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

                                   FORM 10-KSB

(X)      Annual Report under Section 13 or 15(d) of the Securities Exchange Act
         of 1934 for the fiscal year ended DECEMBER 31, 2003

                               EYE DYNAMICS, INC.
                               ------------------
                 (Name of small business issuer in its charter)

          Nevada                                        88-0249812
----------------------------             ---------------------------------------
(State or other jurisdiction             (I.R.S. Employer Identification Number)
     of incorporation)

      2301 W. 205th Street, #102                          Torrance, CA 90501
     ----------------------------                        ---------------------
(Address of principal executive offices)                 (City, state and ZIP)

                     Issuer's telephone number 310-328-0477
                                  -------------

       Securities registered under Section 12(b) of the Exchange Act: None

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

                     Common Stock Par Value $.001 per share

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 (X) Yes ( ) No.

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB (X)

State issuer's revenues for its most recent fiscal year:   $3,238,284
                                                           ----------

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as a
specified date within the past 60 days:  $7,492,304
      ---------------------------------------------------------------------

The number of shares outstanding of the issuer's common stock as of February
29,2004 was 17,883,081.

Transitional Small Business Disclosure Format (check one).  ( )  Yes   (X) No

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                                     PART 1

ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL

         Eye Dynamics, Inc. (the "Company") designs, develops, produces and
markets diagnostic equipment that measures, tracks and records human eye
movements, utilizing the Company's proprietary technology and computer software.
The products perform separate, but related, functions and target two separate
markets. First, the Company markets a neurological diagnostic product that
tracks and measures eye movements during a series of standardized tests, as an
aid in diagnosing problems of the vestibular (balance) system and other balance
disorders. Second, the Company's impairment detection devices target the
corporate and criminal justice markets and are designed to test individuals for
impaired performance resulting from the influences of alcohol, drugs, illness,
stress and other factors that affect eye and pupil performance. The Company is a
Nevada corporation formed in 1989.

INTRODUCTION

         The human eye is a very sensitive organ. Eye movements or pupil
reactions are excellent indicators of the presence of disease, drugs or other
conditions which may impair the human ocular motor system. In particular, the
Company's technology deals with the central nervous system condition of
nystagmus, a rapid, involuntary oscillation of the eyeball. Nystagmus occurs in
different forms and has a number of causes, ranging from the serious (e.g., a
tumor in the brain or ear) to the benign (such as positional dizziness). The
consumption of certain drugs and alcohol also causes nystagmus, and there is a
direct and quantifiable correlation between blood alcohol concentration in the
body and the angle of onset of nystagmus. Medical research conducted over the
past fifty years has furnished evidence demonstrating a relationship between
irregular eye movement and abnormal central nervous system physiology. The
causes of these conditions are numerous, and include the influences of alcohol,
drugs, illness, stress, extreme fatigue and other neurological conditions

         The basic technology used in all of the Company's products is similar,
yet differs in its application and use. The Company's products utilize infrared
sensitive video cameras to monitor, videotape and analyze eye performance and
movement. All the products share in a modular concept for efficiency in
manufacturing. The products are PC computer based with specialized and
proprietary hardware and embedded firmware. A common element of the products is
the Ocular Motor Module, where the subject being tested peers into a dark
environment. The products include an infrared sensitive Charge Coupled Device
video camera that provides a bright video image, even though the person being
tested sees nothing but a small stimulus or tracking light amid complete
darkness.

PRODUCTS

         MEDICAL PRODUCTS. Eletronystagmographic (ENG) testing is a standard
medical procedure used in assessing problems of the balance system of patients.
This method provides enhanced diagnostic information for the medical
practitioner to use for the final diagnosis of the patient's problem. Testing of
patients for irregular eye movements has been a standard medical procedure for
several decades. For this market, the Company markets the House InfraRed/Video
ENG System. The ENG System is the first major technological improvement in this
standard medical testing method in the past forty years. The Company's products
have gained a share of this highly specialized market. The FDA granted approval
to market this product in 1994.

         Irregular eye movements and conditions are analyzed by medical
specialists as an aid in diagnosing problems with the human balance system and
other neurological conditions. In the past, diagnostic products have used
"electrodes" that are taped to the skin around the periphery of the patient's
eyes and a very small electrical signal from the corneo-retinal potential of the
eyes drives a pen recorder. The pen recorder provides a graphical depiction of
the eye movements under different test conditions. These graphs are then
interpreted by the medical diagnostician.

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         The Company brought the use of infrared illumination of the eyes into
clinical use in 1994 when the U.S. Food and Drug Administration ("FDA") approved
marketing of its House InfraRed/Video ENG System. This device was the first to
replace the electrodes with infrared sensitive video cameras and with computer
digital processing that follows the movement of the eyes and graphically
portrays the movements much like the pen recorder. The test subject wears a
lightweight goggle assembly which uses micro-miniature video cameras. The goggle
is an essential instrument because certain of the ENG tests require the patient
to move his head and often to recline on an examining table. The Company
believes the accuracy and display of the Infrared/Video ENG System represents a
significant improvement over other existing testing methods. In addition, the
use of video by the Infrared/Video ENG System allows the test administrator or
medical practitioner to observe the eye movements directly and can provide a
videotape record of the test for later playback and additional analysis. The
Company believes that this is a significant improvement over prior technology.
This product was first marketed in 1994, after gaining FDA approval to market.
Since then most every competitor has changed from electrodes and is embracing
video data acquisition as a superior technology. Results from the tests are used
by physicians and clinicians.

         The computer-based system, with proprietary Eye Position Interface
Controller, "locks" on to the pupils and independently tracks the horizontal and
vertical movements of each eye. The nystagmus is displayed in real time, saved,
analyzed and printed. The four channel system comes with a 12" Quad/Video
Monitor that displays both eyes on a single video screen.

         The system was developed by the Company in conjunction with the House
Ear Clinic and House Ear Institute, Los Angeles, California. The "House" name is
used with the permission of the House Ear Institute.

         IMPAIRMENT DETECTION PRODUCTS. The Company's impairment detection
product, SafetyScope (previously known as the "EPS-100"), allows employers and
others to screen individuals for physiological signs of impairment. The system
evaluates involuntary changes in eye movements and/or pupil reactions, which may
result from drug or alcohol abuse, reactions to medication, medical conditions,
stress or fatigue. Occupations in the medical, aviation, emergency response,
manufacturing and transportation businesses are key markets for this technology.
Unlike most drug and alcohol test methods, the SafetyScope functions without the
need for body fluids. Also, due to its less invasive nature, SafetyScope only
reveals if a person is impaired at the time of the test and does not test for
past use. Also, unlike blood and urine tests which only measure the presence of
a substance in the body, the SafetyScope only takes into account the
physiological effects of the substance.

         While substance abuse receives the most attention, worker impairment
caused by other factors, such as prescription and over-the-counter medications,
stress, extreme fatigue and illness, is a significant expense to employers.
Workers suffering from such impairments are characterized by low productivity,
more accidents, higher workers' compensation and insurance costs, and equipment
and merchandise damage. Different types of performance tests have evolved based
on extensive scientific studies validating the relationship between test results
and the impaired performance of an individual. They assess an individual's motor
and cognitive skills at the time of the test.

         The SafetyScope is based on methods developed by the federal government
and used by law enforcement over the past 25 years. The SafetyScope is a simple
computer system that evaluates the ability of an individual's eyes to follow a
moving light and react to a dim and bright light stimulus. The SafetyScope is
non-diagnostic and non-judgmental; it evaluates performance of the individual
solely for safety and productivity purposes. The initial price for the product
was $15,000, but with redesign and improved components and modest sales volume
the product will be repriced to $8,000, which the Company believes is
competitive with the price of professional desktop breath testing analyzers
commonly used by law enforcement for assessment of blood alcohol content levels
in individuals. However, the preferred pricing model is to place the units with
the user at no initial cost, except for a modest deposit, and to charge the user
a fee for each test administered. It is anticipated that the fees for such tests
will range from $1 to $5 per test, depending on the monthly quantity of tests,
with an average of approximately $3 per test.

                                       3

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         An employee looks into the SafetyScope and focuses on a moving beam of
light. A video camera records the action, and software analyzes eye movement
(smooth or jerky) and pupil reaction (small or large) and renders a
determination on whether there is impairment. In just ninety seconds, the
SafetyScope tests the human eye for the purpose of evaluating an individual for
impairment, by measuring twenty parameters of eye movement and pupil change,
relating to the position and reaction time of the eye and the size of pupil. The
SafetyScope reports the result of the test instantly with a "Pass" or "Fail"
result. The system does not require bodily fluids such as blood or urine.
SafetyScope offers users major advantages over traditional drug tests, in that
the system can detect on-the-spot impairment and results are immediate. Designed
for workplace testing, it can be utilized in a random testing or regular
scheduled testing environment. Traditional drug tests can take days to complete,
which is too late for detecting a problem the day it occurs.

         SafetyScope can be an important component for evaluating an employee
for job safety, particularly those jobs in life-dependent occupations, such as
airline pilots, bus drivers, train engineers, firefighters, medical personnel,
construction workers and law enforcement personnel, among others. Companies and
government agencies around the world are evaluating this cost-effective
technology to replace traditional drug tests that require body fluids and are
much more expensive to conduct.

         Even in healthy subjects the eyeball exhibits rapid, involuntary,
oscillatory movements, a phenomenon called nystagmus. But, as the subject's
brain function becomes increasingly impaired these movements become more and
more erratic. The SafetyScope uses an algorithm developed through thousands of
trials with hundreds of people under the influence of alcohol, heroin,
marijuana, and cocaine. The trials compared their current reading with a
baseline reading taken prior to being dosed with the substance.

         The Company believes that the SafetyScope will be especially useful for
applications where fatigue in the workplace has an impairing effect on workers.
The Company contracted with a major human alertness technology consulting and
research organization to optimize the SafetyScope for fatigueness testing. The
Company believes the SafetyScope will appeal to employers with round-the-clock
workforces who desire to reduce industrial accidents caused by employee fatigue
and to improve worker alertness and safety. It is estimated that in our society
more than 20 million Americans, or over 10% of the workforce, work outside of
normal daylight working hours, which tends to increase the effect of extreme
fatigue.

         The Company also offers a second model, the EM/1, which is designed for
use by law enforcement agencies for forensic purposes and for the evaluation of
individuals suspected of driving or being under the influence of intoxicants.
The EM/1 functions in a manner similar to the SafetyScope, but without the
"Pass/Fail" result. Instead, the EM/1 delivers the videotaped data for
interpretation by the law enforcement agency.

         In most states, law enforcement agencies use a six point evaluation of
people thought to be intoxicated. This is referred to as the Standardized Field
Sobriety Test ("SFST"). The SFST includes three tests for balance and three
tests involving eye performance. Thus, the Company believes there is a need for
a product that can be utilized, not only in the jail or precinct house, but in
the field by traffic patrol cars. This product must ultimately be in a 'hand
held' configuration.

         Hardware for the EM/1 is similar to the SafetyScope, but different
operating software requires that a person trained and certified in SFST and drug
recognition and evaluation operate the equipment and evaluate eye performance.
From the EM/1 test results and other test information, the evaluator draws an
opinion as to whether the individual is impaired and under the influence of
intoxicants or not, or whether medical treatment is indicated. The video tape
made of the test is then available as evidence to support the conclusion of the
law enforcement officer and, depending on the jurisdiction, may be admissible as
evidence in court proceedings. The EM/1 is currently priced at $14,000 per unit;
however, the Company plans to introduce a handheld unit within the next two
years, which should sell for less than $5,000.

                                       4

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MARKETING

         MEDICAL PRODUCTS. Marketing of the Infrared/Video ENG System is
conducted through a network of independently owned special instrument dealers
..These independently owned businesses are distributors of not only the
IR/Video ENG System, but of a variety of allied and related products for the
audiometric and otolaryngology ("ENT") markets. These distributors are across
the United States and operate in territories that are assigned both exclusively
and non-exclusively to them by the Company. In addition, there are several
foreign distributors that are merchandising the product in countries such as
India, Egypt, Hungary, Turkey, Thailand, Taiwan and Korea. The Company is not
yet selling in the European Community countries due to lack of the "CE" mark of
approval that must be obtained prior to marketing in those countries.

         The Company has also supplied a modified version of the Infrared/Video
ENG System to a distributor on a private label basis. These private label sales
have represented a significant portion of sales of the product. Sales to this
private label distributor accounted for 46% of the total sales for the year
2003.

         The market for the ENG products is relatively mature and represents
only annual growth estimated at 5%, but because of the advancement of technology
spurred by the Company's introduction of video data acquisition methods in 1994,
the market for replacement products has been strong. Also, there has been
considerable effort to open new markets for our product, including the neurology
market, through our private label distributor and through mobile diagnostic
providers of testing services.

         The Company contemplates that new versions of the ENG product will be
marketed through an arrangement with MedTrak Technologies, our private label
distributor. It will market new "Eye Dynamics" branded products to an expanded
array of medical specialty markets. The Company intends to appoint MedTrak as
"Master Distributor" of these products.

         IMPAIRMENT DETECTION PRODUCTS. The Company has been test marketing the
SafetyScope and has sold a few units in various locales. Currently, independent
sales representatives are being recruited to achieve geographic distribution
coverage over the United States. However, implementation of a full marketing
plan is contingent on receipt of additional working capital.

         In general, government drug testing regulations are based on urine
Testing, so testing of employees by governmental agencies, quasi-governmental
agencies and certain regulated industries must comply with these regulations.
Accordingly, some modification of these regulations must be achieved in order
for the SafetyScope to gain broad acceptance in this sector. Companies that do
substantial business with government agencies often must have a drug testing
program that complies with government regulations. Also, industries that are
regulated by the Department of Transportation must comply with these
regulations, as well as certain other industries regulated by the federal
government, such as the nuclear power industry.

         These factors limit the overall size of the market currently available
to the Company to private companies that are not regulated by the federal
government with respect to testing employees for substance abuse. If a private
employer falls within government regulated drug testing requirements, but
desires to also use impairment testing methodologies, it must do so in addition
to the government regulation requirements. This creates an additional cost to
such testing and therefore greatly limits the Company's access to that market.

         The Company has conducted discussions with various government agencies
to modify applicable regulations and procedures so that they will encompass
testing based on eye movement and performance. While certain governmental
agencies have expressed an interest in the Company's products, management
believes that changing governmental testing regulations will be a lengthy
process and success is not assured.

COMPETITION

         MEDICAL PRODUCTS. The principal competitors in the medical market
making ENG testing equipment are Micromedical Technologies, Inc., ICS Medical
Corporation and Intercoustics. Since the Company's ENG product was introduced in
1994, competitors have developed similar video-based ENG goggle products. As a
result, the market has become very competitive and subject to pricing pressures.
As a consequence, the Company has reduced prices, with an adverse effect on
overall gross margins. To combat this competitive pressure the Company has
reduced manufacturing costs in an effort to offset the gross margin loss. Also,
the gross profit on sales to the private label distributor is less than sales of
our own branded products. However, the increase in sales volume has more than
offset the gross profit percent reduction.

                                       5


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         IMPAIRMENT DETECTION PRODUCTS. Competition for the SafetyScope is from
companies that have developed tests and devices that evaluate motor and
cognitive skills. These take the form of hand-eye coordination tests, divided
attention tests and other behavioral tests or series of tests administered
either in series or selectively. The Company has identified three such
competitors that have marketed these products in the past, including Performance
Factors, Inc., Essex Corporation, and Pulse Medical Instruments.

         The Company believes only Pulse Medical Instruments is developing a
product to be directly competitive with the Company's products. The Pulse
Medical product does not use video sensors and its results are displayed in
graphic form on a computer monitor for the qualified expert to interpret. The
Company believes that such product will be more expensive than the SafetyScope
and is still under development and validation as a useful device.

         The SafetyScope differs from its competitors' tests because the
SafetyScope test evaluates changes in eye performance, which are involuntary
responses and not under the control of the individual. For this reason, these
responses cannot be changed, improved upon or learned. All the other competitive
forms of performance tests known to the Company can be learned and over time the
individual being tested can improve his skills. The Company believes that this
difference is an important competitive advantage over other forms of performance
tests.

         The SafetyScope also competes with drug and alcohol abuse test kits and
devices, which principally rely on collection and testing of urine samples. In
addition, certain drug and alcohol abuse tests now being developed will test
saliva and/or hair for evidence of the presence of certain drugs or alcohol.
The principal advantages of the SafetyScope over others tests are the immediacy
of results and the non-invasive nature of the procedure. The Company believes
that the potential for safety improvement that the SafetyScope will provide for
life-dependent professions, such as airline pilots, bus drivers and train
engineers, will make the system a very important breakthrough for public safety
in these fields.

MANUFACTURING

         The Company has performed all its own design and engineering of
products and has developed all software and validation of software algorithms
that are used in the analysis portion of the proprietary software.

         Manufacturing of both the ENG products and the SafetyScope is primarily
done through subcontracting with various suppliers. The Company does not rely on
a single supplier for the major manufacturing of items. Various companies build
and test product modules on an OEM contract basis. Final system integration and
testing is completed by the Company prior to shipment of devices to customers.
All the products share in a modular concept for efficiency in manufacturing. The
products are PC Computer based with specialized and proprietary hardware and
embedded firmware. The common elements of the products are the viewport and the
goggles, through which the individual being tested peers into a dark
environment.

         Manufactured or fabricated modules include the molded eye piece, the
goggle assembly, the viewport assembly and proprietary printed circuit boards.
As a majority of the components in the Company's products are readily available,
the Company does not anticipate undertaking internal manufacturing of any
components. Manufacturing operations consist of only assembly, testing and
packaging functions.

GOVERNMENT REGULATION

         The Company's ENG products have been approved for marketing by the U.S.
Food and Drug Administration. The Company is also licensed by the State of
California as a Medical Device Manufacturer. The SafetyScope and EM/1 are not
subject to regulation, as they are not considered medical devices. However, as
discussed above under the caption "Marketing," governmental regulations on
substance abuse testing for government employees and certain private companies
impact the Company's ability to market the SafetyScope in these areas.

PATENTS & PROPRIETARY PROTECTION

         The Company licenses the technology used in its performance evaluation
products from Ronald A. Waldorf, Chairman of the Board of Directors, who holds a
patent covering claims relating to tracking eye movements in the dark, utilizing
infrared illumination and infrared sensitive video cameras, as well as the
related analysis methodology. The patent was issued in 1989 and expires in 2006.
The license is for the term of the underlying patent, and calls for nominal
annual royalties of $100.

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         The Company is the owner of a patent issued in August 1992, covering
certain technology underlying the SafetyScope, principally relating to the
apparatus for testing for impairment by tracking eye movements and pupil
reactions to presented stimuli.

          The existence of patents may be important to the Company's future
operations, but there is no assurance that additional patents will be issued.
For both of the above named patents, eleven foreign patents have been issued
and/or are pending in several foreign countries.

         The Company also relies on unpatented technology, know-how and trade
secrets covering a number of items, particularly the methods of obtaining data
regarding eye performance. The Company relies on confidentiality agreements and
internal procedures to protect such information.

EMPLOYEES

         The Company employs five employees full time, including its President,
a development engineer, a marketing manager and technical support person. Other
part time consulting and commissioned personnel are also utilized. The Company's
employees are not parties to any collective bargaining agreement, and the
Company believes that its employee relations are satisfactory.

ITEM 2.   DESCRIPTION OF PROPERTY

         The Company's offices are in leased space in an industrial complex in
Torrance, California. The offices occupy 1620 square feet and the lease expires
on January 31, 2006. The current monthly lease payment is $1,629.

ITEM 3.   LEGAL PROCEEDINGS

         Inapplicable

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         Inapplicable

                                     PART II

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The following table sets forth the quarterly high and low closing
prices for the Common Stock, as reported on the OTC Bulletin Board, during the
2003 fiscal year.

                                             LOW               HIGH
                                             ---               ----

               2003
          ---------------
          First Quarter                     $.045             $.11
          Second Quarter                     .05               .35
          Third Quarter                      .14               .25
          Fourth Quarter                     .205              .75

              2002
          ---------------
          First Quarter                      .05              .05
          Second Quarter                     .05              .06
          Third Quarter                      .03              .03
          Fourth Quarter                     .08              .10

         The Company's common stock is traded on the OTC Bulletin Board under
the symbol "EYDY". As of December 31, 2003, the Company's Common Stock was held
of record by approximately 110 holders. Registered ownership includes nominees
who may hold securities on behalf of multiple beneficial owners.

         The Company has paid no cash dividends on its Common Stock and has no
present intention of paying cash dividends in the foreseeable future.

                                       7


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ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

         The following discussion and analysis should be read in conjunction
with the Company's Consolidated Financial Statements and Notes thereto included
elsewhere in this Annual Report on Form 10-KSB. Except for the historical
information contained herein, the following discussion contains certain
forward-looking statements that involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations and intentions. The
cautionary statements made in this Annual Report on Form 10-KSB should be read
as being applicable to all related forward-looking statements wherever they
appear in this Annual Report on Form 10-KSB. The Company's actual results may
differ materially from the results discussed in the forward-looking statements
as a result of certain factors including, but not limited to, those discussed
elsewhere in this Annual Report on Form 10-KSB.

         The Company has invested substantial funds in the last several years
developing and validating its products. The Company is successfully producing
and marketing the Infrared/Video ENG System; however, since this is a niche
product in a relatively mature market, potential revenue growth from this
product line is limited. To date, sales of this product have constituted a
substantial portion of the Company's revenues. The development of new markets
for these products is the principal factor in the growth that the Company
achieved during 2003.

         The SafetyScope product and its predecessor, the EPS-100 Performance
System, has been sold in a few locales and beta marketing has been successful.
However, for large scale marketing and sales of this product, the Company will
need a substantial infusion of capital, as well as modification of federal drug
testing regulations. This is a significant project, requiring a coordinated
effort with potential customers,  government officials, and legislators.
Therefore, additional investment capital will be is required to launch the
marketing of the SafetyScope, and a large scale marketing and lobbying effort
will be necessary for the product to succeed. A business plan has been prepared
for commercialization of the SafetyScope and is being evaluated by interested
parties.

RESULTS OF OPERATIONS

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002.

         Revenues from sales of products increased by 79%, from $1,808,341 in
2002 to $3,238,282 in 2003. This increase is largely due to the success of our
private label program for Video ENG Systems. The overall market for traditional
ENG products is still flat, with limited growth. The majority of sales represent
replacements of older equipment, as opposed to sales to new medical practices.
Our increased sales have principally come from the successful development of new
markets for the ENG products, such as mobile diagnostic services. Also, our
private label distributor has developed specialty applications for ENG
equipment, such as its "Balance and Fall Prevention" program. Our private label
distributor accounted for approximately 61% of our sales revenues in 2002, but
in 2003 accounted for only 53% of revenues. This is an indicator that our Eye
Dynamics brand of ENG products increased over 100% from the 2002 level of sales.
This success is due not only to activities by our private label distributor in
aggressive marketing and developing new market segments, but also to the
expanded market activity for the Eye Dynamics branded products.

         Gross profit percentage remained steady in 2003, at 52%, the same as in
2002. However, total revenues during 2003 were 79% greater than revenues during
2002, so gross profits are substantially higher, and contribute to net profits
for the Company. Gross profit in 2003 was $1,668,726 compared to $932,263 in
2002.

         Inventory turnover ratio in 2003 was approximately 6:1, compared to
5.5:1 in 2002. This is a reflection of the increase in business in the second
half of the year. Inventory is currently in line to achieve a turnover ratio of
5:1 for 2004.

         Collection of accounts receivables has been very good, with only
minimal slow paying accounts. Our private label account ordinarily pays invoices
within fifteen days of the invoice date. Bad debt write off for 2003 was $1,769.

         Product development is limited due to resources available and is
concentrated on software and current product improvements that will make the
existing products more competitive and desirable.

                                       8

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LIQUIDITY AND CAPITAL RESOURCES

         As of December 31, 2003, the Company had an accumulated deficit of
approximately $2,634,886. As of that date, the Company had $700,344 in cash,
approximately $131,420 in net accounts receivable, and $319,953 in inventory.
Also, the Company had $201,847 of current liabilities, consisting of accounts
payable, accrued interest, and the current portion of notes payable. Long term
liabilities consist solely of a note balance of $325,137, which has a 60 month
payment schedule for full amortization. Payments on this note commenced in
February 2003 and continue monthly thereafter.

         The Company has no plans for significant capital equipment expenditures
for the foreseeable future.

         The Company believes that current and future available capital
resources, cash flow from operations and other existing sources of liquidity
will be adequate to fund its operations. However, there can be no assurance that
sufficient funds will be available or that future events will not cause the
Company to seek additional capital sooner. To the extent the Company is in need
of any additional financing, there can be no assurance that any additional
financing will be available to the Company on acceptable terms, or at all. The
inability to obtain such financing could have a material adverse effect on the
Company's business, financial condition and results of operations. If additional
funds are raised by issuing equity or convertible debt securities, options or
warrants, further dilution to the existing shareholders may result.

         If adequate funds are not available, the Company may also be required
to delay, scale back or eliminate its product development efforts or to obtain
funds through arrangements with strategic partners or others that may require
the Company to relinquish rights to certain of its technologies or potential
products or other assets. Accordingly, the inability to obtain such financing
could result in a significant loss of ownership and/or control of its
proprietary technology and other important Company assets and could also
adversely affect the Company's ability to continue its product development
efforts, which the Company believes contributes significantly to its competitive
advantage. If any of such circumstances were to arise, the Company's business,
financial condition and results of operations could be materially and adversely
affected.

EFFECT OF INFLATION

         The Company believes that inflation has not had a material effect on
its net sales or profitability in recent years.

ITEM 7.  FINANCIAL STATEMENTS

         The financial statements of the Company are submitted as a separate
section of this Annual Report on Form 10-KSB, commencing with page F-1.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         None.

                                       9

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ITEM 8A. CONTROLS AND PROCEDURES

         Evaluation of Disclosure Controls and Procedures. The Company's chief
executive and financial officer, after evaluating the effectiveness of its
disclosure controls and procedures as of the end of the year covered by this
report (the "Evaluation Date"), as required by Exchange Act Rule
13a-15,concluded that the Company's disclosure controls and procedures were
effective and designed to ensure that material information relating to the
Company is accumulated and would be made known to him by others within the
Company as appropriate to allow timely decisions regarding required disclosures.

         Changes in Internal Controls. There were no significant changes in the
Company's internal controls over financial reporting that occurred during the
quarter and year ended December 31, 2003 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.

         Limitations on the Effectiveness of Controls. The Company's management
believes that a control system, no matter how well designed and operated, cannot
provide absolute assurance that the objectives of the control system are met,
and no evaluation of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within a company will be detected.

                                    PART III

ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
          COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

         The directors and executive officers of the Company are as follows:

<TABLE>
<CAPTION>
                                                                                    DIRECTOR
         NAME                AGE               POSITION                              SINCE
         ----                ---               --------                           -----------
<S>                          <C>      <C>                                              <C>
Charles E. Phillips          68       President, Treasurer & Director                  1991

Ronald A. Waldorf            55       Vice President, Secretary & Director             1991

Arnold D. Kay                68       Director                                         1999

Barbara J. Mauch             58       Chief Product Development Engineer               ----
</TABLE>

         Directors serve for a term of one year or until the next annual meeting
of shareholders.

         CHARLES E. PHILLIPS has been President and a Director of the Company
and its predecessor, OculoKinetics, Inc. since its inception in 1988. Prior to
forming OculoKinetics, Inc., Mr. Phillips operated Charles E. Phillips, Inc., a
management and marketing consulting firm. His work has included assignments in
marketing, operations and the initiation of start-up ventures. From 1974 to
1985, Mr. Phillips was Executive Vice President and Director of Akai America,
Ltd., a consumer electronics company. His management background has encompassed
marketing, new product planning, sales, advertising, finance, accounting,
manufacturing, quality assurance and distribution.

         Mr. Phillips received a B.A. from Pepperdine College, Los Angeles,
California with emphasis on Business and Speech Education, in 1956.

         RONALD A. WALDORF has been Chairman of the Board of Directors of the
Company since 1991 and is active in overall policy formation and strategic
planning for the Company. He is the inventor of the IR/Video ENG System,
SafetyScope and EM/1 products. He also owns a patent covering closely related
technology that has been licensed exclusively to the Company. Since 1969 Waldorf
has been active in the field of otolaryngology, primarily in an academic
research environment at the University of Florida, College of Medicine and at
the University of California (Irvine), Department of Surgery. He has published
numerous articles on vestibular and optokinetic research in international
scientific and medical journals and was the principal investigator in a research
grant funded by the National Institute of Health/National Institute on Alcohol
Abuse and Alcoholism(NIH/NIAAA). Since 1981 he has acted as a consultant to
clinics and hospitals in the Los Angeles area, including the House Ear Clinic.
He has also consulted to a Japanese company developing new technologies for eye
movement detection.

                                       10


<PAGE>

         Mr. Waldorf earned an M.S. in from the Department of Physiology of the
College of Medicine, University of Florida, in 1972.

         ARNOLD D. KAY was elected a Director in September 1999. He has more
than thirty years experience in finance, sales and administration. Mr. Kay was
an employee of the Company from 1991 to 1994. He currently is co-owner and
General Manager of Lomita Blueprint/CADWEST of Lomita, California, a software
and computer imaging business focusing on design, graphics and distribution of
CAD software and systems.

         Mr. Kay received a B.S. in Business Administration/Finance from
California State University, Northridge, in 1961.

         BARBARA J. MAUCH is the primary product development engineer for the
Company. She has been with the Company since 1989 and is responsible for product
engineering and software development. Her background encompasses computer
systems design and software development for access control of buildings and
other properties. She served as a Director of the Company from 1991 to 1996.

         Ms. Mauch earned a B.S. in Mathematics from Northern Colorado
University in 1971 and completed the Master's program in computer science at
UCLA.

DIRECTORS' COMPENSATION

         The members of the Board of Directors do not receive any compensation
for their service as directors, but are eligible for reimbursement of their
expenses incurred in connection with attendance at Board meetings in accordance
with Company policy.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of a registered class of the
Company's equity securities (the "10% Stockholders"), to file reports of
ownership and changes of ownership with the Securities and Exchange Commission.
Officers, directors and 10% Stockholders of the Company are required by
Commission regulation to furnish the Company with copies of all Section 16(a)
forms so filed.

         Based upon a review of filings made and other information available to
it, the Company believes that each of the Company's present Section 16 reporting
persons filed all forms required of them by Section 16(a) during the year 2002.

ITEM 10.  EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

         The following table sets forth certain compensation awarded or paid by
the Company to its Named Executive Officers and others during the fiscal years
ended December 31, 2003, 2002 and 2001.

                                       11


<PAGE>

<TABLE>
<CAPTION>
                                     SUMMARY COMPENSATION TABLE

                                                                                  LONG-TERM COMPENSATION
                                                                  -----------------------------------------------------
                                       ANNUAL COMPENSATION            AWARDS             PAYOUTS
                            ------------------------------------  ------------------------------------
                                                                   RESTRICTED                   LTIP
NAME AND                             SALARY     BONUS     OTHER   STOCK AWARDS     OPTIONS     PAYOUTS     ALL OTHER
PRINCIPAL POSITION          YEAR       $          $         $         $                #          $        COMPENSATION
------------------          ----     ------     -----     -----     ------         -------     -------     ------------
<S>                         <C>      <C>        <C>        <C>       <C>           <C>            <C>         <C>
Charles E. Phillips         2003     97,500     0          0         0                   0        0           0
                            2002     76,000     0          0         0                   0        0           0
                            2001     72,000     0          0         0                   0        0           0

Ronald A. Waldorf           2003          0     0          0         0                   0        0           0
                            2002          0     0          0         0                   0        0           0
                            2001      7,500     0          0         0                   0        0           0

Barbara J. Mauch            2003     67,500     0          0         0                   0        0           0
                            2002     56,000     0          0         0                   0        0           0
                            2001     54,000     0          0         0                   0        0           0

</TABLE>

There were no options granted in 2003. There were no options exercised during
2003.

         The following table sets forth certain information concerning options
outstanding at December 31, 2003:

<TABLE>
<CAPTION>

                                                          Number of         Value of Unexercised
                          Shares                         Unexercised             In-the-money
                        Acquired on      Value            Options at              Options at
                         Exercise       Realized      December 31, 2003*      December 31, 2003*
                        ----------      --------      ------------------      ------------------
Name
----
<S>                          <C>           <C>                   <C>                     <C>
Charles E. Phillips          0             0                     0                       0

Ronald Waldorf               0             0                     0                       0

Arnold Kay                   0             0                     0                       0

Barbara J. Mauch             0             0                     0                       0
</TABLE>

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

                                       12

<PAGE>

ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
           RELATED STOCKHOLDER MATTERS

         The following table sets forth information regarding the beneficial
ownership of the Common Stock of the Company as of December 31, 2003, by (i)
each person known by the Company to beneficially own 5% or more of the
outstanding Common Stock of the Company; (ii) each of the Company's directors;
(iii) the Named Executive Officers identified in the Summary Compensation Table;
and (iv) all directors and Named Executive Officers of the Company as a group.

Name & Address                      Number of Shares            Percentage Owned
--------------                      ----------------            ----------------
Charles E. Phillips
2301 W. 205th St., #102              2,105,489                        11.8
Torrance, CA 90501

Ronald A. Waldorf
2301 W. 205th St., #102              1,633,100                         9.0
Torrance, CA 90501

Barbara J. Mauch                     1,382,544                         7.8
2301 W. 205th St., #102
Torrance, CA 90501

Arnold D. Kay                           63,128                         0.4
2301 W. 205th St., #102
Torrance, CA 90501

TESA Corporation                     2,500,000                        14.0
961 North Rice
Oxnard, CA 93030

All directors and executive
officers as a group                  7,684,261                        43.0
(5 persons)

-----------------------
          Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Except as indicated by footnote, and subject
to community property laws where applicable, the persons named in the table
above have sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them. Shares of Common Stock subject to
securities currently convertible, or convertible within 60 days after December
31, 2003, are deemed to be outstanding in calculating the percentage ownership
of a person or group but are not deemed to be outstanding as to any other person
or group.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The Company has employment agreements with its President and an
employee that provide for aggregate annual compensation of $150,000. The
agreements are automatically renewed year to year. The agreements may be
terminated by the Company or the officers with notice 60 days prior to any
expiration date.

                                       13


<PAGE>

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

(A) The following exhibits are included herein or incorporated by reference:

3(i)*     Articles of Incorporation, as amended.

3(ii)*    Bylaws

10.1*     Employment Agreement, dated April 1, 1989 with Charles E. Phillips

10.2*     Employment Agreement, dated December 1, 1989 with Barbara J. Mauch

10.3*     Exclusive Licensing Agreement, dated November 1, 1989 with Ronald A.
          Waldorf

10.4**    Agreement, dated March 19, 2001 between the Company and Medtrak, Inc.


10.4***   Standard Multi-Tenant Commercial Industrial Lease-Gross, dated January
          9, 2003, between the Company and AMB Property, L.P.

10.6***   Technology Development Agreement, dated November 18, 2002, between the
          Company and HRL Laboratories, LLC

10.7***   Registration Rights Agreement, dated November 18, 2002, between the
          Company and HRL Laboratories, LLC

* Incorporated by reference from Amendment No. 1 to the Registration Statement
on Form 10-SB, filed on December 13, 1999.

** Incorporated by reference from Report on Form 10-K for the year ended
December 31, 2000, filed on April 16, 2001.

*** Incorporated by reference from Report on Form 10-KSB for the year ended
December 31, 2002, filed on April 9, 2003.

  (B) Reports on Form 8-K

         None.

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following is a summary of the fees billed to the Company by Spector & Wong,
LLP, its independent certified accountants, for professional services rendered
for the fiscal years ended December 31, 2003 and 2002:

Fee Category               Fiscal 2003 Fees       Fiscal 2002 Fees
-------------              ----------------       -----------------

Audit Fees                     $6,600                  $6,000

Audit-Related Fees              7,200                   6,600

Tax Fees                        1,200                   1,200

All Other Fees                    -0-                     -0-

Total Fees                    $15,000                 $13,800

         Audit Fees. Consists of fees billed for professional services rendered
for the audit of the Company's consolidated financial statements and review of
the interim consolidated financial statements included in quarterly reports and
services that are normally provided by Spector & Wong in connection with
statutory and regulatory filings or engagements.

         Audit-Related Fees. Consists of fees billed for assurance and related
services that are reasonably related to the performance of the audit or review
of the Company's consolidated financial statements and are not reported under
"Audit Fees." There were no Audit-Related services provided in fiscal 2003 or
2002.

                                       14


<PAGE>

         Tax Fees. Consists of fees billed for professional services for tax
compliance, tax advice and tax planning.

         All Other Fees. Consists of fees for products and services other than
the services reported above. There were no management consulting services
provided in fiscal 2003 or 2002.

         POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE
NON-AUDIT SERVICES OF INDEPENDENT AUDITORS

         The Company has no audit committee. The Board of Directors' policy is
to pre-approve all audit and permissible non-audit services provided by the
independent auditors. These services may include audit services, audit-related
services, tax services and other services. Pre-approval would generally be
provided for up to one year and any pre-approval would be detailed as to the
particular service or category of services, and would be subject to a specific
budget. The independent auditors and management are required to periodically
report to the Board of Directors regarding the extent of services provided by
the independent auditors in accordance with this pre-approval, and the fees for
the services performed to date. The Board of Directors may also pre-approve
particular services on a case-by-case basis.

                                       15


<PAGE>

                                   SIGNATURES

         In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

Eye Dynamics, Inc.

                                             By: /s/ Charles E. Phillips
                                             -----------------------------------
Date:  March 22, 2004                          Charles E. Phillips, President
                                               and Chief Financial Officer

        In accordance with the Exchange Act, this report has been signed below
by the following persons On behalf of the Registrant and in the capacities and
on the dates indicated:

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

/s/ Charles E. Phillips         President, Chief Financial     March 22, 2004
        Charles E. Phillips         Officer and a Director

/s/ Ronald A. Waldorf           Chairman and a Director        March 22, 2004
        Ronald A. Waldorf

/s/ Arnold Kay                  Director                       March 22, 2004
       Arnold Kay

                                       16


<PAGE>

                          INDEPENDENT AUDITOR'S REPORT
                          ----------------------------

To the Board of Directors and stockholders of Eye Dynamics, Inc.

         We have audited the accompanying consolidated balance sheet of Eye
Dynamics, Inc. and its subsidiary, as of December 31, 2003, and the related
consolidated statements of operations, changes in stockholders' deficit, and
cash flows for the years ended December 31, 2003 and 2002. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Eye Dynamics, Inc. and its subsidiary as of December 31, 2003, and the
consolidated results of its operations and its cash flows for the years ended
December 31, 2003 and 2002, in conformity with accounting principles generally
accepted in the United States.

/s/ Spector & Wong, LLP
Pasadena, California
March 8, 2004

                                      F-1


<PAGE>

EYE DYNAMICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET

DECEMBER 31, 2003
--------------------------------------------------------------------------------

                                   ASSETS
Current Assets
  Cash                                                              $   700,344
  Accounts receivable                                                   131,420
  Inventory                                                             319,953
  Prepaid expenses                                                       37,232
                                                                    ------------
    Total Current Assets                                              1,188,949

Property and equipment, net of accumulated depreciation
  of $13,341                                                              1,103

Other Assets                                                            216,999
                                                                    ------------
TOTAL ASSETS                                                        $ 1,407,051
                                                                    ============

                    LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
  Accounts payable & accrued expenses                               $   103,962
  Accrued interest                                                        2,839
  Notes payable, current portion                                         95,046
                                                                    ------------
    Total Current Liabilities                                           201,847

Long-term debt                                                          325,137
                                                                    ------------
    Total Liabilities                                                   526,984

Stockholders' Equity
  Common Stock, $0.001 par value; 50,000,000 shares authorized;
    17,883,081 shares issued and outstanding                             17,883
  Paid-in Capital                                                     3,497,070
  Accumulated Deficit                                                (2,634,886)
                                                                    ------------
    Total stockholders' equity                                          880,067
                                                                    ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                          $ 1,407,051
                                                                    ============

See notes to consolidated financial statements

                                      F-2


<PAGE>

EYE DYNAMICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS

For years ended December 31,                           2003            2002
--------------------------------------------------------------------------------
Sales
  Products                                         $  3,230,284    $  1,765,091
  Services                                                8,000          43,250
                                                   -------------   -------------
                                                      3,238,284       1,808,341
Cost of Sales
  Products                                            1,567,414         857,663
  Services                                                2,144          18,415
                                                   -------------   -------------
                                                      1,569,558         876,078

  Gross Profit                                        1,668,726         932,263
                                                   -------------   -------------

Operating Expenses
  Selling, General and Administrative Expenses           720,248         715,297
  Provision for Loan Loss                                    --          58,218
                                                   -------------   -------------
                                                        720,248         773,515

  Operating income                                      948,478         158,748
                                                   -------------   -------------

Other Income(Expense)
  Interest and Other Income                                 819           8,148
  Interest and Other Expense                            (17,551)        (40,951)
                                                   -------------   -------------
                                                        (16,732)        (32,803)

Net income before taxes and extraordinary item          931,746         125,945

Provision for Income Taxes (Benefits)                  (111,281)          1,600
                                                   -------------   -------------

Net income before extraordinary item                  1,043,027         124,345

Extraordinary item-gain on restructuring of debt,
 net of applicable income taxes of $0                        --          26,479
                                                   -------------   -------------

Net income                                         $  1,043,027    $    150,824
                                                   =============   =============

Net income per share-basic:
  Net income before extraordinary item             $       0.06    $       0.01
  Extraordinary gain, net                                    --            0.00
                                                   -------------   -------------
  Net income                                       $       0.06    $       0.01
                                                   =============   =============
Net income per share-diluted:
  Net income before extraordinary item             $       0.05    $       0.01
  Extraordinary gain, net                                    --            0.00
                                                   -------------   -------------
  Net income                                       $       0.05    $       0.01
                                                   =============   =============

Shares used in per share calculation-basic           17,853,044      16,441,980
Shares used in per share calculation-Diluted         21,797,759      19,909,065

See notes to consolidated financial statements

                                      F-3


<PAGE>
<TABLE>
<CAPTION>
EYE DYNAMICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For years ended December 31, 2003 2002

                                                                        Unamortized
                                    Common Stock           Paid-in       Expenses      Accumulated
                                Shares        Amount       Capital    (Contra-Equity)    Deficit          Total
                             ------------  ------------  ------------   ------------   ------------   ------------
<S>                           <C>          <C>           <C>            <C>            <C>            <C>
Balance at 12/31/01           14,350,313   $    14,350   $ 3,345,936    $  (166,057)   $(3,828,737)   $  (634,508)

Issuance of Stocks for
 R&D expenses                    800,000           800        27,200                                       28,000
 Settlement                      200,000           200         9,800                                       10,000
 Debt restructuring            2,500,000         2,500        97,500                                      100,000

Warrants issued for note
 payment                                                      16,667                                       16,667

Amortization of expenses                                                    166,057                       166,057

Net Income                                                                                 150,824        150,824
                             ------------  ------------  ------------   ------------   ------------   ------------
Balance at 12/31/02           17,850,313        17,850     3,497,103             --     (3,677,913)      (162,960)

Exercise of warrants under
 noncash provision                32,768            33           (33)                                          --

Net Income                                                                               1,043,027      1,043,027
                             ------------  ------------  ------------   ------------   ------------   ------------
Balance at 12/31/03           17,883,081   $    17,883   $ 3,497,070    $        --    $(2,634,886)   $   880,067
                             ============  ============  ============   ============   ============   ============

</TABLE>

See notes to consolidated financial statements

                                                          F-4

<PAGE>
<TABLE>
<CAPTION>
EYE DYNAMICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS

For years ended December 31,                                               2003          2002
--------------------------------------------------------------------------------------------------
<S>                                                                    <C>            <C>
CASH FLOW FROM OPERATING ACTIVITIES:
  Net Income (Loss)                                                    $ 1,043,027    $   150,824
  Adjustments to reconcile net loss to net
   cash used by operating activities:
    Depreciation                                                               408          1,477
    Deferred tax benefit                                                  (205,436)            --
    Extraordinary Gain, net                                                     --        (26,479)
    Provision for loan loss                                                     --         58,218
    Noncash expenses                                                            --        194,057
    Warrants for Services and Interest                                          --         16,667
    (Increase) Decrease in:
     Accounts Receivable                                                    55,557       (104,399)
     Inventory                                                            (164,786)       (39,649)
     Prepaid and Others                                                    (33,836)       (10,984)
    Increase (Decrease) in:
     Accounts Payable and Accrued Expenses                                  14,556         35,503
     Other Liabilities                                                     (13,271)       (61,729)
     Accrued Interest                                                      (74,051)       (26,225)
                                                                       ------------   ------------
Net cash provided by operating activities                                  622,168        187,281
                                                                       ------------   ------------

CASH FLOW FROM INVESTING ACTIVITIES:
  Purchase of property and equipment                                        (1,113)            --
  Employee Advances and Receivable                                              --          3,929
                                                                       ------------   ------------
Net cash provided by (used in) investing activities                         (1,113)         3,929
                                                                       ------------   ------------

CASH FLOW FROM FINANCING ACTIVITIES:
  Net advance from (repayments on) Line of Credit                               --        (45,248)
  Net Proceeds from (repayments on) Notes Payable                          (98,379)        23,083
  Net Proceeds from (Payments to) Shareholders                                  --        (15,000)
                                                                       ------------   ------------
Net cash (used in) financing activities                                    (98,379)       (37,165)
                                                                       ------------   ------------

NET INCREASE IN CASH                                                       522,676        154,045

CASH BALANCE AT BEGINNING OF YEAR                                          177,668         23,623
                                                                       ------------   ------------

CASH BALANCE AT END OF YEAR                                            $   700,344    $   177,668
                                                                       ============   ============

Supplemental Disclosures of Cash Flow Information:
  Interest Paid                                                        $    78,889    $    49,036
  Taxes Paid                                                           $    66,573    $     1,600

Supplemental Schedules of Noncash Investing and Financing Activities
  Exercise warrant under noncash provision                              $        33    $        --

  Issuing common stock for:
    Reduction of liability                                             $        --    $    10,000
    Restructuring of debt                                                       --        100,000
                                                                       ------------   ------------
                                                                       $        --    $   110,000
                                                                       ============   ============

</TABLE>

See notes to consolidated financial statements

                                            F-5

<PAGE>
EYE DYNAMICS, INC. & SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 1 - NATURE OF BUSINESS AND CRITICAL ACCOUNTING POLICIES

NATURE OF BUSINESS: Eye Dynamics, Inc. (the "Company') designs, develops,
produces and markets diagnostic equipment that measures, tracks and records
human eye movements, utilizing the Company's proprietary technology and computer
software. The products perform separate, but related, functions and target two
separate markets. First, the Company markets a neurological diagnostic product
that tracks and measures eye movements during a series of standardized tests, as
an aid in diagnosing problems of the vestibular (balance) system and other
balance disorders. Second, the Company's impairment detection devices target the
corporate and criminal justice markets and are designed to test individuals for
impaired performance resulting from the influences of alcohol, drugs, illness,
stress and other factors that affect eye and pupil performance. The Company is a
Nevada corporation formed in 1989.

PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiary,
Oculokinetics, Inc, after elimination of all material intercompany accounts and
transactions.

         The subsidiary was wound down in 2003 (see Note 7). The subsidiary had
no operations in both years of 2003 and 2002. All revenue is derived from the
Company.

USE OF ESTIMATES: The preparation of the accompanying consolidated financial
statements in conformity with accounting principles generally accepted in the
United States (U.S. GAAP) requires management to make certain estimates and
assumptions that directly affect the results of reported assets, liabilities,
revenue, and expenses. Actual results may differ from these estimates.

REVENUE RECOGNITION: The Company is subcontracting the manufacturing of the
medical diagnostic equipments and products. Manufacturing operations consist of
assembly, test, and packaging functions. Sales of product and equipment are
recognized when both title and risk of loss transfers to the customer (usually
it is the date of shipment), provided that no significant obligations remain and
collectibility is reasonably assured. No provisions were established for
estimated product returns and allowances based on the Company's historical
experience.

         The Company provides repair and maintenance, and consulting and
education services to its customers. Revenue from such services is generally
recognized over the period during which the applicable service is to be
performed or on a services-performed basis.

         The Company evaluated Statement of Position No. 97-2, "Software Revenue
Recognition" ("SOP 97-2"), but does not expect that SOP 97-2 will have a
material impact on the Company's financial position, results of operations, or
cash flows since the Company did not sell, license, lease or market any
individual computer software. The Company's computer software is included with
the equipment and is not sold separately.

BAD DEBTS: Management has elected to record bad debts using the direct write-off
method. U.S. GAAP requires that the allowance method be used to reflect bad
debts. However, the effect of the direct write-off method is not materially
difference from the results that would have been obtained had the allowance
method been followed. Bad debt expense for years ended December 31, 2003 and
2002 was $1,769 and $971, respectively.

                                      F-6

<PAGE>
EYE DYNAMICS, INC. & SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 1 - NATURE OF BUSINESS AND CRITICAL ACCOUNTING POLICIES (CONTINUED)

DEBT RESTRUCTURINGS: The Company accounts for debt restructurings that occurred
in April 2002 in accordance with Statement of Financial Accounting Standards
(SFAS) No. 15, "Accounting for Debtors and Creditors for Troubled Debt
Restructurings." The statement requires that a debtor should (a) recognize a
gain or loss by reducing the carrying amount of the debt by the fair value of
the assets or equity interest transferred, and (b) account for the remainder of
the restructuring as a modification of debt terms. When the terms of a debt are
adjusted in a trouble-debt restructuring, the total amount of the future cash
payments should be determined. If the carrying amount of debt is less than the
aggregate future cash payments required by the new debt term, the debtor should
amortize the difference over the life of the new debt as interest expense using
the effective interest method. No gain or loss is recognized in the period of
extinguishments. If the carrying amount of debt is greater than the aggregate
future cash payments required by the new debt term, the debtor should reduce the
carrying value of debt to an amount equal to the total future cash payments and
recognize the reduction an extraordinary gain. No interest expense should be
recorded.

STOCK-BASED COMPENSATION: SFAS No. 148. "Accounting for Stock-Based Compensation
- Transition and Disclosure, an Amendment of FASB Statement No. 123," amends the
disclosure requirements of SFAS No. 123, "Accounting for Stock-Based
Compensation," to require more prominent disclosures in both annual and interim
financial statements regarding the method of accounting for stock-based employee
compensation and the effect of the method used on reported results.

         The Company accounts for equity-based instruments issued or granted to
employees using the intrinsic method of accounting in accordance with Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). Under the intrinsic value method, because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized in
the Company's Consolidated Statements of Operations.

         The Company is required under SFAS 123 to disclose pro forma
information regarding option grants to its employees based on specified
valuation techniques that produce estimated compensation charges. The pro forma
information is as follows:

          Net income - as reported                    $ 1,043,027   $   150,824
          Pro forma compensation expense                       --         9,250
                                                      ------------  ------------
          Pro forma net income                        $ 1,043,027   $   141,574
                                                      ============  ============

          Basic earnings per share:
               As reported                            $      0.06   $      0.01
               Pro forma                              $      0.06   $      0.01

          Diluted earnings per share:
               As reported                            $      0.05   $      0.01
               Pro forma                              $      0.05   $      0.01


                                      F-7


<PAGE>
EYE DYNAMICS, INC. & SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 1 - NATURE OF BUSINESS AND CRITICAL ACCOUNTING POLICIES (CONTINUED)

         The value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model, which was developed for use in
estimating the value of traded options that have no vesting restrictions and are
fully transferable. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
estimate, in management's opinion, the existing valuation models do not provide
a reliable measure of the fair value of the Company's employee stock options.
(For additional information regarding this pro forma information, see Note to
the Consolidated Financial Statements.)

         The Company accounts for stock issued to non-employees in accordance
with the provisions of SFAS No. 123 and the EITF Issue No. 00-18, "Accounting
for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or
in Conjunction with Selling, Goods or Services." SFAS No. 123 states that equity
instruments that are issued in exchange for the receipt of goods or services
should be measured at the fair value of the consideration received or the fair
value of the equity instruments issued, whichever is more reliably measurable.
Under the guidance in Issue 00-18, the measurement date occurs as of the earlier
of (a) the date at which a performance commitment is reached or (b) absent a
performance commitment, the date at which the performance necessary to earn the
equity instruments is complete (that is, the vesting date).

EARNINGS PER SHARE: Basic earnings per share includes no dilution and is
computed by dividing net income available to common stockholders by the weighted
average number of common stock outstanding for the period. Diluted earnings per
share is computed by dividing net income by the weighted average number of
common shares outstanding during the period, plus the dilutive effect of
outstanding stock warrants and shares issuable under convertible debt, using the
treasury stock method.

Other Significant Accounting Policies:

CASH EQUIVALENTS: For purposes of the statements of cash flows, the Company
considers all highly liquid debt instruments with an original maturity of three
months or less to be cash equivalents.

         The Company maintains its cash in one financial institution. The bank
account, at times, exceeded federally insured limits of $100,000. The Company
has not experienced any losses on such account.

FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying amounts of the financial
instruments have been estimated by management to approximate fair value.

INVENTORIES: Costs incurred for materials, technology and shipping are
capitalized as inventories and charged to cost of sales when revenue is
recognized. Inventories consist of finished goods and are stated at the lower of
cost or market, using the first-in, first-out method.

PROPERTY AND EQUIPMENT: Property and Equipment are valued at cost. Maintenance
and repair costs are charged to expenses as incurred. Depreciation is computed
on the straight-line method based on the following estimated useful lives of the
assets: 5 to 7 years for computer and office equipment, and 7 years for
furniture and fixtures. Depreciation expense was $408 and $1,477 for 2003 and
2002, respectively.

INCOME TAXES: Income tax expense is based on pretax financial accounting income.
Deferred tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the tax bases of assets and
liabilities and their reported amounts.

                                      F-8


<PAGE>
EYE DYNAMICS, INC. & SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 1 - NATURE OF BUSINESS AND CRITICAL ACCOUNTING POLICIES (CONTINUED)

ADVERTISING COSTS: All advertising costs are expensed as incurred. Advertising
expenses were $40 and $1,516 for 2003 and 2002, respectively.

SHIPPING AND HANDLING COSTS: The Company historically has included inbound
shipping charges in cost of sales and classified outbound shipping charges as
operating expenses. For the years ended December 31, 2003 and 2002, the outbound
shipping charges included in operating expenses were $75,203 and $46,197,
respectively.

DERIVATIVES: In June 1998, Financial Accounting Standards Board (FASB) issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", as
amended by SFAS No. 138, which was issued in June 2000. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments. The Company
currently does not use derivative financial products for hedging or speculative
purposes and as a result, does not anticipate any impact on the Company's
financial statements.

RECLASSIFICATION: Certain reclassifications have been made to the 2002
consolidated financial statements to conform with the 2003 consolidated
financial statement presentation. Such reclassification had no effect on net
loss as previously reported.

NEW ACCOUNTING STANDARDS: In May 2003, the FASB issued SFAS No. 150, "Accounting
for Certain Financial Instruments with Characteristics of Both Liabilities and
Equity." This Statement requires that certain instruments that were previously
classified as equity on the Company's statement of financial position now be
classified as liabilities. The Statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. The Company
currently has no instruments impacted by the adoption of this statement and
therefore the adoption did not have an effect on the Company's consolidated
financial position, results of operations or cash flows.

         In April 2003, the FASB issued Statement of SFAS No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities," which is
generally effective for contracts entered into or modified after June 30, 2003
and for hedging relationships designated after June 30, 2003. SFAS No. 149
clarifies under what circumstances a contract with an initial net investment
meets the characteristic of a derivative as discussed in SFAS No. 133, clarifies
when a derivative contains a financing component, amends the definition of an
"underlying" to conform it to the language used in FASB Interpretation No. 45,
"Guarantor Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others" and amends certain other existing
pronouncements. The Company does not have any derivative financial instruments.
The Company does not anticipate that the adoption of SFAS No. 149 will have an
impact on its consolidated balance sheets or statements of operations and cash
flows.

         In January 2003, the FASB issued Interpretation No. 46, Consolidation
of Variable Interest Entities, an interpretation of Accounting Research Bulletin
No. 51. Interpretation 46 establishes accounting guidance for consolidation of
variable interest entities that function to support the activities of the
primary beneficiary. Interpretation 46 applies to any business enterprise, both
public and private, that has a controlling interest, contractual relationship or
other business relationship with a variable interest entity. The Company
currently has no contractual relationship or other business relationship with a
variable interest entity and therefore the adoption did not have an effect on
its consolidated financial position or results of operations. However, if the
Company enters into any such arrangement with a variable interest entity in the
future, its consolidated financial position or results of operations may be
adversely impacted.

                                      F-9


<PAGE>
EYE DYNAMICS, INC. & SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 3 - BALANCE SHEET DETAILS

The following tables provide details of selected balance sheet items:

At December 31,                                            2003         2002
--------------------------------------------------------------------------------
Property and equipment, net
  Furniture and Fixtures                                $    1,113   $    1,432
  Equipment                                                 13,331       13,331
--------------------------------------------------------------------------------
                                                            14,444       14,763
  Less: accumulated depreciation                           (13,341)     (14,365)
--------------------------------------------------------------------------------
     Total                                              $    1,103   $      398
================================================================================
Other Assets
  Deferred tax assets                                   $  205,436   $       --
  Deposits                                                  11,563       11,511
--------------------------------------------------------------------------------
     Total                                              $  216,999   $   11,511
================================================================================
Accounts payable and accrued expenses
  Accounts payable                                      $   35,335   $   33,086
  Commission payable                                            --       47,638
  Sales tax payable                                         20,065        9,456
  Income tax payable                                        40,251           --
  Other                                                      8,311         (774)
--------------------------------------------------------------------------------
     Total                                              $  103,962   $   89,406
================================================================================

NOTE 4 - LINE OF CREDIT

         The Company has an operating line of credit with Wells Fargo Bank of
$65,000, with interest payable at the bank's prime rate plus 2.75% (8% at
December 31, 2003). This line of credit is payable on demand and is personally
guaranteed by the Company's President. The Company did not borrow against this
line of credit during 2003 and 2002.

NOTE 5 - LONG-TERM DEBT

Long-term debt consists of the following:

At December 31,                                            2003         2002
--------------------------------------------------------------------------------
a.) Note Payable to TESA Corp., interest at 7%
    commencing January 1, 2003, due on December
    31, 2007. Collateralized by accounts receivable
    inventory, patents and a licensing agreement
    for impairment testing products                     $  380,183   $  475,229
b.) Note Payable to Others, interest at 7% due and
    payable on December 31, 2007. Convertible into
    2,394,533 shares of common stock                        26,666       26,666
c.) Note Payable to Others, interest at 7% due and
    payable on December 31, 2007. Convertible into
    1,197,267 shares of common stock                        13,334       16,667
--------------------------------------------------------------------------------
                                                           420,183      518,562
Less: Current Maturities                                   (95,046)     (95,046)
--------------------------------------------------------------------------------
     Long-term debt                                     $  325,137   $  423,516
================================================================================

                                      F-10


<PAGE>
EYE DYNAMICS, INC. & SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 5 - LONG-TERM DEBT (CONTINUED)

         In May 2002, the Company issued two convertible notes payable of
$40,000 and $20,000 to fund the cash payment of $60,000 as discussed in Note 6.
Both notes carry an interest rate of 7% per annum commencing January 1, 2003.
Principal and interest payable are due on December 31, 2007. The notes are
convertible into 3,591,800 and 1,795,900 shares of the Company's restricted
common stock, respectively. The notes are also callable on or before December
31, 2002 by the Company in the sum of $13,333 and $6,666, respectively. Upon the
occurrence of such payments, the balance of the notes shall be convertible into
2,394,533 and 1,197,267 shares, respectively. The Company will also issue
266,667 and 133,333 shares of warrants, respectively, to the holders if such
payments are made. The warrants are exercisable at five cents ($0.05) per share
and expire on December 31, 2007. To date, the Company had paid $13,334 and
$6,666, and issued 266,667 and 66,666 shares of warrants to the note holders,
respectively.

NOTE 6 - DEBT RESTRUCTURING

         In April 2002, the Company restructured a debt of $396,721 plus accrued
interest of $223,987 with a prior distributor in regards to the Settlement
Agreement and Mutual Release that was signed in 1993. The new settlement
includes that a new note of $400,000 was issued to replace the old debt. The new
note is compounded at 7% per annum and is amortized over 5 years commencing
January 1, 2003. The Company also paid a sum of $60,000 in cash and issued
2,500,000 shares of restricted common stock to the prior distributor upon the
execution of the new amendment. The fair market value of the stock at the date
of settlement was $0.04 per share. All accrued and unpaid interest on the old
debt, and all amounts due related to the consigned inventory were forgiven. The
Company recognized an extraordinary gain of $26,479 on the restructuring in
accordance with SFAS No. 15.

Debt carrying value:
  Original carrying amount of debt                    $   396,721
  Accrued and unpaid interest balance                     223,987
  Consigned inventory                                      41,000
                                                      ------------  ------------
     Total debt                                                     $   661,708
  Less: fair value of consideration given:
     Cash paid                                            (60,000)
     Common stock issued (2,500,000 shares at
       a fair value of $0.01 per share)                  (100,000)
                                                      ------------
                                                                       (160,000)
                                                                    ------------
Carrying value of debt                                                  501,708

Future cash flows:
  New debt principal                                      400,000
  Interest to be paid on new principal amount              75,229
                                                      ------------
     Total future cash payments required                                475,229
                                                                    ------------
Extraordinary gain recognized                                       $    26,479
                                                                    ============

NOTE 7 - WIND DOWN OF SUBSIDIARY

         On September 15, 2003, the Board of Directors approved to wind down the
Company's sole subsidiary, Oculokinetics, Inc., which was inactive and has no
asset or liability as of that date. Management believes that the wind down of
the subsidiary has no material effect on the Company's financial position,
results of operations and cash flows.

                                      F-11


<PAGE>
EYE DYNAMICS, INC. & SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 8 - WRITE-OFF EMPLOYEE LOAN

         The Company has made advances to and on behalf of an employee and the
employee has made repayments to the Company. On April 2, 2001, the Company
converted $49,489 into a note receivable bearing interest at 12% per annum. The
note is collateralized by 2,660,000 shares of capital stock of Ingen
Technologies, Inc., a privately held California corporation (Ingen). In August
2001, the Company turned over all 2,660,000 shares of Ingen stock to the
employee's priority secured creditor. The note becomes unsecured and is due on
demand.

         The loan and advances went to default as of December 31, 2002 and an
allowance of loan loss for the full amount of $58,218 was established as of that
date. Uncollected interest previously accrued is charged off or an allowance is
established by a charge to interest income. Interest income will be recognized
only to the extent cash payments are received.

NOTE 9 - PRIOR PERIOD ADJUSTMENT

         An understatement of 2002 reported Income Tax Payable of $12,699 was
discovered during the second quarter of 2003. The Company charged this error to
the 2003 operations and did not restate the 2002 financial statements.
Management believes that the restatement did not have material effect on the
Company's financial position, results of operations and cash flows.

NOTE 10 - NONCASH FINANCING ACTIVITIES

         In 2003, a warrant holder exercised 66,666 of its stock warrants in the
Company at the price of $0.32 per share. The warrant holder elected the Net
Issue Exercise (noncash) provision of the warrant agreement. As a result, the
Company issued 32,768 shares of common stock to the warrant holder without any
cash proceeds.

         In 2002, the Company issued 2,500,000 shares of restricted common stock
at a fair value of $0.04 per share to restructure a debt (see Note 6), and
issued 200,000 shares of restricted common stock to reduce a contingent
liability of $10,000 which was accrued in 2001.

NOTE 11 - INCOME TAXES

The provision for income taxes (benefits) consisted of the following:

Years ended                                                2003        2002
================================================================================
Federal:
  Current                                               $    9,118   $       --
  Deferred                                                (125,678)          --
--------------------------------------------------------------------------------
                                                          (116,560)          --
--------------------------------------------------------------------------------
State:
  Current                                                   85,037        1,600
  Deferred                                                 (79,758)          --
--------------------------------------------------------------------------------
                                                             5,279        1,600
--------------------------------------------------------------------------------
     Total                                              $ (111,281)  $    1,600
================================================================================

                                      F-12


<PAGE>
EYE DYNAMICS, INC. & SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 11 - INCOME TAXES (CONTINUED)

The components of the deferred net tax assets are as follows:

At December 31,                                             2003           2002
--------------------------------------------------------------------------------
Net Operating Loss Carryforwards                        $  204,963   $  413,194
Property and equipment                                         473           --
Valuation Allowance                                             --     (413,194)
--------------------------------------------------------------------------------
Net deferred tax assets                                 $  205,436   $       --
================================================================================

         At December 31, 2002, the Company provided a valuation allowance on the
deferred tax assets because of uncertainty regarding its ability to utilize its
net operating loss carryfowards. As of December 31, 2003, the Company had
removed the valuation allowance because it believed it was more likely than not
that all deferred tax assets would be realized in the foreseeable future and was
reflected as a credit to operations.

         As of December 31, 2003, the Company has net operating loss
carryforwards, approximately, of $368,538 and $901,140 to reduce future federal
and state taxable income. To the extent not utilized, the federal net operating
loss carryforwards will begin to expire in fiscal 2021 and the state net
operating loss carryfowards will begin to expire in fiscal 2005.

NOTE 12 - STOCKS OPTIONS AND WARRANTS

STOCK OPTIONS

         The Company had no stock options outstanding as of December 31, 2003.
The total outstanding options at December 31, 2002 were 150,000 shares, with an
exercise price of $0.15 per share. The options may be exercised no later than
three years from the date of issuance. The weighted average fair value of
options granted by the Company as of that date was $0.05.

         A summary of the status of the Company's stock option as of December
31, 2003 and 2002, and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
                                            2003                          2002
                                   ------------------------     ------------------------
                                                 Weighted                     Weighted
                                     Number       Average         Number       Average
                                       of        Exercise           of        Exercise
                                     Shares        Price          Shares        Price
                                   -----------  -----------     -----------  -----------
<S>                                <C>          <C>             <C>          <C>
Outstanding at beginning of Year      150,000   $     0.15         150,000   $     0.15
Expired and Cancelled                (150,000)        0.15              --           --
                                   -----------  -----------     -----------  -----------
Outstanding at end of Year                 --   $       --         150,000   $     0.15
                                   ===========  ===========     ===========  ===========
Exercisable at end of Year                 --   $       --         150,000   $     0.15
                                   ===========  ===========     ===========  ===========
</TABLE>

         The Company has elected to account for its stock-based compensation
under APB Opinion No. 25 an accounting standard under which no related
compensation was recognized in 2003 or 2002, the year of the grant; however, the
Company has computed for pro forma disclosure purposes, the value of all options
granted during the year ended December 31, 2003 and 2002 using the Black-Scholes
option pricing model as prescribed by SFAS No. 123 and the weighted average
assumptions as follows:

                                      F-13


<PAGE>
EYE DYNAMICS, INC. & SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 12 - STOCKS OPTIONS AND WARRANTS (CONTINUED)

                                                               December 31, 2002
                                                               -----------------
     Weighted average fair value per option granted                $    0.05
     Risk-free interest rate                                            1.75%
     Expected dividend yield                                            0.00%
     Expected lives                                                     0.08
     Expected volatility                                                3.76

STOCK WARRANTS

         As discussed in Note 5, the Company issued a total of 333,333 shares of
warrants for early partial repayment of two notes payable. The warrants are
exercisable at $0.05 per share and expire through December 31, 2007. At date of
issuance, the warrants had a fair value of $0.05 per share and the total cost of
$16,666 was charged to interest expense in year 2002.

         A summary of the status of the Company's warrants as of December 31,
2003 and 2002, and changes during the years then ended is presented below:

<TABLE>
<CAPTION>
                                            2003                          2002
                                   ------------------------     ------------------------
                                                 Weighted                     Weighted
                                                 Average                      Average
                                     Number      Exercise         Number      Exercise
                                       of         Price             of          Price
                                    Warrants    Per Share        Warrants     Per Share
                                   -----------  -----------     -----------  -----------
<S>                                <C>          <C>             <C>          <C>
Outstanding at beginning of Year      533,333   $     0.34       2,200,000   $     0.55
Granted                                    --           --         333,333         0.05
Exercised                             (66,666)        0.32
Exercised. Expired and Cancelled     (133,334)        1.07      (2,000,000)        0.63
                                   -----------  -----------     -----------  -----------
Outstanding at end of year            333,333   $     0.05         533,333   $     0.34
                                   ===========  ===========     ===========  ===========
Exercisable at end of year            333,333   $     0.05         533,333   $     0.34
                                   ===========  ===========     ===========  ===========
</TABLE>

NOTE 13 - NET INCOME PER SHARE

The following table sets forth the computation of basic and diluted net income
per share:

Years ended December 31,                                2003            2002
                                                    -------------  -------------
Numerator:
  Net income                                        $  1,043,027   $    150,824
--------------------------------------------------------------------------------
Denominator:
  Weighted average of common shares - basic           17,853,044     16,441,980
  Diluted effect of stock warrants                       303,030             --
  Diluted effect of convertible debt                   3,641,685      3,467,085
--------------------------------------------------------------------------------
  Weighted average common shares - diluted           21,797,759      19,909,065
================================================================================
Basic net income per share                          $      0.06    $       0.01
================================================================================
Diluted net income per share                        $      0.05    $       0.01
================================================================================

                                      F-14


<PAGE>
EYE DYNAMICS, INC. & SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 13 - NET INCOME PER SHARE (CONTINUED)

         The net income amount for year ended December 31, 2002 included an
after-tax amount of $26,479, which relates primarily to an extraordinary gain
from restructuring of debt. Excluding the effects of these transactions, the
basic and diluted loss per share would have been the same.

         Approximately, 683,333 shares outstanding stock options and warrants
were excluded from the calculation of diluted earnings per share for 2002
because the exercise price of the stock warrants are greater than the average
share price of the common stock and, therefore, the effect would have been
antidilutive.

NOTE 14 - SEGMENT INFORMATION

         SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information" requires that a publicly traded company must disclose information
about its operating segments when it presents a complete set of financial
statements. Since the subsidiary did not have any operations in 2003 or 2002,
and the Company has only one segment; accordingly, detailed information of the
reportable segment is not presented.

NOTE 15 - MAJOR CUSTOMERS

         During year ended December 31, 2003, two major customers accounted for
$2,335,240 or 72.1% of total revenues.

                           Special Instrument Dealer 18.9%
                           Private label distributor 53.2%

         During year ended December 31, 2002, the private label distributor
accounted for $1,093,779 or 60.5% of total revenues.

NOTE 16 - CONTINGENCIES AND COMMITMENTS

LETTER AGREEMENT

         On July 11, 2002, the Company entered into a letter agreement with HRL
Laboratories, LLC (HRL) to develop a robust iris eye tracking algorithm and
image capture plus DSP architecture. As consideration for HRL's research and
development, the Company will issue to HRL (1) 300,000 shares of the Company's
restricted common stock as initial compensation for execution of the first phase
of the research and development project at date of agreement; (2) 300,000
additional shares upon the demonstration of the iris tracking algorithm; and (3)
up to 200,000 additional shares prorated by solution cost at a maximum of 1,000
shares per unit cost. The maximum number of shares to be issued to HRL is
800,000 shares.

         The Company will own all intellectual property developed under the
project and HRL will have a royalty-free license throughout the universe to use
such intellectual property.

         HRL will also be given a non-voting seat on the Company's Board of
Directors, to be filled by an individual selected in HRL's sole discretion.

         All 800,000 shares have been issued in 2002, and the total cost of
$28,000 was charged to operations.

                                      F-15


<PAGE>
EYE DYNAMICS, INC. & SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 16 - CONTINGENCIES AND COMMITMENTS

LEASE COMMITMENTS

         In February 2003, the Company relocated to a larger office facility for
$1,571 per month. The new lease commences on February 1, 2003 and expires
through January 31, 2006. Rent expense totaled $21,740 and $13,033 for 2003 and
2002, respectively.

         The Company also leases office equipment at $205 per month expiring in
October 2008.

As of December 31, 2003, the minimum lease payments under these leases are:

                          Year ended
                         December 31,             Amount
                         ------------           ----------
                             2004               $  21,851
                             2005                  22,428
                             2006                   4,123
                             2007                   2,455
                             2008                   2,046
                                                ----------
                                                $  52,903
                                                ==========

NOTE 17 - GUARANTEES AND PRODUCT WARRANTIES

         The Company from time to time enters into certain types of contracts
that contingently require the Company to indemnify parties against third party
claims. These contracts primarily relate to: (i) divestiture agreements, under
which the Company may provide customary indemnifications to purchasers of the
Company's businesses or assets; (ii) certain real estate leases, under which the
Company may be required to indemnify property owners for environmental and other
liabilities, and other claims arising from the Company's use of the applicable
premises; and (iii) certain agreements with the Company's officers, directors
and employees, under which the Company may be required to indemnify such persons
for liabilities arising out of their employment relationship.

         The terms of such obligations vary. Generally, a maximum obligation is
not explicitly stated. Because the obligated amounts of these types of
agreements often are not explicitly stated, the overall maximum amount of the
obligations cannot be reasonably estimated. Historically, the Company has not
been obligated to make significant payments for these obligations, and no
liabilities have been recorded for these obligations on its balance sheet as of
December 31, 2003.

         In general, the Company offers a one-year warranty for most of the
products it sold. To date, the Company has not incurred any material costs
associated with these warranties. At December 31, 2003, the Company determined
to provide reserves for the estimated costs of product warranties based on its
historical experience of known product failure rates, use of materials to repair
or replace defective products and service delivery costs incurred in correcting
product failures. The estimated costs of its warranty obligations amounted to
$8,044 at December 31, 2003.

                                      F-17