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

                                   FORM 10-KSB

                                   (Mark One)

      [X]   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
            ACT OF 1934 For the fiscal year ended: December 31, 2003

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

            For the transition period from _______________ to _______________


Commission File Number:  000-29645

                               AMNIS SYSTEMS INC.
                           (Formerly Graffiti-X, Inc.)
                 (name of small business issuer in its charter)


                Delaware                                94-3402831
                --------                                ----------
      (State or other jurisdiction of      (I.R.S. Employer Identification No.)
       incorporation or organization)


    235 Pear Ave. Ste 109, Mountain View California       94043
    -----------------------------------------------       -----
      (Address of principal executive offices)          (Zip Code)

                    Issuer's telephone number: (650) 961-7000
                                                -------------

             Securities registered under Section 12(b) of the Act:
                               Title of each class
                                      None

                   Name of each exchange on which registered
                                      None

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

                         Common Stock, $0.0001 par value
                                (Title of class)

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 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]

Issuer's revenues for its most recent fiscal year:  $1,514,548

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 of March 22,
2004 was. $3,325,369.

The  number of shares  outstanding  of each of the  issuer's  classes  of common
equity as of March 24, 2004 was 353,762,621 shares.

Documents incorporated by reference: None

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


                                       1
<PAGE>

<TABLE>
<CAPTION>
                                TABLE OF CONTENTS
                                                                                                           Page

                                     PART I
<S>          <C>                                                                                           <C>
ITEM 1.       DESCRIPTION OF BUSINESS....................................................................... 3
ITEM 2.       DESCRIPTION OF PROPERTY.......................................................................14
ITEM 3.       LEGAL PROCEEDINGS.............................................................................14
ITEM 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........................................14

                                     PART II

ITEM 5.       MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS......................................15
ITEM 6.       MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.....................................16
ITEM 7.       FINANCIAL STATEMENTS..........................................................................21
ITEM 8.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..........21

ITEM 8A  CONTROLS AND PROCEDURES............................................................................22

                                    PART III

ITEM 9.       DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
              COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. 22
ITEM 10.      EXECUTIVE COMPENSATION........................................................................24
ITEM 11.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................32
ITEM 12.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................34
ITEM 13.      EXHIBITS AND REPORTS ON FORM 8-K..............................................................34

ITEM 14.      PRINCIPAL ACCOUNTANT FEES AND SERVICES........................................................38

</TABLE>


                                       2
<PAGE>

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

                                  OUR BUSINESS

Overview

      We are a Delaware  corporation  formed in July 1998.  We made hardware and
software products for the creation,  management and transmission of high-quality
digital  video over  computer  networks  until our  decision in January  2004 to
discontinue our digital video operations.

      On April 16, 2001,  Amnis Systems Inc.  ("Amnis" or the "Company")  merged
with  Optivision,  Inc.,  an operating  company,  in an exchange of common stock
accounted for as a  recapitalization  of Optivision  Inc. In accounting for this
transaction  Optivision is deemed to be the purchaser and surviving  company for
accounting  purposes.  Accordingly,  its net assets are  included in the balance
sheet  at  their  historical  book  values  and the  results  of  operations  of
Optivision have been presented for the comparative prior period.  Control of the
net assets and business of Amnis was acquired effective April 16, 2001.

      Amnis, until recently a provider of networked streaming video systems, has
entered into a letter of intent to acquire Corridor  Communications,  a wireless
fidelity internet service provider, Quik Internet, an Internet Service Provider,
and AshCreek Wireless,  all located in Salem, Oregon. The terms of the agreement
are subject to  Corridor,  Quik and  Ashcreek  and the Company  entering  into a
definitive agreement.  At this time we cannot provide any guarantee that we will
be able to complete the transaction,  as the transaction is subject to extensive
due diligence and the negotiation and finalizing of a definitive agreement.


Potential Business Combination

      We currently  have no business  activities.  We will attempt to locate and
negotiate with a business entity for the merger of that target business into us.
In certain instances,  a target business may wish to become a subsidiary of ours
or may wish to contribute  assets to us rather than merge.  No assurances can be
given that we will be  successful  in  locating or  negotiating  with any target
business.

      We believe that there are perceived  benefits to being a reporting company
with a class  of  publicly-traded  securities,  even  though  we have no  active
business  activities.  These are commonly  thought to include the ability to use
registered  securities to make  acquisition of assets or  businesses;  increased
visibility  in the  financial  community;  the  facilitation  of borrowing  from
financial  institutions;  improved trading  efficiency;  shareholder  liquidity;
greater ease in  subsequently  raising  capital;  compensation  of key employees
through options stock;  enhanced  corporate  image; and a presence in the United
States capital market.


                                       3
<PAGE>

      A  business  entity,  if  any,  which  may  be  interested  in a  business
combination  with us may  include a  company  for  which a  primary  purpose  of
becoming  public is the use of its securities  for the  acquisition of assets or
businesses;  a company which is unable to find an  underwriter of its securities
or is unable to find an underwriter  of securities on terms  acceptable to it; a
company  which  wishes to become  public with less  dilution of its common stock
than would occur normally upon an underwriting; a company which believes that it
will be able to obtain  investment  capital on more favorable terms after it has
become public; a foreign company which may wish an initial entry into the United
States securities market; a special situation company, such as a company seeking
a public market to satisfy  redemption  requirements  under a qualified Employee
Stock  Option  Plan;  or a company  seeking  one or more of the other  perceived
benefits of becoming a public company.

      We will be actively engaged in seeking a qualified  company as a candidate
for a business combination. We may then enter into a definitive agreement with a
wide variety of businesses  without limitation as to their industry or revenues.
It is not possible at this time to predict with which  company,  if any, we will
enter  into a  definitive  agreement  or what  will be the  industry,  operating
history, revenues, future prospects or other characteristics of that company.

      We may seek a business  opportunity  with  entities  which  have  recently
commenced  operations,  or which wish to utilize the public marketplace in order
to raise additional capital in order to expand into new products or markets,  to
develop a new  product  or  service,  or for other  corporate  purposes.  We may
acquire assets and establish wholly-owned  subsidiaries in various businesses or
acquire existing businesses as subsidiaries.

      In analyzing prospective business  opportunities,  management may consider
such matters as the available  technical,  financial and  managerial  resources;
working capital and other financial requirements; history of operations, if any;
prospects  for the  future;  nature of present  and  expected  competition;  the
quality and  experience  of management  services  which may be available and the
depth of that management;  the potential for further research,  development,  or
exploration;  specific  risk factors not now  foreseeable  but which then may be
anticipated  to impact our  proposed  activities;  the  potential  for growth or
expansion;  the  potential  for profit;  the  perceived  public  recognition  or
acceptance of products,  services,  or trades;  name  identification;  and other
relevant factors.

      Following  a business  combination,  we may benefit  from the  services of
others in regard to  accounting,  legal  services,  underwritings  and corporate
public  relations.  If requested by a target business,  management may recommend
one or more  underwriters,  financial  advisors,  accountants,  public relations
firms or other consultants to provide such services.

      A potential  target  business may have an agreement  with a consultant  or
advisor  providing that services of the consultant or advisor be continued after
any business combination. Additionally, a target business may be presented to us
only on the condition  that the services of a consultant or advisor be continued
after a merger or acquisition.  Such preexisting agreements of target businesses
for the  continuation  of the services of  attorneys,  accountants,  advisors or
consultants could be a factor in the selection of a target business.


                                       4
<PAGE>

      In implementing a structure for a particular business acquisition,  we may
become a party to a merger,  consolidation,  reorganization,  joint venture,  or
licensing  agreement  with another  corporation  or entity.  We may also acquire
stock or assets of an existing  business.  On the consummation of a transaction,
it is likely that our present  management and stockholders  will no longer be in
control  of the  company.  In  addition,  it is  likely  that our  officers  and
directors will, as part of the terms of the acquisition transaction,  resign and
be replaced by one or more new officers and directors.

      It is anticipated  that any securities  issued in any such  reorganization
would be issued in reliance upon exemption from  registration  under  applicable
federal  and  state  securities  laws.  In  some  circumstances,  however,  as a
negotiated element of its transaction, we may agree to register all or a part of
such securities immediately after the transaction is consummated or at specified
times  thereafter.  If  such  registration  occurs,  of  which  there  can be no
assurance,  it will be undertaken by the surviving  entity after we have entered
into an  agreement  for a business  combination  or has  consummated  a business
combination. The issuance of additional securities and their potential sale into
any trading  market which may develop in our  securities  may depress the market
value of our securities in the future if such a market develops,  of which there
is no assurance.

      With  respect  to any  merger or  acquisition  negotiations  with a target
business,  management  expects to focus on the  percentage  of the company which
target business  stockholders would acquire in exchange for their  shareholdings
in  the  target  business.  Depending  upon,  among  other  things,  the  target
business's assets and liabilities,  our stockholders will in all likelihood hold
a substantially  lesser percentage  ownership  interest  following any merger or
acquisition.  Any  merger or  acquisition  we effect can be  expected  to have a
significant dilutive effect on the percentage of shares held by our stockholders
at such time.

      We  cannot  assure  you  that we will be  able to  enter  into a  business
combination,  as to the terms of a business combination,  or as to the nature of
the target business.

      We  anticipate  that the selection of a business  opportunity  in which to
participate  will be complex and without  certainty of success.  We believe (but
have not  conducted  any  research to  confirm)  that there are  numerous  firms
seeking  the  perceived  benefits  of a publicly  registered  corporation.  Such
perceived  benefits may include  facilitating  or  improving  the terms on which
additional  equity  financing may be sought,  providing  liquidity for incentive
stock options or similar  benefits to key employees,  increasing the opportunity
to use securities for acquisitions, and providing liquidity for stockholders and
other  factors.  Business  opportunities  may be  available  in  many  different
industries and at various stages of development, all of which will make the task
of  comparative  investigation  and  analysis  of  such  business  opportunities
extremely difficult and complex.

      The Company has  recently  entered  into a letter of intent with  Corridor
Communications,  a wireless fidelity internet service provider located in Salem,
Oregon.  The terms of the  agreement  are  subject to  Corridor  and the Company
entering  into a  definitive  agreement.  At this  time we  cannot  provide  any
guarantee that we will be able to complete the transaction as the transaction is
subject to extensive  due  diligence  and the  negotiation  and  finalizing of a
definitive agreement.


                                       5
<PAGE>

EMPLOYEES

      As of December  31, 2003,  we employed a total of 17 full time  employees,
which  included  five in  engineering,  four in  sales  and  marketing,  four in
manufacturing  and four in administration  and finance.  As of February 24, 2004
the company has reduced it employees to two, one in accounting and the Chairman.


ITEM 2.         DESCRIPTION OF PROPERTY

      Our  principal  administrative,   marketing,   manufacturing  and  product
development  facility  was  located  in Palo  Alto,  California.  This  facility
encompassed  approximately 10,000 square feet pursuant to a lease that commenced
on November 1, 1995 and terminated on December 15, 2002. Since December 15 2002,
we have  occupied  approximately  10,000  square feet for $10,000 per month on a
month-to-month  basis with an agreement  to vacate the facility  with in 30 days
should the landlord identify another tenant. On January 31, 2004, at the request
of the  landlord we vacated  this  premise and  relocated  to a 4000 square foot
facility located in Mountain View California under a six month prepaid lease. In
addition, the Company relocated its executive offices to Southern California and
we have leased a 4,000 square foot  facility in Irvine  California on a month to
month lease for approximately $4,000 per month.

ITEM 3.         LEGAL PROCEEDINGS

      From time to time, we are a party to litigation or other legal proceedings
that we consider to be a part of the ordinary course of our business. We are not
involved  currently in legal  proceedings  that could  reasonably be expected to
have a material adverse effect on our business,  prospects,  financial condition
or results of operations.  We may become involved in material legal  proceedings
in the future.


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

         None.


                                       6
<PAGE>

                                     PART II

ITEM 5.         MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

PRICE RANGE OF COMMON STOCK

      Our common stock is traded in the over-the-counter market and is quoted on
the OTC Bulletin Board under the symbol  "AMNM." The following  table sets forth
the high and low closing bid prices (which reflect prices between dealers and do
not include retail markup,  markdown or commission and may not represent  actual
transactions)  for each  quarterly  period  since our common  stock  first began
trading in the  over-the-counter  market in July 2000. From time to time, during
the periods indicated,  trading activity in our common stock was infrequent.  As
of March 12, 2004,  the closing  price of our common stock was $0.012 per share.
As of March 12, 2004, there were  approximately 193 record holders of our common
stock. We believe we have approximately 7,000 beneficial stockholders.

CALENDAR YEAR 2000                              HIGH BID         LOW BID

Third Quarter 2000 (commencing July 19)        $10.00            $0.355
Fourth Quarter 2000                             $6.00            $3.00

CALENDAR YEAR 2001                              HIGH BID         LOW BID

First Quarter 2001                              $3.82             $1.75
Second Quarter 2001                             $2.95             $0.89
Third Quarter 2001                              $1.69             $0.41
Fourth Quarter 2001                             $0.92             $0.33

CALENDAR YEAR 2002                              HIGH BID         LOW BID

First Quarter 2002                              $1.72             $0.52
Second Quarter 2002                             $0.63             $0.10
Third Quarter 2002                              $0.17             $0.115
Fourth Quarter 2002                             $0.06             $0.03

CALENDAR YEAR 2003

First Quarter 2003                              $0.06             $0.01
Second Quarter 2003                             $0.11             $0.01
Third Quarter 2003                              $0.15             $0.06
Fourth Quarter 2003                             $0.06             $0.03

      As of March 22,  2004,  there  were  approximately  353,762,621  shares of
common stock issued and outstanding.


                                       7
<PAGE>

OUR DIVIDEND POLICY

      We anticipate that for the foreseeable  future,  earnings will be retained
for the development of our business.  Accordingly,  we do not anticipate  paying
dividends on the common stock in the foreseeable  future.  The payment of future
dividends  will be at the sole  discretion  of our board of  directors  and will
depend on our general business condition.

RECENT SALES OF UNREGISTERED SECURITIES

      In October 2003, we entered into an agreement  with two creditors  whereby
we agreed to pay the creditors, in connection with a senior security interest in
the amount of $531,397,  in shares of common stock.  The note is  convertible at
the holder's option at any time into shares of the Company's common stock at the
lesser of a 35%  discount to the average of the lowest  three  intraday  trading
prices of the Company's common stock during the 30 trading day periods ending on
trading day prior to the date of conversion, or $0.05 per share.

In November 2003, we entered into a financing  agreement with, SDS Capital Group
SPC, Ltd.  (f/k/a SDS Merchant  Fund,  LP),  Alpha  Capital  Aktiengesellschaft,
Bristol Investment Fund, Ltd. and Stonestreet Limited  Partnership,  pursuant to
which we issued and sold 12%  two-year  secured  convertible  debentures  in the
principal amount of $1,100,000 and 5,500,000  warrants to purchase shares of our
common stock, subject to antidilution adjustment. The debentures are convertible
at the holder's option at any time into shares of our common stock at the lesser
of (i) $0.03 or (ii) 65% of the  average of the three  lowest  intraday  trading
prices for the common stock on a principal market for the 30 trading days before
but not including the conversion date.


SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

As of December 31, 2003, we had the following securities authorized for issuance
under the equity compensation plans:

<TABLE>
<CAPTION>
                                                                                                          Number of securities
                                                                                                          remaining available
                                                           Number of Securities   Weighted-average        for future issuance
                                                             to be issued upon     exercise price             under equity
                                                               exercise of         of outstanding         compensation plans
                                                           outstanding options,   options, warrants      (excluding securities
                                                           warrants and rights       and rights          reflected in column (a)

Plan Category
<S>                                                          <C>                      <C>                   <C>
Equity compensation plans approved by security holders         35,680,435              $0..036                8,485,537
Equity compensation plans not approved by security holders             --                   --                       --
Total                                                          35,680,435               $0.036                8,485,537

</TABLE>


                                       8
<PAGE>


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

      The  following   discussion   should  be  read  in  conjunction  with  the
consolidated financial statements and notes hereto.

      In addition to historical  information,  this Annual Report on Form 10-KSB
contains  forward-looking  statements that involve risks and uncertainties  that
could cause  actual  results to differ  materially.  Factors that might cause or
contribute to such differences  include, but are not limited to, those discussed
in this  section.  You  should  carefully  review the risks  described  in other
documents we file from time to time with the Securities and Exchange Commission,
including the Quarterly  Reports on Form 10-QSB filed in 2003. When used in this
report,  the words "expects,"  "anticipates,"  "intends,"  "plans,"  "believes,"
"seeks,"   "targets,"   "estimates,"   "looks  for,"  "looks  to,"  and  similar
expressions are generally intended to identify forward-looking  statements.  You
should not place undue reliance on these forward-looking statements, which speak
only as of the date of this  Annual  Report  on Form  10-KSB.  We  undertake  no
obligation to publicly release any revisions to the  forward-looking  statements
or reflect events or circumstances after the date of this document.

GENERAL

      We  are  a  Delaware   corporation   formed  in  July   1998.   Until  our
discontinuance  of video operation in January 2004 we made hardware and software
products for the creation,  management and transmission of high-quality  digital
video over computer networks. We currently have no business activities.  We will
attempt to locate and  negotiate  with a business  entity for the merger of that
target  business into us. In certain  instances,  a target  business may wish to
become a subsidiary of ours or may wish to  contribute  assets to us rather than
merge.  No  assurances  can be given that we will be  successful  in locating or
negotiating with any target business.  In January we entered into negotiation to
acquire Corridor Communications,  a wireless fidelity internet service provider,
Quik Internet an Internet Service Provider and AshCreek Wireless, all located in
Salem,  Oregon.  The terms of the agreement  are subject to Corridor,  Quick and
Ashcreek and the Company entering into a definitive  agreement.  At this time we
cannot provide any guarantee  that we will be able to complete the  transaction,
as the transaction is subject to extensive due diligence and the negotiation and
finalizing of a definitive agreement.

      Amnis was formed on July 29, 1998.  On April 16,  2001,  Amnis merged with
Optivision, Inc., an operating company, in an exchange of common stock accounted
for as a  recapitalization  of Optivision Inc accounted for as a reverse merger.
In accounting for this transaction  Optivision is deemed to be the purchaser and
surviving  company  for  accounting  purposes.  Accordingly,  its net assets are
included in the balance sheet at their historical book values and the results of
operations of Optivision have been presented for the  comparative  prior period.
Control of the net assets and business of Amnis was acquired effective April 16,
2001

The  Company  has  service  contracts  with a  total  outstanding  liability  of
approximately $180K as of February 2004. The Company expects that a buyer of the
intellectual property,  should we be able to consummate a sale, will assume this
liability  given  that these  customers  are vital to the  continuation  of this
business.  In the mean time, the Company is not providing  technical  support or
other types of services under the service contracts


                                       9
<PAGE>

CRITICAL ACCOUNTING POLICIES

There are no other critical accounting policies other than those noted in Note 1
in the financial Statements attached hereto.

RECENT DEVELOPMENTS

On January 26, 2004, Steven Peltier resigned as President and CEO.

On January 28, 2004, the Company  announced a complete  corporate  restructuring
and the  cessation  of its  video  networking  operations.  Accordingly,  assets
related to the video  operations  have been  revalued  resulting  in a charge to
income of $892,524 as a loss on discontinued operations.

On January 29, 2004, the Company announced that it had reached a settlement with
Alta  California  Associates to a reduction of the Company's  lease liability of
$732,000  to  $125,000.  The  agreement  allows the Company up to three years to
repay the balance of $125,000.  If the balance of $125,000 is not repaid  within
the three year period,  the original  reduction will be eliminated in full. This
balance will remain on the Company's books until the $125,000 is repaid in full.

On February 1, 2004, the Company entered into a month-to-month lease arrangement
for four  thousand  feet of  office  space in  Irvine,  California  at a cost of
$4,000.00 per month

On February 4, 2004, the Company  announced that it has entered into a letter of
intent to acquire  Corridor  Communications  Corporation  a provider of Wireless
Fidelity  Internet  Services,  Quik  Internet an Internet  Service  Provider and
AshCreek Wireless, all located in Salem Oregon.


RESULTS OF OPERATIONS - FISCAL YEAR ENDED DECEMBER 31, 2003 AS COMPARED TO
FISCAL YEAR ENDED DECEMBER 31, 2002

SUMMARY OF OPERATIONS:

                     (Expense number are from the Financial Statements attached)

                                         TWELVE MONTHS ENDING DECEMBER 31
                                    2003         2002       INC/(DEC)      %
 Revenue                       $  1,514,548   $2,240,135   (725,587)    -32.4%
 Cost of Goods Sold               1,084,067    1,754,943   (670,876)    -38.2%
 Research and development         1,091,393    1,237,607   (146,214)    -11.8%
 Sales and marketing                798,225    1,762,757   (964,532)    -54.7%
 General and administrative       3,116,345    2,470,107    646,238      26.2%
 Interest expense                   492,594      485,999      6,595       1.4%


                                       10
<PAGE>

We have included the above tables to more effectively show the  period-to-period
changes and percentages associated with the change.

Revenue:

      Revenues  generated  during the twelve  months ended  December 31, 2003 of
$1,514,548  were 32.4% down compared to  $2,240,135  for the twelve months ended
December  31,  2002.  This  decrease  of $725,587 in revenues is a result of the
cessation of operations  that began in the fourth quarter of 2002 due to lack of
funds to support  operations  and  continued  until May of 2003. In May 2003 our
investors initiated an additional investment of $1.0 million, which was followed
by an additional $1.1 million in November 2003.  These funds were not sufficient
to mount a marketing  effort that could overcome the momentum lost in the nearly
six months of business cessation noted above.

Cost of goods sold:

      Cost of goods sold  decreased  38.2% or  $670,876  to  $1,084,067  for the
twelve  months ended  December 31, 2003 from  $1,754,943  for the twelve  months
ended  December  31, 2002.  Revenue  decreased  32.4% for the same  period.  The
increase in costs as a percentage of revenue is the result of an increase in the
sale of lower margin product compared to the prior period.

Research and development:

      Research and  development  dropped by 11.8% or $146,214 to $1,091,693  for
the twelve months ended December 31, 2003 from  $1,237,607 for the twelve months
ended  December 31, 2002 as a result of reduced  employee and other  expenses in
2003. The decrease was not in line with our revenue decrease due to expenditures
necessary to develop new products to effectively compete in the market.

Sales and marketing:

      Sales and  marketing  expenses were down 54.7% or $964,532 to $798,228 for
the twelve months ended December 31, 2003 from  $1,762,757 for the twelve months
ended December 31, 2002 as a result of the Company not attending trade shows and
a virtual  curtailment of sales efforts in the first and second quarters of 2003
due to the lack of funds. Expenses did increase 13% in the third quarter and 31%
in the fourth quarter of 2002.

General and administrative:

      General and administrative  (G&A) expenses increased 26.2% or $646,238 for
the twelve months ended December 31, 2003 to $3,116,345  from $2,470,107 for the
twelve months ended  December 31, 2002 primarily due to an increase over 2002 of
$713,135  of  non-cash  consulting  contracts  paid for in common  shares of the
Company's  common stock.  These consulting  contracts are for services  covering
strategic planning,  mergers and acquisition  activity and corporate  financing.
Excluding non-cash expenses of $1,247,779 and accrued severance  compensation of
$632,000,  G&A  expenses  decreased  year to year by $698,897 or 36.1%.  This is
primarily  due to lower  legal  and audit  fees of  approximately  $500,000  and
reduced facility overhead of $170,000.


                                       11
<PAGE>

Other income (Expense):

      Interest  expense  increased by $6,595 to $492,594  for the twelve  months
ended  December 31, 2003 from $485,999 for the twelve months ended  December 31,
2002. Amortization on discount of convertible notes payable decreased due to the
discount on the largest  convertible  debenture being fully amortized at the end
of  2002.   Financing   costs  are   penalties  for  not  filing  and  obtaining
effectiveness  of  a  registration  statement  registering  the  shares  of  the
Company's  common stock  underlying the February 2002 private  placement and the
two  June  2002  convertible  debentures.  Incurrence  of  penalties  ceased  on
September 5, 2003 when the registration statement became effective. The value of
detachable  warrants  associated with the convertible  debentures is computed at
the end of  each  accounting  period  using  Black  Sholes  calculations.  As of
December 31, 2003 there was no further  liability  associated  with the warrants
due to the effective registration of such warrants.

LIQUIDITY AND CAPITAL RESOURCES

      At  December  31,  2003,  we had  cash and cash  equivalents  of  $453,434
compared to $319,627 at September  30, 2003 and $87,470 at December 31, 2002. In
the twelve months ended December 31, 2003, negative working capital has improved
$488,094 to $5,655,749 at December 31, 2003 from $6,143,843 at December 31, 2002
due to reductions in debt from conversion of the convertible debentures and from
reductions in debt from new funding cash.  These increases were partially offset
by reductions in accounts  receivable and inventory due to the discontinuance of
the video operations.

      We had continuing  "Losses from  operations" in the year ended December 31
of 2003 of $4,575,482  before non-cash  charges  resulting from stock issued for
consulting  services.  "Losses  from  operations"  for the Fourth  quarter  were
$1,651,520,  following third quarters  $1,216,703 loss, second quarter 2003 loss
of $777,449 and a first  quarter loss of $929,810.  For year ended  December 31,
2002 "Losses from operations" was $4,985,278. We are currently unable to project
when the  business  may no longer  generate a loss since we do not know what the
cost and time requirements to acquire other company operation and technology and
build the revenue to breakeven.  Throughout  the fourth quarter of 2002 and nine
months  of  2003,   we  have  taken  actions  to  increase  cash  flows  through
cost-cutting  measures,  increasing  revenue and  actively  pursuing  additional
sources of funding.

      On May 9, 2003, we entered into a securities purchase agreement with three
investors for the sale of (i)  $1,000,000 in  convertible  debentures and (ii) a
warrants to buy 5,000,000  shares of our common stock. In addition,  in exchange
for  cancellation  of a reset  option by one  investor,  the  Company  issued an
investor a convertible debenture in the amount of $910,120.

      In  September  2003,  we  entered  into  a  financing  agreement  with  an
accredited  investor,  pursuant to which we issued and sold 12% two-year secured
convertible  debentures  in the  principal  amount  of  $250,000  and  1,250,000
warrants  to  purchase  shares of our  common  stock,  subject  to  antidilution
adjustment


                                       12
<PAGE>

      In October 2003, we entered into an agreement  with two creditors  whereby
we agreed to pay the creditors, in connection with a senior security interest in
the amount of $531,397.29, in shares of common stock

      In November 2003, we entered into a financing  agreement  with  accredited
investors, pursuant to which we issued and sold 12% two-year secured convertible
debentures in the  principal  amount of  $1,100,000  and  5,500,000  warrants to
purchase shares of our common stock, subject to antidilution adjustment.

      We believe we will still need additional  investments in order to continue
operations to cash flow break even.

      Financing  transactions  may  include  the  issuance  of  equity  or  debt
securities, obtaining credit facilities, or other financing mechanisms. However,
the trading  price of our common  stock and the  downturn in the U.S.  stock and
debt  markets  could make it more  difficult  to obtain  financing  through  the
issuance  of equity or debt  securities.  Even if we are able to raise the funds
required, it is possible that we could incur unexpected costs and expenses, fail
to  collect  significant  amounts  owed to us,  or  experience  unexpected  cash
requirements that would force us to seek alternative  financing.  Further, if we
issue  additional  equity  or  debt  securities,   stockholders  may  experience
additional dilution or the new equity securities may have rights, preferences or
privileges  senior  to  those  of  existing  holders  of our  common  stock.  If
additional  financing is not available or is not available on acceptable  terms,
we will have to curtail our operations again.


ITEM 7.         FINANCIAL STATEMENTS

      Our consolidated financial statements and the independent auditors' report
appear on pages F-1 through F-20 of this Report and are  incorporated  into this
Item 7 by reference.

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

         None

ITEM 8A. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

As of December 31, 2003, we carried out an evaluation  of the  effectiveness  of
the design and operation of its disclosure  controls and procedures  pursuant to
Exchange Act Rule 13a-14.  This  evaluation was done under the  supervision  and
with the  participation of our Principal  Executive Officer and Acting Principal
Financial  Officer.  Based  upon  that  evaluation,   they  concluded  that  our
disclosure  controls and  procedures  are effective in gathering,  analyzing and
disclosing  information  needed to satisfy our disclosure  obligations under the
Exchange Act.


                                       13
<PAGE>

Changes in internal controls

      There were no  significant  changes in our  internal  controls or in other
factors that could  significantly  affect those  controls  since the most recent
evaluation of such controls.

<PAGE>



         PART III

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

DIRECTORS AND EXECUTIVE OFFICERS

      The following table sets forth the names, age, and position of each of our
directors and executive officers.

<TABLE>
<CAPTION>

NAME                    AGE   POSITION
----                    ---   --------
<S>                     <C>   <C>                                                  <C>
Michael A. Liccardo     57    Director                                              Resigned as CEO
                                                                                    April 28, 2003

Scott Mac Caughern      48    Chairman                                              Effective April 28,
                                                                                    2003

Lawrence L. Bartlett    62    Chief Financial Officer, Vice President, Secretary    Resigned November 13,
                              and Director                                          2003

Richard A. Falcone      46    Vice President of Marketing, Worldwide Sales and      Resigned March 31,
                              Business Development                                  2003

Catherine Palmen        44    Director                                              Resigned April 28,
                                                                                    2003

Steven Peltier          47    President, Chief Executive Officer and Chief          Effective November
                              financial Officer                                     11, 2003, Resigned
                                                                                    January 26, 2004
</TABLE>

      Our executive officers are appointed by, and serve at the pleasure of, our
board of  directors.  There are no family  relationships  among our directors or
executive  officers.  Our  directors  are elected to serve until the next annual
meeting of  stockholders  or until their  successors  are elected and qualified.
Pursuant to our bylaws,  the number of  directors  on our board of  directors is
fixed between three to five members.

BIOGRAPHICAL INFORMATION

      Set forth below is biographical information for each officer and director.
No person other than officers and directors  will  currently  perform any of our
management functions.

      Scott Mac Caughern has served as our Chairman and Chief Executive  Officer
since April 28, 2003.  Mr. Mac Caughern is an emerging  growth  investor in both
private and public  companies and has funded and  contributed  to the success of
many  companies  in the  past  decade.  He has  held  various  senior  executive
positions  within  the  securities  industry  and  is an  expert  in  developing
innovative financial solutions.  Since 1993, Mr. Mac Caughern has been president
of  Mac  Caughern   Trade   Development,   which  is  a  national  full  service
communications  company to the capital markets.  Mac Caughern Trade  Development
has focused on management and financial  consulting  services,  specializing  in
strategic marketing,  establishing  distribution channels for products,  mergers
and  acquisitions  and  financial  public  relations.  Mr. Mac Caughern has held
various senior  executive  positions  within the securities  industry  including
running his own OSJ  Securities  firm for  Roundhill  Securities,  in Park City,
Utah.  After  resigning from Roundhill  Securities in 1997, Mr. Mac Caughern has
focused  on  identifying  unique  opportunities  in the public  markets  and has
implemented his innovative  financial  solutions for client  companies.  Mr. Mac
Caughern attended Central Connecticut State College. Additionally, since October
2001, Mr. Mac Caughern has been a Professional  Services  Reserve for the Orange
County Sheriff's Department in Orange County California.


                                       14
<PAGE>


      Michael A. Liccardo has served as a director  since  February 2001, and as
our chief executive officer, president and chairman of the board from April 2001
until  April 28,  2003 at which  time he  resigned.  Mr.  Liccardo  has been the
president  and chief  executive  officer of  Optivision  since 1998 and chairman
since  December 1999 until April 28, 2003 at which time he resigned as Chairman.
With over 25 years of  experience  in the high  technology  industry  in various
senior marketing,  operations and financial management  positions,  Mr. Liccardo
has directed business strategy for a broad range of markets,  including computer
and peripheral systems,  software,  semiconductors and multimedia communication.
Prior to joining Optivision, Mr. Liccardo served in various executive management
positions  at  Cirrus  Logic,  a  supplier  of  analog   circuits  and  advanced
mixed-signal  chip products,  including vice president of business  development,
vice president of strategic  planning,  and vice president and general  manager.
While at  Cirrus  Logic,  Mr.  Liccardo  directed  the spin off of Lexar  Media.
Previously,  Mr.  Liccardo was the chief operating  officer of Scientific  Micro
Systems  where he  successfully  completed  its  initial  public  offering.  Mr.
Liccardo also served as a member of the board at BusLogic.  Mr.  Liccardo  holds
both master and Bachelor of Science degrees in electrical  engineering  from the
University of California at Berkeley, and an MBA from Stanford University.

      Lawrence  L.  Bartlett  has  served as interim  president  from March 2001
through April 2001 and has served as our vice president, chief financial officer
and secretary  since April 2001. Mr. Bartlett has also served on our board since
February 2001. Mr.  Bartlett has also served as the chief  financial  officer of
Optivision  since June 1998,  overseeing  Optivision's  worldwide  financial and
administration  operations. He has also been a director of Optivision since June
2000. He brings over 25 years of leadership in high technology financial,  human
resources and information  technology  management.  Prior to joining Optivision,
Mr.  Bartlett  served for five years as the senior  finance  and  administration
executive  at  Peninsula  Laboratories.  Mr.  Bartlett  spent  eight  years as a
contract chief  financial  officer,  providing  financial  expertise to startup,
turnaround and fast-track  growth  companies.  Mr.  Bartlett also served as vice
president  of  finance  and  administration,  and  chief  financial  officer  of
Northstar  Computers  and  corporate  controller  for Bio-Rad  Laboratories.  At
Northstar Computers, Mr. Bartlett led the company to an initial public offering.
Previously,  Mr.  Bartlett  was an auditor  with  Arthur  Andersen  LLP. He is a
certified public accountant and holds a Bachelor of Science degree in accounting
and business statistics from the University of Oregon.


                                       15
<PAGE>

      Richard A. Falcone has served as our vice  president,  worldwide sales and
business  development,  from April 2001 until his  resignation in March 2003. He
will continue to support and provide  strategic  guidance on a consulting basis.
He joined  Optivision in 1997 with significant  experience in sales,  marketing,
strategic planning,  finance and operational  management in growth environments.
During his career, Mr. Falcone has developed both enterprise direct and indirect
models within end user,  OEM,  integration  and service  provider  environments.
Prior to Optivision,  Mr.  Falcone spent nine years at General  Signal  Networks
(now  InRange),  a  manufacturer  of  data  communications  switching  and  test
equipment, network control and open systems connectivity.  GSN was the result of
the merger of Telenex and Data Switch corporations.  As Area Vice President,  he
built and managed a $40 million field  organization,  including sales,  business
development,  field marketing, systems engineering and support. Prior to General
Signal, Mr. Falcone spent eight years at Nortel Networks,  most recently serving
as  eastern   region   sales   director   for  the   Spectron   Division   (data
communications).  He was top ranked among management in quota achievement. While
at  Nortel,  Mr.  Falcone  gained a wealth of  experience  serving  in  numerous
management  and  professional   positions  including  director   marketing/sales
operations,  senior manager financial planning,  and strategic planning analyst.
He  benefited  from  a  broad  scope  of  assignments  within  formal  executive
development  initiatives  for select  candidates.  Mr.  Falcone holds a master's
degree in business  administration  from Drexel University in Philadelphia,  PA,
and a Bachelor of Science  degree in mathematics  from  Villanova  University in
Villanova,  PA. He was elected to Pi Mu Epsilon,  a national  mathematics  honor
society.  Throughout his career, Mr. Falcone has dedicated himself to continuing
education, including executive simulation programs at the Wharton School.

CODE OF ETHICS

The Company has adopted its Code of Ethics and  Business  Conduct for  Officers,
Directors  and  Employees  that applies to all of the  officers,  directors  and
employees of the Company.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

      Section 16(a) of the Securities Exchange Act of 1934, as amended,  and the
regulations of the Securities and Exchange  Commission  promulgated  thereunder,
require our directors, executive officers and persons who own more than 10% of a
registered  class of our equity  securities  to file  reports of  ownership  and
changes in ownership with the Securities and Exchange Commission, and provide us
with  copies of such  reports.  Based  solely  on a review of the  copies of the
reports  furnished  to us,  or  written  representations  that no  reports  were
required to be filed,  we believe that during the fiscal year ended December 31,
2002  all  Section  16(a)  filing  requirements  applicable  to  our  directors,
officers, and greater than 10% beneficial owners were complied with.

ITEM 10. EXECUTIVE COMPENSATION

      EXECUTIVE  COMPENSATION  The following  table sets forth all  compensation
awarded,  earned or paid for services  rendered in all  capacities  to us during
fiscal years 2001, 2002 and 2003 to:

o     Each person who served as our chief executive officer during 2003; and

o     Our other  executive  officers whose total annual salary and bonus in 2003
      exceeded $100,000.


                                       16
<PAGE>

<TABLE>
<CAPTION>
                           SUMMARY COMPENSATION TABLE


                                   ANNUAL COMPENSATION            LONG TERM COMPENSATION

                                                              SECURITIES     ALL OTHER
                                        SALARY                UNDERLYING    COMPENSATION
NAME AND PRINCIPAL POSITION      YEAR   ($)(1)     BONUS ($)  OPTIONS (#S)    ($) (2)

<S>                              <C>    <C>        <C>      <C>               <C>
Michael A. Liccardo              2003     4,167              3,800,000            532
President, Chief Executive       2002   149,777      ---     2,500,000          1,476
Officer and Chairman of          2001   164,680      ---     1,100,000          1,278
the Board (2)



Lawrence L. Bartlett             2003   120,451             4,061,305           1,245
Chief Financial Officer,         2002   175,120      ---    2,200,000           1,334
Vice President and               2001   163,414      ---      825,000           1,245
Secretary (3)

Richard A. Falcone               2003    33,613      ---    3,511,305             977
Vice President of                2002   190,733      ---    2,200,000             943
Marketing, Worldwide             2001   184,228      ---      740,000             878
Sales and Business
Development

Steven Peltier                   2003    21,058      ---            0             168
President, Chief Executive
Officer and Director (5)

Scott Mac Caughern               2003   107,437      ---            0             954
Chairman of the Board of
Directors (6)

</TABLE>


(1)   Amounts shown include cash and non-cash  compensation  earned and received
      by the named executive officers.  These officers elected to defer all or a
      significant  portion  of  their  salaries  in  order  that  our  financial
      resources be directed toward  supporting  operations.  At the end of 2001,
      Messrs.  Bartlett and Falcone had deferred  compensation of  approximately
      $40,000 and $39,800, respectively, all of which was paid in February 2002.
      At  the  end  of  2001,  Mr.   Liccardo  had  deferred   compensation   of
      approximately  $87,000,  a portion of which was paid in the form of 13,695
      stock options that were granted and immediately  exercised by Mr. Liccardo
      on January 15, 2002 at the price of $1.20 per share,  and the remainder of
      which will not be paid until our board of  directors  deems it prudent and
      such payment will not adversely affect our operations.  At the end of 2002
      Messrs.  Bartlett,  Falcone and Liccardo had unpaid compensation  $65,508,
      $55,499 and $196,562, respectively. Unpaid compensation at the end of 2003
      is  $296,555,  $314,859 and  $459,067  for Messrs.  Bartlett,  Falcone and
      Liccardo, respectively. As of March 22, 2004 unpaid compensation of $6,019
      $7,353 $0.0 has been paid, respectively.
(2)   Represents  the premiums paid by us with respect to term life insurance on
      the lives of each named executive  officer  pursuant to which the proceeds
      are paid to the beneficiaries of each policy.
(3)   Mr. Liccardo became our president, chief executive officer and chairman of
      the board of  directors  in April  2001.  On April 28,  2003 Mr.  Liccardo
      resigned  as  Chairman  and  CEO.(4)  Mr.  Bartlett  served as our interim
      president  upon the  resignation  of Mr.  John in March 2001 and until Mr.
      Liccardo was  appointed in April 2001.  On November 13, 2003 Mr.  Bartlett
      resigned  as  Vice  President,  Chief  Financial  Officer,  Secretary  and
      Director.


                                       17
<PAGE>

(5)   Mr.  Peltier was  appointed  President,  CEO and  Director on November 11,
      2003.  On November  13, 2003 Mr.  Peltier was  appointed  Chief  Financial
      Officer. On January 26, 2004 Mr. Peltier resigned.
(6)   Mr. Mac Caughern was appointed Chairman and Interim CEO on April 28, 2003.
      On November 11, 2003 he  relinquished  the Interim CEO  position  with the
      appointment of Mr. Peltier. On November 13, Mr. Mac Caughern was appointed
      Secretary.

                        OPTION GRANTS IN LAST FISCAL YEAR

      The following  table sets forth  information  regarding  option granted to
each of the named executive officers during the year ended December 31, 2003.

<TABLE>
<CAPTION>
                                                  INDIVIDUAL GRANTS

                                                                   PERCENTAGE OF
                                              NUMBER OF            TOTAL OPTIONS
                                             SECURITIES              GRANTED TO         EXERCISE OR
                                         UNDERLYING OPTIONS         EMPLOYEES IN         BASE PRICE      EXPIRATION
NAME                                           GRANTED            FISCAL YEAR (1)        ($/SH) (2)         DATE
<S>                                         <C>                        <C>                  <C>           <C>
Michael A. Liccardo                                        -

Lawrence L. Bartlett                       1,500,000 (3) (4)            4.4                  .04          4/30/04

Richard A. Falcone                         1,500,000 (3) (4)            4.4                  .04          4/30/04

</TABLE>


(1)   Based on a total of  33,478,966  shares  subject  to  options  granted  to
      employees (not counting  options granted to  non-employees)  under all our
      stock option plans in the year ended December 31, 2003,  including options
      granted to the named executive officers.
(2)   All options  were  granted at an  exercise  price equal to the fair market
      value of our common stock at the date of grant.
(3)   These options were issued under our 2002 Stock Plan.
(4)   These options are all fully vested as of this date.

AGGREGATED  OPTION  EXERCISES  IN LAST  FISCAL YEAR AND FISCAL  YEAR-END  OPTION
VALUES

      The following table sets forth information  regarding the number and value
of securities underlying unexercised options held by each of the named executive
officers at December 31, 2003.


                                       18
<PAGE>

<TABLE>
<CAPTION>

                                                            NUMBER OF SECURITIES
                             SHARES                        UNDERLYING UNEXERCISED               VALUE OF UNEXERCISED
                            ACQUIRED                             OPTIONS AT                    IN-THE-MONEY OPTIONS AT
                               ON          VALUE            DECEMBER 31, 2003 (1)               DECEMBER 31, 2003 (2)
NAME                        EXERCISE     REALIZED      EXERCISABLE     UNEXERCISABLE      EXERCISABLE       UNEXERCISABLE

<S>                        <C>            <C>           <C>                    <C>           <C>            <C>
Michael A. Liccardo                                     3,800,000              0             $0.0           $ 0.0
Lawrence L. Bartlett                                    4,211,305              0             $0.0            $0.0
Richard A. Falcone                                      3,511,305              0             $0.0            $0.0
Steven Peltier                0            0                   0               0                0               0
Scott Mac Caughern            0            0                   0               0                0               0
</TABLE>


(1)  These amounts  represent the total number of shares subject to options held
     by the named  executive  officers at December 31, 2003.  These options were
     granted on various  dates  during 2001,  2002 and 2003 and include  options
     issued in exchange for  Optivision,  Inc.  options in  connection  with our
     merger with Optivision, Inc. on April 16, 2001.
(2)  These  amounts  represent  the  difference  between the  exercise  price of
     options and the closing bid price of our common stock on December 31, 2003,
     which  was  $0.03,  for  all the  in-the-money  options  held by the  named
     executive officers.

DIRECTOR COMPENSATION

      We do not  currently  compensate  our  directors  for  their  services  as
directors.  Directors are reimbursed for their reasonable out-of-pocket expenses
incurred with attending board or committee meetings.

EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
         None.

1997 STOCK PLAN

General

      Our  board  of  directors  adopted  the  1997  Stock  Plan  (formerly  the
Optivision, Inc. 1997 Stock Plan) in February 2001 effective upon the completion
of the merger with Optivision, Inc. in April 2001. Our stockholders approved the
1997 Stock  Plan in  February  2001.  3,993,482  shares of our common  stock are
authorized  for  issuance  under the 1997 Stock Plan.  As of December  31, 2002,
options to purchase  3,309,450  shares were  outstanding  at a weighted  average
exercise  price of $0.86 per share and 121,092  shares of common stock  remained
available for future grant. The 1997 Stock Plan will terminate in February 2011.

Administration

      The  1997  Stock  Plan is  administered  by our  board of  directors  or a
committee of the board.  The 1997 Stock Plan provides for the grant of incentive
stock  options as defined in Section  422 of the  Internal  Revenue  Code to our
employees  (including  officers and  directors who are also  employees)  and the
employees  (including  officers and  directors  who are also  employees)  of our
subsidiary  corporations.  The 1997  Stock Plan also  provides  for the grant of
nonstatutory  stock options and the grant of stock  purchase  rights both to our
employees,   non-employee  directors,  consultants  and  advisors,  and  to  the
employees,  non-employee  directors,  consultants and advisors of our subsidiary
corporations.  Our board of directors  has the authority to amend the 1997 Stock
Plan at any time, with stockholder approval, if required.


                                       19
<PAGE>

Plan Features

Under the 1997 Stock Plan:

o     Qualified  employees are eligible for the grant of incentive stock options
      to purchase shares of our common stock;

o     Our  board  of  directors  or the  committee  appointed  by the  board  to
      administer  the 1997  Stock  Plan will  determine  the  exercise  price of
      options or the purchase  price of stock  purchase  rights,  but the option
      price for  incentive  stock options will not be less than 100% of the fair
      market value of the stock on the date of grant and the  exercise  price of
      nonstatutory  stock  options  will not be less than 85% of the fair market
      value of the stock on the date of grant; and

o     The exercise  price or purchase  price may, at the discretion of our board
      of directors or the  committee  appointed by the board to  administer  the
      1997 Stock  Plan,  be paid in cash,  cash  equivalents,  promissory  note,
      surrender  of  stock,  a  cashless  exercise,  surrender  of  stock,  past
      services,  cancellation of indebtedness owed to the grantee or any form of
      payment that is consistent with applicable laws, regulations and rules.

Change of Control and Accelerated Vesting

      In the  event  that we  merge  with or into  another  corporation  or sell
substantially  all of our assets, to the extent permitted by applicable law, the
surviving corporation will assume all outstanding stock awards,  including stock
options,  or substitute  equivalent stock awards.  If the successor  corporation
does not agree to assume the stock awards or substitute equivalent stock awards,
all stock awards shall become fully vested and  exercisable  prior to the change
of control,  and our board of directors (or the committee appointed by the board
to administer the plan) will notify plan  participants  that the stock award are
fully  exercisable  for a 15-day  period from the date of the notice.  The stock
awards  will  terminate  upon  expiration  of such  period.  In the event of our
proposed  dissolution or  liquidation,  our board of directors (or the committee
appointed by the board to administer the plan) will notify plan  participants at
least 15 days prior to such proposed action.  Unless previously  exercised,  all
stock  awards  will  terminate  immediately  prior to the  consummation  of such
proposed action.

2000 STOCK PLAN

General

      Our board of directors  adopted the 2000 Stock Plan in October  2000,  and
our  stockholders  approved the plan in October  2000.  5,500,000  shares of our
common  stock are  authorized  for  issuance  under the 2000 Stock  Plan.  As of
December 31,  2002,  options to purchase  2,769,000  shares of common stock were
outstanding  at a weighted  average  exercise price of $0.88 per share and 3,303
shares of common stock remained  available for future grant. The 2000 Stock Plan
will terminate in October 2010.


                                       20
<PAGE>

Administration

      The  2000  Stock  Plan is  administered  by our  board of  directors  or a
committee of the board.  The 2000 Stock Plan provides for the grant of incentive
stock  options as defined in Section  422 of the  Internal  Revenue  Code to our
employees  (including  officers and  directors who are also  employees)  and the
employees  (including  officers and  directors  who are also  employees)  of our
subsidiary  corporations.  The 2000  Stock Plan also  provides  for the grant of
nonstatutory  stock options and the grant of stock  purchase  rights both to our
employees,   non-employee  directors,  consultants  and  advisors,  and  to  the
employees,  non-employee  directors,  consultants and advisors of our subsidiary
corporations.  Our board of directors  has the authority to amend the 2000 Stock
Plan at any time, with stockholder approval, if required.

Plan Features

      Under the 2000 Stock Plan:

      o     Qualified  employees  are eligible for the grant of incentive  stock
            options to purchase shares of our common stock;

      o     Our board of  directors or the  committee  appointed by the board to
            administer  the plan will determine the exercise price of options or
            the purchase  price of stock purchase  rights,  but the option price
            for  incentive  stock options will not be less than 100% of the fair
            market  value of the  stock on the  date of grant  and the  exercise
            price of nonstatutory stock options will not be less than 85% of the
            fair market value of the stock on the date of grant; and

      o     The exercise  price or purchase  price may, at the discretion of our
            board  of  directors  or the  committee  appointed  by the  board to
            administer the plan, be paid in cash, cash  equivalents,  promissory
            note,  surrender of stock, a cashless exercise,  surrender of stock,
            past services,  cancellation of indebtedness  owed to the grantee or
            any  form  of  payment  that is  consistent  with  applicable  laws,
            regulations and rules.

Change of Control and Accelerated Vesting

      In the  event  that we  merge  with or into  another  corporation  or sell
substantially  all of our assets, to the extent permitted by applicable law, the
surviving corporation will assume all outstanding stock awards,  including stock
options,  or substitute  equivalent stock awards.  If the successor  corporation
does not agree to assume the stock awards or substitute equivalent stock awards,
all stock awards shall become fully vested and  exercisable  prior to the change
of control,  and our board of directors (or the committee appointed by the board
to administer the plan) will notify plan  participants  that the stock award are
fully  exercisable  for a 15-day  period from the date of the notice.  The stock
awards  will  terminate  upon  expiration  of such  period.  In the event of our
proposed  dissolution or  liquidation,  our board of directors (or the committee
appointed by the board to administer the plan) will notify plan  participants at
least 15 days prior to such proposed action.  Unless previously  exercised,  all
stock  awards  will  terminate  immediately  prior to the  consummation  of such
proposed action.


                                       21
<PAGE>

2002 STOCK PLAN

General

      On June 17, 2002, our board of directors adopted the 2002 Stock Plan which
our  stockholders  approved on June 20,  2002.  20,000,000  shares of our common
stock are  authorized for issuance under the 2002 Stock Plan. As of December 31,
2002, options to purchase 8,541,000 shares of common stock were outstanding at a
weighted  average  exercise  price of $0.04 per share and  11,459,000  shares of
common  stock  remained  available  for future  grant.  The 2002 Stock Plan will
terminate in June 2012.

Administration

      The  2002  Stock  Plan is  administered  by our  board of  directors  or a
committee of the board.  The 2002 Stock Plan provides for the grant of incentive
stock  options as defined in Section  422 of the  Internal  Revenue  Code to our
employees  (including  officers and  directors who are also  employees)  and the
employees  (including  officers and  directors  who are also  employees)  of our
subsidiary  corporations.  The 2002  Stock Plan also  provides  for the grant of
nonstatutory  stock options and the grant of stock  purchase  rights both to our
employees,   non-employee  directors,  consultants  and  advisors,  and  to  the
employees,  non-employee  directors,  consultants and advisors of our subsidiary
corporations.  Our board of directors  has the authority to amend the 2002 Stock
Plan at any time, with stockholder approval, if required.

Plan Features

      Under the 2002 Stock Plan:

      o     Qualified  employees  are eligible for the grant of incentive  stock
            options to purchase shares of our common stock;

      o     Our board of  directors or the  committee  appointed by the board to
            administer the plan will determine the exercise price of options and
            the purchase  price of stock purchase  rights,  which cannot be less
            than  100% of the  fair  market  value  of the  stock on the date of
            grant; and

      o     The exercise  price or purchase  price may, at the discretion of our
            board  of  directors  or the  committee  appointed  by the  board to
            administer the plan, be paid in cash, cash  equivalents,  promissory
            note,  surrender of stock, a cashless exercise,  surrender of stock,
            past services,  cancellation of indebtedness  owed to the grantee or
            any  form  of  payment  that is  consistent  with  applicable  laws,
            regulations and rules.

Change of Control and Accelerated Vesting

In  the  event  that  we  merge  with  or  into  another   corporation  or  sell
substantially  all of our assets, to the extent permitted by applicable law, the
surviving corporation will assume all outstanding stock awards,  including stock
options,  or substitute  equivalent stock awards.  If the successor  corporation
does not agree to assume the stock awards or substitute equivalent stock awards,
all stock awards shall become fully vested and  exercisable  prior to the change
of control,  and our board of directors (or the committee appointed by the board
to administer the plan) will notify plan  participants  that the stock award are
fully  exercisable  for a 15-day  period from the date of the notice.  The stock
awards  will  terminate  upon  expiration  of such  period.  In the event of our
proposed  dissolution or  liquidation,  our board of directors (or the committee
appointed by the board to administer the plan) will notify plan  participants at
least 15 days prior to such proposed action.  Unless previously  exercised,  all
stock  awards  will  terminate  immediately  prior to the  consummation  of such
proposed action.


                                       22
<PAGE>

2003 STOCK PLAN

General

      On June 17, 2003, our board of directors adopted the 2003 Stock Plan which
our  stockholders  approved on June 17,  2003.  50,000,000  shares of our common
stock are  authorized for issuance under the 2003 Stock Plan. As of December 31,
2003, options to purchase  22,865,966 shares of common stock were outstanding at
a weighted  average  exercise  price of $0.03 per share and 9,320,000  shares of
common  stock  remained  available  for future  grant.  The 2003 Stock Plan will
terminate in June 2013.

Administration

      The  2003  Stock  Plan is  administered  by our  board of  directors  or a
committee of the board.  The 2003 Stock Plan provides for the grant of incentive
stock  options as defined in Section  422 of the  Internal  Revenue  Code to our
employees  (including  officers and  directors who are also  employees)  and the
employees  (including  officers and  directors  who are also  employees)  of our
subsidiary  corporations.  The 2003  Stock Plan also  provides  for the grant of
nonstatutory  stock options and the grant of stock  purchase  rights both to our
employees,   non-employee  directors,  consultants  and  advisors,  and  to  the
employees,  non-employee  directors,  consultants and advisors of our subsidiary
corporations.  Our board of directors  has the authority to amend the 2003 Stock
Plan at any time, with stockholder approval, if required.

Plan Features

      Under the 2003 Stock Plan:

      o     Qualified  employees  are eligible for the grant of incentive  stock
            options to purchase shares of our common stock;

      o     Our board of  directors or the  committee  appointed by the board to
            administer the plan will determine the exercise price of options and
            the purchase  price of stock purchase  rights,  which cannot be less
            than  100% of the  fair  market  value  of the  stock on the date of
            grant; and

      o     The exercise  price or purchase  price may, at the discretion of our
            board  of  directors  or the  committee  appointed  by the  board to
            administer the plan, be paid in cash, cash  equivalents,  promissory
            note,  surrender of stock, a cashless exercise,  surrender of stock,
            past services,  cancellation of indebtedness  owed to the grantee or
            any  form  of  payment  that is  consistent  with  applicable  laws,
            regulations and rules.


                                       23
<PAGE>

Change of Control and Accelerated Vesting

      In the  event  that we  merge  with or into  another  corporation  or sell
substantially  all of our assets, to the extent permitted by applicable law, the
surviving corporation will assume all outstanding stock awards,  including stock
options,  or substitute  equivalent stock awards.  If the successor  corporation
does not agree to assume the stock awards or substitute equivalent stock awards,
all stock awards shall become fully vested and  exercisable  prior to the change
of control,  and our board of directors (or the committee appointed by the board
to administer the plan) will notify plan  participants  that the stock award are
fully  exercisable  for a 15-day  period from the date of the notice.  The stock
awards  will  terminate  upon  expiration  of such  period.  In the event of our
proposed  dissolution or  liquidation,  our board of directors (or the committee
appointed by the board to administer the plan) will notify plan  participants at
least 15 days prior to such proposed action.  Unless previously  exercised,  all
stock  awards  will  terminate  immediately  prior to the  consummation  of such
proposed action.

ITEM 11.        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following table presents information about the beneficial ownership of
our common stock, as of February 24, 2004, by:

      o     each  person or entity who is known by us to own  beneficially  more
            than 5% of the outstanding shares of our common stock;
      o     each of our directors;
      o     each of our named executive officers;
      o     each of the persons who served as our chief executive officer during
            our fiscal year ended December 31, 2003; and
      o     all directors and executive officers as a group.

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,  subject to community  property  laws,  where
applicable.  Shares of our common stock subject to options or other  convertible
securities  that are presently  exercisable  or  convertible  or  exercisable or
convertible within 60 days of February 24, 2004 are deemed to be outstanding and
beneficially  owned by the  holder  for the  purpose  of  computing  shares  and
percentage  ownership of that holder, but are not treated as outstanding for the
purpose  of  computing  the  percentage  ownership  of  any  other  person.  The
percentage  of  beneficial  ownership is based on  331,340,393  shares of common
stock outstanding as of February 24, 2004


                                       24
<PAGE>

<TABLE>
<CAPTION>

                          NAME AND ADDRESS                                 NUMBER OF SHARES        PERCENTAGE OF SHARES
                        OF BENEFICIAL OWNER                             BENEFICIALLY OWNED (1)         OUTSTANDING (1)
5% Stockholders
---------------
<S>                                                                          <C>                         <C>
Alpha Capital Aktiengesellschaft (2)
  Pradafant                                                                   32,802,699                  9.99%
  79490 Furstentums, Vaduz, Liechtenstein

Stonestreet Limited Partnership (2)
  260 Town Centre Blvd.,                                                      32,802,699                  9.99%
  Suite 201, Markham, ON, L3R 8H8, Canada

Bristol Investment Fund, LTD (2)
   Caledonian House, Jennett Street, George Town                              32,802,699                  9.99%
   Grand Cayman, Cayman Islands
SDS Merchant Fund, LP (2)
   53 Forest Avenue, 2nd Floor                                                32,802,699                  9.99%
   Old Greenwich, Connecticut 06870
Executive Officers and Directors (3)
Michael A. Liccardo                                                          231,586,498                   46%
Lawrence L. Bartlett (4)                                                       4,211,305                   1.3%
Scott Mac Caughern                                                                     0                     *
All directors and executive officers as a group (3 persons)                  236,097,803                  47.3%
--------------------------------------------------------------------- ---------------------------- ---------------------

</TABLE>

* Less than 1%.

(1)   Unless  otherwise  indicated,  each person has sole  investment and voting
      power with respect to the shares indicated.  For purposes of this table, a
      person or group of persons is deemed to have "beneficial ownership" of any
      shares  which such  person  has the right to acquire  within 60 days as of
      February 27, 2004. For purposes of computing the percentage of outstanding
      shares held by each person or group of persons named above on February 27,
      2004 any  security  which such person or group of persons has the right to
      acquire within 60 days after such date is deemed to be outstanding for the
      purpose of computing the percentage  ownership for such person or persons,
      but is not  deemed to be  outstanding  for the  purpose of  computing  the
      percentage ownership of any other person.
(2)   The  shareholder  has  contractually  agreed  to not  convert  convertible
      debentures  or  exercise  warrants  in  excess  of 9.99% of the  Company's
      outstanding shares of common stock.
(3)  Unless otherwise indicated,  the address of each of the persons or entities
     listed in the table is c/o Amnis  Systems Inc.,  1235 Pear Ave.,  Ste. 109,
     Mountain View, CA 94043.
(4)  Includes  4,211,305  shares  that may be acquired  through the  exercise of
     options currently or within 60 days of February 24, 2004.


ITEM 12.        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      In January 2002, we issued to Michael A. Liccardo, our president and chief
executive officer and chairman of the board, a convertible note in the principal
amount  of  $3,547,916  in  exchange  for  the  cancellation  of  certain  loans
(including  accrued  interest  thereon) that Mr. Liccardo had made to us to meet
current operating expenses. The note bears interest at 10% per annum and matures
on January  14,  2003.  In June  2002,  Mr.  Liccardo  converted  $2,050,000  in
principal and interest of this  convertible  note and, in connection  therewith,
received  26,623,377  shares of common stock.  In December  2002,  Mr.  Liccardo
converted  $500,000  in  principle  of his  convertible  note and in  connection
therewith received 12,500,000 shares of common stock. In March 2003 Mr. Liccardo
converted  $112,000 in  principle  of this  convertible  note and in  connection
therewith  received  14,000,000 shares of common stock. In March of 2003 expense
reimbursements  due  Mr.  Liccardo  in the  amount  of  $119,791  were  put on a
convertible  note with terms the same as his existing note. Mr. Liccardo may, at
any time,  elect to convert  the  outstanding  principal  of  $1,120,574  of the
convertible  notes and accrued  interest  thereon into a number of shares of our
common stock  determined by dividing the  outstanding  principal and interest on
the note by $0.35.  The $0.35  conversion  price is subject to  adjustment  to a
lower conversion price, and is also subject to customary adjustment in the event
of stock splits, dividends, recapitalizations and the like.


                                       25
<PAGE>

ITEM 13.        EXHIBITS AND REPORTS ON FORM 8-K



         (a) Exhibits


Exhibit Number      Identification of Exhibit
--------------      -------------------------

2.1**               Agreement and Plan of Merger dated as of September 11, 2000
                    by and among the Issuer, Optivision, Inc., and ASI
                    Acquisition, Inc.

2.2**               Amendment to Agreement and Plan of Merger dated as of
                    January 11, 2001 by and among the Issuer, Optivision, Inc.,
                    and ASI Acquisition, Inc.

3.1*                Certificate of Incorporation of Issuer dated as of July 29,
                    1998

3.2**               Certificate of Amendment of Certificate of Incorporation of
                    the Issuer dated as of August 24, 2000

3.3**               Certificate of Amendment of Certificate of Incorporation of
                    the Issuer dated as of September 13, 2000

3.4******           Certificate of Amendment of Certificate of Incorporation of
                    the Registrant dated as of June 21, 2002

3.5*                Bylaws of the Issuer dated as of August 4, 1998

3.6**               Amended and Restated Bylaws of the Issuer dated as of
                    October 2, 2000

4.1***              Form of Secured Convertible Debenture issued pursuant to the
                    Securities Purchase Agreement dated as of December 28, 2001
                    between the Issuer and Bristol Investment Fund, Ltd.

4.2***              Form of Warrant issued pursuant to the Securities Purchase
                    Agreement dated as of December 28, 2001 between the Issuer
                    and Bristol Investment Fund, Ltd.

4.3****             Form of Warrant issued pursuant to each Unit Subscription
                    Agreement between the Issuer and each qualified investor


                                       26
<PAGE>

4.4******           Form of Convertible Note issued dated as of June 18, 2002
                    between the Registrant and each of Alpha Capital
                    Aktiengesellschaft and Stonestreet Limited Partnership

4.5******           Form of Warrant issued pursuant to each Amended Unit
                    Subscription Agreement dated as of June 18, 2002 between the
                    Registrant and each of Alpha Capital Aktiengesellschaft and
                    Stonestreet Limited Partnership

4.6******           Form of Warrant issued pursuant to each Convertible Note
                    dated as of June 18, 2002 between the Registrant and each of
                    Alpha Capital Aktiengesellschaft and Stonestreet Limited
                    Partnership

4.7********         Convertible Note in the amount of $1,000,783 issued to
                    Michael Liccardo

4.8********         Amendment No. 1 to the Common Stock Purchase Warrant issued
                    to Alexander Dunham Securities Inc.

4.9********         Amendment No. 1 to the Common Stock Purchase Warrant issued
                    to Bristol Capital LLC

4.10********        Amendment No. 1 to the Common Stock Purchase Warrant issued
                    to Bristol Investment Fund, Ltd.

4.11********        Securities Purchase Agreement dated May 9, 2003 by and
                    between the Company and three accredited investors

4.12********        Form of Secured Convertible Debenture issued pursuant to
                    the Securities Purchase Agreement dated May 9, 2003

4.13********        Form of Common Stock Purchase Warrant issued pursuant to
                    the Securities Purchase Agreement dated May 9, 2003

4.14********        Registration Rights Agreement issued pursuant to
                    the Securities Purchase Agreement dated May 9, 2003

4.15********        Pledge and Security Agreement issued pursuant to
                    the Securities Purchase Agreement dated May 9, 2003

4.16********        Modification Agreement entered between the Company and
                    Alpha Capital Aktiengesellschaft dated May 9, 2003

4.17********        Secured Convertible Debenture in the amount of $910,120
                    issued to Alpha Capital Aktiengesellschaft

4.18********        Pledge and Security Agreement issued pursuant to
                    the Modification Agreement dated May 9, 2003

4.19*********       Securities Purchase Agreement dated September 17, 2003 by
                    and between the Company and three accredited investors

4.20*********        Form of Secured Convertible Debenture issued pursuant to
                    the Securities Purchase Agreement dated September 17, 2003


                                       27
<PAGE>

4.21*********       Form of Common Stock Purchase Warrant issued pursuant to
                    the Securities Purchase Agreement dated September 17, 2003
                    (filed herewith)

4.22*********       Registration Rights Agreement issued pursuant to
                    the Securities Purchase Agreement dated September 17, 2003

4.23*********       Pledge and Security Agreement issued pursuant to
                    the Securities Purchase Agreement dated September 17, 2003

4.24*********       Restated Inter-creditor Agreement dated September 17, 2003

4.25*********       Agreement dated October 2, 2003 entered between the Company
                    and Bristol Investment Fund, Ltd. and Alpha Capital
                    Aktiengesellschaft

4.26**********      Securities Purchase Agreement dated November 17, 2003 by
                    and between the Company and four accredited investors
                    (filed herewith)

4.27**********      Form of Secured Convertible Debenture issued pursuant to
                    the Securities Purchase Agreement dated November 17, 2003
                    (filed herewith)

4.28**********      Form of Common Stock Purchase  Warrant  issued  pursuant to
                    the Securities  Purchase Agreement dated September 17, 2003
                    (filed herewith)

4.29**********      Registration Rights Agreement issued pursuant to
                    the Securities Purchase Agreement dated November 17, 2003
                    (filed herewith)

4.30**********      Pledge and Security Agreement issued pursuant to
                    the Securities Purchase Agreement dated November 17, 2003
                    (filed herewith)

4.31**********      Second Restated Inter-creditor Agreement dated November 17,
                    2003 (filed herewith)

4.32**********      Consulting Agreement entered with MarketByte, LLC dated May
                    2003

4.33**********      Amended Consulting Agreement entered with MarketByte, LLC
                    dated November 2003

10.1*****           + Amended 1997 Stock Plan

10.2*****           + Amended 2000 Stock Plan

10.3******          + 2002 Stock Plan

10.4*****           Lease Agreement dated as of August 8, 1995 between
                    Optivision, Inc. and Alta California Associates

10.5*****           + Employment Agreement dated as of April 18, 2001 between
                    the Issuer and Michael A. Liccardo


                                       28
<PAGE>

10.6*****           + Employment Agreement dated as of April 18, 2001 between
                    the Issuer and Lawrence L. Bartlett

10.7*****           + Employment Agreement dated as of April 18, 2001 between
                    the Issuer and Richard A. Falcone


10.8***             Securities Purchase Agreement dated as of December 28, 2001
                    between the Issuer and Bristol Investment Fund, Ltd.

10.9***             Registration Rights Agreement dated as of December 28, 2001
                    between the Issuer and Bristol Investment Fund, Ltd.

10.10***            Security Agreement dated as of December 28, 2001 between the
                    Issuer and Bristol Investment Fund, Ltd.

10.11****           Form of Unit Subscription Agreement between the Issuer and
                    each qualified investor

10.12******         Form of Amended Unit Subscription Agreement dated as of June
                    18,  2002  between  the  Issuer  and each of  Alpha  Capital
                    Aktiengesellschaft and Stonestreet Limited Partnership

21.1*********       List of Subsidiaries of the Issuer

31.1                Certification of the CEO and CFO of Amnis Systems Inc.
                    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1                Certification of the CEO and CFO of Amnis Systems Inc.
                    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


+ Management contract or compensatory plan or arrangement

* Filed as an exhibit to the registration statement on Form 10-SB filed with the
Securities and Exchange Commission on February 22, 2000, File No. 0-29645

** Filed as an  exhibit  to the  annual  report on Form  10-KSB  filed  with the
Securities and Exchange Commission on April 2, 2001

*** Filed as an exhibit to the report on Form 8-K filed with the  Securities and
Exchange Commission on January 14, 2002

**** Filed as an exhibit to the report on Form 8-K filed with the Securities and
Exchange Commission on March 4, 2002

***** Filed as an exhibit to the registration  statement on Form SB-2 filed with
the  Securities  and  Exchange  Commission  on March 22, 2002 ****** Filed as an
exhibit  to the  report  on Form 8-K  filed  with the  Securities  and  Exchange
Commission on June 27, 2002


                                       29
<PAGE>


******* Filed as an exhibit to the annual Form 10-KSB filed with the  Securities
and Exchange Commission on May 19, 2003

******** Filed as an exhibit to the Form SB-2 Registration  Statement filed with
the Securities and Exchange Commission on June 20, 2003

********* Filed as an exhibit to the Form SB-2 Registration Statement filed with
the Securities and Exchange Commission on October 8, 2003

**********  Filed as an exhibit to the Form SB-2  Registration  Statement  filed
with the Securities and Exchange Commission on December 3, 2003

           (b) Reports on Form 8-K

           None.


ITEM 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Audit Fees. The aggregate fees billed by our auditors, for professional services
rendered for the audit of the Company's annual financial statements for the year
ended  December  31,  2002,  and for the  reviews  of the  financial  statements
included in the Company's  Quarterly Reports on Form 10-QSB/A during fiscal 2002
and Form 10-QSB in fiscal 2003  approximated  $100,000  (2002 items) and $29,000
(2003 items), respectively.

The Board of  Directors  has  considered  whether  the  provision  of  non-audit
services,  for which  there was  required  SAS 100 review  services on the Forms
10-QSB, is compatible with maintaining the principal accountant's independence.

                                   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.

Date: March 30, 2004                      AMNIS SYSTEMS INC.
                                          By: /s/ Scott Mac Caughern
                                          --------------------------------------
                                          Scott Mac Caughern
                                          Chairman of the Board, President,
                                          Chief Executive Officer and
                                          Acting Chief Financial Officer


                                       30
<PAGE>

      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.

Date: March 30, 2004                      By: /s/ Scott Mac Caughern
                                              ---------------------------------
                                              Scott Mac Caughern
                                              Director and Chairman of the
                                              Board, Chief Executive Officer and
                                              Acting Chief Financial Officer

Date : March 30, 2004                     By: /s/ Michael Liccardo
                                              ---------------------------------
                                              Michael Liccardo, Director


           SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
     PURSUANT TO SECTION 15(D) OF THE EXCHANGE ACT BY NON-REPORTING ISSUERS

The Company did not provide any annual report to security  holders  covering the
registrant's  last  fiscal year or any proxy  statement,  form of proxy or other
proxy  soliciting  material have been sent to more than ten of the  registrant's
security  holders  with  respect  to any  annual or other  meeting  of  security
holders.


                                       31


                       AMNIS SYSTEMS, INC. AND SUBSIDIARY

                        CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002


                                      INDEX

                                                                        Page

INDEPENDENT AUDITORS' REPORT

      Report on Audited Consolidated Financial Statements                F-1

FINANCIAL STATEMENTS

      Consolidated Balance Sheet as of December 31, 2003                 F-2

      Consolidated Statements of Operations for the Years
        Ended December 31, 2003 and 2002                                 F-3

      Consolidated Statement of Stockholders' Deficit for the Years
        Ended December 31, 2003 and 2002                                 F-4

      Consolidated Statements of Cash Flows for the Years
        Ended December 31, 2003 and 2002                                 F-5

      Notes to Consolidated Financial Statements                     F-6 to F-22


<PAGE>

                          INDEPENDENT AUDITORS' REPORT


TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
AMNIS SYSTEMS, INC. AND SUBSIDIARY
MOUNTAIN VIEW, CALIFORNIA

We have audited the  accompanying  consolidated  balance sheet of Amnis Systems,
Inc.  and  Subsidiary  as of December  31,  2003,  and the related  consolidated
statements of operations,  stockholders'  deficit and cash flows for each of the
two years in the period ended December 31, 2003.  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 audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain reasonable  assurance about whether the consolidated
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  consolidated  financial  statements.  An audit also includes  assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall  consolidated  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 Amnis
Systems,  Inc. and  Subsidiary  as of December 31,  2003,  and the  consolidated
results  of their  operations  and their cash flows for each of the two years in
the period ended  December 31, 2003, in conformity  with  accounting  principles
generally accepted in the United States of America.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going  concern.  As discussed in Note 1, the
Company has incurred net losses and negative  cash flows from  operations  since
its inception,  has a working capital deficit and  stockholders'  deficit and no
operations. These conditions raise substantial doubt about the Company's ability
to continue as a going  concern.  Management's  plans in regard to these matters
are also  described  in Note 1. The  consolidated  financial  statements  do not
include any adjustments that might result from the outcome of this uncertainty.


/s/ Stonefield Josephson, Inc.
STONEFIELD JOSEPHSON, INC.
Certified Public Accountants


Santa Monica, California
February 25, 2004

<PAGE>

<TABLE>
<CAPTION>


                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 2003


                                                                                     AMNIS SYSTEMS INC. AND SUBSIDIARY

                                                                                            CONSOLIDATED BALANCE SHEET

                                                                                                     DECEMBER 21, 2003
ASSETS

CURRENT ASSETS:
    <S>                                                                                                   <C>
       Cash and cash equivalents                                                                           $   453,434
       Accounts receivable, net of allowance for doubtful accounts of $ 150,400                                 81,564
       Inventories, net of reserve of $768,651                                                                  46,000
       Prepaid expenses and other current assets                                                                68,527
                                                                                                           -----------
              Total current assets                                                                             649,525
                                                                                                           -----------

PROPERTY AND EQUIPMENT, less accumulated depreciation of $1,409,566                                                  -

DEBT ISSUANCE COSTS                                                                                            158,475
                                                                                                           -----------
              Total assets                                                                                 $   808,000
                                                                                                           -----------

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
       Stockholders' notes payable                                                                         $   105,000
       Accounts payable                                                                                      1,969,528
       Accrued salaries                                                                                      1,528,537
       Accrued vacation                                                                                        245,796
       Accrued interest payable                                                                                411,699
       Convertible notes payable, current portion (net of discount of $306,759)                                559,430
       Deferred revenue                                                                                         95,096
       Accrued warrant liability                                                                                     0
       Other accrued expenses                                                                                1,390,188
                                                                                                           -----------

              Total current liabilities                                                                      6,305,274

LONG-TERM LIABILITIES:
       Deferred revenue                                                                                         79,151
       Convertible notes payable, long-term portion (net of discount of 1,079,014)                           2,012,869
                                                                                                           -----------
              Total liabilities                                                                              8,397,294
                                                                                                           -----------

STOCKHOLDERS' DEFICIT:
       Preferred stock, $0.0001 par value; 20,000,000 authorized: none issued or outstanding                        --
       Common stock, $0.0001 par value:
         Authorized - 800,000,000 shares;
         Issued and outstanding - 249,410,865  shares                                                           24,941
       Additional paid-in capital                                                                           30,434,583
       Accumulated deficit                                                                                  38,048,818)
                                                                                                           -----------
              Total stockholders' deficit                                                                   (7,589,294)
                                                                                                           -----------
              Total liabilities and stockholder's deficit                                                  $   808,000
                                                                                                           -----------

                      The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>


                                       F-2
<PAGE>

<TABLE>
<CAPTION>

                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
                                                                                     AMNIS SYSTEMS INC. AND SUBSIDIARY

                                                                                 CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                                             December 31
                                                                                --------------------------------------
For the year ended                                                                 2003                       2002
                                                                                -----------                -----------

<S>                                                                           <C>                        <C>
SALES                                                                           $ 1,514,548                $ 2,240,135

COST OF GOODS SOLD                                                                1,084,067                  1,754,942
                                                                                -----------                -----------

          Gross profit                                                              430,481                    485,193
                                                                                -----------                -----------

OPERATING EXPENSES
      Research and development                                                    1,091,393                  1,237,607
      Sales and marketing                                                           798,225                  1,762,757
      General and administrative                                                  3,116,345                  2,470,107
                                                                                -----------                -----------

              Total operating expenses                                            5,005,963                  5,470,471
                                                                                -----------                -----------

              Loss from operations                                               (4,575,482)                (4,985,278)

OTHER INCOME (EXPENSE)
      Interest expense, net                                                        (492,594)                  (485,999)
      Amortization of discount on convertible notes payable                      (1,937,982)                (3,858,770)
      Financing costs                                                            (1,238,540)                (2,115,073)
      Gain on extinguishment of accounts payable                                          -                  1,115,787
      Change in fair value of detachable warrants                                  (299,831)                 1,055,504
      Loss on restructuring of business                                            (892,524)                         -
      Other, net                                                                     (1,036)                   329,955
                                                                                -----------                -----------

               Total other income (expense)                                      (4,862,507)                (3,958,596)
                                                                                -----------                -----------

Net loss before taxes                                                            (9,437,989)                (8,943,874)
                                                                                -----------                -----------

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

NET LOSS                                                                        $(9,437,989)               $(8,943,874)
                                                                                -----------                -----------

BASIC AND DILUTED LOSS PER COMMON SHARE                                         $     (0.08)               $     (0.26)
                                                                                -----------                -----------

WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC & DILUTED                           118,340,630                 34,698,065
                                                                                -----------                -----------

          The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>



                                       F-3
<PAGE>

<TABLE>
<CAPTION>
                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
                        AMNIS SYSTEMS INC. AND SUBSIDIARY

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT

                                                                                      Additional                         Total
                                                                      Common Stock     Paid-In       Accumulated      Stockholders'
                                                               Shares        Amount    Capital         Deficit          Deficit

<S>                                                        <C>            <C>      <C>            <C>             <C>
BALANCE, DECEMBER 31, 2001, AS RESTATED (NOTE 16)            12,947,082     $ 1,294  $12,168,525    $(19,666,955)   $ (7,497,136)

  Sale of common stock, net of offering costs                 3,000,000        300     1,189,706                       1,190,006

  Issuance of common stock for services                       5,291,858        529       534,115                         534,644

  Exercise of stock options                                     386,388         39       150,371                         150,410

  Issuance of common stock for compensation                   3,207,108        321     1,328,406                       1,328,727

  Issuance of common stock for conversion of notes payable   39,399,267      3,940     2,821,950                       2,825,890

  Issuance of common stock for financing cost                 2,062,500        206       288,544                         288,750

  Beneficial conversion feature of convertible note payable                            3,977,596                       3,977,596

  Net loss                                                                                            (8,943,874)     (8,943,874)
--------------------------------------------------------------------------------------------------------------------------------

BALANCE, DECEMBER 31, 2002                                   66,294,203    $ 6,629   $22,459,213    $(28,610,829)    $(6,144,987)

  Issuance of common stock for conversion of notes payable
    and related accrued interest                            145,459,787     14,547     2,770,839                       2,785,386

  Issuance of common stock for services                      19,561,118      1,956       783,012                         784,968

  Issuance of common stock for exercise of options
    and warrants                                             10,773,000      1,077       529,843                         530,920

  Issuance of common stock for compensation                   7,322,757        732       232,921                         233,653

  Beneficial conversion feature of convertible note payable                            2,277,120                       2,277,120

  Black sholes valuation of warrant repricing                                            283,214                         283,214

  Value of warrants issued for services                                                                  451,706         451,706

  Reclass of value of warrants from liability due to
    underlying shares being registered on Form SB-2                                                      646,715         646,715

  Net loss                                                                                            (9,437,989)     (9,437,989)
--------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2003                                  249,410,865    $24,941   $30,434,583    $(38,048,818)    $(7,589,294)
================================================================================================================================

                        The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>


                                      F-4
<PAGE>

<TABLE>
<CAPTION>
                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002


                                                                               AMNIS SYSTEMS INC. AND SUBSIDIARY

                                                                           CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                                                       December 31
                                                                       -----------------------------------------
For the years ended                                                       2003                           2002
                                                                       -----------                   -----------

CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                    <C>                           <C>
 Net loss                                                              $(9,437,989)                  $(8,943,874)
 Adjustments to reconcile net loss to
   net cash used in operating activities:
       Common stock and options issued for services                        784,968                       534,644
       Value of warrants issued for services                               451,706
       Common stock issued for financing costs                                                           288,750
       Repricing value of warrants for financing costs                     283,214
       Employee salaries exchanged for stock                               233,653                     1,328,727
       Depreciation and amortization                                        49,028                        60,909
       Amortization of discount on convertible notes payable             1,937,982                     3,858,770
       Bad debt expense                                                     47,400
       Income in inventory reserve                                         484,788
       Amortization of debt issuance costs                                  39,160                             -
       Loss on disposal of property and equipment                           96,994                         1,627
       Change in fair value of warrant liability                           299,831                    (1,055,504)
       Gain on extinguishment of debt                                            -                    (1,115,787)
 (Increase) decrease in accounts receivable                                183,139                        44,414
 (Increase) decrease in inventories                                         30,212                        63,056
 (Increase) decrease in prepaid expenses and other assets)                  (6,200)                      105,483
 Increase (decrease) in accounts payable                                   351,713                       359,028
 Increase (decrease) in accrued salaries                                   951,644                      (189,393)
 Increase (decrease) in accrued vacation                                    32,961                       (61,998)
 Increase in accrued interest payable                                      415,417                       342,421
 Decrease in deferred rent                                                       -                      (123,657)
 Increase (decrease) in deferred revenue                                    17,525                        97,627
 Increase (decrease) in warrant liabiliy
 Increase (decrease) in other accrued expenses                             923,916                     1,527,298
 Decrease in sublease deposit                                                    -                       (72,800)
                                                                       -----------                   -----------

 Net cash used in operating activities                                  (1,828,938)                   (2,950,259)
                                                                       -----------                   -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
 Purchases of property and equipment                                       (37,249)                      (19,518)
                                                                       -----------                   -----------

 Net cash used in investing activities                                     (37,249)                      (19,518)
                                                                       -----------                   -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
                                                                                 -                             -
 Proceeds from financing obligations
  collateralized by accounts receivable                                    878,371                     1,578,031
 Payments on financing obligations
  collateralized by accounts receivable                                 (1,264,640)                   (1,689,648)
 Payment of debt issuance costs                                           (262,500)                            -
 Proceeds from issuance of common stock                                                                2,170,397
 Proceeds from the exercise of options and warrants                        530,920                             -
 Proceeds from convertible debentures                                    2,350,000                       950,000
                                                                       -----------                   -----------

       Net cash provided by financing activities                         2,232,151                     3,008,780
                                                                       -----------                   -----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                       365,964                        39,003

CASH AND CASH EQUIVALENTS, beginning of period                              87,470                        48,467
                                                                       -----------                   -----------

CASH AND CASH EQUIVALENTS, end of period                               $   453,434                   $    87,470
                                                                       ===========                   ===========

NON CASH INVESTING AND FINANCING ACTIVITIES:
 Debt and accrued interest exchanged for common stock                  $ 2,785,386                   $   140,736
 Financing cost covered by convertible notes                               910,120                     2,435,154
 Financing cost covered by issuance of common stock                        266,874
 Note payable and interest
  in exchange for convertible note payable                                 119,731                     3,547,920
 Stockholder purchase of financing obligation from bank                    531,397                             -

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid for income taxes                                           $         -                   $     2,400
  Cash paid for interest                                               $         -                   $   268,005
                                                                       ===========                   ===========

            The accompanying notes are an integral part of these consolidated financial statements.

</TABLE>


                                       F-5

                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002


NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

      Organization and Line of Business

      Amnis Systems Inc. ("Amnis"), a Delaware corporation, and its wholly owned
      subsidiary,  Optivision, Inc. ("Optivision") (collectively the "Company"),
      makes  hardware and software  products for the  creation,  management  and
      transmission  of compressed  high-quality  video over  broadband  computer
      networks.  The Company's network video products are distributed  primarily
      in the United States of America,  Europe,  and Pacific Rim countries  both
      directly and through leading industry partners.  The Company considers its
      operations  to be  one  segment  for  reporting  purposes.  The  Company's
      products  are used in  diverse  applications  such as  distance  learning,
      corporate training, video courier services, telemedicine, surveillance and
      visual collaboration.

      Amnis was formed on July 29, 1998.  On April 16,  2001,  Amnis merged with
      Optivision, an operating company, in an exchange of common stock accounted
      for as a  recapitalization  of Optivision.  Under the terms of the merger,
      each issued and outstanding share of Optivision common stock was converted
      into  the  right to  receive  0.10  shares  of Amnis  common  stock;  each
      outstanding but unexercised  option or warrant to purchase common stock of
      Optivision  was converted  into an option or warrant to acquire the number
      of shares of Amnis common stock equal to the product of 0.10 multiplied by
      the  number of shares of  Optivision  common  stock  that  would have been
      obtained before the merger. In accounting for this transaction:

o     Optivision  is  deemed  to be the  purchaser  and  surviving  company  for
      accounting  purposes.  Accordingly,  its net  assets are  included  in the
      balance  sheet  at  their  historical  book  values  and  the  results  of
      operations of Optivision  have been  presented for the  comparative  prior
      period;

o     Control of the net assets and  business  of Amnis was  acquired  effective
      April 16, 2001.  This  transaction has been accounted for as a purchase of
      the assets and liabilities of Amnis by Optivision.  The historical cost of
      the net assets assumed was $0.

      Restructuring

      On  January  28,  2004,  the  Company   announced  a  complete   corporate
      restructuring  and the cessation of all its  operations.  Inventories  and
      property and equipment have been written down to there  estimated  salvage
      values at December 31, 2003.  The effect of these write downs is reflected
      as a  restructuring  loss  line  item  in the  consolidated  statement  of
      operations  (see Note 15 for  details).  In January  2004 we entered  into
      negotiation  to  acquire  Corridor  Communications,  a  wireless  fidelity
      internet service  provider,  Quik Internet,  an Internet Service Provider,
      and  AshCreek  Wireless,  all located in Salem,  Oregon.  The terms of the
      agreement  are  subject  to  Corridor  and  the  Company  entering  into a
      definitive agreement. At this time we cannot provide any guarantee that we
      will be able to complete the transaction, as the transaction is subject to
      extensive due diligence and the negotiation and finalizing of a definitive
      agreement.

      Basis of Presentation

      The accompanying  consolidated  financial statements have been prepared in
      conformity with  accounting  principles  generally  accepted in the United
      States of  America,  which  contemplate  continuation  of the Company as a
      going  concern.  The  Company  incurred  net  losses  for the years  ended
      December 31, 2003 and 2002 of $9,154,775 and $8,943,874, respectively, and
      at December 31, 2003, had a working  capital deficit of $5,655,749 and has
      no  operations.  These  conditions  raise  substantial  doubt  as  to  the


                                       F-6
<PAGE>

                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

      Company's  ability to  continue  as a going  concern.  These  consolidated
      financial statements do not include any adjustments that might result from
      the outcome of this uncertainty.  These consolidated  financial statements
      do  not  include  any  adjustments  relating  to  the  recoverability  and
      classification of recorded asset amounts, or amounts and classification of
      liabilities  that  might be  necessary  should  the  Company  be unable to
      continue as a going concern.

      The Company  plans to take the  following  steps that it believes  will be
      sufficient  to  provide  the  Company  with the  ability  to  continue  in
      existence:  The Company has recently  announced  its  intention to acquire
      Corridor  Communications Corp.,  Ashcreek Wireless and Quik Internet.  The
      Company  has  received  $ 300,000  in  additional  funding  from  existing
      investors in 2004 and is currently  negotiating  for  additional  funds of
      approximately  $1.5  million  from this same  investor  base.  The Company
      expects to close this round of  financing in the first week in April 2004.
      The Company believes that with the new acquisition and sufficient  capital
      to fund  operations  that the Company  will be able to achieve  profitable
      operations,  but there can be no assurance  that the Company will generate
      positive cash flows from  operations  sufficient to sustain  operations in
      the near term.

      Principles of Consolidation

      The accompanying consolidated financial statements include the accounts of
      the  Company  and  its  wholly  owned  subsidiary,  Optivision,  Inc.  All
      inter-company accounts and transactions have been eliminated.

      Use of Estimates

      The  preparation  of financial  statements in conformity  with  accounting
      principles  generally  accepted in the United  States of America  requires
      management  to make  estimates  and  assumptions  that affect the reported
      amounts of assets and liabilities and disclosures of contingent assets and
      liabilities  at the  date of the  financial  statements  and the  reported
      amounts of  revenue  and  expenses  during the  reporting  periods.  As of
      December 31, 2003 and 2002, the Company used estimates in determining  the
      realization   of   its   accounts   receivable,   inventory   write-downs,
      depreciation  and   amortization,   sales  returns,   deferred  taxes  and
      contingencies. Actual results could differ from these estimates.

      Fair Value of Financial Instruments

      For  certain  of the  Company's  financial  instruments,  including  cash,
      accounts receivable,  accounts payable and accrued expenses,  the carrying
      amounts approximate fair value due to their short maturities.  The amounts
      shown  for  convertible   debentures,   and  financing   obligations  also
      approximate fair value because current interest rates and terms offered to
      the Company are at the current market rate.

      Cash and Cash Equivalents

      For purposes of the  statements  of cash flows,  the Company  defines cash
      equivalents as all highly liquid debt instruments  purchased with original
      maturities of three months or less.

      Concentration of Credit Risk

      Financial   instruments,   which   potentially   subject  the  Company  to
      concentrations  of credit risk,  consist of cash and cash  equivalents and
      accounts  receivables.  The  Company  places  its cash with  high  quality
      financial  institutions  and at times  cash  balances  may exceed the FDIC
      $100,000   insurance  limit.  The  Company  extends  credit  based  on  an
      evaluation  of  the  customer's  financial  condition,  generally  without


                                      F-7
<PAGE>

                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

      collateral.  Exposure to losses on receivables is principally dependent on
      each customer's financial condition. The Company monitors its exposure for
      credit  losses  and  maintains   allowances  for  anticipated  losses,  if
      required.

      During 2003,  five  customers  accounted  for 43% of net  revenues.  As of
      December  31,  2003,   approximately  82%  of  accounts   receivable  were
      concentrated  with five customers.  During 2002, five customers  accounted
      for 43% of net revenues.  To reduce credit risk relating to all customers,
      the Company  performs ongoing credit  evaluations of customers'  financial
      conditions  and  limits  the  amount of credit  extended  when  considered
      necessary,  but generally  requires no collateral  on product  sales.  The
      Company  maintains  allowances  for  estimated  bad debt losses to address
      potential  undetected  credit  risks.  The  Company is not able to predict
      changes in the financial  stability of its customers.  Any material change
      in the  financial  status of any one or a group of customers  could have a
      material adverse effect on the Company's  results of operations.  Although
      such losses have been within management's  expectations to date, there can
      be no assurance  that such  reserves  will  continue to be  adequate.  The
      Company's  contract  receivable  is  unsecured.  However,  credit  risk is
      substantially mitigated by the Company's timely collection procedures.

      Inventories

      Inventories  are  stated at the  lower of cost  (first-in,  first-out)  or
      market. A provision has been made to reduce obsolete  inventories to their
      net realizable  value.  Inventories  contain  components and assemblies in
      excess  of the  Company's  current  estimated  requirements  and these are
      reserved for at December 31, 2003. Due to competitive and market pressures
      the Company  ceased its video  operations in January 2004 and  accordingly
      has reduced  inventory to the estimated  realizable value of $46,000 based
      upon purchase orders with two customers.

      Property and Equipment

      Property and equipment are stated at cost.  Depreciation  and amortization
      are computed using the  straight-line  method over the estimated  lives of
      the assets, which range from two to seven years. Amortization of leasehold
      improvements is provided on the straight-line basis over the lesser of the
      lease term or the estimated useful lives of the assets.

      Expenditures  for  maintenance  and repairs are charged to  operations  as
      incurred while renewals and betterments are capitalized.  Gains and losses
      on disposals are included in the results of operations.

      As a result of the  Company's  decision to cease its video  operations  in
      January  2004 all  associated  equipment  has been  reduced  to zero which
      represents  the  estimated  realizable  value  and  included  in  Loss  on
      discontinuance of business.

      Stock-Based Compensation

      The Company  grants stock options with an exercise price equal to at least
      the fair value of the stock at the date of grant.  The Company has elected
      to continue to account for its employee  stock- based  compensation  plans
      using  an  intrinsic   value-based  method  of  accounting  prescribed  by
      Accounting  Principles Board Opinion No. 25,  "Accounting for Stock Issued
      to Employees" (APB 25) and related Interpretations.  Under APB 25, because
      the  exercise  price of the  Company's  employee  stock  options  equal or
      exceeds the market price of the underlying  stock on the date of grant, no
      compensation  expense is  recognized.  The Company  does  present in a pro


                                      F-8
<PAGE>

                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

      forma disclosure the compensation  expense that would have been recognized
      if the fair value methodology prescribed by SFAS No. 123 had been used.

      In  accordance  with SFAS No. 123,  the Company  recognized  $784,968  and
      $534,644  of  expense  for the year  ended  December  31,  2003 and  2002,
      respectively, related to stock options granted to outside consultants.

      The Company has adopted only the  disclosure  provisions  of SFAS No. 123,
      "Accounting  for   Stock-Based   Compensation."   It  applies   Accounting
      Principles  Bulletin ("APB") Opinion No. 25,  "Accounting for Stock Issued
      to  Employees,"  and related  interpretations  in accounting for its Stock
      Option  Plan and does not  recognize  compensation  expense  for its Stock
      Option Plan other than for restricted  stock and options issued to outside
      third  parties.  If the  Company  had  elected to  recognize  compensation
      expense  based upon the fair value at the grant date for awards  under the
      Stock Option Plan consistent  with the methodology  prescribed by SFAS No.
      123, the Company's net loss and loss per share would be reduced to the pro
      forma amounts  indicated  below for the years ended  December 31, 2003 and
      2002:

                                                      2003            2002
                                                 ------------    --------------
      Net loss:
      As reported                                $ (9,154,775)   $   (8,943,874)
        Option expense                           $   (149,375)   $     (638,284)
      Pro forma                                  $ (9,304,150)   $   (9,582,158)
      Basic and diluted loss per common share:
        As reported                              $      (0.08)   $        (0.26)
      Pro forma                                  $      (0.08)   $        (0.28)

      The fair value for these  options was estimated at the date of grant using
      a Black-Scholes  option pricing model with the following  weighted-average
      assumptions for the years ended December 31, 2003 and 2002,  respectively:
      risk-free  interest rate of 3.0% and 3.5%;  dividend  yields of 0% and 0%;
      volatility  factors of the expected  market price of the Company's  common
      stock of 735% and 137%; and a weighted average expected life of the option
      of 1.5 and 4 years.

      The  Black-Scholes  option  valuation  model  was  developed  for  use  in
      estimating  the  fair  value  of  traded  options  which  have no  vesting
      restrictions  and are fully  transferable.  In addition,  option valuation
      models require the input of highly  subjective  assumptions  including the
      expected  stock price  volatility.  Because the Company's  employee  stock
      options have characteristics  significantly different from those of traded
      options,  and because  changes in the  subjective  input  assumptions  can
      materially affect the fair value estimate,  in management's  opinion,  the
      existing  models do not  necessarily  provide a reliable single measure of
      the fair value of employee stock options.

      Revenue Recognition

      The Company  recognizes  revenue in compliance  with Security and Exchange
      Commission  Staff  Accounting  Bulletin No. 101,  "Revenue  Recognition in
      Financial  Statements" and Statement of Position (SOP) 97-2, as amended by
      SOP 98-9, "Software Revenue Recognition," as applicable, as follows:


                                      F-9
<PAGE>

                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

      o     Revenues from product  sales,  both hardware and software,  to Value
            Added Resellers (VAR),  Original Equipment  Manufacturers (OEM), and
            end users are recognized upon shipment to the customer, whereby risk
            of loss has been transferred to the customer and the price and terms
            have been fixed.

      o     The Company further recognizes revenues from warranty contracts on a
            straight-line  basis over the contractual life of the warranty which
            ranges  between  1 and 3  years.  The  unrecognized  balance  of the
            warranty is recorded as long-term or short-term  deferred revenue on
            the consolidated  balance sheet.  Management is currently attempting
            to locate a company to assume servicing of the contracts.

      Shipping and Handling

      Shipping  and  handling  costs  charged to  customers  are  recognized  as
      revenue. The related costs are charged to cost of sales.

      Advertising and Marketing Costs

      The Company  expenses  costs of  advertising  and  marketing  as incurred.
      Advertising  and marketing  expense for the years ended  December 31, 2003
      and 2002 was insignificant.

      Income Taxes

      The Company  accounts  for income taxes in  accordance  with SFAS No. 109,
      "Accounting  for  Income  Taxes."  Deferred  taxes  are  provided  on  the
      liability method whereby deferred tax assets are recognized for deductible
      temporary  differences,  and deferred tax  liabilities  are recognized for
      taxable temporary  differences.  Temporary differences are the differences
      between  the  reported  amounts  of assets and  liabilities  and their tax
      bases.  Deferred tax assets are reduced by a valuation  allowance when, in
      the opinion of management, it is more likely than not that some portion or
      all of the deferred  tax assets will be realized.  Deferred tax assets and
      liabilities  are adjusted for the effects of changes in tax laws and rates
      on the date of enactment.

      Earnings Per Share

      In accordance with SFAS No. 128,  "Earnings Per Share," the basic loss per
      common  share is  computed  by  dividing  net  loss  available  to  common
      stockholders by the weighted average number of common shares  outstanding.
      Diluted loss per common share is computed similar to basic loss per common
      share  except that the  denominator  is increased to include the number of
      additional common shares that would have been outstanding if the potential
      common  shares had been issued and if the  additional  common  shares were
      dilutive.  At  December  31, 2003 and 2002,  the  Company had  outstanding
      warrants and options to purchase  shares of common stock of  51,170,901and
      18,536,935, respectively, which were antidilutive.

      Comprehensive Income

      SFAS No. 130, "Reporting  Comprehensive Income," establishes standards for
      the reporting and display of  comprehensive  income and its  components in
      the financial  statements.  For the year ended December 31, 2003 and 2002,
      the Company had no items that represent  other  comprehensive  income and,
      accordingly,  has not included a Schedule of  Comprehensive  Income in the
      consolidated financial statements.


                                      F-10
<PAGE>

                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

           Discount on Convertible Debentures

           Discounts  on  convertible  debentures  are  principally  the  values
           attributed to the detachable  warrants  issued in connection with the
           convertible  debentures and the value of the preferential  conversion
           feature associated with the convertible  debentures.  These discounts
           are  accounted  for in  accordance  with  emerging  issues task force
           ("EITF")  00-27  "Application  of EITF  98-5 to  Certain  Convertible
           Instruments" issued by the Financial Accounting Standards Board.

           Accounting for Derivative Financial Instruments

           The  Company  follows  the  guidance  in EITF 00-19  "Accounting  for
           Derivative Financial  Instruments Indexed to, and Potentially Settled
           in, A Company's Own Stock" in recording  accrued warrant  liabilities
           for warrants issued in connection with convertible notes payable that
           have contain  registration rights. The classification of the warrants
           as a liability requires variable  accounting,  with re-measurement of
           the fair  value  of the  warrants  at each  balance  sheet,  with any
           adjustments reflected in earnings.

           Reclassification

           Where necessary certain  reclassifications have been made to the 2002
           balances to conform to the 2003 presentation.

           Recently Issued Accounting Pronouncements

           In December 2002, the FASB issued Statement No. 148,  "Accounting for
           Stock-Based  Compensation-Transition  and  Disclosure,"  which amends
           FASB Statement No. 123, Accounting for Stock-Based  Compensation,  to
           provide  alternative  methods of transition for a voluntary change to
           the fair value based method of accounting  for  stock-based  employee
           compensation.  In  addition,  this  Statement  amends the  disclosure
           requirements  of Statement 123 to require  prominent  disclosures  in
           both  annual and  interim  financial  statements  about the method of
           accounting for stock-based  employee  compensation  and the effect of
           the method used on reported  results.  The  transition  guidance  and
           annual  disclosure  provisions  of Statement  148 are  effective  for
           fiscal years ending after December 15, 2002, with earlier application
           permitted in certain circumstances. The interim disclosure provisions
           are effective for financial reports containing  financial  statements
           for interim  periods  beginning after December 15, 2002. The adoption
           of this  statement  did not have a material  impact on the  Company's
           consolidated financial position or results of operations.

           In  November  2002,  the FASB  issued  FASB  Interpretation  No.  45,
           "Guarantor's  Accounting and Disclosure  Requirements for Guarantees,
           Including Indirect  Guarantees of Indebtedness of Others" ("FIN 45").
           FIN 45 requires  that the  guarantor  recognize,  at the inception of
           certain guarantees,  a liability for the fair value of the obligation
           undertaken in issuing such guarantee. FIN 45 also requires additional
           disclosure  requirements  about  the  guarantor's  obligations  under
           certain  guarantees that it has issued.  The initial  recognition and
           measurement  provisions of this  interpretation  are  applicable on a
           prospective basis to guarantees issued or modified after December 31,
           2002 and the  disclosure  requirements  are  effective  for financial
           statement periods ending after December 15, 2002. The adoption of FIN
           45 did not have a material impact on the financial position,  results
           of operations or cash flows of the Company.

           In April 2003, the FASB issued SFAS No. 149,  "Amendment of Statement
           133 on Derivative Instruments and Hedging Activities". This Statement
           amends  and  clarifies   financial   accounting   and  reporting  for
           derivative  instruments,  including  certain  derivative  instruments
           embedded in other contracts (collectively referred to as derivatives)


                                      F-11
<PAGE>

                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

           and for  hedging  activities  under  SFAS No.  133,  "Accounting  for
           Derivative Instruments and Hedging Activities." This Statement amends
           Statement  133 for  decisions  made  (1) as  part of the  Derivatives
           Implementation  Group process that effectively required amendments to
           Statement 133, (2) in connection  with other Board  projects  dealing
           with financial instruments, and (3) in connection with implementation
           issues raised in relation to the  application  of the definition of a
           derivative,  in particular,  the meaning of an initial net investment
           that is smaller  than would be required  for other types of contracts
           that  would be  expected  to have a similar  response  to  changes in
           market factors, the meaning of underlying, and the characteristics of
           a derivative that contains financing components. The adoption of this
           pronouncement  did  not  have a  material  effect  on  the  financial
           statements of the Company.

           In May 2003,  the FASB issued SFAS No. 150,  "Accounting  for Certain
           Financial  Instruments with  Characteristics  of both Liabilities and
           Equity."  This  Statement  establishes  standards  for how an  issuer
           classifies   and  measures   certain   financial   instruments   with
           characteristics  of both liabilities and equity.  It requires that an
           issuer classify a financial  instrument that is within its scope as a
           liability  (or  an  asset  in  some  circumstances).  Many  of  those
           instruments  were  previously  classified  as  equity.  Some  of  the
           provisions  of  this  Statement  are  consistent   with  the  current
           definition of liabilities in FASB Concepts Statement No. 6, "Elements
           of Financial  Statements." The remaining provisions of this Statement
           are consistent with the Board's proposal to revise that definition to
           encompass  certain  obligations  that a reporting  entity can or must
           settle by issuing its own equity  shares,  depending on the nature of
           the relationship established between the holder and the issuer. While
           the Board still plans to revise that definition  through an amendment
           to Concepts No. 6, the Board decided to defer issuing that  amendment
           until it has  concluded its  deliberations  on the next phase of this
           project.  That next phase will deal with certain  compound  financial
           instruments   including  puttable  shares,   convertible  bonds,  and
           dual-indexed   financial   instruments.    The   adoption   of   this
           pronouncement  did  not  have a  material  effect  on  the  financial
           statements of the Company.

           In   January   2003,   the  FASB   issued   Interpretation   No.  46,
           "Consolidation  of Variable  Interest  Entities."  Interpretation  46
           changes the criteria by which one company  includes another entity in
           its consolidated financial statements.  Previously, the criteria were
           based on control through voting interest.  Interpretation 46 requires
           a variable  interest  entity to be  consolidated by a company if that
           company  is  subject  to a  majority  of the  risk of loss  from  the
           variable  interest  entity's  activities  or  entitled  to  receive a
           majority of the  entity's  residual  returns or both.  A company that
           consolidates  a  variable  interest  entity  is  called  the  primary
           beneficiary  of  that  entity.  The  consolidation   requirements  of
           Interpretation  46 apply  immediately to variable  interest  entities
           created after January 31, 2003. The consolidation  requirements apply
           to  older  entities  in the  first  fiscal  year  or  interim  period
           beginning after June 15, 2003. Certain of the disclosure requirements
           apply in all  financial  statements  issued  after  January 31, 2003,
           regardless  of when the  variable  interest  entity was  established.
           During  October  2003,  the FASB  issued  Staff  Position  No. FIN 46
           deferring  the effective  date for applying the  provisions of FIN 46
           until the end of the first  interim  or annual  period  ending  after
           December 31,  2003,  if the  variable  interest was created  prior to
           February  1, 2003 and the  public  entity  has not  issued  financial
           statements reporting such variable interest entity in accordance with
           FIN 46. On December 24, 2003, the FASB issued FASB Interpretation No.
           46  (Revised  December  2003),  Consolidation  of  Variable  Interest
           Entities, (FIN-46R), primarily to clarify the required accounting for
           interests in variable  interest  entities.  FIN-46R  replaces FIN-46,
           Consolidation  of  Variable  Interest  Entities  that was  issued  in
           January 2003.  FIN-46R exempts certain entities from its requirements
           and provides for special effective dates for entities that have fully
           or  partially  applied  FIN-46 as of December  24,  2003.  In certain
           situations,  entities  have the option of applying or  continuing  to
           apply  FIN-46 for a short  period of time  before  applying  FIN-46R.
           While FIN-46R modifies or clarifies various  provisions of FIN-46, it
           also incorporates many FASB Staff Positions  previously issued by the
           FASB.  The  Company  does not  anticipate  that the  adoption of this
           pronouncement will have a material impact on the Company's  financial
           position or results of operations.


                                      F-12
<PAGE>

                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

           In December 2003, the FASB issued a revised SFAS No. 132, "Employers'
           Disclosures about Pensions and Other  Postretirement  Benefits" which
           replaces  the  previously  issued  Statement.  The revised  Statement
           increases the existing  disclosures for defined benefit pension plans
           and other defined benefit  postretirement plans. However, it does not
           change the  measurement  or  recognition  of those  plans as required
           under SFAS No. 87, "Employers' Accounting for Pensions," SFAS No. 88,
           "Employers'  Accounting for Settlements  and  Curtailments of Defined
           Benefit  Pension Plans and for  Termination  Benefits,"  and SFAS No.
           106,  "Employers'  Accounting for Postretirement  Benefits Other Than
           Pensions." Specifically,  the revised Statement requires companies to
           provide  additional  disclosures  about pension plan assets,  benefit
           obligations, cash flows, and benefit costs of defined benefit pension
           plans and other defined benefit postretirement plans. Also, companies
           are required to provide a breakdown of plan assets by category,  such
           as debt,  equity and real  estate,  and to provide  certain  expected
           rates of return and target  allocation  percentages  for these  asset
           categories. The adoption of this pronouncement has no material impact
           to the Company's financial statements.

           In January 2003,  the  Financial  Accounting  Standards  Board (FASB)
           issued  FASB  Interpretation  No.  46,   "Consolidation  of  Variable
           Interest Entities,  an Interpretation of Accounting Research Bulletin
           (ARB) No. 51". This  interpretation  clarifies the application of ARB
           No. 51, "Consolidated  Financial Statements",  to certain entities in
           which  equity  investors  do  not  have  the   characteristics  of  a
           controlling  financial  interest or do not have sufficient  equity at
           risk for the  entity to finance  its  activities  without  additional
           subordinated  financial support from other parties. In December 2003,
           the FASB revised FASB  Interpretation  No. 46 (FIN 46R) which allowed
           companies with certain types of variable  interest  entities to defer
           implementation until March 31, 2004.


NOTE 2 - ACCOUNTS RECEIVABLE FINANCING

           In October 1998, Optivision entered into a financing arrangement with
           Pacific   Business   Funding  whereby  funds  were  borrowed  against
           receivables. Funding was based on 80% of qualified receivables. As of
           December 31, 2003, borrowings under this agreement were $0.0. Pacific
           Business  Funding has allowed the Company to exceed its credit  limit
           available on this  agreement  without any  penalties.  In May of 2003
           this financing arrangement was terminated and our investors purchased
           a the $531,397 note representing the balance in excess of collectible
           receivables along with a first security interest in all the company's
           assets. In October 2003 this note was converted to a convertible note
           payable  (see  Note 6) with the same  terms  as the  investors  other
           notes.


NOTE 3 - INVENTORIES

           Inventories at December 31, 2003 consisted of the following:

                Raw materials                                      $    470,382
                Work-in-process                                          72,446
                Finished goods                                          148,424
                Demonstration inventory                                 123,400
                                                                   ------------
                                                                        814,652
                Less reserve for inventory obsolescence due to
                 discontinuance of business (see Note 15)              (768,652)
                                                                   ------------

                                      F-13
<PAGE>

                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

           The  Company  has  determined  and  reserved  nearly the value of the
inventory as potentially  not realizable  due to the  restructuring  of business
which involves  discontinuance  of video operations as described in note 16. The
inventory  consists of 20 decoders and 20 encoders  that are completed and ready
for sale.  The Company is in the process of attempting to sell that inventory to
various   existing   customers  such  as  the  University  of  Hawaii  and  York
Communications.  The  customer's  only  interest is in  completed  product.  The
approximate  cost for each  decoder is $2,000 and $3,000 for each  encoder.  The
Company currently has two customers that have negotiated to purchase some amount
of the remaining finished stock as backup for their existing units approximating
$46,000.  The company has no definitive way of measuring the realizable value of
the inventory as a whole and no firm  prospect of a purchase  beyond the $46,000
at the present time.  Management  believes that the ultimate  disposition of the
remaining  inventory  will be for a nominal  amount based upon the present facts
and circumstances.


NOTE 4 - PROPERTY AND EQUIPMENT

Property and equipment consist of:

                Machinery and equipment             $   624,214
                Demonstration equipment                 179,670
                Furniture and fixtures                  287,009
                Leasehold improvements                  318,673
                                                    -----------
                Accumulated depreciation             (1,409,566)
                                                    -----------
                Total                               $        --

Depreciation  expense  was  $49,028  for the  year  ending  December  31,  2003.
Additionally, $96,994 has been charged to loss on restructuring of business (see
Note 15).


NOTE 5 - NOTES PAYABLE - STOCKHOLDERS

           Certain   stockholders  loaned  Optivision   unsecured  funds,  which
           amounted  to  $3,309,375  at  December  31,  2001.  These  loans bear
           interest at a rate of 10% per annum.  In January 2002 and March 2003,
           certain  of  these  notes   aggregating   $3,204,375   and  $119,791,
           respectively,  (see Note 6) were exchanged for convertible notes. The
           balance remaining at December 31, 2003 is $105,000.

NOTE 6 - CONVERTIBLE NOTES PAYABLE

            On December 28, 2001, the Company entered into an agreement to issue
            a  debenture,  bearing  interest at 12% per annum,  in the amount of
            $500,000,  with the right to convert the debt into common stock upon
            demand at a rate  equal to the  lesser of $0.385 per share or 70% of
            the three lowest  trading  prices over the previous 20 days trading.
            On January 3, 2002, the Company received  $500,000  pursuant to this
            debenture.  In  addition  to the  debenture,  the  lender was issued
            investment options to purchase,  at the applicable conversion price,
            one additional  share of common stock for each share of common stock
            owned upon  conversion  of the debenture and warrants to purchase up
            to 1,000,000  shares of common  stock at an exercise  price equal to


                                      F-14
<PAGE>

                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

            the lesser of $0.385 or the  average of the  lowest  trading  prices
            over the previous 20 days trading. This investment option expired in
            2003  due  to  the  company's  inability  to  execute  an  effective
            registration statement.  The debenture limits the ownership that can
            be acquired through this transaction to be no greater than 4.9% on a
            fully diluted basis.  Additional  warrants to purchase up to a total
            of 100,000 shares of common stock, at the same exercise price as the
            warrants  issued to the lender,  were  issued as a finder's  fee. In
            accordance with EITF 00-27,  the Company first  determined the value
            of the note and the fair value of the detachable  warrants issued in
            connection with this convertible  debenture.  The estimated value of
            the  warrants of $509,194  was  determined  using the  Black-Scholes
            option pricing model and the following assumptions: term of 2 years,
            a risk free  interest  rate of  4.00%,  a  dividend  yield of 0% and
            volatility of 212%.  The face amount of the note payable of $500,000
            was  proportionately  allocated to the note payable and the warrants
            is the amount of $247,722  and  $252,278,  respectively.  The amount
            allocated  to the warrants of $252,278 was recorded as a discount on
            the note payable and as accrued warrant liability in accordance with
            EITF  00-19  (see  Note 8) as these  warrants  contain  registration
            rights. The value of the note payable was then allocated between the
            note and the preferential  conversion feature,  which amounted to $0
            and $247,722, respectively. The combined total discount is $497,945,
            and will be amortized over the year life of the  debenture.  For the
            year  ended  December  31,  2003  and  2002  $247,945  and  $252,055
            respectively  has been  amortized  to interest  expense,  due to the
            passage of time.  None of the note balance under this  agreement has
            been  converted  into common stock as of December  31, 2002.  During
            2003 the investor  converted the full  principle  amount into common
            shares  in  accordance  with the  terms  of the  note.  The  Company
            initially did not register the shares  underlying  this  convertible
            debenture  per the terms of the  agreement and has accrued a penalty
            for this  non-registration  event  (see  Note 7).  The  company  did
            effectively   register  these  shares  and  warrants  under  a  SB-2
            registration statement that became effective September 5, 2003.

            On January 14, 2002,  the Company  issued a convertible  note in the
            principal  amount of $3,547,917 to Mr. Michael A.  Liccardo,  former
            president,  chief  executive  officer  and  chairman of the board of
            directors,  in  exchange  for  the  cancellation  of  certain  loans
            aggregating $3,204,375 and related accrued interest of $343,542 that
            Mr.  Liccardo had loaned to  Optivision  to meet  current  operating
            expenses. At any time, Mr. Liccardo may elect to convert the note to
            shares of the Company's common stock at $0.35 per share,  subject to
            adjustment related to the price of subsequent  securities  issuances
            by the Company to third parties. The convertible note bears interest
            at 10% per annum.  Since the  Company's  stock  price  exceeded  the
            conversion  price on the  transaction  date,  there  is an  embedded
            beneficial  conversion feature present in the convertible note which
            has been valued  separately.  As of January 14, 2002,  the intrinsic
            value of the  beneficial  conversion  feature  is  greater  than the
            proceeds allocated to the convertible note. On January 14, 2002, the
            Company  recorded a discount of  $3,547,917.  This discount is being
            amortized over the life of the convertible  note. For the year ended
            December 31, 2003 and 2002 $61,859 and $3,486,058,  respectively has
            been amortized to interest  expense,  due to the passage of time and
            conversions  into shares of common stock. In March 2003 expenses due
            Mr.  Liccardo which was  previously  classified as a note payable in
            the amount of $119,791 was exchanged for a convertible note with the
            same terms as the  January 14,  2002 note.  The  Company  recorded a
            discount  of $51,339  towards  this  note.  This  discount  is being
            amortized  over the one year  life of the note.  For the year  ended
            December  31, 2003 $38,504 has been  amortized  to interest  expense
            towards the March 2003 note due to the  passage of time.  During the
            year ended December 31, 2002,  principal and accrued interest in the
            amount of $2,435,154 and $114,846, respectively, were converted into
            39,123,377  shares  of the  Company's  common  stock.  During  2003,
            $112,000 of principle was converted  into  14,000,000  shares of the
            Company's common stock. The combined  principal balance of the notes
            at  December  31,  2003 is  $1,120,554.  with  accrued  interest  of
            $234,835.  The underlying shares on this note have not been included
            in any of the Company's SB-2 registration statements.


                                      F-15
<PAGE>

                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

            On June 18,  2002,  the  Company  issued  and sold two 12%  two-year
            Convertible Notes in the aggregate  principal amount of $450,000 and
            common stock purchase warrants  exercisable for up to 135,000 shares
            of common  stock,  subject to  adjustment  for,  among other things,
            capital  issuances  below  $0.13 per  share  and for  stock  splits,
            combination  or  reclassification  of the  Company's  stock to Alpha
            Capital Aktiengesellschaft and Stonestreet Limited Partnership, in a
            private  financing  transaction.  Each  note is  convertible  at the
            holder's  option at any time into  shares  of the  Company's  common
            stock at the lesser of a 30%  discount  to the average of the lowest
            three intraday  trading prices of the Company's  common stock during
            the 20 trading day  periods  ending on trading day prior to the date
            of conversion,  or $0.385 per share.  In accordance with EITF 00-27,
            the  Company  first  determined  the  value of the note and the fair
            value of the  detachable  warrants  issued in  connection  with this
            convertible  debenture.  The  estimated  value  of the  warrants  of
            $21,282 was determined using the Black-Scholes  option pricing model
            and the following assumptions: term of 2 years, a risk free interest
            rate of 4.00%,  a dividend  yield of 0% and  volatility of 242%. The
            face  amount of the note  payable of  $450,000  was  proportionately
            allocated  to the note  payable  and the  warrants  is the amount of
            $429,679  and  $20,321,  respectively.  The amount  allocated to the
            warrants of $20,321 was recorded as a discount on the notes  payable
            and as accrued warrant  liability in accordance with EITF 00-19 (see
            Note 8) as these warrants contain  registration rights. The value of
            the notes was then allocated  between the notes and the preferential
            conversion feature, which amounted to $0 and $429,679, respectively.
            The combined total discount is $450,000,  and will be amortized over
            the life of the debentures. For the year ended December 31, 2003 and
            2002,  respectively,  $271,204 and  $120,656  has been  amortized to
            interest expense,  due to the passage of time. The Company initially
            did not register the shares  underlying this  convertible  debenture
            per the terms of the  agreement  and has  accrued a penalty for this
            non-registration  event.  On September 5, 2003,  the Company's  SB-2
            registration   statement  became   effective   covering  the  shares
            underlying this note and the associated  warrants,  at this time the
            non-registration  penalty  stopped  accruing (see Note 7). The notes
            also contain a reset  provision.  As of December 31, 2003 there is a
            principle balance of $250,000.

            On May 9, 2003, the Company issued a 12% two-year  Convertible  Note
            in the principal amount of $910,120 in exchange for the reduction of
            the  value  (up to the May 9,  2003  date)  in the  reset  provision
            contained  in the June 18,  2002  note  agreement  to Alpha  Capital
            Aktiengesellschaft.  The note is convertible at the holder's  option
            at any time into shares of the Company's  common stock at the lesser
            of a 30%  discount  to the  average  of the  lowest  three  intraday
            trading  prices of the Company's  common stock during the 20 trading
            day periods  ending on trading day prior to the date of  conversion,
            or $0.385 per share. In accordance with EITF 00-27, the value of the
            note was allocated between the note and the preferential  conversion
            feature, which amounted to $520,069 and $390,051,  respectively. The
            discount  of  $390,051  will  be  amortized  over  the  life  of the
            debenture.  Of the  $390,051  discount,  as of  December  31,  2003,
            $125,926  has been  amortized to expense due to the passage of time.
            At December 31, 2003 none of the principle has been  converted.  The
            shares  underlying  this note were  registered with the September 5,
            2003 SB-2 registration statement.

            On May 9, 2003,  the  Company  issued  and sold  three 12%  two-year
            Convertible  Notes in the aggregate  principal  amount of $1,000,000
            and common stock purchase  warrants  exercisable for up to 5,000,000
            shares  of common  stock to Alpha  Capital  Aktiengesellschaft,  SDS
            Merchant  Fund  and  Bristol   Capital,   in  a  private   financing
            transaction.  Each note is convertible at the holder's option at any
            time into shares of the  Company's  common  stock at the lesser of a
            30%  discount to the average of the lowest  three  intraday  trading
            prices of the  Company's  common  stock  during the 20  trading  day
            periods  ending on trading day prior to the date of  conversion,  or
            $0.385 per share. In accordance  with EITF 00-27,  the Company first
            determined  the  value  of  the  note  and  the  fair  value  of the
            detachable  warrants  issued in  connection  with  this  convertible
            debenture.  The  estimated  value of the  warrants of  $249,705  was
            determined  using the  Black-Scholes  option  pricing  model and the
            following assumptions: term of 7 years, a risk free interest rate of


                                      F-16
<PAGE>

                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

            4.00%,  a  dividend  yield of 0% and  volatility  of 735%.  The face
            amount  of the  notes  payable  of  $1,000,000  was  proportionately
            allocated  to the note  payable  and the  warrants  in the amount of
            $800,188 and  $199,812,  respectively.  The amount  allocated to the
            warrants of $199,812  was recorded as a discount on the note payable
            and as accrued warrant  liability in accordance with EITF 00-19 (see
            Note 8) as these warrants contain  registration rights. The value of
            the note was then  allocated  between the note and the  preferential
            conversion  feature,   which  amounted  to  $171,804  and  $628,384,
            respectively.  The combined total discount is $828,196,  and will be
            amortized over the life of the debenture.  Of the $828,196 discount,
            as of December 31, 2003,  $631,911 has been amortized to expense due
            to the passage of time and conversion of principle.  The unconverted
            balance of these notes at December 31, 2003 is $350,000.  The shares
            underlying  this debenture and the warrants were registered with the
            Company's SB-2 registration  statement that became effective October
            10, 2003.

            On September  12, 2003,  the Company  issued and sold a 12% two-year
            Convertible  Note in the  principal  amount of  $250,000  and common
            stock purchase  warrants  exercisable for up to 1,250,000  shares of
            common  stock  to  Stonestreet  Limited  Partnership  in  a  private
            financing  transaction.  The  note is  convertible  at the  holder's
            option at any time into shares of the Company's  common stock at the
            lesser of a 35% discount to the average of the lowest three intraday
            trading  prices of the Company's  common stock during the 30 trading
            day periods  ending on trading day prior to the date of  conversion,
            or $0.05 per share. In accordance with EITF 00-27, the Company first
            determined  the  value  of  the  note  and  the  fair  value  of the
            detachable  warrants  issued in  connection  with  this  convertible
            debenture.  The  estimated  value of the  warrants  of  $87,413  was
            determined  using the  Black-Scholes  option  pricing  model and the
            following assumptions: term of 7 years, a risk free interest rate of
            4.00%,  a  dividend  yield of 0% and  volatility  of 735%.  The face
            amount of the note payable of $250,000 was proportionately allocated
            to the note  payable and the  warrants in the amount of $185,233 and
            $64,767,  respectively.  The amount  allocated  to the  warrants  of
            $64,767  was  recorded  as a  discount  on the note  payable  and as
            accrued warrant liability in accordance with EITF 00-19 (see Note 8)
            as these warrants contain registration rights. The value of the note
            was then allocated between the note and the preferential  conversion
            feature,  which  amounted  to $0  and  $185,233,  respectively.  The
            combined total discount is $250,000,  and will be amortized over the
            life of the debenture.  Of the $250,000 discount, as of December 31,
            2003,  $250,000 has been  amortized to expense due to the passage of
            time and conversion of the full principal balance of the note Shares
            and warrants  underlying  this debenture were registered on our SB-2
            registration statement that became effective October 10, 2003.

            In October  2003,  we entered into an agreement  with two  creditors
            whereby we agreed to pay the creditors,  in connection with a senior
            security  interest  in the amount of  $531,397,  in shares of common
            stock.  The note is convertible  at the holder's  option at any time
            into  shares of the  Company's  common  stock at the lesser of a 35%
            discount to the average of the lowest three intraday  trading prices
            of the  Company's  common  stock  during the 30 trading  day periods
            ending on trading day prior to the date of conversion,  or $0.05 per
            share.  The  preferential  conversion  feature,  which  amounted  to
            $286,137  recorded as a discount on the  convertible  debenture  and
            will be amortized  over the life of the  debenture.  Of the $286,137
            discount,  as of December  31, 2003,  $50,353 has been  amortized to
            expense due to the passage of time and conversion of Shares.  Shares
            underlying this debenture were  registered on our SB-2  registration
            statement  that  became  effective  October  10,  2003.  During 2003
            $35,000 was converted to shares.

            In November 2003, we entered into an additional  financing agreement
            with some of our current accredited investors,  pursuant to which we
            issued and sold 12% two-year secured  convertible  debentures in the
            principal  amount of $1,100,000  and 5,500,000  warrants to purchase
            shares of our common stock,  subject to an antidilution  adjustment.
            The debenture is convertible at the holder's option at any time into


                                      F-17
<PAGE>

                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

            shares  of our  common  stock at the  lesser  of $0.03 or 65% of the
            average of the three lowest  intraday  trading prices for the common
            stock on a principal  market for the 30 trading  days before but not
            including the conversion  date. In accordance  with EITF 00-27,  the
            Company first determined the value of the note and the fair value of
            the detachable  warrants issued in connection with this  convertible
            debenture.  The  estimated  value of the  warrants of  $165,000  was
            determined  using the  Black-Scholes  option  pricing  model and the
            following assumptions: term of 2 years, a risk free interest rate of
            4.00%,  a  dividend  yield of 0% and  volatility  of 803%.  The face
            amount  of  the  note  payable  of  $1,100,000  was  proportionately
            allocated  to the note  payable  and the  warrants  is the amount of
            $956,711 and  $143,289,  respectively.  The amount  allocated to the
            warrants of $143,289  was recorded as a discount on the note payable
            and as accrued warrant  liability in accordance with EITF 00-19 (see
            Note 8) as these warrants contain  registration rights. The value of
            the note was then  allocated  between the note and the  preferential
            conversion  feature,   which  amounted  to  $221,114  and  $735,597,
            respectively.  The combined total discount is $878,886,  and will be
            amortized  over  the  life  of the  debenture.  For the  year  ended
            December 31, 2003 $260,281 has been  amortized to interest  expense,
            due to the  passage of time and  conversion  of  principle  balance.
            During 2003 $269,000 was converted leaving a balance at December 31,
            2003 of $831,000.  Shares  underlying this debenture were registered
            on our SB-2  registration  statement that became effective  December
            12, 2003.

           Effective  with the  November  11,  2003  financing,  all  previously
           granted but  unexercised  warrants  exercise  prices were adjusted to
           three cents  ($0.03).  The Company has  recorded a charge to earnings
           for this adjustment  approximating  $283,214.  The fair value for the
           repricing was estimated using a Black-Scholes pricing model.

            Summary of convertible notes (net of discount) by year of issuance:

                                               Current         Long-term
                                               --------        ----------
            Notes issued in 2002               $191,860        $1,000,763
            Notes issued in 2003               $367,570        $1,012,106
                                               --------        ----------

            Totals                             $559,430        $2,012,869
                                               --------        ----------


            Convertible notes (gross) due during

            the year ended December 31,
            ---------------------------
                     2004                       $  866,189
                     2005                       $3,091,883
                                                ----------
                               Total            $3,958,072



                                      F-18
<PAGE>

                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

NOTE 7 - OTHER ACCRUED EXPENSES

           Other  accrued  expenses  at  December  31,  2003  consisted  of  the
           following:

<TABLE>
<CAPTION>
<S>                                                                           <C>
              Penalty for not registering shares issued in February 2002      $
              Net of $309,170 of converted penalties.                             226,120
              Penalty for not registering shares underlying
                 convertible debentures                                           334,087
              Value of reset option provision in June 18, 2002 agreement
              Net of restatement settlements of $1,291,441                        668,375
              Other                                                               161,606
                                                                              -----------
                                                                              $ 1,390,188
</TABLE>

NOTE 8 - ACCRUED WARRANT LIABILITY

           Under the terms the  convertible  debentures  issued on December  28,
           2001, June 18, 2002, May 2003, September 2003, and November 2003 (see
           Note 6), and the terms of the private placement in February 2002, the
           Company issued detachable warrants to purchase shares of common stock
           that had registration rights. As a result, and in accordance with the
           guidelines  of EITF  00-19,  the  fair  value  of the  warrants  were
           initially recorded as an accrued warrant liability.  Furthermore, the
           classification  of  the  warrants  as a  liability  require  variable
           accounting,  with  re-measurement  of the fair value of the  warrants
           using the Black-Scholes option pricing model at each balance sheet up
           until  registration  rights were deemed effective pursuant to an SB-2
           registration statement, with any adjustments reflected in earnings.

           The Company had three separate SB-2  registration  statements  become
           effective  September 5, 2003,  October 10, 2003 and December 12, 2003
           registering  many of the  underlying  shares and warrants  associated
           with the company's  convertible  debentures (see Note 6). As a result
           of the registration statements becoming effective, the Company has no
           remaining accrued warrant liability balance at December 31, 2003. The
           allocated  liability  related to the warrants was $47,076 at December
           31, 2002. For the years ended December 31, 2003 and 2002, the Company
           recorded ($299,831) and $1,055,504,  respectively, of other (expense)
           income for the change in fair value of the warrants.

NOTE 9 - STOCKHOLDERS' DEFICIT

           On  September  29,  2003  the  Company  amended  its  certificate  of
           incorporation  to increase the total number of shares  authorized  to
           820,000,000,  800,000,000 designated as common stock with a par value
           of $0.0001 and 20, 000,000  designated as preferred  stock with a par
           value of $0.0001.

           In February 2002, the Company  entered into financing  agreements for
           the sale of 2,250,000  shares of its common stock. The stock was sold
           in units,  which  include  ten  shares of common  stock,  subject  to
           adjustment related to stock price  fluctuations,  and a warrant,  for
           $8.00 each.  Each warrant  allows the holder to purchase three shares
           of  common  stock at  $0.90  per  share,  subject  to such  customary
           adjustment for stock splits,  combination or  reclassification of the
           Company's  capital  stock and the like.  The total  selling  price of
           these units was  $1,800,000  of which  $970,019 was  allocated to the
           common  stock  and  the  remaining  $829,981  was  allocated  to  the
           detachable warrants.  The allocation between the common stock and the
           warrants  was based on the fair value of the  Company's  stock at the


                                      F-19
<PAGE>

                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

           closing  date  ($0.71) and the  estimated  fair value of the warrants
           ($0.6075).  The estimated value of the warrants was determined  using
           the Black-Scholes option pricing model and the following assumptions:
           term of 2 years, a risk free interest rate of 4.00%, a dividend yield
           of 0% and volatility of 212%. The amount allocated to the warrants of
           $829,981 was recorded as accrued warrant  liability as these warrants
           contain   registration  rights.  On  June  18,  2002,  the  financing
           agreements  entered into in February  2002 were amended in connection
           with the June 18,  2002  convertible  debenture,  whereby the Company
           issued an additional  2,062,500 to the investor in connection  with a
           reset option feature in the February 2002 agreement.  The Company has
           recorded as financing costs, $288,750 in connection with the issuance
           of  these  additional  shares.  The  June  18,  2002  agreement  also
           contained a reset  option  provision  and the Company has  recorded a
           liability  of   $1,307,487  at  December  31,  2002  related  to  the
           additional  shares  that  could be  issued  in  accordance  with this
           provision  (See Note 7). The warrant  issued in  connection  with the
           February 2002 transaction was amended to reduce the exercise price to
           $0.13,  subject  to  adjustment  for,  among  other  things,  capital
           issuances below $0.13 per share and for stock splits,  combination or
           reclassification of the Company's stock and the like. The Company has
           recorded  a charge to  earnings  of $13,731  in  connection  with the
           repricing of the warrant. No additional  proceeds were received.  The
           Company did not  register the shares that were issued in the February
           2002  private  placement  offering  per  the  terms  of  the  private
           placement   agreement   and  has   accrued   a   penalty   for   this
           non-registration  event. The shares and warrants were registered with
           the  Company's  SB-2  registration  statement  that became  effective
           September 5, 2003.

           During the year ended December 31, 2003, the Company settled with its
           employees  for  unpaid  compensation  by issuing  7,322,757shares  of
           common  stock  from the  stock  options  plans in lieu of cash in the
           amount of $233,653. The number of shares issued equaled the amount of
           unpaid  compensation  divided  by the market  value of the  Company's
           stock on the  settlement  date.  In addition  the  Company  issued19,
           561,118  shares  of  common  stock in lieu of cash in the  amount  of
           $784,968  based  on the  market  price of the  shares  at the date of
           issuance, for consulting services.

           The company issued  10,773,000 shares for the exercise of options and
           warrants amounting to $530,920 of cash proceeds.

           In October 2003,  the Company's  Board of Directors  adopted the 2003
           Stock Plan.  50,000,000  shares are  authorized  for issuance.  Stock
           grants  during 2003 of 33,478,966  consisted of 29,590,966  under the
           employee back pay program and 3,888,000 to employees.

           During  2003  Convertible  Notes in the  amount  of  $2,785,386  were
           converted into 145,459,787 shares of common stock. (see note 6)

NOTE 10 - COMMITMENTS AND CONTINGENCIES

           Lease Commitments

           The  Company  leases  office  and   manufacturing   space,   under  a
           non-cancelable  operating lease,  which expired in December 2003. The
           Company is currently on a month-to-month  lease for this office space
           (see  Note  17).  Rental  expense  was  approximately   $260,650  and
           $1,249,000   for  the  years  ended   December  31,  2003  and  2002,
           respectively

           The Company  subleased a substantial  portion of this leased facility
           under an operating lease that expired February 2003.  Sublease income
           for the year ended December 31, 2003 and 2002 was approximately  $0.0
           and  $321,000,   respectively.  These  amounts  are  reflected  as  a
           reduction   of  rent  expense  on  the   consolidated   statement  of


                                      F-20
<PAGE>

                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

           operations.  As a result of the reduction of sublease  income in 2002
           and the  Company's  ongoing cash flow  problems,  a balance of unpaid
           lease  commitments  remained  at  December  31, 2003 in the amount of
           $732,000. A settlement was reached in January 2004 (see note 17).

           Litigation

           The Company is party to  litigation or other legal  proceedings  that
           management  considers  to be a part  of the  ordinary  course  of the
           Company's  business.  Management  believes  that the  outcome of such
           litigation  or legal  proceedings  will not have a  material  adverse
           effect on the Company's consolidated financial position or results of
           operations.

           Employment Agreements

           The Company has entered into  employment  agreements with certain key
           employees  with  original  terms  of  three  years.  These  employees
           terminated their  relationship in March,  April and November of 2003.
           At this time  under  the terms of the  agreements  the  company  owes
           collectively $632,014in severance compensation.

           Provision for Contract Costs

           Optivision's Small Business  Innovation Research (SBIR) contracts are
           subject to audit by the Defense Contract Audit  Association  ("DCAA")
           with respect to claims made by Optivision  under the SBIR  contracts.
           As of December 31,  2003,  final  audits of the  contracts  have been
           completed  and the  Company  has  been  assessed  $161,000  including
           accrued interest for overcharges during the years of 1997 and 1998.

           Guarantee to Federal Government for Contracts Assigned to ONI

           Certain government  contracts were assigned to ONI (a former division
           of  Optivision)  as  part  of  a  spin-off  during  1998.  After  the
           government   has  approved  the   assignment  of  contracts  to  ONI,
           Optivision,  as  transferor,  remains a guarantor  of the  successful
           completion of the  contracts by ONI. As of April 30, 1998,  the total
           contract  value of contracts  assigned to ONI,  which were subject to
           guarantee by the Company,  was  $7,047,000.  As of December 31, 2003,
           the Company has not determined which, if any, of these contracts have
           been  closed  and,  as a result,  what the  amount  of the  liability
           exposure  is.  However,  due to  the  passage  of  time  the  Company
           estimates that there will be no liability arising from the guarantee.

           Customer service contract liability:

           The Company has service contracts with a total outstanding  liability
           of approximately  $180K as of February 2004. The Company expects that
           a buyer of the intellectual property, should we be able to consummate
           a sale,  will assume this  liability  given that these  customers are
           vital to the  continuation  of this  business.  In the mean time, the
           Company is not providing technical support or other types of services
           under the service contracts.

           Product Development Contract:

           Associated with the  discontinuance of the streaming video operations
           is the  halting of the  Company's  new  product  development  under a
           contract with Creekside  Communications  Inc. of San Diego, CA. There
           is a  contractual  commitment to purchase 800 encoders at $1,650 each
           and 1,200 decoders at a to be determined price. The purchase of these


                                      F-21
<PAGE>

                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

           units is subject to  Creekside  completing  the  development  of such
           products.  At this  time,  these  products  have not been  completed.
           Assuming that Creekside  finishes  development  of the products,  the
           Company is not sure  whether it will be able to meet this  obligation
           at this time since it has  discontinued  operations  and  sales.  The
           Company is currently seeking a buyer for these operations and expects
           that the buyer will purchase encoders and decoders from Creekside, as
           there is no other  source.  The  Company  has  accrued  approximately
           $25,000 for certain expenses that were not reimbursed to Creekside as
           of December 31, 2003.

NOTE 11 - INCOME TAXES

           Deferred  income  taxes  reflect  the net tax  effects  of  temporary
           differences  between the carrying  amounts of assets and  liabilities
           for financial  statement purposes and the amounts used for income tax
           purposes.  Significant  components  of  the  Company's  deferred  tax
           liabilities and assets as of December 31, 2003 are as follows:


                  Deferred tax assets:
                     Federal net operating loss            $   12,840,000
                     State net operating loss                   2,524,000
                     Tax credits                                  185,000
                     Other                                         14,000
                                                           --------------
                     Total deferred tax assets                 15,563,000

                     Less valuation allowance                 (15,563,000)
                                                           --------------

                                                           $            -
                                                           ==============

           The increase in the valuation  allowance for the years ended December
           31, 2003 and 2002 was $3,937,000 and $3,572,000,  respectively.  This
           is as a result of the increase in net deferred tax assets,  primarily
           net  operating  loss carry  forwards  (NOL's).  Because the Company's
           management  has  determined  that it is highly  unlikely that the net
           deferred tax assets will be realized,  the Company has recorded a 100
           percent valuation allowance against the net deferred tax assets.

           Net  operating   loss  carry  forwards  at  December  31,  2003  were
           approximately  $37,800,000 for federal and state income tax purposes.
           The net operating loss carry forwards expire on various dates through
           the year 2018. The Internal  Revenue Code contains  provisions  which
           may limit the net  operating  loss carry  forwards  to be used in any
           given  year  upon the  occurrence  of  certain  events,  including  a
           significant  change  in  ownership  interest.  The  Company  believes
           sufficient  uncertainty  exists  regarding the reliability of the net
           operating loss carry forwards and other timing difference at December
           31, 2003.  Accordingly,  a valuation  allowance has been provided for
           the entire amount related thereto.

           The provision for income taxes are as follows:

           The  reconciliation  of the effective  income tax rate to the federal
           statutory  rate for the years ended  December 31, 2003 and 2002 is as
           follows:

                                                          2003          2002
                                                      ------------  ------------
                  Federal income tax rate                  (34.0%)       (34.0%)
                  State tax, net of federal benefit         (6.0%)        (6.0%)
                  Increase in valuation allowance           40.0%         40.0%
                                                      ------------  ------------
                  Effective income tax rate                  0.0%          0.0%
                                                      ============  ============


                                      F-22
<PAGE>

                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

           The income tax expense for the years ended December 31, 2003 and 2002
           reflect the minimum California state franchise tax.

NOTE 12 - EMPLOYEE BENEFITS

           The Company adopted  Optivision's profit sharing and 401(k) plan (the
           "Plan")  upon   consummation   of  the  business   combination   with
           Optivision.  Under  the  profit  sharing  portion  of the  Plan,  the
           Company, at the discretion of the Board of Directors,  may contribute
           5% to those  employees  meeting  minimum  age and  length of  service
           requirements.  The Company  recognizes  expenses as paid. The Company
           made no matching  contributions  during the years ended  December 31,
           2003 and 2002.

           Employees may make pre-tax contributions in amounts from 2% to 15% of
           compensation up to a pre-determined limit each year.

NOTE 13 - SALES BY REGION

           The  Company's  sales by  geographic  regions  are as follows for the
           years ended December 31, 2003 and 2002:

                                                 2003           2002
                                             ------------  ------------
                     United States           $  1,180,058  $  1,539,964
                     Hong Kong                          0        10,443
                     Canada                        47,119       284,476
                     Germany                       54,960       223,015
                     Other                        232,411       182,237
                                             ------------  ------------
                                             $  1,514,548  $  2,240,135
                                             ============  ============

NOTE 14 - GAIN ON EXTINGUISHMENT OF ACCOUNT PAYABLE

           In 2002,  the Company  successfully  negotiated a work-out  agreement
           plan with the  creditors of  Optivision  under which the Company will
           pay the creditors of Optivision  approximately  $0.35 for every $1.00
           owed   on   debt   listed   on  the   balance   sheet   as   accounts
           payable-moratorium.  In accordance  with the workout  agreement,  the
           debt was  settled in full in June 2002 and a gain of  $1,115,787  was
           recorded for the portion of the debt forgiven.

NOTE 15 - RESTRUCTURING OF BUSINESS

           On January  28,  2004 the  Company  announced  a  complete  corporate
           restructuring  and the  cessation of its  networked  streaming  video
           operations.  Accordingly, assets related to the video operations have
           been  written  down to salvage  value.  Inventories  and property and
           equipment  have been  written  down to $46,000  (see Note 3) and zero
           (see Note 4) respectively,  at December 31, 2003. The effect of these
           write downs due to the restructuring is summarized below. This amount
           is reflected as a loss on  restructuring of business line item in the
           consolidated statement of operations.


                                      F-23
<PAGE>

                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002


                     Inventory net of reserves        $ 796,205
                     Net fixed assets                    96,319
                                                      ---------
                                 Total                $ 892,524


NOTE 16 - STOCK OPTIONS AND WARRANTS

           Stock Options

           The Company  has four stock  option  plans:  the 1997 Stock Plan (the
           "1997 Plan"),  the 2000 Stock Plan (the "2000 Plan"),  the 2002 Stock
           Plan (the "2002  Plan")  and the 2003  Stock  Plan (the "2003  Plan")
           (collectively,  the  "Plans").  The 1997 Plan has  394,067  remaining
           shares  available for issuance.  The 2000 Plan has 513,303  remaining
           shares  available for issuance.  The 2002 Plan has 378,167  remaining
           shares available for issuance.  The 2003 Plan has 9,320,000 remaining
           shares  available for  issuance.  The Plans specify that the exercise
           price of Incentive  stock  options  (ISOs) will not be less than 100%
           (110% for 10%  stockholder) of fair market value on the date of grant
           and that the exercise price of Nonstatutory stock options (NSOs) will
           not be less  than 85%  (110% for a 10%  stockholder)  of fair  market
           value on the date of grant. Options granted under the Plans generally
           expire up to ten years from the date of grant  (five  years for a 10%
           stockholder)  and generally vest over four years.  Options granted in
           2003 were issued with terms of one and two years.

           Stock grants during 2003 of 33,478,966  consisted of 29,590,966 under
           the employee back pay program and 3,888,000 to employees.

           Stock option activity under the Plans is as follows:

                                                                      Weighted-
                                                        Stock          Average
                                                       Option         Exercise
                                                        Plan            Price
                                                    ------------      ----------

                   Balance, December 31, 2001         6,188,646        $  0.88
                   Granted                            8,847,000        $  0.07
                   Exercised                           (386,388)       $  0.39
                   Canceled                             (27,789)       $  1.52
                                                    -----------
                   Balance, December 31, 2002        14,621,469        $  0.40

                   Granted                           33,478,966        $  0.03
                   Exercised                         (7,498,000)       $  0.03
                   Canceled                          (4,922,000)       $  0.84
                                                    ------------
                   Balance, December 31, 2003        35,680,435        $  0.07
                                                    ============


           The  following  table  summarizes  information  about  stock  options
           outstanding at December 31, 2003:


                                      F-24
<PAGE>

                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002


                              Options
                              Weighted     Weighted                    Weighted
 Exercise                     Average      Average                     Average
  Price         Shares      Contractual    Exercise       Shares       Exercise
  Range       Outstanding   Life in Yrs     Price      Exercisable      Price
--------------------------------------------------------------------------------
 $0 to $1     35,627,748        0.7        $ 0.06       35,627,748      $ 0.06
 $1 to $2         22,687        6.0        $ 1.10           22,687      $ 1.10
  $ 3.00          30,000        7.0        $ 3.00           30,000      $ 3.00
  $ 4.00               -                                         -
             -----------                               -----------
              35,680,435        0.7        $ 0.06       35,680,435      $ 0.06
             ===========                               ===========


Warrants

           The following table summarizes information about warrants outstanding
           at December 31, 2003:

           Effective  with the November 11, 2003  financing all warrants  prices
           were  adjusted to three  cents  ($0.03).  The Company has  recorded a
           charge to earnings for this adjustment  approximating  $283,214.  The
           fair value for the  repricing  was  estimated  using a  Black-Scholes
           pricing model.

                                              Warrants Outstanding & Exercisable
                                              ---------------------------------
                                                  Number       Price     Life
                                               -----------     -----     ----
           Warrants at December 31, 2002         3,915,466     $0.99      3.9

           Expired                              (1,350,000)    $2.75      3.3
           Issued                               22,925,000     $0.03      7.0
           Exercised                           (10,000,000)    $0.05      7.0
                                               -----------     -----      ---
           Warrants at December 31, 2003        15,490,466     $0.03      5.2
                                               -----------     -----      ---


NOTE 17 - RESTATEMENT OF 2001 ACCUMULATED DEFICIT

The  Company  has  restated  its 2001  financial  statements  (as  filed in 2002
10-KSB/A) to account for the transaction  with Optivision as a  recapitalization
of  Optivision,  rather  than a purchase  in  accordance  with APB No. 16 as had
previously been reported.

The  effects of the  restatement  (for  presentation  as the  December  31, 2001
beginning balance in the Consolidated  Statement of Stockholders  Deficit) is as
follows:

                                                as previously
                                                    filed          as restated
                                                --------------    -------------
Accumulated deficit at December 31, 2001        $ (21,797,659)    $(19,666,955)



                                      F-25
<PAGE>

                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002


NOTE 18 - SUBSEQUENT EVENTS

           On January  29,  2004 the  Company  announced  that it had  reached a
           settlement  with Alta  California  Associates  to a reduction  of the
           Company's liability of $732,000 to $125,000. The agreement allows the
           Company up to three years to repay the balance of $125,000,  of which
           none has been repaid to date. The Company will not record a reduction
           of the liability until th3 full $125,000 has been paid.

           In January  2004 the  Company  entered  into  negotiation  to acquire
           Corridor   Communications,   a  wireless  fidelity  internet  service
           provider,  Quik  Internet an Internet  Service  Provider and AshCreek
           Wireless,  all located in Salem,  Oregon.  The terms of the agreement
           are subject to Corridor  and the Company  entering  into a definitive
           agreement. At this time the Company cannot provide any guarantee that
           we will be able to complete the  transaction,  as the  transaction is
           subject to extensive due diligence and the negotiation and finalizing
           of a definitive agreement.

           On February 1, 2004 the Company entered into a  month-to-month  lease
           arrangement  for  four  thousand  feet of  office  space  in  Irvine,
           California at a cost of $4,000.00 per month

           Since December 31, 2003  approximately 104 million  additional shares
           have been issued;  97 million have been issued for  convertible  note
           conversions  (see  Note  6),  2  million  for  employee  back pay and
           approximately  5 million for  consulting  services.  The  convertible
           notes have been  converted at share prices on the date of conversions
           in accordance with the terms of each seperate  convertible  note. Any
           associated  unamortized  discount will be written off in full. Shares
           issued for employee back pay and consulting services will be recorded
           at their fair value as determined on the date of issuance.




                                      F-26