WASHINGTON, D.C. 20549

                                   FORM 10-KSB

 (X)   Annual Report under Section 13 or 15(d) of the Securities Exchange Act
              of 1934 for the fiscal year ended DECEMBER 31, 2001

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

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

      2301 W. 205th Street, #106,                          Torrance, CA 90501
     ----------------------------                        ---------------------
(Address of principal executive offices)                 (City, state and ZIP)

                     Issuer's telephone number 310-328-0477

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

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

                     Common Stock Par Value $.001 per share

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days (X) Yes ( ) No.

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

State issuer's revenues for its most recent fiscal year:   $ 697,597

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

      Non-affiliate Equity: 7,175,061 shares @ $.07 per share = $502,254

The number of shares outstanding of the issuer's common stock as of
 March 30, 2002  was 14,550,313.

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

                                     PART 1



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


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

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



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

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

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

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

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


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

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

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

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


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

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

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

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

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

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



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

         The Company has also supplied a modified version of the Infrared/Video
ENG System to a distributor on a private label basis. These private label sales
have represented a significant portion of sales of the product. Since May of
2001 the private label distributor has purchased an average of three units per

         The market for the ENG products is relatively mature and represents
only annual growth estimated at 5%, but because of the advancement of technology
spurred by the Company's introduction of video data acquisition methods in 1994,
the market for replacement products has been strong.

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

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


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

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


         MEDICAL PRODUCTS. The principal competitors in the medical market
making ENG testing equipment are Micromedical Technologies, Inc., ICS Medical
Corporation and SensoMotorific Inc. Since the Company's ENG product was
introduced in 1994, competitors have developed similar video-based ENG goggle
products. As a result, the market has become very competitive and subject to
pricing pressures. As a consequence, the Company has reduced prices, with an
adverse effect on overall gross margins. To combat this competitive pressure the
Company has reduced manufacturing costs in an effort to offset the gross margin

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

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

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


         The SafetyScope also competes with drug and alcohol abuse test kits and
devices, which principally rely on collection and testing of urine samples. In
addition, certain drug and alcohol abuse tests now being developed will test
saliva and/or hair for evidence of drug or alcohol abuse. The main advantage the
product has over many others tests is the immediacy of results and
non-invasiveness of the procedure. The Company believes that the potential for
safety that it will provide for life-dependent professions such as airline
pilots, bus drivers and train engineers will make the system a very important


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

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

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


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


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


         The Company is the owner of a patent issued in August 1992, covering
certain technology underlying the SafetyScope, principally relating to the
apparatus for testing for impairment by tracking eye movements and pupil
reactions to presented stimuli. This patent expired due to lack of payment of
patent maintenance fees by the Company's patent counsel. The Company has filed a
petition with the U.S. Patent and Trademark Office to have the patent

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

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


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


         The Company's offices are in leased space in an industrial complex
Torrance, California. The offices are 960 square feet in size and the lease
expires on April 30, 2003.





                                     PART II


         The following table sets forth the quarterly high and low closing
prices for the Common Stock, as reported on the OTC Bulletin Board, during the
2000 and 2001 fiscal years.


                                             LOW               HIGH
                                             ---               ----
         First Quarter                      $.42              $.44
         Second Quarter                      .23               .29
         Third Quarter                       .08               .10
         Fourth Quarter                      .08               .10

         First Quarter                       .41               .90
         Second Quarter                      .09               .53
         Third Quarter                       .09               .70
         Fourth Quarter                      .25               .53

         The Company's common stock is traded on the OTC Bulletin Board under
the symbol "EYDY". As of March 22, 2002, the Company's Common Stock was held of
record by approximately 125 holders. Registered ownership includes nominees who
may hold securities on behalf of multiple beneficial owners.

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

         During January 2001, the Company sold 250,000 units in a private
offering to one individual, at a price of $.20 per Unit. Each Unit consisted of
one share of Common Stock and two Warrants. Each Warrant is exercisable for one
year and entitles the holder to purchase one share of Common Stock; the first
warrant carries an exercise price of $.35 per share and the second carries an
exercise price of $.75 per share. Also, in November 2001 the Company sold
250,000 shares of common stock to two investors at a price of .08 per share.

         During the year the Company also issued 809,000 unregistered shares for
consulting, investor relations, public relations, and similar services.

         During 2001 an employee exercised an option and acquired 100,000 shares
upon exercise at an exercise price of $.01 per share.

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


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


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

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


Year Ended December 31, 2001 Compared to Year Ended December 31, 2000.

         Revenues from sale of products decreased by 11% from $779,996 in 2000
to $697,597 in 2001. This decrease is due to reduced sales of the Infrared/Video
ENG System. For the first four months of the year there were no purchases by our
private label distributor. Since May of 2001, purchases by that distributor have
averaged over three systems each month, which is consistent with our
expectations. However, since September, and for the fourth quarter, sales of the
medical product dropped drastically to only one or two each month. The Company
attributes this situation to the September 11th disaster, which occurred in the
middle of our most important trade show of the year. Physicians and others who
purchase our products have pulled back in their purchase commitments, and we
have not yet regained the momentum that was lost in the fourth quarter. Cost of
sales decreased by 12%, due to a decrease in units sold, and gross profit
increased by 1%, from 56% in 2000 to 57% in 2001. Operating expenses increased
by 40%, due principally to costs associated with the introduction of the
"SafetyScope" product line and the effort to attract equity financing. Net loss
increased by $243,875, or 81%, due to the increase in operating expenses and
other expenses relating to commercialization efforts for the SafetyScope


         Inventory turnover ratio in 2001 was approximately 3:1, compared to
5.7:1 in 2000. This is a reflection of the business slowdown experienced in the
fourth quarter. Inventory has been reduced, and is currently in line with a
turnover ratio Of 5:1 for the 2002 year.

         Collection of accounts receivables has been very good, with only
minimal slow paying accounts. Year end accounts receivable were fully paid in
January 2002 except for one invoice for $550. In particular, our private label
account pays all invoices within fifteen days of the invoice date.

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


         As of December 31, 2001, the Company had an accumulated deficit of
approximately $3,828,737. As of that date, the Company had $23,623 in cash, and
approximately $82,578 in net accounts receivable and $115,518 in inventory.
Also, the Company had $863,224 of current liabilities, consisting principally of
a single promissory note and accrued interest on that note. The note payable
became due on December 31, 1999. The Company has held discussions with the payee
of the note, but has been unable to achieve a settlement or extension of the
note. On March 21, 2002 the payee of the note made formal demand for payment of
the note or turnover of the assets securing the note. The note is secured by
substantially all the assets of the Company.

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

         The Company believes that current and future available capital
resources, cash flow from operations and other existing sources of liquidity
will be adequate to fund its operations for the remainder of the current fiscal
year. However, there can be no assurance that sufficient funds will be available
or that future events will not cause the Company to seek additional capital
sooner, including, but not limited to, the failure by the Company to timely
collect outstanding accounts receivable. To the extent the Company is in need of
any additional financing, there can be no assurance that any additional
financing will be available to the Company on acceptable terms, or at all. The
inability to obtain such financing could have a material adverse effect on the
Company's business, financial condition and results of operations. If additional
funds are raised by issuing equity or convertible debt securities, options or
warrants, further dilution to the existing shareholders may result. The
Company's liquidity and ability to raise additional capital are also dependent
on the resolution of a dispute with a former distributor over a note issued to
the distributor, which note is currently in default. Notwithstanding the
default, the Company is still in active negotiation with the former distributor
for extension of the note or conversion to equity.

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


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



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



                                    PART III


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

         NAME                AGE               POSITION                              SINCE
         ----                ---               --------                           -----------
Charles E. Phillips          66       President, Treasurer & Director                  1991

Ronald A. Waldorf            53       Vice President, Secretary & Director             1991

Arnold D. Kay                66       Director                                         1999

Barbara J. Mauch             56       Chief Product Development Engineer               ----

         The directors are elected annually at the Annual Shareholders Meeting
and the term of office is one year.

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

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


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

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

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

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

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

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


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


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


         Based upon a review of filings made and other information available to
it, the Company believes that each of the Company's present Section 16 reporting
persons filed all forms required of them during the year 2001 by Section 16(a).



         The following table sets forth certain compensation awarded or paid by
the Company to its President and Chief Executive Officer during the fiscal years
ended December 31, 2001 and December 31, 2000. No other executive officers'
total annual salary and bonus for services to the Company exceeded $100,000.

                                     SUMMARY COMPENSATION TABLE

                                                                                  LONG-TERM COMPENSATION
                                       ANNUAL COMPENSATION            AWARDS             PAYOUTS
                            ------------------------------------  ------------------------------------
                                                                   RESTRICTED                   LTIP
NAME AND                             SALARY     BONUS     OTHER   STOCK AWARDS     OPTIONS     PAYOUTS     ALL OTHER
PRINCIPAL POSITION          YEAR       $          $         $         $                #          $        COMPENSATION
------------------          ----     ------     -----     -----     ------         -------     -------     ------------
Charles E. Phillips         2001     72,000     0          0         0                   0        0           0
                            2000     64,500     0          0         0             100,000        0           0
                            1999     60,000     0          0         0              20,000        0           0

         There were no options granted in 2001.

         The following table sets forth certain information concerning options
exercised and outstanding at December 31, 2001:


                                                          Number of         Value of Unexercised
                          Shares                         Unexercised             In-the-money
                        Acquired on      Value            Options at              Options at
                         Exercise       Realized      December 31, 2000*      December 31, 2000*
                        ----------      --------      ------------------      ------------------
Charles E. Phillips            0           0               100,000                 $15,000

Ronald Waldorf           100,000      $8,900                     0                       0

Arnold Kay                     0           0                     0                       0

*All currently exercisable


         The following table sets forth information regarding the beneficial
ownership of the Common Stock of the Company as of March 22, 2002, by (i) each
person known by the Company to beneficially own 5% or more of the outstanding
Common Stock of the Company; (ii) each of the Company's directors; (iii) the
Named Executive Officers identified in the Summary Compensation Table; and (iv)
all directors and Named Executive Officers of the Company as a group.

Name & Address                      Number of Shares            Percentage Owned
--------------                      ----------------            ----------------
Charles E. Phillips
2301 W. 205th St., #106              2,205,489 (1)                    15.4 (1)
Torrance, CA 90501

Ronald A. Waldorf
2301 W. 205th St., #106              1,681,152                        11.7
Torrance, CA 90501

Barbara J. Mauch                     1,432,544 (2)                    10.0 (2)
2301 W. 205th St., #106
Torrance, CA 90501

Arnold D. Kay                          316,316                         2.2
2301 W. 205th St., #106
Torrance, CA 90501

All directors and executive
officers as a group                  4,202,957                        29.3
(4 persons)

(1)      Includes 100,000 shares covered by options exercisable within 60 days

(2)      Includes 50,000 shares covered by options exercisable within 60 days


         Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Except as indicated by footnote, and subject
to community property laws where applicable, the persons named in the table
above have sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them. Shares of Common Stock subject to
securities currently convertible, or convertible within 60 days after March 22,
2002, are deemed to be outstanding in calculating the percentage ownership of a
person or group but are not deemed to be outstanding as to any other person or


         Since inception, the Company has borrowed funds from Mr. Charles E.
Phillips, its President and Chief Executive Officer, and from employee Barbara
Mauch, under various promissory notes. These notes bear interest at 10% per
annum and are unsecured. As of December 31, 2001, the balance of the notes was
$15,000, and the unpaid accrued interest totaled $71,715. The principal balance
of $15,000 was paid to Mr. Phillips in January 2002, but the accrued interest
remains outstanding.

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


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

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

3(ii)*   Bylaws

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

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

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

10.4**   Standard Multi-Tenant Commercial Industrial Lease-Gross, dated January
         25, 1996, between the Company and AmberJack, Ltd. , and Amendments No.
         1, No. 2 and No. 3.

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

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

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



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

Eye Dynamics, Inc.

                                             By: /s/ Charles E. Phillips
Date: April 10, 2002                         Charles E. Phillips, President
                                             and Chief Financial Officer

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

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

/s/ Charles E. Phillips         President, Chief Financial     April 10, 2002
        Charles E. Phillips         Officer and a Director

/s/ Ronald A. Waldorf           Chairman and a Director        April 10, 2002
        Ronald A. Waldorf

/s/ Arnold Kay                  Director                       April 10, 2002
       Arnold Kay


                          INDEPENDENT AUDITOR'S REPORT

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

I have audited the accompanying consolidated balance sheet of Eye Dynamics, Inc.
(a Nevada corporation) and its subsidiary, Oculokinetics, Inc. (a California
corporation), as of December 31, 2001, and the related consolidated statements
of operations, changes in stockholders' deficit, and cash flows for the years
ended December 31, 2001 and 2000. These consolidated financial statements are
the responsibility of the Company's management. My responsibility is to express
an opinion on these consolidated financial statements based on my audits.

I conducted my audits in accordance with auditing standards generally accepted
in the United States. Those standards require that I plan and perform the audits
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 financial statement presentation. I believe that my audits provide a
reasonable basis for my opinion.

In my opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Eye
Dynamics, Inc. and its subsidiary as of December 31, 2001, and the results of
their consolidated operations and their consolidated cash flows for the years
ended December 31, 2001 and 2000, in conformity with accounting principles
generally accepted in the United States.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 16 to
the consolidated financial statements, the Company's operating losses, deficit
in stockholders' equity and working capital raise substantial doubt about its
ability to continue as a going concern. Management's plans regarding those
matters are also described in Note 16. The consolidated financial statements do
not include any adjustments that might result from the outcome of this

/s/ Harold Y. Spector, CPA

Harold Y Spector, CPA
Pasadena, California
March 8, 2002


                        EYE DYNAMICS, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                                December 31, 2001

Current Assets
  Cash                                                              $    23,623
  Accounts Receivable                                                    82,578
  Employee Advances and Receivable                                       62,147
  Inventory                                                             115,518
  Prepaid Expense                                                         3,093
    Total Current Assets                                                286,959

Property and Equipment, net of
  Accumulated depreciation of $12,888                                     1,875

Other Assets                                                                882

TOTAL ASSETS                                                        $   289,716

Current Liabilities
  Accounts Payable & Accrued Expenses                               $    53,903
  Accrued Interest                                                      308,102
  Customers' Deposits                                                    24,000
  Line of Credit                                                         45,248
  Notes Payable, current portion                                        431,971
    Total Current Liabilities                                           863,224

Contingent Liabilities                                                   61,000

Stockholders' Deficit
  Common Stock, $0.001 par value;
    50,000,000 shares authorized;
    14,350,313 shares issued and
    outstanding                                                          14,350
  Paid-in Capital                                                     3,345,936
  Unamortized Expenses(Contra-Equity)                                  (166,057)
  Accumulated Deficit                                                (3,828,737)
    Total Stockholders' Deficit                                        (634,508)

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                         $   289,716

   The accompanying notes are an integral part of these consolidated financial


                        EYE DYNAMICS, INC. AND SUBSIDIARY
                   For years ended December 31, 2001 and 2000

                                                     2001               2000
                                                 -------------     -------------
Sales                                            $    697,597      $    779,996

Cost of Sales                                         302,057           342,958
                                                 -------------     -------------
Gross Profit                                          395,540           437,038

Operating Expenses                                    881,631           630,366
                                                 -------------     -------------
Loss from Operations                                 (486,091)         (193,328)
                                                 -------------     -------------

Other Income(Expense)
  Interest and Other Income                             4,784            16,121
  Consulting Fees - Nonoperating                           --           (88,000)
  Interest Expense                                    (43,498)          (35,723)
  Settlement                                          (20,000)               --
                                                 -------------     -------------

    Total Other Income(Expenses)                      (58,714)         (107,602)
                                                 -------------     -------------

Net Loss before Taxes                                (544,805)         (300,930)

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

Net Loss                                         $   (546,405)     $   (302,530)
                                                 =============     =============

Net Loss per share-Basic and Diluted             $      (0.04)     $      (0.03)
                                                 =============     =============

Weighted average number of shares                  12,268,896        10,180,433
                                                 =============     =============

   The accompanying notes are an integral part of these consolidated financial


                                          EYE DYNAMICS, INC. AND SUBSIDIARY
                                      For years ended December 31, 2001 and 2000

                                     Common Stock             Paid-in       Expenses     Accumulated
                                 Shares         Amount        Capital    (Contra-Equity)   Deficit          Total
                              ------------   ------------   ------------  ------------   ------------   ------------
Balance at 12/31/99             9,139,460    $     9,139    $ 2,459,063   $         0    $(2,979,802)   $  (511,600)

Issuance of Stock for
 Consulting, Financial
 Advising, and Public
 Relation expenses              1,450,000          1,450        293,050       (68,833)                      225,667

Issuance of Stock for
 converting a payable              76,853             77         19,423                                      19,500

Private Placement Sales           750,000            750        149,250                                     150,000

Shareholder's Contribution                                        7,758                                       7,758

Net Loss                                                                                    (302,530)      (302,530)
                              ------------   ------------   ------------  ------------   ------------   ------------

Balance at 12/31/00            11,416,313         11,416      2,928,544       (68,833)    (3,282,332)      (411,205)

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

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

Exercise of Options               100,000            100                                                        100

Warrants issued for services                                     14,000                                      14,000

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

Balance at 12/31/01            14,350,313    $    14,350    $ 3,345,936   $  (166,057)   $(3,828,737)   $  (634,508)
                              ============   ============   ============  ============   ============   ============

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


                           EYE DYNAMICS, INC. AND SUBSIDIARY
                       For years ended December 31, 2001 and 2000

                                                               2001            2000
                                                            ----------      ----------
  Net Loss                                                  $(546,405)      $(302,530)
  Adjustments to reconcile net loss to net
   cash used by operating activities:
    Depreciation                                                2,609           2,667
    Stock for Services                                        239,002         225,667
    Warrants for Services                                      14,000               0
    (Increase) Decrease in:
     Accounts Receivable                                       75,896         (39,246)
     Inventory                                                (55,786)         (9,649)
     Interest Receivable on Employee Loan                      (4,454)             --
     Prepaid and Others                                         9,625           7,344
    Increase (Decrease) in:
     Accounts Payable and Accrued Expenses                      6,174         (19,308)
     Other Liabilities                                         85,000              --
     Accrued Interest                                          37,730          35,629
                                                            ----------      ----------
Net cash used by operating activities                        (136,609)        (99,426)
                                                            ----------      ----------

  Employee Advances and Receivable                            (55,169)         (2,524)
                                                            ----------      ----------
Net cash used by investing activities                         (55,169)         (2,524)
                                                            ----------      ----------

  Proceeds from issuing of Common Stock                        70,100         150,000
  Net Advance from Line of Credit                              44,891              --
  Net Proceeds from Notes Payable                                  --          10,250
  Net Proceeds from (Payments to) Shareholders                 14,722         (23,192)
                                                            ----------      ----------
Net cash provided by financing activities                     129,713         137,058
                                                            ----------      ----------

NET INCREASE (DECREASE) IN CASH                               (62,065)         35,108

CASH BALANCE AT BEGINNING OF YEAR                              85,688          50,580
                                                            ----------      ----------

CASH BALANCE AT END OF YEAR                                 $  23,623       $  85,688
                                                            ==========      ==========
  Interest Paid                                             $   3,741       $      94
                                                            ==========      ==========
  Taxes Paid                                                $   1,600       $   1,600
                                                            ==========      ==========

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


                         EYE DYNAMICS, INC. & SUBSIDIARY
                   For Years ended December 31, 2001 and 2000


Eye Dynamics, Inc. ("the Company") was formed under the laws of Nevada on August
7, 1989 under the name Petro Plex, Inc. and adopted later as Drug Detection
Systems, Inc. The Company changed its name to Eye Dynamics, Inc. and became
registered in California as a foreign corporation on November 2, 1992.

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


Principles of Consolidation

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

The subsidiary had no operations in both years of 2001 and 2000. All revenue is
derived from the Company.

Use of estimates

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

Cash Equivalents

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

Fair Value of Financial Instruments

The carrying amounts of the financial instruments have been estimated by
management to approximate fair value.


                         EYE DYNAMICS, INC. & SUBSIDIARY
                   For Years ended December 31, 2000 and 1999


Revenue Recognition

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

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

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

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

Accounts Receivable

Management of the Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts become
uncollectible, they will be charged to operations when that determination is
made. Bad debt expense for years ended December 31, 2001 and 2000 was $81 and
$708, respectively.


Costs incurred for materials, technology and shipping are capitalized as
inventories and charged to cost of sales when revenue is recognized.

Inventories consist of finished goods and are stated at the lower of cost or
market, using the first-in, first-out method.

Property and Equipment

Property and Equipment are valued at cost. Maintenance and repair costs are
charged to expenses as incurred. Depreciation is computed on the straight-line
method based on the estimated useful lives of the assets. Depreciation expense
was $2,609 and $2,667 for 2001 and 2000, respectively.


                         EYE DYNAMICS, INC. & SUBSIDIARY
                   For Years ended December 31, 2001 and 2000


Stock-based Compensation

The Company accounts for equity-based instruments issued or granted to employees
using the intrinsic method as prescribed under APB No. 25 Accounting for Stock
Issued to Employees. During 1995, the FASB issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
No. 123), which defines a fair value based method of accounting for stock
options or similar equity instruments. The Company has elected to adopt the
disclosure-only provisions of SFAS No. 123 in accounting for employee stock
options. The Company accounts for stock issued to non-employees in accordance
with the provisions of SFAS No. 123 and the Emerging Issues Task Force (EITF)
Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services." SFAS No. 123 states that equity instruments that are issued in
exchange for the receipt of goods or services should be measured at the fair
value of the consideration received or the fair value of the equity instruments
issued, whichever is more reliably measurable. Under the guidance in Issue
96-18, the measurement date occurs as of the earlier of (a) the date at which a
performance commitment is reached or (b) absent a performance commitment, the
date at which the performance necessary to earn the equity instruments is
complete (that is, the vesting date).

Income Taxes

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

Advertising Costs

All advertising costs are expensed as incurred. Advertising expenses were $3,133
and $3,998 for 2001 and 2000, respectively.


                         EYE DYNAMICS, INC. & SUBSIDIARY
                   For Years ended December 31, 2001 and 2000


Shipping and Handling Costs

In September 2000, the Emerging Issues Task Force (EITF) reached a final
consensus on EITF Issue 00-10, "Accounting for Shipping and Handling Fees and
Costs." This consensus requires that all amounts billed to a customer in a sale
transaction related to shipping and handling, if any, represent revenue and
should be classified as revenue. The Company historically has classified
shipping charges to customers as revenue. With respect to the classification of
costs related to the shipping and handling incurred by the seller, the EITF
determined that the classification of such costs is an accounting policy
decision that should be disclosed. It also determined that if shipping costs or
handling costs are significant and are not included in cost of sales, a company
should disclose both the amount(s) of such costs and the line item(s) on the
income statement that include them. The Company historically has included
inbound shipping charges in cost of sales and classified outbound shipping
charges as operating expenses. For years ended December 31, 2001 and 2000, the
outbound shipping charges included as operating expenses were $27,000 and
$25,033, respectively.


Certain reclassifications have been made to the 2000 consolidated financial
statements to conform with the 2001 consolidated financial statement
presentation. Such reclassification had no effect on net loss as previously

Recent Accounting Pronouncements

In June 2001, Statement of Financial Accounting Standards ("SFAS") No.141,
"Business Combinations" was issued establishing accounting and reporting
standards requiring all business combinations initiated after June 30, 2001, to
be accounted for using the purchase method. SFAS No. 141 is effective for the
Company for the fiscal quarter beginning July 1, 2001. The impact of this
statement is dependent on future acquisition activity.

Also in June 2001, SFAS No. 142 "Goodwill and Other Intangible Assets" was
issued effective for the first period of all fiscal years beginning after
December 15, 2001, with early adoption permitted for entities with Fiscal years
beginning after March 15, 2001. SFAS No. 142 requires goodwill to be tested for
impairment under certain circumstances, and written off when impaired, rather
than being amortized as previous standards required. The Company currently does
not own any intangible assets and as a result, does not anticipate any impact on
the Company's consolidated financial statements.


                         EYE DYNAMICS, INC. & SUBSIDIARY
                   For Years ended December 31, 2001 and 2000


Recent Accounting Pronouncements

In September 2000, SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" was issued effective for
all related transactions occurring after March 31, 2001. The statement replaces
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". The new statement, while largely including the
provisions of SFAS No. 125, revises the standards for accounting for
securitizations and other transfers of financial assets and collateral and
requires certain additional disclosure. The statement was effective for the
Company for the fiscal quarter beginning April 1, 2001 and the Company believes
the adoption will not have a significant impact on its financial position.

In July 2000, the EITF began discussing Issue 00-18, "Accounting Recognition for
Certain Transactions involving Equity Instruments Granted to Other Than
Employees". The issues are (a) the grantor's accounting for a contingent
obligation to issue equity instruments (subject to vesting requirements) when a
grantee performance commitment exists but the equity instrument has not yet been
issued, (b) the grantee's accounting for the contingent right to receive an
equity instrument when a grantee performance commitment exists prior to the
receipt (vesting) of the equity instrument, and (c) for equity instruments that
are fully vested and nonforfeitable on the date the parties enter into an
agreement, the manner in which the issuer should recognize the fair value of
equity instruments. However, the EITF did not reach a consensus on any of these
issues, and further discussion of Issue 00-18 is expected at a future meeting.
The Company is currently evaluating the impact of Issue 00-18.

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


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

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


                         EYE DYNAMICS, INC. & SUBSIDIARY
                   For Years ended December 31, 2001 and 2000


The Company has an operating line of credit with Wells Fargo Bank of $65,000,
with interest payable at the bank's prime rate plus 2.75%. This line of credit
is payable on demand and is personally guaranteed by the Company's President. As
of December 31, 2001 and 2000 the amount drawn against the line was $45,248 and
$0, respectively.


                                                            As of December 31,
                                                        2001             2000
                                                     ----------       ----------

a.) Notes Payable to Officer,
    compound interest accrued at
    10%; due 60 days after dates
    of notes, unsecured                              $  15,000        $     278

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

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

                                                       431,971          417,249
Less: Current Maturities                              (431,971)        (417,249)
                                                     ----------       ----------

Notes Payable, Long-Term                             $      --        $      --
                                                     ==========       ==========


On December 29, 1993, the Company entered into a settlement agreement and mutual
release with TESA Corporation, a former distributor. The agreement provided a
payment of $400,000 with simple interest at 7% per annum, payable on or before
December 31, 1999. The note principal is payable in monthly installments of 11%
of gross revenue on the sales (See Note 4c). As of December 31, 2001 and 2000,
interest of $223,987 and $195,987 was accrued, respectively. No principal
payments were made in either year. The Company is currently negotiating the


                         EYE DYNAMICS, INC. & SUBSIDIARY
                   For Years ended December 31, 2001 and 2000


In addition, the Company agreed to repurchase from TESA up to nine product
units, which were previously sold by the Company to TESA through its
wholly-owned subsidiary, Oculokinetics, Inc. For each unit resold to the
customer, the Company is obliged to repurchase the unit for $10,250. There was
no purchase commitment if the unit was not resold. During the years ended
December 31, 2001 and 2000, the Company sold one unit in each year, and as of
those dates, the Company had remitted $10,250 and $0, respectively, to TESA. The
balance owed to TESA related to these consigned inventories was included in Note
Payable - TESA (See Note 5c).


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

Provision for income taxes in the consolidated statements of operations for
years ended December 31, 2001 and 2000 consist of $1,600 minimum state income
taxes in each year, $800 for each corporation.

As of December 31, 2001, the Company has net operating loss carryforwards,
approximately, of $1,387,882 to reduce future taxable income. The subsidiary has
NOL carryforwards of $1,482,874. To the extent not utilized, both carryforwards
will begin to expire through 2021. The Company's ability to utilize its net
operating loss carryforwards is uncertain and thus a valuation reserve has been
provided against the Company's net deferred tax assets.

The deferred net tax assets consist of the following at December 31:

                                         Parent Company             Subsidiary
                                      2001         2000         2001         2000
                                   ----------   ----------   ----------   ----------
Net Operating Loss Carryforwards   $ 471,880    $ 285,636    $ 504,177    $ 503,905
Valuation Allowance                 (471,880)    (285,636)    (504,177)    (503,905)
                                   ----------   ----------   ----------   ----------
Net deferred tax assets            $       -    $       -    $       -    $       -
                                   ==========   ==========   ==========   ==========


In August 2000, the Company conducted a self-underwritten offering of 1,000,000
units, consisting of one share of common stock and two stock warrants at $0.20
per unit. One warrant to be for purchase of one share of common stock at $.35
per share and the second warrant to be for purchase of one share of common stock
at $.75 per share. The warrants expire in one year after purchase of the above
described unit. The private placement offering was completed in January 2001.
The Company sold all 1,000,000 units and received $200,000 in proceeds. On
August 24, 2001, the Board of Directors approved to extend the expiration date
of warrants for six months.


                         EYE DYNAMICS, INC. & SUBSIDIARY
                   For Years ended December 31, 2001 and 2000


During 2001 and 2000, the Company issued substantial amounts of common stock to
various consultants for public and investor relations, financial consulting, and
strategic planning and consulting services. The shares are fully vested and
nonforfeitable. The Company recorded the stock transactions at their fair market
value, capitalized the costs of transactions, and amortized them over the length
of the services. For years ended December 31, 2001 and 2000, there were
2,334,000 and 1,450,000 shares of common stock issued to nonemployees for their
services, respectively. The total costs of transactions were $336,226 and
$294,500, respectively. As of December 31, 2001 and 2000, the balance of
unamortized costs was $166,057 and $68,833, respectively. The unamortized costs
were included in equity section as a contra-equity.

The Company also sold 250,000 shares of common stock to two private investors at
$0.125 per share and received $20,000 in cash.

In 2000, the Company converted a consulting fee payable of $19,500 into 76,853
shares of common stock.


Stock Options

In the past years, the Company issued non-qualified stock options to officers,
directors, employees and other service providers of the Company. During the
years ended December 31, 2001 and 2000, the Company granted 0 and 150,000
options, respectively. As of those dates, there were 150,000 and 2,310,000
outstanding options, respectively. The range of exercise price is from $0.001 to
$0.54. The options may be exercised no later than three years from the date of
issuance. The weighted average fair value of options granted by the Company as
of December 31, 2001 and 2000 was $0.18 and $0.19, respectively. There were
100,000 shares of options exercised at $0.001 per share in 2001. None were
exercised in 2000.

A summary of the status of the Company's stock option as of December 31, 2001
and 2000, and changes during the years then ended is presented below:

                                              2001                      2000
                                     ------------------------- ------------------------
                                                   Weghted                    Weghted
                                        Number     Average        Number      Average
                                          of       Exercise         of        Exercise
                                        Shares      Price         Shares       Price
                                     ------------------------- ------------------------
Outstanding at beginning of Year      2,310,000    $    0.29     2,560,000    $   0.27
Granted                                      --           --       150,000        0.15
Exercised                              (100,000)        0.001           --          --
Expired and Cancelled                (2,060,000)        0.32      (400,000)       0.10
Outstanding at end of Year              150,000    $    0.15     2,310,000    $   0.29

Exercisable at end of Year              150,000    $    0.15     2,310,000    $   0.29


                         EYE DYNAMICS, INC. & SUBSIDIARY
                   For Years ended December 31, 2001 and 2000


The outstanding options at December 31, 2001 were excercisable at $0.15 per
share with remaining lives of 1.08 years.

The Company has elected to account for its stock-based compensation under APB
Opinion No. 25 an accounting standard under which no related compensation was
recognized in 2001 or 2000, the year of the grant; however, the Company has
computed for pro forma disclosure purposes, the value of all options granted
during the year ended December 31, 2001 and 2000 using the Black-Scholes option
pricing model as prescribed by SFAS No. 123 and the weighted average assumptions
as follows:

                                                            December 31,
                                                         2001         2000
Weighted average fair value per option granted         $ 0.18        $ 0.19
Risk-free interest rate                                  1.75%         5.00%
Expected dividend yield                                  0.00%         0.00%
Expected lives                                           1.08          3.00
Expected volatility                                      0.70          0.30

For purposes of pro forma disclosures, the estimated fair value of options is
amortized to expense over the options' vesting period. The Company's pro forma
information follows:

                                                              December 31,
                                                           2001         2000
Net Loss as reported                                    $(546,405)    $(302,530)
Net Loss (pro forma)                                    $(559,455)    $(315,580)
Basic and Diluted net loss per share as reported        $   (0.04)    $   (0.03)
Basic and Diluted net loss per share (pro forma)        $   (0.05)    $   (0.03)

Stock Warrants

As discussed in Note 8, the Company sold warrants in a private placement
offering to purchase up to 2,000,000 shares of common stock at exercise prices
of $0.35 or $0.75 per share. These warrants will expire through January 2002. In
August 2001, the Board of Directors approved to grant a six-month extension on
these warrants.

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


                         EYE DYNAMICS, INC. & SUBSIDIARY
                   For Years ended December 31, 2001 and 2000


A summary of the status of the Company's warrants as of December 31, 2001, and
changes during the year then ended is presented below:

                                                   2001                    2000
                                                       Weighted                Weighted
                                                       Average                 Average
                                                       Exercise                Exercise
                                           Number of     Price      Number of   Price
                                           Warrants    Per Share    Warrants   Per Share
Outstanding at beginning of year           1,500,000   $   0.55           --   $     --
Granted                                      700,000       0.63    1,500,000       0.55
Exercised, Expired and Cancelled                  --         --           --         --
Outstanding at end of year                 2,200,000   $   0.57    1,500,000   $   0.55

Exercisable at end of year                 2,200,000   $   0.57    1,500,000   $   0.55


Net loss per share is computed based on the weighted average number of shares of
common stock outstanding during the period. Basic net loss per share for years
ended December 31, 2001 and 2000 was $0.04 and $0.03, respectively. Net loss per
share does not include options and warrants as they would be anti-dilutive in
2001 and 2000 due to the net loss in those years.

                                                        Year ended December 31,
                                                         2001          2000
  Net Loss                                            $ (546,405)    $ (302,530)
  Weighted Average of Common Shares                   12,268,896     10,180,433

Basic and diluted net loss per share                  $    (0.04)    $    (0.03)


INFORMATION" requires that a publicly traded company must disclose information
about its operating segments when it presents a complete set of financial
statements. Since the subsidiary did not have any operations in 2001 or 2000,
and the Company has only one segment; accordingly, detailed information of the
reportable segment is not presented.


                         EYE DYNAMICS, INC. & SUBSIDIARY
                   For Years ended December 31, 2001 and 2000


As disclosed in Note 5a, the Company had notes payable to the officers in the
amounts of $15,000 and $278 as of December 31, 2001 and 2000, respectively. As
of these dates, balance of accrued interest was $71,715 and $63,542,
respectively. Interest expense charged on these notes totaled $8,173 and $6,429
in those years, respectively.


During 2001 and 2000, the Company had two major customers, sales to which
exceeded 10% of the Company's total sales. Sales to this customer totaled
$286,955 and $234,958 for the years ended December 31, 2001 and 2000,



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


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

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

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

The Company also agreed to pay another consultant an engagement fee of $50,000
under a Financial Consulting Services Agreement. The Company agreed that 25% of
any funding will be payable to the consultant until the full amount owed to the
consultant is fully paid. If no funding occurs, the payment will not be paid to
the consultant.

In September 2000, the Company entered into an agreement providing that the
Company will pay $6,000 per month for public relations through February 2001.


                         EYE DYNAMICS, INC. & SUBSIDIARY
                   For Years ended December 31, 2001 and 2000


Lease Commitments

The Company leases its office facilities for $941 per month. The lease expires
April 2002. Rent expense totaled $10,702 and $9,368 for 2001 and 2000,

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

As of December 31, 2001, the minimum lease payments under these leases are:

                        Year ended
                       December 31,                    Amount
                    -------------------             --------------
                           2002                        $ 6,212
                           2003                          2,448
                           2004                          2,448
                           2005                            408


The accompanying consolidated financial statements are presented on the basis
that the Companies are going concerns. Going concern contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business over a reasonable length of time. As shown in the accompanying
consolidated financial statements, the Company incurred a net loss of $546,405
and $302,530 for years ended December 31, 2001 and 2000, respectively, and as of
December 31, 2001, the Company's current liabilities exceeded its current assets
by $576,265 and its total liabilities exceeded its total assets by $634,508.

With funds from the private placement and upon the completion of the research,
the Company began to market and publicize its second product line, Impairment
Detection device. Management is also actively increasing marketing efforts to
increase revenues. The Company continued existence depends on its ability to
meet its financing requirements and the success of its future operations. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.


On February 25, 2002, the Company settled a pending lawsuit through a mediation
conference (See Note 15).

In February, the Company entered into a proposal to issue restricted common
stock at a 25% discount price to purchase the consigned inventory of $41,000
from a prior distributor based on the Settlement Agreement and Mutual Release
signed in 1993 (See Note 6). Management believes the likelihood of this event is
probable and accordingly, a provision of $41,000 was included in the
accompanying financial statements. The proposal also proposed to extend the due
date of note payable to July 1, 2002.