UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C.  20549
                                   FORM 10-KSB
(Mark One)
[X]   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934

           For the fiscal year ended: December 31, 2001

[ ]   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:  $4,095,755.

The  aggregate  market  value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold,  or the average bid and asked price of such common equity, as of March 25,
2002,  was  $10,508,566.

The  number  of  shares  outstanding  of  each of the issuer's classes of common
equity  as  of  March  25,  2002  was  17,668,897  shares

Documents  incorporated  by  reference:  None

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


                                        1
<PAGE>
<TABLE>
<CAPTION>
                                TABLE OF CONTENTS
                                                                Page
                                                                ----
                                     PART I

<S>       <C>                                                    <C>
ITEM 1.   DESCRIPTION OF BUSINESS. . . . . . . . . . . . . . .    3
ITEM 2.   DESCRIPTION OF PROPERTY. . . . . . . . . . . . . . .   21
ITEM 3.   LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . .   21
ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.   21

                                    PART II

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED
          STOCKHOLDER MATTERS. . . . . . . . . . . . . . . . .   22
ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
          OPERATION. . . . . . . . . . . . . . . . . . . . . .   23
ITEM 7.   FINANCIAL STATEMENTS . . . . . . . . . . . . . . . .   25
ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE. . . . . . . . .   25

                                    PART III

ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
          CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE
          EXCHANGE ACT . . . . . . . . . . . . . . . . . . . .   26
ITEM 10.  EXECUTIVE COMPENSATION . . . . . . . . . . . . . . .   28
ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
          AND MANAGEMENT . . . . . . . . . . . . . . . . . . .   35
ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . .   36
ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . .   37
</TABLE>


                                        2
<PAGE>
              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  are a Delaware corporation providing hardware and software products for
the  creation,  management  and  transmission  of  high resolution, full-motion,
full-screen  video  over  computer  networks.  Our  products  provide  key video
infrastructure  components  for  broadband  networks  based on various transport
protocols,  including  the  Internet  protocol, or IP, and asynchronous transfer
mode,  or ATM, protocol. Our products enable the deployment of industry standard
MPEG  digital  video  in  such  diverse  applications  as  interactive  distance
learning, corporate training, video courier services, telemedicine, corporate TV
channel,  cable TV content distribution, broadcast news distribution, and remote
surveillance.  MPEG  is  the  Motion  Picture  Expert  Group  that has developed
standards  for  compression  and  decompression of digital video. Our technology
enables  its  network  clients  to:

     -    Capture, encode and compress high-quality video from any source,
          including cable, wireless, satellite, tape or live;

     -    Store high-quality video locally or in remote network video servers;

     -    Transmit live or stored high-quality video across a computer or public
          network;

     -    Manage high-quality video distribution as a part of the total
          application; and

     -    Play live or stored high-quality video on a TV monitor, desktop PC or
          set-top box.


                                        3
<PAGE>
     We  are  subject  to  a  number  of business risks affecting companies at a
similar  stage of development, including competition from companies with greater
resources  and alternative technologies, the ability to obtain financing to fund
future operations, dependence on new product introductions in a rapidly changing
technological  environment,  dependence  on  a  limited  number  of  customers,
dependence  on  key  employees  and the ability to attract and retain additional
qualified  personnel.

     We have a working capital deficit of $7,438,697 as of December 31, 2001 and
negative  cash flow from operations. These factors raise substantial doubt about
our  ability  to continue as a going concern. There is no assurance that we will
be  able to achieve successful operations, obtain sufficient financing or obtain
a  line  of  credit.

PRODUCTS

     NAC-3000 - Streaming MPEG Video Server for IP Networks

     Our  NAC-3000  series is a solution for video networking applications which
require  low  cost,  high  quality,  dynamic  and  scalable  MPEG video capture,
encoding  and  network  transmission.  The  NAC-3000 utilize streaming engine to
support  IP  multicasting,  and  a  broad  range  of  MPEG  profiles  and  video
resolutions.  They  also  interoperate with our existing network video products,
including  LiveMap(TM)  network  management  software,  LivePlayer(TM) streaming
media  desktop  player,  and  our  live  streaming  video  receiver/decoder. The
NAC-3000  live streaming video servers/encoders directly connect to Ethernet and
are  available  in  three configurations: MPEG-1 for low bandwidth needs, MPEG-2
for  interactive  low  latency  applications  and  MPEG-2  full  resolution  for
applications requiring full broadcast TV quality. The NAC-3000 is also available
with  choice  of  AC  or  12v  DC  input  power.

     NAC-3000-DVB - Streaming MPEG Video Server for DVB-ASI Networks

     Our Systems NAC 3000-DVB is a solution for streaming MPEG-1 or MPEG-2 video
for  mobile,  satellite  or cable TV applications requiring a DVB-ASI interface.
The  NAC-3000-DVB is available with either AC or 12v DC input power and provides
the  smallest  footprint, lowest power consumption and quietest operation of any
product  in  its  category.

     NAC-4000 - Streaming MPEG Video Receiver for IP Networks

     Our  Systems  NAC-4000  series  is  a  network  attached MPEG video over IP
receiver  and  decoder.  It receives and decodes mpegNet generated video streams
from  our  network  video  products.  The NAC-4000 is compatible with all of our
streaming  video  products,  including  the  NAC-3000 series, VS-Pro series, and
LiveMap  network  manager.  The  NAC-4000  directly  connects  to  Ethernet. The
combination  of  NAC-3000  and NAC-4000 products provide the smallest footprint,
lowest power consumption and quietest operation of any matched set of MPEG video
codes  in  the  market.

     VS-Pro - Streaming MPEG Video for WAN Applications


                                        4
<PAGE>
     Our  VS-Pro  is  a  multi-channel  network  attached streaming video system
supporting  MPEG-1  and  MPEG-2  video/audio  distribution over ATM, T1, Gigabit
Ethernet,  IP,  etc.  networks.  The  VS-Pro  uses  the mpegNet engine to insure
compatibility  and  interoperability  with  our  other  products.

     LivePlayer - Streaming MPEG Media Desktop Player

     LivePlayer  plays  streaming  or  stored  MPEG  video  on  a desktop PC. It
supports full resolution MPEG-1 or MPEG-2 video streams on a Windows desktop PC.
Users  can also separate the video window from LivePlayer and simultaneously run
other  desktop applications in other windows. In addition, users may also enable
or  disable  the  display  of any graphic user interface fields for the improved
look  and  feel.

     LiveMap - Streaming Network Video Management Software

     LiveMap  is  a  network  video  management software application that allows
remote  configuration  and  control  of our NAC, VS-Pro, and LS-Pro products. It
uses  industry standard SNMP, runs on a Windows desktop PC and can be integrated
into  industry  standard  network  management  platforms.

     mpegStudio Pro - High Performance MPEG Video Encoding and Network Transport
System

     Our  mpegStudio  Pro  VS-2311B  MPEG  Video  Encoding and Network Transport
Systems  provide  scalable,  broadcast-quality  MPEG-1  and  MPEG-2  for network
store-and-forward applications. Included with the VS-2311B is our mpegStudio Pro
4.0  software.  This  client/server  application  enables  simultaneous  video
encoding,  file  storage  and  network  transport  of  MPEG video files using an
intuitive  GUI.

SALES AND MARKETING

     We sell our products to a network of value added resellers, or VARs, system
integrators  and  original equipment manufacturers, or OEMs directly through our
sales  force.  Our  products  are  currently deployed for enterprise and service
provider applications that require high quality streaming video such as distance
learning,  video surveillance, conferencing, corporate communications, training,
telemedicine,  special  live  event  broadcasting,  and  content  distribution.
Enterprise  users  include  corporations,  government  agencies,  educational
institutions, hospitals and other institutions with broadband IP based networks.

     Our  North American sales organization covers the U.S. and Canadian markets
and manages our system integrators, VARs and partners. Selected overseas markets
are  covered by systems integrators and VARs in Europe with a dedicated regional
sales  manager based in Germany. We have recently added a regional sales manager
based  in  Korea  to  cover  the  Asia  Pacific  region.


                                        5
<PAGE>
     Through  our partners with whom we have established strategic co-marketing,
joint  product  interoperability  testing  and  joint  business  development
relationships,  we  have  the  opportunity  to  expand  our sales, marketing and
distribution  channels  by  leveraging  the  extensive sales force and marketing
relationships  of  our partners to reach new customers and markets. Our partners
include  industry  leaders  in  network equipment such as Cisco Systems, Extreme
Networks,  Nortel,  and  video  server  vendors  such  as Kasenna, Infovalue and
Concurrent.

MARKETS

     The  digital  video  and  networking  market  is  characterized  by  rapid
technological changes and multiple evolving standards, and if we fail to enhance
our  existing  products,  develop new and more technologically advanced products
and  successfully  market  these products, our result of operations will 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  streaming  video  network  and  broadband Internet video
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. In addition, we or our competitors may
announce  products  that  have  the  potential  to shorten the life cycle of, or
replace, our products. We have made such announcements in the past and may do so
in  the future. Such announcements could cause customers not to buy our products
or to defer decisions to buy our products. In addition, products or technologies
developed by others could render our products or technologies non-competitive or
obsolete.

     Digital  video products generally, and video network and broadband Internet
video  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  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 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
production  volume  as  necessary. This strategy also permits us to focus on our
core  competencies  of  rapid  product  development  and  deployment.


                                        6
<PAGE>
     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.

DISTRIBUTION

     We  use  a network of value added resellers, consisting primarily of system
integrators  and  original equipment manufacturers with established distribution
channels  to  assist  with  the  marketing  of our products and installation and
servicing  of  our  streaming  video  network  products.

COMPETITION

     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.,  which  was  recently acquired by
Pinnacle  Systems,  Inc.,  Optibase  Ltd.  and  Vbrick  Systems  Inc.

     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 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 expect price competition
to  increase  in  the  video  networking  industry.

     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 architectures 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 scalable MPEG-4 encoding and decoding technologies;


                                        7
<PAGE>
      -     Enhance current products for use in video surveillance and distance
            learning applications

      -     Provide greater network management and control capability;

      -     Support network attached storage and server functions; and

      -     Accommodate different bandwidth constraints and fluctuations.

     Our  research  and development expenditures were approximately $1.9 million
and $1.8 million for fiscal years ended December 31, 2001 and December 31, 2000,
respectively.

TRADEMARKS

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

PROPRIETARY RIGHTS

     Our  future success and ability to compete are dependent, in part, upon our
proprietary technology. We rely on patent, trade secret, trademark and copyright
law  to protect our intellectual property. We have one U.S. patent issued by the
U.S. Patent and Trademark Office in the area of scalable video coding method and
apparatus.  We cannot be sure that any patents will be issued pursuant to future
patent  applications  or  that  patents  issued  to  us will not be invalidated,
circumvented,  challenged  or licensed to others. In addition, we cannot be sure
that  the rights granted under any such patents will provide us with competitive
advantages  or  that  any  patents  issued  to  us  will  be  adequate  to  stop
unauthorized  third  parties  from  copying our technology, designing around our
patents  or  otherwise  obtaining  and  using  our  products,  designs  or other
information.  In  addition,  we  cannot  be  sure  that  others will not develop
technologies  that  are  similar  or superior to our technology. Furthermore, we
believe  that  factors  such  as  the  technological  and creative skills of our
personnel,  new  product  developments,  product  enhancements  and  marketing
activities  are  just as essential as the legal protection of proprietary rights
to  establishing  and  maintaining  a  competitive  position.

     In  addition  to patent protection, we rely on unpatented trade secrets and
know-how  and  proprietary  technological innovation and expertise, all of which
are  protected  in  part  by confidentiality and invention assignment agreements
with  our  employees  and consultants, and, whenever possible, our suppliers. We
cannot  make  any assurances that these agreements will not be breached, that we
will  have  adequate remedies for any breach, or that our unpatented proprietary
intellectual  property  will  not  otherwise  become  known  or  independently
discovered  by  competitors. We also cannot make any assurances that persons not
bound by an invention assignment agreement will not develop relevant inventions.


                                        8
<PAGE>
     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.
From  time to time, we receive notices relating to alleged infringement. In some
cases,  we  have  not received subsequent communications after responding to the
initial  claim.  In  some  cases,  we  have resolved the matters on commercially
reasonable terms. However, we cannot be sure that future claims will be resolved
on  such terms, and failure to resolve such claims on such terms could result in
a  material  adverse  effect on our business, financial condition and results of
operations.  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

     Historically,  a  substantial  portion  of our revenues has come from large
purchases  by  a  small  number  of customers. 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.
During  2001 and 2000, four customers accounted for 52% and 44% of net revenues,
respectively.  As  of  December  31,  2001  and 2000, approximately 44% and 45%,
respectively,  of  accounts  receivable  were  concentrated with five customers.

                                        9
<PAGE>
     The following is a list of some of our customers and end-users and
representative applications of our products.


-------------------------------------------  --------------------------
CUSTOMER/END-USER                                 APPLICATIONS
-------------------------------------------  --------------------------
-    U.S. West, Cisco/Maricopa County        Surveillance
     (Arizona)
-    Department  of  Transportation
-    Lockheed  Martin/Orange  County
-    U.S.  Coast  Guard  (Houston,  Texas)
-------------------------------------------  --------------------------
-    Verizon Communications/University of    Distance learning
     Hawaii
-    NDI Solutions/Bay-Arenac Independent
     School District (Michigan)
-    Tulsa Fire Department
     Oregon State University, Kansas State
-    University, University of Nebraska
-------------------------------------------  --------------------------
-    GNI-China                               Cable TV content
                                             distribution
-------------------------------------------  --------------------------
-    Hughes Network Systems                  Satellite video content
                                             delivery service
-------------------------------------------  --------------------------
-    Discovery Channel                       Video content distribution
-    AT&T
-    Defense Information Systems Agency
-    Eli Lilly
-------------------------------------------  --------------------------
-    Olympus                                 Telemedicine
-------------------------------------------  --------------------------

     EMPLOYEES

     We  employ  a  total  of  22  full  time  employees,  which include four in
engineering,  eight  in  sales  and marketing, five in manufacturing and five in
administration  and  finance.


                                       10
<PAGE>
                                  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.

THERE IS SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.

     We  have  received  a report from our independent auditors on our financial
statements  for  fiscal  years  ended  December  31, 2001 and 2000, in which our
auditors  have  included  explanatory  paragraphs  indicating that our recurring
operating  losses,  stockholders'  deficit  and  working  capital  deficit cause
substantial  doubt  about  our  ability  to  continue  as  a  going  concern.

WE HAVE A HISTORY OF LOSSES, AND WE MAY NOT GENERATE SUFFICIENT REVENUES IN THE
FUTURE TO ACHIEVE OR SUSTAIN PROFITABILITY.

     We  have  generated limited revenues and incurred significant losses. As of
December  31,  2001, we had an accumulated deficit of approximately $19,640,644.
To  achieve  profitability,  we  will need to generate and sustain substantially
higher  revenues while maintaining reasonable cost and expense levels. We intend
to  significantly  increase  our  operating  expenses,  especially our marketing
expenses,  and  research  and development expenses. Our future revenues could be
influenced  by  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. To the extent that our revenues do
not  grow or even continue at their current level, we may not become profitable.

DETERIORATING  MARKET  CONDITIONS  AND  CONTINUED  ECONOMIC  UNCERTAINTY  COULD
MATERIALLY  ADVERSELY  IMPACT  OUR  REVENUES  AND  GROWTH  RATE.

     The  revenue  growth and profitability of our business depends primarily on
the  overall  demand  for  our  products.  Softening  demand  for these products
resulting  from ongoing economic uncertainty may result in decreased revenues or
earnings levels or growth rates. If the economic conditions in the United States
worsen  or  if  a wider global economic slowdown occurs, demand for our products
may  weaken,  and our business, operating results, financial condition and stock
price  may  be  materially  adversely  affected  as  a  result.

OUR QUARTERLY OPERATING RESULTS FLUCTUATE.

     Our  quarterly  operating results have varied significantly in the past and
are  likely  to vary significantly in the future. These variations result from a
number  of  factors,  including:


                                       11
<PAGE>
     -    the  timing  of  purchases  of  our products by system integrators and
          other  large  customers;

     -    the uncertain timing and level of market acceptance of new products we
          introduce;

     -    the  loss  of  major  customers;

     -    product  introductions  and  other  actions  taken by our competitors;

     -    changing  networking  standards  in the digital video industry and our
          ability  to  anticipate  and react to such changes in a timely manner;

     -    changes  in  sales  and  distribution  environments  and  costs;

     -    reductions  in  pricing  by  us  or  our  competitors;

     -    fluctuations  in manufacturing yields and delays in product shipments;

     -    personnel  changes;  and

     -    general  economic  conditions.

WE  DEPEND ON SEVERAL LARGE CUSTOMERS 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.

     Historically,  a  substantial  portion  of our revenues has come from large
purchases  by  a  small  number  of customers. 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 2001 and 2000, four customers
accounted  for 52% and 44% of our net revenues, respectively. As of December 31,
2001  and  2000  approximately 44% and 45%, respectively, of accounts receivable
were  concentrated  with  five  customers.

WE  DEPEND  ON  THE  EFFORTS  OF  THIRD PARTY RESELLERS AND SUPPLIERS, AND THESE
RELATIONSHIPS  MAY  NOT  CONTINUE.

     We  use  a network of value added resellers, consisting primarily of system
integrators  and  original equipment manufacturers with established distribution
channels  to  assist  with  the  marketing  of our products and installation and
servicing  of our streaming video network products. Our future profits or losses
depend  on  our  ability  to  maintain  old  relationships  and  develop  new
relationships  with system integrators and original equipment manufacturers, and
on  their  marketing efforts and installation and support services. A decline in
the  financial  prospects  of  particular  resellers  or any of their customers,
inadequate  installation  and  support services by resellers or our inability to
contract  with  additional  resellers  could  damage  our profitability or cause
additional  losses.


                                       12
<PAGE>
IF  OUR  THIRD  PARTY  RESELLERS  DO NOT SUCCEED IN EFFECTIVELY DISTRIBUTING OUR
PRODUCTS,  OUR  FINANCIAL  PERFORMANCE  WILL  BE  NEGATIVELY  AFFECTED.

     These  resellers  may not effectively promote or market our products or may
experience  financial  difficulties  and  even close operations. Our dealers and
retailers  are not contractually obligated to sell our products. Therefore, they
may,  at  any  time:

     -    Refuse  to  promote  or  pay  for  our  products;  or

     -    Discontinue  our  products  in  favor  of  a  competitor's  product.

     Also,  with  these distribution channels standing between us and the actual
market,  we  may not be able to accurately gauge current demand for products and
anticipate  demand for newly introduced products. For example, dealers may place
large  initial  orders  for a new product just to keep their stores stocked with
the  newest  products,  not  because  there  is  a  significant demand for them.

     With  respect  to  consumer  products  offerings,  we  have  expanded  our
distribution  network  to  include  several  consumer  channels, including large
distributors  of  products to computer software and hardware retailers, which in
turn  sell products to end users. We also sell our consumer products directly to
certain  retailers. Rapid change and financial difficulties of distributors have
characterized  distribution  channels  for  consumer  retail  products.  These
arrangements  have  exposed  us to the following risks, some of which are out of
our  control:

     -    We  are  obligated  to  provide price protection to such retailers and
          distributors  and,  while  the  agreements  limit the conditions under
          which  product  can  be  returned  to us, we may be faced with product
          returns  or  price  protection  obligations;

     -    The  distributors  or retailers may not continue to stock and sell our
          consumer  products;  and

     -    Retailers  and  retail  distributors  often  carry competing products.

WE  HAVE  BEEN AND WILL CONTINUE TO BE DEPENDENT ON THIRD PARTIES FOR THE SUPPLY
AND MANUFACTURE OF ALL OF OUR COMPONENT AND ELECTRONIC PARTS, INCLUDING STANDARD
AND  CUSTOM-DESIGNED  COMPONENTS.

     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.  Our
strategy  to  rely  on  subcontractors  and  single  or limited source suppliers
involves  a  number  of  significant  risks,  including:


                                       13
<PAGE>
     -    Loss  of  control  over  the  manufacturing  process;

     -    Potential  absence  of  adequate  capacity;

     -    Potential  delays  in  lead  times;

     -    Unavailability  of  certain  process  technologies;

     -    Reduced control over delivery schedules, manufacturing yields, quality
          and  cost;  and

     -    Unexpected  increases  in  component  costs.

     If  any  significant  subcontractor  or  single  or limited source supplier
becomes  unable  or  unwilling to continue to manufacture these subassemblies or
provide  critical  components  in required volumes, we will have to identify and
qualify  acceptable  replacements  or  redesign  our  products  with  different
components. Additional sources may not be available and product redesign may not
be  feasible  on  a  timely  basis. This could materially harm our business. Any
extended  interruption in the supply of or increase in the cost of the products,
subassemblies  or  components  manufactured  by  third  party  subcontractors or
suppliers  could  materially  harm  our  business.


OUR  FUTURE  SUCCESS  DEPENDS UPON OUR ABILITY TO DEVELOP, LAUNCH AND MARKET NEW
TECHNOLOGIES AND PRODUCTS, AND IF WE CANNOT DEVELOP AND LAUNCH OUR NEW PRODUCTS,
OR  IF  WE  FAIL  TO  ACHIEVE  MARKET ACCEPTANCE OF OUR NEW PRODUCTS, OUR FUTURE
GROWTH  WOULD  SUFFER.

     We  have  devoted,  and  will  continue  to  devote, substantial effort and
expenses to the development of new technologies and products. However, we cannot
assure  you that we will be able to complete testing and successfully launch our
new  products.  The  digital  video  market generally and the broadband Internet
video  market  specifically  are  in  the  early  state  of  development and are
characterized  by  rapidly  changing technology, evolving industry standards and
frequent  new  product introductions. The introduction of products embodying new
technologies  or  the  emergence  of  new industry standards can render existing
products obsolete or unmarketable. Delays in the introduction or shipment of new
or  enhanced  products,  our  inability to timely develop and introduce such new
products,  the failure of such products to gain significant market acceptance or
problems  associated  with  new  product  transitions  could materially harm our
business,  particularly  on  a  quarterly  basis.

     We  are  critically  dependent  on  the  successful  introduction,  market
acceptance,  manufacture  and  sale  of  new  products  that offer our customers
additional  features  and enhanced performance at competitive prices. 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


                                       14
<PAGE>
products  can  be  delivered to meet customer demand. In addition, as is typical
with  any  new product introduction, quality and reliability problems may arise.
Any  such problems could result in reduced bookings, manufacturing rework costs,
delays  in collecting accounts receivable, additional service warranty costs and
a  limitation  on  market  acceptance  of  the  product.

WE  BELIEVE  THAT  OUR  FUTURE  SUCCESS  WILL LARGELY DEPEND 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.

     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. If we fail to
develop  new  products  efficiently  or  if  our new products are defective, our
business  would  suffer.

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., which was recently
acquired  by  Pinnacle Systems, 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.  In  addition,  we  expect that existing manufacturers and new
market  entrants will develop new, higher performance, lower cost consumer video
products  that  may  compete directly with our consumer products. We expect that
potential  competition  in  this  market  is  likely to come from existing video
editing  companies,  software  application  companies  or  new entrants into the
market,  many  of  which  have  the financial resources, marketing and technical
ability  to  develop  products  for  the  consumer  video  market.

     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 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.  Additionally,  we  cannot  make any assurances that our products will
achieve  market  acceptance.


                                       15
<PAGE>
     Increased  competition  in  any  of  these  markets  could  result in price
reductions, reduced margins and loss of market share. Any of these effects could
materially  harm  our  business.

WE WILL NEED ADDITIONAL CAPITAL IN THE FUTURE, AND IF WE ARE UNABLE TO OBTAIN
ADEQUATE FUNDS ON TERMS ACCEPTABLE TO US, WE WILL NOT BE ABLE TO EXECUTE OUR
BUSINESS PLAN.

     We  will  require  substantial  additional  capital  to  finance our future
growth,  hire  additional  qualified  personnel, implement further marketing and
sales  activities, and fund our ongoing research and development activities. Our
capital  requirements  will  depend on many factors, including acceptance of and
demand  for  our  products,  the extent to which we invest in new technology and
research  and  development  projects,  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 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. Additional financing may not
be  available  when needed on terms favorable to us or at all. If adequate funds
are  not available or are not available on acceptable terms, we may be unable to
develop  or  enhance  our  products,  take  advantage of future opportunities or
respond  to  competitive  pressures,  which  could  seriously harm our business.

IF WE ARE UNABLE TO ATTRACT, TRAIN AND RETAIN QUALIFIED ENGINEERS, MARKETING,
SALES AND TECHNICAL SUPPORT PERSONNEL, WE MAY NOT BE ABLE TO DEVELOP OUR
BUSINESS.

     Our future success also depends to a substantial degree upon our ability to
attract,  train,  motivate  and  retain  other  highly  qualified  engineering,
technical,  sales,  marketing,  management  and  other personnel, to support our
marketing  efforts, new customers and the expanding needs of existing customers,
as  well  as  for  our  continued  research and development operations. There is
considerable  competition  for  the  services  of  people with experience in the
digital  video  field  who  have  the  necessary skills and understanding of our
products. This is particularly the case in Northern California where competition


                                       16
<PAGE>
for  such  personnel  is  intense.  If  we  are  not able to hire and retain the
necessary  personnel,  our  business  will not develop and our operating results
will  be  harmed.

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 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 Michael A. Liccardo, our chairman, president
and  chief  executive  officer,  Lawrence L. Bartlett, our vice president, chief
financial  officer  and  secretary, and Richard A. Falcone our vice president of
marketing,  worldwide sales and business development. We do not carry key person
life  insurance  on  our  senior  management  or  key personnel. Any loss of the
services  of  Messrs.  Liccardo,  Bartlett,  or Falcone, other members of senior
management  or  other  key  personnel  could  seriously  harm  our  business.

IF  OUR  PRODUCTS CONTAIN UNDETECTED SOFTWARE OR HARDWARE ERRORS, WE COULD INCUR
SIGNIFICANT  UNEXPECTED  EXPENSES, EXPERIENCE PRODUCT RETURNS AND LOST SALES AND
BE  SUBJECT  TO  PRODUCT  LIABILITY  CLAIMS.

     Our  products  use  software  and other technologies which are complex and,
despite  testing, may contain errors. Any errors in our existing or new products
could result in, among other things, a delay in recognition or loss of revenues,
loss  of market share, failure to achieve market acceptance, and material claims
against  us  by  customers. If unanticipated expenses, problems or difficulties,
technical  or otherwise, prevent us from successfully marketing our products, we
will  continue  to  experience  losses,  perhaps  at  an  increasing  level.

WE ARE HEADQUARTERED IN NORTHERN CALIFORNIA AND OUR BUSINESS COULD BE SEVERELY
IMPACTED BY POWER SHORTAGES AND EARTHQUAKES.

     We  conduct  our business and operations out of our headquarters located in
Palo Alto, California, including research and development, customer support, and
final assembly and tests of our products. Despite precautions taken by us, power
shortages,  earthquakes, fire or other unanticipated problems could, among other
things,  hinder  our research and development efforts, delay the shipment of our
products,  affect  our  ability to receive and fulfill orders, and severely harm
our  business.

     We currently do not have backup generators or alternate sources of power in
the event of a blackout, and our current insurance does not provide coverage for
and  any  damages we or our customers may suffer as a result of any interruption
in  our  power  supply.  If  blackouts  interrupt  our power supply, we would be
temporarily  unable  to  continue  operations  at  our  facilities.  Any  such
interruption  in  our  ability  to  continue  operations at our facilities could
damage  our  reputation,  harm  our  ability to retain existing customers and to
obtain  new  customers,  and  could  result  in lost revenue, any of which could
substantially  harm  our  business  and  results  of  operations.

CONTINUING OPERATING LOSSES AND NEED FOR FINANCING.

     For  the  fiscal  years  ended December 31, 2001 and 2000, our consolidated
operating  losses  were  $5,432,172  and $5,419,655, respectively. We have never
been  profitable  and  continue to incur losses from operations. There can be no
assurance  that  sufficient  revenue, income and cash flows will be generated to
support our operations or that we will ever operate profitably. We are dependent
upon  receipt  of  the  net  proceeds  from  additional financing to finance the
continued  operations  and  will  need  additional  financing to fund our future
operations  and  development  of  new  products.

     If  we  continue  to  incur  negative cash flow, we may be at a competitive
disadvantage  due  to  several  factors,  including:


                                       17
<PAGE>
     -    Insufficient  working  capital;

     -    Insufficient  capital  for  acquisitions;  and

     -    Limited  access  to  additional  capital.

     If  we  are  competitively disadvantaged due to these or other factors, our
revenues  may decrease, intensifying our cash flow deficiency, and our financial
condition  and  results  of  operations  may  be adversely affected as a result.

WE ARE DEPENDENT ON OUR ABILITY TO ATTRACT NEW CUSTOMERS.

     Once  a  customer  has  purchased  a system from us, the revenues from that
customer  will  decline  significantly and will consist primarily of maintenance
fees  and  upgrades  to  the system unless the customer expands the system or we
develop  new products for the system. We are dependent on our ability to attract
new  customers  or  develop  new  products  to market to existing customers. Our
ability  to  make  sales  both  to  new customers and existing customers will be
significantly  affected  by  our  development  of  new products and upgrading of
existing  products  to  reflect  current  technology  and  our  ability to price
products  competitively.

WE  MAY BE ADVERSELY AFFECTED IF WE ARE SUED BY A THIRD PARTY OR IF WE DECIDE TO
SUE  A  THIRD  PARTY  REGARDING  INTELLECTUAL  PROPERTY  RIGHTS.

     There has been substantial litigation regarding patent, trademark and other
intellectual  property  rights  involving  technology  companies. In the future,
litigation  may be necessary to enforce any patents issued to us, to protect our
trade secrets, trademarks and other intellectual property rights owned by us, or
to  defend  us  against  claimed infringement. We are also exposed to litigation
arising  from  disputes in the ordinary course of business. This litigation may:

     -    Divert management's attention away from the operation of our business;

     -    Result  in  the  loss  of  our  proprietary  rights;

     -    Subject  us  to  significant  liabilities;

     -    Force  us  to  seek  licenses  from  third  parties;  and

     -    Prevent  us  from  manufacturing  or  selling  products.

     Any  of  these  results  could  materially  harm  our  business.

     In  the  course  of  business,  we have in the past received communications
asserting  that  our  products  infringe  patents or other intellectual property
rights  of  third  parties.  We  investigated  the  factual  basis  of  such
communications  and negotiated licenses where appropriate. It is likely that, in
the  course  of  our  business,  we  will  receive similar communications in the
future.  While it may be necessary or desirable in the future to obtain licenses
relating  to  one  or  more  of  our  products, or relating to current or future
technologies,  we  may not be able to do so on commercially reasonable terms, or
at  all.  These disputes may not be settled on commercially reasonable terms and
may  result  in  long  and  costly  litigation.


                                       18
<PAGE>
WE  MAY  BE  UNABLE  TO  PROTECT  OUR  PROPRIETARY  INFORMATION  AND  PROCEDURES
EFFECTIVELY.

     We  must  protect our proprietary technology and operate without infringing
the  intellectual property rights of others. We rely on a combination of patent,
copyright,  trademark  and  trade  secret  laws  and other intellectual property
protection  methods  to  protect  our  proprietary  technology.  In addition, we
generally  enter  into  confidentiality  and  nondisclosure  agreements with our
employees  and  OEM  customers  and  limit  access  to, and distribution of, our
proprietary  technology.  These steps may not adequately protect our proprietary
information  nor  give  us  any  competitive advantage. Others may independently
develop  substantially equivalent intellectual property or otherwise gain access
to  our  trade  secrets  or intellectual property, or disclose such intellectual
property  or  trade  secrets.  If  we  are  unable  to  protect our intellectual
property,  our  business  could  be  materially  harmed.

HISTORICALLY,  THE  PRICES  OF  VIDEO  ENCODERS  AND  DECODERS AND NETWORK VIDEO
APPLIANCE  PRODUCTS  HAVE  DECREASED OVER THE LIFE OF INDIVIDUAL PRODUCTS, WHILE
THE  COMPLEXITY  OF  NEW  PRODUCT  INTRODUCTIONS  HAS  INCREASED.

     As  a  result,  we  have  reduced  prices for our products and we expect to
reduce  prices  in  the  future.  In  addition,  we  have  increased  research,
development and marketing expenditures in response to competitive conditions and
the development of new technologies and products, and we expect to increase such
expenditures  in  the  future.  Accordingly,  we  believe  that period-to-period
comparisons  of  our  results of operations are not meaningful and should not be
relied  upon as indicators of future performance. Additionally, if our operating
results  fall  below  the expectations of investors or market analysts in future
periods,  our  share  price  will  likely  decline.

THE  DIGITAL VIDEO AND NETWORKING MARKET IS CHARACTERIZED BY RAPID TECHNOLOGICAL
CHANGES  AND MULTIPLE EVOLVING STANDARDS, AND IF WE FAIL TO ENHANCE OUR EXISTING
PRODUCTS,  DEVELOP  NEW  AND  MORE  TECHNOLOGICALLY  ADVANCED  PRODUCTS  AND
SUCCESSFULLY  MARKET  THESE  PRODUCTS,  OUR  RESULT  OF  OPERATIONS WILL 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  streaming  video  network  and  broadband Internet video
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. In addition, we or our competitors may
announce  products  that  have  the  potential  to shorten the life cycle of, or


                                       19
<PAGE>
replace, our products. We have made such announcements in the past and may do so
in  the future. Such announcements could cause customers not to buy our products
or to defer decisions to buy our products. In addition, products or technologies
developed by others could render our products or technologies non-competitive or
obsolete.

DIGITAL VIDEO PRODUCTS GENERALLY, AND VIDEO NETWORK AND BROADBAND INTERNET VIDEO
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 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 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.

WE EXPECT PRICE COMPETITION TO ESCALATE IN THE VIDEO NETWORKING INDUSTRY.

     We  have  consistently attempted to minimize the effect of price reductions
in  the  market  by  introducing  more  sophisticated products at the top of our
product  line,  and  thereby attempt to maintain higher selling prices. However,
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.  Failure  by  us  to  mitigate  the effect of these pressures
through cost reductions of our products or changes in our product mix could have
a  material  adverse effect on our business and we may not be able to achieve or
maintain  profitability.

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;


                                       20
<PAGE>
     -    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.

     Our  revenues  and  results  of operations may be below the expectations of
public  market  securities  analysts  or investors. This could result in a sharp
decline  in  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
shareholders.  This,  in  addition  to  other  forms  of  investment information
including newsletters and research publications, could result in a sharp decline
in  the  market  price  of  our  common  stock.

     In  addition,  stock  markets  have  recently 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 negatively affect 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, and we cannot
make  any  assurances  that  there  will  continue to be a trading market in our
common  stock.

ITEM 2.     DESCRIPTION OF PROPERTY

     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 which commenced on November
1,  1995  and  which will terminate on October 31, 2002.  The lease provides for
two  successive  options to extend the lease term, each for a period of five (5)
years.

ITEM 3.     LEGAL PROCEEDINGS

     We are not a party to any material pending legal proceedings and, to the
best of our knowledge, no such action by or against us has been threatened.

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

     None.


                                       21
<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 August 2000. From time to time, during
the  periods  indicated, trading activity in our common stock was infrequent. As
of March 25, 2002, the closing price of our common stock was $0.64 per share. As
of  March  25,  2002,  there were approximately 169 record holders of our common
stock.  We  believe  we  have  approximately  5,700 beneficial stockholders. The
source  of the quotes is the Nasdaq Stock Market, Inc. From time to time, during
the  periods  indicated,  trading  activity  in our common stock was infrequent.

     FISCAL YEAR ENDED DECEMBER 31, 2000             HIGH BID   LOW BID
                                                     ---------  --------
     Third Quarter 2000 (commencing August 1, 2000)  $   10.00  $  0.355
     Fourth Quarter 2000                             $    6.00  $   3.00

     FISCAL YEAR ENDED DECEMBER 31, 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

     FISCAL YEAR ENDING DECEMBER 31, 2002            HIGH BID   LOW BID
                                                     ---------  --------
     First Quarter 2002*                             $    1.72  $   0.52

     * Through March 25, 2002

     As of March 25, 2002, there were approximately 17,668,897 shares of common
stock issued and outstanding.

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.


                                       22
<PAGE>
RECENT  SALES  OF  UNREGISTERED  SECURITIES

     In  October  2001,  we  issued  and  sold to a qualified corporate investor
555,555  shares  of our common stock for a total of $200,000 in cash in reliance
upon  an  exemption from registration pursuant to Regulation S promulgated under
the  Securities  Act  of  1933.

     In  December  2001,  we  issued  and  sold  to an accredited investor a 12%
two-year  secured  convertible  debenture  in  the  principal amount of $500,000
convertible  at  the holder's option at any time into shares of our common stock
at  the  lesser  of 70% of the average of the lowest three trading prices of our
common  stock  during  the 20 trading day period ending one trading day prior to
the  date of conversion or $0.385 per share, investment options for the purchase
up  to  $500,000  of  our  common  stock  at  the  same  conversion price of the
debenture,  and  warrants  exercisable  for up to 1,000,000 shares of our common
stock at an exercise price equal to the lesser of $0.385 per share or 70% of the
average  of  the  lowest three trading prices for our common stock during the 20
days  immediately prior to exercise.  In connection therewith, as a finders fee,
we  issued  to  Bristol Capital, L.L.C. and Alexander Dunham Capital Group, Inc.
warrants  to  purchase up to a total of 100,000 shares of our common stock at an
exercise  price equal to the lesser of $0.385 per share or 70% of the average of
the  lowest  three  trading  prices  for  our  common  stock  during the 20 days
immediately prior to exercise.  These securities were issued in reliance upon an
exemption  from  registration  pursuant to Section 4(2) of the Securities Act of
1933.

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

GENERAL

     We are a Delaware corporation formed in July 1998.  We develop, manufacture
and deliver networked streaming video solutions for high quality video creation,
management  and  distribution.  Our  network  video  products  are  distributed
worldwide both directly and through leading industry partners.  Our products are
used  in  diverse  applications  such  as distance learning, corporate training,
video  courier  services,  telemedicine, surveillance and visual collaboration.

     On  April  16, 2001, we merged with Optivision, Inc., an operating company,
in an exchange of common stock accounted for as a pooling of interest. 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 our common stock
rounded  to  the nearest whole share; each outstanding but unexercised option to
purchase  common stock of Optivision was converted into an option to acquire the
number  of shares of our 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, rounded to the nearest whole share; each outstanding warrant
to  purchase  common stock of Optivision was converted into a warrant to acquire
the number of shares of our 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,  rounded  to  the  nearest  whole  share.


                                       23
<PAGE>
     On  January  30,  2002,  we  entered into a workout agreement plan with the
creditors  of  Optivision,  under  which we will pay the creditors of Optivision
$0.35  for  every  $1.00  owed. Under the agreement, the debt will be settled in
monthly  payments  by  June  30,  2002.

RESULTS OF OPERATIONS

     Revenues  for the year ended December 31, 2001 were $4,095,755, an increase
of $521,665 or 14.6% over revenues of $3,574,090 for the year ended December 31,
2000.  Revenue  increased  primarily  as  a  result  of  the continued growth in
enterprise  market  applications  for  digital video products. As a part of this
growth we saw an increase in foreign sales as the market expands internationally
and  an  increase  in sales to defense contractors as a result of the heightened
interest  in  surveillance  following  the  9/11/01  disaster.

     Cost  of  sales  for  the  year  ended December 31, 2001 were $2,148,038, a
decrease  of  $229,192  or  9.64%  over cost of sales of $2,377,230 for the year
ended  December  31,  2000.  The  decrease  in  cost of sales came from improved
materials  management  that  resulted  in  less scrap and obsolete materials. In
addition, process revisions brought new efficiencies that allowed a reduction in
manufacturing  headcount.

     Research  and  development  expenses  were  $1,870,630  for  the year ended
December  31,  2001,  an increase of $98,156 or 5.54%, as compared to $1,772,474
for  the  year  ended  December 31, 2000. Product development and support during
2001  was  increased  through  the  use  of  outside  consultants.  Increases in
engineering  costs  will  continue  with  development of the new network digital
video  products.

     Sales  and  marketing  expenses  for  the year ended December 31, 2001 were
$2,822,510,  an increase of $191,700 or 7.29%, as compared to $2,630,810 for the
year  ended  December  31,  2000. In 2001 we increased our marketing effort with
more  trade  show  activity  and  increased  travel  expenditure.  This trend is
expected  to  continue.

     General  and  administrative  costs  were  $2,033,688  for  the  year ended
December  31,  2001,  an increase of $25,273 or 1.26%, as compared to $2,008,415
for  the  year  ended  December  31,  2000. This is primarily due to the cost of
acquiring Optivision's operations in April 2001 and meeting regulatory reporting
requirements.  Increases  were  offset by decreased expenditures necessitated by
our  revenue  slowdown.

     Interest  and  other  expense, net was $653,061 for the year ended December
31,  2001, an increase of $448,245 or 218%, as compared to $204,816 for the year
ended  December 31, 2000. The increase was primarily due to accruing interest on
shareholder  loans  and  other  increases  in debt. These interest expenses will
continue  until  such  time  as  the  notes  are repaid or converted to equity.

     Our  net  loss  for  the  2001  fiscal  year remained steady, increasing by
$12,517, or 0.23%, to a net loss of ($5,432,172) from a net loss of ($5,419,655)
in  the  comparable  2000  period.  This  is  the  result  of  all  of the above
operational  changes  and  financing  costs.


                                       24
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

     At  December  31,  2001,  we  had  cash  and cash equivalents of $48,467, a
decrease  of  $166,299  from  $214,766 at the end of the year ended December 31,
2000.  We  also have continuing operating losses for the year ended December 31,
2001  of  $5,432,172.  In  order  to  continue operations beyond 2002 additional
funding  will  be required. We will, also, require additional funding to finance
growth  and  achieve  our  strategic objectives. Management is actively pursuing
additional  sources  of  funding.  In  addition  management  is  also looking to
increases in cash flows through increases in revenue and cost-cutting measures.

     We  received  financing  in  October  2001 which was sufficient to carry us
through  December,  but  our cash was reduced significantly. The first part of a
new  $2,400,000  convertible  debenture  financing was received in January 2002.
Cash  from  a  new  $1,800,000  unit offering financing was received in February
2002.  We  will  need  to  complete  additional  financings  in 2002 in order to
continue  operations.

     As  stated  above, we need additional cash to support our investment in our
business.  If  we do not raise sufficient funds, we also may not be able to fund
expansion,  take  advantage  of  future  opportunities,  meet  our existing debt
obligations  or  respond to competitive pressures or unanticipated requirements.
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 for us 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.

     The  risk  factors described above are not the only ones facing our company
and  they should be read in conjunction with all other risk factors disclosed in
reports  filed with the Securities and Exchange Commission. Additional risks not
presently known to us, or that we currently deem immaterial, may also impair our
business  operations.

ITEM 7.     FINANCIAL STATEMENTS

     Our  consolidated financial statements and the independent auditors' report
appear  on  pages F-1 through F-19 of this Report and are incorporated into this
Item  7  by  reference.

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

     None.


                                       25
<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.

   NAME                  AGE                       POSITION
   --------------------  ---  --------------------------------------------------
   Michael A. Liccardo    56  President, Chief Executive Officer
                              and Chairman
   Lawrence L. Bartlett   62  Chief Financial Officer, Vice President, Secretary
                              and Director
   Richard A. Falcone     46  Vice President of Marketing, Worldwide Sales and
                              Business Development
   Catherine Palmen       44  Director


     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.

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.

     Michael  A.  Liccardo  has served as a director since February 2001, and as
our  chief  executive  officer,  president and chairman of the board since April
2001.  Mr.  Liccardo  has  been  the  president  and  chief executive officer of
Optivision  since  1998  and chairman since December 1999. 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.


                                       26
<PAGE>
     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,  since  April  2001.  He  joined  Optivision in 1997 with
significant  experience  in  sales,  marketing,  strategic planning, finance and
operational  management  in  growth environments. During his career, Mr. Falcone
has  developed  both enterprise direct and indirect models within end user, OEM,
integration  and service provider environments. Prior to Optivision, Mr. Falcone
spent  nine  years  at  General Signal Networks (now InRange), a manufacturer of
data  communications  switching  and  test  equipment,  network control and open
systems  connectivity.  GSN  was  the  result  of the merger of Telenex and Data
Switch  corporations. As Area Vice President, he built and managed a $40 million
field  organization,  including  sales,  business  development, field marketing,
systems  engineering  and  support.  Prior  to General Signal, Mr. Falcone spent
eight  years  at  Nortel Networks, most recently serving as eastern region sales
director  for  the  Spectron  Division  (data communications). He was top ranked
among  management  in  quota  achievement. While at Nortel, Mr. Falcone gained a
wealth  of  experience serving in numerous management and professional positions
including  director  marketing/sales  operations,  senior  manager  financial
planning,  and  strategic  planning  analyst. He benefited from a broad scope of
assignments  within  formal  executive  development  initiatives  for  select
candidates.  Mr. Falcone holds a master's degree in business administration from
Drexel  University  in  Philadelphia,  PA,  and  a bachelor of science degree in
mathematics  from Villanova University in Villanova, PA. He was elected to Pi Mu
Epsilon,  a  national  mathematics  honor  society.  Throughout  his career, Mr.
Falcone  has  dedicated  himself  to  continuing  education, including executive
simulation  programs  at  the  Wharton  School.

     Catherine  Palmen  has served as a director since February 2001. Ms. Palmen
has  also  been  a  director  of  Optivision  since June 2000 and is chairman of
Optivision's  creditors  committee.  Since  March  1998,  Ms. Palmen has been an
account  executive  with  Interprose, a public relations agency for emerging and
established  players  in  the  information  technology  and  telecommunications
industries,  where  she  supports  trade  shows  and  tours, coordinates product
reviews,  and  manages  relations  with  business  and  trade press for multiple
clients.  Before  joining Interprose, Ms. Palmen worked in public relations with
Newbridge  Networks  Inc.  and  in  public relation and sales with UB Networks.


                                       27
<PAGE>
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,
2001  all  Section  16(a)  filing  requirements  applicable  to  our  directors,
officers, and greater than 10% beneficial owners were complied with, except that
Michael  A.  Liccardo  reported  four transactions on a late Form 4, Lawrence L.
Bartlett  reported  three  transactions on a late Form 4, and Richard A. Falcone
reported  three  transactions  on  a  late  Form  4.

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 1999, 2000 and
2001  to:

     -    Each person who served as our chief executive officer during 2001; and

     -    Our other executive officers whose total annual salary and bonus in
          2001 exceeded $100,000.


                                       28
<PAGE>
<TABLE>
<CAPTION>
                                SUMMARY COMPENSATION TABLE


                                 ANNUAL COMPENSATION (1)      LONG TERM COMPENSATION (1)
                              ------------------------------  ---------------------------

                                                               SECURITIES     ALL OTHER
                                                               UNDERLYING   COMPENSATION
NAME AND PRINCIPAL POSITION   YEAR  SALARY ($)(2)  BONUS ($)  OPTIONS (#S)     ($) (3)
----------------------------  ----  -------------  ---------  ------------  -------------
<S>                           <C>   <C>            <C>        <C>           <C>
Michael A. Liccardo           2001        164,680        ---     1,100,000         1,278
  President, Chief            2000        182,148        ---     1,300,000           ---
Executive Officer and         1999        175,014        ---       110,000           ---
Chairman of the Board
(4)
Jason John                    2001            ---        ---           ---           ---
  President, Secretary        2000            ---        ---           ---           ---
and  Chairman of the          1999            ---        ---           ---           ---
Board (5)
Lawrence L. Bartlett          2001        163,414        ---       825,000         1,245
  Chief Financial             2000        185,450        ---       425,000           ---
Officer, Vice President       1999        131,250        ---        30,000           ---
and Secretary (6)
Richard A. Falcone            2001        184,228        ---       740,000           878
  Vice President of           2000        174,538        ---       500,000           ---
Marketing, Worldwide          1999        155,675        ---        49,250           ---
Sales and Business
Development
<FN>
_________________
(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, as well as amounts earned but deferred at the
     election  of  these  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 on January 15, 2002 by the grant to Mr. Liccardo
     of  an  immediately  exercisable  option  to  purchase 13,695 shares of our
     common stock at the exercise price of $1.20 per share, and the remainder of
     which  will  not  be  paid until such payment will not adversely affect our
     operations.
(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.  John  became  our  president,  chairman of the board and secretary and
     served  as  the  sole  director in August 2000, and resigned as director in
     February  2001  and  as  chairman  of the board, president and secretary in
     March  2001.
(6)  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.
</TABLE>


                                       29
<PAGE>
                        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, 2001.

<TABLE>
<CAPTION>

                                        INDIVIDUAL GRANTS
                      ---------------------------------------------------------------

                                            PERCENTAGE OF
                           NUMBER OF        TOTAL OPTIONS
                          SECURITIES         GRANTED TO      EXERCISE OR
                      UNDERLYING OPTIONS    EMPLOYEES IN     BASE PRICE    EXPIRATION
NAME                        GRANTED        FISCAL YEAR (1)   ($/SH) (2)       DATE
--------------------  -------------------  ---------------  -------------  ----------
<S>                   <C>                  <C>              <C>            <C>
Michael A. Liccardo       200,000 (3) (4)            5.25%  $       2.00     04/09/11
                          900,000 (5) (6)           23.65           1.07     06/28/11
Lawrence L. Bartlett      160,000 (3) (4)            4.20           2.00     04/09/11
                          365,000 (5) (6)            9.59           1.07     06/28/11
                          200,000 (5) (7)            5.25           0.35     10/13/11
                          100,000 (5) (8)            2.62           0.62     12/27/11
Richard A. Falcone        150,000 (3) (4)            3.94           2.00     04/09/11
                          365,000 (5) (6)            9.59           1.07     06/28/11
                          125,000 (5) (7)            3.28           0.35     10/13/11
                          100,000 (5) (8)            2.62           0.62     12/27/11
<FN>
_________________
(1)  Based  on  a  total  of  3,805,300  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, 2001, 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, or, in the case of
     Optivision,  Inc.  options,  issued  at  the  fair  market  value  of  the
     Optivision,  Inc.  common  stock as determined by the board of directors of
     Optivision,  Inc.
(3)  These  options  were  issued  under  our  1997  Stock  Plan in exchange for
     Optivision,  Inc.  options  in  connection with our merger with Optivision,
     Inc.  on April 16, 2001. The Optivision, Inc. options were granted on April
     9,  2001.
(4)  The  option  vests  at  a  rate  of  2.08%  each  month.
(5)  These  options  were  issued  under  our  2000  Stock  Plan.
(6)  The  option vests 25% on the date of grant, 25% on March 1, 2002, and 2.08%
     each  month  thereafter.
(7)  The  option  vested  33% on November 12, 2001, 33% on December 12, 2001 and
     34%  on  January  12,  2002.
(8)  The  option  vests  25%  on March 30, 2002 and 2.08% each month thereafter.
</TABLE>


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, 2001.  None of the named executive officers exercised
stock  options  during  the  year  ended  December  31,  2001.


                                       30
<PAGE>
<TABLE>
<CAPTION>
                                             NUMBER OF SECURITIES
                                            UNDERLYING UNEXERCISED         VALUE OF UNEXERCISED
                       SHARES                    OPTIONS AT              IN-THE-MONEY OPTIONS AT
                      ACQUIRED              DECEMBER 31, 2001 (1)          DECEMBER 31, 2001 (2)
                         ON      VALUE    ---------------------------  ------------------------------
NAME                  EXERCISE  REALIZED  EXERCISABLE  UNEXERCISABLE    EXERCISABLE    UNEXERCISABLE
--------------------  --------  --------  -----------  --------------  -------------  ---------------
<S>                   <C>       <C>       <C>          <C>             <C>            <C>
Michael A. Liccardo        ---       ---    1,858,000        730,000   $     122,500  $       59,500
Lawrence L. Bartlett       ---       ---      663,801        636,199          81,886          27,927
Richard A. Falcone         ---       ---      709,039        590,001          65,188          22,313
<FN>
_________________
(1)  These  amounts represent the total number of shares subject to options held
     by  the  named  executive officers at December 31, 2001. These options were
     granted on various dates during 2001 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, 2001
     for  all the in-the-money options held by the named executive officers. The
     in-the-money  option  exercise prices were all at $0.35. These options were
     granted  at  the  fair  market  value  of  the  stock  on  the  grant date.
</TABLE>


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 serves as our president, chief executive officer and
chairman of the board. Our agreement with Mr. Liccardo provides 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


                                       31
<PAGE>
$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
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 2000. 3,993,482 shares of our common
stock  are authorized for issuance under the 1997 Stock Plan. As of December 31,
2001,  options  to  purchase  3,576,146  shares  were  outstanding at a weighted
average  exercise  price  of  $0.86 per share and 397,053 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


                                       32
<PAGE>
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

     -    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.


                                       33
<PAGE>
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,
2001, options to purchase 2,612,500 shares of common stock were outstanding at a
weighted  average  exercise  price  of  $0.88  per share and 2,887,500 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:

     -    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.


                                       34
<PAGE>
Change of Control and Accelerated Vesting

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

ITEM 11.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  following table presents information about the beneficial ownership of
our  common  stock  as  of  March  25,  2002  by:

     -    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,  2001;  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 March 25, 2002 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 17,540,190 shares of common stock
outstanding  as  of  March  25,  2002.


                                       35
<PAGE>
<TABLE>
<CAPTION>
                                                                   COMMON
                                                                   STOCK         PERCENTAGE OF
                                                                BENEFICIALLY        SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER (1)                           OWNED          OUTSTANDING
-----------------------------------------------------------  ------------------  --------------
<S>                                                          <C>                 <C>
Michael A. Liccardo (2)                                              14,219,818           47.1%
Lawrence L. Bartlett (3)                                              1,186,305            6.5%
Catherine Palmen (4)                                                      2,000              *
Jason John (5)                                                                0              0
  885 West Georgia Street
  Vancouver, BC V6C 1T2
Richard A. Falcone (6)                                                1,186,306            6.5%
All directors and executive officers as a group (4 persons)          16,594,429           52.4%
<FN>
____________________________
*     Less than 1%.

(1)  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.
(2)  Includes  (a)  2,134,457 shares that may be acquired currently or within 60
     days  of March 25, 2002 through the exercise of options, and (b) 10,386,518
     shares  that  may  be  acquired  currently  through  the  conversion  of  a
     convertible  note  in  the  principal  amount  of  $3,635,281.
(3)  Includes 755,714 shares that may be acquired currently or within 60 days of
     March  25,  2002  through  the  exercise  of  options.
(4)  Includes  2,000  shares that may be acquired currently or within 60 days of
     March  25,  2002  through  the  exercise  of  options.
(5)  Mr.  John  resigned as director in February 2001 and as chairman, president
     and  secretary  in  March  2001.
(6)  Includes 738,557 shares that may be acquired currently or within 60 days of
     March  25,  2002  through  the  exercise  of  options.
</TABLE>


     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

     Under  a  November  2001  arrangement  with  us  and  subject  to  certain
conditions,  we  will  issue  to  Richard  A.  Falcone,  our  vice  president of
marketing,  worldwide  sales  and  business  development,  300,000 shares of our
common  stock  if  we  are  acquired  by  a  public  company.

     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  $3,635,281.29  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. Mr. Liccardo may, at any time, elect to convert the note
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.


                                       36
<PAGE>
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:

<TABLE>
<CAPTION>
                                                                                  Page
<S>                                                                               <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . .  F-1
Consolidated Balance Sheets, December 31, 2001 and 2000. . . . . . . . . . . . .  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
</TABLE>



                               AMNIS SYSTEMS INC.

                           DECEMBER 31, 2001 AND 2000



================================================================================




                        CONSOLIDATED FINANCIAL STATEMENTS

                                       AND

                          INDEPENDENT AUDITORS' REPORT



<PAGE>
INDEPENDENT  AUDITORS'  REPORT


BOARD  OF  DIRECTORS
AMNIS  SYSTEMS  INC.
Palo  Alto,  California


We  have  audited  the  accompanying consolidated balance sheet of AMNIS SYSTEMS
INC.  (THE  COMPANY)  as  of  December  31,  2001  and  2000,  and  the  related
consolidated statements of operations, stockholders' deficit, and cash flows for
the  years then ended.  These financial statements are the responsibility of the
Company's  management.  Our  responsibility  is  to  express an opinion on these
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 financial
statements are free of material misstatement.  An audit includes examining, on a
test  basis,  evidence  supporting  the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made  by  management,  as well as evaluating the overall
financial  statement  presentation.  We  believe  that  our  audits  provide  a
reasonable  basis  for  our  opinion.

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

The  accompanying  financial  statements  have  been  prepared assuming that the
Company  will  continue  as  a  going  concern.  As  discussed  in Note 2 to the
financial  statements,  the  Company  has  incurred a net loss of $5,432,172 and
$5,419,655 in the years ended December 31, 2001 and 2000 respectively, and has a
stockholders' deficit of $7,379,620 and $4,279,042 and a working capital deficit
of  $7,438,697 and $4,824,707 at December 31, 2001 and 2000 respectively.  These
factors  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  2.  The financial statements do not include any adjustments that might
result  from  the  outcome  of  this  uncertainty.




February  22,  2002


                                        1
<PAGE>
<TABLE>
<CAPTION>
                                                                                                   AMNIS SYSTEMS INC.

                                                                                           CONSOLIDATED BALANCE SHEET
=====================================================================================================================

December 31,                                                                                 2001           2000
---------------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>            <C>
ASSETS

CURRENT ASSETS:
  Cash                                                                                   $     48,467   $    214,766
  Accounts receivable, net of allowance for doubtful accounts of $236,000 and $262,725
    for 2001 and 2000, respectively                                                           371,517        634,932
  Note receivable                                                                             500,000
  Inventories                                                                                 624,056      1,106,649
  Prepaid expenses and other                                                                   82,734         50,236
---------------------------------------------------------------------------------------------------------------------

      Total current assets                                                                  1,626,774      2,006,583
---------------------------------------------------------------------------------------------------------------------

PROPERTY AND EQUIPMENT:
  Machinery and equipment                                                                   1,919,634      2,073,292
  Demonstration equipment                                                                     452,188        459,921
  Furniture and fixtures                                                                      498,796        548,810
  Leasehold improvements                                                                      351,111        351,565
---------------------------------------------------------------------------------------------------------------------

                                                                                            3,221,729      3,433,588
  Less:  Accumulated depreciation and amortization                                         (3,069,937)    (3,047,386)
---------------------------------------------------------------------------------------------------------------------

      Property and equipment, net                                                             151,792        386,202
---------------------------------------------------------------------------------------------------------------------

DEBT ISSUE COSTS                                                                                             140,000

DEPOSITS                                                                                       84,890         93,270
---------------------------------------------------------------------------------------------------------------------

      Total assets                                                                       $  1,863,456   $  2,626,055
=====================================================================================================================

LIABILITIES AND STOCKHOLDERS' (DEFICIT)

CURRENT LIABILITIES:
  Notes payable-WTI                                                                                     $     83,042
  Financing obligations collateralized by accounts receivable                            $  1,029,283      1,138,598
  Accounts payable - moratorium                                                             1,561,500      1,575,673
  Accounts payable - other                                                                    932,866        868,808
  Accrued salaries                                                                            766,286        316,003
  Accrued vacation                                                                            274,833        259,470
  Accrued interest payable                                                                    381,104         94,269
  Reserve for sales adjustment                                                                               263,331
  Note payable                                                                                250,000
  Stockholders' notes payable                                                               3,309,375      1,572,197
  Deferred rent                                                                               108,892        199,195
  Deferred revenue                                                                             59,095         47,819
  Other accrued expenses                                                                      302,237        412,885
---------------------------------------------------------------------------------------------------------------------

      Total current liabilities                                                             8,975,471      6,831,290

LONG-TERM LIABILITIES:
  Sublease deposits                                                                            72,800         73,807
  Convertible note payable                                                                    500,000
  Discount on convertible note payable                                                       (305,195)
---------------------------------------------------------------------------------------------------------------------

    Total liabilities                                                                       9,243,076      6,905,097
---------------------------------------------------------------------------------------------------------------------

STOCKHOLDERS' (DEFICIT):
  Preferred stock, 20,000,000 authorized; none outstanding in 2001 and 2000
  Common stock, no par value, 100,000,000 and 20,000,000 shares authorized in 2001
     and 2000, respectively; 12,947,082 and 10,796,902 shares issued and outstanding
    in 2001 and 2000, respectively                                                              1,295          1,079
  Additional paid-in capital                                                               12,259,729      9,928,351
  Accumulated deficit                                                                     (19,640,644)   (14,208,472)
---------------------------------------------------------------------------------------------------------------------

      Total stockholders' deficit                                                          (7,379,620)    (4,279,042)
---------------------------------------------------------------------------------------------------------------------

      Total liabilities and stockholder's deficit                                        $  1,863,456   $  2,626,055
=====================================================================================================================
</TABLE>


      See accompanying summary of accounting policies and notes to the financial
                                                                     statements.

                                                                               2
<PAGE>
<TABLE>
<CAPTION>
                                                              AMNIS SYSTEMS INC.

                                            CONSOLIDATED STATEMENT OF OPERATIONS

================================================================================

For the Years Ended Ended December 31,         2001                2000
------------------------------------------------------------------------------
<S>                                      <C>                <C>
SALES                                    $      4,095,755   $       3,574,090

COST OF GOODS SOLD                              2,148,038           2,377,230
------------------------------------------------------------------------------

     Gross margin                               1,947,717           1,196,860

OPERATING EXPENSES:
  Research and development                      1,870,630           1,772,474
  Sales and marketing                           2,822,510           2,630,810
  General and administrative                    2,033,688           2,008,415
------------------------------------------------------------------------------

                                                6,726,828           6,411,699
------------------------------------------------------------------------------

     Loss from operations                      (4,779,111)         (5,214,839)

OTHER INCOME (EXPENSE)
  Interest expense, net                          (693,071)           (273,923)
  Other, net                                       40,010              69,107
------------------------------------------------------------------------------

     Total other (expense)                       (653,061)           (204,816)
------------------------------------------------------------------------------

NET LOSS                                 $     (5,432,172)  $      (5,419,655)
==============================================================================

BASIC AND DILUTIVE LOSS PER SHARE        $          (0.47)  $           (0.22)
==============================================================================
</TABLE>


      See accompanying summary of accounting policies and notes to the financial
                                                                     statements.

                                                                               3
<PAGE>
<TABLE>
<CAPTION>
                                                                                     AMNIS SYSTEMS INC.

                                                                   CONSOLIDATED STATEMENT OF CASH FLOWS

=======================================================================================================

For the Years Ended December 31,                                                 2001          2000
-------------------------------------------------------------------------------------------------------
<S>                                                                          <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                                   $(5,432,172)  $(5,419,655)
  Adjustments to reconcile net loss to
    net cash used in operating activities:
    Stock options for services                                                   362,605
    Debt forgiven                                                                (42,967)
    Depreciation and amortization                                                271,956       507,924
    Loss on disposal of property and equipment                                     5,480
    Provision for doubtful accounts                                              (26,725)       18,016
    Provision for excess and obsolete inventories                                 62,519      (416,717)
  Decrease in accounts receivable                                                290,140       286,054
  Decrease (increase) in inventories                                             420,074       (20,279)
  (Increase) decrease in prepaid expenses and other assets                       (32,498)       70,114
  Decrease (increase) in deposits                                                  8,380        (6,817)
  Decrease in debt issue costs                                                   140,000
  Decrease in accounts payable moratorium                                        (14,173)     (100,000)
  Increase in accounts payable                                                    64,058       364,653
  Increase (decrease) in accrued salaries                                        480,474       (24,554)
  Increase in accrued vacation                                                    15,363        25,458
  Increase in accrued interest                                                   504,784        66,189
  Increase (decrease) in reserve for sales adjustment                           (263,331)      263,331
  Decrease in deferred rent                                                      (90,303)      (48,070)
  Increase (decrease) in deferred revenue                                         11,276       (71,087)
  Decrease in other accrued liabilities                                         (110,648)     (107,044)
  Decrease (increase) in sublease deposits                                        (1,007)       73,807
-------------------------------------------------------------------------------------------------------

      Net cash used by operating activities                                   (3,376,715)   (4,538,677)
-------------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment                                            (43,026)      (55,490)
-------------------------------------------------------------------------------------------------------

      Net cash used by investing activities                                      (43,026)      (55,490)
-------------------------------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Borrowings from stockholders                                                 1,737,178     1,722,197
  Proceeds from financing obligations collateralized by accounts receivable   (1,334,546)     (714,447)
  Payments on financing obligations collateralized by accounts receivable      1,225,231       736,496
  Proceeds from issuance of common stock                                       1,431,487     2,929,446
  Proceeds from notes payable                                                    250,000
  Payment on notes payable                                                       (55,908)     (159,315)
  Payment on capital lease obligation                                                           (5,715)
-------------------------------------------------------------------------------------------------------

    Net cash provided by financing activities                                  3,253,442     4,508,662
-------------------------------------------------------------------------------------------------------

NET DECREASE IN CASH                                                            (166,299)      (85,505)

CASH AND CASH EQUIVALENTS, beginning of year                                     214,766       300,271
-------------------------------------------------------------------------------------------------------

CASH AND CASH EQUIVALENTS, end of period                                     $    48,467   $   214,766
=======================================================================================================

NON CASH INVESTING AND FINANCING ACTIVITIES:
  Shareholder debt exchanged for common stock                                              $   500,000
  Debt issue costs exchanged for common stock                                                  140,000
  Convertible note payable in exchange for note receivable                   $   500,000
  Discount on convertible note payable                                          (305,195)
  Stock options issued for services                                              362,605
  Accrued interest exchanged for common stock                                    202,116
  Accrued salaries exchanged for common stock                                     30,191
  Debt and accrued interest forgiven                                              43,967
=======================================================================================================

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid for income taxes                                                 $     1,600   $     1,600
  Cash paid for interest                                                     $   203,390   $   205,702
=======================================================================================================
</TABLE>


      See accompanying summary of accounting policies and notes to the financial
                                                                     statements.

                                                                               4
<PAGE>
<TABLE>
<CAPTION>
                                                      AMNIS SYSTEMS INC.

                                             STATEMENT OF STOCKHOLDERS' DEFICIT

============================================================================================================================

For the Years Ended December 31, 2001 and 2000
----------------------------------------------------------------------------------------------------------------------------

                                                           Convertible
                                                         Preferred Stock               Common Stock           Additional
                                                ------------------------------  -------------------------       Paid-In
                                                     Shares           Amount        Shares        Amount        Capital
                                                ----------------------------------------------------------------------------
<S>                                             <C>               <C>             <C>          <C>           <C>
BALANCE - December 31, 1999                             310,073   $   6,033,241   10,108,211   $      1,011  $      465,732

  Stock split prior to merger 2.82:1                                              16,944,200          1,694          (1,694)

  Exercise of common stock options                                                   107,785             11          23,185

  Issuance of common stock for services                                               50,000              5         106,245

  Conversion of stockholder debt                                                   1,333,300            133         499,867

  Purchase of common stock                                                         1,683,333            168       2,799,832

  Cancellation of common stock                                                   (19,740,000)        (1,974)          1,974

  Conversion of preferred stock                        (310,073)     (6,033,241)     310,073             31       6,033,210

  Net loss
----------------------------------------------------------------------------------------------------------------------------

BALANCE, December 31, 2000                                    -               -   10,796,902          1,079       9,928,351

  Conversion of debt and accrued interest
     to common stock                                                                   4,307                          8,613

  Conversion of accrued interest to
     common stock                                                                    133,378             13         193,490

  Sale of common stock                                                             1,248,889            126       1,415,874

  Issuance of common stock for services                                              663,000             67         325,933

  Exercise of stock options                                                          100,606             10          45,668

  Beneficial conversion feature and warrants
     on issuance of convertible note payable                                                                        305,195

  Issuance of common stock options to
     non-employees                                                                                                   36,605

  Net loss
----------------------------------------------------------------------------------------------------------------------------

BALANCE, December 31, 2001                                    -   $           -   12,947,082   $      1,295  $   12,259,729
============================================================================================================================



For the Years Ended December 31, 2001 and 2000
----------------------------------------------------------------------------

                                                                  Total
                                                 Accumulated   Stockholders'
                                                   Deficit       Deficit
                                                -------------  -------------
<S>                                             <C>            <C>
BALANCE - December 31, 1999                     $ (8,788,817)  $(2,288,833)

  Stock split prior to merger 2.82:1

  Exercise of common stock options                                  23,196

  Issuance of common stock for services                            106,250

  Conversion of stockholder debt                                   500,000

  Purchase of common stock                                       2,800,000

  Cancellation of common stock

  Conversion of preferred stock

  Net loss                                        (5,419,655)   (5,419,655)
---------------------------------------------------------------------------

BALANCE, December 31, 2000                       (14,208,472)   (4,279,042)

  Conversion of debt and accrued interest
     to common stock                                                 8,613

  Conversion of accrued interest to
     common stock                                                  193,503

  Sale of common stock                                           1,416,000

  Issuance of common stock for services                            326,000

  Exercise of stock options                                         45,678

  Beneficial conversion feature and warrants
     on issuance of convertible note payable                       305,195

  Issuance of common stock options to
     non-employees                                                  36,605

  Net loss                                        (5,432,172)   (5,432,172)
---------------------------------------------------------------------------

BALANCE, December 31, 2001                      $(19,640,644)  $(7,379,620)
---------------------------------------------------------------------------
</TABLE>


      See accompanying summary of accounting policies and notes to the financial
                                                                     statements.


                                                                               5
<PAGE>
                                                              AMNIS SYSTEMS INC.

                                                   NOTES TO FINANCIAL STATEMENTS

================================================================================

Note 1 -  Description  of  Company:

          Amnis Systems Inc. (the Company), a Delaware consolidated corporation,
          develops,  manufactures  and  delivers  networked  streaming  video
          solutions  for  high  quality  video  creation,  management  and
          distribution.  The  Company's  network  video products are distributed
          worldwide  both  directly  and  through  leading  industry  partners.

          The  Company's  products  are  used  in  diverse  applications such as
          distance  learning,  corporate  training,  video  courier  services,
          telemedicine,  surveillance  and  visual  collaboration.


Note 2 -  Going Concern:

          The  Company  is  subject  to  a  number  of  business risks affecting
          companies  at  a  similar  stage of development, including competition
          from  companies  with  greater resources and alternative technologies,
          the  ability to obtain financing to fund future operations, dependence
          on  new  product  introductions  in  a  rapidly changing technological
          environment,  dependence  on a limited number of customers, dependence
          on  key  employees  and  the  ability to attract and retain additional
          qualified  personnel.

          The accompanying financial statements have been prepared assuming that
          the  Company  will continue as a going concern. The Company incurred a
          net loss of $5,432,172 and $5,419,655 for the years ended December 31,
          2001  and  2000,  respectively,  and  has a working capital deficit of
          $7,438,697 and $4,824,707 at December 31, 2001 and 2000, respectively.
          These  factors  raise substantial doubt about the Company's ability to
          continue  as  a  going  concern.  Subsequent  to year-end, the Company
          entered  into  an  agreement  with its creditors to settle outstanding
          obligations  shown  on  the  balance  sheet  as  "Accounts  payable  -
          moratorium"  at  a  rate  of $0.35 per dollar outstanding. An original
          balance  of  $1,575,673  of  accounts  payable  was  subject  to  this
          agreement. Since the acceptance of this agreement the Company has paid
          $50,000  toward  the outstanding balance. Also subsequent to year-end,
          the  Company  entered  into  a financing arrangement that will provide
          funding  for  operations  and  payments  of obligations (see Note 16).
          There  is  no  assurance  that  the  Company  will  be able to achieve
          successful operations or obtain sufficient financing. The accompanying
          financial  statements do not include any adjustments that might result
          from  the  outcome  of  these  uncertainties.

Note 3 -  Summary of Significant Accounting Policies:

          a.   Principles of Consolidation
               ---------------------------

               The  financial  statements  include  the  consolidation  of  the
               Company's  wholly-owned  subsidiary,  Optivision,  Inc.  All
               significant  intercompany  accounts  and  transactions  have been
               eliminated  in  consolidation.


                                                                               6
<PAGE>
                                                              AMNIS SYSTEMS INC.

                                                   NOTES TO FINANCIAL STATEMENTS

================================================================================

          b.   Use  of  Estimates  in  the  Preparation  of Financial Statements
               -----------------------------------------------------------------

               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
               disclosure  of  contingent  assets and liabilities at the date of
               the financial statements and the reported amounts of revenues and
               expenses  during  the period. The Company has made an estimate of
               additional  costs  related  to  disallowable items that may arise
               from  the  completion  of  certain  audits of the Company's Small
               Business  Innovation Research ("SBIR") grants that is included in
               other  accrued  expenses.  Due  to the uncertainty related to the
               ultimate  outcome of the audits, the estimate of additional costs
               is  subject  to  change  and  actual  results could be materially
               different  from  this  estimate.

          c.   Stock-Based  Compensation
               -------------------------

               The  Financial  Accounting  Standards  Board  issued Statement of
               Financial  Accounting Standards ("SFAS") No. 123, "Accounting for
               Stock-Based  Compensation," in October 1995. SFAS No. 123 permits
               the use of either a fair value based method or the method defined
               in  Accounting  Principles  Board ("APB") Opinion 25, "Accounting
               for  Stock  Issued  to  Employees,"  to  account  for stock-based
               compensation  arrangements.  Companies  that  elect to employ the
               valuation  method provided in APB No. 25 are required to disclose
               the  pro  forma net loss that would have resulted from the use of
               the  fair value based method. The Company has elected to continue
               to  determine  the value of stock-based compensation arrangements
               under  the  provisions  of  APB  No.  25 and, accordingly, it has
               included the pro forma disclosures required under SFAS No. 123 in
               Note  11.

          d.   Cash  and  Cash  Equivalents
               ----------------------------

               For  the  purpose  of the balance sheet and the statement of cash
               flows,  the  Company  considers  all  highly  liquid  investments
               purchased with an original maturity of three months or less to be
               cash  equivalents.

          e.   Inventories
               -----------

               Inventories are stated at the lower of cost (first-in, first-out)
               or market. 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, 2001 and
               2000,  respectively.  Due to competitive and market pressures, it
               is  reasonably  possible that these estimates could change in the
               future.


                                                                               7
<PAGE>
                                                              AMNIS SYSTEMS INC.

                                                   NOTES TO FINANCIAL STATEMENTS

================================================================================

          f.   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.

          g.   Revenue  Recognition
               --------------------

               Revenues  are  generated  from  the  sale  and  shipment  of  the
               Company's  products  to value added resellers, original equipment
               manufacturers  and end users. The Company recognizes revenue from
               warranty  contracts on a straight-line basis over the contractual
               period  of  the warranty. The unrecognized portion is recorded as
               deferred  revenue  on  the  balance  sheet.

          h.   Advertising  Costs
               ------------------

               The  Company  expenses  all  advertising  costs, including direct
               response  advertising  costs, as they are incurred. There were no
               significant  advertising  expenses  in  2001  or  2000.

          i.   Loss  per  Share
               ----------------

               Basic  and  diluted loss per share is computed using the weighted
               average  number  of  common shares outstanding during the period.
               Since  we have a net loss for all periods presented, net loss per
               share  on  a  diluted  basis  is equivalent to basic net loss per
               share because the effect of converting outstanding stock options,
               warrants,  convertible  debt  and  other common stock equivalents
               would  be  anti-dilutive.

               Basic  and  diluted  loss  per  share  was  calculated based upon
               outstanding  common  stock  and  equivalents  of  11,559,506  and
               24,657,080  for  2001  and  2000,  respectively.

          j.   Risks  Due  to  Concentration  of  Significant  Customers
               ---------------------------------------------------------

               During 2001 and 2000, four customers accounted for 52% and 44% of
               net  revenues,  respectively.  As  of  December 31, 2001 and 2000
               approximately  44%  and 45%, respectively, of accounts receivable
               were  concentrated  with  five  customers.  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  sales  returns,  estimated  bad  debt
               losses, and for unallowable costs on government grants to address
               potential  undetected  credit  risks.


                                                                               8
<PAGE>
                                                              AMNIS SYSTEMS INC.

                                                   NOTES TO FINANCIAL STATEMENTS

================================================================================

          k.   Income  Taxes
               -------------

               The Company accounts for income taxes in accordance with SFAS No.
               109,  "Accounting  for Income Taxes." This statement provides for
               an asset and liability approach under which deferred income taxes
               are  provided based upon enacted tax laws and rates applicable to
               the  periods  in  which  the  taxes  become  payable.

          l.   Current  Pronouncements
               -----------------------

               In  September  2000, the FASB issued SFAS No. 140, Accounting for
               Transfers  and  Servicing of Financial Assets and Extinguishments
               of  Liabilities.  The statement provides accounting and reporting
               standards  for  transfers  and  servicing of financial assets and
               extinguishments  of  liabilities,  and  revises  the  accounting
               standards  for  securitization  and transfers of financial assets
               and  collateral.  The  adoption  of  SFAS  No. 140 did not have a
               material  impact  on the Company's financial position, results of
               operations,  or  cash  flows.

               In  June  2001,  the  FASB  issued  SFAS  No.  141,  Business
               Combinations,  and  SFAS  No.  142, Goodwill and Other Intangible
               Assets.  SFAS  No.  141  requires business combinations initiated
               after June 30, 2001 to be accounted for using the purchase method
               of accounting. It also specifies the types of acquired intangible
               assets that are required to be recognized and reported separately
               from  goodwill.  The  Company  does  not  anticipate any material
               impact  from  the  adoption  of  this standard. SFAS No. 142 will
               require  that  goodwill  and  certain  intangibles  no  longer be
               amortized,  but  instead  will  be tested for impairment at least
               annually.  SFAS  No.  142  is  effective  for  all  fiscal  years
               beginning  after  December  15,  2001,  with  early  application
               permitted  in  certain circumstances. The Company does not expect
               SFAS  142  to  have  a material impact on the Company's financial
               position,  results  of  operations  or  cash  flows.

               In  June 2001, the FASB issued SFAS No. 143, Accounting for Asset
               Retirement  Obligations.  The  statement  addresses  financial
               accounting  and  reporting  for  obligations  associated with the
               retirement  of  long-lived  assets  and  the  associated  asset
               retirement costs. The statement is effective for all fiscal years
               beginning  after June 15, 2002, with early application permitted.
               The  Company does not expect the adoption of SFAS No. 143 to have
               a material impact on the Company's financial position, results of
               operations,  or  cash  flows.


                                                                               9
<PAGE>
                                                              AMNIS SYSTEMS INC.

                                                   NOTES TO FINANCIAL STATEMENTS

================================================================================

               In  August 2001, The FASB issued SFAS No. 144, Accounting for the
               Impairment  or  Disposal  of  Long-Lived  Assets.  This statement
               supercedes  SFAS  No.  121,  Accounting  for  the  Impairment  of
               Long-Lived  Assets  and  for Long-Lived Assets to be Disposed of,
               and  the  accounting  and reporting provisions of APB Opinion No.
               30,  Reporting  the Results of Operations - Reporting the Effects
               of  Disposal  of  a  Segment  of  a  Business, and Extraordinary,
               Unusual  and  Infrequently Occurring Events and Transactions, for
               the  disposal  of  a  segment  of  a  business.  The statement is
               effective for all fiscal years beginning after December 15, 2001,
               with early application permitted. The Company does not expect the
               adoption  of  SFAS  No.  143  to  have  a  material impact on the
               Company's  financial  position,  results  of  operations, or cash
               flows.


Note 4 -  Business Combination:

          On  April  16,  2001, the Company effected a business combination with
          Optivision,  Inc.  by  exchanging 4,467,063 shares of its common stock
          for all of the common stock of Optivision, Inc. The principal business
          of  Optivision  is  manufacturing  and  delivering networked streaming
          video  solutions  for  high  quality  video  creation,  management and
          distribution.  The  combination has been accounted for as a pooling of
          interests  and,  accordingly, all prior financial statements have been
          restated  to  include  Optivision.  The  results  of operations of the
          separate  companies  are  summarized  as  follows:


<TABLE>
<CAPTION>
                              Net Sales     Net Loss
<S>                           <C>         <C>
Year Ended December 31, 2001
  Amnis                                   $  (362,605)
  Optivision                  $4,095,755   (5,069,567)
------------------------------------------------------

                              $4,095,755  $(5,432,172)
======================================================

Year Ended December 31, 2000
  Amnis                                   $  (110,923)
  Optivision                  $3,574,090   (5,308,732)
------------------------------------------------------

                              $3,574,090  $(5,419,655)
======================================================
</TABLE>


                                                                              10
<PAGE>
                                                              AMNIS SYSTEMS INC.

                                                   NOTES TO FINANCIAL STATEMENTS

================================================================================

Note 5 -  Inventory:

          Inventories  consist  of  the  following  at  December  31:

<TABLE>
<CAPTION>
                                                2001        2000
<S>                                          <C>         <C>
Raw materials                                $ 274,593   $  326,491
Work-in-process                                445,490      803,862
Demonstration inventory                        115,798      125,596
--------------------------------------------------------------------

                                               835,881    1,255,949
Reserve for inventory obsolescence and
 demonstration inventory refurbishing costs   (211,825)    (149,300)
--------------------------------------------------------------------

                                             $ 624,056   $1,106,649
====================================================================
</TABLE>

          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 supplies to maintain or
          enhance  these  components  could  materially  adversely  affect  the
          Company's  results  of  operations.


Note 6 -  Accounts Receivable Financing:

          In October 1998, the Company entered into a financing arrangement with
          Pacific Business Funding whereby funds were provided to the Company in
          exchange  for  factoring accounts receivable. Funding was based on 80%
          of  qualified  receivables.  The Company is liable for any uncollected
          receivables.  As  of  December 31, 2001 and 2000 borrowings under this
          agreement  were  $1,029,283  and $1,138,598, respectively. The balance
          bears  interest  at  18% per annum. The Company has currently exceeded
          its  credit limit available on this agreement. This amount is included
          on  the  balance  sheet  as  "Financing  obligations collateralized by
          accounts  receivable".


                                                                              11
<PAGE>
                                                              AMNIS SYSTEMS INC.

                                                   NOTES TO FINANCIAL STATEMENTS

================================================================================

Note 7 -  Notes Payable:

          In  prior  years,  the  Company  obtained equipment financing lines of
          $2,000,000  and  $1,000,000, respectively, through Venture Lending and
          Leasing, Inc. The full amount under both equipment financing lines was
          drawn down by the Company under two notes, one note for $2,000,000 and
          a  second  note  for $1,000,000 (collectively, the "notes"). The Notes
          bear  interest at 17%, are secured by equipment, fixtures and accounts
          receivable,  and  contain certain covenants. The covenants include the
          requirement  that  the  Company maintain compliance with the covenants
          included  in  the Company's accounts receivable financing. The Company
          was  not  in compliance with the covenants and therefore the notes are
          due  on  demand and have been reflected as a current liability for the
          year  ended December 31, 2000. During the year ended December 31, 2001
          the  lender  forgave  the  remaining  balance  on the note and accrued
          interest  in  the  amount of $43,967. This amount is included in other
          income.

          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  are  due  one  year  from  the  date  of issuance, and
          therefore  has  been  classified  as  current  on the balance sheet at
          December  31,  2001.

Note 8 -  Stockholders' Notes Payable

          Certain  stockholders  loaned  the  Company  unsecured  funds,  which
          amounted  to  a  balance  of $3,309,375 and $1,572,197 at December 31,
          2001 and 2000, respectively. These loans are all classified as current
          and  bear  interest  at a rate of 10% per annum. The carrying value of
          these  notes  payable  approximates  their  fair  value.

          Subsequent  to  December 31, 2001, one stockholder converted a portion
          of  the  notes  above, subsequent loans, and accrued interest thereon,
          totaling  $3,635,281,  into  a convertible note. This convertible note
          bears interest at 10% per annum, and allows the stockholder to convert
          the  note  to  common stock at $0.35 per share, subject to adjustment.


                                                                              12
<PAGE>
                                                              AMNIS SYSTEMS INC.

                                                   NOTES TO FINANCIAL STATEMENTS

================================================================================

Note 9 -  Convertible Debt:

          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,  which is currently recorded as a debenture receivable, 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. 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 tradingThe debenture
          limits  the ownership that can be acquired through this transaction to
          be no greater than 4.9%. 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.

          Since  there are multiple components of the debenture, value was added
          to  each  component (warrants and debenture) based on their respective
          value. A discount on the debenture was calculated in two parts, first,
          the  beneficial  conversion feature on the debenture was valued as the
          difference  between  the  purchase  price  of  the  conversion and the
          current trading price of the stock. Secondly, the warrants were valued
          using  the  Black  Scholes  Model.  The  combined  total  discount  is
          $305,195,  and  will  be  amortized  over  the  two  year  life of the
          debenture.  This  is  the  first  installment received on a $2,385,000
          commitment  from  the  lender.  The  carrying  value of this debenture
          approximates  its fair value. On January 3, 2002, the Company received
          $500,000  pursuant  to  this  debenture.

Note 10 - Commitments and Contingencies:

          Lease Commitments
          -----------------

               The  Company  leases  office  and  manufacturing  space,  under a
               non-cancelable  operating  lease, which expires in December 2002.
               The  lease agreement for the Company's office facilities provides
               for  scheduled  rent  increases throughout the life of the lease.
               Rent  expense  under  this  agreement  is  being  recognized on a
               straight-line  basis  over  the term of the lease. The difference
               between  the amounts paid and the amounts expensed for accounting
               purposes  on  the  straight-line  basis is classified as deferred
               rent  in  the  accompanying  balance  sheet.  Rental  expense was
               approximately  $1,310,000  and  $1,240,000  for  2001  and  2000,
               respectively.

               Minimum  rental  payments  under  these leases for 2002 amount to
               $1,047,278.

               The Company subleased a portion of its leased facilities under an
               operating  lease  that  is  scheduled  to  expire  February 2002.
               Sublease  income  for  2001 and 2000 was approximately $1,065,000
               and  $852,000,  respectively.


                                                                              13
<PAGE>
                                                              AMNIS SYSTEMS INC.

                                                   NOTES TO FINANCIAL STATEMENTS

================================================================================

          Employment Agreements
          ---------------------

               The  Company  has entered into employment agreements with certain
               key  employees with original terms of three years. Minimum future
               payments  under  these  agreements  for  the  years subsequent to
               December  31,  2001  are  as  follows:


          2002       $   520,000
          2003           520,000
          2004           173,000
          ----------------------

                     $ 1,213,000
          ======================


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

               As  of  December  31,  2001  and  2000, the Company has accrued a
               provision  for  contract  costs  of  $134,519  and  $125,264,
               respectively.  The  Company's SBIR contracts are subject to audit
               by  the  Defense Contract Audit Association ("DCAA") with respect
               to  claims  made  by  the  Company  under the SBIR contracts. The
               Company  has  made an estimate of the costs of disallowable items
               under  the  SBIR  contracts  that  is  based on management's best
               estimate  of  the  ultimate settlement and management's review of
               the Company's claims and the regulations covering allowable items
               under  SBIR  contracts. Should the final settlement with the DCAA
               result  in a significantly different liability from that accrued,
               the  Company's operating results and financial condition could be
               materially  and  adversely  affected.

          Guarantee to Federal Government for Contracts Assigned to ONI
          -------------------------------------------------------------

               Certain  government  contracts  were  assigned  to  ONI (a former
               division  of Optivision, Inc.) as part of a spin-off during 1998.
               After  the government has approved the assignment of contracts to
               ONI,  the  Company  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, and
               subject  to  guarantee  by  the  Company  was  $7,047,000.  As of
               December  31,  2001 the Company has not determined which, if any,
               of  these contracts have been closed and as a result, what is the
               amount  of  the  reduced  liability  exposure.


                                                                              14
<PAGE>
                                                              AMNIS SYSTEMS INC.

                                                   NOTES TO FINANCIAL STATEMENTS

================================================================================

Note 11 - Stock Option Plans:

          The Company has two stock option plans: the 1997 Stock Plan (the "1997
          Plan")  and  the  2000 Stock Plan (the "2000 Plan"). The 1997 Plan was
          adopted  in  connection  with the merger with Optivision, Inc. and has
          3,993,482  shares authorized for issuance. The 2000 Plan has 5,500,000
          shares  authorized  for  issuance. The 1997 Plan and 2000 Plan 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. The fair value of the
          Company's  common  stock  is  determined  by  the  Board of Directors.
          Options granted under the 1997 Plan and 2000 Plan 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:

<TABLE>
<CAPTION>
                                                                      Weighted
                                                       Number of       Average
                                                        Shares     Exercise Price
<S>                                                   <C>          <C>

Balance, December 31, 2001                             3,826,236   $         0.60
   Granted                                             3,805,300             1.40
   Exercised                                            (100,604)            0.56
   Canceled                                           (1,342,285)            1.31
---------------------------------------------------------------------------------

Balance, December 31, 2001                             6,188,646   $         0.88
=================================================================================

Balance, December 31, 2000                               520,215   $         1.90
   Granted                                             3,325,790             0.50
   Exercised                                              (2,243)            1.40
   Canceled                                              (17,526)            1.70
---------------------------------------------------------------------------------

Balance, December 31, 2000                             3,826,236   $         0.60
=================================================================================

Stock options authorized and available to be granted                    3,304,836
=================================================================================
</TABLE>


                                                                              15
<PAGE>
                                                              AMNIS SYSTEMS INC.

                                                   NOTES TO FINANCIAL STATEMENTS

================================================================================

          The  following  table  summarizes  information  about  stock  options
          outstanding  at  December  31,  2001:

<TABLE>
<CAPTION>
                          Options  Outstanding           Options Exercisable
               ---------------------------------------  ---------------------
                               Weighted
                                Average      Weighted                Weighted
Range of                       Remaining      Average                 Average
Exercise         Number       Contractual    Exercise     Number     Exercise
Prices         Outstanding  Life (in years)    Price    Exercisable    Price
<S>            <C>          <C>              <C>        <C>          <C>

0.00 - $1.00    3,380,596             8.77  $    0.40    2,196,555  $    0.40
1.01 - $2.00    2,719,738             9.11       1.39    1,600,040       1.37
2.01 - $3.00       87,500             9.04       3.00       30,110       3.00
3.01 - $4.00          812             4.77       4.00          812       4.00
-----------------------------------------------------------------------------

                6,188,646             8.93  $    0.88    3,827,517  $    0.84
=============================================================================
</TABLE>

          The  difference between the exercise price and the fair market options
          issued  on  the  dates  of  the  grant  is  accounted  for as unearned
          compensation and amortized to expense over the related vesting period.
          The  Company  recognized  $36,605  and $0 of expense in 2001 and 2000,
          respectively,  related  to  stock  options  granted to consultants. As
          discussed  in  the Summary of Accounting Policies, the Company follows
          APB  No.  25  for  measurement and recognition of employee stock-based
          transactions.  Had  the  Company  elected to adopt the measurement and
          recognition  provisions  of  SFAS  No.  123,  the  Company  would have
          incurred  an  additional  $111,783 and $43,458 in related compensation
          expenses  during  the  years  ended  December  31,  2001  and  2000,
          respectively.  Under  the provisions of SFAS No. 123, the proforma net
          (loss)  income  and  basic and diluted (loss) income per share for the
          years  ended  December  31,  2001  and  2000  are  as  follows:

<TABLE>
<CAPTION>
                                       2001          2000
<S>                                <C>           <C>
Net Loss:
   As reported                     $(5,432,172)  $(5,419,655)
   Pro forma                        (5,543,955)   (5,457,113)
=============================================================

Basic and Diluted Loss per Share:
   As reported                     $     (0.47)  $     (0.22)
   Pro forma                             (0.48)        (0.22)
=============================================================
</TABLE>

          The  pro forma information provided above was estimated at the date of
          grant,  using  the  Black-Scholes  option-pricing  model,  with  the
          following  weighted  average  assumptions:


                                                                              16
<PAGE>
                                                              AMNIS SYSTEMS INC.

                                                   NOTES TO FINANCIAL STATEMENTS

================================================================================

<TABLE>
<CAPTION>
                                       2001     2000
<S>                                   <C>      <C>
Expected life (in years)                 4.0     4.0
Risk-free interest rate                  3.5%    3.5%
Volatility                            137.44%  100.0%
Dividend yield                           0.0%    0.0%
</TABLE>

Note 12 - Warrants:

          As  part of a convertible debt agreement, the Company issued 1,250,000
          warrants  to  purchase  common  stock  at a price of $2.25 - $4.25 per
          share.  An  additional 100,000 warrants were issued to a vendor with a
          purchase price of $3.00 per share. 1,100,000 warrants were also issued
          with  the  debt  discussed  in  note  7.

<TABLE>
<CAPTION>
                                 Weighted
                                  Average      Weighted                Weighted
Range of                         Remaining      Average                 Average
Exercise           Number       Contractual    Exercise     Number     Exercise
Prices           Outstanding  Life (in years)    Price    Exercisable    Price
<S>              <C>          <C>              <C>        <C>          <C>
0.000 - $0.001       52,301             4.83  $   0.001       52,301  $   0.001
0.002 - $0.350    1,100,000             7.00  $   0.350    1,100,000  $   0.350
2.250 - $4.250    1,350,000             1.65  $   2.680    1,350,000  $   2.680
-------------------------------------------------------------------------------
                  2,502,301             4.07  $    1.60    2,502,301  $    1.60
===============================================================================
</TABLE>


Note 13 - Employee Benefits:

          The  Company  maintains a profit sharing and 401(k) plan (the "Plan").
          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  2001  or  2000.

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


                                                                              17
<PAGE>
                                                              AMNIS SYSTEMS INC.

                                                   NOTES TO FINANCIAL STATEMENTS

================================================================================

Note 14 - Concentration  of  Credit  Risk:

          The  Company  has  identified  its  financial  instruments  which  are
          potentially  subject  to  credit  risk.  These  financial  instruments
          consist  principally  of  cash  and  cash equivalents and receivables.

          During  the  year, the Company had significant operating cash and cash
          equivalents  in  excess  of  the  federally  insured  limits.

Note 15 - Income Taxes:

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

<TABLE>
<CAPTION>
                                                        2001          2000
<S>                                                 <C>           <C>
Deferred income tax assets from:
  Federal net operating loss carryforwards          $ 5,989,000   $ 4,215,000
  State net operating loss carryforwards                783,000       551,000
  Cumulative net temporary differences                  892,000       803,000
------------------------------------------------------------------------------

                                                      7,664,000     5,569,000
Valuation allowance                                  (7,664,000)   (5,569,000)
------------------------------------------------------------------------------

Net deferred income tax assets                      $         -   $         -
==============================================================================
</TABLE>

          The  valuation  allowance  was increased $2,095,000 from 2000 to 2001.
          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 is unable to determine whether it is more likely
          than  not  that  the  net  deferred  tax  assets will be realized, the
          Company  continues to record a 100 percent valuation allowance against
          the  net  deferred  tax  assets.

          Net  operating  loss  carryforwards  at  December  31,  2001  were
          approximately  $17,460,000  for  Federal  income  tax  purpose  and
          $8,770,000  for  state  income  tax  purposes.  The net operating loss
          carryforwards  expire  on  various  dates  through  the year 2021. 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, 2001. Accordingly, a valuation
          allowance  has  been  provided  for the entire amount related thereto.


                                                                              18
<PAGE>
                                                              AMNIS SYSTEMS INC.

                                                   NOTES TO FINANCIAL STATEMENTS

================================================================================

Note 16 - Subsequent Events:

          On  January  30,  2002, the Company successfully negotiated a work-out
          agreement plan with the creditors of Optivision, Inc., under which the
          Company  will  pay  the  creditors of Optivision, Inc. $0.35 for every
          $1.00  owed  on debt listed on the balance sheet as Accounts Payable -
          moratorium.  As  of  the  date of this report, the Company was current
          with  all payments under the agreement. Per the agreement, the debt is
          to  be  settled  in  monthly  payments  by  June  30,  2002.

          Subsequent  to  December  31,  2001,  the  Company  settled  with  its
          employees  for unpaid compensation by issuing additional stock options
          in  lieu  of  cash  in  the  amount  of  $670,595.

          On  January  14,  2002,  the  Company issued a convertible note in the
          principal  amount  of  $3,635,281.29  to  Mr.  Michael A Liccardo, our
          president,  chief  executive  officer  and  chairman  of  the board of
          directors,  in  exchange  for  the  cancellation  of  certain  loans
          (including  accrued interests thereon) that Mr. Liccardo had loaned to
          Optivision,  Inc. to meet current 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.

          Between  February  14,  2002 and February 21, 2002 the Company entered
          into  financing agreements for the sale of its common stock. The stock
          was  sold  in units, which include ten shares of common stock, subject
          to  adjustment,  and  one warrant, for $8.00 each. Each warrant allows
          the holder to purchase three shares of common stock at $0.90 per share
          subject  to  adjustment.  The  total  selling price of these units was
          $1,800,000.

          The  Company has negotiated an agreement whereby $250,000 of debt plus
          interest  of  $25,890  would  be  converted  into  common stock of the
          Company  at  $1.00  per  share.


                                                                              19
<PAGE>
     (a)(2) Exhibits

<TABLE>
<CAPTION>
Exhibit Number  Identification of Exhibit
--------------  ----------------------------------------------------------------------------
<C>             <S>
2.1**           Agreement and Plan of Merger dated as of September 11, 2000 by and
                among the Issuer, Optivision, Inc., and ASI Acquisition, Inc.
2.2**           Amendment to Agreement and Plan of Merger dated as of January 11, 2001
                by and among the Issuer, Optivision, Inc., and ASI Acquisition, Inc.
3.1*            Certificate of Incorporation of Issuer dated as of July 29, 1998
3.2**           Certificate of Amendment of Certificate of Incorporation of the Issuer dated
                as of August 24, 2000
3.3**           Certificate of Amendment of Certificate of Incorporation of the Issuer dated
                as of September 13, 2000
3.4*            Bylaws of the Issuer dated as of August 4, 1998
3.5**           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
10.1*****       + Amended 1997 Stock Option Plan
10.2*****       + Amended 2000 Stock Option Plan
10.3*****       Lease Agreement dated as of August 8, 1995 between Optivision, Inc. and
                Alta California Associates


                                       37
<PAGE>
10.4*****       + Employment Agreement dated as of April 18, 2001 between the Issuer and
                Michael A. Liccardo
10.5*****       + Employment Agreement dated as of April 18, 2001 between the Issuer and
                Lawrence L. Bartlett
10.6*****       + Employment Agreement dated as of April 18, 2001 between the Issuer and
                Richard A. Falcone
10.7***         Securities Purchase Agreement dated as of December 28, 2001 between the
                Issuer and Bristol Investment Fund, Ltd.
10.8***         Registration Rights Agreement dated as of December 28, 2001 between the
                Issuer and Bristol Investment Fund, Ltd.
10.9***         Security Agreement dated as of December 28, 2001 between the Issuer and
                Bristol Investment Fund, Ltd.
10.10****       Form of Unit Subscription Agreement between the Issuer and each qualified
                investor
21.1            List of Subsidiaries of the Issuer
<FN>

+     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
</TABLE>

     (b)     Reports on Form 8-K

     On May 1, 2001, we filed a report on Form 8-K, as subsequently amended by a
report  on  Form  8-K/A that we filed on July 2, 2001, in which we announced our
merger  with  Optivision,  Inc,  a  California  corporation,  and  we  filed the
financial  statements  of  the  businesses  acquired.

     On  January 14, 2002, we filed a report on Form 8-K announcing the issuance
of  a  convertible  debenture  in  the  principal amount of $500,000, investment


                                       38
<PAGE>
options  for  the  purchase  up  to  $500,000  of our common stock, and warrants
exercisable  for  up  to  1,000,000  shares  of  our  common  stock in a private
financing  arranged  by  Bristol  DLP,  LLC.

     On  March 4, 2002, we filed a report on Form 8-K announcing the issuance of
$1,800,000  in  designated units of common stock and warrants to three qualified
investors  in  a  private  placement  transaction.

                                   SIGNATURES

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

Date:  March 29, 2002             AMNIS SYSTEMS INC.
---------------------

                                  By: /s/ Michael A. Liccardo
                                      ------------------------------------------
                                      Michael A. Liccardo
                                      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:  March 29, 2002             By: /s/ Michael A. Liccardo
---------------------                 ------------------------------------------
                                      Michael A. Liccardo
                                      Director and Chairman of the Board,
                                      President and Chief Executive Officer

Date:  March 29, 2002             By: /s/ Lawrence L. Bartlett
---------------------                 ------------------------------------------
                                      Lawrence L. Bartlett
                                      Director, Vice President, Chief Financial
                                      Officer and Secretary


                                       39
<PAGE>