each investor, together with the investor's
spouse, shall have a liquid net worth of not less than $100,000
and a gross annual income of $65,000 or more, and (B) an
Investor, together with the investor's spouse, must have a liquid
net worth of $250,000. The term "liquid net worth" means a net
worth exclusive of home, home furnishings, and automobiles. The
suitability of an investor shall be determined by the underwriter
or participating broker-dealers on the basis of current financial
information on file with the underwriter or participating
broker-dealer with sufficient detail to allow the underwriter or
the broker-dealer to reasonably conclude that the investor meets
these suitability standards. Financial information that is more
than twelve months old shall not be deemed to be current
information. In the absence of current financial information,
the investor shall furnish to the underwriter or broker-dealer a
written statement certifying that the investor satisfies the
suitability standards.
<PAGE>
<TABLE>
<CAPTION>
Summary Financial Information

For the year ended For the six months ended
September 30, March 31,
______________________ ________________________

1994 1995 1995 1996
____ ____ ____ ____
<S> <C> <C> <C> <C>
Statement of
Operations Data:

Sales. . . . . . . . 467,881 $ 507,584 $ 356,913 $ 88,576
Costs of sales . . . 308,446 226,348 158,735 63,634
Operating expenses . 895,518 1,072,111 339,839 511,377
Operating loss. . . . (736,083) (803,875) (141,661) (486,435)
Other income
(expense) . . . . . (15,942) (1,682) 832 (193,023)
Net loss . . . . . . (752,025) (832,557) (140,829) (679,458)
Preferred stock
dividend . . . .. . (51,124) (51,124)
Net loss attributable
to common
shareholders. . . . (752,025) (883,681) (191,953) (679,458)
Net loss per common
share.. . . . . . . (0.32) (0.38) (0.08) (0.29)
Shares used in
computing net loss
per share . . . . 2,329,831 2,352,031 2,352,031 2,352,031
Cash dividends per
share . . . . . . None None None None

<CAPTION>
As of As of As adjusted <F1>
September 30, March 31, as of March 31,
1995 1996 1996
_____________ _________ ________________

<S> <C> <C> <C>
Balance Sheet
Data:

Current assets . . .$ 865,660 $ 781,094 $5,049,177
Current
liabilities. . . . 372,014 953,332 345,566
Working capital. . . 493,646 (172,238) 4,703,611
Total assets . . . . 915,796 1,052,021 5,157,926
Long-term debt,
less current
portion . . .. . . 60,247 50,307 --
Accumulated
deficit. . .. . (2,600,990) (3,280,448) (3,400,783)
Stockholders'
equity . . . . . . 483,535 48,382 4,937,651

<FN>
<F1>
As adjusted to give effect to the net proceeds received from
the sale of 1,000,000 Units offered hereby at a minimum price of
$6.25 per Unit and the initial application of the proceeds
therefrom, as set forth in the Use of Proceeds including
completion of the rescission offer for the Series B Preferred
Stock at a cost of $185,000, repayment of the Bridge Notes at a
loss of $75,731 and repayment of $72,917 of long-term obligations
(including the current portion thereof).
</TABLE>
RISK FACTORS

The securities offered hereby are highly speculative in
nature and involve a high degree of risk. Prospective investors
should carefully consider, along with other information in this
Prospectus, the following considerations and risks in evaluating
an investment in the Company. No investment in the securities
offered hereby should be made by any person who is not in a
position to lose the entire amount of such investment.

Independent Accountants Raise Substantial Doubt about the
Company's Ability to Continue as Going Concern. The opinion
rendered by Coopers & Lybrand L.L.P., the Company's independent
accountants, on the financial statements of the Company states
that the Company incurred a net loss of $832,557 during the year
ended September 30, 1995 and that at the end of the same period
the Company had an accumulated deficit of $2,600,990. These
factors raise substantial doubt about the Company's ability to
continue as a going concern. See "Report of Independent Public
Accountants."

Working Capital Deficiency; Limited Operating History; Accumulated
Deficit; Anticipated Losses. As of March 31, 1996, the Company had a
working capital deficiency of $172,238. The Company also has a limited
operating history, primarily related to sales of the Precisionist, the
Company's phaco machine, and has an accumulated deficit of $2,600,990 as of
September 30, 1995 and $3,280,448 as of March 31, 1996. Such
losses have resulted principally from costs incurred in
connection with research and development and clinical trials of
the Photon (trademark) LaserPhaco (trademark). No sales of
medical products occurred until late 1992. Further, the
Company's ability to achieve profitability will depend, in part,
on its ability to successfully develop clinical applications and
other regulatory approvals for its products, including the Photon
(trademark) LaserPhaco (trademark), and to develop the capacity
to effectively market such products. The likelihood of the
success of the Company must be considered in light of the
problems, expenses, difficulties, complications and delays
frequently encountered in connection with the development of new
products and the competitive environments in the industry in
which the Company will operate. There can be no assurance that
the Company will ever achieve profitability. In addition, there
can be no assurance that the Company will not encounter
substantial delays and unexpected expenses related to research,
development, production, marketing, and regulatory matters or
other unforeseen difficulties.

Future Capital Needs and Uncertainty of Additional Funding.
The Company may require substantial funds in addition to the
proceeds of this offering to continue research and development
relating to the application of its technology to additional
medical products and the application of its existing products to
additional indications, to conduct existing and planned clinical
trials, to complete the FDA approval process for its products,
including the Photon (trademark) LaserPhaco (trademark), and to
manufacture and market its existing products. See "Risk
Factors--Government Regulation; Uncertainty of FDA Approval." In
the short term, based on historic operational and cash flow needs
and on its currently planned programs, the Company anticipates
that the net proceeds of this offering and the interest earned
thereon, together with funds generated from future product sales,
should be adequate to satisfy its capital requirements for
approximately 12 months. This estimate is based upon certain
assumptions and there can be no assurance that the proceeds of
this offering will be sufficient to satisfy the Company's capital
requirements for 12 months. Even if this offering is successful,
the Company will need to seek additional capital, possibly
through public or private sales of its securities, in order to
fund its activities on a long-term basis. Adequate funds,
whether through financial markets or collaborative or other
arrangements with strategic partners or from other sources, may
not be available when needed or on terms acceptable to the
Company. Insufficient funds may require the Company to delay,
scale back or eliminate certain or all of its research and
development programs or to license third parties to commercialize
products or technologies that the Company would otherwise seek to
develop itself, which may materially adversely affect the ability
of the Company to continue to operate.

Technological Uncertainty and Early Stage of Product
Development. The science and technology of laser products is
rapidly evolving. The Company's laser system may require
significant further research, development, testing and regulatory
clearances and is subject to the risks of failure inherent in the
development of products based on innovative technologies. These
risks include the possibility that any or all of the proposed
products are found to be ineffective technologies or unsafe, or
otherwise fail to receive necessary regulatory clearances; that
the proposed products, although effective, are uneconomical to
market; that third parties hold proprietary rights that preclude
the Company from marketing such products; or that third parties
market superior or equivalent products. Accordingly, the Company
is unable to predict whether its research and development
activities will result in any commercially viable products.
Further, due to the extended testing and regulatory review
process required before marketing clearance can be obtained for
its laser systems, the Company cannot predict with certainty when
or if the Company will be able to commercialize its current and
proposed laser system products in the United States. See
"Business."

Government Regulation; Uncertainty of FDA Approval. The
Company is subject to substantial regulation by the FDA and other
federal and state regulatory agencies. FDA regulations require
the Company to obtain either a 510(k) clearance or pre-marketing
approval ("PMA") prior to marketing a product in the United
States. The Company is also subject to foreign regulation and is
dependent on the receipt of various types of approvals from
certain foreign government agencies prior to the sale of products
in those countries. The clearance and approval processes for
both the FDA and foreign regulatory authorities are costly, time
consuming and uncertain. In addition, the Company is required to
obtain FDA approval before exporting a device which has not
received FDA marketing clearance or approval. The Company is
dependent on its ability to obtain these clearances and PMAs and
there can be no assurance when the Company will receive such
clearances or PMAs, if at all, or that the Company will have
sufficient resources to complete the PMA process. See "Risk
Factors--Future Capital Needs and Uncertainty of Additional
Funding." Delays in obtaining such clearances or PMAs would
materially adversely affect the Company while changes in existing
requirements could materially adversely affect the Company. The
Company has received a 510(k) clearance from the FDA for its
Precisionist (trademark) system, thereby allowing the Company to
sell that device in the United States for its intended use as a
cataract surgical system. The Company recently received a 510(k)
clearance from the FDA for its Precisionist (trademark) Thirty
Thousand system to sell that device in the United States for its
intended use as a cataract surgical system. In May 1995, the
Company was granted an investigational device exemption for its
Photon (trademark) LaserPhaco (trademark) System allowing the
Company to conduct clinical studies in support of its application
with the FDA to obtain approval to market the same. The Company
has begun the clinical studies by successfully completing three
of 10 clinical surgeries. The Company has also received FDA
approval to manufacture and export the Photon (trademark)
LaserPhaco (trademark) System internationally. However, the
Company has not yet obtained approval from some foreign countries
to market the laser product where approval is necessary. The
Company anticipates that many contemplated applications of the
Company's currently existing and planned products will be subject
to the lengthy PMA regulatory approval process, preclinical
studies, clinical trials and extensive regulatory review and
could take many years and require the expenditure of substantial
resources. See "Business--Regulation."

Lack of Operating Experience. The executives of the
Company will be relying upon the experience and skill they have
acquired in their professional occupations. None of the
Company's executives has direct experience in managing a company
which incorporates such a high degree of utilization of research
and product development activities and technology. See
"Management."

Dependence on Single Line of Products. The Company is
dependent upon a single product line targeted towards minimally
invasive cataract surgery devices. If its products do not reach
a level of technical performance or market recognition and
acceptance to make them commercially viable, the Company
currently has no other line of products or services upon which to
sustain itself. The Company's first commercial product, the
Precisionist (trademark), was first introduced to the marketplace
in 1992 and substantially all of the Company's revenues are
currently derived from sales of such product. Clinical trials to
obtain domestic sales approval from the FDA for the Photon
(trademark) LaserPhaco (trademark) system have begun, but are not
yet concluded. The Company is highly dependent on FDA approval
of its Photon (trademark) LaserPhaco (trademark) system to
generate revenues in the future. Although expansion of the
Company's product line is desirable, there can be no assurance
that the Company will be successful in such expansion. If the
Company is not successful in the expansion of its product line,
revenues from existing products will continue to be highly
dependent on market acceptance of such products. See
"Business--Products."

Potential Obsolescence from Rapid Technological Change.
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. Accordingly, the Company will be required to
continue to invest in research and development to maintain and
enhance its existing products and develop new products. Despite
such investment, there can be no assurance that the Company's
products or proposed products will be successfully introduced or
that they will not be rendered uncompetitive or obsolete.

Product and Market Competition. The Company's laser system
will potentially receive competition from other laser systems,
such as excimer, holmium (Ho:YAG), Erbium (Er:YAG), Nd:YLF
(Neodymium:Yttium-Lithium-Fluoride) or lasers of other wave
lengths. Competition may also come from other medical devices
and other surgical techniques. Further, the cataract surgical
device industry is dominated by a small number of large
competitors which are well established in the marketplace, have
experienced management, are well financed and have a well
recognized trade name related to their product lines. There is
no assurance that the Company will be able to penetrate the
existing market and acquire a sufficient market share to allow it
to be profitable or that existing competitors will not
aggressively compete by introducing new products substantially
similar to the Company's products and at a price below that at
which the Company can profitably compete. Should this occur, the
Company may not be able to survive for a sufficient time to reach
viability. Significant competitive factors which will affect
future sales in the marketplace include regulatory approvals,
performance, pricing, timely product shipment, safety, customer
support, convenience of use and patient and general market
acceptance. See "Business--Competition."

Dependence Upon Key Personnel. The Company's success
depends, to a significant extent, upon a number of key employees.
The loss of services of one or more of these employees could have
a material adverse effect on the proposed business and operations
of the Company, including the development and sale of ophthalmic
surgical systems. The Company is especially dependent upon the
efforts and abilities of certain of its senior management,
particularly Thomas F. Motter, the Company's President and Chief
Executive Officer, and Robert W. Millar, the Company's Vice
President. Messrs. Motter and Millar are each employed by the
Company under a five-year employment agreement. The loss of any
of the Company's key executives could have a material adverse
effect on the Company and its operations and prospects, although
the loss of either Mr. Motter or Mr. Millar could have a more
significant adverse effect on the Company. The Company has no
key man insurance on either Mr. Motter or Mr. Millar. The
Company believes that its future success will also depend, in
part, upon its ability to attract, retain and motivate qualified
personnel. There is no assurance, however, that the Company will
be successful in attracting and retaining such personnel. See
"Management."

Management Risks. New ventures, particularly those
involved in a highly technical industry such as the medical
industry, have substantial inherent risks. These risks are in
three general areas: technical, mechanical and human.
Notwithstanding any pre-production planning, new products can
incur unexpected problems in full scale production, all of which
cannot always be foreseen or accurately predicted. Designs can
become unworkable, for unpredicted reasons. Quality control and
component sourcing failures can also be expected from time to
time. Any operation, including the one contemplated by the
Company, is substantially dependent upon the capabilities and
performance of both management and sales personnel. Mistakes in
judgment or performance can be costly and, in certain instances,
disabling. Therefore, management skill, experience, character
and reliability are of significant importance.

Production Risks. The high-technology product line
requires the Company to deal with suppliers and subcontractors
supplying highly specialized parts, operating highly
sophisticated and narrow tolerance equipment and performing
highly technical calculations and tasks. Components must be
custom designed and manufactured, which is not only complicated
and expensive, but can also require a number of months to
accomplish. Slight mistakes in either the design or manufacture
can result in unsatisfactory parts that may not be correctable.
Because this operation requires the talents of various
professions, mistakes from very slight oversights or
miscommunications can occur, resulting not only in costly delays
and lost orders, but also in disagreements regarding liability
and, in any event, extended delays in production. Moreover, the
Company relies on related party suppliers for parts and equipment
and there can be no assurance that the terms under which such
business is conducted will be as favorable as could be obtained
from unrelated third-party suppliers. See "Business."

Lack of Independent Market Testing. The Company's belief
that there is substantial commercial demand in the market for its
photon laser surgical system at the proposed price is solely
based on the Company's assessments and experience in the industry
and management's investigation and evaluation of the market. At
this time, there have been no independent marketing studies by
independent professional marketing firms to reliably confirm the
extent of this demand, the price ranges within which it exists
and the amount of promotion necessary to exploit whatever demand
does exist. See "Business."

No Assurance of Market Acceptance. There can be no
assurance that the Company's products will be accepted in the
marketplace. Such acceptance will depend upon a number of
factors including the receipt of regulatory approvals and the
establishment and demonstration in the ophthalmic community of
the clinical safety and efficacy of the Company's products and
their advantages over existing systems and surgical techniques.
There can be no assurance that the Company will be able to
successfully market its products even if they perform
successfully in clinical applications.

Dependence on Patents and the Protection of Important
Proprietary Technology. The Company depends on its ability to
license and obtain patents and on the execution of
confidentiality agreements by employees, consultants and
third-party manufacturers and suppliers to maintain the
proprietary nature of its technology and to operate without
infringing on the proprietary rights of third parties. The
Company's Photon (trademark) LaserPhaco (trademark) system is
protected by a United States patent issued in 1987 to Daniel M.
Eichenbaum, M.D. The Company owns the exclusive worldwide rights
to this patent. Dr. Eichenbaum is also a member of the Company's
Clinical Advisory Board. There can be no assurance that the
Company's present or future products will not be found to
infringe upon the patents of others. If the Company's products
are found to infringe upon the patents, or otherwise
impermissibly utilize the intellectual property of others, the
Company's development, manufacture and sale of such products
could be severely restricted or prohibited. The Company may be
required to obtain licenses from such third parties or otherwise
obtain licenses to utilize patents or proprietary rights of
others. No assurance can be given that any licenses required
under any such patents or proprietary rights could be obtained on
terms acceptable to the Company, or at all. If the Company does
not obtain such licenses, the development, manufacture or sale of
products requiring such licenses would be materially adversely
affected. In addition, the Company could incur substantial costs
in defending itself against challenges to its patents or
infringement claims made by third parties or in enforcing any
patents it may obtain. See "Business--Intellectual Property."

Limited Nature of Patent Protection. It is possible that
products similar to the Company's Photon (trademark) LaserPhaco
(trademark) system will be developed and distributed by one or
more of the Company's competitors before the Company can market
the Photon (trademark) LaserPhaco (trademark) system. As some
security from competition, the Company is relying on the
protection that it hopes to realize under the United States and
foreign patent laws. See "Business--Intellectual Property." Even
though a United States patent has been obtained on the hand-held
probe design and applications for various foreign patents are
either pending or planned, there are inherent limits to the
protection provided by patents. It is possible that similar
devices could be designed that, although not identical and
therefore not infringing upon the patent used by the Company,
could function adequately to be distributed into the same market.
Moreover, it is possible that an unpatented but prior existing
device or design may exist that has never been made public and
therefore is not known to the Company or the industry in general.
Such a device could be introduced into the market without
infringing upon the Company's current patent. If any such
competing non-infringing devices are produced and distributed,
the Company's profit potential would be seriously limited, which
would seriously impair the Company's viability. See
"Business--Competition."

Limitations on Third-Party Reimbursement. The Company
anticipates that its laser systems will generally be purchased by
ophthalmologists and hospitals which will then bill various
third-party payors, such as government programs and private
insurance plans, for the health care services provided to their
patients. Government agencies generally reimburse at a fixed
rate based on the procedure performed. Some of the potential
procedures for which the Company's laser systems may be used,
however, may be determined to be elective in nature for which
third-party reimbursement is not likely to be available. In
addition, third-party payors may deny reimbursement if they
determine that the use of the Company's products was unnecessary,
inappropriate, not cost-effective, experimental or used for a
non-approved indication. Even if the Company receives FDA
clearances or PMAs for its products, third-party payors may
nevertheless deny reimbursement. Furthermore, third-party payors
are increasingly challenging the prices charged for medical
products and services. There can be no assurance that
reimbursement from third-party payors will be available or if
available, that reimbursement will not be limited when compared
with reimbursement available in connection with competitive
procedures, thereby materially adversely affecting the Company's
ability to sell its products on a profitable basis. The market
for the Company's products could also be adversely affected by
recent federal legislation that reduces reimbursements under the
capital cost pass-through system utilized in connection with the
Medicare program. Failure by hospitals and other users of the
Company's products to obtain reimbursement from third-party
payors or changes in government and private third-party payors'
policies toward reimbursement for procedures employing the
Company's products would have a material adverse effect on the
Company. See "Risk Factors--Proposed Health Care Reform," and
"Business--Marketing and Sales--Third-Party Reimbursement."

Proposed Health Care Reform. The Clinton Administration is
making proposals to change aspects of the delivery and financing
of health care services. Other legislation to accomplish the
same purpose has or will also be introduced by members of
Congress. It is possible that legislation derived from one or
more of these proposals will be enacted in the near future.
Considerations include means to control or reduce public
(Medicare and Medicaid) and private spending on health care, to
reform the methods of payment for health care goods and services
by both the public and private sectors, and to provide universal
access to health care. The Company cannot predict what form this
legislation may take or the effect of such legislation on its
business. It is possible that the legislation ultimately enacted
by Congress will contain provisions resulting in price limits and
utilization controls which may reduce the rate of increase in the
growth of the ophthalmic laser market or otherwise adversely
affect the Company's business. It is also possible that future
legislation could result in modifications to the nation's public
and private health care insurance systems which will affect
reimbursement policies in a manner adverse to the Company. The
Company also cannot predict what other legislation relating to
its business or the health care industry may be enacted,
including legislation relating to third-party reimbursement, or
what effect legislation may have on the results of its
operations.

Dependence on Outside Suppliers and Manufacturers. The
Company currently purchases all of its components, supplies and
contract manufacturing from third-party suppliers. Substantially
all of the Company's current products are manufactured or
assembled by two companies under long-term manufacturing
agreements, one of which expired on June 1, 1996. The Company is
presently negotiating to renew the expired agreement, but there
is no guarantee that the agreement will be renewed or that it
will be renewed on as favorable of terms. The two companies with
whom the Company contracts for manufacturing are related parties,
in that one is a shareholder in the Company and the other's chief
executive officer is on the Company's Board of Directors. See
"Business--Marketing and Sales--Manufacturing and Raw Materials."
However, if the Company were required to locate other
manufacturers or suppliers, it could experience increased costs
and significant delays in both locating and switching to new
vendors. Further, it would be difficult for the Company to
develop the capacity to manufacture or assemble its products
in-house since the Company has no experience in the large-scale
manufacturing. In addition, there is no assurance that the
Company would be successful in developing the necessary
facilities or recruiting trained personnel to achieve profitable
manufacturing or assembling capacities.

Minimal Marketing Experience. The Company has commenced a
direct sales program to market its current and proposed products.
See "Business--Marketing and Sales." However, the Company has
minimal direct sales experience and may need to recruit
additional qualified personnel for this purpose. There can be no
assurance that the Company's direct sales program will be
successful or that it will be able to attract and retain
qualified distributors on favorable terms.

Product Liability and Possible Insufficiency of Insurance.
The nature of the Company's business exposes it to risk from
product liability claims and there can be no assurance that the
Company can avoid significant product liability exposure. The
Company maintains product liability insurance providing coverage
up to $1.0 million per claim with an aggregate policy limit of
$1.0 million. There is substantial doubt that this amount of
insurance would be adequate to cover liabilities should the
Company face significant claims. Further, product liability
insurance is becoming increasingly expensive, and there can be
no assurance that the Company will be successful in maintaining
adequate product liability insurance at acceptable rates, or at
all. Should the Company be unable to maintain adequate product
liability insurance, the Company's ability to market its products
would be significantly impaired. Any losses that the Company may
suffer from future liability claims or a voluntary or involuntary
recall of the Company's products and the damage that any product
liability litigation or voluntary or involuntary recall may do to
the reputation and marketability of the Company's products would
have a material adverse effect on the Company.

World Economic, Political and Currency Fluctuations. The
Company anticipates that a significant portion of its future
product sales will be made in foreign countries. Because the
Company quotes prices of its products and accepts payment on
sales principally in U.S. dollars, any significant increase in
the value of the U.S. dollar against local currencies may make
the Company's products less competitive with foreign products.
The economic and political instability of some foreign countries
also may affect the ability of ophthalmologists and others to
purchase the Company's products, or the ability of potential
customers to pay for the procedures for which the Company's
products are used. See "Business--Competition."

Subjective Determination of Offering Price. There is no
current market for either the Units or the Class A Warrants and
no active market for the Common Stock. The offering price of the
Units was determined in negotiations between the Company and the
Underwriter and may not be indicative of the market price for the
Common Stock or the Class A Warrants after the offering. The
determination of the offering price is subjective in nature and
is based on a number of factors that cannot be quantified. Among
the factors considered in determining the offering price were the
Company's current financial condition, its future prospects, the
experience of its management, the economics of the Company's
industry in general, the general condition of the equity
securities market and the demand for similar securities of
companies considered comparable to the Company and other relevant
factors. See "Underwriting."

Potential Adverse Effects of Future Sales of Shares.
Upon the closing of this offering, 1,647,026 of the total
2,131,598 shares of Common Stock outstanding prior to this
offering will be "restricted securities" within the meaning of
Rule 144 under the Securities Act. Ordinarily, under Rule 144, a
person holding restricted securities for a period of two years
may, every three months, sell in ordinary transactions, or in
transactions directly with a market maker an amount equal to the
greater of one percent of the Company's then outstanding Common
Stock or the average weekly trading volume during the four
calendar weeks prior to such sale. An additional 746,137 shares
could eventually be sold in reliance on Rule 144 upon the
conversion of the Company's issued and outstanding Series A and
Series B Preferred Stock for shares of Common Stock. An
additional 35,445 shares could also be sold in reliance upon Rule
144 upon the exercise of the La Jolla Warrants and FAS Warrants
and an additional 325,000 shares could also eventually be sold in
reliance on Rule 144 upon the exercise of the Note Holders' and
Attorney's Warrants. Further, 479,452 shares of Common Stock are
being registered in this Offering for Series B Preferred
Shareholders who elect to exercise their conversion rights,
subject to lockup agreements which restrict the sale of such
shares for a period of 180 days following the effective date of
this offering. Sales of such shares and sales of shares
purchased by holders of Options or Warrants would increase the
number of shares in the public float and have an adverse effect
on the market price of the Common Stock. See "Shares Eligible
for Future Sale--Rule 144 Restrictions."

Dilution. Purchasers of Units in the offering will
experience immediate dilution of $4.67 per Unit (based on the
difference between the offering price of $6.25 per Unit and the
net tangible book value of $1.58 per share of Common Stock
immediately after the offering), or 75% of the value of their
investment. The shares of Common Stock sold by the Company in
the offering represent 32% of the total shares of Common Stock
outstanding following the offering and the cash contribution of
$6,250,000 represents 84% of the total consideration paid to the
Company. Immediately after the offering, the current shareholder
would receive an increase in net tangible book value per share of
$2.63. See "Dilution." The exercise of Warrants could also
further dilute the interest of investors acquiring Units in the
offering.

Current Investors Will Bear Disproportionate Risk of Loss.
The present shareholders of the Company acquired their respective
equity interests at costs substantially below the offering price.
Accordingly, to the extent that the Company incurs losses, the
public investors will bear a disproportionate risk of such losses.

Non-Registration in Certain Jurisdictions of Shares
Underlying Warrants. The Class A Warrants issued in this
offering are not exercisable unless, at the time of exercise, the
Company has a current prospectus covering the shares of Common
Stock issuable upon exercise of the Class A Warrants, and such
shares of Common Stock have been registered, qualified or deemed
to be exempt from the requirements of the securities laws of the
state of residence of the exercising holder of the Class A
Warrants. In addition, in the event any holder of the Class A
Warrants attempts to exercise any Warrants at any time after nine
months from the date of the Prospectus, the Company will be
required to file a post-effective amendment and deliver a current
prospectus before the Class A Warrants may be exercised. There
is and can be no assurance that the Company will be able to
maintain a current prospectus relating to the exercise of Class
A Warrants until the expiration of the Class A Warrants. The
Class A Warrants, which are part of the Units offered hereby,
will be detachable from the Units immediately upon the effective
date of this Registration Statement related to this offering, and
thereafter will become separately transferable. Further,
purchasers may buy Units in the after-market in jurisdictions, or
may move to jurisdictions, in which the shares of Common Stock
underlying the Class A Warrants are not registered or qualified
during the period that the Class A Warrants are exercisable. In
that event, the Company would be unable to issue shares of Common
Stock to those persons or entities desiring to exercise their
Warrants unless and until the Common Stock and the Class A
Warrants could be qualified for sale in jurisdictions in which
such purchasers reside, or an exemption from such qualification
exists. In addition, such Warrant holders would have no choice
but to attempt to sell their Warrants in a jurisdiction where
such sale is permissible or allow them to expire unexercised.
See "Description of Securities."

No Prior Active Public Market. There is currently no
market for the Company's Units and Class A Warrants. There has
never been an active public trading of the Company's Common Stock
even though the Company (as Woodlike Industries, Inc.) conducted
a public offering in 1972. Further, there can be no assurance
that an active public trading market for any of the securities
will be developed or sustained. Accordingly, purchasers of the
Units may experience substantial difficulty selling such
securities.

Possible Volatility of Stock Price. Factors such as
announcements by the Company of the regulatory status of
products, quarterly variations in its financial results, the gain
or loss of material contracts, changes in management, regulatory
changes, trends in the industry or stock market and announcements
by competitors, among other things, could cause the market price
of the Common Stock and/or the Class A Warrants to fluctuate
significantly.

Possible Dilution Effect of Warrants. Upon completion of
the offering, the Company will grant the Underwriter, for nominal
consideration, warrants to purchase up to 100,000 shares of
Common Stock at 130% of the offering price of each Unit and up to
100,000 shares of Common Stock at $7.50 per share. The issuance
of the Underwriter's Warrants and the underlying securities may
be considered to be additional compensation to the Underwriter.
See "Underwriting." The existence of the Class A Warrants
offered hereby, the Underwriter's Warrants, the Note Holders' and
Attorney's Warrants, and other outstanding options and warrants
to acquire shares of Common Stock could adversely affect the
Company's ability to obtain future financing, and their exercise
could further dilute the interest of investors acquiring Units in
the offering. The price which the Company may receive for the
Common Stock issued upon exercise of such warrants will probably
be less than the market price of the Common Stock at the time
such warrants are exercised. The holders of the warrants might
be expected to exercise them at a time when the Company would, in
all likelihood, be able to obtain needed capital by a new
offering of its securities on terms more favorable than those
provided for by the warrants.

Possible Adverse Effect of Redemption of Warrants. The
Class A Warrants are subject to redemption one year from the
date of this Prospectus by the Company at $.05 per Warrant on at
least 30 days' prior written notice if the closing bid price of
the Common Stock shall have averaged in excess of $8.50 per share
on the Nasdaq SmallCap Market for the 30 consecutive business
days ending within 15 days of the date on which notice of
redemption is given. If the Class A Warrants are redeemed,
Warrant holders will lose their right to exercise the Class A
Warrants except during such 30 day redemption period. Redemption
of the Class A Warrants could force the holders to exercise the
Class A Warrants at a time when it may be disadvantageous for the
holders to do so, to sell the Class A Warrants at the then market
value of the Class A Warrants price when they might otherwise
wish to hold the Class A Warrants, or to accept the redemption
price, which is likely to be substantially less than the market
value of the Class A Warrants at the time of redemption. See
"Description of Securities--Redeemable Warrants."

Possible Delisting of Securities from the Nasdaq Stock
Market and Possible Market Illiquidity. The Company's failure to
meet the maintenance criteria of The Nasdaq Stock Market, Inc.
("Nasdaq") in the future for any reason may result in the
discontinuance of the inclusion of the Company's securities on
Nasdaq. In order to remain quoted on Nasdaq, a company must
maintain $2,000,000 in assets, a $200,000 market value of the
public float and $1,000,000 in total capital and surplus. In
addition, continued inclusion requires two market-makers and a
minimum bid price of $1.00 per share; provided, however, that if
a company falls below such minimum bid price, it will remain
eligible for inclusion on Nasdaq if the market value of the
public float is at least $1,000,000 and the company has
$2,000,000 in capital and surplus. In such event, trading, if
any, in the Company's securities may then continue to be
conducted on the OTC Electronic Bulletin Board or in the
over-the-counter market in the so-called "pink sheets." As a
result, an investor may find it more difficult to dispose of, or
to obtain accurate quotations as to the market value of the
Company's securities, and the prices for the Company's securities
may be lower than might otherwise be obtained.

Disclosures Relating to Low Priced Stocks; Possible
Restrictions on Resales of Low Priced Stocks and on Broker-Dealer
Sales; Possible Adverse Effect of "Penny Stock" Rules on
Liquidity for the Company's Securities. If the Company's
securities were to be delisted from Nasdaq (see "Possible
Delisting of Securities from the Nasdaq Stock Market and Possible
Market Illiquidity," above), they may become subject to Rule
15g-9 (the "Rule") promulgated under the Exchange Act of 1934
("Exchange Act"), which imposes additional sales practice
requirements on broker-dealers that sell securities governed by
the Rule to persons other than established customers and
"accredited investors" (generally, individuals with a net worth
in excess of $1,000,000 or annual individual income exceeding
$200,000 or $300,000 jointly with their spouses). For
transactions covered by the Rule, the broker-dealer must make a
special suitability determination for the purchaser and have
received the purchaser's written consent to the transaction prior
to sale. Consequently, the Rule may have an adverse effect on
the ability of broker-dealers to sell the Company's securities
and may affect the ability of purchasers in the offering to sell
the Company's securities in the secondary market and otherwise
affect the trading market in the Company's securities.

The Commission has adopted regulations which generally
define a "penny stock" to be any non-Nasdaq equity security that
has a market price (as therein defined) less than $5.00 per share
or with an exercise price of less than $5.00 per share, subject
to certain exceptions. For any transactions by broker-dealers
involving a penny stock (unless exempt), the rules require
delivery, prior to a transaction in a penny stock, of a risk
disclosure document relating to the penny stock market.
Disclosure is also required to be made about compensation payable
to both the broker-dealer and the registered representative and
current quotations for the securities. Finally, monthly
statements are required to be sent disclosing recent price
information for the penny stocks.

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

Adverse Effects of Board of Director Control of Preferred
Stock. The Company's Certificate of Incorporation authorizes
the issuance of shares of "blank check" preferred stock, which
will have such designations, rights and preferences as may be
determined from time to time by the Board of Directors.
Accordingly, the Board of Directors is empowered, without
shareholder approval (but subject to applicable government
regulatory restrictions), to issue preferred stock with dividend,
liquidation, conversion, voting or other rights which could
adversely affect the voting power or other rights of the holders
of the Company's Common Stock. In the event of such issuance,
the preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or
preventing a change in control of the Company. The Company
currently has 122,764 shares of Series A Preferred and 499,017
shares of Series B Preferred issued, which are immediately
convertible, in the aggregate, into 746,137 shares of the
Company's Common Stock. See "Description of
Securities--Preferred Stock."

No Dividends. The Company issued a stock dividend on its
Series A and Series B Preferred Stock on January 8, 1996, to
shareholders of record as of December 31, 1994. The Company has
not paid any cash dividends on its Common Stock and does not
expect to declare or pay any cash or other dividends in the
foreseeable future. The Company's Preferred Stock shareholders
are entitled to non-cumulative cash dividends paid out of surplus
earnings. See "Dividend Policy" and "Description of
Securities--Preferred Stock."

Board Discretion as to Use of Proceeds. Of the net
proceeds of the offering, $1,678,000 or 32.6% of the net
offering, has been allocated to working capital (and not
otherwise allocated for a specific purpose) and will be used for
such purposes as management may determine in its sole discretion
without the need for stockholder approval with respect to any
such allocations. The remainder of the estimated net proceeds of
the offering, $3,472,000 or 67.4% of the net offering, is
intended to be used as set forth in the "Use of Proceeds" section
below, but may be reallocated to other uses as the Board of
Directors may determine in its sole discretion without the need
for stockholder approval. See "Use of Proceeds."

Rescission Offer to Series B Shareholders. The 493,000
shares of Series B Preferred Stock issued to the Company's Series
B Shareholders (the "Series B Shareholders") may not have been
sold in compliance with certain aspects of California corporate
law and federal and state securities laws. Concurrently with
this public offering, the Company is and has provided the Series
B Shareholders with a rescission offer (the "Rescission Offer")
to repurchase all Series B Preferred shares (the "Rescission
Shares") owned by the Series B Shareholders. There are 493,000
Rescission Shares outstanding. The Series B Shareholders were
offered the right to rescind their purchases and receive a refund
of the price paid by them of $4.00 per share plus an amount equal
to the interest thereon at rates ranging from 6% to 10% per annum
from the date the Rescission Shares were purchased to the date
the rescinding shareholder is paid by the Company. Each
Rescission Offer remains open for a period of 30 days from the
time the Rescission Offer is made. As of June 10, 1996,
Rescission Offers had been mailed to all the original purchasers
of the outstanding Series B Shares. The original purchasers of
approximately 91% of the Series B Shares (451,500 shares) have
rejected the Rescission Offer by responding as requested in the
Rescission Offer or by failing to return a response within thirty
days of receiving the Rescission Offer. Two shareholders owning
a combined total of 32,750 shares have accepted the Rescission
Offer. If all remaining Series B Shareholders accept the
Rescission Offer, the Rescission Offer would result in an
aggregate payment of $166,000, plus accrued interest. The
Rescission Offer is designed to reduce any type of contingent
liability the Company may be subject to in connection with its
private placement of Series B Preferred Stock. The Rescission
Offer, however, may not fully relieve the Company from exposure
to contingent liability under federal or state securities laws.
Not every state statutorily provides for voluntary rescission
offers. In addition, other states, although authorizing
rescission offers, do not completely limit the liability of the
offeror. Thus, the Company may have continuing liability in
certain states following the Rescission Offer. Regardless of the
foregoing, the Company has obtained approval of the Rescission
Offer from the states of Indiana, Pennsylvania, Tennessee and
Washington, all of which require prior approval of rescission
offers. Further, an exemption from registration has been granted
by the state of Oklahoma.

Finally, it is possible that the Company might have to
refund $166,000 plus interest if the Series B Shareholders who
have not yet responded to the Rescission Offer accept the offer.
The Company is planning on using approximately $144,000 (includes
interest of $13,000) obtained from the public offering to refund
the money invested by the two Series B Shareholders who have
accepted the Rescission Offer. If other Series B Shareholders
accept the Rescission Offer, the Company anticipates that it will
use additional proceeds obtained from the public offering to
refund the money invested by those shareholders even though the
use of the proceeds will reduce the funds available to the
Company. See "Use of Proceeds" and "Description of Securities --
Rescission Offer to Series B Shareholders."

Limitation of Liability and Indemnification Matters. The
Company's Certificate of Incorporation eliminates in certain
circumstances the liability of directors of the Company for
monetary damages for breach of their fiduciary duty as directors.
The Company will enter into indemnification agreements
("Indemnification Agreement(s)") with each of its directors and
officers. Each such Indemnification Agreement will provide that
the Company will indemnify the indemnitee against expenses,
including reasonable attorneys' fees, judgments, penalties, fines
and amounts paid in settlement actually and reasonably incurred
by him in connection with any civil or criminal action or
administrative proceeding arising out of his performance of his
duties as a director or officer, other than an action instituted
by the director or officer. The Indemnification Agreements will
also require that the Company indemnify the Director or other
party thereto in all cases to the fullest extent permitted by
applicable law. Each Indemnification Agreement will permit the
director or officer that is party thereto to bring suit to seek
recovery of amounts due under the Indemnification Agreement and
to recover the expenses of such a suit if he or she is
successful. See "Management--Limitation of Liability and
Indemnification Matters."

Dilutionary Possibilities. The Board of Directors has the
inherent right under applicable Delaware law, for whatever value
the Board deems adequate, to the limit of shares authorized by
the Certificate of Incorporation, to issue additional shares of
Common Stock and, upon such issuance, all holders of shares of
Common Stock, regardless of when it is issued, thereafter
generally rank equally in all aspects of that class of stock,
regardless of when issued. The Board of Directors likewise has
the inherent right, limited only by applicable Delaware law and
provisions of the Certificate of Incorporation to increase the
number of shares of Preferred Stock in a series, to create a new
series of Preferred Stock and to establish preferences and all
other terms and conditions in regard to such newly-created
series. Those terms and conditions may include preferences on an
equal or prior rank to existing series of Preferred Stock. Those
shares may be issued on such terms and for such consideration as
the Board then deems reasonable and such stock shall then rank
equally in all aspects of the series and on the preferences and
conditions so provided, regardless of when issued. Any of those
actions cannot only dilute the holders of Common Stock but affect
the relative position of the holders of any series of any class.
Current shareholders have no rights to prohibit such issuances
nor inherent "preemptive" rights to purchase any such stock when
offered. See "Terms of the Offering."

<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of the
1,000,000 Units being offered hereby at a minimum public offering
price of $6.25 per Unit are estimated to be $5,150,000, assuming
no exercise of the Underwriter's over-allotment option and no
exercise of the Class A Warrants, and after deducting estimated
offering expenses and the estimated underwriting discounts and
commissions, which are estimated to be approximately $1,200,000.
The net proceeds are intended to be used over the next 12 months
as follows:

Application of Proceeds Amount Percentage
______________________ ______ __________
<S> <C> <C>
Photon (trademark) Laser
Phaco (trademark)
Manufacturing Costs<F1> . . $1,150,000 22.3%
Sales and Marketing<F2> . . . . . 550,000 10.7
Research and Development<F3>. . . 600,000 11.7
Acquisition of Capital
Equipment<F4> . . . . . . . . . 290,000 5.6
Repayment of Debt<F5> . . . . . . 73,000 1.4
Repayment of Bridge Notes<F6> . . 624,000 12.1
Payment on Rescission Offer<F7> . 185,000 3.6
Working Capital<F8> . . . . . . . 1,678,000 32.6
----------- -----
Total . . . . . . . . . . . $5,150,000 100.0%
=========== ======
<FN>
<F1>
Represents funds necessary for the manufacture and exportation of
the laser system to international customers.
<F2>
Represents funds required for the implementation of the Company's
direct sales force, attendance at trade shows and production of
promotional materials.
<F3>
Includes estimated costs associated with the development and
manufacture of Photon (trademark) LaserPhaco (trademark) systems
for use in clinical trials. Also includes additional expenses
associated with conducting and evaluating the clinical trials and
seeking government approvals for commercialization of the Photon
(trademark) LaserPhaco (trademark) system, and developing new
products and patents.
<F4>
Represents funds required to expand testing facilities and
purchase office furniture and equipment.
<F5>
These funds will be used to eliminate the Company's obligations
on two promissory notes payable to the Utah Technology Finance
Corporation and one note payable to a bank.
<F6>
These funds represent the stated principal amount of the Bridge
Notes issued to accredited investors in the Bridge Financing
completed by the Company as of February 21, 1996, together with
accrued interest through June 30, 1996. The Bridge Notes bear
interest at a stated rate of 12% per annum and an imputed rate of
18%. The proceeds are being used for expenses incurred in
connection with the offering, working capital purposes, including
general and administrative expenses and expenses incurred with
the production and shipment of laser systems to international
customers.
<F7>
The Company is and has provided a Rescission Offer prior to
the effective date of the offering to the holders of Series B
Preferred Stock to refund proceeds the Company raised in a
private offering. The holders of approximately 91% of the Series
B Shares have rejected the Rescission Offer. Two shareholders
who purchased a combined total of 32,750 shares have accepted the
Rescission Offer. The Company is planning on using approximately
$144,000 (includes interest of $13,000) obtained from the public
offering to refund the $4.00 per share price paid by the two Series
B Shareholders who have accepted the Rescission Offer to date. If all
remaining holders of Series B Preferred Stock who have not yet rejected
the Rescission Offer accept the offer, which event may not occur, the
Company will have to refund an additional $35,000 plus accrued interest
(which is estimated at $6,000) to such shareholders. To the extent that
such shareholders do not exercise their rights pursuant to the Rescission
Offer, the funds will be used for working capital. See "Description of
Securities--Rescission Offer to Series B Shareholders."
<F8>
Working capital will be available for use as a reserve for
contingencies. In the event cash generated from operations is
insufficient to fund corporate overhead, working capital may be
used to cover such deficiency. The funds to be used for working
capital may increase to the extent that the holders of Series B
Preferred Stock do not exercise their rights pursuant to the
rescission offer.

</TABLE>

The allocation of the net proceeds set forth above
represents the Company's estimates based upon its current
operating plans and upon certain assumptions regarding the
progress of the development of its products, technological
advances and changing competitive conditions, and assumptions
regarding industry and general economic conditions and other
conditions. Future events, including problems, delays, expenses
and complications frequently encountered by companies developing
new products, as well as changes in competitive conditions and
the success or lack thereof of the Company's research and
development or marketing efforts, may make it necessary or
advisable for the Company to reallocate the net proceeds among
the above users or use portions of the net proceeds for other
purposes. Any reallocation of the net proceeds other than as
provided above, will be at the discretion of the Board of
Directors of the Company. The Company estimates that the net
proceeds will be sufficient to fund the Company's proposed
business and operations for a period of 12 months from the
closing of the offering. If the Company's estimates prove
incorrect, the Company will have to seek alternative sources of
financing during such period, including debt and equity financing
and the reduction of operating cost and projected growth plans.
No assurance can be given that such financing could be obtained
by the Company on favorable terms, if at all, and if the Company
is unable to obtain needed financing, the Company's business
would be materially adversely affected. The timing and amount of
expenditures of the net proceeds of this offering may vary
depending upon the pace of the Company's growth.

Pending application, the net proceeds of the offering will
be invested in short-term, high-grade interest-bearing savings
accounts, certificates of deposit, United States government
obligations, money market accounts or short-term interest bearing
obligations. Any proceeds received upon exercise of the Class A
Warrants, the Underwriter's Warrants, the Note Holders' and
Attorney's Warrants, the La Jolla Warrants or the FAS Warrants,
as well as income from investments, will be used for general
corporate purposes.

DIVIDEND POLICY

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 and Series B
Preferred 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 and Series B 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. See "Description of Securities--Preferred Stock."

<PAGE>
DILUTION

The difference between the public offering price per share
of the Common Stock and the net tangible book value per share of
the Common Stock after this offering constitutes the dilution to
investors in this offering. Net tangible book value per share is
determined by dividing the net tangible book value (total assets
less intangible assets and total liabilities, including the
liquidation preference on the Series A and Series B Preferred
Stock) by the number of outstanding shares of Common Stock. Net
tangible book value is calculated and presented below on a
historical basis and on a pro forma basis.

As of March 31, 1996, the Company had a net tangible book
value of ($2,232,628) or ($1.05) per share of issued and
outstanding Common Stock. After giving effect to the sale of
1,000,000 Units offered hereby at $6.25 per Unit (less
underwriting discounts of $625,000 and estimated expenses of
$475,000 of this offering), the net tangible book value at that
date would be $4,937,651 or $1.58 per share. This represents an
immediate increase in net tangible book value of $2.63 per share
to existing stockholders and an immediate dilution of $4.67 per
share to new investors.

The following table illustrates such per share dilution.
<S> <C> <C>
Initial public offering price (per Unit). . $6.25
Net tangible book value per common share
at March 31, 1996 . . . . . . . . . . . ($1.05)
Increase in net tangible book value per
common share attributable to the proceeds
of this offering<F1>. . . . . . . . . . $2.63
Net tangible book value per common share
after this offering<F1> . . . . . . . . . $1.58
Dilution to new investors . . . . . . . . $4.67
</TABLE>

The following table sets forth on a pro forma basis, as of
March 31, 1996, a comparison of the share holdings of new
investors in the Company pursuant to the offering and the current
shareholders of the Company, with respect to the total number of
issued and outstanding shares of Common Stock, the total
consideration, including services received by the Company and the
respective average purchase price per share.
<TABLE>
<CAPTION>
Number of Shares Purchased Total Consideration Average Price
Shares Percent Amount Percent Per Share
__________ ___________ _______ _______ _________

<S> <C> <C> <C> <C> <C>
Existing
stockholders 2,131,598 68% $1,172,167 15.8% $ .55

New investors 1,000,000 32% $6,250,000 84.2% $6.25<F1>
_________ ____ __________ _____ _____

Total 3,131,598 100% $7,422,167 100.0%
========= ==== ========== =====

<FN>
<F1>
Assumes $5,150,000 of net proceeds from the sale of 1,000,000 Units.
Excludes Underwriter's over-allotment option and proceeds from the
exercise of the Class A Warrants issued in this offering.

</TABLE>

The foregoing assumes no exercise of the Class A Warrants
included in the Units to purchase 1,150,000 shares of Common
Stock, no full exercise of the Underwriter's Warrants to purchase
200,000 shares of Common Stock, no exercise of the Note Holders'
and Attorney's Warrants to purchase 325,000 shares of Common
Stock, no exercise of FAS Warrants to purchase 21,525 shares of
Common Stock, no issuance of the 13,920 shares of Common Stock
issuable upon conversion of the 11,600 Series A Preferred Stock
underlying the La Jolla Warrants, no issuances of any of the
746,137 shares of Common Stock issuable upon conversion of
122,764 Series A Preferred Stock and 499,017 Series B Preferred
Stock, and no issuance of stock options to purchase 300,000
shares of Common Stock pursuant to the Company's 1995 Option
Plan.
<PAGE>
<TABLE>
<CAPTION>
CAPITALIZATION

The following table sets forth the capitalization of the Company
(i) at March 31, 1996, and (ii) as adjusted to give effect to the sale
of 1,000,000 Units offered hereby at a minimum price of $6.25 per Unit
and the initial application of the proceeds therefrom as set forth in
the Use of Proceeds, including completing the Rescission Offer for the
Series B Preferred Stock at a cost of $185,000, repayment of the Bridge
Notes at a loss of $75,731, and repayment of $72,917 of long-term
obligations (including the current portion thereof):

March 31, 1996
--------------
Actual As Adjusted<F1>
------ --------------
<S> <C> <C>
Long-term obligations<F2> . . . . . . $ 642,917 $ --
---------- ---------

Stockholders' Equity:

Series A Preferred Stock, $.001 par value
per share; 500,000 shares authorized,
122,764 issued and outstanding 123 123

Series B Preferred Stock, $.001 par value
per share; 500,000 shares authorized,
499,017 issued and outstanding (412,775
issued and outstanding, as adjusted) 499 456

Additional paid-in-capital, preferred stock 2,107,302 1,966,949

Common Stock, $.001 par value per share;
20,000,000 shares authorized, 2,131,598
issued and outstanding (3,131,598 issued
and outstanding, as adjusted) 2,132 3,132

Additional paid-in-capital, common stock 1,346,860 6,495,860

Treasury Stock, 2,600 shares of common stock (3,777) (3,777)

Accumulated deficit . . . . . . . . (3,280,448) (3,400,783)

Unearned compensation . . . . . . . (124,309) (124,309)
----------- ----------
Total stockholders' equity . . . . . 48,382 4,943,651
---------- ----------
Total Capitalization . . . . . . . . $ 691,299 $4,937,651
========== ==========
<FN>
<F1>
Adjusted to give effect to the net proceeds received from the
sale of 1,000,000 Units offered hereby at a minimum price of
$6.25 per Unit and the application of proceeds therefrom as set
forth in the Use of Proceeds.
<F2>
Includes current portion of long-term debt. Long-term debt
includes $570,000 of Bridge Notes.
<F3>
Does not include (i) 150,000 shares of Common Stock included in
the Units that may be sold to the over-allotment option or the
150,000 shares issuable upon the exercise of the Class A Warrants
included in or underlying such Units; (ii) 1,000,000 shares of
Common Stock reserved for issuance upon exercise of the Class A
Warrants; (iii) 200,000 shares of Common Stock issuable upon the
full exercise of the Underwriter's Warrants; (iv) 21,525 shares
issuable upon exercise of the FAS Warrants; (v) 13,920 shares of
Common Stock issuable upon conversion of the 11,600 Series A
Preferred Stock underlying the La Jolla Warrants; (vi) 325,000
shares of Common Stock issuable upon conversion of the Note
Holders' and Attorney's Warrants; (vii) 746,137 shares of Common
Stock issuable upon the conversion of the 122,764 shares of
outstanding Series A Preferred Stock and 499,017 shares of
outstanding Series B Preferred Stock; and (viii) shares of Common
Stock issuable upon the exercise of 300,000 options granted under
the Company's 1995 Option Plan.

</TABLE>
<PAGE>
Bridge Financing

During the period beginning on December 26, 1995 and ending
on February 21, 1996, the Company issued 24 Units at a price of
$25,000 per Unit primarily to finance this public offering
(including one Unit which was issued for services). Each Unit
consisted of a $25,000 Promissory Note with a stated interest
rate of 12% and Warrants to purchase 12,500 shares of Company's
Common Stock. Each Note bears interest at an imputed interest
rate of 18% per annum and is payable on the earlier of the
closing of the Company raising at least $4,000,000 through a
public offering or December 31, 1996, at the $25,000 face amount
of the Notes plus accrued interest at the rate of 12% per annum.
Each Warrant is exercisable, beginning on the date the Warrant is
issued and expiring on December 1, 2000, by the holder thereof to
purchase one share of the Company's Common Stock at an exercise
price of $3.33 per share. The Company may redeem the Warrants
one year after completion of the offering at a price of $.05 per
Warrant at such time as the Company's Common Stock has been
trading in the Nasdaq SmallCap Market or an established exchange
at a price equal to or above $10.00 for a period of 30
consecutive trading days ending within 15 days of the date of
redemption. See "Description of Securities."
<TABLE>

SELECTED FINANCIAL DATA

The following table sets forth the Company's selected historical
financial data as of the dates and for the periods indicated. The
selected financial data for the years ended September 30, 1994 and
September 30, 1995 were derived from the financial statements of the
Company which have been audited by Coopers & Lybrand, L.L.P. The data
for the six months ended March 31, 1995 and 1996, have been derived
from unaudited financial statements of the Company. In the opinion
of management, all adjustments (consisting of normal recurring
adjustments) have been made that are necessary for a fair presentation
of the unaudited information presented. The six month results are not
necessarily indicative of expected annual results. The following financial
information should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Financial Statements, and related notes thereto, included elsewhere
in this Prospectus.

For the year ended For the six months
September 30, ended March 31,
------------------ ------------------
1994 1995 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Statement of Operations
Data:

Sales . . . . . . . . $ 467,881$ 507,584 $ 356,913 $ 88,576
Cost of sales . . . . 308,446 266,348 158,735 63,634
Operating expenses . 895,518 1,072,111 339,839 511,377
Operating loss. . . . (736,083) (830,875) (141,661) (486,435)
Other income (expense). . (15,942) (1,682) 832 (193,023)
Net loss. . . . . . . (752,025) (832,557) (140,829) (679,458)
Preferred stock dividend. (51,124) (51,124)
Net loss attributable to
common shareholders . . (752,025) (883,681) (191,953) (679,458)
Net loss per common share (0.32) (0.38) (0.08) (0.29)
Shares used in computing
net loss per share . . 2,329,831 2,352,031 2,352,031 2,352,031
Cash dividends per share. None None None None
Supplemental net loss per
common share<F1>. . . . (0.30) (0.24)

</TABLE>

<TABLE>
<CAPTION>
As of As of
September 30, March 31,
1995 1996
------------- -------------
<S> <C> <C>
Balance Sheet Data:

Current assets. . . . . . $ 865,660 $ 781,094
Current liabilities . . . 372,014 953,332
Working capital . . . . . 493,646 (172,238)
Total assets. . . . . . . 915,796 1,052,021
Long-term debt, less
current portion . . . . 60,247 50,307
Accumulated deficit . . . (2,600,990) (3,280,448)
Stockholders' equity. . . 483,535 48,382

<FN>
<F1>
The supplemental net loss per common share reflects the use of the
proceeds from the sale of Units to pay down the Bridge Notes/long-term
obligations and repurchase the Series B Preferred Stock as if the
offering had been completed on the first day of each period.

</TABLE>
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the Company's
financial condition and results of operations should be read in
conjunction with the Summary and Selected Financial Information,
the Financial Statements (including the notes thereto), and the
other information included elsewhere in this Prospectus. The
Company's fiscal year runs from October 1 to and including
September 30.

General

The Company is engaged in the development, manufacture and
sale of ophthalmic surgical devices designed to perform minimally
invasive cataract removal surgery. Paradigm's activities for
fiscal years ending September 30, 1994 and September 30, 1995 and
the six months ended March 31, 1995 and 1996 include
international and domestic sales of the Precisionist (trademark)
Phaco system, research and development for the Photon (trademark)
LaserPhaco (trademark) System and primary research for other new
products and businesses.

Results of Operations

Six Months Ended March 31, 1996 Compared to Six Months
Ended March 31, 1995.

Sales decreased by $268,337, or 75%, to $88,576 for the six
months ended March 31, 1996 from $356,913 for the comparable
period in 1995. This decrease was a result of decreased sales of
the Precisionist (trademark) Phaco System resulting from the
Company focusing its limited financial resources on the private
placement of Bridge Notes and the planned public offering. Cost
of sales decreased $95,101, or 60%, to $63,634 for the six months
ended March 31, 1996 from $158,735 for the comparable period in
1995, as a result of the decreased sales. The gross margin for
the six months ended March 31, 1996 of 28% is down from the gross
margin for the comparable period in 1995 of 56% because sales in
1996 included more parts and accessories which have a lower gross
margin.

Marketing and selling expenses decreased by $62,098, or
33%, to $126,785 for the six months ended March 31, 1996 from
$188,883 for the comparable period in 1995. The decrease was a
result of the Company focusing its limited financial resources on
the private placement of Bridge Notes and the planned public
offering. The Company expects to increase its marketing and
selling activities upon completion of the offering. See "Use of
Proceeds."

General and administrative expenses increased by $225,534,
or 267%, to $310,093 for the six months ended March 31, 1996 from
$84,559 for the comparable period in 1995. This increase was the
result of the increased administrative costs related to
preparation for the planned public offering of the Company's
Common Stock. The Company expects to increase its staff
significantly to support the activities associated with the
introduction of the Photon (trademark) LaserPhaco (trademark)
system. See "Use of Proceeds."

Research and development expenses increased by $8,102, or
12%, to $74,499 for the six months ended March 31, 1996 from
$66,397 for the comparable period in 1995. The Company expects
the amount spent on research and development for the Photon
(trademark) LaserPhaco (trademark) System and other new products
to substantially increase following the completion of the public
offering. See "Use of Proceeds."

During the six months ended March 31, 1996, the Company
incurred $179,000 of expenses in connection with obtaining the
relinquishment of certain anti-dilution rights. See "Settlement
Agreement Concerning Anti-Dilution Rights."

Fiscal Year Ended September 30, 1995 Compared to Fiscal
Year Ended September 30, 1994.

Sales increased by $39,703, or 8%, to $507,584 in fiscal
1995 from $467,881 in fiscal 1994. This increase was primarily
due to increased sales of the Company's Precisionist (trademark)
Phaco System and the sale of one prototype Photon (trademark)
LaserPhaco (trademark) System. Cost of sales decreased $42,098,
or 14%, to $266,348 in fiscal 1995 from $308,446 in fiscal 1994.
Cost of sales decreased as a percentage of net revenues to 52% in
1995 as compared to 66% in 1994. The decrease in cost of sales
as a percentage of net revenues was the result of increased unit
sales in 1995 at higher retail prices through a direct sales
force in the United States and a reduction in cost of sales on a
per unit basis resulting from lower component and accessory
prices in 1995.

Marketing and selling expenses increased by $77,483, or
22%, to $428,265 in fiscal 1995 from $350,782 in fiscal 1994.
This increase was primarily due to expanded marketing,
advertising and publicity activities related to the FDA approval
of the laser-ready Precisionist (trademark) Thirty Thousand phaco
system, the Company's laser upgrade sales program, expanded
convention activities including symposiums, live demonstrations
of the laser system, expanded training courses and attendance at
the European Society of Cataract and Refractive Surgery meeting
to expand international distribution and backlog. The Company
expects to increase its sales and marketing activities upon
completion of the offering. See "Use of Proceeds."

General and administrative expenses increased by $70,518,
or 21%, to $407,803 in fiscal 1995 from $337,285 in fiscal 1994.
This increase was the result of increased administrative costs
related to preparation for the planned public offering of the
Company's Common Stock and the expansion of sales activities.
The Company anticipates increasing its staff significantly to
support the activities associated with the introduction of the
Photon (trademark) LaserPhaco (trademark) system. See "Use of
Proceeds."

Research and development expenses increased by $28,592, or
14%, to $236,043 in fiscal 1995 from $207,451 in fiscal 1994.
This increase was due to the continued development of the Photon
(trademark) LaserPhaco (trademark) System, including costs
associated with development, submission and management of the
premarket notification and investigational clinical trial plan
through the FDA. The Company expects the amount spent on
research and development for the Photon (trademark) LaserPhaco
(trademark) System, and new products to substantially increase
following completion of the offering. See "Use of Proceeds."

Interest expense decreased by $7,561, or 47%, to $8,381 in
fiscal 1995, from $15,942 in fiscal 1994. This decrease is
related to the Company's paying off a $125,000 promissory note
originally issued to the Company by the Zions First National Bank
Corporation in October 1992.

Liquidity and Capital Resources

The Company used cash in operating activities of $499,692
for the six months ended March 31, 1996 compared to $125,228 for
the comparable period in 1995. The increase in cash used in the
six months ended March 31, 1996 is a result of the higher loss
during that period, partially offset by the cash provided from
the reduction in current assets. The Company used cash in
investing activities of $21,647 for the six months ended March
31, 1996 compared to $14,012 for the comparable period in 1995.
These operating and investing cash outflows were financed
primarily from the proceeds of private placements of the
Company's preferred stock and Bridge Notes.

The Company generated $575,000 from the private placement
of Bridge Notes during the six months ended March 31, 1996.
During the six months ended March 31, 1996 the Company made
$8,565 in principal payments on long-term debt. During the six
months ended March 31, 1995, the Company received proceeds from
the private placement of its Series B Convertible Preferred Stock
of $629,906, before deducting commissions and expenses totalling
$129,675. During the six months ended March 31, 1995, the
Company made $134,968 in principal payments on long-term debt.

The Company used cash in operating activities of $979,848
in fiscal 1995, compared to cash used in operating activities of
$794,528 in fiscal 1994. The increase in cash used in the first
quarter of fiscal 1996 and fiscal 1995 is a direct result of the
increase in operating expenses, which was only partially offset
by increased gross profit from product sales. The Company used
cash in investing activities of $40,681 in fiscal 1995, compared
to cash used in investing activities of $12,112 in fiscal 1994.
The increase in cash used in fiscal 1995 is primarily a result of
the Company's purchase of an automobile using proceeds from a
bank loan. These operating and investing cash outflows were
financed primarily from the proceeds of private placements of the
Company's preferred and common stock.

From May 1994 to September 1995 the Company raised a total
of $1,972,000 from a private placement of its Series B
Convertible Preferred Stock. In fiscal 1994 the net proceeds of
the offering were approximately $183,470 after deducting
commissions and expenses totaling $59,530, and in fiscal 1995 the
net proceeds were $1,469,650 after deducting commissions and
expenses totaling $259,350. Through April 1994 the Company
raised a total of $464,000 from a private placement of its Series
A Convertible Preferred Stock. The net proceeds of the offering
were $403,680 after deducting commissions and expenses totaling
$60,320. During fiscal 1994 the Company also raised $108,225
from the issuance of its common stock. Such proceeds were for
working capital purposes, including general and administrative
expenses, research and development related to the Company's
present and new products and to repay $12,807 of long-term debt
in fiscal 1994 and $143,260 of long-term debt in fiscal 1995. In
March 1993, the Company obtained a loan from the Utah Technology
Finance Corporation ("UTFC") in the amount of $50,000. The loan
bears interest at a rate of 4% above the prime rate per annum.
In September 1993, the Company obtained a second loan from UTFC
in the amount of $40,000. The loan bears interest at a rate of
4% above the prime rate per annum. The proceeds from both loans
were used for working capital purposes, including general and
administrative expenses and research and development related to
the Company's present and new products. In September 1995, the
Company obtained a 9.95% loan from a bank to purchase an
automobile.

The Company expects that the net proceeds of the offering
will enable the Company to meet its liquidity and capital
requirements for approximately 12 months following the completion
of the offering. If the public offering is not successful, the
Company intends to issue equity securities in a private placement
to accredited investors. Without the proceeds from the offering
the Company will be forced to significantly curtail its
operations, until such time as additional funds can be obtained.
Although many of the holders of Series B Preferred Stock have
rejected the Company's Rescission Offer (see "Risk Factor --
Rescission Offer to Series B Shareholders" and Note 10 to
financial statements), the accepted Rescission Offers and any
offers which are accepted in the future will reduce the funds
available to the Company and could force the Company to scale
back or curtail certain operations. There can be no assurance
that the Company can generate sufficient revenues from product
sales to satisfy its working capital requirements after such
time. The Company's working capital requirements will depend
upon numerous factors, including progress of the Company's
research and development program for the development of new
products and new applications for its present core product, the
success of its regulatory programs with domestic and foreign
agencies for its new products, the levels of resources devoted by
the Company to the development of manufacturing and marketing
capabilities, technological advances, the status of competitors
and the success or lack thereof of the Company's marketing
efforts. To meet its short-term and long-term requirements,
including research and development activities, the Company may be
required to obtain additional financing. The Company currently
has no credit facility with a bank or other financial
institution. The Company may seek funding to meet its working
capital requirements through collaborative arrangements and
strategic alliances, additional public offerings and/or private
placements of its securities, or bank borrowings. There can be
no assurance, however, that additional funds, if required, will
be available from any of the foregoing or other sources on
favorable terms, if at all.

At September 30, 1995 the Company had net operating loss
carryforwards (NOLs) of approximately $2,010,000 and research and
development tax credit carryforwards of approximately $33,800.
These carryforwards are available to offset future taxable
income, if any, and expire in the years 2005 through 2010.
Because the Company has yet to recognize significant revenue from
the sale of its Photon (trademark) LaserPhaco (trademark) System,
a valuation allowance has been provided in full for these
deferred tax assets. The Company's ability to use its NOLs to
offset future income may be subject to restrictions enacted in
the United States Internal Revenue Code of 1986, as amended.
These restrictions could limit the Company's future use of its
NOLs if there is a cumulative ownership change of more than 50%,
which would include the changes of ownership related to the
offering.

Effect of Inflation and Foreign Currency Exchange

The Company has not realized a reduction in the selling
price of the Precisionist (trademark) 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

The Company intends to adopt the disclosure approach
provided for in Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock Based Compensation, with
respect to options and warrants granted to employees. Because
the Company has only a minimal investment in long-lived assets,
the adoption of SFAS 121, Impairment of Long-Lived Assets and
Long-Lived Assets To Be Disposed Of, and which will occur October
1, 1996, is not expected to have an impact on the Company.
<PAGE>

BUSINESS

General

The Company develops, sells and markets ophthalmic surgical
systems designed for minimal invasive cataract treatment. The
Company currently markets an ultrasonic cataract removal system
and related disposable products and accessories. The Company is
developing a laser cataract surgery system which it believes is
superior to current ultrasound technology and which it hopes will
become the preferred worldwide, state-of-the-art system for
cataract treatment. The Company's laser products are designed to
improve current technology and to permit applications which are
not currently available using conventional ultrasonic systems, or
other traditional medical instruments. Although the Company is
presently utilizing its core proprietary technology and expertise
in developing its fully integrated laser surgery system to
perform surgical treatment procedures to remove cataracts, the
Company intends to expand the use of its laser systems to treat
other ophthalmic disorders, as well as non-ophthalmic surgical
treatments.

The Company estimates that there are over 44,000
ophthalmologists worldwide, approximately 16,000 of which are in
the United States. Since the first use of ophthalmic ultrasound
and laser surgical devices in the early 1970's, new technical
delivery systems and laser wavelengths have broadened the
applications for which ophthalmologists have used these devices
in treating eye disorders. Industry sources estimate that at
least 90% of all ophthalmologists practicing in the United States
currently use some form of ultrasonic and/or laser system for one
or more eye treatments.

The Company believes that in 1993 approximately 3.7 million
cataract surgeries were performed worldwide that could have been
done with the Company's products. Cataract surgery is the single
largest volume and revenue producing surgical procedure for
ophthalmologists worldwide. Industry sources report that in 1993
over 80% of all cataract procedures in the United States were
performed using a method called phacoemulsification or "phaco,"
which employs an ultrasonic probe device. The Company
manufacturers and sells such a device, the Precisionist
(trademark) system. However, the Company believes phaco systems
can be difficult for ophthalmic surgeons to master and are
limited in their ability to be the most minimally invasive method
possible. The Company has developed a proprietary patented laser
system and unique probe for laser cataract removal that may
alleviate these difficulties associated with phaco systems. That
development was done in cooperation with Daniel M. Eichenbaum,
M.D., a United States cataract surgeon and medical device
engineer. Dr. Eichenbaum serves on the Company's Clinical
Advisory Board and is the Company's primary technical consultant
for the laser cataract application. See "Management."

This laser system, the Photon (trademark) LaserPhaco
(trademark) system, is intended to be easier to use and safer
than present phaco cataract surgery systems. The probe is
smaller than typical probes employing ultrasonic technology and
delivers laser energy directly to the desired area with a blunt
end and therefore, unlike the sharp open-ended ultrasonic probes,
causes no vibration throughout the rest of the eye which can
damage other delicate eye structures. The Company is not aware
of any circumstance where the Photon (trademark) LaserPhaco
(trademark) could not be used for cataract surgery other than
where a patient's health would not enable him or her to undergo
any type of surgery. There is no assurance, however, that
disadvantages or problems unique to the Photon (trademark)
LaserPhaco (trademark) system will not be discovered during
clinical trials or following FDA market approval. Because of the
advantages of the Photon (trademark) LaserPhaco (trademark)
system, the Company believes that it is positioned to
significantly change the ophthalmic surgical marketplace. In
addition, the Company believes that its laser system is capable
of being configured with specialty probes for use in surgical
procedures unrelated to ophthalmics, such as plastic surgery,
urology and orthopedics. These potential non-ophthalmic
applications present substantial growth opportunities including
sales within the equipment market and disposables sales,
conducted either directly or through strategic licensing.
However, potential non-ophthalmic uses of the Company's laser
system are still in the early planning stages and there is no
assurance that these applications will be developed or approved.
For the near future, the Photon (trademark) LaserPhaco's
(trademark) only target application is cataract removal.

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 entered into a
merger agreement with the Company wherein 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"). 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 redomesticated to Delaware
pursuant to a reorganization.

The predecessor company of French Bar was formed on June
16, 1970 as Woodlike Industries, Inc. ("Woodlike"). Woodlike was
organized to design, manufacture, and market building and
construction materials and decorative products made from
bituminous materials, such as plastics, fiber glass and rigid
polyurethane foam. In April 1972, Woodlike conducted a small
public offering of its common stock. However, by early 1974,
Woodlike had ceased operations, disposed of its assets and began
looking for a merger candidate with viable business operations.

In April 1984, Woodlike merged with French Bar Mines, Inc.,
a Montana corporation. As part of the merger, Woodlike changed
its name from Woodlike Industries, Inc. to French Bar Industries,
Inc. and new management assumed control. French Bar operated a
mining and tourist business in Montana. However, it never
generated significant revenues. 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.

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

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

Ultrasound Technology Overview. 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 way 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 20% of all foreign surgeries.

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

Lasers are widely accepted in the ophthalmic community for
treatment of certain eye disorders and are popular for surgical
applications because of their relatively non-invasive nature. In
general, ophthalmic lasers, such as argon, Nd:YAG and excimer
(argon-fluoride) are used to coagulate, cut or ablate targeted
tissue. The argon laser is used to treat leaking blood vessels
on the retina (retinopathy) and retinal detachment. The eximer
laser is currently undergoing clinical trials for 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 (iridotomies).
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 (trademark)
LaserPhaco (trademark) 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 applications, however, must be tested in clinical trials and
be approved by the FDA.

Products

The Company's principal products are a fully-integrated
laser-assisted surgery system and an ultrasonic surgery system
for use by ophthalmologists to perform surgical treatment
procedures to remove cataracts. In 1990, the Company received
clearance from the FDA pursuant to Section 510(k) of the Food,
Drug and Cosmetics Act (the "FDA Act") on its Precisionist
(trademark) phaco system for cataract surgery. The Company also
has completed its pre-clinical in vitro and in vivo (animal)
testing of its Photon (trademark) LaserPhaco (trademark)
solid-state laser cataract surgical system and submitted a
Section 510(k) Premarket Notification to the FDA for the Photon
(trademark) LaserPhaco (trademark) system in September 1993, with
a follow-up IDE application submitted to support its filing made
in October 1994. The IDE was conditionally approved by the FDA
in February 1995 upon the Company's final submission of its
product specifications data. Final IDE approval was granted in
May 1995. Clinical trials have begun and are expected to be
completed by November 1996.

The Company's solid-state pulsed Nd:YAG (Neodymium:
Yttrium-Aluminum-Garnet) laser system and patented proprietary
hand-held fiber optic laser probe are designed to allow greater
precision when removing cataract tissue from the eye than the
ultrasonic phacoemulsification method presently used. This
system provides for the introduction of a probe into the eye in
direct contact with the cataract and the performance of three
surgical functions simultaneously: (i) plasmatization
(disintegration) of the hardened cataract, (ii) irrigation of the
surgical area and (iii) removal of the plasmatized cataract from
the eye through aspiration (suction). As far as the Company can
determine, no other integrated single laser 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. Pre-clinical studies to date indicate
that the precision and energy containment afforded by the
Company's laser delivery technology presents the opportunity for
significantly less trauma to adjacent tissue and fewer adverse
effects from thermal and acoustic shock, which should lead to
greater efficacy, safety and ease of use for the procedure. The
safety, precision and ease of use afforded by the Company's laser
cataract system is anticipated to create a significant demand by
ophthalmic users of current ultrasonic surgical systems.
Additionally, the Company believes that this system will expand
market demand to ophthalmologists who presently do not use a
surgical system for cataract surgery because of present or
perceived difficulties and/or risks. There is, however, no
assurance that the above-referenced market demand will in fact
materialize.

The Company's laser system is based upon the scientific
principle that short-pulsed, high repetition rate 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, due to their use of high frequency
shock waves and vibration to fragment the cataract, ultrasonic
surgical systems can make the procedure difficult and present
unnecessary risk of complication both during and after surgery.
In contrast, the Company's laser system, which utilizes short,
centralized energy bursts, permits 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 (trademark) LaserPhaco (trademark) system only affects
tissues it comes into direct contact with.

The Company's product development strategy is to initially
commercialize its core technologies for participation in the
cataract surgery market. To do this the Company has designed its
proprietary ultrasonic and laser surgical systems with
fully-integrated control software, aspiration fluidics systems
and disposable or semi-disposable delivery systems and
accessories. The laser system, which the Company expects to be
completed and shipped internationally in 1996, is designed on a
modular format allowing for upgrade or replacement of the core
surgical system components. Further, the Company has filed a
patent with the United States Patent and Trademark Office for an
outpatient surgical instrument to provide a unique, less invasive
means of correcting refractive disorders, including
nearsightedness, farsightedness and astigmatism. The Company
believes that this corneal surgery system is a unique
computerized tracking and microsurgical tissue cutting system
utilizing ultrasound technology for performing radial keratotomy
surgery. The patent application is based on the product sensing
and adjusting operations related to the physiology of the eye by
a movable cutter that will not require biological modification of
the cornea. There is, however, no assurance that the Company
will be awarded this patent or that the Company will be able to
fully develop or commercialize this product.

Initially, the Company will offer three ophthalmic cataract
surgery systems: (i) the Precisionist (trademark) phaco system,
an ultrasonic cataract system, (ii) the Precisionist (trademark)
Thirty Thousand phaco system, an ultrasonic cataract surgery
system that can be upgraded to the Photon (trademark) LaserPhaco
(trademark) system with the installation of the laser module, and
(iii) the Photon (trademark) LaserPhaco (trademark) system. The
combination of these systems forms a complete small-incision
cataract surgery equipment offering for all practitioners, at all
technology and price levels. A summary of the key attributes of
the Company's surgical systems follows:

Precisionist (trademark) Phaco System. This system is
designed for the steadily growing domestic and international
cataract surgery market. This system is differentiated by being
lower in price and less expensive to operate on a per surgery
basis. Additionally, it is compact, easier to use and carries an
extended two year warranty based on advanced proprietary
electronics design and increased reliability. Although compact,
the Precisionist (trademark) is comparable in performance to
current ultrasonic systems. The system utilizes a proprietary
"smart-pump" software algorithm to control the aspiration in a
manner that "senses" potential vacuum build-up in the eye and
adjusts aspiration flow to eliminate pressure in the eye to
provide a surgical environment in the eye that eliminates the
majority of the problems of fluidic surge and chamber maintenance
problems associated with ultrasound. The system also features
automated "hands free" priming and tuning, and an advanced
pneumatic pump system to drive the vitrector cutter, which is
capable of operating at 600 cuts per minute for both anterior
cataract and posterior vitrectomy (retinal) applications.

Precisionist (trademark) Thirty Thousand Phaco System. The
base system for the Photon (trademark) LaserPhaco (trademark)
Phacolysis, this system offers advanced programmable memories, a
VGA color graphic display screen and additional surgical
modalities and controls not offered on the lower priced
Precisionist (trademark). The Precisionist (trademark) Thirty
Thousand is intended for installations that want to upgrade to
the Photon (trademark) LaserPhaco (trademark) system when it
becomes available. The upgrade is accomplished by installation
of the Photon (trademark) LaserPhaco (trademark) laser module
into the cabinet and installing a "software link." The Company
obtained 510(k) clearance to market this product in October 1995.

Photon (trademark) LaserPhaco (trademark) System. The
Company's premier ophthalmic surgical laser surgery system
utilizes an on-board microprocessor computer to generate short
pulse laser energy delivered through a patented hand-held fiber
optic probe to the targeted tissue inside the eye, while
simultaneously irrigating the eye and aspirating unwanted
cataract tissue and fluids. The system is expandable with both
software and hardware modules, including the actual laser system.
Another feature of the system is its containment of energy. The
probe is designed so that the energy used to emulsify the
cataract is contained in a photo vaporization chamber. The
energy used to remove the cataract is not exposed to the other
contents of the eye. The system also permits the surgeon to use
standard clinical treatment parameters, or to customize surgical
parameters through an on-screen menu display. The modular
technology of the laser fluidics systems allows for upgrade of
the Precisionist (trademark) Thirty Thousand system to the Photon
(trademark) LaserPhaco (trademark) surgical system. The system
also allows cataract removal through incisions in the 2 to 3 mm
range as opposed to the 3 to 6 mm range currently performed with
ultrasound systems. The Company believes that the trend in
intraocular lens development to reduce the size of intraocular
lens implants which are placed in the eye during cataract surgery
will make its laser system which has smaller incision
requirements more attractive. There is no assurance, however,
that smaller intraocular lenses or lenses which can be folded or
injected, thus minimizing the size of the incision required to
insert the lenses, will be developed.

Accessory Instruments and Disposables. Both the
Precisionist (trademark) and Photon (trademark) LaserPhaco
(trademark) surgical systems utilize accessory instruments and
disposables, some of which are proprietary to the Company. These
include replacement ultrasound and laser probes, disposable
vitrectomy cutters, diathermy probes and sundry tips, fluidic
cassette packs and tubing sets and other disposable accessories.

Marketing and Sales

General. Cataract surgery is currently the most common
ophthalmic surgical procedure and is performed on approximately
3.7 million patients worldwide each year. In the United States,
industry analysts predict that the number of cataract surgeries
will increase modestly over the next few years, with such modest
growth due to changes and uncertainties in the health care and
insurance industries. However, by the early 2000's, analysts
predict strong growth in the number of cataract surgeries as the
health care industry stabilizes, the baby boomer population
matures and the elderly population expands. A primary objective
of cataract surgery is to remove the opacified (cataractous) lens
through an incision that is as small as possible. Currently,
there are two primary methods of cataract extraction: manual
ECCE (extracapsular cataract extraction) and ultrasound
phacoemulsification-aspiration (phaco). The manual ECCE method
consists of forcing the cataractous lens out of the eye and
generally requires an incision measuring 9 to 11 millimeters
long. The ultrasound phaco method, on the other hand, involves
only a 3 to 6 millimeter incision to achieve the same result, but
can be a difficult procedure to perform and is accompanied by
potential risks, including inadvertent perforation of the
posterior capsule and damage to the cornea, iris and surrounding
tissue. See "Business--Background--Ultrasound Technology
Overview."

According to the Healthcare Blue Book there are
approximately 6,800 hospitals and 1,800 ambulatory outpatient
surgery centers in the United States. The Company estimates that
there are an additional 22,000 hospitals and 3,500 ambulatory
outpatient surgery centers worldwide (there are 1,200 hospitals
in Canada alone). It is the Company's belief through its
participation in the ophthalmic surgical market that an excess of
80% of hospitals and surgery centers offer cataract removal
surgery to their patients.

Medical Laser Insight reports that there are approximately
44,000 ophthalmologists in the world and 16,000 ophthalmologists
in the United States. Frost and Sullivan report that 83% of
United States cataract surgeries were performed using ultrasonic
phaco in 1993. Internationally, trade publications have reported
the use of ultrasonic phaco to be approximately 20% of all
cataract surgeries. Notwithstanding this high acceptance of the
technology, ultrasonic phaco can present limitations and
difficulties to the surgeon. The August 15, 1993 issue of
Ophthalmology Times reported that 42% of ophthalmologists
surveyed from the American Society of Cataract and Refractive
Surgery anticipated using a laser system for cataract removal by
the year 2000. The Company believes that a significant
population of domestic and international ophthalmologists
anticipate, and will embrace, the laser technology for cataract
removal, thereby replacing a technology that was introduced in
the early 1970's.

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 consumables 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. The Company
believes this is or will become a worldwide phenomena.

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.

The Company believes that the ophthalmic surgical device
market will see increased growth during the next several years.
Further, the Company believes that the international market is
maturing and thus provides a large market for both replacement
and original cataract removal devices. However, there is no
assurance that the Company's industry or markets will continue to
grow or that health care reforms will not have a material
adverse effect on the market for the Company's products.

Current Market Acceptance and Potential. The Company has
sold 71 Precisionist (trademark) phaco systems since the system
was introduced in mid-1992. The principal purchasers have been
ophthalmologists and clinics throughout the world. The Company
currently has orders for 55 laser systems, including 35 orders
from purchasers in 21 countries, including Algeria, Argentina,
Austria, Brazil, Cyprus, Egypt, England, Greece, India,
Indonesia, Iran, Italy, Korea, Mexico, Oman, Pakistan, Peru,
Spain, Taiwan, Turkey, and the United States. The aggregate
purchase price for these orders to date exceeds $3,000,000.

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 10 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 like the Company's laser system.

The Company believes that the market for cataract surgical
systems will continue to grow as current systems are replaced
with newer, advanced, lower cost systems, as ophthalmologists in
emerging countries adopt the procedure and as surgeons migrate
from hospital-based surgical practices to outpatient surgery
centers. The number of surgeons performing phaco cataract
removal has grown dramatically in the United States since 1988.
The Company believes that the generally more conservative
international market will follow this growth pattern. A summary
of the ophthalmic surgeons using the phaco method follows:
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993
____ ____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C> <C>
United States 19% 40% 57% 69% 71% 81%
International 5% 7% 10% 12% 15% 20%

</TABLE>

During 1993, the United States ophthalmic surgical device
market generated $631.2 million in revenues. The Company
estimates that the United States' ophthalmic surgical device
market generated at least the same amount of revenue in 1994.
The Company estimates that thousands of hospitals internationally
will replace or install cataract removal systems in the next five
years. Because of recent uncertainty and change in the health
care industry, including health care reform and Government
reimbursement programs, facilities have been hesitant to replace
their current phaco systems in the United States because of the
substantial cost involved. However, as the United States
population grows older and as the industry stabilizes, industry
analysts predict that increased numbers of cataract and other eye
disorder surgeries and industry stability will motivate a large
number of system replacements, especially since many facilities
currently are not replacing or upgrading the systems they have
been using for several years. The Company believes that this
environment will provide substantial marketing opportunities to
sell both its phaco laser systems as a replacement to the older
and outdated phaco systems still being used.

Marketing Strategy. The Company typically markets its
products internationally through a network of dealers and
domestically through manufacturer's representatives. The Company
currently has two direct domestic sales representatives and 16
manufacturer's representatives in the United States and 32
foreign dealers. All of these sales representatives are assigned
exclusive territories and have entered into contracts with the
Company that contain performance quotas. The Company also
markets its products by identifying customers through internal
market research, trade shows, and customer networking. In
addition, the Company 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.
See "Management."

To garner sales from the introduction of its laser system,
the Company is marketing its products through a unique strategy.
The Company offers the ultrasonic Precisionist (trademark) system
with an unconditional arrangement under which the customer may
upgrade to a Photon (trademark) LaserPhaco (trademark) when that
system receives final FDA approval and systems become available.
Under this arrangement, the customer receives full credit for the
purchase price of the Precisionist (trademark) system against the
price of the new Photon (trademark) LaserPhaco (trademark)
system. The Company has sold 71 Precisionist (trademark) systems
since the first system was introduced in mid-1992. The principal
purchasers have been international ophthalmologists who purchased
the system through Surgidev Corporation in Goleta, California, a
manufacturer and distributor of IOL implants. Surgidev
Corporation purchased those systems at wholesale from the Company
for resale to their international dealer-customers. After the
contract with Surgidev Corporation expired in 1994, the Company
increased sales by reducing its dependence on Surgidev
Corporation and by selling directly through local international
dealers in 32 different countries. The Company hired two direct
sales representatives in the United States in December 1994.
This direct sales force was fully trained by February 1995. The
domestic direct sales force is intended to increase the Company's
domestic market coverage.

A key advantage the Company has over other competitive
producers of phaco systems is the ability to upgrade the
ultrasound Precisionist (trademark) system to a laser system at
a future date. The Company began marketing a trade-up program in
early 1994 to allow any purchaser of one of the Company's
ultrasound systems to upgrade, by paying the price difference, to
a Photon (trademark) LaserPhaco (trademark) laser system when
those systems become available. To the Company's knowledge, no
other ultrasound system or laser company has the ability to offer
an upgrade program.

Product advertising is focused in the three industry trade
newspapers, Ocular Surgery News, Ophthalmology Times and Eyecare
Technology. Most of the ophthalmologists in the United States
receive these three magazines through professional subscription
programs. Product publicity for the Company's laser surgical
system is ongoing. 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
has no manufacturing or warehousing facilities. All components
and the finished systems are manufactured under subcontracting
arrangements. All subcontractors are located within the United
States. None of these companies manufacture products that
compete with the Company's products. All component and systems
manufacturing is performed under a system of quality control and
testing. As a condition to such contracting, each
subcontractor's manufacturing facilities and personnel must
comply with the Good Manufacturing Practices (GMP) guidelines
established by the FDA, as well as similar guidelines established
by foreign governments.

The Company subcontracts the manufacturing of its ancillary
instruments, accessories and consumables through specified
vendors in the United States. These products are contracted in
quantities and at costs consistent with the Company's financial
capabilities and pricing needs. If possible, the Company plans
to assume full manufacturing of the Photon (trademark) LaserPhaco
(trademark) system, except for the laser cavity and unique
surgical probes, in 1996.

The Company currently sub-contracts the manufacture of its
Precisionist (trademark) and Photon (trademark) LaserPhaco
(trademark) systems to one of its shareholders, Zevex
International, Inc. which is located in Salt Lake City, Utah
("Zevex"). Zevex is under an exclusive contract with the
Company, which expires July 17, 1997, that prohibits Zevex from
manufacturing complete ultrasound or laser surgical systems for
any other company, without permission from the Company. The
laser cavity, optical train and power source for the Photon
(trademark) LaserPhaco (trademark) system are supplied by Sunrise
Technologies, Inc. in Fremont, California ("Sunrise") under a
separate manufacturing agreement which expired June 1, 1996. The
Company is negotiating with Sunrise to renew the agreement. The
Chief Executive Officer of Sunrise is currently on the Company's
Board of Directors. The remaining operating elements of the
Photon (trademark) LaserPhaco (trademark) system, the computer
controller, fluidics and ancillary surgical modalities, are
developed through Zevex. Although substantial reliance is
currently placed with Zevex and Sunrise, the Company believes it
would be able to find alternative manufacturers for its products
currently manufactured by these two sources. The Company also
believes that there are multiple sources of raw materials that
are used or could be used in its products. See "Risk Factors --
Dependence on Outside Suppliers and Manufacturers."

Installation, Service and Training. The Company installs
and maintains its products through its international dealers or
representatives and domestic direct sales force. Service for the
Company's products is overseen from its Salt Lake City, Utah
headquarters and is augmented by its international dealer
network, which dealers also provide technical service and repair.
Installation, on-site training and a 12 to 18 month warranty are
included as the standard terms of sale. The Company provides
distributors with replacement parts at no charge during the
warranty period. To date, the Company has incurred minimal
expenses under this warranty program. International distributors
are responsible for installation, repair and other customer
service to installed systems in their territory. All system
parts are modular sub-components that are easily removed and
replaced. The Company maintains an adequate parts inventory and
provides 24 hour replacement parts shipment to its dealers.
After the warranty period expires, the Company offers one year
service contracts to its domestic customers and will continue to
sell parts to international dealers who in turn create their own
service plans with their customers. As of the date of this
prospectus, the Company has not sold any one year service
contracts.

Third-Party Reimbursement. It is expected that the
Company's laser systems will generally be purchased by
ophthalmologists and hospitals which will then bill various
third-party payors for the health care services provided to their
patients. These payors include Medicare, Medicaid and private
insurers. Government agencies generally reimburse at a fixed
rate based on the procedure performed. Some of the potential
procedures for which the Photon (trademark) LaserPhaco
(trademark) laser systems may be used, may be determined to be
elective in nature, and third-party reimbursement may not be
available for such procedures, even if approved by the FDA. In
addition, third-party payors may deny reimbursement if they
determine that the procedure was unnecessary, inappropriate, not
cost-effective, experimental or used for a non-approved
indication. There can be no assurance that reimbursement from
third-party payors will be available, or if available, that
reimbursement will not be limited, thereby materially adversely
affecting the Company's ability to develop new products on a
profitable basis. See "Risk Factors--Limitations on Third-Party
Reimbursement."

Research and Development

The Company's primary product development strategy is to
commercialize its core technology for participation in the
cataract surgery market. Further, the Company believes that its
laser systems may potentially have broader ophthalmic
applications, as well as non-ophthalmic medical and dental
applications. Consequently, the Company believes that a strong
research and development capability is important for the
Company's future. The Company, therefore, has contacted several
recognized and respected consultants and other technical
personnel to act in technical and medical advisory capacities.
Several of these consultants have been organized to form a
Clinical Advisory Board which provides the Company with expert
and technical support for current and proposed products, programs
and services. See "Management."

The Company also believes its research and development
capabilities provides it with the ability to respond to
regulatory developments that may, from time to time, require the
Company to effectively deal with U.S. and foreign government
entities who oversee the Company's products. The Company intends
to continue investing in research and development and strengthen
its ability to enhance existing products and develop new
products. The Company spent $207,451 in fiscal year 1994,
$236,043 in fiscal year 1995 and $74,499 for the six months ended
March 31, 1996 on research and development.

Competition

General. The Company is subject to competition from two
principal sources: (i) manufacturers of competing ultrasound
systems for performing cataract treatments and (ii) developing
technologies for cataract and ophthalmic surgical treatment. The
cataract surgical equipment industry is dominated by a few large
companies who 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 Company's market. The remaining market is fragmented among
emerging smaller companies, some of which are foreign.

Most major competitors either entered or expanded into the
market through the acquisition of smaller, entrepreneurial
high-technology manufacturing companies. Therefore, because
existing competitors or other entities desiring to enter the
market could conceivably acquire current entrepreneurial
enterprises with small market activity, their products cannot be
ignored even though, under current circumstances, they may not
appear to be formidable competitors.

The Cataract Surgical System Industry. Presently, products
currently in use are offered by the major manufacturers utilizing
ultrasonic technology. Additionally, those systems rely on
accessories including single-use cassette packs and other
ancillary surgical disposables such as saline solution, sutures
and intraocular lens 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 (trademark) ultrasonic
phaco system has the ability to use either reusable or single-use
disposable components. The Photon (trademark) LaserPhaco
(trademark) system utilizes 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 the quality
control and income capability from cassette sales.

The typical list price of a competitive advanced ultrasonic
system ranges from approximately $60,000 to $100,000. Lower cost
models generally have a list price ranging from approximately
$30,000 to $60,000. The list price for the Company's
Precisionist (trademark) Phaco System, which is comparable to
advanced ultrasonic systems, is $45,500. The list price for the
Precisionist (trademark) Thirty Thousand Phaco system is $89,900.
The Company's Photon (trademark) Laser Phaco (trademark) will be
sold at a price of approximately $119,000. The international
market, with significantly lower medical budgets, has not been
able to justify the expense of using disposable components. Budgetary
constraints have limited current manufacturers from gaining a
significant share of the international ultrasound equipment
market, and has provided a niche for the emerging smaller
companies discussed above.

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

Laser Equipment Manufacturers. Ophthalmic surgical
equipment offered, or being readied for market, in the United
States is typically presented or displayed at the American
Academy of Ophthalmology held each year in November. Prior to
1993, no fully operational laser-assisted cataract surgery system
was ever present or displayed as a commercial product. In
November 1993 and October 1995, however, the Company presented
the Photon (trademark) LaserPhaco (trademark) system at the
American Academy of Ophthalmology meeting.

To the Company's knowledge, only three companies have
developed laser equipment for cataract surgery. The Company's
understanding of the current status of their development is as
follows:

IOLab Corporation, Horsham, Pennsylvania. The Company
understands that IOLab had been working with Jack Dodick, M.D.
under a consulting agreement since 1989 seeking to perfect a
hand-held probe to liquify and aspirate cataracts from the eye.
The Company understands that Dr. Dodick has performed surgery on
less than ten human eyes since 1989 under an FDA
pre-investigation IDE. The Dodick laser system is believed to
not have been developed for clinical use and to date no FDA
approval has been granted. The Dodick system also uses a Nd:YAG
laser system; however, it technically does not utilize a laser to
effect the cataract treatment. Unlike the Company's system, the
Dodick system focuses laser pulses on a metal target inside the
probe to create vibrations much like ultrasonic phaco, intending
to deliver shock waves to fragment the cataract tissue. Dr.
Dodick received a U.S. patent in June 1994 on this "transducer"
device. The Company, through its own investigation of that
technology and from information presented by Dr. Dodick at
industry presentations, has concluded that this technology is not
as commercially viable as a cataract surgical treatment as is the
Company's laser system. IOLab was recently acquired by Chiron
Vision and the Company has learned from Dr. Dodick that Chiron
Vision has not retained him and did not acquire his technology in
the acquisition. Therefore, the Company cannot assess the
current status of this technology or competitor.

Intelligent Surgical Laser, Inc., San Diego, California.
Intelligent Surgical is developing a picosecond (i.e.,
one-trillionth of a second) pulsed laser system for the corneal
refractive surgery market. In conjunction with this laser
system, Intelligent Surgical also promotes versatility of the
system through other ancillary ophthalmic surgical applications,
including "cataract liquefaction." However, several key issues
exist if that company is to seek to offer that system for
commercial cataract treatment. Among those issues are (i) the
system price is presently represented by the manufacturer to be
in the range of $235,000, (ii) Intelligent Surgical has not
presented an advanced inter-ocular probe design to the market,
(iii) the company has stated that its focus is on the corneal
refractive laser market where laser systems are priced near
$450,000 and (iv) the Intelligent Surgical system may be too
large for use in a hospital or clinic operating room, is not
portable and has service requirements and costs that typically
exceed products in the phaco market. The Company learned in
November 1995 that the work on the laser cataract system had been
suspended.

Premier Laser, Inc., San Diego, California. Premier is a
surgical laser company and is reported to be in the clinical
trial stage with a system using a different type of laser and a
system for cataract liquification through a bare fiber optic
probe device. The Company has no information regarding the
efficacy of the Premier system.

Based on the information currently available to the
Company, these competitive laser companies appear to offer a less
viable means of treating cataracts using laser technology. Based
on the Company's opinion that the Photon (trademark) LaserPhaco
(trademark) system is not only operational, but also meets many
of the market's requirements for immediate commercialization, it
believes that, at least for the immediate future, there is no
directly competing laser-assisted cataract surgical system
available to the market. The Company also believes that its
product is sufficiently distinctive and, if properly marketed,
can capture a significant share of the cataract surgical device
market. However, there are always substantial risks in
undertaking a new venture in an established and already highly
competitive industry. See "Risk Factors." 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 other parties. There can
be no assurance that the Company will be able to compete
successfully with existing or future competitors.

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 Company intends, however, to file patents on its proprietary
cassette system utilized in both the ultrasonic Precisionist
(trademark) Thirty Thousand system and in its Photon (trademark)
LaserPhaco (trademark) laser system. Such patents will be filed
prior to product shipments being made internationally and in the
United States.

The Photon (trademark) LaserPhaco (trademark) system is
protected under a United States patent issued in 1987 to Daniel
M. Eichenbaum, M.D. (U.S. Patent Number 4,694,828) for the
utility and methods of laser ablation, aspiration and irrigation
of tissue through a hand-held probe of a unique design. The
Company secured the exclusive worldwide right to this patent
shortly after its issue, and to the international patents
pending, from Dr. Eichenbaum by means of a license agreement that
entitled Dr. Eichenbaum to a royalty payment equal to one percent
of the proceeds from the net commercial sales of the Photon
(trademark) LaserPhaco (trademark) system and accessories in all
medical specialties. The Royalty Agreement terminates July 7,
2003. The Company has also entered into a Consulting Agreement
with Dr. Eichenbaum which provides Dr. Eichenbaum with consulting
fees equal to $25,000 per year through July 7, 2003. Dr.
Eichenbaum is also the Company's lead technical engineering and
clinical investigator for the Photon (trademark) LaserPhaco
(trademark) system and is a member of the Company's Clinical
Advisory Board. See "Management."

The Company has filed for a United States patent on an
innovative corneal surgery system to treat nearsightedness,
farsightedness and astigmatism. This device utilizes the
Company's core ultrasound technology. This device presents a
novel means of reducing or eliminating corneal refractive surgery
complications and improving the post-operative outcome for radial
keratotomy refractive surgery. It is designed to be an
alternative to expensive corneal refractive lasers. The Company
intends to continue its development of patentable technology
products for manufacture and sale, or for licensing to strategic
partners in ophthalmology and other medical specialties.

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 systems are regulated as medical
devices by the FDA under the FDC Act. As such, these devices
require premarket clearance or premarket approval by the FDA
prior to commercialization. Such clearance or approval is
premised on the production of evidence sufficient for the Company
to show reasonable assurance of safety and effectiveness
regarding its products. Pursuant to the FDC Act, the FDA
regulates the manufacture, distribution and production of medical
devices in the United States and the export of medical devices
from the United States. Noncompliance with applicable
requirements can result in fines, injunctions, civil penalties,
recall or seizure of products, total or partial suspension of
production, denial of premarket clearance or 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 Good Manufacturing Practice ("GMP") 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 route 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
510(k) premarket clearance for the device by filing a 510(k)
premarket notification. The 510(k) notification and the claim of
substantial equivalence will likely have to be supported by
various types of data and materials, possibly including clinical
testing results, obtained under an Investigational Device
Exemption ("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. By regulation, the FDA has no specific time
limit by which it must respond to a 510(k) notification. The FDA
has recently been requiring more rigorous demonstrations of
substantial equivalence in connection with 510(k) notifications
and in many cases, the time periods required for product
approvals have increased. There can be no assurance that the
Company will obtain 510(k) premarket clearance for any of the
future devices for which the Company seeks such clearance.

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 continued operations.

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 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
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 usually done with a limited number of patients at one clinical
trial site. If the results of the first study phase are
promising, the sponsor 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 company 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 company
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 GMP 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 a lengthy and
expensive one, 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 FDA Act also requires that the Company's products be
manufactured in registered establishments and in accordance with
GMP 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 a performance
standard, and to comply with labeling and certification
requirements. Various warning labels must be affixed to the
laser, depending on the class of the product under the
performance standard.

Although the Company believes that it and its manufacturers
currently comply and will continue to comply with all applicable
regulations regarding the manufacture and sale of medical
devices, such regulations are always subject to change and depend
heavily on administrative interpretations. There can be no
assurance that future changes in review guidelines, regulations
or administrative interpretations by the FDA or other regulatory
bodies, with possible retroactive effect, will not materially
adversely affect the Company. In addition to the foregoing, the
Company is subject to numerous federal, state and local laws
relating to such matters as safe working conditions,
manufacturing practices, environmental protection, fire hazard
control and disposal of hazardous or potentially hazardous
substances. There can be no assurance that the Company will not
be required to incur significant costs to comply with such laws
and regulations 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 GMP regulations and
other requirements.

Congress has considered several comprehensive federal
health care programs designed to broaden coverage and reduce the
costs of existing government and private insurance programs.
These programs have been the subject of criticism within Congress
and the health care industry, and many alternative programs and
features of programs have been proposed and discussed.
Therefore, the Company cannot predict the content of any federal
health care program, if any is passed by Congress, or its effect
on Company and its business. Some measures that have been
suggested as possible elements of a new program, such as
government price ceilings on nonreimbursable procedures and
spending limitations on hospitals and other healthcare providers
for new equipment, could have an adverse effect on the Company's
profitability. 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. During the period in which the
Company will be attempting to obtain the necessary regulatory
approvals in these countries, the Company also expects to market
its products on a limited basis in certain European, Latin
American and Asian countries where its products satisfy
applicable regulatory standards. There is no assurance that the
Company's products will be approved by the FDA or other
governmental agencies for intended applications in the United
States and targeted foreign markets, nor is there any assurance
that the FDA will approve the export of the Company's products,
which approval is required on a country-by-country basis for
applications not yet approved in the United States.

A number of European and other economically advanced
countries, including Italy, Spain, Scandinavia, the United
Kingdom, Canada and Australia, have not developed a regulatory
agency for intensive supervision of such devices. Instead, they
generally have been willing to accept the approval of the FDA.
Therefore, a PMA, 510(k) or approved IDE from the FDA is
tantamount to approval in those countries. These countries and
most third world countries have simply deferred direct discretion
to the licensed practicing surgeons themselves to determine,
along with other professional discretion, the nature of devices
that they will use in medical procedures. Both the Precisionist
(trademark) system (the Company's ultrasonic system) and the
Photon (trademark) LaserPhaco (trademark) system (the Company's
laser-assisted system) are devices requiring such approval.
Therefore, a significant aspect of the acceptance of the devices
in the market is, in large part, the effectiveness of the Company
in obtaining the necessary approvals. Having an approved IDE
will allow the Company, once adequate funding is available, to
obtain export rights to manufacture and ship the over $3 million
in backlog orders it has received from international dealers.

Regulatory Status of Products

The Precisionist (trademark) and the Precisionist
(trademark) Thirty Thousand Phaco Systems. Pursuant to Section
510(k) of the Food Drug and Cosmetic Act ("FD&C"), the FDA
granted market clearance for the commercialization of the
Precisionist (trademark) system in 1990 and the Precisionist
(trademark) Thirty Thousand system in 1995, thereby allowing the
Company to sell these devices in the United States for their
intended use as cataract surgical systems. That clearance, in
turn, has allowed for similar approvals in several foreign
countries, allowing sales to be undertaken in all of those
countries. Because no approvals are required in many third world
countries, including several countries in the Middle East and
Latin America, those areas are open for sales.

Applications for approval in other western countries,
including Germany and France, are currently pending. Under
present circumstances, although there is no assurance, approval
of the German application is expected. Because France places
substantial credence in German approvals, it is expected that
approval in France will follow sometime thereafter. In Japan and
Korea, the Company has provided the Precisionist (trademark)
system to established dealers that have applied for approval in
those respective countries.

The Photon (trademark) LaserPhaco (trademark). The Company
has acquired permission from the FDA to manufacture and export
the system from the United States. The Company expects to have
systems available for delivery outside the United States by
November 1996. Because no approvals are required for surgical
devices in most third world countries, including the Middle East
and Central and South America, Photon (trademark) LaserPhaco
(trademark) sales may commence in those areas as soon as the
Company has devices available for delivery. Orders can also be
delivered to dealers and manufacturer's representatives in such
countries as Japan and Korea where the dealers will make
applications for approval.

With regard to the United States, although the Photon
(trademark) LaserPhaco (trademark) system is uniquely configured
in an original and proprietary manner, its distinctive component
is the laser system it employs. 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 (trademark) LaserPhaco (trademark) is similar to
the current ultrasound cataract treatment employed by
ophthalmologists.

The Company submitted its Premarket Notification under
Section 510(k) of the FD&C Act for the Photon (trademark)
LaserPhaco (trademark) system in September 1993. The FDA
requested clinical support data for claims made in the 510(k)
Premarket Notification, and in October 1994 the Company submitted
an IDE application to provide for a "modest clinical study" in
order to collect the data required by the FDA for clearance of
the Photon (trademark) LaserPhaco (trademark) system. The FDA
granted this IDE in May 1995. The Company has begun the clinical
trials by successfully completing three of 10 allowable clinical
surgeries. The Company has also provided the FDA with other
operational, clinical and safety data and results that the
Company believes qualifies the Photon (trademark) LaserPhaco
(trademark) system for "substantial equivalence" to medical
devices previously cleared for commercialization. The Company
received its documentation for Export of Unapproved Devices from
the FDA as soon as the IDE was granted and is now completing this
documentation. The Company expects FDA clearance sometime after
December 1996. With permission to export and adequate funding,
the Company can manufacture the Photon (trademark) LaserPhaco
(trademark) in the United States and export against its
international customer backlog.

Employees

As of June 10, 1996, the Company had nine full-time
employees. This number does not include the Company's 16
manufacturer's representatives who are independent contractors
rather than employees of the Company. The Company also utilizes
13 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. The Company
considers its relations with its employees to be good.

Facilities

The Company's executive offices are located in Salt Lake
City, Utah. The Company leases approximately 3,200 square feet
of space. The current term of the lease expires on November 30,
1996. The Company believes it will be able to either enter into
a new lease after its current lease expires or find new space to
lease. The Company believes that this facility is adequate to
satisfy its needs for the foreseeable future.

Legal Proceedings

Threatened Litigation by Federman Associates, Inc. On
March 31, 1995, the Company entered into an agreement with
Federman Associates, Inc. ("Federman Associates"), a New York
based investment banking company, to obtain capitalization for
the Company through a public offering of the Company's
securities. If Federman Associates was successful in securing
the capitalization through a public offering, the Company agreed
to sell Federman Associates a 5% equity position in the Company
for $25,000 and to pay the sum of $3,000 per month for a period
of 36 months. If the required capitalization was not obtained by
December 31, 1995, however, the agreement was to be deemed
terminated.

In a letter dated April 17, 1996, the Company was notified
by counsel for Federman Associates that certain entitlements were
due from the Company which Federman Associates was willing to
settle in consideration for 100,000 shares of the Company's
Common Stock with immediate demand registration rights and,
commencing the first month after a public offering, Federman
Associates would receive $3,000 a month for three years. By
letter dated April 30, 1996, counsel for Federman Associates
further stated that the entitlements claimed in the April 17,
1996 letter arose out of services performed by Federman
Associates for the Company, that Federman Associates had
completed its obligations under the agreement and if Federman
Associates' outstanding claims were not settled it might pursue
legal rights and remedies as appropriate.

The Company believes the agreement with Federman Associates
is not an enforceable agreement and that Federman Associates is
not entitled to its claims. If Federman Associates brought suit
against the Company as a result of the expired agreement, the
Company believes it has meritorious defenses and would defend
itself vigorously in the proceedings. In the event the Company
did not prevail in its defenses, such a lawsuit could have a
material adverse impact on the Company's financial condition and
could result in dilution to the Company's shareholders.

The Company is not a party to any legal proceedings and is
not aware of any other threatened legal proceedings which may be
brought against it.

MANAGEMENT

Directors and Executive Officers

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

Name Age Position
---- --- ---------
<S> <C> <S>
Thomas F. Motter 47 Chairman of the Board,
President and Chief
Executive Officer
Robert W. Millar 39 Vice President and
Director
John W. Hemmer 68 Treasurer, Chief Financial Officer
and Director
Randall A. Mackey 50 Secretary and Director
Michael C. Stelzer 47 Director
William C. Fitzhugh 46 Director
David W. Light 50 Director
David M. Silver 54 Director

</TABLE>

Thomas F. Motter has served as Chief Executive Officer and
a director of the Company since April 1993 and will serve as
Chief Executive Officer and director until a new officer and
director, respectively, are duly elected and qualified. Mr.
Motter may be elected to successive terms of office. 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,
a company engaged in the development of advanced ophthalmic
diagnostic instruments, serving last as its National Sales
Manager overseeing all domestic sales in its ophthalmic computer
division. Mr. Motter received a Bachelors of Arts degree in
English from Stephen's College in 1970 and a Master of Business
Administration from Pepperdine University in 1975. Mr. Motter
has a five-year employment contract with the Company which
expires on February 1, 2001.

Robert W. Millar has served as Vice President of the
Company since August 1995 and a director of the Company since
April 1993 and will serve as Vice President and director until a
new officer and director, respectively, are duly elected and
qualified. Mr. Millar may be elected to successive terms of
office. From January 1991 to April 1993, Mr Millar was employed
as President by Paradigm Medical, Inc. which merged with the
Company in May 1994. From January 1990 to January 1991, Mr
Millar joined HGM Medical Laser Systems, serving as Director of
Marketing and Product Management for all ophthalmic and surgical
markets. From October 1988 to December 1989, Mr. Millar was
employed by Esselte Pendaflex Corporation, a company engaged in
the business of manufacturing and distributing office supply
products. He served as group product manager for the customer
products division. From July 1986 to February 1988, Mr. Millar
was employed by TechnaVision Inc. a company engaged in the
manufacture of diagnostic and other equipment. From February
1980 to July 1986, he was employed by Pogue McJunkin &
Associates, a professional industrial design firm. Mr Millar
received a Bachelors of Science degree in Industrial Design from
the College of Design in Detroit, Michigan in 1979. Mr. Millar
has a five-year employment contract with the Company which
expires on February 1, 2001.

John W. Hemmer has been Treasurer, Chief Financial Officer and a
director of the Company since November 1995 and will serve as Treasurer,
Chief Financial Officer and director until a new officer and
director, respectively, are duly elected and qualified. Mr.
Hemmer may be elected to successive terms of office. Since
October 1989, Mr. Hemmer has served as a director and consultant
for Sea Pride Industries, Inc., and subsidiaries in Gulf Breeze,
Florida, which developed the first offshore marine production
system licensed and permitted for use in the Gulf of Mexico.
From March 1992 to July 1994, Mr. Hemmer was employed as the
Secretary and Vice President of Finance of Advance Electronics,
Inc., Kendall Park, New York, which is engaged in the retail
distribution of health and beauty products. From May 1989 to
October 1991, Mr. Hemmer was employed as the Chief Financial
Officer and a director of Innovative Designer Products, Inc.,
engaged in the manufacture of personal beauty care appliances,
located in Kendall Park, New Jersey. From November 1991 to
December 1994, Mr. Hemmer was employed as the Secretary and
Treasurer of Belize Agro Industrial Development, Ltd. which
established a Free Trade Zone in Belize engaged in the production
and export of seafood. He was the President and Chief Executive
Officer of John W. Hemmer, Inc., a registered broker/dealer firm
from May 1987 to May 1989 which subsequently changed its name to
Westfalia Investments Inc., but retained his registered
representative status until March 1995. Mr. Hemmer received a
Bachelors of Arts degree in Economics from Queens College in 1951
and a Master of Science degree in Banking and Finance from
Columbia University in 1952. Mr. Hemmer has a five-year
employment contract with the Company which expires on February 1,
2001.

Randall A. Mackey has been Secretary and a director of the
Company since November 1995 and will serve as Secretary and
director until a new officer and director, respectively, are duly
elected and qualified. Mr. Mackey may be elected to successive
terms of office. Since 1989, Mr. Mackey has been a shareholder
of the Salt Lake City law firm Mackey Price & Williams and its
predecessor firms. From 1979 to 1989, he practiced law with the
Salt Lake City law firm of Fabian & Clendenin, where he was a
shareholder and a director of the firm from 1982 to 1989. From
1977 to 1979, Mr. Mackey was associated with the Washington D.C.
law firm of Hogan and Hartson. Mr. Mackey received a Bachelor of
Science degree in Economics from the University of Utah in 1968,
a Master of Business Administration degree from Harvard
University in 1970, a Juris Doctor degree from Columbia
University in 1975 and a Bachelor of Civil Law degree from Oxford
University in 1977.

Michael C. Stelzer joined the Company's Board of Directors
in April 1993 to serve as a director until the Company's next
annual shareholders' meeting at which time Mr. Stelzer may be
elected to successive terms of office. From June 1989 to April
1993, Mr. Stelzer served as a director of Paradigm Medical, Inc.
which merged with the Company in May 1994. Mr. Stelzer is
presently Executive Vice President and General Counsel of Rhino
Marketing, Inc. and has practiced law in California since 1980.
From March 1972 to January 1980, Mr. Stelzer was Comptroller of
Ponderosa Telephone Company. Mr. Stelzer received a Bachelor of
Science degree in Business Administration from the University of
California, Davis in 1970 and a Juris Doctorate from Humphreys
College in 1979.

William C. Fitzhugh, M.D. joined the Company's Board of
Directors in November 1995 to serve as a director until the
Company's next annual shareholders' meeting at which time Dr.
Fitzhugh may be elected to successive terms of office. Dr.
Fitzhugh has operated a private ophthalmology practice in Twin
Falls, Idaho since 1980. Dr. Fitzhugh is the past president of
the Idaho Society of Ophthalmology. Dr. Fitzhugh received a
Bachelors of Science degree in pre-medicine from the University
of Idaho in 1971 and a Medical Degree from the University of
Oregon Medical School in 1976.

David W. Light joined the Company's Board of Directors in
November 1995 to serve as a director until the Company's next
annual shareholders' meeting at which time Mr. Light may be
elected to successive terms of office. Mr. Light is currently
Chief Executive Officer of Sunrise Technologies, Inc., a medical
laser manufacturer located in Fremont, California. From 1986 to
1994, Mr. Light was employed by Advanced Polymer Systems, Inc.
("APS"), a public company involved in the development and
manufacture of polymer based delivery systems for the controlled
release of active ingredients and therapeutic agents. Mr. Light
served as Vice President, Operations of APS from 1989 to 1994 and
as the Chief Financial Officer of APS from 1986 to 1989. Mr.
Light received a Bachelor of Arts degree in Accounting from Boise
State University and is a Certified Public Accountant.

David M. Silver, Ph.D joined the Company's Board of
Directors in November 1995 to serve as a director until the
Company's next annual shareholders' meeting at which time Dr.
Silver may be elected to successive terms of office. Dr. Silver
currently is a member of the Principal Staff of the Johns Hopkins
University Applied Physics Laboratory. He received a B.S. degree
in Chemistry from the Illinois Institute of Technology in 1962,
an M.A. degree from Johns Hopkins University in 1964 and a Ph.D.
degree from Iowa State University in 1968. After a postdoctoral
fellowship at Harvard University and a visiting scientist
position at the University of Paris, Dr. Silver returned to the
Johns Hopkins University in 1970. Currently, he is Senior
Scientist in the Milton S. Eisenhower Research Center at the
Johns Hopkins University Applied Physics Laboratory.

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:

Daniel M. Eichenbaum, M.D. -- Dr. Eichenbaum is an
ophthalmologist practicing in Murphy, North Carolina. He
received his medical degree from the Yale School of Medicine in
1969 and performed his residency at the Bascom Palmer Eye
Institute. The Company licenses a patent held by Dr. Eichenbaum
for use in its laser technology.

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.

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.

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.

Paul L. Archambeau, M.D. -- Dr. Archambeau is an
ophthalmologist in Santa Rosa, California and is 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.

Michael Borg 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.

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.

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

David 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.

Board Committees and Designated Directors

The Board of Directors will establish a Compensation
Committee which will make recommendations to the Board concerning
salaries and incentive compensation for officers and employees of
the Company. The Board of Directors will also establish an Audit
Committee which reviews the results and scope of the audit and
other accounting matters.

Director Compensation

Outside directors will receive cash compensation in the
amount of $10,000 per year after this public offering for their
services as members of the Board of Directors and are 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.

Executive Compensation

The following table contains information regarding
compensation to the Chairman of the Board, President and Chief
Executive Officer of the Company for services in all capacities
to the Company for the fiscal years listed. No executive officer
of the Company earned compensation in excess of $100,000.

<TABLE>
<CAPTION>
Annual Compensation Awards
------------------ ------
Securities
Fiscal Underlying
Year Salary Bonus Options/SARs($)
------ ------ ----- ---------------
<S> <C> <C> <C> <C>
Thomas F. Motter,
Chairman of the
Board, President
and Chief Executive
Officer 1995 $72,000<F1> 0 0
1994 68,352 $300 0
1993 -- <F2> 0 0
__________

<FN>
<F1>
On February 16, 1996, the Company granted Mr. Motter options to
purchase 106,000 shares of Common Stock at an exercise price of
$5.00 per share. Such options expire on February 15, 2001. See
"Management-1995 Stock Option Plan."
<F2>
Mr. Motter became employed by the Company in May 1993 as a result
of the merger of Paradigm Medical, Inc. into the Company. For
the time period Mr. Motter was employed by the Company during
fiscal 1993, he received approximately $26,000 in salary.

</TABLE>

1995 Stock Option Plan

The Company has adopted a 1995 Stock Option Plan (the
"Plan"), for officers, employees, directors and consultants of
the Company, which became effective on February 16, 1996. 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. Prior to March 31, 1996, options for all
300,000 shares had been granted. On May 20, 1996, however, when
an employee terminated her employment with the Company, 2,000
options were returned to the Plan. Accordingly, there are
presently 2,000 options to be granted under the Plan. No Plan
Options have been exercised. The following table contains
information regarding the Plan Options granted to the Company's
executive officers as of the date of this Prospectus:

Option/SAR Grants to Executive Officers in the Current Fiscal Year

<S> <C> <C> <C> <C>
(a) (b) (c) (d) (e)
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base Expiration
Name Granted(#) Fiscal Year Price ($/Sh) Date
____ ___________ ____________ ________________ __________

Thomas F. Motter,
Chairman of the
Board, President
and Chief Executive
Officer. . . . 106,000 35% $5.00 February 15,
2001

Robert W. Millar,
Vice President
and Director . . 84,000 28% $5.00 February 15,
2001

</TABLE>

Plan Options have also been granted to Jack A. Whiteside
and Corinne Powell, who were each given the right to purchase
50,000 shares of Common Stock at an exercise price of $5.00 per
share. Mr. Whiteside is the Company's Eastern Sales Manager and
Ms. Powell is the Company's Western Sales Manager and
International Sales Manager. Of the options granted to Mr.
Whiteside and Ms. Powell, 33,337 options are fully vested to each
of them as of February 16, 1996, with the balance of the options,
or 16,667 options to each of them, to be vested as follows:
16,667 to Mr. Whiteside on December 7, 1996; and 16,667 to Ms.
Powell on December 1, 1996.

Finally, Plan Options were also granted to Jason A. Jahn,
Leslie A. Nunley and Jennifer Kotowski on February 16, 1996, to
purchase 5,000, 2,500 and 2,500 shares of Common Stock,
respectively, at an exercise price of $5.00 per share. Of the
options granted to Mr. Jahn, 1,000 are fully vested as of
February 16, 1996, with the balance of the options, or 4,000
options, to be vested as follows: 1,000 on January 30, 1997,
1,000 on January 30, 1998, 1,000 on January 30, 1999 and 1,000 on
January 30, 2000. Of the options granted to Ms. Nunley, 1,000
are fully vested as of February 16, 1996, with the balance of the
options, or 1,500 options, to be vested as follows: 500 on March
16, 1996, 500 on March 16, 1997 and 500 on March 16, 1998. Of
the options granted to Ms. Kotowski, 500 are fully vested as of
February 16, 1996. The balance of Ms. Kotowski's options, or
2,000 options, have been returned to the Plan since Ms. Kotowski
terminated her employment with the Company on May 20, 1996.
Unless properly exercised on or before August 18, 1996, Ms.
Kotowski's 500 vested options shall terminate and be returned to
the Plan. Mr. Jahn is the Company's Comptroller, Ms. Nunley is
the Company's Customer Sales Manager and Ms. Kotowski was an
accounting clerk of the Company.

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

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

Plan Options are evidenced by written agreement containing
in the terms described above which are applicable and such other
terms and conditions consistent with the Plan as the Board of
Directors or the Compensation Committee, as the case may be, may
impose. The term of each Plan 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 stockholders, no amendment or change in
the Plan will be effective which would increase the total number
of shares which may be issued under the Plan, materially increase
the benefits accruing to persons granted under the Plan or
materially modify the requirements as to eligibility and
participation in the Plan. No amendment, supervision or
termination of the Plan shall, without the consent of an employee
to whom an option shall heretofore have been granted, affect the
rights of such employee under such option.

All Plan Options were granted on February 16, 1996 to award
certain officers and key employees who have been employed by the
Company for a number of years and to help the Company retain
these officers and key employees by providing them with
additional incentives to contribute to the success of the Company.

Employment Agreements

The Company has entered into employment agreements with
each of Thomas F. Motter, Robert W. Millar and Jack W. Hemmer,
which expire on February 1, 2001. The agreements require each
employee to devote substantially all of his working time to the
Company, provide that each of them may be terminated for "cause"
(as provided in the agreements) and prohibit each of them from
competing with the Company for two years following the
termination of his Employment Agreement. The agreements provide
for the payment of an initial base salary of $135,000 to Mr.
Motter, $125,000 to Mr. Millar and $120,000 to Mr. Hemmer,
effective upon the completion of the offering. Messrs. Motter
and Millar also each received a grant by the Company of Employee
incentive stock options to purchase 106,000 and 84,000 shares,
respectively, of the Company's Common Stock at a price of $5.00
per share under the Company's Option Plan. The agreements
provide for salary increases and bonuses as shall be determined
at the discretion of the Board of Directors.

Profit Sharing Plan

On February 16, 1996, the Company adopted a Profit Sharing
Plan, pursuant to which an amount equal to 10% of the pretax
profits of the Company will be set aside for the benefit of the
Company's officers and key employees. This funding will be paid
to the Company's officers and key employees as follows: Thomas
W. Motter, the Company's President and Chief Executive
Officer--30%; Robert W. Millar, the Company's Vice
President--25%; John W. Hemmer, the Company's Chief Financial
Officer and Treasurer--20%; and a pool of 25% to be allocated
among the other officers and key employees as determined by the
Compensation Committee and approved by the Board of Directors.
This funding will only be paid if the Company's qualified pretax
profits exceed $10,000,000 for any fiscal year beginning October
1, 1996 and ending September 30, 2001. If the Company's pretax
profits reach $10,000,000 for any fiscal year, the entire pretax
profits for that year will qualify for the funding. The plan
expires at the end of its fifth fiscal year on September 30,
2001.

Limitation of Liability and Indemnification

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

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

Insofar as indemnification for liabilities arising under
the 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 Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable.

CERTAIN 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.

The Company purchases the laser cavity, optical train and
power source for the Photon (trademark) LaserPhaco (trademark)
from Sunrise Technologies, Inc. ("Sunrise") of which one of the
Company's directors, David Light, serves as Chief Executive
Officer. These materials are purchased pursuant to a
Manufacturing Agreement entered into by Sunrise and the Company
before Mr. Light joined the Company's Board of Directors, which
expired on June 1, 1996. As of the date of this Prospectus, the
expired contract is being renegotiated with Sunrise. For the
fiscal year ended September 30, 1995, the Company paid Sunrise
$263,000 for materials purchased.

The Company subcontracts the manufacture of its
Precisionist (trademark) and Photon (trademark) LaserPhaco
(trademark) systems to one of its shareholders, Zevex
International, Inc. which is located in Salt Lake City, Utah
("Zevex"). Zevex is under an exclusive contract with the
Company, which expires July 17, 1997, that prohibits Zevex from
manufacturing complete ultrasound or laser surgical systems for
any other company, without permission from the Company. For the
fiscal year ended September 30, 1995, the Company purchased
design and manufacturing services in the amount of $509,837 from
Zevex.

On December 19, 1995, the Company entered into a settlement
and release agreement (the "Settlement Agreement") with Douglas
A. MacLeod, a significant shareholder of the Company. Pursuant
to this agreement, Mr. MacLeod agreed to terminate certain
anti-dilution rights granted to him by the Company. Under the
terms of this Settlement Agreement, Mr. MacLeod agreed to
terminate his anti-dilution rights in consideration for the
following: (i) Mr. Motter agreeing to sell to Mr. MacLeod from
his personal holdings 61,111 shares of the Company's Common Stock
at a purchase price of $611.11, (ii) Mr. Millar agreeing to sell
to Mr. MacLeod from his personal holdings 38,889 shares of the
Company's Common Stock at a purchase price of $388.89, and (iii)
the Company agreeing to issue to MacLeod an additional 20,000
shares of Common Stock. Based on the value assigned by the
Company's investment banker, Kenneth Jerome & Company, Inc., of $1.50
per share, the Company recognized $30,000 of expense for the
20,000 shares issued by the Company and $149,000 of expense and
additional paid-in-capital for the 100,000 shares sold by Mr.
Motter and Mr. Millar. The Company represented in the Settlement
Agreement that a public offering of the Company's securities
would be completed by June 1, 1996. On May 24, 1996, the Company
and Mr. MacLeod amended the Settlement Agreement to indicate that
a public offering of the Company's securities will be completed
by July 15, 1996. If a public offering is not completed by July
15, 1996, Mr. MacLeod could attempt to terminate the Settlement
Agreement in order to have his anti-dilution rights restored to
the same position as existed prior to the execution of such
agreement.

Mr. Mackey, a director of the Company since September 1995,
is President of the law firm of Mackey Price & Williams, which
has rendered legal services to the Company since February 1995 in
connection with this public stock offering and other corporate
matters. Legal fees and expenses paid to Mackey Price & Williams
for the fiscal year ended September 30, 1995 totaled $45,300.
The Company also granted Mackey Price & Williams Warrants to
purchase 25,000 shares of Common Stock at $3.33 per share in
partial payment for legal services. See "Description of
Securities -- Note Holders' and Attorney's Warrants."

<TABLE>
<CAPTION>
PRINCIPAL SHAREHOLDERS

The following table sets forth certain information with
respect to beneficial ownership of the Company's Common Stock as
of June 10, 1996 for (i) each executive officer of the Company
(ii) each director of the Company (iii) each person known to the
Company to be the beneficial owner of more than 5% of the
outstanding shares, and (iv) all directors and officers as a
group.

Name and Address<F1> Number of Before After
Name and Address<F1> Shares Offering Offering<F2>
____________________ ________ ________ ___________

<S> <C> <C> <C>
Thomas F. Motter<F3> 588,666 27.6% 18.8%
Douglas MacLeod 418,451 19.6% 13.4%
Robert W. Millar<F4> 374,605 17.6% 12.0%
William C. Fitzhugh 63,071 3.0% 2.0%
Michael Stelzer 59,071 2.8% 1.9%
John W. Hemmer 50,513 2.4% 1.6%
Randall A. Mackey 50,512 2.4% 1.6%
David W. Light -- -- --
David M. Silver -- -- --
Executive officers
and directors
as a group 1,186,438 55.5% 37.9%
_____________

<FN>
<F1>
The address for Mr. Motter and Mr. Millar is c/o Paradigm Medical
Industries, Inc., 1772 West 2300 South, Salt Lake City, Utah
84119. The address for Mr. MacLeod is 1002 South 10th Street,
Tacoma, Washington 98405. The address for Mr. Stelzer is 2811
Airpark Drive, Santa Maria, California 93455. The address for
Mr. Fitzhugh is 589 Sharp Avenue West, Twin Falls, Idaho 83301.
The address for Mr. Hemmer is 88 Meadow Road, Briarcliff Manor,
New York 10510. The address for Mr. Mackey is 170 South Main
Street, Suite 900, Salt Lake City, Utah 84101. The address for
Mr. Light is 724 Laurel Avenue, Number 511, San Mateo, California
94401. The address for Mr. Silver is 17 Avalon Court, Bethesda,
Maryland 20816.
<F2>
Assumes no exercise of the Class A Warrants, the Underwriter's
Warrants, the Note Holders' and Attorney's Warrants, the La Jolla
Warrants or the FAS Warrants and no conversion of shares of the
Company's Series A and Series B Preferred Stock into Common
Stock.
<F3>
Does not include 106,000 options granted to Mr. Motter under the
Company's 1995 Option Plan.
<F4>
Includes 2,000 shares held by William E. Millar, Mr. Millar's
father, 1,000 shares held by Michael S. Millar, Mr. Millar's
brother, and 100 shares to Nathan Glynn, Mr. Millar's nephew.
Mr. Millar disclaims beneficial ownership of these 3,100 shares.
Does not include 84,000 options granted to Mr. Millar under the
Company's 1995 Option Plan.

</TABLE>

<PAGE>

<TABLE>

STOCKHOLDERS REGISTERING SHARES

The following table sets forth information as of June 10, 1996,
to reflect the registration of shares by Series B Preferred stockholders
(the "Registering Stockholders") entitled to register shares of Common
Stock assuming each of the Registering Stockholders elects to exercise
his conversion rights to convert the Series B Preferred shares (the
"Series B Shares") into shares of Common Stock at a rate of 1.2 shares of
Common Stock for each of the Series B Shares and then to register
such shares of Common Stock upon conversion.

<CAPTION>
Beneficial
Ownership of
Series B Beneficial Ownership Following
Shares Prior the Offering and Conversion of
to Offering Series B Shares to Common Stock
____________ _______________________________

Number of Shares
to be Issued
Following the Shares to
Number of Conversion of be Registered
Series B Series B Shares for Resale
Stockholders Shares to Common Stock in Offering
____________ _________ _______________ _____________

<S> <C> <C> <C>
Javed M. Akhtar 5,000 6,000 6,000
Paul L. Archambeau 126,609 151,931 151,931
James B. Arthur 6,000 7,200 7,200
Peter A. Bartlo 10,000 12,000 12,000
Richard G. Bowe,
Smith Barney Inc. 12,545 15,054 15,054
Howard L. Bruckner 7,537 9,044 9,044
Subodh Chandra Debnath 30,000 36,000 36,000
Daniel K. and
Gloria Dierks 2,011 2,413 2,413
Deborah R. Distefano 6,637 7,964 7,964
Desmond L. Fischer 15,192 18,230 18,230
Subba R. Gollamudi 9,438 11,326 11,326
Nisaruddin Kahn 25,000 30,000 30,000
Paul L. Kathrein 6,308 7,570 7,570
Frederick H. Keiber 20,000 24,000 24,000
Paul O. Keverline 2,560 3,072 3,072
William A. Kinney,
Resources Trust
Company 6,250 7,500 7,500
Randolph M. Lindblad 5,023 6,028 6,028
Harry W. Miles 10,000 12,000 12,000
Larry G. Obie 8,000 9,600 9,600
Loretta R. Obie 2,000 2,400 2,400
Jaswant Singh Pannu 40,000 48,000 48,000
Robert A. Steele 2,130 2,556 2,556
Frank & Joy Truncale 9,199 11,039 11,039
Drew A. Tucker 3,000 3,600 3,600
Robert L. Villalobos, J 2,015 2,418 2,418
Frank J. Weinstock 2,089 2,507 2,507
Thomas R. Wolf 25,000 30,000 30,000
_______ _______ _______

TOTAL 399,543 479,452 479,452
======= ======= =======
</TABLE>

The Registering Stockholders have each entered into a
Registering Stockholders Lock-Up Agreement (the "Lock-Up
Agreement") with the Underwriter. Under these Lock-Up
Agreements, the Registering Stockholders may not dispose of any
of their shares of Common Stock for a period of 180 days after
the effective date of this Registration Statement. After the
expiration of 180 days from the effective date, the shares may be
released from the restrictions of the Lock-Up Agreement.

Once the shares have been released from the restrictions of
the Lock-Up Agreement, however, they may not be sold by the
Registering Stockholders unless a current registration statement
can be delivered at the time of the sale or the shares are
eligible to be sold under Rule 144. The Company will insure that
a current registration statement is in effect at all times for a
period of two years from the effective date of the Registration
Statement by means of filing a post-effective amendment with the
Securities and Exchange Commission following the completion of
the offering and then filing, when appropriate or required,
additional post-effective amendments.

DESCRIPTION OF SECURITIES

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 two classes of Preferred Stock,
designated as Series A Preferred Stock and Series B Preferred
Stock. As of the date of this Prospectus, the Company had 592
recordholders of its Common Stock, 22 recordholders of its Series
A Preferred Stock, and 47 recordholders of its Series B Preferred
Stock. The following description of the Company's capital stock
is qualified in all respects by reference to the Company's
Certificate of Incorporation that has been filed as an exhibit to
the Registration Statement of which this Prospectus forms a part.

Units. Each Unit consists of one share of Common Stock and
one Class A Warrant. Each Class A Warrant entitles the holder
thereof to purchase one share of Common Stock. The Class A
Warrants included in the Units are immediately exercisable and
transferable separately.

Common Stock. The holders of Common Stock are entitled to
one vote for each share held of record on all matters to be voted
on by stockholders. The holders of Common Stock are entitled to
receive such dividends, if any, as may be declared from time to
time by the Board of Directors in its discretion from funds
legally available therefor. Upon liquidation or dissolution of
the Company, the holders of Common Stock are entitled to receive,
pro rata, assets remaining available for distribution to
stockholders. The Common Stock has no cumulative voting,
preemptive or subscription rights and is not subject to any
future calls. There are no conversion rights or redemption or
sinking fund provisions applicable to the shares of Common Stock.
All the outstanding shares of Common Stock are fully paid and
nonassessable.

Class A Warrants. Each Class A Warrant entitles the holder
to purchase one share of Common Stock at an exercise price of
$7.50. Unless previously redeemed, the Class A Warrants are
exercisable at any time commencing on the date of this Prospectus
through the fifth anniversary of the date of this Prospectus,
provided that at such time a current prospectus relating to the
Common Stock is then in effect and the Common Stock is qualified
for sale or exempt from qualification under applicable state
securities laws. The Class A Warrants included in the Units
offered hereby are transferable separately from Common Stock.
The Class A Warrants are subject to redemption by the Company
beginning one year from the date of this Prospectus, upon 30 days
written notice, at a price of $.05 per Warrant, if the average
closing bid price of the Common Stock for any 30 consecutive
business days ending within 15 days of the date of which the
notice of redemption is given shall have exceeded $8.50 per
share. Holders of the Class A Warrants will automatically
forfeit their rights to purchase the shares of Common Stock
issuable upon exercise of such Warrants unless the Warrants are
exercised before the close of business on the business day
immediately prior to the date set for redemption. All of the
outstanding Warrants of a class, except for those underlying the
Underwriter's Warrants, must be redeemed if any of that class are
redeemed. The Class A Warrants underlying the Underwriter's
Warrants are subject to redemption by the Company at any time
after the Underwriter's Warrants have been exercised and the
underlying warrants are outstanding. A notice of redemption
shall be mailed to each of the registered holders of the Class A
Warrants by first class mail, postage prepaid, upon 30 days'
notice before the date fixed for redemption. The notice of
redemption shall specify the redemption price, the date fixed for
redemption, the place where the Warrant certificates shall be
delivered and the redemption price to be paid, and that the right
to exercise the Class A Warrants shall terminate at 5:00 p.m.
(Salt Lake City time) on the business day immediately preceding
the date fixed for redemption.

The Class A Warrants may be exercised upon surrender of the
certificate(s) therefor on or prior to the expiration or the
redemption date (as explained above) at the offices of the
Company's warrant agent (the "Warrant Agent") with the
subscription form on the reverse side of the certificate(s)
completed and executed as indicated, accomplished by payment (in
the form of certified or cashier's check payable to the order of
the Company) of the full exercise price for the number of
Warrants being exercised.

The Class A Warrants contain provisions that protect the
holders thereof against dilution by adjustment of the exercise
price per share and the number of shares issuable upon exercise
thereof upon the occurrence of certain events, including
issuances of Common Stock (or securities convertible,
exchangeable or exercisable into Common Stock) at less than
market value, stock dividends, stock splits, mergers, sale of
substantially all of the Company's assets, and for other
extraordinary events; provided, however, that no such adjustment
shall be made upon, among other things (i) the issuance or
exercise of options or other securities under the Company's 1995
Plan or other employee benefit plans (ii) the sale or exercise of
outstanding options or warrants or the Class A Warrants offered
hereby or (iii) the conversion of shares of the Company's
Preferred Stock to Common Stock.

The Company is not required to issue fractional shares of
Common Stock, and in lieu thereof will make a cash payment based
upon the current market value of such fractional shares. The
holder of the Class A Warrants will not possess any rights as a
shareholder of the Company unless and until he or she exercises
the Class A Warrants.

Preferred Stock. The Company's Board of Directors is
authorized, without further action by the stockholders, to issue,
from time to time, up to 5,000,000 shares of Preferred Stock in
one or more classes or series, and to fix or alter the
designations, power and preferences, and relative participating,
option or other rights, if any, and qualifications, limitations
or restrictions thereof, including, without limitation, dividend
rights (and whether dividends are cumulative), conversion rights,
if any, voting rights (including the number of votes, if any, per
share), redemption rights (including sinking fund provisions, if
any), and liquidation preferences of any unissued shares or
wholly unissued series of Preferred Stock, and the number of
shares constituting any such class or series and the designation
thereof and to increase or decrease the number of such class or
series subsequent to the issuance of shares of such class or
series, but not below the number of shares of such class or
series then outstanding. The issuance of any series of Preferred
Stock under certain circumstances could have the effect of
delaying, deferring or preventing a change in control of the
Company and could adversely affect the rights of the holders of
the Common Stock. As of the date of this Prospectus, the Company
has created and issued shares of two classes of preferred stock
more fully discussed below.

Series A Preferred. The Company's Board of Directors has
authorized the issuance of a total of 500,000 shares of Series A
Preferred. Each share of Series A Preferred is convertible at
any time into shares of Common Stock at a rate of 1.2 shares of
Common Stock for each share of Series A Preferred. The Company
may, at its sole option, at any time, redeem all of the
then-outstanding shares of Series A Preferred at a price of $4.50
per share, plus accrued and unpaid dividends, if any. The
holders of shares of Series A Preferred are entitled to
non-cumulative preferred dividends at the rate of $0.24 per share
of Series A Preferred per annum, payable in cash on or before
December 31st of each year, commencing December 31, 1994 out of
surplus earnings. Such dividends, however, can only be paid from
surplus earnings of the Company and further, because these
dividends are non-cumulative, no deficiencies in dividend
payments from any calendar year can be carried forward to the
next calendar year. The Series A Preferred will have priority
rights to dividends over the Common Stock, but will not
participate in any dividends payable to the holders of shares of
Common Stock. No dividends will be paid to holders of shares of
Common Stock unless and until all dividends on shares of the
Company's Preferred Stock have been paid in full for the same
period. Except upon the redemption of the Series A Preferred or
before the payment of dividends on any shares of capital stock
that are on par with or junior or subordinate to the Series A
Preferred as to dividends (e.g., the Series B Preferred), or upon
the liquidation, dissolution or winding-up of the Company, the
payment of dividends is not mandatory prior to December 31, 1995.
In the event of any liquidation, dissolution or winding-up of the
Company, the holders of shares of Series A Preferred are entitled
to receive, prior and in preference to, any distribution of any
of the assets or surplus funds of the Company to the holders of
shares of Common Stock or any other stock of the Company (e.g.,
the Series B Preferred) ranking on liquidation junior or
subordinate to the Series A Preferred, an amount equal to $1.00
per share, plus accrued and unpaid dividends, if any. Holders of
shares of Series A Preferred have no voting rights, except in
those instances required by Delaware law.

As of the date of this Prospectus, there are a total of
116,000 shares of Series A Preferred issued and outstanding. The
Company issued 6,764 shares of its Series A Preferred stock on
January 8, 1996 as a stock dividend to Series A Preferred
shareholders of record as of December 31, 1994. The dividend was
declared as a 6% dividend divided pro rata over the time period
each individual shareholder owned Series A Preferred during 1994.
A total of 147,317 shares of the Company's Common Stock has been
set aside and reserved in the event that the holders of shares of
Series A Preferred elect to convert those shares into shares of
Common Stock. As of the date of this Prospectus, no shares of
Series A Preferred have been converted into shares of Common
Stock.

Series B Preferred. The Company's Board of Directors has
authorized the issuance of a total of 500,000 shares of Series
B Preferred. Each share of the Series B Preferred is convertible
into shares of Common Stock at a rate of 1.2 shares of Common
Stock for each share of Series B Preferred. The Company may, at
its sole option, at any time, redeem all of the then-outstanding
shares of Series B Preferred at a price of $4.50 per share, plus
accrued and unpaid dividends, if any. The holders of shares of
Series B Preferred are entitled to non-cumulative preferred
dividends at the rate of $0.48 per share of Series B Preferred
per annum, payable in cash on or before December 31st of each
year, commencing December 31, 1994. Such dividends, however, can
only be paid from surplus earnings of the Company and further,
because these dividends are non-cumulative, no deficiencies in
dividend payments from any calendar year can be carried forward
to the next calendar year. The Series B Preferred will have
priority rights to dividends over the Common Stock, but will not
participate in any dividends payable to the holders of shares of
Common Stock. No dividends will be paid to holders of shares of
Common Stock unless and until all dividends on shares of the
Company's Preferred Stock have been paid in full for the same
period. Except upon the redemption of the Series B Preferred or
before the payment of dividends on any shares of capital stock
that are on par with or junior or subordinate to the Series B
Preferred as to dividends, or upon the liquidation, dissolution
or winding-up of the Company, the payment of dividends is not
mandatory prior to December 31, 1995. In the event of any
liquidation, dissolution or winding-up of the Company, the
holders of shares of Series B Preferred are entitled to receive,
prior and in preference to, any distribution of any of the assets
or surplus funds of the Company to the holders of shares of
Common Stock or any other stock of the Company ranking on
liquidation junior or subordinate to the Series B Preferred, an
amount equal to $4.00 per share, plus accrued and unpaid
dividends, if any. Holders of shares of Series B Preferred have
no voting rights, except in those instances required by Delaware
law.

As of the date of this Prospectus, there are a total of
493,000 shares of Series B Preferred issued and outstanding. The
Company issued 6,017 shares of its Series B Preferred stock on
January 8, 1996 as a stock dividend to Series B Preferred
shareholders of record as of December 31, 1994. The dividend was
declared as a 12% stock dividend paid on a pro-rata basis over
the time period each individual shareholder owned Series B
Preferred during 1994. A total of 598,820 shares of the
Company's Common Stock have been set aside and reserved in the
event that the holders of shares of Series B Preferred elect to
convert those shares into shares of Common Stock. As of the date
of this Prospectus, no shares of Series B Preferred have been
converted into shares of Common Stock.

Rescission Offer to Series B Preferred Shareholders. The
493,000 shares of Series B Preferred Stock issued to the
Company's Series B Shareholders (the "Series B Shareholders") may
not have been sold in compliance with certain aspects of
California corporate law and federal and state securities laws.
Concurrently with this public offering, the Company is and has
provided the Series B Shareholders with a rescission offer (the
"Rescission Offer") to repurchase all Series B Preferred shares
(the "Rescission Shares") owned by the Series B Shareholders.
There are 493,000 Rescission Shares outstanding. The Series B
Shareholders were offered the right to rescind their purchases
and receive a refund of the price paid by them of $4.00 per share
plus an amount equal to the interest thereon at rates ranging
from 6% to 10% per annum from the date the Rescission Shares were
purchased to the date the rescinding shareholder is paid by the
Company. Each Rescission Offer remains open for a period of 30
days from the time the Rescission Offer is made. As of June 10,
1996, Rescission Offers had been mailed to all the original
purchasers of the outstanding Series B Shares. The original
purchasers of approximately 91% of the Series B Shares (451,500
shares) have rejected the Rescission Offer. Two shareholders
owning a combined total of 32,750 shares have accepted the
Rescission Offer. If all remaining Series B Shareholders accept
the Rescission Offer, the Rescission Offer would result in an
aggregate payment of $166,000, plus accrued interest.

Although the Company has not been instructed by any
regulatory body to actually conduct the Rescission Offer, the
Company has decided to go forward with the Rescission Offer to
reduce any type of potential contingent liability it may be
exposed to in connection with its private placement of Series B
Preferred Stock. The Rescission Offer is designed to reduce
contingent liability the Company may be subject to as a result of
its private placement of Series B Preferred Stock by placing the
Series B Shareholders on notice of possible defects and
presenting them with an opportunity to avoid or mitigate damages.
The Rescission Offer, however, may not fully relieve the Company
from exposure to contingent liability under federal or state
securities laws. See "Risk Factors -- Rescission Offer to Series
B Shareholders." It is also possible that the Company might have
to refund $166,000 of the $1,972,000 it raised in the Series B
offering plus accrued interest. The Company plans on using
approximately $144,000 (which includes interest of $13,000)
obtained from the public offering to refund the money invested by
two Series B Shareholders who accepted the Rescission Offer. If
other Series B Shareholders accept the Rescission Offer, the
Company anticipates that it would use additional proceeds
obtained from the public offering to refund the money invested by
the those shareholders. See "Use of Proceeds."

Note Holders' and Attorney's Warrants. In connection with
its Bridge Financing, the Company granted Warrants for 300,000
shares of Common Stock (the "Note Holders' Warrants"). Pursuant
to a warrant agreement between the Company and Mackey Price &
Williams, the Company granted Warrants for 25,000 shares of
Common Stock (the "Attorney's Warrants"). Each of the Note
Holder's and Attorney's Warrants are being registered in this
offering. Each Note Holders' and Attorney's Warrant entitles the
holder to purchase one share of Common Stock at an exercise price
of $3.33 per share. The Note Holders' Warrants are exercisable
beginning on the date the Warrants are issued and expire on
December 1, 2000. The Attorney's Warrants are exercisable
beginning one year following the date the Warrants are issued and
expire on December 1, 2000. The Note Holders' and Attorney's
Warrants may be exercised upon surrender of the certificate(s)
therefor on or prior to the expiration or the redemption date (as
explained above) at the offices of the Company's Warrant Agent
with the subscription form on the reverse side of the
certificate(s) completed and executed as indicated, accomplished
by payment (in the form of certified or cashier's check payable
to the order of the Company) of the full exercise price for the
number of Note Holders' and Attorney's Warrants being exercised.
The Company may redeem the Note Holders' and Attorney's Warrants beginning
one year after a public offering of the Company's Common Stock at
a price of $.05 per Note Holders' and Attorney's Warrant at such
time as the Company's Common Stock has been trading on the Nasdaq
SmallCap Market or an established exchange at a price equal to or
above $10.00 per share for a period of 30 consecutive business days ending
within 15 days of the date of redemption. The Note Holders' and
Attorney's Warrants contain provisions that protect the holders
thereof against dilution by adjustment of the exercise price per
share and the number of shares issuable upon exercise thereof
upon the occurrence of certain events, including stock dividends,
stock splits, mergers, sale of substantially all of the Company's
assets, and for other extraordinary events; provided, however,
that no such adjustment shall be made upon, among other things
(i) the issuance or exercise of options or other securities under
the Company's Option Plan or other employee benefit plans, (ii)
the sale or exercise of outstanding options or warrants or the
Note Holders' and Attorney's Warrants offered hereby, or (iii)
the conversion of shares of the Company's Preferred Stock to
Common Stock. The Company is not required to issue fractional
shares of Common Stock, and in lieu thereof will make a cash
payment based upon the current market value of such fractional
shares. The holder of the Note Holders' and Attorney's Warrants
will not possess any rights as a shareholder of the Company
unless and until the Note Holders' and Attorney's Warrants are
exercised.

La Jolla Warrants. In connection with its Series A
Preferred private placement, the Company committed to issue La
Jolla Securities Corporation ("La Jolla") warrants to purchase
11,600 shares of the Company's Series A Preferred. Each warrant
entitles La Jolla to purchase one share of Series A Preferred at
a price of $4.00 per share. Because these warrants have not been
granted, other provisions governing the warrants, such as the
exercise period, have not been established as of the date of this
Prospectus.

FAS Warrants. In connection with its Series B Preferred
private placement, the Company has issued the individual
broker/dealers of First Associated Securities Group, Inc. ("FAS")
warrants to purchase 21,525 shares of the Company's Common Stock.
Each warrant entitles the individual FAS broker/dealer receiving
the warrants to purchase one share of Common Stock at a price of
$3.00 per share at any time not later than 5:00 p.m. Mountain
Standard Time, on December 31, 1999.

Underwriter's Warrants. See "Underwriting" for a
description of the material terms of the Underwriter's Warrants
to be issued by the Company to the Underwriter upon completion of
this offering.

Settlement Agreement Concerning Anti-Dilution Rights. On
September 3, 1992, the Company issued 250,066 shares of its
Common Stock to Douglas A. MacLeod, representing a 5% equity
position in the Company at the time, for his agreeing to co-sign
on a $150,000 loan to the Company from Zions First National Bank.
The agreement to issue shares to Mr. MacLeod for co-signing on
the loan provided that the shares represented a 5% fixed
percentage ownership in the Company that was non-dilutable. On
December 19, 1995, the Company and Thomas F. Motter and Robert W.
Millar, the Chairman of the Board, President and Chief Executive
Officer of the Company and the Vice President of the Company,
respectively, entered into a settlement and release agreement
(the "Settlement Agreement") with Mr. MacLeod concerning the
termination of the anti-dilution rights which were granted in the
September 3, 1992 agreement. Under the terms of this Settlement
Agreement, Mr. MacLeod agreed to terminate the agreements which
stated that his interest in the Company was a non-dilutable
interest in consideration for the following: (i) Mr. Motter
agreeing to sell to Mr. MacLeod from his personal holdings 61,111
shares of the Company's Common Stock at a purchase price of
$611.11, (ii) Mr. Millar agreeing to sell to Mr. MacLeod from his
personal holdings 38,889 shares of the Company's Common Stock at
a purchase price of $388.89, and (iii) the Company agreeing to
issue to MacLeod an additional 20,000 shares of Common Stock.
Based on the value assigned by the Company's investment banker,
Kenneth Jerome & Company, Inc., of $1.50 per share, the Company
recognized $30,000 of expense for the 20,000 shares issued by the
Company and $149,000 of expense and additional paid-in-capital
for the 100,000 shares sold by Mr. Motter and Mr. Millar. The
Company represented in the Settlement Agreement that a public
offering of the Company's securities would be completed by June
1, 1996. On May 24, 1996, the Company and Mr. MacLeod amended
the Settlement Agreement to indicate that a public offering of
the Company's securities will be completed by July 15, 1996. If
a public offering is not completed by July 15, 1996, Mr. MacLeod
could attempt to terminate the Settlement Agreement in order to
have his anti-dilution rights restored to the same position as
existed prior to the execution of such agreement.

Certain Provisions of Certificate of Incorporation. The
Company's Certificate of Incorporation provides that to the
fullest extent permitted by Delaware law, its directors shall not
be liable to the Company and its stockholders. The Company's
Certificate of Incorporation also contains provisions entitling
the officers and directors of the Company to indemnification by
the Company to the fullest extent permitted by the Delaware
General Corporation Law.

Indemnification Agreements. The Company will enter into
Indemnification Agreements with its officers and directors. Such
Indemnification Agreements provide that the Company will
indemnify officers and directors of the Company ("Indemnitee")
against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement arising out of threatened, pending
or completed legal action against any Indemnitee to the fullest
extent permitted by the Delaware General Corporation Law.

Transfer and Warrant Agent. The Company's transfer agent
and registrar for its Common Stock and the Warrant Agent for the
Class A Warrants is Continental Stock Transfer & Trust Company,
New York, New York.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, the Company will have
3,128,998 shares of Common Stock outstanding, assuming the sale
of 1,000,000 Units (3,278,998 shares of Common Stock if the
Underwriter's over-allotment is exercised in full) and assuming
no exercise of the Class A Warrants, Underwriter's Warrants, or
outstanding options or warrants and no conversion of the
Company's Shares of Series A or Series B Preferred Stock. All
1,000,000 shares of Common Stock sold in this offering will be
freely transferable without restriction or further registration
under the 1933 Act except for any shares purchased by any person
who is or thereby becomes an "affiliate" of the Company, which
Shares will be subject to the resale limitations contained in
Rule 144 promulgated under the 1933 Act as described below.

Rule 144 Restrictions. Of the 2,131,598 shares of Common
Stock currently outstanding, 484,572 are freely tradable or could
be freely traded pursuant to Rule 144(k). The remaining
1,647,026 shares of Common Stock are "restricted securities"
within the meaning of Rule 144 under the Securities Act and, in
general, if held for at least two years, will be eligible for
sale without registration upon reliance of the exemption
contained in Rule 144. An additional 746,137 shares could
eventually be sold in reliance on Rule 144 upon the conversion of
the Company's issued and outstanding Series A and Series B
Preferred Stock for shares of Common Stock. Further, an
additional 35,445 shares could also eventually be sold in
reliance on Rule 144 upon exercise of the La Jolla Warrants and
FAS Warrants and an additional 325,000 shares could also
eventually be sold in reliance of Rule 144 upon exercise of the
Note Holders' and Attorney's Warrants.

In general, under Rule 144 as currently in effect, a person
(or persons whose shares are aggregated), including a person who
may be deemed to be an "affiliate" of the Company as that term is
defined under the Securities Act, is entitled to sell, within any
three month period, the number of shares beneficially owned for
at least two years that does not exceed the greater of (i) one
percent of the number of the then outstanding shares of Common
Stock, or (ii) the average weekly trading volume of the Common
Stock during the four calendar weeks preceding such sale. Sales
under Rule 144 are also subject to certain requirements as to the
manner of sale, notice and the availability of current public
information about the Company. Furthermore, a person who is not
deemed to have been an affiliate of the Company during the ninety
days preceding a sale by such person and who has beneficially
owned such shares for at least three years is entitled to sell
such shares without regard to the volume, manner of sale or
notice requirement.

In addition, Rule 701 under the Securities Act provides an
exemption from the registration requirements of the Act for
offers and sales of securities issued pursuant to certain
compensatory benefit plans or written contracts of a company not
subject to the reporting requirements of Section 13 or 15(d) of
the Exchange Act. Securities issued pursuant to Rule 701 are
defined as restricted securities for purposes of Rule 144.
However, 90 days after the issuer becomes subject to the
reporting provisions of the Exchange Act, the Rule 144 resale
restrictions, except for the broker's transaction requirements,
are inapplicable for nonaffiliates. Affiliates are subject to
all Rule 144 restrictions after this 90-day period, but without
the Rule 144 holding period requirement.

Holders of the Class A Warrants included in the Units
offered hereby (assuming no exercise of the Underwriter's
over-allotment option) will be entitled to purchase an aggregate
of 1,000,000 shares of Common Stock upon exercise of the Class A
Warrants at any time during the five year period following the
date of this Prospectus, provided that the Company satisfies
certain securities registration requirements with respect to the
securities underlying the Class A Warrants.

Up to 200,000 additional shares of Common Stock may be
purchased by the Underwriter through the exercise of the
Underwriter's Warrants and the Class A Warrants contained in and
underlying the Units. Any and all of such shares of Common Stock
will be tradeable without restriction, provided that the Company
satisfies certain securities registration requirements in
accordance with the terms of the Underwriter's Warrants. See
"Underwriting."

Although the Company conducted a public offering in 1972
and there has been, in the past, periods of sporadic
over-the-counter trading of the Company's Common Stock, for
several years prior to the offering, no active public market for
the Company's securities has existed. Following the offering, no
predictions can be made of the effect, if any, of future public
sales of restricted shares or the availability of restricted
shares for sale in the public market. Moreover, the Company
cannot predict the number of shares of Common Stock that may be
sold in the future pursuant to Rule 144 or Rule 701 because such
sales will depend on, among other factors, the market price of
the Common Stock and the individual circumstances of the holders
thereof. The availability for sale of substantial amounts of
Common Stock acquired through the exercise of the Class A
Warrants, under Rule 144 or Rule 701, other options, the
Underwriter's Warrants or upon conversion of the Company's Series
A Preferred or Series B Preferred could adversely affect
prevailing market prices for the Company's securities.

Employees' Lock Up Agreement. Thomas F. Motter (owning
588,666 shares), Robert W. Millar (owning 374,605 shares), John
W. Hemmer (owning 50,513 shares) and Randall A. Mackey (owning
50,512 shares) have entered into an Employees' Lock Up Agreement
with the Company and the Underwriter as officers of Paradigm
Medical Industries, Inc. Under the Agreements, the foregoing
officers may not dispose of any of their shares of the Company's
Common Stock for a period of one year after the effective date of
this Registration Statement. Thereafter, the officers may
dispose of shares of their Common Stock subject to the
limitations under Rule 144 described above under "Shares Eligible
for Future Sale -- Rule 144 Restrictions."

UNDERWRITING

The Underwriters named below, for whom Kenneth Jerome &
Company, Inc. is acting as Representative, have severally agreed,
subject to the terms of the Underwriting Agreement, to purchase
from the Company the aggregate number of Units set forth below
opposite their respective names. The Underwriting Agreement
provides that the obligations of the Underwriters are subject to
certain conditions precedent and that the Underwriters are
committed to purchase all of the Units offered hereby (other than
those subject to the over-allotment option described below) if
any such Units are purchased.

Number of
Underwriters Units
____________ _________
<S> <C>
Kenneth Jerome & Co., Inc. 630,000
First Associated Securities Group, Inc. 370,000
---------
Total 1,000,000
=========
</TABLE>

Through the Representative, the Underwriters have advised
the Company that they propose initially to offer the Units to the
public at the initial offering price set forth on the cover page
of this Prospectus. The Representative has advised the Company
that the Underwriters may allow to selected dealers a concession
of not more than $.35 per Unit; and the Underwriters may allow,
and such dealers may reallow a concession of not more than $.10
per Unit to certain other dealers. After the initial public
offering, the offering price, concessions and other selling terms
may be varied by the Representative. The Units are offered
subject to receipt and acceptance by the Underwriters, and to
certain other conditions.

Certain management shareholders have granted an option to
the Representative, exercisable for a period of 45 days after the
date of this Prospectus, to purchase up to an additional 150,000 Units
at the public offering price set forth on the cover page of this
Prospectus less the underwriting discounts and commissions. The
Representative may exercise this option only to cover
over-allotments, if any.

The Company will pay the Representatives a nonaccountable
expense allowance of 3% of the offering proceeds, which will
include proceeds from the over-allotment option, if exercised.

The Underwriting Agreement contains covenants of indemnity
among the Underwriters, the Company and the Selling Shareholders
against certain liabilities under the Securities Act of 1933, as
amended (the "Act"), and provisions for contributions to payments
the Company and the Underwriters may be required to make in
respect thereof.

In connection with this offering, the Company has agreed to
issue and sell to the Representative for nominal consideration,
Warrants to purchase 100,000 shares of Common Stock at a price of
130% of the offering price of each Unit commencing two years from
the date of this Prospectus and continuing to be exercisable
until five years from the date of this Prospectus, and 100,000
shares of Common Stock at a price of $7.50 per share commencing
two years from the date of this Prospectus and continuing to be
exercisable until five years from the date of this Prospectus.
During the exercise period, holders of the Representative's
Warrants are entitled to certain demand and incidental
registration rights with respect to the securities issuable upon
exercise of the Representative's Warrants. The number of shares
covered by the Representative's Warrants are subject to
adjustment in certain events to prevent dilution. The Company may
redeem the Underwriter's Warrants beginning two years after a public
offering of the Company's Common Stock at a price of $.05 per Warrant
at such time as the Company's Common Stock has been trading on the
Nasdaq SmallCap Market or an established exchange at a price equal to
or above $10.00 per share for a period of 30 consecutive business days
ending within 15 days of the date of redemption. For a period of two
years from the date of this Prospectus, the Representative's Warrants are
not transferable except to officers and directors of the Representative,
co-underwriters, selling group members and their officers or partners.
Any profits realized by the Representative or its transferees on the sale
of the Representative's Warrants or the shares of Common Stock
issuable upon exercise thereof constitute additional underwriting
compensation.

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

Prior to this offering, there has not been an active public
market for the Common Stock and no public market for the Units or
Warrants. The public offering price of the Units and the
exercise price of the Warrants has been determined by arms-length
negotiation between the Company and the Representative. The
principal factors considered by the Company and the
Representative in pricing the Units were the Company's record of
operations, the current financial condition and future prospects
of the Company, the experience of management, the amount of
ownership to be retained by present shareholders, the general
condition of the economy and the securities markets, and other
relevant factors. There is no direct relation between the
offering price of the Units or the exercise price of the Warrants
and the assets, book value or net worth of the Company.

A significant amount of the Units offered may be sold to
customers of the Underwriters. Such customers subsequently may
engage in transactions for the sale or purchase of the Units,
Common Stock or Warrants through or with the Underwriters.
Although they have no legal obligation to do so, the Underwriters
from time to time in the future may make a market in or otherwise
effect transactions in the Company's securities. To the extent
the Underwriters do so, they may be dominating influences in any
market that might develop and the degree of participation by the
Underwriters may significantly affect the price and liquidity of
the Company's securities. Such market making activities, if
commenced, may be discontinued at any time or from time to time
by the Underwriters without obligation or prior notice.

LEGAL MATTERS

The legality of the securities offered hereby will be
passed upon for the Company by Mackey Price & Williams, Salt Lake
City, Utah. Certain legal matters will be passed upon for the
Underwriter by Roger L. Fidler, Glen Rock, New Jersey. The
Company granted Mackey Price & Williams, the Company's counsel,
Warrants to purchase 25,000 shares of Common Stock at $3.33 per
share in partial payment for legal services. See "Description of
Securities -- Note Holders' and Attorney's Warrants."

EXPERTS

The financial statements of the Company for the years ended
September 30, 1994 and September 30, 1995, appearing in this
Prospectus and Registration Statement, have been included herein
in reliance on the report, which includes an explanatory
paragraph that discusses the Company's ability to continue as a
going concern, of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of said firm as experts in
accounting and auditing.

AVAILABLE INFORMATION

This Prospectus does not contain all of the information set
forth in the Registration Statement which the Company has filed
with the Washington D.C. Office of the Securities and Exchange
Commission with respect to the securities offered hereby. For
further information with respect to the Company and the
securities, reference is made to the Registration Statement,
including the exhibits thereto, copies of which may be examined
without charge at, or obtained upon payment of prescribed fees
from, the Public Reference Section of the Securities and Exchange
Commission at Judiciary Plaza, 450 Fifth Street, N. W.,
Washington, D.C. 20549. The statements contained in this
Prospectus as to the contents of any contract or other document
filed as an exhibit to the Registration Statement are of
necessity brief descriptions thereof, and are not necessarily
complete and the full text of each such statement is qualified in
its entirety by reference to such contract or document.

DEFINITIONS

The following are definitions of certain terms used in this
Prospectus.

Acuity. The ability to see objects in focus. Perfect
visual acuity is referred to as 20/20 vision or emmetropia.

Anterior Chamber. The front section of the eye which
contains the cornea, lens and iris which refract and focus light
images onto the retina.

Aspiration. Removal of tissue and fluids from the eye
through suction.

Capsule. A thin membrane "pouch" containing the lens of
the eye. Minimally invasive phaco surgery is intended to leave
the capsule intact after removal of the cataract for improved
post-operative results.

Cornea. The clear front exterior surface of the eye. Its
domed curvature refracts images through the lens and to the
retina. Its posterior surface inside the eye is the endothelium
which is very sensitive to shock or vibration.

Extracapsular Cataract Extraction. A cataract removal
method using steel surgical instruments requiring a larger
incision that is more invasive than phaco surgery.

Emmetropia. Normal visual acuity, 20/20 vision.

FDA. United States Food and Drug Administration.

510(k). Section 510(k) of the Food Drug and Cosmetic Act
which provides medical device manufacturers premarket notification to
facilitate sales of a device that is new to the manufacturer, but
"substantially equivalent" to a device already legally marketed.

Fiber Optic. A small, flexible quartz strand that
transmits concentrated laser light energy for precise delivery to
tissue in surgery.

GMP. Good Manufacturing Practices guidelines established
by the FDA.

Intraocular Lens. A clear plastic prosthetic implant that
replaces the natural human lens after cataract removal surgery to
restore visual acuity to emmetropia.

In Vitro. Refers to studies and/or phenomena that take
place outside the body (for example, in test tubes).

In Vivo. Refers to studies and/or phenomena that take
place in animals or humans.

Laser. An acronym for Light Amplification by Stimulated
Emission of Radiation. Laser emit photons or light into a highly
intense beam of energy that radiates at a single wavelength.
Laser light energy can be selectively directed for a specific
effect on body tissue and pin-pointed to a specific location
through a small fiber optic for a wide variety of medical
surgical applications.

Lens. The clear crystalline substance in the anterior
chamber of the eye that accommodates focusing of images on the
retina for visual acuity.

Phaco. Contraction of Phacoemulsification. Ophthalmic
medical term for the microsurgical cataract removal procedure and
related surgical devices (i.e. to perform a phaco surgery, or to
use a phaco instrument).

Phacoemulsification. Minimally invasive surgical procedure
for removing a hardened cataract from the eye. The process
involves using an ultrasonic probe with a hollow vibrating needle
which fragments the hardened cataract while in the eye, and
aspirates the unwanted cataract tissue from the eye. Generally
considered a superior, less invasive alternative to extracapsular
cataract extraction.

PMA. Pre-marketing approval from the FDA to market a
medical device or product in the United States.

Posterior Chamber. The rear section of the eye which
contains the retina, vitreous and optic nerve, responsible for
receiving light images from the anterior chamber and processing
these into visual information to the brain.

Retina. Rear surface of the posterior chamber responsible
for receiving and processing visual images.

Vitreous. Optically clear, fibrous gel-like fluid medium
located in the posterior chamber which comprises the majority of
the volume in the eye, and serves to give the eye its shape.
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
INDEX TO FINANCIAL STATEMENTS

Report of Independent Accountants. . . . . . . . .F - 2

Balance Sheets . . . . . . . . . . . . . . . . . . F - 3

Statements of Operations . . . . . . . . . . . . . F - 4

Statements of Changes in Stockholders'
Equity. . . . . . . . . . . . . . . . . . . . . F-5 to F-6

Statements of Cash Flows . . . . . . . . . . . .F-7 to F-8

Notes to Financial Statements. . . . . . . . . .F-9 to F-20

F - 1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------

The Board of Directors of
Paradigm Medical Industries, Inc.:

We have audited the accompanying balance sheet of Paradigm
Medical Industries, Inc. (the Company) as of September 30, 1995,
and the related statements of operations, changes in
stockholders' equity, and cash flows for the years ended
September 30, 1994 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Paradigm Medical Industries, Inc. as of September 30, 1995,
and the results of its operations and its cash flows for the
years ended September 30, 1994 and 1995 in conformity with
generally accepted accounting principles.

The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed
in Note 2 to the financial statements, the Company incurred a net
loss of $832,557 during the year ended September 30, 1995 and as
of September 30, 1995 had an accumulated deficit of $2,600,990.
These factors raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans in regard to
these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.

As discussed in Note 1, the Company's financial statements for
the year ended September 30, 1993 have been restated.

COOPERS & LYBRAND L.L.P.

Salt Lake City, Utah
July 3, 1996

F - 2
<PAGE>
<TABLE>
PARADIGM MEDICAL INDUSTRIES, INC.
<CAPTION>
BALANCE SHEETS
------

September 30, March 31,
1995 1996
------------ ----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents $ 338,218 $ 383,314
Accounts receivable 104,899 17,250
Inventories 400,900 375,850
Prepaid expenses 21,643 4,680
---------- -----------
Total current assets 865,660 781,094

Property and equipment, net 50,136 108,749
Debt offering costs 36,159
Deferred public offering
costs 126,019
---------- -----------
Total assets $ 915,796 $ 1,052,021
========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable $ 304,698 $ 310,124
Accrued expenses 46,081 50,598
Current portion of
long-term debt 21,235 592,610
---------- ----------
Total current
liabilities 372,014 953,332
---------- ----------
Long-term debt,
less current portion 60,247 50,307
---------- ----------
Commitments (Note 8)

Stockholders' equity:
Preferred stock,
Authorized: 10,000,000
no par value shares at
September 30, 1995 and
5,000,000 $.001 par value
shares at March 31, 1996:
Series A, Authorized:
500,000 shares; issued
and outstanding: 116,000
no par value shares at
September 30, 1995 and
122,764 $.001 par value
shares at March 31, 1996
(aggregate liquidation
preference of $122,764
at March 31, 1996) 403,680 123
Series B, Authorized:
500,000 shares; issued
and outstanding: 493,000
no par value shares at
September 30, 1995 and
499,017 $.001 par value
shares at March 31, 1996
(aggregate liquidation
preference of $1,996,068
at March 31, 1996) 1,653,120 499
Series A, committed to be
issued: 6,764 shares 27,056
Series B, committed to be
issued: 6,017 shares 24,068
Additional paid-in capital,
preferred stock 2,107,302
Common stock, Authorized:
20,000,000 shares; issued
and outstanding: 1,985,573
no par value shares at
September 30, 1995 and
2,131,598 $.001 par value
shares at March 31, 1996 980,378 2,132
Additional paid-in capital,
common stock 1,346,860
Treasury stock, 2,600
shares, at cost (3,777) (3,777)
Unearned compensation (124,309)
Accumulated deficit (2,600,990) (3,280,448)
----------- -----------
Total stockholders'
equity 483,535 48,382
--------- ----------
Total liabilities
and stockholders'
equity $ 915,796 $ 1,052,021
========== ===========
</TABLE>
The accompanying notes are an integral
part of the financial statements
F - 3
<PAGE>
<TABLE>

PARADIGM MEDICAL INDUSTRIES, INC.

STATEMENTS OF OPERATIONS
------
<CAPTION>
Year ended Six months ended
September 30, March 31,
------------------------ --------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Sales $ 467,881 $ 507,584 $ 356,913 $ 88,576
Cost of sales 308,446 266,348 158,735 63,634
---------- ---------- ---------- ---------
Gross profit 159,435 241,236 198,178 24,942
---------- ---------- ---------- ---------
Operating expenses:
Marketing and
selling 350,782 428,265 188,883 126,785
General and
administrative 337,285 407,803 84,559 310,093
Research and
development 207,451 236,043 66,397 74,499

Total operating
expenses 895,518 1,072,111 339,839 511,377
---------- ---------- --------- ---------
Operating loss (736,083) (830,875) (141,661) (486,435)
---------- ---------- --------- ---------
Other income
(expense):
Costs associated
with relinquish-
ment of anti-
dilution rights (3,425) (179,000)
Interest income 10,124 3,079 5,458
Interest expense (15,942) (8,381) (2,247) (19,481)
---------- ---------- ---------- ----------
(15,942) (1,682) 832 (193,023)
---------- ---------- --------- ----------
Net loss (752,025) (832,557) (140,829) (679,458)

Preferred stock
dividend on 6%
Series A and
12% Series B
Preferred Stock (51,124) (51,124)
----------- ---------- -------- ---------
Net loss attributable
to common
shareholders $ (752,025) $ (883,681) $ (191,953) $ (679,458)
========== ========== ========== ==========

Net loss per
common share $(.32) $(.38) $(.08) $(.29)
========== ========== ========== ==========

Shares used in
computing net loss
per common share 2,329,831 2,352,031 2,352,031 2,352,031
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral
part of the financial statements
F - 4
<PAGE>
<TABLE>

PARADIGM MEDICAL INDUSTRIES, INC.
<CAPTION>
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
--------

Preferred Stock
-----------------------------------------------

Series A Series B
--------------------- --------------------
No. of
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance at
September 30, 1993

Issuance of 6%
Series A Preferred Stock
(net of offering costs
of $60,320) 116,000 $ 403,680

Issuance of 12%
Series B Preferred Stock
(net of offering costs
of $59,530) 60,750 $ 183,470
-------- --------- ------- ---------
Balance at September
30, 1994 116,000 403,680 60,750 183,470

Issuance of 12% Series
B Preferred Stock
(net of offering costs
of $259,350) 432,250 1,469,650

6% Series A Preferred
Stock committed to
be issued as a stock
dividend

12% Series B Preferred
Stock committed to
be issued as a stock
dividend --------- ---------- -------- ----------

Balance at September
30, 1995 116,000 403,680 493,000 1,653,120

Issuance of 6% Series
A Preferred Stock
dividend (unaudited) 6,764 27,056

Issuance of 12% Series
B Preferred Stock dividend
(unaudited) 6,017 24,068

Conversion of no par
value preferred shares
to $.001 par value
preferred shares upon
reincorporation in Delaware
(unaudited) (430,613) (1,676,689)
--------- --------- ------- ----------

Balance at March 31,
1996 (unaudited) 122,764 $ 123 499,017 $ 499
========= ======== ======= ==========

(Continued)
</TABLE>

PARADIGM MEDICAL INDUSTRIES, INC.
<CAPTION>
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Continued)
--------

Preferred Stock
-----------------------------------------------------------
Series A Series B
Committed Committed
to be issued to be issued
------------------ ---------------- Additional
No. of No. of Paid in Capital
Shares Amount Shares Amount Preferred Stock
------ ------ ------ ------ ---------------
<S> <C> <C> <C> <C> <C>
Balance at
September 30,
1993

Issuance of 6%
Series A Preferred
Stock (net of
offering costs
of $60,320)

Issuance of 12%
Series B Preferred
Stock (net of
offering costs
of $59,530) ------- --------- ------- ---------

Balance at
September 30, 1994
Issuance of 12%
Series B Preferred
Stock (net of
offering costs of
$259,350)

6% Series A
Preferred Stock
committed to be
issued as a stock
dividend 6,764 $ 27,056

12% Series B
Preferred Stock
committed to
be issued as a
stock dvidend 6,017 $ 24,068
--------- --------- -------- --------

Balance at
September
30, 1995 (6,764) (27,056) 6,017 24,068

Issuance of
6% Series
A Preferred
Stock dividend
(unaudited) (6,764 (27,056)

Issuance of 12%
Series B
Preferred Stock
dividend
(unaudited) (6,017) (24,068)

Conversion of no
par value
preferred shares
to $.001 par
value preferred
shares upon
reincorporation
in Delaware
(unaudited) $2,107,302
--------- --------- ------- --------- ----------

Balance at
March 31,
1996
(unaudited) $ $ $2,107,302
========= ======== ======= ========== ==========
</TABLE>

The accompanying notes are an integral
part of the financial statements
F - 5
<PAGE>
<TABLE>

PARADIGM MEDICAL INDUSTRIES, INC.
<CAPTION>
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY, Continued
--------

Common Stock Treasury Stock
----------------- -----------------
Additional
Paid-in-
capital, Unearned Accumu-
No. of Common No. of Compen- lated
Shares Amount Stock Shares Amount sation Deficit
------ ------ ------ ------ ------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
September
30, 1993 1,942,221 $842,852 2,600 $(3,777) $(965,284)

Issuance of
common stock
for services
and for
preferred
stock offering
costs 19,197 25,876

Issuance of
common stock
for cash 20,730 108,225

1994 net loss (752,025)
------- ------- ------ ------ ------- ---------
Balance at
September
30, 1994 1,982,148 976,953 2,600 (3,777) (1,717,309)

Issuance of
common stock
for relin-
quishment of
anti-dilution
rights 3,425 3,425

1995 net loss (832,557)

Preferred
stock dividend
on 6% Series A
and 12% Series
B Preferred
Stock (51,124)
-------- ------ ------ ------- ------- ---------
Balance at
September
30, 1995 1,985,573 980,378 2,600 (3,777) (2,600,990)

Issuance of
previously
committed
common stock
for services
rendered in
connection
with Series B
Preferred
Stock offering
(unaudited) 25,000 10,251

Issuance of
common stock
for relin-
quishment of
anti-dilution
rights
(unaudited) 20,000 30,000

Transfer of
common stock
from Company
officers
for relin-
quishment of
anti-dilution
rights
(unaudited) $ 149,000

Issuance of
common stock
for future
services
(unaudited) 101,025 151,538 $(151,538)

Amortization
of unearned
compensation
(unaudited) 27,229

Issuance of
warrants in
connection
with private
placement of
notes (net
of offering
costs of
$2,175)
(unaudited) 27,825

Conversion
of no par
value common
shares to
$.001 par
value common
shares upon
reincorporation
in Delaware
(unaudited) (1,170,035) 1,170,035

Net loss
for six
months ended
March 31,
1996
(unaudited) (679,458)
-------- ----- --------- ----- -------- -------- ---------
Balance at
March 31,
1996
(unaudited)2,131,598 $2,132 $1,346,860 2,600 $(3,777) $(124,309) $(3,280,448)
========= ====== ========== ===== ======== ========= ===========
</TABLE>
The accompanying notes are an integral
part of the financial statements
F - 6
<PAGE>
<TABLE>

PARADIGM MEDICAL INDUSTRIES, INC.

STATEMENTS OF CASH FLOWS
--------
<CAPTION>
Year ended Six months ended
September 30, March 31,
-------------------- --------------------
1994 1995 1995 1996
------ ----- ----- ------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss $(752,025) $ (832,557) $(140,829) $(679,458)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation 3,172 5,518 1,932 7,034
Equipment transferred
for services 2,177
Issuance of common stock
for services and
relinquishment of anti-
dilution rights 13,047 3,425 179,000
Amortization of
unearned compensation 27,229
Amortization of debt
offering costs 5,166
Issuance of bridge note and
warrants for services 25,000
Increase (decrease) from
changes in:
Accounts receivable (177,555) 86,458 128,556 87,649
Inventories 31,466 378,645) (347,959) 25,050
Prepaid expenses 1,198 (6,043) 4,989 16,963
Accounts payable 82,085 144,091 253,069 (208,093)
Accrued expenses 1,907 (2,095) (24,986) 14,768
--------- --------- --------- ---------
Net cash used in
operating activities (794,528) (979,848) (125,228) (499,692)
--------- --------- --------- --------
Cash flows from
investing activities:
Purchase of property
and equipment (12,112) (40,681) (14,012) (21,647)
--------- --------- -------- --------
Net cash used in investing
activities (12,112) (40,681) (14,012) (21,647)
--------- --------- -------- --------
Cash flows from
financing activities:
Proceeds from issuance
of promissory notes and
warrants 575,000
Proceeds from long-term debt 20,000 22,549
Principal payments on
long-term debt (12,807) (143,260) (134,968) (8,565)
Proceeds from issuance
of common stock 108,225
Proceeds from issuance
of preferred stock 707,000 1,729,000 629,906
Issuance costs -
preferred stock (96,770) (259,350) (129,675)
--------- --------- --------- --------
Net cash provided by
financing activities 725,648 1,348,939 365,263 566,435
--------- --------- --------- --------
Net increase (decrease)
in cash and cash equivalents (80,992) 328,410 226,023 45,096

Cash and cash equivalents
at beginning of period 90,800 9,808 9,808 338,218
--------- --------- --------- ---------
Cash and cash equivalents
at end of period $ 9,808 $ 338,218 $ 235,831 $ 383,314
========= ========= ========= =========

</TABLE>
- Continued -

The accompanying notes are an integral
part of the financial statements
F - 7
<PAGE>
<TABLE>
PARADIGM MEDICAL INDUSTRIES, INC.
<CAPTION>
STATEMENTS OF CASH FLOWS, Continued
--------

Year ended Six months ended
September 30, March 31,
------------------ ----------------------
1994 1995 1995 1996
------- ------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Supplemental disclosure
of cash flow information:
Cash paid for interest $15,711 $ 8,895 $ 1,543 $ 4,214

Supplemental disclosure
of noncash investing and
financing activities:
Preferred stock dividend
on 6% Series A and 12%
Series B Preferred Stock $51,124 $51,124

Issuance of common stock for
services rendered in connection
with preferred stock offering $12,829 $ 10,251

Liability incurred for services
rendered in connection with
preferred stock offering $10,251

Equipment purchased with
accounts payable $ 44,000

Common stock issued for
future services $151,538

Issuance costs for promissory
notes and warrants financed
with accounts payable $ 43,500

Deferred public offering
costs financed with accounts
payable $126,019

</TABLE>
The accompanying notes are an integral
part of the financial statements
F - 8
<PAGE>
PARADIGM MEDICAL INDUSTRIES, INC.

NOTES TO FINANCIAL STATEMENTS
-----

1. Organization and Significant Accounting Policies:

Organization

Effective May 5, 1993, French Bar Industries, Inc. (French
Bar) entered into a merger agreement with Paradigm Medical, Inc.
(Paradigm) a California Corporation incorporated in October 1989.
The agreement merged French Bar and Paradigm Medical, Inc. into
a single public corporation under the name of Paradigm Medical
Industries, Inc. (the Company). Pursuant to the merger, French
Bar caused a 1-for-7.96 reverse stock split of its shares of
common stock and the former shareholders of French Bar received
a total of 166,431 shares. The value assigned to the 166,431
shares of $343,965 was charged to expense as French Bar had no
net assets at the date of the merger (see Note 1 - Restatement of
1993 Financial Statements). For accounting purposes the merger
has been accounted for as a purchase with Paradigm treated as the
acquirer because the shareholders of Paradigm obtained control of
the Company.

Since its inception in October 1989, the Company has been
engaged in marketing and selling advanced surgical systems for
cataracts, various attachments and disposable accessories. The
Company is in the process of introducing a proprietary
laser-based surgical machine which is expected to become its core
business.

Revenues recognized to date primarily represent revenues
from the sale of the Company's conventional ultrasound cataract
surgery machine (the Precisionist). The Company has recognized
minimal revenue from the sale of its proprietary laser-based
product, the Photon LaserPhaco System (the Photon). In May, 1995
the Company received regulatory approval to manufacture the
Photon in limited quantities and conduct clinical trials in the
U.S. on a limited basis. Clinical trials of the Photon commenced
in April, 1996. The Company's ability to achieve profitability
depends primarily upon its ability to obtain the regulatory
approvals required to manufacture and market the Photon on an
unlimited scale.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an
original maturity of three months or less to be cash equivalents.
The Company maintains its cash and cash equivalents in two banks
in Salt Lake City, Utah. The Company's deposits with these
institutions may, at times, exceed federally insured limits.

Inventories

Inventories are stated at the lower of cost or market, with
cost determined using the weighted average method. Inventories
consist primarily of components for the Precisionist and the
Photon at September 30, 1995.

Property and Equipment

Property and equipment are recorded at cost. Replacement
and major improvements are capitalized and maintenance and
repairs are charged to expense as incurred. The cost and related
accumulated depreciation of assets sold or otherwise disposed of
are removed from the accounts and any resulting gain or loss is
charged to operations.

Continued
F - 9
<PAGE>
PARADIGM MEDICAL INDUSTRIES, INC.

NOTES TO FINANCIAL STATEMENTS, Continued
------

1. Organization and Significant Accounting Policies,
Continued:

Property and Equipment, Continued

Depreciation of property and equipment is computed using
the straight-line method over the estimated useful lives of the
related assets, which range from five to seven years.

Debt Offering Costs

Debt offering costs related to the private placement of
promissory notes (see Note 10) are being amortized on a
straight-line basis (which approximates the interest method) over
the one year term of the notes.

Deferred Public Offering Costs

Costs associated with the Company's proposed public
offering (see Note 10) have been deferred. Such costs will be
netted against the offering proceeds unless the offering is
terminated, at which time they will be charged to expense.

Income Taxes

As discussed in Note 5, the Company follows the liability
method of accounting for income taxes.

Stock Splits

As discussed above, effective May 5, 1993, French Bar
entered into a merger agreement with Paradigm Medical, Inc..
Pursuant to the merger, French Bar caused a 1-for-7.96 reverse
stock split of its shares of common stock. On April 5, 1994, the
Company's Board of Directors declared a one-for-five reverse
stock split of its shares of common stock. All references to
number of shares have been restated to reflect the effects of the
merger and stock split.

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.

Net Income (Loss) Per Share

Net income (loss) per share is calculated by dividing net
income (loss) by the weighted average shares of common stock and
common stock equivalents outstanding. Pursuant to the rules of
the Securities and Exchange Commission, common stock equivalents
related to common stock, stock options and warrants issued within
one year prior to the proposed initial public offering have been
included as if they were outstanding for all periods presented.
Other common stock equivalents have not been included in loss
years because they are anti-dilutive.

Continued
F-10
<PAGE>
PARADIGM MEDICAL INDUSTRIES, INC.

NOTES TO FINANCIAL STATEMENTS, Continued
-------

1. Organization and Significant Accounting Policies,
Continued:

Unaudited Financial Information

In the opinion of management, the accompanying
unaudited financial statements contain all adjustments
(consisting only of normal recurring items) necessary to present
fairly the financial position of the Company as of March 31, 1996
and the results of its operations and its cash flows for the six
months ended March 31, 1995 and 1996. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the SEC's
rules and regulations. The results of operations for the periods
presented are not necessarily indicative of the results to be
expected for the full year.

Concentration of Credit Risk

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, which are collateralized, are generally due within
thirty days for domestic customers and sixty days for
international customers. Credit losses historically have not
been significant.

Reclassifications

Certain reclassifications have been made to the 1994
financial statements to conform to the 1995 presentation. These
reclassifications had no effect on stockholders' equity or net
loss.

Restatement of 1993 Financial Statements

During May, 1996 the Company determined that the 166,431
shares of common stock issued to the former shareholders of
French Bar were incorrectly assigned no value. The financial
statements for the year ended September 30, 1993 have been
restated to increase common stock and the accumulated deficit by
the estimated fair market value of the shares issued of $343,965.

2. Going Concern:

The financial statements have been presented on a going
concern basis, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business.
The Company incurred a net loss of $832,557 during the year ended
September 30, 1995 and as of September 30, 1995 the Company had
an accumulated deficit of $2,600,900. As discussed in Note 1,
the Company's ability to achieve profitability depends primarily
upon its ability to obtain the regulatory approvals required to
manufacture and market the Photon on an unlimited scale.
Obtaining these approvals will require funds which are in excess
of available working capital. As discussed in Note 10, the
Company has decided to provide its holders of Series B Preferred
stock a rescission offer. The offer could obligate the Company
to refund up to $166,000 plus accrued interest of $19,000, an
amount which is in excess of available working capital. These
factors raise substantial doubt about the Company's ability to
continue as a going concern.

Continued
F - 11
<PAGE>

PARADIGM MEDICAL INDUSTRIES, INC.

NOTES TO FINANCIAL STATEMENTS, Continued
-------

2. Going Concern, Continued:

Under the current circumstances, the Company's ability to
continue as a going concern depends upon the successful public
offering of the Company's equity securities (see Note 10). If
the public offering is not successful, the Company intends to
issue equity securities in a private placement to accredited
investors (see Note 6). No adjustments have been made to the
accompanying financial statements for this uncertainty.

3. Property and Equipment:

Property and equipment consist of the following:
<TABLE>
<CAPTION>
September 30, March 31,
1995 1996
------------ ----------
(Unaudited)
<S> <C> <C>
Automobile $26,099 $ 26,099
Office equipment 9,808 64,408
Furniture and fixtures 6,019 17,066
Computer equipment 17,414 17,414
------- ---------
59,340 124,987
Accumulated depreciation (9,204) (16,238)
------- ---------
$50,136 $108,749
======= =========
</TABLE>

4. Long-term Debt:

Long-term debt consists of the following:

September 30, March 31,
1995 1996
------------ ----------
(Unaudited)
<S> <C> <C>
Note payable to finance
company, collateralized
by property and equipment,
accounts receivable and
inventories, bearing
interest at prime (8.75%
at September 30, 1995 and
8.25% at March 31, 1996)
plus 4%, payable in
monthly installments of
$1,183, due February, 1998. $ 31,779 $ 27,444

Note payable to finance
company, collateralized
by property and equipment,
accounts receivable and
inventories, bearing
interest at prime (8.75%
at September 30, 1995 and
8.25% at March 31, 1996)
plus 4%, payable in
monthly installments of
$884, due February, 1998. 27,154 24,096

</TABLE>

Continued
F - 12
<PAGE>
PARADIGM MEDICAL INDUSTRIES, INC.

NOTES TO FINANCIAL STATEMENTS, Continued
-------

4. Long-term Debt, Continued:

September 30, March 31,
1995 1996
------------ ----------
(Unaudited)
<S> <C> <C>
Note payable to bank,
collateralized by an
automobile, bearing
interest at 9.95%,
payable in monthly
installments of $418,
due September, 2001. $ 22,549 $ 21,377

Promissory notes
payable to individuals,
including $24,106 payable
to an officer of the
Company, bearing interest
at an imputed rate of 18%,
and due the earlier of
the Company raising at
least $4,000,000 through
a public offering or
December 31, 1996 (see
Note 10). 570,000
---------- ---------
81,482 642,917

Current portion of
long-term debt (21,235) (592,610)
---------- ---------
$ 60,247 $ 50,307
========== =========
</TABLE>

The Company's long-term debt has scheduled maturities for years
ending September 30 as follows:

<S> <C>
1996 $21,235
1997 24,017
1998 22,119
1999 5,086
2000 4,305
Thereafter 4,720
-------
$81,482
=======

</TABLE>

5. Income Taxes:

Effective September 1, 1993, the Company adopted the
liability method of accounting for income taxes under Statement
of Financial Accounting Standards (SFAS) No. 109. Under the
liability method specified by SFAS No. 109, deferred tax assets
and liabilities are determined based on the difference between
the financial statement and tax bases of assets and liabilities
as measured by the currently enacted tax rates in effect for the
years in which these differences reverse. Prior to 1993, income
taxes were calculated in accordance with SFAS No. 96. The
adoption of SFAS No. 109 did not have an impact on the Company's
financial position because the deferred tax asset related to the
Company's net operating loss carryforwards was fully offset by a
valuation allowance.

Continued
F - 13
<PAGE>
PARADIGM MEDICAL INDUSTRIES, INC.

NOTES TO FINANCIAL STATEMENTS, Continued
-----

5. Income Taxes, Continued:

At September 30, 1995, the Company has net operating loss
carryforwards for income tax purposes of approximately $2,010,000
and research and development tax credit carryforwards of
approximately $33,800. These carryforwards are available to
offset future taxable income, if any, and expire in the years
2005 through 2010. The Company's utilization of these
carryforwards against future taxable income may become subject to
an annual limitation due to a cumulative change in ownership of
the Company of more than 50 percent (see Note 10).

The components of the net deferred tax asset as of
September 30, 1995 are as follows:

<S> <C>
Deferred tax assets:
Net operating
loss carryforwards $ 684,000
Research and development
tax credit carryforwards 33,800
Valuation allowance (717,800)
---------
Net deferred tax asset $ -
=========

</TABLE>

The Company recognized no income tax benefit from the
losses generated in the year ended September 30, 1994 and 1995
and the six months ended March 31, 1996.

The valuation allowance increased by $272,000 during fiscal
1994 and $309,800 during fiscal 1995 primarily as a result of the
increase in deferred tax assets related to net operating losses.
SFAS No. 109 requires that a valuation allowance be provided if
it is more likely than not that some portion or all of a deferred
tax asset will not be realized. The Company's ability to
realize the benefit of its deferred tax asset will depend on the
generation of future taxable income. Because the Company has yet
to recognize significant revenue from the sale of its laser-based
Photon, the Company believes that a full valuation allowance
should be provided.

6. Preferred Stock:

On September 1, 1993 the Company established a series of
non-voting preferred shares designated as the 6% Series A
Preferred Stock, consisting of 500,000 shares with no par value,
of which 116,000 shares were issued and outstanding as of
September 30, 1995 and 122,764 issued and outstanding as of March
31, 1996. This series is part of the Company's 5,000,000
authorized shares (10,000,000 authorized shares as of September
30, 1995) of non-voting preferred stock (see Note 10). 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, and because
dividends are non-cumulative, no deficiencies in dividend
payments from one year can be carried forward to the next.

Continued
F - 14
<PAGE>
PARADIGM MEDICAL INDUSTRIES, INC.

NOTES TO FINANCIAL STATEMENTS, Continued
--------

6. Preferred Stock, Continued:

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.

In connection with the private placement of the Company's
Series A Preferred Stock, the Company committed to grant the
placement agent warrants to purchase 11,600 shares of its Series
A Preferred Stock at a price of $4.00 per share. Certain
provisions governing these warrants, such as the exercise period,
have not been established.

On April 21, 1995, the Company declared a 6% preferred
stock dividend in the amount of $27,056 to all shareholders of
record as of December 31, 1994, which was paid through the
issuance of 6,764 shares of Series A Preferred Stock on January
8, 1996.

On May 9, 1994, the Company established a series of
non-voting preferred shares designated as the 12% Series B
Preferred Stock, consisting of 500,000 shares with no par value,
of which 493,000 shares were issued and outstanding as of
September 30, 1995 and 499,017 issued and outstanding as of March
31, 1996. This series is also part of the Company's 5,000,000
authorized shares (10,000,000 authorized shares as of September
30, 1995) of non-voting preferred stock (see Note 10). 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, and because
dividends are non-cumulative, no deficiencies in dividend
payments from one year can be carried forward to the next.

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 right of the holders of Series A
Preferred Stock to receive an amount equal to $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.

Continued
F - 15
<PAGE>
PARADIGM MEDICAL INDUSTRIES, INC.

NOTES TO FINANCIAL STATEMENTS, Continued
-------

6. Preferred Stock, Continued:

5. The Company may, at its option, redeem all of the
then outstanding shares 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.

In connection with the private placement of the Company's
Series B Preferred Stock, the Company granted the placement agent
warrants to purchase 21,525 shares of its common stock at $3.00
per share and granted an individual 25,000 shares of common
stock. These warrants expire on December 31, 1999.

On April 21, 1995, the Company declared a 12% preferred
stock dividend in the amount of $24,068 to all shareholders of
record as of December 31, 1994, which was paid through the
issuance of 6,017 shares of Series B Preferred Stock on January
8, 1996.

7. Related Party Transactions:

The Company has subcontracted the manufacturing of its
Precisionist and Photon LaserPhaco systems to a company that is
a shareholder under an exclusive contract, which expires July 17,
1997. This contract prohibits the shareholder company from
manufacturing complete ultrasound or laser surgical systems for
any other company, without permission from the Company. During
fiscal 1994 and 1995, the Company purchased design and
manufacturing services from this company in the amount of
$158,897 and $509,837, respectively, and as of September 30,
1995, owed this company $203,020, which is included in accounts
payable.

The Company has contracted with a company, of which one of
the Company's directors serves as Chief Executive Officer, to
purchase certain components for the Photon. During fiscal 1995,
the Company purchased $263,000 of materials from this company.

In 1988, the Company signed an exclusive patent license
agreement with a company which owns the patent for the
laser-based 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 March 31, 1996, no significant royalties
have been earned under this agreement. The Company has also
entered into a consulting agreement with this individual which
provides for annual consulting fees of $25,000 through July 7,
2003.

A law firm, of which a director of the Company is a
partner, has rendered legal services to the Company since
February 1995. During fiscal 1995, the Company paid this firm
$45,300 for legal services.

Continued
F - 16
<PAGE>
PARADIGM MEDICAL INDUSTRIES, INC.

NOTES TO FINANCIAL STATEMENTS, Continued
-----

8. Commitments:

Leases

The Company leases certain office equipment under operating
lease agreements with minimum terms in excess of one year. The
future minimum lease payments for the years ended September 30
are as follows:

<S> <C>
1996 $1,772
1997 1,181
------
Total minimum lease payments $2,953
======

</TABLE>

Total lease expense for fiscal 1994 and 1995 was $15,984
and $22,880, respectively. In November 1995, the Company renewed
its lease for office space through November 30, 1996 at a monthly
rent of $1,436.

9. Export Sales

Total sales for fiscal 1994 and 1995 include the following
export sales by major geographic area:

<S> <C> <C>
Geographic Area 1994 1995
--------------- ---- ----
Europe $151,852 105,142
Far East 99,637 122,032
Middle East 16,144 56,690
-------- -------
$267,633 $283,864
======== ========

</TABLE>

10. Subsequent Events:

Change of State of Incorporation

In November, 1995, the Company obtained the necessary
director and shareholder approvals to reincorporate in Delaware.
In conjunction with the re-incorporation, which was finalized in
February, 1996, the Company established three series of preferred
stock with a total of 5,000,000 authorized shares with a par
value of $.001, including two series with rights and privileges
similar to the previously issued Series A and B preferred stock,
and one series of common stock with a par value of $.001 and a
total of 20,000,000 authorized shares. All outstanding shares of
the Company were converted on a one-for-one basis into shares in
the new Delaware Corporation.

Continued
F - 17
<PAGE>
PARADIGM MEDICAL INDUSTRIES, INC.

NOTES TO FINANCIAL STATEMENTS, Continued
------

10. Subsequent Events, Continued:

Common Stock Grants

On November 30, 1995, the Company granted 50,512 and 50,513
shares of common stock to two individuals who are officers and
directors of the Company. The shares will be forfeited in the
event either individual resigns or is removed for cause as an
officer and director of the Company within two years from the
date of grant. The value assigned by the Company's investment
banker of $1.50 per share will be charged to compensation expense
ratably over two years.

1995 Stock Option Plan

In November, 1995, the Company's Board of Directors and
shareholders approved the Company's 1995 Stock Option Plan (the
Option Plan) which authorized the granting of stock options to
purchase an aggregate of not more than 300,000 shares of the
Company's common stock. On February 16, 1996, 300,000 options to
purchase shares of the Company's common stock at $5.00 per share
were granted, of which 2,000 were returned to the Company on May
20, 1996. As of June 10, 1996, no options have been exercised or
have expired.

The Option Plan provides for the grant of incentive stock
options within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended, and non-qualified stock options to
employees and non-employee directors of the Company. Incentive
stock options may be granted only to employees. The Option Plan
is administered by the Board of Directors or a Compensation
Committee, which determines the terms of options granted
including the exercise price, the number of shares subject to the
option, and the exercisability of the option.

Private Placement

In December 1995, the Company began a private placement of
up to $600,000 of units. Each unit consists of a $25,000
promissory note with a stated rate of 12% and warrants to
purchase 12,500 shares of the Company's common stock at a price
of $3.33 per share. The value assigned by the Company's
investment banker to the warrants was $.10 per warrant. The
notes bear interest at an imputed rate of 18% and are due the
earlier of the Company raising at least $4,000,000 through a
public offering or December 31, 1996. The warrants are
exercisable beginning on the date the note is issued and expiring
on December 1, 2000, and are redeemable by the Company under
certain conditions at a price of $.05 per warrant. Through March
31 , 1996, the Company had sold 23 units for cash proceeds of
$575,000. An additional $25,000 unit was issued for services,
which amount is included in operating expenses for the six months
ended March 31, 1996.

Proposed Public Offering

In November 1995, the Company entered into a letter of
intent with an underwriter. Under the terms of the letter of
intent, the underwriter is to be retained by the Company to
provide investment banking services concerning a proposed firm
commitment public offering of the Company's securities. Pursuant
to the letter of intent, the Company anticipates registering in
June 1996, 1,000,000 units for sale to the public at a minimum
price of $6.25 per unit. Each unit will consist of one share of
common stock and one warrant to purchase one share of common
stock.

Continued
F - 18
<PAGE>
PARADIGM MEDICAL INDUSTRIES, INC.

NOTES TO FINANCIAL STATEMENTS, Continued
-----

10. Subsequent Events, Continued:

Termination of Anti-Dilution Rights

On December 19, 1995, the Company entered into an agreement
with a significant shareholder which terminated certain
previously granted anti-dilution rights which provided this
shareholder a 5% fixed equity position in the Company. Under the
terms of the agreement, two of the Company's officers sold a
total of 100,000 shares of their common stock to this shareholder
for $1,000 and the Company issued 20,000 shares to this
shareholder. Based on the value assigned by the Company's
investment banker of $1.50 per share, the Company recognized
$30,000 of expense for the 20,000 shares issued by the Company
and $149,000 of expense and additional paid-in-capital for the
100,000 shares sold by the officers. In the agreement the
Company has represented that a public offering of the Company's
securities will be completed by July 15, 1996. If a public
offering is not completed by July 15, 1996, this shareholder
could attempt to terminate the agreement in order to have his
anti-dilution rights restored to the same position as existed
prior to the execution of such agreement.

Employment Agreements

Effective February 1, 1996, the Company entered into
employee agreements with three officers which expire on February
1, 2001. The agreements provide for aggregate annual
compensation of $380,000 effective upon completion of the
offering. On February 16, 1996 the officers were granted options
to acquire 190,000 shares of common stock at a price of $5.00
under the Company's Option Plan.

Offer of Rescission

As discussed in Note 6, the Company raised $1,972,000 by
offering Series B Preferred Stock to investors. In structuring
and proceeding with this private offering, the Company may not
have complied with certain aspects of California corporate law
and federal and state securities laws. The Company has decided
that, in order to effectively proceed with its proposed public
offering, it will provide its holders of Series B Preferred Stock
a rescission offer. The rescission offer is designed to reduce
any type of contingent liability the Company may be subject to in
connection with the sale of the Series B Preferred Stock. The
rescission offer, however, may not fully relieve the Company from
exposure to contingent liability under federal or state
securities laws. As of June 10, 1996, shareholders who had
invested $1,806,000 had rejected the rescission offer or the
offer to such shareholders had expired. If the remaining holders
of Series B Preferred Stock all accept this rescission offer,
which the Company considers unlikely, the Company will have to
refund $166,000 plus accrued interest of $19,000 (at rates
ranging from 6% to 10% per year) to such shareholders. Any
amounts paid in excess of net proceeds originally received from
such shareholders (a maximum of $46,000) will increase the net
loss and accumulated deficit. The Company currently does not
have adequate funds available to make such a refund and is
dependent on the proceeds from the proposed public offering to
proceed with the rescission offer.

Profit Sharing Plan

In February 1996, the Company adopted a profit sharing plan
pursuant to which an amount equal to 10% of the pretax profits of
the Company will be set aside for the benefit of the Company's
officers and key employees. This amount will only be paid if the
Company's qualified pretax profits exceed $10,000,000 for any
fiscal year beginning October 1, 1996 and ending September 30,
2001.

Continued
F - 19
<PAGE>
PARADIGM MEDICAL INDUSTRIES, INC.

NOTES TO FINANCIAL STATEMENTS, Continued
-----

10. Subsequent Events, Continued:

Attorney's Warrants

On March 15, 1996, the Company granted warrants to purchase
25,000 shares of the Company's common stock at a price of $3.33
per share to a law firm, of which a director of the Company is a
partner. The warrants are exercisable beginning March 15, 1997
and expire on December 1, 2000, and are redeemable by the Company
under certain conditions at a price of $.05 per warrant.

Legal Proceedings

On March 31, 1995, the Company entered into an agreement
with an investment banking company to obtain capitalization
through a public offering. The agreement was deemed terminated
if the required capitalization was not obtained by December 31,
1995. On April 17, 1996, the investment banking company
requested 100,000 shares of the Company's common stock, along
with monthly payments of $3,000 for three years, as compensation
under the agreement. It is the Company's position that the
agreement is not enforceable as it was terminated and is no
longer in effect. If the investment banking company brings a
lawsuit against the Company and the Company does not prevail in
its defenses, the lawsuit could have an unfavorable impact on the
Company's financial position and could result in dilution to the
Company's shareholders.

F - 20
<PAGE>
No dealer, salesman or any
other person has been authorized
to give information or to make any
representations other than those
contained in this Prospectus, and,
if given or made, such information
or representations must not be relied
upon as having been authorized by the
Company or the Underwriter. This 1,000,000 Units
Prospectus does not constitute an
offer to sell or a solicitation of
any offer to buy any of the securities
offered hereby by anyone in any
jurisdiction in which such offer
or solicitation is not authorized
or in which the person making such
offer or solicitation is not qualified
to do so or to anyone to whom it is
unlawful to make such offer or PARADIGM MEDICAL
solicitation. Neither the delivery INDUSTRIES, INC.
of this Prospectus nor any sale made
hereunder shall, under any circumstances,
create any implication that there has
been no change in the affairs of the
Company since the date hereof.

_____________________ Each Unit Consisting of
One Share of Common Stock
and One Class A Warrant
<TABLE>
<CAPTION>

TABLE OF CONTENTS
<S> <C>
Page
Prospectus Summary . . . . 1
Risk Factors . . . . . . . 4
Use of Proceeds. . . . . . 14
Dividend Policy . . . . . 15 ______________
Dilution . . . . . . . . . 16
Capitalization . . . . . . 17 PROSPECTUS
Selected Financial Data. . 18 _______________
Management's Discussion
and Analysis . . . . . . 19
Business . . . . . . . . 22
Management . . . . . . . . 36
Certain Transactions . . . 42
Principal Shareholders . . 43
Stockholders Registering
Shares . . . . . . . . . 44
Description of Securities. 45
Shares Eligible for
Future Sale. . . . . . . 49
Underwriting . . . . . . . 50
Legal Matters. . . . . . . 52
Experts. . . . . . . . . . 52
Available Information. . . 52
Definitions. . . . . . . . 53 July 10, 1996

</TABLE>

Until October 8, 1996 (90 days
after the date of this Prospectus),
all dealers effecting transactions
in the securities offered hereby,
whether or not participating in the
distribution, may be required to deliver
a Prospectus. This is in addition to
the obligation of dealers to deliver a
Prospectus when acting as underwriters
and with respect to their unsold
allotments or subscriptions.