Part I

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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                               Amendment No. 1 to

                                   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, 2003

                          Commission file number 132-3

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                         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

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           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, 2004 as reported by an independent market maker: $8,914.630

Number of shares outstanding of each of the registrant class of common stock
as of  March 31, 2004:   3,962,058.



                      DOCUMENTS INCORPORATED BY REFERENCE

                                      NONE


<PAGE>
                         DIAPULSE CORPORATION OF AMERICA
                                   FORM 10-KSB
                      FOR THE YEAR ENDED DECEMBER 31, 2003
                                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
Item 8a. Controls and Procedures

                                    PART III.

Item 9.  Directors and Executive Officers of the Registrant and Compliance with
         Section 16(a) of the Exchange Act.
Item 10. Executive Compensation
Item 11. Security Ownership of Certain Beneficial Owners Management
Item 12. Certain Relationships and Related Transactions

                                    PART IV.

Item 13. Exhibits, Financial Statements , and Reports on Form 8-K, Section 302,
         906 Certifications

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, 2003.

                  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 2003 and 2002,
                  approximately 79% and 61%, 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 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, 2002 and
                  2003.


<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, 2004. Minimum rental payments are $129,097 for
                  2003 and $129,097 for 2002 with an option to renew for 2
                  additional years to 2006. The premises are used as a national
                  and international headquarters for the Company as well as for
                  research and development.

ITEM 3.           LITIGATION

                  The Company was involved as plaintiff in litigation filed on
                  August 1994, alleging deceptive acts and practices, false
                  advertising, unfair competition, breach of fiduciary duty
                  under New York 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 $1,786.41. 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 judgement 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 judgement 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 judgement 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 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. The claims have now been settled for the sum of
                  $1,500 which has been paid in full in the year ended December
                  31, 2003.

                  A former independent contractor sued the Company for an amount
                  in excess of $75,000 pursuant to a signed Commission
                  Salesperson Agreement. In January of 2003 the Company
                  deposited $75,000 in escrow with its attorney as directed by
                  an arbitration award. The Company commenced a second, separate
                  arbitration proceeding seeking the return of two machines held
                  by the independent contractor and claiming loss of revenue on
                  the two machines. 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 paid the Company
                  $25,000 for damages, removed and discarded the property. 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
                  countersued the storage company for $80,000 for damages done
                  to their equipment. Since the Company recovered $25,000, the
                  balance of $55,000 is being sought through the courts for
                  reimbursement. 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

                                 2003                        2002
                        -----------------------    -----------------------
                        3/31  6/30  9/30  12/31    3/31  6/30  9/30  12/31
                  Bid:   .25   .33   .30    .22     .40   .19   .30    .21

                  As of December 31, 2003, there were approximately 1,450
                  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, 2003, 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. Diapulse Corporation of America
                  (OTC-DIAC) announced that the Centers for Medicare and
                  Medicaid (CMS) granted approval for coverage of the Diapulse
                  Wound Treatment System in a decision memorandum issued
                  December 22, 2003.

                  Net Revenues - During the year ended December 31, 2003
                  revenues decreased by 25% as compared to the year ended
                  December 31, 2002. This decrease was due to The Company
                  suspending new billings on Medicare treatment for wounds due
                  to a decision by Medicare not to honor new in-home Medicare
                  accounts effective April 1, 2003.

                  Cost of Sales - During the year ended December 31, 2003, cost
                  of sales decreased by $10,134 as compared to the year ended
                  December 31, 2002 due primarily to a decrease in gross sales.

                  Operating Expenses - Operating expenses, exclusive of
                  interest, decreased by $341,812 in 2003 as compared with 2002
                  due to a decrease in gross sales.
<PAGE>
                  Interest Expense - Interest expense from 2002 to 2003
                  decreased by $3,070, due to a decrease in borrowing and 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, 2003, the Registrant had working capital of
                  $531,097. Working capital as of December 31, 2002 was
                  $395,694.

                  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,
                                              2003                    2002

                  Working Capital           $531,097                 $395,694
                  Current ratio            2.31 to 1                1.77 to 1
                  Quick ratio              1.75 to 1                1.42 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

ITEM 8A.          CONTROLS AND PROCEDURES

                  We carried out an evaluation under the supervision and with
                  the participation of our management, including our Chief
                  Executive Officer and Chief Financial Officer, of the
                  effectiveness of the design and operation of our disclosure
                  controls and procedures pursuant to Securities Exchange Act
                  Rules 13a-15(e) and 15d-15(e). Based upon that evaluation, the
                  Chief Executive Officer and Chief Financial Officer concluded
                  that our disclosure controls and procedures as of December 31,
                  2003, are effective in timely alerting to material information
                  relating to the Company required to be included in our period
                  SEC Filings. The design of any system of controls is based in
                  part upon certain assumptions about the likelihood of future
                  events, and there can be no assurance that any design will
                  succeed in achieving its stated goals under all potential
                  future conditions, regardless of how remote. There were no
                  significant changes in our internal controls or in other
                  factors that could significantly affect these controls
                  subsequent to the date of their evaluation.
<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, 2003 were as follows:

                           Name             Age               Title

                           Jesse Ross       82      President, Director and
                                                    Chairman of the Board

                           David M. Ross    56      Vice President and Director

                           Howard Mann      68      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.

                  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.
<PAGE>
                                   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, 2003, 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, 2003, 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, 2003. For the year ending December 31, 2003
                  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,       2003       0          0            -               0                    0
Director and                 2002       0          0            -               0                    0
Chairman of the Board        2001       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 2003 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, 2003.

                        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
                  and is now employed by the Company as a full time employee.
                  Commissions and consulting fees earned by these individuals
                  during 2003 and 2002 were approximately $67,629 and $190,600
                  respectively.

                  As of December 31, 2003 and 2002, the accumulated advance
                  commissions to these individuals were $41,697 and $334,487
                  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.

                  As of December 31, 2003, and 2003 amounts of $60,651 and
                  $65,723, respectively, have been owed to an individual for
                  outstanding salaries. This individual related to the president
                  of the Company has incurred interest of $14,937 and $11,031
                  during 2003 and 2002 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
                  71unaffiliated 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, 2003, 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, 2004

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, 2004
Name:  Jesse Ross
Title: President, Director and
       Chairman of the Board


<PAGE>
                                     Part II

                         DIAPULSE CORPORATION OF AMERICA

                     YEARS ENDED DECEMBER 31, 2003 AND 2002



                                    CONTENTS

                                                                     Page

Report of Independent Certified Public Accountants                    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 flows                              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 sheets of Diapulse Corporation of
America as of December 31, 2003 and 2002 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 audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Diapulse Corporation of America
as of December 31, 2003 and 2002, the results of its operations and its cash
flows for each of the two years ending December 31, 2003 and December 31, 2002
in conformity with accounting principles generally accepted in the United States
of America.

                                                GRANICK & GENDLER
                                                CERTIFIED PUBLIC ACCOUNTANTS

New York, New York
February 20, 2004



                                       F-2
<PAGE>


                         DIAPULSE CORPORATION OF AMERICA

                                 BALANCE SHEETS

                           DECEMBER 31, 2003 AND 2002


                                     ASSETS
<TABLE>
<CAPTION>
                                                                              2003                2002
                                                                          ------------        ------------
<S>                                                                     <C>                <C>
Current assets:

            Cash and cash equivalents                                     $    621,799        $    522,108
            Current portion of accounts receivable, net of
                     allowance for doubtful accounts of $485,873
                     and $1,545,849 in 2003 and 2002 (Note 2)                   86,955             211,456


            Note Receivable to related party, Current Portion (Note 6)          22,925                 ---
            Inventory (Note 3)                                                 194,851             164,416
            Commission advance (Note 4)                                          4,156               8,718
            Other current assets                                                 5,295               6,186
                                                                          ------------        ------------

                             Total current assets                              935,981             912,884

Property and equipment, net (Note 7)                                            44,521              65,475
                                                                          ------------        ------------

Other assets:

            Accounts receivable, net of current portion                        130,432             317,184
            Note Receivable to related parties, net of current portion
             (Note 6)                                                          140,023                 ---
            Commission advances to related parties (Note 6)                     41,697             234,487
            Security deposits                                                   21,841              21,018
                                                                          ------------        ------------

                             Total other assets                                333,993             572,689
                                                                          ------------        ------------

                             Total assets                                 $  1,314,495        $  1,551,048
                                                                          ============        ============
</TABLE>


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

                                       F-3
<PAGE>

                         DIAPULSE CORPORATION OF AMERICA

                           BALANCE SHEETS (CONTINUED)

                           DECEMBER 31, 2003 AND 2002

                LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
                                                                        2003                    2002
                                                                   ----------------        --------------
<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 $75,586 and $76,754 to related
                     parties in 2003 and 2002 (Note 8)                      303,929               415,272
            Accrued income tax and related interest (Note 10)                   955                 1,918
                                                                   ----------------        --------------

                     Total current liabilities                              404,884               517,190

Long-term portion of amounts due to officer                               2,702,567             2,573,706
                                                                   ----------------        --------------

                     Total liabilities                                    3,107,451             3,090,896
                                                                   ----------------        --------------

Commitments (Note 9)

Stockholders' equity (deficiency)
            Common stock, $.025 par value per share
                     authorized 15,000,000 shares, issued
                     3,962,058 shares in 2003 and 2002                       99,051                99,051
            Additional paid-in capital                                    2,293,272             2,293,272
            Accumulated deficit                                          (4,182,951)           (3,929,843)
                                                                   ----------------        --------------
                                                                         (1,790,628)           (1,537,520)

    Less treasury stock, 1,328 shares in 2003
            and 2002 at cost                                                 (2,328)               (2,328)
                                                                   ----------------        --------------

                     Total stockholders' equity (deficiency)             (1,792,956)           (1,539,848)
                                                                   ----------------        --------------

                     Total liabilities and stockholders' equity
                             (deficiency)                          $      1,314,495        $    1,551,048
                                                                   ================        ==============
</TABLE>



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

                                       F-4
<PAGE>
                         DIAPULSE CORPORATION OF AMERICA

                            STATEMENTS OF OPERATIONS

                     YEARS ENDED DECEMBER 31, 2003 AND 2002
<TABLE>
<CAPTION>

                                                                   2003                2002
Revenue

Rental income                                                 $       900,981     $    1,377,222


Sales of machinery                                                    331,000            265,347
                                                              ---------------     --------------

             Total revenue                                          1,231,981          1,642,569

Cost of sales and rentals                                              12,412             22,546
                                                              ---------------     --------------

             Gross margin                                           1,219,569          1,620,023
                                                              ---------------     --------------

Operating expenses:

             Selling, general and administrative                    1,211,804          1,182,494
             Provision for doubtful accounts                          133,740            501,792
             Interest expense (principally to related parties         149,215            152,285
                                                              ---------------     --------------

                     Total operating expenses                       1,494,759          1,836,571
                                                              ---------------     --------------

(Loss) from operations                                               (275,190)          (216,548)
Interest and other income                                              10,413              4,818
                                                              ---------------     --------------

(Loss) before income taxes                                           (264,777)          (211,730)
Income taxes (Note 10)                                                (11,669)            34,872
                                                              ---------------     --------------

Net  (loss)                                                   $      (253,108)    $     (246,602)
                                                              ===============     ==============

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

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




   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, 2003 AND 2002

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

<S>              <C>                <C>           <C>         <C>          <C>              <C>       <C>          <C>
Balance, January 1, 2002            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)

  Net (loss)                                                                  (253,108)                               (253,108)
                                   ------------- ----------- ------------- -------------- ---------- ------------ ------------

Balance, December 31, 2003          3,962,058     $99,051     $2,293,272   ($4,182,951)     1,328     ($2,328)     ($1,792,956)

</TABLE>






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

                                       F-6
<PAGE>

                         DIAPULSE CORPORATION OF AMERICA

                            STATEMENTS OF CASH FLOWS

                     YEARS ENDED DECEMBER 31, 2003 AND 2002
<TABLE>
<CAPTION>
                                                                  2003             2002
                                                              -------------    --------------
<S>                                                           <C>             <C>
Operating activities:

          Net  (Loss)                                         $    (253,108)   $     (246,602)
                                                              -------------    --------------

Adjustments to reconcile net (loss) to net cash
    Provided by (used in) operating activities:

          Depreciation                                               20,953            23,440
          Provision for losses on accounts receivable               485,873         1,545,849
          Deferred salaries and accrued interest to officer         796,291           641,139

          Changes in assets and liabilities:
               Accounts receivable                                 (174,620)       (1,211,382)
               Note Receivable                                     (162,948)
               Inventories                                          (30,435)         (100,238)
               Other current assets                                     891             1,312
               Commission advances                                  197,352           200,272
               Security deposits                                       (823)             (792)
               Accounts payable and accrued liabilities            (673,445)         (681,090)
                                                              -------------    --------------

               Total adjustments                                    459,089           418,510

          Net cash provided by operating activities                 205,981           171,908
                                                              -------------    --------------
</TABLE>




                                   (Continued)

   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, 2003 AND 2002
<TABLE>
<CAPTION>

                                                                   2003             2002
                                                              -------------    --------------
<S>                                                           <C>              <C>
Financing activities:

          Loans from officers                                       100,000           294,000
          Repayments to officers                                   (206,290)         (231,000)
                                                              -------------    --------------

                 Net cash provided by (used in)
                        financing activities                       (106,290)           63,000
                                                              -------------    --------------
          Net Increase  in cash                                      99,691           234,908

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

Cash and cash equivalents, end of year                        $     621,799    $      522,108
                                                              -------------    --------------



Cash paid during the years for:

                Interest                                      $      21,571    $       23,471
                                                              -------------    --------------

                Income taxes                                  $       4,425    $          100
                                                              -------------    --------------

</TABLE>






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

                                       F-8


<PAGE>


                         DIAPULSE CORPORATION OF AMERICA

                          NOTES TO FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 2003 AND 2002


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 2003 there were 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 2003 and 2002, approximately 79% and
         61%, respectively, of revenue were from rentals to patients covered
         through Medicare (see Note 2). In 2003 and 2002 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 OF AMERICA

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2003 AND 2002

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 does not 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).

         Stock-Based Compensation

         The Company follows Accounting Principles Board Opinion No. 25,
         "Accounting for Stock Issued to Employees" (APB No. 25) with regard to
         the accounting for its employees stock options. Under APB No.25,
         compensation expense is recognized only when the exercise price of
         options is below the market price of the underlying stock on the date
         of grant. The Company applies the provisions SFAS No.148, "Accounting
         for Stock-Based Compensation - Transition and Disclosure - an amendment
         to FASB Statement No. 123," to non-employee stock-based compensation
         and the pro forma disclosure provisions of SFAS No. 148 to employee
         stock-based compensation.

                                      F-10
<PAGE>
                         DIAPULSE CORPORATION OF AMERICA

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2003 AND 2002

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

         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.

         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.

1.       Accounts Receivable

         At December 31, 2003 and 2002, accounts receivable included
         approximately $621,050 and $2,042,821, 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 an
         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 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 the allowance for doubtful
         receivables to $485,873 and $1,545,849 of the remaining uncollected
         balance as of December 31, 2003 and 2002, respectively.


                                      F-11
<PAGE>

                         DIAPULSE CORPORATION OF AMERICA

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2003 AND 2002


2.        Accounts Receivable (continued)
<TABLE>
<CAPTION>

                                                               2003           2002
                                                          -----------      -----------
<S>                                                      <C>              <C>

         Gross receivables - Medicare                     $   621,050      $ 2,042,821
         Gross receivables - Other                             82,210           31,668
         Less allowance for doubtful accounts                (485,873)      (1,545,849)
                                                          -----------      -----------
         Net receivables                                  $   217,387      $   528,640
                                                          ===========      ===========

         Current portion of accounts receivable                86,955          211,456
         Accounts receivable, net of current portion          130,432          317,184
                                                          -----------      -----------
                                                          $   217,387      $   528,640
                                                          ===========      ===========
</TABLE>


2.       Inventories
<TABLE>
<CAPTION>
                                                            2003                 2002
                                                          -----------      -----------
<S>                                                      <C>              <C>
        Parts, components and sub-assemblies              $    60,188      $    74,011
        Finished goods                                        134,663           90,405
                                                          -----------      -----------
                                                          $   194,851      $   164,416
                                                          ===========      ===========
</TABLE>

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

3.       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.

                                      F-12
<PAGE>

                         DIAPULSE CORPORATION OF AMERICA

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2003 AND 2002

4.       Fair values of Financial Instruments

         The Company estimates that the fair value of all financial instruments
         at December 31, 2003 and 2002 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.

5.       Related Party Transactions

         Due to Officer

         Due to officer, (President) stockholder at December 31, 2003 and 2002
         consists of the following:

                                Accrued
                              Interest and
                                 Cash           Accrued
                               Advances         Salaries        Total

        December 31, 2003
        Officer/Stockholder   $2,102,567      $  700,000      $2,802,567
                              ----------      ----------      ----------
                              $2,102,567      $  700,000      $2,802,567
                              ==========      ==========      ==========

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

         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, 2003, the President of the Company did not
         take any remuneration for the services he provided. The 2003 and 2002
         expenses have been accrued in these Financial Statements.

         In 2003 the President of the Company agreed not to demand repayment of
         $2,702,567 of the above amounts due him prior to January 1, 2005. In
         2002 the President of the Company agreed not to demand repayment of
         $2,573,706 prior to January 1, 2004 and, accordingly, such amounts have
         been classified as long-term liabilities.

                                      F-13
<PAGE>

                         DIAPULSE CORPORATION OF AMERICA

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2003 AND 2002

6.       Related Party Transactions (continued)

         Accounts Payable and Accrued Liabilities

         Accounts payable and accrued liabilities as of December 31, 2003 and
         2002 included $75,586 and $76,754 (see Note 8), respectively,
         representing unpaid salaries and interest thereon to an individual
         related to the President of the Company. Interest incurred for this
         individual during 2002 and 2001 were $3,904 and $4,231, respectively.

         Interest

         Interest is charged on all amounts due to officer and other related
         party at the bank's current prime rate of 4%, 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 and is now employed by the Company
         as a full-time employee. Commissions and consulting fees earned by
         these individuals during 2003 and 2002 were approximately $67,629 and
         $190,600, respectively.

         As of December 31, 2003 and 2002, the accumulated advanced commissions
         to these individuals were $41,697 and $234,487 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.

         Note Receivable, from Related Parties

         In 2003 the President of the Company repaid $20,240 of the commission
         advances and has agreed to repay $162,948 over the next nine years. The
         President of the company has issued nine notes to repay the sum of
         $162,948 plus interest at 4 per cent. There are nine equal payments,
         including interest of $22,925 from the year ending December 31, 2004 to
         the year ending December 31, 2012. The total amounts of the nine
         payments are $206,325.

                                      F-14
<PAGE>

                         DIAPULSE CORPORATION OF AMERICA

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2003 AND 2002



7.       Property and Equipment

         Property and equipment, at cost, at December 31, 2003 and 2002
         consisted of the following:

                                                2003                    2002
                                            --------------          ------------
        Rental equipment                    $      51,280           $     99,483
        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           228,775                276,978

        Less accumulated depreciation             184,254                211,503
                                            --------------          ------------
                                            $      44,521           $     65,475
                                            ==============          ============

        The above schedule reflects the retirement of obsolete assets.

8.      Accounts Payable and Accrued Liabilities

        Accounts payable and accrued liabilities at December 31, 2003 and 2002

                                                          2003          2002
                                                        --------      --------
        Accrued expenses and interest to related
                    party (see Note 6)                  $ 75,586      $ 76,754
        Accounts payable and other accrued liabilities   228,343       338,518
                                                        --------      --------
                                                        $303,929      $415,272
                                                        ========      ========



                                      F-15
<PAGE>

                         DIAPULSE CORPORATION OF AMERICA

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2003 AND 2002


9.       Commitments

         The Company has a one-year operating lease on its premises located in
         Great Neck, New York through December 31, 2004 with an option to renew
         for two additional years. Minimum payments under the terms of the lease
         are listed below.

         Rent expense for the years ended December 31, 2003 and 2002 was
         $131,545 and $130,097 respectively.

                            Minimum rental payments are as follows:

                            Year Ending

                            December 31, 200                   $129,097
                                                               --------
                            Total commitment                   $129,097
                                                               ========


10.      Income taxes

         The annual provision for income taxes for the years ended December 31,
         2003 and 2002 consisted of the following:

                                            2003          2002
                                          --------      --------
        Computed Federal Taxes            $(15,607)     $ 20,600
        Computed State Taxes                 3,938        14,272
                                          --------      --------
                                          $(11,669)     $ 34,872
                                          ========      ========


         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:

                                                             2003       2002
                                                          --------    --------
        Expected tax (benefit) including the effect of
        State taxes                                       $(77,846)   $(31,679)
        Deferred interest to officer and spouse             35,757      36,201
        Deferred salary payable to officer                  30,420      30,350
                                                          --------    --------
                                                          $(11,669)   $ 34,872
                                                          ========    ========


                                      F-16
<PAGE>

                         DIAPULSE CORPORATION OF AMERICA

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2003 AND 2002

10       Income Taxes (continued)

         Deferred tax assets at December 31, 2003 and 2002 consisted of the
         following:
<TABLE>
<CAPTION>
                                                                  2003              2002
                                                              -----------       -----------
<S>                                                           <C>               <C>

               Deferred tax assets:

                          Accrued salaries and interest       $ 1,389,654       $ 1,148,700
                          Stock compensation - options             61,000            61,000
                                                              -----------       -----------
                Gross deferred tax assets                       1,450,654         1,209,700
                                                              -----------       -----------

               Net deferred assets before valuation allowance   1,450,654         1,209,700
               Deferred tax assets valuation allowance         (1,450,654)       (1,209,700)
                                                              -----------       -----------
                                                              $         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 OF AMERICA

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2003 AND 2002

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.



                                       For The Year Ended 2003
                          ----------------------------------------------
                          Income (Loss)       Shares         Per-Share
                           (Numerator)     (Denominator)      Amount

        (Loss) Per Share   $(253,108)        3,960,730       $  (0.06)
                          =============    =============     ===========


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

        (Loss) Per Share   $(246,602)        3,960,730        $(0.06)
                          =============    =============      =========




         All options outstanding during 2003 and 2002 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, 2003 or 2002. 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 OF AMERICA

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2003 AND 2002

13.      Advertising and Promotions

         Advertising and promotion expenses were approximately $3,117 and $6,368
         in 2003 and 2002, 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 exercise 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, 2006.

         On 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 OF AMERICA

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2003 AND 2002

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 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. The
         claims have now been settled for the sum of $1,500 which has been paid
         in full in the year ended December 31, 2003.

         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 with
         its attorney as directed by an arbitration award. The Company commenced
         a second, separate arbitration proceeding seeking the return of two
         machines held by the independent contractor and claiming loss of
         revenue on the two machines. The Company is awaiting a decision.

                                      F-20
<PAGE>

                         DIAPULSE CORPORATION OF AMERICA

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2003 AND 2002

15       Litigation (continued)

         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 paid the Company $25,000 for damages,
         removed and discarded the property. 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
         countersued the storage company for $80,000 for damages done to their
         equipment. Since the Company recovered $25,000, the balance of $55,000
         is being sought through the courts for reimbursement. Counsel ventures
         no opinion on the ultimate outcome, but believes there are good
         defenses, although some liability is possible.

16.      New Authoritative Pronouncements

         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) eliminates FASB No. 44, dealing with motor
         carriers covered by the Motor Carrier Act of 1980 and c) 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.

         In January 2003 the Financial Accounting Standards Board (FASB) issued
         interpretation No. 46 which clarifies when a company should consolidate
         in its financial statements the assets, liabilities and activities of a
         variable interest entity. FIN 46 provides general guidance as to the
         definition of a variable interest entity and requires a variable
         interest entity to be consolidated if a company absorbs the majority of
         the variable interest entity's expected losses, or is entitled to
         receive a majority of the variable interest entity's residual returns,
         or both. In December 2003, FASB issued a revised interpretation of FIN
         46 (FIN -R), which supercedes FIN 46 and clarifies and expands current
         accounting guidance for variable interest entities. FIN 46 and FIN 46-R
         are effective immediately for all variable interest entities created
         after January 31, 2003, and for variable interest entities prior to
         February 1, 2003, no later than the end of the first reporting period
         after March 15, 2004. We have performed a review of any entities
         created subsequent to January 31, 2003, and determined the adoption of
         FIN 46 and FIN 46-R did not have a material impact on the Company's
         financial reporting and disclosure.
                                      F-21

<PAGE>

                         DIAPULSE CORPORATION OF AMERICA

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2003 AND 2002


16.      New Authoritative Pronouncements (continued)

         In April 2003 FASB issued SFAS No. 149 "Amendment of Statement 133 on
         Derivative instruments and Hedging Activities." SFAS No. 149 amends and
         clarifies accounting for derivative instruments including certain
         derivatives instruments embedded in certain contracts, and for hedging
         activities under SFAS No.133. In particular, this statement clarifies
         under what circumstances a contract with a net investment meets the
         characteristic of a derivative and when a derivative contains a
         financing component that warrants special reporting in the statement of
         cash flows. The statement is generally effective for contracts entered
         into or modified after June 30, 2003. The adoption of SFAS No. 149 did
         not have a material impact on the Company's financial reporting and
         disclosures.

         In May 2003, FASB issued SFAS No. 150, "Accounting for Certain
         Financial Instruments with characteristics of both Liabilities and
         Equities." SFAS No. 150 changes the accounting for certain financial
         instruments that, under previous guidance, could be classified as
         equity or "Mezzanine" equity by now requiring those instruments to be
         classified as liabilities (or assets in some circumstances) in the
         statement of financial position. Further, SFAS No. 150 requires
         disclosure regarding the items of those instruments and settlement
         alternatives. The guidance of SFAS No. 150 generally is effective for
         all financial instruments entered into or modified after May 31, 2003,
         and otherwise effective at the beginning of the first interim period
         beginning after June 15, 2003. We have evaluated SFAS No. 150 and
         determined that it does not have an impact on the Company's financial
         reporting and disclosures.

         In December 2003, the Staff of the Securities and Exchange Commission
         (SEC) issued Staff Accounting Bulletin (SAB) No. 104, "Revenue
         Recognition," which supercedes SAB No. 101, "Revenue recognition in
         Financial Statements." SAB No. 104's primary purpose is to rescind
         accounting guidance contained in SAB No.101 related to multiple element
         revenue arrangements and revises SEC's "Revenue Recognition in
         Financial Statements Frequently Asked Questions and Answers" that have
         been Codified in Topic 13. SAB No. 104 was effective immediately and
         did not have a material impact on the Company's financial reporting and
         disclosure.

                                      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, 2004

         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
         ----------------------                      --------
         /s/ Jesse Ross                              March 31, 2004
         -------------------------------------------
         Name:    Jesse Ross
         Title:   President, Director and
                  Chairman of the Board
                  (Principal Executive Officer
                  and Principal Financial and
                  Accounting Officer