U.S. SECURITIES AND EXCHANGE COMMISSION
                          Washington, DC 20549

                              FORM 10-KSB

(Mark One)
[x] Annual report under Section 13 or 13(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: 0-10690

                        SCIENCE DYNAMICS CORPORATION
               (Name of Small Business Issuer in its Charter)

                   DELAWARE                         22-2011859
    (State of Other Jurisdiction        (IRS Employer Identification Number)
     Incorporation or organization )

                           1919 Springdale Road
                    Cherry Hill, New Jersey 08003-1609
                 (Address of principal executive offices)

Issuer's telephone number: 856-424-0068

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

  Title of each Class                Name of each exchange on which registered
----------------------              -------------------------------------------
        None                                         N/A


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

                     COMMON STOCK, $0.01 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 past 90 days.
Yes [X]  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]

The issuer's revenues for the fiscal year ending December 31, 2001 were
$891,149.

As of April 12, 2002, the aggregate market value of the voting and non-voting
common stock of the registrant held by non-affiliates of the registrant
computed by reference to the average bid and asked price of such common
equity on that date was $ 1,528,319 million

As of April 15, 2002, the issuer had 29,889,500 outstanding shares of
Common Stock.

Transitional small business format  Yes ___    No  X

<PAGE>

PART I
--------------------------------------------------------------------------

ITEM 1. DESCRIPTION OF BUSINESS


GENERAL OVERVIEW
----------------

Science Dynamics Corporation (the "Company", "SciDyn" or "Science Dynamics")
was incorporated in the State of Delaware May 1973 and commenced operations
in July 1977. During the past twenty-four (24) years, never has the Company
faced such challenges as those that evolved over the previous year in the
telecom sector. SciDyn embarked on a major development cycle, to bring
products to market with the latest forms of communication: Voice over IP
(VoIP), video over packet and call control. These developments brought new
competitive offerings to its customer base.

The dramatic market upsurge in building telecommunications infrastructure in
2000 created many opportunities and obstacles to which SciDyn responded
well. The decimation of that infrastructure and bankruptcies of major
corporations meant the Company had to retrench in order to survive and
avoid becoming a casualty along with many larger organizations.

The last three (3) months has seen SciDyn take bold steps to improve its
survivability in this very difficult market place. New initiatives are being
formulated which will allow SciDyn to grow by focusing on niche applications
and markets.

Voice over Internet Protocol (VoIP) is now an integral part of global
telecommunications as opposed to being distinct from the PSTN legacy
communications. This marketplace shift in telecommunications architecture
makes an understanding of VoIP and PSTN communication networks a requirement
for innovative solutions.

The opportunity for SciDyn to provide creative applications and solutions
that add functionality and features to this new infrastructure are huge.
SciDyn will concentrate on bringing its many years of telecommunications
understanding and capability to this new and very demanding marketplace.
Profitability and shareholder value, along with quality, value for money and
usability for our customers will be the driving force for our future.


BUSINESS DEVELOPMENT
--------------------

SciDyn has maintained a long and highly reputable position as a supplier of
call control technology to service providers offering Collect-Only calling
to inmates of correctional institutions. SciDyn has been a primary supplier
to a major Local Exchange Carrier (LEC) and, in recent years, has expanded
its customer base to include the newly emerging cadre of unregulated
companies offering the same service in today's more highly competitive
telecom environment. SciDyn's Commander product line continues to receive
high marks as a versatile and feature-rich platform, well prepared to deal
with the increasing demand for investigative tools and security.

The U.S. Department of Justice reports that there were 2,071,686 persons
incarcerated at yearend 2000. While the growth rate of prisoners slowed
to 1.3% in 2000, the overall annual growth since 1990 is 6%. It is an
unfortunate truth that, even during the recent economic decline, this is one
segment of the telecom marketplace that continues to grow.

One nuance among call control service providers is a shift away from
traditional equipment purchases to transaction-based pricing structures.
SciDyn is taking steps to align with this change by offering various pricing
options that allow customers to spread capital investment over the life of
their correctional institution contracts. These contract periods are
commonly five years in duration. There are a number of transaction related
events that parallel the provision of Collect-Only service, such as Line
Identification Database (LIDB) validation of billable telephone numbers.
SciDyn is preparing to undertake such validation for its customers. SciDyn
is creating an advanced LIDB validation service complete with a decision
support system component to mitigate unbillable call events.

-2-
<PAGE>

Within the foreseeable future, SciDyn anticipates becoming a Network
Operations Center (NOC) to provide a suite of transaction-based services
including low cost voice communication services to improve customers'
profitability. SciDyn's past experiences with VoIP gateways and packet
switching technologies fit well within this strategy.

PRODUCTS
--------

IP Telephony

One of the current impacts of IP Telephony is the way it is driving the
convergence of the IT and telecom markets. Both of these traditional markets
are now seeing a paradigm shift to IP Telephony. IP Telephony is crossing
traditional borders and amalgamating historically separated disciplines on
an IP network. This means the carriers and companies of the world are
starting to send voice over the packet networks that previously were used
only for data. This is an opportunity for dynamic companies to take their
experience and expertise and apply it in markets not traditionally open to
them.

By crossing borders, IP Telephony allows companies like SciDyn to diversify
from their traditional core technology and enhance and develop bridges
between the existing data and telecom infrastructures.

The difference between the current circuit-switched PSTN, which provides a
dedicated end-to-end connection, and the packet switched IP network, which
provides a virtual connection, is the enhancement of bandwidth utilization.
By sharing bandwidth as data networks do, new operators should have the
potential to provide a reduction in cost as compared to traditional circuit-
switched PSTN operators. The focus in today's market is to integrate these
two very different forms of communication throughout the world.

SciDyn's IP Telephony products aim to enhance the new operators' abilities to
combine the technologies of the new IP-based networks with the traditional
feature-rich circuit networks without forfeiting the key functionality of IP
network-adaptability.

The SciDyn system features a modular architecture that permits our customers
to add new product and service features without significant cost or
development time. Based on publicly available data provided by large
telecommunications service providers, we believe our modular architecture
enables the provision of new and existing communications services at a lower
cost than the provision of communications services by traditional telephone
companies. The IP Integrator gateway product line addresses the various
market segments. The IntegratorC-2100(R) Series focus is corporate
enterprises, the IntegratorC-2300(R) Series focus is large ISPs and Telco
Carriers and the IntergratorC-2500(R) Series focus is intended to address the
needs of PTT/Telco Carriers.

SciDyn offers its proprietary BubbleLink(R) software architecture throughout
its current IP Telephony Gateway product line. This includes our high
capacity versatile IntegratorC-2308(R), which has one of the smallest
footprints in the industry.

During 2001 the Integrator product was enhanced with additional
capabilities. System enhancements included support for SNMP, Radius
Authentication and Interoperability testing with various other vendor
products. The system hardware was revised and a cost reduction cycle was
executed to lower the per-port cost and conversely the entry-level price of
the IntegratorC-2300(R). Currently, development activity in this area has been
slowed commensurate with the overall slowdown in the Voice over IP industry.
SciDyn will keep this product available to meet the needs of this market
when activity once again increases.

-3-
<PAGE>

Commander Call Control System

The Commander call control system is built on SciDyn's unique BubbleLINK(R)
software architecture. This open system platform is a combination of
integrated Computer Telephony (CTI) hardware and software, which can handle
thousands of call transactions per hour and provide correctional facility
officials with effective tools to manage and control inmate telephone calls
using the Commander system software.

The Commander I models are designed for the small to mid sized municipal and
county correctional facilities requiring control for up to 40 inmate
telephone lines. The Commander I base system provides telephone control for
4 lines and can be expanded in 4 line increments. This modular design
provides a cost effective solution with an abundance of inmate phone control
features.

SciDyn has recently introduced its VoIP technology to its Commander call
control system. This enhancement reduces the hardware and operation costs of
running the SciDyn solution. The new configuration allows all of SciDyn's
technology to be housed at one central location reducing the amount of lines
that SciDyn clients will have to use in order to move the same traffic.
Moreover, the VoIP component allows for a reduction in the per minute
charges incurred by our client, which enhances profitability.

Commander call control systems are supported by an integrated array of
administrative and investigative programs that provide a management solution
suite. All programs interact real-time with Commander calls and databases via
an Ethernet Local Area Network (LAN) or a Wide Area Network (WAN).

In 2001, the company produced several major software releases and updates
for the Commander products that were in keeping with inmate market trends
and current customer requests. Many key enhancements and software additions
have been introduced to SciDyn's solution suite. One addition is DebitCall,
a pre-paid debit calling system that is integrated with the Commander call
control system. Another addition is Live Monitoring. Live Monitoring allows
for real-time monitoring of all inmate telephone activity. Innovative voice
streaming technology delivers audio monitoring to PC speakers with the ease
of Point, Click & Listen functionality. Additionally, integration with
several industry leading recording devices has been provided.

Currently under development is the next generation Commander system. This
next generation Commander will be produced on the latest technology and
provide greater capabilities for new features. This generation of Commander
system will introduce SciDyn's first totally internal recording solution.
This new recording component will provide great cost savings over the
traditional recording equipment used today. This generation of Commander
will no longer be assembled exclusively from components purchased from a
single vendor. Currently two vendors have been selected to source components
in the next generation Commander. This will provide SciDyn greater
flexibility and reliability in producing and supporting new systems.

Development will also continue in the area of more powerful investigative
tools. The Investigator's File Cabinet will provide a single repository for
storing call records, recordings and other documents related to a specific
case or investigation.

SciDyn continues to explore opportunities with the major telephone companies
in providing the Commander inmate phone control system with call transaction
(price per call) programs. Management believes that the recent and continued
drive to develop new capabilities for the Commander will establish the
Commander and SciDyn as the leader in inmate telephone control.

Video over Frame Relay

In 1997, SciDyn launched its new way to carry video conferencing. The VFX-
250S is a hardware-based Frame Relay Access Device (FRAD) designed to carry
video streams through the frame relay network. As the largest data network
protocol in the world, frame relay seemed an obvious choice for adding video
connectivity to its wide complement of features.

-4-
<PAGE>


SciDyn continues to market the VFX-250S products in markets where ISDN and
leased-line services are not available. As Frame Relay becomes more
prolific, so does the need for value added services to maximize the
efficiency of the network.

Successful trials have been completed in China, Korea and Mexico. Contract
Negotiations are currently in progress with a large distributor in Korea. We
expect sales from these opportunities to proceed steadily throughout the
year. Due to the resurgence in video conferencing as an alternative to air
travel we anticipate an overall increase in sales over the next twelve
months.

Error Correction Algorithm

In 1999, SciDyn acquired the "Error Detection and Correction System for Use
with Address Translation Memory Controller" patent, in exchange for 172,029
shares of common stock then valued at $100,000. Such a patent provides the
Company with the ability to embed in certain technology an error correction
method that should substantially reduce data transmission errors. This
correction device is designed to reduce costly retransmission and can be
utilized across various data transport mediums.

The Patent, which we intend to make available to others on a royalty basis,
can be utilized on virtually any data transmitting system, from fiber optics
to satellite transmission. Since both transmitting and receiving stations
must utilize the same algorithm, SciDyn's primary task is to initially
convince new or redesigned applications to utilize SciDyn's patent for each
end of the application. As stated in previous quarterly reports SciDyn
continues to pursue a third party to undertake the implementation of this
algorithm. To date a suitable entity has not been identified to exploit this
new technology in the near term. Since SciDyn's near term strategy and
capital priorities preclude it from investing additional time and funds into
exploiting this patent independently, its carrying value of $89,700 has been
written off. SciDyn believes that the underlying patent may still have
practical applications.

The Patent, which has been issued in the United States with application in
many foreign countries, is for a data transmission system for use in a mass
memory system, which includes an EDAC that corrects all single component
errors and detects all double component errors. High-speed operation permits
use of the EDAC on address and control lines as well as on data lines. In
memory systems, which use virtual memory addressing, further efficiency and
economy is achieved by incorporating a partial implementation of the EDAC
encoding in the same virtual memory address translation unit in which the
virtual memory address is calculated.

At the present time there is one issued patent. There are many upgrades to
the patented material that can be patented, which are now trade secrets.
These include both revisions to the algorithm and implementation approaches.

Voice Response System

SciDyn's Voice Response System (VRS) is an automatic intercept product
designed to provide a cost-effective solution for implementing announcement
capabilities at the central office location. This product has reached its
mature stage of the product life cycle and has been discontinued. A base
line revenue stream will be generated from support of this product.

SciDyn maintains a small but steady revenue from the maintenance of VRS and
VRI platforms. There are currently several hundred of these systems still
actively installed and operational. SciDyn is currently investigating the
need to provide a technology upgrade to customers using these traditional
platforms.

-5-
<PAGE>

PRODUCT DEVELOPMENT
-------------------

New applications are also being investigated within our product development
team. We believe that new vertical markets exist and can be penetrated with
on going platform enhancements. One such area is a former market for SciDyn,
the network announcer platform. SciDyn still maintains a large number of
legacy systems in this market. We believe that the robust capabilities of
our current technology along with the ability to integrate a voice over
packet interface can combine traditional network systems with new market
requirements.

SciDyn's products have primarily been designed and developed by its internal
engineering staff. SciDyn considers the features and performance of its
products to be generally competitive to those of other available
applications.

We believe that continual enhancements of our products will be required to
enable SciDyn to maintain its competitive position. SciDyn intends to focus
its principal future product development efforts on developing new,
innovative, technical products and updating existing products in the
communications arena to enable the Company to take advantage of
opportunities resulting from the expected direction of technology.

SciDyn continues to refine its core BubbleLINK(R) software architecture. This
software architecture provides the foundation for hosting applications for
various Telephony and transaction oriented processes. Currently the
BubbleLINK(R) architecture supports existing Company products such as the
Commander family of inmate products, and the IntegratorC-2000(R) Series of IP
Telephony gateway products. Management believes that the product design
strategy will keep SciDyn competitive in the emerging Internet Telephony
market.

INTEGRATION OF PRODUCTS
-----------------------

SciDyn continues to maintain a primary focus on the development and use of
software technology. Most hardware requirements are filled through the use
of OEM components. New vendors are routinely evaluated for several critical
product components. The general goal is to maintain a multi-source solution
for critical components.

SciDyn has or is in the process of establishing relationships with new
vendors to help us bring the best solutions to market. Some of the vendors
include NMS, Pika Technologies, and Brooktrout for telephony interface
components. Other Companies such as Interlogic Industries, and ITOX provide
computer components.

SOURCES AND AVAILABILITY OF MATERIAL
------------------------------------

Although most materials are available from a number of different suppliers on
an off-the-shelf basis, several suppliers are the sole source of each of
certain components. If a supplier should cease to deliver a component,
another source would have to be developed. SciDyn believes it would be able
to do so by acquiring a substitute part or module that could require a
hardware or software change in the unit in order to provide satisfactory
performance, although added costs and delays of unknown amount and duration
could be experienced.

SALES AND MARKETING
-------------------

SciDyn has just signed a General Purchase Agreement with a major
interexchange carrier to provide call control products and services for the
inmate market. This is consistent with SciDyn's marketing strategy to
develop vendor relationships with Tier I network service providers. Moving
forward, SciDyn intends to position itself as a primary vendor to major
accounts who occupy the majority of the inmate telecommunications
marketplace.

As a robust and flexible platform, the Commander product line lends itself
well to other market applications such as Truck Stops, Colleges and selected
major transportation facilities. SciDyn plans initiatives to penetrate these
market segments as well.

Sales and Marketing resources are positioned to focus individually on major
accounts and the nascent community of new and unregulated providers who seek
to serve smaller inmate facilities. Staff resources are dedicated to market
research and product management to ensure all areas of the inmate market
with potential are fully explored.

-6-
<PAGE>


RESEARCH & DEVELOPMENT
----------------------

Research efforts are focused on adapting new technology to current and
potential products. Efforts in research cover new techniques in software
development and component technologies. Research also covers emerging
hardware technologies and improvements in current technology. Existing
products are currently being redesigned to integrate the latest generation
of specific key components. These changes will increase the capability of
products such as the Commander and provide new features while reducing
overall cost of the product. As penetration into existing markets increases
and as we make initial steps into new markets, increases in research
expenditures will become necessary.

An area of increased activity is in the development of technology to support
the back office operations center. This service-oriented facility will be
developed from hardware and software technologies that can leverage the
latest capabilities offered by the Internet.

The majority of the research and development activities are conducted at the
Company's facility using its array of telephony resources and the technical
expertise of its engineering staff. We anticipate that an increase in future
research and development expenditures will be necessary to remain
competitive in the rapidly changing telecommunications industry.

INTELLECTUAL PROPERTY
---------------------

It is SciDyn's practice to apply for patents as new products or processes
appropriate for patent protection as developed. The Company made application
for a patent on the three-way Call Detection System and on January 21, 1998,
received a Notice of Allowance from the U.S. Patent Office. The formal
United States Patent was received in June 1998. The Company holds other
patents related to some of its other products. No assurance can be given as
to the scope of the patent protection.

We believe that the rapid technological developments in the
telecommunications industry may limit the protection afforded by patents.
Since a patent generally defines what and how to competitors, that
information often allows mutations by rivals to circumvent the original
patent. Accordingly, we believe that our success will be dependent upon our
engineering competence, service, and the quality and economic value of our
products.

The Company also owns trademarks, copyrighted material and intellectual
property relating to proprietary technology utilized in the development of
some of the products.

CUSTOMER SUPPORT
----------------

SciDyn's technical support staff provides telephone support to our customers
using a computerized call tracking and problem reporting system. SciDyn also
provides initial installation and training for its products. The Company has
instituted an annual maintenance contract entitling customers to software
updates, technical support and technical bulletins.

INDUSTRY
--------

The inmate call control market generates $1 billion annually in network
usage. Its 200,000 telephones represent $200 million in equipment sales,
which include call control platforms and such ancillary equipment as
telephones, call recording devices and administrative terminals. The Federal
Bureau of Prisons operated 84 correctional facilities that are currently at
31% over capacity. There are 1,558 public and private facilities housing
State inmates. Many of these are operating above their capacity.
Additionally, there are some 3,365 jails with over 600,000 inmates operated
by municipal and county governments.

-7-
<PAGE>

There is a trend within the Industry to privatize jails and there are a
number of entities emerging to administer such facilities. In some cases,
these private entities operate with some autonomy with respect to selecting
call control vendors. In other cases, the governing body retains such
oversight. SciDyn is reviewing this changing landscape in order to position
itself to capitalize on opportunities as they materialize.

COMPETITION
-----------

The competitive field is somewhat convoluted in that there are traditional
equipment manufacturers who have breached their traditional roles to become
service providers. Such is the case with T-Netix, a Texas-based company that
recently positioned itself to prime bid several big contracts. Traditional
Tier I network service providers who have used T-Netix's platforms in the
past in their role as prime bidders, find themselves competing with their
selected vendor. While this might appear to be an anomaly, it is becoming
commonplace and clearly an example of how desirable these inmate call
control contracts are. This is a relatively small but highly profitable
marketplace with only a handful of viable competitors.

There are six major competitors in the call control platform field, three of
which are formidable. SciDyn realizes the stiffness of its competition but
believes it has the skills, resources and technology to garner a substantial
portion of this business. With efforts directed toward transaction pricing
and its keen awareness of this transitioning competitive landscape, SciDyn
anticipates being able to capture a significant portion of the equipment
business and a piece of each related transaction as well.

CUSTOMERS
---------

During 2001, two customers each accounted for 37% of total sales.   SciDyn
anticipates less reliance on any single customer or market in the future.


EMPLOYEES
---------

As of April 15, 2002, SciDyn employed twenty-one persons on a full time
basis. SciDyn supplements full-time employees with subcontractors and part-
time individuals, consistent with workload requirements. The Company's
continued success depends heavily upon its ability to retain highly
qualified and competent personnel. The Company is operating in a high growth
industry, which is experiencing fierce competition for experienced and
talented personnel. SciDyn continues to provide its employees with
appropriate equity-linked incentives to advance the interests of the Company
and its stockholders.

GOVERNMENT APPROVAL
-------------------

The Federal Communications Commission (FCC) requires that some of the
Company's products meet Part 15 and Part 68 of the code of Federal
Regulations (CFR). Part 15 (subpart B) deals with the suppression of radio
frequency and electro-magnetic radiation to specified levels. Part 68 deals
with protection of the telephone network. Other than FCC requirements, there
is no known Company effect resulting from existing or probable Government
regulations requiring approval.

COMPLIANCE WITH ENVIRONMENTAL LAWS
----------------------------------

Company operations do not pollute nor involve discharge of material into the
environment. As a result, no expenditure is budgeted or required for
environment protection or restoration. SciDyn is concerned about protecting
the environment and participates in recycling programs.

-8-
<PAGE>


ITEM 2. DESCRIPTION OF PROPERTY

The Company has leased for ten years commencing May 1, 1995, a 50,000 square
foot freestanding masonry building in an industrial park in Cherry Hill, New
Jersey, utilized for office space and testing of its products and other
corporate activities. In the latter part of 1998, SciDyn subleased 25,645
square feet of the building to a printed circuit board manufacturer. Such
sublease is currently in default, and the Company has engaged legal counsel
who has filed a complaint to evict such tenant. Such tenant is currently in
negotiations with the Company to cure such default and reinstate the
sublease.


ITEM 3.  LEGAL PROCEEDINGS

The Company is not now a party to any litigation and no action against the
Company has been threatened or is known to be contemplated by any
governmental agency or subdivision or any other entity.


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

No matter was submitted during the Fourth Quarter of the Fiscal Year covered
by this report, to a vote of security holders through solicitation of proxies
or otherwise.



PART II
---------------------------------------------------------------------------

ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS



The Registrant's Common Stock is being traded  on the Over the Counter
Bulletin Board (OTCBB) as of August  24, 2001. The symbol for the Company's
Common Stock is "SIDY". The Company's Common Stock has been traded publicly
since April 22, 1981. The "high" and "low" bid quotations for the Company's
Common Stock for each quarterly period for the fiscal years ended
December 31, 2000 and December 31, 2001 were as follows:


 Calendar Quarter          High Bid Price            Low Bid Price
 ----------------          --------------            -------------

    2000
    ----
    First                      $21.00                    $5.00
    Second                      14.25                     7.50
    Third                       10.88                     6.88
    Fourth                      10.38                      .75

    2001
    ----
    First                       $2.00                     $.85
    Second                       1.45                      .50
    Third                         .65                      .12
    Fourth                        .12                      .06


-9-
<PAGE>


The above listed quotes reflect inter-dealer prices without retail mark-up,
markdown, or commissions and are not necessarily representations of actual
transactions or the true value of the Common Stock.

As of December 31, 2001, there were approximately 251 holders of record of
the Common Stock of the Company. However, registrant has reason to believe
that there are more than 850 shareholders because of stock held in street
name by various broker-dealers.

The Company has paid no cash dividends since its inception. The Company
presently intends to retain any future earnings for use in its business and
does not presently intend to pay cash dividends in the foreseeable future.
Holders of the Common stock are entitled to share ratably in dividends when
and as declared by the Board of Directors out of funds legally available
therefore.

The market price of the Company's common stock, like that of other
technology companies, is highly volatile and is subject to fluctuations in
response to variations in operating results, announcements of technological
innovations or new products by the Company, or other events or factors. The
Company's stock price may also be affected by broader market trends
unrelated to the Company's performance.


RECENT SALES OF UNREGISTERED SECURITIES

The securities described below represent our securities sold by us during the
fiscal year ended December 31, 2001 and for the period ending March 31, 2002
that were not registered under the Securities Act of 1933, as amended, all of
which were issued by us pursuant to exemptions under the Securities Act.
Underwriters were involved in none of these transactions.

     Private Placements of Common Stock and Warrants for Cash

     None.

     Sales of Debt and Warrants for Cash

In May 2001, we entered into a securities purchase agreement with three
accredited investors, Laurus Master Fund, Ltd., The Keshet Fund L.P., and
Keshet L.P., for the issuance of 8% convertible debentures in the aggregate
amount of $1,200,000 and 872,727 common stock purchase warrants. The
debentures were convertible into common stock at a conversion price of the
lower of 85% of the average of the three lowest closing bid prices for the
common stock thirty days prior to the closing date or 85% of the average of
the three lowest closing bid prices for the common stock thirty days prior
to conversion. Each warrant entitles the holder to purchase one share of
common stock at an exercise price of $1.4339. The commission for the
transaction was 8% ($96,000). The offering of convertible debentures and
warrants was exempt from registration under Rule 504 of Regulation D and
under Section 4(2) of the Securities Act. No advertising or general
solicitation was employed in offering the securities. All persons were
accredited investors, represented that they were capable of analyzing the
merits and risks of their investment.

In August 2001, we entered into a securities purchase agreement with two
accredited investors, Laurus Master Fund, Ltd., and Keshet L.P., for the
issuance of 8% convertible debentures in the aggregate amount of $400,000
and 290,909 common stock purchase warrants. The debentures were convertible
into common stock at a conversion price of the lower of 85% of the average
of the three lowest closing bid prices for the common stock thirty days
prior to the closing date or 85% of the average of the three lowest closing
bid prices for the common stock thirty days prior to conversion. Each
warrant entitles the holder to purchase one share of common stock at an
exercise price of $.355. The commission for the transaction was 8%
($32,000). The offering of convertible debentures and warrants was exempt
from registration under Rule 504 of Regulation D and under Section 4(2) of
the Securities Act. No advertising or general solicitation was employed in
offering the securities. All persons were accredited investors, represented
that they were capable of analyzing the merits and risks of their
investment.

-10-
<PAGE>


During the period ending March 31, 2002, we entered into securities purchase
agreements with one accredited investor, Laurus Master Fund, Ltd. for the
issuance of 8% convertible debentures in the aggregate amount of $672,930.
The debentures were convertible into common stock at a conversion price of
the lower of 85% of the average of the three lowest closing bid prices for
the common stock thirty days prior to the closing date or 85% of the average
of the three lowest closing bid prices for the common stock thirty days
prior to conversion. The commission for the transactions was 8%. The
offering of convertible debentures was exempt from registration under Rule
504 of Regulation D and under Section 4(2) of the Securities Act. No
advertising or general solicitation was employed in offering the securities.
All persons were accredited investors, represented that they were capable of
analyzing the merits and risks of their investment.

     Option Grants

During 2001, we granted 273,500 stock options exercisable at an average
price of $0.26, this included 110,000 stock options exercisable at an
average exercise price of $0.33 to five Officers as incentives.

     Issuances of Stock for Services or in Satisfaction of Obligations

     None.


ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS

GENERAL BUSINESS OVERVIEW
-------------------------

In 1998, management made a strategic decision to divert most of our
development efforts towards the IP system. During calendar year 2001 the
global communications market experienced a tremendous slowdown. Many
communications companies, including both traditional voice and emerging
voice/data network carriers, have reduced capital asset spending to help
strengthen their cash flow and profitability. As a result of this change the
potential for growth in the Internet Telephony market has weakened, and is
certainly delayed.

Hard times in the telecom industry have resulted in a debacle for SciDyn this
past year. The focus has been to do everything to survive in a boom-and-bust
industry. The downturn in business came unexpectedly and has not let up. The
earlier predictions of improvement in the technology and telecom sectors
have not come to fruition.

During the past year, SciDyn reacted to this unforeseen economic slowdown by
refocusing efforts in both the product development and marketing teams to
strengthen our position in the area of inmate call control. Over the past
year, several new software releases have been produced for the Commander I
and II models that have repositioned the product for a greater segment of
the inmate call control market. This has opened the door to allow the
Commander product to fill the needs of the independent service providers.
This is a segment of the industry that had previously been overlooked as
development centered on the needs of the large Local Exchange Carrier (LEC)
customers.

SciDyn has engaged several upcoming independent inmate call control service
providers that in the past year have been successful in displacing the local
LEC competition in contract awards that were not possible without the
strength and reputation of a system such as the Commander.

Along with system improvements to reposition Commander equipment sales,
SciDyn has been developing the necessary back-office operation systems
necessary to provide the complete offering required by many inmate call
control companies in today's market. Back-office services include Billed
Number Screening (BNS), billing data collection, and customer support.
Additional services will be introduced over time to increase the value add
to our customers. Typically, these back-office services are charged on a
monthly or transaction basis and apply to calls made through Commander
platforms installed in the field. This introduces a new revenue producing
operation that can extend the value of a typical system beyond the initial
equipment sale to a potential three to five year revenue source.

-11-
<PAGE>


SciDyn continues to embrace the benefits and competitive advantages that a
converged voice/data network holds for communications carriers in many
market sectors. As such, SciDyn will continue to maintain a forward pace in
the development of integrated voice over data technology.

The Company expects operating losses and negative cash flow for the
foreseeable future as we must obtain orders, introduce additional services
and create optional procurement methods. We believe that increasing our
revenues will depend in large part on our ability to offer products that are
attractive to our customers, increase customer awareness of our product
offerings by developing effective marketing and promotional activities and
develop strategic relationships.

Our success depends upon effective planning and growth management. During
January, Alan Bashforth evaluated the current business opportunities and
and as a result the Company implemented overhead reductions. The focus
was to concentrate on all potential revenue opportunities and eliminate those
that could not produce revenue in the short term. The Company had to reduce
expenses and executed a reduction in force. The Company has taken, and will
continue to take, decisive steps to restructure the company's business and
reduce our cost structure. At April 15, 2002 we had a total of twenty-one
employees. We intend to continue to increase the scope of our operations
while also facing the challenge of maximizing resources effectively.


RESULTS OF OPERATIONS
---------------------

The following table sets forth income and certain expense items as a
percentage of total revenue and the change in dollar amounts of such items
compared to the previous fiscal year:


                            For the Years Ending December 31,
                                     2001               2000
                                     ----               ----

Sales                          $  891,149         $5,269,377

Net Loss                      $(4,375,476)       $(1,339,262)

Net Loss Per Share                 $(0.24)            $(0.08)


                                OPERATING EXPENSES        PERCENT OF SALES
                                ------------------        ----------------
                                2001          2000        2001        2000
                                ----          ----        ----        ----

Cost of Goods Sold          $  555,064  $1,891,484        62.3%       35.9%

Research & Development       1,533,890   1,141,656       172.1%       21.7%

Selling, General & Admin     2,966,347   3,605,768       332.9%       68.4%

Total Operating Costs
and Expenses                $5,055,301  $6,638,908       567.3%      126.0%


-12-
<PAGE>

Sales for the fiscal year ended December 31, 2001 were $891,149 compared to
sales of $5,269,377 in the 2000 fiscal year. The sales revenue consists of
sales of our integrated hardware and software products, as well as revenue
generated from the maintenance and support of those products. We believe
that the decrease in  product revenues is reflective of the turmoil in the
technology and telecom sectors and the impact of changes in global economic
conditions  in 2001. The Company's revenue in 2000 was predominantly derived
from the Integrator Product Line due to the deployment of the Cascadent
Supply Agreement during 2000. This Agreement was terminated during the first
quarter of 2001 upon SciDyn receiving official notification that Cascadent
was placed into receivership. The loss of this contract is directly related
to the decrease in sales for the year. We are continuing to focus our
efforts on existing business opportunities and evaluating other vertical
markets.


Cost of Goods Sold for the fiscal year ended December 31, 2001 increased
26.4% as a percentage of sales from a 35.9% for the year ended December 2000
to 62.3% for the year ended December 2001. This percentage increase is
directly related to the decrease in sales revenue.


Research and development expenses increased from $ 1,141,656 in 2000 to
$1,533,890 in 2001, an increase of $392,234. Research and development
expenses consist of payroll and related expenses for research and development
personnel, costs related to systems infrastructure and expenses for testing
facilities and equipment.  The increase in research and development expenses
was attributable to an increase in the engineering staff for the IP Telephony
Integrator gateway products. Due to the long term involved for potential sales
revenue in the IP product line, the Company reduced the development staff of
this product line in January 2002.  The Company will continue to explore
opportunities and look for prospective niches for Voice over IP.  The Company
believes that the research and development activities are crucial to maintaining
a competitive edge and has focused current development efforts on innovative
enhancements to our existing product lines.


Selling, general and administration expenses increased 264.5% as a
percentage of sales. Sales and marketing expenses consist primarily of
compensation and related costs for sales personnel, marketing personnel,
sales commissions, marketing programs, public relations, promotional
materials, travel expenses and trade show exhibit expenses. This increase on
a percentage basis is due to the significant decrease in sales during 2001.
The actual dollar decrease of $639,421 is attributed to reductions in
personnel, salary reductions, cutback in trade shows, travel expenses and
closing the U.K. office.

Interest Expense for the year ended December 31, 2001 was $439,046, and
interest income was $9,589.  For the year ended December 31, 2000, we
recognized interest income of $40,647 and interest expense of $10,378.
The interest expense of $439,046 for the year ended December 31, 2001
includes $295,569 relating to the recognition of a debt discount resulting
from a beneficial conversion feature embedded in the $1,200,000 convertible
note issued on May 22, 2001 and the $400,000 convertible note issued on
August 17, 2001.  Per Emerging Issues Task Force (EITF) Number 98-5,
"Accounting for Convertible Securities with Beneficial Conversion Features
or Contingently Adjustable Conversion Ratios" this beneficial conversion
feature was assigned an intrinsic value of  $295,569, as calculated under
the provisions of the EITF.  This amount was immediately expensed, as the
Notes were convertible into common shares of the Company at the time of the
signing of the Agreement.  The remaining interest expense is interest paid
and accrued on the Convertible Notes.


LIQUIDITY & CAPITAL RESOURCES
-----------------------------

Net cash used for operating activities for the years ended December 31, 2001
and 2000 was $3,131,307 and $320,040 respectively.  The use of cash in
operating activities in 2001 resulted primarily from the shortfall in sales
revenue and the resultant net loss.

Net cash used in investing activities was $22,605 in 2001 and $704,246 in
2000. The decrease in cash used for investing activities in 2001 was
primarily attributable to a reduction in capital expenditures. The Company
had no significant commitments as of December 31, 2001 for capital
expenditures.

-13-
<PAGE>

Net cash provided by financing activities was $1,819,346 for the year ended
December 31, 2001 and $1,701,134 for the year ended December 31, 2000.

On May 22, 2001, we issued $1,200,000 principal amount of 8% convertible
debentures, due May 22, 2003, to three investors pursuant to a Subscription
Agreement dated May 22, 2001. Interest only payments are due quarterly
commencing September 30, 2001, and the principal is due in one lump sum on
May 22, 2003, or upon certain events of default. The conversion price for
the convertible debentures is the lesser of 85% of the average of the three
lowest closing prices for the common stock for the 30 trading days prior to
but not including May 22, 2001, or 85% percent of the average of the three
lowest closing prices for the common stock for the 30 trading days prior to
but not including the conversion date. The maximum number of shares of
common stock that any subscriber or group of affiliated subscribers may own
after conversion at any given time is 4.99%. The number of shares of common
stock issuable upon conversion of the convertible debentures is 1,470,588,
based on a conversion price of $0.816 per share. We are required to register
200% of this amount, for a total of 2,941,176 shares. The actual conversion
price will depend on the market price of our common stock prior to the
conversion. In addition to the convertible debentures, we also issued
warrants to purchase 872,727 shares of common stock. These warrants, which
expire May 22, 2006, have an exercise price of $1.4339 per share.

On August 15, 2001, we issued $400,000 principal amount of 8% convertible
debentures, due August 15, 2003, to one investor pursuant to a Subscription
Agreement dated August 15, 2001. Interest only payments are due quarterly
commencing September 30, 2001, and the principal is due in one lump sum on
August 15, 2003, or upon certain events of default. The conversion price for
the convertible debentures is the lesser of 85% of the average of the three
lowest closing prices for the common stock for the 30 trading days prior to
but not including August 15, 2001, or 85% percent of the average of the
three lowest closing prices for the common stock for the 30 trading days
prior to but not including the conversion date. The maximum number of shares
of common stock that any subscriber or group of affiliated subscribers may
own after conversion at any given time is 4.99%. The number of shares of
common stock issuable upon conversion of the convertible debentures is
5,000,000, based on a conversion price of $0.08 per share. We are required
to register 200% of this amount, for a total of 10,000,000 shares. The
actual conversion price will depend on the market price of our common stock
prior to the conversion. In addition to the convertible debentures, we also
issued warrants to purchase 290,909 shares of common stock. These warrants,
which expire August 15, 2006, have an exercise price of 130% of the three
lowest closing prices during the 10 trading days preceding exercise.

At December 31, 2001, the Company had $17,075 in cash and cash equivalents
and $1,078,796 deficit in working capital, compared with  $1,351,641 in cash
and cash equivalents and $1,142,948 in working capital at December 31, 2000.
Current liabilities at December 31, 2001 were $1,606,129, compared to
$534,477 at December 31, 2000. The decrease in the cash and cash equivalents
and the deficit in working capital for the year ended December 31, 2001 are
attributable to the low sales revenue. The increase in the current
liabilities for the year ended December 31, 2001 resulted from the minimal
cash flows from operation.

The cash requirements for funding our operations have greatly exceeded cash
flows from operations. We have satisfied our capital needs primarily through
debt and equity financing.  Our liabilities consist of over extended accounts
payable and we have successfully negotiated payment arrangements with some
of our vendors and are in the process of negotiating with our other vendors.
The short-term loan payable is loans from two stockholders.  Initial discussions
are in process to exchange debt for equity.  The bank line of credit is due for
renewal in June and a meeting will be arranged to discuss the continuance
of the line of credit.  The Company cannot guarantee that any of these
discussions will be successful.  If we are unable to negotiate with our
vendors, the stockholders and the bank, our business may well be severely
affected.  Equipment against the customer deposits have been shipped and
the remainder is anticipated to be completed in the second quarter.

We are seeking and continually investigating other business ventures and
strategic relationships that may have applications directly related to our
product offerings. Due to general economic conditions, rapid technological
advances being made in the telecom industry and shortages of available
capital we believe other companies will be seeking joint ventures and
partnerships to augment their sales potential. We anticipate that we may be
able to participate in only limited potential business ventures because we
have nominal assets and limited financial resources. However, we believe
perceived benefits of our technology  will provide the interest to
implementing joint ventures.

-14-
<PAGE>

Our failure to develop strategic relationships could inhibit our ability to
grow. We believe that, in order to market our technology, we need to enter
into strategic relationships and business ventures to develop commercial
applications of our technology directed at other vertical markets . We
intend to concentrate on identifying preliminary prospective business
opportunities which may be brought to our attention through present
affiliations and relationships.We do not presently have any agreements
relating to strategic relationships, we may never enter into such
agreements, and our failure to develop such relationships could impair our
ability to grow.

We may be unable to respond to the rapid technological changes in our
industry. The telecom and telecommunications industries are characterized by
rapidly changing technologies, frequent new product and service
introductions and evolving industry standards. Our future success will
depend on our ability to adapt to rapidly changing technologies by
continually improving the performance, features and reliability of our
services, particularly with respect to other companies.

The sales revenue shortfall has greatly impacted cash on hand. The Company's
currently anticipated levels of revenue and cash flow are subject to many
uncertainities and cannot be assured. In order to have sufficient cash to
meet our anticipated cash requirements for the next twelve months we must
increase sales to provide cash flow from operations. We have reduced our
expenses and continue to investigate further cost cutting initiatives.
However, the Company does not have sufficient cash on hand to continue its
operations without successfully raising additional funds to implement the
business plan. The inability to generate sufficient cash from operations or
to obtain the required additional funds, could  require the Company to
reduce or curtail operations. While negotiations are underway to secure
additional funds the Company cannot guarantee that such negotiations will be
successful.

Forward Looking Statements
--------------------------

The Company is making this statement in order to satisfy the "safe harbor"
provisions contained in the Private Securities Litigation Reform Act of
1995.

This Form 10-KSB includes forward-looking statements relating to the
business of the Company. Forward-looking statements contained herein or in
other statements made by the Company are made based on management's
expectations and beliefs concerning future events impacting the Company and
are subject to uncertainties and factors relating to the Company's
operations and business environment, all of which are difficult to predict
and many of which are beyond the control of the Company, that could cause
actual results of the Company to differ materially from those matters
expressed in or implied by forward-looking statements. The Company believes
that the following factors, among others, could affect its future
performance and cause actual results of the Company to differ materially
from those expressed in or implied by forward-looking statements made by or
on behalf of the Company:  (a) the effect of technological changes; (b)
increases in or unexpected losses; (c) increased competition; (d)
fluctuations in the costs to operate the business; (e) uninsurable risks;
and (f) general economic conditions.


ITEM 7.  FINANCIAL STATEMENTS

The Financial Statements are listed at "Index to Consolidated Financial
Statements".


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

There were no disputes or disagreements of any nature between the Company or
its management and its public auditors with respect to any aspect of
accounting or financial disclosure.


-15-
<PAGE>



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

The directors and executive officers of the registrant were:

   Name               Age       Position with the Company
   ----               ---       -------------------------

   Alan C. Bashforth   52       Chairman of the Board, President,
                                Chief Excutive Officer and Secretary

   Joy C. Hartman      53       Chief Financial Officer

   Thomas Spadaro      41       Vice President of Technology since
                                December 12, 2000

There were four board meetings during 2001. All the directors had 100%
attendance.

Subsequent to year end the following directors resigned due to personal
reasons:  John Innes, Joy C. Hartman, Sheldon Hofferman, Louis Padulo,
Kenneth Ray, and Michael Hone.  We will be announcing the appointment
of the new directors within the next few weeks.  In addition, we accepted
the resignation of Joy C. Hartman as CEO and President and the appointment
of Alan C. Bashforth as CEO, President, Chairman and Secretary on
April 4, 2002.

BIOGRAPHIES
-----------

Alan C. Bashforth, is currently our Chairman, President, CEO and Secretary
and has been since April 4, 2002. Prior to his present positions, Mr.
Bashforth served as a director with active duties in seeking finance for the
Company. Prior to serving as director, Mr. Bashforth was President and Chief
Executive Officer of SciDyn until January 2000 and served as Chairman of the
Board until November 30, 2000. He was President of Cascadent Communications,
a major customer of SciDyn until December 15, 2000. Previously he was
President of Innovative Communications Technology, LTD. (ICT), a data
communications company, located in Jersey, Channel Islands, until the
acquisition of the intellectual property of ICT by SciDyn in November 1996.
Prior experience included ownership of the CSL Group of companies from its
inception in 1975. CSL is a Communications and Computer engineering group
and employed over 100 people in 1992 when Mr. Bashforth sold the company.
From 1970 to 1975, Mr. Bashforth was employed by Automaten CI, LTD., an
office equipment and telecommunications company, in various engineering and
sales positions leading to the position of General Manager. Mr. Bashforth
was educated in electronic engineering at Mid Herts Polytechnic College in
England and holds a Higher National Diploma in Electronic Engineering.

Joy C. Hartman is currently our Chief Financial Officer and has been since
April 4, 2002. Prior to this position, Ms. Hatrman served as President and
Chief Executive Officer from January 2000 until April 4, 2002. Ms. Hartman
joined SciDyn in January 1982. In addition to holding these positions, other
positions she has held at SciDyn include CFO, Treasurer, Corporate
Secretary, and Executive Vice President. Her prior experiences included
TeleSciences, Inc., and Peat Marwick Mitchell. Ms. Hartman is a graduate of
The Wharton School of Business of the University of Pennsylvania. She is a
member of the Financial Executives Institute, the National Association of
Corporate Directors, and the American Society of Corporate Secretaries.

Thomas Spadaro leads the design and development of telephony solutions that
facilitate the transition from a circuit-switched network to a digital,
packet-based communications environment. Since joining SciDyn in 1983,
Thomas has managed the development and design of all major product offerings
for the company including the Integrator Series of IP gateways, the Call
Control System for correctional facilities and the VFX-250S, Video over
Frame Relay Access Device. Thomas previously served as SciDyn's Director of
Engineering.

-16-
<PAGE>


Based upon a review of filings with the Securities and Exchange Commission
and written representations that no other reports were required, the Company
believes that all of the Company's directors and executive officers complied
during fiscal 2001 with the reporting requirements of Section 16(a) of the
Securities Exchange Acts of 1934.


ITEM 10. MANAGEMENT REMUNERATION AND TRANSACTIONS

Executive Compensation Summary Table

The following table sets forth all information concerning total compensation
earned or paid to the Company's Chief Executive Officer and the four other
most highly compensated executive officers of the Company who served in such
capacities as of December 31, 2001 for services rendered to the Company
during each of the last three fiscal years.


<TABLE>
<CAPTION>
                                      SUMMARY COMPENSATION TABLE

                           Annual Compensation           Long term compensation
                          -----------------------      --------------------------
Name and            Year  Salary     Bonus  Other            Awards                 All
Principal                   ($)       ($)   Annual     Restrict-   Options/  LTIP    Other
Position                                    Compen-    ed Stock    SARs(#)   Pay-    Compensa-
                                            sation ($) Award(s)($)           outs($) tion ($)
----------          ----  ------     -----  ---------- ---------  ---------- ------  --------
<S>                <C>    <C>        <C>    <C>        <C>        <C>        <C>     <C>
Joy C.Hartman,      2001  159,519     -0-    6,731        -0-      -0-         -0-      -0-
President and       2000  161,185     -0-    1,666        -0-    100,000       -0-      -0-
CEO (1)             1999  113,237     -0-       -0-       -0-     10,000       -0-      -0-


Thomas Spadaro      2001  112,500     -0-     -0-         -0-     10,000       -0-      -0-
Vice President(2)   2000   87,151     -0-    1,104        -0-     25,000       -0-      -0-


Robert O'Connor     2001  108,548     -0-       -0-       -0-     30,000       -0-      -0-
Vice President(3)   2000   67,842     -0-       -0-       -0-     20,000       -0-      -0-


Joseph Giegerich    2001  125,000     -0-       -0-       -0-     10,000       -0-      -0-
Vice President(4)   2000   24,038     -0-       -0-       -0-     60,000       -0-      -0-


Denny Ko            2001   67,692     -0-       -0-       -0-     60,000       -0-      -0-
Chief Technology
Officer(5)


</TABLE>

-17-
<PAGE>

(1)      On April 4, 2002, Ms. Hartman resigned as President and CEO and
         was appointed Chief Financial Officer of SciDyn.

(2)      Mr. Spadaro was appointed Vice President on December 17, 2000;
         previously he was the Company's Director of Engineering.

(3)      Mr. O'Connor is no longer with SciDyn.

(4)      Mr. Giegerich is no longer with SciDyn.

(5)      Mr. Ko is no longer with SciDyn.



The outside Directors receive $250.00 per meeting as standard compensation
for service as directors.


Options Grants for Fiscal 2001

Aggregate Options Exercised During the most recently completed financial
year and financial year-end option values.

No options were exercised by our executive officers and directors during
the most recent financial year.


Options Granted During Most Recent Financial Year.

The following table sets out information relating to options granted during
the most recent financial year to our executive officer and directors:


<TABLE>
<CAPTION>
                 Securities    % of Total                       Market Value of
                 Under         Options Granted   Exercise Per   Securities Underlying    Expiration
Name             Options       to Employees in   Security       Options on the Date of   Date
                 Granted       Financial year    ($/Security)   the grant ($/security)
----------------------------------------------------------------------------------------------------
<S>              <C>           <C>               <C>            <C>                      <C>

Joe Giegerich      10,000         3.7%            $0.26          $ 2,600                   7/30/2011
Denny Ko           60,000        21.9%            $0.29          $17,400                   7/23/2011
Robert O'Connor    15,000         5.5%            $0.98          $14,700                   4/03/2011
Robert O'Connor    15,000         5.5%            $0.26          $ 3,900                   7/03/2011
Thomas Spadaro     10,000         3.7%            $0.26          $ 2,600                   7/30/2011
James Tsoi(1)      20,000         7.3%            $0.06          $ 1,200                  11/05/2011

</TABLE>

(1)      Mr. Tsoi is no longer with SciDyn.

-18-
<PAGE>


ITEM  11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT

The following table sets forth certain information as of April 15, 2002 with
respect to the beneficial ownership of the common stock by each beneficial
owner of more than 5% of the outstanding shares thereof, by each director,
each nominee to become a director and each executive officer named in the
Summary Compensation Table and by all executive officers, directors and
nominees to become directors of the Company as a group. Under the rules of
the Commission, a person is deemed to be the beneficial owner of a security
if such person has or shares the power to vote or direct the voting of such
security or the power to dispose or direct the disposition of such security.
A person is also deemed to be a beneficial owner of any securities if that
person has the right to acquire beneficial ownership within 60 days.
Accordingly, more than one person may be deemed to be a beneficial owner of
the same securities. Unless otherwise indicated by footnote, the named
entities or individuals have sole voting and investment power with respect
to the shares of common stock beneficially owned. There are no arrangements
known to the Company including pledges of securities, which might, at a
subsequent date, result in any change of control of the Company.

<Table>
<CAPTION>
                                                            Shares of
                                                             Common
                                                              Stock
  Name and Address                                        Beneficially        Percent of
  Beneficial Owner               Title                      Owned       Outstanding Shares(1)
  ----------------               -----                    ---------     ------------------
 <S>                            <C>                        <C>           <C>

Sheldon C. Hofferman,            5% Owner                 2,619,921(2)         8.8%
PO Box 350
Fairfax Station, VA  22039

Alan C. Bashforth                CEO/President            1,520,000(3)         5.1%
Le Virage                        Chairman of the
La Route de Sainte Marie,        Board, Secretary
St. Mary, Jersey, UK
JE3 3DB

Joy C. Hartman                   CFO                        195,185(4)         0.7%
27 Hogan Way
Moorestown, NJ   08057


Thomas Spadaro                   Vice President of           82,455(5)         0.3%
41 Fountain Blvd                 Engineering
Burlington, NJ  08016


All Directors, 5% owners
and Officers As a group                                    4,417,516          14.8%

</TABLE>

-19-
<PAGE>




1	Based upon a total number of  29,889,500 shares outstanding as of
      April 15, 2002.

2	The total includes 2,619,921 shares owned by Golden Phoenix, LP.,
      of which Mr. Hofferman is General Partner.

3	Shares in the name of Innovative Communications Technology, LTD., a
      corporation, controlled by Mr. Bashforth.

4	The 195,185 shares in Ms. Hartman's name include incentive options,
      exercisable within sixty days to acquire 155,000 shares, and 300
      shares owned by Ms. Hartman's children.

5	The 82,455 shares owned by Mr. Spadaro include incentive options,
      exercisable within sixty days to acquire 56,200 shares.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


During 2000, Scidyn began the deployment of the Cascadent Supply Agreement,
this Agreement provided $4,370,520 in revenue for the year.  The Agreement
was terminated on January 4, 2001, upon  receiving official word that Cascadent
was placed into receivership.  Alan Bashforth, one of Cascadent's principals,
is Chairman of the Company's Board of Directors, CEO/President and Secretary.



ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:

1. FINANCIAL STATEMENTS

   Report of Independent Accountants dated April 15, 2002........... Page 23
   Consolidated Balance Sheets as of December 31, 2001
   and 2000..........................................................Page 24
   Consolidated Statements of Operations, two years ended
   December 31, 2001.................................................Page 25
   Consolidated Statements of Cash Flows, two years ended
   December 31, 2001.................................................Page 26
   Consolidated Statements of Changes in Shareholders' Equity,
   two years ended December 31, 2001.................................Page 27
   Notes to Consolidated Financial Statements........................Page 28-34

2. INDEX OF EXHIBITS

   Exhibit No.      Description of Exhibit
   -----------      ----------------------
   3.1(1)           The Articles of Incorporation
   3.2(1)           By-Laws
   4.1(2)           1992 Incentive Stock Option Plan of the Registrant

   (1)   Filed as like-numbered exhibits to Registration Statement,
         Form S-18, File Number 33-20687, effective April 21, 1981,
         incorporated by reference.
   (2)   Incorporated by reference from the Registrant's Quarterly Report
         on Form 10-QSB for the three months ended March 31, 1996).
   (3)   Incorporated by reference from the Registrant's Form 8-K filed
         March 15, 2001.

(b) Reports on Form 8-K:
    None


-20-
<PAGE>

                                SIGNATURES

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

SCIENCE DYNAMICS CORPORATION


BY:    /s/ Alan C. Bashforth
       ---------------------
       CEO/President

DATED: April 15, 2002
       --------------


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

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

BY:     /s/ Alan C. Bashforth   CEO/President              April 15, 2002
        ---------------------   Chairman of the Board
        Alan C. Bashforth       Secretary


BY:     /s/ Joy C. Hartman      CFO                        April 15, 2002
        ---------------------
        Joy C. Hartman



-21-
<PAGE>

                          SCIENCE DYNAMICS CORPORATION


                    Index to Consolidated Financial Statements



Report of Independent Accountants dated April 15, 2002 ............Page 23

Consolidated Balance Sheets as of December 31, 2001
and 2000 ..........................................................Page 24

Consolidated Statements of Operations, two years
ended December 31, 2001 ...........................................Page 25

Consolidated Statements of Cash Flows, two years
ended December 31, 2001 ...........................................Page 26

Consolidated Statements of Changes in Shareholders'
Equity, two years ended December 31, 2001 .........................Page 27

Notes to Consolidated Financial Statements ........................Pages 28-34



-22-
<PAGE>


                         INDEPENDENT AUDITORS' REPORT



     To The Board of Directors
     Science Dynamics Corp.


We have audited the accompanying consolidated balance sheets of Science
Dynamics Corp. and Subsidiary as of December 31, 2001 and 2000 and the
related consolidated statements of operations, stockholders' equity
(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 generally accepted auditing
standards.  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 financial statements referred to above present fairly,
in all material respects, the financial position of Science Dynamics Corp.
and subsidiary as of December 31, 2001 and 2000, and results of their
operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern.  As discussed
in Note 1(m) to the financial statements, the Company had minimal revenues
the past year and requires additional capital to continue operations.  These
conditions raise substantial doubt about its ability to continue as a
going concern.  Management's plans in regard to these matters are also
described in Note 1(m).  The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.


Peter C. Cosmas Co., CPAs

370 Lexington Ave.
New York, NY 10017

April 3, 2002



-23-
<PAGE>


<TABLE>
                           SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
                                  CONSOLIDATED BALANCE SHEETS
                               AS OF DECEMBER 31, 2001 AND 2000

<CAPTION>
                        ASSETS
                                                                    December 31,
                                                             2001                   2000
                                                             ----                   ----

<S>                                                   <C>                     <C>
Current assets:
   Cash and cash equivalents                           $   17,075              $1,351,641
   Accounts receivable - trade                             13,234                 102,194
   Accounts receivable - other                             60,721                  51,401
   Inventories                                            310,857                  87,623
   Other current assets                                   125,446                  84,566
                                                       ----------               ---------
      Total current assets                                527,333               1,677,425
                                                       ----------               ---------

Property and equipment, net                               805,727               1,005,364
Deferred Financing costs                                  154,268                       -
Intangible Assets, net of accumulated
 amortization of $1,500,000 in 2001 and
 $1,200,000 in 2000.                                            -                 300,000
Other assets                                               25,363                  25,363
                                                       ----------               ---------
      Total assets                                     $1,512,691              $3,008,152
                                                       ==========               =========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Current portion of capital lease obligation         $   69,615              $   57,598
   Line of Credit                                          99,535                       -
   Customer Deposits                                      289,368                       -
   Short term loan payable                                195,000                       -
   Accounts payable                                       800,460                 358,820
   Accrued expenses                                       152,151                 118,059
                                                       ----------               ---------
      Total current liabilities                         1,606,129                 534,477



Long Term liabilities:
Non current portion of capital lease obligation            58,798                 128,413
Convertible Debenture                                   1,431,949                       -
                                                       ----------               ---------


      Total liabilities                                $3,096,876              $  662,890
                                                       ----------               ---------

Commitments

Shareholders' equity (deficit)
   Common stock - .01 par value,
      45,000,000 shares authorized,
      20,879,500 and 17,783,700 issued
      20,753,370 and 17,444,151 outstanding
      in 2001 and 2000 respectively.                      208,795                 177,837
   Additional paid-in capital                          14,681,858              14,266,787
   (Deficit)                                          (16,077,005)            (11,701,529)
                                                       ----------               ---------
                                                       (1,186,352)              2,743,095
   Common stock held in treasury,
    at cost                                              (397,833)               (397,833)
                                                       ----------               ---------
   Total shareholders' equity (deficit)                (1,584,185)              2,345,262
                                                       ----------               ---------
   Total liabilities and shareholders'
    Equity                                             $1,512,691              $3,008,152
                                                       ==========               =========


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

</TABLE>
-24-
<PAGE>


<TABLE>
                           SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
                              CONSOLIDATED STATEMENTS OF OPERATIONS
                         FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000

<CAPTION>

                                                   2001                             2000
                                                   ----                             ----
<S>                                         <C>                              <C>

 NET SALES                                   $  891,149                       $5,269,377
                                             ----------                       ----------


Operating costs and expenses:

      Cost of sales                             555,064                        1,891,484
      Research and development                1,533,890                        1,141,656
      Selling, general
          and administrative                  2,966,347                        3,605,768
                                             ----------                       ----------

                                              5,055,301                        6,638,908
                                             ----------                       ----------

Operating (Loss)                             (4,164,152)                      (1,369,531)

Other income (expenses):
   Interest income                                9,589                           40,647
   Sales of New Jersey Net
   Operating Loss                               218,135                              -0-
   Interest expense                            (439,046)                         (10,378)
                                             ----------                       ----------


Net (Loss)                                  $(4,375,476)                     $(1,339,262)
                                             ==========                       ==========



Net Loss per common share
  basic and diluted                         $     (0.24)                     $     (0.08)
                                             ==========                       ==========

Weighted average shares
outstanding basic and diluted                18,019,738                       17,549,993
                                             ==========                       ==========



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

</TABLE>

-25-
<PAGE>




<TABLE>
                                SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
                                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                               FOR THE YEARS ENDED DECEMBER 31,2001 AND 2000

<CAPTION>

                                                             2001                   2000
                                                             ----                   ----
<S>                                                    <C>                  <C>
Cash flows from operating activities:
   Net (Loss)                                           $(4,375,476)         $(1,339,262)
                                                        -----------          -----------

Adjustments to reconcile net (loss) to
 net cash used for
 operating activities:
   Depreciation                                             222,241              159,859
   Interest expense non cash                                295,569                    -
   Amortization of capitalized software                           -                    -
   Amortization of Intangible assets                        300,000              300,000
Changes in operating assets and liabilities:
   (Increase) decrease in:
    Accounts receivable                                      88,960               54,846
    Other receivable                                         (9,320)              12,276
    Inventories                                            (223,234)             273,416
    Other current assets                                    (40,880)             (34,381)
    Other assets                                           (154,267)             416,413
   Decrease in:
     Accounts Payable and
       accrued expenses                                     475,732             (163,207)
       customer deposits                                    289,368                    -
                                                        -----------          -----------

Total adjustments                                         1,244,169            1,019,222
                                                        -----------          -----------

 Net cash used for
  operating activities                                   (3,131,307)            (320,040)
                                                        -----------          -----------

Cash flows from investing activities:

 Purchase of property and equipment - net                   (22,605)            (704,246)
                                                        -----------          -----------

   Net cash used in investing activities                    (22,605)            (704,246)
                                                        -----------          -----------

Cash flows from financing activities:
 Increase (decrease)in
  Line of credit                                             99,535                    -
  Issuance of Convertible Debt                            1,431,949                    -
  Short term loan payable                                   195,000                    -
  Payment on capitalized lease                              (57,598)             (14,423)
 Issuance of common stock and warrants                      150,460            1,715,557
                                                        -----------          -----------

   Net cash provided
    by financing activities                               1,819,346            1,701,134
                                                        -----------          -----------

Net increase (decrease) in
 cash and cash equivalents                               (1,334,566)             676,848

Cash and cash equivalents -
 beginning of period                                      1,351,641              674,793
                                                        -----------          -----------

Cash and cash equivalents -
 end of period                                               17,075            1,351,641
                                                        ===========          ===========

Noncash transactions:
Increase in Capital Lease Obligations                   $         -          $   200,434


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

</TABLE>

-26-
<PAGE>



<TABLE>

                                                SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
                                         CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                             FOR THE TWO YEARS ENDED DECEMBER 31, 2001 AND 2000
<CAPTION>


                                    Common Stock                    Additional                          Treasury
                                    ------------                      Paid-In                           --------
                                       Shares         Amount          Capital          (Deficit)         Shares       Amount
                                       ------         ------          -------          ---------         ------       ------
<S>                                <C>             <C>           <C>               <C>                 <C>         <C>



Balance
 December 31, 1999                  17,286,278      $172,862      $ 12,556,205      $(10,362,267)       125,800    $397,833
                                    ----------      --------      ------------      -------------       -------     -------


Exercise of Stock Options              283,673         2,838           151,069                 -              -           -
Issuance of common stock
 net of related expenses               213,749         2,137         1,559,513                 -              -           -

Net loss                                     -             -                 -        (1,339,262)             -           -
                                    ----------      --------      ------------      -------------       -------     -------


Balance
 December 31, 2000                  17,783,700       177,837        14,266,787       (11,701,529)       125,800     397,833
                                    ----------      --------      ------------      -------------       -------     -------


Issuance of common stock
 net of related expenses             3,095,800        30,958           415,071        (4,375,476)             -           -


Balance
 December 31, 2001                  20,879,500      $208,795       $14,681,858      $(16,077,005)       125,800    $397,833
                                    ==========      ========      ============      =============       =======     =======


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

</TABLE>

-27-
<PAGE>

             SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1)	Summary of Significant Accounting Policies:

      a) Principles of Consolidation:

      The consolidated financial statements include the Company's wholly
      owned subsidiary. All intercompany transactions have been eliminated
      in consolidation.

      b) Organization and Description of Business:

      The Company, which was incorporated in May, 1973 and commenced
      operations in July 1977, is engaged in the design, development,
      integration and marketing of advanced telecommunications products
      and applications.   All the Company's operations are considered to
      be in one industry.

      c) Use of Estimates:

      The preparation of financial statements in conformity with generally
      accepted accounting principles require 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 reporting periods.  Actual results
      could differ from those estimated.

      d) Inventories:

      Inventories are stated at the lower of cost or market, with cost
      determined on a first-in, first-out basis.

      e) Property and Equipment:

      Property and equipment are stated at cost, depreciation of property
      and equipment is computed generally using the straight-line method
      based on estimated useful lives of five years for machinery and
      equipment and seven years for furniture and fixtures. Leasehold
      improvements are amortized over the life of the related lease or
      their estimated useful lives, whichever is shorter, using the
      straight-line method.  Costs of major additions and betterment's are
      capitalized; maintenance and repairs which do not improve or extend
      the life of respective assets are charged to expenses as incurred.
      When an asset is sold or otherwise disposed of, the cost of the
      property and the related accumulated depreciation is removed from
      the respective accounts and any resulting gains or losses are
      reflected in income.

     f) Cash and Cash Equivalents:

     The Company considers all highly liquid debt instruments purchased
     with a maturity of three months or less to be cash equivalents.

-28-
<PAGE>

     g) Income Taxes:

     The Company elected to adopt the provisions of Statement of
     Financial Accounting Standards (SFAS) No. 109 "Accounting for Income
     Taxes", (SFAS No. 109) in 1992.  Under SFAS No. 109, deferred income
     taxes are recognized for the tax consequences in future years of
     differences between the tax basis of assets and liabilities and
     their financial reporting amounts at each year-end based on enacted
     tax laws and statutory tax rates applicable to the periods in which
     the differences are expected to affect taxable income. Valuation
     allowances are established when necessary to reduce deferred tax
     assets to the amount expected to be realized. Income tax expenses
     (credit) is the tax payable (receivable) for the period and the
     change during the period in deferred tax assets and liabilities.

     h) Revenue Recognition:

     Revenue is generally recognized when all significant contractual
     obligations have been satisfied and collection of the resulting
     receivable is reasonably assured.  Revenue from product sales is
     recognized at time of delivery and acceptance and after
     consideration of all the terms and conditions of the customers
     contract.  Sales of services are recognized at time of performance.

     i) Impairment of Long-Lived Assets:

     Effective January 1, 1996, the Company adopted SFAS No. 121,
     "Accounting for the Impairment of long-lived Assets and for long-
     lived Assets to be Disposed of." SFAS No. 121 requires the Company
     to review the recoverability of the carrying amounts of its long-
     lived assets whenever events or changes in circumstances indicate
     that the carrying amount of the asset might not be recoverable.
     In the event that facts and circumstances indicate that the
     carrying amount of long-lived assets may be impaired, an
     evaluation of recoverability would be performed.  If an evaluation
     is required, the estimated future undiscounted cash flows
     associated with the asset would be compared to the assets'
     carrying amount to determine if a write-down to fair value is
     required.  Fair value may be determined by reference to discounted
     future cash flows over the remaining useful life of the related
     asset.  In 2000, the Company wrote off the carrying value of one
     of its patents in the amount of $89,706.

    j) Fair Value Disclosures:

     The carrying amounts reported in the Consolidated Balance Sheets for
     cash and cash equivalents, accounts receivable, accounts payable and
     accrued expenses, approximate fair value because of the immediate or
     short-term maturity of these financial instruments.

    k) Stock Options:

    The Company accounts for its stock options in accordance with the
    provisions of Accounting principles Board (APB) Opinion No. 25,
    Accounting for Stock Issued to Employees, and related
    interpretations.  As such, compensation expense would be recorded on
    the date of grant only if the current market price of the underlying
    stock exceeded the exercise price.  On January 1, 1996, the Company
    adopted the disclosure requirements of SFAS No. 123, Accounting for
    Stock Based Compensation. Had the company determined compensation
    cost based on fair value at the grant date for stock options under
    SFAS No. 123 the effect would have been immaterial.

    l) New Accounting Pronouncements:

    The financial Accounting Standards Board (FASB) recently issued SFAS 141,
    "Business Combinations," SFAS 142, "Goodwill and Intangible Assets,"
    SFAS143, "Accounting for Asset Retirement obligations" and SFAS 144,
    "Accounting for the impairment or Disposal of Long -Lived Assets."

    SFAS 141 requires companies to account for acquisitions entered into after
    June 30,2001 using the purchase method and establishes criteria to be used
    in determining whether acquired intangible assets are to be recorded
    separately from goodwill.  Statement 142 sets forth the accounting for
    goodwill and intangible assets after the completion of a business
    acquisition and for goodwill and intangible assets already recorded.
    Goodwill will no longer be amortized beginning January 1, 2002.  Rather,
    goodwill will be tested for impairment by comparing the asset's fair value
    to its carrying value.  The Company will adopt Statement 142 on
    January 1, 2002.

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<PAGE>

    SFAS 143 requires the fair value of a liability for asset retirement
    obligations to be recorded in the period in which it is incurred.  The
    statement applies to a company's legal or contractual obligation
    associated with the retirement of a tangible long-lived asset that
    resulted from the acquisiton, construction or development through the
    normal operation of a long-lived asset.  The statement is effective for
    the Company beginning January 1, 2003.

    SFAS 144 addresses the accounting and reporting for the impairment or
    disposal of long-lived assets.  The statement provides a consistent
    method to value long-lived assets to be disposed of. New criteria must
    be met to classify the asset as a asset held-for-sale.  This statement
    also changes the rules for reporting the effects of a disposal of a
    segment of a business.  This statement will be adopted January 1, 2002.


    m) Basis of Financial Statement Presentation

    The accompanying financial statements have been prepared on a going
    concern basis, which contemplates the realization of assets and the
    satisfaction of liabilities in the normal course of business.  The
    Company has generated significant losses and is unable to predict
    profitability for the future.  These factors indicate that the Company's
    continuation, as a going concern is dependent upon its ability to obtain
    adequate financing.


2) Accounts Receivable:

   The Company evaluates its accounts receivable on a customer-by-
   customer basis and has determined that no allowance for doubtful
   accounts is necessary at December 31, 2001 and 2000.

3) Property and Equipment:

   A summary of the major components of property and equipment is as
   follows:


                                                  2001	      2000
                                                  ----            ----

       Computers, fixtures
       And equipment                          $1,557,163      $1,452,454

       Less accumulated Depreciation            (751,436)       (447,090)
                                              ----------      ----------

       Totals                                 $  805,727      $1,005,364
                                              ==========      ==========


4 ) Income Taxes:

    In 1992, the Company adopted SFAS No. 109, Accounting for Income taxes.
    Under the provision of SFAS No. 109, the Company elected not to restate
    prior years due to immateriality.  In 1992, the effect of the change
    was to decrease the net loss by $308,000 (.10 per share).  The deferred
    tax asset recognized was recovered through the sale of New Jersey State
    net-operating loss carryovers as permitted by the State in the amount
    of $308,000.  In 2001 the Company recovered $218,135 through the sale
    of New Jersey State net-operating loss carryovers as permitted by the
    State.  This recovery was recognized as other income in the year ended
    2001 Statement of Operations.

    At this time, the Company does not believe it can reliably predict
    profitability for the long-term.  Accordingly, the deferred tax asset
    applicable to 2001 and 2000 operations has been reduced in its
    entirety by the valuation allowance.

-30-
<PAGE>

    As a result of the operating losses for the years ended December 31,
    1990 and 1992-2001 the Company has available to offset future taxable
    income a net operating loss of $17,097,839 expiring 2005-2021. In
    addition, research credits expiring 2005-2015 are available to offset
    future taxes.
    The components of the provision (credit) for income taxes from
    continuing operations is as follows:


                                     2001        2000
                                     ----        ----

          Deferred
            Federal                $    -      $    -

          Current
            Federal                     -           -
            State                       -           -
                                   ------      ------
                                   $    -      $    -
                                   ------      ------

    Differences between the tax provision computed using the statutory
    federal income tax rate and the effective income tax rate on
    operations is as follows:

                                     2001	       2000
                                     ----        ----
          Federal
          Statutory rate      $(1,487,662)    $(455,349)

          Research tax
          Credits                       -             -

          Tax benefit not
          Provided due
          To valuation
          Allowance            (1,487,662)      455,349
                                ---------     ---------
                                        -             -
                                =========     =========

    Components of the Company's deferred tax assets and liabilities are as
    follows:

                                      December 31,
                                  2001            2000
                                  ----            ----

    Deferred tax assets:
    Tax benefits related
    To net operating
    Loss carry forwards
    And research tax
    Credits                     $5,786,297    $4,298,635
                                ----------    ----------


    Total deferred tax
    Asset                        5,786,297     4,298,635

    Valuation
    Allowance for
    Deferred tax
    Assets                       5,786,297     4,298,635
                                ----------    ----------

    Net deferred tax
    Assets                       $      -0-    $      -0-
                                ----------    ----------

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<PAGE>

5)	Commitments:

a.	Leases

The Company leases their office, sales and manufacturing facilities
and certain vehicles under non-cancelable operating leases with
varying terms.  The leases generally provide that the Company pay
the taxes, maintenance and insurance expenses related to the leased
assets.  Future minimum lease payments required under operating
leases that have initial or remaining non-cancelable lease terms in
excess of one year, as of December 31, 2001 are as follows:

                             2002        $300,973
                             2003         276,118
                             2004         212,717
                             2005          79,570
                             2006           3,445
                      After  2006             -0-
                                         --------

           Total minimum lease payments  $872,823
                                         ========




6) Intangible Assets:

   On November 7, 1996, the Company acquired "Intellectual Property",
   issuing 1,500,000 shares of its common stock. Based on technical
   reviews of the property and the business potential of the technology,
   the Company valued the "Intellectual Property" at $1,500,000.  The
   Company began amortizing the property on January 1, 1997 over a period
   of five years.  The amortization for 2001 and 2000 was $300,000 for
   each year.

7) Notes payable

a) Line of Credit
The Company secured a line of credit that renews in June 2002 at a
rate of 1.5% above the prime rate.  The balance at December 31, 2001
was $99,535.

b) Short Term Loans Payable
The short-term loan payable consists of loans from two stockholders.
The interest rate to the two stockholders is 10% and 7% respectively.

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<PAGE>

c) Convertible Notes Payable
In May 2001, we entered into a securities purchase agreement with
three accredited investors for the issuance of 8% convertible
debentures in the aggregate amount of $1,200,000 and 872,727 common
stock purchase warrants.  The maturity date of this debenture is
May 2003.  The debentures were convertible into common stock at a
conversion price of the lower of 85% of the average of the three
lowest closing bid prices for the common stock thirty days prior to
the closing date or 85% of the average of the three lowest closing
bid prices for the common stock thirty days prior to conversion.  Each
warrant entitles the holder to purchase one share of common stock at an
exercise price of $1.4339. The commission for the transaction was 8%
($96,000).  The offering of convertible debentures and warrants was
exempt from registration under Rule 504 of Regulation D and under
Section 4(2) of the Securities Act. No advertising or general
solicitation was employed in offering the securities. All persons were
accredited investors, representing that they were capable of analyzing
the merits and risks of their investment.  In 2001 $168,060 plus
interest of $1,909 was converted into 3,095,800 shares of the Company's
common stock.

In August 2001, we entered into a securities purchase agreement with
two accredited investors, for the issuance of 8% convertible debentures
in the aggregate amount of $400,000 and 290,909 common stock purchase
warrants.  The maturity date of this debenture is August 2003.  The
debentures were convertible into common stock at a conversion price of
the lower of 85% of the average of the three lowest closing bid prices
for the common stock thirty days prior to the closing date or 85% of
the average of the three lowest closing bid prices for the common stock
thirty days prior to conversion.  Each warrant entitles the holder to
purchase one share of common stock at an exercise price of $.355. The
commission for the transaction was 8% ($32,000).  The offering of
convertible debentures and warrants was exempt from registration under
Rule 504 of Regulation D and under Section 4(2) of the Securities Act.
No advertising or general solicitation was employed in offering the
securities. All persons were accredited investors, representing that
they were capable of analyzing the merits and risks of their investment.

8) Stock Options and Warrants:

   a) Stock options

   On November 17, 1999 the Company amended the Incentive Stock Option
   Plan, authorizing an additional share increase of 1,088,000 shares.
   335,013 shares were exercised in 2001 and 283,673 shares were
   exercised in 2000.  The total amount of shares granted and not
   exercised at December 31, 2001 amount to 683,2000 at exercise prices
   ranging from 0.26 to 7.625 per share.

   As allowed by FASB No. 123, The Company has elected to continue to
   follow Accounting Principles Board (APB) Opinion No. 23, " Accounting
   for Stock Issued to Employees" (APB No. 25) in accounting for its
   stock option plans.  Under APB No. 25, the Company does not recognize
   compensation expense on the issuance of its stock options because the
   options terms are fixed and the exercise price equals the market price
   of the underlying stock on the grant date.
   As required by FASB No. 123, the Company has determined the pro-forma
   information as if the Company had accounted for stock options granted
   since January 1, 1996, under the fair value method of FASB No. 123. An
   option pricing model similar to the Black-Sholes was used with the
   following weighted average assumptions used for grants in the year
   2001 and 2000, respectively: expected volatility of 80 percent; risk
   free interest rate of 7% and 6% respectively and expected lives of 5
   years.  The pro-forma effect of these options on net earnings was not
   material.  These pro-forma calculations only include the effect of
   2000 and 2001 grants.  As such, the impacts are not necessarily
   indicative of the effects on reported net income of future years.

   b) Warrants
   The Company issued 1,163,636 warrants to purchase the Company's common
   stock at prices ranging from $1.4339 to $0.355 per share in connection
   with the issuance of two convertible notes.

-33-
<PAGE>

9) Major Customers:

   During 2001 two customers each accounted for 37% of total sales. During
   2000 two customers accounted for 83% and 15% of total sales.

10) Earnings (Loss) Per Share:

    In February 1997, the Financial Accounting Standards Board issued SFAS
    No. 128.  "Earnings Per Share" applicable for financial statements
    issued for periods ending after December 15, 1997.  As required the
    Company adopted SFAS No. 128 for the year ended December 31, 1997 and
    restated all prior period earnings per share figures.  The Company has
    presented basic earnings per share.  Basic earnings per share excludes
    potential dilution and is calculated by dividing income available to
    common stockholders by the weighted average number of outstanding
    common shares.  Diluted earnings per share incorporates the potential
    dilutions from all potentially dilutive securities that would have
    reduced earnings per share.  Since the potential issuance of
    additional shares would reduce loss per share they are considered
    anti-dilutive and are excluded from the calculation.
    The weighted average number of shares used to compute basic loss per
    share was 18,019,738 in 2001 and 17,549,993  in 2000.

11) Related Party Transactions

During 2000, Scidyn began the deployment of the Cascadent Supply
Agreement, this Agreement provided $4,370,520 in revenue for the
year.  The Agreement was terminated on January 4, 2001, upon
receiving official word that Cascadent was placed into receivership.
Alan Bashforth, one of Cascadent's principals, is Chairman of the
Company's Board of Directors, CEO/President and Secretary.


12) Subsequent Events

During the period ending March 31, 2002, we entered into securities
purchase agreements with one accredited investor, for the issuance
of 8% convertible debentures in the aggregate amount of $672,930.
The debentures were convertible into common stock at a conversion
price of the lower of 85% of the average of the three lowest closing
bid prices for the common stock thirty days prior to the closing date
or 85% of the average of the three lowest closing bid prices for the
common stock thirty days prior to conversion.  The commission for the
transactions was 8%.  The offering of convertible debentures was exempt
from registration under Rule 504 of Regulation D and under Section 4(2)
of the Securities Act. No advertising or general solicitation was
employed in offering the securities. All persons were accredited
investors, representing that they were capable of analyzing the
merits and risks of their investment.

Subsequent to year end the following directors resigned due to personal
reasons:  John Innes, Joy C. Hartman, Sheldon Hofferman, Louis Padulo,
Kenneth Ray, and Michael Hone. We will be announcing the appointment of
the new directors within the next few weeks.  In addition, we accepted
the resignation of Joy C. Hartman as CEO and President and the appointment
of Alan C. Bashforth as CEO, President, Chairman and Secretary on
April 4, 2002.

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