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

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                       __________________________________

                                   FORM 10-QSB

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004

                                       OR

[ ] TRANSITION REPORT PURSUANT TO 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.
        (EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)


            NEVADA                                              33-0713615
(STATE OR OTHER JURISDICTION OF                              (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION)                            IDENTIFICATION NUMBER)


                      400 OYSTER POINT BOULEVARD, SUITE 201
                           SO. SAN FRANCISCO, CA 94080
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

                                 (650) 875-0192
                (ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)

                       __________________________________

Check whether the issuer:  (1) filed all reports required to be filed by Section
13 or 15(d) of the  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 [ ]

As of June 30, 2004 there were  48,336,295  shares of the Issuer's  Common Stock
outstanding,  with a par  value of  $0.001.  No shares  of  Preferred  Stock are
outstanding.

        Transitional Small Business Disclosure Format: YES [ ]     NO [ ]

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


<PAGE>


________________________________________________________________________________

                           ACCUIMAGE DIAGNOSTICS CORP.
                         QUARTERLY REPORT ON FORM 10-QSB
                       FOR THE PERIOD ENDED JUNE 30, 2004
                                TABLE OF CONTENTS
________________________________________________________________________________


                                                                           PAGE
PART I            FINANCIAL INFORMATION                                   NUMBER

ITEM 1.           Financial Statements:

                  Condensed Balance Sheets as of June 30, 2004 (unaudited)
                      and September 30, 2003 (audited)                       3

                  Condensed Statements of Operations (unaudited) for
                      the three and nine months ended June, 2004 and 2003    4

                  Condensed Statements of Cash Flows (unaudited) for
                      the nine months ended June, 2004 and 2003              5

                  Notes to Financial Statements                              6

ITEM 2.           Management's Discussion and Analysis of Financial
                      Condition and Results of Operations                   12

ITEM 3.           Controls and Procedures                                   18

PART II           OTHER INFORMATION

ITEM 1.           Legal Proceedings                                         18

ITEM 2.           Changes in Securities and Use of Proceeds                 18

ITEM 3.           Defaults Upon Senior Securities                           18

ITEM 4.           Submission of Matters to a Vote of Security Holders       18

ITEM 5.           Other Information                                         18

ITEM 6.           Exhibits and Reports on Form 8-K                          18

                  Signatures                                                19


<PAGE>


________________________________________________________________________________

PART I:  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS
________________________________________________________________________________

<TABLE>
<CAPTION>

                           ACCUIMAGE DIAGNOSTICS CORP.
                            CONDENSED BALANCE SHEETS

                                                                         JUNE 30,         SEPTEMBER 30,
                                                                           2004               2003
                                                                        ___________        ____________
                                                                        (UNAUDITED)         (AUDITED)
<S>                                                                     <C>                <C>

ASSETS
Current assets:
    Cash and cash equivalents                                           $   673,007        $        --
    Accounts receivable, net of allowance of $13,607 and                     59,378            112,170
       $50,000, respectively
    Other receivable, net                                                    25,000             50,000
    Inventory                                                                42,114             49,193
    Prepaid expenses and other current assets                                21,092              9,091
                                                                        ___________        ___________
       Total current assets                                                 820,591            220,454
                                                                        ___________        ___________
Property and equipment, net of accumulated depreciation and
    amortization                                                             38,712             45,412
                                                                        ___________        ___________
Other assets
    Deposits                                                                 27,004              9,993
    Goodwill                                                                309,063            309,063
    Other intangible assets, net                                              3,295              4,393
                                                                        ___________        ___________
       Total other assets                                                   339,362            323,449
                                                                        ___________        ___________
                                                                        $ 1,198,665        $   589,315
                                                                        ===========        ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
    Accounts payable                                                    $   186,700        $   250,730
    Accrued liabilities                                                     114,750            299,010
    Product warranty reserve                                                 25,000             25,000
    Deferred revenue                                                        140,473             37,000
    Notes payable to related parties                                      1,033,150            762,600
                                                                        ___________        ___________
       Total current liabilities                                          1,500,073          1,374,340
                                                                        ___________        ___________
Shareholders' equity (deficit):
    Preferred shares - $0.001 par value; 10,000,000 shares                       --                 --
       authorized; none issued or outstanding
    Common shares - $0.001 par value; 50,000,000 authorized;                 48,337             22,887
       48,336,295 and 22,886,295 shares issued and outstanding on
       June 30, 2004 and September 30, 2003, respectively
    Paid-in-capital                                                       4,927,802          3,488,348
    Accumulated deficit                                                  (5,277,547)        (4,296,260)
                                                                        ___________        ___________
       Total shareholders' deficit                                         (301,408)          (785,025)
                                                                        ___________        ___________
                                                                        $ 1,198,665        $   589,315
                                                                        ===========        ===========


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


                                       3


</TABLE>


<PAGE>

<TABLE>
<CAPTION>


                           ACCUIMAGE DIAGNOSTICS CORP.
                        CONDENSED STATEMENT OF OPERATIONS
                                   (UNAUDITED)


                                                   THREE MONTHS ENDED JUNE 30,     NINE MONTHS ENDED JUNE 30,
                                                   ___________________________     ___________________________
                                                      2004            2003            2004            2003
                                                   ___________     ___________     ___________     ___________
<S>                                                 <C>             <C>             <C>             <C>

Sales                                              $   115,953     $    70,403     $   418,194     $ 1,220,884

Cost of sales                                           10,580           5,102          32,047         216,525
                                                   ___________     ___________     ___________     ___________
Gross profit                                           105,373          65,301         386,147       1,004,359
                                                   ___________     ___________     ___________     ___________
Operating expenses:
   Research and development (includes non-
      cash stock compensation of $14,636
      and $20,636 for the three and nine
      month periods ending June 30, 2004,
      respectively)                                    157,453          78,824         411,941         484,128

   Sales and marketing (includes non-cash
      stock  compensation of $0 and $2,000
      for the three and nine month periods
      ending June 30, 2004, respectively)              101,382          61,847         200,403         514,927


   General and administrative (includes non-
      cash stock compensation of $221,018
      and $416,268 for the three and nine
      month periods ending June 30, 2004,
      respectively)                                    330,737         224,933         771,599       1,045,424
                                                   ___________     ___________     ___________     ___________

       Total operating expenses                        589,572         365,604       1,383,943       2,044,479
                                                   ___________     ___________     ___________     ___________
Operating loss                                        (484,199)       (300,303)       (997,796)     (1,040,120)

Net interest income (expense) and other                 12,390          (7,337)         16,509         (26,042)
                                                   ___________     ___________     ___________     ___________
Net loss before income taxes                       $  (471,809)    $  (307,640)    $  (981,287)    $(1,066,162)

Provision for income taxes                                  --              --              --             800
                                                   ___________     ___________     ___________     ___________
Net loss                                           $  (471,809)    $  (307,640)    $  (981,287)    $ 1,066,962)

                                                   ===========     ===========     ===========     ===========
Basic and diluted net loss per share               $     (0.01)    $     (0.01)    $     (0.02)    $     (0.05)

                                                   ===========     ===========     ===========     ===========
Weighted average shares outstanding
    Basic and diluted                               48,336,295      22,886,295      41,277,171      22,886,295
                                                   ===========     ===========     ===========     ===========


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


                                       4


</TABLE>


<PAGE>

<TABLE>
<CAPTION>

                           ACCUIMAGE DIAGNOSTICS CORP.
                        CONDENSED STATEMENT OF CASH FLOWS
                                   (UNAUDITED)
                                                                         NINE MONTHS ENDED JUNE,
                                                                      _____________________________
                                                                         2004              2003
                                                                      __________        ___________
<S>                                                                   <C>               <C>

CASH FLOWS FROM OPERATING ACTIVITIES
      Net loss                                                        $ (981,287)       $(1,066,962)

      Adjustment to reconcile net loss to net cash used for
      operating activities:

           Depreciation and amortization                                  10,647             26,792

           Product warranty reserve                                           --             (2,607)

           Stock based compensation                                      438,904                 --

           Change in accounts receivable allowance                        14,622             31,662

           Change in operating assets and liabilities:

              Accounts receivable, net                                    38,170            216,630

              Employee receivable                                             --             (3,082)

              Other receivable                                            25,000                 --

              Inventory                                                    7,079              5,530

              Prepaid assets and other assets                            (29,012)           (19,628)

              Accounts payable                                           (64,030)            58,653

              Accrued expenses                                          (160,260)            (3,975)

              Deferred revenue                                           103,473                 --
                                                                      __________        ___________

          Net cash used in operating activities                       $ (596,694)       $  (756,987)
                                                                      __________        ___________
CASH FLOWS FROM INVESTING ACTIVITIES

      Investment in property and equipment                            $   (2,849)       $    (6,134)
                                                                      __________        ___________
          Net cash used in investing activities                       $   (2,849)       $    (6,134)
                                                                      __________        ___________
CASH FLOWS FROM FINANCING ACTIVITIES:
         Short-term borrowings from shareholders and                  $       --        $   559,000
              related parties
         Proceeds from issuance of common stock to an officer          1,002,000                  -
              of the company
         Proceeds from short-term borrowings from an officer of
              the company                                              1,033,150                  -
         Payments on long-term borrowings from shareholders             (762,600)                 -
                                                                      __________        ___________

           Net cash provided by financing activities                   1,272,550        $   559,000
                                                                      __________        ___________

Net increase (decrease) in cash and cash equivalents                     673,007           (204,121)

Cash and cash equivalents at beginning of period                               -            231,843
                                                                      __________        ___________
Cash and cash equivalents at end of period                            $  673,007        $    27,722

                                                                      ==========        ===========
SUPPLEMENTAL DISCLOSURE

    Cash paid during the period for interest                          $   32,448        $        --

    Cash paid during the period for taxes                             $      338        $       800


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


                                       5


</TABLE>


<PAGE>


                           ACCUIMAGE DIAGNOSTICS CORP.
                          NOTES TO FINANCIAL STATEMENTS


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND OPERATIONS

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

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

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

BASIS OF PRESENTATION

In the opinion of management,  the accompanying financial statements contain all
adjustments  (consisting of only normal recurring accruals) necessary to present
fairly the financial  position at June 30, 2004 and September 30, 2003,  and the
results of its  operations for the three and nine months ended June 30, 2004 and
2003 and cash  flows for the nine  months  ended  June,  2004 and 2003.  Certain
information and footnote  disclosures  normally included in financial statements
that would have been prepared in accordance with generally  accepted  accounting
principles have been condensed or omitted  pursuant to the rules and regulations
of the Securities and Exchange  Commission,  although  management of the Company
believes that the disclosures in these financial statements are adequate to make
the  information  presented  herein not  misleading.  It is suggested that these
financial statements and notes thereto be read in conjunction with the financial
statements  and the notes thereto  included in the Company's  September 30, 2003
Form 10-KSB filed December 31, 2003. The results of operations for the three and
nine months ended June 30, 2004 are not necessarily indicative of the results of
operations to be expected for the full fiscal year ending September 30, 2004.

GOING CONCERN

These  financial  statements  have been prepared on a going concern  basis.  The
Company has reported net  operating  losses for the three and nine months ending
June 30, 2004 and for the past three fiscal years.  Management  plans to achieve
profitability  in the next fiscal year ending  September  30, 2005 by generating
higher revenue  through an expansion of the Company's sales force and control of
costs and expenses.

The Company's expectations as to its cash flows, and as to future cash balances,
are  subject  to  a  number  of  assumptions,  including  assumptions  regarding
anticipated revenues, customer purchasing and payment patterns, and improvements
in general economic conditions,  many of which are beyond the Company's control.
If  revenues  do not  match  projections  and if  losses  exceed  the  Company's
expectations,  the Company will implement  additional cost saving initiatives in
order to preserve  cash.  If the  Company  experiences  a continued


                                       6


<PAGE>


decrease in demand for its products  from the level  experienced  during  fiscal
year 2003,  then it would need to reduce  expenditures  to a greater degree than
anticipated, or raise additional funds if possible.

Certain  shareholders have agreed to provide additional  financing if necessary.
During the first quarter of fiscal 2004 the Company borrowed  $1,000,000 from an
officer of the Company (see Note 2).

USE OF ESTIMATES

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

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

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

REVENUE RECOGNITION

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

The Company  accounts for sales of software and  maintenance  revenue  under the
provisions  of  Statement  of  Position  97-2 ("SOP  97-2"),  "Software  Revenue
Recognition," as amended. SOP 97-2 generally requires revenue earned on software
arrangements  involving  multiple elements to be allocated to each element based
on  vendor-specific  objective  evidence.  For  hardware  transactions  where no
software is involved,  the Company  applies the  provisions of Staff  Accounting
Bulletin 104, "Revenue Recognition."

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

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

Fair values of the ongoing maintenance,  which includes updates and support, are
based upon a percentage of the current list price of the software. Fair value of
services,  such as training or  consulting,  is based upon separate sales by the
Company of these services to other customers.  Payments received for maintenance
and services are deferred and  recognized  as revenue  ratably over the contract
term. Training and consulting services are billed based on hourly rates, and are
generally  recognized  as  revenue  as these  services  are  performed.  Amounts
deferred  for  maintenance  services,   term  software  license  agreements  and
warranties comprise the main components of deferred revenue.

PRODUCT WARRANTY RESERVE

Based upon historical costs and its sales  agreements,  the Company  maintains a
product  warranty reserve based on product sales to cover  anticipated  warranty
costs  related  to  software  sold.  The  Company  typically  provides


                                       7


<PAGE>


one-year  warranties on its software and hardware products sold. The majority of
the hardware warranty is covered by the hardware vendor. The Company continually
compares its reserves to actual costs as determined by  management,  and adjusts
its  reserves  as  necessary.  There were no changes in the  Company's  warranty
reserve during the nine months ended June 30, 2004.


                                             NINE MONTHS ENDED JUNE 30,
                                             __________________________
                                               2004              2003
                                             ________          ________

Balance at the beginning of the period        $ 25,000        $ 50,000

   Provision for warranty liability for              -           1,000
      sales made during the  period
   Settlements made during the period                -          (4,000)

                                              ________        ________
Balance at the end of the period              $ 25,000        $ 47,000
                                              ========        ========

INVENTORIES AND COST OF SALES

Inventory  consisting of personal computer components are stated at the lower of
cost or market.  Cost is determined by the first-in,  first-out ("FIFO") method.
Interim period cost of goods sales is calculated  using the perpetual  inventory
record.  The  Company  reports  any  significant  adjustments  that  result from
reconciling the perpetual  inventory  record to the periodic and annual physical
inventory observations.

ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

The Company  performs  ongoing credit  evaluations  of its customers'  financial
conditions and generally requires no collateral from its customers.  The Company
maintains  allowances for doubtful  accounts for estimated losses resulting from
the  inability of its  customers to make  required  payments.  If the  financial
condition  of  the  Company's  customers  should  deteriorate,  resulting  in an
impairment  of their  ability to make  payments,  additional  allowances  may be
required.  Trade  accounts  receivable  are  presented  net of an allowance  for
doubtful  accounts of $13,607 and  $50,000 at June 30,  2004 and  September  30,
2003, respectively.

RECOVERABILITY OF LONG LIVED ASSETS

The Company evaluates the  recoverability of its long-lived assets  periodically
by analyzing its operating results and considering significant events or changes
in the business environment.

LOSS PER SHARE

Basic net loss per share is  computed by dividing  net loss  (numerator)  by the
weighted-average  number of common shares outstanding  (denominator)  during the
period. Diluted net loss per share gives effect to all dilutive potential common
shares outstanding during the period including stock options, using the treasury
stock method.  In computing  diluted net loss per share, the average stock price
for the  period  is used in  determining  the  number of  shares  assumed  to be
purchased  from the  exercise  of stock  options.  For the three and nine months
ended June 30, 2004,  options and warrants  outstanding  were  excluded from the
calculation since their effect was antidilutive.  The total options and warrants
outstanding at June 30, 2004 were 375,000.

STOCK BASED COMPENSATION

The Company accounts for its stock-based  compensation plans using the intrinsic
value  method  prescribed  in  Accounting   Principles  Board  Opinion  No.  25,
"Accounting for Stock Issued to Employees." Compensation cost for stock options,
if any, is measured by the excess of the quoted  market  price of the  Company's
stock at the date of grant over the amount an  employee  must pay to acquire the
stock. SFAS No. 123 established  accounting and disclosure  requirements using a
fair-value  based method of accounting  for  stock-based  employee  compensation
plans.  Had  compensation  expense  for the  Company's  Stock  Option  Plan been
determined to be consistent  with SFAS No. 123, the Company's net loss and basic
and diluted net loss per share would have  increased to the  following pro forma
amounts:


                                       8


<PAGE>

<TABLE>
<CAPTION>

                                                    THREE MONTHS ENDED               NINE MONTHS ENDED
                                                         JUNE 30,                        JUNE 30,
                                                ___________________________     ___________________________
                                                   2004            2003            2004            2003
                                                ___________     ___________     ___________     ___________
<S>                                             <C>             <C>              <C>          <C>

Net loss, as reported                           $  (471,809)    $  (307,640)    $  (981,287)    $(1,066,962)
   Add: Non-cash stock compensation expense
     determined under the intrinsic value                --              --          13,750              --
     method as reported in net loss (*)
   Less: Employee stock-based compensation
     expense determined under fair value            (30,453)         (3,000)       (105,110)        (11,000)
                                                ___________     ___________     ___________     ___________
   Pro forma net loss                           $  (502,262)    $  (310,640)    $(1,072,647)    $(1,077,962)
                                                ===========     ===========     ===========     ===========
   Weighted average shares outstanding           48,336,295      22,886,295      41,277,171      22,886,295
Shares used to compute basic and diluted
   net loss per share                            48,336,295      22,886,295      41,277,171      22,886,295
                                                ===========     ===========     ===========     ===========
Loss per share:
   Basic and diluted - as reported              $     (0.01)    $     (0.01)    $     (0.02)    $     (0.05)
                                                ===========     ===========     ===========     ===========
   Basic and diluted - pro forma                $     (0.01)    $     (0.01)    $     (0.03)    $     (0.05)
                                                ===========     ===========     ===========     ===========

<FN>
__________________
(*) This amount excludes non-cash stock compensation on restricted stock awards.

</FN>
</TABLE>


RECENT ACCOUNTING PRONOUNCEMENTS

In December  2003, the  Securities  and Exchange  Commission  (the "SEC") issued
Staff  Accounting  Bulletin No. 104 ("SAB 104"),  Revenue  Recognition.  SAB 104
supersedes SAB 101,  Revenue  Recognition in Financial  Statements.  The primary
purpose  of SAB  104 is to  rescind  accounting  guidance  contained  in SAB 101
related to multiple element revenue arrangements,  superseded as a result of the
issuance  of EITF  00-21.  Additionally,  SAB 104  rescinds  the  SEC's  Revenue
Recognition in Financial Statements  Frequently Asked Questions and Answers (the
"FAQ")  issued  with SAB 101 that had been  codified  in SEC Topic  13,  Revenue
Recognition.  Selected  portions of the FAQ have been incorporated into SAB 104.
While the wording of SAB 104 has changed to reflect the  issuance of EITF 00-21,
the revenue  recognition  principles of SAB 101 remain largely  unchanged by the
issuance of SAB 104. The  issuance of SAB 104 did not have a material  impact on
the Company's financial position, results of operations or cash flows.


In  November  2003,  the  Emerging  Issues  Task  Force (the  "EITF")  reached a
consensus on Issue No. 03-10,  Application of EITF Issue No. 02-16,  "Accounting
by a Customer (Including a Reseller) for Certain  Consideration  Received from a
Vendor, by Resellers to Sales Incentives Offered to Consumers by Manufacturers".
This issue clarifies whether consideration  received by a reseller from a vendor
that is  reimbursement  by the vendor for honoring the vendor's sales incentives
offered  directly to consumers  should be recorded as a reduction of the cost of
the reseller's  cost of sales.  The provisions of EITF Issue No. 03-10 should be
applied  prospectively in fiscal years beginning after December 15, 2003 with no
early adoption or retroactive  reclassification  permitted. The adoption of this
standard did not have a material  impact on the  Company's  financial  position,
results of operations or cash flows.


In January 2003, the Financial  Accounting  Standards  Board (the "FASB") issued
FASB  Interpretation  No. 46 ("FIN 46"),  "Consolidation  of  Variable  Interest
Entities,  an  Interpretation  of ARB No. 51." Fin 46 requires  certain variable
interest entities to be consolidated by the primary beneficiary of the entity if
the  equity  investors  in  the  entity  do  not  have  the  characteristics  of
controlling  financial interest or do not have sufficient equity at risk for the
entity to  finance  it  activities  without  additional  subordinated  financial
support from other parties. FIN 46 is effective immediately for all new variable
interest  entities  created or acquired  after  January 31,  2003.  For variable
interest  entities  created or acquired prior to February 1, 2003, the provision
of FIN 46 were to be applied for the first  interim or annual  period  beginning
after June 15, 2003. In December 2003, the FASB released a revision of FIN 46 to
address various implementation issues and modify


                                       9


<PAGE>


the  effective  date for applying the provision of FIN 46. A public entity shall
apply the  provisions  of the Fin 46 revision no later than the end of the first
reporting period that ends after March 15, 2004.  However, a public entity shall
apply FIN 46 to entities considered to be special-purpose entities no later than
as of the end of the first  reporting  period that ends after December 31, 2003.
The issuance of FIN 46 and its  revision  did not have a material  impact on the
Company's financial position, results of operations or cash flows.


2.   RELATED PARTY TRANSACTIONS

The following  transactions  took place between the Company and related  parties
during the nine months ended June 30, 2004:

In fiscal year 2001,  the Company  received and approved  executed note purchase
agreements and subscription  agreements for a total of $500,000. As of September
30,  2003,  the  unpaid  balance  on  the  notes  amounted  to  $250,000,  which
represented the secured long-term portion of the notes due on June 30, 2005. All
of the notes plus accrued interest of $31,250 was repaid in October 2003.

In fiscal year 2003,  the  Company  borrowed an  additional  $512,600  from four
shareholders at 10% interest.  All of the notes were  short-term  notes and were
repaid in October  2003 from  proceeds  received  through  the  issuance  of two
Promissory Notes to an Officer of the Company.

In October 2003 and November 2003, the Company entered into two Promissory Notes
with an Officer of the Company for $500,000 each, totaling $1,000,000. The notes
bear  interest at 5% per annum and mature in October 2004 and in November  2004,
respectively.  In addition,  the Company  entered  into a Common Stock  Purchase
Agreement  with the same  Officer of the Company  pursuant to which the Company,
subject to the terms and conditions set forth therein, raised $1,002,000 in cash
through a private  equity  offering of 25,050,000  shares of  restricted  common
stock. See Note 3 for equity transaction details.

3.   EQUITY TRANSACTIONS

In October 2003, the Company entered into a Common Stock Purchase Agreement with
an Officer of the Company  pursuant to which the  Company,  subject to the terms
and conditions set forth  therein,  raised  $1,002,000 in cash through a private
equity offering of 25,050,000 shares of restricted common stock. The shares were
issued at a price of $0.04 per share, which was a discount from the market price
and as a result, the intrinsic value as of the date of the agreement of $500,000
is being expensed to operations  ratably over the one-year term of the Officer's
Employment Agreement. See Note 4 for Employment Agreement details.  Accordingly,
the Company  recorded a charge to  operations  of $125,250  and $250,500 for the
three and nine  months  ended  June 30,  2004,  respectively.  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 proceeds from this offering are being used to fund operations.
This  purchase  of the  Company's  common  stock  resulted in the Officer of the
Company owning a majority interest in the Company totaling 52% at June 30, 2004.

In December 2003,  the Company issued 400,000 shares of restricted  common stock
to employees for prior services rendered as consultants during fiscal year 2003.
The shares were valued at the market  price on the date of issuance at $0.08 per
share and as a result,  the Company  recorded  charges to  operations  of $8,000
during the quarter ended December 31, 2003 and $24,000 in the prior fiscal year.
The issuance of these  securities was not registered under the Securities Act of
1933, as amended and was exempt from the registration requirements thereunder.

In December  2003, the Company  issued  incentive  stock options to its Board of
Directors  allowing  them to  purchase up to 1 million  shares of the  Company's
common stock.  The options were issued at an exercise  price of $0.10 per share,
which was  greater  than the  market  price on the date of grant.  The  exercise
period for the options is 10 years and the options  were 100% vested on the date
of grant. Total options outstanding at June 30, 2004 were 3,512,500.

In February 2004, the Company's Board of Directors  resolved that in recognition
of their past  service,  the Company  grant  immediate  and full  vesting of all
unvested  stock options held by each director as of that date.


                                       10


<PAGE>


The grants expire the sooner of 10 years after the vesting  commencement date or
90 days after  termination of their  three-year  Consulting  Agreements with the
Company.  As a result,  the intrinsic value of the unvested  options,  which was
$13,750,  was expensed to operations  during the second  quarter of fiscal 2004.
The intrinsic  value was measured  using the exercise price and the market price
on the date the options were fully vested.

In March 2004, the Company's  Board of Directors  approved and in April 2004 the
Company granted 750,000 shares of Common Stock to an Officer as compensation for
performing  duties  as its  Chief  Executive  Officer  ("CEO").  See  Note 4 for
Employment Agreement details. The following shares of common stock were granted:
600,000  shares for the  three-month  period  ended  March 31,  2004 and 150,000
shares for the three-month period ended June 30, 2004. The shares were valued at
the market  price on the date of grant and as a result,  the Company  recorded a
compensation  charge to operations of $56,250 and $112,500  during the three and
nine months ended June 30, 2004, respectively.

In April 2004, the Company issued incentive stock options to its Chief Operating
Officer,  allowing him to purchase up to 600,000 shares of the Company's  common
stock. The options were issued at an exercise price that was equal to the market
price on the date of grant,  and as a result the Company recorded a compensation
charge to operations of $39,518 during the three months ended June 30, 2004. The
exercise  period for the  options is five  years and the  options  vest over six
quarters. See Note 4 for Consulting Agreement.

In  April  2004,  the  Company  issued  incentive  stock  options  to one if its
consultants,  who was the Company's  former  President and CEO,  allowing him to
purchase up to 100,000  shares of the Company's  common stock.  The options were
issued at an  exercise  price that was equal to the market  price on the date of
grant, and as a result the Company recorded a compensation  charge to operations
of $14,636 during the three months ended June 30, 2004. The exercise  period for
the options is five years and the options were 100% vested on the date of grant.
See Note 4 for Consulting Agreement.

4.   SIGNIFICANT AGREEMENTS

In January  2004,  the  Company  and Aviel  Faliks  entered  into an  Employment
Agreement, effective January 1, 2004, which employs Mr. Faliks as the CEO of the
Company for a one-year term. See Note 3 for equity details.

In  January  2004,  the  Company  and  Ray  Vallejo  entered  into a  Consulting
Agreement,  effective  January 1, 2004,  pursuant to which Mr. Vallejo serves as
the Company's Chief Operating  Officer ("COO").  The Consulting  Agreement has a
two-year term.

In January 2004, the Company and Leon Kaufman,  former  President and CEO of the
Company,  entered  into a  Consulting  Agreement,  effective  January  1,  2004,
pursuant to which Mr.  Kaufman  serves as the Company's  Head of Research  until
October 2004.

In  February  2004,  the  Company  and SMAART  Medical  Systems  entered  into a
five-year  agreement (the "Software License Agreement") with respect to purchase
and distribution of AccuImage's medical imaging software.

In June 2004, the Company  entered into a three-year  operating  lease agreement
for  its  new  headquarters/operating  facility  located  at  400  Oyster  Point
Boulevard in South San Francisco, California. The commencement date of the lease
was August 1, 2004 and the monthly lease payments are  $3,959.55,  $4,106.20 and
$4,252.85 for years one, two and three, respectively.

5.   SUBSEQUENT EVENTS

In March 2004,  the Company's  Board of Directors  approved and in July 2004 the
Company granted 375,000 shares of Common Stock to an Officer as compensation for
performing duties as its CEO. See Note 4 for Employee Agreement details.


                                       11


<PAGE>


________________________________________________________________________________

ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
________________________________________________________________________________


FORWARD LOOKING STATEMENTS

The discussion  contained in this  Management  Discussion & Analysis is "forward
looking" as that term is  contemplated  by Section 27A of the  Securities Act of
1933 and Section 12E of the Securities  Exchange Act of 1934  ("Exchange  Act"),
including, without limitation,  statements regarding the Company's expectations,
beliefs,  intentions or strategies  regarding  future  business  operations  and
projected  earnings  from its products and  services,  which are subject to many
risks. All forward-looking  statements included in this Form 10-QSB are based on
information available to the Company on the date hereof, and the Company assumes
no  obligation  to update any such  forward-looking  statements.  The  Company's
actual results may differ  materially as a result of certain factors,  including
those set forth  hereafter and elsewhere in this Form 10-QSB and as disclosed in
the Company's other filings with the Security and Exchange Commission. Potential
investors should consider  carefully the previously  stated factors,  as well as
the more detailed  information  contained elsewhere in this Form 10-QSB,  before
making a decision to invest in the common stock of the Company.

OVERVIEW

The following  discussion and analysis  should be read in  conjunction  with the
Company's  financial  statements and related notes thereto  contained  elsewhere
with this Form  10-QSB.  Operating  results for the three and nine months  ended
June 30, 2004 are not necessarily indicative of the results that may be expected
for any future periods, including the full fiscal year. Reference should also be
made  to the  Annual  Financial  Statements,  Notes  thereto,  and  Management's
Discussion  and  Analysis  of  Financial  Condition  and  Results of  Operations
contained in the Company's September 30, 2003 Form 10-KSB, filed on December 31,
2003.

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, magnetic resonance,
and ultrasound  through the application of  three-dimensional  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 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 of diagnostic imaging systems through a direct
sales force,  non-exclusive  distributors  in the United States and  independent
distributors in international markets.

RESULTS OF OPERATIONS

REVENUES

Net sales were  $115,953  for the quarter  ended June 30,  2004,  as compared to
$70,403 for the same period in fiscal 2003, an increase of $45,550 or 64.7%. For
the nine  months  ended  June 30,  2004 and 2003,  revenues


                                       12


<PAGE>


were $418,194 and $1,220,884, respectively, a decrease of $802,690 or 65.7%. The
increase in revenue  during the third  quarter of fiscal year 2004 when compared
to the same  period in the prior year is  primarily  due to several  new license
agreements  entered into during  fiscal 2004.  Overall  fiscal year 2004 to date
revenue is lower when  compared to the same period in prior year due to the poor
economy, especially in the medical imaging and healthcare industries.  Sales for
the three and nine months ended June 30, 2004 were primarily  sales of software,
hardware and monthly maintenance contracts.

GROSS PROFIT

Gross profit  increased by $40,072 or 61.4%,  to $105,373 or 90.9% of net sales,
for the quarter ended June 30, 2004,  from $65,301,  or 92.8% of net sales,  for
the  comparable  period in the prior  year.  For the first nine months of fiscal
year 2004,  gross profit decreased by $618,212 or 61.6%, to $386,147 or 92.3% of
net sales,  from $1,004,359 or 82.3% of net sales, for the comparable  period in
fiscal year 2003. The increase in absolute dollars during the three months ended
June 30, 2004 and the decrease in absolute  dollars during the nine months ended
June  30,  2004  was  primarily  due  to  higher  and  lower  quarterly   sales,
respectively, and a change in product mix. Sales during the first three and nine
months of fiscal year 2004 represented revenue from sales of software,  hardware
and monthly maintenance contracts.

RESEARCH & DEVELOPMENT

Research  and  development   expenses   consist   principally  of  research  and
engineering personnel costs, equipment  depreciation,  consulting fees, supplies
and  allocation  of overhead.  Research and  development  expenses for the third
quarter of 2004  increased  by $78,629 or 99.8%,  to  $157,453  or 135.8% of net
sales,  from  $78,824 or 112.0% of net sales,  in the  comparable  period of the
prior  year.  Research  and  Development  expenses  for the first nine months of
fiscal  year 2004  decreased  by $72,187 or 14.9%,  to  $411,941 or 98.5% of net
sales,  from  $484,128 or 39.7% of net sales,  in the  comparable  period of the
prior year. The decrease in absolute dollars for the three months ended June 30,
2004 is primarily due to an increase in outside consultants used and an increase
in personnel  costs when compared to the same period in prior year. The decrease
in absolute  dollars for the nine months ended June 30, 2004 is primarily due to
reductions in personnel and other cost saving  measures.  The Company intends to
continue  its  research  and  development  efforts to maintain  its  competitive
position in the  marketplace  since the Company's  operations  require  constant
improvement and high-level development of the Company's software products.

SALES AND MARKETING

Sales  and  marketing  expenses  consist  principally  of  sales  and  marketing
personnel  costs,  agency and  consulting  fees,  commissions,  promotional  and
advertising  expenses and allocation of overhead.  Sales and marketing  expenses
for the third quarter of fiscal 2004 increased by $39,535 or 63.9%,  to $101,382
or 87.4% of net sales,  from  $61,847 or 87.8% of net sales,  in the  comparable
period of the prior  year.  For the first nine  months of fiscal year 2004 sales
and marketing  expenses  decreased by $314,542 or 61.1%, to $200,403 or 47.9% of
net sales,  from $514,927 or 42.2% of net sales, in the comparable period of the
prior year. The increase in absolute dollars for the three months ended June 30,
2004 was  primarily  due to an increase in outside  consultant  fees,  partially
offset by a decrease in personnel  costs.  The decrease in absolute  dollars for
the nine  months  ended June 30,  2004 was  primarily  due to a decrease  in the
Company's  sales force,  a change in the  compensation  structure to commissions
only and a decrease in travel and entertainment expense.

GENERAL AND ADMINISTRATIVE

General and  administrative  expenses consist  principally of administrative and
executive   personnel  costs,   provision  for  doubtful   accounts,   fees  for
professional  services and  allocation of overhead.  General and  administrative
expenses  for the third  quarter of fiscal  year 2004  increased  by $105,804 or
47.0%, to $330,737 or 285.2% of net sales, from $224,933 or 319.5% of net sales,
in the comparable period in the prior year. General and administrative  expenses
for the first nine months of fiscal year 2004 increased by $273,825 or 26.2%, to
$771,599 or 184.5% of net sales,  from $1,045,424 or 85.6% of net sales, for the
comparable  period of the prior year. The increase in absolute  dollars for both
periods is primarily  due to the non-cash  charges  associated  with stock based
compensation  incurred  during the three and nine  months  ended June 30,  2004,
partially offset by a reduction in office staff.


                                       13


<PAGE>


RESULTS OF OPERATIONS

Sales  increased by $45,550 to $115,953,  and decreased by $802,690 to $418,194,
for the  three and nine  months  ended  June 30,  2004,  respectively,  from the
comparable  periods in fiscal year 2003. The sales increase in the third quarter
of fiscal  2004 and the  decline  in fiscal  year to date  sales  resulted  in a
corresponding  increase  and  decrease  in  gross  profit.   Operating  expenses
increased by $223,968 or 61.3%, to $589,572,  and decreased by $660,536 or 32.3%
to $1,383,943,  for the three and nine months ended June 30, 2004, respectively,
from the same  comparable  periods in fiscal year 2003.  The fiscal year to date
decrease in sales is due to the poor economy,  especially in the medical imaging
and the health care  industries.  The fiscal year to date  decrease in operating
expenses is primarily due to cost saving  measures  implemented  by the Company,
including a reduction in salaries and  headcount,  partially  offset by non-cash
stock based compensation expenses incurred during the nine months ended June 30,
2004.  This resulted in an operating  loss of ($471,809)  and ($981,287) for the
three and nine months ended June 30, 2004,  respectively,  or $164,169  more and
$85,675 less than the operating  loss of  ($307,640)  and  ($1,066,962)  for the
comparable periods in fiscal year 2003.

OFF BALANCE SHEET ARRANGEMENTS

The Company did not engage in an off balance sheet  arrangement  during the nine
months ended June 30, 2004.

LIQUIDITY AND CAPITAL RESOURCES

During  the  nine  months  ended  June 30,  2004,  net  cash  used by  operating
activities was $596,694.  At June 30, 2004, the Company had $673,007 in cash and
cash  equivalents.  Working  capital  at June 30,  2004  equaled  a  deficit  of
($679,482) compared with a deficit of ($1,153,886) at September 30, 2003.

On June 30, 2004,  the Company held  accounts  receivable  (net of allowance for
doubtful  accounts) of $59,378.  Accounts  receivable are generally kept current
through punctual collections efforts.

During  the nine  months  ended  June 30,  2004,  the  Company  did not have any
significant investing activities.

During the nine months ended June 30, 2004,  the Company  raised  $2,002,000  in
cash by issuing 25,050,000 shares of the Company's common stock to an officer of
the Company in a private  financing for  $1,002,000,  and entered into two notes
for $500,000  each with the same  Officer of the  Company.  This was offset by a
payment of approximately $762,600 to Board Members for outstanding notes entered
into during previous years.

The Company  anticipates that current capital  resources and operational  income
from increasing  revenues will meet cash  requirements  for the remainder of the
fiscal year. However,  the Company's revenues for the foreseeable future may not
be  sufficient  to  obtain  profitability,  and  the  Company  may  continue  to
experience  losses.  The Company's  expectations as to its cash flows, and as to
future  cash  balances,  are  subject  to a  number  of  assumptions,  including
assumptions  regarding  anticipated  revenue,  customer  purchasing  and payment
patterns,  and  improvements in general economic  conditions,  many of which are
beyond the  Company's  control.  If  revenues do not match  projections,  and if
losses exceed the Company's expectations,  the Company will implement additional
cost saving initiatives in order to preserve cash. If the Company  experiences a
continued decline in demand for its products,  from the level experienced during
fiscal  2003,  it will need to reduce  expenditures  to a  greater  degree  than
anticipated, or raise additional funds, if possible.

The Company  operates in a highly  competitive  market  characterized by rapidly
changing  technology,  together  with  competitors  and  distributors  that have
significantly  greater financial resources than the Company. The Company intends
to incur  significant  expenses to develop  and promote new  products as well as
support existing products.  Failure to generate sufficient revenues from new and
existing products,  or reduce  discretionary  expenditures would have a material
adverse  effect  on  a  Company's  ability  to  achieve  its  intended  business
objectives.


                                       14


<PAGE>


FOREIGN CURRENCY TRANSACTIONS

All of the  Company's  transactions  are  negotiated,  invoiced and paid in U.S.
dollars.  International  sales for the three and nine months ended June 30, 2004
were $27,300 and $120,100, respectively.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The discussion and analysis of the financial condition and results of operations
are based on the  financial  statements,  which have been prepared in accordance
with generally accepted accounting principles. Note 1 of the Notes describes the
significant  accounting  policies  essential to the  financial  statements.  The
preparation of these financial  statements 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.

We believe the following to be critical accounting policies and estimates.  That
is,  they  are  both  important  to the  portrayal  of the  Company's  financial
condition  and results,  and they require  significant  management  judgment and
estimates about matters that are inherently  uncertain.  As a result of inherent
uncertainty,  there is a likelihood that materially  different  amounts would be
reported under different conditions or using different assumptions.  Although we
believe  that our  judgments  and  estimates  are  reasonable,  appropriate  and
correct, actual future results may differ materially from our estimates.

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

The Company  accounts for sales of software and  maintenance  revenue  under the
provisions  of  Statement  of  Position  97-2 ("SOP  97-2"),  "Software  Revenue
Recognition," as amended. SOP 97-2 generally requires revenue earned on software
arrangements  involving  multiple elements to be allocated to each element based
on  vendor-specific  objective  evidence.  For  hardware  transactions  where no
software is involved,  the Company  applies the  provisions of Staff  Accounting
Bulletin 104, "Revenue Recognition."

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

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

Fair values for ongoing  maintenance,  which includes  updates and support,  are
based upon a percentage of the current list price of the software. Fair value of
services,  such as training or  consulting,  is based upon separate sales by the
Company of these services to other customers.  Payments received for maintenance
and services are deferred and  recognized  as revenue  ratably over the contract
term. Training and consulting services are billed based on hourly rates, and are
generally  recognized  as  revenue  as these  services  are  performed.  Amounts
deferred  for  maintenance  services,   term  software  license  agreements  and
warranties comprise the main components of deferred revenue.


                                       15


<PAGE>


PRODUCT WARRANTY RESERVE.  Based upon historical costs and its sales agreements,
the Company maintains a product warranty reserve based on product sales to cover
anticipated  warranty  costs  related to software  sold.  The Company  typically
provides  one-year  warranties on its software and hardware  products  sold. The
majority of the hardware warranty is covered by the hardware vendor. The Company
continually  compares its reserves to actual costs as determined by  management,
and adjusts its reserves as necessary.

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.  The product  warranty  reserve balance was $25,000 as of
June 30, 2004 and September 30, 2003.

INVENTORY VALUATION METHODOLOGY.  Inventories are valued at the lower of cost or
market using the first-in,  first-out  ("FIFO") method.  Inventories are written
down for estimated obsolescence and unmarketable inventory in an amount equal to
the  difference  between the cost of inventory  and the  estimated  market value
based upon  assumptions  about future  demand and market  conditions.  Inventory
impairment  charges  create a new cost basis for  inventory.  In  addition,  the
Company reports any  significant  adjustments  that result from  reconciling the
perpetual  inventory  record  to the  periodic  and  annual  physical  inventory
observations. The inventory balance was $42,114 and $49,193, as of June 30, 2004
and September 30, 2003, respectively.

ACCOUNTS  RECEIVABLE AND ALLOWANCE FOR DOUBTFUL  ACCOUNTS.  The Company performs
ongoing credit evaluations of its customers'  financial conditions and generally
requires no collateral from its customers.  The Company maintains allowances for
doubtful  accounts for  estimated  losses  resulting  from the  inability of its
customers to make required payments. If the financial condition of the Company's
customers  should  deteriorate,  resulting in an  impairment of their ability to
make  payments,   additional   allowances   may  be  required.   Trade  accounts
receivables,  net of an  allowance  for  doubtful  accounts,  were  $13,607  and
$112,170 at June 30, 2004 and September 30, 2003, respectively.

VALUATION OF OTHER INTANGIBLE ASSETS AND GOODWILL.  Other significant  estimates
include  the  estimated  cash  flows to  measure  long-lived  assets,  including
goodwill and other  intangible  assets and the  recoverability  of the Company's
investment.  The Company  evaluates the  recoverability of its long-lived assets
periodically  by analyzing its  operating  results and  considering  significant
events or changes in the business environment. Goodwill was $309,063 on June 30,
2004 and  September  30,  2003.  Other  intangible  assets,  net of  accumulated
amortization,  were $3,295 and $4,393 on June 30, 2004 and  September  31, 2003,
respectively.

RECENT ACCOUNTING PRONOUNCEMENTS

In December  2003, the  Securities  and Exchange  Commission  (the "SEC") issued
Staff  Accounting  Bulletin No. 104 ("SAB 104"),  Revenue  Recognition.  SAB 104
supersedes SAB 101,  Revenue  Recognition in Financial  Statements.  The primary
purpose  of SAB  104 is to  rescind  accounting  guidance  contained  in SAB 101
related to multiple element revenue arrangements,  superseded as a result of the
issuance  of EITF  00-21.  Additionally,  SAB 104  rescinds  the  SEC's  Revenue
Recognition in Financial Statements  Frequently Asked Questions and Answers (the
"FAQ")  issued  with SAB 101 that had been  codified  in SEC Topic  13,  Revenue
Recognition.  Selected  portions of the FAQ have been incorporated into SAB 104.
While the wording of SAB 104 has changed to reflect the  issuance of EITF 00-21,
the revenue  recognition  principles of SAB 101 remain largely  unchanged by the
issuance of SAB 104. The  issuance of SAB 104 did not have a material  impact on
the Company's financial position, results of operations or cash flows.


In  November  2003,  the  Emerging  Issues  Task  Force (the  "EITF")  reached a
consensus on Issue No. 03-10,  Application of EITF Issue No. 02-16,  "Accounting
by a Customer (Including a Reseller) for Certain  Consideration  Received from a
Vendor, by Resellers to Sales Incentives Offered to Consumers by Manufacturers".
This issue clarifies whether consideration  received by a reseller from a vendor
that is  reimbursement  by the vendor for honoring the vendor's sales incentives
offered  directly to consumers  should be recorded as a reduction of the cost of
the reseller's  cost of sales.  The provisions of EITF Issue No. 03-10 should be
applied  prospectively in fiscal years beginning after December 15, 2003 with no
early adoption or retroactive  reclassification  permitted. The adoption of this
standard did not have a material  impact on the  Company's  financial  position,
results of operations or cash flows.


In January 2003, the Financial  Accounting  Standards  Board (the "FASB") issued
FASB  Interpretation  No. 46 ("FIN 46"),  "Consolidation  of  Variable  Interest
Entities,  an  Interpretation  of ARB No. 51." Fin 46 requires


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<PAGE>


certain variable interest entities to be consolidated by the primary beneficiary
of  the  entity  if  the  equity  investors  in  the  entity  do  not  have  the
characteristics  of  controlling  financial  interest or do not have  sufficient
equity at risk for the  entity  to  finance  it  activities  without  additional
subordinated   financial  support  from  other  parties.  FIN  46  is  effective
immediately  for all new variable  interest  entities  created or acquired after
January 31, 2003. For variable  interest  entities  created or acquired prior to
February  1, 2003,  the  provision  of FIN 46 were to be  applied  for the first
interim or annual period  beginning  after June 15, 2003. In December  2003, the
FASB released a revision of FIN 46 to address various  implementation issues and
modify the effective  date for applying the provision of FIN 46. A public entity
shall apply the  provisions  of the Fin 46 revision no later than the end of the
first reporting period that ends after March 15, 2004.  However, a public entity
shall  apply FIN 46 to entities  considered  to be  special-purpose  entities no
later than as of the end of the first reporting  period that ends after December
31, 2003. The issuance of FIN 46 and its revision did not have a material impact
on the Company's financial position, results of operations or cash flows.


FACTORS AFFECTING FUTURE OPERATING RESULTS

The  development  and  marketing  of products  requires  significant  amounts of
capital.  Failure to  increase  future  orders and  revenues  might  require the
Company to seek  additional  capital to meet its working capital needs during or
beyond the next twelve months if the Company is unable to reduce expenses to the
degree  necessary to avoid  incurring  losses.  If the Company needs  additional
capital  resources,  it may be required to raise additional  equity or sell debt
securities,  secure lines of credit or obtain other third party  financing.  The
timing and amount of such capital requirements cannot be determined at this time
and will depend on a number of factors,  including  demand for our  existing and
new products and changes in technology in the medical  imaging  industry.  There
can be no assurance that additional  financing will be available on satisfactory
terms when needed,  if at all.  Failure to raise such additional  financing,  if
needed, may result in the Company's  inability to achieve its long-term business
objectives.  To the extent that additional capital is raised through the sale of
additional  equity  or  convertible  debt  securities,  the  issuance  of  these
securities would result in additional dilution to the Company's shareholders.

The Company operates in a rapidly changing  industry,  which is characterized by
intense competition from both established companies and start-up companies.  The
market for the Company's products is extremely  competitive both as to price and
capabilities.  The Company's  success  depends in part on its ability to enhance
existing  products and  introduce  new  technology  products.  This requires the
Company to accurately  predict future  technology  trends and  preferences.  The
Company  must also bring its  products to market at  competitive  price  levels.
Unexpected  changes in technological  standards,  customer demand and pricing of
competitive  products could adversely affect the Company's  operating results if
the Company is unable to respond effectively and timely to such changes.

The industry is also  dependent to a large  extent on  proprietary  intellectual
property rights.  From time to time, the Company is subject to legal proceedings
and  claims in the  ordinary  course of  business,  including  claims of alleged
infringement  of patents,  trademarks and other  intellectual  property  rights.
Consequently,  from time to time,  the Company  will be required to prosecute or
defend against alleged infringements of such rights.


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<PAGE>


________________________________________________________________________________

ITEM 3. CONTROLS AND PROCEDURES

________________________________________________________________________________


Within  90 days  prior to the date of this  Form  10-QSB,  the  Company  made an
evaluation,  under  the  supervision  and with  participation  of the  Company's
management,   including  the  Company's   Chief   Executive   Officer,   of  the
effectiveness of the design and operation of the Company's  disclosure  controls
and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation,
the Company's Chief Executive  Officer  concluded that the Company's  disclosure
controls  and  procedures  are  effective  in timely  alerting  them to material
information relating to the Company required to be included in this Form 10-QSB.

There has been no significant  change in the Company's  internal  controls or in
other factors, which could significantly affect the internal controls subsequent
to the date the Company carried out its evaluation.


________________________________________________________________________________

PART II. OTHER INFORMATION
________________________________________________________________________________


ITEM 1. LEGAL PROCEEDINGS

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


ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None.


ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.


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

No matter was submitted to the vote of security holders during the quarter ended
June 30, 2004.


ITEM 5. OTHER INFORMATION


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits.

         The Exhibits listed in the accompanying Exhibit Index are filed as part
         of this report.


     (b) The  following  reports on Form 8-K were filed during the quarter ended
         June 30, 2004:

         On May 20, 2004,  the Company filed a Form 8-K under Item 5 to disclose
         that the Company's Board of Directors accepted the resignations of five
         of its currently sitting Board of Directors,  increased the size of the
         Board to seven  directors and appointed six new directors to fill Board
         vacancies.


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<PAGE>


________________________________________________________________________________

                                   SIGNATURES
________________________________________________________________________________


     In accordance with the requirements of the Securities Exchange Act of 1934,
the Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                                   ACCUIMAGE DIAGNOSTIC CORP.




Date:  August 13, 2004             By: /s/ AVIEL FALIKS
                                   _____________________________________________
                                           Aviel Faliks
                                           President and Chief Executive Officer



                                   By: /s/ KATHLEEN M. RYAN
                                   _____________________________________________
                                           Kathleen M. Ryan
                                           Chief Financial Officer


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<PAGE>


                                  EXHIBIT INDEX

EXHIBIT NO.                                  DESCRIPTION

   10.06         Lease Agreement between AccuImage Diagnostics Corp. and Kashiwa
                 Fudosan America, Inc., dated June 15, 2004.

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

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

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

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


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