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

                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

        Annual Report Pursuant to Section 13 or 15 (d) of the Securities
            Exchange Act of 1934 for the Year Ended December 31, 2002

                          Commission file number 132-3

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

                         DIAPULSE CORPORATION OF AMERICA
             (Exact name of registrant as specified on its charter)

         Delaware                                    13-5671991
---------------------------                  --------------------------
(State or other jurisdiction of                   (I.R.S. Employer
incorporation of organization                  Identification number)


         321 East Shore Road
         Great Neck, New York                          11023
------------------------------------         --------------------------
   (Address of principal offices)                   (Zip Code)


Registrant's telephone number
including area code                               (516)-466-3030
                                             --------------------------

-------------------------------------------------------------------------------
           Securities registered pursuant to Section 12(b) of the Act:
                                      NONE

          Securities registered pursuant to Section 12 (g) of the Act:
                    COMMON STOCK, PAR VALUE $0.025 PER SHARE
                               (Title of Class)

Indicate by check mark whether the registrant (1) has 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, and (2) has been subject to such filing
requirements for the past 90 days.
                                           Yes  X                    No
                                           -------                   ------

     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of regulations S-B contained in this form, and no disclosure will be
contained,  to the  best of  Registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this form 10-KSB
or any amendment to this form 10-KSB:   [X}

Aggregate  market  value  of the  voting  stock  held by  non-affiliates  of the
registrant,  based  upon the mean of the bid and the ask  prices  of the  common
stock on March 31, 2003 as reported by an independent market maker:   $1,386,720

Number of shares  outstanding of each of the registrant class of common stock as
of March 31,2003:        3,962,058.


                       DOCUMENTS INCORPORATED BY REFERENCE

                                      NONE
<PAGE>
                         DIAPULSE CORPORATION OF AMERICA

                                   FORM 10-KSB

                      FOR THE YEAR ENDED DECEMBER 31, 2002

                                TABLE OF CONTENTS

                                     PART I.

Item 1.           Business

Item 2.           Properties

Item 3.           Litigation

Item 4.           Submission of Matters to Vote of Security Holders

                                    PART II.

Item 5.           Market for Registrant's Common Equity and Related
                  Stockholder Matters

Item 6.           Management's Discussion and Analysis of Financial Condition
                  and Results of Operations

Item 7.           Financial Statements

Item 8.           Changes in and Disagreement with Accountants on Accounting
                  and Financial Disclosure

                                    PART III.

Item 9.           Directors and Executive Officers of the Registrant

Item 10.          Executive Compensation

Item 11.          Security Ownership of Certain Beneficial Owners and Management

Item 12.          Certain Relationships and Related Transactions

                                    PART IV.

Item 13. Exhibits, Financial Statements, and Reports on Form 8-K

Signatures

Financial Statements


<PAGE>

                                     PART I

ITEM 1.           BUSINESS

                  Diapulse Corporation of America (the "Company" or the
                  "Registrant") is a Delaware corporation organized in 1957. The
                  Registrant develops, manufactures and markets Diapulse
                  Technology, a proprietary medical system which produces
                  non-thermal pulsed high frequency, high peak power
                  electromagnetic energy to treat post-operative edema and pain
                  in acute and chronic wounds. It is used in hospitals, nursing
                  facilities, outpatient clinics, physicians' practices and by
                  prescription in patients' homes. A number of insurance
                  companies reimburse for treatment. The Registrant has not
                  significantly varied the product or its service rendered since
                  the date of its Annual Report on Form 10KSB for the year ended
                  December 31, 2002.

                  Suppliers - The Registrant purchases raw materials and
                  component parts of its units from various suppliers of
                  electronic products. A majority of the individual component
                  parts of the Diapulse units are standard and available from
                  many suppliers. Were the Registrant to change from its present
                  suppliers for any reason, it believes that no significant
                  difficulties would be experienced in the replacement of raw
                  materials from other suppliers, and there would be no
                  reduction in the quality or quantity of the material
                  purchased.

                  Sales and customers - Until October 1987, the Registrant
                  derived substantially all of its revenue from sales of the
                  Diapulse and related parts to customers in foreign countries.
                  Upon obtaining Food and Drug Administration approval to market
                  Diapulse in the United States in October 1987, the Registrant
                  began selling and renting the Diapulse nationally. The
                  Registrant is not dependent upon any single customer, but
                  sells and rents to numerous customers, the loss of any one of
                  which would not have a significant adverse effect on the
                  Registrant's results of operations. During 2002 and 2001,
                  approximately 61% and 88%, respectively, of revenue was from
                  rentals to patients covered through Medicare (See Note 2).

                  The Registrant rents and sells Diapulse units to hospitals,
                  nursing homes and physicians, and rents its equipment to
                  individuals covered by Medicare and private insurance
                  companies whose claims have been assigned to the Registrant in
                  various parts of the country. Payment has been received from
                  private insurance and reimbursements have also been received
                  from Medicare following administrative procedures.

                  Backlog - The Registrant has sufficient inventory of completed
                  units and spare parts to manufacture additional units for the
                  foreseeable future and to fill orders as they arrive. Because
                  orders are filled quickly, firm backlog at most points in time
                  is not significant. Orders received by the Registrant are not
                  seasonal and are routinely filled throughout the year.

                  Patents - The Registrant has patents whose rights thereunder
                  expired in 1999. New patents (patents pending) have been
                  applied for and issued in 1998, 1999, 2000, 2001 and 2002.


<PAGE>



                  Employees - The registrant has thirty-six full-time and
                  part-time employees and commission sales representatives.

                  Forward-Looking Information - The Private Securities
                  Litigation Reform Act of 1995 provides a "safe harbor" for
                  certain forward-looking statements made by the Company in its
                  disclosures to the public. There is certain information
                  contained herein in the Company's press releases and in oral
                  statements made by authorized officers of the Company which
                  are forward-looking statements, as defined by such Act. When
                  used herein, in the Company's press releases and in such oral
                  statements, the words "estimate", "project", "anticipate",
                  "expect", "intend", "believe", "plans", and similar
                  expressions are intended to identify forward-looking
                  statements. Because such forward-looking statements involve
                  risks and uncertainties, there are important factors that
                  could cause actual results to differ materially from those
                  expressed or implied by such forward-looking statements.

ITEM 2.  PROPERTIES

                  The Registrant leases approximately 6,000 square feet of
                  office space in Great Neck, New York for a term expiring
                  December 31, 2003. Minimum rental payments are $125,337 for
                  2002 and $129,097 for 2003. The premises are used as a
                  national and international headquarters for the Company as
                  well as for research and development. In addition, the
                  registrant leases approximately 100 sq. ft. at a cost of
                  approximately $2,978.00 per year in Carlsbad, California for a
                  sales office. This rental is on a month to month basis.

ITEM 3.           LITIGATION

                  The Company was involved as plaintiff in litigation filed in
                  August, 1994, alleging deceptive acts and practices, false
                  advertising, unfair competition, breach of fiduciary duty
                  under New York law and under Federal Law. The complaint
                  demands damages in an unspecified amount for compensatory,
                  punitive and treble damages, profits and attorneys' fees
                  against Corporate and individual defendants. In early 2000, a
                  settlement agreement was reached whereby all claims against
                  the Company were dismissed with prejudice, and one of the
                  Corporate defendants agreed to pay the Company the sum of
                  $50,000 with interest at the rate of 9% per year, in level
                  monthly installment payments of $1,867.41. The agreement
                  further provided that in the event of failure to make the
                  installment payments when due, the entire balance would
                  immediately become due & payable, and the Company would be
                  entitled to enter a judgment for the balance. The agreement
                  also provides for the defendants to refrain from engaging in
                  certain marketing practices in the future. The defendants
                  failed to make any payments after the payment due on January
                  1, 2001 and in late 2001 a judgment for $39,215.61 was entered
                  against the corporate defendant who had agreed to the monetary
                  settlement. The Company is currently attempting to enforce the
                  judgment but is not aware of any assets owned by the judgment
                  debtor.

<PAGE>

                  A former employee of the Company, who was terminated in May
                  1999, filed five small claim actions against the Company and
                  other employees and an officer-shareholder of the Company.
                  Each action seeks $3,000 in damages. The former employee's son
                  also filed one small claim action for approximately $1,500
                  against the Company and an employee and an officer-shareholder
                  of the Company. Most of the cases allege various employment
                  contract and/or labor violations; some allege liability for
                  property allegedly held or used by the Company. All actions
                  were instituted after the employee was terminated from
                  employment. It is the opinion of counsel that the actions
                  filed by the former employee and his son are either without
                  merit or frivolous. The Company is awaiting a decision.

                  The Company also sued a former employee alleging that this
                  former employee, without authorization, took trade secrets and
                  other confidential information and documents relating to the
                  Company. The lawsuit seeks to recover possession of the items
                  allegedly taken by the former employee and to enjoin the
                  former employee from distributing, sharing or selling the
                  trade secrets and other confidential information. The former
                  employee counterclaimed for malicious prosecution and seeks
                  damages in the sum of $1,000,000. In late 2001 the lawsuit was
                  settled by a stipulation that was "so ordered" by the court.
                  The stipulation provides that the defendant be enjoined from
                  utilizing, distributing, sharing, selling or disseminating the
                  Company's trade secrets which were the subject of the
                  litigation.

                  A former independent contractor sued the Company for an amount
                  in excess of $75,000 pursuant to a signed Commission
                  Salesperson Agreement. In January 2003 the Company deposited
                  $75,000 in escrow pending a decision by arbitration on the
                  Company's claim for loss of revenue on two machines utilized
                  by the independent contractor. The Company is awaiting a
                  decision.

                  The Company filed a claim with one of its insurance carriers
                  for loss of, and damage to, property that was being stored
                  with a storage company. The insurance carrier was unable to
                  process the claim because the storage company refused to allow
                  access to inspect the property unless the insurance carrier
                  agreed not to exercise its right of subrogation. The property
                  remains at the storage company facility pending final
                  resolution of the claim. In September 2001, the storage
                  company sued the Company for unpaid storage of approximately
                  $80,000. The Company denies liability on the merits of the
                  case and also has raised the statute of limitations as a
                  partial defense. The Company counter sued the storage company
                  for $80,000 for damages done to their machines. Counsel
                  ventures no opinion on the ultimate outcome, but believes
                  there are good defenses, although some liability is possible.

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

                  No matters were submitted to a vote of security holders during
                  the period covered by this report.


<PAGE>

                                     PART II

 ITEM 5.          MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
                  STOCKHOLDERS MATTERS

                  The Registrant's common stock has been traded on the NASDAQ
                  over-the-counter market, under the symbol DIAC. The bid and
                  ask closing sales prices are listed below.

                                              Quarter Ended
                           --------------------------------------------------
                                      2002                    2001
                           ------------------------   -----------------------
                            3/31  6/30  9/30  12/31   3/31  6/30  9/30  12/31
                            ----  ----  ----  -----   ----  ----  ----  -----
                    Low
                    Bid:     .40   .19   .15    .21    .20   .18   .45    .40

                    High
                    Bid:     .45   .34   .15    .35    .25   .20   .50    .45

                  As of December 31, 2002, there were approximately 1,328
                  stockholders of record. The Company has not paid any cash
                  dividends during any of the periods indicated above. The
                  Company anticipates that it will continue to retain its
                  earnings to finance the growth of its business.

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

                  Overview - During the fiscal year ended December 31, 2002, the
                  Registrant has been establishing and expanding its
                  distribution network, sales force and sales and rental
                  programs. Controlled, and double-blind studies demonstrating
                  the clinical value of the Registrant's product have been
                  published in peer review medical journals which continue to
                  aid marketing. At the present time there are 40 Diapulse
                  publications on Medline.

                  Net Revenues - During the year ended December 31, 2002
                  revenues decreased by 1.13% as compared to the year ended
                  December 31, 2001. This decrease was due to reserves set up
                  to account for current collection problems with Medicare
                  rental income.

                  Cost of Sales - During the year ended December 31, 2002, cost
                  of sales increased $4,595 as compared to the year ended
                  December 31, 2001 due primarily to a decreased valuation of
                  the products sold.

                  Operating Expenses - Operating expenses, exclusive of
                  interest, increased by $187,147 in 2002 as compared with 2001
                  due to an increase provision for doubtful accounts.
<PAGE>

                  Interest Expense - Interest expense from 2001 to 2002
                  decreased by $35,052, due to a decrease in borrowing and the
                  pay off of long-term debts.

                  Inflation - In the opinion of management, inflation has not
                  had a material effect on the operations of the Registrant.

                         LIQUIDITY AND CAPITAL RESOURCES

                  As of December 31, 2002, the Registrant had working capital of
                  $395,694. Working capital as of December 31, 2001 was
                  $217,473.

                  The Registrant considers, and currently uses for internal
                  management purposes, a number of measures of liquidity. These
                  measures include working capital and operating ratios, all of
                  which are set forth below.

                             WORKING CAPITAL RATIOS:

                  These ratios measure the Registrant's ability to meet its
                  short-term obligations.

                                           December 31,             December 31,
                                              2002                     2001
                                           ------------             -----------
                  Working Capital            $395,694                 $217,473
                  Current ratio             1.77 to 1                1.32 to 1
                  Quick ratio               1.42 to 1                0.97 to 1


ITEM 7.           FINANCIAL STATEMENTS

                  The financial statements to be provided pursuant to this Item
                  are included under Items F1 - F22 of this report.


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

                  None
<PAGE>

                                    PART III

ITEM 9.           DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

                  The executive officers and key employees of the Company as of
                  March 31, 2002 were as follows:

                  Name             Age        Title

                  Jesse Ross       81         President, Director and
                                              Chairman of the Board

                  David M. Ross    55         Vice President, Director

                  Howard Mann      67         Director


                  Jesse Ross has been actively engaged in the business of the
                  Registrant and has been its President since its incorporation.
                  He has devoted his full time services to the business of the
                  Registrant since 1957.

                  David M. Ross, son of Jesse Ross, became a Director of the
                  Company during 1989. Mr. Ross was an independent sales
                  representative and consultant, and is now a full-time
                  employee. Mr. Ross was elected Vice President 2002.

                  Howard Mann became a Director of the Company during 1996.


                               BOARD OF DIRECTORS

                  Directors are elected at the annual meeting of the Company's
                  stockholders to hold office until the next annual meeting and
                  until their successors are elected and qualified. Officers
                  serve at the discretion of the Board of Directors and may
                  receive such compensation for their services as is fixed from
                  time to time by resolution of the Board.


                             DIRECTORS' COMPENSATION

                  Directors of the Company currently receive no compensation for
                  their service as such.

                  SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

                  Pursuant to Section 16(a) of the Securities Exchange Act of
                  1934 and the rules issued thereunder, the Company's directors
                  and executive officers are required to file with the
                  Securities and Exchange Commission and the National
                  Association of Securities Dealers Inc., reports of ownership
                  and changes in ownership of Common Stock and other equity
                  securities of the Company. Copies of such reports are required
                  to be furnished to the Company. Based solely on a review of
                  the copies of such reports furnished to the Company or written
                  representations that no other reports were required, the
                  Company believes that, during the Company's fiscal year ended
                  December 31, 2002, all of its executive officers and directors
                  complied with the requirements of Section 16(a).

ITEM 10.          EXECUTIVE COMPENSATION

                  Cash Compensation - For the year ended December 31, 2002, no
                  officer received or was entitled to receive more than $100,000
                  in compensation from the Registrant. No cash bonuses were
                  earned by any of the Registrant's officers during the year.

                  The following table sets forth the annual compensation paid to
                  executive officers of the Company for the three fiscal years
                  ended December 31, 2002. For the year ending December 31, 2002
                  the President deferred $100,000 of salary.


<PAGE>

<TABLE>
<CAPTION>
                                                                           Long Term
                                                                       Compensation Award
                                                             Other         -Securities
       Name and                                             Annual     Underlying Options   All Other
   Principal Position      Year    Salary($)  Bonus ($)  Compensation         (#)         Compensation($)
---------------------------------------------------------------------------------------------------------
<S>                        <C>        <C>        <C>         <C>            <C>              <C>
Jesse Ross , President,    2002       0          0             -               0                0
Director and               2001       0          0             -               0                0
Chairman of the Board      2000       0          0             -               0                0

</TABLE>

                  OPTIONS EXERCISES AND FISCAL YEAR-END VALUES

               The following table sets forth information concerning option
               exercises and option holdings for the fiscal year 2002 with
               respect to each of the named executive officers. No named
               executive officer exercised any options during such year.


                       AGGREGATE OPTION EXERCISES IN LAST
                  FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                                                       Number of Securities     Value of unexercised
                                                      Underlying Unexercised     In-the-money Options
                                                      Options at Fiscal Year    At Fiscal Year End ($)
              Shares Acquired                                 End(#)                  Exercisable/
   Name       On Exercise (#)    Value Realized ($)  Exercisable/Unexercisable       Unexercisable
------------------------------------------------------------------------------------------------------
<S>                <C>              <C>                <C>                      <C>
Jesse Ross         0                    ---              __0___exercisable/      $___0___exercisable/
                                                         __0___unexercisable     $___0___unexercisable
</TABLE>

                  Compensation pursuant to plans - The Registrant has no
                  pension, retirement, stock or any other form of compensation
                  plans.

ITEM 11.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

                  Security ownership of certain beneficial owners - No
                  individual or group outside of management is known to the
                  Registrant to be the beneficial owner of more than five
                  percent of the Registrant's common stock.

                  Security ownership of management - The following table sets
                  forth certain information with respect to shares of the
                  Registrant's common stock beneficially owned by all officers
                  and directors of the Registrant as of December 31, 2002.

                      Name of               Amount and Nature of        Percent
                  Beneficial Owner          Beneficial Ownership       of  Class
                  ----------------          ---------------------      ---------
                  Jesse Ross                     2,181,750 (i)           55.07%
                  All officers and directors
                  as a group (1 person)          2,181,750               55.07%

                  (i) Includes certain shares owned by the spouse and other
                  relatives of this individual.


<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

                  One of the Company's directors who is a son of the President,
                  previously served as an independent sales representative for
                  the Company and is now employed by the Company as a full time
                  employee. In addition, another son of the President also
                  serves as an independent sales representative for the Company.
                  Commissions and consulting fees earned by these individuals
                  during 2002 and 2001 were approximately $190,600 and $54,600
                  respectively.

                  As of December 31, 2002 and 2001, the Company had aggregate
                  commission advances to these individuals in the amount of
                  $234,487 and $ 278,854, respectively. These advances are
                  guaranteed by the President of the Company and he has agreed
                  to subordinate repayment of amounts due to him to the extent
                  of the advances.

                  There are other individuals that currently work or have worked
                  for the Company that are related to the President. The amounts
                  due these individuals for accumulated salaries and interest
                  thereon, at December 31, 2002 and 2001 were $65,723 and
                  $116,708, respectively. Salaries and interest incurred for
                  these individuals during 2002 and 2001 were approximately
                  $11,031 and $6,800, respectively.

                                 COMPANY POLICY

                  The Company believes that each of the foregoing transactions
                  embodies terms no less favorable to the Company than those
                  that could have been obtained from unaffiliated parties. Any
                  ongoing or future transactions between the Company and its
                  officers, directors, principal stockholders, or other
                  affiliates will be on terms no less favorable to the Company
                  than could be obtained from unaffiliated third parties on an
                  arms-length basis and will be approved by a majority of the
                  Company's independent and disinterested directors. Any future
                  loans to officers, directors, principal stockholders, or
                  affiliates will be made for a bona fide business purpose, on
                  terms no less favorable than could be obtained from
                  unaffiliated third parties and will be approved by a majority
                  of the Company's independent and disinterested directors.

                                     PART IV

ITEM 13.          EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K

                  During the year ended December 31, 2002, the Company did not
                  file any Form 8-K.

                  Financial Statements - The financial statements commence at
                  page F1 and are filed as part of this annual report on Form
                  10KSB.


<PAGE>
                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                               DIAPULSE CORPORATION OF AMERICA
                                                        Registrant

                                               By: /s/ Jesse Ross
                                                   ----------------------------
                                                       Jesse Ross - President

Date:  March 31, 2003

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

Name and Capacity                     Date
-----------------                     --------
/s/ Jesse Ross                        March 31, 2003
Name:   Jesse Ross
Title:  President, Director and
        Chairman of the Board



<PAGE>

                         DIAPULSE CORPORATION OF AMERICA

                     YEARS ENDED DECEMBER 31, 2002 AND 2001



                                    CONTENTS


                                                                     Page

Report of Independent Certified Public Accountant                     F-2


Financial statements:

             Balance sheets                                        F-3 - F-4

             Statements of operations                                 F-5

             Statements of stockholders' equity (deficiency)          F-6

             Statements of cash flow                               F-7 - F-8

             Notes to financial statements                         F-9 - F-22



















                                       F-1



<PAGE>
Granick & Gendler
CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------------------------------------
                                                60 EAST 42ND STREET
                                                NEW YORK, NY 10165
                                                (212) 697-1075






               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


To the Board of Directors and Stockholders of
Diapulse Corporation of America

We have audited the accompanying balance sheet of Diapulse Corporation of
America as of December 31, 2002 and 2001 and the related statements of
operations, stockholders' equity (deficiency), and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these statements
based on our audit.

We conducted our audits in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance that the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Diapulse Corporation of America
as of December 31, 2002 and 2001, the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles in the United States of America.




                                             GRANICK & GENDLER
                                             Certified Public Accountants


New York, New York
February 21, 2003



                                       F-2
<PAGE>

                         DIAPULSE CORPORATION OF AMERICA

                                 BALANCE SHEETS

                           DECEMBER 31, 2002 AND 2001


<TABLE>
<CAPTION>
                                                                ASSETS


                                                                                          2002                2001
                                                                                          ----                ----

<S>                                                                                 <C>                 <C>
Current assets:
            Cash and cash equivalents                                               $      522,108      $      287,200
            Current portion of accounts receivable, net of
                     allowance for doubtful accounts of $1,545,849
                     and $1,615,658 in 2002 and 2001 (Note 2)                              211,456             365,032
            Inventory (Note 3)                                                             164,416              64,178
            Commission advance (Note 4)                                                      8,718             164,623
            Other current assets                                                             6,186               7,498
                                                                                    ---------------     ---------------

                             Total current assets                                          912,884             888,531

Property and equipment, net (Note 7)                                                        65,475              88,914
                                                                                    ---------------     ---------------

Other assets:
            Accounts receivable, net of current portion                                    317,184             498,076
            Commission advances to related parties (Note 6)                                234,487             278,854
            Security deposits                                                               21,018              20,226
                                                                                    ---------------     ---------------

                             Total other assets                                            572,689             797,156
                                                                                    ---------------     ---------------

                             Total assets                                           $   1,551,048       $    1,774,601
                                                                                    ===============     ===============

</TABLE>




   The accompanying Notes are an integral part of these financial statements.









                                       F-3

<PAGE>

                         DIAPULSE CORPORATION OF AMERICA

                           BALANCE SHEETS (CONTINUED)

                           DECEMBER 31, 2002 AND 2001

                 LIABILITIES AND STOCKHOLDERS' EQUITY DEFICIENCY

<TABLE>
<CAPTION>

                                                                                      2002                   2001
                                                                                      ----                   ----

<S>                                                                           <C>                      <C>
Current liabilities:
            Current portion of amounts due to officer/
                     stockholder (Note 6)                                     $          100,000       $       100,000
            Accounts payable and accrued liabilities
                     including $ 76,754 and $116,708 to related
                        parties in 2002 and 2001 (Note 8)                                415,272               550,903
            Accrued income tax and related interest (Note 10)                              1,918                20,155
                                                                              -------------------      ----------------

                     Total current liabilities                                           517,190               671,058

Long-term portion of amounts due to officer                                            2,573,706             2,396,789
                                                                              -------------------      ----------------

                     Total liabilities                                                 3,090,896             3,067,847
                                                                              -------------------      ----------------

Commitments (Note 9)

Stockholders' equity deficiency
            Common stock, $.025 par value per share
                     authorized 15,000,000 shares, issued
                     3,962,058 shares in 2002 and 2001                                    99,051                99,051
            Additional paid-in capital                                                 2,293,272             2,293,272
            Accumulated deficit                                                      (3,929,843)           (3,683,241)
                                                                              -------------------      ----------------
                                                                                     (1,537,520)           (1,290,918)

    Less treasury stock, 1,328 shares in 2002
            and 2001 at cost                                                             (2,328)               (2,328)
                                                                              -------------------      ----------------

                     Total stockholders' equity deficiency                           (1,539,848)           (1,293,246)
                                                                              -------------------      ----------------

                     Total liabilities and stockholders' equity
                             deficiency                                       $        1,551,048             1,774,601
                                                                              ===================      ================

</TABLE>


   The accompanying Notes are an integral part of these financial statements.


                                       F-4

<PAGE>

                         DIAPULSE CORPORATION OF AMERICA

                             STATEMENT OF OPERATIONS

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


<TABLE>
<CAPTION>

                                                                                         2002                2001
                                                                                         ----                ----
<S>                                                                              <C>                   <C>
Revenue
Rental income                                                                    $       1,377,222     $       929,197

Sales of machinery                                                                         265,347             732,167
                                                                                 ------------------    ----------------
            Total revenue                                                                1,642,569           1,661,364

Cost of sales and rentals                                                                   22,546              17,951
                                                                                 ------------------    ----------------

             Gross margin                                                                1,620,023           1,643,413
                                                                                 ------------------    ----------------

Operating expenses:
             Selling, general and administrative                                         1,182,494           1,237,992
             Provision for doubtful accounts                                               501,792             259,147
             Interest expense (principally to related parties)                             152,285             187,337
                                                                                 ------------------    ----------------

                     Total operating expenses                                            1,836,571           1,684,476
                                                                                 ------------------    ----------------

(Loss) from operations                                                                   (216,548)            (41,063)
Interest and other income                                                                    4,818              13,561
                                                                                 ------------------    ----------------

(Loss) before income taxes                                                               (211,730)            (27,502)
Income taxes (Note 10)                                                                      34,872              31,295
                                                                                 ------------------    ----------------

Net  (loss)                                                                      $       (246,602)            (58,797)
                                                                                 ==================    ================

Basic and diluted (loss) per share (Note 11)                                     $          (0.06)              (0.01)
                                                                                 ==================    ================

Weighted average number of common shares
        outstanding                                                                      3,960,730           3,960,730
                                                                                 ==================    ================

</TABLE>




   The accompanying Notes are an integral part of these financial statements.




                                       F-5

<PAGE>

                         DIAPULSE CORPORATION OF AMERICA

                  STATEMENT OF STOCKHOLDERS' EQUITY DEFICIENCY

                     YEARS ENDED DECEMBER 31, 2002 AND 2001






<TABLE>
<CAPTION>

                                                                                                                      Total
                                         Common Stock                                                            Stockholders'
                                                 Issued      Additional    Accumulated   Treasury      Stock         Equity
                                     Shares      Amounts   Paid-In-Capital   Deficit      Shares      Amounts      Deficiency

<S>                                 <C>           <C>         <C>          <C>              <C>       <C>          <C>
Balance, January 1, 2001            3,962,058     $99,051     $2,293,272   ($3,624,444)     1,328     ($2,328)     ($1,234,449)

  Net (loss)                                                                   (58,797)                                (58,797)
                                    ---------     -------     ----------   ------------     -----     -------      -----------

Balance, December 31, 2001          3,962,058     $99,051     $2,293,272    (3,683,241)     1,328     ($2,328)     ($1,293,246)

  Net (loss)                                                                                                          (246,602)
                                                                              (246,602)

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

Balance, December 31, 2002          3,962,058     $99,051     $2,293,272   ($3,929,843)     1,328     ($2,328)     ($1,539,848)
                                    =========     =======     ==========   ============     =====     ========     ============


</TABLE>





   The accompanying Notes are an integral part of these financial statements.





                                       F-6
<PAGE>


                         DIAPULSE CORPORATION OF AMERICA

                             STATEMENTS OF CASH FLOW

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


<TABLE>
<CAPTION>

                                                                                        2002                 2001
                                                                                        ----                 ----

<S>                                                                              <C>                   <C>
Operating activities:
          Net  (Loss)                                                            $     (246,602)       $      (58,797)
                                                                                 ----------------      ----------------

Adjustments to reconcile net (loss) to net cash
    Provided by (used in) operating
        activities:
          Depreciation                                                                    23,440                21,305
          Provision for losses on accounts receivable                                    501,792               259,147
          Deferred salaries and accrued interest to officer                              641,139               578,568

          Changes in assets and liabilities:
               Accounts receivable                                                     (167,325)             (521,668)
               Inventories                                                             (100,238)              (48,711)
               Other current assets                                                        1,312               (2,669)
               Commission advances                                                       200,272              (77,084)
               Security deposits                                                           (792)
                                                                                                               (1,196)
               Accounts payable and accrued liabilities                                (681,090)             (244,802)
                                                                                 ----------------      ----------------

               Total adjustments                                                         418,510              (37,110)

          Net cash provided by (used in) operating activities                            171,908              (95,907)
                                                                                 ----------------      ----------------

Net cash provided by  (used in) investing activities
               Capital Expenditures                                                          ---              (62,069)
               Disposition of Assets                                                         ---                 1,697
                                                                                 ----------------      ----------------

          Net cash  (used in) investing activities                                           ---              (60,372)
                                                                                 ----------------      ----------------


                                                              (Continued)

</TABLE>


   The accompanying Notes are an integral part of these financial statements.





                                       F-7

<PAGE>



                         DIAPULSE CORPORATION OF AMERICA

                       STATEMENTS OF CASH FLOW (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


<TABLE>
<CAPTION>

                                                                                        2002                 2001
                                                                                        ----                 ----

<S>                                                                             <C>                   <C>
Financing activities:
          Loans from officers                                                            294,000               105,000
          Repayments to officers                                                        (231,000)              (78,259)
                                                                                 ----------------      ----------------

                 Net cash provided by  financing activities                               63,000                26,741
                                                                                 ----------------      ----------------
          Net Increase (decrease) in cash                                                234,908              (129,538)

Cash and cash equivalents, beginning of year                                             287,200               416,738
                                                                                 ----------------      ----------------

Cash and cash equivalents, end of year                                           $       522,108       $       287,200
                                                                                 ----------------      ----------------



Cash paid during the years for:
               Interest                                                          $        23,471       $         6,800
                                                                                 ----------------      ----------------

               Income taxes                                                      $           100       $        11,140
                                                                                 ----------------      ----------------


</TABLE>




   The accompanying Notes are an integral part of these financial statements.



                                       F-8


<PAGE>


                         DIAPULSE CORPORATION OFAMERICA

                          NOTES TO FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


1.       Description of Business and Summary of Significant Accounting Policies

         Description of Business and Concentrations

         Diapulse Corporation of America ("the Company") develops, manufactures
         and markets Diapulse (Registered Trademark) Technology, a proprietary
         medical system which produces non-thermal pulsed high-frequency,
         high-peak power electromagnetic energy to treat post-operative edema
         and pain in acute and chronic wounds. For the year 2002 there are no
         major suppliers of component parts or raw materials. The Company's
         product is sold and rented to hospitals, nursing facilities, outpatient
         clinics, physicians' practices and prescribed for use in patients'
         homes throughout the United States. A number of insurance companies
         reimburse for treatment. During 2002 and 2001, approximately 61% and
         88%, respectively, of revenue were from rentals to patients covered
         through Medicare (see Note 2). In 2002 and 2001 there were no major
         customers. The Company does not require collateral for its accounts
         receivable.

         Inventories

         Inventories are valued at the lower of cost or market. Cost is
         determined using the first-in, first-out (FIFO) method for parts and
         components and the specific identification method for finished goods.
         When equipment on rental is sold, the net book value of the equipment
         is included in the cost of sales, and the proceeds are included in
         sales.

         The Company classifies machinery which is held for resale as inventory.

         Income Recognition

         Income from the sale of a machine is recognized upon shipping of the
         machine. Rental income is recognized on a monthly basis.

         Depreciation

         Depreciation is computed based on a straight-line method over the
         estimated useful lives of the related assets, ranging from five to
         fifteen years. Rental equipment is depreciated over a five-year life on
         a straight-line basis.







                                       F-9

<PAGE>

                         DIAPULSE CORPORATION OFAMERICA

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


1.       Description of Business and Summary of Significant Accounting Policies
         (continued)

         Income Taxes

         The Company follows Statement of Financial Accounting Standards
         ("SFAS") No. 109, "Accounting for Income Taxes." This statement
         requires the use of the asset and liability approach in the recognition
         of deferred tax assets and liabilities for the expected future tax
         consequences of events that have been recognized in the Company's
         financial statements or tax returns. If it is more likely than not that
         some portion or all of a deferred tax asset will not be realized, a
         valuation allowance is recognized.

         Impairment of Long-lived Assets

         The Company reviews the carrying value of long-lived assets to
         determine if circumstances exist indicating whether there has been any
         impairment of the carrying values of property and equipment or whether
         the depreciation periods should be modified. Long-lived assets are
         reviewed for impairment whenever events or changes in business
         circumstances indicate that the carrying value of the assets may not be
         fully recoverable. The Company performs undiscounted cash flow analysis
         to determine if any impairment exists. If any impairment is determined
         to exist, any related impairment loss is calculated based on fair
         value. The Company doesn't believe that there are any current facts or
         circumstances indicating impairment of any long-lived assets.

         (Loss) Per Share

         The Company adopted SFAS No. 128, "Earnings Per Share,". In accordance
         with SFAS No. 128, the Company is required to present both basic net
         loss per share and diluted net loss per share in the financial
         statements for all periods presented. However the Company did not
         present the diluted net loss per share since all options outstanding
         were anti-dilutive and not considered (Note 11).

         Use of Estimates

         In preparing financial statements in conformity with generally accepted
         accounting principles, management is required to make estimates and
         assumptions that affect the reported amounts of assets and liabilities,
         the disclosure of contingent assets and liabilities at the date of the
         financial statements, and the reported amounts of revenues and expenses
         during the reporting period. Actual results could differ from those
         estimates. Significant estimates are used in accounting for accounts
         receivable allowance, depreciation and amortization, inventory and
         income taxes.

                                      F-10

<PAGE>


                         DIAPULSE CORPORATION OFAMERICA

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


1.       Description of Business and Summary of Significant Accounting Policies
         (continued)

         Financial Instruments

         Fair values of financial instruments are estimates that, in many cases,
         may differ significantly from the amounts that could be realized upon
         immediate liquidation. In cases where market prices are not available,
         estimates of fair value are based on discounted cash flow analysis,
         which utilize current interest rates for similar financial instruments
         with comparable terms and credit equity.

         Cash and Cash Equivalents

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

2.       Accounts Receivable

         At December 31, 2002 and 2001, accounts receivable included
         approximately $497,000 and $498,000, respectively, of Medicare claims
         for rentals of Diapulse's self-administered medical treatment at home.
         However, most claims for reimbursements from Medicare are denied when
         submitted. In such cases, the Company has to institute the
         administrative procedure of requesting a review of the claim and, if
         denied, a hearing with a Medicare hearings officer. If necessary, the
         Company can appeal the findings of the hearings officer to an
         Administrative Law Judge ("ALJ") of the Social Security Administration.
         In view of the lack of significant collections and the age of both
         medicare and private receivables, the Company increased its allowance
         for doubtful receivables by approximately $502,000 and $259,000 of the
         remaining uncollected balance as of December 31, 2002 and 2001,
         respectively.












                                      F-11

<PAGE>

                         DIAPULSE CORPORATION OFAMERICA

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


3.       Inventories

<TABLE>
<CAPTION>

                                                                         2002                 2001
                                                                         ----                 ----

<S>                                                              <C>                   <C>
        Parts, components and sub-assemblies                         $      74,011         $   49,541
        Finished goods                                                      90,405             14,637
                                                                     --------------        -----------
                                                                     $     164,416         $   64,178
                                                                     ==============        ===========
</TABLE>


         The Company is expanding its distribution network to try to facilitate
         the movement of its parts, components, sub-assemblies and finished
         goods inventory.

4.       Commission Advances and Accrued Commissions

         Commission advances represent cash advances by the Company to several
         of its independent sales representatives, which are to be applied
         against future sales made by the representatives. These advances are
         non-interest bearing. See Note 6 for commission advances to related
         parties. Accrued commissions are generally paid upon receipt of
         accounts receivable.

5.       Fair values of Financial Instruments

         The Company estimates that the fair value of all financial instruments
         at December 31, 2002 and 2001 does not differ materially from the
         aggregate carrying value of its financial instruments recorded in the
         accompanying Balance Sheet. Considerable judgment is necessarily
         required in interpreting market data to develop the estimate of fair
         value and, accordingly, the estimates are not necessarily indicative of
         the amount that the Company could realize in a current market exchange.














                                      F-12


<PAGE>

                         DIAPULSE CORPORATION OFAMERICA

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001

6.       Related Party Transactions

         Due to Officer

         Due to officer (President) stockholder at December 31, 2002 and 2001
consists of the following:

<TABLE>
<CAPTION>
                                                  Accrued
                                                Interest and                 Accrued
                                                Cash Advances                Salaries                   Total

<S>                                       <C>                       <C>                        <C>
        December 31, 2002
        Officer/Stockholder                   $      2,073,706           $       600,000           $      2,673,706
                                              -----------------          ----------------          -----------------
                                              $      2,073,706           $       600,000           $      2,673,706
                                              =================          ================          =================


        December 31, 2001
        Officer/Stockholder                   $      1,996,789           $       500,000           $      2,496,789
                                              -----------------          ----------------          -----------------
                                              $      1,996,789           $       500,000           $      2,496,789
                                              =================          ================          =================
</TABLE>


         There are no formal agreements or written documentation with respect to
         the repayment of these amounts. For each of these years in the two-year
         period ended December 31, 2002, the President of the Company did not
         take any remuneration for the services he provided. The 2002 and 2001
         expenses have been accrued in these Financial Statements.

         In 2002 the President of the Company agreed not to demand repayment of
         $2,573,706 of the above amounts due him prior to January 1, 2004. In
         2001 the President of the Company agreed not to demand repayment of
         $2,396,789 prior to January 1, 2003 and, accordingly, such amounts have
         been classified as long-term liabilities.

         Accounts Payable and Accrued Liabilities

         Accounts payable and accrued liabilities as of December 31, 2002 and
         2001 included $76,754 and $116,708 (see Note 8), respectively,
         representing unpaid salaries and interest thereon to parties related to
         the President of the Company. Interest incurred for this individual
         during 2002 and 2001 were $4,231 and $6,800, respectively.



                                      F-13


<PAGE>

                         DIAPULSE CORPORATION OFAMERICA

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001

6.       Related Party Transactions (continued)

         Interest

         Interest is charged on all amounts due to officer and other related
         parties at the bank's current prime rate, plus one percent, compounded
         monthly.

         Due from Related Parties

         One of the Company's directors, who is a son of the President,
         previously served as an independent sales representative for the
         Company and is now employed by the Company as a full-time employee. In
         addition, another son of the President also serves as an independent
         sales representative for the Company. Commissions and consulting fees
         earned by these individuals during 2002 and 2001 were approximately
         $190,600 and $54,600, respectively.

         As of December 31, 2002 and 2001, the accumulated advanced commission
         to these individuals were $234,487 and $278,854 respectively. These
         advances are guaranteed by the President of the Company, who has agreed
         to subordinate repayment of the amount due to him to the extent of the
         advances.

7.       Property and Equipment

         Property and equipment, at cost, at December 31, 2002 and 2001
         consisted of the following: t.

<TABLE>
<CAPTION>

                                                                2002                    2001
                                                                ----                    ----
<S>                                                     <C>                     <C>
         Rental equipment                                   $      99,483           $    127,512
         Autos                                                     73,297                 73,297
         Furniture and fixtures                                    58,262                 58,262
         Machinery and equipment                                   10,019                 10,019
         Office equipment                                          23,816                 23,816
         Computer equipment                                        12,101                 12,101
                                                            --------------          -------------

            Total property and equipment                          276,978                305,007

         Less accumulated depreciation                             211503                216,093
                                                            --------------          -------------
                                                            $      65,475           $     88,914
                                                            ==============          =============
</TABLE>

           The above schedule reflects the retirement of obsolete assets.


                                      F-14



<PAGE>

                         DIAPULSE CORPORATION OFAMERICA

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


8.       Accounts Payable and Accrued Liabilities

         Accounts payable and accrued liabilities at December 31, 2002 and 2001

<TABLE>
<CAPTION>
                                                                                  2002                2001
                                                                                  ----                ----
<S>                                                                        <C>                 <C>
        Accrued expenses and interest to related
                    parties (see Note 6)                                       $    76,754         $   116,708
        Accounts payable and other accrued liabilities                             338,518             434,195
                                                                               ------------        ------------
                                                                               $   415,272         $   550,903
                                                                               ============        ============

</TABLE>



9.       Commitments

         The Company has a two-year operating lease on its premises located in
         Great Neck, New York through December 31, 2003. The Company also rents
         office space located in California on a monthly basis and has paid a
         security deposit of $435. Minimum payments under the terms of the lease
         are listed below.

         Rent expense for the years ended December 31, 2002 and 2001 was
         $130,097 and $125,869 respectively.

                            Minimum rental payments are as follows:
                            Year Ending
                            December 31, 2003                       129,097
                                                                 -----------
                            Total commitment                     $  129,097
                                                                 ===========













                                      F-15



<PAGE>

                         DIAPULSE CORPORATION OFAMERICA

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001



10.      Income taxes

         The annual provision for income taxes for the years ended December 31,
         2002 and 2001 consisted of the following:

                                              2002               2001
                                              ----               ----

         Computed Federal Taxes            $   20,600         $     8,092
         Computed State Taxes                  14,272              23,203
                                           -----------        ------------
                                           $   34,872         $    31,295
                                           ===========        ============



         The reasons for the difference between the total tax provision and the
         amounts computed by applying the statutory Federal income tax rate to
         the income (loss) before income taxes are as follows:

<TABLE>
<CAPTION>

                                                                              2002                     2001
                                                                              ----                     ----
<S>                                                                  <C>                       <C>
         Expected tax (benefit)                                           $     (45,951)           $      (9,750)

         Deferred interest to officer and spouse                                  36,201                   54,701
         Deferred salary payable to officer                                       30,350                   30,350
         Net operating loss carry-back                                              ---                  (67,209)
                                                                          ----------------         ---------------
                                                                          $       20,600           $        8,092
                                                                          ================         ===============

</TABLE>















                                      F-16


<PAGE>

                         DIAPULSE CORPORATION OFAMERICA

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001



10.      Income Taxes (continued)


         Deferred tax assets at December 31, 2002 and 2001 consisted of the
         following:

<TABLE>
<CAPTION>
                                                                                   2002                      2001
                                                                                   ----                      ----
<S>                                                                      <C>                       <C>
         Deferred tax assets:
                    Accrued salaries and interest                            $       1,148,700         $        978,600
                    Stock compensation - options                                        61,000                   61,000
                    Net operating loss carry forward                                     ---                     70,400
                                                                             ------------------        -----------------
             Gross deferred tax assets                                               1,209,700                1,110,000
                                                                             ------------------        -----------------

         Net deferred assets before valuation allowance                              1,209,700                1,110,000
         Deferred tax assets valuation allowance                                   (1,209,700)              (1,110,000)
                                                                             ------------------        -----------------
                                                                             $               0         $              0
                                                                             ==================        =================

</TABLE>

         The Company has provided a valuation allowance of 100% of the deferred
         tax assets based on the uncertainty of realizing such benefit in the
         future.




















                                      F-17


<PAGE>

                         DIAPULSE CORPORATION OFAMERICA

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


11.      (Loss) Per Share

         The Company uses SFAS No. 128, "Earnings Per Share" ("EPS"). (Loss) per
         share is computed by dividing the (loss) by the weighted average number
         of common shares outstanding during the period.



<TABLE>
<CAPTION>

                                                                         For The Year Ended 2002
                                                   ---------------------------------------------------------------------
                                                      Income (Loss)               Shares                   Per-Share
                                                       (Numerator)            (Denominator)                 Amount

<S>                                           <C>                          <C>                         <C>
        (Loss) Per Share                           $         (246,602)                3,960,730        $         (0.06)
                                                   ====================    =====================        ================


<CAPTION>
                                                                         For The Year Ended 2001
                                                   ---------------------------------------------------------------------
                                                      Income (Loss)                Shares                  Per-Share
                                                       (Numerator)             (Denominator)                Amount

<S>                                           <C>                          <C>                         <C>
        (Loss) Per Share                           $          (58,797)               3,960,730        $          (0.01)
                                                   ====================    =====================        ================


</TABLE>




         All options outstanding during 2002 and 2001 were anti-dilutive and
         therefore not considered in the above computation.


12.      Bank Line of Credit

         The Company has a line of credit with Fleet Bank for $200,000 due on
         demand. This line of credit charges interest at a rate of 1% above
         prime on all outstanding balances. There was no balance due as of
         December 31, 2002 or 2001. The President of the Company has guaranteed
         the line and has agreed to subordinate $977,350 of his loans to the
         Company. The bank also has a security interest in substantially all of
         the assets of the Company,



                                      F-18

<PAGE>

                         DIAPULSE CORPORATION OFAMERICA

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


13.      Advertising and Promotions

         Advertising and promotion expenses were approximately $6,368 and $8,900
         in 2002 and 2001, respectively. Such costs are expensed as incurred.


14.      Stock Options

         On March 27, 1997 the Company granted to the President an option to
         purchase an aggregate of 1,000,000 shares of common stock of the
         Company at the purchase price of $.50 per share for one year from March
         27, 1997, and if not exercised during that period, at $.65 per share
         from March 27, 1998 for the balance of the term of the option. The
         expiration date of the option is March 27, 2004.


         One March 29, 1997, the Company entered into an equipment purchase and
         stock agreement ("the agreement") with an independent sales
         representative whereby the Company sold $1,200,000 of equipment and
         granted the representative a stock option to purchase 100,000 shares of
         the Company's common stock at $1.00 per share, 100,000 shares at $1.50
         per share, and 100,000 shares at $2.00 per share. These stock options
         must be exercised within 120 days after the market price of the stock
         is maintained for 30 days at a price of $5.00 per share for 100,000
         shares, $6.00 per share for the next 100,000 shares, and $7.00 per
         share for the final 100,000 shares. The applicable rights are lost if
         the options are not exercised before the expiration of 120 days after
         the above prices are maintained for 30 days.
















                                      F-19

<PAGE>

                         DIAPULSE CORPORATION OFAMERICA

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001

15.      Litigation

         The Company was involved as plaintiff in litigation filed in August
         1994, alleging deceptive acts and practices, false advertising, unfair
         competition, breach of fiduciary duty under New York Law and under
         Federal Law. The complaint demands damages in an unspecified amount for
         compensatory, punitive and treble damages, profits and attorneys' fees
         against corporate and individual defendants. In early 2000, a
         settlement agreement was reached whereby all claims against the Company
         were dismissed with prejudice and one of the Corporate defendants
         agreed to pay the Company the sum of $50,000 with interest at the rate
         of 9% per year, in level monthly installment payments of $1,867.41. The
         agreement further provided that in the event of failure to make the
         installment payments when due, the entire balance would immediately
         become due and payable and the Company would be entitled to enter
         judgment for the balance. The agreement also provides for the
         defendants to refrain from engaging in certain marketing practices in
         the future. The defendants failed to make any payments after the
         payment due on January 1, 2001 and in late 2001 a judgment for
         $39,215.61 was entered against the corporate defendant who had agreed
         to the monetary settlement. The Company is currently attempting to
         enforce the judgment but is not aware of any assets owned by the
         judgment debtor.


         A former employee of the Company, who was terminated in May 1999, filed
         five small claim actions against the Company and other employees and an
         officer-shareholder of the Company. Each action seeks $3,000 in
         damages. The former employee's son also filed one small claim action
         for approximately $1,500 against the Company and an employee and an
         officer-shareholder of the Company. Most of the cases allege various
         employment contract and/or labor violations; some allege liability for
         property allegedly held or used by the Company. All actions were
         instituted after the employee was terminated from employment. It is the
         opinion of counsel that the actions filed by the former employee and
         his son are either without merit or frivolous. The Company is awaiting
         a decision.













                                      F-20


<PAGE>

                         DIAPULSE CORPORATION OFAMERICA

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


15. Litigation (continued)

         The Company also sued a former employee alleging that this former
         employee, without authorization, took trade secrets and other
         confidential information and documents relating to the Company. The
         lawsuit seeks to recover possession of the items allegedly taken by the
         former employee and to enjoin the former employee from distributing,
         sharing or selling the trade secrets and other confidential
         information. The former employee counterclaimed for malicious
         prosecution and seeks damages in the sum of $1,000,000. In late 2001
         the lawsuit was settled by a stipulation that was "so ordered" by the
         court. The stipulation provides that the defendant be enjoined from
         utilizing, distributing, sharing, selling or disseminating the
         Company's trade secrets which were the subject of the litigation.

         A former independent contractor sued the Company for an amount in
         excess of $75,000 pursuant to a signed Commission Salesperson
         Agreement. In January 2003 the Company deposited $75,000 in escrow
         pending a decision by arbitration on the Company's claim for loss of
         revenue on two machines utilized by the independent contractor. The
         Company is awaiting a decision.

         The Company filed a claim with one of its insurance carriers for loss
         of, and damage to, property that was being stored with a storage
         company. The insurance carrier was unable to process the claim because
         the storage company refused to allow access to inspect the property
         unless the insurance carrier agreed not to exercise its right of
         subrogation. The property remains at the storage company facility
         pending final resolution of the claim. In September 2001, the storage
         company sued the Company for unpaid storage of approximately $80,000.
         The Company denies liability on the merits of the case and also has
         raised the statute of limitations as a partial defense. The Company
         counter sued the storage company for $80,000 for damages done to their
         machines. Counsel ventures no opinion on the ultimate outcome, but
         believes there are good defenses, although some liability is possible.

 16.      New Authoritative Pronouncements

         The Financial Accounting Standards Board (FASB) has issued statement No
         141, Business Combinations, and Statement No 142, Goodwill and Other
         Intangible Assets in July 2001. These Statements will change the
         accounting for business combinations and goodwill in two significant
         ways. First, Standard No 141 required that the purchase method of
         accounting would be used for all business combinations initiated after
         June 30, 2001. Use of the pooling of interest method will be
         prohibited. Second, Standard No 142 changes the accounting for goodwill
         from an amortization of goodwill to an impairment only approach. Thus,
         amortization of goodwill including goodwill included in past business
         combinations will cease upon adoption of that statement, which for
         companies with calendar year ends, will be January 1, 2002.


                                      F-21



<PAGE>

                         DIAPULSE CORPORATION OFAMERICA

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001




16.      New Authoritative Pronouncements (continued)

         In June 2001 the Financial Accounting Standard Board issued FASB No 143
         and FASB No 144. FASB No 143 states that fair value of a liability
         shall be recognized for an asset retirement obligation in the period in
         which the obligation is incurred if a reasonable estimate of fair value
         is made. FASB No 144 addresses the financial accounting and reporting
         for the impairment or disposal of long-lived assets. In April 2002 the
         Financial Accounting Standard Board issued FASB No 145 that modifies
         and rescinds various accounting statements, such as, a) rescinds FASB
         No 4 which requires all gains and losses from extinguishment of debt to
         be classified as an extraordinary item, net of the tax effect. b) It
         eliminates FASB 44, dealing with motor carriers covered by the Motor
         Carrier Act of 1980 and c) It amends FASB No 13 to require that certain
         lease modifications that have economic effects similar to
         sale-leaseback transactions be accounted for in the same manner as
         sale-leaseback transactions. In June 2002 the Financial Accounting
         Standard Board issued FASB No 146, this statement applies to costs
         associated with an exit activity that does not involve an entity newly
         acquired in a business combination or with a disposal activity covered
         by FASB No 144, accounting for the Impairment or Disposal of Long-Lived
         Assets.

         The Company expects adoption of the new Statements will not have a
         material impact on the financial statements.



















                                      F-22


<PAGE>




                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                        DIAPULSE CORPORATION OF AMERICA
                                                   Registrant

                                        By: /s/ Jesse Ross
                                           ----------------------------
                                             Jesse Ross - President


Date: March 31, 2003


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

         Name of Capacity                                        Date
         ----------------------                                  -------
                                                                 March 31, 2003
         /s/ Jesse Ross
         -------------------------------------------
         Name:    Jesse Ross
         Title:   President, Director and
                  Chairman of the Board
                  (Principal Executive Officer
                  and Principal Financial and
                  Accounting Officer

<PAGE>
--------------------------------------------------------------------------------

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

         In connection with the Quarterly Report of Diapulse, Inc. (the
"Company") on Form 10-KSB for the year ended December 31, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), each of
the undersigned, in the capacities and on the dates indicated below, hereby
certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the SARBANES-OXLEY Act of 2002, that to his knowledge:

         1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

         2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operation of the
Company.



          By: /s/ Jesse Ross
          --------------------------                   April 7, 2003
          Jesse Ross
          Chief Executive Officer



<PAGE>

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

CERTIFICATIONS

                    I, Jesse Ross, certify that:



         1. I have reviewed this annual report on Form 10-KSB of OCTuS, Inc.;


         2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report; and


         3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report

         4. I am responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and have

          a)   designed such disclosure controls and procedures to ensure that
               material information relating to the registrant, including its
               consolidated subsidiaries, is made known to us by others within
               those entities, particularly during the period in which this
               annual report is being prepared;

          b)   evaluated the effectiveness of the registrant's disclosure
               controls and procedures as of a date within 90 days prior to the
               filing date of this annual report (the "Evaluation Date"); and

         5. I have disclosed, based on my most recent evaluation, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent function):

          a)   all significant deficiencies in the design or operation of
               internal controls which could adversely affect the registrant's
               ability to record, process, summarize and report financial data
               and have identified for the registrant's auditors any material
               weaknesses in internal controls; and

          b)   any fraud, whether or not material, that involves management or
               other employees who have a significant role in the registrant's
               internal controls; and

         6. I have indicated in this annual report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.



                       Date:  April 7, 2003
                         By:  /s/ Jesse Ross
                              Jesse Ross
                              Chief Executive Officer and
                                Principal Financial Officer