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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D. C.

                                   FORM 10-QSB

              [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                         For Quarter Ended June 30, 2007

          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                      For the Transition Period From ___ to

                         Commission File Number: 0-28498

                        PARADIGM MEDICAL INDUSTRIES, INC.
             (Exact name of registrant as specified in its charter)


                Delaware                                   87-0459536
       (State or other jurisdiction of                   (I.R.S. Employer
       incorporation or organization)                    Identification No.)

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

       Registrant's telephone number, including area code: (801) 977-8970


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

         Indicate by check mark whether the  registrant  is a shell  company (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [ ] No [ X ]

         State  the  number of shares  outstanding  of each of the  registrant's
classes of common equity, as of the latest practicable date:

         Common Stock, $.001 par value                 246,866,625
                                                    ----------------
                  Title of Class                    Number of Shares
                                                    Outstanding as of
                                                    August 14, 2007

                                       ii





                        PARADIGM MEDICAL INDUSTRIES, INC.
                                   FORM 10-QSB

                       FOR THE QUARTER ENDED JUNE 30, 2007


                                      INDEX

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements................................................ 1

         Condensed Balance Sheet (unaudited) - June 30, 2007................. 1

         Condensed Statements of Operations (unaudited) for
         the six months ended June 30, 2007 and June 30, 2006................ 2

         Condensed Statements of Cash Flows (unaudited) for
         the six months ended June 30, 2007 and June 30, 2006 ............... 3

         Notes to Condensed Financial Statements (unaudited)................. 4

Item 2.  Management's Discussion and Analysis or
         Plan of Operation ................................................. 11

Item 3.  Controls and Procedures  .......................................... 17

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.................................................. 18

Item 2.  Unregistered Sales of Equity Securities and Use of
         Proceeds........................................................... 18

Item 3.  Defaults Upon Senior Securities.................................... 22

Item 4.  Submission of Matters to a Vote of Security Holders................ 22

Item 5.  Other Information.................................................. 22

Item 6.  Exhibits and Reports on Form 8-K................................... 22

Signature Page ............................................................. 24







                                       iii

                        PARADIGM MEDICAL INDUSTRIES, INC.
                             CONDENSED BALANCE SHEET
                                   (UNAUDITED)


                                                                  June 30,  2007
                                                                 ---------------
ASSETS
Current Assets
  Cash and Cash Equivalents                                      $      486,000
  Receivables, Net                                                      388,000
  Inventory                                                           1,002,000
  Prepaid Expenses                                                       90,000
                                                                 ---------------
              Total Current Assets                                    1,966,000

Intangibles, Net                                                        339,000
Property and Equipment, Net                                              18,000
                                                                 ---------------
                    Total Assets                                 $    2,323,000
                                                                 ===============

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
  Accounts Payable                                               $      332,000
  Accrued Expenses                                                    1,011,000
                                                                 ---------------
                    Total Current Liabilities                         1,343,000
  Convertible Notes Payable                                           3,589,000
                                                                 ---------------
  Total Long-term Liabilities                                         3,589,000
                                                                 ---------------
               Total Liabilities                                      4,932,000
                                                                 ---------------

Stockholders' Deficit:
Preferred Stock, Authorized:
5,000,000 shares, $.001 par value
     Series A
        Authorized:  500,000 shares; issued and
        outstanding: 5,627 shares at June 30, 2007                            -
     Series B
        Authorized:  500,000 shares; issued and
        outstanding: 8,986 shares at June 30, 2007                            -
     Series C
        Authorized:  30,000 shares; issued and
        outstanding: zero shares at June 30, 2007                             -
     Series D
        Authorized:  1,140,000 shares; issued and
        outstanding: 5,000 shares at June 30, 2007                            -
     Series E
        Authorized:  50,000 shares; issued and
        outstanding: 250 shares at June 30, 2007                              -
     Series F
        Authorized:  50,000 shares; issued and
        outstanding: 4,398.75 shares at June 30, 2007                         -
     Series G
        Authorized:  2,000,000 shares; issued and
        outstanding: 588,235 shares at June 30, 2007                      1,000
Common Stock, Authorized:
800,000,000 shares, $.001 par value; issued and
    outstanding: 216,989,225 at June 30, 2007                           217,000
Additional Paid-in-capital                                           62,935,000
Accumulated Deficit                                              $  (65,762,000)
                                                                 ---------------
                      Total Stockholders' Deficit                $   (2,609,000)
                                                                 ---------------
                 Total Liabilities and Stockholders' Deficit     $    2,323,000
                                                                 ===============


                 The accompanying notes are an integral part to
                      these condensed financial statements


                                       1

                                   PARADIGM MEDICAL INDUSTRIES, INC.
                                  CONDENSED STATEMENTS OF OPERATIONS
                                              (UNAUDITED)



                                                   Three Months Ended           Six Months Ended
                                                       June 30,                    June 30,
                                                   2007         2006           2007         2006
                                               ------------  ------------  ------------  ------------
                                                                             
Sales                                          $    260,000  $    718,000  $    656,000  $  1,182,000
Cost of Sales                                       149,000       416,000       375,000       638,000
                                               ------------  ------------  ------------  ------------
         Gross Profit                               111,000       302,000       281,000       544,000

Operating Expenses:
  Sales and Marketing                               159,000       108,000       273,000       185,000
  General and administrative                        309,000       263,000       496,000       514,000
  Research, development                             126,000       132,000       190,000       257,000
                                               ------------  ------------  ------------  ------------
         Total Operating Expenses                   594,000       503,000       959,000       956,000
                                               ------------  ------------  ------------  ------------

Operating Income (Loss)                            (483,000)     (201,000)     (678,000)     (412,000)

Other Income and (Expenses):
  Other expense (financing costs)                (1,062,000)     (553,000)   (1,115,000)   (1,097,000)
  Interest expense                                   (1,000)       (1,000)       (1,000)       (4,000)
  Interest income                                     3,000            --         5,000         2,000
  Settlement of liabilities                          41,000            --        41,000            --
                                               ------------  ------------  ------------  ------------
         Total Other Expenses                    (1,019,000)     (554,000)   (1,070,000)   (1,099,000)
                                               ------------  ------------  ------------  ------------

Income (loss) before provision for
  income                                         (1,502,000)     (755,000)   (1,748,000)   (1,511,000)
Provision for income taxes                               --            --            --            --
                                               ------------  ------------  ------------  ------------
Net income (loss)                              $ (1,502,000) $   (755,000) $ (1,748,000) $ (1,511,000)
                                               ============  ============  ============  ============
Net Loss

Earnings (loss) Per Common Share - Basic       $      (0.01) $      (0.00) $      (0.01) $      (0.01)
                                               ------------  ------------  ------------  ------------
Earnings (loss) Per Common Share - Diluted     $      (0.01) $      (0.00) $      (0.01) $      (0.01)
                                               ------------  ------------  ------------  ------------
Weighted Average Common Share - Basic           206,228,000   175,402,000   204,775,000   150,164,000
                                               ------------  ------------  ------------  ------------
Weighted Average Common Share - Diluted         207,087,000   175,402,000   205,634,000   150,164,000
                                               ------------  ------------  ------------  ------------



 The accompanying notes are an integral part to these condensed financial statements



                                       2

                        PARADIGM MEDICAL INDUSTRIES, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

                                                      Six Months Ended June 30,
                                                        2007           2006
                                                    ----------------------------
Cash Flows from Operating Activities:
------------------------------------
  Net Income (loss)                                 $ (1,748,000)  $ (1,511,000)
  Adjustment to Reconcile Net Loss to Net
    Cash Used In Operating Activities:
       Depreciation and Amortization                       3,000         24,000
       Stock Option Valuation                                  -         23,000
       Beneficial Conversion Interest                    939,000        964,000
       Issuance of Stock Options and
       Warrants for Services                              61,000         36,000
       Provision for Losses on inventory                 (22,000)       (33,000)
       Provision for Losses on receivables                     -          1,000
(Increase) Decrease from Changes in:
       Accounts Receivable                                44,000        (86,000)
       Inventories                                       (57,000)       100,000
       Prepaid and Other Expenses                        (79,000)       (38,000)
Increase (Decrease) in:
       Accounts Payable                                  (69,000)       (69,000)
       Accrued Liabilities                               208,000        144,000
                                                    ------------   -------------

       Net Cash Used in Operating Activities            (720,000)      (445,000)
                                                    ------------   -------------

Cash Flow from Investing Activities:
-----------------------------------
       Cash proceeds from sales of investment                  -        (16,000)
                                                    ------------   -------------
       Net Cash Provided by (Used in)
       Investing Activities                                    -        (16,000)
                                                    ------------   -------------

Cash Flows from Financing Activities:
------------------------------------
       Principal Payments on Notes Payable and
       Long-term Debt                                          -        (14,000)
       Proceeds from Issuance of Convertible Notes     1,000,000      1,000,000
                                                    ------------   -------------
       Net Cash (Used) Provided by Financing
       Activities                                      1,000,000        986,000
                                                    ------------   -------------

       Net Change in Cash                                280,000        525,000

       Cash, Beginning of Period                         206,000         66,000
                                                    ------------   -------------

       Cash, End of Period                          $    486,000   $    591,000
                                                    ============   =============

Supplemental Disclosure of Cash Flow Information:
       Cash Paid for Interest                       $      1,000   $      2,000
                                                    ------------   -------------

       Cash Paid for Income Taxes                   $          -   $          -
                                                    ------------   -------------

                 The accompanying notes are an integral part to
                      these condensed financial statements

                                       3


                        PARADIGM MEDICAL INDUSTRIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)


Basis of Financial Statement Presentation
-----------------------------------------

         The  accompanying  condensed  financial  statements of the Company have
been  prepared  by  the  Company,  without  audit,  pursuant  to the  rules  and
regulations of the Securities and Exchange  Commission.  Certain information and
disclosures  normally  included in financial  statements  prepared in accordance
with  accounting  principles  generally  accepted in the United States have been
condensed or omitted  pursuant to such rules and  regulations.  These  condensed
financial  statements  reflect  all  adjustments   (consisting  only  of  normal
recurring  adjustments)  that,  in the opinion of  management,  are necessary to
present  fairly  the  results  of  operations  of the  Company  for the  periods
presented.  These condensed  financial  statements should be read in conjunction
with the financial  statements  and the notes thereto  included in the Company's
Form 10-KSB for the year ended  December 31, 2006. The results of operations for
the six months  ended  June 30,  2007,  are not  necessarily  indicative  of the
results that may be expected for the fiscal year ending December 31, 2007.

Going Concern
-------------

         The  accompanying  financial  statements  have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business.  Historically,  the Company has
not demonstrated  the ability to generate  sufficient cash flows from operations
to satisfy its liabilities and sustain operations,  and the Company has incurred
significant  losses.  These factors raise  substantial doubt about the Company's
ability to continue as a going concern.

         The  Company's  continuation  as a going  concern is  dependent  on its
ability to generate sufficient income and cash flow to meet its obligations on a
timely basis and/or obtain additional financing as may be required.  The Company
is actively seeking options to obtain additional capital and financing.

         In addition,  the Company has taken  significant  steps to reduce costs
and increase operating efficiencies. Specifically, the Company has significantly
reduced  the use of  consultants,  which has  resulted  in a large  decrease  in
expenses.  In  addition,  the Company has reduced the number of its direct sales
representatives,  which has resulted in less payroll, travel and other expenses.
Although these cost savings have significantly  reduced the Company's losses and
ongoing  cash flow  needs,  if the  Company  is unable to obtain  equity or debt
financing,  it may be unable to continue  development of its products and may be
required to substantially curtail or cease operations.

Net Loss Per Share
------------------

         Net loss per common share is computed on the weighted average number of
common and common equivalent shares outstanding during each period. Common stock
equivalents  consist of convertible  preferred  stock,  common stock options and
warrants.  Common equivalent shares are excluded from the computation when their
effect is anti-dilutive.  Other common stock  equivalents  consisting of options
and warrants to purchase  46,059,392 and  30,164,690  shares of common stock and
preferred stock  convertible  into 858,688 and 909,000 shares of common stock at
June 30,  2007and  2006,  respectively,  have not been  included in loss periods
because they are anti-dilutive.

         For the three months  ended June 30, 2007,  the options and warrants to
purchase 46,059,392 shares of common stock were excluded because of the treasury
stock method.

         The following  table is a  reconciliation  of the net loss numerator of
basic and diluted net loss per common share for the six month periods ended June
30, 2007 and June 30, 2006:

                                       4

                                 Three Months Ended         Six Months Ended
                                     June 30,                   June 30,
                                  2007        2006         2007         2006

Basic weighted average
  shares outstanding          206,228,000  175,402,000  204,775,000  150,164,000

Common stock equivalents -        859,000      869,000      859,000           --
  convertible preferred
  stock

Diluted weighted average
  shares outstanding          207,087,000  176,271,000  205,634,000  150,164,000
                              =========== ============  ===========  ===========
Convertible Notes
-----------------

         April 27, 2005 Sales of  $2,500,000  in  Convertible  Notes.  To obtain
funding  for the  Company's  ongoing  operations,  the  Company  entered  into a
securities  purchase agreement with four accredited  investors on April 27, 2005
for the  sale of (i)  $2,500,000  in  convertible  notes  and (ii)  warrants  to
purchase  16,534,392  shares of its common stock. The sale of convertible  notes
and warrants occurred in three traunches and the investors  provided the Company
with an aggregate of $2,500,000 as follows:

    *    $850,000 was disbursed on April 27, 2005;
    *    $800,000 was  disbursed  on June 23, 2005 after  filing a  registration
         statement  on June 22,  2005 to  register  the  shares of common  stock
         underlying the convertible notes and the warrants; and
    *    $850,000  was  disbursed on  June 30, 2005,  the effective date  of the
         registration statement.

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

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

         The $2,500,000 in convertible  notes bear interest at 8% per annum from
the date of issuance. Interest is computed on the basis of a 365-day year and is
payable  quarterly in cash,  with six months of interest  payable up front.  The
interest  rate resets to zero  percent for any month in which the stock price is
greater than 125% of the initial market price,  or $.0945,  for each trading day
during that month. Any amount of principal or interest on the convertible  notes
that is not paid when due will bear  interest  at the rate of 15% per annum from
the date due thereof until such amount is paid. The convertible  notes mature in
three years from the date of issuance, and are convertible into our common stock
at the selling stockholders' option, at the lower of (i) $.09 or (ii) 60% of the
average of the three lowest intraday  trading prices for the common stock on the
OTC  Bulletin  Board  for the 20  trading  days  before  but not  including  the
conversion  date.  Accordingly,  there is no limit on the number of shares  into
which the notes may be converted.

         The convertible  notes are secured by the Company's  assets,  including
the  Company's  inventory,   accounts  receivable  and  intellectual   property.
Moreover,  the Company has a call option under the terms of the notes.  The call
option  provides  the  Company  with the right to prepay all of the  outstanding
convertible  notes at any time,  provided  there is no event of  default  by the
Company and the Company's  stock is trading at or below $.09 per share. An event
of default  includes the failure by the Company to pay the principal or interest
on the convertible notes when due or to timely file a registration  statement as
required by the Company or obtain effectiveness with the Securities and Exchange
Commission of the registration statement. Prepayment of the convertible notes is
to be made in cash equal to either  (a) 125% of the  outstanding  principal  and
accrued  interest for prepayments  occurring  within 30 days following the issue
date of the notes;  (b) 130% of the outstanding  principal and accrued  interest
for prepayments occurring between 31 and 60 days following the issue date of the
notes;  or (c)  145% of the  outstanding  principal  and  accrued  interest  for
prepayments occurring after the 60th day following the issue date of the notes.



                                       5


         The warrants are exercisable until five years from the date of issuance
at a purchase  price of $.20 per share.  The investors may exercise the warrants
on a cashless  basis if the shares of common stock  underlying  the warrants are
not then  registered  pursuant to an effective  registration  statement.  In the
event the investors  exercise the warrants on a cashless basis, then the Company
will not receive any proceeds therefrom.  In addition, the exercise price of the
warrants  will be  adjusted in the event the Company  issues  common  stock at a
price below market,  with the exception of any securities  issued as of the date
of the  warrants  or issued in  connection  with the  convertible  notes  issued
pursuant to the securities purchase agreement.

         The noteholders  have agreed to restrict their ability to convert their
convertible  notes or exercise  their  warrants and receive shares of our common
stock  such  that the  number of  shares  of  common  stock  held by them in the
aggregate and their affiliates after such conversion or exercise does not exceed
4.99% of the then issued and outstanding  shares of common stock.  However,  the
noteholders  may repeatedly sell shares of common stock in order to reduce their
ownership  percentage,  and  subsequently  convert  additional  callable secured
convertible  notes.  As of August 14, 2007,  a total of $847,917 in  convertible
notes issued on April 27, 2005 had been converted by the noteholders.

         February 28, 2006 Sale of $1,500,000 in  Convertible  Notes.  To obtain
additional  funding for the Company's  ongoing  operations,  the Company entered
into a second securities  purchase  agreement on February 28, 2006 with the same
four  accredited  investors for the sale of (i) $1,500,000 in convertible  notes
and (ii) warrants to purchase 12,000,000 shares of its common stock. The sale of
the  convertible  notes  and  warrants  is to occur in three  traunches  and the
investors  are  obligated to provide the Company with an aggregate of $1,500,000
as follows:

     *   $500,000 was disbursed on February 28, 2006;
     *   $500,000  was  disbursed  on June 28,  2006 after the  Company  filed a
         registration  statement  on June 15,  2006 to  register  the  shares of
         common  stock  underlying  the  convertible   notes.  The  Registration
         Statement  was  subsequently  withdrawn  on  July  25,  2006  and a new
         Registration  Statement  was filed on  September  26,  2006 to register
         60,000,000  shares of common  stock  issuable  upon  conversion  of the
         convertible notes.
     *   $500,000  was  disbursed  on April 20,  2007,  the day   prior  to  the
         effective date of the Registration Statement on May 1, 2007.

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

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

         The $1,500,000 in convertible notes bears interest at 8% per annum from
the date of issuance. Interest is computed on the basis of a 365-day year and is
payable  quarterly in cash,  with six months of interest  payable up front.  The
interest  rate resets to zero  percent for any month in which the stock price is
greater than 125% of the initial market price,  or $.0275,  for each trading day
during that month. Any amount of principal or interest on the convertible  notes
that is not paid when due will bear  interest  at the rate of 15% per annum from
the date due thereof until such amount is paid. The convertible  notes mature in
three years from the date of issuance, and are convertible into our common stock


                                       6


at the noteholders'  option, at the lower of (i) $.02 or (ii) 60% of the average
of the three  lowest  intraday  trading  prices for the common  stock on the OTC
Bulletin  Board for the 20 trading days before but not including the  conversion
date.  Accordingly,  there is no limit on the  number of shares  into  which the
notes may be converted.

         The  $1,500,000  in  convertible  notes are  secured  by the  Company's
assets, including the Company's inventory,  accounts receivable and intellectual
property.  Moreover, the Company has a call option under the terms of the notes.
The call  option  provides  the  Company  with the  right to  prepay  all of the
outstanding convertible notes at any time, provided there is no event of default
by the Company and the Company's stock is trading at or below $.02 per share. An
event of default  includes  the failure by the Company to pay the  principal  or
interest  on the  convertible  notes when due or to timely  file a  registration
statement as required by the Company or obtain effectiveness with the Securities
and  Exchange  Commission  of  the  registration  statement.  Prepayment  of the
convertible  notes  is to be  made in  cash  equal  to  either  (a)  125% of the
outstanding  principal and accrued interest for prepayments  occurring within 30
days  following  the  issue  date of the  notes;  (b)  130%  of the  outstanding
principal and accrued interest for prepayments  occurring between 31 and 60 days
following the issue date of the notes; or (c) 145% of the outstanding  principal
and accrued interest for prepayments  occurring after the 60th day following the
issue date of the notes.

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

         The noteholders  have agreed to restrict their ability to convert their
convertible  notes or exercise  their  warrants and receive shares of our common
stock  such  that the  number of  shares  of  common  stock  held by them in the
aggregate and their affiliates after such conversion or exercise does not exceed
4.99% of the then issued and outstanding  shares of common stock.  However,  the
noteholders  may repeatedly sell shares of common stock in order to reduce their
ownership  percentage,  and  subsequently  convert  additional  callable secured
convertible  notes.  As of August 14, 2007,  a total of $130,920 in  convertible
notes issued on February 28, 2006 had been converted by the noteholders.

         June 11, 2007 Sale of $500,000 in Convertible  Notes: To obtain further
funding for the Company's ongoing  operations,  the Company entered into a third
securities  purchase  agreement  on June 11, 2007 with the same four  accredited
investors for the sale of (i) $500,000 in callable secured convertible notes and
(ii) warrants to purchase  10,000,000  shares of its common stock. The investors
disbursed $500,000 to the Company on June 11, 2007.

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

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

         The $500,000 in  convertible  notes bear  interest at 8% per annum from
the date of issuance. Interest is computed on the basis of a 365-day year and is
payable  quarterly in cash,  with six months of interest  payable up front.  The
interest  rate resets to zero  percent for any month in which the stock price is
greater than 125% of the initial market price,  or $.0275,  for each trading day
during that month. Any amount of principal or interest on the convertible  notes
that is not paid when due


                                       7


will bear  interest at the rate of 15% per annum from the date due thereof until
such amount is paid. The  convertible  notes mature in three years from the date
of  issuance,  and are  convertible  into  the  Company's  common  stock  at the
noteholders'  option, at the lower of (i) $.02 or (ii) 50% of the average of the
three lowest  intraday  trading  prices for the common stock on the OTC Bulletin
Board for the 20 trading  days before but not  including  the  conversion  date.
Accordingly,  there is no limit on the number of shares into which the notes may
be converted.

         The $500,000 in convertible  notes are secured by the Company's assets,
including  the  Company's   inventory,   accounts  receivable  and  intellectual
property.  Moreover, the Company has a call option under the terms of the notes.
The call  option  provides  the  Company  with the  right to  prepay  all of the
outstanding convertible notes at any time, provided there is no event of default
by the Company and its stock is trading at or below $.10 per share.  An event of
default  includes the failure by the Company to pay the principal or interest on
the  convertible  notes when due or to timely file a  registration  statement as
required by the Company or obtain effectiveness with the Securities and Exchange
Commission of the registration statement. Prepayment of the convertible notes is
to be made in cash equal to either  (a) 125% of the  outstanding  principal  and
accrued  interest for prepayments  occurring  within 30 days following the issue
date of the notes;  (b) 130% of the outstanding  principal and accrued  interest
for prepayments occurring between 31 and 60 days following the issue date of the
notes;  or (c)  145% of the  outstanding  principal  and  accrued  interest  for
prepayments occurring after the 60th day following the issue date of the notes.

         The  warrants  are  exercisable  until  seven  years  from  the date of
issuance at a purchase price of $.005 per share.  The investors may exercise the
warrants  on a  cashless  basis if the  shares of common  stock  underlying  the
warrants  are  not  then  registered  pursuant  to  an  effective   registration
statement. In the event the investors exercise the warrants on a cashless basis,
the Company will not receive any proceeds therefrom.  In addition,  the exercise
price of the warrants  will be adjusted in the event the Company  issues  common
stock at a price below market, with the exception of any securities issued as of
the date of the  warrants or issued in  connection  with the  convertible  notes
issued pursuant to the securities purchase agreement.

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

         The  Company is required  to  register  the shares of its common  stock
issuable upon the  conversion of the  convertible  notes and the exercise of the
warrants that were issued to the noteholders pursuant to the securities purchase
agreement the Company entered in to on June 11, 2007. The registration statement
must be filed with the Securities and Exchange Commission within 60 days of June
11, 2007 closing date and the  effectiveness of the registration is to be within
135 days of such  closing  date.  Penalties of 2% of the  outstanding  principal
balance of the callable secured  convertible  notes plus accrued interest are to
be applied for each month the  registration is not effective within the required
time.  The penalty may be paid in cash or stock at the Company's  option.  As of
August 14, 2007, none of the convertible  notes issued on June 11, 2007 had been
converted by the noteholders.

Simple Conversion Calculation
-----------------------------

         The number of shares of common stock  issuable  upon  conversion of the
convertible notes issued on April 27, 2005,  February 28, 2006 and June 11, 2007
is  determined  by dividing  that  portion of the  principal  of the notes to be
converted and interest,  if any, by the conversion price. For example,  assuming
conversion of the $3,521,147 principal amount of convertible notes on August 14,
2007  (consisting of $4,500,000 in convertible  notes that were sold to the four
investors pursuant to the securities  purchase  agreements dated April 27, 2005,
February 25, 2006, and June 11, 2007, less $978,853 in notes that were converted
during the period from July 12, 2005 to August 14, 2007) and a conversion  price
of $.006 per share, the number of shares issuable upon conversion would be:


                                       8

                      $3,521,147/$.006= 586,858,000 shares.

         The  Company's  obligation  to  issue  shares  upon  conversion  of the
convertible notes issued on April 27, 2005,  February 28, 2006 and June 11, 2007
is essentially limitless. The following is an example of the amount of shares of
common stock that are issuable upon conversion of $3,521,147 principal amount of
convertible  notes,  based on market  prices 25%,  50%, and 75% below the market
price, as of July 23, 2007 of $.006:

    % Below     Price Per       With 40%         Number of            % of
     Market       Share         Discount       Shares Issuable    Outstanding*
     ------       -----         --------       ---------------    -----------
      25%         $.0045         $.0027        1,304,129,000           528.3%
      50%         $.003          $.0018        1,956,193,000          792.4%
      75%         $.0015         $.0009        3,912,386,000        1,584.8%

*Based on 246,866,625 shares outstanding as of August 14, 2007.

         As  illustrated,  the number of shares of common  stock  issuable  upon
conversion of the Company's callable secured  convertible notes will increase if
the  market  price of the  Company's  common  stock  declines,  which will cause
dilution to existing stockholders.

Adjustable Conversion Price of Convertible Notes
------------------------------------------------

         The  convertible  notes are  convertible  into shares of the  Company's
common stock at a 40% discount to the trading price of the common stock prior to
the  conversion.  The significant  downward  pressure on the price of the common
stock as the noteholders convert and sell material amounts of common stock could
encourage short sales by investors.  This could place further downward  pressure
on the price of the common stock.  The noteholders  could sell common stock into
the  market in  anticipation  of  covering  the short sale by  converting  their
securities,  which could cause further downward  pressure on the stock price. In
addition,  not only the sale of shares  issued  upon  conversion  or exercise of
notes, warrants and options, but also the mere perception that these sales could
occur, may have a depressive effect on the market price of the common stock.

Possible Dilution to Stockholders
---------------------------------

         The  issuance  of  shares  upon  conversion  of  convertible  notes and
exercise of warrants may result in  substantial  dissolution to the interests of
other  stockholders  since the holders of the  convertible  notes may ultimately
convert  and  sell  the full  amount  issuable  upon  conversion.  Although  the
noteholders  may not convert  their  convertible  notes  and/or  exercise  their
warrants if such  conversion or exercise price would cause them to own more than
4.99% of the Company's  outstanding  common  stock,  this  restriction  does not
prevent the noteholders from converting and/or exercising some of their holdings
and then  converting the rest of their  holdings.  In this way, the  noteholders
could sell more than this limit while never holding more than this limit.  There
is no upper  limit on the number of shares  that may be issued,  which will have
the effect of further  diluting  the  proportionate  equity  interest and voting
power of holders of the Company's common stock.



                                       9


Failure to Repay Convertible Notes May Require Company Operations to Cease
--------------------------------------------------------------------------

         On April 27,  2005,  the Company  entered  into a  securities  purchase
agreement  for the  sale of an  aggregate  of  $2,500,000  principal  amount  of
convertible  notes.  On February  28,  2006,  the Company  entered  into another
securities  purchase  agreement  for the  sale  of an  aggregate  of  $1,500,000
principal  amount of convertible  notes.  On June 11, 2007, the Company  entered
into a third securities  purchase agreement for the sale of an aggregate of here
$500,000  principal amount of convertible notes. These convertible notes are all
due and payable, with 8% interest, three years from the date of issuance, unless
sooner  converted  into  shares  of the  Company's  common  stock.  The  Company
currently has $3,521,147 in convertible notes outstanding.  Any event of default
such as the Company's failure to repay the principal or interest when due on the
notes, the Company's  failure to issue shares of common stock upon conversion by
the  noteholders,  the  Company's  breach  of any  covenant,  representation  or
warranty in the securities  purchase agreement or related convertible notes, the
assignment or  appointment  of a receiver to control a  substantial  part of the
Company's property or business, the filing of a money judgment,  writ or similar
process  against  the  Company  in  excess of  $50,000,  the  commencement  of a
bankruptcy,  insolvency,  reorganization or liquidation  proceeding  against the
Company, and the delisting of the Company's common stock could require the early
repayment of the convertible notes,  including a default interest rate of 15% on
the  outstanding  principal  balance  of the notes if the  default  is not cured
within the specified grace period.

         The Company  anticipates that the full amount of convertible notes will
be converted  into shares of its common stock,  in accordance  with the terms of
the  convertible  notes.  If the Company is  required  to repay the  convertible
notes,  it would be  required  to use its  limited  working  capital  and  raise
additional  funds.  If the Company were unable to repay the notes when required,
the noteholders could commence legal action against the Company and foreclose on
all of its assets to recover the amounts due. Any such action would  require the
Company to curtail or cease operations.

Preferred Stock Conversions
---------------------------

         Under  the  Company's  Certificate  of  Incorporation,  holders  of the
Company's  Class A and Class B  preferred  stock have the right to convert  such
stock into  shares of the  Company's  common  stock at the rate of 1.2 shares of
common stock for each share of preferred stock. During the six months ended June
30,  2007 no  shares  of  Series A  preferred  stock  and no  shares of Series B
preferred stock were converted to the Company's common stock.

         Holders of Series D preferred have the right to convert such stock into
shares of the  Company's  common  stock at the rate of one share of common stock
for each share of preferred stock.  During the six months ended June 30, 2007 no
shares of Series D preferred stock were converted to the Company's common stock.

         Holders of Series E preferred have the right to convert such stock into
shares of the Company's  common stock at the rate of 53.3 shares of common stock
for each share of preferred stock.  During the six months ended June 30, 2007 no
shares of Series E preferred stock were converted to the Company's common stock.

         Holders of Series F preferred have the right to convert such stock into
shares of the Company's  common stock at the rate of 53.3 shares of common stock
for each share of preferred stock. During the six months ended June 30, 2007, no
shares of Series F preferred stock were converted to the Company's common stock.

         Holders of Series G preferred have the right to convert such stock into
shares of the  Company's  common  stock at the rate of one share of common stock
for each share of preferred stock. During the six months ended June 30, 2007, no
shares of Series G preferred  stock were  converted  to shares of the  Company's
common stock.

Warrants
--------

         The fair value of warrants  granted as described herein is estimated at
the date of grant using the  Black-Scholes  option pricing  model.  The exercise
price per share is reflective of the then current market value of the stock.  No
grant exercise price was  established at a discount to market.  All warrants are
fully vested,  exercisable and  nonforfeitable as of the grant date. As a result
of the financing the Company  completed on April 27, 2005  involving the sale of
$2,500,000 in convertible notes, the Company granted warrants to the noteholders
to purchase 16,534,392 shares of its common stock. The warrants have an exercise
price of $.20 per  share  and  expire  on April  27,  2010.  As a result  of the
financing  the Company  completed on February 28,  2006,  involving  the sale of
$1,500,000  in  convertible  notes,  the Company  granted  that  warrants to the
noteholders to purchase 12,000,000 shares of its common stock. The warrants have


                                       10


an exercise price of $.10 per share and expire on February 27, 2011. As a result
of the financing the Company  completed on June 11, 2007,  involving the sale of
$500,000 in convertible  notes,  the Company granted warrants to the noteholders
to purchase 10,000,000 shares of its common stock. The warrants have an exercise
price of $.005 per share and expire on June 11, 2014.

Related Party Transactions
--------------------------

         Payments for legal services to the firm of which the Company's Chairman
of the Board is a partner  were  $145,000  and $83,000 for the six months  ended
June 30, 2007 and 2006, respectively.

Accrued Expenses
----------------

Accrued expenses consist of the following at June 30, 2007:

     Accrued consulting and litigation reserve                     $    656,000
     Accrued payroll and employee benefits                               37,000
     Sales taxes payable                                                 11,000
     Customer deposits                                                   76,000
     Accrued Royalties                                                    1,000
     Warranty and return allowance                                      206,000
     Other accrued expenses                                              24,000
                                                                   ------------
     Total
                                                                   $  1,011,000
                                                                   ============

Item 2:  Management's Discussion and Analysis or Plan of Operation

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

Critical Accounting Policies

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

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

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


                                       11


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

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

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

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

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

General

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

         The Company is engaged in the design, development, manufacture and sale
of high technology  diagnostic and surgical eye care products.  Given the "going
concern" status of the Company, management has focused efforts on those products
and activities  that will, in its opinion,  achieve the most resource  efficient
short-term cash flow. As seen in the results for the three months ended June 30,
2006, diagnostic products have been the major focus and the Photon(TM) and other
extensive research and development projects have been put on hold pending future
evaluation when the Company's financial position improves.  The Company does not
focus on a specific  diagnostic product or products but, instead,  on the entire
diagnostic group.

Results of Operations

         Three Months  Ended June 30, 2007,  Compared to Three Months Ended June
30, 2006

         Net  sales  for the three  months  ended  June 30,  2007  decreased  by
$458,000,  or 64%, to  $260,000  as compared to $718,000  for the same period of
2006. This reduction in sales was primarily due to reduced sales of the P40, P45
and P60 UBM Ultrasound Biomicroscopes and the LD 400 Perimeters.



                                       12


         For the three  months  ended June 30,  2007,  sales from the  Company's
diagnostic  products  totaled  $198,000,  or 76% of total revenues,  compared to
$613,000,  or 85% of total  revenues for the same period of 2006.  The remaining
24% of sales,  or $62,000  during the three  months ended June 30, 2007 was from
parts, disposables, and service revenue.

         Sales of the P40, P45 and P60 UBM Ultrasound  Biomicroscopes  decreased
to  $40,000  during  the  three  months  ended  June 30,  2007,  or 15% of total
quarterly  revenues  for the  period,  compared  to  $193,000,  or 27% of  total
revenues,  for the same period last year.  Sales of the Blood Flow  Analyzer(TM)
increased by $2,000 to $36,000,  or 9% of total  revenues,  for the three months
ended June 30, 2007,  compared to net sales of $34,000, or 5% of total revenues,
during the same  period in 2006.  Sales from the P37,  P37-II and P2700 A/B Scan
Ocular Ultrasound  Diagnostic devices, the P55 and P2200 Pachymetric  Ultrasound
Analyzers,  and the  P2500  A/P  A-Scan  and  Pachymetric  Ultrasound  Analyzers
increased to $61,000, or 23% of total revenues, for the three month period ended
June 30, 2007,  up compared to $55,000,  or 8% of total  revenues,  for the same
period of 2006. Combined sales of the LD 400 and TKS 5000 autoperimeters and the
CT 200 Corneal Topographer were $61,000,  or 23% of the total revenues,  for the
three  months  ended  June  30,  2007,  compared  to  $332,000,  or 46% of total
revenues, for the same period of 2006.

         Sales have been lower  during the three  months ended June 30, 2007 for
the  Company  due to a variety  of  reasons.  Sales of the P40,  P45 and P60 UBM
Ultrasound  Biomicroscope  decreased  primarily as a result of ongoing  software
development and hardware configuration problems with the new P60, which received
FDA 510(k) premarket approval on May 26, 2005 that allowed the device to be sold
in the  United  States.  The  hardware  configuration  problems  have since been
resolved and the Company has recently  completed a new software  package for the
P60.  The Company  anticipates  reversing  the downward  trend in sales  through
additional  efforts by the Company to gain more  widespread  support for the P60
through increased clinical awareness, product development and improved marketing
plans.

         Gross profit for the three  months ended June 30, 2007  increased by 1%
to 43% of total revenues,  compared to 42% of total revenues for the same period
in  2006.  The  increase  in  gross  profit  was  mainly  due to  improved  cost
efficiencies  and the reduction in warehouse,  production  and office space that
took place in 2006.  There was no  increase  or  decrease  to cost of sales as a
result of a change to the reserve for obsolete inventory in 2007.

         Marketing  and  selling  expenses  increased  by  $51,000,  or 47%,  to
$159,000,  for the three  months  ended June 30,  2007,  from  $108,000  for the
comparable  period in 2006. The increase was due primarily to a increased number
of sales representatives and travel related and associated sales expenses.

         General and administrative  expenses  increased by $46,000,  or 17%, to
$309,000  for the three  months  ended  June 30,  2007,  from  $263,000  for the
comparable period in 2006. The increase in general and  administrative  expenses
was primarily due to commissions and  professional  fees incurred as a result of
the sale of convertible notes.

         Also during 2007, the Company collected $3,000 in receivables that were
previously  allowed in the allowance  for doubtful  accounts.  During 2007,  the
Company decreased the allowance for doubtful accounts by $22,000.

         Research,  development and service expenses decreased by $6,000, or 5%,
to $126,000 for the three  months  ended June 30, 2076,  compared to $132,000 in
the same period of 2006. Most of the decrease was due to a staff reduction.

         Due to our  ongoing  cash  flow  difficulties,  most  of the  Company's
vendors and  suppliers  were  contacted  during  2006 and 2005 with  attempts to
negotiate  reduced  payments and  settlement of  outstanding  accounts  payable.
Although some vendors  refused to negotiate and demanded  payment in full,  some
vendors  were  willing  to settle for a reduced  amount.  The  accounts  payable


                                       13


forgiven  by vendors  and  suppliers  resulted  in a gain of $34,000 and $12,000
during the years  ended  December  31, 2006 and 2005  respectively.  In 2007 the
Company is continuing its negotiations with certain vendors and suppliers.

         Six Months Ended June 30,  2007,  Compared to Six Months Ended June 30,
2006

     Net sales for the six months ended June 30, 2007 decreased by $526,000,  or
44%, to $656,000 as  compared to  $1,182,000  for the same period of 2006.  This
reduction in sales was  primarily  due to reduced sales of the P40, P45, P60 UBM
Ultrasound Biomicroscopes and the LD 400 and the TKS 5000 autoperemeters.

         For the six  months  ended  June 30,  2007,  sales  from the  Company's
diagnostic  products  totaled  $568,000,  or 87% of total revenues,  compared to
$1,026,000,  or 87% of total revenues for the same period of 2006. The remaining
13% of sales,  or $88,000  during the six months ended June 30,  2007,  was from
parts, disposables, and service revenue.

         Sales of the P40, P45 and P60 UBM Ultrasound  Biomicroscopes  decreased
to $195,000  during the six months ended June 30, 2007, or 30% of total revenues
for the period,  compared to  $253,000  or 21% of total  revenues,  for the same
period ended June 30, 2006.  Sales of the Blood Flow  Analyzer(TM)  decreased by
$19,000 to $66,000, or 10% of total revenues,  for the six months ended June 30,
2007, compared to net sales of $85,000, or 7% of total revenues, during the same
period in 2006. Sales from the P37, P37-II and P2700 A/B Scan Ocular  Ultrasound
Diagnostic devices, the P55 and P2200 Pachymetric Ultrasound Analyzers,  and the
P2500 A/P A-Scan and Pachymetric  Ultrasound Analyzers increased to $178,000, or
27% of total revenues, for the six month period ended June 30, 2007, up compared
to $148,000  or 12% of total  revenues,  for the same  period of 2006.  Combined
sales  of the  LD  400  and  TKS  5000  autoperimeters  and  the CT 200  Corneal
Topographer  were  $130,000,  or 20% of the total  revenues,  for the six months
ended June 30, 2007,  compared to $540,000,  or 45% of total  revenues,  for the
same period of 2006.

         Sales have been lower during the six months ended June 30, 2007 for the
Company  due to a  variety  of  reasons.  Sales  of the  P40,  P45  and  P60 UBM
Ultrasound  Biomicroscope  decreased  primarily as a result of ongoing  software
development  with the P60, which received FDA 510(k)  premarket  approval on May
26, 2005 that allowed the device to be sold in the United  States,  and hardware
configuration  problems  with the P40, P45 and P60.  The hardware  configuration
problems have since been  resolved and the Company has recently  completed a new
software  package for the P60. The Company  anticipates  reversing  the downward
trend in sales through additional efforts by the Company to gain more widespread
support for the P60 through increased clinical  awareness,  product  development
and improved marketing plans.

         Gross profit for the six months ended June 30, 2006  decreased by 3% to
43% of total revenues,  compared to 46% of total revenues for the same period in
2006. The decrease in gross profit was mainly due to the costs  associated  with
development  of new software  for the P60 and reduced  sales of the P40 and P45,
which have high gross  margins.  There was no  increase  or  decrease to cost of
sales as a result of a change to the reserve for obsolete inventory in 2007.

         General and  administrative  expenses  decreased by $18,000,  or 4%, to
$496,000  for the six months  ended June 30,  2007,  from  $514,000 for the same
period  in 2006.  The  decrease  in  general  and  administrative  expenses  was
primarily due to reduced  depreciation  expenses,  reduced travel expenses,  and
reduced legal and consulting fees.

         Also during 2007, the Company collected $3,000 in receivables that were
previously  allowed in the allowance  for doubtful  accounts.  During 2007,  the
Company decreased allowance for doubtful accounts by $22,000.

         Research,  development and service  expenses  decreased by $67,000,  or
26%, to $190,000 for the six months ended June 30, 2007, compared to $257,000 in
the same period of 2006.  Most of the decrease  was due to the reduced  costs of
development and compliance with regulatory requirements in releasing the new P60
UBM.

         Due to our  ongoing  cash  flow  difficulties,  most  of the  Company's
vendors and  suppliers  were  contacted  during  2006 and 2005 with  attempts to
negotiate  reduced  payments and  settlement of  outstanding  accounts  payable.
Although some vendors  refused to negotiate and demanded  payment in full,  some
vendors  were  willing  to settle for a reduced  amount.  The  accounts  payable
forgiven  by vendors  and  suppliers  resulted  in a gain of $34,000 and $12,000
during the years  ended  December  31, 2006 and 2005  respectively.  In 2007 the
Company is continuing its negotiations with certain vendors and suppliers.



                                       14


Liquidity and Capital Resources

         The Company used $720,000 in cash in operating  activities  for the six
months ended June 30,  2007,  compared to $445,000 for the six months ended June
30, 2006. The increase in cash used for operating  activities for the six months
ended June 30, 2006 was  primarily  attributable  to the  Company's net loss and
decreases  in  accounts  payable  and  accrued  liabilities  and an  increase in
inventory,  specifically  for the P60 UBM.  The Company  used zero in  investing
activities for the six months ended June 30, 2007,  compared to $16,000 used for
the six months ended June 30, 2006.  Net cash  received in financing  activities
was $1,000,000 for the six months ended June 30, 2007, versus cash received from
financing  activities  of $986,000  in the same period in 2006.  The Company had
working capital of $623,000 as of June 30, 2006,  compared to working capital of
$673,000 as of June 30, 2006.

         As of June 30, 2007, the Company had net operating loss  carry-forwards
(NOLs) of approximately $55 million.  These loss carry-forwards are available to
offset  future  taxable  income,  if any,  and have  begun to expire in 2001 and
extend  for twenty  years.  The  Company's  ability  to use net  operating  loss
carryforwards   (NOLs)  to  offset  future  income  is  dependant  upon  certain
limitations as a result of the pooling  transaction with Vismed and the tax laws
in effect at the time of the NOLs can be  utilized.  The Tax  Reform Act of 1986
significantly limits the annual amount that can be utilized for certain of these
carryforwards as a result of change of ownership.

         As of June 30, 2007,  the Company had accounts  payable of $332,000,  a
significant  portion of which was over 90 days past due,  compared  to  accounts
payable of $390,000 as of June 30, 2006.  The Company has contacted  many of the
vendors or companies  that have  significant  amounts of payables past due in an
effort to delay payment,  renegotiate a reduced settlement payment, or establish
a  longer-term   payment  plan.  While  some  companies  have  been  willing  to
renegotiate the outstanding amounts, others have demanded payment in full. Under
certain conditions,  including but not limited to judgments rendered against the
Company in a court of law, a group of  creditors  could force the  Company  into
bankruptcy  due to its  inability  to pay the  liabilities  arising  out of such
judgments at that time.  In addition to the accounts  payable  noted above,  the
Company

         The  Company  has taken  numerous  steps to reduce  costs and  increase
operating efficiencies. These steps consist of the following:

         1. The Company  closed its San Diego  facility.  In so doing,  numerous
manufacturing,  accounting and management responsibilities were consolidated. In
addition,  such closure resulted in significant  headcount reductions as well as
savings in rent and other overhead costs.

         2. The Company has significantly reduced the use of consultants,  which
has resulted in a large decrease to these expenses.

         3.  The  Company   has   reduced   its  direct   sales  force  to  four
representatives,  which has resulted in less  payroll,  travel and other selling
expenses.

         Because the Company has significantly fewer sales representatives,  its
ability to generate  sales has been reduced.  The Company has taken  measures to
reduce the amount of uncollectible accounts receivable such as more thorough and
stringent credit approval, improved training and instruction by sales personnel,
and frequent direct  communication  with the customer  subsequent to delivery of
the system.  The  allowance for doubtful  accounts was 11% of total  outstanding
receivables  as of June 30, 2007 and 15% as of December 31, 2006 compared to 17%
of total outstanding receivables as of June 30, 2006. The allowance for doubtful
accounts  decreased  from  $72,000 at  December  31, 2006 to $50,000 at June 30,
2007.

         The Company intends to continue its efforts to reduce the allowance for
doubtful  accounts  as a  percentage  of  accounts  receivable.  The Company has
ongoing  efforts to collect a significant  portion of the sales price in advance
of the sale or in a timely  manner after  delivery.  During the six months ended
June 30,  2007,  the  Company  decreased a net of $20,000 to the  allowance  for
doubtful  accounts.  The Company  believes  that by requiring a large portion of
payment prior to shipment,  it has greatly  improved the  collectibility  of its
receivables.

         The  Company   carried  an   allowance   for   obsolete  or   estimated
non-recoverable  inventory of $1,320,000 at June 30, 2007 and $1,324,000 at June
30, 2006, or 57% and 63% of total inventory,  respectively.  The Company's means
of expansion and  development  of product has been largely from  acquisition  of
businesses,  product  lines,  existing  inventory,  and the  rights to  specific
products.  Through  such  acquisitions,  the  Company has  acquired  substantial


                                       15


inventory,  some of which the eventual use and recoverability was uncertain.  In
addition,  the Company has a  significant  amount of  inventory  relating to the
Photon(TM)  laser system,  which does not yet have FDA approval in order to sell
the product domestically. Therefore, the allowance for inventory was established
to reserve for these potential eventualities.

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

         At this time, the Company's Photon(TM) Laser Ocular Surgery Workstation
requires  regulatory FDA approval in order to be sold in the United States.  Any
possible  future  efforts to complete the clinical  trials on the  Photon(TM) in
order to file for FDA approval  would depend on the Company  obtaining  adequate
funding.  The Company  estimates  that the funds needed to complete the clinical
trials in order to obtain the necessary regulatory approval on the Photon(TM) to
be approximately $225,000.

Effect of Inflation and Foreign Currency Exchange

         The Company has not  realized a reduction  in the selling  price of its
products as a result of domestic inflation.  Nor has it experienced  unfavorable
profit  reductions due to currency  exchange  fluctuations or inflation with its
foreign customers.  All sales transactions to date have been denominated in U.S.
dollars.  The Company has experienced an increase in product being  manufactured
in England and in parts being  acquired  from the European  Community due to the
fluctuations of the dollar compared to the Euro and the Pound Sterling. This has
increased the cost of several  products.  There may be an impact on profits as a
result of this  decrease in the value of the dollar  because the profit  margins
will decrease if higher product pricing has a negative impact on sales.

New Accounting Pronouncements

         In February 2006, the FASB issued SFAS No. 155,  Accounting for Certain
Hybrid Financial Instruments.  This statement is an amendment of FASB Statements
Nos. 133 and 140 to address what had been characterized as a temporary exemption
from the  application of the  bifurcation  requirements  of Statement No. 133 to
beneficial  interests in securitized  financial  assets.  Prior to the effective
date of Statement No. 133, the FASB received inquiries on the application of the
exception  in  paragraph  14 of  Statement  No. 133 to  beneficial  interests in
securitized financial assets. In response to the inquiries, Implementation Issue
D1 indicated that,  pending issuance of further guidance,  entities may continue
to apply  the  guidance  related  to  accounting  for  beneficial  interests  in
paragraphs 14 and 362 of Statement No. 140. Those  paragraphs  indicate that any
security that can be  contractually  prepaid or otherwise  settled in such a way
that the  holder of the  security  would not  recover  substantially  all of its
recorded  investment  should be subsequently  measured like  investments in debt
securities  classified as available-for-sale or trading under FASB Statement No.


                                       16


115, Accounting for Certain  Investments in Debt and Equity Securities,  and may
not  be  classified  as  held-to-maturity.   Further,  Implementation  Issue  D1
indicated that holders of beneficial  interests in securitized  financial assets
that are not  subject  to  paragraphs  14 and 362 of  Statement  No. 140 are not
required to apply Statement No. 133 to those beneficial  interests until further
guidance is issued.  The Company believes the adoption of new standards will not
have a material effect on its financial  position,  results of operations,  cash
flows, or previously issued financial reports.

         In March 2006,  the FASB issued SFAS No. 156,  Accounting for Servicing
of Financial  Assets.  This statement amends FASB Statement No. 140,  Accounting
for  Transfers  and  Servicing  of  Financial  Assets  and   Extinguishments  of
Liabilities,  with respect to the accounting for separately recognized servicing
assets and servicing liabilities. In this statement the board decided to broaden
the  scope  of the  project  to  include  all  servicing  assets  and  servicing
liabilities.  Servicing  assets  and  servicing  liabilities  may be  subject to
significant  interest rate and prepayment risks, and many entities use financial
instruments to mitigate those risks.  Currently,  servicing assets and servicing
liabilities  are amortized  over the expected  period of estimated net servicing
income or loss and  assessed for  impairment  or  increased  obligation  at each
reporting  date.  The board  acknowledged  that the  application of the lower of
carrying amount or fair value measurement  attribute to servicing assets results
in asymmetrical  recognition of economic events, because it requires recognition
of all decreases in fair value but limits recognition of increases in fair value
to the original carrying amount.

         Statement No. 156 requires  that all  separately  recognized  servicing
assets and  servicing  liabilities  be  initially  measured  at fair  value,  if
practicable.   The  board  concluded  that  fair  value  is  the  most  relevant
measurement  attribute for the initial  recognition of all servicing  assets and
servicing  liabilities,  because it  represents  the best measure of future cash
flows. This statement permits, but does not require, the subsequent  measurement
of servicing assets and servicing liabilities at fair value. An entity that uses
derivative  instruments to mitigate the risks  inherent in servicing  assets and
servicing liabilities is required to account for those derivative instruments at
fair value.  Under this  statement,  an entity can elect  subsequent  fair value
measurement of its servicing  assets and servicing  liabilities  by class,  thus
simplifying its accounting and providing for income statement recognition of the
potential  offsetting  changes in fair value of the servicing assets,  servicing
liabilities,  and  related  derivative  instruments.  An entity  that  elects to
subsequently measure servicing assets and servicing liabilities at fair value is
expected  to  recognize  declines  in fair  value of the  servicing  assets  and
servicing  liabilities  at fair value is expected to recognize  declines in fair
value of the servicing assets and servicing  liabilities more  consistently than
by reporting other-than-temporary impairments. The Company believes the adoption
of new  standards  will not have a material  effect on its  financial  position,
results of operations, cash flows, or previously issued financial reports.

 Item 3. Controls and Procedures

     a)  Evaluation of disclosure controls and procedures.

         Under  the  supervision  and with the  participation  of the  Company's
management,  including its principal  executive officer and principal  financial
officer,  the Company evaluated the effectiveness of the design and operation of
its  disclosure  controls  and  procedures,  as defined in Rules  13a-15(e)  and
15d-15(e) under the Securities  Exchange Act of 1934, as of June 30, 2007. Based
on this  evaluation,  the Company's  principal  executive  officer and principal
financial  officer  concluded  that, as of the end of the period covered by this
report,  the Company's  disclosure  controls and  procedures  were effective and
adequately  designed to ensure that the information  required to be disclosed by
the Company in the reports it files or submits under the Securities Exchange Act
of 1934 is recorded, processed,  summarized and reported within the time periods
specified in applicable rules and forms.

     b)  Changes in internal controls over financial reporting.

         During the six months ended June 30, 2007,  there has been no change in
the Company's  internal  control over  financial  reporting  that has materially
affected,  or is reasonably likely to materially  affect, the Company's internal
control over financial reporting.



                                       17

                            PART II Other Information

Item 1. Legal Proceedings

         An action  was  brought  against  the  Company  in March 2000 by George
Wiseman,  a former  employee,  in the Third  District Court of Salt Lake County,
State of Utah.  The  complaint  alleges that the Company owes Mr.  Wiseman 6,370
shares of its common stock plus costs, attorney's fees and a wage penalty (equal
to 1,960 additional shares of its common stock) pursuant to Utah law. The action
is based  upon an  extension  of a written  employment  agreement.  The  Company
believes the claim is without merit and intends to vigorously defend against the
action.

         An action was  brought  against the  Company on  September  11, 2000 by
PhotoMed  International,  Inc.  and  Daniel  M.  Eichenbaum,  M.D.  in the Third
District Court of Salt Lake County, State of Utah. The action involves an amount
of royalties  that are allegedly due and owing to PhotoMed  International,  Inc.
and Dr. Eichenbaum under a license agreement dated July 7, 1993, with respect to
the sale of certain equipment, plus costs and attorneys' fees. Certain discovery
has taken place and the Company has paid royalties of $15,717, which the Company
believes  brings all payments  current as of the date of last payment on January
7, 2005. The Company has been working with PhotoMed and Dr. Eichenbaum to ensure
that the calculations  have been correctly made on the royalties paid as well as
the proper method of calculation for the future.

         It is  anticipated  that  once the  parties  can  agree on the  correct
calculations on the royalties,  the legal action will be dismissed.  An issue in
dispute  concerning  the method of  calculating  royalties is whether  royalties
should be paid on returned  equipment.  Since July 1, 2001,  only one Photon(TM)
laser  system  has been  sold and no  systems  returned.  Thus,  the  amount  of
royalties  due,  according to the Company's  calculations,  is $981. The Company
made  payment of this amount to Photomed and Dr.  Eichenbaum  on January 5, 2005
and, as a result,  seeks to have the legal  action  dismissed.  However,  if the
parties are unable to agree on a method for  calculating  royalties,  there is a
risk that  PhotoMed and Dr.  Eichenbaum  might amend their  complaint to request
termination of the license agreement and, if successful,  the Company would lose
its right to manufacture and sell the Photon(TM) laser system.

         An action was filed on June 20, 2003,  in the Third  Judicial  District
Court, Salt Lake County,  State of Utah (Civil No. 030914195) by CitiCorp Vendor
Finance, Inc., formerly known as Copelco Capital, Inc. The complaint claims that
$49,626 plus  interest is due for the leasing of three copy  machines  that were
delivered to the Company's Salt Lake City  facilities on or about April of 2000.
The action  also seeks an award of  attorney's  fees and costs  incurred  in the
collection.  The Company filed an answer to the complaint  disputing the amounts
allegedly  owed due to machine  problems  and a claimed  understanding  with the
vendor.  The Company  returned two of the  machines.  The Company was engaged in
settlement  discussions  with CitiCorp until counsel for CitiCorp  withdrew from
the case. New counsel for CitiCorp was appointed.  After an initial meeting with
new counsel, the Company provided initial disclosures to the new counsel.

         On September 10, 2003, an action was filed against the Company by Larry
Hicks in the Third Judicial  District  Court,  Salt Lake County,  State of Utah,
(Civil No.  030922220),  for payments due under a consulting  agreement with the
Company.  The complaint  claims that monthly  payments of $3,083 are due for the
months of October 2002 to October 2003 under the  consulting  agreement  and, if
the agreement is terminated,  for the sum of $110,000 minus whatever the Company
has paid Mr. Hicks prior to such termination,  plus costs, attorney's fees and a
wage  penalty  pursuant to Utah law. The Company has filed an answer in which it
denies any liability to Mr. Hicks. Formal discovery in the matter has commenced.
The Company disputes the amount allegedly owed and intends to vigorously  defend
against such action.

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

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Callable Secured Convertible Notes and Warrants



                                       18


         February 28, 2006 Sale of $1,500,000 in  Convertible  Notes.  To obtain
funding  for the  Company's  ongoing  operations,  the  Company  entered  into a
securities  purchase  agreement  on  February  28,  2006  with  four  accredited
investors for the sale of (i) $1,500,000 in convertible  notes and (ii) warrants
to purchase  12,000,000  shares of its common stock. The sale of the convertible
notes  and  warrants  is to occur  in  three  traunches  and the  investors  are
obligated to provide the Company with an aggregate of $1,500,000 as follows:

      *   $500,000 was disbursed on February 28, 2006;
      *   $500,000  was  disbursed  on June 28, 2006 after the  Company  filed a
          registration  statement  on June 15,  2006 to  register  the shares of
          common  stock  underlying  the  convertible  notes.  The  registration
          statement  was  subsequently  withdrawn  on July  25,  2006  and a new
          registration  statement  was filed on  September  26, 2006 to register
          60,000,000  shares of common stock  issuable  upon  conversion  of the
          convertible notes; and
      *   $500,000  was  disbursed  on April 30,  2007,  the  day  prior  to the
          effective date of the registration statement on May 1, 2007.

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

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

         The $1,500,000 in convertible notes bears interest at 8% per annum from
the date of issuance. Interest is computed on the basis of a 365-day year and is
payable  quarterly in cash,  with six months of interest  payable up front.  The
interest  rate resets to zero  percent for any month in which the stock price is
greater than 125% of the initial market price,  or $.0275,  for each trading day
during that month. Any amount of principal or interest on the convertible  notes
that is not paid when due will bear  interest  at the rate of 15% per annum from
the date due thereof until such amount is paid. The convertible  notes mature in
three years from the date of issuance, and are convertible into our common stock
at the noteholders'  option, at the lower of (i) $.02 or (ii) 60% of the average
of the three  lowest  intraday  trading  prices for the common  stock on the OTC
Bulletin  Board for the 20 trading days before but not including the  conversion
date.  Accordingly,  there is no limit on the  number of shares  into  which the
notes may be converted.

         The  $1,500,000  in  convertible  notes are  secured  by the  Company's
assets, including the Company's inventory,  accounts receivable and intellectual
property.  Moreover, the Company has a call option under the terms of the notes.
The call  option  provides  the  Company  with the  right to  prepay  all of the
outstanding convertible notes at any time, provided there is no event of default
by the Company and the Company's stock is trading at or below $.02 per share. An
event of default  includes  the failure by the Company to pay the  principal  or
interest  on the  convertible  notes when due or to timely  file a  registration
statement as required by the Company or obtain effectiveness with the Securities
and  Exchange  Commission  of  the  registration  statement.  Prepayment  of the
convertible  notes  is to be  made in  cash  equal  to  either  (a)  125% of the
outstanding  principal and accrued interest for prepayments  occurring within 30
days  following  the  issue  date of the  notes;  (b)  130%  of the  outstanding
principal and accrued interest for prepayments  occurring between 31 and 60 days
following the issue date of the notes; or (c) 145% of the outstanding  principal
and accrued interest for prepayments  occurring after the 60th day following the
issue date of the notes.

         The warrants are exercisable until five years from the date of issuance
at a purchase  price of $.10 per share.  The investors may exercise the warrants
on a cashless  basis if the shares of common stock  underlying  the warrants are
not then  registered  pursuant to an effective  registration  statement.  In the
event the investors  exercise the warrants on a cashless basis, then the Company


                                       19


will not receive any proceeds therefrom.  In addition, the exercise price of the
warrants  will be  adjusted in the event the Company  issues  common  stock at a
price below market,  with the exception of any securities  issued as of the date
of the warrants or issued in connection  with the callable  secured  convertible
notes issued pursuant to the securities purchase agreement.

         The noteholders  have agreed to restrict their ability to convert their
convertible  notes or exercise  their  warrants and receive shares of our common
stock  such  that the  number of  shares  of  common  stock  held by them in the
aggregate and their affiliates after such conversion or exercise does not exceed
4.99% of the then issued and outstanding  shares of common stock.  However,  the
noteholders  may repeatedly sell shares of common stock in order to reduce their
ownership percentage,  and subsequently convert additional convertible notes. As
of August 14, 2007, a total of $130,920 in convertible  notes issued on February
28, 2006 had been converted by the noteholders.

         June 11, 2007 Sale of $500,000 in Convertible  Notes: To obtain further
funding for the Company's ongoing  operations,  the Company entered into a third
securities  purchase  agreement  on June 11, 2007 with the same four  accredited
investors for the sale of (i) $500,000 in convertible notes and (ii) warrants to
purchase 10,000,000 shares of its common stock. The investors disbursed $500,000
to the Company on June 11, 2007.

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

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

         The $500,000 in  convertible  notes bear  interest at 8% per annum from
the date of issuance. Interest is computed on the basis of a 365-day year and is
payable  quarterly in cash,  with six months of interest  payable up front.  The
interest  rate resets to zero  percent for any month in which the stock price is
greater than 125% of the initial market price,  or $.0275,  for each trading day
during that month. Any amount of principal or interest on the convertible  notes
that is not paid when due will bear  interest  at the rate of 15% per annum from
the date due thereof until such amount is paid. The convertible  notes mature in
three years from the date of issuance,  and are  convertible  into the Company's
common stock at the noteholders' option, at the lower of (i) $.02 or (ii) 50% of
the average of the three lowest intraday  trading prices for the common stock on
the OTC  Bulletin  Board for the 20 trading  days before but not  including  the
conversion  date.  Accordingly,  there is no limit on the number of shares  into
which the notes may be converted.

         The $500,000 in convertible  notes are secured by the Company's assets,
including  the  Company's   inventory,   accounts  receivable  and  intellectual
property.  Moreover, the Company has a call option under the terms of the notes.
The call  option  provides  the  Company  with the  right to  prepay  all of the
outstanding convertible notes at any time, provided there is no event of default
by the Company and its stock is trading at or below $.10 per share.  An event of
default  includes the failure by the Company to pay the principal or interest on
the  convertible  notes when due or to timely file a  registration  statement as
required by the Company or obtain effectiveness with the Securities and Exchange
Commission of the registration statement. Prepayment of the convertible notes is
to be made in cash equal to either  (a) 125% of the  outstanding  principal  and
accrued  interest for prepayments  occurring  within 30 days following the issue
date of the notes;  (b) 130% of the outstanding  principal and accrued  interest
for prepayments occurring between 31 and 60 days following the issue date of the
notes;  or (c)  145% of the  outstanding  principal  and  accrued  interest  for
prepayments occurring after the 60th day following the issue date of the notes.


                                       20


         The  warrants  are  exercisable  until  seven  years  from  the date of
issuance at a purchase price of $.005 per share.  The investors may exercise the
warrants  on a  cashless  basis if the  shares of common  stock  underlying  the
warrants  are  not  then  registered  pursuant  to  an  effective   registration
statement. In the event the investors exercise the warrants on a cashless basis,
the Company will not receive any proceeds therefrom.  In addition,  the exercise
price of the warrants  will be adjusted in the event the Company  issues  common
stock at a price below market, with the exception of any securities issued as of
the date of the  warrants or issued in  connection  with the  convertible  notes
issued pursuant to the securities purchase agreement.

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

         The  Company is required  to  register  the shares of its common  stock
issuable upon the  conversion of the  convertible  notes and the exercise of the
warrants that were issued to the noteholders pursuant to the securities purchase
agreement the Company entered in to on June 11, 2007. The registration statement
must be filed with the Securities and Exchange Commission within 60 days of June
11, 2007 closing date and the  effectiveness of the registration is to be within
135 days of such  closing  date.  Penalties of 2% of the  outstanding  principal
balance of the  convertible  notes plus  accrued  interest are to be applied for
each month the  registration  is not  effective  within the required  time.  The
penalty may be paid in cash or stock at the Company's  option.  As of August 14,
2007, none of the  convertible  notes issued on June 11, 2007 had been converted
by the noteholders.

         The  Company's  obligation  to  issue  shares  upon  conversion  of the
convertible notes issued on April 27, 2005, February 28, 2006, and June 11, 2007
is essentially limitless. The following is an example of the amount of shares of
common stock that are issuable upon conversion of $3,521,147 principal amount of
convertible notes (excluding accrued interest), based on market prices 25%, 50%,
and 75% below the market price, as of July 23, 2007 of $.006:

     % Below     Price Per       With 40%       Number of           % of
      Market       Share         Discount     Shares Issuable   Outstanding*
      ------       -----         --------     ---------------   -----------
       25%         $.0045         $.0027      1,304,129,000          528.3%
       50%         $.003          $.0018      1,956,193,000          792.4%
       75%         $.0015         $.0009      3,912,386,000        1,584.8%

*Based on 246,866,625 shares outstanding as of August 14, 2007.

         As  illustrated,  the number of shares of common  stock  issuable  upon
conversion of the Company's  convertible notes will increase if the market price
of the Company's  common stock  declines,  which will cause dilution to existing
stockholders.

Adjustable Conversion Price of Convertible Notes

         The callable secured  convertible  notes are convertible into shares of
the Company's  common stock at a 40% discount to the trading price of the common
stock prior to the conversion. The significant downward pressure on the price of
the common stock as the noteholders  convert and sell material amounts of common
stock  could  encourage  short  sales by  investors.  This could  place  further
downward  pressure on the price of the common stock. The noteholders  could sell
common  stock  into the market in  anticipation  of  covering  the short sale by
converting their securities,  which could cause further downward pressure on the
stock price. In addition,  not only the sale of shares issued upon conversion or
exercise of notes, warrants and options, but also the mere perception that these
sales  could  occur,  may have a  depressive  effect on the market  price of the
common stock.



                                       21


Possible Dilution to Stockholders
---------------------------------

         The  issuance  of  shares  upon  conversion  of  convertible  notes and
exercise of warrants may result in  substantial  dissolution to the interests of
other  stockholders  since the holders of the  convertible  notes may ultimately
convert  and  sell  the full  amount  issuable  upon  conversion.  Although  the
noteholders  may not convert their  callable  secured  convertible  notes and/or
exercise their warrants if such conversion or exercise price would cause them to
own more than 4.99% of the Company's  outstanding common stock, this restriction
does not prevent the noteholders from converting and/or exercising some of their
holdings  and then  converting  the rest of their  holdings.  In this  way,  the
noteholders  could sell more than this limit while never  holding more than this
limit. There is no upper limit on the number of shares that may be issued, which
will have the effect of further diluting the  proportionate  equity interest and
voting power of holders of the Company's common stock.

Item 3. Defaults Upon Senior Securities

None

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

None

Item 5. Other Information

None

Item 6. Exhibits and Reports on Form 8-K

      (a)   Exhibits
      --------------

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

 Exhibit
   No.                  Document Description
 -------                --------------------

   2.1        Amended  Agreement  and Plan of Merger  between  Paradigm  Medical
              Industries,  Inc., a California  corporation and Paradigm  Medical
              Industries, Inc., a Delaware corporation(1)
   3.1        Certificate of Incorporation(1)
   3.2        Amended Certificate of Incorporation(13)
   3.3        Bylaws(1)
   4.1        Specimen Common Stock Certificate (2)
   4.2        Specimen Series C Convertible Preferred Stock Certificate(3)
   4.3        Certificate of the Designations, Powers, Preferences and Rights of
              the Series C Convertible Preferred Stock(3)
   4.4        Specimen Series D Convertible Preferred Stock Certificate (4)
   4.5        Certificate of the Designations, Powers, Preferences and Rights of
              the Series D Convertible Preferred Stock (5)
   4.6        Certificate of Designations, Powers, Preferences and Rights of the
              Series G Convertible Preferred Stock (6)
   10.1       Exclusive Patent License Agreement with PhotoMed(1)
   10.2       Consulting Agreement with Dr. Daniel M. Eichenbaum(1)
   10.3       1995 Stock Option Plan (1)
   10.4       2005  Securities  Purchase  Agreement with AJW Partners,  LLC, AJW
              Offshore,  Ltd., AJW Qualified  Partners,  LLC, and New Millennium
              Capital Partners II, LLP (the "Purchasers")(7)
   10.5       Form of Convertible Note with each Purchaser(7)
   10.6       Form of Stock Purchase Warrant with each Purchaser(7)
   10.7       Security Agreement with Purchasers(7)
   10.8       Intellectual Property Security Agreement with Purchasers(7)
   10.9       Registration Rights Agreement with Purchasers(7)
   10.10      Stock Purchase Agreement with Mackey Price Thompson & Ostler(8)



                                       22


   10.11      Employment Agreement with Raymond P.L. Cannefax(9)
   10.12      2006  Securities  Purchase  Agreement with AJW Partners,  LLC, AJW
              Offshore,  Ltd., AJW Qualified  Partners,  LLC, and New Millennium
              Capital Partners II, LLP(10)
   10.13      Form of Callable Secured Convertible Note with each Purchaser(10)
   10.14      Form of Stock Purchase Warrant with each Purchaser(10)
   10.15      Security Agreement with Purchasers(10)
   10.16      Intellectual Property Security Agreement with Purchasers(10)
   10.17      Registration Rights Agreement with Purchasers(10)
   10.18      Settlement Agreement with Dr. Joseph W. Spadafora (11)
   10.19      Worldwide OEM Agreement with MEDA Co., Ltd. (12)
   10.20      Second Amendment to the Registration  Rights Agreement dated April
              27, 2005 (14)
   10.21      Second  Amendment  to  the  Registration  Rights  Agreement  dated
              February 28, 2006 (14)
   10.22      2007  Securities  Purchase  Agreement with AJW Partners,  LLC, AJW
              Offshore,  Ltd., AJW Qualified  Partners,  LLC, and New Millennium
              Capital Partners II, LLP
   10.23      Form of Convertible Note with each Purchaser
   10.24      Form of Stock Purchase Warrant with each Purchaser
   10.25      Security Agreement with Purchasers
   10.26      Intellectual Property Agreement with Purchasers
   10.27      Registration Rights Agreement with Purchasers
   31.1       Certification  pursuant to 18 U.S.C.  Section  1350, as enacted by
              Section 302 of the Sarbanes-Oxley Act of 2002
   31.2       Certification  pursuant to 18 U.S.C.  Section  1350, as enacted by
              Section 302 of the Sarbanes-Oxley Act of 2002
   32.1       Certification  pursuant  to 18 U.S.C.  Section  1350,  as  adopted
              pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   32.2       Certification  pursuant  to 18 U.S.C.  Section  1350,  as  adopted
              pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 -----------------
   (1)        Incorporated  by  reference  from  Registration  Statement on Form
              SB-2, as filed on March 19, 1996.
   (2)        Incorporated  by reference  from  Amendment No. 1 to  Registration
              Statement on Form SB-2, as filed on May 14, 1996.
   (3)        Incorporated  by reference  from Annual Report on Form 10-KSB,  as
              filed on April 16, 1998.
   (4)        Incorporated  by  reference  from  Registration  Statement on Form
              SB-2, as filed on April 29, 1999.
   (5)        Incorporated by reference from Report on Form 10-QSB,  as filed on
              August 16, 2000.
   (6)        Incorporated by reference from Report on Form 10-QSB,  as filed on
              November 14, 2003.
   (7)        Incorporated  by  reference  from  Current  Report on Form 8-K, as
              filed on May 18, 2005.
   (8)        Incorporated  by  reference  from  Registration  Statement on Form
              SB-2, as filed on June 22, 2005.
   (9)        Incorporated  by  reference  from  Current  Report on Form 8-K, as
              filed on January 18, 2006.
   (10)       Incorporated  by  reference  from  Current  Report on Form 8-K, as
              filed on March 1, 2006.
   (11)       Incorporated  by  reference  from  Registration  Statement on Form
              SB-2, as filed on June 15, 2006.
   (12)       Incorporated  by  reference  from  Current  Report on Form 8-K, as
              filed on June 19, 2006.
   (13)       Incorporated  by  reference  from  Registration  Statement on Form
              SB-2, as filed on September 15, 2006.
   (14)       Incorporated  by  reference  from  Registration  Statement on Form
              SB-2, as filed on April 16, 2007.

      (b)   Reports on Form 8-K
      -------------------------

         No  reports on Form 8-K were filed by the  Company  during the  quarter
ended June 30, 2007.



                                       23


                                   SIGNATURES

         In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned  thereunto duly
authorized.

                                           PARADIGM MEDICAL INDUSTRIES, INC.



 August 14, 2007                            /s/ Raymond P.L. Cannefax
                                           -------------------------------------
                                           Raymond P.L. Cannefax
                                           President and Chief Executive Officer


 August 14, 2007                           /s/ Luis A.  Mostacero
                                           -------------------------------------
                                           Luis A. Mostacero, Vice President of
                                           Finance, Treasurer and Secretary



















                                       24

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