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, 2003.
[ ] 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    (I.R.S. Employer Identification
or organization)                                  Number)

510 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, 2003: $1,354,498

As of December 8, 2004 there were 48,336,295 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.


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<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.


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<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.


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<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.

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<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.

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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  2001,  was
$150,000 at September 30, 2001. The warranty reserve was $25,000 and $50,000 for
the fiscal year ended  September  30, 2003 and 2002.  The  warranty  reserve was
reduced by $100,000 then $25,000 from the prior fiscal year's reserve  primarily
to the  negligible  warranty  service  claims  during fiscal year 2002 and 2003.
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

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third party, the 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.


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<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 $525,000,
$714,000, and $548,000 on such research and development in 2003, 2002, and 2001,
respectively.  The increase in R&D was necessary to augment or enhance  existing
product offerings.


                                       9

<PAGE>

PERSONNEL

         The  Company  currently  has five  full-time  employees.  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,  2003,  the Company  posted a
higher  operating  loss due to a  decrease  in sales  offset  by a  decrease  in
operating expenses relating to administrative costs.

         For the fiscal year ended September 30, 2002, 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.

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

         In the  first  quarter  of  fiscal  year  ending  September  30,  2004,
additional  capital of $1 million was infused into the company with  issuance of
stock.  Additionally,  a loan in the amount of $1 million at probable  terms and
conditions  replaced  all prior loans  leaving the balance  sheet devoid of long
term notes payable.

         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.

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 SEPTEMBER 30, 2003, ETC.

         For the fiscal year ended September 30, 2003,  sales to GE-Imatron were
minimal and accounted for 4% of the Company's revenue,  a significant  reduction
from the prior fiscal year's share of 35%, even though total revenues  increased
56% over the prior fiscal year.

         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.  AmeriScan filed  bankruptcy at the end of fiscal year ending September
30, 2003.

                                       11

<PAGE>

NEED FOR ADDITIONAL PERSONNEL

         The  company  underwent  reorganization  of staff in fiscal year ending
September  30,  2003.  This  downsizing  has  resulted in reduction of corporate
business during latter part of fiscal year ending September 30, 2003.

         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

         During the First Quarter of fiscal year 2004,  the Company  received $2
million in equity investment and loan from a new investor.


                                       12

<PAGE>

ITEM 2.  DESCRIPTION OF  PROPERTY

         The Company's principal office is located at 510 Grandview Drive, South
San Francisco,  California 94080. The property is a suite of approximately 1,500
square  feet.  The  property  is leased from an  unaffiliated  third party for a
period of one and one-half  years ending January 2005.  Monthly rental  payments
decreased to $1,035 beginning in August 2003.

         The lease on the Company's  previous principal office, 400 Oyster Point
Blvd., #114, South San Francisco, was terminated effective August 1, 2003.

         Sublease  income from the lease  located at 384 Oyster Point  Boulevard
terminated in May 2003.

         The  Company  maintains  tenant  fire  and  casualty  insurance  on its
property leased 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
fiscal year ended September 30, 2003.



                                       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

         10/01/02 - 12/31/02           0.1250             0.0800
         01/01/03 - 03/31/03           0.0800             0.0040
         04/01/03 - 06/30/03           0.0800             0.0400
         07/01/03 - 09/30/03           0.0700             0.0400
         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, 2003,  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 2003,  2002, and 2001 discussed below refer to the years ending September 30,
2003, 2002, and 2001, respectively.

REVENUE

         In fiscal year 2003, total revenue decreased 59% to $1,354,498 compared
with  $3,284,611 in the prior fiscal year 2002.  This decrease was primarily due
to a significant  decrease in sales to customer including  GE-Imatron.  Sales to
GE-Imatron, Inc. decreased to $40,000 in 2003 compared to $1,133,059 in 2002. In
2001, the percentage of the Company's  total sales made to GE-Imatron  decreased
to 4% of total  sales,  compared to 35% of total sales in 2002.  The Company has
continued to broaden its domestic  customer  base.  Revenues in fiscal year 2001
were  $2,112,794.  The  Company  expects  revenue  growth in fiscal  year  2004,
although  this is a  forward-looking  statement  and actual  results  could vary
materially from Company expectations.

GROSS MARGIN

         The gross margin percentage  increased to 81% in 2002 from 88% in 2001.
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.  Gross
margin  percentage  due to lower sales of hardware has lower profit margins than
software.

OPERATING EXPENSES

         Operating expenses in 2003 were $2,603,459, which is a decrease of 25%,
from the 2002  expenses of  $3,477,675.  The  decrease  was  primarily  due to a
decrease of $408,000 in employee salaries and related expenses from the previous
year. Headcount was decreased to five from twenty in the previous year primarily
in the  administration  and sales groups.  Professional  consulting fees expense
decreased  by  $142,000  from the  previous  year  primarily  as a result  of an
increase in R&D headcount.

SALES AND MARKETING

         The Company's sales and marketing expenses were approximately  $270,000
and $460,000 in 2003, and 2002,  respectively.  The sales and marketing  expense
decrease from the previous  fiscal year was primarily due to decreased  presence
at  conferences  and trade shows,  and  promotional  printing and expenses.  The
Company  decreased  spending on brochures and other promotional  materials.  The
Company  expects  sales and  marketing  costs to remain  consistent  in the next
fiscal year.  This  forward-looking  statement  will be influenced by the actual
sales levels attained by the Company's sales force.

RESEARCH AND DEVELOPMENT

         The  Company's  research and  development  spending  was  approximately
$525,000,  $714,000,  and  $548,000  in  2003,  2002,  and  2001,  respectively,
primarily on personnel  salaries,  related  expenses and  consultants  fees. The

                                      15

<PAGE>

fiscal year 2003  decrease  of 26% over the prior  fiscal year was due to salary
and 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  $477,000,  $791,000,  and $661,000 in 2003, 2002, and 2001,
respectively.  This decrease was  primarily due to decreased  patent and related
expenses,  recruitment  expenses,  and accounting fees. This was a result of the
Company's focus on cost-saving  measures.  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  decreased revenues, of 59% and a decrease of 25%, in
operating  expenses resulted in a higher operating loss of $906,389 in 2002 than
in the prior fiscal year. The Company had net operating loss of $605,432 in 2002
and had net operating loss of $1,132,020 in 2001.

         The  operating  loss for the  fiscal  year  ended  September  30,  2003
includes  a  $300,000  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,  2003,  the  Company  held  accounts  receivable  of
$112,170.  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,  2004,  the  Company
anticipates  that cash  requirements  will be met by a  combination  of  private
equity financing and operational income from increasing revenues.

FOREIGN CURRENCY TRANSACTIONS

         All the Company's  transactions  are  negotiated,  invoiced and paid in
U.S. dollars. International sales for the fiscal years 2003, 2002, and 2001 were
approximately $123,000, $135,000, and $58,000, 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.

                                       17

<PAGE>

ITEM 7.  FINANCIAL STATEMENTS




                        ACCUIMAGE DIAGNOSTICS CORPORATION

                              FINANCIAL STATEMENTS

                WITH REPORT OF INDEPENDENT CERTIFIED ACCOUNTANTS

                           SEPTEMBER 30, 2003 AND 2002



<PAGE>


                        ACCUIMAGE DIAGNOSTICS CORPORATION

                              FINANCIAL STATEMENTS

                WITH REPORT OF INDEPENDENT CERTIFIED ACCOUNTANTS

                           SEPTEMBER 30, 2003 AND 2002



Report of Independent Certified Public Accountants                    F-1

Balance Sheets                                                        F-2

Statements of Operations                                              F-3

Statements of Stockholders' Equity (Deficit)                          F-4

Statements of Cash Flows                                              F-5

Notes to the Financial Statements                                     F-6


<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Stockholders
of AccuImage Diagnostics Corporation

         In our opinion,  the  accompanying  balance  sheets and the related
statements of operations,  stockholders' equity (deficit) and cash flows present
fairly,  in  all  material   respects,   the  financial  position  of  AccuImage
Diagnostics  Corporation  at September  30, 2003 and 2002 and the results of its
operations  and its cash flows for the fiscal  years 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 audits.  We conducted our audits of these  statements in accordance  with
auditing  standards  generally  accepted in the United States of America,  which
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  audits  provide  a
reasonable basis for the opinion expressed above.







Odenberg Ullakko Muranishi & Co. LLP
San Francisco, California

December 8, 2003


                                      F-1

<PAGE>
<TABLE>
<CAPTION>

                   ACCUIMAGE DIAGNOSTICS CORPORATION
                             BALANCE SHEET


                                     ASSETS
                                                                                          September 30
                                                                         -------------------------------------------
                                                                                  2003                   2002
                                                                         --------------------   --------------------
<S>                                                                      <C>                    <C>
Current assets:
    Cash and cash equivalents                                            $                 -    $           231,843
    Accounts receivable, net of allowance of $50,000 and
      $18,338, respectively.                                                         112,170                330,062
    Other receivable, net                                                             50,000                      -
    Inventory                                                                         49,193                106,047
    Prepaid expenses and other assets                                                  9,091                 74,069
                                                                         --------------------   --------------------
Total current assets                                                                 220,454                742,021
                                                                         --------------------   --------------------
Property and equipment, net of accumulated depreciation
      and amortization                                                                45,412                 52,759
                                                                         --------------------   --------------------

Investments and other assets:
    Deposits                                                                           9,993                 15,067
    Goodwill, net                                                                    309,063                309,063
    Other intangible assets, net                                                       4,393                 16,969
    Investment, net                                                                        -                300,000
                                                                         --------------------   --------------------
Total investments and other assets                                                   323,449                641,099
                                                                         --------------------   --------------------
                                                                         $           589,315    $         1,435,879
                                                                         ====================   ====================

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
    Notes payable to stockholders                                        $           762,600    $                 -
    Accounts payable                                                                 250,730                208,541
    Accrued liabilities                                                              299,010                185,297
    Product warranty reserve                                                          25,000                 50,000
    Deferred revenue                                                                  37,000                      -
                                                                         --------------------   --------------------
Total current liabilities                                                          1,374,340                443,838
                                                                         --------------------   --------------------

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

Commitments and contingencies (Notes 11 and 13)                                            -                      -
                                                                         --------------------   --------------------

Stockholders' equity (deficit):
    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                 22,887
      authorized; 22,886,295 issued and outstanding
    Paid-in-capital                                                                3,488,348              3,488,348
    Accumulated deficit                                                           (4,296,260)            (2,769,194)
                                                                         --------------------   --------------------
Total stockholders' equity (deficit)                                                (785,025)               742,041
                                                                         --------------------   --------------------

                                                                         $           589,315    $         1,435,879
                                                                         ====================   ====================

</TABLE>

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



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

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                             STATEMENT OF OPERATIONS




                                                            Fiscal years ended September 30
                                                        -----------------------------------------
                                                               2003                  2002
                                                        ------------------   --------------------

<S>                                                     <C>                  <C>
Sales                                                   $       1,354,498    $         3,284,611
Cost of sales                                                     262,860                412,368
                                                        ------------------   --------------------

      Gross profit                                              1,091,638              2,872,243
                                                        ------------------   --------------------

Operating expenses:
    Salaries and wages                                          1,351,435              1,759,784
    Loss on investment                                            300,000                200,000
    Marketing and promotion                                       270,361                464,487
    General and administrative expenses                           190,152                308,157
    Legal and accounting                                          156,518                161,461
    Employee benefits                                             120,984                133,534
    Rent                                                           84,935                135,346
    Bad debts                                                      56,194                 25,697
    Professional consulting                                        45,643                187,665
    Depreciation and amortization                                  27,237                101,544
                                                        ------------------   --------------------
Total operating expenses                                        2,603,459              3,477,675
                                                        ------------------   --------------------

      Operating loss                                           (1,511,821)              (605,432)
                                                        ------------------   --------------------
Other income (expense):
    Interest expense                                              (67,757)               (25,000)
    Lawsuit settlement                                             50,000                 (5,687)
    Interest and other income                                       3,312                 17,130
                                                        ------------------   --------------------
Total other income (expense)                                      (14,445)               (13,557)
                                                        ------------------   --------------------

      Loss before income taxes                                 (1,526,266)              (618,989)

Provision for income taxes                                            800                    800
                                                        ------------------   --------------------

      Net loss                                          $      (1,527,066)   $          (619,789)
                                                        ==================   ====================
Loss per share:
    Basic and diluted                                   $           (0.07)   $             (0.03)
                                                        ==================   ====================

Weighted average shares outstanding:
    Basic and diluted                                          22,886,295             20,603,190
                                                        ==================   ====================
</TABLE>


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

                                      F-3

<PAGE>
<TABLE>
<CAPTION>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                   STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)




                                              Common stock
                                      ------------------------------     Paid-in            Accumulated
                                        Shares          Amount           capital              deficit              Total
                                      -------------  ---------------  ----------------  ------------------  -----------------

<S>                                     <C>          <C>              <C>               <C>                 <C>
Balance at September 30, 2001           10,981,534   $       10,982   $     2,500,253   $      (2,149,405)  $        361,830

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

Net loss                                         -                -                 -            (619,789)          (619,789)
                                      -------------  ---------------  ----------------  ------------------  -----------------

Balance at September 30, 2002           22,886,295           22,887         3,488,348          (2,769,194)           742,041

Net loss                                         -                -                 -          (1,527,066)        (1,527,066)
                                      -------------  ---------------  ----------------  ------------------  -----------------

Balance at September 30, 2003           22,886,295   $       22,887   $     3,488,348   $      (4,296,260)  $       (785,025)
                                      =============  ===============  ================  ==================  ==================
</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
                                                                             ----------------------------------------
                                                                                     2003                2002
                                                                             -------------------  -------------------
<S>                                                                          <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss                                                                 $      (1,527,066)   $        (619,789)
    Items not requiring the current use of cash:
      Depreciation and amortization                                                     23,241              101,544
      Warranty reserve                                                                 (25,000)            (100,714)
      Loss on investment                                                               300,000              200,000
      Changes in operating assets and liabilities:
      Accounts receivable, net                                                         217,892              (95,187)
      Inventory                                                                         56,854              (11,963)
      Other  receivable                                                                (50,000)              (8,179)
      Prepaid assets                                                                    64,978              (35,825)
      Deposits                                                                           5,074                3,668
      Other assets                                                                           -               15,075
      Accounts payable                                                                  42,189              138,660
      Accrued expenses                                                                 113,713              (68,829)
      Deferred revenue                                                                  37,000             (312,100)
                                                                             -------------------  -------------------
Cash used for operating activities                                                    (741,125)            (793,639)
                                                                             -------------------  -------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Investment in property and equipment                                                (3,318)             (25,940)
                                                                             -------------------  -------------------
Cash used for investing activities                                                      (3,318)             (25,940)
                                                                             -------------------  -------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from notes payable to stockholders                                        512,600                    -
    Issuance of common stock                                                                 -            1,000,000
                                                                             -------------------  -------------------
Cash provided by financing activities                                                  512,600            1,000,000
                                                                             -------------------  -------------------


NET INCREASE (DECREASE) IN CASH AND
     CASH EQUIVALENTS                                                                 (231,843)             180,421

CASH AND CASH EQUIVALENTS AT BEGINNING
     OF FISCAL YEAR                                                                    231,843               51,422
                                                                             -------------------  -------------------

CASH AND CASH EQUIVALENTS AT END
    OF FISCAL YEAR                                                           $               -    $         231,843
                                                                             ===================  ===================

SUPPLEMENTAL DISCLOSURE:
    Income taxes paid                                                        $             800    $               -
                                                                             ===================  ===================
    Interest paid during the fiscal year                                     $               -    $          25,000
                                                                             ===================  ===================
</TABLE>


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

                                      F-5

<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
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, 2004 by generating higher revenue and controlling costs and expenses.

During  the first  quarter  of fiscal  2004,  the  Company  raised $2 million in
additional debt and equity from a new investor (see Note 18) .

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.

CASH EQUIVALENTS

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


                                      F-6

<PAGE>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


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

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill  resulting  from the  acquisition  of AccuImage,  Inc. (see Note 1) and
other intangible assets (software and intellectual property licenses) are stated
at cost and were amortized on a straight-line  basis over their estimated useful
lives of generally  five to ten years.  Effective  October 1, 2002,  the Company
adopted Statement of Financial  Accounting Standards ("SFAS") No. 142, "Goodwill
and other  Intangible  Assets." In accordance with SFAS No. 142, the Company has
ceased amortizing  goodwill and instead performs an assessment for impairment at
least annually by applying a  fair-value-based  test.  Accordingly,  no goodwill
amortization was recognized during the fiscal year ended September 30, 2003. The
provisions  of SFAS No.  142 also  required  the  completion  of a  transitional
impairment test within 12 months of adoption,  with any impairment  treated as a
cumulative effect of change in accounting  principle.  During the fourth quarter
of 2003, the Company  completed the transitional  impairment test, which did not
result in impairment of recorded goodwill.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company reviews long-lived assets for impairment  whenever events or changes
in  circumstances  indicate  that the  carrying  amount of an asset might not be
recoverable.  When such an event occurs, management determines whether there has
been an  impairment by comparing the  anticipated  undiscounted  future net cash
flows to the related asset's carrying value. If an asset is considered  impaired
the asset is written  down to fair value,  which is  determined  based either on
discounted cash flows or appraised value, depending on the nature of the asset.


                                      F-7

<PAGE>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


WARRANTY RESERVE

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

ALLOWANCE FOR DOUBTFUL ACCOUNTS

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 $50,000 and $18,383 at September  30, 2003,
and 2002, respectively.

REVENUE RECOGNITION

The  Company's  revenue is derived  primarily  from two  sources:  (i)  software
license  revenue,  derived  primarily from product sales to distributors and end
users,  and (ii)  maintenance  and  services  revenue,  derived  primarily  from
support,  education and consulting  services  provided to end users. The Company
typically  requires  deposits upon the receipt of a signed  purchase and license
agreement.  Deposits received on these agreements represent unearned revenue and
are classified as customer deposit liabilities on the Company's balance sheet.

The Company  accounts for sales of software and  maintenance  revenue  under the
provisions  of  Statement  of  Position  97-2 ("SOP  97-2"),  "Software  Revenue
Recognition,"  as  amended.  SOP  97-2,  generally  requires  revenue  earned on
software  arrangements  involving  multiple  elements  to be  allocated  to each
element based on vendor-specific  objective evidence.  For hardware transactions
where no  software is  involved,  the Company  applies the  provisions  of Staff
Accounting   Bulletin  101,   "Revenue   Recognition."   Hardware   transactions
represented 4.4% of the Company's total net sales in fiscal 2001, 3.9% in fiscal
2002 and 3.4% in fiscal 2003.

The fee for  multiple-element  arrangements  is allocated to each element of the
arrangement,  such as maintenance  and support  services,  based on the relative
fair  values of the  elements.  The  Company  determines  the fair value of each
element  in  multi-element   arrangements  based  on  vendor-specific  objective
evidence  for each  element  which is based on the price  charged  when the same
element  is sold  separately.  If  evidence  of fair  value  of all  undelivered
elements exists but evidence does not exist for one or more delivered  elements,
then revenue is recognized using the residual method. Under the residual method,
the fair value of the undelivered elements is deferred and the remaining portion
of the arrangement fee is recognized as revenue.

The  Company  recognizes  revenue  from  the  sale  of  software  licenses  when
persuasive evidence of an arrangement exists, the product has been accepted, the
fee is fixed or  determinable,  and  collection of the  resulting  receivable is
probable.  Acceptance  generally  occurs when the  product  has been  installed,
training has occurred and the product is in clinical use at the customer site.

Fair values for the ongoing maintenance, which includes updates and support, are
based upon a percentage of the current list price of the software. Fair value of
services,  such as training or consulting,  are based upon separate sales by the
Company of these services to other customers.  Payments received for maintenance

                                      F-8

<PAGE>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


and services are deferred and  recognized  as revenue  ratably over the contract
term. Training and consulting services are billed based on hourly rates, and are
generally  recognized  as  revenue  as these  services  are  performed.  Amounts
deferred  for  maintenance  services,   term  software  license  agreements  and
warranties comprise the main components of deferred revenue.

DEFERRED REVENUE

Deferred revenue is primarily  comprised of deferrals for recurring revenues for
which  maintenance  services  have not yet  been  rendered,  and  implementation
consulting services for which the services have not yet been rendered.

ADVERTISING COSTS

The  Company  expenses  advertising  costs  as they  are  incurred.  Advertising
expenses were $31,921 and $51,912 for the fiscal years ended  September 30, 2003
and 2002, respectively.

RESEARCH AND DEVELOPMENT COSTS

Research and development  costs related to both future and present  products are
charged to expense as  incurred.  Research  and  development  costs  amounted to
approximately  $525,000 and $714,000  for the fiscal years ended  September  30,
2003 and 2002, respectively.  Pursuant to SFAS No. 86, "Accounting for the Costs
of Computer  Software to be Sold,  Leased or  Otherwise  Marketed,"  development
costs related to software products are expensed as incurred until "technological
feasibility"  of the  product  has been  established,  at which point costs must
begin to be capitalized. No software development costs have been capitalized, as
technological feasibility has not been established.

INCOME TAXES

The Company  uses the asset and  liability  method in  accounting  for  deferred
income taxes as  prescribed by Statement of Financial  Accounting  Standards No.
109,  ACCOUNTING FOR INCOME TAXES. Under this method,  deferred income taxes are
recorded to reflect the tax consequences in future years of differences  between
the carrying amount of the assets and  liabilities  for financial  reporting and
tax purposes at each fiscal year end.  Valuation  allowances  are recorded  when
necessary to reduce deferred tax assets to an amount expected to be realized.

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-9

<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 liabilities 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.

LOSS PER SHARE

Basic net loss per share is  computed by dividing  net loss  (numerator)  by the
weighted-average  number of common shares outstanding  (denominator)  during the
period. Diluted net loss per share gives effect to all dilutive potential common
shares outstanding during the period including stock options, using the treasury
stock method.  In computing  diluted net loss per share, the average stock price
for the  period  is used in  determining  the  number of  shares  assumed  to be
purchased  from the  exercise  of stock  options.  For the  fiscal  years  ended
September 30, 2003 and 2002, options and warrants outstanding were excluded from
the  calculation  since their  effect was  antidilutive.  The total  options and
warrants  outstanding  at  September  30,  2003  and  2002  were  3,925,834  and
5,318,354, respectively.

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.

RECLASSIFICATION OF FINANCIAL STATEMENT PRESENTATION

Certain  reclassifications  have been made to the 2002  financial  statements to
conform to the 2003 financial  statement  presentation.  Such  reclassifications
have had no effect on net income or gross margin as previously reported.

RECENT ACCOUNTING PRONOUNCEMENTS

In November 2002, the Emerging Issues Task Force ("EITF") reached a consensus on
Issue No. 00-21, "Revenue  Arrangements with Multiple  Deliverables." EITF Issue
No. 00-21 provides  guidance on how to account for arrangements that involve the
delivery or  performance  of multiple  products,  services  and/or rights to use
assets.  The  provisions  of EITF Issue No. 00-21 apply to revenue  arrangements
entered into in fiscal periods beginning after June 15, 2003,  including interim
periods.  As the Company  accounts for multiple element  arrangements  under the
higher-level  authoritative literature of SOP No. 97-2, as amended, the adoption
of EITF Issue No. 00-21 has had no material  impact on the  Company's  financial
position or on its results of operations.

In January 2003, the Financial  Accounting  Standards Board ("FASB") issued FASB
Interpretation No. 46 ("FIN 46"),  "Consolidation of Variable Interest Entities,

                                      F-10

<PAGE>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

an  Interpretation  of ARB No. 51." FIN 46 requires  certain  variable  interest
entities  to be  consolidated  by the primary  beneficiary  of the entity if the
equity  investors in the entity do not have the  characteristics  of controlling
financial  interest or do not have  sufficient  equity at risk for the entity to
finance its activities  without additional  subordinated  financial support from
other parties.  In October 2003, the FASB released for public comment a proposed
exposure  draft  clarifying  certain  aspects  of FIN 46 and  providing  certain
entities  with  exemptions  from the  requirements  of FIN 46. If approved,  the
exposure  draft would apply to financial  statements for the first period ending
after  December 15, 2003.  The Company  expects that the adoption of FIN 46 will
have no material impact on the Company's financial position or on its results of
operations.

In May 2003,  the FASB issued SFAS No. 150,  "Accounting  for Certain  Financial
Instruments  with  Characteristics  of Both  Liabilities  and Equity" ("SFAS No.
150").  SFAS No. 150 requires that certain  financial  instruments,  which under
previous  guidance were  accounted  for as equity,  must now be accounted for as
liabilities.  The financial  instruments  affected include mandatory  redeemable
stock,  certain financial  instruments that require or may require the issuer to
buy back some of its shares in  exchange  for cash or other  assets and  certain
obligations that can be settled with shares of stock.  SFAS No. 150 is effective
for all financial  instruments  entered into or modified  after May 31, 2003 and
otherwise is effective at the beginning of the first  interim  period after June
15,  2003.  The  adoption of SFAS No. 150 did not have a material  impact on the
Company's financial position or on its results of operations.

3)       RELATED PARTY TRANSACTIONS

In fiscal year ended September 30, 2002, Leon Kaufman, former 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, Inc. (see Note 4), and $25,000 is due June 30, 2005.
The note payable bears an interest  rate of 10% per annum.  This note was repaid
in October 2003 (see Note 18).

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, Inc. (see Note 4), and $225,000 is due
June 30, 2005. The Company repaid these  stockholders  $225,000 plus  applicable
interest in August 2001.  The remaining  balance was repaid in October 2003 (see
Note 18).

The Company has a 5% ownership interest in AHS, Inc. (see Note 4). Sales to AHS,
Inc.  for the fiscal  years ended  September  30, 2003 and 2002 were $17,000 and
$326,000, respectively.

Dr. Hirsch Handmaker,  a former director of the Company,  is Chairman and Acting
CEO of  VirtuRad.com,  LLC  ("VirtuRad").  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 had $10,000 in sales to VirtuRad for
the fiscal year ended September 30, 2003.

The Company has an agreement under which  GE-Imatron,  Inc., a related party, is
an exclusive  distributor  of the Company's  products to certain  customers (see
Note 11).

As of September  30,  2003,  the Company was owed $21,746 for sales to a related
party.  As of September 30, 2002,  the Company was owed $10,715 for sales to two
related parties.

                                      F-11

<PAGE>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


4)       INVESTMENT IN AHS, INC.

During  fiscal  2002,  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.

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%. 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. An additional loss of $300,000 on the investment was recognized in the
fiscal year ended September 30, 2003.

5)       PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

                                                     September 30
                                        ---------------------------------------
                                              2003                  2002
                                        ------------------    -----------------

      Computers and equipment           $         75,979      $       104,733
      Furniture and fixtures                      72,304               37,418
      Software                                    37,912               37,912
      Leasehold improvements                           -                2,814
                                        ------------------    -----------------
                                                 186,195              182,877
      Less - accumulated depreciation
         and amortization                        140,783              130,118
                                        ------------------    -----------------

                                        $         45,412      $        52,759
                                           ================== =================

Depreciation and  amortization  expense for the fiscal years ended September 30,
2003 and 2002 was $10,665 and $22,857, respectively.

6)       OTHER RECEIVABLE

During fiscal 2003 the Company entered into a legal settlement with a competitor
under which the  Company is to be paid  $250,000 in  quarterly  installments  of
$25,000 over the next three years. Since the  collectablility of this receivable
is uncertain a reserve has been set up and only $50,000 of this  settlement  has
been  recognized as other income in fiscal 2003.  The balance will be recognized
when collectability is reasonably assured.

                                      F-12

<PAGE>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS



7)       GOODWILL AND INTANGIBLE ASSETS

Goodwill and intangible assets consist of the following:
<TABLE>
<CAPTION>

                                                            September 30
                                                -------------------------------------
                                                     2003                 2002
                                                ----------------    -----------------

<S>                                             <C>                 <C>
      Goodwill                                  $       309,063     $         618,140
      Less - accumulated amortization                         -               309,077
                                                ---------------     -----------------

                                                $       309,063     $         309,063
                                                ===============     =================


      AccuImage software                        $       125,716     $         125,716
      Other license fees                                 15,200                15,200
                                                ---------------     -----------------
                                                        140,916               140,916
      Less - accumulated amortization                   136,523               123,947
                                                ---------------     -----------------

                                                $         4,393     $          16,969
                                                ===============     =================
</TABLE>

Goodwill  amortization expense for the fiscal years ended September 30, 2003 and
2002 amounted to $0 and $61,814, respectively. Amortization of other intangibles
for the fiscal years ended  September 30, 2003 and 2002 was $12,576 and $14,633,
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  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.

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.

                                      F-13

<PAGE>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


8)       ACCRUED LIABILITIES

Accrued liabilities consisted of the following:

                                                    September 30
                                         ------------------------------------
                                               2003                2002
                                         -----------------    ---------------
        Accrued vacation                 $        40,000      $       77,845
        Audit fees                                20,000              30,000
        Cash overdraft                             2,403                   -
        Commission                                 8,730              28,704
        Consulting fees                          111,366              17,288
        Customer deposits                         23,000                   -
        Interest-notes payable                    63,593               6,250
        Other expenses                            29,918              25,159
                                         -----------------    ---------------

                                         $       299,010      $      185,297
                                         =================    ===============

9)       NOTES PAYABLE

In  fiscal  2001 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,
2003 and 2002, which represents the secured  long-term  portion of the notes due
on June 30, 2005. All of the notes plus accrued  interest were repaid in October
2003 (see Note  18).  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.

In  fiscal  2003  the  Company   borrowed  an  additional   $512,600  from  four
stockholders at 10% interest.  All of the notes were short term notes,  and were
repaid in October 2003 with funds from a new investor (see Note 18).

Interest  expense on all notes payable for the fiscal years ended  September 30,
2003 and 2002 was $67,757 and $6,730, respectively.


                                      F-14

<PAGE>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


10)      STOCKHOLDERS' EQUITY

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.

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

<TABLE>
<CAPTION>
                                                                   Average
                                                                   exercise       Expiration
      Issued during fiscal year ended:             Shares           price            date
      ---------------------------------------   --------------    -----------    -------------

<S>                                                 <C>           <C>                <C>
      September 30, 1999                              930,000     $      1.00        9/30/2004
      September 30, 2000                            1,183,334     $      1.50        9/30/2005
                                                --------------    -----------

      Outstanding at September 30, 2003             2,113,334     $      1.28
                                                ==============    ===========
</TABLE>

During the first  quarter of  fiscal  2004,  the Company  raised  an  additional
$1 million in equity from a new investor (see Note 18).

11)      PRODUCT DEVELOPMENT, DISTRIBUTION, AND WARRANTY SUPPORT AGREEMENTS

On September 10, 2001, the Company  entered into an agreement  with  GE-Imatron,
Inc.  that  replaces  all  prior  and  existing   agreements,   contracts,   and
relationships between the Company and GE-Imatron, Inc. The Company has agreed 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 is to provide
GE-Imatron,  Inc. full software suites and production  hardlock  dongles free of
charge for demonstration and training purposes and agreed to maintain compliance
with all applicable Food and Drug Administration (FDA) regulations and any other
compliance requirements.

GE-Imatron,  Inc.  has 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  has 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 will provide GE-Imatron,
Inc.  technical  specialists  and  bug-related  software  free  of  charge.  The
Company's  costs of providing this service have been minimal and are included in
product warranty reserve.

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

                                      F-15

<PAGE>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


12)      CONCENTRATIONS

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

The Company  derived  $50,920 and $1,133,059 in revenues from  GE-Imatron,  Inc.
during the years ended September 30, 2003 and 2002,  respectively.  Revenue from
GE-Imatron,  Inc.  represented  approximately  4% and 35% of the  total  revenue
generated  by  AccuImage  Diagnostics  Corporation  for the fiscal  years  ended
September 30, 2003 and 2002, respectively.

The Company derived  $654,600 and $152,000 in revenues from AmeriScan during the
fiscal years ended  September 30, 2003 and 2002,  respectively,  which represent
approximately  50%  and 5% of  the  total  revenue  generated  by  the  Company.
AmeriScan filed for bankruptcy in 2003.

The Company  sells its products to  distributors  and customers  throughout  the
United States.  At September 30, 2003, three customers,  each of which accounted
for more than 10% of the Company's accounts receivable, accounted for 81% of the
total  accounts  receivable in aggregate.  At September 30, 2002, two customers,
each of which accounted for more than 10% of the Company's accounts  receivable,
accounted for 57% of total accounts receivable in aggregate.

13)      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

During fiscal 2003, the Company concluded employment  agreements with its former
Chief  Executive  Officer,  Vice President of Operations,  and Vice President of
Finance, since these individuals are no longer with the Company.

During fiscal 2003 the Company  entered into various  employment  and consulting
agreements  that  provide for  issuance of the  Company's  stock in exchange for
services rendered to the Company.  These agreements relate primarily to services
rendered in connection with product  development,  sales and technical  support.
The Company has recorded a liability in the  accompanying  financial  statements
for fiscal 2003 based on the fair value of these services.

LEASES

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. The  commencement  date of the lease was June
20, 2001. The Company paid a fee to cancel this lease in fiscal 2003 and entered
into a new  lease on  August  1,  2003  for its new  headquarters  in South  San
Francisco.  The new lease is a one-and-a half year operating  lease with monthly
payments of $1,035.

                                      F-16

<PAGE>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


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 monthly  rental
payments of $2,873 in fiscal year 2001 and expires on October 31, 2003.

Total rent  expense,  net of sublease  income,  was $84,935 and $143,330 for the
fiscal years ended on September 30, 2003 and 2002, respectively.

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

                     Fiscal year ended
                       September 30
                     -------------------

                           2004                  $        12,600
                           2005                            4,200
                                                 ---------------
                           Total                          16,800
                                                 ===============

14)      STOCK OPTION PLAN

During  fiscal 1997,  Company  adapted 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 to 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.

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.

                                      F-17

<PAGE>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


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:

                                      Fiscal years ended September 30
                                 -------------------------------------------
                                        2003                   2002
                                 -------------------    -------------------

         Net income (loss):
                As reported       $     (1,527,066)     $         (619,789)
                Pro forma         $     (1,604,607)     $         (893,389)

         Basic and diluted earnings (loss) per common share:
                As reported       $          (0.07)     $            (0.03)
                Pro forma         $          (0.07)     $            (0.04)

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: 2003 - dividend yield of 0%; expected volatility of 200%; risk-free
interest rate of 1.50%,  and expected life of 5 years;  2002 - dividend yield of
0%; expected volatility of 250%;  risk-free interest rate of 1.60%, and expected
life of 5 years.

A summary of Stock Option Plan activity is as follows:

<TABLE>
<CAPTION>

                                                Fiscal years ended September 30
                                      -----------------------------------------------------
                                                2003                        2002
                                      -------------------------   -------------------------
                                       Number       Weighted        Number       Weighted
                                                    average                      average
                                         of         exercise          of         exercise
                                       options        price        options         price
                                      ----------    -----------   -----------    ----------
<S>                                   <C>           <C>           <C>            <C>
Outstanding at beginning of fiscal    3,205,020     $    0.51     2,140,000      $    0.51
   year
Granted                                 375,000          0.20     1,470,020           0.20
Exercised                                     -             -             -              -
Forfeited/cancelled                  (1,767,520)        0.375      (405,000)          0.42
                                      ----------    -----------   -----------    ----------
Outstanding at end of fiscal year     1,812,500     $    0.28     3,205,020      $    0.38
                                      ==========    ===========   ===========    ==========

Options exercisable at fiscal year      772,813                     885,025
   end
                                      ==========                  ===========
Weighted average fair value of
   options granted during the
   fiscal year                        $  0.22                     $   0.19
                                      ==========                  ===========

</TABLE>


                                      F-18

<PAGE>


                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

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.

The following table summarizes  information about the stock options  outstanding
at September 30, 2003:

<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           2003                Life           Price       September 30, 2003       Price
----------------- -------------------- ------------------ -------------- ------------------- -------------
<S>  <C>                    <C>                  <C>      <C>                       <C>       <C>
     $0.04                  375,000              10.00    $       0.04                    -
     $0.17                  600,000               9.00    $       0.17              150,000   $       0.17
     $0.24                  237,500               8.54    $       0.24               98,438   $       0.24
     $0.38                  250,000               4.50    $       0.38              250,000   $       0.38
     $0.50                   55,000               6.01    $       0.50               45,625   $       0.50
     $0.60                  150,000               7.58    $       0.60               93,750   $       0.60
     $0.64                   40,000               7.06    $       0.60               30,000   $       0.60
     $0.88                   30,000               6.23    $       0.88               30,000   $       0.88
     $1.03                   75,000               6.48    $       1.03               75,000   $       1.03
                  -------------------- ----------------------------------------------------  -------------

                          1,812,500               8.12    $       0.28              772,813   $      0.448
                  ==================== ====================================================  =============
</TABLE>

The exercise  period for the options is for 10 years from the date of the grant,
and vesting over a 4-year period.

15)      FOREIGN SALES

The Company has earned revenue from sources outside the United States. All sales
are payable in US dollars.  Total  foreign  sales were $123,000 and $134,560 for
the fiscal years ended September 30, 2003 and 2002, respectively.


                                      F-19

<PAGE>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


16)      INCOME TAXES

In fiscal years ended September 30, 2003 and 2002, the Company's only income tax
expense was the California minimum payment of $800.

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:

                                                  Fiscal year ended September 30
                                               ---------------------------------
                                                    2003             2002
                                               ----------------  ---------------

    Income tax provision (benefit) computed
       at federal statutory rate                       (34.00%)        (34.00%)
    State, net of federal benefits                      (5.83%)         (5.83%)
                                               ----------------  ---------------

    Net operating loss                                  39.82%          39.82%
                                               ----------------  ---------------

    Effective tax rate                                   0.01%           0.01%
                                               ================  ===============

Deferred tax assets, net, consist of the following (in thousands):

                                                       September 30
                                             --------------------------------
                                                 2003               2002
                                             ---------------- ---------------

Deferred tax asset:
           Net operating loss
             carryforwards                   $      1,400     $         950
           Allowance for warranty costs                12                20
           Depreciation/amortization                   10                30
           Other accruals and allowances               50                80
                                             --------------------------------
                                                    1,472             1,080

Valuation allowance                                (1,472)           (1,080)
                                             --------------------------------

Net deferred tax asset                       $          -     $       -
                                             ================ ===============

At  September  30,  2003,  the Company has  approximately  $2.3 million and $1.6
million in net operating loss carryforwards which are available to offset future
federal and state income  taxes,  and expire  beginning  2018 and 2008.  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.

                                      F-20

<PAGE>

                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


17)      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,
$7,500 and $7,000 for calendar  years 2003 and 2002,  respectively.  The Company
makes a 3% matching  contribution based on each employee's annual  compensation.
Employees'  right to both elective and matching  contributions  are  immediately
vested.

Company matching contributions to the Plan totaled $0 and $20,744 for the fiscal
years ended September 30, 2003 and 2002, respectively.

18)      SUBSEQUENT EVENTS

During October 2003 the Company received a $2 million loan and equity investment
from a new investor.  $1 million was received in exchange for  approximately  25
million  shares of the Company's  common  stock,  and $1 million was received in
exchange for a one year note payable.  The note bears  interest at 5% per annum.
The  funds  were used to pay the  notes  payable  to  stockholder  plus  accrued
interest totaling $831,000 (see Note 3) and to provide working capital.



                                      F-21


<PAGE>

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

         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. No reports on Form 8-K were filed during the fourth quarter.


                                       18

<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: December 12, 2003             By: /s/ DR. C. ALLEN WALL
                                      __________________________________________
                                      C. Allen Wall, Chief Executive Officer and
                                      Chairman of the Board



         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                                            December 12, 2003
__________________________
    C. Allen Wall, MD
    Chairman of the Board



/s/ LOUIS KEARN                                              December 12, 2003
__________________________
    Louis Kearn, Ph.D.
    Director


/s/ JOHN C. KLOCK                                            December 12, 2003
__________________________
    John C. Klock, MD
    Director


/s/ JULIUS KREVANS                                           December 12, 2003
__________________________
    Julius Krevans, MD
    Director


/s/ CHRIS SHEPHERD                                           December 12, 2003
__________________________
    Chris Shepherd
    Director


                                       19

<PAGE>

                                INDEX TO EXHIBITS



 Exhibit No.                       Exhibit Name
 ___________                       ____________

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

     31.1     Certification of Chief Executive Officer, pursuant to 18 U.S.C.
              Section 1350, as adopted pursuant to Section 302 of the Sarbanes -
              Oxley Act of 2002.

     31.2     Certification of Chief Financial Officer, pursuant to 18 U.S.C.
              Section 1350, as adopted pursuant to Section 302 of the Sarbanes -
              Oxley Act of 2002.

     32.1     Certification of Chief Executive Officer, pursuant to 18 U.S.C.
              Section 1350, as adopted pursuant to Section 906 of the Sarbanes -
              Oxley Act of 2002.

     32.1     Certification of Chief Financial Officer, pursuant to 18 U.S.C.
              Section 1350, as adopted pursuant to Section 906 of the Sarbanes -
              Oxley Act of 2002.








                                       20