<PAGE>

                                  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, 2002

                               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:   $1,808,341
                                                           ----------

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:
$717,929
      ---------------------------------------------------------------------

The number of shares outstanding of the issuer's common stock as of March
31,2003 was 17,850,313.

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



<PAGE>

                                     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.



<PAGE>

         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 (EPIC) boards, "locks" onto 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.



<PAGE>

         An employee looks into 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, whether in a random testing or regular scheduled testing
environment. Traditional drug tests can take days to complete, 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, which 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.


<PAGE>

MARKETING

         MEDICAL PRODUCTS. Marketing of the Infrared/Video ENG System is
conducted through a network of independently owned special instrument dealers
("SID's").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 60% of the total sales for the year
2002.

         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.

         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.


<PAGE>

         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.


<PAGE>

         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 three employees full time, including its President,
a development engineer and a marketing manager. 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 $1,458.

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
2001 and 2002 fiscal years.

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

              2001
         ---------------
         First Quarter                       .42               .44
         Second Quarter                      .23               .29
         Third Quarter                       .08               .10
         Fourth Quarter                      .08               .10

         The Company's common stock is traded on the OTC Bulletin Board under
the symbol "EYDY". As of March 31, 2003, the Company's Common Stock was held of
record by approximately 121 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.

           During the last quarter of 2002 the Company issued 500,000 shares of
Common Stock as final payment for development of an advanced eye tracking
algorithm.

         The Company believes that the issuance was exempt under Regulation D of
the Securities Act of 1933, as amended, and under Section 4(2) thereof.


<PAGE>

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 2002.

         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, 2002 Compared to Year Ended December 31, 2001.

         Revenues from sales of products increased by 259%, from $697,597 in
2001 to $1,808,341 in 2002. This increase is largely due to success of our
private label program for Video ENG Systems. The overall market for traditional
ENG products is still rather 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 20% of our
sales revenues in 2001, but in 2002 accounted for approximately 61% of revenues.
This success is due to activities by our private label distributor in aggressive
marketing, opening up new market segments, and developing a complete package,
including training, for sale.

         Gross profit as a percentage of sales declined in 2002, from 57% of
sales in 2001 to 52% in 2002. This decline is due to the fact that sales to our
private label distributor, which involve lower margins, became a greater percent
of overall sales during 2002.However, marketing and other expenses associated
with distributing the product are greatly reduced, because the private label
distributor assumes these functions. This reduction in gross profit percentage
is to be expected as the private label business becomes a greater percent of our
overall business. However, total revenues during 2002 were more than 2.5 times
revenues during 2001, so gross profits are substantially higher, as are net
profits. Gross profit in 2002 was $932,263, compared to $395,540 in 2001.

         Inventory turnover ratio in 2002 was approximately 5.5:1, compared to
3:1 in 2001. 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 2003.

         Collection of accounts receivable 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 2002 was $971.

         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.


<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

         As of December 31, 2002, the Company had an accumulated deficit of
approximately $3,677,913. As of that date, the Company had $177,668 in cash,
approximately $186,977 in net accounts receivable, and $155,167 in inventory.
Also, the Company had $274,613 of current liabilities, consisting of accounts
payable, accrued interest, and the current portion of notes payable. Long term
liabilities consist solely of the note for $423,516, which has a 60 month
payment schedule for full amortization. The first monthly payment is due
February 1, 2003.

         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.


<PAGE>

                                    PART III

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

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

<TABLE>
<CAPTION>
                                                                                    DIRECTOR
         NAME                AGE               POSITION                              SINCE
         ----                ---               --------                           -----------
<S>                          <C>      <C>                                              <C>
Charles E. Phillips          67       President, Treasurer & Director                  1991

Ronald A. Waldorf            54       Vice President, Secretary & Director             1991

Arnold D. Kay                67       Director                                         1999

Barbara J. Mauch             57       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.

         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.


<PAGE>

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, 2002, 2001 and 2000.

<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         2002     76,000     0          0         0                   0        0           0
                            2001     72,000     0          0         0                   0        0           0
                            2000     64,500     0          0         0             100,000        0           0

Ronald A. Waldorf           2002          0     0          0         0                   0        0           0
                            2001      7,500     0          0         0                   0        0           0
                            2000     10,000     0          0         0                   0        0           0

Barbara J. Mauch            2002     56,000     0          0         0                   0        0           0
                            2001     54,000     0          0         0                   0        0           0
                            2000     49,500     0          0         0              50,000        0           0

</TABLE>

There were no options granted or exercised  during 2002.

         The following table sets forth certain information concerning options
outstanding at December 31, 2002:

<TABLE>
<CAPTION>

                                                          Number of         Value of Unexercised
                          Shares                         Unexercised             In-the-money
                        Acquired on      Value            Options at              Options at
                         Exercise       Realized      December 31, 2002*      December 31, 2002*
                        ----------      --------      ------------------      ------------------
Name
----
<S>                          <C>           <C>             <C>                       <C>
Charles E. Phillips          0             0               100,000                 $15,000

Ronald Waldorf               0             0                     0                       0

Arnold Kay                   0             0                     0                       0

Barbara J. Mauch             0             0                50,000                 $ 7,500
</TABLE>

---------------------------
*All currently exercisable


<PAGE>

ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS & MANAGEMENT

         The following table sets forth information regarding the beneficial
ownership of the Common Stock of the Company as of March 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              1,681,152                         9.4
Torrance, CA 90501

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

Arnold D. Kay                          316,316                         1.8
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                   4,102,957                       30.0
(3 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 March 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

         Since inception, the Company has borrowed funds from Mr. Charles E.
Phillips, its president and CEO, and from employee Barbara Mauch, under various
promissory notes. These notes bear interest at 10% per annum and are unsecured.
As of December 31, 2002, the balance of the notes was $0, and the unpaid accrued
interest totaled $58,890. The principal balance of $15,000 was paid to Mr.
Phillips in January 2002, but the accrued interest remains outstanding.

         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.


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

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

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.

  (B) Reports on Form 8-K

         None.

ITEM 14.  CONTROLS AND PROCEDURES

          Under the supervision and with the participation of our Chief
Executive and Financial Officer, we conducted an evaluation of our disclosure
controls and procedures, as such term is defined under Rule 13a-14(c)
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), within 90 days of the filing date of this report. Based on this
evaluation, our Chief Executive and Financial Officer concluded that the
Company's disclosure controls and procedures are effective. Disclosure controls
and procedures are designed to ensure that information required to be disclosed
in reports under the Exchange Act are processed and reported within the time
periods specified by law. The design of any such system of controls is based in
part on assumptions about the likelihood of future events, and there can be no
assurance that any such system of controls will succeed in all circumstances.

         Since the date of the evaluation described above, there have been no
significant changes in our internal controls or in other factors that could
significantly affect these controls.


<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: April 7, 2003                          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     April 7, 2003
        Charles E. Phillips         Officer and a Director

/s/ Ronald A. Waldorf           Chairman and a Director        April 7, 2003
        Ronald A. Waldorf

/s/ Arnold Kay                  Director                       April 7, 2003
       Arnold Kay



<PAGE>

                                  CERTIFICATION

      I, Charles E. Phillips, principal executive officer, certify that:

        1. I have reviewed this annual report on Form 10-KSB of Eye Dynamics,
Inc.;

        2. Based on my knowledge, this annual report does not contain any untrue
statement of material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

        3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

        4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

        a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

        b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

        c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the date of the Evaluation Date;

        5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

        a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

        b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

        6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: April 7, 2003

                                      By: /s/ Charles E. Phillips
                                          --------------------------------
                                          Charles E. Phillips, President



<PAGE>

                                  CERTIFICATION

      I, Charles E. Phillips, principal financial officer, certify that:

        1. I have reviewed this annual report on Form 10-KSB of Eye Dynamics,
Inc.;

        2. Based on my knowledge, this annual report does not contain any untrue
statement of material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

        3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

        4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

        a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

        b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

        d) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the date of the Evaluation Date;

        5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

        c) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

        d) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

        6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

April 7, 2003

                                              By: /s/ Charles E. Phillips
                                                  ------------------------------
                                                  Charles E. Phillips, Treasurer



<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. (a Nevada corporation) and its subsidiary, Oculokinetics, Inc. (a
California corporation), as of December 31, 2002, and the related consolidated
statements of operations, changes in stockholders' deficit, and cash flows for
the years ended December 31, 2002 and 2001. 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, 2002, and the
consolidated results of its operations and its cash flows for the years ended
December 31, 2002 and 2001, in conformity with accounting principles generally
accepted in the United States.

/s/Spector & Wong, LLP
Pasadena, California
March 13, 2003

                                      F-1


<PAGE>

EYE DYNAMICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET

DECEMBER 31, 2002
-----------------

                                     ASSETS
Current Assets
  Cash                                                              $   177,668
  Accounts receivable                                                   186,977
  Employee advances and receivable, net of
   allowance for loan losses of $58,218                                      --
  Inventory                                                             155,167
  Prepaid expenses                                                        3,448
                                                                    ------------
    Total Current Assets                                                523,260

Property and equipment, net of accumulated depreciation
  of $14,365                                                                398

Other Assets                                                             11,511
                                                                    ------------
TOTAL ASSETS                                                        $   535,169
                                                                    ============

                      LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
  Accounts payable & accrued expenses                               $    89,406
  Accrued interest                                                       76,890
  Customers' deposits                                                    13,271
  Notes payable, current portion                                         95,046
                                                                    ------------
    Total Current Liabilities                                           274,613

Long-term debt                                                          423,516
                                                                    ------------
    Total Liabilities                                                   698,129
                                                                    ------------
Stockholders' Deficit
  Common Stock, $0.001 par value; 50,000,000 shares authorized;
    17,850,313 shares issued and outstanding                             17,850
  Paid-in Capital                                                     3,497,103
  Accumulated Deficit                                                (3,677,913)
                                                                    ------------
                                                                       (162,960)
                                                                    ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                         $   535,169
                                                                    ============

See notes to consolidated financial statements
                                                                             F-2


<PAGE>
<TABLE>

EYE DYNAMICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR YEARS ENDED DECEMBER 31, 2002 AND 2001

<CAPTION>

Years ended December 31,                                   2002            2001
------------------------------------------------------------------------------------
<S>                                                    <C>             <C>
Sales
  Products                                             $  1,765,091    $    697,597
  Services                                                   43,250              --
                                                       -----------------------------
                                                          1,808,341         697,597
Cost of Sales
  Products                                                  857,663         302,057
  Services                                                   18,415              --
                                                       -----------------------------
                                                            876,078         302,057

  Gross Profit                                              932,263         395,540
                                                       -----------------------------

Operating Expenses
  Selling, General and Administrative Expenses               715,297         881,631
  Provision for Loan Loss                                    58,218              --
                                                       -----------------------------
                                                            773,515         881,631

  Operating income (loss)                                   158,748        (486,091)
                                                       -----------------------------

Other Income (Expense)
  Interest and Other Income                                   8,148           4,784
  Interest Expense                                          (40,951)        (43,498)
  Settlement                                                     --         (20,000)
                                                       -----------------------------
                                                            (32,803)        (58,714)

Net income (loss) before taxes and extraordinary item        125,945        (544,805)

Provision for Income Taxes                                    1,600           1,600
                                                       -----------------------------

Net income (loss) before extraordinary item                  124,345        (546,405)

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

Net income (loss)                                      $    150,824    $   (546,405)
                                                       =============================

Net income (loss) per share-basic:
  Net income (loss) before extraordinary item          $       0.01    $      (0.04)
  Extraordinary gain, net                                      0.00              --
                                                       -----------------------------
  Net income (loss)                                    $       0.01    $      (0.04)
                                                       =============================
Net income (loss) per share-diluted:
  Net income (loss) before extraordinary item          $       0.01    $      (0.04)
  Extraordinary gain, net                                      0.00              --
                                                       -----------------------------
  Net income (loss)                                    $       0.01    $      (0.04)
                                                       =============================

Shares used in per share calculation-basic               16,441,980      12,268,896
Shares used in per share calculation-Diluted             19,909,065      12,268,896

See notes to consolidated financial statements
                                                                                F-3
</TABLE>



<PAGE>

<TABLE>

EYE DYNAMICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR YEARS ENDED DECEMBER 31, 2002 AND 2001

<CAPTION>
                                                                          Unamortized
                                    Common Stock              Paid-in       Expenses     Accumulated
                                 Shares         Amount        Capital    (Contra-Equity)   Deficit         Total
                              --------------------------------------------------------------------------------------
<S>                            <C>           <C>            <C>           <C>            <C>            <C>
Balance at 12/31/00            11,416,313    $    11,416    $ 2,928,544   $   (68,833)   $(3,282,332)   $  (411,205)

Issuance of Stocks for
 Consulting, Financial
 Advising, and Public
 Relation expenses              2,334,000          2,334        333,892       (97,224)                      239,002

Issuance of Stocks for
 Cash                             500,000            500         69,500                                      70,000

Exercising of Options             100,000            100                                                        100

Warrants issued for service                                      14,000                                      14,000

Net (Loss)                                                                                  (546,405)      (546,405)
                              --------------------------------------------------------------------------------------

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)
                              ======================================================================================

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



<PAGE>
<TABLE>

EYE DYNAMICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR YEARS ENDED DECEMBER 31, 2002 AND 2001
<CAPTION>

Years ended December 31,                                                  2002        2001
----------------------------------------------------------------------------------------------
<S>                                                                    <C>          <C>
CASH FLOW FROM OPERATING ACTIVITIES:
  Net Income (Loss)                                                    $ 150,824    $(546,405)
  Adjustments to reconcile net loss to net
   cash used by operating activities:
    Depreciation                                                           1,477        2,609
    Extraordinary Gain, net                                              (26,479)          --
    Provision for loan loss                                               58,218           --
    Noncash expenses                                                     194,057      239,002
    Warrants for Services and Interest                                    16,667       14,000
    (Increase) Decrease in:
     Accounts Receivable                                                (104,399)      75,896
     Inventory                                                           (39,649)     (55,786)
     Interest Receivable on Employee Loan                                     --       (4,454)
     Prepaid and Others                                                  (10,984)       9,625
    Increase (Decrease) in:
     Accounts Payable and Accrued Expenses                                35,503        6,174
     Other Liabilities                                                   (61,729)      85,000
     Accrued Interest                                                    (26,225)      37,730
                                                                       -----------------------
Net cash provided by (used in) operating activities                      187,281     (136,609)
                                                                       -----------------------

CASH FLOW FROM INVESTING ACTIVITIES:
  Employee Advances and Receivable                                         3,929      (55,169)
                                                                       -----------------------
Net cash provided by (used in) investing activities                        3,929      (55,169)
                                                                       -----------------------

CASH FLOW FROM FINANCING ACTIVITIES:
  Proceeds from issuing of Common Stock                                       --       70,100
  Net advance from (repayments on) Line of Credit                        (45,248)      44,891
  Net Proceeds from Notes Payable                                         23,083           --
  Net Proceeds from (Payments to) Shareholders                           (15,000)      14,722
                                                                       -----------------------
Net cash provided by (used in) financing activities                      (37,165)     129,713
                                                                       -----------------------

NET INCREASE (DECREASE) IN CASH                                          154,045      (62,065)

CASH BALANCE AT BEGINNING OF YEAR                                         23,623       85,688
                                                                       -----------------------

CASH BALANCE AT END OF YEAR                                            $ 177,668    $  23,623
                                                                       =======================

Supplemental Disclosures of Cash Flow Information:
  Interest Paid                                                        $  49,036    $   3,741
  Taxes Paid                                                           $   1,600    $   1,600

Supplemental Schedules of Noncash Investing and Financing Activities
  Issuing common stock for:
    Reduction of liability                                             $  10,000    $      --
    Restructuring of debt                                                100,000           --
                                                                       -----------------------
                                                                       $ 110,000    $      --
                                                                       =======================

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



<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. and subsidiary (the "Company') markets
and distributes diagnostic equipment that utilize the Company's proprietary
technology and computer software to test individuals for impaired eye and pupil
performance. The Company also markets a medical diagnostic product that tracks
and measures eye movements during a series of standardized tests.

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

         The subsidiary had no operations in both years of 2002 and 2001. 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 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.

         The Company adopted Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB 101") in fourth quarter of 2000. The
adoption of SAB 101 did not have a material impact on the Company's operating
results or financial positions.

ACCOUNTS RECEIVABLE. Management of the Company considers accounts receivable to
be fully collectible; accordingly, no allowance for doubtful accounts is
required. If amounts become uncollectible, they will be charged to operations
when that determination is made. Bad debt expense for years ended December 31,
2002 and 2001 was $971 and $81, 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 The Company accounts for equity-based instruments
issued or granted to employees using the intrinsic method as prescribed under
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees." SFAS No. 123, "Accounting for Stock-Based Compensation," as
amended by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition
and Disclosure," defines a fair value method of accounting for issuance of stock
options and other equity instruments. Under the fair value method, compensation
cost is measured at the grant date based on the fair value of the award and is
recognized over the service period, which is usually the vesting period.
Pursuant to SFAS No. 123, companies are encouraged, but not required, to adopt
the fair value method of accounting for employee stock-based transactions.
Companies are also permitted to continue to account for such transactions under
APB No. 25, but are required to disclose in a note to the financial statements
pro forma results of operations as if the Company had applied the fair value of
accounting.

         The Company accounts for employee stock-based compensation under the
intrinsic value method of APB No. 25. SFAS No. 123, as amended by SFAS No. 148,
establishes disclosure requirements using a fair value based method of
accounting for stock-based employee compensation plans. The Company's pro forma
results of operations and earnings (loss) per share information using a fair
value based method of accounting for years ended December 31, 2002 and 2001 is
as follows:

                                                  2002             2001
     -----------------------------------------------------------------------
     Net income(loss) - as reported              $ 150,824       $ (546,405)
     Pro forma compensation expense                  9,250           13,050
                                              ------------------------------
     Pro forma net income (loss)                 $ 141,574       $ (559,455)
                                              ==============================

     Basic earnings (loss) per share:
       As reported                                  $ 0.01          $ (0.04)
       Pro forma                                    $ 0.01          $ (0.05)

     Diluted earnings (loss) per share:
       As reported                                  $ 0.01          $ (0.04)
       Pro forma                                    $ 0.01          $ (0.05)

                                                                             F-7


<PAGE>
EYE DYNAMICS, INC. & SUBSIDIARY

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

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

         The Company accounts for stock issued to non-employees in accordance
with the provisions of SFAS No. 123 and the Emerging Issues Task Force (EITF)
Issue No. 96-18, "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
96-18, 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).

INCOME (LOSS) PER COMMON SHARE. Basic earnings per share includes no dilution
and is computed by dividing net income (loss) 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 shares plus the dilutive effect of convertible debt, shares
issuable under convertible debt to sell 3,467,085 shares of the Company common
stock for year ended December 31, 2002, using the treasury stock method.
Approximately, 683,333 shares outstanding stock options and warrants were
excluded from the calculation of diluted earnings per share for 2002 because
they were anti-dilutive. However, these options and warrants could be dilutive
in the future. Diluted net loss per common share does not differ from basic net
loss per common share since potential shares of common stock are anti-dilutive
for all periods presented. Shares excluded from diluted loss per share totaled
2,350,000.

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 $1,477 and $2,609 for 2002 and
2001, 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.

ADVERTISING COSTS. All advertising costs are expensed as incurred. Advertising
expenses were $1,516 and $3,133 for 2002 and 2001, respectively.

                                                                             F-8


<PAGE>
EYE DYNAMICS, INC. & SUBSIDIARY

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

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

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 years ended December 31, 2002 and 2001, the outbound
shipping charges included as operating expenses were $46,197 and $27,000,
respectively.

DERIVATIVES. In June 1998, 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 2001
consolidated financial statements to conform with the 2002 consolidated
financial statement presentation. Such reclassification had no effect on net
loss as previously reported.

NEW ACCOUNTING STANDARDS: On December 31, 2002, the FASB issued SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure." SFAS No.
148 amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition to SFAS No. 123's fair value method of
accounting for stock-based employee compensation. SFAS No. 148 also amends the
disclosure provisions of SFAS No. 123 and APB Opinion No. 28, "Interim Financial
Reporting," to require disclosure in the summary of significant accounting
policies of the effects of an entity's accounting policy with respect to
stock-based employee compensation on reported net income and earnings per share
in annual and interim financial statements. While SFAS No. 148 does not amend
SFAS No. 123 to require companies to account for employee stock options using
the fair value method, the disclosure provisions of SFAS No. 148 are applicable
to all companies with stock-based employee compensation, regardless of whether
they account for that compensation using the fair value method of SFAS No. 123
or the intrinsic value method of APB Opinion 25.

         In June 2002, FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." The standard requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Examples of costs covered by the standard include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal activity.
Previous accounting guidance provided by EITF Issue No. 94-3, "Liability
Recognition for Certain employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring) is replaced by
this Statement. Statement 146 is to be applied prospectively to exit or disposal
activities initiated after December 31, 2002. Management does not anticipate
that the adoption of this Statement will have a significant effect on the
Company's financial statements.

         In April 2002, FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This Statement updates, clarifies and simplifies existing
accounting pronouncements. The provisions of this Statement related to the
rescission of Statement No. 4 are to be applied for fiscal years beginning after
May 15, 2002. Any gain or loss on extinguishment of debt that was classified as
an extraordinary item in prior periods presented that does not meet the criteria
in Opinion No. 30 for classification as an extraordinary item should be
reclassified. Provisions of the Statement related to the amendment of Statement
No. 13 should be applied for transactions occurring after May 15, 2002, and all
other provisions should be applied for financial statements issued on or after
May 15, 2002. Management does not anticipate that the adoption of this Statement
will have a significant effect on the Company's financial statements.

                                                                             F-9


<PAGE>
EYE DYNAMICS, INC. & SUBSIDIARY

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

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

         In October 2001, FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. The Statement supersedes SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, however it retains the fundamental provisions of that
statement related to the recognition and measurement of the impairment of
long-lived assets to be "held and used." In addition, SFAS No. 144 provides more
guidance on estimating cash flows when performing a recoverability test,
requires that a long-lived asset (group) to be disposed of other than by sale
(e.g., abandoned) be classified as "held and used" until it is disposed of, and
establishes more restrictive criteria to classify an asset (group) as "held for
sale." The adoption of SFAS No. 144 did not have an impact on the Company.

NOTE 2 - 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 $0.04 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 3 - EMPLOYEE LOAN AND ADVANCES

         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.

                                                                            F-10


<PAGE>
EYE DYNAMICS, INC. & SUBSIDIARY

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

NOTE 3 - EMPLOYEE LOAN AND ADVANCES (CONTINUED)

         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.

         As of December 31, 2001, the net receivable from the employee amounted
to $62,147, including an interest receivable of $4,454.

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%. This line of
credit is payable on demand and is personally guaranteed by the Company's
President. As of December 31, 2002 and 2001 the amount drawn against the line
was $0 and $45,248, respectively.

NOTE 5 - NOTES PAYABLE

         In May 2002, the Company issued two notes payable of $40,000 and
$20,000 to fund the cash payment of $60,000 as discussed in Note 2. 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. As of December 31, 2002, the Company had paid $13,334 and $3,333, and
issued 266,667 and 66,666 shares of warrants to the note holders, respectively.

         In October 2002, the Company agreed with the holder to settle the
accrued interest balance to $24,000 related to a note dated back on August 13,
1991. The Company accrued interest at a simple interest method, instead of
compounding quarterly which was stated on the note. As a result, an additional
interest expense of $10,920 was charged to operations in 2002. The principal was
paid in full in October.

                                                                            F-11


<PAGE>
EYE DYNAMICS, INC. & SUBSIDIARY

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

NOTE 5 - NOTES PAYABLE (CONTINUED)

Notes payable at December 31 consist of the following:

                                                            2002        2001
--------------------------------------------------------------------------------

a.) Notes Payable to Officers, compound interest
      accrued at 10%, due 60 days after dates of notes,
      unsecured                                           $      --   $  15,000

b.) Notes Payable to Others, interest at 12% per
     annum; due on demand. Unsecured                             --      10,000

c.) Notes Payable to TESA Corp., interest at 7%
     payable on December 31, 1999, maturing 11%
     of gross revenues, collateralized by accounts
     receivable, inventory, patents and a licensing
     agreement                                                   --     406,971

d.) 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                        475,229          --

e.) 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          --

f.) Note Payable to Others, interest at 7% due and
     payable on December 31, 2007. Convertible into
     1,496,583 shares of common stock                        16,667          --
                                                          ----------------------
                                                            518,562     431,971
Less: Current Maturities                                    (95,046)   (431,971)
                                                          ----------------------
Notes Payable, Long-Term                                  $ 423,516   $      --
                                                          ======================

NOTE 6 - LITIGATION SETTLEMENT

         In 2001, the Company was involved in a lawsuit filed by 6800
Owensmouth, Inc. ("OWEN") alleging that the Company had aided and abetted an
employee in avoiding payment of a lawsuit judgment in favor of OWEN. On February
21, 2002, the Board of Directors, in the interest of capital conservation and
avoiding the time and expense of a court trial, approved to reach a settlement
through a mediation conference. The settlement reached included payment of
$10,000 and issuance of 200,000 shares of 144 restricted common stock of the
Company at a fair market value of $0.05 per share. The settlement loss,
aggregate of $20,000, was accrued and charged to operations in 2001. The
liability was paid in full and the shares were issued in February 2002.

                                                                            F-12


<PAGE>
EYE DYNAMICS, INC. & SUBSIDIARY

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

NOTE 7 - NONCASH FINANCING ACTIVITIES

         During 2002 and 2001, the Company issued substantial common stocks to
various consultants for public and investor relations, financial consulting, and
strategic planning and consulting services. The stocks are fully vested and
nonforfeitable. The Company recorded the stock transactions at their fair market
value, capitalized the costs of transactions, and amortized them over the length
of the services. For years ended December 31, 2002 and 2001, there were 800,000
and 2,334,000 shares of common stock were issued to nonemployees for their
services, respectively. The total costs of transactions were $28,000 and
$336,226, respectively. As of December 31, 2002 and 2001, the balance of
unamortized costs was $0 and $166,057, respectively. The unamortized costs were
included in equity section as a contra-equity.

         As discussed in Note 2, the Company issued 2,500,000 shares of
restricted common stock at a fair value of $0.04 per share to restructure a
debt.

         As discussed in Note 6, the Company issued 200,000 shares of restricted
common stock to reduce a contingent liability of $10,000 which was accrued in
2001.

NOTE 8 - INCOME TAXES

         The Company files separate federal and state income tax returns with
its subsidiary.

         Provision for income taxes in the consolidated statements of operations
for years ended December 31, 2002 and 2001 consist of $1,600 minimum state
income taxes in each year, $800 for each corporation.

         As of December 31, 2002, the Company has net operating loss
carryforwards, approximately, of $1,215,276 to reduce future taxable income. The
subsidiary has NOL carryforwards of $1,483,674. To the extent not utilized, both
carryforwards will begin to expire through 2022. The Company's ability to
utilize its net operating loss carryforwards is uncertain and thus a valuation
reserve has been provided against the Company's net deferred tax assets.

The deferred net tax assets consist of the following at December 31:
<TABLE>
<CAPTION>
                                         Parent Company          Subsidiary
                                   -------------------------------------------------
                                      2002         2001         2002         2001
                                   ----------   ----------   ----------   ----------
<S>                                <C>          <C>          <C>          <C>
Net Operating Loss Carryforwards   $ 413,194    $ 471,880    $ 504,449    $ 504,177
Valuation Allowance                 (413,194)    (471,880)    (504,449)    (504,177)
                                   ----------   ----------   ----------   ----------
Net deferred tax assets            $      --    $      --    $      --    $      --
                                   ==========   ==========   ==========   ==========
</TABLE>

NOTE 9 - STOCKS OPTIONS AND WARRANTS

Stock Options

         As of December 31, 2002 and 2001, the total outstanding non-qualified
options were 150,000 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 those dates was $0.05
and $0.18, respectively. There were 100,000 shares of options exercised at
$0.001 per share in 2001. None were exercised in 2002.

                                                                            F-13


<PAGE>
EYE DYNAMICS, INC. & SUBSIDIARY

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

NOTE 9 - STOCKS OPTIONS AND WARRANTS (CONTINUED)

         A summary of the status of the Company's stock option as of December
31, 2002 and 2001, and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
                                            2002                       2001
                                   ------------------------  -------------------------
                                                  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    2,310,000    $     0.29
Granted                                    --           --           --            --
Exercised                                  --           --     (100,000)        0.001
Expired and Cancelled                      --           --   (2,060,000)         0.32
                                   -----------  -----------  -----------   -----------
Outstanding at end of Year            150,000   $     0.15      150,000    $     0.15
                                   ===========  ===========  ===========   ===========

Exercisable at end of Year            150,000   $     0.15      150,000    $     0.15
                                   ===========  ===========  ===========   ===========
</TABLE>

         The outstanding options at December 31, 2002 were exercisable at $0.15
per share with remaining lives of 0.08 years.

         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 2002 or 2001, 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, 2002 and 2001 using the Black-Scholes
option pricing model as prescribed by SFAS No. 123 and the weighted average
assumptions as follows:

                                                     December 31,
                                                         2002            2001
                                                     ---------------------------
    Weighted average fair value per option granted      $ 0.05          $ 0.18
    Risk-free interest rate                               1.75%           1.75%
    Expected dividend yield                               0.00%           0.00%
    Expected lives                                        0.08            1.08
    Expected volatility                                   3.76            0.70

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.

         Between years of 2000 and 2001, the Company sold warrants in a private
placement offering to purchase up to 2,000,000 shares of common stock at
exercise prices of $0.35 or $0.75 per share. These warrants will expire through
January 2002. In August 2001, the Board of Directors approved to grant a
six-month extension on these warrants.

                                                                            F-14


<PAGE>
EYE DYNAMICS, INC. & SUBSIDIARY

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

NOTE 9 - STOCKS OPTIONS AND WARRANTS (CONTINUED)

         During 2001, the Company granted warrants to purchase up to 200,000
shares of common stock in exchange for investor relation services. These
services were valued at $14,000 and the amount was charged to operations in
2001. Exercised prices determined for the warrants are 66,666 shares at $0.32
per share; 66,666 shares at $0.82 per share; and 66,668 shares at $1.32 per
share. The warrants will expire on January 3, 2004.

         A summary of the status of the Company's warrants as of December 31,
2002 and 2001, and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
                                                 2002                         2001
                                        ------------------------   --------------------------
                                                       Weighted                    Weighted
                                                       Average                     Average
                                                       Exercise                    Exercise
                                         Number of       Price       Number of       Price
                                         Warrants      Per Share     Warrants      Per Share
                                        -----------   -----------   -----------   -----------
<S>                                     <C>           <C>           <C>           <C>
Outstanding at beginning of year         2,200,000    $     0.55     1,500,000    $     0.55
Granted                                    333,333          0.05       700,000          0.63
Exercised, Expired and Cancelled        (2,000,000)         0.63            --            --
                                        -----------   -----------   -----------   -----------
Outstanding at end of year                 533,333    $     0.34     2,200,000    $     0.57
                                        ===========   ===========   ===========   ===========
Exercisable at end of year                 533,333    $     0.34     2,200,000    $     0.57
                                        ===========   ===========   ===========   ===========
</TABLE>

NOTE 10 - NET INCOME (LOSS) PER SHARE

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

                                                      2002             2001
--------------------------------------------------------------------------------
Numerator:
  Net income (loss)                               $    150,824     $   (546,405)
                                                  -------------    -------------
Denominator:
  Weighted average of common shares                 16,441,980       12,268,896
  Diluted effect of convertible debt                 3,467,085               --
                                                  -------------    -------------
  Diluted weighted average common shares
     outstanding                                     19,909,065       12,268,896
                                                  -------------    -------------
Basic net income (loss) per share                 $       0.01     $      (0.04)
Diluted net income (loss) per share               $       0.01     $      (0.04)

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.

                                                                            F-15


<PAGE>
EYE DYNAMICS, INC. & SUBSIDIARY

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

NOTE 11 - 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 2002 or 2001,
and the Company has only one segment; accordingly, detailed information of the
reportable segment is not presented.

NOTE 12 - RELATED PARTY TRANSACTION

         As disclosed in Note 5a, the Company had notes payable to the officers
in the amounts of $0 and $15,000 as of December 31, 2002 and 2001, respectively.
As of those dates, balance of accrued interest was $58,890 and $71,715,
respectively. Interest expense charged on these notes totaled $8,173 and $6,429
in those years, respectively.

NOTE 13 - MAJOR CUSTOMERS

During year ended December 31, 2002 and 2001, the Company's private label
distributor accounted for $1,093,779 and $293,324 or 60.5% and 42.0% of total
revenues, respectively.

NOTE 14 - 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-16


<PAGE>
EYE DYNAMICS, INC. & SUBSIDIARY

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

NOTE 14 - CONTINGENCIES AND COMMITMENTS

Finder Agreement

In 2001, the Company entered into a Finder's Agreement with a consultant who
acts as a finder to locate prospective investors for the Company. The Company
agreed to pay the consultant finder's fees based on the following schedule:

                     5% on first $5,000,000 capital raised
                     4% on next $1,000,000
                     3% on next $1,000,000
                     2% on next $1,000,000
                     1% on balance

As of December 31, 2002 and 2001, no capital was raised through the consultant.

The Company also agreed to pay another consultant a fee of $50,000 under a
Financial Consulting Services Agreement. The Company agreed that 25% of any
funding will be payable to the consultant until the full amount owed to the
consultant is fully paid. If no funding occurs, no payment will be paid to the
consultant.

Lease Commitments

The Company leases its office facilities for $974 per month. The lease expires
April 2003. In February 2003, the Company relocated to larger office facilities
for $1,571 per month. The new lease commences on February 1, 2003 and expires
through January 31, 2006. Rent expense totaled $13,033 and $10,702 for 2002 and
2001, respectively.

The Company also leases office equipment at $204 per month expiring in February
2004.

As of December 31, 2002, the minimum lease payments under these leases are:

                    Year ended
                   December 31,                     Amount
               ---------------------             --------------
                       2003                        $   20,712
                       2004                            20,009
                       2005                            19,973
                       2006                             1,668
                                                   -----------
                                                   $   62,362
                                                   ===========

NOTE 15 - SUBSEQUENT EVENT

In March 2003, the Board of Directors intended to wind down the inactive
subsidiary, which has no asset or liability as of December 31, 2002. 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-17