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SECURITIES AND EXCHANGE COMMISSIONWashington D.C. 20549

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FORM 10-KSB

|/x/ | Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the Fiscal Year Ended December 31, 2000

|/ / | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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Commission File Number: 000-26369

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Dicom Imaging Systems, Inc.(Name of small business issuer in its charter)

Nevada(State or other jurisdiction of
incorporation or organization)

88-042202(I.R.S. Employer
Identification Number)#201 - 15047 Marine Drive
White Rock, British Columbia, Canada(Address of principal executive offices)

V4B 1C5(Zip/Postal Code)


(604) 531-2521(Telephone Number)

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, par value $0.001

(Title of Class)

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Check
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 / /

Check
if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B in this form, and no disclosure will be contained, to the best of the
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. / /

State
issuer's revenues for its most recent fiscal year: $2,502,902

Aggregate
market value of the Registrant's Common Stock held by non-affiliates as of December 31, 2000 was approximately $6,700,000. The number of shares of the
Registrant's Common Stock outstanding as of December 31, 2000 was 21.6 million.

Transitional
Small Business Disclosure Format: Yes / /  No /x/

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TABLE OF CONTENTS

|           |  |                                                                                                                 |  | Page
|---------- |  | --------------------------------------------------------------------------------------------------------------- |  | ----
|Part I     |  |                                                                                                                
|Item 1.    |  | Description of Business                                                                                         |  | 3   
|Item 2.    |  | Description of Property                                                                                         |  | 13  
|Item 3.    |  | Legal Proceedings                                                                                               |  | 13  
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                             |  | 14  
|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                                                                                            |  | 17  
|Item 8.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                            |  | 33  
|Part III   |  |                                                                                                                
|Item 9.    |  | Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act |  | 33  
|Item 10.   |  | Executive Compensation                                                                                          |  | 35  
|Item 11.   |  | Security Ownership of Certain Beneficial Owners and Management                                                  |  | 36  
|Item 12.   |  | Certain Relationships and Related Transactions                                                                  |  | 37  
|Item 13.   |  | Exhibits List and Reports on Form 8-K                                                                           |  | 38  
|SIGNATURES |  | 39                                                                                                             

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Forward-Looking Statements

Certain statements in this Annual Report on Form 10-KSB constitute forward-looking statements within the meaning of Section 21E of
the Securities Exchange Act of 1934. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of
Dicom Imaging Systems Inc. (collectively, referred to as "we," "us," "our," Dicom" and/or "the Company"), or developments in the Company's industry, to differ materially from the anticipated
results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to: the Company's limited operating history, lengthy sales
cycles, the Company's dependence upon a relative concentration of customers, competition, product development risks and risks of technological change, dependence on selected vertical markets and
third-party marketing relationships and suppliers, the Company's ability to protect its intellectual property rights and the other risks and uncertainties described under "BusinessRisk
Factors" in Part I of this Annual Report on Form 10-KSB. Certain of the forward-looking statements contained in this Annual Report are identified with cross-references to
this section and/or to specific risks identified under "BusinessRisk Factors."

PART I.

Item 1. DESCRIPTION OF BUSINESS

GENERAL

Dicom Imaging Systems, Inc., (OTC BB: DCIM), a Nevada Corporation, designs, develops, markets, and supports digital imaging software for the dental
industry. The Company designed and developed its software products specifically for the use of dentists with a user-friendly interface that integrates with a variety of hardware
image-capture devices, including digital cameras, intra-oral cameras, scanners digital xray devices and video microscopes. The principal executive offices are located at
#201 - 15047 Marine Drive, White Rock, British Columbia, V4B 1C5, Canada, and the telephone number is (604) 531-2521.

Dicom
offers a 32-bit DICOM-compliant software suite that allows for the capture, manipulation, analysis, and storage of digital dental images. "DICOM" stands for Digital
Imaging and Communications in Medicine, which is the emerging standard for the communication of digital images in the healthcare industry. The standard was developed by the National Electric
Manufacturers Association of America and the American College of Radiology, and is endorsed by the American Dental Association.

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 24, 1999. Based on the Torchmark core technology, the Company designed and developed its software products specifically for the use of the dental professional in
private or institutional practice, with an interface that is user friendly, and integrates with associated hardware image capturing devices. The Company's software products utilize the Microsoft
Windows family of operating systems on the desktop.

Dicom's
business model has relied on producing and distributing, free of charge, an imaging software application called ImagExplorer and ImagEditor (together
registered trademarks of Dicom) to dentists, dental specialists, dental laboratories, insurance companies, and educational facilities throughout North America. Dicom requires registration of its
ImagExplorer product by its customers, at which time sales representatives market a series of value-added software modules, support services and imaging hardware devices to software registrants. The
Company has announced that it will be changing this business model in April 2001, at which time it will begin charging for the ImagExplorer product, but has recently extended the time the free
product will be available until May 30, 2001.

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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 Dicom software products, for an annual fee of $699. Substantially all of Dicom's revenues to date have been 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.

In
addition to the sale of digital imaging software products, Dicom sells a variety of hardware image-capture devices, including digital cameras and intra-oral cameras.
These hardware devices are required by dentists to capture a digital image that can be input into the digital imaging software for storage and processing.

The
core ImagExplorer product is a database and archiving module that allows dentists to capture, store, catalog, retrieve, present and view all the digital images they produce,
mostly radiographs and color images, using digital scanners, digital cameras, intra-oral cameras and video microscopes. ImagExplorer is bridged with most common windows-based practice
management software packages available on the market today.

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 Dicom's ImagExplorer technology.

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 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. The
corporate name Dicom Imaging Systems, Inc. was inspired by the DICOM standard.

Dicom
was incorporated in Nevada on March 17, 1999 and initially shipped its first dental imaging management system, ImagExplorer in September 1999. In October, 1999
Dicom also began offering service and telephone support for its software customers for an annual fee. In the fall of 1999, Dicom launched its ImagExplorer/ImagEditor product, an image archival and
editing solution, ImageSimulator, 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 exercised its rights to acquire the rights in the medical profession for the Torchmark
core technology. To December 31, 2000 the Company had generated no significant revenues from the medical products.

SOFTWARE PRODUCT ARCHITECTURE

Dicom's software products are based on a scaleable, core-product module architecture. The Company believes that its architecture provides the
system performance required for efficient image management, practice enhancement through simulation, and reduces overall imaging and archival costs and facilitates faster, easier and less expensive
management and manipulation of imaging data. 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 intended to be portable across major hardware platforms using Intel-based microprocessors. The Company believes that the design of its software
products reduces end-user training requirements and allows end-users and health professionals increased access to critical data not always readily available with currently
available image management tools. No assurance can be given concerning the successful development of Dicom software products on additional platforms, the specific timing of the releases of

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any future software products, the performance characteristics of Dicom applications on additional platforms or their acceptance in the marketplace.

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 Dicom's applications, including similar pull down menus, error handling, system navigation and point-and-click mouse-driven functionality. Dicom ImagExplorer
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., intra-oral cameras and
digital x-ray equipment. For example, customers can query the system and download data into either a word processing document or a spreadsheet. By leveraging the health professional's
familiarity with personal computers, previously difficult access to imaging information, editing, manipulation and archival data is available to the casual user, such as a hygienist, assistant or
receptionist, resulting in potential improvements in dental staff productivity.

APPLICATION SOFTWARE PRODUCTS

At December 31, 1999, Dicom's commercially available application software products included Dicom ImagExplorer, Whitener and ImageSimulator. In 2000
Dicom localized its software, making it easier to facilitate the translation into multiple foreign languages. As at April 1, 2001, the Company had developed and was testing a beta Japanese
language version of its software products.

During
2000, the Company completed a software utility allowing Dicom's software products to bi-directionally integrate and exchange patient information with Dentrix's
windows-based practice management software. Dentrix is one of the market leaders in dental practice management software.

During
2000, Dicom created a software utility allowing customers the ability to synchronize and update multiple ImagExplorer databases. This utility is provided to Dicom's Premium
Support customers at no charge.

Dicom
has recently completed a library of images in conjunction with MicroDental Laboratories of Dublin, California and Dr. Anthony Vocaturo of New York. The library will be
sold separately at a price of $799 and will also be bundled with ImageSimulator.

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 dental professional's internal operations.

The
following describes the primary features of the ImagExplorer suite of software products:

ImagExplorer
operates in the Windows operating system environment on a personal computer using the DICOM standard for reading and writing image files. ImagExplorer captures images
from a variety of sources such as digital cameras, intra-oral cameras, digital x-ray, video operating microscopes or any twain compliant device including scanners, 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 importing and 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 ImagExplorer software program. The core product consists of ImagExplorer, as described above, and ImagEditor described
below, as well as the other plug-in modules which dental professionals

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can purchase. ImagExplorer and ImagEditor are the core product and are currently distributed free, although the Company is changing its pricing policy in May 2001.

IMAGEXPLORER:
Allows users to capture images from a variety of sources such as digital cameras, intra-oral cameras, digital x-ray, video operating
microscopes or any twain compliant device, and then stores them in an "electronic file cabinet" visual interface.

IMAGEDITOR:
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 re-orienting the image.

WHITENER:
Whitener is an additional add-on module to ImagExplorer. Whitener is a module that 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.

IMAGESIMULATOR:
ImageSimulator'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
ImageSimulator, 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

Dicom distributes the core ImagExplorer software free of charge directly to dental professionals through direct mail, certain dental product dealers and
through partnering arrangements 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 Whitener and ImageSimulator are conducted primarily through this telephone "upselling."

In
addition to the above method, Dicom also generates sales of its software modules, support services and hardware devices from attending trade shows and educational forums where
dentists and their staffs congregate, via 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 resellers involve the distributor or reseller buying
CD-ROMs 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 $699 per year. Customers license these
value-added modules directly from Dicom by paying the appropriate licensing fee and receiving a CD-ROM containing the purchased modules.

Dicom's
software is distributed on a CD-ROM or may be downloaded from the Dicom website. Activating the software will install the ImagExplorer image database system. The
tabs for all of the additional optional modules reside on the main menu bar of the ImagExplorer program. When the tabs are pressed, a description of the module, and instructions on how to order it,
appears. Also on the CD-ROM is a short training video on how to use ImagExplorer and an introduction to the benefits of the other modules. Included in the package are 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

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order to activate the software the user must first load the software onto their computer. Upon installation of the software, the user is prompted to call Dicom for the activation code. At that time
Dicom's support representative takes the user's key information for the database and attempts to sell additional modules. The support representative also markets the service/support contract.

On
October 4, 2000, the Company entered into a Marketing Agreement with Eastman Kodak Company, whereby Kodak was granted the right to become a non-exclusive worldwide
distributor of Dicom's software, which will be distributed by Kodak in its Dental Digital Photography Kit 290 to Kodak's distribution network. Under the terms of the agreement, Kodak will
launch a comprehensive full-scale marketing campaign. A separate agreement granted Dicom the right to purchase and resell Kodak's Dental Digital products in the U.S.A.

On
December 21, 2000, the Company received a signed Letter of Intent from NHOSA Corporation ("NHOSA") for the exclusive distribution of Dicom's dental software products in
Japan. The Letter of Intent allows NHOSA a market evaluation period of up to 60 days within which NHOSA will evaluate Dicom's products.

On
February 13, 2001, Dicom entered into a Software Bundling and Co-Marketing Agreement with Olympus America Inc. According to the terms of the agreement,
Olympus was granted the right to become a non-exclusive worldwide distributor of Dicom's ImagExplorer and ImageEditor Software products, and bundle and distribute the Dicom Software with its
Healthcare Digital Photography Kit via its existing distribution network. In addition, the agreement granted Dicom the right to sell Olympus' Healthcare Digital Photography Kit in North America.

On
April 6, 2001, the Company signed an Authorized Dealer Agreement with Dental X Change, Inc. ("DXC") for the distribution of the Company's hardware and software bundles on
DXC's web site. Dicom's products will be featured on the DXC web site (www.dentalxchange.com) starting in May 2001.

RELATIONSHIP WITH MR. DOUG CAMPBELL

In September 1999, Dicom entered into a software license and distribution agreement with Mr. Doug Campbell. This agreement was terminated in
2000.

INTERNATIONAL OPERATIONS

In 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 2000, Dicom entered into the following distribution agreements:

United
Kingdom: the Company entered into a License Agreement with Dicom Imaging UK ("UK"), a partnership of Great Britain, whereby UK obtained the exclusive rights to distribute
copies of Dicom's software in the United Kingdom and the Republic of Ireland. Dicom issued a notice of termination of the License Agreement to UK on December 14, 2000, due to the failure by UK
to pay $150,000 in license fee payments by December 1, 2000. This outstanding license fee had not been received by Dicom as at May 10, 2001, and the Company is currently in the process
of arbitrating its dispute with UK.

Mexico,
Brazil, Spain and Portugal: In March 2000, Dicom entered into a Software Agreement with CLG Investments Limited ("CLG") whereby CLG was granted the exclusive right to
distribute copies of Dicom's software within the territories of Mexico, Brazil, Spain and Portugal. This Software Agreement was terminated on September 26, 2000, by a Settlement Agreement
signed by both parties, resulting in the recognition of $750,000 of license revenue in 2000.

Australia
and New Zealand: the Company entered into a binding letter agreement with Centaur Software Development PTY ("Centaur"), an Australian company, for the exclusive rights for
Centaur to sell Dicom software in Australia and New Zealand.

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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 the 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 3 employees as of December 31, 2000. Dicom provides, for a $699 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. In addition the company web site, www.dicom-image.com, Dicom has a FAQ section and
troubleshooting area. The support department also uses email support, dealer support and video
tutorials on CDROM.

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 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.

The
Company is not aware of any other companies that offer a free core product similar to ImagExplorer. 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.

ImagExporer
is presently one of only a few images storage and retrieval systems available which are DICOM compliant and which operate at 32-bit resolution on the Windows
operating system.

Dicom's
main competitors in dental imaging, including cosmetic imaging, are SciCan (which markets products Image FX and CosmetiX) and Dentrix (which creates and markets VIPERSOFT).
Both competitors charge approximately $2,000 for their core-imaging product. Both competitors compete in the areas of hardware, software and support services. If either 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. Another method of competition in the industry is to acquire or partner with 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 be able to compete
successfully with its existing competitors or will be able to compete successfully with new competitors.

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SOFTWARE PRODUCT DEVELOPMENT

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 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 new products, features or functionality that will be accepted by the market.

The
Company's research and development staff consisted of between two and five employees and contract employees during fiscal 2000. The Company's research and development expenses
were approximately $262,659 for 2000, compared to $104,460 in 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 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.

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 financial condition.

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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 Q/Media Services Corporation of Richmond, British Columbia, Canada, to manufacture its
CD-ROMs containing its software. There are many 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 Q/Media or other suppliers could have a material, adverse effect on Dicom's ability to compete and achieve profitability. However, due to
the relatively small materials cost in Dicom's software products, the impact of price increases by suppliers of the components and supplies is considered to be relatively immaterial.

DEPENDENCE ON ONE OF A FEW MAJOR CUSTOMERS

Dicom is not dependent on any particular customer. No one customer is responsible for more than 5% of Dicom's yearly sales volume.

NEED FOR GOVERNMENTAL APPROVAL

Dicom's products are regulated by Federal, State, Provincial and Local regulations. One of Dicom's software products under development requires 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. It is anticipated that such an
application will be completed in the near future 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.

EFFECT OF EXISTING OR PROBABLE GOVERNMENTAL REGULATION

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. Dicom is not aware of any instances of non-compliance. Such non-compliance could have a material adverse effect on Dicom's financial condition,
sales and profits.

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 aware of any such pending or proposed regulations, there is no assurance that they will not
be imposed.

COSTS AND EFFECTS OF ENVIRONMENTAL COMPLIANCE

Dicom has no significant costs associated with environmental compliance.

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EMPLOYEES

As of December 31, 2000, Dicom had 4 employees engaged in product research and development on a full-time basis and 13 employees engaged in
general and administrative and marketing functions on a full-time basis. Dicom's success will depend in large part on its ability to attract and retain skilled and experienced employees.
None of Dicom's employees are covered by a collective bargaining agreement, and the Company believes that its relations with its employees are good. Dicom does not currently have key man life
insurance on any of its directors or officers.

RISK FACTORS

Dicom's ability to achieve profitability relies on its ability to increase its revenues so that gross margins cover its selling, general and administrative and
research and development costs. There is a risk that the Company will not be able to increase sales, due to: competition from other companies selling similar products; a lack of resources to fund
marketing initiatives; lack of sufficient demand from the dental market for the Company's products; or the Company's inability to design and develop products that meet the requirements of the dental
market that can be offered at a competitive price. There is a risk that the Company could run out of cash flow and not be able to raise additional funds from investors or other sources.

DICOM HAS A HISTORY OF LOSSES AND ACCUMULATED DEFICIT AND THIS TREND OF LOSSES MAY CONTINUE IN THE FUTURE.

At December 31, 2000, the Company's accumulated deficit was $1,895,925 compared to $1,155,996 at December 31, 1999. The Company's ability to
obtain and sustain profitability will depend, in part, upon the successful marketing of its existing products and the successful and timely introduction of new products. There can be no assurance that
Dicom will ever be profitable.

The
auditors' report on Dicom's December 31, 2000 consolidated financial statements includes an explanatory paragraph that states that the Company has suffered recurring losses
and negative cash flows from operations and has a capital deficiency, conditions that raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do
not include any adjustment as a result of this uncertainty.

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

Certain quarterly influences may affect Dicom's 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. The summer months typically have lower sales due to
vacations and lower trade show activity. These fluctuations could result in significant fluctuations, including significant declines in the Company's stock price.

THE COMPANY'S FUTURE DEPENDS ON ITS ABILITY TO INCREASE DEMAND FOR ITS IMAGEXPLORER PRODUCT AS WELL AS ITS ABILITY TO DEVELOP AND INTRODUCE NEW PRODUCTS.

The Company's future depends upon its ability to increase demand for its ImagExplorer and related products and its ability to develop and successfully
introduce new products. Development of new product lines is risk intensive and often requires:



11

---



Also,
the medical and dental device industry is characterized by rapid technological change. As technological changes occur in the marketplace, Dicom may have to modify its products
in order to become or remain competitive or ensure that its products do not become obsolete. If the Company fails 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 Dicom's
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 LOSS OF DICOM'S CHIEF EXECUTIVE OFFICER COULD LEAD TO THE LOSS OF A SIGNIFICANT PORTION OF THE COMPANY'S BUSINESS BECAUSE OF HIS PERSONAL CONTACTS IN THE DENTAL INDUSTRY.

Dicom's success is highly dependent upon its President and Chief Executive Officer, Dr. David Gane. Unlike larger companies, Dicom relies heavily on a
small number of officers to conduct a large portion of its business. The loss of services of Dr. Gane along with the loss of his numerous contacts and relationships in the industry would have a
material adverse effect on Dicom's business. The Company has not entered into an employment agreement with Dr. Gane, and does not have key person life insurance on Dr. Gane.

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

Dicom's success and ability to compete is dependent in part upon its proprietary technology. The Company has been advised by counsel that its software cannot
easily be protected by patent. The Company has not applied for any patents, nor does it intend to apply for any patents in the future. Consequently, the Company relies primarily on trademark, trade
secret and copyright laws to protect its technology. Dicom has applied for trademark protection on ImagExplorer, Dicom Imaging Systems, LabRX, ImageXRay, Whitener, ImageSimulator, ImagEditor, and The
Imaging Standard for Dentistry. 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 the Company's products. In addition, many foreign countries' laws may not protect Dicom from improper use of its proprietary technology overseas. Dicom may not have adequate remedies if its
proprietary rights are breached and therefore a breach of its proprietary rights could have a material adverse effect on the Company's 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.

12

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DICOM IS SUSCEPTIBLE TO PRODUCT LIABILITY SUITS AND IF A LAWSUIT IS BROUGHT AGAINST THE COMPANY IT COULD RESULT IN DICOM HAVING TO PAY SIGNIFICANT LEGAL EXPENSES AND/OR
JUDGMENTS.

Although Dicom has not yet had any product liability claims, because of the nature of the dental device industry, there can be no assurance that the Company
will not be subject to such claims in the future. Dicom's 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 the Company susceptible to the risk of such claims. A successful product liability claim or claim arising as a result of use of its products brought against
the Company, or the negative publicity brought up by such claim, could have a material adverse effect upon Dicom's business. While the Company intends to maintain adequate insurance coverage, it
cannot guarantee that the amount of insurance will be adequate to satisfy claims made against the Company in the future, or that it will be able to obtain insurance in the future at satisfactory rates
or in adequate amounts.

THE OVER-THE-COUNTER BULLETIN BOARD IS CHARACTERIZED BY HIGH VOLATILITY WHICH MAY NEGATIVELY AFFECT DICOM'S STOCK PRICE.

Dicom's common stock trades on the National Association of Securities Dealers' Over-the-Counter Bulletin Board ("OTC BB") under the
symbol "DCIM." The OTC BB is characterized by high volatility. The Company cannot guarantee any market for its shares, and cannot guarantee that any market for its shares will develop or be sustained.
Dicom cannot predict the effect, if any, that future sales of its shares, or the availability of its shares for future sale, will have on the market price of its shares. During 2000, Dicom's share
price declined from a closing price of $2.00 on December 31, 1999 (adjusted for a three-for-one stock split on April 5, 2000), to a closing price of $0.31 on
December 29, 2000. The Company's stock was trading at $0.13 on May 10, 2001.

On
April 27, 2001, Dicom announced that in a staff letter dated March 16, 2001 from the OTC BB, Dicom was advised that in the event that Dicom does not file its periodic
reports with the Securities and Exchange Commission on a timely basis its shares could be suspended from trading on the OTC BB.

On
April 24, 2001, Dicom's trading symbol, DCIM, was appended with an "E" which means that its common stock could be, upon the expiration of a 30-day grace period,
suspended from trading on the OTC BB and subject to removal from the OTC BB, unless Dicom supplies the NASD with information indicating that Dicom is current in its public reporting obligations.

Item 2. DESCRIPTION OF PROPERTY

Dicom does not own real property. Dicom currently maintains leased office space in Blaine, Washington and White Rock, British Columbia of approximately 1,200
and 2,800 square feet, respectively. Dicom does not invest in real estate.

Item 3. LEGAL PROCEEDINGS

In March 2001, Dicom was named as a Defendant in now settled legal proceedings, instituted by Don Williams, Dicom's former President and Chief Operating
Officer, and Richard Bergin, Dicom's former Vice President Marketing. On March 2, 2001, the Company terminated Mr. Williams' and Mr. Bergin's employment with Dicom. On
March 26, 2001 Mr. Williams and Mr. Bergin instituted a legal proceeding against the Company in the Supreme Court of British Columbia (No. S011718 and S011719, respectively)
alleging that the Company owed Mr. Williams approximately $56,482 and Mr. Bergin approximately $50,563 in outstanding bonuses and severance pay. On April 23, 2001, the Company
settled Mr. Williams' and Mr. Bergin's claim in an amount of approximately $17,500 each. On April 23, 2001, the Company and each of Mr. Williams and Mr. Bergin
consented to and filed, and

13

---

the Registrar of the Supreme Court of British Columbia entered, a Consent Dismissal Order with the Court, dismissing the legal proceedings.

On
November 22, 2000, a former employee, Mr. Ross Paterson, filed a Writ and Statement of Claim against the Company for wrongful dismissal, in the New Westminster
Registry of the Supreme Court of British Columbia, Canada. Mr. Paterson is claiming unspecified damages for breach of contract. The case is scheduled to be heard in court on July 6,
2001.

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

None.

PART II

Item 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Dicom's Common Stock is not traded on a registered securities exchange, or the NASDAQ. Dicom's Common Stock is quoted on the OTC BB and was first listed on
November 7, 1999 under the symbol "DCME." The following table sets forth the range of high and low bid quotations for each fiscal quarter since the stock began trading. These quotations reflect
inter-dealer prices without retail mark-up, mark-down, or commissions, a 3-for-1 forward split on December 22, 1999, a
3-for-1 forward split on March 31, 2000, and may not necessarily represent actual transactions.

Fiscal Quarter Ending

High Bid

Low BidDecember 29, 1999

$
2.0417

$
1.6667March 31, 2000

$
12.3333

$
1.9375June 30, 2000

$
11.0000

$
4.1250September 30, 2000

$
4.8750

$
0.9688December 29, 2000

$
1.3750

$
0.2656March 31, 2001

$
0.4062

$
0.1250


On
May 10, 2001, the closing price was $0.13 per share.

As
of December 31, 2000, there were an estimated 8,000 record holders of Dicom's common stock. Since Dicom's inception, no cash dividends have been declared on the Company's
Common Stock.

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

On January 16, 2001, Dicom engaged the consulting services of Merchant Capital Group Incorporated ("MCGI"), a Toronto-based Merchant Bank, to act as
financial advisors to the Company and to recommend alternative strategies to maximize shareholder value. Pursuant to the initial recommendations of MCGI, Dicom downsized and re-organized
its executive management team as outlined below.

On
March 2, 2001, the Company terminated the employment of Mr. Don Williams, President, and COO, Mr. Richard Bergin, Vice President Marketing, and Dr. Ken
Tangen, Director of Investor Relations.

Dr. David
Gane, CEO, assumed the office of President. Mr. Wayne Rees, Vice President of Sales, assumed the office of Vice President Marketing and Mr. Todd Rees,
Vice President Customer Support, assumed the office of Chief Technology Officer left vacant by the departure or Mr. Reza Bazargan on January 2, 2001.

On
September 26, 2000, the Company and CLG Investments Ltd ("CLG") terminated the license agreement between the two companies by way of a settlement agreement. The
Company recognized

14

---

$750,000 of revenue in fiscal 2000 due to the termination of this license agreement with CLG, also known as the "Spanish deal".

On
April 6, 2001, the Company signed an Authorized Dealer Agreement with Dentalexchange.com ("DXC") for the distribution of the Company's harware and software bundles on DXC's
web site. Dicom's products will be featured on the DXC web site (www.dentalxchange.com) starting in May 2001.

The
auditors' report on Dicom's December 31, 2000 consolidated financial statements includes an explanatory paragraph that states that the Company has suffered recurring losses
and negative cash flows from operations and has a capital deficiency, conditions that raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do
not include any adjustment as a result of this uncertainty.

OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

REVENUES

Revenues for the year ended December 31, 2000 were $2,502,902 compared to $249,032 in 1999, and were derived from the sale of hardware and software
products, software licenses and support to dentists primarily in the United States.

The
company has recorded deferred revenue as at December 31, 2000 in the amount of $156,471, which represents support contracts and license revenue that relate to future
accounting periods.

GROSS MARGIN

Cost of sales for the year ended December 31, 2000 were $711,311 compared to $150,869 in 1999. The Gross Profit was $1,791,591 or 71.6% of revenues,
compared to $98,163 or 39.4% in 1999. Cost of sales included software media, hardware costs, freight, credit card transaction charges and customer support salaries. The improvement in Gross Profit as
a percentage of revenues was due to the inclusion of $1,288,061 in software license revenue in 2000 compared to zero software license revenue in 1999.

OPERATING EXPENSES

Operating expenses included:

Depreciation
in the amount of $85,103 on computer and camera equipment used for demonstration purposes at tradeshows, compared to $16,140 in 1999; general and administrative expenses
in the amount of $1,599,394 ($793,172 in 1999), which included administrative salaries, audit and legal fees, investor relations expenses and insurance costs; research and development costs in the
amount of $262,659 ($104,460 in 1999) for software development; and selling and marketing expenses of $584,364 ($240,387 in 1999) that included trade show costs, advertising, mailings, and web site
maintenance.

The
resulting net loss for the year ended December 31, 2000 was $739,929, or a $0.03 loss per share, compared to a loss of $1,055,996 or $0.06 loss per share in the year ended
December 31, 1999.

Operations
for the year ended December 31, 2000 were funded by existing cash balances and additional loans from Torchmark Holdings Ltd in the amount of $556,685 ($nil in
1999).

At
December 31, 2000, Dicom had granted 11,682,991 stock options. While no options were exercised in 2000, the Company recorded non-cash compensation of $209,273
relating to the issuance of 172,500 options during the year ended December 31, 2000, compared to non-cash compensation of $5,015 in 1999.

15

---

CASH REQUIREMENTS

Dicom does not believe it can continue to satisfy its cash requirements from funds generated from operations at existing levels of revenues, and implemented a
downsizing of management staff in the first quarter of 2001. In order to continue to fund operations, the Company requires additional sources of funds that may not be readily available. As of
December 31, 2000, Dicom had cash on hand of $73,150. As of May 14, 2001, no additional sources of funds had been secured other than the financing agreements listed in Item 12.

PRODUCT DEVELOPMENT AND RESEARCH PLAN FOR THE NEXT TWELVE MONTHS

Due to Dicom's limited resources available for software development, progress on new software development has been slower than the Company expected and no
major software modules were introduced in 2000. The development group included four staff at December 31, 1999 and four staff at December 31, 2000. In addition, the Company uses
outsourced development services from time to time.

As
at May 14, 2001 Dicom has substantially completed coding of its new product, ImagExplorer Professional, and plans to release this product for beta testing in
June 2001. ImagExplorer Professional incorporates additional database functionality and also supports direct digital x-ray acquisition and the additional functionality of annotation
and image measurement analysis. The pricing of this new product has yet to be determined.

EXPECTED PURCHASE OR SALE OF PLANT AND SIGNIFICANT EQUIPMENT

None.

EXPECTED SIGNIFICANT CHANGES IN NUMBER OF EMPLOYEES

Dicom does not expect to add any additional staff in 2001.

16

---



Item 7. FINANCIAL STATEMENTS

Consolidated Financial Statements        (Expressed in United States dollars)        DICOM IMAGING SYSTEMS, Inc.        Years ended December 31, 2000
and 1999

Independent Auditors' Report

The Board of Directors and Stockholders
Dicom Imaging Systems, Inc.

We
have audited the consolidated balance sheets of Dicom Imaging Systems, Inc. as of December 31, 2000 and 1999 and the related consolidated statements of operations,
stockholders' deficit and cash flows for each of the years in the three year period ended December 31, 2000. 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. as of
December 31, 2000 and 1999 and the results of its operations and its cash flows for each of the years in the three year period ended December 31, 2000 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 recurring losses and negative cash flows from operations and has a capital deficiency that raises 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.

"KPMG
LLP"

Chartered
Accountants

Vancouver,
Canada
March 30, 2001
(except for note 15(d), which is as of April 11, 2001)

17

---



DICOM IMAGING SYSTEMS, INC.        Consolidated Balance Sheets        (Expressed in United States dollars)

December 31, 2000 and 1999

|                                      |                                      | 2000                    |                                             | 1999       |  
|------------------------------------- | ------------------------------------ | ----------------------- | ------------------------------------------- | ---------- | -
|Assets                                |                                      |                         |                                             |            |  
|Current assets:                       |                                      |                         |                                             |            |  
|                                      | Cash and cash equivalents            |                         | $                                           | 73,150     |  
|                                      | Accounts receivable (note 3)         |                         |                                             | 78,568     |  
|                                      | Inventory (note 4)                   |                         |                                             | 107,340    |  
|                                      | Prepaid expenses                     |                         |                                             | 43,181     |  
|                                      |                                      |                         |                                             |            |  
|                                      |                                      |                         | 302,239                                     |            |  
|Intangible assets (note 5)            |                                      |                         | 260,708                                     |            |  
|Equipment (note 7)                    |                                      |                         | 107,553                                     |            |  
|                                      |                                      |                         |                                             |            |  
|                                      |                                      | $                       | 670,500                                     |            | $
|                                      |                                      |                         |                                             |            |  
|Liabilities and Stockholders' Deficit |                                      |                         |                                             |            |  
|Current liabilities:                  |                                      |                         |                                             |            |  
|                                      | Accounts payable                     |                         | $                                           | 254,507    |  
|                                      | Accrued liabilities                  |                         |                                             | 267,378    |  
|                                      | Payable to related parties (note 14) |                         |                                             | 120,742    |  
|                                      | Loans from related party (note 13)   |                         |                                             | 556,685    |  
|                                      | Deferred revenue (note 6)            |                         |                                             | 156,471    |  
|                                      |                                      |                         |                                             |            |  
|                                      |                                      |                         | 1,355,783                                   |            |  
|Stockholders' deficit:                |                                      |                         |                                             |            |  
|                                      | Capital stock (note 8):              |                         |                                             |            |  
|                                      |                                      | Authorized:             |                                             |            |  
|                                      |                                      |                         | 10,000,000 preferred stock, $.001 par value |            |  
|                                      |                                      |                         | 50,000,000 common stock, $.001 par value    |            |  
|                                      |                                      | Issued and outstanding: |                                             |            |  
|                                      |                                      |                         | 21,600,000 common stock (199921,600,000)   |            |  
|                                      | Additional paid in capital           |                         |                                             | 1,189,042  |  
|                                      | Deficit                              |                         |                                             | (1,895,925 | )
|                                      |                                      |                         |                                             |            |  
|                                      |                                      |                         | (685,283                                    | )          |  
|                                      |                                      |                         |                                             |            |  
|                                      |                                      | $                       | 670,500                                     |            | $
|                                      |                                      |                         |                                             |            |  

Continuing
operations (note 1)
Subsequent events (note 15)

See
accompanying notes to consolidated financial statements.

Approved
on behalf of the Board:

|             |  |          |  |                 |  |         
|------------ |  | -------- |  | --------------- |  | --------
|"David Gane" |  | Director |  | "Wayne E. Rees" |  | Director

18

---

DICOM IMAGING SYSTEMS, INC.        Consolidated Statements of Operations        (Expressed in United States dollars)

Years ended December 31, 2000, 1999 and 1998

|                                                                          |                               | 2000 |            | 1999      |   | 1998      
|------------------------------------------------------------------------- | ----------------------------- | ---- | ---------- | --------- | - | ----------
|Software and hardware sales                                               |                               | $    | 2,502,902  |           | $ | 249,032   
|Cost of sales                                                             |                               |      | 711,311    |           |   | 150,869   
|                                                                          |                               |      |            |           |   |           
|Gross profit                                                              |                               |      | 1,791,591  |           |   | 98,163    
|Operating expenses:                                                       |                               |      |            |           |   |           
|                                                                          | Depreciation and amortization |      |            | 85,103    |   |           
|                                                                          | General and administrative    |      |            | 1,599,394 |   |           
|                                                                          | Research and development      |      |            | 262,659   |   |           
|                                                                          | Selling and marketing         |      |            | 584,364   |   |           
|                                                                          |                               |      |            |           |   |           
|                                                                          |                               |      | 2,531,520  |           |   | 1,154,159 
|                                                                          |                               |      |            |           |   |           
|Loss for the year                                                         |                               | $    | 739,929    |           | $ | 1,055,996 
|                                                                          |                               |      |            |           |   |           
|Net loss per common share, basic and diluted (note 2(m))                  |                               | $    | 0.03       |           | $ | 0.06      
|                                                                          |                               |      |            |           |   |           
|Weighted average common shares outstanding, basic and diluted (note 2(m)) |                               |      | 21,600,000 |           |   | 18,450,000
|                                                                          |                               |      |            |           |   |           

See
accompanying notes to consolidated financial statements.

19

---

DICOM IMAGING SYSTEMS, INC.        Consolidated Statements of Stockholders' Deficit        (Expressed in United States dollars)

Years ended December 31, 2000 and 1999

|                                                                        |  | Common stock |  |   |        |  |   |           |  
|----------------------------------------------------------------------- |  | ------------ |  | - | ------ |  | - | --------- | -
|
|
|Balance, December 31, 1997                                              |  |             |  | $ |       |  | $ | 100,000   |  
|Loss for the year                                                       |  |             |  |   |       |  |   |          |  
|                                                                        |  |              |  |   |        |  |   |           |  
|Balance, December 31, 1998                                              |  |             |  |   |       |  |   | 100,000   |  
|Issued on recapitalization                                              |  | 12,604,500   |  |   | 12,604 |  |   | (12,203   | )
|Issued for cash                                                         |  | 7,168,500    |  |   | 7,169  |  |   | 789,331   |  
|Issued for services                                                     |  | 1,827,000    |  |   | 1,827  |  |   | 201,173   |  
|Share issue costs                                                       |  |             |  |   |       |  |   | (184,901  | )
|Compensatory value of stock options issued to non-employees (note 8(a)) |  |             |  |   |       |  |   | 5,015     |  
|Loss for the year                                                       |  |             |  |   |       |  |   |          |  
|                                                                        |  |              |  |   |        |  |   |           |  
|Balance, December 31, 1999                                              |  | 21,600,000   |  |   | 21,600 |  |   | 898,415   |  
|Issuance of warrants (note 13)                                          |  |             |  |   |       |  |   | 19,500    |  
|Issuance of convertible loans (note 13)                                 |  |             |  |   |       |  |   | 61,854    |  
|Compensatory value of stock options issued to non-employees (note 8(a)) |  |             |  |   |       |  |   | 209,273   |  
|Loss for the year                                                       |  |             |  |   |       |  |   |          |  
|                                                                        |  |              |  |   |        |  |   |           |  
|Balance, December 31, 2000                                              |  | 21,600,000   |  | $ | 21,600 |  | $ | 1,189,042 |  
|                                                                        |  |              |  |   |        |  |   |           |  

See
accompanying notes to consolidated financial statements.

20

---



DICOM IMAGING SYSTEMS, INC.        Consolidated Statements of Cash Flows        (Expressed in United States dollars)        Years ended December 31,
2000, 1999 and 1998

|                                                 |                                              | 2000                                   |        | 1999     |          | 1998   |           
|------------------------------------------------ | -------------------------------------------- | -------------------------------------- | ------ | -------- | -------- | ------ | ----------
|Operations:                                      |                                              |                                        |        |          |          |        |           
|                                                 | Loss for the year                            |                                        | $      | (739,929 | )        | $      | (1,055,996
|                                                 | Items not involving cash:                    |                                        |        |          |          |        |           
|                                                 |                                              | Shares issued in exchange for services |        |          |         |        |           
|                                                 |                                              | Stock based compensation               |        |          | 209,273  |        |           
|                                                 |                                              | Depreciation and amortization          |        |          | 85,103   |        |           
|                                                 |                                              | Loss on disposal of capital assets     |        |          | 2,094    |        |           
|                                                 |                                              | Non-cash interest expense              |        |          | 81,084   |        |           
|                                                 |                                              | Write-off of intangible assets         |        |          | 2,890    |        |           
|                                                 |                                              | Other                                  |        |          | 271      |        |           
|                                                 | Changes in operating assets and liabilities: |                                        |        |          |          |        |           
|                                                 |                                              | Accounts receivable                    |        |          | (30,353  | )      |           
|                                                 |                                              | Inventory                              |        |          | (107,340 | )      |           
|                                                 |                                              | Prepaid expenses                       |        |          | (12,713  | )      |           
|                                                 |                                              | Accounts payable                       |        |          | 207,294  |        |           
|                                                 |                                              | Accrued liabilities                    |        |          | 177,705  |        |           
|                                                 |                                              | Payable to related parties             |        |          | 111,524  |        |           
|                                                 |                                              | Deferred revenue                       |        |          | (92,228  | )      |           
|                                                 |                                              |                                        |        |          |          |        |           
|                                                 | Net cash used in operating activities        |                                        |        | (105,325 | )        |        | (515,721  
|Investments:                                     |                                              |                                        |        |          |          |        |           
|                                                 | Purchase of equipment                        |                                        |        | (107,375 | )        |        | (60,766   
|                                                 | Proceeds from disposal of equipment          |                                        |        | 6,900    |          |        |          
|                                                 | Purchase of trademarks                       |                                        |        | (295,998 | )        |        | (17,250   
|                                                 |                                              |                                        |        |          |          |        |           
|                                                 | Net cash used in investing activities        |                                        |        | (396,473 | )        |        | (78,016   
|Financing:                                       |                                              |                                        |        |          |          |        |           
|                                                 | Issue of common shares                       |                                        |        |         |          |        | 796,901   
|                                                 | Loan from related party                      |                                        |        | 556,685  |          |        |          
|                                                 | Share issue costs                            |                                        |        |         |          |        | (184,901  
|                                                 |                                              |                                        |        |          |          |        |           
|                                                 | Net cash provided by financing activities    |                                        |        | 556,685  |          |        | 612,000   
|                                                 |                                              |                                        |        |          |          |        |           
|Increase (decrease) in cash and cash equivalents |                                              |                                        | 54,887 |          |          | 18,263 |           
|Cash and cash equivalents, beginning of year     |                                              |                                        | 18,263 |          |          |       |           
|                                                 |                                              |                                        |        |          |          |        |           
|Cash and cash equivalents, end of year           |                                              | $                                      | 73,150 |          | $        | 18,263 |           
|                                                 |                                              |                                        |        |          |          |        |           
|Supplementary information:                       |                                              |                                        |        |          |          |        |           
|                                                 | Interest paid                                |                                        | $      |         |          | $      | 353       
|                                                 | Income taxes paid                            |                                        |        |         |          |        |          
|Non-cash transactions:                           |                                              |                                        |        |          |          |        |           
|                                                 | Common stock issued for services             |                                        |        |         |          |        | 203,000   
|                                                 | Issuance of stock options                    |                                        |        | 209,273  |          |        | 5,015     
|                                                 | Issuance of warrants                         |                                        |        | 19,500   |          |        |          
|                                                 | Issuance of convertible loans                |                                        |        | 61,584   |          |        |          

See
accompanying notes to consolidated financial statements.

21

---



DICOM IMAGING SYSTEMS, INC.  Notes to Consolidated Financial Statements  (Expressed in United States dollars)  Years ended December 31, 2000, 1999 and 1998

1.  Nature of business and continuing operations:

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.

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, described 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, 2000, the Company has not generated
sufficient revenues to fund expenses and has experienced negative cash flow from operations. The Company has reported losses in each of the last three years, and has an accumulated deficit at
December 31, 2000 of $1,895,925. Operations have primarily been financed through the issuance of common stock and working capital loans provided by a controlling shareholder. As at
December 31, 2000, the Company does not have sufficient working capital to sustain operations until the end of the year ended December 31, 2001. 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 on reasonable terms (see note 13). If the Company is unable to
generate sufficient cash flow to support its existing level of operations, it may be obligated to reduce its activities. The Company estimates that it currently has available cash flow to sustain them
until June 2001. Failure to obtain additional financing at this time may result in liquidation, leading to values which may be much lower than their going concern value.

2.  Significant accounting policies:





22

---









23

---













24

---





3.  Accounts receivable:

2000

1999Receivable from Dicom Software, Inc.

$


$
37,777Canadian Goods and Services tax refund receivable


21,740


10,006Trade receivables


56,828


432$
78,568

$
48,215


The
receivable from Dicom Software Inc., a related company controlled by three of the directors of the Company, was non-interest bearing and due on demand. The
receivable from Dicom Software Inc., was paid in full during the year ended December 31, 2000.

4.  Inventory:

Inventory as at December 31, 2000 is made up of the following:

Packaged software

$
5,428Cameras and other hardware


101,912$
107,340


25

---

5.  Intangible assets:

2000

Cost

Accumulated
amortization

Net book
valueTrademarks

$
59,913

$
14,158

$
45,755Medical License


250,000


35,047


214,953$
309,913

$
49,205

$
260,708


1999

Cost

Accumulated
amortization

Net book
valueTrademarks

$
17,250

$
2,013

$
15,237


On
March 24, 1999 management entered into an agreement that provides the Company 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 1,000,000 common shares of the Company (see note 1).

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

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

6.  Deferred revenue:

2000

1999Support revenue

$
34,754

$
48,699License revenue


98,522


200,000Other


23,195


$
156,471

$
248,699


In
March 2000, the Company entered into various license agreements that allow the licencees the exclusive rights 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 $914,985, The licence agreements are renewable over the next twelve months with royalties ranging
from 5% to 20% of gross revenues from the sale of software over the next three years of these agreements. Of the amount received to December 31, 2000, $816,463 has been recognized as revenue in
2000 and $98,522 was recorded as deferred revenue.

26

---

7.  Equipment:

2000

Cost

Accumulated
amortization

Net book
valueComputer Hardware

$
98,709

$
31,726

$
66,983Computer Software


6,528


3,104


3,424Equipment


14,309


1,558


12,751Demonstration Equipment


36,613


12,218


24,395$
156,159

$
48,606

$
107,553


1999

Cost

Accumulated
amortization

Net book
valueComputer Hardware

$
41,421

$
10,282

$
31,139Computer Software


4,458


1,082


3,376Demonstration Equipment


14,887


2,763


12,124$
60,766

$
14,127

$
46,639


8.  Capital stock:



Number
of
shares

Weighted
average
exercise
priceOutstanding, December 31, 1998




$
Granted


11,785,491


0.17Exercised





Cancelled





Outstanding, December 31, 1999


11,785,491


0.17Granted


172,500


5.58Exercised





Cancelled


(275,000
)

3.32Outstanding, December 31, 2000


11,682,991

$
0.17Exercisable, December 31, 2000


11,621,741

$
0.16Weighted average fair value of options granted during 2000

$
0.12


27

---

The
options outstanding at December 31, 2000 have dates of expiry ranging from 4 to 10 years and vest as follows:

Number of options

Exercise price

Date vested11,250,000

$
0.11

March 17, 200025,000


6.50

May 8, 2000220,500


0.83

October 1, 200037,500


2.67

February 17, 200190,000


1.67

June 7, 200130,000


2.31

July 10, 200130,000


3.75

August 21, 200111,683,000


During
the year ended December 31, 2000, the Company recorded non-cash compensation expense of $209,273 (1999$5,015; 1998nil) relating to
the issuance of 172,500 (1999 - 400,500; 1998nil) stock options to purchase common shares to certain contractors of the Company, representing the fair value
benefit of the 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, the Company's net loss and basic loss per share would have been adjusted as follows:

2000

1999Loss for the periodas reported

$
739,929

$
1,055,996Loss for the periodproforma


3,081,236


1,475,386Basic loss per shareas reported


0.03


0.06Basic loss per sharesproforma


0.14


0.08


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

140.0
%Risk-free interest rate

5.86
%Expected life of options

3 - 4 years




28

---



9.  Operating leases:

The Company leases office facilities in the province of British Columbia and the State of Washington under lease agreements that expire on March 31,
2002 and December 1, 2001, respectively. In addition, the company leases certain telephone equipment. Minimum lease payments under these operating leases are approximately as follows:

2001

$
40,5552002


10,715


Rent
expense totalled $39,708 for the period ended December 31, 2000 (1999$16,468, 1998nil).

10.  Income taxes:

Income tax recovery attributable to losses from operations was Nil for the period December 31, 2000 (1999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:

2000

1999Computed "expected" tax recovery

$
(251,575
)
$
(359,038
)Increase (reduction) in income tax recovery resulting from income taxes in a higher tax rate jurisdiction


(85,092
)

(121,440
)Permanent difference resulting from stock-based compensation and other non-deductible expenses


137,041


2,878Change in valuation allowance


199,626


477,600$


$



The
tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities is presented below:

2000

1999Deferred tax assets:Compensation expense not currently deductible for tax

$
55,112

$
Equipment and intangible assets, principally due to differences in depreciation


44,139


7,344Share issue costs


50,478


67,304Net operating loss carryforward


611,627


487,082Total gross deferred tax assets


761,356


561,730Valuation allowance


(761,356
)

(561,730
)Net deferred tax assets





Net deferred tax liabilities





Deferred taxes

$


$



The
valuation allowance for deferred tax assets as of December 31, 2000 was $761,356. 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

29

---

of approximately $1,673,309 prior to the expiration of the net operating loss carryforwards of approximately $487,000 in 2006, and approximately $125,000 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.

11.  Financial instruments:







12.  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, 2000 has been primarily derived from sales to customers based in the United States. Revenues by product-type are as follows:

2000

1999

1998Licence revenue

$
1,288,061

$


$
Hardware sales


676,242


118,044


Software sales


387,508


106,366


Support and other revenue


151,091


24,622


$
2,502,902

$
249,032

$



13.  Loans from related party:

During the year 2000, the Company entered into financing agreements with Torchmark Holdings Ltd. ("Torchmark"), a controlling shareholder. On
August 14, 2000, the Company issued a promissory note to Torchmark for $250,000. As consideration for the execution of this note, the Company granted the lender 31,620 warrants to purchase
common stock of the company for $2.37 per share exercisable as of the date of the agreement. The fair value of these warrants at the date of issuance determined by the Black-Scholes option pricing
model was $19,500 that has been fully recognized as interest expense in the year ended December 31, 2000. The promissory note was refinanced during the year and was not outstanding as at
December 31, 2000.

30

---

The Company also entered into the following convertible loan agreements with Torchmark:

2000

199910% convertible promissory note, due May 6, 2001

$
255,685

$
10% convertible promissory note, due May 6, 2001


250,000


10% convertible promissory note, due May 6, 2001


51,000


$
556,685

$



The
unpaid principal of the promissory notes to Torchmark are convertible at any time into common shares at a rate of 90% of the fair market value of the common shares at the
agreement date of each note. The $255,686 and $250,000 promissory notes were signed November 7, 2000 at which time the fair market value of the Company's common shares was $1.00. The $51,000
promissory note was signed December 21, 2000 at which time the fair market value of the common shares was $0.44. As the conversion price was less than the market value of the Company's common
shares at the issuance date, a beneficial conversion option equal to the difference of $61,854 has been recognized. The resulting deemed discount on the convertible notes has been fully recognized in
interest expense in the year ended December 31, 2000.

14.  Related party balances and transactions:

2000

1999Payable to:Torchmark Holdings Ltd., a controlling shareholder

$
112,971

$
Dicom Software Inc., a company under common control


2,000


529489 BC Ltd., a company under common control


5,771


9,218$
120,742

$
9,218


During
the year, the Company exercised its option to acquire a license to the medical version of the imaging software from Torchmark Holdings Ltd., a controlling shareholder,
for a fee of $250,000. As at December 31, 2000, $100,000 of the fee remained payable to Torchmark Holdings Ltd. at a rate of 8.5% interest, due May 6, 2001. Total interest expense
related to Torchmark Holdings Ltd. for the year ended December 31, 2000 was $18,656.

During
the year, the Company leased office furniture and computer equipment in the amount of $21,191 (1999$18,679), from Dicom Software Inc., a company controlled
by three of the directors of the Company.

During
2000, the Company leased office space in the amount of $43,206 (1999$16,284) from 529489 BC Ltd., a company partially owned by Dicom Software Inc. At
December 31, 2000, accounts payable included $5,771 (1999$ 9,218) payable to 529489 BC Ltd relating to this rent.

During
the year, the Company purchased two trademarks in the amount of $6,669 from Source Dental Image, a company controlled by two directors of the Company. In 1999, purchases from
Source Dental Image consisted of demo equipment in the amount of $3,744.

15.  Subsequent events:





31

---



16.  Comparative figures:

Certain of the comparative figures have been reclassified to conform to the financial statement presentation adopted in the current year.

32

---



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

None.

PART III

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

DR. DAVID GANE, CHIEF EXECUTIVE OFFICER AND DIRECTOR

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 1992 until January 1995, a company specializing in the development and sales of Dental Imaging Software; he was a co-founder of Image FX
Software Solutions Inc. from February 1995 until February 1999, a company specializing in the development and sales of Imaging Solutions to Dentists and Physicians; and was past
Program Director, Imaging Technologies, for Experdent Centers of Dental Excellence. Dr. Gane has consulted for a number of Corporations and universities on digital imaging for dentistry. He has
also lectured worldwide and published on the topic of dental imaging and cosmetic dentistry. Dr. Gane has practiced dentistry since 1981 and maintains an exclusive part-time
cosmetic dental practice.

WAYNE REES, VICE-PRESIDENT, DIRECTOR

Mr. Wayne Rees has been an officer and director of Dicom since March 17, 1999. Previously, Mr. Rees co-founded Image FX
Software Solutions Inc. and co-designed the Image FX / CosmetiX imaging systems for dentistry, and the MedX / Simulator System for Medical use.

TODD REES VICE-PRESIDENT AND DIRECTOR

Mr. Todd Rees has been an officer and director of Dicom since March 17, 1999. Before joining Dicom, Mr. Rees was the President and
co-founder of Image FX Software Solutions Inc. from 1995 until 1999.

STEPHEN WINTER VICE-PRESIDENT, TREASURER, SECRETARY AND DIRECTOR

Mr. Winter has been an officer and director of Dicom since March 17, 1999. Mr. Winter is presently the Vice President of Photo Type
Composing Ltd., located in Victoria, B.C., Canada, where he has held various positions since January 1984. He is responsible for the design, development, and promotion of seven
publications specializing in Recreational Atlases.

FAMILY RELATIONSHIPS

Todd Rees and Wayne Rees are brothers.

33

---

STOCK HOLDINGS FOR DIRECTORS, OFFICERS AND CONTROL PERSONS

(all numbers of shares are reported after the two three-for-one forward stock splits that occurred on December 22, 1999 and
April 5, 2000)

Number of
Shares

Number of
Stock OptionsDavid Gane

900

2,999,997
*Wayne Rees

900

2,999,997
*Todd Rees

900

2,999,997
*Stephen Winter



2,250,000
*Torchmark Holdings Ltd.

8,550,000

31,620


---

SECTION 16(a) BENEFICIAL REPORTING COMPLIANCE

Prior to February 27, 2001, the Company had never received any Section 16(a) reports from any person subject to its requirements, other than one
form 4 received on December 14, 2000 from Mr. Reza Bazargan, the Company's former Chief Technology Officer. According to the Form 3's filed on March 8, 2001 pursuant
to Section 16(a) by the Company's officers and directors, and to the Company's knowledge, the following facts appear, as reported by the Company in an amended 10-KSB/A-2
filed on March 9, 2001:

David
Gane (Director and Chief Executive Officer). Dr. Gane engaged in one purchase transaction in prior fiscal years that was not reported on a timely basis. To date, he has
tendered one (1) late Form 3 on March 2, 2001.

Wayne
E. Rees (Director and Vice President Sales). Mr. Wayne Rees engaged in one purchase transaction in prior fiscal years that was not reported on a timely basis. To date, he
has tendered one (1) late Form 3 on February 28, 2001.

Todd
Rees (Director and Vice President Customer Support). Mr. Todd Rees engaged in one purchase transaction in prior fiscal years that was not reported on a timely basis. To
date, he has tendered one (1) late Form 3 on March 7, 2001.

Tony
Gallegos (Director). Dr. Gallegos, to date, has tendered one (1) late Form 3 on February 27, 2001.

Stephen
Winter (Director). Mr. Winter, to date, has tendered one (1) late Form 3 on March 6, 2001.

Donald
L. Williams (President and Chief Operating Officer). Mr. Williams has engaged in no purchase or sale transactions. To date, he has tendered one (1) late
Form 3 on March 1, 2001.

Paul
Fernandez (Chief Financial Officer). Mr. Fernandez has engaged in no purchase or sale transactions. To date, he has tendered one (1) late Form 3 on
February 27, 2001.

Richard
P. Bergin (Vice President Marketing). Mr. Bergin has engaged in no purchase or sale transactions. To date, he has tendered one (1) late Form 3 on
March 2, 2001.

Reza
Bazargan (Former Chief Technology Officer). Mr. Bazargan engaged in one purchase transaction that was reported on a timely basis on a Form 4. Other than this one
Form 4, Mr. Bazargan has not tendered to the Company any other forms as required by Section 16(a).

Torchmark
Holdings Ltd (Affiliate). Torchmark Holdings Ltd has not tendered to the Company any forms as required by Section 16(a).

34

---

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, 2000 and for
the prior fiscal year to the Company's officers listed below. No other executive officer received more than $72,000 in annual compensation.

SUMMARY COMPENSATION TABLE

Executive Compensation

|Name           |  | Title                            |  | Compensation in
2000 |           | Compensation in
1999 |   | # Options
Granted
in 2000 |  | # Options
Granted
in 1999
|-------------- |  | -------------------------------- |  | -------------------- | --------- | -------------------- | - | ------------------------- |  | -------------------------
|David Gane     |  | CEO, Director                    |  | $                    | 76,700.00 |                      | $ | 54,000.00                 |  | -0-                      
|Wayne Rees     |  | VP Sales, Director(1)            |  | $                    | 73,603.09 |                      | $ | 59,220                    |  | -0-                      
|Todd Rees      |  | VP Customer Support, Director(2) |  | $                    | 61,805.96 |                      | $ | 48,880                    |  | -0-                      
|Don Williams   |  | President, COO(3)                |  | $                    | 72,711.51 |                      |   | n/a                       |  | -0-                      
|Richard Bergin |  | VP Marketing(4)                  |  | $                    | 44,088.03 |                      |   | n/a                       |  | -0-                      
|Reza Bazargan  |  | Chief Technology Officer(5)      |  | $                    | 62,200.00 |                      |   | n/a                       |  | -0-                      
|Paul Fernandez |  | Chief Financial Officer(6)       |  | $                    | 12,016.51 |                      |   | n/a                       |  | -0-                      

---

In addition to their base salaries, the above-noted officers and directors currently receive employee benefits such as health, accident, life,
and long-term disability insurance coverage.

Dicom
pays a minimal monetary compensation to its outside directors, and does not compensate its directors for attendance at meetings. The Company does reimburse the directors for
reasonable expenses incurred during the course of their performance.

During
the most recently completed financial year ended December 31, 2000, Dicom did not have a pension plan for its directors, officers or employees.

On
March 17, 1999, Dicom granted options to each of David Gane, Wayne Rees and Todd Rees to purchase 2,999,997 shares of Common Stock at $0.11 per share through
March 17, 2005, this exercise price having been restated to take into account the two three-for-one stock splits that occurred on December 22, 1999 and
April 5, 2000. The options expire 5 years from the grant date. These options were fully vested as at December 31, 2000. All shares of Common Stock acquired upon exercise of all
options are subject to a 180-day lock up provision before they may be resold.

35

---

Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table provides certain information as to the officers and directors individually and as a group, and the holders of more than 5% of the Common
Stock of Dicom, as of December 31, 2000

Name and Address of
Beneficial Owner

Amount and Nature of
Beneficial Ownership

Percent of Class(1)Torchmark Holdings Ltd
PO Box 290
Caribbean Place
Leeward Highway
Providenciales,
Turks and Caicos
Islands

8,581,620

39.7
%David Gane
1081 Kent Street
White Rock, BC
Canada V4B4T2

3,000,897
(2)
12.2
%Wayne Rees
13670 Malabar St.
White Rock, BC
Canada V4B2X9

3,000,897
(2)
12.2
%Todd Rees
#112-15282 19th Avenue
Surrey, BC
Canada V4B1X6

3,000,897
(2)
12.2
%Stephen Winter
4610 Boulderwood Drive
Victoria, BC
Canada

2,250,000
(3)
9.4
%All officers and directors as a group (4 persons)

11,252,691

34.3
%


---

CHANGES IN CONTROL

There are no agreements known to management that may result in a change of control of the Company.

36

---



Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Dicom did not develop the ImagExplorer or value-added 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. During 2000, Dicom exercised its option to license the medical version of the Software from Torchmark for a fee of $250,000, of which $150,000 was
paid to Torchmark and $100,000 was payable as at December 31, 2000 at a rate of interest of 8.5% per annum.

Dicom
has entered into the following financing agreements with Torchmark:

On
August 14, 2000, Dicom issued a promissory note to Torchmark for $250,000. This promissory note was refinanced during the year and was not outstanding as at
December 31, 2000.

On
November 7, 2000, the Company entered into a convertible loan agreement with Torchmark for $255,685, bearing interest at 10% per annum and repayable on or before
May 6, 2001.

On
November 7, 2000, the Company entered into a convertible loan agreement with Torchmark for $250,000, bearing interest at 10% per annum and repayable on or before
May 6, 2001.

On
December 21, 2000, the Company entered into a convertible loan agreement with Torchmark for $51,000, bearing interest at 10% per annum and repayable on or before
May 6, 2001.

On
February 14, 2001, the Company entered into a convertible loan agreement with Torchmark for $200,000, bearing interest at 10% per annum and repayable on or before
May 6, 2001.

The
Company is currently negotiating an extension of the repayment date on the outstanding loan agreements, and Torchmark has indicated its willingness to extend the repayment date by
one year.

Directors
Wayne Rees, Todd Rees and David Gane are the sole shareholders of Image FX Software Solutions Inc. ("Image") which has changed its name to Dicom Software Inc.
Directors Todd Rees and David Gane are officers of Image. Image sold the license to the Software to Torchmark for $150,000 Canadian dollars.

During
2000, the Company leased office furniture and computer equipment in the amount of $21,191 (1999$18,679), from Dicom Software Inc. (previously Image). During
2000, the Company leased office space in the amount of $43,206 (1999$16,284) from 529489 BC Ltd., a company partially owned by Dicom Software Inc. At December 31,
2000, accounts payable included $5,771 (1999$9,218) payable to 529489 BC Ltd. relating to this rent.

During
2000, the Company purchased two trademarks in the amount of $6,669 from Source Dental Image, a company controlled by two directors of the Company.

37

---

Item 13. EXHIBITS LIST AND REPORTS ON FORM 8-K

Index
to Exhibits

|3.1(1)  |  | Articles of Incorporation of the Registrant                                                                                                                                                                                                  
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.2(1)  |  | Bylaws of the Registrant                                                                                                                                                                                                                     
|10.1(2) |  | License Agreement dated March 17, 2000 between Dicom and CLG Investments Limited                                                                                                                                                             
|10.2(3) |  | Settlement Agreement dated September 26, 2000 between Dicom and CLG Investments Limited                                                                                                                                                      
|10.3(4) |  | Marketing Agreement dated October 4, 2000, between Dicom and Eastman Kodak Company                                                                                                                                                           
|10.4(4) |  | Software Bundling and Co-Marketing Agreement dated February 13, 2001, between Dicom and Olympus America Inc.                                                                                                                                 
|10.5(4) |  | Authorized Dealer Agreement dated April 6, 2001, between Dicom and Dental X Change, Inc.                                                                                                                                                     
|10.6    |  | Executive Employment Agreement dated November 22, 2000, between Dicom and Paul Fernandez                                                                                                                                                     
|10.7    |  | Promissory Note dated November 7, 2000 between Dicom and Torchmark Holdings Ltd. This Promissory Note replaces the Promissory Note dated August 16, 2000 that was included in Form 10-QSB, file number 000-26369, filed on
November 14, 2000.
|10.8    |  | Convertible Loan Agreement dated November 7, 2000 between Dicom and Torchmark Holdings Ltd.                                                                                                                                                  
|10.9    |  | Convertible Loan Agreement dated December 21, 2000 between Dicom and Torchmark Holdings Ltd.                                                                                                                                                 
|10.10   |  | Convertible Loan Agreement dated February 14, 2001 between Dicom and Torchmark Holdings Ltd.                                                                                                                                                 

---

No
reports on Form 8-K were filed during the last quarter of the period covered by this report.

38

---



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.

|Date: May 16, 2001 |  | DICOM IMAGING SYSTEMS, INC.
|------------------ |  | ---------------------------
|                   |  | By:                        

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report to be signed by the following persons on behalf of Dicom Imaging Systems, Inc. in the
capacities and on the dates indicated.

|Name and Signature                  |  | Title                              |  | Date        
|----------------------------------- |  | ---------------------------------- |  | ------------
|                                    |  |                                    |  |             
|/s/DAVID GANEDavid Gane             |  | President, CEO, Director           |  | May 16, 2001
|/s/WAYNE REESWayne Rees             |  | VP Sales and Marketing, Director   |  | May 16, 2001
|/s/TODD REESTodd Rees               |  | VP Customer Support, CTO, Director |  | May 16, 2001
|/s/STEPHEN WINTERStephen Winter     |  | Secretary, Treasurer, Director     |  | May 16, 2001
|/s/ANTHONY GALLEGOSAnthony Gallegos |  | Director                           |  | May 16, 2001

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