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


                                   FORM 10-QSB


     [ X ]       Quarterly Report pursuant to Section 13 or 15(d) of the
                 Securities Exchange Act of 1934
                 For the quarterly period ended June 30, 2005

     [   ]       Transition Report pursuant to 13 or 15(d) of the
                 Securities Exchange Act of 1934
                 For the transition period ____________ to ____________


                        Commission File Number 000-49735



                           INTRAOP MEDICAL CORPORATION

        (Exact name of small business issuer as specified in its charter)


                    Nevada                               87-0642947
       (State or other jurisdiction of                (I.R.S. Employer
        incorporation or organization)               Identification No.)



          3170 De La Cruz Boulevard
                  Suite 108
           Santa Clara, California                          95054
   (Address of principal executive offices)               (Zip Code)


          Issuer's telephone number, including area code: 408-986-6020


              (Former name, former address and former fiscal year,
                          if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days [X] Yes [ ] No

State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:17,638,028 shares of $0.001 par value
Common Stock outstanding as of the date of this filing.



                                       1
<PAGE>


                           INTRAOP MEDICAL CORPORATION

                                   FORM 10-QSB

                                TABLE OF CONTENTS



PART I   FINANCIAL INFORMATION


                                                                           Page

Item 1.  Financial Statements (Unaudited)..............................   3 - 26
Item 2   Management's Discussion and Analysis or Plan of Operations....  27 - 41
Item 3   Controls and Procedures.......................................       41


PART II  OTHER INFORMATION

Item 1   Legal Proceedings..............................................      41
Item 2   Unregistered Sales of Equity Securities and Use of Proceeds....      42
Item 3   Defaults Upon Senior Securities................................      42
Item 4   Submission of Matters to a Vote of Securities Holders..........      42
Item 5   Other Information..............................................      42
Item 6   Exhibits.......................................................      43





                                       2
<PAGE>


                         PART 1 - FINANCIAL INFORMATION

Item 1.  Financial Statements

         The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB and, therefore, do not include
all information and footnotes necessary for a complete presentation of financial
position, results of operations, cash flows, and stockholders' deficit in
conformity with generally accepted accounting principles. In the opinion of
management, all adjustments considered necessary for a fair presentation of the
results of operations and financial position have been included and all such
adjustments are of a normal recurring nature. Operating results for the nine
months ended June 30, 2005 are not necessarily indicative of the results that
can be expected for the year ending September 30, 2005.

         Additionally, in mid-July 2005, and in consultation with our
independent registered public accounting firm, Stonefield Josephson, Inc., we
determined that certain restatements to our prior financials statements were
needed to correctly account for i) certain liabilities related to product
financing, including interest thereon, previously reported only as commitments
and contingencies in the footnotes to our financial statements, ii) the value of
warrants and options granted during those periods, iii) the accrual of certain
liabilities for the redemption of common stock as the result of the completion
of our merger with Intraop Medical, Inc., and iv) the misclassification of
certain short term deposits as non-current assets. As such, contemporaneous with
the filing of this report, the Company filed Form 8-K/A in which it restated the
financial statements of Intraop Medical, Inc. for the three months ended
December 31, 2004, and Form 10-QSB/A in which it restated the Company's
financial statements for the three and six months ended March 31, 2005. A full
discussion of those restatements can be found in those filings. These financial
statements have been prepared in accordance with those restatements and as if
such restatements were in effect from the inception of the restated
transactions.





                                       3
<PAGE>


                           INTRAOP MEDICAL CORPORATION
                   CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               AS OF JUNE 30, 2005
             AND THREE AND NINE MONTHS ENDED JUNE 30, 2005 AND 2004


                                TABLE OF CONTENTS


                                                                           Pages
                                                                           -----
Condensed Consolidated Financial Statements:
  Condensed Consolidated Balance Sheet (Unaudited)                         5 - 6
  Condensed Consolidated Statements of Operations (Unaudited)                  7
  Condensed Consolidated Statements of Cash Flows (Unaudited)              8 - 9
  Notes to Condensed Consolidated Financial Statements (Unaudited)       10 - 26





                                       4
<PAGE>


Intraop Medical Corporation
Condensed Consolidated Balance Sheet (Unaudited)
--------------------------------------------------------------------------------

                                                                     June 30,
                                                                       2005
                                                                  --------------
Assets

Current assets:
  Cash and cash equivalents                                       $      22,721
  Accounts receivable                                                   118,200
  Inventory, net                                                      1,870,759
  Prepaid expenses                                                      110,344
  Deposits                                                              734,456
  Other current assets                                                  157,500
                                                                  --------------

        Total current assets                                          3,013,980

Property and equipment,
 net of accumulated depreciation                                         62,183

Leased Equipment
 net of accumulated depreciation                                        683,631

Other assets:
  Intangible assets,
   net of accumulated amortization                                       82,783
                                                                  --------------

                                                                  $   3,842,577
                                                                  ==============


Liabilities and Stockholders' Deficit

Current liabilities:
  Accounts payable and accrued expenses                           $   1,386,565
  Notes payable, related parties                                      1,032,425
  Notes payable, other, net debt discounts due to warrants            6,115,336
  Liability related to product financing,
    net discounts due to warrants                                     1,616,970
  Obligation for leased equipment                                     1,088,081
  Interest payable                                                      331,165
  Royalty payable to related party                                      150,000
  Contract advances                                                     160,000
  Shareholder Advances                                                  438,000
  Manditorily redeemable common stock - 97,000 shares                   121,250
  Sales tax payable                                                      59,040
  Estimated liability under warranties                                   66,395
  Other current liabilities                                              64,508
                                                                  --------------

        Total liabilities, all current                            $  12,629,735
                                                                  --------------



The accompanying notes form an integral part of the condensed consolidated
financial statements.


                                       5
<PAGE>


Intraop Medical Corporation
Condensed Consolidated Balance Sheet (Unaudited) (Continued)
--------------------------------------------------------------------------------


                                                                     June 30,
                                                                       2005
                                                                  --------------

Commitments and contingencies                                     $           -

Stockholders' deficit:
  Common stock, $0.001 par value:
    Authorized shares - 100,000,000, issued and outstanding
     common shares - 17,536,028 (excluding manditory
     redemptions, 97,000 shares)                                         17,536
  Additional paid-in capital                                         10,854,376
  Treasury stock, at cost, 600,000 shares at $.25 per share            (150,000)
  Accumulated deficit                                               (19,509,070)
                                                                  --------------

         Total stockholders' deficit                                 (8,787,158)
                                                                  --------------

                                                                  $   3,842,577
                                                                  ==============



The accompanying notes form an integral part of the condensed consolidated
financial statements.


                                       6
<PAGE>


<TABLE>
<CAPTION>
Intraop Medical Corporation
Condensed Consolidated Statements of Operations (Unaudited)
---------------------------------------------------------------------------------------------------

                                      Three Months Ended June 30,      Nine Months Ended June 30,
                                          2005            2004            2005            2004
                                     --------------  --------------  --------------  --------------
<S>                                  <C>             <C>             <C>             <C>
Revenue                              $     161,794   $     177,405   $   2,719,189   $     452,827

Cost of revenue                            275,459         353,962       2,360,750         744,439
                                     --------------  --------------  --------------  --------------

Gross profit (loss)                       (113,665)       (176,557)        358,439        (291,612)
                                     --------------  --------------  --------------  --------------

Operating expenses:
  Research and development                 142,295         108,889         378,443         348,331
  General and administrative               388,741         445,023       2,690,798       1,340,757
  Sales and marketing                      162,610         111,017         457,655         316,449
                                     --------------  --------------  --------------  --------------

         Total operating expenses          693,646         664,929       3,526,896       2,005,537
                                     --------------  --------------  --------------  --------------

Loss from operations                      (807,311)       (841,486)     (3,168,457)     (2,297,149)
                                     --------------  --------------  --------------  --------------

Other income (expense):
  Interest expense                        (369,269)       (387,625)     (1,206,603)       (569,579)
                                     --------------  --------------  --------------  --------------

         Total other expense              (369,269)       (387,625)     (1,206,603)       (569,579)
                                     --------------  --------------  --------------  --------------

Loss before income taxes                (1,176,580)     (1,229,111)     (4,375,060)     (2,866,728)

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

Net loss                             $  (1,176,580)  $  (1,229,111)  $  (4,375,060)  $  (2,866,728)
                                     ==============  ==============  ==============  ==============

Net loss per share available to
 common shareholders
 (basic and diluted)                 $       (0.07)  $       (0.07)  $       (0.26)  $       (0.19)
                                     ==============  ==============  ==============  ==============

Weighted average number of shares
 outstanding (basic and diluted)        16,874,248      16,527,028      16,642,768      14,960,477
                                     ==============  ==============  ==============  ==============
</TABLE>



The accompanying notes form an integral part of the condensed consolidated
financial statements.


                                       7
<PAGE>


<TABLE>
<CAPTION>
Intraop Medical Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
-----------------------------------------------------------------------------------------------------------

                                                                              Nine Months Ended June 30,
                                                                                2005              2004
                                                                           --------------    --------------

<S>                                                                        <C>               <C>
Cash flows provided by (used for) operating activities:
  Net loss                                                                 $  (4,375,060)    $  (2,866,728)
                                                                           --------------    --------------

Adjustments to reconcile net loss to net cash
 provided by (used for) operating activities:
  Depreciation                                                                   173,238           240,759
  Amortization of intangible assets                                              170,410           105,907
  Debt discount due to warrants                                                   26,933             1,393
  Amortization of note discount                                                   16,903             1,409
  Amortization of debt issuance costs                                            365,000           171,925
  Non-cash compensation for options issued                                        20,649             1,489
  Non-cash compensation for warrants issued                                       16,155           162,953
  Non-cash compensation for common stock issued                                1,216,350                 -
  Non-cash expense related to issuance of anti-dilutive shares of
   common stock                                                                  375,420                 -
  Non-cash revenue received on leased equipment                                 (186,503)         (145,058)
  Non-cash interest expense for obligation for leased equipment                  122,272            86,598

Changes in assets and liabilities:
  (Increase) decrease in assets:
    Accounts receivable                                                        1,016,096           160,092
    Inventory                                                                     95,509        (2,407,404)
    Prepaid expenses and other current assets                                    (27,940)         (269,308)
    Debt issuance costs                                                         (210,000)         (625,000)
    Deposits                                                                     456,958           (22,037)

Increase (decrease) in liabilities:
    Accounts payable and accrued expenses                                        246,739           185,039
    Interest payable                                                             154,699           128,730
    Royalty payable                                                               25,000            25,000
    Contract advances                                                                  -            60,917
    Sales tax payable                                                                 91                 -
    Estimated liabilities under warranties                                       (51,590)           43,972
    Other current liabilities                                                     82,161           (59,597)
                                                                           --------------    --------------

    Total adjustments                                                          4,104,550        (2,152,221)
                                                                           --------------    --------------

    Net cash used for operating activities                                 $    (270,510)    $  (5,018,949)
                                                                           --------------    --------------
</TABLE>



The accompanying notes form an integral part of the condensed consolidated
financial statements.


                                       8
<PAGE>


<TABLE>
<CAPTION>
Intraop Medical Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited) (Continued)
-----------------------------------------------------------------------------------------------------------

                                                                              Nine Months Ended June 30,
                                                                                2005              2004
                                                                           --------------    --------------

<S>                                                                        <C>               <C>
Cash flows used for investing activities:
  Acquisition of fixed assets                                              $      (1,926)    $     (21,093)
  Acquisition of intangible assets                                                     -           (25,000)
                                                                           --------------    --------------

     Net cash used for investing activities                                       (1,926)          (46,093)
                                                                           --------------    --------------

Cash flows provided by (used for) financing activities:
  Proceeds from note payable - related party                                     273,000            50,000
  Proceeds from note payable - other, net discounts                            3,155,067         4,304,152
  Payments on note payable - related party                                      (198,000)                0
  Payments on note payable - other                                            (3,054,385)         (879,537)
  Proceeds from obligation for leased equipment                                        -         1,230,685
  Advances from shareholders                                                           -           338,000
  Proceeds from issuance of common stock                                               -            11,250
                                                                           --------------    --------------

    Net cash provided by financing activities                                    175,682         5,054,550
                                                                           --------------    --------------

Net increase (decrease) in cash                                                  (96,754)          (10,492)

Cash, beginning of year                                                          119,475            31,012
                                                                           --------------    --------------
Cash, end of year                                                          $      22,721     $      20,520
                                                                           ==============    ==============

Supplemental disclosure of cash flow information:

  Interest paid                                                            $     618,552     $     488,757
                                                                           ==============    ==============

  Income taxes paid                                                        $           -     $           -
                                                                           ==============    ==============

Supplemental disclosure of non-cash investing and financing
 activities:

  Inventory converted to leased equipment                                  $       1,137     $   1,011,092
                                                                           ==============    ==============

  Property and equipment, at book value, converted to inventory            $       6,620     $           -
                                                                           ==============    ==============

  Proceeds of notes payable deposited with vendors                         $   1,065,000     $           -
                                                                           ==============    ==============

  Accounts payable, interest payable and royalty payable converted to
   notes payable                                                           $     233,023     $     113,074
                                                                           ==============    ==============

  Conversion of prommisory notes to commitments to issue common stock      $     395,000     $           -
                                                                           ==============    ==============

  Adjustment to common stock and additional paid in capital due to
   antidilutive issuance of 300,336 shares of common stock                 $     375,420     $           -
                                                                           ==============    ==============
</TABLE>



The accompanying notes form an integral part of the condensed consolidated
financial statements.


                                       9
<PAGE>


Intraop Medical Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)


(1)      Business and Summary of Significant Accounting Policies:

         Basis of Presentation:

                  The accompanying unaudited condensed consolidated financial
                  statements have been prepared in accordance with the
                  instructions under Regulations SB and do not include all of
                  the information and footnotes required by accounting
                  principles generally accepted in the United States of America
                  for complete consolidated financial statements. These
                  condensed consolidated financial statements and related notes
                  should be read in conjunction with the Company's audited
                  consolidated financial statements for the fiscal years ended
                  September 30, 2004 and September 30, 2003 included as
                  "Financial Information of the Target" in the Form 14C filed by
                  Intraop Medical Corporation on February 11, 2005 and in the
                  opinion of management, these unaudited condensed consolidated
                  financial statements reflect all adjustments which are of a
                  normal recurring nature and which are necessary to present
                  fairly the consolidated financial position of the Company as
                  of June 30, 2005, and the results of operations for the three
                  and nine months ended June 30, 2005 and 2004 and cash flows
                  for the nine-months ended June 30, 2005 and 2004. The results
                  of operations for the three and nine months ended June 30,
                  2005 are not necessarily indicative of the results, which may
                  be expected for the entire fiscal year.


         Formation and Business of the Company:

                  Intraop Medical Corporation (the "Company") was organized
                  under the laws of the State of Nevada on November 5, 1999
                  under the name DigitalPreviews.com. On January 21, 2004, the
                  Company filed a Certificate of Amendment with the Secretary of
                  State of Nevada to change the name of the Company from
                  DigitalPreviews.com, Inc. to Intraop Medical Corporation. The
                  Company had been seeking viable business opportunities but had
                  not commenced operations. The Company had not yet generated
                  any revenues from its planned principal operations and was
                  considered a development stage company as defined in Statement
                  of Financial Accounting Standards No. 7. The Company has, at
                  the present time, not paid any dividends and any dividends
                  that may be paid in the future will depend upon the financial
                  requirements of the Company and other relevant factors.

                  On February 24, 2004, the Company signed a definitive
                  agreement and plan of reorganization (the "Merger Agreement")
                  with Intraop Medical, Inc., a privately-held Delaware
                  corporation (the "Target") under which the Target will be
                  merged with and into the Company in a tax-free exchange of
                  stock. Under the Merger Agreement, the Company will issue one
                  share of its common stock in exchange for each share of the
                  Target outstanding shares of common and preferred stock on the
                  closing date of the proposed merger. All of the Target's
                  obligations under its outstanding options, warrants, and
                  convertible securities will be assumed by the Company.

                  The Board of Director's of the Company approved the merger on
                  February 24, 2004, the Target's Board of Directors approved
                  the merger on February 12, 2004. In addition, the merger was
                  approved by the Company's majority stockholder on September 3,
                  2004, and by the Target's stockholders on July 13, 2004. The
                  merger was consummated on March 9, 2005 as considerations for
                  the merger were exchanged.


                                       10
<PAGE>


(1)      Business and Summary of Significant Accounting Policies (Continued):

         Formation and Business of the Company (Continued):

                  The Target is deemed to be the purchaser and surviving company
                  for accounting purposes. Accordingly, due to the Merger, its
                  net assets are included in the balance sheet at their
                  historical book values and the results of operations of the
                  Target will be presented for the comparative prior periods.
                  Weighted average shares and loss per share have been
                  retroactively restated to reflect the effect of the Merger.

                  Control of the net assets and operations of Company was
                  acquired effective March 9, 2005. The Company will account for
                  this transaction as a purchase of the assets and liabilities
                  of Intraop Medical Corporation. The historical cost of the net
                  assets assumed was $0.

                  Pursuant to the Merger, all of the Target's 4,678,767
                  preferred Series 1, Series 2, Series 3, and Series 4 shares
                  were exchanged for common stock of the Company. Additionally,
                  due to certain antidilutive provisions related to the
                  preferred shares of the Target, the Company issued an
                  additional 300,336 shares of common stock to these
                  stockholders based on certain cumulative antidilutive events
                  occurring prior to the merger. The shares were valued at the
                  $1.25 per share, the fair market value of the shares at the
                  time of the events triggering the antidilutive provisions.

                  Further pursuant to the Merger, certain holders of convertible
                  notes representing $295,000 of principal and $100,000 of
                  principal due related parties under the Company's Promissory
                  Note program had previously agreed to convert their notes to
                  common stock upon completion of the Merger at a price of $1.25
                  per share as per their original promissory note agreements.

                  Further pursuant to the Merger, the Company had agreed upon
                  the close of the Merger to issue 795,000 shares of common
                  stock to certain service providers in exchange for services
                  related to the Merger. These shares were valued at $1.53 per
                  share, the price of the Company's common stock on March 9,
                  2005, the date of the close of the merger and were recorded as
                  expense on the Company's books.

                  Further pursuant to the Merger, the Company cancelled
                  19,932,265 shares of outstanding common stock ($0.001 par
                  value) of Mr. David Shamy.

                  In April 2005, the Company received notices from shareholders
                  representing all 97,000 shares of common stock who had
                  previously voted against the Merger notifying the Company that
                  they wished to redeem their shares in accordance with certain
                  dissenter's rights provisions. An accrual for the estimated
                  redemption value of $121,250 and a corresponding offset to
                  common stock and additional paid in capital has been recorded.

                  The Target was incorporated in Delaware in March 1993 to
                  develop, manufacture, market, and service mobile electron beam
                  treatment systems designed for intraoperative radiotherapy
                  (IORT). IORT is the application of radiation directly to a
                  cancerous tumor and/or tumor bed during surgery. In July 1998,
                  the Company obtained FDA 510k clearance on its initial
                  product, the "Mobetron". This business of the Target is now
                  the sole business of the Company.


                                       11
<PAGE>


(1)      Business and Summary of Significant Accounting Policies (Continued):


         Basis of Consolidation:

                  The unaudited condensed consolidated financial statements
                  include the accounts of Intraop Medical Corporation and its
                  wholly owned subsidiaries Intraop Medical Services, Inc. and
                  Intraop Medical Services Louisville, LLC. All significant
                  intercompany balances and transactions have been eliminated in
                  preparation of the unaudited condensed consolidated financial
                  statements.


         Revenue Recognition:

                  Revenue is recognized when earned in accordance with
                  applicable accounting standards, including Staff Accounting
                  Bulletins 104, "Revenue Recognition in Financial Statements"
                  ("SAB 104"), and the interpretive guidance issued by the
                  Securities and Exchange commission and EITF issue number
                  00-21, "Accounting for Revenue Arrangements with Multiple
                  Elements", of the FASB's Emerging Task Force. Revenue is
                  generated from machine sales, leasing of machines,
                  installations, and maintenance.

                  Machine sales and installation revenue are recognized upon
                  shipment, installation, or final customer acceptance,
                  depending on specific contract terms, provided any remaining
                  obligations are inconsequential or perfunctory and collection
                  of resulting receivable is deemed probable. Revenue from
                  maintenance is recognized as services are completed or over
                  the term of the maintenance agreements. Revenue from the
                  leasing of machines is recognized over the term of the lease
                  agreements.

                  During the three and nine months ended June 30, 2005 and 2004,
                  the Company recognized revenue on service contracts to two
                  institutions for the service of Mobetrons at the customer
                  site. The customer paid for a one-year service contract for
                  which they receive warranty-level labor and a credit for a
                  certain contracted dollar amount of service-related parts. On
                  each contract, the Company recorded a liability for parts
                  equal to the amount of the parts credit contracted for by the
                  customer with the remainder of the contract price recorded as
                  labor-related service contract liability. The labor-related
                  portion, which has been approximately equal to the Company's
                  standard warranty estimate for new machines, has been adequate
                  to meet service contract expenses.


         Lease Revenue and Leasing Transactions:

                  Included in revenue in the three and nine months ended June
                  30, 2004, is $54,000 and $162,000, respectively, in rental
                  revenue pursuant to an operating lease that the customer
                  entered into with the Company in September 1999. Pursuant to
                  the terms of lease the customer exercised their fixed price
                  option to purchase the equipment at the end of the lease in
                  September 2004.

                  Revenue in the three months nine months ended June 30, 2005
                  and 2004 is partly comprised of revenue recognized on a
                  Mobetron system delivered to our customer in Eindhoven,
                  Holland in November 2003. At inception, as an equipment
                  supplier, we received proceeds in the amount of $1,230,685 as


                                       12
<PAGE>


(1)      Business and Summary of Significant Accounting Policies (Continued):

         Lease Revenue and Leasing Transactions (Continued):

                  sale price of the equipment from a third party leasing
                  company, who in turn leased the equipment to the hospital
                  pursuant to a seventy month lease. The Company has no material
                  obligations under the lease and the lease remains an
                  unconditional obligation of the hospital as the lessee to make
                  payments to the leasing company as lessor for the leasing
                  company's own account.

                  However, as an inducement to the hospital to enter into the
                  lease, the Company agreed in a contract with the hospital
                  that, should the hospital decide, upon sixty days prior notice
                  to the Company, that at end of month eighteen of its lease on
                  May 31, 2005 that the hospital wishes to prepay the lease with
                  the leasing company (a one-time option), that the Company
                  would reimburse the hospital for the cost of the hospital's
                  exercise of the prepayment option to the leasing company.
                  Following the reimbursement by the Company to the hospital for
                  the prepayment amount, title to the equipment would revert to
                  the Company.

                  Because of the potential reimbursement to the hospital at the
                  end of month eighteen of the lease, the Company retains
                  substantial risk of ownership in the leased property, and the
                  transaction has therefore been accounted for in accordance
                  with SFAS 13, "Accounting for Leases", specifically paragraphs
                  19, 21, and 22.

                  Accordingly, the Company recorded the entire $1,230,685 of
                  proceeds received from the leasing company as obligation for
                  leased equipment, a liability on its balance sheet and
                  accounted for the item as borrowing. In accordance with APB
                  Opinion 21, "Interest on Receivables and Payables" paragraphs
                  13 and 14, the Company determined an interest rate for the
                  obligation of 14.5% based on other debt arrangements entered
                  into by the Company at dates closest to the inception of the
                  obligation for leased equipment. Further, although the Company
                  is not entitled to the cash rental payments, the Company
                  recognized rents totaling $62,168 revenue during both the
                  three month periods ended June 30, 2005 and 2004, and $186,503
                  and $145,058 during the nine month periods ended June 30, 2005
                  and 2004, respectively. A portion of each month's rental
                  revenue is recorded as interest and included in cost of
                  revenue with the remainder recorded as a reduction in
                  obligation for leased equipment.

                  Correspondingly, at inception, the Company also recorded
                  $1,015,101, the amount that the Company would otherwise have
                  been the Company's cost of revenue for the transaction, as
                  leased equipment, an asset on its balance sheet. The asset
                  will be depreciated on a straight line over the 18 month
                  period of the Company's obligation to the hospital down to a
                  residual value of $700,000, the estimated residual value of
                  the equipment. The depreciation expense is included in cost of
                  revenue.

                  During the nine months ended June 30, 2005, the hospital
                  notified the Company that it intends to exercise its
                  prepayment option, however the Company has agreed to allow the
                  hospital to continue to lease the equipment through September
                  1, 2005 and agreed to a new prepayment amount. Pursuant to the
                  lease extension, the Company will continue to recognize
                  revenue and expense on this transaction, including continued
                  straight line depreciation, as described above through
                  September 1, 2005.


                                       13
<PAGE>


(1)      Business and Summary of Significant Accounting Policies (Continued):


         Basic and Diluted Loss Per Share:

                  In accordance with SFAS No. 128, "Earnings Per Share," the
                  basic loss per share is computed by dividing the loss
                  attributable to common stockholders by the weighted average
                  number of common shares outstanding during the period. Diluted
                  loss per share reflects the amount that would have resulted if
                  certain dilutive potential common stock had been issued.
                  Because the Company has experienced losses from inception, the
                  convertible notes payable described in Note 4 are
                  anti-dilutive. Therefore, such notes do not impact the
                  weighted average number of common shares outstanding reported
                  in the accompanying statement of operations. Potential
                  equivalent shares excluded from the calculation of diluted
                  earnings per share, as their effect is not dilutive, include
                  stock options, warrants, and convertible notes of 3,302,879
                  for the three and nine months ended June 30, 2005, and
                  3,266,494 for the three and nine months ended June 30, 2004.


         Stock-Based Compensation:

                  The Company accounts for stock-based compensation in
                  accordance with Accounting Principles Board ("APB") Opinion
                  No. 25, "Accounting for Stock Issued to Employees", and
                  complies with the disclosure provisions of SFAS No. 123,
                  "Accounting for Stock-Based Compensation". Under APB No. 25
                  compensation cost is recognized on the excess, if any, on the
                  date of grant of the fair value of the Company's shares over
                  the employee's exercise price. The Company has, since
                  inception, granted options at the fair value of the stock and
                  therefore has had no compensation expense to record.

                  When the exercise price of the option is less than the fair
                  value price of the underlying shares on the grant date,
                  deferred stock compensation is recognized and amortized to
                  expense in accordance with Financial Accounting Standards
                  Board ("FASB") Interpretation No. 44 over the vesting period
                  of the individual options.

                  Accordingly, if the exercise price of the Company's employee
                  options equals or exceeds the market price of the underlying
                  shares on the date of grant, no compensation expense is
                  recognized. Options or shares awards issued to non-employees
                  are valued using the Black-Scholes pricing model and expensed
                  over the period services are provided.

                  In December 2002, the FASB issued SFAS No. 148, "Accounting
                  for Stock-Based Compensation - Transition and Disclosure",
                  which amends SFAS No. 123, "Accounting for Stock-Based
                  Compensation", to provide alternative methods of transition
                  for a voluntary change to the fair value-based method of
                  accounting for stock-based employee compensation. In addition,
                  SFAS No. 148 expands the disclosure requirements of SFAS No.
                  123 to require more prominent disclosures in both annual and
                  interim financial statements about the method of accounting
                  for stock-based employee compensation and the effect of the
                  method used on reported results. The transition provisions of
                  SFAS No. 148 are effective for fiscal years ended after
                  December 15, 2002. The transition provisions do not currently
                  have an impact on the Company's consolidated financial
                  position and results of operations as the Company has not
                  elected to adopt the fair value-based method of accounting for
                  stock-based employee compensation under SFAS NO. 123. The
                  disclosure provisions of SFAS No. 148 are effective for
                  financial statements for interim periods beginning after
                  December 15, 2002. The Company adopted the disclosure
                  requirements in the first quarter of fiscal year 2003.


                                       14
<PAGE>


(1)      Business and Summary of Significant Accounting Policies (Continued):


         Stock-Based Compensation (Continued):

                  The Company accounts for its stock option plans under the
                  recognition and measurement principles of APB Opinion No. 25,
                  Accounting for Stock Issued to Employees, and related
                  Interpretations. No stock-based employee compensation cost is
                  reflected in net loss, except when options granted under those
                  plans had an exercise price less than the market value of the
                  underlying common stock on the date of grant.

                  The following table illustrates the effect on net loss and
                  loss per share if the Company had applied the fair value
                  recognition provisions of FASB Statement No. 123, Accounting
                  for Stock-Based Compensation, to Stock-Based Employee
                  Compensation.


<TABLE>
<CAPTION>
                                                                             Three months ended June 30,
                                                                    --------------------------------------------
                                                                            2005                    2004
                                                                    --------------------------------------------
                 <S>                                                   <C>                     <C>
                  Net loss as reported                                 $  (1,176,580)          $  (1,229,111)

                  Compensation recognized under APB 25                             -                       -

                  Compensation recognized under SFAS 123                           -                       -
                                                                    --------------------------------------------

                  Pro-forma net loss                                   $  (1,176,580)          $  (1,229,111)
                                                                    ============================================

                  Net loss per share:
                  Basic and diluted -- as reported                     $       (0.07)          $       (0.07)
                                                                    ============================================
                  Basic and diluted -- pro-forma                       $       (0.07)          $       (0.07)
                                                                    ============================================


                                                                              Nine months ended June 30,
                                                                    --------------------------------------------
                                                                            2005                    2004
                                                                    --------------------------------------------

                  Net loss as reported                                 $  (4,375,060)          $  (2,866,728)

                  Compensation recognized under APB 25                             -                       -

                  Compensation recognized under SFAS 123                     (47,637)                (16,319)
                                                                    --------------------------------------------

                  Pro-forma net loss                                   $  (4,422,697)          $  (2,883,047)
                                                                    ============================================

                  Net loss per share:
                  Basic and diluted -- as reported                     $       (0.27)          $       (0.19)
                                                                    ============================================
                  Basic and diluted -- pro-forma                       $       (0.27)          $       (0.19)
                                                                    ============================================
</TABLE>


                                       15
<PAGE>


(1)      Business and Summary of Significant Accounting Policies (Continued):


         Stock-Based Compensation (Continued):

                  No grants were made during the three months ended June 30,
                  2005 and 2004. For grants in the nine months ended June 30,
                  2005 and 2004, the following assumptions were used: (i) no
                  expected dividends; (ii) a risk-free interest rate ranging
                  from 3.11% to 4.10% and between 2.61% to 4.16% during the nine
                  months ended June 30, 2005 and 2004 respectively; (iii)
                  expected volatility of 42.68% and 0.01% during the nine months
                  ended June 30, 2005 and 2004 respectively, and (iv) an
                  expected life of 4 to 10 years or the stated life of the
                  option. The fair value was determined using the Black-Scholes
                  option-pricing model.

                  The estimated fair value of grants of stock options and
                  warrants to non-employees of the Company is charged to expense
                  in the condensed consolidated financial statements. These
                  options vest in the same manner as the employee options
                  granted under each of the option plans as described above.


(2)      Going Concern:

         The accompanying unaudited condensed consolidated financial statements
         have been prepared on a going-concern basis in accordance with
         accounting principles generally accepted in the United States of
         America. As shown in the unaudited condensed consolidated financial
         statements, the Company has incurred substantial losses of $1,176,580
         and $1,229,111 during the three months ended June 30, 2005 and 2004,
         respectively, and $4,375,060 and $2,866,728 during the nine months
         ended June 30, 2005 and 2004, respectively. The Company has working
         capital deficit of $9,494,505 as of June 30, 2005, and significant
         borrowings from notes payable and other amounts due and/or past due and
         an accumulated deficit of $19,509,070 as of June 30, 2005. The Company
         must raise additional working capital in order to continue as a going
         concern. There can be no assurance that the Company will be able to
         obtain financing at all, or if obtained, on terms favorable to the
         Company or its stockholders. This, in turn, raises substantial doubt
         about the Company's ability to continue as a going concern. The
         unaudited condensed consolidated financial statements do not include
         any adjustments that might result from the outcome of this uncertainty.


(3)      Recent Accounting Pronouncements:

         In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an
         amendment of ARB No. 43, Chapter 4". The amendments made by Statement
         151 clarify that abnormal amounts of idle facility expense, freight,
         handling costs, and wasted materials (spoilage) should be recognized as
         current period charges and require the allocation of fixed production
         overheads to inventory based on the normal capacity of the production
         facilities. The guidance is effective for inventory costs incurred
         during fiscal years beginning after June 15, 2005. Earlier application
         is permitted for inventory costs incurred during fiscal years beginning
         after November 23, 2004. The Company has evaluated the impact of the
         adoption of SFAS 151, and does not believe the impact will be
         significant to the Company's overall results of operations or financial
         position.


                                       16
<PAGE>


(3)      Recent Accounting Pronouncements (Continued):


         In December 2004, the FASB issued SFAS No.152, "Accounting for Real
         Estate Time-Sharing Transactions, an amendment of FASB Statements No.
         66 and 67 (SFAS 152)". The amendments made by Statement 152 amend FASB
         Statement No. 66, Accounting for Sales of Real Estate, to reference the
         financial accounting and reporting guidance for real estate
         time-sharing transactions that is provided in AICPA Statement of
         Position (SOP) 04-2, Accounting for Real Estate Time-Sharing
         Transactions. This Statement also amends FASB Statement No. 67,
         Accounting for Costs and Initial Rental Operations of Real Estate
         Projects, to state that the guidance for (a) incidental operations and
         (b) costs incurred to sell real estate projects does not apply to real
         estate time-sharing transactions. The accounting for those operations
         and costs is subject to the guidance in SOP 04-2. This Statement is
         effective for financial statements for fiscal years beginning after
         June 15, 2005, with earlier application encouraged. The Company has
         evaluated the impact of the adoption of SFAS 152, and does not believe
         the impact will be significant to the Company's overall results of
         operations or financial position.

         In December 2004, the FASB issued SFAS No.153, "Exchanges of
         Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for
         Nonmonetary Transactions." The amendments made by Statement 153 are
         based on the principle that exchanges of nonmonetary assets should be
         measured based on the fair value of the assets exchanged. Further, the
         amendments eliminate the narrow exception for nonmonetary exchanges of
         similar productive assets and replace it with a broader exception for
         exchanges of nonmonetary assets that do not have commercial substance.
         Previously, Opinion 29 required that the accounting for an exchange of
         a productive asset for a similar productive asset or an equivalent
         interest in the same or similar productive asset should be based on the
         recorded amount of the asset relinquished. Opinion 29 provided an
         exception to its basic measurement principle (fair value) for exchanges
         of similar productive assets. The Board believes that exception
         required that some nonmonetary exchanges, although commercially
         substantive, be recorded on a carryover basis. By focusing the
         exception on exchanges that lack commercial substance, the Board
         believes this Statement produces financial reporting that more
         faithfully represents the economics of the transactions. The Statement
         is effective for nonmonetary asset exchanges occurring in fiscal
         periods beginning after June 15, 2005. Earlier application is permitted
         for nonmonetary asset exchanges occurring in fiscal periods beginning
         after the date of issuance. The provisions of this Statement shall be
         applied prospectively. The Company has evaluated the impact of the
         adoption of SFAS 153, and does not believe the impact will be
         significant to the Company's overall results of operations or financial
         position.

         In December 2004, the FASB issued SFAS No.123 (revised 2004),
         "Share-Based Payment". Statement 123(R) will provide investors and
         other users of financial statements with more complete and neutral
         financial information by requiring that the compensation cost relating
         to share-based payment transactions be recognized in financial
         statements. That cost will be measured based on the fair value of the
         equity or liability instruments issued. Statement 123(R) covers a wide
         range of share-based compensation arrangements including share options,
         restricted share plans, performance-based awards, share appreciation
         rights, and employee share purchase plans. Statement 123(R) replaces
         FASB Statement No. 123, Accounting for


                                       17
<PAGE>


(3)      Recent Accounting Pronouncements (Continued):


         Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting
         for Stock Issued to Employees. Statement 123, as originally issued in
         1995, established as preferable a fair-value-based method of accounting
         for share-based payment transactions with employees. However, that
         Statement permitted entities the option of continuing to apply the
         guidance in Opinion 25, as long as the footnotes to financial
         statements disclosed what net income would have been had the preferable
         fair-value-based method been used. Public entities (other than those
         filing as small business issuers) will be required to apply Statement
         123(R) as of the first interim or annual reporting period that begins
         after June 15, 2005. The Company has evaluated the impact of the
         adoption of SFAS 123(R), and does not believe the impact will be
         significant to the Company's overall results of operations or financial
         position.

         In December 2004 the Financial Accounting Standards Board issued two
         FASB Staff Positions--FSP FAS 109-1, Application of SFAS Statement 109
         "Accounting for Income Taxes" to the Tax Deduction on Qualified
         Production Activities Provided by the American Jobs Creation Act of
         2004, and FSP FAS 109-2 Accounting and Disclosure Guidance for the
         Foreign Earnings Repatriation Provision within the American Jobs
         Creation Act of 2004. Neither of these affected the Company as it does
         not participate in the related activities.

         In March 2005, the FASB issued Staff Accounting Bulletin No. 107 ("SAB
         107") which provides additional guidance to the new stock option
         expensing provisions under SFAS 123(R). SAB 107 acknowledges that fair
         value estimates cannot predict actual future events and as long as the
         estimates are made in good faith, they will not be subsequently
         questioned no matter what the actual outcome. Historical volatility
         should be measured on an unweighted basis over a period equal to or
         longer than the expected option term or contractual term, depending on
         the option-pricing model that is used. Implied volatility is based on
         the market prices of a company's traded options or other financial
         instruments with option-like features, and is derived by entering the
         market price of the traded option into a closed-form model and solving
         for the volatility input. SAB 107 provides additional guidance for
         companies when estimating an option's expected term. In general,
         companies are not allowed to consider additional term reduction and the
         option term cannot be shorter than the vesting period. Companies are
         permitted to use historical stock option exercise experience to
         estimate expected term if it represents the best estimate for future
         exercise patterns. SAB 107 provides that companies should enhance MD&A
         disclosures related to equity compensation subsequent to adoption of
         Statement 123(R). SAB 107 provided that companies should provide all
         disclosures required by Statement 123 (R) in the first 10-Q filed after
         adoption of the new rules.


                                       18
<PAGE>


(4)      Notes Payable:

         A summary is as follows as of June 30, 2005:


                 Notes payable, related parties                $  1,032,425
                                                        ====================

                 Convertible notes                                  480,000

                 Other convertible notes                          1,270,192
                 Other notes                                      5,982,114
                                                        --------------------

                                                               $  7,732,306
                                                        ====================


         Notes Payable, Related Parties:

                  Notes payable to related parties of $1,032,425 (including
                  $100,000 of notes under the Company's Convertible Note
                  Program) at June 30, 2005, include notes issued to various
                  officers, directors, and stockholders of the Company. The
                  notes are due on demand and bear interest at 9% per annum,
                  payable quarterly unless otherwise specified by each holder.
                  During the nine months ended June 30, 2005 and pursuant to the
                  Company's Merger and per the prior agreement of the related
                  party note holders, $100,000 of notes under the Company's
                  Promissory Note Program were converted to 80,000 shares of
                  common stock at $1.25 per share. Additionally for the nine
                  months ended June 30, 2005, the Company received note proceeds
                  of $273,000 from related parties and repaid $198,000 of
                  principal to related parties.


         Convertible Notes:

                  In January 2001, the Financial Accounting Standards Board
                  Emerging Issues Task Force issued EITF 00-27, "Application of
                  Issue No. 98-5 to Certain Convertible Instruments". This
                  pronouncement requires the use of the intrinsic value method
                  for recognition of the detachable and imbedded equity features
                  included with indebtedness, and requires amortization of the
                  amount associated with the convertibility feature over the
                  life of the debt instrument rather than the period for which
                  the instrument first becomes convertible.

                  Convertible notes relate to notes issued under the Company's
                  Promissory Note Program. The notes are convertible to Company
                  common stock at $1.25 per share at the option of the note
                  holders and bear interest at 9% per annum payable quarterly.
                  During the nine months ended June 30, 2005 and pursuant to the
                  Company's Merger and per the prior agreement of the note
                  holders, $295,000 of notes (excluding notes due related
                  parties) under the Company's Promissory Note Program were
                  converted to shares of common stock at $1.25 per share, while
                  $250,000 of notes were repaid. The notes were due at various
                  dates between June 1, 2004 and September 1, 2004. Although the
                  notes were not repaid when due, the Company paid interest on
                  the notes when due. The Company has contacted the note holders
                  and is working towards resolution of this event; however, no
                  assurance can be given that the note holders will continue to
                  grant forbearance. The principal balance outstanding under the
                  notes is $480,000 at June 30, 2005.


                                       19
<PAGE>


(4)      Notes Payable (Continued):

                  Convertible Notes (Continued):

         Other Convertible Notes:

                  Other Convertible notes relate to notes issued under the
                  Company's Convertible Note Program, which the Company began in
                  October 2003 in anticipation of its planned Merger . Other
                  Convertible notes are convertible to Company common stock at
                  $1.50 per share at the option of the note holders; however,
                  such notes, including any accrued interest, will automatically
                  convert to Company common stock at between $1.00 and $1.50 per
                  share based on the terms and attainment of its next round of
                  equity financing. The notes are current and bear interest at
                  8% per annum and were due in full including all accrued
                  interest on March 31, 2005 but were not repaid when due. Note
                  holders purchased $532,500 of Notes under the Company's
                  Convertible Note Program during the nine months ended June 30,
                  2005. Additionally, during the nine months ended June 30,
                  2005, creditors of the Company agreed to convert $136,838 of
                  Company accounts payable and royalties payable (see Note 7) to
                  notes under the program. The Company repaid $10,000 of note
                  principal during the nine months ended June 30, 2005. As of
                  June 30, 2005, the principal balance outstanding under the
                  notes is $1,270,192 (excluding $100,000 owed to related
                  parties).


         Other Notes:

                  The Company converted an outstanding accounts payable balance
                  into unsecured notes payable during fiscal year 2003. These
                  unsecured notes payable accrue interest at rates between 5%
                  and 6%. As of June 30, 2005, the principal balance outstanding
                  under this note is $5,144.

                  The Company has a note payable to a former director in the
                  amount of $50,000. This note is due on demand and bears
                  interest at 9% per annum, payable quarterly unless otherwise
                  specified by the holder.

                  In March 2004, the Company borrowed $3,000,000 from a
                  financial institution. The note bears interest at 21% per
                  annum. Interest is due monthly while principal was originally
                  due in full at the maturity of the note in March 2005, however
                  the maturity date of the note has been extended until March
                  2006. The loan is secured by a lien on all of the assets of
                  the Company. In addition, the Company issued 2,400,000 shares
                  of its common stock to the lender as security for the note
                  "Collateral Shares", which the company estimated had a fair
                  market value of $1.25 per share. So long as an event of
                  default under the agreement has not occurred, the Company
                  retains voting rights over the Collateral Shares and the
                  lender is not permitted to sell the Collateral Shares. The
                  note may be prepaid in full at any time without penalty. At
                  inception, certain non-refundable loan fees, including amounts
                  paid to an intermediary, were also paid in relation to this
                  note in the amount of $625,000, which were capitalized on the
                  books of the Company and will be amortized into interest
                  expense ratably over the initial, one year term of the note.
                  Additionally, at inception, the Company prepaid seven months
                  of interest in the amount of $367,500. In March 2005, the
                  Company elected to extend the note for one year by paying a
                  fee of $210,000 to the lender which was capitalized on the
                  books of the Company and will be amortized into interest
                  expense ratably over the remaining term of the note.


                                       20
<PAGE>


(4)      Notes Payable (Continued):

         Other Notes (Continued):

                  Prior to October 1, 2004, the Company entered into a factoring
                  agreement under which it borrowed $900,000 from a financial
                  institution. The agreement was secured by a pledge of the
                  Company's equipment and sales contract related to the
                  Company's sale of a Mobetron system to a foreign customer. The
                  factoring agreement plus interest of $600 per day on the
                  factored amount was repaid in November 2004.

                  Prior to October 1, 2004, the Company entered into a factoring
                  agreement under which it borrowed $945,700 from a financial
                  institution. The agreement was secured by a pledge of the
                  Company's equipment and sales contract related to the
                  Company's sale of a Mobetron system to a domestic customer.
                  The factoring agreement plus interest of $630 per day on the
                  factored amount was repaid in November 2004.


                  In November 2004, the Company entered into a factoring
                  agreement under which it borrowed $875,000 from a financial
                  institution. The agreement was secured by a pledge of the
                  Company's equipment and sales contract related to the
                  Company's sale of a Mobetron system to a foreign customer. The
                  factoring agreement plus interest of $600 per day on the
                  factored amount was repaid in January 2005.


                  In February 2005, the Company entered into a factoring
                  agreement under which it borrowed $1,060,000 from a financial
                  institution. The agreement was secured by a pledge of the
                  Company's equipment and sales contract related to the
                  Company's sale of a Mobetron system to a foreign customer. The
                  factoring agreement bears interest of $707 per day on the
                  factored amount. As of June 30, 2005, the principal balance
                  outstanding under this note is $1,060,000.


                                       21

<PAGE>


(4)      Notes Payable (Continued):

         Other Notes (Continued):

                  In February 2005, the Company borrowed on an unsecured basis
                  and subsequently repaid $52,500 from a financial institution.
                  The interest rate on the note was 12% per annum and as a
                  further inducement to issue the note, the Company granted the
                  lender warrants for 20,000 shares of the Company's common
                  stock at $1.25 per share. The fair value attributable to the
                  warrant of $16,155 was recorded as a note discount and was
                  accreted to interest over the life of the borrowing. The
                  discount has been fully amortized as of June 30, 2005..



                  In June 2005, the Company borrowed $100,000 from a former
                  director. The loan bears interest at 9% and is due in full by
                  August 31, 2005.

                  At June 30, 2005, the Company owed Siemens Medical Solutions,
                  Oncology Care Systems Division, a division of Siemens Medical
                  Solutions USA, Inc. (collectively "Siemens") $150,000 of
                  principal plus accrued interest due to the termination of the
                  Company's Manufacturing and Distribution agreement with
                  Siemens originally entered into on October 7, 1997 and
                  terminated in October 2002. In December 2004, the Company and
                  Siemens reached a settlement agreement whereby the Company
                  signed an unsecured note in the amount of $171,185 in full
                  satisfaction of all outstanding amounts due Siemens. The note
                  was due in full on December 31, 2004. The Company did not make
                  the payment due on December 31, 2004, but did however pay all
                  accrued interest plus principal in the amount of $21,185 in
                  May 2005. On June 10, 2005, Siemens served the Company with a
                  summons and complaint for $144,703 outstanding and due
                  under such note plus costs incurred in connection with
                  enforcing such note.

                                       22

<PAGE>

(5)      Product Financing

         In October 2004, the Company entered into an inventory
         repurchase agreement with a financial institution. Under the
         terms of the agreement, the financial institution placed an
         order for a Mobetron (the "Financed Mobetron") with CDS
         Engineering LLC ("CDS") and gave a deposit to CDS of $525,000
         towards the purchase of that Mobetron. Per agreement between
         the Company and CDS, the deposit was used to start the
         manufacture of the Company's next three Mobetron systems.
         Under the terms of the agreement between the Company and the
         financial institution the Company is obligated to repurchase
         the Financed Mobetron from the financial institution prior to
         taking delivery of any other Mobetron systems from CDS. The
         Company recorded the transaction as a note payable and a
         corresponding deposit with CDS. In addition, the Company
         agreed to pay interest on the deposited amount at a rate of
         $144 per day until the Company repurchases the unit from the
         financial institution. As a further inducement, the Company
         further agreed to certain piggyback registration rights for
         100,000 shares of the Company's common stock owned by the
         financial institution. At June 30, 2005, outstanding principal
         balance under the note is $525,000.

         In January 2005, the Company entered into an inventory
         repurchase agreement with a financial institution. Under the
         terms of the agreement, the financial institution placed an
         order for a Mobetron (the "Second Financed Mobetron") with CDS
         and gave a deposit to CDS of $540,000 towards the purchase of
         that Mobetron. Per agreement between the Company and CDS, the
         deposit was used to start the manufacture of an additional
         three Mobetron systems. Under the terms of the agreement
         between the Company and the financial institution, the Company
         is obligated to repurchase the Second Financed Mobetron from
         the financial institution prior to taking delivery of any
         other Mobetron systems from CDS except the Financed Mobetron.
         The Company recorded the transaction as a note payable and a
         corresponding deposit with CDS. In addition, the Company
         agreed to pay interest on the financed deposited amount at a
         rate of $148 per day until the Company repurchases the unit
         from the financial institution. As a further inducement, the
         Company also agreed to grant the financial institution a
         warrant for 43,200 shares of its common stock at an exercise
         price of $1.25 per share. The fair value attributable to the
         warrant of $13,747 was recorded as a note discount and will be
         accreted to interest over the estimated life of the borrowing.
         As of the June 30, 2005 the outstanding principal balance
         under this note approximated $540,000 and the unamortized note
         discount was $3,437.

         In April 2005, the Company entered into an inventory
         repurchase agreement with a financial institution. Under the
         terms of the agreement, the financial institution placed an
         order for a Mobetron (the "Third Financed Mobetron") with the
         Company and gave a deposit to the Company of $562,000 towards
         the purchase of that Mobetron. The Company recorded the
         transaction as a note payable. Under the terms of the
         agreement between the Company and the financial institution
         the Company is obligated to repurchase the Third Financed
         Mobetron from the financial institution prior to taking
         delivery of any other Mobetron systems from CDS except the
         Financed Mobetron or the Second Financed Mobetron. In
         addition, the Company agreed to pay interest on the financed
         amount at a rate of $154 per day until the Company repurchases
         the unit from the financial institution. As a further
         inducement, the Company also agreed to grant the financial
         institution a warrant for 44,960 shares of its common stock at
         an exercise price of $1.25 per share. The fair value
         attributable to the warrant of $13,187 was recorded as
         a note discount and will be accreted to interest over the
         estimated life of the borrowing. As of the June 30, 2005 the
         outstanding principal balance under this note approximated
         $562,000 and the unamortized note discount was $6,593.



(6)      Advances from Shareholders:

         From March 2004 through July 2004, certain shareholders of the Company
         gave cash advances to the Company in the amount of $438,000. These
         unsecured and interest free advances are due upon demand.


                                       23
<PAGE>


(7)      Related Party Transaction:

         Schonberg Radiation Corporation
         -------------------------------

         One of the Company's stockholders is a former director, officer, and
         stockholder of Schonberg Radiation Corporation (SRC). SRC granted the
         Company an exclusive license to certain technology related to medical
         applications of the linear accelerator used in the Company's products.
         The license agreement provides for a payment of $25,000 upon delivery
         of each of the first 20 accelerators. After the payments have been
         made, there are no additional license payments under this agreement,
         and the Company has the right to obtain proprietary information for the
         manufacture of these accelerators.

         Prior to receiving regulatory approval to market its Mobetron product,
         the Company expensed $25,000 of license payments. After receiving
         regulatory approval, the Company has capitalized these payments as they
         are made and amortized the related asset over a seven-year estimated
         useful life from the date of regulatory approval. At June 30, 2005,
         $300,000 has been capitalized with accumulated amortization of $274,896
         and is included in intangible assets.

         In February 2005, SRC agreed to sell and transfer to the Company all
         right, title and interest to the linear accelerator technology
         previously licensed to the Company. In exchange for these rights, the
         Company agreed to convert outstanding accounts payables balances of
         $40,000 and $50,000 of royalty payable due SRC to note under its
         Convertible Note Program (see Note 4) and further agreed to repay the
         remaining $150,000 of royalty payable accrued to SRC at certain dates
         in the future.


(8)      Commitments and Contingencies:

         During the nine months ended June 30, 2005, the Company's customer in
         the Netherlands notified the Company that the customer will exercise
         its option to terminate its lease for the Company's equipment and, as
         per prior agreement, require the Company to reimburse the customer for
         the prepayment amount that the customer is required to make to the
         leasing company.. The hospital will continue to lease the equipment
         through September 1, 2005 and a new prepayment amount has been agreed
         to. The Company estimates that the amount of the refund, due on
         September 1, 2005, will be approximately $1,035,000 based on the
         prepayment price quoted by the lessor and contingent on the euro to
         dollar exchange rate at that time. A related liability in the amount of
         $1,088,081 was accrued as obligation for leased equipment in the
         accompanying condensed consolidated financial statements at June 30,
         2005.


                                       24
<PAGE>


(9)      Segment Information:

         Net revenues by geographic area are presented based upon the country of
         destination. No other foreign country represented 10% or more of net
         revenues for the nine-month periods presented. Net revenues by
         geographic area were as follows:

<TABLE>
<CAPTION>

                                                     Three Months Ended                 Nine Months Ended
                                                          June 30,                           June 30,
                                                       2005             2004              2005             2004
                                            ---------------------------------   --------------------------------
<S>                                              <C>              <C>               <C>              <C>
                  Spain                          $        -       $        -        $   41,310       $        -
                  Poland                                931           36,293             3,086           43,748
                  Netherlands                        62,168           62,168           186,503          145,058
                  Italy                                   -                -         1,037,955                -
                  United States                      98,695           78,944         1,450,335          264,021
                                            ---------------------------------   ---------------------------------
                  Total Revenue                  $  161,794       $  177,405        $2,719,189       $  452,827
                                            =================================   =================================
</TABLE>


         Long lived assets includes property and equipment, intangible assets,
         and leased equipment each net of applicable depreciation or
         amortization resides in the following countries as of June 30, 2005.


           Netherlands                      $        683,631
           United States                             144,966
                                            ----------------
            Total                           $        828,597
                                            ================




(10)      Restatement of prior period financial statements:

         In mid-July 2005, and in consultation with our independent registered
         public accounting firm, Stonefield Josephson, Inc., we determined that
         certain restatements to our prior financials statements were needed to
         correctly account for i) certain liabilities related to product
         financing, including interest thereon, previously reported only as
         commitments and contingencies in the footnotes to our financial
         statements, ii) the value of warrants and options granted during those
         periods, iii) the accrual of certain liabilities for the redemption of
         common stock as the result of the completion of our merger with Intraop
         Medical, Inc., and iv) the misclassification of certain short term
         deposits as non-current and assets. As such, contemporaneous with the
         filing of this report, the Company filed Form 8-K/A in which it
         restated the financial statements of Intraop Medical, Inc. for the
         three months ended December 31, 2004, and Form 10-QSB/A in which it
         restated the Company's financial statements for the three and six
         months ended March 31, 2005. A full discussion of those restatements
         can be found in those filings. These financial statements have been
         prepared in accordance with those restatements and as if such
         restatements were in effect from the inception of the restated
         transactions.


                                       25
<PAGE>


(11)     Subsequent Events:

         Subsequent to June 30, 2005 the Company borrowed $105,000 from certain
         of its officers and directors. The loans are unsecured and bear
         interest at 9% per annum.

         Subsequent to June 30, 2005, the company repaid $60,000 of principal
         under a note payable to a third party.

         On July 5, 2005, the Company made principal payments aggregating
         $47,742, plus accrued interest on its outstanding note to Siemens. On
         July 14, 2005, Siemens and the Company reached a settlement with
         respect to the balance of approximately $102,258 owed by the Company to
         Siemens under the note. The parties agreed that the Company will repay
         such note in two installments, $50,000 by July 31, 2005 and the balance
         of the outstanding principal and accrued interest by August 31, 2005.
         In addition, the Company entered into a stipulation of entry of
         judgment for such amount plus costs and Siemens agreed to forbear
         enforcing such judgment so long as the Company makes the agreed
         payments. The Company did not make the required payment on July 31,
         2005.






                                       26
<PAGE>


Item 2.  Management's Discussion and Analysis or Plan of Operation

         This Discussion and Analysis should be read in conjunction with: a) the
Company's audited financial statements and accompanying footnotes included in
our Form 8K/A filed on or about the date of this filing in which we disclosed
the financial results of Intraop Medical, Inc., for the years ended September
30, 2004 and 2003, and the restated financial results for Intraop Medical, Inc.,
for the three months ended December 31, 2004, and b) Form 10-QSB/A filed on or
about the date of this filing in which the Company disclosed its restated
financial results for the three and six months ended March 31, 2005 and c) such
other reports as we file from time to time with the SEC.

         This section contains forward-looking statements. These forward-looking
statements involve a number of risks and uncertainties, including those
identified in the section of this Information Statement entitled "Summary - Risk
Factors" that may cause actual results to differ materially from those discussed
in, or implied by, such forward-looking statements. Forward-looking statements
within this Form 10-QSB are identified by words such as "believes,"
"anticipates," "expects," "intends," "may," and other similar expressions.
However, these words are not the only means of identifying such statements. In
addition, any statements that refer to expectations, projections or other
characterizations of future events or circumstances are forward-looking
statements. We are not obligated and expressly disclaim any obligation to
publicly release any update to any forward-looking statement. Actual results
could differ materially from those anticipated in, or implied by,
forward-looking statements as a result of various factors, including the risks
outlined elsewhere in this report.

         Intraop Medical Corporation, formerly "Digitalpreviews.com, Inc." (the
"Company") was organized under the laws of the State of Nevada on November 5,
1999. The initial purpose of the Company was to engage in a consulting and
seminar business. The Company has not generated any revenues from its consulting
and seminar business. In September 2003, the Company, in anticipation of
negotiating a potential merger with Intraop Medical, Inc., a privately-held
Delaware corporation, formally abandoned its consulting and seminar business
operations. On March 9, 2005, the Company completed the merger with Intraop
Medical, Inc. pursuant to the terms of that certain Agreement and Plan of
Reorganization dated February 24, 2004, or the Merger Agreement, by and between
the Company and Intraop Medical, Inc. pursuant to which Intraop Medical, Inc.
was merged with and into the Company, and the Company remained as the surviving
corporation. As result of the merger, the Company acquired all of the assets and
assumed all of the obligations of Intraop Medical, Inc. Such assets consist,
without limitation, of all of Intraop Medical, Inc.'s cash and cash equivalents,
accounts receivables, inventory, prepaid expenses, property and equipment,
leased equipment, intangible assets (including patents, certain installment
payments for license rights to acquire certain technology, amounts paid to third
parties for manufacturing and design rights as well as design rights and
manufacturing/ design instructions in connection with the Mobetron, Intraop
Medical Inc.'s product, and a certain medical device approval license).

         In connection with the consummation of the merger and pursuant to the
Merger Agreement, each of the issued and outstanding shares of Intraop Medical,
Inc.'s preferred stock and common stock were cancelled and extinguished and
automatically converted into the right to receive one (1) corresponding share of
the Company's common stock. As a result of the merger, 14,175,028 shares of the
Company's common stock were issued to Intraop Medical's stockholders in exchange
for their shares of preferred stock and common stock. Additionally, as of March
9, 2005 the Company assumed (i) 1,023,611 options reserved under Intraop
Medical's stock option plan which are exercisable within 60 days of the closing
date for the merger; (ii) warrants exercisable for 926,291 shares of the
Company's common stock and (iii) convertible promissory notes convertible into
1,540,795 shares of the Company's common stock. Additionally, the Company sold
795,000 shares of its common stock to certain consultants in consideration for
services provided in connection with the consummation of the Merger. All of
these securities were issued in reliance upon the exemption from securities
registration afforded by the provisions of Regulation D, as promulgated by the
Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as
amended (the "Securities Act").


                                       27
<PAGE>


         As a result of the merger with Intraop Medical, Inc., the Company now
manufactures, markets and distributes the Mobetron, a proprietary mobile
electron beam cancer treatment system designed for use in IORT. The IORT
procedure involves the direct application of radiation to a tumor and/or tumor
bed while a patient is undergoing surgery for cancer. The Mobetron is designed
to be used without requiring additional shielding in the operating room, unlike
conventional equipment adapted for the IORT procedure. The Mobetron system can
be moved from operating room to operating room, thereby increasing its
utilization and cost effectiveness. In addition to IORT, the Mobetron system
also can be used as a conventional radiotherapy electron beam accelerator.

         The Company's strategy is to expand its customer base both in the
United States and internationally through direct and distributor sales channels
and joint ventures with health care providers. The Company also intends to
continue its research and development efforts for additional Mobetron
applications.

         The Company derives revenues from Mobetron product and accessory sales,
service and support, and leases. Product sales revenue is recognized upon
installation provided that any remaining obligations are inconsequential or
perfunctory and collection of the receivable is deemed probable. Revenues from
accessory sales are recognized upon shipment. Revenue from lease activities is
recognized as income over the lease term as it becomes receivable according to
the provisions of the lease. Revenue from maintenance is recognized as services
are completed or over the term of the service agreements as more fully disclosed
in the financial statements of the Company.

         Cost of revenues consists primarily of amounts paid to contact
manufacturers and, salary and benefit costs for employees performing customer
support and installation, lease related interest expense and depreciation
related to leased assets. General and administrative expenses include the
salaries and benefits of executive and administrative personnel, communications,
facilities, insurance, professional services and other administrative expenses.
Sales and marketing costs include salaries, benefits and the related expenses of
the sales staff including travel expenses, promotion materials, conferences and
seminars. Research and development expenses consist primarily of compensation
and related direct costs for employees and an allocation of research and
development-related overhead expenses. Since inception, the Company has invested
approximately $6.4 million in research and development. These amounts have been
primarily invested in development of the Mobetron product and have been expensed
as they have been incurred.

Critical Accounting Policies

         This discussion and analysis of financial condition and results of
operation is based on the Company's financial statements which were prepared in
conformity with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires the Company's
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses. These estimates and assumptions are
based on historical experience and on various other factors that they believe
are reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. These estimates and assumptions also
require the application of certain accounting policies, many of which require
estimates and assumptions about future events and their effect on amounts
reported in the financial statements and related notes. The Company periodically
reviews its accounting policies and estimates and makes adjustments when facts
and circumstances dictate. Actual results may differ from these estimates under
different assumptions or conditions. Any differences may have a material impact
on the Company's financial condition and results of operations.

         We believe that the following accounting policies fit the definition of
critical accounting policies. The Company uses the specific identification
method to set reserves for both doubtful accounts receivable and the valuation
of its inventory. Further, in assessing the fair value of option and warrant
grants made to service providers, the Company has valued these instruments based
on the Black-Scholes model and based on the market price of our shares, or in
the absence of a market for shares, based on estimates of fair value made by our
Board of Directors.


                                       28
<PAGE>


Overview

         The Company has completed the research and development of its primary
product, the Mobetron and is moving into full commercial sales and production,
and therefore, the Company's historical results of operations vary significantly
from year to year and quarter to quarter. For example, sale of only one Mobetron
in any given quarter may substantially alter the sales and cost numbers for that
quarter, and the timing of such a sale often cannot be predicted with any
accuracy. While the Company expects that its financial results may ultimately
become more predictable as sales increase and costs stabilize, its financial
results for the foreseeable future are likely to continue to vary widely from
period to period.

Results of Operations for the three months ended June 30, 2005 compared to the
three months ended June 30, 2004.

<TABLE>
<CAPTION>
Revenues.

                                    Three Months Ended June 30,
                                            2005               2004         Change         % Age
---------------------------------------------------------------------------------------------------
<S>                                      <C>                <C>            <C>            <C>
Mobetron and Accessory Sales              42,715             45,987         (3,272)        -7.12%
Service Revenue                           56,911             15,250         41,661        273.19%
Lease Revenue                             62,168            116,168        (54,000)       -46.48%
---------------------------------------------------------------------------------------------------
Total Revenue                            161,794            177,405        (15,611)        -8.80%
===================================================================================================
</TABLE>


Revenue was modest in both periods as no Mobetron system sales were recorded
during these periods. Service revenue for the three months ended June 30, 2005
and 2004 came primarily from two service contracts with U.S. hospitals, with the
balance from as-requested service calls and parts sales to customers. Parts
sales under one of these service contracts account for the majority of the
difference in service revenue during the two periods. We expect service revenue
to grow in relative proportion to U.S. based sales. Overseas distributors are
generally responsible for servicing their own customers with parts supplied by
us.

Leasing revenue in the three months ended June 30, 2005 and 2004 is partly
comprised of revenue recognized on a Mobetron system delivered to our customer
in Eindhoven, Holland in November 2003. At inception, as an equipment supplier,
we received proceeds in the amount of $1,230,685 as sale price of the equipment
from a third party leasing company, who in turn leased the equipment to the
hospital pursuant to a seventy month lease. The Company has no material
obligations under the lease and the lease remains an unconditional obligation of
the hospital as the lessee to make payments to the leasing company as lessor for
the leasing company's own account.

However, as an inducement to the hospital to enter into the lease, the Company
agreed in a contract with the hospital that, should the hospital decide, upon
sixty days prior notice to the Company, that at end of month eighteen of its
lease on May 31, 2005 that the hospital wishes to prepay the lease with the
leasing company (a one-time option), that the Company would reimburse the
hospital for the cost of the hospital's exercise of the prepayment option to the
leasing company. Following the reimbursement by the Company to the hospital for
the prepayment amount, title to the equipment would revert to the Company.

Because of the potential reimbursement to the hospital at the end of month
eighteen of the lease, the Company retains substantial risk of ownership in the
leased property, and the transaction has therefore been accounted for in
accordance with SFAS 13, "Accounting for Leases", specifically paragraphs 19,
21, and 22.


                                       29
<PAGE>


Accordingly, the Company recorded the entire $1,230,685 of proceeds received
from the leasing company as obligation for leased equipment, a liability on its
balance sheet and accounted for the item as borrowing. In accordance with APB
Opinion 21, "Interest on Receivables and Payables" paragraphs 13 and 14, the
Company determined an interest rate for the obligation of 14.5% based on other
debt arrangements entered into by the Company at dates closest to the inception
of the obligation for leased equipment. Further, although the Company is not
entitled to the cash rental payments, the Company recognized rents totaling
$62,168 revenue during both three month periods ended June 30, 2005 and 2004. A
portion of each month's rental revenue is recorded as interest and included in
cost of revenue with the remainder recorded as a reduction in obligation for
leased equipment.

Correspondingly, at inception, the Company also recorded $1,015,101, the amount
that the Company would otherwise have been the Company's cost of revenue for the
transaction, as leased equipment, an asset on its balance sheet. The asset will
be depreciated on a straight line over the 18 month period of the Company's
obligation to the hospital down to a residual value of $700,000, the estimated
residual value of the equipment. The depreciation expense is included in cost of
revenue.

During the nine months ended June 30, 2005, the hospital notified the Company
that it intends to exercise its prepayment option, however the Company has
agreed to allow the hospital to continue to lease the equipment through
September 1, 2005 and agreed to a new prepayment amount.. Although satisfied
with the performance of the Mobetron, the customer completed the build out of
certain shielded facilities and found the Mobetron surplus to its use. The
Company estimates that the amount of the refund will be approximately $1,035,000
based on the prepayment price quoted by the lessor and contingent on the euro to
dollar exchange rate at that time. Pursuant to the lease extension, the Company
will continue to recognize revenue and expense on this transaction, including
continued straight line depreciation, as described above through September 1,
2005. In addition to the lease revenue from its customer in Eindhoven, Holland,
the Company also recognized $54,000 of lease revenue from the rental of one of
its systems to the University of Louisville Hospital in the three months ended
June 30, 2004. The hospital subsequently exercised its option to purchase the
system in September 2004.

Cost of Revenue

Cost of revenue for the three months ended June 30, 2005 declined in comparison
to the same period ended June 30, 2004 because among other factors, the Company
no longer bore approximately $35,000 of depreciation and interest expenses
related to the Mobetron system it had on lease to the University of Louisville
during the same three months of 2004 and because during the three months ended
June 30, 2004, the company booked substantial additional warranty expense for
one of its Mobetron systems, approximately a $60,000 difference between the two
periods.

<TABLE>
<CAPTION>

                                    Three Months Ended June 30,
                                            2005               2004         Change         % Age
---------------------------------------------------------------------------------------------------
<S>                                     <C>                <C>             <C>            <C>
Cost of Revenues                         275,459            353,962        (78,503)       -22.18%
Gross Margin                            (113,665)          (176,557)        62,892        -35.62%
Gross Margin %                            -70.25%            -99.52%
===================================================================================================
</TABLE>


Additionally, in both the three months ended June 30, 2005 and June 30, 2004 the
depreciation and interest recognized on the Company's Mobetron in Eindhoven,
Holland $92,498 and $95,476 respectively, exceeded the revenue recognized for
that transaction during those periods (see Revenue above). This drag on gross
margin will likely continue through September 2005 when the unit will be
repurchased at which point the effect of the transaction on the Company's
earnings (loss) will depend on our ability to profitably remarket the unit.


                                       30
<PAGE>


Operating Expenses

A comparison of the Company's operating expenses for the three months ended June
30, 2005 and 2004 are as follows:

<TABLE>
<CAPTION>
                                    Three Months Ended June 30,
                                            2005               2004         Change         % Age
---------------------------------------------------------------------------------------------------
<S>                                      <C>                <C>            <C>            <C>
Research and Development                 142,295            108,889         33,406         30.68%
General & Administrative                 388,741            445,023        (56,282)       -12.65%
Sales and Marketing                      162,610            111,017         51,593         46.47%
---------------------------------------------------------------------------------------------------
Total Operating Expenses                 693,646            664,929         28,717          4.32%
===================================================================================================
</TABLE>


         Research and Development expenses increased by $33,406 in the three
months ended June 30, 2005 in comparison to the same period in the prior fiscal
year, mainly due to increases in salaries and benefits in this area, amounting
to approximately two-thirds of the year over year quarterly growth. Expenses in
this area have otherwise remained fairly stable as much of the documentation and
design work on the Mobetron has become relatively routine following the
transition in our fiscal year ended September 2003 to our new contract
manufacturer CDS Engineering LLC. The Company expects however, that research and
development expenses will increase over the coming months as the Company works
on various cost reduction and enhancement projects for the Mobetron and engages
in additional sponsorship of clinical research.

         General and Administrative expenses decreased by $56,282 in the three
months ended June 30, 2005 in comparison to the same period in the prior fiscal
year. The largest component of this change were reductions in legal costs which
were approximately $66,000 higher in the three months ended June 30, 2004 when
compared to the three months ended June 30, 2005 due to the Company's ongoing
efforts to complete the Merger during that earlier period. Although the Merger
was completed in March 2005, as a public company, the amounts paid for legal and
accounting services and insurance are expected to rise, although the Company
cannot yet estimate the full amount of these expenses.

         Sales and Marketing expenses rose by $51,593 for the three months ended
June 30, 2005 in comparison to the same period in the prior fiscal year due to a
variety of factors including increased expenditures for marketing and promotion,
travel, and sales personnel in Europe and Asia. We expect expenses in this area
to continue to rise as we further our sales efforts.

         Interest Expense Although total indebtedness was substantially higher
at June 30, 2005 than at June 30, 2004, interest expense decreased by $18,356 in
the three months ended June 30, 2005 in comparison to the same period in the
prior fiscal year. Of the $387,625 of interest expense incurred during the three
months ended June 30, 2004, $156,250 represented the amortization of $625,000 of
fees associated with a $3,000,000 loan which the Company borrowed in March 2004
and recognized as interest expense, and which were fully amortized as of March
31, 2005. In March 2005, the company renewed this loan for another year by
paying an extension fee of $210,000, which the Company began amortizing in April
1, 2005, and resulted in interest expense of $52,500 for the three months ended
June 30, 2005. The reduction in the fee amortization offset the otherwise higher
interest cost incurred by the Company in the period ended June 30, 2005.


                                       31
<PAGE>


Results of Operations for the nine months ended June 30, 2005 compared to the
nine months ended June 30, 2004.

<TABLE>
<CAPTION>
Revenues.

                                     Nine Months Ended June 30,
                                            2005               2004         Change         % Age
---------------------------------------------------------------------------------------------------
<S>                                    <C>                  <C>          <C>            <C>
Mobetron and Accessory Sales           2,427,339             88,734      2,338,605      2,635.52%
Service Revenue                          105,347             57,035         48,312         84.71%
Lease Revenue                            186,503            307,058       (120,555)       -39.26%
---------------------------------------------------------------------------------------------------
Total Revenue                          2,719,189            452,827      2,266,362        500.49%
===================================================================================================
</TABLE>


An increase in revenue of $2,338,605 for the nine months ended June 30, 2005 in
comparison to the same period in the prior fiscal year is primarily attributable
to the sale of two Mobetron systems in the 2005 period. The Company sold its
eleventh and twelfth systems to The Ohio State University Medical Center and
Azienda Ospedelariera "Maggiore della Carrita" in Novara, Italy, our first sale
in Italy.

The majority of service revenue for the nine months ended June 30, 2005and 2004
came from two service contracts with U.S. hospitals, with the balance from
as-requested service calls and parts sales to customers. Parts sales under one
of the service contracts account for the difference in service revenue during
the two periods. We expect service revenue to grow in relative proportion to
U.S. based sales. Overseas distributors are generally responsible for servicing
their own customers with parts supplied by us.

Leasing revenue in the nine months ended June 30, 2005 and 2004 is partly
comprised of revenue recognized on a Mobetron system delivered to our customer
in Eindhoven, Holland in November 2003 as described above. The Company
recognized rents from this transaction of $186,503 and $145,058 as revenue
during the nine months ended June 30, 2005 and 2004 respectively.

In addition to the lease revenue from its customer in Eindhoven, Holland, the
Company also recognized $162,000 of lease revenue from the rental of one of its
systems to the University of Louisville Hospital in the nine months ended June
30, 2004. The hospital subsequently exercised its option to purchase the system
in September 2004.

Cost of Revenue

Cost of revenue for the nine months ended June 30, 2005 increased by $1,616,311
over the same period in 2004 primarily due to the sale of two Mobetron systems
in the nine months ended June 30, 2005 versus no system sales in the same period
in 2004.

<TABLE>
<CAPTION>

                                     Nine Months Ended June 30,
                                            2005               2004         Change         % Age
---------------------------------------------------------------------------------------------------
<S>                                    <C>                 <C>           <C>             <C>
Cost of Revenues                       2,360,750            744,439      1,616,311        217.12%
Gross Margin                             358,439           (291,612)       650,051       -222.92%
Gross Margin %                            13.18%             -64.40%
===================================================================================================
</TABLE>


Additionally, in both the nine months ended June 30, 2005 and June 30, 2004 the
interest and depreciation incurred on the Company's Mobetron in Eindhoven,
Holland $279,822 and $209,138 respectively, exceeded the revenue recognized for
that transaction during those periods (see Revenue above). This drag on gross
margin will likely continue through the September 2005 when the unit is subject
to repurchase at which point the effect of the transaction on the Company's
earnings will depend on our ability to profitably remarket the unit.


                                       32
<PAGE>


Operating Expenses

A comparison of the Company's operating expenses for the nine months ended June
30, 2005 and 2004 are as follows:

<TABLE>
<CAPTION>
                                     Nine Months Ended June 30,
                                            2005               2004         Change         % Age
---------------------------------------------------------------------------------------------------
<S>                                    <C>                <C>            <C>              <C>
Research and Development                 378,443            348,331         30,112          8.64%
General & Administrative               2,690,798          1,340,757      1,350,041        100.69%
Sales and Marketing                      457,655            316,449        141,206         44.62%
---------------------------------------------------------------------------------------------------
Total Operating Expenses               3,526,896          2,005,537      1,521,359         75.86%
===================================================================================================
</TABLE>


         Research and Development expenses increased by approximately 9% in the
nine months ended June 30, 2005 in comparison to the same period in the prior
fiscal year. Although much of the documentation and design work on the Mobetron
has become relatively routine following the transition in our fiscal year ended
September 2003 to our new contract manufacturer CDS Engineering LLC, the Company
still experienced wage growth in this area, and further expects that research
and development expenses will increase over the coming months as the Company
works on various cost reduction and enhancement projects for the Mobetron and
engages in additional sponsorship of clinical research.

         General and Administrative expenses increased by $1,350,041 in the nine
months ended June 30, 2005 in comparison to the same period in the prior fiscal
year. The largest component of this change were costs related to the Company's
Merger. Merger related costs for the nine months ended June 30, 2005 were
$1,709,292 of which $1,591,470 were non-cash charges for stock issued to service
providers and preferred shareholders under anti-dilutive agreements upon their
conversion to common stock. In the nine months ended June 30, 2004, merger
related charges were $456,591 and were primarily related to legal services.

         Sales and Marketing expenses rose by $141,206 for the nine months ended
June 30, 2005 in comparison to the same period in the prior fiscal year due to a
variety of factors including increased expenditures for marketing and promotion,
travel (especially abroad), and increased use of consultants to further our
efforts in Europe and Asia. We expect expenses in this area to continue to rise
as we further our sales efforts.

         Interest Expense increased by $637,024 in the nine months ended June
30, 2005 in comparison to the same period in the prior fiscal year. Of the
$1,206,603 incurred during the nine months ended June 30, 2005, $521,250
represented the amortization of fees associated with the initial borrowing and
subsequent one year extension of a $3,000,000 loan borrowed by the Company in
March 2005 in comparison to $156,250 of such fees incurred in the nine months
ended June 30, 2004. The remaining growth in interest expense of $272,024 was
roughly proportional to the growth in the Company's debt.

Liquidity and Capital Resources

The Company has incurred significant operating losses since inception and
expects such losses to continue as it furthers its product development programs.
From inception to June 30, 2005, the Company incurred cumulative net losses of
$19,509,070. As of June 30, 2005 the Company had cash and cash equivalents and
other current assets of $3,013,980 which was not sufficient to pay existing


                                       33
<PAGE>


liabilities and commitments and fund its obligations in the near term. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. Since inception, the Company has financed its operations
primarily through a combination of indebtedness, capital leases, private equity
financings, government grants and revenues.

<TABLE>
<CAPTION>
                                        Nine Months Ended June 30,
Cash Flows                                     2005               2004          Change
----------------------------------------------------------------------------------------
<S>                                        <C>              <C>             <C>
Provided by (Used in):
  Operating Activities                     (270,510)        (5,018,949)      4,748,439
  Investing Activities                       (1,926)           (46,093)         44,167
  Financing Activities                      175,682          5,054,550      (4,878,868)
----------------------------------------------------------------------------------------
Net Increase/(Decrease)                     (96,754)           (10,492)        (86,262)
========================================================================================
</TABLE>


The Company's primary cash inflows and outflows for the nine months ended June
30, 2005 and 2004 are as follows:

Operating Activities

         Net cash used for operating activities improved in the nine months
ended June 30, 2005 compared to the same period in the prior fiscal year.
Offsetting the Company's net loss for the nine months ended June 30, 2005 were
non-cash charges of $1,591,770 for common stock issued to service providers
related to the merger and certain anti-dilutive share issuances. Additionally,
the Company collected $1,016,096 of accounts receivable in the nine months ended
June 30, 2005 versus $160,092 for the nine months ended June 30, 2004. The
Company expects short term fluctuations in accounts receivable to continue to be
volatile based on the low volume of machine sales and the large per sale
receivable of its Mobetron systems. Also, as previously discussed, certain
one-time fees due a lender to the Company for a $3,000,000 borrowing incurred in
March 2004 were $625,000 in the nine months ended June 30, 2004, at the
inception of the loan, when compared to $210,000 for the nine months ended June
30, 2005. Further, additions to inventory in the nine months ended June 30, 2004
of $2,407,404 in anticipation of later completed Mobetron sales contributed to
the large difference in cash used in operating activities during the periods
ended June 30, 2004 and 2005.

Investing Activities

         Although the Company had a low level of investing activity in the nine
months ended June 30, 2005, we expect activity here to grow as we expand
facilities and staff to meet future sales growth.

Financing Activities

         During the nine months ended June 30, 2005, the Company received cash
loan proceeds (including amounts directly deposited with suppliers) of
$4,493,067, the majority, $3,562,000 were proceeds to factor customer
receivables due upon the installation or acceptance of Mobetron systems or to
finance the build of future Mobetron systems. During that same period, the
Company repaid $2,720,000 of similar loans entered into during or prior to the
nine months ended June 30, 2005. In contrast, during the nine months ended June
30, 2004, the Company's primary debt sources was a $3,000,000 loan from a
financial institution used for general corporate purposes. This loan was renewed
for another year during the nine months ended June 30, 2005. Also during the
nine months ended June 30, 2004, the Company borrowed and repaid a $400,000 note
which was made in anticipation of the larger $3,000,000 funding above.

         Additionally, the Company increased its cash borrowings under its two
convertible notes programs by $446,530 (including borrowings from related
parties) during the nine months ended June 30, 2004 while repaying $300,000 of
such debt during those same nine months. Comparatively, during the nine months
ended June 30, 2005, under the same two convertible notes programs, the Company
had cash borrowings of $532,500, including notes from related parties, and made
cash repayments of $335,000 of notes.


                                       34
<PAGE>


Debt and Lease Obligations

         At July 31, 2005, the Company had $9,994,857 in notes payable and
obligations for leased equipment from various sources. Interest rates on such
debt range from 5% to 24%. At July 31, 2005, the Company had no capital lease
obligations. The Company leases space at its principal executive and corporate
headquarters on a month-to-month basis, and leases its test facility under a
lease expiring July 15, 2005.

         Future minimum payments under all debt and lease obligations at July
31, 2005 are as follows:




           Notes payable - related parties                         $   1,072,045
           Notes payable - other                                       7,842,306
           Obligation for leased equipment                             1,080,506
          ----------------------------------------------------------------------
           Notes payable - total                                   $   9,994,857
           Less current portion of debt and lease obligations          9,994,857
          ----------------------------------------------------------------------
           Long-term portion of debt and lease obligations         $       --.--
          ======================================================================


         At July 31, 2005, future minimum lease payments that come due in the
current and following fiscal years ending September 30 are $0.


Deferred Revenue Items

         The Company has no deferred revenue items to report for the nine months
ended June 30, 2005 or June 30, 2004.


Off-Balance Sheet Arrangements

         The Company has no off-balance sheet arrangements to report for the
nine months ended June 30, 2005 or June 30, 2004


                                       35
<PAGE>


                                  RISK FACTORS

         Stockholders should carefully consider the following risk factors,
together with the other information included and incorporated by reference in
this Form 10-QSB.

The Company been in operation for over 10 years and has never been profitable.

         The Company is a medical device company that has experienced
significant operating losses in each year since incorporation on March 9, 1993,
primarily due to the cost of substantial research and development of its sole
product, the Mobetron. The Company has generated about $11.5 million in
operating revenues through June 30, 2005, and it expects to incur additional
operating losses as well as negative cash flows from operations in future
periods. The Company's ability to achieve profitability will depend upon its
successful commercial marketing of the Mobetron and its effectively making the
transition to a manufacturing and marketing company. It is possible that the
Mobetron and any other products of the Company will never gain full commercial
acceptance, and as a result the Company may never generate significant revenues
or achieve or maintain profitability.

The Company has significant debt obligations that are due or will become due in
the near future.

At June 30, 2005, the Company owed Siemens Medical Solutions, Oncology Care
Systems Division, a division of Siemens Medical Solutions USA, Inc.
(collectively "Siemens") $152,258 (after including interest) due to the
termination of the Company's Manufacturing and Distribution agreement with
Siemens in October 2002. In December 2004, the Company and Siemens reached a
settlement agreement whereby the Company signed an unsecured note in the amount
of $171,185 in full satisfaction of all outstanding amounts due Siemens. The
note was due in full on December 31, 2004. The Company did not make the payment
due on December 31, 2004, but did however pay all accrued interest plus
principal in the amount of $21,185 in May 2005.

On June 10, 2005, Siemens served the Company with a summons and complaint for
$144,702.51 outstanding and due under such note plus costs incurred in
connection with enforcing such note.

On July 5, 2005, the Company made principal payments aggregating $47,742, plus
accrued interest. On July 14, 2005, Siemens and the Company reached a settlement
with respect to the balance of approximately $102,258 owed by the Company to
Siemens under the note. The parties agreed that the Company will repay such note
in two installments, $50,000 by July 31, 2005 and the balance of the outstanding
principal and accrued interest by August 31, 2005. In addition, the Company
entered into a stipulation of entry of judgment for such amount plus costs and
Siemens agreed to forbear enforcing such judgment so long as the Company makes
the agreed payments. The Company did not make the required payment on July 31,
2005.

         The Company has certain past due promissory notes under its Promissory
Note Program with an aggregate outstanding principal balance of $480,000 (see
Note 4 to Company's Consolidated Financial Statements). The notes, which matured
at various dates between June 1, 2004 and September 1, 2004, were not paid when
due. The Company has been in contact with the noteholders and is working to find
a solution to the non-payment of the notes. No assurance can be given that these
noteholders will continue to grant forbearance to the Company. Additionally, as
of June 30, 2005, the Company has $1,270,194 outstanding (excluding $100,000
owed to related parties) of notes under the Company's Convertible Note Program
(see Note 4 to Company's Consolidated Financial Statements). These notes were
due in full on March 31, 2005, but have were not repaid when due. The Company is
in contact with the note holders and is working towards resolution of the
non-payment.

         If any of the obligations are not timely repaid, actions by the
noteholders could have a material adverse effect on the business of the Company.

The Company has pledged all of its assets and issued a significant amount of its
capital stock as security for a loan.

         In March 2004, the Company borrowed $3,000,000 from a financial
institution which is more fully described in Note 4 to the Company's financial
statements and due at maturity in March 2006. Among other terms, the loan is


                                       36
<PAGE>


secured by a lien on all of the assets of the Company. In addition, the Company
issued 2,400,000 shares of its common stock to the lender as security for the
note ("Collateral Shares"). So long as an event of default under the agreement
has not occurred, the Company retains voting rights over the Collateral Shares
and the lender is not permitted to sell the Collateral Shares. Should a default
occur under this loan, the lender under this agreement would be entitled to
exercise its rights as a secured creditor under the Uniform Commercial Code,
including the right to take possession of all of the Company's assets and to
sell those assets at a public or private sale following five business days'
prior written notice to the Company and, pursuant to the agreement, also to sell
the Collateral Shares. In the event the lender exercises those rights, the
Company would have a very short period of time in which to obtain adequate
capital to satisfy the amount of the obligations to the lender in order to
prevent the sale of its assets. For the Company to obtain such capital in such a
short period would result in very significant dilution to the stockholders and
if the Company is unable to obtain those funds, the Company could be unable
thereafter to operate, possibly resulting in a total loss of the investment made
by its stockholders.

The Company has significant additional capital needs.

         The Company has expended, and will continue to expend, substantial
funds on development, marketing, research, and commercialization related to the
Mobetron. At present, the Company receives liquidity from proceeds from the sale
of securities, funding from strategic partners, and payments by distributors and
customers.

         However, the Company currently lacks the working capital to continue in
business for more than about three months and has obligations described above
that it may not be able to meet. Any additional secured debt financing would
require the consent of its senior lender. Equity or debt financing may not be
available on terms favorable to the Company or at all, in which case the Company
may be unable to meet its expenses.

The Company's single product is subject to uncertain market acceptance.

         Through June 30, 2005, the Company has delivered twelve Mobetron units
to: the University of California-San Francisco, University Hospitals of
Cleveland, University of Louisville Hospital, University of Tokyo, University of
North Carolina, Methodist Hospital of Indianapolis, Mayo Clinic of Arizona,
Jagiellonian University Hospital in Krakow, Poland, Catharina Ziekenhuis in
Eindhoven, the Netherlands, Hospital San Jaime in Alicante, Spain, The Ohio
State University Medical Center, and Azienda Ospedelariera "Maggiore della
Carrita" in Novara, Italy. The Company has not yet manufactured, marketed, or
sold the Mobetron in full commercial quantities. There can be no assurances that
the Mobetron will gain broad commercial acceptance or that commercial viability
will be achieved; that future research and development related to the Mobetron
system will be successful or produce commercially salable products; that other
products under development by the Company will be completed or commercially
viable; or that hospitals or other potential customers will be willing to make
the investment necessary to purchase the Mobetron or other products under
development by the Company, or be willing to comply with applicable government
regulations regarding their use.

The Company is dependent on key suppliers and has limited manufacturing
experience.

         The Company has entered into an exclusive agreement with CDS
Engineering LLC for the manufacture of the Mobetron System, while the
accelerator component of the Mobetron is manufactured Accuray Incorporated of
Sunnyvale, California.

         Though members of management have extensive experience in
manufacturing, to date the Company has not itself manufactured the Mobetron
system. The Company does not have experience manufacturing its products in the
volumes that will be necessary for the Company to achieve significant commercial
sales. Any significant interruption in the Company's relationship with Accuray,
CDS Engineering LLC, or any other key suppliers, including subcontractors, would
have a material adverse effect on the Company's ability to manufacture the
Mobetron and, therefore, on its business, financial condition, and results of
operation.

         The Company expects to retain the rights to manufacture certain
Mobetron accessories, options, and disposable medical devices. The Company may
encounter difficulties in scaling up the production of the Mobetron or in hiring
and training additional personnel to manufacture the Mobetron in commercial
quantities.


                                       37
<PAGE>


         The Company intends to continue to do its own final testing of the
Mobetron. This testing requires a specialized test facility. The Company
currently has access to test facilities which it believes to be adequate for
testing the Mobetrons through July 15, 2005. The Company is working on obtaining
additional test facilities. The inability of the Company to locate additional
test facilities would likely have a material adverse effect on the Company's
ability to manufacture the Mobetron and, therefore, on its business, financial
condition, and results of operation.

The Company is subject to intense competition.

         Conventional medical linear accelerator manufacturers have more
substantial histories, backgrounds, experience, and records of successful
operations; possess greater financial, technical, marketing, and other
resources; and have more employees and more extensive facilities than the
Company now has, or will have in the foreseeable future. These companies have
sold one or two modified conventional accelerators and could continue to offer
essentially the same type of conventional unshielded system. Additionally, two
other manufacturers, Hytesis and Liac, are known to the Company to have
developed systems that are light enough for operating room use.

         The possibility of significant competition from other companies with
substantial resources also exists. The cancer treatment market is subject to
intense research and development efforts all over the world, and the Company can
face competition from competing technologies that treat cancer in a different
manner. It is also likely that other competitors will emerge in the markets that
the Company intends to commercialize. There can be no assurances that the
Company's competitors will not develop technologies or obtain regulatory
approval for products that may be more effective than the Company's products,
and that Company's technologies and products would not be rendered less
competitive or obsolete by such developments.

The Company's industry is subject to rapid, unpredictable, and significant
technological change.

         The medical device industry is subject to rapid, unpredictable, and
significant technological change. The Company's business is subject to
competition in the U.S. and abroad from a variety of sources, including
universities, research institutions, and medical device and other companies.
Many of these potential competitors have substantially greater technical,
financial, and regulatory resources than the Company does and are accordingly
better equipped to develop, manufacture, and market their products. If these
companies develop and introduce products and processes competitive with or
superior to the Company's products, the Company may not be able to compete
successfully against them.

The Company may be unable to protect its patents and proprietary technology.

         The Company's ability to compete effectively in the marketplace will
depend, in part, on its ability to protect its intellectual property rights. The
Company relies on patents, trade secrets, and know-how to establish and maintain
a competitive position in the marketplace. The enforceability of medical device
or other patents, however, can be uncertain. Any limitation or reduction in its
rights to obtain or enforce its patents could have a material adverse effect on
its ability to maintain or protect its intellectual property rights.

The Company may unknowingly infringe the intellectual property rights of third
parties and thereby expose it to lawsuit(s).

         The Company attempts to avoid infringing known proprietary rights of
third parties in its product development efforts. However, the Company has not
conducted and does not conduct comprehensive patent searches to determine
whether the technology used in its products infringes patents held by third
parties. In addition, it is difficult to proceed with certainty in a rapidly
evolving technological environment in which there may be numerous patent
applications pending, many of which are confidential when filed, with regard to
similar technologies.

         If the Company were to discover that its products violate third-party
proprietary rights, there can be no assurance that it would be able to obtain
licenses to continue offering such products without substantial reengineering or
that any effort to undertake such reengineering would be successful, that any
such licenses would be available on commercially reasonable terms, if at all, or
that litigation regarding alleged infringement could be avoided or settled
without substantial expense and damage awards. Any claims against the Company
relating to the infringement of third-party proprietary rights, even if not
meritorious, could result in the expenditure of significant financial and
managerial resources and in injunctions preventing the Company from distributing
certain products. Such claims could materially adversely affect the Company's
business, financial condition, and results of operations.


                                       38
<PAGE>


The Company is subject to extensive government regulation.

         The development, testing, manufacturing, and marketing of the Company's
Mobetron are regulated by the United States Food and Drug Administration
("FDA"), which requires government clearance of such products before they are
marketed. The Company filed and received 510(k) pre-market notification
clearance from the FDA in July 1998. The Company received clearance for sales in
Japan ("JIS") in May 2000, and received European EC Certificate approval ("CE
Mark") on October 12, 2001. However, the Company may need to obtain additional
approvals from the FDA or other governmental authorities if they decide to
change or modify the Mobetron. In that case, the FDA or other authorities may
not grant any new approvals. In addition, if they fail to comply with FDA or
other regulatory standards, they could be forced to withdraw their products from
the market or be sanctioned or fined.

         The Company is also subject to federal, state, and local regulations
governing the use, generation, manufacture, and testing of radiation equipment,
including periodic FDA inspections of manufacturing facilities to determine
compliance with FDA regulations. In addition, the Company must comply with
federal, state, and local regulations regarding the manufacture of healthcare
products and radiotherapy accelerators, including Good Manufacturing Practice
("GMP") regulations, Suggested State Regulations for the Control of Radiation
("SSRCR"), and International Electrotechnical Committee ("IEC") requirements,
and similar foreign regulations and state and local health, safety, and
environmental regulations. In addition, they may not be able to identify and
retain manufacturers on commercially acceptable terms, if at all, and any
manufacturers they do retain might not be able to meet all relevant regulatory
requirements. Although the Company believes that it has complied in all material
respects with applicable laws and regulations, there can be no assurances that
the Company will not be required to incur significant costs in the future in
complying with manufacturing and environmental regulations. Any problems with
their ability to meet regulatory standards could prevent the Company from
marketing the Mobetron or other products.

The Company expects to be highly dependent on overseas sales.

         The Company believes that the majority of its sales over at least the
next two years will be made to overseas customers. The Company's business,
financial condition, and results of operations could be materially adversely
affected by changes in the political or economic climates, laws, regulations,
tariffs, duties, import quotas, or other trade policies in the United States or
foreign countries.

         Additionally, the Company has limited experience in many of the foreign
markets in which it plans to sell its goods and services. To succeed, the
Company will need to expand its presence overseas by hiring additional staff and
opening overseas offices to meet its sales, manufacturing, and customer support
goals. No assurance can be given that the Company can meet these goals. An
inability to expand its overseas presence could have a material adverse affect
on the Company's business, financial condition, and results of operations.

If the Company's revenue stream were to become more dependent upon third party
payors such as insurance companies, their revenues could decrease and their
business could suffer.

         The system of health care reimbursement in the United States is being
intensively studied at the federal and state level. There is a significant
probability that federal and state legislation will be enacted that may have a
material impact on the present health care reimbursement system. If, because of
a change in the law or other unanticipated factors, certain third party payors
(primarily insurance companies) were to become a more substantial source of
payment for the Company's products in the future, the Company's revenues may be
adversely affected. This is because such providers commonly negotiate or
legislate cost structures below the prevailing market rate and typically
negotiate payment arrangements which are less advantageous than those available
from private payors. Payment by third party payors could also be subject to
substantial delays and other problems related to receipt of payment. The health


                                       39
<PAGE>


care industry, and particularly the operation of reimbursement procedures, has
been characterized by a great deal of uncertainty, and accordingly no assurance
can be given that third party payors will not become a significant source of
payment for the Company's products, or that such a change in payment policies
will not occur. Any of these factors could have a material adverse effect on the
Company's business and financial condition and affect the Company's ability to
make interest and principal payments under the Company's notes. There can be no
assurances that such legislation will not restrict hospitals' ability to
purchase equipment such as the Mobetron or that such legislation will not have a
material adverse effect on the Company's ability to sell the Mobetron and the
Company's business prospects and financial condition.

The Company could be subject to product liability claims for which it has no
insurance coverage.

         The manufacture and sale of the Company's products entails the risk of
product liability claims. Although the Company has obtained product liability
insurance prior to commercially marketing its products, product liability
insurance is expensive and may not be available to the Company in the future on
acceptable terms or at all. To date, the Company has not experienced any product
liability claims. A successful product liability claim against the Company in
excess of its insurance coverage could have a material adverse effect on the
Company's business, financial condition, and results of operations.

The Company is substantially dependent on certain key employees.

         The Company believes that its success will depend to a significant
extent upon the efforts and abilities of a relatively small group of management
personnel, particularly Donald Goer, PhD, Chief Executive Officer of the
Company. The loss of the services of one or more of these key people could have
a material adverse effect on the Company. The Company has employment agreements
with Mr. Goer and one other employee and has purchased "key person" life
insurance in the amount of $5,000,000, of which $3,000,000 has been pledged to
one of its lender's as security for their loan.

         The Company's future success will also depend upon its ability to
continue to attract and retain qualified personnel to design, test, market, and
service its products and manage its business. There is significant competition
for these technical and management employees. There can be no assurance that the
Company will be successful in attracting and retaining such personnel.

The Company's limited resources may prevent it from developing additional
products or services.

         The Company has limited financial, management, research, and
development resources. Plans by the Company to develop additional products and
services may require additional management or capital which may not be available
at the appropriate time or at a reasonable cost. In addition, these products and
services may divert management and research and development resources from the
development and marketing of the Mobetron system which would adversely impact
the revenue and potential earnings of the Company.




                                       40
<PAGE>


The conversion or exercise of currently outstanding convertible securities and
warrants would result in significant dilution to holders of the Company's common
stock.

         As a result of various transactions previously entered by the Company,
as of June 30, 2005, there were outstanding convertible securities, warrants and
options for the conversion and purchase of up to approximately 3,302,879 shares
of common stock at June 30, 2005. This represents significant additional
potential dilution for the Company's existing stockholders. The shares of common
stock issuable upon conversion of convertible securities or exercise of warrants
or options are not included in currently outstanding shares.


Item 3.  Controls And Procedures.

         In mid-July 2005, and in consultation with our independent registered
public accounting firm, Stonefield Josephson, Inc., we determined that certain
restatements to our prior financials statements were needed to correctly account
for i) certain liabilities related to product financing, including interest
thereon, previously reported only as commitments and contingencies in the
footnotes to our financial statements, ii) the value of warrants and options
granted during those periods, iii) the accrual of certain liabilities for the
redemption of common stock as the result of the completion of our merger with
Intraop Medical, Inc., and iv) the misclassification of certain short term
deposits as non-current assets. As such, contemporaneous with the filing of this
report, the Company filed Form 8-K/A in which it restated the financial
statements of Intraop Medical, Inc. for the three months ended December 31,
2004, and Form 10-QSB/A in which it restated the Company's financial statements
for the three and six months ended March 31, 2005. A full discussion of those
restatements can be found in those filings.

In connection with the restatements mentioned above, as of the end of the period
covered by the Quarterly Report on Form 10-QSB, we re-evaluated, under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, the effectiveness of our
disclosure controls and procedures, as such term is defined under Rules
13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934,
as amended. Based upon that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures are
effective to insure that information we are required to disclose in reports that
we file or submit under the Securities Exchange Act of 1934 is properly
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms.

         There has been no change in our internal control over financial
reporting during the quarter ended June 30, 2005 that has materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting.

                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

         At June 30, 2005, the Company owed Siemens Medical Solutions, Oncology
Care Systems Division, a division of Siemens Medical Solutions USA, Inc.
(collectively "Siemens") $152,258 (after including interest) due to the
termination of the Company's Manufacturing and Distribution agreement with
Siemens in October 2002. In December 2004, the Company and Siemens reached a
settlement agreement whereby the Company signed an unsecured note in the amount
of $171,185 in full satisfaction of all outstanding amounts due Siemens. The
note was due in full on December 31, 2004. The Company did not make the payment
due on December 31, 2004, but did however pay all accrued interest plus
principal in the amount of $21,185 in May 2005.

On June 10, 2005, Siemens served the Company with a summons and complaint for
$144,702.51 outstanding and due under such note plus costs incurred in
connection with enforcing such note.


                                       41
<PAGE>


On July 5, 2005, the Company made principal payments aggregating $47,742, plus
accrued interest. On July 14, 2005, Siemens and the Company reached a settlement
with respect to the balance of approximately $102,258 owed by the Company to
Siemens under the note. The parties agreed that the Company will repay such note
in two installments, $50,000 by July 31, 2005 and the balance of the outstanding
principal and accrued interest by August 31, 2005. In addition, the Company
entered into a stipulation of entry of judgment for such amount plus costs and
Siemens agreed to forbear enforcing such judgment so long as the Company makes
the agreed payments. The Company did not make the required payment on July 31,
2005.


Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

None.


Item 3.  Defaults upon Senior Securities

The Company is in default on payment of notes under its Promissory Notes Program
(see Note 4 to the Company's financial statements). The notes are were due at
various dates between June 1, 2004 and September 1, 2004. Although the notes
were not repaid when due, the Company paid interest on the notes when due. The
Company has contacted the note holders and is working towards resolution of this
event; however, no assurance can be given that the note holders will continue to
grant forbearance. The principal balance outstanding under the notes is $480,000
at June 30, 2005.

At June 30, 2005, the Company owed Siemens Medical Solutions, Oncology Care
Systems Division, a division of Siemens Medical Solutions USA, Inc.
(collectively "Siemens") $152,258 (after including interest) due to the
termination of the Company's Manufacturing and Distribution agreement with
Siemens in October 2002. In December 2004, the Company and Siemens reached a
settlement agreement whereby the Company signed an unsecured note in the amount
of $171,185 in full satisfaction of all outstanding amounts due Siemens. The
note was due in full on December 31, 2004. The Company did not make the payment
due on December 31, 2004, but did however pay all accrued interest plus
principal in the amount of $21,185 in May 2005.

On June 10, 2005, Siemens served the Company with a summons and complaint for
$144,702.51 outstanding and due under such note plus costs incurred in
connection with enforcing such note.

On July 5, 2005, the Company made principal payments aggregating $47,742, plus
accrued interest. On July 14, 2005, Siemens and the Company reached a settlement
with respect to the balance of approximately $102,258 owed by the Company to
Siemens under the note. The parties agreed that the Company will repay such note
in two installments, $50,000 by July 31, 2005 and the balance of the outstanding
principal and accrued interest by August 31, 2005. In addition, the Company
entered into a stipulation of entry of judgment for such amount plus costs and
Siemens agreed to forbear enforcing such judgment so long as the Company makes
the agreed payments. The Company did not make the required payment on July 31,
2005.


Item 4.  Submission of Matters to a Vote of Security Holders

None.


Item 5.  Other Information

None.


                                       42
<PAGE>


Item 6.  Exhibits

Exhibit
Number                                 Description
-------    ---------------------------------------------------------------------
31.1       Certification of Chief Executive Officer pursuant to Section 302 of
           the Sarbanes-Oxley Act of 2002.

31.2       Certification of Chief Financial Officer pursuant to Section 302 of
           the Sarbanes-Oxley Act of 2002.

32.1       Certification of Chief Executive Officer pursuant to Section 906 of
           the Sarbanes-Oxley Act of 2002.

32.2       Certification of Chief Financial Officer pursuant to Section 906 of
           the Sarbanes-Oxley Act of 2002.






                                       43
<PAGE>


                                   SIGNATURES

In accordance with the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                         INTRAOP MEDICAL CORPORATION


Date: August 12, 2005                    By:  /s/  Donald A. Goer
                                             -----------------------------------
                                                 Donald A. Goer, Chief Executive
                                                 Officer and President
                                                 (Principal Executive Officer)


Date: August 12, 2005                    By:  /s/  Howard Solovei
                                             -----------------------------------
                                                 Howard Solovei, Chief Financial
                                                 Officer (Principal Financial
                                                 Officer and Principal
                                                 Accounting Officer)






                                       44