<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington D.C. 20549

                                   FORM 10-KSB

[X]   Annual Report Under Section 13 or 15(d)of the Securities Exchange Act
      of 1934 For the Fiscal Year Ended

                              December 31, 1999 or

[ ]   Transition Report Pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934

                        Commission File Number: 000-26369

                           Dicom Imaging Systems, Inc.
        (Exact name of small business issuer as specified in its charter)

                   Nevada                                 88-0422026
       (State or other jurisdiction of                  (I.R.S.employer
       incorporation or organization)                  Identification No.)

                              1350 E. Flamingo Road
                                    Suite 847
                               Las Vegas, NV 89119

          (Address of principal executive offices, including zip code)

                                 (877) 624-6243

              (Registrant's Telephone Number, Including Area Code)
                                 (520) 441-8755

              (Registrant's Facsimile Number, Including Area Code)

           Securities registered pursuant to Section 12(b) of the Act:

                              Name of each exchange
                     Title of each class on which registered

                                    None N/A

           Securities registered pursuant to Section 12(g) of the Act:
                        Common Stock, no par value $0.001

                                (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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not 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. [ ]

Aggregate market value of voting stock held by non-affiliates of the registrant
as of December 31, 1999 was $ 8,700,000 (based upon the closing sale price of
$2.00 per share on such date). Number of shares of Common Stock outstanding as
of December 31, 1999: 7.2 Million shares.

                     DOCUMENTS INCORPORATED BY REFERENCE


<PAGE>   2



                                TABLE OF CONTENTS

                                     Part I


                                                                        Page
                                                                        ----

Item 1. Description of Business.......................................... 1

Item 2. Description of Property..........................................13

Item 3. Legal Proceedings................................................13

Item 4. Submission of Matters to a Vote of Security Holders..............13

                                     Part II

Item 5. Market for Common Equity and Related Shareholder Matters........ 14

Item 6. Management's Discussion and Analysis or Plan of Operation....... 14

Item 7. Financial Statements............................................ 22

Item 8. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure............................................ 38

                                    Part III

Item 9. Directors, Executive Officers, Promoters and Control Persons;
        Compliance With Section 16(a) of the Exchange Act............... 39

Item 10. Executive Compensation......................................... 41

Item 11. Security Ownership of Certain Beneficial Owners and Management. 42

Item 12. Certain Relationships and Related Transactions................. 43

Item 13. Exhibits List and Reports on Form 8-K.......................... 45

SIGNATURES.............................................................. 46


<PAGE>   3






PART I

Item 1.  DESCRIPTION OF BUSINESS

   This Business section and other parts of this Form 10KSB contain
forward-looking statements that involve risk and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed below and in " Plan of Operation over
the next 12 months."

GENERAL

         Dicom Imaging Systems, Inc., a Nevada Corporation ("Dicom" or "DIS" or
the "Company") is a software provider to the dental industry and associated
groups, and eventually to the medical professions. Dicom designs, develops,
markets and supports a family of imaging software products for use throughout
the health professions worldwide including dental professionals, research
facilities, universities, and beginning in late 2000, medical professionals.
Dicom's imaging software was developed in conjunction with the licensing of core
technology from Torchmark Holdings Ltd. ("Torchmark")as part of a License
Agreement between Dicom and Torchmark dated March 17, 1999. Based on the
Torchmark core technology, the Company designed and developed its software
products specifically for the use of the health professional in private or
institutional practice, with an interface that is user friendly, integrates the
power the internet and associated hardware image capturing devices. Dicom
believes that its software architecture is among the most flexible available for
all aspects of imaging. The Company's strategy is to offer comprehensive imaging
software, hardware, internet and support solutions to the health professions.
The Company's software products utilize the Microsoft Windows family of
operating systems on the desktop and over the network, making its software
solutions among the most flexible, scaleable and portable in the imaging
software industry.

                  Dicom's business model and method relies on producing and
distributing, free of charge, an imaging software application known as IMAGE
EXPLORER AND IMAGE EDITOR ("Image Explorer") to dentists, dental specialists,
dental laboratories, dental insurance companies, and educational facilities
throughout North America. Dicom requires registration of its Image Explorer
product by its customers through a telephone and web based registration system.
At the point of registration of IMAGE EXPLORER, Dicom representatives market a
series of value added software modules, support services and select imaging
hardware devices to software registrants.

         Dicom provides telephone and email based technical support services for
product users with questions concerning use of a Dicom software product. Such
questions may relate to device compliance, software features, installation of
software or advice on how to optimize use of the software for the needs of a
particular dentist. Dicom provides such service and support, which also includes
free-upgrades of the Dicom software product, for an annual fee of $495, paid
directly by the software user to Dicom via a credit card over the Internet or
telephone.

Dicom also stocks an imaging capture card, which is a device added to a personal
computer to support input of digital images, an intraoral camera, which is a
camera for taking digital images of the inside of a patient's mouth and
footpedals, which are used to control intraoral cameras by pressing down with
the foot. These products are manufactured by third parties and Dicom receives a
commission on the sale of each of these products through our website or
toll-free telephone number.

           The core Image Explorer product functions primarily as a means for
dental professionals to categorize, manage and manipulate patient images by
means of a visual interface. The value added software modules each provide
products to assist dental professionals with a specific area of image management
and manipulation, such as cosmetic whitening procedures on teeth. The value
added software modules can be added and integrated as dental professionals
become more familiar with the Dicom's Image Explorer technology.

         By providing dental care providers with a DICOM (Digital Imaging
Communications in Medicine) compliant standard image database application,
management believes that DIS could provide an industry wide standard for dealing
with dental images across the profession. The Digital Imaging Communications in
Medicine (DICOM) standard is a detailed specification that describes a means of
formatting and exchanging images and associated information. DICOM is a standard
similar to JPEG, TIFF or any other standardized protocol for storage and
retrieval of digital images. The standard applies to the operation of the
interface which is used to transfer data in and out of an imaging device.
Currently, dental professionals as a group are moving toward the DICOM standard.




                                       1
<PAGE>   4




Most providers of dental hardware and software do not use the DICOM standard.
The corporate name Dicom Imaging Systems, Inc. was inspired by the DICOM
standard. Substantially all of Dicom's revenues are derived from licensing and
distribution agreements with corporate partners, direct retail sales of value
added software modules, support services and select imaging hardware devices to
its software registrants.

        Dicom was incorporated in Nevada in March 1999 and initially shipped its
first software product suite, a dental imaging management system, Image Explorer
in September, 1999. In October, 1999 Dicom also began offering comprehensive
service and telephone support for its software customers for an annual fee. In
the fall of 1999, Dicom launched its Image Editor product, an image archival and
editing solution, Simulate, a software based tool to provide dental
professionals and patients with visual images of procedures before the
procedures are actually performed and Whitener, a complete dental bleaching
software solution. Subsequent to the 1999 fiscal year, Dicom also exercised its
rights to acquire the rights in the medical professions for the Torchmark core
technology.

SOFTWARE PRODUCT ARCHITECTURE

         Dicom's software products are based on a scaleable, core-product and
value added module architecture. The Company believes that its architecture
provides the system performance required for efficient image management,
practice enhancement through simulation, reduces overall imaging and archival
costs and facilitates faster, easier and less expensive management and
manipulation of imaging data. This is true of the current version of Image
Explorer and its related modules and Dicom believes that the improvement of
imaging efficiency for customers will be maintained in subsequent upgrades. In
addition to the advantage of a semi-custom, core product and value added module
architecture, the Dicom solution offers a number of other important features.
Dicom applications are designed for ease of use and are integrated with the
Microsoft Windows family of products. The Company's software products are also
scaleable, permitting changes in network size, server platforms and other
architectural components with minimal disruption. Further, Dicom software
products are portable across major hardware platforms. The Company believes that
the intuitive design of its software products reduce end-user training
requirements and allow end-users and health professionals increased access to
critical data not always readily available to them with currently available
image management tools. In addition, the Company is in the process of porting
its Image Explorer to a Linux friendly format as well as one compatible with
Apple Computer, Inc.'s ("Apple") native Macintosh family of computers. No
assurance can be given concerning the successful development of Dicom software
products on additional platforms, the specific timing of the releases of any
future software products, the performance characteristics of Dicom applications
on additional platforms or their acceptance in the marketplace.

         Not all software products or release versions of the Company's software
products are currently available on all of the above platforms. The Company
expects to continue expanding platform availability to address general
marketplace demand. Presently, releases or new software products are initially
introduced on a Microsoft Windows platform with subsequent releases being
planned to support Windows in addition to other platforms.



                                       2
<PAGE>   5




GRAPHICAL USER INTERFACE

         All Dicom software products share a common graphical user interface
("GUI") based on Microsoft's Windows family of products, which provides a
consistent "look and feel" to the Dicom's applications, including similar pull
down menus, error handling, system navigation and point-and-click mouse-driven
functionality. Dicom Image Explorer operates exclusively in a 32-bit
architecture on Windows 95, Windows 98, Windows 2000 and NT. The intuitive
nature of GUI-based systems increases productivity and reduces user training
requirements. The GUI's ease of use encourages non-technical users to utilize
the image manipulation and management system capabilities more fully. In
addition, the GUI allows users to integrate imaging applications and data with
other Microsoft Windows-based desktop applications and hardware drivers and
interfaces, i.e., intraoral cameras and digital x-ray equipment. For example,
customers can easily query the system and download data into either a word
processing document or a spreadsheet. By leveraging health professional's
widespread familiarity with personal computers ("PC"), previously difficult
access to imaging information, editing, manipulation and archival data is
readily available to the casual employee user, such as a hygienist, assistant or
receptionist, resulting in potentially significant improvements in dental and,
in the future, medical assistant and staff productivity.

APPLICATION SECURITY ARCHITECTURE

         Dicom's Image Explorer software products incorporate security features
designed to protect certain sensitive patient medical and dental data managed by
these applications from unauthorized retrieval or modification. The Company has
developed a security architecture utilizing the capabilities of its own
applications as well as the client operating system software. To date, the
Company is not aware of any violations of its application security architecture
within its installed base.

ELECTRONIC COMMERCE

         Dicom's Image Explorer includes an enhanced application interface that
facilitates the integration of Dicom applications with the World Wide Web, the
Internet, extranets and intranets and the exchange of imaging data and
information therein. The information exchange transactions regarding patient
data can be passed to other health professionals or laboratories over the
Internet or private extranets. Dicom plans software improvements in future
versions of Image Explorer to allow initiation of imaging exchange transactions
from sources such as electronic forms, insurance companies, automated claims
processors, electronic mail, Interactive Voice Response ("IVR") systems, touch
screen information kiosks and Web browsers.

         In addition, Dicom's site on the world wide web facilitates customer
interaction, registration of the core product, and will eventually support full
e-commerce based purchase of the range of Dicom products and services. In
addition, Dicom intends to continue exploring strategic partnerships and
alliances with other internet web sites for dental and health professionals and
with manufacturers of hardware related to imaging, which can be advertised and
sold on the Dicom web site. Dicom has already partnered with the D-store, which
maintains a robust e-commerce marketplace for imaging related hardware and
intends many more such partnerships in the balance of the year 2000.



                                       3
<PAGE>   6



APPLICATION SOFTWARE PRODUCTS

       At December 31, 1999, Dicom's commercially available application software
products included Dicom Image Explorer, Image Editor, Whitener and Simulator.
Dicom plans to enhance its software products to include many global features and
functions and development is underway to provide translated releases for a
variety of languages including: French, German, Spanish, Canadian French,
Canadian English, UK English, International English, Japanese (Kanji)and
Portuguese (for the Brazilian marketplace). Dicom intends to continue to enhance
its software products through new releases, including extending global
functionality throughout its core software products and updating current
country-specific and non-English language releases of its applications.

         Application software products currently under development and planned
for future release include: LabRX and Xray. No assurance can be given concerning
the successful development of enhancements or new modules, the specific timing
of completing new releases or new features of software products or the level of
their acceptance in the marketplace.

     Dicom's software products are generally licensed to end-user customers
under non-exclusive, non-transferable, perpetual license agreements. In most
cases, Dicom licenses its software products solely for the health professional's
internal operations. License fees for Dicom's software products are generally
standard on a per license basis, with fees varying somewhat by country and also
by distributor relationships that Dicom is in the process of negotiating or has
negotiated subsequent to December 31, 1999. The following description describes
the primary features of the Image Explorer suite of software products:

         Image Explorer operates in the Windows operating system environment on
a personal computer using the DICOM standard for archiving digital images. Image
Explorer captures images from a variety of sources such as digital cameras,
intraoral cameras, digital x-ray, e-mail, internet transfers, operating
microscopes or any twain compliant device, and then stores them in an
"electronic file cabinet" visual interface. Twain stands for technology without
an interesting name and is a hardware/software standard for exporting digital
images. Most digital imaging devices used in the dental profession are twain
compliant. After storage, the images can be accessed in the patient file for
review, comparison, printing, and communication. There are other modules or
plug-ins designed to enhance the ability of the Image Explorer(TM) software
program. The core product consists of Image Explorer, as described above, and
Image Editor(TM) described below, as well as the other plug in modules which
dental professionals can purchase. Image Explorer and Image Editor(TM) are the
core product and are given away free. The core product is enhanced by the
purchase of plug-in modules that add features to the core product. In order to
take advantage of enhanced features, users of the core product may purchase the
other plug ins described below.

Core product of Free Software:



                                       4
<PAGE>   7




Image Explorer: Allows users to capture images from a variety of sources such as
digital cameras, intraoral cameras, digital x-ray, e-mail, internet transfers,
operating microscopes or any twain compliant device, and then stores them in an
"electronic file cabinet" visual interface.

Image Editor(TM): Allows the user to enhance the captured images without
substantially altering the image from its original state. This may include such
actions as color enhancement, sharpen, soften, cropping, rotating and flipping.

Plug-ins which must be purchased separately:

Lab RX(TM): A lab module that facilitates communication between the dentist and
the laboratory technician especially with respect to esthetic restorations,
visually prescribing porcelain procedures to be performed by the lab. It
provides the lab technician certain information which can assist in the
preparation of accurate and cost-effective lab products. Lab RX generates an
enhanced electronic prescription as either a print report or an electronic file.
(Anticipated release later in 2000).

X-Ray(TM): An x-ray module that allows the dentist to acquire x-ray images of
the patient into Image Explorer via direct acquisition or by film scanning
devices. The radiographic imaging tools allows the dentist to enhance the
radiograph for improved diagnosis, measure areas of the radiograph, attach
diagnosis notes, and communicate with colleagues via print or modem. If the
dentist already has a digital x-ray system, Image Explorer will allow the user
to view, enhance, print and communicate those existing images using the DICOM
standard. (Anticipated release later in 2000).

Whitener(TM): Whitener is an additional add-on module to Image Explorer.
Whitener is a module which identifies the teeth in an image and lightens them to
simulate a bleaching procedure. This module allows the patient to see what a
tooth whitening procedure would look like when completed.

Simulator(TM): Simulator's image manipulation tools show the patient what he or
she could look like with an alteration to their smile before committing to the
actual dentistry. The dentist can then send the patient's image to the
laboratory along with the prescription so the technicians making the restoration
will be able to view the proposed changes. With Simulator, the dentist can
simulate a range of dental procedures, including bleaching, bonding, veneers,
implants, amalgam replacement and orthodontics.

         The above products are sold to Dentists, Orthodontists, Oral Surgeons
and other dental professionals for use in their practice with patients.

         Distribution Method of Products and Services; Sales and Marketing

         Dicom distributes the core Image Explorer software free of charge
directly to dental professionals through direct mail, certain dental product
dealers and through partnering arrangements still in negotiation with other
manufacturers of dental products. Dental professionals who wish to use these
free products must call a toll free number to register the product. At the time
of the call, representatives of Dicom offer the customers the opportunity to
purchase the value added software modules and well as technical support and
upgrade packages. Sales of the value added software modules, such as Lab RX,
Whitener, Simulator and X-Ray are conducted primarily through this telephone
"upselling."



                                       5
<PAGE>   8



         In addition to the above method, where customers call the toll free
number to register their free core product and are offered the opportunity to
purchase value added plug in modules by our representatives during the call,
Dicom generates sales of it's software modules, support services and hardware
devices from attending trade shows and educational forums where dentists and
their staffs congregate, via the Dicom's internet web site, via telemarketing to
dental professionals and those who have already registered the free core product
but have not yet purchased a module, as well as through traditional dental
dealers or distributors. Sales of value added modules to distributors and value
added resellers involve the distributor or reseller buying CDs of the Software
directly from Dicom in quantity and selling them to dental professionals or
burning their own "OEM" versions of Dicom software under a master distribution
and licensing agreement.

         Dicom has an additional revenue stream in the form of annual fee based
technical support. Each technical support package costs $495 per year and is
paid for by a credit card number over the telephone or through our Internet web
site or sold via one of our distributors. Customers license these value added
modules directly from Dicom by paying the appropriate licensing fee by credit
card or check and receiving a CD containing the purchased modules. We do not
lease imaging hardware, but simply derive a commission for each sale of imaging
hardware which we close with a customer and forward on to a reseller for
shipping. We have relationships with resellers of intraoral cameras, video
imaging cards and foot pedals.

         IMAGE EXPLORER is given away free of charge to all dental care
providers through a variety of mechanisms, including trade shows, mass mailing
of CDs containing the Image Explorer core product, the Dicom web site, strategic
and corporate partners, as well as in bundling arrangements with hardware
providers.

         The Software will comes on a CD or may be downloaded from the Dicom
website. Activating the software will install the IMAGE EXPLORER image database
system. On the main menu bar of the IMAGE EXPLORER program the tabs for all of
the additional optional modules reside. When they are pressed a description of
the module and instructions on how to order appears. Also on the CD is a short
training video on how to use IMAGE EXPLORER and an introduction to the benefits
of the other available modules. In the package will be instructions on how to
load the software, the benefits of the software, and how to purchase the
additional modules and the service/support agreement. In order to activate the
software the user must first load the software onto their computer, then when
they go to run the software they are requested to call our 1-877-62-IMAGE number
for the activation code. At that time the Dicom Imaging Systems (DIS) support
representative takes the user's key information for our database and market the
additional modules. The support representative also markets the service/support
contract. If the end user would like to purchase additional hardware such as
cameras, video cards, and intraoral cameras, DIS can either provide them or
assist the user in finding the best source. The IMAGE EXPLORER product that is
provided at no charge assists the user with their standard day to day handling
of images.



                                       6
<PAGE>   9



         Relationship with Mr. Doug Campbell

         In September of 1999, Dicom entered into a software license and
distribution agreement with Mr. Doug Campbell for a $600,000 license fee payable
to Dicom over time based on certain sales milestones, as more fully described in
Dicom's 10 Q SB for the quarter ending September 30, 1999. Subsequent to
December 31, 1999, any contingencies or milestones for the license agreement
were either waived or satisfied and the license fee was paid in full.

INTERNATIONAL OPERATIONS

         In fiscal year 1999, Dicom had no significant international operations
outside of the United States and Canada and derived more than 90% of its sales
from the United States. In fiscal year 2000, Dicom anticipates a much larger
international presence, having already concluded, subsequent to December 31,
1999, international licensing agreements in several international markets,
including the United Kingdom and certain Latin American countries.

SERVICES AND CUSTOMER SUPPORT

         The Company believes that a high level of customer service is required
to be successful in the imaging and image management marketplace due to the
number of different hardware and software vendors involved in an implementation
and the additional revenue stream that can be created by the provision of value
added support services. The Company also believes that the opportunity exists to
differentiate itself from competitors on a service level due to the demanding
service requirements of this market. The Company's customer service staff
consisted of 4 employees as of December 31, 1999.

Dicom provides, for a $495 per year annual fee, telephone based customer service
and support that consists primarily of ease of use, feature description,
hardware integration issues and telephone based tutorials on certain image
manipulation procedures.

COMPETITION

         Competition in the dental products and services industry is intense.
There are many established companies who offer products that compete indirectly
with Dicom. Although growth in the dental industry in general and sales of
dental products and supplies in particular is expected to grow and expand as
cosmetic and elective dental procedures become more widely accepted, the number
of competitors in the marketplace makes competitive pressures severe. There are
competitors to Dicom with significantly greater financial, technical, marketing,
distribution and human resources. There is no guarantee Dicom will be able to
meet or survive these significant competitive challenges. The dental software
industry in particular, because of the potentially high profit margins compared
with other manufactured dental products, has attracted large and sophisticated
competitors with established brand names who have already successfully developed
and marketed products.



                                       7
<PAGE>   10




         In spite of the competitive challenges in the industry, Dicom's
competitive position is somewhat unique. Currently there are no companies that
compete directly with Dicom in offering a free core product similar to Image
Explorer. Each competitor uses a different data base structure, file format and
interface design making it difficult for the dentist to come up with a
comprehensive solution by purchasing modules from different manufacturers. IMAGE
EXPLORER is presently one of only a few image storage and retrieval systems
available which are DICOM compliant and which operate at 32 bit resolution on
the Windows operating system. Since Windows is the dominant operating system for
personal computers in the dental profession, and since 32 bit resolution
provides enhanced image quality over 16 bit resolution, Image Explorer is a more
widely usable, higher resolution DICOM compliant product than many other
products available. Dental professionals can find advantages in the
cross-platform adaptability of the DICOM standard and can use Image Explorer
with many of their existing images and hardware devices. Combined with the
higher resolution and the ease of access to the Windows operating system, and
the competitive position of the Software is enhanced over lower resolution,
non-Windows based, non-DICOM compliant products.

         Dicom's main competitors are SciCan (which markets products Image FX
and CosmetiX), Dentsply/New Image Industries (which markets Capture It Plus) and
Dynamic Dental Systems (which markets VIPERSOFT). All of these competitors
charge at least $2000 for their core imaging product, which is competitive with
Image Explorer. All of these competitors compete in the areas of hardware,
software and support services. If any of these more established competitors were
to also give-away or substantially discount their products, such a move might
have a material, adverse effect on Dicom's ability to compete in the dental
imaging software market.

The methods of competition in the industry currently are to advertise software
products in trade magazines, feature them at trade shows and promote them
through direct mailings. Products tend to be distributed by distributors who
have a variety of dental products in their inventory and have a familiarity with
a wide base of dental professionals. Currently, no other imaging software
provider is providing a free imaging software product in order to sell value
added modules or services and support. Another method of competition in the
industry is to acquire another manufacturer with a product that will compliment
existing products and that has an established distribution mechanism.

         Intense competition could potentially lead to increased price
competition in the market, forcing Dicom to reduce prices which may result in
reduced gross margins and loss of market share by Dicom which therefore, could
materially adversely affect Dicom's business, operating results and financial
condition. There can be no assurance that Dicom will continue to compete
successfully with its existing competitors or will be able to compete
successfully with new competitors.

SOFTWARE PRODUCT DEVELOPMENT

         Since inception, Dicom has made substantial investments in research and
software product development. Dicom believes that timely development of new
software products, enhancements to existing software products and the
acquisition of rights to sell or incorporate complimentary technologies and
products into its software product offerings, is essential to maintain its
competitive position in the market. The imaging software market is characterized
by rapid technological change, frequent introductions of new products, changes
in customer demands and rapidly evolving industry standards. Dicom's current



                                       8
<PAGE>   11



focus in imaging software development is to expand the functionality and breadth
of Dicom's software product offerings by: (i) enhancing workflow capabilities;
(ii) developing new software products and adding new functionality to existing
software products including global product requirements and translated releases
of global product; (iii) supporting joint development arrangements under which
certain vertical market applications may be developed; and (iv) adding certain
architectural extensions. There can be no assurance that such development effort
will result in its products, features or functionality or that software
products, features or functionality that is developed will be accepted by the
market.

         The Company's research and development staff consisted of 1 employee as
of December 31, 1999. The Company's total research and development expenses were
approximately $104,460 as of December 31, 1999.

INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS, LICENSES AND PRODUCT LIABILITY

         Dicom regards certain features of its internal operations, software and
documentation as proprietary, and relies on a combination of contract,
copyright, trademark and trade secret laws and other measures to protect its
proprietary information. Existing copyright laws afford only limited protection.
Dicom believes that, because of the rapid pace of technological change in the
computer software industry, trade secret and copyright protection are less
significant than factors such as the knowledge, ability and experience of
Dicom's employees, frequent product enhancements and the timeliness and quality
of support services. There can be no assurance that these protections will be
adequate or that Dicom's competitors will not independently develop technologies
that are substantially equivalent or superior to Dicom's technology. In
addition, the laws of certain countries in which the Company's software products
are or may be licensed do not protect the Company's software products and
intellectual property rights to the same extent as the laws of the United
States.

    Dicom provides its software products to end users under non-exclusive
licenses, which generally are nontransferable and have a perpetual term. Dicom
generally licenses its software products solely for the customer's internal
operations.

         Dicom is not aware that its software products, trademarks or other
proprietary rights significantly infringe the property rights of third parties.
However, there can be no assurance that third parties will not assert
infringement claims against Dicom in the future with respect to current or
future software products or that any such assertion may not require Dicom to
enter into royalty arrangements or result in costly litigation. As the number of
software products in the industry increases and the functionality of these
software products further overlap, Dicom believes that software developers may
become increasingly subject to infringement claims. Any such claims, with or
without merit, can be time consuming and expensive to defend.



                                       9
<PAGE>   12



         Dicom's license agreements with its customers contain provisions
designed to limit the Company's exposure to potential product liability claims.
It is possible, however, that the limitation of liability provisions contained
in the Company's license agreements may not be valid as a result of future
federal, state or local laws or ordinances or unfavorable judicial decisions.
Although the Company has not experienced any product liability claims to date,
the license and support of its software for use in dental and medical
applications which involve patient diagnosis and treatment creates a potential
adverse risk in the event such a claim was successfully pursued against the
Company. Damage or injunctive relief resulting under such a successful claim
could cause a materially adverse impact on Dicom's business, operating results
and financial condition.

PERSONNEL

         As of December 31, 1999, Dicom employed 12 people, including 4 in sales
and marketing, 1 in product development, 3 in customer service, and 4 in
administration. None of Dicom's employees in the United States are represented
by a labor union or are subject to a collective bargaining agreement. Dicom
believes that relations with its employees are good.

         The executive officers of the Company as of December 31, 1999, are as
follows:

Name                  Age      Title
----                  ---      -----

David Gane            45       President, Chief Executive Officer, Director
Wayne Rees            40       Vice President, Director
Todd Rees             40       Vice President, Director


Wayne Rees and Todd Rees are brothers.

         Dicom has experienced a period of significant revenue growth, a
significant expansion in the number of its employees, increased pressure on the
viability and scope of its operating and financial systems and expansion in the
geographic scope of its operations. This growth has resulted in new and
increased responsibilities for management personnel and has placed a significant
strain upon the Company's management, operating and financial controls and
resources. To accommodate recent growth, compete effectively and manage
potential future growth, Dicom must continue to implement and improve the speed
and quality of its decision making, business processes, reporting systems,
procedures and controls and further expand, train and motivate its workforce.
There can be no assurance that Dicom's personnel, procedures, systems and
controls will be adequate to support Dicom's future operations. Dicom believes
that its continued success will depend in large part upon its ability to attract
and retain highly-skilled technical, managerial and marketing personnel. The
loss of services of one or more of Dicom's key employees could have a materially
adverse effect on Dicom's business, operating results and financial condition.
Dicom intends to hire a significant number of additional sales, service and
technical personnel in 2000. Competition for the hiring of such personnel in the
software industry is intense, and the Company from time to time experiences
difficulty in locating candidates with appropriate qualifications, particularly



                                       10
<PAGE>   13



within the desired geographic location. It is widely believed that the
technology sector is at or over a state of full employment. There can be no
assurance that Dicom will be successful in attracting and retaining the
personnel it requires to develop, market and support new or existing software.
The growth in Dicom's customer base and expansion of its product lines and
supported platforms have placed, and are expected to continue to place, a
significant strain on Dicom's management and operations, including its services
and development organizations.

         Any failure to implement and improve Dicom's operational, control,
reporting, and management systems or to retain, expand, train, motivate or
manage employees could have a materially adverse effect on Dicom's business,
operating results and financial condition.

Bankruptcy or Receivership

         Dicom has never initiated or been the subject of any action under the
United States Bankruptcy Code or any receivership or any similar proceeding.

Sources of Raw Materials and the Names of Principal Suppliers

         As Dicom produces and sells a software product, there are a limited
number of raw materials necessary for the conduct of its business. Blank compact
disks, mastered compact disks, printed software mailers and manuals and
marketing brochures are the main materials that go into the Dicom product.
Standard business papers, blank and mastered compact disks and printed software
mailers are available from a wide variety of suppliers. Dicom presently relies
on Peripherals of British Columbia to manufacture its compact discs containing
its software. There are more than 100 other suppliers available for this
function as well as Dicom's other raw material needs. Most of these suppliers
offer substantially identical prices. A sharp rise in these prices, however, by
Peripherals or a large number of other suppliers would have a material, adverse
effect on Dicom's ability to compete and achieve profitability.

         Dependence on one of a few major customers Dicom markets to over 20,000
dentists and dental professionals and is not dependent on any particular
customer. No one customer is responsible for more than 5% of Dicom's yearly
sales volume, with the exception of the agreement with Mr. Doug Campbell.

         Need for Governmental Approval

         Dicom's products are regulated by Federal, State, Provincial and Local
regulations. The products require approval of the United States Food and Drug
Administration ("FDA"). Dicom is in the process of gathering data necessary for
the submission of an approval application to the FDA, as described below. It is
anticipated that such an application will be completed by June 15, 2000 and
submitted to the FDA for review. However, there is no assurance that such
application will be completed, submitted or approved. If the required
applications were not to be completed, submitted and approved, Dicom may not be
able to successfully market or sell these products, which would have a
materially adverse effect on Dicom's revenues and profits.



                                       11
<PAGE>   14



         Pursuant to the Federal Food, Drug, and Cosmetic Act, the FDA regulates
the research, design, testing, manufacture, safety, labeling, storage,
record-keeping, advertising and promotion, distribution, and production of
medical devices in the United States. Certain medical and dental imaging
software products are medical devices and are subject to FDA regulation.

         Generally, before new a device can be introduced into the market in the
United States, the manufacturer must obtain FDA clearance of a 510(k) pre-market
notification or approval of a pre-market approval application (PMA). A PMA is an
application that the manufacturer submits to the FDA which provides the FDA
basic information about the device so that the FDA can make a determination if
the device is safe and effective. A 510 (k) application is much less detailed
than a PMA and takes less time to prepare. It gives the FDA general information
necessary to make a determination if a device is safe and effective without
in-depth review. The FDA classifies devices into three groups. Class I devices
do not require any pre-sale applications and may be sold without application to
the FDA. Class I devices tend to pose little risk to the health and safety of
the public. Class II devices require a 510 (k) premarket notification as
described above, because the FDA has determined Class II devices warrant
pre-market notification. Class II devices have the potential to pose a small
degree of risk to the public unless proper quality, validation and instruction
and advertising protocols are adhered to. Class III devices tend to pose
substantial risks to public health and welfare and require an in-depth
examination of the device. If the device is " substantially equivalent" to a
legally marketed Class I or Class II device or to a Class III device for which
the FDA has not called for a PMA, the manufacturer may seek clearance from the
FDA to market the device by filing a 510(k) pre-market notification. The 510(k)
pre-market notification will need to be supported by appropriate data
establishing the claim of substantial equivalence to the satisfaction of the
FDA.

         If Dicom cannot establish that its Simulator, Whitener and X-Ray
software is substantially equivalent to a legally marketed predicate device, the
Company must seek pre-market approval through submission of a PMA application.
The PMA application must be supported by valid scientific evidence, including
pre-clinical and clinical trial data, as well as extensive literature to
demonstrate a reasonable assurance of safety and effectiveness of the device.
The PMA represents the most vigorous form of FDA regulatory review.

         Though Dicom has made an effort to comply with applicable regulations,
it is possible that Dicom is not in compliance with current FDA regulations, as
interpreted by the FDA staff, in its present distribution of products. Such
non-compliance could have a material adverse effect on Dicom's financial
condition, sales and profits.

         Effect of Existing or Probable Governmental Regulation Although it is
not certain, it appears that Dicom's products, after necessary applications have
been made and approved, will still be subject to governmental regulation that
could have a material, adverse effect on the ability of Dicom to market and sell
the Software. The dental imaging field is relatively new and it is quite
possible that new regulations could be proposed and adopted which could severely
restrict products similar to the Software. Although management is not presently



                                       12
<PAGE>   15




aware of any such pending or proposed regulations, there is no assurance that
they will not be imposed. The dental industry is a heavily regulated field,
operating under a wide range of local, state, federal and provincial
regulations. It is possible that additional regulations could be adopted or
current enforcement practices changed in a way that makes it more difficult or
impossible to market or sell the Software. In addition, because dental science
is constantly evolving, new regulatory regimes and processes could be adopted at
any time and could have a material, adverse effect on Dicom's ability to conduct
it's business.

         Costs and effects of environmental compliance
         Dicom has no significant costs associated with environmental
         compliance.

Item 2. DESCRIPTION OF PROPERTY

         Dicom currently maintains leased office space in Bellingham, Washington
of and White Rock, British Columbia. Both facilities contain less than 5000
leased square feet each. Dicom plans to significantly expand its Bellingham,
Washington facility in 2000 and plans to open an office in the San
Francisco/Silicon Valley area in the second quarter of 2000.

         Investment Policies.

         Dicom owns no real estate, makes no real estate investments of any kind
or character and management has no intention of doing so during the next twelve
months.

Item 3. LEGAL PROCEEDINGS

Involvement in Legal Proceedings.

None.

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

No matters were submitted to a vote of security holders during the fourth
quarter of 1999.



                                       13
<PAGE>   16
PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Market Information. The Company's Common Stock is traded under the symbol
"DCIM". The Company's Common Stock is traded on the Nasdaq Over the Counter
Bulletin Board. The following table sets forth the range of high and low closing
bid prices, as reported, from November 7, 1999 (commencement of trading) through
December 31, 1999. The prices set forth reflect inter-dealer quotations, without
retail markups, markdowns or commissions, and do not necessarily represent
actual transactions. As of December 31, 1999, the number of holders of record of
the Company's Common Stock was approximately 180. Since certain of the shares of
Common Stock are held in street name, there may be additional beneficial holders
of the Company's Common Stock.

Fourth Quarter 1999 (not reflecting 3 for 1 forward split in December, 1999)
High        $6.125
Low         $5.8125

Dividends The Company has declared no dividends on its Common Stock since its
inception. It is the present policy of the Company to retain earnings and
capital for use in its business. Any payment of dividends on the Common Stock in
the future will be dependent upon the Company's financial condition, results of
operations, current and anticipated cash requirements, plans for expansion,
restrictions, if any, under debt obligations, as well as other factors that the
Board of Directors may deem relevant.

Dividend Policy

         Dicom has not declared any dividends in the past and there is no
intention to declare dividends in the future.

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

         Dicom's plan of operation over the next twelve months is to continue to
develop and improve the Software throughout the year, responding to customer
comments and requests and producing an updated version of the core product,
Image Explorer. In the Spring of 2000, Dicom signed an agreement with Kada
Innovations Ltd. and with CLG Investments Ltd. providing international
distribution territories for the Dicom suite of products. It is anticipated that
other such licensing and distribution agreements will be entered into until
Dicom has effective worldwide distribution of its products. Management
anticipates that such worldwide distribution of the Dicom product will be
achieved within the next twelve months.

         In addition, Dicom is aggressively seeking OEM and strategic
distribution alliances throughout North America and desires to expand its
revenue stream through strategic partnering with imaging hardware providers.
Dicom intends to continue aggressively capturing market share over the next
twelve months through continued attendance at nearly every significant dental
tradeshow held in Canada and the United States. We plan to continue to staff our
booths at these tradeshows with Dicom personnel who can explain and market our
product to the dentists in attendance. In addition, Dr. Gane plans a
continuation of his present aggressive lecture, seminar campaign, where he will



                                       14
<PAGE>   17




continue to speak to audiences of dental professionals throughout the world
about dental imaging in general and Image Explorer in particular. Because Dr.
Gane receives a number of invitations to speak throughout the year to dental
professionals eager to improve and develop their practices, we feel that these
events provide him with an opportunity to promote Image Explorer throughout the
year to a large number of dental and medical professionals.

         Dicom intends over the next twelve months to negotiate supply
relationships with most of the major dental product distributors in North
America and to greatly expand the number of distributors who stock the Dicom
product. Dicom plans to continue its aggressive advertising campaign in dental
trade magazines to continue to promote Image Explorer throughout the year to
dental professionals.

         Dicom intends to develop and enhance its web site over the next twelve
months and to drive traffic to the site by pursuing links with other dental
related sites and by purchasing banner advertisements on dental product sites.
Dicom is currently in discussions with various Internet consultants to add
multimedia and enhanced functionality to the web site, as well as improve
graphic design elements.

         Dicom intends to develop and deploy the medical version of the Image
Explorer software over the next twelve months. This expansion into the much
larger medical field, primarily through the use of strategic distribution
partners and institutional retail clients, could greatly expand Dicom's revenues
for the year.

         Dicom intends to streamline its customer support functions over the
next twelve months through continued scripting of commonly experienced technical
and product usage problems as they are encountered by our customer support
staff. In addition, Dicom intends to begin its intensive telemarketing campaign
and to continue it throughout the next twelve months, with a goal of contacting
by telephone all leads generated by our presence at trade shows, Dr. Gane's
lectures, through our web site and through reader responses to our
advertisements in dental trade magazines.

         In addition to developing an upgraded version of the core Image
Explorer product during the next twelve months, Dicom intends to develop other
value-added software modules and other methods for enhancing its revenue stream,
including corporate partnering agreements and agreements to bundle the Image
Explorer core product with other manufacturer's hardware products.

YEAR 2000 READINESS ISSUE

         Our plan of operation over the next 12 months may be impacted by the
Year 2000 readiness issue. The Year 2000 readiness issue, which is common to
most businesses, arises from the inability of information systems, and other
time and date sensitive products and systems, to properly recognize and process
date-sensitive information or system failures. Estimates of the potential cost
and effects of Year 2000 issues vary significantly among businesses, and it is
extremely difficult to predict the actual impact.

         To date, we have not made any efforts to date to address Year 2000
issues and have no plan to do so in the future. We do not have a remediation
plan. This is primarily due to the fact that we constructed and designed our
Image Explorer software to be Year 2000 compliant. The Year 2000 issue has an
impact on both information technology systems and non-information technology
systems, such as manufacturing systems and physical facilities including, but



                                       15
<PAGE>   18




not limited to, security systems and utilities. We do not intend to test all of
our information technology systems and non-information technology systems for
Year 2000 readiness. Management has no basis to conclude whether or not our
information technology or non-information technology systems are ready for Year
2000.

         In our office and to develop our software, we use personal computers
and computer peripherals, such as scanners, intraoral cameras, tape back up
systems and Compact Discs. We also use non-information technology, such as
calculators, clocks, software manuals, telephones and telephone switching
equipment, mail services, postage meters and credit card processing equipment.
We have not made an assessment of whether or not any of this equipment is Year
2000 compliant. Failure of this equipment to be Year 2000 compliant could result
in our total inability to conduct our business, contact our customers, update
our product or expand our market share.

          The Year 2000 readiness of our customers varies. We are not
investigating whether or not our customers are evaluating and/or preparing their
own systems to be Year 2000 compliant. These efforts by customers to address
Year 2000 issues may affect the demand for certain products and services;
however, the impact on our revenue is highly uncertain.

         We have not investigated the Year 2000 readiness of our key suppliers,
however, management believes that the large number of available suppliers makes
it unlikely that we will experience disruptions due to a non compliant supplier,
although a widespread supplier shortage due to non-compliance would have a
material adverse impact on our business.

         We do not have written assurances from any vendor or material third
parties that they are Year 2000 compliant. We do not believe that there are any
material third parties who provide services to us which could not easily be
transferred to a large number of other potential suppliers who could meet our
needs immediately. We essentially need traditional business printing, CD
mastering and dye screening, mailing services, advertising services and
telephone support. Short of a general failure of AT & T to provide long distance
service or route our calls effectively, all other vendors are replaceable with a
minimum of disturbance and cost. We have no contingency plans in the event that
material third parties are not ready on time. This could result in the total
disruption of our business and an inability to develop or market our products.

         We do not intend to spend any money on Year 2000 remediation over the
next twelve months. We have not spent any money to date. If we are forced to
spend money over the next twelve months on Year 2000 remediation, such spending
may negatively impact our financial performance and exhaust our available
working capital.

         The Year 2000 issue presents a number of other risks and uncertainties
that could impact us, such as public utilities failures, potential claims
against us for damages arising from products and services that are not Year 2000
compliant, and the response ability of certain government commissions of the
various geographic areas where Dicom conducts business.

         If we, our customers or suppliers are unable to resolve any Year 2000
compliance problems in a timely manner, we could face business interruptions or
a shutdown, financial loss, regulatory actions, reputational harm and/or legal
liability. We have determined that we will not be developing any contingency
plans that address a reasonably likely worst case scenario.



                                       16
<PAGE>   19



         In the event of a worst case scenario, if our material third party
suppliers, information technology systems and non-information technology systems
were to cease function, we could be forced to shut down our operations.

Cash Requirements and Additional Fundraising

                  Dicom believes that it can continue to satisfy its cash
requirements through revenues generated from the sales of its products and
through minimum royalty payments from licensing and distribution partners,
however such requirements do not include provisions for substantial growth.
Management believes that the full international development and marketing of the
medical option, as well as increasing Dicom's software development, marketing
and internet presence, could require the expenditure of significant funds.
Management is currently contemplating a $15,000,000 to $20,000,000 offering of
equity in Dicom via the use of an underwriter or underwriters, with whom Dicom
is presently in negotiation. There can be no assurance that such additional
capital, or any additional capital, will be available on terms satisfactory to
Dicom.

         As of December 31, 1999, Dicom had total cash of $18,263. Subsequent to
December 31, 1999, Dicom received more than $1,000,000 in cash from licensing
and distribution agreements and retail sales. Dicom presently has total cash of
approximately $850,000. Management believes that Dicom can satisfy its cash
needs out of available cash and operating income and will not have to engage in
any sale of Dicom's securities during the next twelve months.

         We anticipate total income of approximately $22,000,000 during the next
twelve months and we expect profits of approximately $8,000,000 for the same
period before taxes. We anticipate generating approximately $1,500,000 to
$2,500,000 per month in cash to fund our operations. We expect out overhead to
increase to $250,000 to $300,000 per month. Dicom believes that it can satisfy
its cash requirements for the foreseeable future out of a combination of cash
now available from the previous sale of shares of common stock in Dicom and
operating revenues.

         Product Development and Research Plan for the Next Twelve Months

         It is anticipated that Dicom will spend $120,000 per month over the
next twelve months to improve and develop the Image Explorer Software and
modules and to develop the medical option and additional value added modules.
These improvements might include customer requested enhancement as well as the
amelioration of any technical problems that become manifested with the Image
Explorer Software and modules.

         Expected Purchase or Sale of Plant and Significant Equipment

         None.

         Expected Significant changes in number of employees.

         Dicom anticipates adding at least 15 additional full time staff,
including marketing, business development, software engineers, financial and
accounting, customer support technicians and administrative staff.



                                       17
<PAGE>   20



Risk Factors

WE HAVE A LIMITED OPERATING HISTORY UPON WHICH TO EVALUATE OUR LIKELIHOOD OF
SUCCESS.

    We have only manufactured and distributed our software and manufactured and
distributed our Image Explorer product since September, 1999. Therefore, we have
a limited relevant operating history upon which to evaluate the likelihood of
our success. Factors such as the risks, expenses and difficulties frequently
encountered in the operation and expansion of a relatively new business and the
development and marketing of new products must be considered in evaluating the
likelihood of success of our company.

WE HAVE A HISTORY OF LOSSES AND ACCUMULATED DEFICIT AND THIS TREND OF LOSSES MAY
CONTINUE IN THE FUTURE.

At December 31, 1999, our accumulated deficit was $1,055,996. Our ability to
obtain and sustain profitability will depend, in part, upon the successful
marketing of our existing products and the successful and timely introduction of
new products. There can be no assurance that we will ever be profitable.

FLUCTUATION IN QUARTERLY RESULTS MAY RESULT IN DECLINES IN OUR STOCK PRICE.

    Certain quarterly influences may affect our business. Sales are generally
higher in the fourth quarter due to the purchasing patterns of dentists in the
United States and are generally lower in the first quarter due primarily to the
effect upon demand of increased purchases in the prior quarter. We also expect
to experience lower sales in the summer months as a consequence of holiday
vacations and a lesser number of trade shows. These fluctuations could result in
significant fluctuations, including significant declines in our stock price.

OUR FUTURE DEPENDS ON OUR ABILITY TO INCREASE DEMAND FOR OUR IMAGE EXPLORER
PRODUCT AS WELL AS OUR ABILITY TO DEVELOP AND INTRODUCE NEW PRODUCTS.

Our future depends upon our ability to increase demand for our Image Explorer
and related products and our ability to develop and successfully introduce new
products. Development of new product lines is risk intensive and often requires:

    - long-term forecasting of market trends;

    - the development and implementation of new designs;

    - compliance with extensive governmental regulatory requirements; and

    - a substantial capital commitment.



                                       18
<PAGE>   21



    Also, the medical and dental device industry is characterized by rapid
technological change. As technological changes occur in the marketplace, we may
have to modify our products in order to become or remain competitive or ensure
that our products do not become obsolete. If we fail to anticipate or respond in
a cost-effective and timely manner to government requirements, market trends or
customer requirements, or if there are any significant delays in product
development or introduction, this could have a material adverse effect on our
business.

THE GOVERNMENT EXTENSIVELY REGULATES OUR PRODUCTS AND FAILURE TO COMPLY WITH
APPLICABLE REGULATIONS COULD RESULT IN FINES, SUSPENSIONS, SEIZURE ACTIONS,
PRODUCT RECALLS, INJUNCTIONS AND CRIMINAL PROSECUTIONS.

    The United States Food and Drug Administration, as well as state and foreign
agencies, regulate almost all aspects of our medical devices including:

    - entry into the marketplace;

    - design;

    - testing;

    - manufacturing procedures;

    - reporting of complaints;

    - labeling; and

    - promotional activities.

    Under the Federal Food, Drug, and Cosmetic Act, the FDA has the authority to
control the introduction of new products into the United States marketplace.
Unless specifically exempted by the agency, medical devices enter the
marketplace through either FDA clearance of a pre-market approval application or
FDA approval of an application for 510(k) clearance. The FDA conducts periodic
inspections to assure compliance with that agency's regulations.

    Unless specifically exempted by FDA's regulations, we will need to file a
510(k) submission or pre-market approval application for any new products
developed in the future. The process of obtaining a clearance or approval can be
time-consuming and expensive. Compliance with the FDA's regulatory requirements
can be burdensome. We do not guarantee that the required regulatory approvals or
clearances will be obtained. Any approval or clearance obtained from the FDA may
include significant limitations on the use of the medical device which is the
subject of the approval or clearance. In addition, in order to sell our products



                                       19
<PAGE>   22




internationally we need to obtain the appropriate approvals of foreign
regulators, none of which can be guaranteed to be received. The international
regulatory review process varies from country to country. For example in Europe,
the regulations of the European Union require that a device have a CE mark
before it can be sold in that market. We cannot market a medical device in any
particular market if the required approval or clearance is not granted.
Inability to obtain such approval or clearance could result in a delay or
suspension of the manufacture and sale of affected medical devices in that
market. Any such delay or suspension would have a material adverse effect on our
business. Also changes in existing regulations or the adoption of new
regulations could make regulatory compliance by us more difficult in the future.

    The failure to obtain the required regulatory clearances or to comply with
applicable regulations could result in one or more of the following:

    - fines;

    - delays or suspensions of device clearances;

    - seizure actions;

    - mandatory recalls;

    - injunction action; and

    - criminal prosecution.

         We believe we will be required to file a 510 (k) application for
Whitener, Simulator and X-Ray. We are currently gathering the information
required for such an application and anticipate completing the applications by
June 15, 2000. We expect to receive approval of the applications 120 days after
receipt of the completed applications by the FDA, according to the regulatory
consultants who are assisting Dicom in the completion of the application
materials. An individual application is required for each module. We have not
yet obtained a clearance for any Dicom product. We do not believe that Image
Explorer, Image Editor or Lab-RX will require any FDA clearance, pre market
application or review. The FDA has not imposed any limitation on the use of our
proprietary products that we are aware of presently.

         We sell our products outside of the United States. Foreign governments
extensively regulate the field of dental and medical imaging. These foreign
regulations are difficult to understand and comply with and are often not
consistently enforced. Despite our efforts to comply with all applicable foreign
laws, we may nevertheless violate or be held to have violated foreign laws. Such
violations could have a material impact on our financial condition.

THE LOSS OF OUR CHIEF EXECUTIVE OFFICER COULD LEAD TO THE LOSS OF A SIGNIFICANT
PORTION OF OUR BUSINESS BECAUSE OF HIS PERSONAL CONTACTS IN OUR INDUSTRY.

         Our success is highly dependent upon our President and Chief Executive
Officer, Dr. David Gane. Unlike larger companies, we rely heavily on a small



                                       20
<PAGE>   23



number of officers to conduct a large portion of our business. The loss of
service of Dr. Gane along with the loss of his numerous contacts and
relationships in the industry would have a material adverse effect on our
business. We have not entered into an employment agreement with Dr. Gane. We do
not have key person life insurance on Dr. Gane.

OUR PRODUCTS HAVE NO PATENT PROTECTION, AND THEREFORE, THEY MAY NOT BE
ADEQUATELY PROTECTED FROM COPYING BY COMPETITORS.

    Our future success and ability to compete is dependent in part upon our
proprietary technology. We have been advised by counsel that our software cannot
easily be protected by patent. We have not applied for any patents, nor do we
intend to apply for any patents in the future. Consequently, we rely primarily
on trademark, trade secret and copyright laws to protect our technology. We have
applied for trademark protection on Image Explorer, Dicom Imaging Systems, Lab
RX, X-Ray, Whitener, Simulate and Image Editor. There is no assurance that
trademark protection will ultimately be granted under these applications.
However, there can be no assurance that third parties will not try to copy our
products. In addition, many foreign countries' laws may not protect us from
improper use of our proprietary technology overseas. We may not have adequate
remedies if our proprietary rights are breached and therefore a breach of our
proprietary rights could have a material adverse effect on our financial
condition.

SHAREHOLDER VOTING AGREEMENT.

    Because the Shareholder Voting Agreement determines and fixes the
composition of the board of directors until the shareholders that are a party to
it have sold their shares, no change of control may be possible for a
significant period of time, even if such a change of control may be in the best
interests of the corporation.

WE ARE SUSCEPTIBLE TO PRODUCT LIABILITY SUITS AND IF A LAWSUIT IS BROUGHT
AGAINST US IT COULD RESULT IN US HAVING TO PAY LARGE LEGAL EXPENSES AND/OR
JUDGMENTS.

         Although we have not yet had any product liability claims, because of
the nature of the medical/ dental device industry, there can be no assurance
that we will not be subject to such claims in the future. Our products relate to
procedures which involve vulnerable areas of the human body, such as the mouth,
tongue, teeth and gums, and, therefore, the sale and support of dental products
makes us susceptible to the risk of such claims. A successful product liability
claim or claim arising as a result of use of our products brought against us, or
the negative publicity brought up by such claim, could have a material adverse
effect upon our business. While we intend to maintain adequate insurance
coverage, we do not guarantee that the amount of insurance will be adequate to
satisfy claims made against us in the future, or that we will be able to obtain
insurance in the future at satisfactory rates or in adequate amounts.

THE YEAR 2000 ISSUE COULD HAVE AN IMPACT ON OUR INFORMATION TECHNOLOGY AND
NON-INFORMATION TECHNOLOGY SYSTEMS AS WELL AS THOSE OF OUR SUPPLIERS AND/OR
CUSTOMERS, ANY OF WHICH COULD NEGATIVELY AFFECT SALES OF OUR PRODUCTS.



                                       21
<PAGE>   24



         The Year 2000 readiness issue, which is common to most businesses,
arises from the inability of information systems, and other time and date
sensitive products and systems, to properly recognize and process date-sensitive
information or system failures. Estimates of the potential cost and effects of
Year 2000 issues vary significantly among businesses, and it is extremely
difficult to predict the actual impact. We have not made any remediation efforts
to date to address Year 2000 issues and have no plan to do so in the future. We
do not have a remediation plan.

         In our office and to develop our software, we use personal computers
and computer peripherals, such as scanners, intraoral cameras, tape back up
systems and Compact Discs. We also use non-information technology, such as
calculators, clocks, software manuals, telephones and telephone switching
equipment, mail services, postage meters and credit card processing equipment.
We have not made an assessment of whether or not any of this equipment is Year
2000 compliant. Failure of this equipment to be Year 2000 compliant could result
in our total inability to conduct our business, contact our customers, update
our product or expand our market share.

THE NASDAQ OTC BULLETIN BOARD MARKET HAS A LIMITED OPERATING HISTORY
CHARACTERIZED BY HIGH VOLATILITY WHICH MAY NEGATIVELY AFFECT OUR STOCK PRICE.

         Dicom's common stock trades on the Nasdaq OTC bulletin board ("Bulletin
Board") under the symbol DCIM. The Bulletin Board has a limited operating
history and is characterized by high volatility. We cannot guarantee any market
for out shares. We cannot guarantee that any market for our shares will develop
or be sustained. We cannot predict the effect, if any, that future sales of our
shares, or the availability of our shares for future sale, will have on the
market price of our shares.

ITEM 7.  FINANCIAL STATEMENTS

Consolidated Financial Statements of


                                       22
<PAGE>   25

                      DICOM IMAGING SYSTEMS, INC.
                      (Expressed in U.S. dollars)

                      Years ended December 31, 1999 and 1998

Independent Auditors' Report
The Board of Directors and Stockholders

Dicom Imaging Systems, Inc.

We have audited the consolidated balance sheet of Dicom Imaging Systems, Inc.
and subsidiary as of December 31, 1999 and the related consolidated statements
of operations, stockholders' deficit and cash flows for each of the years in the
two year period ended December 31, 1999. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.

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 about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Dicom Imaging
Systems, Inc. and its subsidiary as of December 31, 1999 and the results of
their operations and their cash flows for each of the years in the two year
period ended December 31, 1999 in conformity with generally accepted accounting
principles in the United States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 1 to the
consolidated financial statements, the Company has suffered losses from
operations and negative cash flows from operations and has a capital deficiency
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

Chartered Accountants
Vancouver, Canada
March 24, 2000
(except for note 13, which is as of
March 31, 2000)


                                       23
<PAGE>   26

DICOM IMAGING SYSTEMS, INC.

Consolidated Balance Sheet
(Expressed in U.S. dollars)

December 31, 1999

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

Assets

Current assets:

     Cash and cash equivalents                           $      18,263
     Accounts receivable (note 3)                               48,215
     Prepaid expenses                                           30,468
-----------------------------------------------------------------------
                                                                96,946

Intangible assets (note 4)                                      15,237
Equipment (note 5)                                              46,639
-----------------------------------------------------------------------
                                                         $     158,822
=======================================================================

Liabilities and Stockholders' Deficit

Current liabilities:
     Accounts payable                                    $      56,431
     Accrued liabilities                                        89,673
     Deferred revenue                                          248,699
-----------------------------------------------------------------------
                                                               394,803
Stockholders' deficit (note 6):
     Authorized:
        10,000,000 preferred stock, $.001 par value
          50,000,000 common stock, $.001 par value
     Issued:
           7,200,000 common stock                                7,200
     Additional paid in capital                                912,815
     Deficit                                                (1,155,996)
-----------------------------------------------------------------------
                                                              (235,981)
-----------------------------------------------------------------------
                                                         $     158,822
=======================================================================

Subsequent events (note 12)

See accompanying notes to consolidated financial statements.

On behalf of the Board:

------------------------------     ------------------------------
     Director                                  Director


                                       24
<PAGE>   27

DICOM IMAGING SYSTEMS, INC.

Consolidated Statements of Operations
(Expressed in U.S. dollars)

Years ended December 31, 1999 and 1998

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------
                                                                                     1999                 1998
----------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                   <C>
Software and hardware sales                                                $      249,032        $         --

Cost of sales                                                                     150,869                  --
----------------------------------------------------------------------------------------------------------------
Gross profit                                                                       98,163                  --
----------------------------------------------------------------------------------------------------------------
Operating expenses:
     Depreciation                                                                  16,140                  --
     General and administrative                                                   793,172                  --
     Research and development                                                     104,460              100,000
     Selling and marketing                                                        240,387                  --
----------------------------------------------------------------------------------------------------------------
                                                                                1,154,159              100,000
----------------------------------------------------------------------------------------------------------------
Net loss                                                                        1,055,996        $     100,000
----------------------------------------------------------------------------------------------------------------
Net loss per common share, basic and diluted (note 2(l))                   $         0.17        $        0.02
----------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding,
   basic and diluted (note 2(l))                                                6,150,000            4,201,500
----------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.


                                       25
<PAGE>   28

DICOM IMAGING SYSTEMS, INC.

Consolidated Statement of Stockholders' Deficit
(Expressed in U.S. dollars)

Years ended December 31, 1999 and 1998

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
                                                                                                         Total
                                                Common stock           Additional                  stockholders'
                                           Shares         Amount  paid-in capital       Deficit         equity
----------------------------------------------------------------------------------------------------------------
<S>                                   <C>           <C>             <C>           <C>          <C>
Balance, December 31, 1997                    --     $       --    $      100,000  $        --   $     100,000

Net loss                                      --             --               --       (100,000)      (100,000)
----------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998                    --             --           100,000      (100,000)           --

Issued on recapitalization              4,201,500          4,201           (3,800)          --             401

Issued for cash                         2,389,500          2,390          794,110           --         796,500

Issued for services                       609,000            609          202,391           --         203,000

Share issue costs                             --             --          (184,901)          --        (184,901)

Issuance of stock options

   (note 6(a))                                --             --            91,584           --          91,584

Deferred compensation of stock

   options (note 6(a))                        --             --           (86,569)          --         (86,569)

Net loss                                      --             --               --     (1,055,996)    (1,055,996)

----------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999              7,200,000    $     7,200   $      912,815  $ (1,155,996) $    (235,981)
----------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.


                                       26
<PAGE>   29

DICOM IMAGING SYSTEMS, INC.

Consolidated Statement of Cash Flows
(Expressed in U.S. dollars)

Years ended December 31, 1999 and 1998

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------
                                                                                     1999                 1998
----------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                  <C>
Cash flows from operating activities:
     Net loss                                                               $  (1,055,996)       $    (100,000)
     Items not involving cash:
         Shares issued in exchange for services                                   203,000                  --
         Stock based compensation                                                   5,015                  --
         Depreciation and amortization                                             16,140                  --
     Changes in operating assets and liabilities:
         Accounts receivable                                                      (48,215)                 --
         Prepaid expenses                                                         (30,468)                 --
         Accounts payable                                                          56,431                  --
         Accrued liabilities                                                       89,673                  --
         Deferred revenue                                                         248,699                  --
----------------------------------------------------------------------------------------------------------------
     Net cash used in operating activities                                       (515,721)            (100,000)

Cash flows from financing activities:
     Issue of common shares                                                       796,901                  --
     Share issue costs                                                           (184,901)                 --
----------------------------------------------------------------------------------------------------------------
     Net cash provided by financing activities                                    612,000`                 --

Cash flows from investing activities:
     Purchase of equipment                                                        (60,766)                 --
     Purchase of trademarks                                                       (17,250)                 --
----------------------------------------------------------------------------------------------------------------
     Net cash used in investing activities                                        (78,016)                 --
----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                               18,263             (100,000)

Cash and cash equivalents, beginning of year                                          --               100,000
----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year                                     $       18,263        $         --
----------------------------------------------------------------------------------------------------------------

Supplementary information:
     Interest paid                                                         $          353        $         --
     Income taxes paid                                                                --                   --
Non-cash transactions:
     Common stock issued for services                                             203,000                  --
     Issuance of stock options                                                      5,015                  --
----------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.


                                       27
<PAGE>   30

DICOM IMAGING SYSTEMS, INC.

Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)

Years ended December 31, 1999 and 1998

-------------------------------------------------------------------------------
1.       NATURE OF BUSINESS:

     Dicom Imaging Systems, Inc. (the "Company") was incorporated in Nevada
     and is in the business of developing and selling dental imaging software
     and support contracts, as well as selling related imaging hardware.

     On March 24, 1999, the Company, an entity incorporated on March 17, 1999
     and without significant operations, issued 1,000,000 common shares as
     consideration in exchange for a 30 year exclusive license of the Image
     explorer software and its additional value added modules ("the Business").
     After giving effect to the transaction, the vendor of the Business
     controlled the Company. This transaction has been accounted for as a
     recapitalization of the Business, effectively as if the Business had issued
     common shares in consideration equal to the net tangible assets of the
     Company.

     The Company's historical financial statements reflect the financial
     position, results of operations and cash flows of the Business for each of
     the years in the two year period ended December 31, 1999 and include the
     operations of the Company from the date of the effective recapitalization
     being March 24, 1999. Stockholders' equity gives effect to the shares
     issued to the stockholders of the Business prior to March 24, 1999 and the
     Company thereafter.

     These consolidated financial statements have been prepared on a going
     concern basis in accordance with United States generally accepted
     accounting principles. The going concern basis of presentation assumes the
     Company will continue in operation for the foreseeable future and will be
     able to realize its assets and discharge its liabilities and commitments in
     the normal course of business. Certain conditions, discussed below,
     currently exist which raise substantial doubt upon the validity of this
     assumption. The financial statements do not include any adjustments that
     might result from the outcome of this uncertainty.

     The Company's future operations are dependent upon the market's acceptance
     of its product and the Company's ability to license their product around
     the world. There can be no assurance that the Company's product will be
     able to secure market acceptance or that they will be able to license their
     product. As of December 31, 1999, the Company has not generated sufficient
     revenues to fund expenses and has experienced negative cash flow from
     operations. Operations have primarily been financed through the issuance of
     common stock. As at December 31, 1999 the Company does not have sufficient
     working capital to sustain operations until the end of the year ended
     December 31, 2000. The intention of management is to generate revenue from
     the sale of software licenses. Additional debt or equity financing may be
     required and may not be available or may not be available on reasonable
     terms. (see note 12)


                                       28
<PAGE>   31

DICOM IMAGING SYSTEMS, INC.

Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)

Years ended December 31, 1999 and 1998

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

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

     (a) Basis of presentation:

         These consolidated financial statements have been prepared in
         accordance with generally accepted accounting principles in the United
         States. The financial statements include the accounts of the Company's
         wholly-owned subsidiary, 527403 B.C. Limited. All significant
         intercompany balances and transactions have been eliminated in the
         consolidated financial statements.

     (b) Use of estimates:

         The preparation of consolidated financial statements in accordance with
         generally accepted accounting principles requires management to make
         estimates and assumptions that affect the reported amounts of assets
         and liabilities and the disclosure of contingent assets and liabilities
         at the date of the financial statements and recognized revenues and
         expenses for the reporting periods. In these consolidated financial
         statements, the significant areas requiring the use of estimates
         include the valuation of long-lived assets, including intangible
         assets, the fair value of stock options and the recognition of revenue.
         Actual results may significantly differ from these estimates.

     (c) Revenue recognition:

         The Company generates revenues through three sources: hardware sales,
         software license revenues and services revenues. Hardware revenues are
         recognized when goods are shipped and title passes. Software license
         revenues are normally generated from licensing the perpetual right to
         use the Company's products directly to end-users and indirectly through
         resellers. The Company recognizes as revenue only the fee payable from
         the reseller, net of any discount. Service revenues are generated from
         telephone support services.

         Revenues from software license agreements are recognized upon delivery
         of software if persuasive evidence of an arrangement exists, collection
         is probable, the fee is fixed or determinable, and vendor-specific
         objective evidence exists to allocate the total fee to elements of the
         arrangement. Vendor-specific objective evidence is typically based on
         the price charged when an element is sold separately, or, in the case
         of an element not yet sold separately, the price established by
         authorized management, if it is probable that the price, once
         established, will not change before market introduction. Elements
         included in multiple element arrangements could consist of software
         products, upgrades, enhancements or customer support services. The
         Company's agreements with its customers and resellers do not contain
         product return rights.


                                       29
<PAGE>   32

DICOM IMAGING SYSTEMS, INC.

Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)

Years ended December 31, 1999 and 1998

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

2.       SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

     (c) Revenue recognition (continued):

         Service revenues are recognized ratably over the term of the contract,
         typically one year. If a transaction includes both license and service
         elements, license fee revenues are recognized on shipment of the
         software, provided services do not include significant customization or
         modification of the base product, and the payment terms for licenses
         are not subject to acceptance criteria. Revenues that have been prepaid
         or invoiced but do not yet qualify for recognition under the Company's
         policies are reflected as deferred revenues.

     (d) Foreign currency:

         The functional currency of the Company is the United States dollar. The
         functional currency of the operations of the Company's wholly-owned
         Canadian operating subsidiary is the Canadian dollar. Assets and
         liabilities measured in Canadian dollars are translated into United
         States dollars using exchange rates in effect at the balance sheet date
         with revenue and expense transactions translated using average exchange
         rates prevailing during the year. Exchange gains and losses arising on
         this translation are included in income.

     (e) Cash and cash equivalents:

         The Company considers all short-term investments with a term to
         maturity at the date of purchase of three months or less to be cash
         equivalents.

     (f) Intangible assets:

         Intangible assets are stated at cost and are amortized using the
         straight-line method over their estimated useful lives of five years.

     (g) Equipment:

         Equipment is stated at cost and is depreciated using the straight-line
         method over the estimated useful lives of three years.

     (h) Research and development and advertising:

         Research and development and advertising costs are expensed as
         incurred.

     (i) Stock-based compensation:

         As allowed under generally accepted accounting principles, the Company
         accounts for its stock-based compensation arrangements with employees
         and directors in accordance with APB Opinion No. 25, "Accounting for
         Stock Issued to Employees", and related interpretations. As such,
         compensation expense under fixed term option plans is recorded at the
         date of grant when the market value of the underlying stock at the date
         of grant exceeds the exercise price. The Company recognizes
         compensation expense for stock options, common stock and other equity
         instruments issued to non-employees for services received based upon
         the fair value of the services or equity instruments issued, whichever
         is more reliably determined. This information is presented in note 6.


                                       30
<PAGE>   33

DICOM IMAGING SYSTEMS, INC.

Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)

Years ended December 31, 1999 and 1998

-------------------------------------------------------------------------------
2.       SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

     (i) Stock-based compensation (continued):

         SFAS No. 123, "Accounting for Stock Based Compensation", required
         entities that continue to apply the provision of APB Opinion No. 25 for
         transactions with employees to provide pro forma net income and pro
         forma earnings per share disclosures for employee stock option grants
         as if the fair-value-based method defined in SFAS No. 123 had been
         applied to these transactions.

     (j) Impairment of long-lived assets and long-lived assets to be disposed
         of:

         The Company accounts for long-lived assets in accordance with the
         provisions of SFAS No. 121, "Accounting for the Impairment of
         long-lived assets and for long-lived assets to be disposed of". This
         statement requires that long-lived assets and certain identifiable
         recorded intangibles be reviewed for impairment whenever events or
         changes in circumstances indicate that the carrying amount of an asset
         may not be recoverable. Recoverability of assets to be held and used is
         measured by a comparison of the carrying amount of an asset to future
         net cash flows expected to be generated by the asset. If such assets
         are considered to be impaired, the impairment to be recognized is
         measured by the amount by which the carrying amount of the assets
         exceed the fair value of the assets. Assets to be disposed of are
         reported at the lower of the carrying amount of fair value less costs
         to sell. At December 31, 1999, the only long-lived assets reported on
         the Company's consolidated balance sheet are equipment and certain
         intangible assets.

     (k) Income taxes:

         The Company follows the asset and liability method of accounting for
         income taxes. Under this method, current taxes are recognized for the
         estimated income taxes payable for the current period. Deferred income
         taxes are provided based on the estimated future tax effects of
         temporary differences between financial statement carrying amounts of
         assets and liabilities and their respective tax bases as well as the
         benefit of losses available to be carried forward to future years for
         tax purposes.

         Deferred tax assets and liabilities are measured using the enacted tax
         rates that are expected to apply to taxable income in the years in
         which those temporary differences are expected to be recovered and
         settled. The effect on deferred tax assets and liabilities of a change
         in tax rates is recognized in operations in the period that includes
         the substantive enactment date. A valuation allowance is recorded for
         deferred tax assets when it is not more likely than not that such
         deferred tax assets will be realized.


                                       31
<PAGE>   34

DICOM IMAGING SYSTEMS, INC.

Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)

Years ended December 31, 1999 and 1998

--------------------------------------------------------------------------------
2.       SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

     (l) Net loss per share:

         Basic loss per share is computed using the weighted average number of
         common stock outstanding during the period and gives retroactive effect
         to the shares issued on the recapitalization described in note 1.
         Diluted loss per share is computed using the weighted average number of
         common and potentially dilutive common stock outstanding during the
         period. As the Company has a net loss in the periods presented, basic
         and diluted net loss per share is the same, as any exercise of options
         would be anti-dilutive.

3.       ACCOUNTS RECEIVABLE:

     Accounts receivable as at December 31, 1999 are made up of the following:

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

     Receivable from Dicom Software, Inc.                          $ 37,777
     Canadian Goods and Services tax refund receivable               10,006
     Other receivables                                                  432
-------------------------------------------------------------------------------
                                                                   $ 48,215
-------------------------------------------------------------------------------


     The receivable from Dicom Software Inc., a related company controlled by
     three of the directors of the Company, is non-interest bearing and due on
     demand. The receivable from Dicom Software Inc., was paid in full
     subsequent to year end.

4.   INTANGIBLE ASSETS:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
                                                                                  Accumulated         Net book
     1999                                                              Cost      amortization            value
------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>               <C>              <C>
     Trademarks                                               $      17,250     $       2,013    $      15,237
------------------------------------------------------------------------------------------------------------------
</TABLE>

     On March 24, 1999 the Company entered into an agreement that provides them
     with the exclusive, transferable, worldwide right to reproduce, develop and
     distribute Image explorer and its value added modules for a period of 30
     years in exchange for 3,000,000 common shares of the Company (see note 1).

     Trademarks relate to the Dental Imaging Software and are valid for a period
     of 40 years.


                                       32
<PAGE>   35

DICOM IMAGING SYSTEMS, INC.

Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)

Years ended December 31, 1999 and 1998

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

5.   EQUIPMENT:
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------
                                                                                  Accumulated         Net book
     1999                                                              Cost      depreciation            value
-----------------------------------------------------------------------------------------------------------------
<S>                                                           <C>               <C>              <C>
     Computer Hardware                                        $      41,421     $      10,282    $      31,139
     Computer Software                                                4,458             1,082            3,376
     Demonstration Equipment                                         14,887             2,763           12,124
-----------------------------------------------------------------------------------------------------------------
                                                              $      60,766     $      14,127    $      46,639
-----------------------------------------------------------------------------------------------------------------

</TABLE>

6.   STOCKHOLDERS' DEFICIT:

     (a) Stock option and stock based compensation:

         In 1999, the Company adopted a fixed stock option plan that provides
         for the issuance of incentive and non-qualified stock options to
         officers, directors, employees and consultants to acquire shares of the
         Company's common stock.

         The Board of directors determines the terms of the options granted,
         including the number of options granted, the exercise price and the
         vesting schedule. The exercise price for qualified incentive stock
         options shall not be less than the fair market value of the underlying
         stock at the date of grant, and have terms no longer than five years
         from the date of grant.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
                                                                                                      Weighted
                                                                                   Number              average
                                                                                       of             exercise
                                                                                   shares                price
------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>              <C>
         Outstanding, December 31, 1998                                               --         $         --

         Granted                                                                3,928,500                 0.50
         Exercised                                                                    --                   --
         Cancelled                                                                    --                   --

------------------------------------------------------------------------------------------------------------------
         Outstanding, December 31, 1999                                         3,928,500        $        0.50
------------------------------------------------------------------------------------------------------------------

         Exercisable, December 31, 1999                                               --         $         --
------------------------------------------------------------------------------------------------------------------

         Weighted average fair value of options granted during 1999           $      0.17
------------------------------------------------------------------------------------------------------------------

</TABLE>


                                       33
<PAGE>   36

DICOM IMAGING SYSTEMS, INC.

Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)

Years ended December 31, 1999 and 1998

-------------------------------------------------------------------------------
6.       STOCKHOLDERS' DEFICIT (CONTINUED):

     (a) Stock option and stock based compensation:

         The options outstanding at December 31, 1999 have no date of expiry and
vest as follows:

<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------------------------
         Number of options                                 Exercise price                          Date vested
-------------------------------------------------------------------------------------------------------------------
<S>               <C>                                         <C>                           <C>
                  3,750,000                                   $      0.33                       March 17, 2000
                     73,500                                          2.50                      October 1, 2000
                     30,000                                          7.50                    November 11, 2000
                     45,000                                          3.75                    December 20, 2000
                     30,000                                          5.00                         June 7, 2001

-------------------------------------------------------------------------------------------------------------------
                  3,928,500
-------------------------------------------------------------------------------------------------------------------
</TABLE>

         In 1999, the Company recorded non-cash compensation expense of $5,015
         and deferred compensation expense of $86,569 relating to the issuance
         of 133,500 stock options to purchase common shares to certain
         contractors of the Company. The weighted average fair value of the
         stock options was estimated at $0.69 per option at the time of the
         transaction. The deferred compensation is being amortized at over 18
         months, the vesting period of the underlying options.

         The Company has adopted the disclosure provisions of Statement of
         Financial Accounting Standards No. 123 ("FAS 123"), Accounting for
         Stock Based Compensation, to account for grants to employees under the
         Company's existing stock based compensation plan. Had compensation cost
         for the Company's stock option plan been determined based on the fair
         value at the grant date for awards under those plans consistent with
         the measurement provisions of FAS 123 and had the compensation been
         recognized over 12 to 18 months, the vesting period of the underlying
         options. The Company would have recorded non-cash compensation expense
         of $419,390 and deferred compensation expense of $147,318 relating to
         the issuance of stock options. The Company's net loss and basic loss
         per share would have been adjusted as follows:

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------
                                                                                     1999                 1998
-----------------------------------------------------------------------------------------------------------------

<S>                                                                        <C>                <C>
         Loss for the period - as reported                                 $    1,055,996     $        100,000
         Loss for the period - proforma                                         1,475,386              100,000
         Basic loss per share - as reported                                          0.17                 0.03
         Basic loss per shares - proforma                                            0.24                 0.03
-----------------------------------------------------------------------------------------------------------------
</TABLE>


                                       34
<PAGE>   37

DICOM IMAGING SYSTEMS, INC.

Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)

Years ended December 31, 1999 and 1998

------------------------------------------------------------------------------
6.       STOCKHOLDERS' DEFICIT (CONTINUED):

     (a) Stock option and stock based compensation (continued):

         The fair value of each option grant has been estimated on the date of
         the grant using the Black-Scholes option-pricing model with the
         following assumptions:

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

         Expected dividend yield                                0.0%
         Expected stock price volatility                       80.0%
         Risk-free interest rate                               5.86%
         Expected life of options                      1 - 1.5 years
-------------------------------------------------------------------------------

         The Black-Scholes option valuation model was developed for use in
         estimating the fair value of options which have no vesting restrictions
         and are fully transferable. In addition, option valuation models
         require the input of highly subjective assumptions including the
         expected stock price volatility. Because the Company's employee stock
         options have characteristics significantly different from those of
         traded options, and because changes in the subjective input assumptions
         can materially affect the fair value estimate, in management's opinion,
         the existing models do not necessarily provide a reliable single
         measure of the fair value of its employee stock options.

(b)      Stock split:

         On December 22, 1999, the Company authorized a 3-for-1 stock split of
         the Company's common stock. All share and per share information has
         been adjusted to reflect the stock split.


                                       35
<PAGE>   38

DICOM IMAGING SYSTEMS, INC.

Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)

Years ended December 31, 1999 and 1998

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

7.   OPERATING LEASES:

     The Company leases office facilities in province of British Columbia and
     Washington State under lease agreements that expire on March 1, 2002 and
     October 31, 2000, respectively. In addition, the company leases certain
     telephone equipment. Minimum lease payments under these operating leases
     are approximately as follows:

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

     2000                                         $      32,000
     2001                                                23,000
     2002                                                 4,000

-------------------------------------------------------------------------------
     Rent expense totaled $16,468 for the period ended December 31, 1999
     (1998 - $Nil).

8.   INCOME TAXES:

     Income tax recovery attributable to losses from operations was $Nil for the
     period December 31, 1999 (1998 - $Nil), and differed from the amounts
     computed by applying the United States federal income tax rate of 34
     percent to pretax losses from operations as a result of the following:

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------
                                                                                     1999                 1998
--------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>             <C>

     Computed "expected" tax recovery                                           $    (359,038)   $     (34,000)
     Increase (reduction) in income tax recovery resulting from
       income taxes in a higher tax rate jurisdiction                                (116,160)             --
     Permanent difference resulting from stock based compensation and
       other non-deductible expenses                                                    2,847           34,000
     Temporary differences resulting from share issue costs and depreciation           (9,378)             --
     Unrecognized loss carry forwards                                                 481,729              --
--------------------------------------------------------------------------------------------------------------------
                                                                                $         --     $         --
--------------------------------------------------------------------------------------------------------------------
     The tax effects of temporary differences that give rise to significant
     portions of the deferred tax assets and deferred tax liabilities at
     December 31, 1999 is presented below:
--------------------------------------------------------------------------------------------------------------------

     Deferred tax assets
         Capital assets, principally due to differences in
         depreciation                                                                                $   5,322
         Share issue costs                                                                              66,564
         Net operating loss carryforward                                                               481,729
--------------------------------------------------------------------------------------------------------------------
         Total gross deferred tax assets                                                               553,615
         Less valuation allowance                                                                     (553,615)
--------------------------------------------------------------------------------------------------------------------
         Net deferred tax assets                                                                           --
         Net deferred tax liabilities                                                                      --
--------------------------------------------------------------------------------------------------------------------
     Deferred taxes                                                                              $         --
--------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       36
<PAGE>   39

DICOM IMAGING SYSTEMS, INC.

Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)

Years ended December 31, 1999 and 1998

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

8.   INCOME TAXES (CONTINUED):

     The valuation allowance for deferred tax assets as of December 31, 1999 was
     $553,615. In assessing the realizability of deferred tax assets, management
     considers whether it is more likely than not that some portion or all of
     the deferred tax assets will not be realized. The ultimate realization of
     deferred tax assets is dependent upon the generation of future taxable
     income during the periods in which those temporary differences become
     deductible. Management considers the scheduled reversal of deferred tax
     liabilities, projected future taxable income, and tax planning strategies
     in making this assessment. In order to fully realize the deferred tax
     asset, the Company will need to generate future taxable income of
     approximately $1,230,256 prior to the expiration of the net operating loss
     carryforwards in 2007. Based upon the level of historical taxable income
     and projections for future taxable income over the periods which the
     deferred tax assets are deductible, management does not believe it is more
     likely than not that the Company will realize the benefits of these
     deductible differences.

9.    FINANCIAL INSTRUMENTS:
     (a) Fair values:

         The fair value of cash and cash equivalents, trade accounts receivable,
         accounts payable and accrued liabilities approximates their financial
         statement carrying amounts due to the short-term maturities of these
         instruments.

     (b) Foreign currency risk:

         The Company operates internationally which gives rise to the risk that
         cash flows may be adversely impacted by exchange rate fluctuations.

10.  SEGMENTED INFORMATION:

     The Company operates in one business segment, computer software development
     and distribution. The Company's equipment is located in Canada and the
     revenue for the period ended December 31, 1999 has been primarily derived
     from sales to customers based in the United States.


                                       37
<PAGE>   40

DICOM IMAGING SYSTEMS, INC.

Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)

Years ended December 31, 1999 and 1998

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


11.  RELATED PARTY TRANSACTIONS:

     During the period, the Company leased office furniture and computer
     equipment in the amount of $18,679 (1998 - $Nil), from Dicom Software Inc.,
     a company controlled by three of the directors of the Company.

     The Company leases an office in the amount of $16,284 (1998 - $Nil) from
     529489 BC Ltd., a company partially owned by Dicom Software Inc. At
     December 31, 1999, accounts payable included $ 9,218 payable to 529489 BC
     Ltd relating to this rent.

     During the year, the Company purchased demo equipment in the amount of
     $3,744 (1998 - $Nil) from Source Dental Image, a company controlled by two
     directors of the Company.

12.  SUBSEQUENT EVENTS:

     In February 2000, the Company exercised its options to acquire a 30 years
     exclusive, transferable, worldwide license to the medical version of the
     imaging software for a fee of $250,000.

     In March 2000, the Company entered into various license agreements that
     allow the purchasers the exclusive right to distribute the Company's dental
     imaging software products in the United Kingdom, Australia, New Zealand,
     Mexico, Brazil, Spain and Portugal in exchange for cash of $2,565,000 to be
     renewed over the next twelve months and royalties ranging from of 5% to 20%
     of gross revenues from the sale of software licenses over the next three
     years.

     On March 31, 2000, the Company announced an additional 3-for-1 stock split.

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

          None


                                       38
<PAGE>   41


PART III

ITEM 9. Directors, Executive Officers and Control Persons

DR. DAVID GANE       PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR

                     PERSONAL: BIRTH DATE: APRIL 17 1954

Dr. Gane graduated from the University of Western Ontario in 1977, (B.Sc.
Honors) and in 1981 with his Doctorate in Dental Surgery (D.D.S.)

                                   CORPORATE:

Dr. Gane has been an officer and director of Dicom since March 17, 1999. Dr.
Gane was the President and Co-Founder of Source Dental Image Inc. from March of
1992 until January of 1995, a company specializing in the development and sales
of Dental Imaging Software, Co-Founder of Image FX Software Solutions Inc. from
February of 1995 until February of 1999, a company specializing in the
development and sales of Imaging Solutions to Dentists and Physicians and is
currently Program Director, Imaging Technologies for Experdent Centers of Dental
Excellence. Dr. Gane has consulted for a number of Corporations and Universities
on matters related to dental imaging. He has also lectured worldwide and
published on the topic of dental imaging and cosmetic dentistry. Dr. Gane has
practiced dentistry since June of 1981 and maintains an exclusive part time
dental practice limited to advanced restorative dentistry.

WAYNE REES, VICE-PRESIDENT, DIRECTOR

CORPORATE:

Wayne Rees

         Wayne Rees has been an officer and director of Dicom since
March 17, 1999.
His employment experience includes:
SDS Data Systems Regional Sales Manager Oct 1979-June 1980
Inter Data Management Account Manager June 1980- June 1986
Data Tech Systems Account Manager July 1986-July 1987
Vice President Source 1 Computers Inc. July 1987-Aug1988
Vice President Sales Source Dental Image Inc. Aug 1988-1995
Consultant Image FX Software Solutions Inc Feb 1995 - 1999
Vice President  and Director of Dicom Imaging Systems Inc. March 1999 - present.

Wayne's background in sales began with his commerce and business administration
training at Malaspina College where he majored in marketing. Wayne's front line
experience has encompassed computer hardware, software, service, and dental
peripheral products. Wayne co-founded Intadata Management, a national computer
support company with eleven branch offices throughout Canada. His
responsibilities included negotiating supplier agreements, establishing
technical training programs for colleges and government, and establishing an in
house leasing division, in addition to managing all marketing activities. Wayne
co-developed "CHOICES" the initial hair salon imaging system back in 1987. He




                                       39
<PAGE>   42


co-founded Source 1 Dental Imaging, the developers of the "Picture Perfect
Imaging System" in DOS which was marketed exclusively by Dentsply International
and the "InfoSource / Picture Perfect" system for MS Windows. Wayne co-founded
and was Vice President of ProDentec Canada where he was responsible for
international marketing of computer and imaging related products. Wayne set up
dealer marketing programs, established and trained large international dental
distributors on the imaging products, attended and presented at most of the
major dental trade shows over the past six years, and assisted lecturers in
presentations throughout the US and Canada. Wayne consulted and assisted in
writing the dental textbook by Goldstein, Goldstein, and Garber, called "Imaging
in Esthetic Dentistry". He was also on the American Dental Association Standards
Committee. Wayne co-founded Image FX Software Solutions and co-designed the
Image FX / CosmetiX imaging systems for dentistry, and the MedX / Simulate
System for Medical use. Sales training courses provided by suppliers such as
Micom, Xerox, AES, MAI, IBM, DEC and Honeywell round out Wayne's experience in
technical sales, and support services.

TODD REES                  VICE-PRESIDENT AND DIRECTOR

PERSONAL:                  Birthdate April 1 1959


CORPORATE:

Todd Rees

Todd Rees has been an officer and director of Dicom since March 17, 1999. Todd's
employment experience includes: SDS Data Systems Service Manager June 1978- Nov
1980 Interdata Management Service Manager Nov 1980 - June 1985 Data Tech Systems
Service Manager June 1985- Aug 1988 Technical Consultant Source Dental Image
Inc. Aug 1988-Feb 1995 President Image FX Software Solutions Inc. March 1995-
March 1999 Vice-President and Director, Dicom Imaging Systems Inc. March 1999 to
present

Todd has an extensive background in electronics design and software development.
He graduated from Camosun College with a certificate in electronics. From there
he co-founded a national computer support company with 11 branch offices
throughout Canada. This company was then sold to Datatech Systems Inc. There he
headed up the support division for Western Canada with a directive of decreasing
the budget of $8.5 million CDN, this was accomplished by a decrease in overhead
of approx. 28% within a 6-month period. His skills include teaching electronics'
program at Camosun College and co-authoring a technical program at Malispina
College which are both still active today. Todd was President and co-founder of
ImageFX Software Solutions where he co-managed an International software
development company with products in the Medical and Dental fields.

STEPHEN WINTER             VICE-PRESIDENT, TREASURER, SECRETARY AND DIRECTOR

PERSONAL:                              Birthdate February 11, 1961



                                       40
<PAGE>   43


         Stephen Winter has been an officer and director of Dicom since March
17, 1999. Stephen Winter is presently the Vice President of Photo Type Composing
Ltd. located in Victoria, BC Canada, where he has held various positions since
January of 1984. He is responsible for the design, development, and promotion of
seven publications specializing in Recreational Atlases. Stephen has obtained a
degree in Cartography and has fifteen years experience in graphic design,
computer programming, printing, and marketing new products. Stephen has been a
director of an oil and gas company for two years. Other areas of experience
include surveying and photogrammetry, certified welder, and dental lab
technician.

Family Relationships

         Vice President and Director Todd Rees and Vice President and Director
Wayne Rees are brothers.

Stock Holdings for Directors, Officers and Control Persons

(all numbers of shares are reported before the three for one stock split that
occurred on December 21, 1999)

David Gane                          100 Shares       333,333 option shares*
Wayne Rees                          100 Shares       333,333 option shares*
Todd Rees                           100 Shares       333,333 option shares*
Stephen Winter                                       250,000 option shares*
Torchmark Holdings Ltd.                              950,000 shares

* Fully vested, unexercised options to purchase common shares at $1.00 per
share.

Involvement in Legal Proceedings.

None.

ITEM 10.  EXECUTIVE COMPENSATION

               The following table sets forth certain information with respect
to compensation paid by the Company for the fiscal year ended December 31, 1999
and for the prior two fiscal years to the Company's Chief Executive Officer. No
other executive officer received more than $72,000 in annual compensation.

                           Summary Compensation Table

Executive Compensation

         Dr. David Gane, President, CEO and Director, receives payments of $6000
per month in salary and options to purchase 333,333 shares of common stock in
Dicom as compensation. His options are at $1.00 per share, are unexercised and
fully vested. As of December 31, 1999, Dr. Gane had received $63,000 in
compensation from Dicom.



                                       41
<PAGE>   44


Summary Compensation Table
<TABLE>
<CAPTION>                 Annual Compensation           Long Term Compensation
                     ------------------------------ -----------------------------
                                                     Other                                                       Other
Name and                                             Compen-     Restricted Stock     SAR            LTIP       Compen-
Position             Year         Salary      Bonus  sation           Awards          (s)           Payouts     sation
<S>                 <C>          <C>          <C>     <C>           <C>            <C>              <C>          <C>
David Gane,  CEO     1999        $63,000(1)   None      None            None      333,333 shares     None         None

</TABLE>

(1)  Although Dr. Gane receives an annual salary of $72,000, he has only been
     paid $63,000 to December 31, 1999, covering the period February 15, 1999 to
     December 31, 1999.


Option/SAR Exercise/Grant/Values Table
<TABLE>
<CAPTION>

Name              Year     # of SAR     Exercise Price    Expiration    Vested    % Exercised    Value
<S>               <C>      <C>          <C>               <C>            <C>          <C>        <C>
David Gane        1999     333,333             $1.00        03/17/05      100%        0%        $1,333,332
CEO
</TABLE>

ITEM     11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
         Security Ownership of Certain Beneficial Owners and Management

         Beneficial Owners of More than Five Percent.
<TABLE>
<CAPTION>

Title of Class                   Name and Address of           Amount and Natureof           Percent of Class
                                 Beneficial Owner              Beneficial Owner
-------------------------------- ----------------------------- ----------------------------- ------------------------------
<S>                              <C>                           <C>                           <C>
Common                           Dr. David Gane                333,433  President,  CEO and  8.9%
                                 1081 Kent Street              Director(1)
                                 White Rock, BC
                                 Canada V4B4T2
-------------------------------- ----------------------------- ----------------------------- ------------------------------
Common                           Wayne Rees                    333,433 Vice President and    8.9%
                                 13670 Malabar St.             Director(1)
                                 White Rock, BC
                                 Canada V4B2X9
-------------------------------- ----------------------------- ----------------------------- ------------------------------
Common                           Todd Rees                     333,433 Vice President and    8.9%
                                 112-15282 19th Avenue         Director(1)
                                 Surrey, BC
                                 Canada v4B1X6
------------------------------- ----------------------------- ----------------------------- ------------------------------
Common                           Stephen Winter                250,000 Vice President,       6.7%
                                 4610 Boulderwood Drive        Director, Secretary,
                                 Victoria, BC                  Treasurer (2)
                                 Canada
-------------------------------- ----------------------------- ----------------------------- ------------------------------
Common                           Torchmark Holdings            950,000                       39.5%
                                 PO Box 290
                                 Caribbean Place
                                 Leeward Highway
                                 Providenciales,
                                 Turks and Caicos Islands
-------------------------------- ----------------------------- ----------------------------- ------------------------------
</TABLE>


(1)  Includes rights to acquire 333,333 shares of common stock at $1.00 which
     are currently fully vested and unexercised.
(2)  Includes rights to acquire 250,000 shares of common stock at $1.00 which
     are currently fully vested and unexercised.


                                       42
<PAGE>   45



ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
         Dicom did not develop the Image Explorer or value added module

software, but licensed the same from Torchmark Holdings, Ltd., a Turks and
Caicos Islands B.W.I. corporation ("Torchmark") under a License Agreement dated
March 17, 1999 by and between Torchmark and Dicom and a Capital Contribution
Agreement dated March 17, 1999 by and between Torchmark and Dicom. Under the
terms of the agreement, Torchmark has given Dicom an exclusive, world-wide,
royalty free, fully paid-up license to use, sell, distribute and sublicense the
Software for a thirty year period. Torchmark was compensated for the license by
a grant of 1,000,000 common shares of Dicom stock, pursuant to the agreement.
The agreement has a condition subsequent, that Dicom raise $1,000,000 in its
private placement. The condition has been satisfied. The agreement also provides
Dicom with the option to license the medical version of the Software from
Torchmark for a payment of $250,000.

         Torchmark acquired the license for the Image Explorer and value added
module software (the "Software") from Image F/X Software Solutions, Inc., a
Canadian Corporation ("Image"). Torchmark became acquainted with Image by means
of Walter Sutherland, who was an employee of Image at the time of the
introduction and who was friends with the principals of Torchmark. Walter
Sutherland is currently an employee of Dicom. Torchmark paid Image $150,000
Canadian Dollars for a full transfer of all right, title and interest in the
Image Explorer software.

         Directors Wayne Rees, Todd Rees and David Gane are the sole
shareholders of Image. Directors Todd Rees and David Gane are officers of Image.
Image sold the license to the Software to Torchmark for $150,000 Canadian
dollars.

         To date, Dicom has lent $44,000 to Image under a promissory note, at 6%
interest, payable by May 15, 2000. This loan was made in consideration for Image
providing otherwise uncompensated software development assistance to Dicom in
preparing the Software for its commercial launch. Image was reimbursed for its
actual expenses paid to third-parties in rendering such development assistance
in addition to the compensation in the form of a loan, described above.

         During the period, the Company leased office furniture and computer
         equipment in the amount of $18,679 (1998 - $Nil), from Dicom Software
         Inc., a company controlled by three of the directors of the Company.

         The Company leases an office in the amount of $16,284 (1998 - $Nil)
         from 529489 BC Ltd., a company partially owned by Dicom Software Inc.
         At December 31, 1999, accounts payable included $ 9,218 payable to
         529489 BC Ltd relating to this rent.


                                       43
<PAGE>   46


         During the year, the Company purchased demo equipment in the amount of
$3,744 (1998 - $Nil) from Source Dental Image, a company controlled by two
directors of the Company.

         Certain shareholders of Dicom have entered into a lock-up agreement
amongst themselves whereby they each voluntarily agree to hold ninety percent of
their shares for a period of one hundred and eighty days from the date Dicom
commences trading on the Nasdaq OTC bulletin board. Although Dicom is not a
party to this lock-up agreement, the lock up agreement could have a severely
restrictive impact on the public trading float of Dicom's stock and could limit
the ability of Dicom shares to be sold into the public markets.


                                       44
<PAGE>   47

Item 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

No reports on 8-K were filed during the period

                                INDEX TO EXHIBITS

EXHIBIT NO.                 DESCRIPTION OF EXHIBIT

3.1(a)*       Articles of Incorporation of the Registrant

3.2(a)*       Bylaws of the Registrant

10.1(a)*      Form of Stock Purchase Agreement between the Registrant and
              purchasers of shares of common stock in the Registrant.

10.2(a)*      License Agreement between Torchmark Holdings, Ltd. and Registrant
              dated March 17, 1999.

10.3(a)*      Capital Contribution Agreement between Torchmark Holdings, Ltd.
              and Registrant dated March 17, 1999.

10.4(a)*      Order Fulfillment Agreement between 527403 British Columbia
              Limited and Registrant dated May 14, 1999.

10.5(a)*      Voting Agreement between certain holders of common stock in the
              Registrant and the Registrant, dated March 17, 1999.

10.6**        Amended and Restated Licensing Agreement between Registrant and
              Douglas Campbell effective September 29, 1999.

(a)  Filed previously with the commission in Registrant's Filing on Form 10 SB
     on June 15, 1999 or filed previously with the commission in Registrant's
     Filing on Form 10 SB, Amendment No.1 on July 22, 1999.

(b) ** Filed previously with the commission in Registrant's Filing on Form 10QSB
    dated 11-09-99.



                                       45
<PAGE>   48


SIGNATURES

         Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.


DICOM IMAGING SYSTEMS, INC.
-------------------------------
(Registrant)

Date: APRIL 14, 2000
     --------------------------

By:  /s/ DAVID GANE
-------------------------------
David Gane



                                       46