SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

(Mark One)
[x]  Annual report under Section 13 or 15(d) of the  Securities  Exchange Act of
     1934 for the fiscal year ended September 30, 2002.
[  ] Transition report under section 13 or 15(d) of the Securities Exchange Act
     of 1934 for the transition period from            to                     .

Commission file number: 000-26555

                           ACCUIMAGE DIAGNOSTICS CORP.
                 (Name of Small Business Issuer in its Charter)

                  Nevada                                     33-0713615
________________________________________________      __________________________
(State or other jurisdiction of incorporation or         (I.R.S. Employer
                 organization)                         Identification Number)

400 Grandview Drive, South San Francisco, California                 94080-4920
________________________________________________________________________________
     (Address of principal executive offices)                        (Zip Code)

                    Issuer's telephone number: (650) 875-0192

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

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

            Common Stock, $0.001 par value


Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Securities  Exchange  Act  during the past 12 months (or for
such shorter period that the registrant was required to file such reports),  and
(2) has been subject to such filing  requirements  for the past 90 days. YES [X]
NO [ ]

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

Issuer's revenues for fiscal year ended September 30, 2002: $3,284,611

As of January 14, 2003, there were 22,886,295 shares of common stock, $0.001 par
value, outstanding.

Portions of the following document are incorporated by reference:


<PAGE>


DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

         AccuImage  Diagnostics  Corp.   ("AccuImage"  or  "Company")  has  made
forward-looking  statements  in this annual report that are subject to risks and
uncertainties.  Forward-looking  statements include  information  concerning our
possible or assumed future results of  operations.  Also,  when the Company uses
such words as "believe,"  "expect,"  "anticipate,"  "plan," "could," "intend" or
similar expressions,  it is making forward-looking  statements.  You should note
that an investment in our securities  involves  certain risks and  uncertainties
that could affect our future financial results. The Company's actual results may
differ  materially as a result of certain factors,  including those set forth in
this Form 10-KSB.  Potential investors should consider carefully the stated risk
factors, as well as the more detailed information contained in this Form 10-KSB,
in evaluating the Company's business, financial condition, results of operations
and  prospects  before  making a decision  to invest in the common  stock of the
Company.

PART I

ITEM 1.  DESCRIPTION OF BUSINESS

         BUSINESS DEVELOPMENT

         AccuImage  was  incorporated  in  Nevada on  February  2, 1990 as Black
Pointe  Holdings,  Inc. which was established in order to identify and acquire a
medical equipment leasing business. Early attempts to do this were unsuccessful,
and the  Company  was  inactive  for a number of years  until new  parties  with
interests in three-dimensional medical technology invested. In 1996, the Company
changed its name to AccuImage Diagnostics Corp., and it entered into a licensing
arrangement with AccuImage Inc., a Nevada corporation, which owned the exclusive
rights to certain  computer  software and  technology,  and began to develop the
medical  imaging  software that the Company sells today.  On September 30, 1997,
pursuant  to a  Stock  Exchange  Agreement,  the  Company  obtained  all  of the
outstanding shares of AccuImage Inc., which was subsequently  dissolved. On June
30, 1999, the Company filed a Form 10-SB to become a reporting company under the
Securities  Exchange Act of 1934. The Company's common stock is currently traded
on the NASD OTC Bulletin Board under the symbol "AIDP".

         BUSINESS OF ISSUER

         AccuImage  is  engaged in the  development,  marketing  and  support of
software for the visualization, analysis and management of medical imaging data.
The software's primary function is to enhance physicians' interpretation of data
from medical imaging  modalities such as computed  tomography  ("CT"),  magnetic
resonance  ("MR") and ultrasound  through the  application of  three-dimensional
("3D")  computer  graphics  and image  processing  technologies.  This  enhanced
analysis can support  physicians in clinical  diagnosis,  surgical  planning and
medical  research.   Three-dimensional  visualization  allows  communication  of
findings in a form  readily  understood  by  physicians  and others  without the
specialized training otherwise required for interpreting the images generated by
the  medical  imaging  modalities.  Efficiency  gains  and cost  savings  may be
realized  through  automated   reporting  tools  and  provision  for  electronic
distribution of the medical imaging data and post-processed results via internal
networks and the Internet.

                                       2

<PAGE>

         The AccuImage software was conceived and developed on the same hardware
platform that it is now distributed  on:  standard,  high-performance,  low cost
personal computer ("PC") workstations  running the Windows operating system from
Microsoft.  The software  interfaces with various medical imaging modalities via
the standard  medical  imaging DICOM protocol and uses the Internet and standard
PC networks for subsequent  distribution of images and  post-processed  results.
Through  this  combination  of  standard   underlying  products  and  protocols,
AccuImage  is  able to  offer  to  physicians  cost-effective,  easy-to-use  yet
powerful visualization, analysis and laborsaving tools for everyday use.

         The Company  markets its  products to  radiology  departments,  imaging
centers and original  equipment  manufacturers  ("OEMs") of  diagnostic  imaging
systems both through a direct sales  force,  non-exclusive  distributors  in the
United States and independent distributors in international markets.

THE MEDICAL IMAGING INDUSTRY BACKGROUND

         The application of scanning and imaging techniques to medicine has been
responsible  for a revolution in medical  practices since the development of the
CT  scanner  in the  mid-1970's.  The CT scanner  provided  the  ability to view
anatomical  images  of the  interior  of  the  human  body  as a  collection  of
cross-sectional  "slices".  In addition to CT,  magnetic  resonance  imaging and
ultrasound  are  two  more  recently   developed   techniques   that  are  being
increasingly   applied.   These  processes  use  radio  and  ultra-sound  waves,
respectively,  to  non-invasively  image the  interior  of the body,  often with
greater effect than with x-ray technology. Positron Emission Tomography scanners
and Nuclear  Medicine cameras are also capable of imaging cross sectional slices
of the body.  These  innovative  technologies  have  been  rapidly  adopted  and
incorporated in new  physician-care  practices based on the imaging  information
they provide.

         The   cross-sectional   images   from  these   imaging   devices   have
traditionally  been  transferred  in  batches  to  large-format  film for review
(similar in appearance to conventional  x-ray film)., As computer and networking
technologies  improve,  companies  are  offering  systems  that  provide for the
electronic storage and transmission of images as well as providing  computerized
viewing stations,  eliminating the need for film. Further technological advances
have  made  possible   viewing  and   manipulation  of  the  data  as  complete,
three-dimensional    visualizations   reconstructed   by   software   from   the
cross-sectional data.

         In  parallel  with the  development  of these  cross-sectional  imaging
techniques,  conventional  -x-ray imaging  increasingly  is being performed in a
digital format.  Fluoroscopic  images are digitized into a digital video stream.
Conventional  x-ray  films  are  increasingly  scanned  and  stored in a digital
format.  New digital  image  sensors have been  developed  that replace film and
provide  the  digital   image  without  an   intervening   x-ray  film  (Digital
Radiography).  This  collection of techniques is known as Picture  Archiving and
Communications  Systems ("PACS").  It is believed that PACS will be the way that
modern hospitals in the near future manage radiological image review,  transport
and storage.

         This digital  revolution  in medical  imaging  means that images can be
shared inside and outside the hospital or imaging center with the aid of network
technology including the Internet and private Intranets. The American College of
Radiology,  the  National  Electrical   Manufacturers'   Association  and  other
professional  organizations  have in recent years sponsored the development of a
standard  image storage and  communication  protocol so that images from various
devices  can be shared in a common  display  format.  This  standard is known as
DICOM (Digital Imaging and Communications in Medicine).  The widespread adoption
of the DICOM standard creates a business opportunity for AccuImage and others to
participate  in the  developing  of a  market  for  applications  software  that
provides  visualization and analysis solutions for users of network  distributed
medical images.

                                       3

<PAGE>

         A number  of trends  are  evident  in the  highly  competitive  medical
imaging  industry.  Successive  generations of scanning  devices bring increased
scanning   speed  and  image  detail.   Consequently,   increasing   numbers  of
cross-sectional  slices are being produced in a single study. This tends to make
the  viewing  of  printed  images on x-ray  film  logistically  impractical  and
expensive,  favoring a computerized visualization system that can rapidly browse
the large  dataset and  integrate  it directly  with 3D  reconstructions  of the
subject anatomy.

         Another  recent trend is an increasing  shortage of  radiologists.  The
Company has positioned  itself to provide tools that enhance reading  efficiency
by providing  automated and structured  reporting  products.  This area is being
actively pursued with new R&D projects.

THE ACCUIMAGE TECHNOLOGY

         The core technology of the AccuImage software is a special  application
of  three-dimensional  computer  graphics  known as "Volume  Rendering."  Volume
Rendering  applies the power of modern computer  systems to the  cross-sectional
image data in order to create three-dimensional visualizations of the subject of
the original scan. Often,  semi-transparent  and colorful images are produced to
enhance the  understanding  of the graphics.  Volume  rendering can display some
parts  of the  data to  allow  hard,  solid  tissue  such  as bone to be  viewed
"through" and "behind" softer tissue such as muscle, which can be made to appear
as  semi-transparent.   This  allows  the  physician  to  rapidly,   safely  and
non-invasively view inaccessible body parts.

         The Company's software development team successfully implemented Volume
Rendering  technology in software  developed for the Microsoft Windows operating
system using Intel processors,  to take advantage of the latest  multi-processor
systems with ever-increasing  clock speed. This technology,  in conjunction with
sophisticated  analysis and review software,  forms the technology "core" of the
AccuImage product line.

         In support of the visualization  and analysis  technology the AccuImage
software provides,  the software also features data communication and management
crucial  to the  efficient  workflow  of a modern  imaging  center or  radiology
department. The DICOM standard is used for transfer of images within a facility,
with  web-based  Internet  distribution  provided  for secure  and rapid  remote
access,  transfer and review.  Automated reporting and databasing tools complete
the suite of capabilities offered by the AccuImage product line.

         An area in which the Company has expanded is subsumed under the generic
term of structured reporting,  where AccuImage software is used by physicians to
prepare patient  reports.  This software allows  physicians to save on reporting
time and increase consistency in their reporting.  The Company has also expanded
into the computed and digital  radiography market with image stitching,  storage
and distribution products.

TARGET MARKETS FOR ACCUIMAGE PRODUCTS

         AccuImage  seeks to place its  products  in the  developing  market for
computerized  medical  imaging  review,  visualization  and  communication.  The
customers in this market specialize in a range of activities, including advanced
visualization and analysis,  imaging center  management,  filmless operation and
image  distribution.  The  market  is  developing  to  include  centralized  and
distributed radiology (i.e.  Teleradiology),  remote diagnosis and consultation,
pre-surgical  planning  and  post-surgical  follow-up,   cancer  assessment  and
treatment  planning,  as well as educational  applications  for the  technology.
Hence,  the  customers for these  applications  include  radiology,  surgery and
oncology  departments of hospitals,  leading research centers,  imaging centers,
clinics and physician groups.

                                       4

<PAGE>

THE ACCUIMAGE MARKETING STRATEGY

         The Company's  main  strategy for  marketing  its  technology is direct
sales to  radiology  professionals  through  its sales  force  and  distribution
network.  Since  radiologists  represent the physician  base closest to and most
actively  involved in medical imaging,  the Company believes they will represent
the best  opportunity  for placement of the  Company's  products in the short to
medium  term.  Radiology  represents  a  developing  market  for  both  advanced
visualization/analysis  techniques  and networked  distribution  and  efficiency
enhancing  products.  In order to develop the  AccuImage  brand in the radiology
community,  the Company has  expanded  its  presence at  professional  meetings,
enhanced its visibility through publications and presentations, and initiated an
active  research  and  development  effort that has  already  resulted in unique
products for this market.  The Company sells  directly to  institutions  through
advertising,  trade show presence,  distributors  and direct sales.  The Company
also  has OEM  relationships  which it is  trying  to  expand  and  seeks  other
distribution channels both domestically and abroad.

PRODUCTS AND DEVELOPMENT

         AccuImage has a  comprehensive  product line and  distribution  system,
however,  since the Company operates in a fiercely  competitive software market,
further  deployment of  considerable  resources for  continued  development  and
product enhancement is an ongoing  requirement.  The Company's main products are
the eStation3D  web-based image distribution system and the AccuView workstation
for  advanced  analysis,   postprocessing  and  image  management.

         o   AccuView Workstation: A solution for medical imaging applications.

         The product is supplied either as a software-only item or together as a
hardware and software  item.  In the latter case,  the Company buys  standard PC
equipment and combines them with the software to make a complete workstation. In
the former case,  the buyer  installs the  workstation  software on their own PC
equipment.  The  workstation  consists  of several  software  modules  which are
capable of functioning  independently.  The Company occasionally  supplies these
modules individually, either as software-only items, or as software and hardware
items combined, where the hardware is standard PC equipment. In order to support
its  workstation   business,   the  Company  offers  on-site   training  by  its
applications  personnel,  and in the cases where it supplies  the  hardware,  it
generally provides  unlimited  telephone support for one year along with on-site
and  return-to-base  support  options.  Software-only  sales  generally  include
telephone support for one year.

         The complete workstation  configuration features full-color,  3D volume
rendering, fly-through/fly-around path planning, expert-based report generators,
and coronary  artery calcium scoring  software,  with an emphasis on ease of use
and procedural workflow.

         The  AccuView  Workstation  is capable of taking a CT dataset of hollow
vessels (such as the windpipe) and generating a 3D view which simulates what one
might see from "inside" the vessel,  looking down its length or up at its walls.
The effect is similar to the view  generated by an endoscope,  a medical  device
which is  physically  placed  inside a patient  with a small  camera and a light
attached at the end. The image from the camera is then displayed on a TV screen.
The  AccuView  approach is more  comfortable  for the  patient  since no medical
instruments need be inserted.

         The modular architecture of the AccuView workstation allows the Company
to market the  product in a form which can be  upgraded,  offering  the  Company
continuing  sales  prospects  and a  continuing  revenue  stream.

                                       5

<PAGE>

         o   eStation3D web-based distribution system.

         The  eStation3D   provides  a  simple   approach  for  web-based  image
distribution and remote image management.  Ideally suited to imaging centers and
radiology  departments  wishing to provide  competitive  service to a  referring
physician base or reading physician staff. The eStation3D server receives images
from scanners or PACS systems using the standard DICOM protocol, then compresses
and encrypts them for  publication  on the Internet  external to the  facility's
private network.  The facility  administrator  assigns the study to a particular
receiving  physician,  who then  later  logs in via a  standard  web  browser to
download the images and associated reports.

         The downloadable  eStation3D image review software supports basic slice
review and simple 3D  browsing of the  dataset,  and can be upgraded to the full
AccuView workstation capability.

MARKETING AND DISTRIBUTION

         AccuImage  markets its products  through  direct sales and  distributor
channels  to  radiology  professionals  in  hospitals  and  independent  imaging
centers.  The Company  maintains  an  advertising  presence  in major  radiology
periodicals  and journals,  and ensures that the Company web site is up to date.
The Company also actively  courts the trade press in order to develop a presence
in editorial comment on subjects related to the Company's activities.

         The Company's  products are primarily  distributed  directly by its own
sales and installation staff, with the rest of the product  distribution managed
by   several   U.S.   and   international   distributors,    including   General
Electric-Imatron   Inc.   ("GE-Imatron",   effective   December  19,  2001),   a
non-exclusive U.S. distributor of AccuImage workstations.

         The Company has had  distributors  in various  parts of the world,  but
these channels have generated negligible revenue and the Company does not expend
resources on their maintenance.

         Distributors  are sold the  software  at a discount  off the  Company's
published  MSRP and then install it on hardware  purchased by the  distributors.
The Company supplies the distributors  with marketing  materials and responds to
distributors'  requests for minor  improvements  and enhancements as required to
ensure success in particular sales.

         The majority of AccuImage  sales to end-users  and  distributors  are a
combination of "off-the-shelf"  hardware and the Company's software product. The
Company  purchases  standard  hardware  products  such as  computer  systems and
related  peripherals  and integrates its software  product,  performing  quality
assurance  and  testing of the  completed  workstation  prior to shipping to the
customer or distributor.

         A second mode of  distribution is  software-only  distribution by which
the Company  delivers  only the  software  and the  accompanying  license to the
end-user or  distributor,  who then integrates or installs the software on their
own hardware.

                                       6

<PAGE>

MANUFACTURING, INSTALLATION, TRAINING, SERVICE AND SUPPORT

         The  only   manufacturing   activity  the  Company  undertakes  is  the
integration of its software with off-the-shelf computer systems. AccuImage staff
performs  service and support by telephone,  remote system  administration,  and
on-site or return-to-base arrangements with customers.

         The  Company  handles  all   installation   for  direct  sales  of  its
workstations.  Complete systems are integrated and tested for quality  assurance
at the AccuImage  premises,  then shipped to the customer.  AccuImage  personnel
travel to the  customer  site  (usually  for 2-3 days) to  install  the  system,
integrate it with the customer's local network and medical imaging devices,  and
train site personnel on the use of the  equipment.  The cost of this training is
factored into the price of each  workstation or charged  separately.  Additional
training days can be purchased subsequent to the initial installation.

         For software-only sales, the software is sent to the customer on CD-ROM
or  downloaded  by the customer  over the  Internet.  Installation  can often be
performed from the instructions  provided with the software,  although AccuImage
staff   generally   provides   telephone   support   for   software-only   sales
installations.

         The Company records a product warranty reserve. This reserve, which was
approximately  7% of  hardware  and  software  only sales for fiscal  2000,  was
$150,000 at September 30, 2001.  The warranty  reserve is $50,000 for the fiscal
year ended  September  30,  2002.  This was reduced by  $100,000  from the prior
fiscal year's reserve primarily to the negligible warranty service claims during
fiscal year 2001. Management reviews costs attributable to warranty support. All
new systems are sold with one year's service and support  included.  The sale of
extended  support  contracts to its existing  customers is a new undertaking for
the Company.

INTELLECTUAL PROPERTY AND MARKET PROTECTION

         The Company has performed in-house product development for the majority
of the products it currently markets.  Historically, the Company has relied upon
proprietary  source code in protecting  technology from competition.  To protect
its newly-developed intellectual property, a total of 14 patents have been filed
starting  from early 2001.  Nonetheless,  such  filings are not assured  passage
through the patent examination process, and even if successful would not prevent
competitors   from  producing   products  similar  to  those  of  the  AccuImage
proprietary  software.  The  Company  has also  filed  trademark  and  copyright
applications for specific products.

         The  Company  has  in  place   appropriate   employee  and  third-party
confidentiality,  non-disclosure and proprietary information  agreements.  These
agreements generally provide that all confidential information developed or made
known to the  individual  by the Company  during the course of the  individual's
relationship with the Company is not to be disclosed to third parties, except in
specific  circumstances,  and that all inventions conceived by the individual in
the course of rendering services to the Company shall be the Company's exclusive
property.  There can be no assurance that such  agreements will not be breached,
that  remedies  for any breach would be adequate,  or that the  Company's  trade
secrets will not  otherwise  become  known to, or  independently  developed  by,
competitors. Furthermore, such measures may not provide meaningful protection of
its trade secrets,  know-how or other intellectual  property in the event of any
unauthorized  use,  misappropriation  or  disclosure.  Others may  independently
develop similar technologies or duplicate technology developed by the Company.

         The Company's  products and technologies may infringe  existing patents
or  intellectual  property  rights of third  parties.  The costs of defending an
intellectual  property claim could be substantial and could adversely affect the
business,  even if the Company were ultimately  successful in defending any such
claims.  If its products or technologies  were found to infringe the rights of a
third party, the

                                       7

<PAGE>

Company  could be required to pay  significant  damages or license fees or cease
production, which could have a material adverse effect on its business.

         Irrespective of its ability to protect its intellectual  property,  the
Company's  competitive position is largely influenced by its ability to maintain
responsiveness  to the  developing  market in which it is engaged  and to ensure
continuing  development  of  its  software  in  order  to  keep  pace  with  the
competition and developing market trends and needs.

COMPETITION

         AccuImage's 3D  visualization  and analysis  products face  competition
from the manufacturers of imaging  equipment,  other companies  offering similar
software  products,  and  in-house  development  projects  at  Universities  and
hospitals to which the Company  would  otherwise  be able to sell its  products.
Nearly  all  manufacturers  of  CT  and  MRI  scanners  offer  some  form  of 3D
visualization  workstation  as an optional  accessory  for their  scanners.  The
principal companies include GE Medical Systems, Philips Medical Systems, Siemens
Medical Systems, and Toshiba Medical Systems,  which all supply a workstation as
an option on their imaging  device.  Independent  suppliers of 3D  visualization
products  include ISG  Technologies  Inc.,  Vital  Images Inc.  (which  supplies
Toshiba with workstations),  SCImaging,  TeraRecon and Voxar, which,  similar to
the Company, act as third party vendors of a workstation product.

         Many  of  these  competitors  have  substantially   greater  financial,
marketing and technical  resources  than the Company,  and should one or more of
the   diagnostic   imaging  system   suppliers   distribute   more   competitive
visualization  products  than the ones  offered by the  Company,  the  Company's
business,  financial  condition  and results of  operations  could be materially
adversely  affected.  The Company  believes  that  continuing  innovation  while
simultaneously  stressing  quality of  product,  service  and ability to respond
rapidly to customer needs and market trends  represent its best defense  against
such  developments.  Additionally,  because  it uses a  windows-based  PC as its
platform,  the  Company  has lower  costs and  higher  margins  than many of its
competitors who are committed to more expensive,  less widely available hardware
platforms.

GOVERNMENTAL REGULATION

         Within the United States,  the use of devices in medical  procedures is
restricted  to  those  that  have  been  granted  approval  by the Food and Drug
Administration  ("FDA")  under the Federal  Food,  Drug and Cosmetic  Act.  This
approval is known as Pre Market Approval ("PMA"). Although limited marketing for
use of products on an experimental  basis is possible without full approval,  no
material  commercial  demand  may exist  unless the  device  has  received  full
approval.  Furthermore,  medical  providers will be hesitant to acquire  devices
that utilize unapproved procedures.

         The FDA  either  grants  or  refuses  approval  after a formal  written
request, known as the Pre Market Notification,  is made for a specific device to
be used for a specific procedure. Ordinarily, the applicant must demonstrate, to
the  satisfaction  of the FDA,  that  the use of that  device  for the  proposed
procedure or product would be reliable and safe and, if applicable, will have no
side  effects  currently or in the future.  This  process can require  extensive
testing,  often lasting over an extended period and costing large sums. However,
if a substantially  similar device has previously received approval for the same
or similar  applications,  Section  510(k) of the Food,  Drug and  Cosmetic  Act
allows the FDA to grant PMA without  extensive  testing and data.  AccuImage has
received 510(k) clearance to market its products from the FDA.

                                       8

<PAGE>

         Nonetheless,  even if the Company obtains regulatory approvals from the
FDA to market a product, these approvals may entail limitations on the indicated
uses of the product.  Product  approvals by the FDA can also be withdrawn due to
failure to comply with  regulatory  standards or the  occurrence  of  unforeseen
problems  following  initial  approval.  The FDA could also limit or prevent the
distribution  of the Company's  products and has the power to require the recall
of  such   products.   FDA   regulations   depend   heavily  on   administrative
interpretation,  and future  interpretations made by the FDA or other regulatory
bodies may  adversely  affect the  Company's  business.  The FDA may inspect its
business and its facilities  from time to time to determine  whether the Company
is  in  compliance   with  various   regulations   relating  to   specification,
development,  documentation,  validation,  testing,  quality control and product
labeling.  If the FDA  determines  that  the  Company  is in  violation  of such
regulations,  it could impose civil penalties,  including fines, recall or seize
products and, in extreme cases, impose criminal sanctions.

         Outside the U.S.,  there is no uniform  method of approval  for medical
devices.  International  regulatory bodies have established  varying regulations
governing  product  standards,  packaging  and  labeling  requirements,   import
restrictions,  tariff  regulations,  duties and tax requirements.  The Company's
inability or failure to comply with the varying  regulations,  or the imposition
of  new   regulations,   could   restrict  its  ability  to  sell  its  products
internationally.  Given  the low  level  of  sales in  foreign  countries,  such
restrictions would have no material effect on the Company's business.

THIRD PARTY REIMBURSEMENT

         The  federal   governmental   and  certain  states  have  enacted  cost
containment  measures such as the  establishment  of maximum fee standards in an
attempt to limit the extent and cost of governmental  reimbursement of allowable
medical expenses under Medicare,  Medicaid and similar governmental  programs. A
number of states  have  adopted  or are  considering  the  adoption  of  similar
measures.  Such  limitations  have led to a reduction  in, and may further limit
funds available for, diagnostic  testing,  and as a result may inhibit or reduce
demand  by  healthcare  providers  for  the  Company's  products.  Additionally,
hospitals may continue to face other capital  constraints that prevent them from
investing in such  equipment.  While the Company  cannot predict what effect the
policies of  governmental  entities  and other  third-party  payers will have on
future sales of the  Company's  products,  there can be no  assurance  that such
policies  would  not have a  material  adverse  impact  on the  business  of the
Company.

         It is to be noted that the largest  volume of sale of Company  products
is for the  growing  screening  market,  a market  that at this  time is  mostly
self-paid.  Customers request and pay for their examinations,  and then may seek
reimbursement  from  their  insurers  on their  own.  Economic  conditions  that
materially affect disposable income could have adverse effects on this component
of the Company's business,  while acceptance of these tests by third part payers
may favorably influence this business component.

COST OF RESEARCH AND DEVELOPMENT ACTIVITIES

         During the last two fiscal  years the Company has engaged in  extensive
research and development  activities.  The Company spent approximately $714,000,
$548,000, and $385,000 on such research and development in 2002, 2001, and 2000,
respectively.  The increase in R&D was necessary to augment or enhance  existing
product offerings.

                                       9

<PAGE>

PERSONNEL

         The Company currently has twenty full-time  employees.  The Company has
successfully  expanded  the  quantity  and  quality  of its sales,  support  and
technical  staff.  Although the Company  competes for such  personnel with other
companies and organizations that in many cases can offer superior facilities and
resources,  the Company's ability to offer prospective employees the opportunity
to make a large contribution in an exciting, growing and dynamic environment has
made the recruitment of highly qualified individuals a relatively easy task.

HISTORICAL OPERATING LOSSES

         For the fiscal year ended  September  30,  2002,  the Company  posted a
substantially lower, from the prior fiscal year, operating loss due to increased
operating expenses relating to expanded R&D and  administrative  costs offset by
increased  revenues.  During fiscal year 2001, the Company increased revenues to
non-GE-Imatron customers and added sales and R&D staff.

         For the fiscal year ended September 30, 2001, the Company had posted an
operating loss due to decreased revenues as well as increased operating expenses
relating to expanded R&D and administrative  expenses.  During fiscal year 2000,
the  Company had a decrease in its sales to  GE-Imatron,  Inc.,  and the Company
increased  significantly its R&D activities,  and added administrative staff and
other personnel during fiscal 2000.

SHORT OPERATING HISTORY.

         Although the Company was  incorporated  in February 1990, it has had no
significant  operations or business  assets until the year 1998. The Company has
been in actual  operation  under its current  management for a relatively  short
time.  It faces all of the risks  inherent  in a new  business  and those  risks
specifically  inherent in the development  and operation of a new business.  The
likelihood of the Company's success must be considered in light of the problems,
expenses,  difficulties and delays  frequently  encountered in connection with a
new business,  including,  but not limited to,  uncertainty as to the ability to
develop a market for a new product in a new area.  The  purchase  of  securities
offered by the Company must be regarded as the placing of funds at risk in a new
or "start-up" venture with all of the unforeseen costs,  expenses,  problems and
difficulties to which such ventures are subject.

MARKET DEPENDENCE

         The Company's  operations are currently focused entirely in the medical
imaging industry, and the market for the Company's products is still developing,
led by advances in technology,  as well as education and marketing  performed by
the Company and its  competitors.  There can be no  assurance  that the industry
will continue to develop in the manner it has to date, or in the manner expected
by the Company.  Hence there can be no assurance  that the Company will continue
to enjoy growth opportunities and a viable market for its products.  The success
of the Company's products will depend on its ability to successfully  market its
products, its ability to maintain competitive and responsive product support and
development, and the ability and willingness of the medical community to embrace
the  benefits  offered  by the  visualization,  analysis  and  image  management
capabilities  of the  Company's  software  products.  Of this,  there  can be no
guarantee.

                                       10

<PAGE>

CAPITAL REQUIREMENTS

         On  December  10,  2001,  the  Company  entered  into a Stock  Purchase
Agreement with several investors  pursuant to which the Company,  subject to the
terms and  conditions  set forth  therein,  raised  $1,000,000 in cash through a
private equity  offering of 11,904,761  shares of restricted  Common Stock.  The
sale of these securities was not registered under the Securities Act of 1933, as
amended and was exempt from the registration requirements thereunder pursuant to
Section 4(2) thereof.  The Company  anticipated  that the influx of capital from
this  financing  would meet its capital  requirements  for the next fiscal year,
which has now ended. There can be no assurance,  however,  that the Company will
not need additional  capital and that such additional  capital will be available
on acceptable  terms,  or at all.  Failure to obtain any such  required  capital
would have a material adverse effect on the Company's business.

COMPETITIVE MARKETPLACE AND TECHNOLOGICAL OBSOLESCENCE RISK

         The  evolving  marketplace  in  which  the  Company  operates  has been
characterized to date by rapid innovation and technological  change. The Company
expects this trend to continue and hence the Company's  success will be strongly
dependent on its ability to keep pace with the advancing  technology.  This task
requires continual  research and development by the Company's  development team,
which the Company must maintain and improve.

         There can be no assurance that the Company will be able to achieve this
task and compete  effectively in the  marketplace,  and it may come to pass that
products  developed by its competitors  will outshine its own products,  pushing
them towards obsolescence or rendering them non-competitive.

         Certain  companies  competing  with  AccuImage  are large,  established
manufacturers of medical imaging  equipment.  While these companies do not apply
the same  corporate  focus on advanced  visualization  and analysis  products as
AccuImage,  they  nevertheless have  significantly  greater capital and staffing
resources  for  research  and   development  so  critical  to  success  in  this
marketplace.  Such companies also have  established  marketing and  distribution
networks and may have a competitive  advantage in marketing  products similar to
the  Company's.   Furthermore,   competition  in  the  broader   marketplace  of
computerized  medical  image  management  exists in the form of PACS vendors and
internal projects at universities and hospitals.  There can be no assurance that
the Company will be able to compete effectively with these entities.

DEPENDENCE ON MAJOR CUSTOMERS

         For the fiscal year ended September 30, 2002,  sales to GE-Imatron were
$1,133,000  and  accounted  for  35% of the  Company's  revenue,  a  significant
reduction  from the prior fiscal year's share of 48%, even though total revenues
increased 56% over the prior fiscal year.  The Company has continued its goal of
increasing and diversifying its customer base.

         In August  2001,  American  Health Scan,  Inc. of  Metairie,  Louisiana
("AHS"),  and the Company,  announced an agreement  for  AccuImage to provide 3D
imaging  processing,  scoring  and  report  generation  and  image  distribution
stations  for AHS's  "InnerLook"  screening  facilities.  The Company  will also
provide training,  image quality assurance,  and site accreditation support, and
data base management for the InnerLook facilities. American Health Scan received
investment funds from the Company in return for a 5% undilutable equity position
in AHS. Although this agreement may generate significant revenues in the future,
there is no assurance  that AHS will be able to fully  implement  its  operating
plan, or that the Company will be able to obtain further  revenues from products
and services offered to AHS or realize its investment in AHS.

                                       11

<PAGE>

         During this fiscal year,  the Company  entered into a supply  agreement
with AmeriScan,  a major provider of CT and MRI imaging services.  AmeriScan was
founded  and  operated  by Dr.  Craig  Bittner,  who has  been a  leader  in the
development of expanded  applications for CT scanning and the detection of early
disease.

         A  significant  reduction in orders from any other  future  significant
customers  could  have a  material  adverse  effect on the  Company's  operating
results.

NEED FOR ADDITIONAL PERSONNEL

         The  Company's  ability to grow will depend in part upon its ability to
attract and retain experienced professionals to staff a significant expansion of
its  activities.  Although  the  Company  has  thus  far  had no  difficulty  in
attracting and retaining qualified personnel, there can be no assurance that the
Company will not need to hire  additional  management and other  personnel which
meets its  long-term  goals or that the Company will be able to find and attract
qualified persons to fill such additional positions in the future.

MANAGEMENT OF GROWTH

         The Company's  business strategy  involves  continuing rapid expansion.
This growth will place significant strain on the administrative, operational and
financial  resources  of  AccuImage  and  increase  demands on its  systems  and
controls.  The Company's ability to manage its growth  successfully will require
it to develop  improved  systems and controls.  If the  Company's  management is
unable to  manage  growth  effectively,  the  Company's  operating  results  and
financial condition could be adversely affected.

PRODUCT LIABILITY

         The Company's business exposes it to potential product liability claims
that are inherent in the manufacture and sale of medical  devices,  and as such,
the Company may face  substantial  liability to patients  for damages  resulting
from the faulty  design or  manufacture  of  products.  The Company has obtained
product  liability  insurance  coverage  starting February 2001. There can be no
assurance that product  liability claims will not exceed coverage limits or that
such insurance will continue to be available at commercially  reasonable  rates,
if at all.  Consequently,  a product liability claim or other claim in excess of
insured  liabilities  or with  respect  to  uninsured  liabilities  could have a
material adverse effect on the Company.

PRODUCT RECALLS

         Complex medical devices, such as the Company's products, can experience
performance  problems in the field that require  review and possible  corrective
action by the manufacturer. The Company periodically receives reports from users
of its products  relating to  performance  difficulties  they have  encountered.
While no serious issues have arisen to date,  these or future  product  problems
could result in market  withdrawals  or recalls of products,  which could have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations.

SUBSEQUENT DEVELOPMENTS

         On December 16, 2002,  the Company's  investment in AHS was merged with
other related  partnerships into MDiagnostics,  Inc. This is discussed in detail
in footnote four in the attached Notes to the Financial Statements.

                                       12

<PAGE>

ITEM 2.  DESCRIPTION OF PROPERTY

         The Company's principal office is located at 400 Grandview Drive, South
San  Francisco,  California  94080.  The property is a  seventeen-room  suite of
approximately  7,430  square  feet and was  occupied  as of June 20,  2001.  The
property  is leased  from an  unaffiliated  third  party for a period of two and
one-half  years ending  December 2003.  Monthly  rental  payments of $7,133 will
increase to $7,579 beginning in January 2003.

         The lease on the Company's  previous principal office, 400 Oyster Point
Blvd.,  #114, South San Francisco,  was terminated  effective December 31, 2001.
The lease had been renewed beginning February 1, 2001, at which time the monthly
payment  increased  from $3,820 to $7,258.  Additional  office/warehouse  space,
located at 384 Oyster Point Blvd,  #12, was subleased to an  unaffiliated  third
party for the term of the lease. The property is a mixed-use  facility comprised
of  1,000   square   feet  of   office   space   and   2,040   square   feet  of
warehouse/manufacturing space. The lease for this space ends in October 2003 and
the current rent is $3,946 per month.

         Sublease income for the fiscal years ended September 30, 2002, 2001 and
2000 amounted to $42,061, $9,926 and $0, respectively.

         The  Company  maintains  tenant  fire  and  casualty  insurance  on its
property located in both buildings in an amount deemed adequate by the Company.

ITEM 3.  LEGAL PROCEEDINGS

         The Company  may from time to time be  involved  in various  claims and
lawsuits  incidental  to the  operation  of its  business.  The  Company  is not
currently  involved in any  litigation  that it  believes  could have a material
adverse effect on its financial condition or the results of its operations.

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

         No matter was  submitted  to the vote of  security  holders  during the
fourth quarter of the fiscal year ended September 30, 2002.

                                       13

<PAGE>

PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         (A) MARKET INFORMATION

         The Company's common stock is currently traded on the NASD OTC Bulletin
Board under the symbol "AIDP".  Beginning  August 1999, the Company's  stock was
traded on the National  Quotation  Bureau's Pink Sheets.  Before August 1999, it
was  trading on the OTC  Bulletin  Board.  The price  range of high and low sale
price of the Company's common stock for the periods shown is set forth below:



                    PERIOD                   HIGH               LOW
                    ------                   ----               ---
         07/01/02 - 09/30/02               0.3000             0.1400
         04/01/02 - 06/30/02               0.3300             0.2400
         01/01/02 - 03/31/02               0.2500             0.1400
         10/01/01 - 12/31/01               0.4000             0.1200
         07/01/01 - 09/30/01               0.6000             0.1500
         04/01/01 - 06/30/01               0.6880             0.3400
         01/01/01 - 03/31/01               1.0310             0.4380
         10/01/00 - 12/31/00               0.8750             0.4060
         07/01/00 - 09/30/00               1.2000             0.9000
         04/01/00 - 06/30/00               1.2500             0.9000
         01/01/00 - 03/31/00               1.1250             0.2000
         10/01/99 - 12/31/99               1.1250             0.1250

         (B) STOCKHOLDERS

         As of September 30, 2002,  there were  approximately 95 shareholders of
record of AccuImage  common stock, not including an unknown number of beneficial
holders in street  name.  No shares of  preferred  stock have been  issued.

         (C) DIVIDENDS

         The Company has never  declared a dividend and does not intend to do so
in the foreseeable  future.  Nevada Revised  Statutes  section 78.288 limits the
Company's  ability to pay  dividends  on its common  stock if any such  dividend
would render the Company insolvent.

                                       14

<PAGE>

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



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


         The Company's  fiscal year end falls on September  30th, and references
to 2001,  2000, and 1999 discussed below refer to the years ending September 30,
2002, 2001, and 2000, respectively.

REVENUE

         In fiscal year 2001, total revenue increased 56% to $3,284,611 compared
with  $2,112,794 in the prior fiscal year 2000.  This increase was primarily due
to a significant  increase in sales to customer other than GE-Imatron.  Sales to
GE-Imatron,  Inc.  increased 11% to $1,133,059 in 2001 compared to $1,021,637 in
2000. In 2001,  the  percentage of the Company's  total sales made to GE-Imatron
decreased  to 35% of total  sales,  compared to 48% of total sales in 2000.  The
Company has continued to broaden its domestic customer base.  Revenues in fiscal
year 1999 were  $3,114,720.  The Company  expects  revenue growth in fiscal year
2002, although this is a forward-looking statement and actual results could vary
materially from Company expectations.

GROSS MARGIN

         The gross margin percentage  increased to 88% in 2001 from 80% in 2000.
The increase in gross  margin  resulted in part from an emphasis on higher value
software  components  offered as options with the Company's basic products.  The
gross margin percentage in 1999 was 68%, due to greater sales of hardware, which
has lower profit margins than software.

OPERATING EXPENSES

         Operating  expenses  in 2001 were  $3,319,736,  which is an increase of
$481,219,  or 17%,  from the 2000  expenses  of  $2,838,517.  The  increase  was
primarily  due to an  increase of  $499,943  in  employee  salaries  and related
expenses from the previous year.  Headcount was increased to twenty from sixteen
in the  previous  year  primarily  in the  sales  and R&D  groups.  Professional
consulting  fees expense  decreased by $146,993 from the previous year primarily
as a result of an increase in R&D  headcount.  Operating  expenses for 1999 were
$1,956,675.

SALES AND MARKETING

         The Company's sales and marketing expenses were approximately $377,000,
$340,000,  and $430,000 in 2001,  2000,  and 1999,  respectively.  The sales and
marketing  expense  increase from the previous  fiscal year was primarily due to
increased presence at conferences and trade shows, and promotional  printing and
expenses.  Total  expenses for trade shows and  conferences  were  approximately
$79,000 in 2001,  $63,000 in 2000,  and $80,000 in 1999.  The Company  decreased
spending  on  brochures  and other  promotional  materials  to  $40,000 in 2001,
$55,000 in 2000, and $137,000 in 1999.  The Company  expects sales and marketing
costs to increase  because of its  augmentation of the sales force,  anticipated
increased  presence at conferences and trade shows,  and promotion  material and
sales commissions increases.  This forward-looking  statement will be influenced
by the actual sales levels attained by the Company's sales force.

                                       15

<PAGE>

RESEARCH AND DEVELOPMENT

         The  Company's  research and  development  spending  was  approximately
$714,000, $548,000 and $385,000 in 2001, 2000, and 1999, respectively, primarily
on personnel  salaries,  related expenses and consultants  fees. The fiscal year
2001 increase,  of 30% over the prior fiscal year,  was due to increased  salary
expense from the addition of software  engineers offset by decreased  consulting
expense.  The Company anticipates that software  development costs will increase
with further recruitment of software development expertise as warranted.

OPERATIONAL AND ADMINISTRATIVE

         Operational  and  administrative  expenses,  comprised  of  general and
administrative costs, legal and accounting fees, rent and other operating costs,
were  approximately  $731,000,  $661,000,  and $595,000 in 2001, 2000, and 1999,
respectively.  This increase was  primarily due to increased  patent and related
expenses ($120,000) and recruitment ($46,000) expenses offset by decreased legal
and  accounting  fees  ($77,000).  This was a result of the  Company's  focus on
patent activity and R&D staff as well as cost  containment by bringing  in-house
many  legal  and  accounting  activities  previously  out-sourced.  The  Company
believes that operational and  administrative  costs will increase in the future
if the Company  successfully  recruits new staff and management and augments its
ability to  support  present  and future  customers  with  additional  technical
support staff.

RESULTS OF OPERATIONS

         The significantly  increased revenues,  of 56% and an increase, of 23%,
in operating expenses resulted in a 47% lower operating loss of $605,431 in 2001
than in the prior fiscal year.  The Company had net operating loss of $1,132,026
in 2000 and had net operating income of $149,524 in 1999.

         The  operating  loss for the  fiscal  year  ended  September  30,  2002
includes  a  $200,000  one-time  write-down  of  the  Company's   investment  in
MDiagnostics  (formerly  AHS);  see Footnote 4 in the  financials for additional
discussion.

LIQUIDITY AND CAPITAL RESOURCES

         On September 30, 2002, the Company held accounts receivable of $330,062
as well as $231,843 in cash.  Accounts  receivable  are  generally  kept current
through punctual collections  efforts,  which will continue into the next fiscal
year.

         For the next  fiscal  year  ending  September  30,  2003,  the  Company
anticipates that cash  requirements  will be met by a combination of operational
income from increasing revenues and private equity financing.

FOREIGN CURRENCY TRANSACTIONS

         All the Company's  transactions  are  negotiated,  invoiced and paid in
U.S. dollars. International sales for the fiscal years 2001, 2000, and 1999 were
approximately $135,000, $58,000, and $34,000, respectively.

INFLATION

         Management  believes the Company's  operations and financial  condition
have suffered no adverse material effect due to inflation.

                                       16

<PAGE>

SHARE PRICE VOLATILITY

         The trading  price of the  Company's  Common  Stock could be subject to
wide  fluctuations  in response to  quarter-to-quarter  variations  in operating
results,   changes  in  earnings   estimates  by  analysts,   announcements   of
technological  innovations  or new  products by the Company or its  competitors,
general  conditions in the software and computer  industries and other events or
factors.  In  addition,  in recent  years the stock  market in general,  and the
shares of technology  companies in particular,  have  experienced  extreme price
fluctuations.  This volatility has had a substantial  effect on the market price
of securities  issued by many  companies for reasons  unrelated to the operating
performance  of the  specific  companies.  These broad market  fluctuations  may
adversely affect the market price of the Common Stock.

ITEM 7.  FINANCIAL STATEMENTS

         The following  consolidated financial statements are filed as a part of
this Form 10-KSB and are included immediately following the signature page.

                  Independent Auditors' Report....................... F-1
                  Prior Independent Auditors' Report................. F-2
                  Balance Sheet...................................... F-3
                  Statement of Operations............................ F-4
                  Statement of Stockholders' Equity.................. F-5
                  Statement of Cash Flows............................ F-6
                  Notes to the Financial Statements.................. F-7 - F-28

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

         From August through  December 1999, the Company's  accountant was James
R. Kerr CPA of San Mateo, California.  From December 1999 through November 2002,
the  Company's  accountant  was Berg & Company LLP (later,  Pohl McNabola Berg &
Company LLP). In November 2002,  Odenberg Ullakko Muranishi & Company LLP of San
Francisco,  California became the Company's independent accountants.  During the
three most recent fiscal  years,  there have been no  disagreements  between the
Company and its accountants.

PART III

         The information  required by Items 9, 10, 11 and 12 will be included in
the Company's  definitive  proxy  statement or filed as an amendment to the Form
10-KSB, which will be filed with the Securities and Exchange Commission no later
than 120 days after the end of the fiscal year.

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      The exhibits listed on the accompanying  "Index to Exhibits"  are filed
or are incorporated herein by reference as part of this report.

(b)      Reports on 8-K.  Reports on Form 8-K were filed during the fourth
quarter.

                                       17

<PAGE>

                                   SIGNATURES



         In accordance  with Section 13 or 15(d) of the  Securities and Exchange
Act of 1934,  the  Company  caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                        ACCUIMAGE DIAGNOSTICS CORP.


  Date: January 14, 2003                By: /s/DR. LEON KAUFMAN
                                            ____________________________________
                                            Leon Kaufman, Ph.D., Chief Executive
                                            Officer and Director



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



/s/ C. ALLEN WALL                                        January 14, 2003
____________________________________
     C. Allen Wall, MD
     Chairman of the Board


/s/ HIRSCH HANDMAKER                                     January 14, 2003
____________________________________
    Hirsch Handmaker, MD
    Director


/s/ LOUIS KEARN                                          January 14, 2003
____________________________________
    Louis Kearn, Ph.D.
    Director


/s/ JOHN C. KLOCK                                        January 14, 2003
____________________________________
    John C. Klock, MD
    Director


/s/ JULIUS KREVANS                                       January 14, 2003
____________________________________
    Julius Krevans, MD
    Director


/s/ CHRIS SHEPHERD                                       January 14, 2003
____________________________________
     Chris Shepherd
     Director

                                       18

<PAGE>


                                 CERTIFICATIONS

I, Leon Kaufman, certify that:

1. I have reviewed  this annual  report on Form 10-KSB of AccuImage  Diagnostics
Corp.;

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

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

4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

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

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

c) presented in this annual report our conclusions  about the  effectiveness  of
the  disclosure  controls  and  procedures  based  on our  evaluation  as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's   board  of  directors  (or  persons   performing   the  equivalent
functions):

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

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

6. The  registrant's  other  certifying  officers  and I have  indicated in this
annual report whether there were significant  changes in internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.

Date:January 14, 2003

s\LEON KAUFMAN
_______________
Leon Kaufman, Ph.D.
Chief Executive Officer and Director

                                       19

<PAGE>

                                 CERTIFICATIONS

I, Stephen Franke, certify that:

1. I have reviewed  this annual  report on Form 10-KSB of AccuImage  Diagnostics
Corp.;

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

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

4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

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

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

c) presented in this annual report our conclusions  about the  effectiveness  of
the  disclosure  controls  and  procedures  based  on our  evaluation  as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's   board  of  directors  (or  persons   performing   the  equivalent
functions):

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

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

6. The  registrant's  other  certifying  officers  and I have  indicated in this
annual report whether there were significant  changes in internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.

Date: January 14, 2003

                                s\STEPHEN FRANKE
                                ________________
                                 Stephen Franke
                    Acting CFO and Vice President of Finance

                                       20

<PAGE>

                                INDEX TO EXHIBITS



  EXHIBIT NO.                              EXHIBIT NAME


     10.1         Revised AccuImage Diagnostics Corp. Stock Option Plan.

     16.1         Change of the Company's Certifying Accountant, effective
                  November 25, 2002.(1)

     23.1         Consent of Odenberg Ullakko Muranishi & Company, LLP
                  Independent Auditors

     23.2         Consent of Pohl McNabola Berg & Company, LLP Independent
                  Auditors

--------------------------------------------------------------------------------
FOOTNOTES
   (1) Incorporated by reference to the Company's Current Report on Form 8-K,
       filed December 27, 2002.

                                       21

<PAGE>



                        ACCUIMAGE DIAGNOSTICS CORPORATION

                              FINANCIAL STATEMENTS

                       SEPTEMBER 30, 2002, 2001, AND 2000


<PAGE>


                        ACCUIMAGE DIAGNOSTICS CORPORATION

                              FINANCIAL STATEMENTS

                       SEPTEMBER 30, 2002, 2001, AND 2000




Independent Auditor's Report                                            F-1

Prior Independent Auditor's Report                                      F-2

Balance Sheets                                                          F-3

Statements of Operations                                                F-4

Statements of Stockholders' Equity                                      F-5

Statements of Cash Flows                                                F-6

Notes to the Financial Statements                                  F-7 - F-28


<PAGE>


                          INDEPENDENT AUDITORS' REPORT



To the Board of Directors and Stockholders
of AccuImage Diagnostics Corporation

         In  our  opinion,  the  accompanying  balance  sheet  and  the  related
statements of operations, stockholders' equity and cash flows present fairly, in
all  material  respects,   the  financial  position  of  AccuImage   Diagnostics
Corporation  at September 30, 2002,  and the results of its  operations  and its
cash  flows for the  fiscal  year then  ended,  in  conformity  with  accounting
principles  generally accepted in the United States of America.  These financial
statements   are  the   responsibility   of  the   Company's   management;   our
responsibility  is to express an opinion on these financial  statements based on
our  audit.  We  conducted  our audit of these  statements  in  accordance  with
auditing  standards  generally  accepted in the United States of America.  Those
standards  require  that we plan and  perform  the  audit to  obtain  reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the  amounts  and  disclosures  in  the  financial  statements,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audit provides a reasonable basis for the opinion expressed above. The financial
statements  of  AccuImage  Diagnostics  Corporation  for the fiscal  years ended
September  30, 2001 and 2000 were audited by other  auditors  whose report dated
December 19, 2001 expressed an unqualified opinion on those statements.







Odenberg Ullakko Muranishi & Co., LLP
San Francisco, CA

December 30, 2002

                                      F-1


<PAGE>


                          INDEPENDENT AUDITORS' REPORT



To the Board of Directors and Shareholders
of AccuImage Diagnostics Corporation

We have  audited  the  accompanying  balance  sheets  of  AccuImage  Diagnostics
Corporation,  a Nevada  Corporation,  as of September 30, 2001 and 2000, and the
related  statements of operations,  changes in  stockholders'  equity,  and cash
flows for each of the three fiscal years ended  September  30, 2001,  2000,  and
1999.  These  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,   the  financial   position  of  AccuImage   Diagnostic
Corporation as of September 30, 2001 and 2000, and the results of its operations
and its cash flows for the three fiscal years ended  September  30, 2001,  2000,
and 1999 in conformity  with  accounting  principles  generally  accepted in the
United States of America.





Pohl, McNabola, Berg & Company, LLP
San Francisco, CA

December 19, 2001

                                       F-2
<PAGE>
<TABLE>
<CAPTION>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                                  BALANCE SHEET

                                     ASSETS
                                                                                   September 30,
                                                                   ______________________________________
                                                                           2002                2001
                                                                   _________________   __________________
<S>                                                                <C>                 <C>
Current assets:
    Cash and cash equivalents                                      $         231,843   $           51,422
    Accounts receivable, net of allowance of $18,338 and
      $15,000 in fiscal years ended September 30, 2002 and                   330,062              234,875
      2001, respectively.
    Employee receivable                                                       20,895               12,716
    Inventory                                                                106,046               94,083
    Prepaid expenses                                                          53,175               17,350
                                                                   _________________   __________________
Total current assets                                                         742,021              410,446

Property and equipment, net of accumulated depreciation
      and amortization                                                        52,759               53,549

Investments and other assets:
    Trade receivable-noncurrent                                                    -               15,075
    Deposits                                                                  15,067               18,735
    Goodwill, net                                                            309,063              370,877
    Other intangible assets, net                                              16,969               29,970
    Investment                                                               300,000              375,000
                                                                   _________________   __________________
Total investments and other assets                                           641,099              809,657
                                                                   _________________   __________________

        TOTAL ASSETS                                               $       1,435,879   $        1,273,652
                                                                   =================   ==================

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Accounts payable                                               $         208,592   $           69,932
    Wages payable                                                                  -                4,844
    Accrued vacation                                                          77,845               53,726
    Other accrued liabilities                                                107,401              195,506
    Product warranty reserve                                                  50,000              150,714
    Deferred revenue                                                               -              312,100
                                                                   _________________   __________________
Total current liabilities                                                    443,838              786,822
                                                                   _________________   __________________


Long-term notes payable to stockholders                                      250,000              250,000
                                                                   _________________   __________________


Commitments and contingencies (Notes 11, 13 and 15)                                -                    -
                                                                   _________________   __________________


Stockholders' equity:
    Preferred shares - $0.001 par value; 10,000,000                                -                    -
      shares authorized; none issued or outstanding
    Common shares - $0.001 par value; 50,000,000                              22,887               10,982
      authorized; 22,886,295 and 10,981,534 issued and
      outstanding in fiscal years ended September 30, 2002
      and 2001, respectively
    Paid-in-capital                                                        3,488,348            2,500,253
    Accumulated other comprehensive loss                                           -             (125,000)
    Accumulated deficit                                                   (2,769,194)          (2,149,405)
                                                                   _________________   __________________
Total stockholders' equity                                                   742,041              236,830
                                                                   _________________   __________________


        TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                 $       1,435,879   $        1,273,652
                                                                   =================   ==================
</TABLE>

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

                                       F-3

<PAGE>
<TABLE>
<CAPTION>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                             STATEMENT OF OPERATIONS


                                                             Fiscal years ended September 30,
                                              ______________________________________________________________
                                                     2002                 2001                   2000
                                              _________________   ___________________    ___________________

<S>                                           <C>                 <C>                    <C>
Sales                                         $       3,284,611   $         2,112,794    $         3,114,720
Cost of sales                                           412,367               416,229              1,008,521
                                              _________________   ___________________    ___________________

      Gross profit                                    2,872,244             1,696,565              2,106,199
                                              _________________   ___________________    ___________________

Operating expenses:
    Bad debts                                            25,697                27,031                 10,093
    Depreciation and amortization                       101,544                99,304                 97,781
    Salaries and wages                                1,804,890             1,304,947                693,009
    Employee benefits                                   133,534                70,899                 15,017
    General and administrative expenses                 350,346               269,339                340,170
    Legal and accounting                                161,461               238,749                209,265
    Professional consulting                             187,664               334,657                116,674
    Rent                                                135,346               143,330                 45,140
    Marketing and promotion                             377,193               340,335                429,526
    Loss on investment                                  200,000                     -                      -
                                              _________________   ___________________    ___________________
Total operating expenses                              3,477,675             2,828,591              1,956,675
                                              _________________   ___________________    ___________________

      Operating income (loss)                          (605,431)           (1,132,026)               149,524
                                              _________________   ___________________    ___________________

Other (income) expenses:
    Interest expense                                     25,000                 6,730                  2,151
    Miscellaneous income                                 (5,685)               (2,100)                  (200)
    Interest income                                      (5,757)              (19,086)               (23,024)
                                              _________________   ___________________    ___________________
Total other (income) expenses                            13,558               (14,456)               (21,073)
                                              _________________   ___________________    ___________________

      Income (loss) before income taxes                (618,989)           (1,117,570)               170,597
Provision for income taxes                                 (800)               (6,400)                  (800)
                                              _________________   ___________________    ___________________

        Net income (loss)                     $        (619,789)  $        (1,123,970)   $           169,797
                                              =================   ===================    ===================

Earnings (loss) per share:
    Basic                                     $           (0.03)  $             (0.10)   $              0.02
                                              =================   ===================    ===================
    Diluted                                   $           (0.03)  $             (0.10)   $              0.02
                                              =================   ===================    ===================


Weighted average shares outstanding:
    Basic                                            20,603,190            10,981,534             10,421,035
                                              =================   ===================    ===================
    Diluted                                          20,603,190            10,981,534             11,067,956
                                              =================   ===================    ===================
</TABLE>

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

                                       F-4

<PAGE>
<TABLE>
<CAPTION>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                             STATEMENT OF CASH FLOWS

                                                                                  Fiscal years ended September 30,
                                                                         __________________________________________________
                                                                                2002              2001             2000
                                                                         ________________   ______________   ______________
<S>                                                                      <C>                <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income (loss)                                                    $       (619,789)  $   (1,123,970)  $      169,797
    Adjustment to reconcile net income( loss) to net cash
      provided by (used in) operating activities:
      Depreciation and amortization                                               101,544           99,304           97,781
      Compensation expense on stock options granted                                     -           56,783            6,542
      Warranty reserve                                                           (100,714)         (96,071)         162,515
      Loss on investment                                                          200,000                -                -
      Changes in operating assets and liabilities:
      Accounts receivable, net                                                    (95,187)         260,566         (307,117)
      Employee receivable                                                          (8,179)               -                -
      Inventory                                                                   (11,963)           7,810          (56,936)
      License rights                                                                    -                -           16,370
      Prepaid assets                                                              (35,825)         (13,702)             841
      Deposits                                                                      3,668           (7,024)          (7,891)
      Other assets                                                                 15,075          (12,715)               -
      Accounts payable                                                            138,660          (68,063)          (8,381)
      Accrued expenses                                                            (68,829)         207,892          (34,802)
      Deferred revenue                                                           (312,100)         312,100                -
                                                                         ________________   ______________   ______________
Cash (used for) provided by operating activities:                                (793,639)        (377,090)          38,719
                                                                         ________________   ______________   ______________

CASH FLOW FROM INVESTING ACTIVITIES:
    Investment in property and equipment                                          (25,940)         (24,391)         (11,017)
    Purchase of investments                                                             -         (500,000)               -
                                                                         ________________   ______________   ______________
Cash used for investing activities                                                (25,940)        (524,391)         (11,017)
                                                                         ________________   ______________   ______________


CASH FLOW FROM FINANCING ACTIVITIES:
    Stockholder note payable payments                                                   -                -          (56,500)
    Issuance of common stock                                                    1,000,000                -          677,000
    Exercise of stock options                                                           -                -           20,500
    Proceeds from notes payable                                                         -          500,000                -
    Payments on notes payable                                                           -         (250,000)               -
                                                                         ________________   ______________   ______________
Cash provided by financing activities                                           1,000,000          250,000          641,000
                                                                         ________________   ______________   ______________


NET INCREASE (DECREASE) IN CASH AND
     CASH EQUIVALENTS                                                             180,421         (651,481)         668,702

CASH AND CASH EQUIVALENTS AT BEGINNING
     OF FISCAL YEAR                                                                51,422          702,903           34,201
                                                                         ________________   ______________   ______________

CASH AND CASH EQUIVALENTS AT END
    OF FISCAL YEAR                                                       $        231,843   $       51,422   $      702,903
                                                                         ================   ==============   ==============

SUPPLEMENTAL DISCLOSURE:
    Income taxes paid                                                    $              -   $        5,600    $           -
                                                                         ================   ==============   ==============
    Interest paid during the fiscal year                                 $         25,000              480   $        5,554
                                                                         ================   ==============   ==============

NON-CASH ACTIVITIES:
    Compensation expense on stock options granted                        $              -   $       56,783   $        6,542
                                                                         ================   ==============   ==============
</TABLE>

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

                                       F-5

<PAGE>

<TABLE>
<CAPTION>
                        ACCUIMAGE DIAGNOSTICS CORPORATION
                        STATEMENT OF STOCKHOLDERS' EQUITY

                                           Common stock                                Accumulated
                                    ____________________________       Paid-in            other          Accumulated
                                      Shares       Amount           capital      comprehensive loss   (deficit)           Total
                                    __________   ____________  ________________   ________________  ________________ _______________
<S>                                 <C>          <C>           <C>                <C>               <C>              <C>
Balance at September 30, 1999        9,748,200   $      9,748  $      1,740,662   $              -  $    (1,195,232) $    555,178

Common stock issued for cash,
  net of issuance costs              1,183,334          1,184           675,816                  -                -       677,000

Options exercised                       50,000             50            20,450                  -                -        20,500

Compensation recognized on
  options granted                            -              -             6,542                  -                -         6,542

Net income                                   -              -                 -                  -          169,797       169,797
                                    __________   ____________  ________________   ________________  ________________ ____________

Balance at September 30, 2000       10,981,534         10,982         2,443,470                  -       (1,025,435)    1,429,017

Compensation recognized on
  options granted                            -              -            56,783                  -                -        56,783

Net loss                                     -              -                 -                  -       (1,123,970)   (1,123,970)
Unrealized loss on investment                -              -                 -           (125,000)               -      (125,000)
                                                                                                                     ____________
Comprehensive loss                                                                                                     (1,248,970)
                                    __________   ____________  ________________   ________________  ________________ ____________


Balance at September 30, 2001       10,981,534         10,982         2,500,253           (125,000)      (2,149,405)      236,830

Common stock issued for cash        11,904,761         11,905           988,095                  -                -     1,000,000

Net (loss)                                   -              -                 -                  -         (619,789)     (619,789)
Recognition of unrealized loss
  on investment                              -              -                 -            125,000                -       125,000
                                                                                                                     ____________
Comprehensive loss                                                                                                       (494,789)
                                    __________   ____________  ________________   ________________  ________________ ____________

Balance at September 30, 2002       22,886,295   $     22,887  $      3,488,348   $              -  $    (2,769,194) $    742,041
                                    ==========   ============  ================   ================  ================ ============
</TABLE>

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

                                       F-6

<PAGE>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


1)       ORGANIZATION AND OPERATIONS

The Company was  organized  on February 2, 1990,  under the laws of the state of
Nevada as Black Pointe Holdings,  Inc. On June 26, 1996, the Company changed its
the name to AccuImage Diagnostics Corporation (the "Company").

On  September  30, 1997,  pursuant to a Stock  Exchange  Agreement,  the Company
acquired all of the outstanding shares of AccuImage, Inc., a Nevada corporation,
which owned the exclusive  rights to certain  computer  software and  technology
which the Company had been  licensing.  Subsequent to the  exchange,  AccuImage,
Inc. was dissolved.

The Company is based in South San Francisco  and is engaged in the  development,
marketing  and sales of Internet  enabled  software  used for  medical  data and
interactive medical image visualization.  The software, which runs on a personal
computer,  interprets images obtained from leading  equipment  manufacturers and
imaging modalities (e.g., CT, MRI, and Ultrasound).

The Company provides its software to three different markets. First, the Company
offers  hospitals,  clinics and medical  professionals  a scalable  solution for
transmitting  data on the Internet,  and enhancing the diagnostic  value of data
already obtained.  Second, the Company sells to Original Equipment Manufacturers
(OEMs) of medical acquisition devices a customizable  version that adds value to
their core  products.  Third,  the Company  offers  vendors who sell Picture and
Archiving  Communication  Systems (PACs) a medical  diagnostic  software package
that complements and enhances their existing product line.


BASIS OF PRESENTATION

The  financial  statements  have been  prepared on a going  concern  basis.  The
Company  has  reported  net  operating  losses  for the past two  fiscal  years.
Management  plans to achieve  profitability  in the fiscal year ending September
30, 2003 by  generating  higher  revenue  through an expansion of the  Company's
sales force and control of costs and expenses.

Also, the Company is currently seeking to raise $1 million in additional debt or
equity capital from a new investor.  Certain stockholders and Board members have
agreed to provide this financing if it is not obtained from the new investor.


2)       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of significant accounting policies is as follows:

BASIS OF ACCOUNTING

The Company presents its financial statements on the accrual basis of accounting
in accordance with accounting principles generally accepted in the United States
of America.

                                      F-7

<PAGE>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

FISCAL YEAR

The Company has a fiscal year that ends on September 30. Fiscal years 2001, 2000
and 1999 ended on September 30, 2002, September 30, 2001 and September 30, 2000,
respectively.


CASH EQUIVALENTS

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


INVENTORY

Inventory  consisting of personal computer components are stated at the lower of
cost or market. Cost is determined by the first-in, first-out (FIFO) method.


PROPERTY AND EQUIPMENT

Property and equipment are stated at cost.  Depreciation  is computed  using the
straight-line method over the estimated useful lives of the assets. Amortization
of leasehold  improvements is computed using the  straight-line  method over the
shorter  of the  remaining  lease  term or the  estimated  useful  lives  of the
improvements.  Repairs  and  maintenance  that do not extend the useful  life of
property and  equipment  are charged to expense as incurred.  When  property and
equipment  are retired or otherwise  disposed of, the asset and its  accumulated
depreciation  are removed from the accounts  and the  resulting  gain or loss is
reflected in income.

The estimated useful lives of property and equipment are as follows:

                          Leasehold improvements                 3-7 years
                          Computers and equipment                3-5 years
                          Furniture and fixtures                 5-7 years
                          Software                               3-5 years


LONG-LIVED ASSETS

The Company evaluates the recoverability of long-lived assets in accordance with
SFAS No.  121,  "Accounting  for the  Impairment  of  Long-Lived  Assets and for
Long-Lived  Assets to be  Disposed  of." SFAS No. 121  requires  recognition  of
impairment of  long-lived  assets in the event the net book value of such assets
exceeds the future undiscounted cash flows applicable to such assets.  Beginning
with the fiscal  year ended  September  31,  2003,  the  Company  will apply the
standards  of SFAS No.  144,  "Accounting  for the  Impairment  or  Disposal  of
Long-Lived  Assets." SFAS No. 144 addresses  financial  accounting and reporting
for the  impairment  or  disposal  of  long-lived  assets  (refer to the "Recent
Accounting Pronouncements" section).

                                      F-8

<PAGE>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

GOODWILL AND INTANGIBLE ASSETS

Goodwill and certain  technologies  resulting from the acquisition of AccuImage,
Inc.  (See  Note 1) and  other  intangible  assets  (software  and  intellectual
property  licenses)  are  amortized on a  straight-line  basis over the expected
periods to be benefited (goodwill - 10 years; technology license - 19 years; and
other intangible assets - 5 years).  The Company evaluates the recoverability of
these  intangible  assets at each  period end using the  undiscounted  estimated
future net operating cash flows expected to be derived from such assets. If such
evaluation indicates a potential impairment,  the Company uses the fair value of
the asset to determine the amount that should be written off.

In July 2001, the Financial  Accounting Standards Board ("FASB") issued SFAS No.
142,  "Goodwill and Other  Intangible  Assets" (refer to the "Recent  Accounting
Pronouncements"  section  below),  which will be  adopted  by the  Company as of
October 1, 2002.


SOFTWARE DEVELOPMENT COSTS

The Company  capitalizes  certain software  development costs in accordance with
SFAS No. 86,  "Accounting for the Costs of Computer  Software to Be Sold, Leased
or Otherwise  Marketed." Costs incurred internally to create a computer software
product or to develop an  enhancement  to an  existing  product  are  charged to
expense  when  incurred  as  research  and   development   until   technological
feasibility has been established for the product or enhancement. Thereafter, all
software  production  costs  are  capitalized  and  reported  at  the  lower  of
unamortized cost or net realizable value. Capitalization ceases when the product
or  enhancement  is  available  for  general  release  to  customers.   Software
development costs are amortized on a product basis at the greater of the amounts
computed  using  (a) the  ratio of  current  gross  revenues  for a  product  or
enhancement to the total current and anticipated  future gross revenues for that
product or  enhancement,  or (b) the  straight-line  method  over the  remaining
estimated  economic  life of the  product or  enhancements,  not to exceed  five
years.  The  Company   evaluates  the  net  realizable  value  of  its  software
development  costs at each period end using  undiscounted  estimated  future net
operating cash flows expected to be derived from the respective software product
or enhancement. If such evaluation indicates that the unamortized software costs
exceed the net realizable  value, the Company writes off the amount by which the
unamortized  software development costs exceed net realizable value. The Company
did not  capitalize  any  software  development  costs  in  fiscal  years  ended
September 30, 2002, 2001, and 2000.


WARRANTY RESERVE

Based upon historical costs and its sales  agreements,  the Company  maintains a
warranty  reserve based on product  sales to cover  anticipated  warranty  costs
related to software sold.  This reserve is continually  compared to actual costs
by management and revised as necessary.

                                      F-9

<PAGE>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

DEFERRED REVENUE

The  Company  recognizes  revenues as earned.  Amounts  billed in advance of the
period in which product is shipped are recorded as liabilities  under  "deferred
revenue".


ADVERTISING COSTS

The  Company  expenses  advertising  costs  as they  are  incurred.  Advertising
expenses were $51,912, $49,585, and $41,758 for the fiscal years ended September
30, 2002, 2001, and 2000, respectively.


SOFTWARE REVENUE AND COSTS

In  accordance  with SOP  97-2,  "Software  Revenue  Recognition,"  the  Company
recognizes revenue when the receipt of payment is probable, the selling price is
known,  the  software  has been  delivered,  and the  contract  is  enforceable.
Research and development  costs related to both future and present  products are
charged to expense as  incurred.  Research  and  development  costs  amounted to
approximately  $714,000,  $548,000,  and  $385,000  for the fiscal  years  ended
September 30, 2002, 2001, and 2000, respectively.


INCOME TAXES

The  Company  accounts  for  income  taxes in  accordance  with  SFAS  No.  109,
"Accounting  for Income Taxes." Income taxes are provided for the tax effects of
transactions  reported in the financial statements and consist of deferred taxes
related to differences between the basis of assets and liabilities for financial
and income tax reporting.  The deferred tax assets and liabilities represent the
future  tax  return  consequences  of those  differences,  which  will be either
taxable or deductible  when the assets and liabilities are recovered or settled.
Deferred taxes are also  recognized  for operating  losses that are available to
offset future taxable income.


USE OF ACCOUNTING ESTIMATES

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial  statements and accompanying notes.
Actual results could differ materially from those estimates.

The actual  results with regard to warranty  expenditures  could have a material
impact on the  financial  statements  of the  Company if the actual rate of unit
failure is greater than what was estimated by the Company in the  calculation of
its warranty reserve.

Other  significant  estimates  include  the  estimated  cash  flows  to  measure
long-lived  assets,  including  goodwill  and other  intangible  assets  and the
recoverability of the Company's investment.

                                     F-10

<PAGE>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

FAIR VALUE OF FINANCIAL INSTRUMENTS

The  carrying  value  of  certain  financial  instruments,   including  accounts
receivable, accounts payable and accrued expenses approximates fair value due to
their short maturities.  Based on borrowing rates currently  available for loans
with similar terms,  the carrying values of notes payable  approximates the fair
values.


COMPREHENSIVE INCOME (LOSS)

Comprehensive income consists of net income and other comprehensive  income. The
components   of   comprehensive   income  are  presented  in  the  statement  of
stockholder's equity.


EARNINGS (LOSS) PER SHARE

Basic  earnings  (loss)  per common  share  excludes  the effect of  potentially
dilutive  securities and is computed by dividing net income (loss) applicable to
common  stockholders by the weighted average number of common shares outstanding
for the period.  Diluted  earnings per share reflects the potential  dilution of
securities by including  stock options in the weighted  average number of common
shares  outstanding for a period, if dilutive.  Due to losses in fiscal 2001 and
2000,  there was no effect of diluted shares on loss per share.  In fiscal 1999,
based on net income of  $169,797  and a  weighted  average  share  count of 10.4
million net income  applicable  to common  stockholders  per share,  basic,  was
$0.02.  For the same period,  the inclusion of 0.7 million dilutive common stock
options  increased  the weighted  average share count to 11.1 million and led to
net income applicable to common stockholders per share, diluted, of $0.02.


STOCK-BASED COMPENSATION

The Company accounts for its stock based  compensation  plan based on accounting
Principles  Board  ("APB")  Opinion  No.  25. In  October  1995,  the  Financial
Accounting  Standards  Board  issued SFAS No. 123,  Accounting  for  Stock-Based
Compensation.  The  Company has  determined  that it will not change to the fair
value  method and will  continue to use APB Opinion No. 25 for  measurement  and
recognition  of any expense  related to employee  stock based  transactions.  As
such, compensation expense would generally be recorded on the date of grant only
if the current market price of the underlying stock exceeds the exercise price.

                                      F-11

<PAGE>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001,  the Financial  Accounting  Standards  Board issued  Statements of
Financial Accounting Standards No. 141, "Business Combinations" ("SFAS No. 141")
and No. 142,  "Goodwill and Other Intangible  Assets" ("SFAS No. 142"). SFAS No.
141  requires  all  business  combinations  initiated  after June 30, 2001 to be
accounted  for using the  purchase  method.  Under SFAS No.  142,  goodwill  and
intangible  assets with  indefinite  lives are no longer  amortized  but instead
tested for impairment at least annually in accordance with the provisions of FAS
No. 142.  FAS No. 142 will also  require that  intangible  assets with  definite
lives be  amortized  over  their  respective  useful  lives  to their  estimated
residual  values,  and reviewed for impairment in accordance  with SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed  Of." The  provisions  of this  Statement are required to be applied
starting with fiscal years  beginning  after December 15, 2001. The Company will
continue  to  amortize  goodwill  until the new  standard  is  adopted  and test
goodwill  for  impairment  in  accordance  with SFAS No.  121.  The  Company  is
currently  evaluating  the effect that adoption of the provisions of FAS No. 142
will have on its results of operations and financial position.

In June 2001,  the FASB issued SFAS No. 143,  "Accounting  for Asset  Retirement
Obligations."  SFAS No.  143  requires  liability  recognition  for  obligations
associated with the retirement of tangible  long-lived  asset and the associated
asset  retirement  costs.  The Statement is effective  for financial  statements
issued for fiscal years beginning  after June 15, 2002 with earlier  application
encouraged.  The  implementation of SFAS No. 143 will not have a material effect
on the Company's results of operations or financial position.

In August 2001, the FASB issued SFAS No. 144,  "Accounting for the Impairment or
Disposal  of  Long-Lived   Assets."  SFAS  No.  144  supersedes  SFAS  No.  121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be  Disposed  of", in that it removes  goodwill  from its  impairment  scope and
developed a single  accounting model for ling-lived  assets to be disposed of by
sale. However,  SFAS No. 144 retains the fundamental  provisions of SFAS No. 121
for (a) recognition and measurement of long-lived assets to be held and used and
(b)  measurement  of  long-lived  assets to be  disposed  of.  SFAS No. 144 also
supersedes the business  segment  concept in APB opinion No. 30,  "Reporting the
Results  of  Operations-Reporting  the  Effects  of  Disposal  of a Segment of a
Business,  and  Extraordinary,  Unusual and  Infrequently  Occurring  Events and
Transactions,"  in that it permits  presentation  of a  component  of an entity,
whether classified as held for sale or disposed of, as a discontinued operation.
However,  SFAS No. 144 retains the  requirement  of APB Opinion No. 30 to report
discontinued operations separately from continuing operations. The provisions of
this  Statement are effective for financial  statements  issued for fiscal years
beginning  after  December 15, 2001. We will adopt SFAS No. 144 as of October 1,
2002 and do not expect that the implementation will have a significant effect on
our financial statements.

In June 2002,  the FASB issued SFAS No.  146,  "Accounting  for Exit or Disposal
Activities."   SFAS  No.  146  addresses   significant   issues   regarding  the
recognition,  measurement,  and reporting of costs that are associated with exit
and disposal activities,  including restructuring  activities that are currently
accounted for under EITF No. 94-3,  Liability  Recognition for Certain  Employee
Termination  Benefits  and Other  Costs to Exit an Activity  (including  Certain
Costs  Incurred  in a  Restructuring).  The scope of SFAS No. 146 also  includes
costs  related  to  terminating  a  contract  that is not a  capital  lease  and
termination  benefits that employees who are  involuntarily

                                      F-12

<PAGE>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

terminated receive under the terms of a one-time benefit arrangement that is not
an ongoing benefit arrangement or an individual  deferred-compensation contract.
SFAS  No.  146  will be  effective  for  exit or  disposal  activities  that are
initiated  after  December 31, 2002 and early  application  is  encouraged.  The
provisions  of EITF  No.  94-3  shall  continue  to apply  for an exit  activity
initiated under an exit plan that met the criteria of EITF No. 94-3 prior to the
adoption of SFAS No. 146.  The Company  will adopt FSAS 146 for exit or disposal
activities that are initiated after December 31, 2002. The effect on adoption of
SFAS No. 146 will change on a prospective basis the timing of when restructuring
charges are recorded  from a commitment  date  approach to when the liability is
incurred.

In November 2002, the EITF reached a consensus on issue No. 00-21 Accounting for
Revenue Arrangements with Multiple  Deliverables ("EITF 00-21") on a model to be
used to determine when a revenue  arrangement with multiple  deliverables should
be divided into separate units of accounting  and, if separation is appropriate,
how  the  arrangement  consideration  should  be  allocated  to  the  identified
accounting units. The EITF also reached a consensus that this guidance should be
effective  all revenue  arrangements  entered into in fiscal  periods  beginning
after June 15, 2003, which for the Company would be the quarter ending September
30,  2003.  The Company is currently  assessing  what the impact of the guidance
would be on our financial statements.


3)       RELATED PARTY TRANSACTIONS

In fiscal year ended  September  30,  2002,  Leon  Kaufman,  President  and CEO,
advanced  $50,000 to the  Company.  The terms of the note  payable  required the
Company to repay  $25,000  within  seven days after the  Company  completed  its
equity  investment in AHS (see Note 4 and 12), and $25,000 is due June 30, 2005.
The note payable bears an interest rate of 10% per annum. The Company has repaid
Mr.  Kaufman  $25,000 plus  applicable  interest in August 2001. Mr. Kaufman has
been performing the duties of President and CEO starting February 1, 2001.

In August 2001, two  stockholders  advanced  $450,000 to the Company.  The notes
payable bear an interest  rate of 10% per annum.  The terms of the notes payable
required  the  Company to repay  $225,000  within  seven days after the  Company
completed  its equity  investment  in AHS (see Note 4), and $225,000 is due June
30,  2005.  The Company  repaid  these  stockholders  $225,000  plus  applicable
interest in August 2001.

Douglas Boyd, former Chairman of AccuImage Diagnostics Corp., and family members
are majority  Stockholders of Imaging  Technology Group, Inc (ITG). Sales to ITG
for the fiscal years ended  September  30, 2002 and 2001  amounted to $5,000 and
$141,120, respectively.

John Klock,  a member of the Board of directors  of the  Company,  is also a 50%
shareholder  of Holistica,  Inc.  Sales to  Holistica,  Inc. for the fiscal year
ended September 30, 2002 amounted to $5,000.

                                      F-13

<PAGE>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

The Company  received cash from AHS,  Inc., an entity in which the Company has a
5% ownership interest, in the amount of $312,100 during the year ended September
30, 2001,  for sales of the  Company's  products,  which were not yet shipped at
September 30, 2001.  AHS was not able to take  delivery of the products  ordered
due to construction  delays at their facilities.  As a result, the cash received
of  $312,100  was  recorded as  deferred  revenue at  September  30,  2001.  All
equipment was shipped and the related  revenue was recognized  during the fiscal
year ended  September  30, 2002.  Sales to AHS,  Inc. for the fiscal years ended
September 30, 2002 and 2001 were $326,000 and $123,000, respectively.

Dr. Hirsch Handmaker, a director of the Company, is also Chairman and Acting CEO
of VirtuRad.com, LLC. On March 1, 2002, the Company entered into a contract with
VirtuRad to provide AccuStitch  software which is to be used in conjunction with
VirtuRad  products  that are sold  and/or  distributed  by  VirtuRad to VirtuRad
customers.

The Company has an agreement  under which Imatron,  Inc., a related party, is an
exclusive  distributor of the Company's  products to certain customers (See Note
12).

As of September 30, 2002,  the Company was owed $10,715 for sales to two related
parties.

As of September  30,  2001,  the Company was owed $44,265 for sales to a related
party.


4)       INVESTMENT IN AHS

The Company  concluded a strategic  investment for the promotion of its business
and strategic objectives.  In July 2001, the Company purchased 500,000 shares of
series A preferred  stock at $1.00 per share  (representing  a  non-dilutive  5%
ownership  interest)  of American  Health Scan,  Inc.  ("AHS"),  which  provides
cardiac and cancer screening services.

At September 30, 2001, management believed the investment in AHS was temporarily
impaired and estimated the unrealized  loss to be $125,000.  The unrealized loss
of $125,000 on available for sale  securities was included in accumulated  other
comprehensive loss for the period in the accompanying statement of stockholders'
equity.

AHS has call rights on the preferred stock for three years from July 2001 at one
($1.00)  per share.  The  preferred  stock may not be sold or  disposed of for a
period of three years after the date of the stock purchase agreement,  which was
July 2001.

In December 2002, AHS merged with MDiagnostics, Inc. The Company's investment in
AHS was  exchanged  for 190,846  shares of Class A  non-voting  common  stock in
MDiagnostics,  Inc.,  representing an ownership  interest of  approximately  2%.
Based  on  an  independent  appraisal  of  MDiagnostics,   Inc.,  the  Company's
investment was considered other than temporarily impaired and a loss of $200,000
on the investment was recognized in the fiscal year ended September 30, 2002.

                                      F-14

<PAGE>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

5)       ACCOUNTS RECEIVABLE - TRADE

The Company  sells its products to  distributors  and customers  throughout  the
United States. At September 30, 2002, two customers, each of which accounted for
more than 10% of the  Company's  accounts  receivable,  accounted for 57% of the
total accounts receivable in aggregate.  At September 30, 2001, three customers,
each of which accounted for more than 10% of the Company's accounts  receivable,
accounted for 59% of total accounts receivable in aggregate.

The Company  provides an allowance for doubtful  accounts equal to the estimated
uncollectible accounts. The Company's estimate is based on historical collection
experience and a review of the current status of trade accounts  receivable.  It
is reasonably possible that the Company's estimate of the allowance for doubtful
accounts  will  change.  Trade  accounts  receivable  are  presented  net  of an
allowance  for doubtful  accounts of $18,338 and $15,000 at September  30, 2002,
and 2001, respectively.


6)       PROPERTY AND EQUIPMENT

Property and equipment consists of the following:
<TABLE>
<CAPTION>
                                                                      September 30,
                                                          _______________________________________
                                                                2002                  2001
                                                          __________________    _________________

             <S>                                          <C>                   <C>
             Computers and equipment                      $        104,733      $        85,853
             Furniture and fixtures                                 37,417               35,208
             Software                                               37,911               33,061
             Leasehold improvements                                  2,815                2,815
                                                          __________________    _________________
                                                                   182,876              156,937
             Less - accumulated depreciation and
                amortization                                       130,117              103,388
                                                          __________________    _________________

                                                          $         52,759      $        53,549
                                                          ==================    =================
</TABLE>

Depreciation and amortization  expense for the periods ended September 30, 2002,
2001, and 2000 was $26,729, $22,857, and $20,353, respectively.


7)       NOTE RECEIVABLE

On October 11, 2000,  the Company  entered into an agreement  with a customer to
advance it $86,137.  Terms of repayment  called for minimum monthly  payments of
$7,382  including  interest  at 10%  maturing  on December  29,  2001.  The note
receivable is unsecured.  Management believed that the note is uncollectible and
had fully reserved against the outstanding balance on the note receivable in the
amount of $22,772 at September 30, 2001. This note was written off during fiscal
year 2001.

                                      F-15

<PAGE>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

8)       GOODWILL AND INTANGIBLE ASSETS

Goodwill and intangible assets consist of the following:

<TABLE>
<CAPTION>
                                                                       September 30,
                                                           ______________________________________
                                                                2002                 2001
                                                           __________________   _________________
<S>                                                        <C>                  <C>
                 Goodwill                                  $          618,140   $         618,140
                 Less - accumulated amortization                      309,077             247,263
                                                          __________________    _________________

                                                           $          309,063   $         370,877
                                                           ==================   =================
</TABLE>

Amortization  expense of goodwill for the fiscal years ended September 30, 2002,
2001 and 2000 amounted to $61,814 for each period.

<TABLE>
<CAPTION>

                                                              Fiscal year ended September 30,
                                                           ______________________________________
                                                                2002                 2001
                                                           __________________   _________________
<S>                                                        <C>                  <C>
                 AccuImage software                        $          125,716   $         125,716
                 Other license fees                                    15,200              15,200
                                                           __________________   _________________
                                                                      140,916             140,916
                 Less - accumulated amortization                      123,947             110,946
                                                           __________________   _________________

                                                           $           16,969   $          29,970
                                                           ==================   =================
</TABLE>

Amortization of other intangibles for the fiscal years ended September 30, 2002,
2001 and 2000 was $13,001, $14,633 and $15,614, respectively.


ACCUIMAGE SOFTWARE

On September 30, 1997,  the Company  acquired  AccuImage  Inc. which had entered
into an agreement with the developer of a 3D medical  imaging  software  package
referred to as MIDP.  The developer  granted to the AccuImage  Inc. an exclusive
license to use and sell the MIDP software for a period of ten years.

The Company subsequently assumed all the rights under the license agreement when
AccuImage Inc. was acquired.  The value of the software was  capitalized as part
of the  purchase  price  of  AccuImage,  Inc.  and is being  amortized  over its
expected useful life of 10 years,

On November 1, 1998,  the developer of the  software,  pursuant to an employment
settlement, transferred all rights in the software to the Company.

                                      F-16

<PAGE>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

OTHER LICENSE FEES

Included in other  license  fees is a $10,000  fee the Company  paid to National
Science and Technology  Development Agency,  Bangkok Thailand,  for a License to
act as an  "Exclusive  authorized  reseller" of hardware  and software  known as
CalScore 1.0. The license, which commenced February 17, 1997, is being amortized
over its term of 5 years.


9)       OTHER ACCRUED LIABILITIES

Other accrued liabilities consisted of the following:

<TABLE>
<CAPTION>
                                                                 September 30,
                                                      ____________________________________
                                                            2002                2001
<S>                                                   <C>                  <C>
                   Other accrued liabilities:
                                                      _________________    _______________
                     Franchise tax                    $             -      $          800
                     Legal expenses                                 -              24,343
                     Commission                                28,704              15,442
                     Bonuses                                   17,288              74,165
                     Audit fees                                30,374              28,000
                     Interest-notes                             6,250               6,250
                     Other expenses                            24,785              46,506
                                                      _________________    _______________

                                                      $       107,401      $      195,506
                                                      =================    ===============
</TABLE>


10)      NOTES PAYABLE

In August 2001, the Company sold in a private placement to accredited  investors
fifty (50) Note Units at the per unit price of $10,000.  Each Note Unit consists
of one $5,000 unsecured  promissory note due in seven (7) days after the closing
and one $5,000 secured  convertible  promissory note due June 30, 2005 and bears
interest at the annualized rate of ten percent (10%).

The  Company  received  and  approved  executed  note  purchase  agreements  and
subscription  agreements  for a  total  of  $500,000.  The  Company  repaid  the
unsecured  portion of the notes in the amount of  $250,000 in August  2001.  The
unpaid  balances on the notes  amounted to $250,000 as of September 30, 2001 and
2002,  which represents the secured  long-term  portion of the notes due on June
30, 2005. The Company assigned its rights to the stock in AHS as security to the
note holders (See Note 4).

The secured convertible promissory notes can be converted without the payment of
any  additional  consideration  by the holder and at the option of the holder at
any time after the issue  date into the number of fully paid and  non-assessable
shares of common  stock of the  Company as is  determined  by  dividing  (a) the
unpaid principal then owing under the Note by (b) the conversion price in effect
at the time of  conversion.  The  conversion  price  shall  initially  be $0.50,
subject  to  adjustment  from time to time.  Interest  on the  secured  notes is
payable  semi-annually on June 30 and December 31. The notes will mature on June
30, 2005.

                                      F-17

<PAGE>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

The unpaid  principal sum of the notes will be redeemable in cash, at the option
of the  Company  at any  time  after  June  30,  2003 at a  price  on the day of
redemption equal to the then unpaid principal sum of the notes, plus accrued and
unpaid interest, if any, to the date of redemption.

Interest  expense on all notes payable for the fiscal years ended  September 30,
2002, 2001 and 2000 was $25,000, $6,730 and $2,151, respectively.


11)      STOCKHOLDERS' EQUITY

Starting in August  1998,  the Company  commenced a private  placement  offering
which  offered  for sale up to  1,200,000  Units at $0.80  per  Unit.  Each Unit
consists of one share of common stock and one warrant which  entitles the holder
to purchase one share of common  stock at an exercise  price of $1.00 per share,
subject to adjustment.

The common stock and the warrants are separately transferable. Each warrant will
be  immediately  exercisable  upon issuance and shall remain  exercisable  for a
period of five years from its date of issuance.  The Company may call all of its
warrants for  redemption at $0.01 per warrant  commencing one year from the date
of closing of the  offering.  The minimum  purchase per investor is 31,250 Units
($25,000)   except  that  the  Company  in  its  sole   discretion   may  accept
subscriptions for fewer Units.  Thirteen individuals  purchased 930,000 Units as
of September 30, 1999.

On January 25, 2000, the Company concluded a private placement offering of up to
1,285,000  Units at $0.60 per Unit. Each Unit consisting of one share of Company
common  stock and one common  stock  purchase  warrant to purchase  one share of
company  common stock at an exercise price of $1.50 per share at any time during
a five-year term commencing on the date of issuance. The Company paid a finder's
fee in the  amount of  $33,000  to a  related  party for  services  rendered  in
connection with the placement of the Units.

The issuance of the securities was exempt from the registration  requirements of
the  Securities Act of 1933, as amended,  pursuant to Section 4(2) thereof.  The
total Units sold under the private  placement  offering as of September 30, 2000
were 1,183,334. Net proceeds from the private placement were $672,072.

During the period ended  September 30, 2000, the Company issued 50,000 shares of
restricted  common  stock  upon the  exercise  of an option  priced at $0.41 per
share.  The  issuance  of  the  securities  was  exempt  from  the  registration
requirements of the Securities Act of 1933, as amended, pursuant to section 4(2)
thereof.

                                      F-18

<PAGE>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

A summary of the Company's outstanding warrants is presented below:

<TABLE>
<CAPTION>

                                                                          Average
         Issued during fiscal year ended             Shares           exercise price
         _____________________________________  _________________     ________________
<S>                                                 <C>                <C>
         September 30, 1999                           930,000          $        1.00

         September 30, 2000                         1,183,334          $        1.50
                                                _________________     ________________

         Outstanding at September 30, 2002          2,113,334          $        1.28
                                                =================     ================
</TABLE>

On December 10, 2001, the Company  entered into a Stock Purchase  Agreement with
several  investors  pursuant  to which  the  Company,  subject  to the terms and
conditions set forth therein, raised $1,000,000 in cash through a private equity
offering of  11,904,761  shares of restricted  Common  Stock.  The sale of these
securities was not  registered  under the Securities Act of 1933, as amended and
was exempt from the  registration  requirements  thereunder  pursuant to Section
4(2) thereof.

12)      PRODUCT DEVELOPMENT, DISTRIBUTION, AND WARRANTY SUPPORT AGREEMENTS

On  April  14,  1999,  the  Company  entered  into a five  year  agreement  with
GE-Imatron,  Inc.,  a New Jersey  Corporation  and related  party,  which allows
GE-Imatron to be the exclusive  authorized  distributor and service  provider of
the Company's products to GE-Imatron's new customers.  GE-Imatron is responsible
for promotion,  installation,  sales, and applications  training of all hardware
and software products distributed by them.

Under the  agreement,  the  Company  continues  to provide  service to the prior
installed  base of  GE-Imatron  customers and can still solicit sales from these
customers for new products.  The Company  agrees not to sell below the published
selling  price of its products to these  customers  without the prior review and
written approval of GE-Imatron.

For the  Company's  products sold by  GE-Imatron,  GE-Imatron  provides  on-site
applications  training and installation.  Each sale includes a one-year warranty
that covers parts and on-site service and phone support plan.

For  single  sales over  $40,000,  the  Company  offers an  additional  one-year
warranty that covers parts and on-site service performed by GE-Imatron.

                                      F-19

<PAGE>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

On September 10, 2001, the Company entered into a new agreement with GE-Imatron,
Inc.  that  replaces  all  prior  and  existing   agreements,   contracts,   and
relationships  between the Company and  GE-Imatron,  Inc. The Company  agrees to
maintain   appropriate   internal  quality  and  test  procedures   relating  to
manufacture and test of workstations delivered to GE-Imatron,  Inc, and to carry
installed  base  responsibilities  as required  by  regulatory  authorities  for
equipment  and  software  sold by  GE-Imatron,  Inc.  The Company  will  provide
GE-Imatron,  Inc. full software suites and production  hardlock  dongles free of
charge for demonstration and training purposes and agree to maintain  compliance
with all applicable Food and Drug Administration (FDA) regulations and any other
compliance requirements.

GE-Imatron,  Inc. agreed to be the exclusive distributor of the Company products
to new Electron  Beam  Tomography  ("EBT")  customers  in the United  States and
abroad and will not provide  confidential  information to third parties that are
competitors to the Company.

The  Company  agreed to  utilize  GE-Imatron,  Inc as its  provider  of  on-site
corrective maintenance,  warranty and customer support for workstations that the
Company sold with GE-Imatron EBT scanners.  GE-Imatron, Inc will provide on-site
applications  training  and  installation  and the  Company  agrees  to  provide
GE-Imatron, Inc. technical specialists and bug-related software free of charge.

On December 19, 2001,  Imatron,  Inc. was acquired by General Electric Company -
Medical Systems Division.

13)      CONCENTRATIONS

The company  derives all of its  revenues  from  organizations  operating in the
medical field, from medical professionals, and from other companies which are in
the business of manufacturing and selling medical equipment and devices.

The Company  derived  $1,133,059,  $1,021,637  and  $2,131,347  in revenues from
GE-Imatron,  Inc.  during the years ended  September  30,  2002,  2001 and 2000,
respectively.  Revenue from GE-Imatron,  Inc. represented approximately 35%, 48%
and 69% of the total revenue  generated by AccuImage  Diagnostics  Corp. for the
years ended September 30, 2002, 2001 and 2000, respectively.

                                      F-20

<PAGE>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

14)      COMMITMENTS AND CONTINGENCIES

The  Company  from time to time is  involved  in  various  claims  and  lawsuits
incidental  to the  operation  of its  business.  The  Company is not  currently
involved  in such  litigation  that it  believes  could have a material  adverse
effect on its financial condition or the results of its operations.


EMPLOYMENT AND CONSULTING AGREEMENTS

In February  2001,  the Company  entered into an employment  agreement  with its
newly appointed Chief Executive Officer. The agreement included an annual salary
of $220,000,  health,  retirement  benefits,  bonus package, and incentive stock
options.

In April 2001,  the Company  entered into an employment  agreement with its Vice
President of  Operations.  The agreement  included an annual salary of $150,000,
health, retirement benefits, bonus package, and incentive stock options

In September  2001,  the Company  entered into an employment  agreement with its
Vice President of Finance.  The agreement  included an annual salary of $90,000,
health, retirement benefits, and incentive stock options

During  the year the  Company  has also  entered  into  various  employment  and
consulting  agreements  less material in nature that provide for issuance of the
Company's stock options in exchange for services rendered to the Company.  These
agreements relate primarily to professional services rendered in connection with
product development, sales and technical support.

LEASES

On January 22,  1998,  the Company  entered into a  three-year  operating  lease
agreement for its main  operating  facility  located at 400 Oyster Point Blvd in
South  San  Francisco,  CA with  Kashiwa  Fudosan  America,  Inc,  a  California
Corporation.  The  commencement  date of the lease is February 1, 1998,  and the
expiration  date is January  31,  2001.  On  December  15,  2000,  the lease was
extended to a  three-year  term  commencing  on February 1, 2001 and expiring on
January 31, 2004. On October 10, 2001, the Company and Kashiwa Fudosan  America,
Inc entered into a lease termination agreement in which the Company paid a final
rent payment of $10,696 on November 5, 2001, which covered November and December
2001 rental payments.

On August 31,  2000,  the Company  entered  into a  three-year  operating  lease
agreement for its second operating  facility located at 384 Oyster Point Blvd in
South San  Francisco,  CA with Shelton  International  Holdings,  Inc., a Hawaii
corporation.  The  commencement  date of the lease is November 1, 2000,  and the
expiration  date is October 31, 2003. On June 22, 2001, the Company entered into
a sublease  agreement with SWA computers for its facility  located at 384 Oyster
Point Blvd in South San  Francisco,  CA. The sublease calls for a monthly rental
payment of $2,873 in fiscal  year 2001 and  expires on October  31,  2003 with a
gradual  increase  in fiscal  year 2002 in the  monthly  rental  payments  to be
received by the Company.

                                      F-21

<PAGE>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

On June 20, 2001, the Company entered into a two-and-a-half-year operating lease
agreement for its new  headquarters/operating  facility located at 400 Grandview
Drive in South San Francisco,  CA with Toshiba America MRI, Inc., located at 280
Utah Ave, South San Francisco,  CA. The  commencement  date of the lease is June
20, 2001, and the expiration date is December 31, 2003.

Total rent expense,  net of sublease income, was $135,346,  $143,330 and $45,140
for the fiscal years ended on September 30, 2002, 2001 and 2000, respectively.

Minimum  rental  commitments  under  this  operating  lease  agreements,  net of
sub-lease payments received are as follows:

                        Fiscal year ended
                          September 30,
                              2003                   $           102,053
                              2004                                23,666
                                                         _______________

                                              Total  $           125,719
                                                         ===============


15)      STOCK OPTION PLAN

During  1997,  the  Company  started a Stock  Option  Plan that  authorized  the
issuance of options for up to 1,600,000 shares of the Company's common stock.

Subsequently,  the Board of Directors  authorized the issuance of options for an
additional 2,500,000 shares of the Company common stock.

Under this plan,  no option may be exercised  after the  expiration  date of ten
years from the date of grant and no option may be  exercised as to less than one
hundred  (100)  shares at any one time.  There are two  categories  of  options:
Incentive Stock Options (ISO) and Non-Qualified Stock Options (NSO).

ISOs are granted to employees and the purchase  price shall not be less than the
Fair  Market  Value of the  common  stock  share at the date of grant and no ISO
shall be exercisable  more than ten (10) years from date of grant except that in
the case of any person who owns more than 10% of the voting power of all classes
of stock,  no ISO  shall be  exercisable  more than five (5) years  from date of
grant.

NSOs may be granted to any eligible participant. The purchase price shall not be
less than 85% of the Fair  Market  Value of the shares at the time  except  that
when the grantee  owns more than 10% of the voting power of all classes of stock
at the time of  grant,  the  price is be 110% of the  Fair  Market  Value of the
shares at the time of the grant. No NSO shall be exercisable  more than ten (10)
years from the date of grant.

                                     F-22

<PAGE>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

In general,  granted  ISO's expire  three months after the employee  termination
date.  If  employment  termination  is due to cause,  the options  shall  expire
immediately;  and  if  employment  termination  is due to  permanent  and  total
disability, the options may be exercised up to one year following termination.

The Company  has  adopted  only the  disclosure  provisions  of SFAS No. 123. It
applies APB Opinion No. 25 and related  interpretations  in  accounting  for its
stock option plan. Accordingly, no compensation cost has been recognized for its
stock option plan other than for options issued to outside third parties. If the
Company had elected to recognize  compensation expense based upon the fair value
at the grant date for awards  under this plan  consistent  with the  methodology
prescribed by SFAS No. 123, the Company's net income (loss) and earnings  (loss)
per share would be reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>

                                                 Fiscal years ended September 30,
                                 _________________________________________________________________
                                        2002                   2001                   2000
                                 ___________________    ___________________    ___________________
<S>                              <C>                    <C>                    <C>
         Net income (loss):
                 As reported     $        (619,789)     $      (1,123,970)     $         169,797
                 Pro forma       $        (893,389)     $      (1,392,456)     $         (39,599)

         Basic and diluted earnings (loss) per common share: As reported:
                  Basic          $           (0.03)     $           (0.10)     $            0.02
                  Diluted        $           (0.03)     $           (0.10)     $            0.02
          Pro forma:
                   Basic         $           (0.04)     $           (0.13)     $           (0.00)
                   Diluted       $           (0.04)     $           (0.13)     $           (0.00)

</TABLE>

Options are granted at prices equal to the current market value of the Company's
common stock at the date of grant.  The vesting period is usually related to the
length of employment or consulting contract period.

The fair value of these  options  was  estimated  at the date of grant using the
Black-Scholes   option-pricing   model  with  the   following   weighted-average
assumptions:  2002: dividend yield of 0%; expected volatility of 250%; risk-free
interest rate of 1.60%,  and expected life of 5 years;  2001:  dividend yield of
0%; expected volatility of 300%;  risk-free interest rate of 5.80%, and expected
life of 5 years;  and 2000:  dividend yield of 0%; expected  volatility of 200%;
risk-free interest rate of 5.48%, and expected life of 5 years.

                                      F-23

<PAGE>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

A summary of Stock Option Plan activity is as follows:

<TABLE>
<CAPTION>

                                                     Fiscal years ended September 30,
                             _________________________________________________________________________________
                                       2002                         2001                        2000
                             _________________________    _________________________    _______________________
                              Number        Weighted       Number       Weighted       Number       Weighted
                                            average                     average                     average
                                of          exercise         of         exercise       of           exercise
                              options         price        options        price        options        price
                             __________     __________    __________    ___________    _________    __________
<S>                          <C>            <C>           <C>           <C>            <C>          <C>
Outstanding at beginning
   of fiscal year            2,140,000      $    0.51     1,832,479     $   0.41       1,446,280    $     0.43
Granted                      1,470,020           0.20     1,095,000         0.51        526,199           0.95
Exercised                           -            -               -          -           (50,000)          0.51
Forfeited/cancelled          (405,000)           0.42     (787,479)         0.65        (90,000)          0.91
                             __________     __________    __________    ___________    _________    __________

Outstanding at end of
   fiscal year               3,205,020      $    0.38     2,140,000     $   0.51       1,832,479    $     0.41
                             ==========     ==========    ==========    ===========    =========    ==========

Options exercisable at
   fiscal year end             885,025                      849,377                      969,867
                             ==========                   ==========                   =========

Weighted average fair
   value of options
   granted during the
   fiscal year               $    0.19                         0.20                    $    0.92
                             ==========                   ==========                   =========
</TABLE>

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded 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 stock options.

At September 30, 2002,  2001 and 2000, the Company  granted to its employees and
other eligible  participants  options  exercisable for the Company common stock.
The exercise price varies depending on the trading price of the Company's common
stock on the date of grant among other factors.

                                      F-24

<PAGE>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

The following table summarizes  information about the stock options  outstanding
at September 30, 2002:

<TABLE>
<CAPTION>

__________________________________________________________________________________________________________
                                 Options Outstanding                          Options Exercisable
                  __________________________________________________  ____________________________________

                        Number            Weighted
                      Outstanding          Average       Weighted            Number            Weighted
                         as of            Remaining      Average          Exercisable          Average
    Range of         September 30,       Contractual     Exercise            as of             Exercise
Exercise Prices          2002               Life          Price        September 30, 2002       Price
_________________ ____________________ _______________ _____________  _____________________  _____________

  <S>                     <C>                    <C>           <C>               <C>          <C>
  $0.15- $0.16              150,000               9.33 $       0.155                   -      $    -


     $0.17                  655,000              10.00 $       0.170                   -      $    -


     $0.18                   70,000               9.01 $       0.180                   -      $    -


     $0.24                  592,500               9.51 $       0.240                   -      $    -


     $0.31                   20,000               6.08 $       0.310              20,000      $    0.310


     $0.38                  325,000               5.42 $       0.380             325,000      $    0.380

                                                                                                   0.442
 $0.40 - $0.45              100,000               8.72 $       0.446              55,000     $

                                                                                                   0.500
     $0.50                  877,520               8.18 $       0.500             281,270     $

                                                                                                   0.607
 $0.57 - $0.64              220,000               8.45 $       0.604              60,000     $

                                                                                                   0.880
     $0.88                   30,000               7.22 $       0.880              20,625     $


 $1.00 - $1.03              165,000               7.54 $       1.028             123,130      $    1.029
                  ____________________ _______________ _____________  _____________________  _____________
                                                                                                   0.538
                          3,205,020               8.57 $       0.384             885,025     $
                  ==================== =============== =============  =====================  =============
</TABLE>

                                      F-25

<PAGE>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

16)      FOREIGN SALES

The Company has had revenue from sources  outside the United  States;  all sales
were accounted for in US dollars.

<TABLE>
<CAPTION>
                                                  Fiscal year ended September 30,
                                       _______________________________________________________
                  Country                  2002               2001                   2000
           _______________________     ______________    ________________    _________________
           <S>                         <C>               <C>                 <C>
           Germany                     $     18,000      $      18,000       $            -
           Israel                          105,960              40,200                    -
           Puerto Rico                       10,000                 -                     -
           Japan                                 -                  -                26,152
           Taiwan                                -                  -                 8,300
           Italy                                600                 -                     -
           _______________________     ______________    ________________    _________________

            Total Foreign Sales
                                       $  134,560        $      58,200       $       34,452
                                       ==============    ================    =================
</TABLE>


17)      INCOME TAXES

Significant  components  of the  provision  for  taxes  based on  income  are as
follows.  In fiscal year ending  September 30, 2003, the Company received $3,545
in refunds from the state of California for over payments made for prior years:

<TABLE>
<CAPTION>

                                                     Fiscal year ended September 30,
                                             _________________________________________________
                                                  2002              2001             2000
                                             _______________    _____________     ____________
           <S>                               <C>                <C>               <C>
           Current tax expense
                 Federal                     $         -        $           -     $          -
                 State                               800                6,400              800
                                             _______________    _____________     ____________
                                                     800                6,400              800

           Deferred tax expense
                 Federal                               -                    -                -
                 State                                 -                    -                -
                                             _______________    _____________     ____________
                                                       -                    -                -

           Provision for income taxes        $      800         $         800     $        800
                                             ===============    =============     ============
</TABLE>

                                      F-26

<PAGE>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

A  reconciliation  of the  provision  for income tax expense  with the  expected
income tax computed by applying the federal  statutory income tax rate to income
before provision for (benefit from) income taxes is as follows:

<TABLE>
<CAPTION>
                                                              Fiscal year ended September 30,
                                                     __________________________________________________
                                                          2002               2001             2000
                                                     ________________    _____________    _____________

    <S>                                                      <C>             <C>              <C>
    Income tax provision (benefit) computed
       at federal statutory rate                             (34.00%)        (34.00%)          34.00%

    State                                                     (8.84%)         (8.84%)           8.84%

    NOL carryforward benefit                                   -                   -          (42.37%)
                                                     ________________    _____________    _____________

    Increase in valuation allowance                           42.83%          42.83%            0.00%
                                                     ________________    _____________    _____________

    Effective tax rate                                         0.01%           0.01%            0.47%
                                                     ================    =============    =============
</TABLE>

Significant  components of the Company's deferred tax assets and liabilities for
income taxes consist of the following:

<TABLE>
<CAPTION>

                                                          September 30
                                          _____________________________________________
                                                  2002                   2001
                                          ____________________ ________________________
<S>                                       <C>                   <C>
Deferred tax asset
       Net operating loss carryforwards   $          950,000    $             814,164
       Allowance for warranty costs                   20,000                   64,566
       Depreciation/amortization                      30,000                   32,493
       Other accruals and allowances                  80,000                   70,507
                                          ____________________ ________________________
                                                   1,080,000                  981,730
Deferred tax liability
      Deferred state income tax                      (80,000)                 (68,877)
                                          ____________________ ________________________

Valuation allowance                               (1,000,000)                (912,853)
                                          ____________________ ________________________

Net deferred tax asset                    $                -    $                   -
                                          ==================== ========================
</TABLE>

                                      F-27

<PAGE>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

At September  30, 2002,  the Company has  approximately  a $2.3 million and $1.6
million net operating loss  carryforward  available to offset future federal and
state income taxes,  which expire through 2010 and 2019.  Certain  provisions of
the 1986 Tax Reform Act may limit the use of the Company's  net  operating  loss
carryforwards  upon a change of  ownership  under  Section  382 of the  Internal
Revenue Code.

The Company has elected to reserve fully the benefit of tax carryforwards  until
such time as it is able to reasonably expect to realize those benefits.


18)      RETIREMENT PLAN

The Company  sponsors a SIMPLE IRA Plan to provide  retirement  benefits for its
employees who meet the  eligibility  requirements.  Employees  may  contribute a
certain  percentage  of their  annual  compensation  to the plan,  limited  to a
maximum  annual  amount as set  periodically  by the Internal  Revenue  Service,
$7,000 and $6,500 for calendar  years 2002 and 2001,  respectively.  The Company
makes a 3% matching  contribution based on each employee's annual  compensation.
Employees' right to both elective and matching contributions are fully vested.

Company matching  contributions to the Plan totaled $20,744,  $11,295 and $0 for
the periods ended September 30, 2002, 2001 and 2000, respectively.


19)      SUBSEQUENT EVENTS

A. STOCK OPTIONS

During the period October 1 to December 31, 2002,  the Company issued  incentive
stock options to its employees  allowing them to purchase up to 50,000 shares of
common stock.  The exercise  price is equivalent to the market price on the date
of the grant.  The exercise period for the options is for 10 years from the date
of the grant, and vest over a 4-year period.


                                      F-28