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

                                  FORM 10-KSB/A

                                   (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, 2002

   [ ] 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              (I.R.S. Employer Identification No.)
of incorporation or organization)

 3450 Hillview Avenue, Palo Alto, California                             94304
 -------------------------------------------                             -----
    (Address of principal executive offices)                          (Zip Code)


                    Issuer's telephone number: (650) 855-0200

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


Title of each class             Name of each exchange on which registered
       None                                        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: $2,240,136.


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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 May 16,
2003, was $3,238,638.

The number of shares outstanding of each of the issuer's classes of common
equity as of May 16, 2003 was 107,451,652 shares.



Documents incorporated by reference:  None

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


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                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

                                     PART I

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

                                    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. CONTROLS AND PROCEDURES 38

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              CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements that involve risks and
uncertainties. These forward-looking statements are based on our current
expectations, beliefs and assumptions. When we use words such as "anticipates,"
"expects," "intends," "plans," "believes" or similar expressions, we are making
forward-looking statements. Our actual results could differ materially from
those anticipated in forward-looking statements. Factors that might cause such
differences include the risks discussed in "Item 1. Description of Business-Risk
Factors" and in "Item 6. Management's Discussion and Analysis or Plan of
Operation," as well as those discussed elsewhere in this annual report.

We caution you not to place undue reliance on these forward-looking statements,
which reflect our management's view only as of the date of this annual report.
We will not update any forward-looking statement to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

                                  OUR BUSINESS

We were formed on July 29, 1998. On April 16, 2001, we merged with Optivision,
Inc., an operating company, in an exchange of common stock accounted for as a
recapitalizations of Optivision.

Amnis Systems Inc., a Delaware corporation, owns one hundred percent of
Optivision, Inc., a California corporation that makes hardware and software
products for the creation, management and transmission of compressed
high-quality digital video over broadband computer networks. Our network video
products are distributed primarily in the United States of America, Europe and
Pacific Rim countries through a network of value added resellers, or VARs,
system integrators and original equipment manufacturers, or OEMs. Our products
are used in diverse applications such as distance learning, corporate training,
video courier services, surveillance, telemedicine and visual collaboration. We
consider our operations to be one segment for reporting purposes.

PRODUCTS

Our products are used to create, manage and transmit compressed high-quality
digital video over broadband computer networks in a wide range of applications.
This is often referred to as "streaming video." Applications for our products
include, for example, interactive distance learning, corporate training, video
content distribution, video surveillance and telemedicine. The use of compressed
digital video for these applications reduces the network bandwidth and storage
requirements when compared to uncompressed digital video technologies.

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Our products are compatible with the Motion Picture Expert Group, or MPEG,
digital video industry standard, which provides the highest quality digital
video for our customers. In addition our products are compatible with computer
network standards based on various computer network communication protocols such
as, for example, the Internet Protocol, or IP, and the Asynchronous Transfer
Mode, or ATM, protocol. Our products enable our customers to:

- Capture, compress and transmit high-quality video from any source, including
cable TV, wireless, satellite, video tape or live events; - Store high-quality
video locally or in remote network video servers; - Transmit live or stored
high-quality video across a computer network; - Manage high-quality video
distribution as a part of the total application; and - Play live or stored
high-quality video on a television monitor, desktop personal computer or set-top
box.

We offer a family of products that includes digital video encoders, or
transmitters, receivers, network management software and a media desktop
personal computer player. All these products are compatible with each other and
can be connected directly to a computer network or easily integrated into
desktop personal computers.

Our digital video encoders, or transmitters, and receivers are designed to
transmit, or "stream," receive, store and process live or previously recorded
digital video over computer networks. Customers can remotely control our digital
video encoders, or transmitters, and receivers through our network management
software.

Our media desktop personal computer player allows users to play streaming or
stored MPEG video on a desktop personal computer. It also allows users to
simultaneously run other desktop software applications and customize the display
for improved user interface and interaction.

SALES AND MARKETING

We sell our products primarily to a network of value added resellers, or VARs,
system integrators and original equipment manufacturers, or OEMs.

We maintain a sales organization consisting of regional sales managers in North
America, and Europe. Our North American sales organization covers the U.S. and
Canadian markets and manages our system integrators and value added resellers.
Selected overseas markets are covered by systems integrators and value added
resellers in Europe with a dedicated regional sales manager based in Germany.

The system integrators and value added resellers have been selected by us for
their ability to provide effective field sales and technical support to our end
user customers. They perform product demonstrations, advise customers on system
configuration and installation, and perform ongoing post-sales customer support.
We believe that many end users depend on the technical support offered by these
system integrators and value added resellers in making product purchase

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decisions. We continue to invest resources in developing and supporting our
network of system integrators and value added resellers.

We also sell our products to original equipment manufacturers who incorporate
our products into end user products that are tailored for specific applications.
These original equipment manufacturers purchase our products and are responsible
for conducting their own marketing, sales and support activities for their
application-specific markets and customers such as, for example, providing a
satellite digital video service for large corporations.

Our marketing efforts are targeted at corporations, healthcare and educational
institutions and the government. In order to increase awareness of our products,
we attend a number of trade shows including, for example, the National
Association of Broadcasters, or NAB, and Networld + Interop, or N + I,
tradeshows in the United States. We also have established strategic
co-marketing, joint product interoperability testing and joint business
development relationships with corporate partners with whom we have the
opportunity to expand our sales and marketing presence through the extensive
sales force and marketing relationships of our partners to reach new customers
and markets, and with whom we participate in joint marketing activities and
tradeshow booths.

MARKETS

The markets for our products are characterized by rapidly changing technology,
evolving industry standards and frequent new product introductions. We believe
that our future success will depend on our continued ability to maintain
expertise in the technologies associated with the Moving Picture Expert Group,
or MPEG, standard, and streaming video network applications. In addition, we
believe that our future success will depend, in part, on our continued ability
to enhance our current products and to introduce new products and features to
meet changing customer requirements and evolving industry standards. Our present
products are based on the MPEG standard. Although MPEG has evolved as the
de-facto standard for compression and decompression of digital video, other
industry standards could replace the current MPEG standard in the future.

Digital video products generally, and video network products and technologies
specifically, are relatively young and evolving markets. Our future growth will
depend on our ability to predict the evolution of these markets as well as new
digital video applications, and to successfully penetrate those markets. Because
of the early stage of the development of the digital video market, the demand
for, and market acceptance of, our products, is subject to a high degree of
uncertainty. If market growth rates do not meet our expectations, or if we are
unsuccessful in identifying and penetrating those segments of the digital video
market which provide the greatest opportunity for growth, our business would
suffer.

MANUFACTURING AND SOURCES OF SUPPLY

Our manufacturing strategy focuses on system integration, system assembly and
final system testing and quality control of our products. We outsource printed
circuit board, system chassis assembly to third party suppliers. This
outsourcing strategy has enabled us to benefit from the manufacturing
capabilities of our suppliers who can accommodate significant increases in

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production volume as necessary. This strategy also permits us to focus on our
core competencies of rapid product development and deployment.

We handle all phases of materials planning, production scheduling, procurement
and document control. In addition to developing manufacturing strategies, our
production staff qualifies our suppliers and their manufacturing processes to
ensure subcontractor quality standards.

COMPETITION

Competition in the streaming video products market is expected to increase. To
compete effectively, we must continue to respond promptly and effectively to
changing customer preferences, and feature and pricing requirements, and rapid
technological change. Our principal competitors include Minerva Networks Inc.,
Optibase Ltd. and Vbrick Systems Inc. We believe that these competitors do not
offer the range of products that combine network management, desktop personal
computer players and network video functions provided by us. We further believe
that we offer our customers a unique blend of computer networking and digital
video competencies that differentiates us from our competition. Although there
are no public market studies or market share estimate, we believe that we have
the largest installed base of products in the this young market.

Competition in the future may force us to lower product prices and add new
products and features at lower prices, or we may otherwise be unable to
introduce new products at higher prices. We cannot assure you that we will be
able to compete successfully in this kind of price competitive environment, and
lower prices and reduced demand for our products would reduce our ability to
generate revenue.

RESEARCH AND DEVELOPMENT

The goal of our research and development activities is to continue the
development and introduction of next-generation products for our customers that
resolve the limitations of current network streaming video products and address
new markets. Our efforts are also focused on increasing the functionality and
reducing the cost of our current products. We are developing new technologies
and products that will:

- Employ the next generation digital video and network technologies;

- Enhance current products for use in video surveillance and distance learning
  applications;

- Provide greater network management and control capability;

- Support real time video storage, server, processing and content management
  functions; and

- Accommodate different computer network bandwidth constraints and fluctuations.

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Optivision's research and development expenditures were approximately $1.3
million and $1.9 million for fiscal years ended December 31, 2002 and December
31, 2001, respectively.

TRADEMARKS

We have registered "Optivision," "High Speed Quad," "MPEG Studio" and
"Optivideo" as registered trademarks. In addition, the names "NAC," "VS-Pro,"
"LiveMap," "LivePlayer," "mpegNet," "mpegStudio Pro" and "ScaleWare" are our
trademarks.

PROPRIETARY RIGHTS

We have one U.S. patent issued by the U.S. Patent and Trademark Office in the
area of digital video coding, which we believe currently provides no competitive
advantage to us in our current markets. Many participants in the digital video
market have a significant number of patents and have frequently demonstrated a
readiness to commence litigation based on allegations of patent and other
intellectual property infringement. We expect that companies will increasingly
be subject to infringement claims as the number of products and competitors in
our industry segment grows and the functionality of products in different
industry segments overlaps. Responding to such claims, regardless of merit,
could cause product shipment delays or require us to enter into royalty or
licensing arrangements to settle such claims. Any such claims could also lead to
time-consuming, protracted and costly litigation, which would require
significant expenditures of time, capital and other resources by our management.
Moreover, we cannot be sure that any necessary royalty or licensing agreement
will be available or that, if available, such agreement could be obtained on
commercially reasonable terms.

CUSTOMERS

Our products are used by corporations, government agencies, educational
institutions, healthcare institutions and other institutions with broadband
computer networks that require high quality streaming video for such
applications as interactive distance learning, corporate training, video content
distribution, video surveillance and telemedicine.

Historically, a substantial portion of our revenues has come from large
purchases by a small number of customers. During calendar year 2002, five
customers accounted for 43% of our net revenues and during 2001 five customers
accounted for 53% of Optivision's net revenues. During 2002 Hughes Network
Systems, Marshall Associates, Inc, Pan Dacom Networking AG and University of
Calgary accounted for 9%, 9%, 10% and 10% of our net revenues, respectively. In
2001, Hughes Network Systems, Glory Group and Marshall Associates, Inc.
accounted for 25%, 10% and 9% of our net revenues, respectively. Our customers
and VARS purchase our hardware and software products on an as needed basis by
issuing purchase orders directly to us. Customers of system integrator and value
added resellers are extended a purchase price discount based on mutual
negotiation and agreement, which is typically based on total volume of business
over a 12 month period or for a specific order and delivery schedule. Generally,
consistent with industry practice in our market, our customers do not sign long
term contracts with committed purchase volume.

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EMPLOYEES

As of December 31, 2002, we employed a total of 23 full time employees, which
include four in engineering, nine in sales and marketing, five in manufacturing
and five in administration and finance. After December 31, 2002, the Company
lost most of its employees and as of April 2003 had only three full-time
employees. All employees since September 30, 2003, have only been paid one weeks
salary. As of May 16, 2003, as a result of new funding, we have 12 employees,
which include four in engineering, two in sales, two in manufacturing and four
in administration.

                                  RISK FACTORS

The risks and uncertainties described below are not the only ones that we face.
Additional risks and uncertainties not presently known to us or that we
currently believe to be immaterial may also adversely affect our business. If
any of the following risks and uncertainties develop into actual events, our
business, financial condition and results of operations could be materially and
adversely affected, and the trading price of our common stock could decline.

OUR RECURRING OPERATING LOSSES, STOCKHOLDERS' DEFICIT, WORKING CAPITAL DEFICIT
AND NEGATIVE CASH FLOW FROM OPERATIONS CAUSE SUBSTANTIAL DOUBT ABOUT OUR ABILITY
TO CONTINUE OUR BUSINESS.

We have received a report from our independent auditors on our financial
statements for fiscal years ended December 31, 2002 and 2001, respectively, in
which our auditors have included explanatory paragraphs indicating that our
recurring net losses, stockholders' deficit, working capital deficit, and
negative cash flow from operations cause substantial doubt about our ability to
continue as a going concern. If our recurring operating losses, stockholders'
deficit, working capital deficit and negative cash flow from operations
continue, our business could be materially adversely affected.

WE HAVE A HISTORY OF LOSSES, AND WE WILL NEED ADDITIONAL CAPITAL TO CONTINUE OUR
OPERATIONS. IF WE ARE UNABLE TO OBTAIN ADDITIONAL CAPITAL, WE WILL HAVE TO
CURTAIL OUR OPERATIONS.

As of this date, we have generated limited revenues and incurred significant
losses. As of December 31, 2002, we had an accumulated deficit of approximately
$28,600,000. For the year ended December 31, 2002, our consolidated net loss was
approximately $8,900,000. We have never been profitable and continue to incur
losses from operations. We expect to incur net losses over the next two years of
between $4 million and $6 million in total. We may never generate sufficient
revenue, income and cash flows to support our operations. Our future revenues
could decline by reason of factors beyond our control such as technological
changes and developments, downturns in the economy and decreases in demand for
digital video networking and broadband Internet products. If we continue to
incur losses, if our revenues decline or grow at a slower rate, or if our
expenses increase without commensurate increases in revenues, our operating
results will suffer and the price of our common stock may decline.

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We currently expect to reach break even in 2004. So, in order to sustain our
operations until then, we currently estimate that we will need additional
funding of between $6 million and $7 million in total. However, our capital
requirements will depend on many factors, including, but not limited to,
acceptance of and demand for our products, the extent to which we invest in new
technology and research and development projects, general economic conditions
and the status and timing of competitive developments. To the extent that our
existing sources of liquidity and cash flow from operations are insufficient to
fund our activities, we will continue to need to raise additional capital.

If additional funds are raised through the issuance of equity securities, the
percentage of equity ownership of our existing stockholders will be reduced. In
addition, holders of these equity securities may have rights, preferences or
privileges senior to those of the holders of our common stock. If additional
funds are raised through the issuance of debt securities, we may incur
significant interest charges, and these securities could also impose
restrictions on our operations. If additional financing is not available when
needed on terms favorable to us or at all, we will have to curtail our
operations.

WE DEPEND ON SEVERAL LARGE RESELLERS FOR A SIGNIFICANT PORTION OF OUR REVENUES,
AND THE LOSS OF ONE OR MORE OF THESE CUSTOMERS, OR A SIGNIFICANT DECREASE IN
REVENUE FROM ANY OF THESE CUSTOMERS, COULD HAVE A DISPROPORTIONATE IMPACT ON OUR
REVENUES AND INCOME. IF THESE RELATIONSHIPS DO NOT CONTINUE, OUR BUSINESS MAY BE
MATERIALLY ADVERSELY AFFECTED.

We use a network of value added resellers, or VARs, consisting primarily of
system integrators and original equipment manufacturers, or OEMs, to assist with
the marketing of our products and installation and servicing of our streaming
video network products. Some of these value added resellers, system integrators
and original equipment manufacturers are important customers representing a
substantial portion of our revenues. If we lose one or more of our key customers
or experience a delay or cancellation of a significant order or a decrease in
the level of purchases from any of our key customers, our net revenues could
decline and our operating results and business could be harmed. In addition, our
net revenues could decline and our operating results and business could be
harmed if we experience any difficulty in collecting amounts due from one or
more of our key customers. During 2002, five customers accounted for 43% of our
net revenues. As of December 31, 2002, approximately 66% of our accounts
receivable were concentrated with five customers.

Our future success depends on our ability to maintain old relationships and
develop new relationships with value added resellers, system integrators and
original equipment manufacturers, and on their marketing efforts and
installation and support services. A decline in the financial prospects of
particular customer or any of their customers, inadequate installation and
support services by a customer or our inability to maintain existing
relationship or contract with additional customers could have a material adverse
effect on our business.

WE DEPEND ON THIRD PARTIES FOR THE SUPPLY AND MANUFACTURE OF ALL OF OUR
COMPONENT AND ELECTRONIC PARTS. IF THESE MANUFACTURERS AND SUPPLIERS DO NOT MEET
OUR DEMAND, OUR BUSINESS MAY BE MATERIALLY ADVERSELY AFFECTED.

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We purchase components and electronic parts pursuant to purchase orders in the
ordinary course of business and do not maintain supply agreements. We are
substantially dependent on the ability of third-party manufacturers and
suppliers to meet our design, performance and quality specifications. If our
third-party suppliers cannot supply us with systems or parts within our
timeframes or allocate the supply of certain high demand components, we could be
unable to meet our delivery schedules and requirements on a timely and
competitive basis, which could have a material adverse effect on our business.

IF OUR PRODUCTS DO NOT KEEP PACE WITH THE TECHNOLOGICAL DEVELOPMENT IN THE
RAPIDLY CHANGING DIGITAL VIDEO AND BROADBAND INTERNET VIDEO INDUSTRY, OUR
BUSINESS MAY BE MATERIALLY ADVERSELY AFFECTED.

The digital video industry generally and the broadband Internet video industry
specifically are in the early state of development, and the demand for, and
market acceptance of, our technologies and products under development is subject
to a high degree of uncertainty. If we cannot develop and launch our new
products, or if we fail to achieve market acceptance of our new products, our
business may be materially adversely affected.

Our future success also depends upon our ability to continue to enhance our
existing products and to successfully develop and market new products in a
cost-effective and timely basis. Once a new product is developed, we must
rapidly commence volume production. This process requires accurate forecasting
of customer requirements and attainment of acceptable manufacturing costs. The
introduction of new or enhanced products also requires us to manage the
transition from older, displaced products in order to minimize disruption in
customer ordering patterns, avoid excessive levels of older product inventories
and ensure that adequate supplies of new products can be delivered to meet
customer demand. In addition, reliability, quality or compatibility problems
with our products could significantly delay or reduce market acceptance of our
products, could require the devotion of significant time and resources to
addressing errors, could divert our engineering and other resources from other
tasks and development efforts, and could damage our reputation and adversely
affect our ability to retain our existing customers and to attract new
customers.

COMPETITION MAY DECREASE OUR MARKET SHARE, NET REVENUES AND GROSS MARGINS.

Competition in the streaming video products market is intense, and we expect
competition to increase. To compete effectively, we must continue to respond
promptly and effectively to changing customer preferences, and feature and
pricing requirements, and rapid technological change. Our principal competitors
include Minerva Networks Inc., Optibase Ltd. and Vbrick Systems Inc. Some of our
actual and potential competitors have greater name recognition, access to a
larger customer base and significantly greater financial, marketing, technical
and other resources than we do. Our competitors also sell products that provide
some of the benefits of the products that we sell, and we could lose sales to
our competitors. Moreover, the digital video products industry is undergoing a
period of consolidation in which companies, including some of our competitors,
are participating in business combinations. These combinations may result in the
emergence of competitors who have larger market shares, customer

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base, sales forces and product offerings and greater technology marketing
expertise than we do. As a result, our competitors may be able to adapt more
quickly to new or emerging technologies and changes in customer requirements or
to devote greater resources to the promotion and sale of their products than us.
We may not be able to compete successfully against current and future
competitors, or to make technological advances necessary to improve or even
maintain our competitive position, or achieve market acceptance for our
products.

WE DEPEND ON A LIMITED NUMBER OF KEY PERSONNEL WHO WOULD BE DIFFICULT TO
REPLACE, AND IF WE LOSE THE SERVICES OF THESE INDIVIDUALS OR CANNOT HIRE
ADDITIONAL QUALIFIED PERSONNEL, OUR BUSINESS COULD BE SERIOUSLY HARMED.

Our future success also depends in large part on the continued services of our
senior management, and key technical and sales personnel. In particular, we are
highly dependent on the services of Scott Mac Caughern, our chairman, president
and chief executive officer, and Lawrence L. Bartlett, our vice president, chief
financial officer and secretary. We do not carry key person life insurance on
our senior management or key personnel. Any loss of the services of Messrs. Mac
Caughern, Bartlett, or Falcone, or other key personnel could seriously harm our
business.

IF WE FAIL TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGES AND MULTIPLE EVOLVING
STANDARDS THAT CHARACTERIZE THE DIGITAL VIDEO AND NETWORKING MARKET, OUR
BUSINESS MAY BE MATERIALLY ADVERSELY AFFECTED AND OUR RESULT OF OPERATIONS MAY
SUFFER.

The markets for our products are characterized by rapidly changing technology,
evolving industry standards and frequent new product introductions. We believe
that our future success will depend on our continued ability to maintain
expertise in the technologies associated with the Moving Picture Expert Group,
or MPEG, and computer network and broadband Internet video applications. Our
present products are based on the MPEG standard. Although MPEG has evolved as
the de-facto standard for compression and decompression of digital video, other
industry standards could replace the current MPEG standard in the future, and
this may materially adversely affect our business.

In addition, our competitors or we may announce new products that have the
potential to shorten the life cycle of, or replace, our current products. Such
announcements could cause customers not to buy or to defer to buy our products.
Similarly, such new products could render our products or technologies
non-competitive or obsolete. If we fail to enhance our current products and to
introduce new products and features to meet changing customer requirements and
evolving industry standards, our results of operations may suffer.

IF WE ARE UNSUCCESSFUL IN IDENTIFYING AND PENETRATING THOSE SEGMENTS OF THE
DIGITAL VIDEO MARKET WHICH PROVIDE THE GREATEST OPPORTUNITY FOR GROWTH, OUR
BUSINESS WOULD SUFFER.

Digital video products generally, and video network and broadband Internet video
products and technologies specifically, are relatively young and evolving

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markets. Our future growth will depend on our ability to predict the evolution
of these markets as well as new streaming video applications, and to
successfully penetrate those markets. Because of the early stage of the
development of the digital video market, the demand for, and market acceptance
of our products, is subject to a high degree of uncertainty. If we are
unsuccessful in identifying and penetrating those segments of the digital video
market which provide the greatest opportunity for growth, our business would
suffer.

WE ARE OBLIGATED TO ISSUE ADDITIONAL SHARES AND MAY ISSUE FURTHER SHARES AND
DILUTE YOUR OWNERSHIP PERCENTAGE.

We are obligated to issue additional shares of our common stock pursuant to
certain agreements for the following financings which will dilute your ownership
percentage:

- In December 2001, we entered into a financing agreement with Bristol
Investment Fund, Ltd. for the issuance of a total of $1,000,000 in principal
amount of convertible debentures, of which $500,000 has been issued, that are
convertible into shares of our common stock at a floating conversion price,
investment options to purchase shares of our common stock at the applicable
conversion price for each share of common stock issued upon conversion of the
debentures, and warrants to purchase up to 1,100,000 shares of our common stock
at a floating exercise price. Due to the floating conversion rate, we do not
know the exact number of shares that we will have to issue upon conversion of
the debentures and exercise of the investment options. As of May 16, 2003, prior
to entering into the additional funding in May 2003, Bristol agreed to allow the
Company to reserve a maximum of 53,453,861 shares of common stock for issuance
pursuant to its financing documents and 74,835,405 shares of common stock with
respect to Stonestreet pursuant to all of its financing documents with the
Company until such time as the Company obtains stockholder approval to increase
its authorized shares of common stock.

- On January 14 2002, the Company issued a one-year convertible note in the
principal amount of $3,547,917 to Mr. Michael A. Liccardo, 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 Inc. to meet
operating expenses. At any time, Mr. Liccardo may elect to convert the note to
common stock of the Company at $0.35 per share, subject to adjustment related to
the price of subsequent securities issuances by the Company to third parties. On
June 18, 2002, Mr. Liccardo converted $2,050,000 in principal of the convertible
note issued on January 14, 2002 and, in connection therewith, received
26,623,377 shares of common stock. The remaining principal and accrued interest
was transferred to a two-year new convertible note as of this date. The note
provides that Mr. Liccardo may, at any time, elect to convert the outstanding
principal of $1,000,783 of the convertible note 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 through January 14,
2003, and is also subject to customary adjustment in the

                                       12


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event of stock splits, dividends, recapitalizations and the like. Mr. Liccardo
is restricted from selling any shares resulting from the conversion of his note
until the stock reaches fifty cents ($0.50) per share or the Alpha and
Stonestreet notes from the June financing have been paid. On January 14, 2003,
Mr. Liccardo converted $500,000 in principal of the convertible note issued on
June 18, 2002 and, in connection therewith, received 12,500,000 shares of common
stock. Mr. Liccardo utilized a conversion price without a discount to market and
forgave the accrued interest of $92,789.11. The remaining principal was
transferred to a new two-year convertible note, which, as of this date, is in
the amount of $1,112,763. On April 15, 2003, Mr. Liccardo converted $100,000 in
principal of the convertible note issued on June 18, 2002 and, in connection
therewith, received 14,000,000 shares of common stock. The accrued interest of
approximately $26,000 was forgiven by Mr. Liccardo and the remaining principal
was transferred to a new two-year convertible note as of this date in the amount
of $1,000,763. Mr. Liccardo agreed to not convert or require that the Company
reserve shares of common stock in connection with his convertible until such
time as the Company has obtained stockholder approval for an increase in its
shares of common stock.

- In February 2002, we entered into financing agreements with Alpha Capital
Aktiengesellschaft and Stonestreet Limited Partnership. Under these financing
agreements, as amended in June 2002, we sold a total of 187,500 units at a
purchase price of $8.00 per unit, each unit consisting of 21 shares of common
stock, subject to adjustment pursuant to exercise of the related reset option,
and one warrant to purchase three shares of our common stock at an exercise
price of approximately $0.13 per share, also subject to adjustment for, among
other things, capital issuances below $0.13 per share and for stock splits,
combination or reclassification of our capital stock and the like. Due to the
floating exercise feature of the reset options, we do not know the exact number
of shares that we will have to issue upon exercise of the reset options. In May
2003, Alpha agreed to modify its units and waive its right to the reset option
in exchange for the Company converting the units into Secured Convertible
Debentures. Alpha and Stonestreet also agreed to allow the Company to reserve a
maximum of 125,025,785 shares of common stock for issuance pursuant to all of
its financing documents with the Company until such time as the Company obtains
stockholder approval to increase its authorized shares of common stock.

- In February 2002, we entered into a financing agreement with a non-U.S. person
for a total of 37,500 units, each unit consisting of ten shares of our common
stock, subject to adjustment pursuant to exercise of the related reset option,
and a warrant to purchase three shares of our common stock at an exercise price
of $0.90, subject to such customary adjustment for stock splits, combination or
reclassification of our capital stock and the

                                       13


<PAGE>



like. As the number of shares issuable upon exercise of the reset option depends
on the closing bid price of our common stock during a 30-day period prior to
exercise, we do not know the exact number of shares that we will have to issue
upon exercise of the reset option. The investor also agreed to allow the Company
to reserve a minimum number of shares of common stock for issuance pursuant to
its financing documents with the Company until such time as the Company obtains
stockholder approval to increase its authorized shares of common stock.

- In June 2002, we sold to Alpha Capital Aktiengesellschaft and Stonestreet
Limited Partnership two convertible notes in the aggregate principal amount of
$450,000 and warrants to purchase up to 135,000 shares of our common stock at an
exercise price of approximately $0.13, subject to adjustment for, among other
things, capital issuances below $0.13 per share and for stock splits,
combination or reclassification of our capital stock and the like. Due to the
floating conversion rate, we do not know the exact number of shares that we will
have to issue upon conversion of the notes. Alpha and Stonestreet agreed to
allow the Company to reserve a maximum of 125,025,785 shares of common stock for
issuance pursuant to all of its financing documents with the Company with
respect to Alpha and 74,835,405 shares of common stock with respect to
Stonestreet pursuant to all of its financing documents with the Company until
such time as the Company obtains stockholder approval to increase its authorized
shares of common stock.

- In May 2003, we entered into a financing agreement with three investors
whereby we issued a secured convertible debentures in the amount of $1,000,000
and warrants to purchase up to 5,000,000 shares of common stock. The convertible
debentures are due two years from the date of issuance and are convertible at a
price equal to the lower of (i) $.05 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. The warrants
are exercisbable for a period of seven years at the price of $.05 per share. The
Company is not required to reserve shares for issuance pursuant to this
agreement until such time as the Company has received stockholder approval for
an increase in its authorized common stock,

In addition, some events could result in the issuance of additional shares of
our common stock, which would further dilute your ownership percentage. We may
issue additional shares of common stock:

- to raise additional capital or finance acquisitions; - upon the exercise or
conversion of outstanding options, warrants and convertible notes (other than
the convertible notes, the reset options and warrants issued to the selling
security holders, and the convertible debentures, investment options, reset
options and warrants described above); and - in lieu of obligations owed in
cash.

                                       14


<PAGE>



OUR STOCK PRICE MAY BE VOLATILE AND THE TRADING MARKET FOR OUR COMMON STOCK IS
LIMITED.

The market price for our common stock, like that of the securities of many
companies in the technology and emerging growth sectors, has fluctuated
substantially and may continue to be highly volatile in the future. We believe
that the following factors, in addition to other risk factors described above,
will continue to significantly affect the market price of our common stock:

- announcements of technological innovations or new commercial products by us
and our competitors; - developments concerning research and development,
manufacturing, and marketing alliances or collaborations by us and our
competitors; - developments in our industry; - general market and economic
conditions and other factors, including factors unrelated to our operating
performance or the operating performance of our competitors; and -
period-to-period fluctuations in our operating results and the operating results
of our competitors.

In addition, stock markets have from time to time experienced extreme price and
volume fluctuations. These fluctuations have especially affected the stock
market price of many technology companies, and, in many cases, are unrelated to
the operating performance of the particular companies. We believe that these
broad market fluctuations may continue to affect the market price of our common
stock.

With the advent of the Internet, new avenues have been created for the
dissemination of information. We do not have control over the information that
is distributed and discussed on electronic bulletin boards and investment chat
rooms. The motives of the people or organizations that distribute such
information may not be in our best interest or in the interest of our
stockholders. This, in addition to other forms of investment information
including newsletters and research publications, could result in significant
fluctuations in the market price of our common stock.

From time to time, there has been limited trading volume with respect to our
common stock which is traded in the over-the-counter market on the OTC Bulletin
Board, and a trading market in our common stock may not continue.

ITEM 2. DESCRIPTION OF PROPERTY

                                       15


<PAGE>



Our principal administrative, marketing, manufacturing and product development
facility is located in Palo Alto, California. This facility occupies
approximately 22,000 square feet pursuant to a lease that commenced on November
1, 1995 and terminated on December 15, 2002. Since December 15 2002, we have
been operating on a month-to-month basis with an agreement to vacate the
facility with in 30 days should the landlord identify another tenant. As of this
date, we have reached an agreement with the landlord for month-to-month rental
of approximately 10,000 square feet for $10,000 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.

                                       16


<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 May 16, 2003, the closing price of our common stock was $0.08 per share. As
of March 31, 2003, there were approximately 176 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 (through May 16 ,2003)  $    0.08  $   0.01



As of May 16, 2003, there were approximately 107,451,652 shares of common stock
issued and outstanding.

                                       17


<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

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 the lesser of $0.385 or the average
of the lowest trading prices over the previous 20 days trading. 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 finders 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 proportionate value of the note and the warrants is $247,722 and
$252,278, respectively. The value of the note was then allocated between the
note and the preferential conversion feature, which amounted to $0 and $247,722,
respectively. The combined total discount is $500,000, and will be amortized
over the year life of the debenture. For the year ended December 31, 2002,
$252,055 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 as of December 31, 2002.

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, 2002, $3,486,058 has been
amortized to interest expense, due to the passage of time and conversions into
shares of common stock. 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.

                                       18


<PAGE>



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 our common stock at the lesser of a 30% discount to the average of the
lowest three intraday trading prices of our 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 proportionate value of the note and the warrants
is $428,718 and $21,282, respectively. The value of the note was then allocated
between the note 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 year life of the debenture. For the year ended December 31,
2002, $120,657 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 as of December 31, 2002.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

As of December 31, 2002, we had the following securities authorized for issuance
under the equity compensation plans:


<TABLE>
<CAPTION>

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

<S>                                                            <C>         <C>                                        <C>
Equity compensation plans approved by
security holders                                               14,621,469  $                 .40                      6,301,983

Equity compensation plans not approved
by security holders                                                    --                     --                             --

Total                                                          14,621,469  $                 .40                      6,301,983

</TABLE>


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

GENERAL

The following discussion of our financial condition and results of operations
should be read together with the consolidated financial statements and the notes
to those statements included elsewhere in this report. This

                                       19


<PAGE>



discussion contains forward-looking statements that involve risks and
uncertainties. For additional information regarding some of the risks and
uncertainties that affect our business and the industry in which we operate and
that apply to an investment in our common stock, please read "Risk Factors."

We are a Delaware corporation formed in July 1998. We make hardware and software
products for the creation, management and transmission of high-quality digital
video over computer networks. Our products are distributed worldwide through a
network of value added resellers, or VARs, system integrators and original
equipment manufacturers, or OEMs. Our products are used in diverse applications
such as interactive distance learning, corporate training, video content
distribution, video surveillance and telemedicine.



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.

CRITICAL ACCOUNTING POLICIES

This Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. On an on-going
basis, management evaluates its estimates and judgments, including those related
to revenue recognition, intangible assets, financing operations, and
contingencies and litigation. Management bases its estimates and judgments on
historical experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. The most significant
accounting estimates inherent in the preparation of our financial statements
include estimates as to the appropriate carrying value of certain assets and
liabilities which are not readily apparent from other sources, primarily
allowance for doubtful accounts and the recognition and classification of net
operating loss carry forwards between current and long-term assets. These
accounting policies are described in the notes to the consolidated financial
statements included in this document for the fiscal year ended December 31, 2002
and in the notes to the consolidated financial statements included with this
Annual Report on Form 10-KSB.

RECENT DEVELOPMENTS

On June 25, 2002, we amended our certificate of incorporation to increase the
total number of shares which we are authorized to issue to 420,000,000 shares,
of which 400,000,000 shares will be common stock, each having a par value of
$0.0001, and 20,000,000 shares will be preferred stock, each having a par value
of $0.0001.

In the fourth quarter of 2002 due to lack of funding and our inability to pay
employees, our operation began to wind down. This decrease in business activity
continued through April of 2003 at which time there were only 3 employees.

Numerous potential investors and companies were contacted since November 2002
but the Company was unable to attract new investors due to the Company's current
financing arrangements. In addition, the Company was unsuccessful in finding a
buyer for its business. In March 2003, the Company had negotiated a sale of
assets to another public company, which would have required the Company to file
for bankruptcy. After numerous discussion with current investors and creditors,
the Company received a written proposal for funding two days before a bankruptcy
filing and was advised by the Company's principal secured creditor, its bank,
that it favored the new financing proposal. The financing proposal required a
management restructuring, which included a change in management. As a result, on
April 28, 2003, Mike Liccardo resigned as Chairman and CEO of the Company and
Optivision, and Scott Mac Caughern was named Chairman and Interim CEO.

On May 16, 2003, the Company entered into a Securities Purchase Agreement
whereby it issued convertible debentures in exchange for funding of $1,000,000.
As of May 12. in anticipation of the additional funding, the Company had rehired
ten employees and commenced rebuilding the Company's operations.

                                       20


<PAGE>



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

FISCAL YEAR ENDED DECEMBER 31, 2001

                                    REVENUES

Revenues for 2002 were $2,240,136, an decrease of $1,855,620, or 45.3%, from
revenues of $4,095,756 in 2001. Revenues in 2002 continued the decline brought
about by the softening economy in the third quarter of 2001, which was
accelerated by the aftermath effects of the September 11, 2001 terrorist
attacks. The revenue decline bottomed in the first quarter of 2002. However,
with the infusion of new financing, revenue began to recover and nearly doubled
in the second quarter followed again by a nearly doubling of revenue in the
third quarter. The majority of the increased revenue was from government and
defense subcontractors. Unfortunately, as we entered the fourth quarter the
inability to raise additional funds to pay employees and support operations
forced us to effectively curtail operations by December. Even though we
continued to build a large pipeline of business and revenue opportunities, we no
longer had the resources to close sales, provide customer support, develop and
support our product and manufacture product. The possibility of these events was
disclosed in our third quarter 10Q-SB wherein we stated that if additional
financing is not available or is not available on acceptable terms we will have
to curtail our operations. As a result of the curtailment of operations, revenue
has continued to decline in the fourth quarter, which has continued in the first
and second quarters of 2003. Numerous orders have been cancelled by customers.
In May 2003 an investment group led by our existing investors has begun funds
for the restart and recovery of our company. During calendar year 2002, five
customers accounted for 43% of our net revenues and during 2001 five customers
accounted for 53% of Optivision's net revenues. During 2002 Hughes Network
Systems, Marshall Associates, Inc, Pan Dacom Networking AG and University of
Calgary accounted for 9%, 9%, 10% and 10% of our net revenues respectively. In
2001, Hughes Network Systems, Glory Group and Marshall Associates, Inc.
accounted for 25%, 10% and 9% of our net revenues, respectively

                               COST OF GOODS SOLD

Cost of goods sold for 2002 was $896,572, a decrease of $379,867, or 29.717.6%,
over cost of goods sold of $1,276,439 for 2001. Cost of goods sold did not
decrease ratably with revenue due to the low volume level and our fixed cost
structure, and accelerated purchases of additional critical obsolete components.

                        RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses were $1,255,823, a decrease of $614,807 or
32.9%, as compared to $1,870,630 for 2001. Product development and support
during 2001 primarily consisted of the expenses in connection with outside
consultants, which continued into the third quarter 2002 focusing the
development of new network digital video products. These efforts were
substantially curtailed in the fourth quarter due to lack of funding, which
resulted in the research and development for 2002.

                          SALES AND MARKETING EXPENSES


Sales and marketing expenses were $1,772,971 for 2002 a decrease of $1,049,539,
or 37.2%, as compared to $2,822,510 for 2001. In 2001, our sales and marketing
expenses consisted of marketing efforts in connection with trade show activity
and increased travel expenditure. This trend continued into the third quarter of
2002 when we began to reduce expenditures due to lack of funding, which resulted
in the research and development for 2002

                        GENERAL AND ADMINISTRATIVE COSTS

General and administrative costs were $2,620,008 for the year ended December 31,
2002, an increase of $586,320 or 28.8%, as compared to $2,033,688 for the year
ended December 31, 2001. The majority of this increase is due to absorption of
additional facility rental expense after our sub tenant moved out in July of
2002. In 2002, we continued to incur heavy legal and audit costs due efforts to
file a Form SB-2 Registration Statement to register the new financings received
in late 2001.

                           INTEREST AND OTHER EXPENSE

Interest and other expense, net was, $156,044 for 2002, a decrease of $495,417
or 56.1%, as compared to $651,461 for 2001. The interest expense component
decreased in 2002 by $207,515 as compared to 2001, which was the result of a
lower debt level and the resulting lower interest charges. Other income items
increased in 2002 due to adjustments and other credits to more properly reflect
balance sheet balances

                                    NET LOSS

Our net loss from operations for 2002 increased 3.5%, $170,793 to ($4,983,678)
from ($4,814,885) in the comparable 2001 period. This is the result of all of
the above operational changes and financing costs.

                         LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2003, we had cash and cash equivalents of $44,550 compared to
$87,469 at December 31, 2002. During 2002 our negative working capital position
improved by nearly $3 million due primarily to settlement of our accounts
payable moratorium and the conversion to equity by Mr. Liccardo, our then
president, chief executive officer and chairman, of approximately $2 million of
his convertible notes from loans he made to the Company to support operations.
This was possible as a result of the receipt of proceeds from a $1.8 million
unit financing in February 2002 and with the receipt of proceeds from the
issuance of $450,000 in principal amount of convertible notes in June 2002.

                                       22


<PAGE>



In December 2001, pursuant to a financing agreement between us and Bristol
Investment Fund Ltd. for a total of $1,000,000 of convertible debentures and up
to $1,385,000 of investment options and warrants, we received a first tranche of
financing through the issuance of a $500,000 convertible debenture. Bristol
Investment Fund Ltd. is committed to provide us with the second tranche of
financing in the amount of $500,000 through the issuance of a convertible
debenture within ten business days after the effective date of a registration
statement covering the resale of the shares issuable upon conversion of the
debentures and exercise of the related warrants and investment options. We were
not able to effectively file our registration statement and accordingly have not
received the second tranche from Bristol Investment Fund Ltd.

We had continuing operating losses of $(4,985,278) for the year ended December
31, 2002. 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 will be
to recover and build our revenue to the momentum achieved in the third quarter
of 2002. Throughout the fourth quarter of 2002 and first quarter of 2003, we
have implemented measures to increase cash flows through cost-cutting measures
and actively pursued additional sources of funding. However, during the fourth
quarter of 2002 we began to loose key sales, marketing and manufacturing and
other employees due to insufficient funds to pay compensation. This loss of
employees has continued to this date and brought the Company to the point of not
being able to continue operations.

Numerous potential investors and companies were contacted since November 2002,
but the Company was unable to attract new investors due to the Company's
financing structure and the Company was unsuccessful in finding a buyer for its
business. In March, the Company had negotiated a sale of assets to another
public company, which would have required the Company to file for bankruptcy.
After numerous discussion with current investors and creditors, the Company
received a written proposal for funding two days before a bankruptcy filing and
were advised by the Company's principal secured creditor, its bank, that it
favored the new financing proposal. Our major secured creditor has located a
financing institution that acquired their note and assisted in further financing
of the Company. Our other major creditors have located a workout management team
and have provided initial funding for that team to evaluate funding requirements
and raise the required funding.

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.

                                       23


<PAGE>



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

See 8-K filing for change in accountants dated November 6, 2002.

On November 6, 2002, we dismissed Hood & Strong LLP ("Hood & Strong") as our
principal independent accountant. The decision to change our independent
accountant was made and approved by our Board of Directors.

The independent auditors' reports of Hood & Strong on our financial statements
during the two most recent fiscal years did not contain any adverse opinion or
disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope or accounting principles, except that the audit reports on the
financial statements for the above periods were modified because of a going
concern uncertainty. In addition, the report for the year ended December 31,
2001 included other paragraphs emphasizing the restatement of the financial
statements because of a change in accounting method for a business combination,
a change in estimate of the life of the goodwill associated with a business
combination, and subsequent event disclosures.

During our two most recent fiscal years and through November 6, 2002, we had no
disagreements with Hood & Strong on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedures,
which, if not resolved to the satisfaction of Hood & Strong, would have caused
it to make a reference to the subject matter of the disagreement in connection
with its reports. During our two most recent fiscal years and through November
6, 2002, there were no events that would have to be identified in response to
Item 304(a)(1)(iv)(B) of Regulation S-B. We provided Hood & Strong with a copy
of this disclosure, and we requested that Hood & Strong furnish us with a letter
addressed to the Securities and Exchange Commission ("SEC"), stating whether it
agrees with the above statements. A copy of Hood & Strong's letter to the SEC,
dated November 6, 2002, is filed as Exhibit 16.1 to Form 8-K Current Report
filed November 11, 2002.

On November 6, 2002, we engaged Stonefield Josephson, Inc. ("Stonefield
Josephson") as our principal independent public accountant. The decision to
engage Stonefield Josephson was made and approved by our Board of Directors.
During our two most recent fiscal years and through November 6, 2002, we have
not consulted with Stonefield Josephson regarding (i) the application of
accounting principles to a specific completed or contemplated transaction, or
the type of audit opinion that may be rendered on our financial statements, and
neither written nor oral advice was provided that was an important factor we
considered in reaching a decision on an accounting, auditing, or financial
reporting issue; or (ii) any matter that was the subject of either a
disagreement as defined in Item 304(a)(1)(iv) of Regulation S-B and the related
instructions to that item or any event that would have to be identified in
response to Item 304(a)(1)(iv)(B) of Regulation S-B.

                                       24


<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>
<S>                    <C>    <C>                                    <C>
NAME                  AGE  POSITION
--------------------  ---  --------
Michael A. Liccardo    56  Director                                  Resigned as CEO
                                                                     April 28, 2003
Scott Mac Caughern     47  Chief Executive Office and Chairman       Effective April
                                                                     28, 2003
Lawrence L. Bartlett   62  Chief Financial Officer, Vice President,
                           Secretary and Director
Richard A. Falcone     46  Vice President of Marketing, Worldwide    Resigned March
                           Sales and Business Development            31, 2003
Catherine Palmen       44  Director                                  Resigned April
                                                                     28, 2003

</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,

                                       25


<PAGE>



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.

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.

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.

                                       26


<PAGE>



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.

Catherine Palmen has served as a director since February 2001 until her
resignation in April of 2003. Ms. Palmen has also been a director of Optivision
since June 2000 and was chairman of Optivision's creditors committee.

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 2000, 2001 and
2002 to:

- Each person who served as our chief executive officer during 2002; and

                                       27


<PAGE>



- Our other executive officers whose total annual salary and bonus in 2002
  exceeded $100,000.


<TABLE>
<CAPTION>

                              SUMMARY COMPENSATION TABLE

                               ANNUAL COMPENSATION (1)     LONG TERM COMPENSATION (1)

                                                            SECURITIES     ALL OTHER
                                                            UNDERLYING   COMPENSATION
NAME AND PRINCIPAL         YEAR  SALARY ($)(2)  BONUS ($)  OPTIONS (#S)     ($) (3)
     POSITION
<S>                        <C>         <C>                    <C>               <C>
Michael A. Liccardo        2002        149,777        ---     2,500,000         1,476
President, Chief           2001        164,680        ---     1,100,000         1,278
Executive Officer and      2000        182,148        ---     1,300,000           ---
Chairman of the Board
(4)

Lawrence L. Bartlett       2002        175,120        ---     2,200,000         1,334
Chief Financial Officer,   2001        163,414        ---       825,000         1,245
Vice President and         2000        185,450        ---       425,000           ---
Secretary (6)
Richard A. Falcone         2002        190,733        ---     2,200,000           943
Vice President of          2001        184,228        ---       740,000           878
Marketing, Worldwide       2000        174,538        ---       500,000           ---
Sales and Business                                    ---
Development

</TABLE>
(1)  Amounts for fiscal year 1999 and 2000 reflect pre-merger compensation
     awarded, earned or paid for services rendered in all capacities to
     Optivision, Inc.
(2)  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. As of this date none of the unpaid compensation has been
     paid.
(3)  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.
(4)  Mr. Liccardo became our president, chief executive officer and chairman of
     the board of directors in April 2001.
(5)  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.


                        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, 2002.

                                       28


<PAGE>


<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>    <C>              <C>   <C>
Michael A. Liccardo     2,500,000 (3) (4)            28.3%  $        .04     10/31/04

Lawrence L. Bartlett    2,200,000 (3) (4)            24.8            .04     10/31/04

Richard A. Falcone      2,200,000 (3) (4)            24.8            .04     10/31/04
</TABLE>

(1)  Based on a total of 8,847,000 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, 2002, 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) The option vests
     50% on November 15, 2002 and at a rate of 5.00% each month
     thereafter.



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, 2002.

<TABLE>
<CAPTION>


                              NUMBER OF SECURITIES
                       SHARES                UNDERLYING UNEXERCISED        VALUE OF UNEXERCISED
                      ACQUIRED                     OPTIONS AT            IN-THE-MONEY OPTIONS AT
                         ON       VALUE       DECEMBER 31, 2002 (1)        DECEMBER 31, 2002 (2)
NAME                  EXERCISE  REALIZED   EXERCISABLE  UNEXERCISABLE  EXERCISABLE   UNEXERCISABLE
<S>                     <C>     <C>          <C>              <C>      <C>           <C>
Michael A. Liccardo     356744  $ 152,434    3,014,570        735,430  $        0.0  $          0.0
Lawrence L. Bartlett    319907  $ 141,976    2,286,858      1,924,447  $        0.0  $          0.0
Richard A. Falcone      307481  $  145377    2,280,799      1,930,506  $        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, 2002. These options were
     granted on various dates during 2001 and 2002 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, 2002
     which was $0.03 for all the in-the-money options held by the named
     executive officers.



                                       29


<PAGE>



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

MICHAEL A. LICCARDO

In April 2001, we entered into an executive employment agreement with Michael A.
Liccardo, who served as our president, chief executive officer and chairman of
the board until his resignation in April 2003. Our agreement with Mr. Liccardo
provided for, among other things, a three-year term of employment, the payment
of a base salary of $200,000 per year, and the minimum payment of one year's
base salary in severance upon termination of employment without cause. The
agreement may be terminated for any reason by Mr. Liccardo upon 30 days written
notice or by us for cause upon 30 days written notice or without cause upon 90
days written notice. Upon termination of employment or change in our ownership
or control, all options granted to Mr. Liccardo will be accelerated and will be
exercisable, in the case of termination, for one year after such termination
and, in the case of a change of control, for the 60-day period prior to such
change in control and for a one-year period after such change in control. Mr.
Liccardo is also subject to confidentiality restrictions under his employment
agreement.

LAWRENCE L. BARTLETT

In April 2001, we entered into an executive employment agreement with Lawrence
L. Bartlett, who serves as our vice president, chief financial officer,
secretary and director. Our agreement with Mr. Bartlett provides for, among
other things, employment for three years, the payment of a base salary of
$190,000 per year, and the minimum payment of one year's base salary in
severance upon termination of employment without cause. The agreement may be
terminated for any reason by Mr. Bartlett upon 30 days written notice or by us
for cause upon 30 days written notice or without cause upon 90 days written
notice. Upon termination of employment or change in our ownership or control,
all options granted to Mr. Bartlett will be accelerated and will be exercisable,
in the case of termination, for one year after such termination and, in the case
of a change of control, for the 60-day period prior to such change in control
and for a one-year period after such change in control. Mr. Bartlett is also
subject to confidentiality restrictions under his employment agreement.

RICHARD A. FALCONE

In April 2001, we entered into an executive employment agreement with Richard A.
Falcone, who serves as our vice-president of marketing, worldwide sales and
business development. Our agreement with Mr. Falcone provides for, among other
things, employment for three years, the payment of a base salary of $130,000 per
year, and the minimum payment of one year's base salary in severance upon
termination of employment without cause. Mr. Falcone is also entitled to sales
commissions as may be approved by the board of directors from

                                       30


<PAGE>



time to time. The agreement may be terminated for any reason by Mr. Falcone upon
30 days written notice or by us for cause upon 30 days written notice or without
cause upon 90 days written notice. Upon termination of employment or change in
our ownership or control, all options granted to Mr. Falcone will be accelerated
and will be exercisable, in the case of termination, for one year after such
termination and, in the case of a change of control, for a 60-day period prior
to such change in control and for the one-year period after such change in
control. Mr. Falcone is also subject to confidentiality restrictions under his
employment agreement.

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 3,09,450 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.

PLAN FEATURES

UNDER THE 1997 STOCK PLAN:

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

- 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

                                       31


<PAGE>



- 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.

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:

                                       32


<PAGE>



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

- 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

- 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.

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 6,301,983 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

                                       33


<PAGE>



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:

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

- 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

- 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.

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 May 16, 2003, by:

                                       34


<PAGE>



- each person or entity who is known by us to own beneficially more than 5% of
the outstanding shares of our common stock;

- each of our directors;

- each of our named executive officers;

- each of the persons who served as our chief executive officer during our
fiscal year ended December 31, 2002; and

- 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 May 16, 2003 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 107,941,654 shares of common
stock outstanding as of May 16, 2003.

<TABLE>
<CAPTION>


                                                                                      PERCENTAGE OF
NAME AND ADDRESS                                                NUMBER OF SHARES         SHARES
OF BENEFICIAL OWNER                                          BENEFICIALLY OWNED (1)  OUTSTANDING (1)
-----------------------------------------------------------  ----------------------  ---------------
5% Stockholders
---------------

<S>                                                                        <C>                 <C>
Alpha Capital Aktiengesellschaft
  Pradafant
  79490 Furstentums, Vaduz, Liechtenstein                                10,449,776             9.7%

Stonestreet Limited Partnership
  260 Town Centre Blvd.,
  Suite 201, Markham, ON, L3R 8H8, Canada                                 6,509,357             6.0%


Executive Officers and Directors (2)
------------------------------------
Michael A. Liccardo                                                      41,018,677            38.0%
Lawrence L. Bartlett (3)                                                  3,598,805             3.3%
Scott Mac Caughern                                                                0               *
All directors and executive officers as a group (3 persons)              44,617,482            41.3%

* Less than 1%.
</TABLE>

(1)  Unless otherwise indicated, this report assumes that none of the
     convertible debentures, investment options, convertible notes, reset
     options and warrants have been converted or exercised. At May 16, 2003 the
     market price for computation of shares on conversion of notes was $0.08. .

(2)  Unless otherwise indicated, the address of each of the persons or entities
     listed in the table is c/o Amnis Systems Inc., 3450 Hillview Avenue, Palo
     Alto, California 94304.


                                       35



<PAGE>


(3)  Includes 3,598,805 shares that may be acquired through the exercise of
     options currently or within 60 days of May 16, 2003.

     We are not aware of any arrangements that at a latter date may result in a
     change in our control.



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 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. Mr. Liccardo may, at any time, elect
to convert the outstanding principal of $1,000,783 of the convertible note 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
through January 14, 2003, and is also subject to customary adjustment in the
event of stock splits, dividends, recapitalizations and the like.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)(1) Financial Statements

The following financial statements are incorporated by reference in Item 7 of
this Report:



                                                                            Page
Independent Auditors' Report.................................................F-1
Consolidated Balance Sheets, December 31, 2002 and 2001......................F-2
Consolidated Statements of Operations for years ended
December 31, 2001 and 2000...................................................F-3
Consolidated Statements of Cash Flow for years ended
December, 2001 and 2000......................................................F-4
Statements of Stockholders' Deficit for years ended
December 31, 2001 and 2000...................................................F-5
Notes to Consolidated Financial Statements...........................F-6 to F-20

     (a)(2) 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.



                                       36


<PAGE>






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

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

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

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



                                       37


<PAGE>



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 by Scott MacLaughlin, Chief Executive Officer,
                    pursuant to Section 202 of the Sarganes Oxley Act of 2002.

31.2                Certification  by  Lawrence  A.  Bartlett,  Chief  Financial
                    Officer,  pursuant to Section 202 of the Sarganes  Oxley Act
                    of 2002.

32.1                Certification of the Chief Executive Officer of Amnis
                    Systems Inc. to 18 U.S.C. Section 1350, As Adopted Pursuant
                    to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2                Certification of the Chief Financial Officer of Amnis
                    Systems Inc. Pursuant to 18 U.S.C. Section 1350, As Adopted
                    Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.3*******         Code of Ethics and Business Conduct of Officers, Directors
                    and Employees of Amnis Systems Inc.



+ 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

                                       38


<PAGE>



****** Filed as an exhibit to the report on Form 8-K filed with the Securities
and Exchange Commission on June 27, 2002

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

(b) Reports on Form 8-K

None.

ITEM 14. CONTROLS AND PROCEDURES.

As of December 31, 2002, an evaluation was performed under the supervision and
with the participation of the Company's management, including the Chief
Executive Officer and the Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures. Based
on that evaluation, the Company's management, including the Chief Executive
Officer and the Chief Financial Officer, concluded that the Company's disclosure
controls and procedures were effective as of December 31, 2002. There have been
no significant changes in the Company's internal controls or in other factors
that could significantly affect internal controls subsequent to December 31,
2002.

                                   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:  August 14, 2003              AMNIS SYSTEMS INC.

                                    By:   /s/ Scott Mac Caughern
                                       -----------------------------------------
                                       Scott Mac Caughern
                                       Chairman of the Board, President and
                                       Chief Executive Officer



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





Date:  August 14, 2003              By:   /s/ Scott Mac Caughern
                                       -----------------------------------------
                                       Scott Mac Caughern
                                       ------------------
                                       Director and Chairman of the Board and
                                       Chief Executive Officer

Date:  August 14, 2003              By:   /s/ Lawrence L. Bartlett
                                       -----------------------------------------
                                       Lawrence L. Bartlett
                                       Director, Vice President, Chief Financial
                                       Officer and Secretary



                                       39


<PAGE>



           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.

                                       40



<PAGE>



                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                        CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

                                      INDEX

                                      PAGE

                          INDEPENDENT AUDITORS' REPORT



     Report  on  Audited  Consolidated  Financial  Statements                F-1

FINANCIAL  STATEMENTS

     Consolidated  Balance  Sheet  as  of  December  31,  2002               F-2

     Consolidated  Statements  of  Operations  for  the  Years
       Ended  December  31,  2002  and  2001                                 F-3

     Consolidated  Statement  of  Stockholders'  Deficit  for  the  Years
       Ended  to  December  31,  2002  and  2001                             F-4

     Consolidated  Statements  of  Cash  Flows  for  the  Years
       Ended  December  31,  2002  and  2001                                 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.
PALO ALTO, CALIFORNIA

We have audited the accompanying consolidated balance sheet of Amnis Systems,
Inc. and Subsidiary as of December 31, 2002, and the related consolidated
statements of operations, stockholders' deficit and cash flows for each of the
two years in the period ended December 31, 2002. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our 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, 2002, and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended December 31, 2002, 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. 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
May 18, 2003



<PAGE>



                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 2002


<TABLE>
<CAPTION>

                                                                      AMNIS SYSTEMS INC. AND SUBSIDIARY

                                                                             CONSOLIDATED BALANCE SHEET
                                                                                      DECEMBER 31, 2002
=======================================================================================================


-------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>
ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                                                               $     87,470
  Accounts receivable, net of allowance for doubtful accounts of $103,000                      312,103
  Inventories, net of reserve of $283,863                                                      561,000
  Prepaid expenses and other current assets                                                     51,587
-------------------------------------------------------------------------------------------------------

    Total current assets                                                                     1,012,160
-------------------------------------------------------------------------------------------------------

PROPERTY AND EQUIPMENT
  Machinery and equipment                                                                    1,899,335
  Demonstration equipment                                                                      456,752
  Furniture and fixtures                                                                       496,433
  Leasehold improvements                                                                       351,111
-------------------------------------------------------------------------------------------------------

                                                                                             3,203,631
  Less:  Accumulated depreciation and amortization                                          (3,094,858)
-------------------------------------------------------------------------------------------------------

    Property and equipment, net                                                                108,773
-------------------------------------------------------------------------------------------------------

DEPOSITS                                                                                        10,740
-------------------------------------------------------------------------------------------------------

                                                                                          $  1,131,673
=======================================================================================================

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
  Financing obligations collateralized by accounts receivable                             $    917,666
  Stockholders' notes payable                                                                  105,000
  Accounts payable                                                                           1,737,607
  Accrued salaries                                                                             576,893
  Accrued vacation                                                                             212,835
  Accrued interest payable                                                                     239,246
  Convertible notes payable, current portion (net of discount of $309,804)                   1,302,959
  Deferred revenue                                                                             156,722
  Accrued warrant liability                                                                     47,076
  Other accrued expenses                                                                     1,859,999
----------------------------------------------------------------------------------------  -------------

    Total current liabilities                                                                7,156,003

LONG-TERM LIABILITIES:
  Convertible note payable, long-term portion (net of discount of 329,343)                     120,657
                                                                                          -------------

    Total liabilities                                                                        7,276,660
----------------------------------------------------------------------------------------  -------------

STOCKHOLDERS' DEFICIT:
  Preferred stock, $0.0001 par value; 20,000,000 authorized: none issued or outstanding              -
  Common stock, $0.0001 par value:
    Authorized - 400,000,000 shares
    Issued and outstanding - 66,294,203  shares                                                  6,629
  Additional paid-in capital                                                                22,459,213
  Accumulated deficit                                                                      (28,610,829)
----------------------------------------------------------------------------------------  -------------

    Total stockholders' deficit                                                             (6,144,987)
----------------------------------------------------------------------------------------  -------------

    Total liabilities and stockholder's deficit                                           $  1,131,673
=======================================================================================================
</TABLE>



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

                                       F-2


<PAGE>



                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT

<TABLE>
<CAPTION>


                                                   AMNIS SYSTEMS INC. AND SUBSIDIARY

                                               CONSOLIDATED STATEMENTS OF OPERATIONS
====================================================================================
                                                                  December 31
                                                          --------------------------
<S>                                                           <C>           <C>
For the years ended                                           2002          2001
------------------------------------------------------------------------------------
                                                                        (as restated)

SALES                                                     $ 2,240,136   $ 4,095,756

COST OF GOODS SOLD                                            890,572     1,276,439
--------------------------------------------------------  ------------  ------------

    Gross profit                                            1,349,564     2,819,317
--------------------------------------------------------  ------------  ------------

OPERATING EXPENSES
  Research and development                                  1,255,823     1,870,630
  Sales and marketing                                       1,772,971     2,822,510
  General and administrative                                3,306,048     2,940,662
--------------------------------------------------------  ------------  ------------

      Total operating exenses                               6,334,842     7,633,802
--------------------------------------------------------  ------------  ------------

      Loss from operations                                 (4,985,278)   (4,814,485)

OTHER INCOME (EXPENSE)
  Interest expense, net                                      (485,999)     (693,514)
  Amortization of discount on convertible notes payable    (3,858,770)            -
  Financing costs                                          (2,115,073)            -
  Gain on extinguishment of accounts payable                1,115,787             -
  Decrease in fair value of detachable warrants             1,055,504             -
  Other, net                                                  329,955        42,053
--------------------------------------------------------  ------------  ------------

       Total other income (expense)                        (3,958,596)     (651,461)
--------------------------------------------------------  ------------  ------------

Net loss before taxes                                      (8,943,874)   (5,465,946)
--------------------------------------------------------  ------------  ------------

  Income Tax                                                        -             -
--------------------------------------------------------  ------------  ------------

NET LOSS                                                  $(8,943,874)  $(5,465,946)
====================================================================================

BASIC AND DILUTED LOSS PER COMMON SHARE                   $     (0.26)  $     (0.57)
====================================================================================

WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC & DILUTED      34,698,065     9,635,791
====================================================================================

</TABLE>


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

                                       F-3


<PAGE>



                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

<TABLE>
<CAPTION>


                                                                                                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, 2000, as restated                       2,545,062   $       255   $ 7,016,122   $(14,201,009)  $(7,184,632)

  Issuance of common stock in connection with
    merger with Amnis Systems, Inc.                           6,564,200           656          (656)             -

  Issuance of common stock for converstion of notes payable   1,687,640           168     2,799,832      2,800,000

  Sale of common stock, net of offering costs                 1,488,889           149     1,380,972      1,381,121

  Issuance of common stock for services                         423,000            42       279,158        279,200

  Issuance of common stock for debt and interest                137,685            14       202,102        202,116

  Exercise of stock options                                     100,606            10        45,668         45,678

  Beneficial conversion feature of convertible note payable     247,722       247,722

  Issuance of common stock options to non-employees             197,605       197,605

  Net loss                                                   (5,465,946)   (5,465,946)
----------------------------------------------------------------------------------------------------------------------------------

BALANCE, December 31, 2001, as restated                      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)
=================================================================================================================================

</TABLE>


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

                                       F-4


<PAGE>



                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001


<TABLE>
<CAPTION>


                                                                         AMNIS SYSTEMS INC. AND SUBSIDIARY

                                                                     CONSOLIDATED STATEMENTS OF CASH FLOWS
==========================================================================================================
                                                                                       December 31
                                                                              ----------------------------
For the years ended                                                                2002           2001
----------------------------------------------------------------------------------------------------------
                                                                                              (as restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                            <C>            <C>
  Net loss                                                                     ($8,943,874)   ($5,465,946)
  Adjustments to reconcile net loss to
    net cash used in operating activities:
    Common stock and options issued for services                                   534,644        476,805
    Common stock issued for financing costs                                        288,750              0
    Employee salaries exchanged for stock                                        1,328,727              0
    Depreciation and amortization                                                   60,909        272,131
    Amortization of discount on convertible notes payable                        3,858,770              0
    Loss on disposal of property and equipment                                       1,627          5,306
    Gain on extinguishment of debt                                              (1,115,787)             0
    Forgiveness of debt                                                                  -        (42,967)
    Change in fair value of warrant liability                                   (1,055,504)             0
  Decrease in accounts receivable                                                   44,414        207,427
  Decrease in inventories                                                           63,056        482,593
  (Increase) decrease in prepaid expenses and other assets                          31,333        (32,684)
  Decrease in deposits                                                              74,150          8,380
  (Decrease) Increase in accounts payable                                          359,028        192,124
  Decrease in reserve for sales adjustment                                               -       (263,331)
  Increase (decrease) in accrued salaries                                         (189,393)       495,084
  Increase (decrease) in accrued vacation                                          (61,998)        15,363
  Increase (decrease) in accrued interest payable                                  342,421        393,098
  Increase (decrease) in deferred rent                                            (123,657)       (75,538)
  Increase (decrease) in deferred revenue                                           97,627         11,276
  Increase (decrease) in other accrued expenses                                  1,527,298        (50,141)
  (Decrease) in sublease deposits                                                  (72,800)        (1,007)
----------------------------------------------------------------------------------------------------------

    Net cash used in operating activities                                       (2,950,259)    (3,372,027)
----------------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment                                              (19,518)       (43,025)
----------------------------------------------------------------------------------------------------------

    Net cash used in investing activities                                          (19,518)       (43,025)
----------------------------------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Borrowings from stockholders                                                           -      1,737,178
  Proceeds from financing obligations collateralized by accounts receivable      1,578,031      1,225,231
  Payments on financing obligations collateralized by accounts receivable       (1,689,648)    (1,334,546)
  Proceeds from issuance of common stock                                         2,170,397      1,426,799
  Payment on notes payable                                                               -        (55,908)
  Proceeds from notes receivable                                                   500,000        250,000
  Proceeds from issuance of convertible notes payable                              450,000              -
----------------------------------------------------------------------------------------------------------

    Net cash provided by financing activities                                    3,008,780      3,248,754
----------------------------------------------------------------------------------------------------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                39,003       (166,298)

CASH AND CASH EQUIVALENTS, beginning of year                                        48,467        214,765
----------------------------------------------------------------------------------------------------------

CASH AND CASH EQUIVALENTS, end of year                                        $     87,470   $     48,467
----------------------------------------------------------------------------------------------------------


NON CASH INVESTING AND FINANCING ACTIVITIES:
  Accrued interest exchanged for common stock                                 $    140,736   $    202,116
  Note payable exchanged for common stock                                          250,000      2,800,000
  Convertible note payable exchanged for common stock                            2,435,154              -
  Note payable and interest in exchange for convertible note payable             3,547,920              -
  Discount on convertible note payable                                           3,997,917        500,000
----------------------------------------------------------------------------------------------------------

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid for income taxes                                                  $      2,400   $      1,600
  Cash paid for interest                                                      $    268,005   $    452,779
----------------------------------------------------------------------------------------------------------

</TABLE>


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

                                       F-5


<PAGE>



                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

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. This
transaction is being 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:

- 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. 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.

                             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, 2002 and 2001 of
$8,943,874 and $5,465,946, respectively, and at December 31, 2002, had a working
capital deficit of $6,143,843. These conditions raise substantial doubt as to
the 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 hired a new Chief Executive Officer and has obtained
additional funding from an existing investor and a commitment for additional
funds from this investor. The Company believes that with a new CEO and
sufficient capital to fund operations that the Company will be able to achieve
profitable operations, but there can be no assurance that

                                       F-6


<PAGE>



                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

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, 2002 and 2001, 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 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 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 2002, five customers accounted for 43% of net revenues. As of December
31, 2002, approximately 66% of accounts receivable were concentrated with five
customers. During 2001, five customers accounted for 48% 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.


                                       F-7


<PAGE>



                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001


                                  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, 2002.
Due to competitive and market pressures, it is reasonably possible that
additional provisions could be required in the future.

                             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.

                        IMPAIRMENT OF LONG-LIVED ASSETS

Long-lived assets to be held and used are analyzed for impairment whenever
events or changes in circumstances indicate that the related carrying amounts
may not be recoverable. The Company evaluates at each balance sheet date whether
events and circumstances have occurred that indicate possible impairment. If
there are indications of impairment, the Company uses future undiscounted cash
flows of the related asset or asset grouping over the remaining life in
measuring whether the assets are recoverable. In the event such cash flows are
not expected to be sufficient to recover the recorded asset values, the assets
are written down to their estimated fair value. Long-lived assets to be disposed
of are reported at the lower of carrying amount or fair value of asset less cost
to sell.

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

                              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-8


<PAGE>



                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

- 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.

- The Company further recognizes revenues from warranty contracts on a
straight-line basis over the contractual life of the warranty. The unrecognized
balance of the warranty is recorded as deferred revenue on the consolidated
balance sheet.

                             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, 2002 and 2001 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, 2002 and 2001,
the Company had outstanding warrants and options to purchase shares of common
stock of 18,536,935 and 15,207,850, 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, 2002 and 2001, 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-9


<PAGE>



                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

                       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 account for in accordance with emerging issues
task force ("EITF") 00-27 issued by the Financial Accounting Standards Board.

                                RECLASSIFICATION

Certain reclassifications have been made to the 2001 balances to conform to the
2002 presentation.

                   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangibles."
SFAS No. 142 addresses the initial recognition, measurement and amortization of
intangible assets acquired individually or with a group of other assets (but not
those acquired in a business combination) and addresses the amortization
provisions for excess cost over fair value of net assets acquired or intangibles
acquired in a business combination. The statement is effective for fiscal years
beginning after December 15, 2001, and is effective July 1, 2001, for any
intangibles acquired in a business combination initiated after June 30, 2001.
The Company has implemented this pronouncement.

In October 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," which requires companies to record the fair value of a liability
for asset retirement obligations in the period in which they are incurred. The
statement applies to a company's legal obligations associated with the
retirement of a tangible long-lived asset that results from the acquisition,
construction, and development or through the normal operation of a long-lived
asset. When a liability is initially recorded, the company would capitalize the
cost, thereby increasing the carrying amount of the related asset. The
capitalized asset retirement cost is depreciated over the life of the respective
asset while the liability is accreted to its present value. Upon settlement of
the liability, the obligation is settled at its recorded amount or the company
incurs a gain or loss. The statement is effective for fiscal years beginning
after June 30, 2002. The Company does not expect the adoption to have a material
impact to the Company's consolidated financial position or results of
operations.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." Statement 144 addresses the accounting and
reporting for the impairment or disposal of long-lived assets. The statement
provides a single accounting model for long-lived assets to be disposed of. New
criteria must be met to classify the asset as an asset held-for-sale. This
statement also focuses on reporting the effects of a disposal of a segment of a
business. This statement is effective for fiscal years beginning after December
15, 2001. The Company has implemented this pronouncement and has concluded that
the adoption has no material impact to the consolidated financial statements.

In April 2002, the FASB issued Statement No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This Statement rescinds FASB Statement No. 4, "Reporting Gains and
Losses from Extinguishment of Debt," and an amendment of that Statement, FASB
Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements" and FASB Statement No. 44, "Accounting for Intangible Assets of
Motor Carriers." This Statement amends FASB Statement No. 13, "Accounting for
Leases," to eliminate an inconsistency

                                      F-10


<PAGE>



                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

between the required accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. The Company elected early adoption and
has characterized its debt forgiveness as other than extraordinary.

In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." The provisions
of this Statement are effective for exit or disposal activities that are
initiated after December 31, 2002, with early application encouraged. The
Company does not expect the adoption to have a material impact to the Company's
financial position or results of operations.

In October 2002, the FASB issued Statement No. 147, "Acquisitions of Certain
Financial Institutions-an amendment of FASB Statements No. 72 and 144 and FASB
Interpretation No. 9," which removes acquisitions of financial institutions from
the scope of both Statement 72 and Interpretation 9 and requires that those
transactions be accounted for in accordance with Statements No. 141, Business
Combinations, and No. 142, Goodwill and Other Intangible Assets. In addition,
this Statement amends SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, to include in its scope long-term customer-relationship
intangible assets of financial institutions such as depositor- and
borrower-relationship intangible assets and credit cardholder intangible assets.
The requirements relating to acquisitions of financial institutions are
effective for acquisitions for which the date of acquisition is on or after
October 1, 2002. The provisions related to accounting for the impairment or
disposal of certain long-term customer-relationship intangible assets are
effective on October 1, 2002. The adoption of this Statement did not have a
material impact to the Company's consolidated financial position or results of
operations as the Company has not engaged in either of these activities.

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 as the Company has not elected to change to
the fair value based method of accounting for stock-based employee compensation.

In May 2000, the Emerging Issues Task Force (EITF) issued EITF Issue No. 00-14,
"Accounting for Certain Sales Incentives." EITF Issue No. 00-14 addresses the
recognition, measurement, and income statement classification for sales
incentives that a vendor voluntarily offers to customers (without charge), which
the customer can use in, or exercise as a result of, a single exchange
transaction. Sales incentives that fall within the scope of EITF Issue No. 00-14
include offers that a customer can use to receive a reduction in the price of a
product or service at the point of sale. The EITF changed the transition date
for Issue 00-14, concluding that a company should apply this consensus no later
than the company s annual or interim financial statements for the periods
beginning after December 15, 2001. In June 2001, the EITF issued EITF Issue No.
00-25, "Vendor Income Statement Characterization of Consideration Paid to a

                                      F-11


<PAGE>



                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

Reseller of the Vendor's Products," effective for periods beginning after
December 15, 2001. EITF Issue No. 00-25 addresses whether consideration from a
vendor to a reseller is (a) an adjustment of the selling prices of the vendor's
products and, therefore, should be deducted from revenue when recognized in the
vendor's statement of operations or (b) a cost incurred by the vendor for assets
or services received from the reseller and, therefore, should be included as a
cost or expense when recognized in the vendor s statement of operations. Upon
application of these EITFs, financial statements for prior periods presented for
comparative purposes should be reclassified to comply with the income statement
display requirements under these Issues. In September of 2001, the EITF issued
EITF Issue No. 01-09, "Accounting for Consideration Given by Vendor to a
Customer or a Reseller of the Vendor's Products," which is a codification of
EITF Issues No. 00-14, No. 00-25 and No. 00-22, "Accounting for Points and
Certain Other Time-or Volume-Based Sales Incentive Offers and Offers for Free
Products or Services to be Delivered in the Future." The Company has adopted
these issues in 2002 which did not have a material impact on the Company's
consolidated financial statements.

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. The Company does not expect the
adoption to have a material impact to the Company's consolidated financial
position or results of operations.

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, 2002, borrowings under
this agreement were $917,666. The balance bears interest at 18% per annum.
Pacific Business Funding has allowed the Company to exceed its credit limit
available on this agreement without any penalties. This amount is included on
the consolidated balance sheet as "Financing obligations collateralized by
accounts receivable".

NOTE 3 - INVENTORIES

Inventories at December 31, 2002 consisted of the following:



Raw materials                                 $   241,456
Work-in-process                                   483,778
Demonstration inventory                           119,629
                                                  -------
                                                  844,863
Less reserve for inventory obsolescence and
 demonstration inventory refurbishing costs      (283,863)
                                                 --------
                                              $   561,000
                                              ===========



                                      F-12


<PAGE>



                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

Certain of the Company's products contain components that are supplied by a
limited number of third parties. While the Company has an inventory of these
components, any significant prolonged shortage of these components, or the
failure of these suppliers to maintain or enhance these components could
materially adversely affect the Company's consolidated results of operations.

NOTE 4 - NOTE PAYABLE

An unsecured note payable in the amount of $250,000 was issued in February of
2001. The note bears interest at 10% per annum. Interest and principal were due
one year from the date of issuance. In March 2002, the Company entered into an
agreement converting this note payable and related interest of $25,890 into
275,890 shares of the Company's common stock of the Company.

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, certain of these notes aggregating $3,204,375 were
exchanged for a convertible note.

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 the lesser of $0.385 or the average
of the lowest trading prices over the previous 20 days trading. 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 finders 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 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 $500,000, and will be amortized over the year life of the debenture.
For the year ended December 31, 2002, $252,055 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. The
Company 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.

                                      F-13


<PAGE>



                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

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, 2002, $3,486,058 has been
amortized to interest expense, due to the passage of time and conversions into
shares of common stock. 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.

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 note payable and as accrued warrant liability 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 $429,679,
respectively. The combined total discount is $450,000, and will be amortized
over the life of the debenture. For the year ended December 31, 2002, $120,657
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. The Company 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.

NOTE 7 - OTHER ACCRUED EXPENSES

Other accrued expenses at December 31, 2002 consisted of the following:

Penalty for not registering shares issued in February 2002 $237,600 Penalty for
not registering shares underlying

                                      F-14


<PAGE>



                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001



 convertible debentures                                         160,500
Value of reset option provision in June 18, 2002 agreement    1,307,487
Other                                                           154,412
                                                            -----------

                                                            $ 1,859,999
                                                            ===========



NOTE 8 - ACCRUED WARRANT LIABILITY

Under the terms the convertible debentures issued on December 28, 2001 and June
18, 2002 (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, in accordance with the guidelines of EITF
00-19, the fair value of the warrants was initially recorded as accrued warrant
liability. Furthermore, the classification of the warrants as a liability
require variable accounting, with remeasurement of the fair value of the
warrants at each balance sheet, with any adjustments reflected in earnings.

These outstanding warrants were remeasured at December 31, 2002 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 ranging from 212% to 242%. The allocated liability related to the warrants
was $47,076 at December 31, 2002 and the Company has recorded an additional
$1,055,504 of other income for the year ended December 31, 2002.

NOTE 9 - STOCKHOLDERS' DEFICIT

On June 25, 2002, the Company amended its certificate of incorporation to
increase the total number of shares authorized to 420,000,000; 400,000,000
designated as common stock with par value of $0.0001 and 20,000,000 designated
as preferred stock with par value of $0.0001.

During the year ended December 31, 2002, the Company settled with its employees
for unpaid compensation by issuing 3,207,180 shares of common stock in lieu of
cash in the amount of $1,328,727. 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 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 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

                                      F-15


<PAGE>



                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

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.
See Note 7.

In June 2002, the Company's Board of Directors adopted the 2002 Stock Plan.
20,000,000 shares are authorized for issuance, of which, 8,847,000 have been
granted through December 31, 2002.

NOTE 10 - COMMITMENTS AND CONTINGENCIES

LEASE COMMITMENTS

The Company leases office and manufacturing space, under a non-cancelable
operating lease, which expired in December 2002. The Company is currently on a
month-to-month lease for this office space Rental expense was approximately
$1,249,000 and $1,310,000 for the years ended December 31, 2002 and 2001

The Company subleased a substantial portion of its leased facilities under an
operating lease that expired February 2002. Sublease income for the year ended
December 31, 2002 and 2001 was approximately $321,000 and $1,065,000,
respectively. These amounts are reflected as a reduction of rent expense on the
consolidated statement of operations.

                                   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. Future payments under these agreements for
the years ended December 31, 2003 and 2004 are $520,000 and $130,000,
respectively. Generally, the employment agreements are automatically renewed for
successive one year terms, unless either party submits a notice not to renew
within certain days prior to the term of the initial or renewal term. If the
Company terminates these agreements without cause or the employee resigns with
good reason, as defined, the Company shall pay severance compensation to the
employee in a lump sum equal to the greater of twelve months of base salary or
the base salary for the remaining term of the agreements.

                          PROVISION FOR CONTRACT COSTS

                                      F-16


<PAGE>



                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

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, 2002, the
Company has accrued a provision for contract costs of $159,249 based on an audit
by the DCAA.

          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, 2002, 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.

NOTE 11 - STOCK OPTION PLANS AND WARRANTS

                                 STOCK OPTIONS

The Company has three stock option plans: the 1997 Stock Plan (the "1997 Plan"),
the 2000 Stock Plan (the "2000 Plan") and the 2002 Stock Plan (the "2002 Plan")
(collectively, the "Plans"). The 1997 Plan has 3,993,482 shares authorized for
issuance. The 2000 Plan has 5,500,000 shares authorized for issuance. The 2002
Plan has 20,000,000 shares authorized 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 ten years from the date of
grant (five years for a 10% stockholder) and vest over four years.

Stock option activity under the Plans is as follows:



                                                                      Weighted-
                                                            Stock      Average
                                                           Option     Exercise
                                                            Plan       Price
                                                         -----------  --------
Balance,  December  31,  2000                                     -   $     -
          Assumed  upon adoption of Optivision 1997 Plan  4,060,185   $  0.61
          Granted                                         3,785,300   $  1.12
          Exercised                                        (100,606)  $  0.44
          Canceled                                       (1,556,233)  $  0.76
                                                         ----------

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
                                                         ==========

Exercisable  at  December  31,  2002                     10,495,295   $  0.27
                                                         ==========


                                      F-17


<PAGE>



                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

The following table summarizes information about stock options outstanding at
December 31, 2002:



          Options Outstanding                       Options Exercisable
  -------------------------------------      ----------------------------------

                            Weighted
                            Average
                           Remaining     Weighted                 Weighted
 Range of                 Contractual     Average                 Average
 Exercise      Number         Life       Exercise      Number     Exercise
  Price     Outstanding    (in years)     Price     Exercisable    Price
----------  ------------  ------------  ----------  ------------  --------
0.00-$1.00  11,641,208           2.9  $       0.14   7,709,985  $       0.18
1.01-$2.00   2,891,949           9.1          1.37   2,724,642          1.45
3.00            87,500           8.0          3.00      59,856          3.00
4.00               812           3.8          4.00         812          4.00
            -----------   ----------  ------------  ----------  ------------
            14,621,469           4.2  $       0.40  10,495,295  $       0.27
            ===========   ==========  ============  ==========  ============



In accordance with SFAS No. 123, the Company recognized $0 and $197,605 of
expense for the year ended December 31, 2002 and 2001, 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, 2002 and 2001:



                                                   2002           2001
                                               -------------  -----------
Net  loss:
     As  reported                              $ (8,943,874)  $(5,465,946)
     Pro  forma                                $ (9,123,246)  $(5,577,729)

Basic and diluted loss per common share:
     As  reported                              $     (0.26)   $     (0.57)
     Pro  forma                                $     (0.26)   $     (0.57)



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, 2002 and 2001, 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
139.1% and 137.4%; and a weighted average expected life of the option of 3 and 4
years.

                                      F-18


<PAGE>



                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

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.

                                    WARRANTS

The following table summarizes information about warrants outstanding at
December 31, 2002:



        Warrants  Outstanding                 Warrants  Exercisable
---------------------------------------  --------------------------------

                            Weighted
                            Average
                            Remaining    Weighted                 Weighted
  Range of                 Contractual    Average                 Average
  Exercise      Number        Life       Exercise      Number     Exercise
    Price    Outstanding   (in years)     Price     Exercisable    Price
  ---------  ------------  -----------  ----------  ------------  --------
  0.021      1,100,000           4.0  $     0.021   1,100,000  $      0.021
  0.0436       655,466           4.5  $    0.0436     655,466  $     0.0436
  0.13         810,000           4.1  $      0.13     810,000  $       0.13
  2.75       1,350,000           3.3  $      2.75   1,350,000  $       2.75
            -----------  -----------  ------------  ---------  ------------
             3,915,466         3.9    $      0.99   3,915,466  $       0.99
            ===========  ===========  ============  =========  ============



NOTE 12 - 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, 2002 are as
follows:



Deferred  tax  assets:
     Federal  net  operating  loss          $  9,728,000
     State  net  operating  loss               1,699,000
     Tax  credits                                185,000
     Other                                        14,000
                                            ------------
     Total  deferred  tax  assets             11,626,000

     Less  valuation  allowance              (11,626,000)
                                             -----------



                                      F-19


<PAGE>



                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001



The increase in the valuation allowance for the years ended December 31, 2002
and 2001 was $3,572,000 and $2,186,000, respectively. This is as a result of the
increase in net deferred tax assets, primarily net operating loss carryforwards
(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 carryforwards at December 31, 2002 were approximately
$28,600,000 for federal and state income tax purposes. The net operating loss
carryforwards expire on various dates through the year 2017. The Internal
Revenue Code contains provisions which may limit the net operating loss
carryforwards 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 carryforwards and other timing difference at December 31, 2002.
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, 2002 and 2001 is as follows:


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

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%
                                     ========  =======



The income tax expense for the years ended December 31, 2002 and 2001, reflect
the minimum California state franchise tax.

NOTE 13 - 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, 2002 and
2001.

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

NOTE 14 - RESTATEMENT OF 2001 FINANCIAL STATEMENTS

                                      F-20


<PAGE>



                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

The Company has restated its 2001 financial statements 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.
Accordingly, the historical financial statements are those of Optivision.

The effects of the restatement are as follows:


<TABLE>
<CAPTION>

                                                       as  previously
                                                           filed        as  restated
                                                       ---------------  ------------
<S>                                                     <C>              <C>
          Accumulated deficit at January 1, 2001 (1)   $     (113,053)  $(14,201,099)
          Accumulated deficit at December 31, 2001(1)  $  (21,797,659)  $(19,66,955)
          Sales for 2001 (2)                           $    2,363,879   $ 4,095,756
          Net loss for 2001(3)                         $  (21,684,606)  $(5,465,946)
</TABLE>

(1) The beginning accumulated deficit reported at January 1, 2001 has been
restated to reflect the accumulated deficit balance of Optivision at that date.

(2) The recording of the full year of operating activity for Optivision as
compared to the operating activity of Optivision from April 19, 2001 to December
31, 2001 as previously reported, and

(3) The write off of goodwill of $17,877,694 that was established using the
purchase method of accounting as previously reported. There was no such write
off in the restated financial statements as goodwill was not recorded as a
result of accounting for the transaction as a recapitalization of Optivision.



NOTE 15 - SALES BY REGION

The Company's sales by geographic regions are as follows for the years ended
December 31, 2002 and 2001:


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

United States                   $  1,539,964  $     3,186,793
Hong Kong                             10,443          418,144
Canada                               284,476           49,715
Germany                              223,015          107,263
Other                                182,238          333,841
                                ------------  ---------------

Effective income tax rate       $  2,240,136  $     4,095,756
                                ============  ===============



NOTE 16 - 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

                                      F-21


<PAGE>



                       AMNIS SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

of the debt forgiven.

NOTE 17 - SUBSEQUENT EVENTS

On May 16, 2003 the Company closed on a $1 million Convertible Promissory note
funding. As of May 12, in anticipation of the funding closing, the Company had
rehired 10 employees and begun rebuilding the Company's operations.

In May 2003, the Company settled a reset option provision in connection with the
private placement offering in February 2002, amended on June 18, 2002 for a
$910,120 convertible debenture. This amount was recorded in accrued liabilities
at December 31, 2002 in the accompanying consolidated balance sheet.

From January 1, 2003 to May 16, 2003, the Company has issued 41,157,449 shares
of its common stock as follows: 4,217,737 to employees and consultants for
services rendered; 24,439,712 for conversion of debt and 12,500,000 issued and
held in escrow per the terms a the December 28, 2001 convertible note payable
agreement.

                                      F-22