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, 2001.

[_]  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                              (I.R.S. Employer
 incorporation or organization)                           Identification Number)

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

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

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

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

          Common Stock, $0.001 par value


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

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

Issuer's revenues for fiscal year ended September 30, 2001: $2,112,794

As of September 30, 2001, there were 10,981,534 shares of common stock, no par
value, outstanding.

Portions of the following document are incorporated by reference:

Parts of the Proxy Statement for the Company's 2002 Annual Meeting of
Shareholders, to be filed with the Commission on or before 120 days after the
end of the 2001 fiscal year, are incorporated by reference into Part III hereof.


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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.

     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

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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 scanning
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.

     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.

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     Younger generations of physicians are increasingly familiar and confident
with computerized systems, and there is increasing clinical acceptance of
electronic visualization and analysis as teaching institutions rely more heavily
on computerized review, storage and communications systems.

     In addition to the trends observable in the medical imaging industry which
may benefit the Company in the future, the Company's advanced visualization and
analysis tools already offer radiologists enhanced ability to analyze
radiological studies, with the potential to extract more information than is
available from the slice views alone. Three-dimensional reconstructions are also
easier for untrained personnel to understand, enhancing the radiologist's
ability to communicate findings to others.

     Beyond radiology, enhanced visualization and analysis tools may provide
surgeons with valuable and useful information to aid with pre-surgical planning
and post-surgical follow-up. In a similar fashion, the oncologist may benefit
from three-dimensional visualization of planned treatment sites, and
post-treatment follow-up of the same.

     Finally, the use of the global Internet to communicate medical imaging data
and findings brings the potential for enhanced collaboration between physicians
and remote expert consultants and examiners.

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.

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,

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the customers for these applications include radiology, surgery and oncology
departments of hospitals, leading research centers, imaging centers, clinics and
physician groups.

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 will develop research associations with leading research and
teaching institutions involved in the development and research of future
techniques and procedures, and will sell directly to institutions through
advertising, trade show presence, distributors and direct sales. The Company
will also develop OEM relationship and seek 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.

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     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.

     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 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 related 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 Imatron Inc. ("Imatron"),
a non-exclusive US distributor of AccuImage workstations.

     In April 1999, Imatron entered into a five-year non-exclusive product
development and distribution agreement with the Company. Under this agreement,
Imatron agreed to distribute fully-configured AccuView workstations with new
sales of the Imatron EBT scanner, a special type of high-speed CT scanner, in
the U.S. and abroad. The Company has successfully met all the target milestones
in the development schedule and has entered into the distribution phase of the
agreement.

     The Company has had distributors in Italy, Germany, India, Egypt, and
Taiwan, but these channels have generated negligible revenue and the Company
does not expend resources on their maintenance.

     Distributors are sold the software at a substantial 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.

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     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.

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 which is approximately 7% of
hardware and software only sales, and the warranty reserve was $150,000 for the
fiscal year ended September 30, 2001. Management reviews costs attributable to
warranty support. All new systems are sold with one year's service and support
included. The sale of extended support contracts to its existing customers is a
new undertaking for the Company.

INTELLECTUAL PROPERTY AND MARKET PROTECTION

     The Company has performed in-house product development for the majority of
the products it currently markets. Historically, the Company has relied upon
proprietary source code in protecting technology from competition. In calendar
year 2001, the Company filed nine patent applications (of which seven patent
applications were filed during the fiscal year ending September 30, 2001) to
protect its newly-developed intellectual property. 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 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.

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     The Company's products and technologies may infringe existing patents or
intellectual property rights of third parties. The costs of defending an
intellectual property claim could be substantial and could adversely affect the
business, even if the Company were ultimately successful in defending any such
claims. If its products or technologies were found to infringe the rights of a
third party, the 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, Marconi
Medical Systems (recently purchased by Philips), 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., and Voxar, which, similar to the Company,
act as third party vendors of a workstation product. In addition, ultrasound
imaging is beginning to enter the 3D visualization market with companies such as
Acuson (now part of Siemens) and Hewlett-Packard Co. offering products.

     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 quality of 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


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without extensive testing and data. AccuImage has received 510(k) clearance to
market its products from the FDA.

     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 $548,000 on
such research and development in 2001 and $385,000 in 2000. The increase in R&D
was necessary to augment or enhance existing product offerings.

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PERSONNEL

     The Company currently has fourteen full-time employees. The Company has
successfully expanded the quantity and quality of its support and technical
staff. Although the Company competes for such personnel with other companies and
organizations that in many cases can offer superior facilities and resources,
the Company's ability to offer prospective employees the opportunity to make a
large contribution in an exciting, growing and dynamic environment has made the
recruitment of highly qualified individuals a relatively easy task. Robert
Taylor stepped down as the Company's Chief Executive Officer on December 6, 2000
to resume his prior role as Chief Technology Officer; his tenure with the
Company was terminated effective February 2, 2001. A Management Committee led by
the Chairman of the Board, Douglas P. Boyd and a Board Member, John C. Klock
oversaw the Company's operations while the Board searched for a new Chief
Executive Officer. On February 1, 2001, Dr. Leon Kaufman became the Chief
Executive Officer.

HISTORICAL OPERATING LOSSES

     For the fiscal year ended September 30, 2001, the Company posted an
operating loss due to decreased revenues, as well as, increased operating
expenses relating to expanded R&D and administrative costs. For the fiscal year
ended September 30, 2000, the Company had posted a small amount of net income.
During 2000, the Company had a significant revenue increase due to increased
sales to Imatron, Inc. During 2001, the Company had a decrease in its sales to
Imatron, Inc., and the Company increased significantly its R&D activities.
Additionally, the Company added administrative staff and other personnel during
fiscal 2001.



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. In an effort to limit its exposure to this risk, the

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Company will continue to seek alternative applications of its technology in
order to retain the option of diversifying should unfavorable conditions develop
in its current marketplace.

CAPITAL REQUIREMENTS

     On December 10, 2001, the Company entered into a Stock Purchase Agreement
with several investors pursuant to which the Company, subject to the terms and
conditions set forth therein, raised $999,999.92 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 anticipates that the influx of capital from this
financing will meet its capital requirements for the next fiscal year. There can
be no assurance, however, that the Company will not need additional capital and
that such additional capital will be available on acceptable terms, or at all.
Failure to obtain any such required capital would have a material adverse effect
on the Company's business.

COMPETITIVE MARKETPLACE AND TECHNOLOGICAL OBSOLESCENCE RISK

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

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

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

DEPENDENCE ON MAJOR CUSTOMERS

     For the fiscal year ended September 30, 2001, sales to Imatron were
$1,012,000 and accounted for forty-eight percent of the Company's revenue, a
significant reduction from the prior fiscal year's share of sixty-nine percent.
The Company is focussed on increasing and diversifying its customer base.

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

                                      -11-
<PAGE>


Company will be able to obtain further revenues from products and services
offered to AHS or realize its investment in AHS.

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

NEED FOR ADDITIONAL PERSONNEL

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

MANAGEMENT OF GROWTH

     The Company's business strategy involves rapid expansion during the next 18
months. This growth will place significant strain on the administrative,
operational and financial resources of AccuImage and increase demands on its
systems and controls. The Company's ability to manage its growth successfully
will require it to develop improved systems and controls. If the Company's
management is unable to manage growth effectively, the Company's operating
results and financial condition could be adversely affected.

PRODUCT LIABILITY

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

PRODUCT RECALLS

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

SUBSEQUENT DEVELOPMENTS

     On December 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 $999,999.92 in cash through a private
equity offering of 11,904,761 shares of restricted Common Stock. The sale of
these securities was not registered under the Securities Act of 1933, as amended
and was exempt from the registration requirements thereunder pursuant to Section
4(2) thereof.

                                      -12-
<PAGE>


ITEM 2.   DESCRIPTION OF PROPERTY

     The Company's principal office is located at 400 Grandview Drive, South San
Francisco, California 94080. The property is a seventeen-room suite of
approximately 7,430 square feet and was occupied as of June 20, 2001. The
property is leased from an unaffiliated third party for a period of two and
one-half years ending December 2003 and an annualized rental of $87,024, payable
monthly in the amount of $7,252.

     The lease on the Company's previous principal office, 400 Oyster Point
Blvd., #114, South San Francisco, was terminated effective December 31, 2001.
The lease had been renewed beginning February 1, 2001, at which time the monthly
payment increased from $3,820 to $7,258. Additional office/warehouse space,
located at 384 Oyster Point Blvd, # 12, was subleased to an unaffiliated third
party for the term of the lease. The property is a mixed-use facility comprised
of 1,000 square feet of office space and 2,040 square feet of
warehouse/manufacturing space. The lease for this space ends in October 2003 and
the current rent is $3,794.00 per month.

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

ITEM 3.   LEGAL PROCEEDINGS

     The Company is not a party to any pending legal proceeding.

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

     No matter was submitted to the vote of security holders during the fourth
quarter of the fiscal year ended September 30, 2001.

PART II

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     (A)  MARKET INFORMATION

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



                    PERIOD           HIGH         LOW
                    ------           ----         ---
         07/01/01 - 09/30/01       0.6000        .1500
         04/01/01 - 06/30/01       0.6880        .3400
         01/01/01 - 03/31/01       1.0310        .4380
         10/01/00 - 12/31/00       0.8750        .4060
         07/01/00 - 09/30/00       1.2000        .9000
         04/01/00 - 06/30/00       1.2500        .9000
         01/01/00 - 03/31/00       1.1250        .2000
         10/01/99 - 12/31/99       1.1250        .1250

                                      -13-
<PAGE>


     (B)  STOCKHOLDERS

     As of October 5, 2001, there were approximately 87 listed 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 cash 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.

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

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

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

REVENUE

     In fiscal year 2001, total revenue decreased 32% to $2,112,794 in 2001
compared with $3,114,720 in 2000. This decrease was primarily due to a
significant reduction of sales to Imatron, Inc. In 2001, the percentage of the
Company's total sales made to Imatron decreased to approximately 48% of total
sales, compared to 69% of total sales in 2000. The Company has started to
broaden its domestic customer base. A Vice-President - Sales and Marketing and a
dedicated sales representative were hired during this year. These two
individuals, along with the Vice-President - Applications comprise a three
member team in the field. The Company expects revenue growth in fiscal year
2002, although this is a forward-looking statement and actual results could vary
materially from Company expectations.

GROSS MARGIN

     The gross margin percentage increased to 80% in 2001 from 68% in 2000. The
increase in margin resulted in part from an emphasis on higher value software
components offered as options with the Company's basic products.

OPERATING EXPENSES

     Operating expenses in 2001 were $2,838,517, which is an increase of
$881,842 from 2000. The increase was primarily due to an increase of $611,938 in
employee salaries and wages from the previous year. The Company hired a new
executive as well as administrative support staff during the year ended
September 30, 2001. Headcount was increased to three salespeople from one in the
previous year. The Company also increased their R&D efforts, which resulted in
the engagement of outside consulting (primarily software engineers). The
professional consulting fees expense increased by $217,983 from the previous
year.

                                      -14-
<PAGE>


SALES AND MARKETING

     The Company's sales and marketing expenses were approximately $340,335 and
$429,526 in 2001 and 2000, respectively. The sales and marketing expense
decrease from the previous fiscal year was primarily due to a decreased presence
at conferences and trade shows. Total expenses for trade shows and conferences
was $63,000 in 2001 and $80,000 in 2000. The Company also reduced spending on
brochures and other promotional materials. Promotional materials expense was
$55,000 in 2001 and $137,000 in 2000. The Company expects sales and marketing
costs to increase with an anticipated increased presence at conferences and
trade shows, and sales commissions increases. 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 $548,000
and $385,000, in 2001 and 2000, respectively, primarily on personnel salaries
and related expenses and consultants. This increase, of 42%, is due to increased
salary expense from the addition of software engineers and use of independent
contractors. The R&D efforts have led to a more stable product platform as well
as increasing the number of patents filed. 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 $661,344 and $594,575 in 2001 and 2000, respectively. The increase
includes significantly increased rent and related facilities expenses ($108,000)
and legal expenses ($29,484). These increases from the previous fiscal year were
offset by a decrease in general and administrative expenses of ($65,761) in 2001
in comparison to 2000. This decrease was a result of the Company's focus on cost
containment. The Company expects rent and related expenses to be reduced in
fiscal year 2002 due to the consolidation of the company headquarters into one
building. 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 decrease in revenues and an increase in operating expenses resulted in
an operating loss of $1,141,952 in 2001. The Company had net operating income of
$149,524 in 2000.

LIQUIDITY AND CAPITAL RESOURCES

     On September 30, 2001, the Company held accounts receivable of $249,950 as
well as $51,422 in cash. Accounts receivable are generally kept current through
punctual collections efforts, which will continue into the next fiscal year.

For the next fiscal year ending September 30, 2002, the Company anticipates that
cash requirements will be met by operational income from increasing revenues,
and a private equity financing that the Company closed in December 2001. 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 $999,999.92 in cash through a private
equity offering of 11,904,761 shares of restricted Common Stock.

                                      -15-
<PAGE>


FOREIGN CURRENCY TRANSACTIONS

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

INFLATION

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

SHARE PRICE VOLATILITY

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

ITEM 7.  FINANCIAL STATEMENTS

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

       Independent Auditors' Report .........................         F-1
       Balance Sheet ........................................         F-2
       Statement of Operations ..............................         F-3
       Statement of Changes in Shareholders' Equity .........         F-4
       Statement of Cash Flows ..............................         F-5
       Notes to the Financial Statements ....................  F-6 - F-30

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

     From approximately April 1997 through August 1999, the Company's accountant
was Schvaneveldt and Company of Salt Lake City, Utah. From August through
December 1999, the Company's account was James R. Kerr CPA of San Mateo,
California. In December 1999, Berg & 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.

                                      -16-
<PAGE>


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.

                                      -17-
<PAGE>


                                   SIGNATURES


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

                                   ACCUIMAGE DIAGNOSTICS CORP.


  Date: January 14, 2002           By: /s/ DR. LEON KAUFMAN
                                       -----------------------------------------
                                       Dr. Leon Kaufman, Chief Executive Officer



     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/ DOUGLAS BOYD                                               January 14, 2002
---------------------
    Douglas Boyd, Ph.D.
    Chairman of the Board and Principal Executive Officer


/s/ CHRIS SHEPHERD                                             January 14, 2002
---------------------
    Chris Shepherd
    Acting Chief Financial Officer and Director


/s/ JOHN C. KLOCK                                              January 14, 2002
---------------------
    John C. Klock, MD
    Director


/s/ C. ALLEN WALL                                              January 14, 2002
---------------------
    C. Allen Wall, MD
    Director

                                      -18-
<PAGE>


                        ACCUIMAGE DIAGNOSTICS CORPORATION

                              FINANCIAL STATEMENTS

                        SEPTEMBER 30, 2001, 2000 AND 1999



Independent Auditor's Report                                                   1

Balance Sheets                                                                 2

Statements of Operations                                                       3

Statements of Changes in Stockholders' Equity                                  4

Statements of Cash Flows                                                       5

Notes to the Financial Statements                                         6 - 30

<PAGE>


                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Shareholders
of AccuImage Diagnostics Corporation

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

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

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





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

December 19, 2001

                                       F-1
<PAGE>


                        ACCUIMAGE DIAGNOSTICS CORPORATION
                                 BALANCE SHEETS
                        AS OF SEPTEMBER 30, 2001 AND 2000


                                 ASSETS
                                                        2001            2000
                                                    -----------     -----------
Current Assets
  Cash                                              $    51,422     $   702,903
  Accounts Receivable, net of allowance
    of $15,000 and $26,712 in 2001 and
    2000 respectively                                   234,875         499,141
  Employee Receivable                                     7,500              --
  Inventory                                              94,083         101,893
  Prepaid Expenses                                       17,350           3,648
  Other current assets                                    5,216              --
                                                    -----------     -----------
Total Current Assets                                    410,446       1,307,585

Property and Equipment, net of
  accumulated depreciation                               53,549          52,015

Investments and other Assets
  Trade Receivable-noncurrent                            15,075          11,375
  Deposits                                               18,735          11,711
  Goodwill, net                                         370,877         432,691
  Other Intangible Assets                                29,970          44,603
  Investment in AHS                                     375,000              --
                                                    -----------     -----------
Total Investments and other Assets                      809,657         500,380

      TOTAL ASSETS                                  $ 1,273,652     $ 1,859,980
                                                    ===========     ===========


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
  Accounts Payable                                  $    69,932     $   137,995
  Wages Payable                                           4,844          17,150
  Accrued Vacation                                       53,726          23,351
  Other Accrued Liabilities                             181,965           2,400
  Product Warranty Reserve                              150,714         246,785
  Sales Tax Payable                                      13,541           3,282
  Deferred revenue                                      312,100              --
                                                    -----------     -----------
Total Current Liabilities                               786,822         430,963

Long-term debt
  Shareholder Notes Payable                             250,000              --

Stockholders' Equity
  Preferred Shares - $0.001 Par Value;
    10,000,000 shares Authorized;
    None issued or outstanding                               --              --
  Common Shares - $0.001 Par Value;
    50,000,000 Authorized; 10,981,534 issued
    and outstanding on September 30th 2001
    and 2000 respectively                                10,982          10,982
  Paid-In-Capital                                     2,500,253       2,443,470
  Accumulated other comprehensive loss                 (125,000)             --
  Accumulated Earnings (Deficit)                     (2,149,405)     (1,025,435)
                                                    -----------     -----------
Total Stockholders's Equity                             236,830       1,429,017

      TOTAL LIABILITIES AND STOCHHOLDERS' EQUITY    $ 1,273,652     $ 1,859,980
                                                    ===========     ===========


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

                                       F-2
<PAGE>


                        ACCUIMAGE DIAGNOSTICS CORPORATION
                            STATEMENTS OF OPERATIONS
             FOR THE YEARS ENDED SEPTEMBER 30, 2001, 2000, AND 1999


                                          2001           2000           1999
                                      -----------    -----------    -----------

Sales                                 $ 2,112,794    $ 3,114,720    $ 1,059,138
Cost of Sales                             416,229      1,008,521        246,793
                                      -----------    -----------    -----------
    Gross Profit                        1,696,565      2,106,199        812,345

Operating Expenses
  Bad debts                                27,031         10,093         16,619
  Depreciation and amortization            99,304         97,781        112,599
  Salaries and Wages                    1,304,947        693,009        551,120
  Employee benefits                        70,899         15,017         64,361
  General and administrative expenses     263,808        329,569        131,415
  Legal and accounting                    238,749        209,265         59,525
  Professional consulting                 334,657        116,674        223,232
  Rent                                    153,256         45,140         41,221
  Marketing and promotion                 340,335        429,526        121,172
  Other operating expenses                  5,531         10,601          8,485
                                      -----------    -----------    -----------
Total Operating Expenses                2,838,517      1,956,675      1,329,749

    Operating Income (Loss)            (1,141,952)       149,524       (517,404)

Other (Income) and Expenses:
  Interest expense                          6,730          2,151          5,927
  Miscellaneous income                     (2,100)          (200)       (17,738)
  Rental income                            (9,926)            --             --
  Interest income                         (19,086)       (23,024)        (3,209)
                                      -----------    -----------    -----------
Total Other (Income) and Expenses         (24,382)       (21,073)       (15,020)

    Income (Loss) before taxes         (1,117,570)       170,597       (502,384)

Provision for taxes                        (6,400)          (800)          (800)
                                      -----------    -----------    -----------

      Net Income (Loss)                (1,123,970)   $   169,797    $  (503,184)
                                      ===========    ===========    ===========

Earnings per share
  Basic                               $    (0.102)   $     0.016    $    (0.053)
                                      ===========    ===========    ===========
  Diluted                                  (0.102)         0.015         (0.046)
                                      ===========    ===========    ===========

Weighted Average Shares Outstanding
  Basic                                10,981,534     10,421,035      9,496,905
                                      ===========    ===========    ===========
  Diluted                              10,981,534     11,067,956     10,854,267
                                      ===========    ===========    ===========


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

                                       F-3
<PAGE>


          ACCUIMAGE DIAGNOSTICS CORPORATION
    STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
      FOR THE YEARS ENDED SEPTEMBER 30, 2001, 2000, AND 1999

<TABLE>
<CAPTION>
                                                       Common Stock                                     Accumulated     Accumulated
                                                   ---------------------     Paid-In   Comprehensive       Oher          Earnings
                                                     Shares      Amount      Capital        loss         (Deficit)         Total
                                                   ----------    -------    ----------    ---------     -----------     -----------
<S>                                                <C>           <C>        <C>           <C>           <C>             <C>
Balance-September 30, 1998                          8,732,100    $ 8,732    $1,223,268    $      --        (692,048)    $   539,952
Comprehensive income:

Shares issued for cash                                780,000        780       382,720           --              --         383,500

Shares issued for compensation                        236,100        236       134,674           --              --         134,910

Net (loss) for Fiscal Year ended
September 30, 1999                                         --         --            --           --        (503,184)       (503,184)
                                                   ----------    -------    ----------    ---------     -----------     -----------

Balance-September 30, 1999                          9,748,200      9,748     1,740,662           --      (1,195,232)        555,178
Comprehensive income:

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

Options exercised during the year                      50,000         50        20,450           --              --          20,500

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

Net income for Fiscal Year ended
September 30, 2000                                         --         --            --           --         169,797         169,797
                                                   ----------    -------    ----------    ---------     -----------     -----------

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

Shares issued for cash, net of issuance costs              --         --            --           --              --              --

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

Net (loss) for Fiscal Year ended
September 30, 2001                                         --         --            --           --      (1,123,970)     (1,123,970)

Unrealized loss on securities
available-for-sale                                         --         --            --     (125,000)             --        (125,000)
                                                   ----------    -------    ----------    ---------     -----------     -----------

Balance-September 30, 2001                         10,981,534    $10,982    $2,500,253    $(125,000)    $(2,149,405)    $   236,830
                                                   ==========    =======    ==========    =========     ===========     ===========
</TABLE>

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

                                       F-4
<PAGE>


                        ACCUIMAGE DIAGNOSTICS CORPORATION
                            STATEMENTS OF CASH FLOWS
             FOR THE YEARS ENDED SEPTEMBER 30, 2001, 2000, AND 1999

                                                2001         2000        1999
                                            -----------    --------   ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net Income (Loss)                         $(1,123,970)   $169,797   $(503,184)
  Adjustment to reconcile net Income
    (Loss) to net cash provided (used)
    by operating activities:
    Depreciation and amortization                99,304      97,781     112,599
    Issuance of common stock for services            --          --     134,910
    Compensation expense on stock
      options granted                            56,783       6,542          --
    Change in Warranty Reserve                  (96,071)    162,515      54,605
  Changes in Operating Assets
    and Liabilities:
    (Increase) Decrease in
      Accounts Receivable, net                  260,566    (307,117)   (186,173)
    (Increase) Decrease in Inventory              7,810     (56,936)    (32,591)
    (Increase) Decrease in license rights            --      16,370      65,480
    (Increase) Decrease in prepaid assets       (13,702)        841        (822)
    (Increase) Decrease in Deposits              (7,024)     (7,891)        498
    (Increase) Decrease in other assets         (12,715)         --          --
    (Decrease) Increase in Accounts Payable     (68,063)     (8,381)    127,396
    (Decrease) Increase in Accrued Expenses     207,892     (34,802)     (8,551)
    (Decrease) Increase in deferred revenue     312,100          --          --
                                            -----------    --------   ---------
Net Cash provided by Operating Activities:     (377,090)     38,719    (235,833)
                                            -----------    --------   ---------

CASH FLOW FROM INVESTING ACTIVITIES:
  Investment in Property and Equipment          (24,391)    (11,017)    (37,873)
  Purchase of investments                      (500,000)         --          --
                                            -----------    --------   ---------
Net Cash Used by Investing Activities          (524,391)    (11,017)    (37,873)
                                            -----------    --------   ---------

CASH FLOW FROM FINANCING ACTIVITIES:
  Shareholder Note Payable
    Proceeds (Payments)                              --     (56,500)   (100,000)
  Sale of Common Stock, net of
    issuance cost                                    --     677,000     383,500
  Exercise of Stock Options                          --      20,500          --
  Deferred Private Offering
    Memorandum Costs                                 --          --      22,290
  Proceeds from issuance of notes payable       500,000          --          --
  Payments on notes payable                    (250,000)         --          --
                                            -----------    --------   ---------
Net Cash Provided by Financing Activities       250,000     641,000     305,790
                                            -----------    --------   ---------

NET INCREASE (DECREASE) IN CASH                (651,481)    668,702      32,084

CASH AT BEGINNING OF YEAR                       702,903      34,201       2,117
                                            -----------    --------   ---------

CASH AT END OF YEAR                         $    51,422    $702,903   $  34,201
                                            ===========    ========   =========

SUPPLEMENTAL DISCLOSURE:
  Income taxes paid                         $     5,600    $     --   $      --
                                            ===========    ========   =========
  Interest Paid During the Year             $       480    $  5,554   $   3,750
                                            ===========    ========   =========

NON-CASH ACTIVITIES:
  Compensation expense on stock
    options granted                         $    56,783    $  6,542   $      --
                                            ===========    ========   =========
  Common stock issued for services          $        --    $     --   $ 134,910
                                            ===========    ========   =========


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

                                      F-5
<PAGE>


                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2001 AND 2000


1)   ORGANIZATION

The Company was  organized  on February 2, 1990,  under the Laws of the State of
Nevada as Black Pointe Holdings,  Inc. On June 26, 1996, The Company changed its
the name to AccuImage Diagnostics Corp (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.

AccuImage  Diagnostics  Corp.  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 (e.g. Marconi, and Imatron) 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.


2)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF ACCOUNTING

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


RECLASSIFICATION OF FINANCIAL STATEMENTS PRESENTATION

Certain  reclassifications  have been made to the September 30, 2000 fiscal year
ending financial  statements to conform to September 30, 2001 fiscal year ending
financial statement  presentation.  Such  reclassifications had no effect on net
income as previously reported.


FISCAL YEAR

The Company has a fiscal year that ends on September 30. Fiscal years 2000, 1999
and 1998 ended on September 30, 2001,  September 30, 2000 and September 30, 1999
respectively.

                                       F-6
<PAGE>


                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2001 AND 2000


2)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

CONCENTRATION OF CASH

The Company at times  maintains  cash  balances in an account  that is not fully
federally  insured.  Uninsured  balances as of September  30, 2001 and 2000 were
$52,334 and $633,842, respectively.


CASH EQUIVALENTS

For purposes of the  statement of cash flows,  the Company  considers all highly
liquid  securities  purchased  with  maturity of three months or less to be cash
equivalents. As of September 30, 2001 and 2000, there are no cash equivalents.


INVENTORIES

Inventories 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  for
financial  reporting purposes 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.  The  Company  uses  other
depreciation  methods  (generally  accelerated)  for tax  purposes.  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 profit or loss is reflected in income.

The  estimated  service  lives of property  and  equipment  are  principally  as
follows:

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


LONG-LIVED ASSETS

In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
the  Company  reviews  the  carrying   values  of  its  long-lived   assets  and
identifiable  intangibles for possible  impairment whenever events or changes in
circumstances  indicate  that the carrying  amount of assets to be held and used
may not be recoverable.

                                       F-7
<PAGE>


                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2001 AND 2000


2)       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

GOODWILL AND INTANGIBLE ASSETS

Purchased  technology and other  intangible  assets,  (software and intellectual
property  licenses)  are  amortized on a  straight-line  basis over the expected
periods to be benefited,  generally five to ten years. The Company evaluates the
recoverability  of  these  intangible  assets  at  each  period  end  using  the
undiscounted  estimated  future net operating  cash flows expected to be derived
from such  assets.  If such  evaluation  indicates a potential  impairment,  the
Company uses the fair value to determine the amount of these  intangible  assets
that should be written off.


SOFTWARE DEVELOPMENT COSTS

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


WARRANTY RESERVE

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


DEFERRED REVENUE

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

                                       F-8
<PAGE>


                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2001 AND 2000


2)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ADVERTISING COSTS

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


SOFTWARE REVENUE AND COSTS

According to SOP 97-2 "Software Revenue Recognition", revenue is recognized when
the receipt of payment is probable, the selling price is known, the software has
been  delivered,  and the contract is  enforceable.  The company  follows  these
guidelines to recognize revenue.  Research and Development costs related to both
future and present  products  are charged to expense as  incurred.  Research and
Development  costs  amounted to $548,271 and $385,000 for September 30, 2001 and
2000, respectively.


INCOME TAXES

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


USE OF ACCOUNTING ESTIMATES

The  preparation  of the  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.

                                       F-9
<PAGE>


                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2001 AND 2000


2)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

COMPREHENSIVE INCOME (LOSS)

The  Financial   Accounting   Standards  Board  issued  Statement  of  Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130), which
is effective for financial  statements for periods  beginning after December 15,
1997.  This  pronouncement  establishes  standards  for reporting and display of
comprehensive  income (loss) and its components in a full set of general-purpose
financial statements.  Comprehensive income (loss) consists of net income (loss)
and other gains and losses affecting  Stockholders' equity that, under generally
accepted accounting principles, are excluded from net income (loss). The Company
did not have any components of comprehensive  income (loss) for the fiscal years
ended September 30, 2000 and 1999. For the fiscal year ended September 30, 2001,
the  Company  recorded  unrealized  losses  of  $125,000  on  equity  securities
available-for-sale.


NET LOSS PER SHARE

The Company  follows  SFAS No. 128,  "Earnings  per  Share,"  which  establishes
standards for computing and presenting earnings per share ("EPS").

Basic EPS is computed  by dividing  net income  (loss) by the  weighted  average
number of common shares  outstanding.  The dilutive EPS calculation gives effect
to all dilutive  potential  common  shares,  such as stock  options or warrants,
which were  outstanding  during the period.  Shares issued during the period and
shares  repurchased  by the Company are  weighted  for the portion of the period
that they were outstanding for both basic and diluted EPS calculations.


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.

In March 2000, the FASB released  Interpretation No. 44, "Accounting for Certain
Transactions  Involving  Stock  Compensation."  This  Interpretation   addresses
certain  practice  issues  related to APB Opinion No. 25. The provisions of this
Interpretation are effective July 1, 2000, and except for specific  transactions
noted in paragraphs 94-96 of this Interpretation, shall be applied prospectively
to new awards, exchanges of awards in business combinations, modifications to an
outstanding  award,  and exchanges in grantee status that occur on or after that
date. Certain events and practices

                                      F-10
<PAGE>


                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2001 AND 2000


2)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

STOCK-BASED COMPENSATION (CONTINUED)

covered in this Interpretation have different application dates, and events that
occur after an application  date but prior to July 1, 2000,  shall be recognized
only on a  prospective  basis.  Accordingly,  no  adjustment  shall be made upon
initial  application of the  Interpretation to financial  statements for periods
prior to July 1,  2000.  Thus,  any  compensation  cost  measured  upon  initial
application of this  Interpretation  that is attributed to periods prior to July
1, 2000 shall not be  recognized.  The Company  adopted the  provisions  of this
Interpretation starting July 1, 2000.


ACCOUNTING PRONOUNCEMENTS

The FASB issued SFAS No. 133, Accounting for Derivative  Instruments and Hedging
Activities.  SFAS No. 133 requires that an enterprise  recognize all derivatives
either as assets or as  liabilities  in the statement of financial  position and
measure  those  instruments  at fair value.  The  statement is effective for the
Company's  fiscal year ending  September 30, 2000 and 2001. The Company does not
have any derivative instruments or conduct any hedging activities.

The FASB issued SFAS No. 131 on "Disclosures about Segments of an Enterprise and
Related  Information"  effective in 1998. The Company evaluated SFAS No. 131 and
determined that the Company operates in only one segment.

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

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

                                      F-11
<PAGE>


                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2001 AND 2000


2)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ACCOUNTING PRONOUNCEMENTS (CONTINUED)

In August 2001, the FASB issued SFAFS No. 144, "Accounting for the Impairment or
Disposal  of  Long-Lived   Assets."  SFAS  No.  144  supersedes  SFAS  No.  121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be  Disposed  of", in that it removes  goodwill  from its  impairment  scope and
allows for different approaches in cash flow estimation.  However,  SFAS No. 144
retains  the  fundamental  provisions  of SFAS No. 121 for (a)  recognition  and
measurement  of  long-lived  assets to be held and used and (b)  measurement  of
long-lived  assets to be disposed of. SFAS No. 144 also  supersedes the business
segment   concept  in  APB   opinion   No.  30,   "Reporting   the   Results  of
Operations-Reporting  the Effects of  Disposal  of a Segment of a Business,  and
Extraordinary,  Unusual and Infrequently  Occurring Events and Transactions," in
that it permits presentation of a component of an entity,  whether classified as
held for sale or disposed of, as a discontinued operation. However, SFAS No. 144
retains the requirement of APB Opinion No. 30 to report discontinued  operations
separately  from  continuing  operations.  The  provisions of this Statement are
effective  for  financial  statements  issued for fiscal years  beginning  after
December 15, 2001 with earlier  application  encouraged.  Implementation of SFAS
No. 144 will not have a material  effect on the Company's  results of operations
or financial position.


FAIR VALUE OF FINANCIAL INSTRUMENTS

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


3)   RELATED PARTY TRANSACTIONS

Douglas Boyd, P.H.D. is the Chairman of The Board of Directors and a shareholder
in the Company.  Mr. Boyd is also a member of the Board of Directors of Imatron,
Inc.  and a minority  shareholder  in Imatron,  Inc.  On April  1999,  AccuImage
Diagnostics Corp. entered into an agreement with Imatron, Inc. for Imatron to be
a distributor  of the Company's  products.  Sales to Imatron,  Inc.  amounted to
$1,021,637 and $2,131,347  and  represented  around 48% and 69% of the Company's
total revenue for the years ended September 30, 2001 and 2000, respectively.

Douglas Boyd and family members are majority  shareholders of Imaging Technology
Group,  Inc (ITG).  Sales to ITG for the fiscal  year ended  September  30, 2000
amounted to $70,000.

John Klock,  a member of the Board of directors  of the Company,  is also a 50 %
shareholder of Holistica Inc. Sales to Holistica, Inc. for the fiscal year ended
September 30, 2000 amounted to $30,000.

A family  member of Douglas  Boyd,  the  chairman of the Board of  Directors  of
AccuImage  Diagnostics  Corp.,  provided  software-consulting  services  to  the
Company, and received remuneration of $30,485 and non-qualified stock options to
purchase  30,000 shares of the Company common stock during the fiscal year ended
September 30, 2000.

                                      F-12
<PAGE>


                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2001 AND 2000


3)   RELATED PARTY TRANSACTIONS (CONTINUED)

The following  transactions  took place between the Company and related  parties
during the period ended September 30, 2001:

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

In August 2001,  two  shareholders  advanced to the Company  $450,000.  The note
payable bears an interest  rate of 10% per annum.  The terms of the note payable
required  the  Company to repay  $225,000  within  seven days after the  Company
completing  their equity  investment in AHS (see Note 4 and 12), and $225,000 is
due June 30, 2005.  The Company has repaid to these  shareholders  $225,000 plus
applicable interest in August 2001.

The Company  received cash from AHS,  Inc., an entity in which the Company has a
5% ownership  interest in the amount of $312,100 during the year ended September
30, 2001,  for sales of the  Company's  products,  which were not yet shipped at
September 30, 2001. AHS is not able to take delivery of the products ordered due
to construction  delays at their  facilities.  $312,100 was recorded as deferred
revenue at September 30, 2001.


4)   INVESTMENT IN AHS

The Company  concluded a strategic  investment for the promotion of its business
and strategic  objectives.  The investment in American Health Scan, Inc. ("AHS")
preferred  stock is  classified  as  available-for-sale  as of the balance sheet
date,  September  30, 2001.  However due to the  non-marketable  nature of these
securities, they are classified as long-term assets.

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 AHS,
which will provide cardiac and cancer screening services.  It is not practicable
to estimate the fair value of the Company's investment in the preferred stock of
AHS without  incurring  excessive costs.  Management  believes that the carrying
amount (on the cost  method) of $500,000 at September  30, 2001 was  temporarily
impaired.  At September 30, 2001, the Company's  management  estimated that fair
value  of its  investment  has  been  temporarily  impaired  and  the  estimated
unrealized   loss   is   $125,000.   The   unrealized   loss  of   $125,000   on
available-for-sale   securities   has  been   included  in   accumulated   other
comprehensive loss for the period in the statement of Stockholders' equity.

                                      F-13
<PAGE>


                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2001 AND 2000


4)   INVESTMENT IN AHS (CONTINUED)

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

AHS operations  are not yet sufficient to establish it as a profitable  concern.
Adverse change in market  conditions or poor operating  result of the underlying
investment  could result in losses or an inability to recover the carrying value
of the investment.


5)   ACCOUNTS RECEIVABLE - TRADE

The Company  sells its products to  distributors  and customers  throughout  the
United States. The Company performs ongoing credit evaluations of its customers'
financial  condition.  At September  30, 2001,  three  customers,  each of which
accounted for more than 10% of the Company's accounts receivable,  accounted for
59% of the total  accounts  receivable in aggregate.  At September 30, 2000, two
customers,  each of which accounted for more than 10% of the Company's  accounts
receivable, accounted for 78% of total accounts receivable in aggregate.

The Company  provides an allowance for doubtful  accounts equal to the estimated
uncollectible accounts. The Company's estimate is based on historical collection
experience and a review of the current status of trade accounts  receivable.  It
is reasonably possible that the Company's estimate of the allowance for doubtful
accounts  will  change.  Trade  accounts  receivable  are  presented  net  of an
allowance  for doubtful  accounts of $15,000 and $26,712 at September  30, 2001,
and September 30, 2000, respectively.

As of September  30, 2000,  the Company was owed $258,003 for sales to an entity
controlled and owned in part by Company stockholders.

As of  September  30,  2001,  the Company was owed  $44,265 for sales to another
entity  controlled  and owned in part by Company  stockholders  and their family
members.


6)   INVENTORIES

Inventories  consist of personal computer components of $94,083 and $101,893 for
the years ended September 30, 2001 and 2000, respectively.

                                      F-14
<PAGE>


                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2001 AND 2000


7)   PROPERTY AND EQUIPMENT

Property and Equipment consists of the following at September 30:

                                                2001            2000
                                             ---------       ---------

          Computers & Equipment              $  85,853       $  66,989
          Furniture & Fixtures                  35,208          35,208
          Software                              33,061          30,349
          Leasehold improvements                 2,815             -0-
                                             ---------       ---------
                                               156,937         132,546
          Less Accumulated Depreciation       (103,388)        (80,531)
                                             ---------       ---------

                                             $  53,549       $  52,015
                                             =========       =========

Depreciation  expense for the periods ended  September 30, 2001,  2000, and 1999
was $22,857, $20,353, and $35,340 respectively.


8)   OTHER ASSETS

The Company has a long-term trade receivable amounting to $15,075 and $11,375 as
of September 30, 2001 and 2000, respectively. Security deposits were $18,735 and
$11,711 for the periods ended September 30, 2001 and 2000 respectively.


9)   NOTE RECEIVABLE

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

                                      F-15
<PAGE>


                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2001 AND 2000


10)  INTANGIBLE ASSETS

Intangible assets consist of the following at September 30:

                                                2001            2000
                                             ---------       ---------
          AccuImage Software                 $ 125,716       $ 125,716
          Other License Fees                    15,200          15,200
                                             ---------       ---------
                                             $ 140,916       $ 140,916
          Less Accumulated Amortization       (110,946)        (96,313)
                                             ---------       ---------

                                             $  29,970       $  44,603
                                             =========       =========

Amortization  expense for the periods ended  September 30, 2001,  2000, and 1999
was $14,633, $15,614, and $17,630 respectively.


ACCUIMAGE SOFTWARE

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

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

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


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-16
<PAGE>


                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2001 AND 2000


11)  OTHER ACCRUED LIABILITIES

Other  accrued  liabilities  at  September  30, 2001 and 2000  consisted  of the
following:

                                                   2001          2000
                                               --------      --------
          Accrued franchise tax                $    800      $  2,400
          Accrued legal expenses                 24,343            --
          Accrued commission                     15,442            --
          Accrued bonuses                        74,165            --
          Accrued audit fees                     28,000            --
          Accrued interest-notes                  6,250            --
          Other accrued expenses                 32,965            --
                                               --------      --------

          Total other accrued liabilities      $181,965      $  2,400
                                               ========      ========


12)  NOTES PAYABLE

Prior to September  30, 2000,  the Company had notes  payable to a number of its
shareholders.  These  notes bore a 5%  interest  rate and were due upon  demand.
There was no balance outstanding on these notes as of September 30, 2000.

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

The  Company  received  and  approved  executed  note  purchase  agreements  and
subscription agreements for a total of $500,000.

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

Interest on the secured notes is payable  semi-annually  on June 30 and December
31. The notes will mature on June 30, 2005.

                                      F-17
<PAGE>


                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2001 AND 2000


12)  NOTES PAYABLE (CONTINUED)

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

The Company has repaid to the holders the unsecured  portion of the notes in the
amount of $250,000 in August 2001. The unpaid  balances on the notes amounted to
$250,000 as of  September  30,  2001,  which  represents  the secured  long-term
portion of the notes due on June 30, 2005.

Interest  expense on all notes  payable for the periods  ended on September  30,
2001 and 2000 was $6,730 and $2,151 respectively.


13)  STOCKHOLDERS' EQUITY

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

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

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

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

                                      F-18
<PAGE>


                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2001 AND 2000


13)  STOCKHOLDERS' EQUITY (CONTINUED)

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

A summary of the  Company's  outstanding  warrants as of September  30, 2001 and
2000 is presented below:

                                                                  Average
                                                                  exercise
                                                      Shares       price
                                                    ---------    ---------
          Outstanding at September 30, 1999           930,000    $    1.00

          Issued                                    1,183,334    $    1.50
                                                    ---------    ---------

          Outstanding at September 30, 2000         2,113,334    $    1.28

          Issued                                          -0-    $     -0-
                                                    ---------    ---------

          Outstanding at September 30, 2001         2,113,334    $    1.28
                                                    =========    =========


14)  PRODUCT DEVELOPMENT, DISTRIBUTION, AND WARRANTY SUPPORT AGREEMENTS

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

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

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

                                      F-19
<PAGE>


                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2001 AND 2000


14)  PRODUCT   DEVELOPMENT,   DISTRIBUTION,   AND  WARRANTY  SUPPORT  AGREEMENTS
     (CONTINUED)

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

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

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


15)  CONCENTRATIONS

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

The Company  derived  $1,021,637,  $2,131,347,  and  $750,134  in revenues  from
Imatron,  Inc.  during  the years  ended  September  30,  2001,  2000,  and 1999
respectively. Revenue from Imatron, Inc. represented approximately 48%, 69%, and
71% of the total revenue generated by AccuImage  Diagnostics Corp. for the years
ended September 30, 2001, 2000, and 1999 respectively.

                                      F-20
<PAGE>


                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2001 AND 2000


16)  COMMITMENTS AND CONTINGENCIES

LITIGATION

The Company has no litigation pending.


EMPLOYMENT AND CONSULTING AGREEMENTS

In June 1999, the Company  entered into an agreement  with its Chief  Technology
Officer.  The  agreement  included  an annual  salary of  $110,000,  health  and
retirement  benefits  and  300,000  stock  options.  In August  1999,  the Chief
Technology  Officer  assumed  the  position of Chief  Executive  Officer and was
granted a salary of $126,500 and  additional  150,000 stock  options.  The Chief
Executive Officer of the Company resigned effective December 6, 2000.

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

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

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

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


LEASES

On January 22,  1998,  the Company  entered into a  three-year  operating  lease
agreement for its main  operating  facility  located at 400 Oyster Point Blvd in
South  San  Francisco,  CA with  Kashiwa  Fudosan  America,  Inc,  a  California
Corporation.  The  commencement  date of the lease is February 1, 1998,  and the
expiration date is January 31, 2001.

On December 15, 2000, the lease was extended to a three-year  term commencing on
February 1, 2001 and expiring on January 31, 2004.

On October 10, 2001, the Company and Kashiwa Fudosan America, Inc entered into a
lease  termination  agreement in which the Company will pay a final rent payment
of  $10,696.00  by November 5, 2001,  which covers  November  and December  2001
rental payments.

                                      F-21
<PAGE>


                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2001 AND 2000


16)  COMMITMENTS AND CONTINGENCIES (CONTINUED)

LEASES (CONTINUED)

On August 31,  2000,  the Company  entered  into a  three-year  operating  lease
agreement for its second operating  facility located at 384 Oyster Point Blvd in
South San  Francisco,  CA with Shelton  International  Holdings,  Inc., a Hawaii
corporation.  The  commencement  date of the lease is November 1, 2000,  and the
expiration date is October 31, 2003.

On June 22,  2001,  the  Company  entered  into a  sublease  agreement  with SWA
computers  for its  facility  located  at 384  Oyster  Point  Blvd in South  San
Francisco, CA. The sublease calls for a monthly rental payment of $2,736.00. The
sublease commences on June 22, 2001 and expires on October 31, 2003 with gradual
increases in the monthly rental payments to be received by the Company.

Minimum rental payments to be received by the Company are as follows:

Fiscal Year Ended September 30,

          Fiscal Year Ended September 30,
                          2002                $ 33,242
                          2003                  34,905
                          2004                   3,017
                                              --------

                                       Total  $ 71,164
                                              ========

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

Total rent expense was $153,256, $45,140, and $41,221 for the fiscal years ended
on September 30, 2001, 2000, and 1999 respectively.

Minimum  rental  commitments  under  these  operating  lease  agreements  are as
follows:

          Fiscal Year Ended September 30,
                          2002                $148,040
                          2003                 136,806
                          2004                  26,683
                                              --------

                                       Total  $311,529
                                              ========

                                      F-22
<PAGE>


                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2001 AND 2000


17)  STOCK OPTION PLAN

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

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

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

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

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

In general,  granted  ISO's expire three months after the  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-23
<PAGE>


                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2001 AND 2000


17)  STOCK OPTION PLAN (CONTINUED)

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 for the
years ended September 30:

                                    2001            2000            1999
                                -----------     -----------     -----------
    Net Income (loss):
        As reported             $(1,123,970)    $   169,797     $  (503,184)
        Pro forma               $(1,392,456)    $   (39,599)    $  (646,876)

    Basic and diluted earnings (loss) per common share:
    As reported:
        Basic                   $   (0.1024)    $    0.0163     $    (.0530)
        Diluted                 $   (0.1024)    $    0.0153     $    (.0464)

    Pro forma:
        Basic                   $   (0.1268)    $    (.0038)    $    (.0681)
        Diluted                 $   (0.1268)    $    (.0036)    $    (.0596)

Options are granted at prices equal to the current  fair 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:  2001: dividend yield of 0%; expected volatility of 300%; risk-free
interest rate of 5.80%,  and expected life of 5 years;  2000:  dividend yield of
0%; expected volatility of 200%;  risk-free interest rate of 5.48%, and expected
life of 5  years;  1999:  dividend  yield  of 0%;  expected  volatility  of 50%;
risk-free interest rate of 6.00%, and expected life of 3 to 5 years.

                                      F-24
<PAGE>


                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2001 AND 2000


17)  STOCK OPTION PLAN (CONTINUED)

A summary of the status of the  Company's  stock option plan as of September 30,
2001,  2000 and  1999changes  during the years ended on those dates is presented
below:

<TABLE>
<CAPTION>
                                                2001                       2000                        1999
                                       -----------------------    ------------------------   -------------------------
                                                     Weighted                   Weighted                    Weighted
                                        Number       average       Number        average      Number         average
                                          of         exercise        of         exercise        of          exercise
                                        options       price        options        price       options         price
                                       ---------     ---------    ---------     --------     ---------      ----------
<S>                                    <C>           <C>          <C>           <C>          <C>            <C>
Outstanding at beginning of            1,832,479     $    0.41    1,446,280     $   0.43     1,264,200      $     0.39
year
Granted                                1,095,000          0.51      526,199         0.95      827,080             0.49
Exercised                                     -           -         (50,000)        0.41     (645,000)            0.40
Forfeited/Cancelled                    (787,479)          0.65      (90,000)        0.91            -             -
                                       ---------     ---------    ---------     --------     ---------      ----------

Outstanding at end of year             2,140,000     $    0.51    1,832,479     $   0.41     1,446,280      $     0.44
                                       =========     =========    =========     ========     =========      ==========

Options exercisable at year end          849,377                    969,867                    474,405
                                       =========                  =========                  =========

Weighted average fair value of
Options  granted  during  the year     $    0.20                  $    0.92                  $    0.43
                                       =========                  =========                  =========
</TABLE>


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

At September 30, 2001,  2000, and 1999 the Company  granted to its employees and
other eligible  participants  options  exercisable for the Company common stock.
The exercise price varies depending on the trading price of the Company's common
stock on the date of issuance among other factors.

The following table summarizes  information about the stock options  outstanding
at September 30, 1999, September 30, 2000, and September 30, 2001:

                                      F-25
<PAGE>


                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2001 AND 2000


17)  STOCK OPTION PLAN (CONTINUED)


                            Options Outstanding           Options Exercisable
                  ------------------------------------  ------------------------
                     Number      Weighted                  Number
                  Outstanding     Average     Weighted   Exercisable    Weighted
                     as of       Remaining     Average     as of         Average
    Range of     September 30,  Contractual   Exercise  September 30,   Exercise
Exercise Prices       1999          Life        Price       1999          Price
---------------  -------------  -----------   --------  -------------   --------
 $0.30 - $0.34       20,000         9.08       $  0.31     15,000       $  0.31


 $0.36 - $0.40      615,000         8.29       $  0.38    218,125       $  0.38


 $0.41 - $0.45       50,000         9.17       $  0.41         --       $  0.41


 $0.46 - $0.49      175,000         2.92       $  0.47    175,000       $  0.47


     $0.50          586,280         9.66       $  0.50     66,280       $  0.50
                 ----------     --------      --------  ---------       --------

                  1,446,280         8.24       $  0.43    474,405       $ 0.43
                 ==========     ========      ========  =========       ========


                            Options Outstanding           Options Exercisable
                  ------------------------------------  ------------------------
                     Number      Weighted                  Number
                  Outstanding     Average     Weighted   Exercisable    Weighted
                     as of       Remaining     Average     as of         Average
    Range of     September 30,  Contractual   Exercise  September 30,   Exercise
Exercise Prices       2000          Life        Price       2000          Price
---------------  -------------  -----------   --------  -------------   --------
 $0.30 - $0.34       20,000         8.08       $  0.31     20,000       $  0.31


 $0.36 - $0.40      575,000         7.29       $  0.38    346,875       $  0.38


 $0.41 - $0.49      175,000         1.92       $  0.47    175,000       $  0.47


     $0.50          637,479         8.78       $  0.50    326,229       $  0.50


 $0.51 - $0.99       50,000         9.50       $  0.88     13,438       $  0.88


 $1.00 - $1.03      375,000         9.58       $  1.01     88,325       $  1.02
                 ----------     --------      --------  ---------       --------

                  1,832,479         7.83       $  0.41    969,867       $  0.50
                 ==========     ========      ========  =========       ========

                                      F-26
<PAGE>


                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2001 AND 2000


17)  STOCK OPTION PLAN (CONTINUED)

                            Options Outstanding           Options Exercisable
                  ------------------------------------  ------------------------
                     Number      Weighted                  Number
                  Outstanding     Average     Weighted   Exercisable    Weighted
                     as of       Remaining     Average     as of         Average
    Range of     September 30,  Contractual   Exercise  September 30,   Exercise
Exercise Prices       2001          Life        Price       2001          Price
---------------  -------------  -----------   --------  -------------   --------

     $0.31           20,000         7.08      $   0.31     20,000        $  0.31

     $0.38          575,000         6.29      $   0.38    490,625        $  0.38

 $0.41 - $0.45      100,000         9.74      $   0.43         --        $    --

     $0.47          175,000         0.92      $   0.47    175,000        $  0.47

     $0.50          875,000         8.74      $   0.50     80,000        $  0.50

 $0.51 - $0.70      200,000         9.92      $   0.59         --        $    --

     $0.88           30,000         8.50      $   0.88     13,125        $  0.88

 $1.00 - $1.03      165,000         8.58      $   1.01     70,627        $  1.02
                 ----------     --------      --------  ---------       --------

                  2,140,000         7.57      $   0.51    849,377        $  0.47
                 ==========     ========      ========  =========       ========


18)  GOODWILL - ACQUISITION OF ACCUIMAGE, INC.

Amortization  expense of Goodwill for the periods ended September 30, 2001, 2000
and 1999 amounted to $61,814 for each period.


19)  FOREIGN SALES

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

                  Country                   2001           2000
          --------------------            -------        -------
          Germany                         $18,000        $    --
          Taiwan                               --          8,300
          Israel                           40,200             --
          Japan                                --         26,152
                                          -------        -------

          Total Foreign Sales             $58,200        $34,452
                                          =======        =======

                                      F-27
<PAGE>


                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2001 AND 2000


20)  INCOME TAXES

Significant  components of the provision for taxes based on income for the years
ended September 30 are as follows:

                                               2001      2000     1999
                                              ------     ----     ----
          Current tax expense
                Federal                       $   --     $ --     $ --
                State                          6,400      800      800
                                              ------     ----     ----
                                               6,400      800      800

          Deferred tax expense
                Federal                           --       --       --
                State                             --       --       --
                                              ------     ----     ----

          Provision for income taxes          $6,400     $800     $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 for the years ended  September
30 is as follows:

                                               2001         2000         1999
                                             -------      -------      -------

   Income tax provision (benefit) computed
   at federal statutory rate                  (34.00%)      34.00%      (34.00%)

   State                                       (8.84%)       8.84%       (8.84%)

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

   Increase in valuation allowance             42.83%          --        42.84%
                                             -------      -------      -------

   Effective tax rate                           0.01%        0.47%        0.00%
                                             =======      =======      =======

                                      F-28
<PAGE>


                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2001 AND 2000


20)      INCOME TAXES (CONTINUED)

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

                                                 2001          2000
                                              ---------     ---------
     Deferred tax asset
          Net operating loss carryforwards    $ 814,164     $ 307,128
          Allowance for warranty costs           64,566       105,723
          Depreciation/amortization              32,493        55,588
          Other accruals and allowances          70,507        21,447
                                              ---------     ---------
                                                981,730       489,886

     Deferred tax liability
          Deferred state income tax             (68,877)      (20,198)
                                              ---------     ---------

     Valuation allowance                       (912,853)     (469,688)
                                              ---------     ---------

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


At September 30, 2001,  the Company has  approximately  $1,900,477 net operating
loss  carryforwards  available to offset future  federal and state income taxes,
which expire through 2010 and 2019.

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.


21)  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,
$6,500 for 2001.  The  Company  makes a 3% matching  contribution  based on each
employee's annual  compensation.  Employees' right to both elective and matching
contributions are fully vested.

Company matching  contributions to the Plan totaled $11,295 for the period ended
September 30, 2001.


22)  SUBSEQUENT EVENTS

A.   COMMON STOCK TRANSACTIONS

In December 2001, the Company  concluded the sale of its common shares through a
private placement offering.  The Company sold 11,904,761 shares of unregistered,
restricted common stock

                                      F-29
<PAGE>


                        ACCUIMAGE DIAGNOSTICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2001 AND 2000


22)  SUBSEQUENT EVENTS (CONTINUED)

for $1,000,000,  completing the full offering. The shares were issued at a price
of $0.084 per share, which is at a discount from the market price.

Under this  private  placement  offering,  the Company  sold  1,976,189 of these
shares to related  parties,  which include members of the Board of Directors and
their relatives.  Additionally, one individual purchased 6,378,576 shares and he
will become a member of the board of directors.

B.   STOCK OPTIONS

During the period  October 1, 2001 to December  19,  2001,  the  Company  issued
incentive stock options to its employees allowing them to purchase up to 235,000
shares of common stock.  The exercise price is equivalent to the market price on
the date of the grant.

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

                                      F-30
<PAGE>


                                INDEX TO EXHIBITS

  EXHIBIT NO.     EXHIBIT NAME

     2.1       Rescission and Transfer Agreement, dated June 30, 1998 (1)

     2.2       Stock Allocation Agreement, dated June 30, 1998 (1)

     3.1       Articles of Incorporation of Company, filed February 2, 1990 (1)

     3.2       Certificate of Amendment of Articles of Incorporation of Company,
               filed June 27, 1996 (1)

     3.3       Certificate of Amendment of Articles of Incorporation of Company,
               filed February 12, 2001 (3)

     3.4       Bylaws of the Company (1)

     4.1       Form of Warrant issued to investors in Private Offering concluded
               April 30, 2000 (2)

     4.2       Form of Stock Purchase Agreement entered into between Company and
               several investors on December 10, 2001 (4)

     10.1      AccuImage Stock Option Plan (1)

     10.2      Form of Stock Option Agreement (1)

     10.3      Form of Unit Purchase Agreement between the Company and investors
               in the Private Offering which 10.3 concluded April 30, 2000 (2)

     10.4      Sublease  Agreement  between  Toshiba  America MRI,  Inc. and the
               Company entered into on May 25, 2001

     10.5      Employment Agreement between the Company and Leon Kaufman entered
               into on February 1, 2001

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

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

FOOTNOTES

(1)  Incorporated by reference to the Company's  Registration  Statement on Form
     10, filed June 30, 1999.

(2)  Incorporated by reference to the Company's Quarterly Report on Form 10-QSB,
     filed on May 15, 2000.

(3)  Incorporated by reference to the Company's Quarterly Report on Form 10-QSB,
     filed on May 15, 2001.

(4)  Incorporated  by reference  to the  Company's  Current  Report on Form 8-K,
     filed December 26, 2001.

                                      -2-