Dicom Imaging Systems, Inc.

Filing Type: 10KSB
Description: Annual Report
Filing Date: Apr 30, 2000
Period End: Dec 31, 1999

Primary Exchange: Over the Counter Includes OTC and OTCBB
Ticker: DCIM


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1



                       SECURITIES AND EXCHANGE COMMISSION
                             Washington D.C. 20549

                                  FORM 10-KSB

                                AMENDMENT NO. 1

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

                               December 31, 1999

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

                       Commission File Number: 000-26369

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

        Nevada                                               88-042202
(State or other jurisdiction of                           (I.R.S.employer
incorporation or organization)                          Identification No.)


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

                   (Address of principal executive offices,)

                                 (877) 624-6243

                        (Registrant's Telephone Number,)

                                 (520) 441-8755

                        (Registrant's Facsimile 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, no par value $0.001

                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes [ X ] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]

Aggregate market value of voting stock held by non-affiliates of the registrant
as of December 31, 1999 was $ 25,194,600 (based upon the closing sale price of
$6.00 per share on such date). Number of shares of Common Stock outstanding as
of December 31, 1999: 7.2 Million shares.

DOCUMENTS INCORPORATED BY REFERENCE

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TABLE OF CONTENTS

Part I

Page

Item 1. Description of Business........................................ 3

Item 2. Description of Property........................................11

Item 3. Legal Proceedings............................................. 11

Item 4. Submission of Matters to a Vote of Security Holders............11

Part II

Item 5. Market for Common Equity and Related Shareholder Matters...... 11
 .
Item 6. Management's Discussion and Analysis or Plan of Operation..... 11

Item 7. Financial Statements.......................................... 13

Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure...................................................29

Part III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act................................ 29

Item 10. Executive Compensation....................................... 30

Item 11. Security Ownership of Certain Beneficial Owners and Management.30

Item 12. Certain Relationships and Related Transactions................ 31

Item 13. Exhibits List and Reports on Form 8-K......................... 32

SIGNATURES............................................................. 32


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PART I.

Item 1. DESCRIPTION OF BUSINESS

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

GENERAL

Dicom Imaging Systems, Inc., a Nevada Corporation ("Dicom" or "DIS" or
the "Company") is a software provider to the dental industry and associated
groups, and eventually to the medical professions. Dicom designs, develops,
markets and supports a family of imaging software products for use throughout
the health professions worldwide including dental professionals, research
facilities, universities, and beginning in late 2000, medical professionals.
Dicom's imaging software was developed in conjunction with the licensing of core
technology from Torchmark Holdings Ltd. ("Torchmark") as part of a License
Agreement between Dicom and Torchmark dated March 24, 1999. Based on the
Torchmark core technology, the Company designed and developed its software
products specifically for the use of the health professional in private or
institutional practice, with an interface that is user friendly, integrates the
internet and associated hardware image capturing devices. The Company's strategy
is to offer comprehensive imaging software, hardware, internet and support
solutions to the health professions. The Company's software products utilize the
Microsoft Windows family of operating systems on the desktop and over the
internet.


DICOM'S BUSINESS MODEL AND METHOD RELIES ON PRODUCING AND DISTRIBUTING,
FREE OF CHARGE, an imaging software application KNOWN AS IMAGEXPLORER(TM) AND
IMAGEDITOR (TM)(together registered trademarks of Dicom "ImageEcplorer") to
dentists, dental specialists, dental laboratories, dental insurance companies,
and educational facilities throughout North America. Dicom requires registration
of its ImagExplorer product by ITS CUSTOMERS THROUGH A TELEPHONE AND WEB BASED
REGISTRATION SYSTEM. AT THE POINT OF REGISTRATION OF IMAGEXPLORER, Dicom
representatives market a series of value added software modules, support
services and select imaging hardware devices to software registrants.


Dicom provides telephone and email based technical support services for product
users with questions concerning use of a Dicom software product. Such questions
may relate to device compliance, software features, installation of software or
advice on how to optimize use of the software for the needs of a particular
dentist. Dicom provides such service and support, which also includes
free-upgrades of the Dicom software product, for an annual fee of $599, paid
directly by the software user to Dicom via a credit card over the Internet or
telephone. 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.

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

The core ImagExplorer product functions primarily as a means for dental
professionals to categorize, manage and manipulate patient images by means of a
visual interface. The value added software modules each provide products to
assist dental professionals with a specific area of image management and
manipulation, such as cosmetic whitening procedures on teeth. The value added
software modules can be added and integrated as dental professionals become more
familiar with the Dicom's 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 in March 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
IMAGEDITOR PRODUCT, AN IMAGE ARCHIVAL AND EDITING SOLUTION, SIMULATORTM, a
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software based tool to provide dental professionals and patients with visual
images of procedures before the procedures are actually performed AND
WHITENERTM, a complete dental bleaching software solution. Subsequent to the
1999 fiscal year, Dicom also exercised its rights to acquire the rights in the
medical professions for the Torchmark core technology. To December 31, 1999 we
have generated no significant revenues from these 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, reduces overall imaging and archival costs and facilitates
faster, easier and less expensive management and manipulation of imaging data.
This is true of the current version of ImagExplorer and its related modules and
Dicom believes that the improvement of imaging efficiency for customers will be
maintained in subsequent upgrades. Dicom applications are designed for ease of
use and are integrated with the Microsoft Windows family of products. The
Company's software products are also scaleable; permitting changes in network
size, server platforms and other architectural components with minimal
disruption. Further, Dicom software products are intended to be portable across
major hardware platforms using Intel based microprocessors. The Company believes
that the design of its software products reduce end-user training requirements
and allow end-users and health professionals increased access to critical data
not always readily available to them with currently available image management
tools. No assurance can be given concerning the successful development of Dicom
software products on additional platforms, the specific timing of the releases
of any future software products, the performance characteristics of Dicom
applications on additional platforms or their acceptance in the marketplace.

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

GRAPHICAL USER INTERFACE

All Dicom software products share a common graphical user interface
("GUI") based on Microsoft's Windows family of products, which provides a
consistent "look and feel" to the Dicom's applications, including similar pull
down menus, error handling, system navigation and point-and-click mouse-driven
functionality. Dicom 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.,
intraoral 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 ("PC"), previously difficult access to imaging information, editing,
manipulation and archival data is available to the casual employee user, such as
a hygienist, assistant or receptionist, resulting in potential improvements in
dental and, in the future, medical assistant and staff productivity.

APPLICATION SECURITY ARCHITECTURE

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

ELECTRONIC COMMERCE

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


IN ADDITION, DICOM'S SITE ON THE WORLD WIDE WEB WWW.DICOM-IMAGE.COM,
facilitates customer interaction, registration of the core product, and is
intended to eventually support full e-commerce based purchase of the range of
Dicom products and services. Dicom intends to look for strategic partnerships
and alliances with other internet web sites for dental and health professionals
and with manufacturers of hardware related to imaging, which can be advertised
and sold on the Dicom web site. Dicom has already partnered with the D-store,
which maintains a robust e-commerce marketplace for imaging related hardware and
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intends many more such partnerships in the balance of the year 2000. . No
assurances can be given with respect to the successful development of, and
marketing through, the Company's Internet site or through strategic alliances.


APPLICATION SOFTWARE PRODUCTS

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


APPLICATION SOFTWARE PRODUCTS CURRENTLY UNDER DEVELOPMENT AND
PLANNED FOR FUTURE RELEASE INCLUDE: LABRX(TM) AND XRAY(TM). No assurance can be
given concerning the successful development of enhancements or new modules, the
specific timing of completing new releases or new features of software products
or the level of their acceptance in the marketplace.


Dicom's software products are generally licensed to end-user customers
under non-exclusive, non-transferable, perpetual license agreements. In most
cases, Dicom licenses its software products solely for the health professional's
internal operations. License fees for Dicom's software products are generally
standard on a per license basis, with fees varying somewhat by country and also
by distributor relationships that Dicom is in the process of negotiating or has
negotiated subsequent to December 31, 1999. The following description describes
the primary features of the 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,
intraoral cameras, digital x-ray, e-mail, internet transfers, operating
microscopes or any twain compliant device, and then stores them in an
"electronic file cabinet" visual interface. Twain stands for technology without
an interesting name and is a hardware/software standard for 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 can purchase. ImagExplorer and IMAGEDITOR are the core product and
are given away free. The core product is enhanced by the purchase of plug-in
modules that add features to the core product. In order to take advantage of
enhanced features, users of the core product may purchase the other plug-ins
described below.


Core product of Free Software:


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

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


Plug-ins which must be purchased separately:

WHITENERTM: Whitener is an additional add-on module to ImagExplorer. Whitener is
a module that identifies the teeth in an image and lightens them to simulator a
bleaching procedure. This module allows the patient to see what a tooth
whitening procedure would look like when completed.

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

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

X-RAYTM: An x-ray module that allows the dentist to acquire x-ray images of the

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

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

Distribution Method of Products and Services; Sales and Marketing

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

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

Dicom has an additional revenue stream in the form of annual fee based technical
support. Each technical support package costs $599 per year and is paid for by a
credit card number over the telephone or through our Internet web site or sold
via one of our distributors. Customers license these value added modules
directly from Dicom by paying the appropriate licensing fee by credit card or
check and receiving a CD containing the purchased modules. We do not lease
imaging hardware, but simply derive a commission for each sale of imaging
hardware that we close with a customer and forward on to a reseller for
shipping. We have relationships with resellers of intraoral cameras, video
imaging cards and foot pedals.

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

The software comes on a CD 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 is a short
training video on how to use ImagExplorer and an introduction to the benefits of
the other available 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 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 our 1-877-62-IMAGE
number for the activation code. At that time the Dicom Imaging Systems support
representative takes the user's key information for our database and markets the
additional modules. The support representative also markets the service/support
contract. If the end user would like to purchase additional hardware such as
cameras, video cards, and intraoral cameras, DIS can either provide them or
assist the user in finding the best source. The ImagExplorer product that is
provided at no charge assists the user with their standard day-to-day handling
of images.

Relationship with Mr. Doug Campbell

In September of 1999, Dicom entered into a software license and
distribution agreement with Mr. Doug Campbell for a $600,000 license fee payable
to Dicom over time based on certain sales milestones, as more fully described in
Dicom's 10 Q SB for the quarter ending September 30, 1999. Subsequent to
December 31, 1999, the agreement was terminated and the required numbers of
software copies were shipped to Mr. Doug Campbell, satisfying any and all
contractual obligations to Mr. Doug Campbell.

INTERNATIONAL OPERATIONS

In fiscal year 1999, Dicom had no significant international operations
outside of the United States and Canada and derived more than 90% of its sales
from the United States. Subsequent to December 31, 1999, international licensing
agreements have been signed in certain international markets, including the
United Kingdom and certain Latin American countries.

SERVICES AND CUSTOMER SUPPORT

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

Dicom provides, for a $599 per year annual fee, telephone based customer service
and support that consists primarily of ease of use, feature description,
hardware integration issues and telephone based tutorials on certain image
manipulation procedures.

COMPETITION

Competition in the dental products and services industry is intense.
There are many established companies who offer products that compete indirectly
with Dicom. Although 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.

We are 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.
IMAGEXPLORER 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 are SciCan (which markets products Image FX and
CosmetiX) and Integra Medical Systems (which creates and markets VIPERSOFT). All
of these competitors charge at least $2000 for their core-imaging product. All
of these competitors compete in the areas of hardware, software and support
services. If any of these more established competitors were to also give-away or
substantially discount their products, such a move might have a material,
adverse effect on Dicom's ability to compete in the dental imaging software
market.

The methods of competition in the industry currently are to advertise software
products in trade magazines, feature them at trade shows and promote them
through direct mailings. Products tend to be distributed by distributors who
have a variety of dental products in their inventory and have a familiarity with
a wide base of dental professionals. Another method of competition in the
industry is to acquire another manufacturer with a product that will compliment
existing products and that has an established distribution mechanism.

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

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 its products, features or functionality or that software products, features
or functionality that are developed will be accepted by the market.

The Company's research and development staff consisted of 3 Employees
and 3 contract employee throughout the fiscal year ending December 31, 1999. The
Company's total research and development expenses were approximately $104,460 as
of December 31, 1999.

INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS, LICENSES AND PRODUCT LIABILITY

Dicom regards certain features of its internal operations, software and
documentation as proprietary, and relies on a combination of contract,
copyright, trademark and trade secret laws and other measures to protect its
proprietary information. Existing copyright laws afford only limited protection.
Dicom believes that, because of the rapid pace of technological change in the
computer software industry, trade secret and copyright protection are less
<PAGE> 8

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 business, operating results
and financial condition.

PERSONNEL

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

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

NAME AGE TITLE

David Gane 45 President, Chief Executive Officer, Director
Wayne Rees 41 Vice President, Director
Todd Rees 40 Vice President, Director


Wayne Rees and Todd Rees are brothers


DICOM HAS EXPERIENCED A PERIOD OF REVENUE GROWTH, which has placed a
significant strain upon the Company's management, operating and financial
controls and resources. To accommodate growth and compete effectively, Dicom
must implement and improve the speed and quality of its decision making,
business processes, reporting systems, procedures and controls and further
expand, train and motivate its workforce. There can be no assurance that Dicom's
personnel, procedures, systems and controls will be adequate to support Dicom's
future operations. Dicom believes that its success will depend in large part
upon its ability to attract and retain highly skilled technical, managerial and
marketing personnel. The loss of services of one or more of Dicom's key
employees could have a materially adverse effect on Dicom's business, operating
results and financial condition. Dicom intends to hire a significant, although
yet undetermined number of additional sales, service and technical personnel in
2000. Competition for the hiring of such personnel in the software industry is
intense, and the Company from time to time experiences difficulty in locating
candidates with appropriate qualifications, particularly within the desired
geographic location. It is widely believed that the technology sector is at or
over a state of full employment. There can be no assurance that Dicom will be
successful in attracting and retaining the personnel it requires to develop,
market and support new or existing software.


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

Bankruptcy or Receivership

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

<PAGE> 9

Sources of Raw Materials and the Names of Principal Suppliers

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

Dependence on one of a few major customers

Dicom is not dependent on any particular customer. No one customer is
responsible for more than 5% of Dicom's yearly sales volume,
with the exception of the agreement with Mr. Doug Campbell.

Need for Governmental Approval

Dicom's products are regulated by Federal, State, Provincial and Local
regulations. The products require approval of the United States Food and Drug
Administration ("FDA"). Dicom is in the process of gathering data necessary for
the submission of an approval application to the FDA. 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.

RISK FACTORS

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

We have only manufactured and distributed our software and manufactured and
distributed our ImagExplorer product since September 1999. Therefore, we have a
limited relevant operating history upon which to evaluate the likelihood of our
success. Factors such as the risks, expenses and difficulties frequently
encountered in the operation and expansion of a relatively new business and the
development and marketing of new products must be considered in evaluating the
likelihood of success of our company. The auditors' report on our annual
financial statements contains an additional paragraph identifying issues that
raise concerns about our ability to continue to operate as a going concern. The
financial statements include no adjustments due to this uncertainty

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

At December 31, 1999, our accumulated deficit was $ 1,155,996. Our ability to
obtain and sustain profitability will depend, in part, upon the successful
marketing of our existing products and the successful and timely introduction of
new products. There can be no assurance that we will ever be profitable.

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

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

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

<PAGE> 10

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

- long-term forecasting of market trends;

- the development and implementation of new designs;

- compliance with extensive governmental regulatory requirements; and

- a substantial capital commitment.

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

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

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

     Our success is highly  dependent  upon our  President  and Chief  Executive
Officer,  Dr. David Gane.  Unlike larger  companies,  we rely heavily on a small
number of  officers  to  conduct a large  portion of our  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 our
business.  We have not entered into an employment agreement with Dr. Gane. We do
not have key person life  insurance  on Dr. Gane.

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

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

SHAREHOLDER VOTING AGREEMENT.

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

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

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

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

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

<PAGE> 11

Item 2. DESCRIPTION OF PROPERTY

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

Item 3. LEGAL PROCEEDINGS

None.

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

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

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Market Information.

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

Fourth Quarter 1999 (reflecting 3 for 1 forward split in December, 1999)
High $6.125
Low $5.8125

Dividends

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

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

In the Spring of 2000, Dicom signed an agreement with Kada Innovations
Ltd. and with CLG Investments Ltd. providing international distribution
territories for the Dicom suite of products. It is anticipated that other such
licensing and distribution agreements will be entered into until Dicom has
effective worldwide distribution of its products. In addition, Dicom is seeking
OEM and strategic distribution alliances throughout North America and desires to
expand its revenue stream through strategic partnering with imaging hardware
providers. Dicom intends to continue identifying market share over the next
twelve months through continued attendance at dental tradeshows held in Canada
and the United States. We plan to continue to staff our booths at these
tradeshows with Dicom personnel who can explain and market our product to the
dentists in attendance. In addition, Dr. Gane plans a continuation of his
present lecture and seminar tour, where he will speak to audiences of dental
professionals throughout the world about dental imaging in general and
ImagExplorer in particular.

Dicom intends to negotiate supply relationships with most of the major
dental product distributors in North America and to expand the number of
distributors who stock the Dicom product. Dicom also plans to continue its
advertising campaign in dental trade magazines to continue to promote
ImagExplorer to dental professionals.

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

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

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

In addition to developing an upgraded version of the core ImagExplorer
product, Dicom intends to develop other value-added software modules and other
methods for enhancing its revenue stream, including corporate partnering


<PAGE> 12

agreements and agreements to bundle the ImagExplorer core product with other
manufacturer's hardware products.

OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999

REVENUES

Revenues for the year ended December 31, 1999 were $249,032, derived
primarily from the sale of hardware and software licenses directly to dentists
in the United States. All of our revenues were paid in US currency.

The company has recorded deferred revenue as at December 31, 1999 in
the amount of $248,699, which represents a prepayment for software that was
shipped subsequent to year-end.

We expect to generate additional revenue from the sale of licenses in
the future. We also expect our revenues from hardware sales to increase in the
future in relation to software sales.

GROSS MARGIN

Cost of sales for the year ended December 31, 1999 were $150,869,
leaving a Gross Margin of $98,163 which equates to 39% of sales. Cost of sales
included software burning and hardware costs, freight costs and credit card
transaction charges, as well as support related salaries and telephone charges.

Software sales generate relatively high margins, whereas the margins
associated with hardware sales are relatively small.

OPERATING EXPENSES

Operating expenses included:

Depreciation in the amount of $16,140 on computer and camera equipment
used for demonstration purposes at tradeshows. General and
administrative costs in the amount of $ 793,172 which includes
administrative salaries, audit and legal charges,

investor relations charges and insurance costs.

Research and development costs in the amount of $104,460 for software
development. We expect our research and development costs to increase in the
next year as we develop the Xray and LabRX modules, as well as the international
and medical versions of the software.

Selling and marketing costs of $240,387 that includes trade show costs,
advertising, mailings, and web site maintenance.

The resulting net loss for the year ended December 31, 1999 was
$1,055,996, which equates to a 17-cent loss per share.

The operations for the year ended December 31, 1999 were funded
primarily by the cash proceeds from the initial issue of common shares.

We have implemented a stock option plan. The plan is an essential tool
to attract and retain the qualified personnel needed to implement our business
strategy. At December 31, 1999, we have granted 3,928,500 options. While no
options were exercised in 1999, we recorded a non-cash charge to the 1999 income
statement of $5,015, and deferred compensation expense of $86,569 relating to
the issuance of these options.

Cash Requirements and Additional Fundraising


Dicom believes that it can continue to satisfy its cash requirements
through revenues generated from the sales of its PRODUCTS AND THROUGH MINIMUM
ROYALTY PAYMENTS FROM LICENSING AND DISTRIBUTION PARTNERS. HOWEVER, such sources
of cash do not include provisions for substantial growth. Management believes
that the full development and marketing of the medical option, as well as
increasing Dicom's software development, marketing and Interent presence, could
require the expenditure of significant funds. Management believes that Dicom may
not be able to satisfy all of its cash needs out of available cash and operating
income and may have to engage in a sale of Dicom's securities during the next
twelve months. There can be no assurance that such additional capital, or any
additional capital, will be available on terms satisfactory to Dicom.


As of December 31, 1999, Dicom had total cash of $18,263. Subsequent to December
31, 1999, Dicom received more than $1,000,000 in cash from licensing and
distribution agreements and retail sales. At March 31, 2000, Dicom has total
cash of approximately $850,000. We anticipate an increase in revenue during the
next twelve months, primarily, via hardware sales, for which there are
significantly lower margins than in Dicom's software products. In addition, we
anticipate initial deployment, development, advertising, infrastructure and
hiring requirements in conjunction with the development and deployment of the
medical option will create a high level of one-time expenditures during the
third and fourth quarters of fiscal 2000. We expect our fixed overhead costs to
increase based on the above assumptions and development and deployment of the
medical version of the software. As indicated above, we may be required to sell
securities to generate sufficient cash to fund our requirements.

<PAGE> 13

Product Development and Research Plan for the Next Twelve Months

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

Expected Purchase or Sale of Plant and Significant Equipment

None.

Expected Significant changes in number of employees

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

ITEM 7. FINANCIAL STATEMENTS

Consolidated Financial Statements of

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

                     Years ended December 31, 1999 and 1998

                          INDEPENDENT AUDITORS' REPORT

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

We have audited the consolidated balance sheet of Dicom Imaging Systems, Inc.
and subsidiary as of December 31, 1999 and the related consolidated statements
of operations, stockholders' deficit and cash flows for each of the years in the
two-year period ended December 31, 1999. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the
financial position of Dicom Imaging Systems, Inc. and its subsidiary as of
December 31, 1999 and the results of their operations and their cash flows for
each of the years in the two year period ended December 31, 1999 in conformity
with generally accepted accounting principles in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 1 to the
consolidated financial statements, the Company has suffered losses from
operations and negative cash flows from operations and has a capital deficiency
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

KPMG LLP

Chartered Accountants
Vancouver, Canada

March 24, 2000

(except for note 13, which is as of
March 31, 2000)


<PAGE> 14


                           DICOM IMAGING SYSTEMS, INC.

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

                                December 31, 1999

Assets

Current assets:

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


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

==============================================================================
Liabilities and Stockholders' Deficit

Current liabilities:

     Accounts payable                                  $ 56,431
     Accrued liabilities                                 89,673
     Deferred revenue                                   248,699
                                                       ---------
                                                        394,803

Stockholders' deficit (note 6):
     Authorized:

     10,000,000 preferred stock,   $.001 par value
     50,000,000 common stock,      $.001 par value

Issued:

     7,200,000 common stock                               7,200
Additional paid in capital                              912,815

Deficit                                              (1,155,996)
                                                     ----------
                                                       (235,981)

___________________________________________________________________________
                                                       $ 158,822
===========================================================================
Subsequent events (note 12)

See accompanying notes to consolidated financial statements.

On behalf of the Board:

______________________________ Director ______________________________ Director


<PAGE> 15


                          DICOM IMAGING SYSTEMS, INC.

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

                     Years ended December 31, 1999 and 1998

                                             1999                1998

Software and hardware sales                  $ 249,032           $ -

Cost of sales                                  150,869             -
                                             -------------------------
Gross profit                                    98,163             -
==============================================================================

Operating expenses:
     Depreciation                               16,140             -
     General and administrative                793,172             -
     Research and development                  104,460           100,000
     Selling and marketing                     240,387             -
                                               -------------------------
                                               1,154,159         100,000

==============================================================================
Net loss                                       1,055,996       $ 100,000

==============================================================================

Net loss per common share,
basic and diluted (note 2(l))                  $ 0.17             $ 0.02

______________________________________________________________________________

Weighted average common shares outstanding,

basic and diluted (note 2(l))                 6,150,000          4,201,500

==============================================================================
See accompanying notes to consolidated financial statements.


<PAGE> 16


                          Dicom imaging systems, inc.

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

                     Years ended December 31, 1999 and 1998


                                                                       Total
                  Common stock          Additional                 stockholders
               Shares      Amount     paid-in capital   Deficit       equity

Balance,
12-31-97         -    $      -          $ 100,000        $ -          $ 100,000

Net loss         -           -             -           (100,000)       (100,000)
_______________________________________________________________________________

Balance,
12-31-98         -           -            100,000      (100,000)          -

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

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

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

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

Issuance
of stock options

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

Deferred
compensation
of stock

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

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

_______________________________________________________________________________

Balance, December 31, 1999 7,200,000 $ 7,200 $ 912,815 $ (1,155,996) $ (235,981)
===============================================================================

See accompanying notes to consolidated financial statements.


<PAGE> 17


                          DICOM IMAGING SYSTEMS, INC.

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

                     Years ended December 31, 1999 and 1998

                                               1999                     1998

Cash flows from operating activities:

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

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

Cash flows from investing activities:
     Purchase of equipment                        (60,766)                -
     Purchase of trademarks                       (17,250)                -
______________________________________________________________________________
Net cash used in investing activities             (78,016)                -
______________________________________________________________________________

Net increase (decrease)
in cash and cash equivalents                       18,263            (100,000)

Cash and cash equivalents,
beginning of year                                   -                 100,000
______________________________________________________________________________
Cash and cash equivalents,
end of year                                        $ 18,263            $ -
______________________________________________________________________________
Supplementary information:

     Interest paid                                 $ 353               $ -
     Income taxes paid                                -                  -
Non-cash transactions:

     Common stock issued for services                203,000             -
     Issuance of stock options                         5,015             -

==============================================================================

See accompanying notes to consolidated financial statements.


<PAGE> 18


                          DICOM IMAGING SYSTEMS, INC.

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

                     Years ended December 31, 1999 and 1998

Nature of business:

Dicom Imaging Systems, Inc. (the "Company") was incorporated in Nevada and is in
the business of developing and selling dental imaging software and support
contracts, as well as selling related imaging hardware. On March 24, 1999, the
Company, an entity incorporated on March 17, 1999 and without significant
operations, issued 1,000,000 common shares as consideration in exchange for a 30
year exclusive license of the ImagExplorer software and its additional value
added modules ("the Business"). After giving effect to the transaction, the
vendor of the Business controlled the Company. This transaction has been
accounted for as a recapitalization of the Business, effectively as if the
Business had issued common shares in consideration equal to the net tangible
assets of the Company. The Company's historical financial statements reflect the
financial position, results of operations and cash flows of the Business for
each of the years in the two year period ended December 31, 1999 and include the
operations of the Company from the date of the effective recapitalization being
March 24, 1999. Stockholders' equity gives effect to the shares issued to the
stockholders of the Business prior to March 24, 1999 and the Company thereafter.
These consolidated financial statements have been prepared on a going concern
basis in accordance with United States generally accepted accounting principles.
The going concern basis of presentation assumes the Company will continue in
operation for the foreseeable future and will be able to realize its assets and
discharge its liabilities and commitments in the normal course of business.
Certain conditions, discussed below, currently exist which raise substantial
doubt upon the validity of this assumption. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
The Company's future operations are dependent upon the market's acceptance of
its product and the Company's ability to license their product around the world.
There can be no assurance that the Company's product will be able to secure
market acceptance or that they will be able to license their product. As of
December 31, 1999, the Company has not generated sufficient revenues to fund
expenses and has experienced negative cash flow from operations. Operations have
primarily been financed through the issuance of common stock. As at December 31,
1999 the Company does not have sufficient working capital to sustain operations
until the end of the year ended December 31, 2000. The intention of management
is to generate revenue from the sale of software licenses. Additional debt or
equity financing may be required and may not be available or may not be
available on reasonable terms. (see note 12)


<PAGE> 19


                          Dicom Imaging Systems, Inc.
                   Notes to Consolidated Financial Statements

                          (Expressed in U.S. dollars)

                     Years ended December 31, 1999 and 1998

Significant accounting policies (continued):
Basis of presentation:

THESE CONSOLIDATED FINANCIAL STATEMENTS HAVE BEEN PREPARED IN ACCORDANCE WITH
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES in the United States. The financial
statements include the accounts of the Company's wholly-owned subsidiary, 527403
B.C. Limited. All significant intercompany balances and transactions have been
eliminated in the consolidated financial statements.

(b) Use of estimates:

The preparation of consolidated financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial
statements and recognized revenues and expenses for the reporting periods. In
these consolidated financial statements, the significant areas requiring the use
of estimates include the valuation of long-lived assets, including intangible
assets, the fair value of stock options and the recognition of revenue. Actual
results may significantly differ from these estimates. (c) Revenue recognition:
The Company generates revenues through three sources: hardware sales, software
license revenues and services revenues. Hardware revenues are recognized when
goods are shipped and title passes. Software license revenues are normally
generated from licensing the perpetual right to use the Company's products
directly to end-users and indirectly through resellers. The Company recognizes
as revenue only the fee payable from the reseller, net of any discount. Service
revenues are generated from telephone support services. Revenues from software
license agreements are recognized upon delivery of software if persuasive
evidence of an arrangement exists, collection is probable, the fee is fixed or
determinable, and vendor-specific objective evidence exists to allocate the
total fee to elements of the arrangement. Vendor-specific objective evidence is
typically based on the price charged when an element is sold separately, or, in
the case of an element not yet sold separately, the price established by
authorized management, if it is probable that the price, once established, will
not change before market introduction. Elements included in multiple element
arrangements could consist of software products, upgrades, enhancements or
customer support services. The Company's agreements with its customers and
resellers do not contain product return rights.


<PAGE> 20


                          Dicom Imaging Systems, Inc.
                   Notes to Consolidated Financial Statements

                          (Expressed in U.S. dollars)

                     Years ended December 31, 1999 and 1998

Significant accounting policies (continued):
(c) Revenue recognition (continued):

Service revenues are recognized ratably over the term of the contract, typically
one year. If a transaction includes both license and service elements, license
fee revenues are recognized on shipment of the software, provided services do
not include significant customization or modification of the base product, and
the payment terms for licenses are not subject to acceptance criteria. Revenues
that have been prepaid or invoiced but do not yet qualify for recognition under
the Company's policies are reflected as deferred revenues. (d) Foreign currency:
The functional currency of the Company is the United States dollar. The
functional currency of the operations of the Company's wholly-owned Canadian
operating subsidiary is the Canadian dollar. Assets and liabilities measured in
Canadian dollars are translated into United States dollars using exchange rates
in effect at the balance sheet date with revenue and expense transactions
translated using average exchange rates prevailing during the year. Exchange
gains and losses arising on this translation are included in income. (e) Cash
and cash equivalents: The Company considers all short-term investments with a
term to maturity at the date of purchase of three months or less to be cash
equivalents. (f) Intangible assets: Intangible assets are stated at cost and are
amortized using the straight-line method over their estimated useful lives of
five years. (g) Equipment: Equipment is stated at cost and is depreciated using
the straight-line method over the estimated useful lives of three years. (h)
Research and development and advertising: Research and development and
advertising costs are expensed as incurred. (i) Stock-based compensation: As
allowed under generally accepted accounting principles, the Company accounts for
its stock-based compensation arrangements with employees and directors in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees",
and related interpretations. As such, compensation expense under fixed term
option plans is recorded at the date of grant when the market value of the
underlying stock at the date of grant exceeds the exercise price. The Company
recognizes compensation expense for stock options, common stock and other equity
instruments issued to non-employees for services received based upon the fair
value of the services or equity instruments issued, whichever is more reliably
determined. This information is presented in note 6.


<PAGE> 21


                          Dicom Imaging Systems, Inc.
                   Notes to Consolidated Financial Statements

                          (Expressed in U.S. dollars)

                     Years ended December 31, 1999 and 1998

Significant accounting policies (continued):
(i) Stock-based compensation (continued):

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

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

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

(k) Income taxes:

The Company follows the asset and liability method of accounting for income
taxes. Under this method, current taxes are recognized for the estimated income
taxes payable for the current period. Deferred income taxes are provided based
on the estimated future tax effects of temporary differences between financial
statement carrying amounts of assets and liabilities and their respective tax
bases as well as the benefit of losses available to be carried forward to future
years for tax purposes. Deferred tax assets and liabilities are measured using
the enacted tax rates that are expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered and settled.
The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in operations in the period that includes the substantive enactment
date. A valuation allowance is recorded for deferred tax assets when it is not
more likely than not that such deferred tax assets will be realized.


<PAGE> 22


                          Dicom Imaging Systems, Inc.
                   Notes to Consolidated Financial Statements

                          (Expressed in U.S. dollars)

                     Years ended December 31, 1999 and 1998

Significant accounting policies (continued):

(l) Net loss per share:

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

ACCOUNTS RECEIVABLE:

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

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

                                                                 $ 48,215
=============================================================================

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

4. Intangible assets:

                                                  Accumulated        Net book
1999                                      Cost    amortization        value

Trademarks                              $ 17,250  $ 2,013           $ 15,237
_____________________________________________________________________________

On March 24, 1999 the Company entered into an agreement that provides them with
the exclusive, transferable, worldwide right to reproduce, develop and
distribute ImagExplorer 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.


<PAGE> 23


                          Dicom Imaging Systems, Inc.
                   Notes to Consolidated Financial Statements

                          (Expressed in U.S. dollars)

                     Years ended December 31, 1999 and 1998

5. EQUIPMENT:

                                              Accumulated       Net book
1999                               Cost       depreciation      value

Computer Hardware                  $ 41,421     $ 10,282        $ 31,139
Computer Software                     4,458        1,082           3,376
Demonstration Equipment              14,887        2,763          12,124
______________________________________________________________________________

                                   $ 60,766     $ 14,127        $ 46,639


6. Stockholders' deficit: (a) Stock option and stock based compensation:

In 1999, the Company adopted a fixed stock option plan that provides for the
issuance of incentive and non-qualified stock options to officers, directors,
employees and consultants to acquire shares of the Company's common stock. The
Board of directors determines the terms of the options granted, including the
number of options granted, the exercise price and the vesting schedule. The
exercise price for qualified incentive stock options shall not be less than the
fair market value of the underlying stock at the date of grant, and have terms
no longer than five years from the date of grant.

                                                                   Weighted
                                                       Number      average
                                                       of          exercise
                                                       shares      price

Outstanding, December 31, 1998                          -     $     -

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

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

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

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


<PAGE> 24


                          Dicom Imaging Systems, Inc.
                   Notes to Consolidated Financial Statements

                          (Expressed in U.S. dollars)

                     Years ended December 31, 1999 and 1998


Stockholders' deficit (continued):
(a) Stock option and stock based compensation:

THE OPTIONS OUTSTANDING AT DECEMBER 31, 1999 HAVE NO DATE OF EXPIRY AND VEST AS
FOLLOWS:

Number of options                   Exercise price               Date vested

3,750,000                            $ 0.33                     March 17, 2000
   73,500                              2.50                    October 1, 2000
   30,000                              7.50                  November 11, 2000
   45,000                              3.75                  December 20, 2000
   30,000                              5.00                       June 7, 2001
______________________________________________________________________________
3,928,500

In 1999, the Company recorded non-cash compensation expense of $5,015 and
deferred compensation expense of $86,569 relating to the issuance of 133,500
stock options to purchase common shares to certain contractors of the Company.
The weighted average fair value of the stock options was estimated at $0.69 per
option at the time of the transaction. The deferred compensation is being
amortized at over 18 months, the vesting period of the underlying options. The
Company has adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 123 ("FAS 123"), Accounting for Stock Based
Compensation, to account for grants to employees under the Company's existing
stock based compensation plan. Had compensation cost for the Company's stock
option plan been determined based on the fair value at the grant date for awards
under those plans consistent with the measurement provisions of FAS 123 and had
the compensation been recognized over 12 to 18 months, the vesting period of the
underlying options. The Company would have recorded non-cash compensation
expense of $419,390 and deferred compensation expense of $147,318 relating to
the issuance of stock options. The Company's net loss and basic loss per share
would have been adjusted as follows:

                                                  1999                1998

Loss for the period - as reported                 $ 1,055,996         $ 100,000
Loss for the period - proforma                      1,475,386           100,000
Basic loss per share - as reported                       0.17              0.03
Basic loss per shares - proforma                         0.24              0.03
===============================================================================


<PAGE> 25


                          Dicom Imaging Systems, Inc.
                   Notes to Consolidated Financial Statements

                          (Expressed in U.S. dollars)

                     Years ended December 31, 1999 and 1998

Stockholders' deficit (continued):

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

The fair value of each option grant has been estimated on the date of the grant
using the Black-Scholes option-pricing model with the following assumptions:
______________________________________________________________________________
Expected dividend yield                                               0.0%
Expected stock price volatility                                      80.0%
Risk-free interest rate                                              5.86%
Expected life of options                                     1 - 1.5 years
______________________________________________________________________________
The Black-Scholes option valuation model was developed for use in estimating the
fair value of options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options. Stock split: On
December 22, 1999, the Company authorized a 3-for-1 stock split of the Company's
common stock. All share and per share information has been adjusted to reflect
the stock split.


<PAGE> 26


                          Dicom Imaging Systems, Inc.
                   Notes to Consolidated Financial Statements

                          (Expressed in U.S. dollars)

                     Years ended December 31, 1999 and 1998

7. Operating leases:

The Company leases office facilities in province of British Columbia and
Washington State under lease agreements that expire on March 1, 2002 and
October31, 2000, respectively. In addition, the company leases certain telephone
equipment. Minimum lease payments under these operating leases are approximately
as follows:

2000                                                                  $ 32,000
2001                                                                    23,000
2002                                                                     4,000
===============================================================================
Rent expense totaled $16,468 for the
period ended December 31, 1999 (1998 - $Nil).

8. Income taxes:

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

                                                    1999               1998

Computed "expected" tax recovery                    $ (359,038)      $(34,000)
Increase (reduction) in
income tax recovery resulting from
income taxes in a higher tax rate jurisdiction        (116,160)         -
Permanent  difference  resulting
from stock based  compensation  and other
non-deductible  expenses                                 2,847         34,000
Temporary differences resulting from share
issue costs and depreciation                            (9,378)           -
Unrecognized loss carry forwards                       481,729            -
______________________________________________________________________________

                                                         $ -            $ -
==============================================================================

The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1999 is
presented below:

Deferred tax assets

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

Deferred taxes                                                       $   -
==============================================================================

<PAGE> 27


                          Dicom Imaging Systems, Inc.
                   Notes to Consolidated Financial Statements

                          (Expressed in U.S. dollars)

                     Years ended December 31, 1999 and 1998

8. Income taxes (continued):

The valuation allowance for deferred tax assets as of December 31, 1999 was
$553,615. In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. In order
to fully realize the deferred tax asset, the Company will need to generate
future taxable income of approximately $1,230,256 prior to the expiration of the
net operating loss carryforwards in 2007. Based upon the level of historical
taxable income and projections for future taxable income over the periods which
the deferred tax assets are deductible, management does not believe it is more
likely than not that the Company will realize the benefits of these deductible
differences. 9. Financial instruments: Fair values: The fair value of cash and
cash equivalents, trade accounts receivable, accounts payable and accrued
liabilities approximates their financial statement carrying amounts due to the
short-term maturities of these instruments. (b) Foreign currency risk: The
Company operates internationally which gives rise to the risk that cash flows
may be adversely impacted by exchange rate fluctuations.

10. Segmented information:

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


<PAGE> 28


Dicom Imaging Systems, Inc.
Notes to Consolidated Financial Statements

(Expressed in U.S. dollars)

Years ended December 31, 1999 and 1998

11. Related party transactions:

During the period, the Company leased office furniture and computer equipment in
the amount of $18,679 (1998 - $Nil), from Dicom Software Inc., a company
controlled by three of the directors of the Company. The Company leases an
office in the amount of $16,284 (1998 - $Nil) from 529489 BC Ltd., a company
partially owned by Dicom Software Inc. At December 31, 1999, accounts payable
included $ 9,218 payable to 529489 BC Ltd relating to this rent. During the
year, the Company purchased demo equipment in the amount of $3,744 (1998 - $Nil)
from Source Dental Image, a company controlled by two directors of the Company.

12. Subsequent events:

In February 2000, the Company exercised its options to acquire a 30 years
exclusive, transferable, worldwide license to the medical version of the imaging
software for a fee of $250,000. In March 2000, the Company entered into various
license agreements that allow the purchasers the exclusive right to distribute
the Company's dental imaging software products in the United Kingdom, Australia,
New Zealand, Mexico, Brazil, Spain and Portugal in exchange for cash of
$2,565,000 to be renewed over the next twelve months and royalties ranging from
of 5% to 20% of gross revenues from the sale of software licenses over the next
three years. On March 31, 2000, the Company announced an additional 3-for-1
stock split.


<PAGE> 29




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

None

PART III

ITEM 9. Directors, Executive Officers and Control Persons

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

WAYNE REES, VICE-PRESIDENT, DIRECTOR

CORPORATE:

Wayne Rees

Wayne Rees has been an officer and director of Dicom since March 17,
1999. His employment experience includes: Consultant Image FX Software Solutions
Inc Feb 1995 - 1999 Vice President and Director of Dicom Imaging Systems Inc.
March 1999 - present.

Wayne co-founded Image FX Software Solutions and co-designed the Image FX /
CosmetiX imaging systems for dentistry, and the MedX / Simulator System for
Medical use. Sales training courses provided by suppliers such as Micom, Xerox,
AES, MAI, IBM, DEC and Honeywell round out Wayne's experience in technical
sales, and support services.

TODD REES VICE-PRESIDENT AND DIRECTOR

CORPORATE:

Todd Rees

Todd Rees has been an officer and director of Dicom since March 17, 1999.
Todd's employment experience includes:
President Image FX Software Solutions Inc. March 1995- March 1999
Vice-President and Director, Dicom Imaging Systems Inc. March 1999 to present

Todd was President and co-founder of ImageFX Software Solutions where he
co-managed an International software development company with products in the
Medical and Dental fields.

STEPHEN WINTER VICE-PRESIDENT, TREASURER, SECRETARY AND DIRECTOR

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

Family Relationships

Todd Rees and Wayne Rees are brothers.

Stock Holdings for Directors, Officers and Control Persons

(all numbers of shares are reported before the three for one stock split that
occurred on December 22, 1999)

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

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

Involvement in Legal Proceedings.

None.

<PAGE> 30


ITEM 10. EXECUTIVE COMPENSATION

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

Summary Compensation Table

Executive Compensation

Dr. David Gane, President, CEO and Director, receives payments of $6000
per month in salary and options to purchase 333,333 shares of common stock in
Dicom as compensation. His options are at $1.00 per share, are unexercised and
fully vested. As of December 31, 1999, Dr. Gane had received $54,000 in
compensation from Dicom.

Summary Compensation Table


ANNUAL COMPENSATION AWARDS PAY ALL OTHER
-OUTS COMPEN

-SATION

NAME AND YEAR SALARY BONUS OTHER RESTRICTED STOCK SECURI LTIP Pay
PRINCIPAL $ $ COMPEN-SATIONAWARDS -TIES -outs
POSITION UNDER

-LYING
OPTIONS/SAR
s

DAVID GANE, 1999 $54,000 (1) NONE NONE NONE 999,999 None None
CEO shares


(1) Although Dr. Gane receives an annual salary of $72,000, he has only been
paid $54,000 to December 31, 1999, covering the period February 15, 1999 to
December 31, 1999.

Option/SAR /Grants / in Last Fiscal Year-end


NAME YEAR SECURITIES EXERCISE Expiration Vested % Exer Value

UNDERLYING PRICE -cised

Options/
SARs



David Gane 1999 999,999 $0.33 03/17/05 100% 0% $5,669,994
CEO





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

Beneficial Owners of More than Five Percent.


Title of Class Name and Address of Amount and Nature of Percent of Class
Beneficial Owner Beneficial Owner


Common Dr. David Gane 1,000,299 President, CEO 8.9%
1081 Kent Street and Director(1)
White Rock, BC
Canada V4B4T2


Common Wayne Rees 1,000,299 Vice President 8.9%
13670 Malabar St. and Director(1)
White Rock, BC
Canada V4B2X9


Common Todd Rees 1,000,299 Vice President 8.9%
112-15282 19TH Avenue and Director(1)
Surrey, BC
Canada v4B1X6


Common Stephen Winter 750,000 Vice President, 6.7%
4610 Boulderwood Drive Director, Secretary,
Victoria, BC Treasurer (2)
Canada

<PAGE> 31

Common Torchmark Holdings 2,850,000 39.5%
PO Box 290
Caribbean Place
Leeward Highway
Providenciales,
Turks and Caicos Islands



(1) Includes rights to acquire 999,999 shares of common stock at $1.00 which are
currently fully vested and unexercised. (2) Includes rights to acquire 750,000
shares of common stock at $1.00 which are currently fully vested and
unexercised.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Dicom did not develop the ImagExplorer or value added module software, but
licensed the same from Torchmark Holdings, Ltd., a Turks and Caicos Islands
B.W.I. corporation ("Torchmark") under a License Agreement dated March 17, 1999
by and between Torchmark and Dicom and a Capital Contribution Agreement dated
March 17, 1999 by and between Torchmark and Dicom. Under the terms of the
agreement, Torchmark has given Dicom an exclusive, world-wide, royalty free,
fully paid-up license to use, sell, distribute and sublicense the Software for a
thirty year period. Torchmark was compensated for the license by a grant of
1,000,000 common shares of Dicom stock, pursuant to the agreement. The agreement
has a condition subsequent, that Dicom raise $1,000,000 in its private
placement. The condition has been satisfied. The agreement also provides Dicom
with the option to license the medical version of the Software from Torchmark
for a payment of $250,000. Torchmark acquired the license for the ImagExplorer
and value added module software (the "Software") from Image F/X Software
Solutions, Inc., a Canadian Corporation ("Image"). Torchmark became acquainted
with Image by means of Walter Sutherland, who was an employee of Image at the
time of the introduction and who was friends with the principals of Torchmark.
Walter Sutherland is currently an employee of Dicom. Torchmark paid Image
$150,000 Canadian Dollars for a full transfer of all right, title and interest
in the ImagExplorer software.


Directors Wayne Rees, Todd Rees and David Gane are the sole
shareholders of Image. Directors Todd Rees and David Gane are officers of Image.
Image sold the license to the Software to Torchmark for $150,000 Canadian
dollars. To date, Dicom has lent $44,000 to Image under a promissory note, at 6%
interest, payable by May 15, 2000. Subsequent to December 31, 1999, the
principal of the loan was repaid in full. This loan was made in consideration
for Image providing otherwise uncompensated software development assistance to
Dicom in preparing the Software for its commercial launch. Image was reimbursed
for its actual expenses paid to third-parties in rendering such development
assistance in addition to the compensation in the form of a loan, described
above. During the period, the Company leased office furniture and computer
equipment in the amount of $18,679 (1998 - $Nil), from Dicom SOFTWARE INC.
 .(PREVIOUSLY IMAGE F/X Software Solutions, Inc.), a company controlled by three
of the directors of the Company. The Company leases an office in the amount of
$16,284 (1998 - $Nil) from 529489 BC Ltd., a company partially owned by Dicom
Software Inc. At December 31, 1999, accounts payable included $ 9,218 payable to
529489 BC Ltd relating to this rent.


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

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


<PAGE> 32





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

No reports on 8-K were filed during the period

Index to Exhibits

EXHIBIT NO. DESCRIPTION OF EXHIBIT

3.1(a)* Articles of Incorporation of the Registrant

3.2(a)* Bylaws of the Registrant

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

     10.2(a)* License Agreement between Torchmark Holdings,  Ltd. and Registrant
dated March 17, 1999. 10.3(a)* Capital Contribution  Agreement between Torchmark
Holdings, Ltd. and Registrant dated March 17, 1999.
10.4(a)*Order Fulfillment Agreement between 527403 British Columbia Limited and
Registrant dated May 14, 1999.

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

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

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

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

SIGNATURES

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

DICOM IMAGING SYSTEMS, INC.

(Registrant)

DATE: APRIL 14, 2000

BY: /S/ DAVID GANE

David Gane