INNOVATIVE CLINICAL SOLUTIONS LTD, 10-K, 2000-06-01

INNOVATIVE CLINICAL SOLUTIONS LTD
10-K, 2000-06-01
MISC HEALTH & ALLIED SERVICES, NEC

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

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FORM 10-K

(MARK ONE)

<TABLE>
<C> <S>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
JANUARY 31, 2000

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO
</TABLE>

COMMISSION FILE NUMBER 0-27568

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INNOVATIVE CLINICAL SOLUTIONS, LTD.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
DELAWARE 65-0617076
(State of incorporation) (I.R.S. Employer Identification No.)
</TABLE>

<TABLE>
<S> <C>
10 DORRANCE STREET, SUITE 400, 02903
PROVIDENCE, RHODE ISLAND (Zip Code)
(Address of principal executive
offices)
</TABLE>

Registrant's telephone number, including area code: (401) 831-6755

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

None

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

Common stock, par value $0.01 per share

Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such Reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes / / No /X/

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

On May 3, 2000, the aggregate market value of the Common Stock of the
registrant held by non-affiliates of the registrant was $5,561,474. On May 3,
2000, the number of outstanding shares of the registrant's Common Stock, par
value $0.01 per share, was 37,198,845.

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PART I

ITEM 1. BUSINESS

GENERAL

Innovative Clinical Solutions, Ltd. (together with its subsidiaries, the
"Company" or "ICSL") (formerly PhyMatrix Corp.) is repositioning itself as a
company that provides diverse services supporting the needs of the
pharmaceutical and managed care industries. The Company is focusing its
operations on two integrated business lines: pharmaceutical services, including
investigative site management, clinical and outcomes research and disease
management, and multi and single-specialty provider network management.
Historically, the Company has been an integrated medical management company that
provided medical management services to the medical community, certain ancillary
medical services to patients and medical real estate development and consulting
services to related and unrelated third parties. In August 1998, the Company
announced that it planned to change this business model. The Company has nearly
completed the process of terminating its management of individual and group
physician practices and divesting itself of related assets, and selling and
divesting itself of its ancillary medical service businesses, such as diagnostic
imaging, radiation therapy, lithotripsy services, home healthcare and infusion
therapy. In conjunction with the change in its business model, the Company also
significantly downsized and then, in August 1999 sold its real estate services
business. The Company currently estimates that by the end of the second quarter
of its current fiscal year it will have exited all of its physician practice
management ("PPM") and ancillary medical service businesses.

The Company's strategic goal is to become a leader in the development of
innovative healthcare solutions capable of meeting the current and emerging
research, marketing and operations demands of the pharmaceutical and managed
care industries. The Company believes that synergy exists among its
pharmaceutical services and provider network management divisions. The Company
intends to leverage its key competencies--clinical trial site management,
outcomes research and network management services--to provide solutions that
benefit both pharmaceutical and managed care companies. Through the Company's
ability to access clinical practitioners and patients, the Company will attempt
to accelerate the rate of Food and Drug Administration ("FDA") approval of
pharmaceutical products for its clients and enhance market acceptance of such
products.

The Company provides its clinical research services through a wholly-owned
subsidiary, Clinical Studies, Ltd. ("CSL"), a multi-therapeutic site management
organization ("SMO") based in Providence, Rhode Island. CSL, which was acquired
by the Company in October 1997, provides clinical investigative site management
services to 42 research facilities in 15 states. The Company also, provides
outcomes research services through a wholly-owned subsidiary, MRI, Inc. The
Company owns and centrally manages Phase I through IV research facilities to
conduct clinical trials for the pharmaceutical and biotechnology industries and
contract research organizations ("CROs") and provides a broad range of pre- and
post-FDA approval services designed to expedite new product approval and market
acceptance. The Company has participated in over 1,300 clinical trials for
approximately 100 clients and enrolled over 35,000 patients. The Company
conducts clinical research in 8 therapeutic areas, with expertise in central
nervous system, asthma and allergy, respiratory, oncology, endocrinology and
women's health. The Company also designs and conducts customized economic and
epidemiological research. The Company provides an environment for proactively
collecting medical and economic data, thereby linking clinical with "real life"
marketing considerations and quality cost-effective patient outcomes. The
Company believes that a critical element of its ability to expedite the clinical
process is its relationship with existing networks of approximately 5,000
providers who have more than 10 million member patients.

The Company provides network management services to independent physician
associations ("IPA"), and specialty care physician networks. The Company
provides services to IPAs through management service organizations ("MSO") in
which the Company has ownership interests. The

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Company provides services to specialty care networks primarily through
management agreements. The Company offers these organized groups of physician's
comprehensive network management services to enable them to fulfill their
obligations to managed care organizations. These services include network
development, medical management and managed care contracting. The Company also
provides management expertise and services to managed care organizations. These
services allow managed care organizations to provide efficient, cost-effective
healthcare delivery while maintaining access to high-quality providers.

Segmented financial information as to revenues, net income (loss), and total
assets is disclosed in the "Notes to Consolidated Financial Statements" section
of this report.

CLINICAL RESEARCH

INDUSTRY OVERVIEW

The clinical research industry is driven by the need of the pharmaceutical
and biotechnology companies to thoroughly test new drugs prior to
commercialization in accordance with strict government regulations imposed by
the FDA in the United States and various international authorities.

Competitive and cost-containment pressures are forcing the pharmaceutical
and biotechnology industries to become more efficient in developing new drugs.
To improve returns on research and development investments, pharmaceutical and
biotechnology companies ("Sponsors") are expanding their product pipelines and
attempting to shorten the product development process. In response to similar
pressures in the healthcare industry, many hospitals, physicians and other
healthcare providers have added clinical research capabilities as an additional
revenue source. Clinical research allows healthcare providers to extend their
core competencies and leverage their direct access to patients.

Sponsors have attempted to create process efficiencies, control fixed costs
and expand capacity by outsourcing certain drug development and clinical
research activities to CROs and SMOs. The amount of clinical research that is
outsourced varies by Sponsor. In general, the Company believes that Sponsors
generally will increase the amount of outsourcing for a variety of reasons,
including the ability to obtain temporary access to a particular therapeutic
focus and expertise to develop products for many diseases.

The global pharmaceutical and biotechnology industries spent approximately
$39 billion in 1998 on research and development. Approximately $9 billion in
total was outsourced, including approximately $4 billion outsourced to CROs and
approximately $5 billion outsourced to investigative sites.

CLINICAL INVESTIGATIVE SITE MANAGEMENT SERVICES

The Company provides clinical investigative site management services to 42
research facilities in 15 states. The Company both owns and centrally manages
Phase I through IV research facilities to provide a broad range of pre- and
post-FDA approval services designed to expedite new product approval and market
acceptance. The Company conducts clinical research in a wide variety of
therapeutic areas, including central nervous system, asthma and allergy,
respiratory, oncology, endocrinology and women's health. Services include
project initiation (site contracting, budgeting and regulatory filings), project
management, patient recruitment and data collection.

The Company believes that the size, therapeutic breadth and depth,
experience and national scope of its SMO business together with its strong
relationships with physicians and managed care companies offer it a competitive
advantage as the SMO industry evolves. The Company is able to provide
pharmaceutical companies and CROs with access to patients and cost-effective
organization of data collection.

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Clinical trials represent one of the most expensive and time-consuming parts
of the drug development process. The trial's success depends on the successful
recruitment of experienced physicians (and other medical professionals) to serve
as investigators for the clinical trials. The Company has direct access to more
than 80 investigators through its 42 sites. The speed with which trials can be
completed is significantly affected by the rate at which patients who satisfy
the requirements of the trial's protocol can be identified and enrolled. The
Company believes it has an advantage in its ability to enroll qualified patients
due to its relationships with networks of approximately 5,000 primary care and
specialty-care physicians with over 10 million member patients and due to the
Company's proprietary database of patients that have expressed interest in
participating in clinical trials.

The information generated during clinical trials is critical for gaining
marketing approval from the FDA or other regulatory agencies. Clinical trials
must be monitored for strict adherence to good clinical practices ("GCP"). The
Company's training programs, standard operating procedures and quality assurance
and control programs aid the clinical investigators and their staff in following
GCP and the established protocols of the studies. The Company has adopted
standard operating procedures that are intended to satisfy regulatory
requirements and serve as a tool for controlling and enhancing the quality of
the Company's nationwide clinical services.

When prospective patients are enrolled in a clinical trial, they are
required to review information about the drug and its possible side effects and
sign an informed consent form to record their knowledge and acceptance of
potential side effects. Patients also undergo a medical examination to determine
whether they meet the requirements of the study protocol. Patients then receive
the drug under investigation and are examined by the investigator as specified
by the study protocol. Investigators are responsible for administering drugs to
patients, as well as examining patients and conducting necessary tests. The
Company's clinical research coordinators are responsible for completing Case
Report Forms and tracking the patient's visits throughout the period of the
study. The data is reviewed by clinical research associates from either the
Sponsor or CRO and is sent to the Sponsor for analysis.

The Company's contracts provide a fixed price for each component or service
delivered. The ultimate contract value depends on such variables as the number
of research sites selected, patients enrolled and other services required by the
Sponsor. The Company's contracts range in duration from several months to
several years. Revenue is earned as patient visits are conducted and such
services are provided. Costs associated with contract revenue are recognized as
incurred. Cash flows vary with each contract, although generally a portion of
the contract fee is paid at the time the trial begins, with the balance paid as
contract milestones are satisfied.

Generally, Sponsors may terminate a contract with the Company with or
without cause. In the event of termination, the Company is entitled to payment
for all work performed through the date of notice of termination and for
unreimbursed costs related to the study. Clinical trials may be terminated for
several reasons, including unexpected results or adverse patient reactions to
the drug, inadequate patient enrollment, manufacturing problems resulting in
shortage of the drug and decisions by the Sponsor to de-emphasize or terminate
either a particular trial or drug. A Sponsor's decision to terminate a sizable
trial in which the Company participates could have a material adverse effect on
the Company's business and results of operations.

Revenues for the Site Management Organizations segment were 18.2%, 11.6%,
and 10.7% of total revenues for the years ended January 31, 2000, 1999, and
1998, respectively.

OUTCOMES RESEARCH

The Company designs and conducts customized economic and epidemiological
research for the pharmaceutical, biotechnology, medical device and managed care
industries. The Company also has

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expertise in developing patient registries and designing disease management
programs. The Company provides an environment for proactively collecting medical
and economic data, thereby linking clinical research with "real life" marketing
considerations and quality cost-effective patient outcomes. These services
enable regulators, healthcare providers, pharmaceutical and biotechnology
companies and others to assess information concerning new medical therapies,
including pricing and cost-effectiveness of new medical therapies.

PROVIDER NETWORK MANAGEMENT

INDUSTRY OVERVIEW

The Health Care Financing Administration ("HCFA") estimates that national
healthcare spending in 1998 exceeded $1.1 trillion, or 13.5% of the gross
domestic product ("GDP"). HCFA projects that annual healthcare spending will
increase to $2.2 trillion, or 16% of the GDP by year 2008. Increasing concern
over the cost of healthcare in the United States has led to numerous initiatives
to contain the growth of healthcare expenditures, particularly in the government
entitlement programs of Medicare and Medicaid. These concerns and initiatives
have contributed to the growth of managed care. From 1991 to 1997 HMO enrollment
in the United States increased from 37 million to 66 million. As markets evolve
from traditional fee-for-service medicine to managed care, HMOs and healthcare
providers confront market pressures to provide high quality healthcare in a
cost-effective manner. Managed care typically involves a third party (frequently
the payor) overseeing the provision of healthcare with the objective of ensuring
delivery in a high quality and cost effective manner. One method for achieving
this objective is the implementation of capitated payment systems in which
traditional fee-for-service methods of compensating healthcare providers are
replaced with systems that create incentives for the provider to manage the
healthcare needs of a defined population for a set fee.

PROVIDER NETWORK MANAGEMENT SERVICES

The Company provides network management expertise and services to single and
multi-specialty healthcare providers and managed care organizations. These
services allow managed care organizations to provide efficient, cost-effective
healthcare delivery while maintaining access to high quality providers. The
Company also offers comprehensive network managed care services to organized
groups of physicians, enabling them to fulfill their obligations to managed care
organizations.

The Company actively pursues contractual arrangements with managed care
organizations. The Company develops specialty care networks within which the
affiliated physicians are responsible for providing all or a portion of specific
healthcare services to a particular patient population. The Company provides
managed care contracting services to national and local physician specialty care
networks containing approximately 5,000 physician members. Through its specialty
care networks, the Company facilitates the delivery of healthcare services to
approximately 10 million member patients. The Company provides services,
including initiating and completing contract negotiations, claim adjudication
processing, financial, quality assurance and utilization management reporting,
credentialing, network management (such as provider relations and recruitment),
financial management (which involves risk pool management) and providing payment
arrangements for providers and shared member services with health plans.
Currently, the Company does not share in any downside capitation risk. The
Company's network specialties include allergy, chiropractic, dermatology,
gastroenterology, podiatry, pulmonary and urology.

The Company manages IPAs through MSOs in which the Company has ownership
interests. The Company currently operates three MSOs in three states, providing
network management services to more than 5,000 physicians, primarily in the
Northeast. During fiscal 2000 the Company also operated an MSO in conjunction
with The Continuum Health System and Affiliated Physician Organization
(Benchmark). This relationship through which the Company provided services to
approximately 1,700

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physicians has been terminated by mutual agreement effective May 2000. This
relationship has not been profitable and the Company believes its termination
should have a positive effect on future earnings. The Company recently closed on
several contracts with major Managed Care Organizations (MCOs) which are
expected to contribute approximately $5 million in revenue for 2001.

An IPA is generally composed of a group of independent physicians who form
an association for the purpose of contracting as a single entity. Participation
in IPAs and specialty care networks allow individual practitioners to access
patients in their respective areas through contracts with HMOs without having to
join a group practice. The IPA structure not only increases the contracting
power of the constituent practices, but also provides a foundation for the
development of an integrated physician network. IPAs provide or contract for
medical management services to assist physician networks in obtaining and
servicing managed care contracts. As a result, previously unaffiliated
physicians can assume and more effectively manage capitated risk. The Company
believes that organized providers of healthcare, such as IPAs, will play a
significant role in delivering cost effective, quality medical care.

The MSO is a joint venture between a physician organization (usually an IPA,
although sometimes a hospital) and a management organization, such as the
Company. The Company generally affiliates with an MSO by acquiring an equity
interest in it. The MSO enters into a long-term management services agreement
with an IPA or other physician organization pursuant to which the MSO provides
management services to the IPA or organization. The MSO then enters into a
service agreement with the Company pursuant to which the Company provides some
or all of the management services that the MSO is required to provide to its
affiliated physicians. The fee paid to the Company is generally either a fixed
amount per enrollee or a specified percentage of capitated revenues. In
addition, the Company may be entitled to participate in risk pools. Currently,
the Company does not share in any downside risk. The fees are set to be
competitive within the geographic area in which the IPA is located.

The Company is focused on integrating its network physicians with its
clinical site management services because it believes that doing so will provide
the IPA physicians with enhanced clinical information, the opportunity to
generate more revenue and an enhanced reputation by participating in trials.

Revenues for the Provider Network Management segment were 32.2%, 32.1%, and
24.1% of total revenues for the year ended January 31, 2000, 1999, and 1998,
respectively.

BUSINESSES HELD FOR SALE

During August 1998, the Board approved, consistent with achieving its stated
repositioning goal, a plan to divest and exit the Company's physician practice
management ("PPM") business and certain of its ancillary services businesses,
including diagnostic imaging, lithotripsy and radiation therapy. Subsequent to
August 1998, the Company also decided to divest its home health business, exit
its infusion therapy business, and significantly downsize it real estate
services operations. Net loss for the year ended January 31, 1999 includes an
extraordinary item of $96.8 million which is primarily a non-cash charge
resulting from these divestitures or disposals. During the quarter ended
July 31, 1999, the Company also decided to divest its investments in a surgery
center and a physician network, and sell its real estate service operations. The
net loss for the year ended January 31, 2000 includes an extraordinary item of
$49.6 million (net of tax of $0), which is primarily a non-cash charge related
to the additional divestitures identified or effected during the year. In
accordance with APB 16, the Company is required to record these charges as an
extraordinary item since impairment losses are being recognized for divestitures
and disposals expected to be completed within two years subsequent to a pooling
of interests (the pooling of interests with CSL was effective October 15, 1997).
Based on fair market value estimates, which have primarily been derived from
purchase agreements, letters of intent, letters of interest and discussions with
prospective buyers, the Company currently expects to

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realize net proceeds of approximately $2.4 million (subsequent to January 31,
2000 approximately $0.9 million was realized) from the sale of the remaining
businesses identified to be divested or disposed and has recorded this amount as
an asset held for sale on the balance sheet at January 31, 2000.

As of May 3, 2000, the Company's assets held for sale consists of remaining
affiliations through management or employment agreements with seven physicians,
in two states.

Revenues for the assets held for sale segment, (including real estate
operations for 1999 and 1998), were 49.6%, 56.3%, and 65.2% of total revenues
for the year ended January 31, 2000, 1999, and 1998, respectively.

POTENTIAL LIABILITY AND INSURANCE

The Company is subject to medical malpractice, personal injury and other
liability claims related to the operation of its clinical studies business,
healthcare facilities and provision of other healthcare services.

Clinical trials involve the testing of approved and non-approved drugs on
human beings. This testing carries with it a significant risk of liability for
personal injury or death to participants resulting from an adverse reaction to,
or improper administration of, the trial drug. Many clinical trial participants
are seriously ill and are at great risk of further illness or death as a result
of factors other than their participation in the trial. The Company contracts on
behalf of Sponsors with physicians who render professional services, including
administering the drugs being tested, to participants in these trials. Company
personnel and subcontractors also render professional services to participants
in trials and are materially involved in the patient treatment process.
Consequently, the Company may be subject to claims in the event of personal
injury or death of persons participating in clinical trials and arising from
professional malpractice of physicians with whom it has contracted and its own
employees.

The Company believes that the risk of liability associated with clinical
trials is mitigated by various regulatory requirements, including the role of
independent review boards ("IRBs"). An IRB is an independent committee that
includes medical and non-medical personnel and is obligated to protect the
interests of patients enrolled in the trials. The FDA requires each human
clinical trial to be reviewed and approved by the IRB at each research site.
After the trial begins, the IRB monitors the protocol and the measures designed
to protect patients, such as the requirement to obtain informed consent. In
addition, regulations governing the conduct of clinical trials and the
protection of human subjects place responsibility for proper study conduct and
subject protection directly on the principal investigator at each location where
a study is performed.

The Company maintains liability and medical professional insurance policies
with such coverage and deductibles as are deemed appropriate by management,
based upon historical claims, industry standards and the nature and risks of its
business. There can be no assurance that a future claim will not exceed
available insurance coverage or that such coverage will continue to be available
for the same scope of coverage at reasonable premium rates. Any substantial
increase in the cost of such insurance or the unavailability of any such
coverage could have a material adverse effect on the Company's business.

GOVERNMENT REGULATION

The clinical investigation of new drugs is highly regulated by government
agencies to ensure the products are safe and effective before broad public use.
Before a new drug may be approved and marketed, the drug must undergo extensive
testing and regulatory review in order to determine that the drug is safe and
effective. The standard for the conduct of clinical research and development
studies comprises GCP, which stipulates procedures designed to ensure the
quality and integrity of data

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obtained from clinical testing and to protect the rights and safety of clinical
subjects. While GCP has not been formally adopted by the FDA, or, with certain
exceptions, by similar regulatory authorities in other countries, some
provisions of GCP have been included in regulations adopted by the FDA.
Furthermore, in practice, the FDA and many other regulatory authorities require
that study results submitted to such authorities be based on studies conducted
in accordance with GCP.

The clinical investigative site management services provided by the Company
are ultimately subject to FDA regulation in the United States. The Company is
obligated to comply with FDA requirements governing such activities as obtaining
patient informed consents, verifying qualifications of investigators, reporting
patients adverse reactions to drugs and maintaining thorough and accurate
records. The Company must maintain documents for each study for specified
periods, and the study sponsor and the FDA during audits may review such
documents. If FDA audits indicate that the Company has failed to adequately
comply with federal regulations and guidelines, it could have a material adverse
effect on the Company's results of operations, financial condition and
reputation. In addition, non-compliance with GCP can result in the
disqualification of data collected during a clinical trial.

The Company is also subject to various government regulations related to the
businesses held for sale.

EMPLOYEES

As of May 3, 2000, the Company employed 612 persons, nearly all of whom were
full-time employees. The Company believes that its labor relations are good.

ITEM 2. PROPERTIES

The Company leases approximately 19,000 square feet of space in Providence,
Rhode Island where the Company's headquarters are located. The lease commenced
in 1997 and expires in 2004.

The Company also leases 27 clinical research sites in 12 states and 4
network management sites in 3 states.

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These sites are listed below:

<TABLE>
<CAPTION>
SIZE LEASE
(SQUARE EXPIRATION
LOCATION FEET) DATE
-------- -------- ----------
<S> <C> <C>
Phoenix, AZ................................................. 5,000 2008
Denver, CO.................................................. 4,827 2000
Ft. Myers, FL............................................... 11,852 2008
1(st) St., Ft. Lauderdale, FL............................... 5,230 2000
17(st) St., Ft. Lauderdale, FL.............................. 2,623 2000
Broward Blvd.., Ft. Lauderdale, FL.......................... 10,256 2000
Boynton Beach, FL........................................... 6,147 2008
Juniper, FL................................................. 13,170 2007
Palm Beach Gardens, FL...................................... 14,991 2008
Tampa, FL................................................... 2,292 2002
Sarasota, FL................................................ 8,456 2005
St. Petersburg, FL.......................................... 13,100 2002
Eau Gallie Blvd., Melbourne, FL............................. 4,847 2005
Sarno Road, Melbourne, FL................................... 3,000 2000
Atlanta, GA................................................. 6,726 2004
Savannah, GA................................................ 3,000 2001
Normal, IL.................................................. 4,096 2002
Peoria, IL.................................................. 1,850 2001
Yarmouth, MA................................................ 3,140 2000
Dartmouth, MA............................................... 6,809 2003
Burlington, MA.............................................. 5,000 2000
Charlotte, NC............................................... 3,776 2002
Las Vegas, NV............................................... 3,000 2002
Philadelphia, PA............................................ 6,267 2004
Pittsburgh, PA.............................................. 3,622 2004
East Providence, RI......................................... 9,600 2004
Providence RI............................................... 6,350 2000
Falls Church, VA............................................ 8,413 2005
Williston, VT............................................... 2,500 2000
Ridgefield, CT.............................................. 8,660 2003
San Diego, CA............................................... 1,296 2000
</TABLE>

In addition, the Company leases 17 other locations which are related to
businesses held for sale.

ITEM 3. LEGAL PROCEEDINGS

The Company is subject to legal proceedings in the ordinary course of its
business. The Company does not believe that any such legal proceeding, either
singly or in the aggregate, will have a material adverse effect on the Company
although there can be no assurance to this effect.

In connection with a joint venture partnership (the "Joint Venture") between
the Company and Tenet Healthsystem Hospitals, Inc. ("Tenet") to own and operate
an ambulatory surgical center and diagnostic radiology facility in Florida,
Tenet filed suit against the Company on September 23, 1999 in the Palm Beach
County Circuit Court (Florida) for (1) rescission of the Joint Venture agreement
and (2) damages of approximately $2.0 million for breach of contract, breach of
fiduciary duty, and breach of good faith and fair dealing (the "Tenet Suit").
The Tenet Suit chiefly alleges that the Company engaged in self-dealing to the
detriment of Tenet and failed to meet its obligations under the Joint Venture
agreement, such obligations relating principally to certain financial
commitments concerning

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the Joint Venture. This litigation has recently been stayed to allow the parties
to negotiate an unwinding of the Joint Venture and review the potential for a
negotiated settlement. If the parties are unable to reach agreement, the Company
intends to file counterclaims against Tenet and defend the case.

In a related matter, PBG Medical Mall MOB1 Properties ("Mall"), which is
owned principally by Company director and former Chairman and Chief Executive
Officer, Abraham D. Gosman, filed suit on September 8, 1999 in Palm Beach County
Circuit Court for eviction against both Tenet, as tenant of Mall, and the Joint
Venture, as subtenant of Mall. On September 24, 1999, Mall also filed suit for
damages against Tenet and the Joint Venture in the Palm Beach County Circuit
Court alleging breach of contract. The parties have reached a settlement in this
litigation, which has an immaterial impact on the Company's financial
statements.

The Company also currently is involved in litigation and arbitration
pertaining to New York Network Management, L.L.C. ("NYNM"), a joint venture
entered into by a subsidiary of the Company (the "Subsidiary"), Paul Ackerman,
M.D. ("Ackerman") and Elizabeth Kelly, R.N. ("Kelly") under an Operating
Agreement dated November 11, 1996 (the "Operating Agreement"). With regard to
the litigation, on March 3, 2000, Kelly and Ackerman filed a Motion for Summary
Judgment in Lieu of Complaint (the "Motion") with the Supreme Court of the State
of New York, County of Kings (the "NY Supreme Court"). Kelly and Ackerman allege
that under the Operating Agreement and a subsequent amendment to the Operating
Agreement (together with the Operating Agreement, the "Agreements"), they had
been granted a "put" right to the effect that anytime within a 3 year period
after the third anniversary of the Operating Agreement (November 11, 1999),
Ackerman and Kelly could require the Subsidiary to purchase a portion of their
interest in NYNM (the "Put Right"), with the Put Right guaranteed by the
Company. The purchase price was to be a fixed multiple of NYNM's revenues, with
a minimum price of $5 million. The Motion alleges that on December 20, 1999
Ackerman and Kelly served formal notice to the Company that they were exercising
their Put Right seeking the $5 million minimum price which Ackerman and Kelly
contend under the Agreements was to be paid by February 21, 2000 and is now
overdue. The Company has filed a motion with the NY Supreme Court to stay this
litigation pending the outcome of a related arbitration proceeding described
below, which motion is currently under advisement. The Company has reserved for
its potential exposure on this claim pending the outcome of this litigation.

On March 3, 2000, Ackerman, Kelly and NYNM also submitted a demand for
arbitration under the Operating Agreement to the American Health Lawyers
Association Alternative Dispute Resolution Service (New York) (the "AHLA")
contending that the Subsidiary and the Company had diverted cash from NYNM for
their own corporate purposes. They allege that approximately $3,980,000 was
taken from NYNM's account from October of 1998 through July of 1999 and that
$1,650,000 of that amount was removed without authority. Kelly, Ackerman and
NYNM request the return of the funds to NYNM. At this writing the parties are in
the process of selecting an arbitrator. The Company believes that this claim is
without merit and intends to vigorously defend this action.

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On April 30, 1998, the Company filed suit in Palm Beach County Circuit Court
(Florida) seeking to enforce the personal guaranties of the physician-owners
(the "Physicians") of Access Medical Care, Inc. ("Access"). The Company is
seeking $3.6 million. In 1995 the Company purchased the assets of Access and, as
part of the asset sale, the Company entered into a Practice Management Agreement
(the "PMA") under which the Company agreed to provide management services to
Access in exchange for a fee. The Physicians personally guaranteed the payments
to be made under the PMA. On March 25, 1998, the Company terminated the PMA in
response to various breaches of the PMA by Access and subsequently initiated
this lawsuit to enforce the guarantees. The Physicians have filed counterclaims
alleging fraudulent inducement and illegality of the PMA and have moved for a
change of venue. The Physicians currently are appealing a denial of the venue
motion by the Palm Beach County Circuit Court. The Company intends to prosecute
and defend this case.

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

There has been no Annual Meeting of the Company's stockholders held for the
year ended January 31, 2000. The Board of Directors terms have all expired on
January 31, 2000, however the active members have agreed to serve until the
annual meeting and elections of the board are held.

11
<PAGE>
PART II

ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS

The Company's Common Stock was traded on the Nasdaq Stock Market ("NASDAQ")
under the symbol ICSL until December 8, 1999 at which time it was delisted.
Currently the stock trades on the Over-the-Counter Bulletin Board (the "OTC
Bulletin Board") under the symbol ICSLE.OB. The following table sets forth the
range of high and low closing prices per share of the Common Stock for the
periods indicated, as reported on the NASDAQ and the OTC Bulletin Board, as
applicable.

<TABLE>
<CAPTION>
1999 HIGH LOW
---- -------- --------
<S> <C> <C>
First Quarter............................................... $13.44 $9.50
Second Quarter.............................................. 10.50 5.75
Third Quarter............................................... 6.25 2.00
Fourth Quarter.............................................. 3.32 1.63
</TABLE>

<TABLE>
<CAPTION>
2000
----
<S> <C> <C>
First Quarter............................................... $ 2.63 $1.53
Second Quarter.............................................. 2.00 1.38
Third Quarter............................................... 1.38 .31
Fourth Quarter.............................................. .69 .13
</TABLE>

On May 3, 2000, the last reported sales price for the Common Shares was
$0.16. On May 3, 2000, there were 206 record holders for the Common Stock.

The Company has never paid cash dividends on its capital stock and does not
anticipate paying cash dividends in the foreseeable future. The declaration of
dividends is currently restricted, in certain circumstances, by the Company's
revolving line of credit agreement, and it is anticipated that other loan
agreements the Company may enter into in the future will also contain
restrictions on the payment of dividends by the Company.

ITEM 6. SELECTED FINANCIAL DATA

The following selected historical financial data was derived from the
Company's Financial Statements, which have been audited by independent
accountants, PricewaterhouseCoopers LLP. During October 1997, a subsidiary of
the Company merged with CSL in a business combination that was accounted for as
a pooling of interests. Accordingly, the financial statements for all periods
prior to the effective date of the merger have been restated to include CSL. The
data presented below should be read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto, included elsewhere in
this Annual Report on Form 10-K. The amounts below are in thousands except per
share data.

12
<PAGE>

<TABLE>
<CAPTION>
YEAR ENDED (1)
----------------------------------------------------------
DECEMBER 31, JANUARY 31,
------------ -------------------------------------------
1995 1997 1998 1999 2000
------------ -------- -------- --------- ---------
COMBINED CONSOLIDATED
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues from services.............................. $ 61,712 $ 98,765 $155,946 $ 179,472 $ 125,865
Net revenues from management service agreements......... 12,717 47,942 94,134 103,112 59,996
Net revenues from real estate services.................. -- 19,049 31,099 8,694 423
-------- -------- -------- --------- ---------
Total revenue....................................... 74,429 165,756 281,179 291,278 186,284

Operating expenses:
Salaries, wages and benefits............................ 35,809 58,351 88,221 94,710 61,924
Depreciation and amortization........................... 3,956 7,382 10,800 14,786 11,699
Rent Expense............................................ 5,102 8,519 16,649 20,671 15,279
Earn out payment........................................ 1,271 -- -- -- --
Provision for closure loss.............................. 2,500 -- -- -- --
Gain (loss) on sale of assets........................... -- (262) (1,891) (5,414) 11
Provision for write-down of notes receivable............ -- -- -- 2,674 13,840
Merger and other noncontinuing expenses related to
CSL................................................... 2,133 1,929 11,057 -- --
Goodwill impairment write-down.......................... -- -- -- 9,093 36,046
Nonrecurring expenses................................... -- -- -- 10,465 1,723
Other (primarily capitation expenses)................... 27,493 66,694 132,177 181,813 156,969
-------- -------- -------- --------- ---------
Income (loss) from operations............................. (3,835) 23,143 24,166 (37,520) (111,207)
Interest expense, net..................................... 4,828 1,726 4,775 8,005 10,220
(Income) from investments in affiliates................... (569) (709) (731) -- (46)
-------- -------- -------- --------- ---------
Net Income (loss) before taxes and extraordinary item..... (8,094) 22,126 20,122 (45,525) (121,381)
Income tax expense (benefit).............................. -- 6,836 9,823 (11,549) 194
-------- -------- -------- --------- ---------
Net income (loss) before extraordinary item (2)........... (8,094) 15,290 10,299 (33,976) (121,381)
-------- -------- -------- --------- ---------
Extraordinary item, net of tax of $0...................... -- -- -- 96,784 49,632
-------- -------- -------- --------- ---------
Net income (loss)......................................... $ (8,094) $ 15,290 $ 10,299 $(130,760) $(171,207)
======== ======== ======== ========= =========
Net income (loss) per share--basic
Income (loss) before extraordinary item................. $ -- $ 0.56 $ 0.35 $ (1.02) $ (3.45)
Extraordinary item, net of tax of $0.................... $ -- $ -- $ -- $ (2.89) $ (1.41)
Net income (loss)....................................... $ -- $ 0.56 $ 0.35 $ (3.91) $ (4.86)

Net income (loss) per share--diluted
Income (loss) before extraordinary item................. $ -- $ 0.55 $ 0.35 $ (1.02) $ (3.45)
Extraordinary item, net of tax of $0.................... $ -- $ -- $ -- $ (2.89) $ (1.41)
Net income (loss)....................................... $ -- $ 0.55 $ 0.35 $ (3.91) $ (4.86)

Pro Forma Information (Unaudited) (3)
Adjustment to income tax expense.......................... $ -- $ 1,293 $ 624 $ -- $ --
Net Income................................................ -- 13,997 9,675 $ -- $ --
Net income per share--basic............................... $ -- $ 0.51 $ 0.33 $ -- $ --
Net income per share--diluted............................. $ -- $ 0.51 $ 0.33 $ -- $ --

Weighted average shares outstanding--basic................ -- 27,295 26,690 33,401 35,235
Weighted average shares outstanding--diluted.............. -- 27,682 30,229 33,401 35,235

BALANCE SHEET DATA:
Working capital........................................... $(19,897) $111,811 $ 86,390 $ 111,185 $ (92,716)
Accounts receivable, net.................................. 22,921 41,744 57,252 15,276 16,193
Total assets.............................................. 138,467 313,310 378,160 252,851 87,311
Total debt................................................ 97,090 118,830 134,359 117,657 115,952
Stockholders' equity...................................... 15,437 153,780 212,035 105,900 (66,722)
</TABLE>

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

(1) In January 1996, the Company changed its fiscal year end from December 31 to
January 31.

(2) Provisions for income taxes have not been reflected in the combined
financial statements because there is no taxable income on a combined basis.

(3) The pro forma net income and net income per share information reflect the
effect on historical results (prior to the merger with CSL) as if CSL had
been a C corporation rather than an S corporation and had paid income taxes.

13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

INTRODUCTION

ICSL is repositioning itself as a Company that provides diverse services
supporting the needs of the pharmaceutical and managed-care industries. The
Company is focusing its operations on two integrated business lines:
pharmaceutical services, including investigative site management, clinical and
outcomes research and disease management and multi and single-specialty provider
network management. Until recently, the Company had been an integrated medical
management company that provided medical management services to the medical
community, certain ancillary medical services to patients and medical real
estate development and consulting services to related and unrelated third
parties. In August 1998, the Company announced that it planned to change this
business model. The Company has nearly completed the process of terminating its
management of individual and group physician practices and divesting itself of
related assets, and selling and divesting itself of its ancillary medical
service businesses, such as diagnostic imaging, radiation therapy, lithotripsy
services, home healthcare and infusion therapy. In conjunction with the change
in the business model, the Company also significantly downsized and, then in
August 1999, sold its real estate services business. The Company currently
estimates that by the end of the second quarter of its current fiscal year it
will have exited all of its physician practice management ("PPM") and ancillary
medical service businesses.

Based upon asset appraisals and comparable sales within the industry, the
Company believed that it could generate sufficient cash from operations and
proceeds from asset sales to repay its long term debt obligations, including its
$100 million 6 3/4% Convertible Subordinated Debentures due 2003 (the
"Debentures"), thereby permitting it to focus on its core business lines without
the burden of the interest obligations associated with the Debentures. However,
continued decline in its industry resulted in the Company's failure to generate
sufficient cash proceeds from the asset divestitures to repay the Debentures.
The Company's extensive losses over the past two years, its negative cash flows
from operations and its net negative equity position, as well as management's
assessment that the Company will be unable to retire the Debentures at maturity,
raise substantial doubt about the Company's ability to continue as a going
concern. In response to those factors, the Company has developed plans to
improve profitability of its core business operations and to recapitalize the
Company by converting the Debentures into common equity as described below under
"Repositioning".

REPOSITIONING

During May 1998, the Company announced that the Board of Directors had
instructed management to explore various strategic alternatives for the Company
that could maximize stockholder value. During August 1998, the Company announced
that the Board of Directors approved several strategic alternatives to enhance
stockholder value. The Board authorized a series of initiatives designed to
reposition the Company as a significant company in pharmaceutical contract
research, specifically clinical trials site management and outcomes research.
The Company intends to link its physician networks with its clinical trials site
management and outcomes research operations.

14
<PAGE>
from purchase agreements, letters of intent, letters of interest and discussions
with prospective buyers, the Company currently expects to realize net proceeds
of approximately $2.4 million (subsequent to January 31, 2000 approximately
$0.9 million was realized) from the sale of the remaining businesses identified
to be divested or disposed and has recorded this amount as an asset held for
sale on the balance sheet at January 31, 2000.

The Company's highly leveraged position, due principally to the Debentures,
hampers its ability to execute its strategic plan to grow the research, clinical
trials and network management sectors of its business. The Company therefore has
determined that it needs to reduce its indebtedness in order to implement fully
its strategic plan.

During the process of implementing its strategic plan to reposition the
Company, owners of more than 50% of the principal amount of the Debentures (the
"Majority Holders") approached the Company to discuss the possible exchange of
some or all of the Debentures for equity in order to reduce the Company's debt
burden and improve the Company's ability to execute its strategic plan. In this
connection, in November 1999, the Company retained the services of Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ") to advise it in connection with
any refinancings, repurchases or restructuring of its outstanding securities and
indebtedness with the goal of substantially reducing the outstanding principal
amount of the Debentures. The Majority Holders subsequently formed a steering
committee of Debentureholders (the "Steering Committee") to negotiate with the
Company regarding the terms of a recapitalization as a means of improving the
Company's capital structure and its ability to effect its strategic plan. The
Company sought DLJ's assistance and advice in connection with these negotiations
which have resulted in the proposed plan to recapitalize the Company (the
"Recapitalization") described below.

The Recapitalization involves the exchange of newly issued shares of common
stock of the Company (the "New Common Stock") representing 90% of the Company's
issued and outstanding capital stock following the Recapitalization for all of
the Debentures. As part of the Recapitalization, the Company intends to cancel
all issued and outstanding Common Stock and replace it with the New Common Stock
representing 10% of the Company's issued and outstanding capital stock following
the Recapitalization. In addition, the Company intends to cancel any options or
other rights to purchase the existing common stock and to issue options to
purchase up to 16% of the New Common Stock, on a fully diluted basis, after the
Recapitalization. Of these options, 1% will be issued to outside directors and
15% will be issued or reserved for issuance to executive officers and key
employees of the Company.

The Company intends to commence voluntary bankruptcy cases (the "Bankruptcy
Cases") to effect the Recapitalization through a joint prepackaged plan of
reorganization (the "Prepackaged Plan") of the Company and its subsidiaries
under chapter 11 ("Chapter 11") of Title 11 of the United States Code (the
"Bankruptcy Code"). Virtually all of the Company's operations are conducted
through its subsidiaries. Because the Debentures are guaranteed by certain of
the Company's subsidiaries and because its operations are conducted through its
subsidiaries, the Company believes it prudent that all of its subsidiaries
participate in any bankruptcy proceeding in order to extinguish any guarantor
liability under the Debentures and to avoid potential disruption to its
businesses.

The Company intends to solicit acceptances of the Prepackaged Plan from the
Debentureholders prior to the commencement of the Bankruptcy Cases. The Company
will not solicit acceptances of the Prepackaged Plan from any other holder of a
claim against the Company or its subsidiaries, because the Company and its
subsidiaries intend to pay such claims (to the extent they are allowed), in the
ordinary course, according to existing payment terms (or such other terms as the
holders of these claims and the Company may agree) in accordance with the
Bankruptcy Code. To complete the Recapitalization in bankruptcy through the
Prepackaged Plan, the Company must receive acceptances of the Prepackaged Plan
from (i) Debentureholders representing at least two-thirds ( 2/3) of the
principal

15
<PAGE>
amount of the Debentures actually voted on the Prepackaged Plan and (ii) more
than one-half ( 1/2) in number of the Debentureholders that actually vote on the
Prepackaged Plan (the "Requisite Acceptances"). Each member of the Steering
Committee has entered into a Forbearance, Lock-up and Voting Agreement pursuant
to which it has agreed to forebear from exercising any rights or remedies it may
have with respect to any default arising under the Debentures or the Indenture
governing the Debentures and to vote in favor of the Prepackaged Plan. The
Prepackaged Plan also must be confirmed by a United States bankruptcy court.

If the Company receives the Requisite Acceptances of the Prepackaged Plan,
the Company and its subsidiaries intend to commence the Bankruptcy Cases. The
Company anticipates that the Bankruptcy Cases will be commenced before it is in
default on the next interest payment on the Debentures which is due on June 15,
2000 and is subject to a 30 day grace period thereafter. However, the
commencement of the Bankruptcy Cases would constitute an Event of Default under
the Indenture governing the Debentures. (See "Liquidity and Capital Resources")

After completion of the Recapitalization, the Company believes it will have
established a capital structure that will allow the expansion of its operations
and further integration of its business lines. The Recapitalization also should
improve the Company's ability to access capital and to use its equity both for
targeted acquisitions and as incentive compensation to attract and retain key
personnel who will be integral to the success of its strategic plan.

ACCOUNTING TREATMENT

The terms of the Company's relationships with its remaining affiliated
physicians are set forth in various asset and stock purchase agreements,
management services agreements and employment and consulting agreements. Through
the asset and/or stock purchase agreement, the Company acquired the equipment,
furniture, fixtures, supplies and, in certain instances, service agreements, of
a physician practice at the fair market value of the assets. The accounts
receivable typically were purchased at the net realizable value. The purchase
price of the practice generally consisted of cash, notes and/or Common Stock of
the Company and the assumption of certain debt, leases and other contracts
necessary for the operation of the practice. The management services or
employment agreements delineate the responsibilities and obligations of each
party. The Company has sold substantially all of its physician practices and
terminated the related employment and/or consulting agreements.

Net revenues from services is reported at the estimated realizable amounts
from patients, third-party payors and others for services rendered. Revenue
under certain third-party payor agreements is subject to audit and retroactive
adjustments. Provisions for estimated third-party payor settlements and
adjustments are estimated in the period the related services are rendered and
adjusted in future periods, as final settlements are determined. The provision
and related allowance are adjusted periodically, based upon an evaluation of
historical collection experience with specific payors for particular services,
anticipated reimbursement levels with specific payors for new services, industry
reimbursement trends, and other relevant factors. Included in net revenues from
services are revenues from the diagnostic imaging centers in New York, which the
Company operated pursuant to Administrative Service Agreements. These revenues
are reported net of payments to physicians. The Company sold these diagnostic
imaging centers in September 1999.

Net revenues from management services agreements include the revenues
generated by the physician practices net of payments to physicians. The Company,
in most cases, is responsible and at risk for the operating costs of the
physician practices. Expenses include the reimbursement of all medical practice
operating costs as required under the various management agreements. For
providing services under management services agreements entered into prior to
April 30, 1996, physicians generally received a fixed percentage of net revenue
of the practice. "Net revenues" is defined as all revenue computed on an accrual
basis generated by or on behalf of the practice after taking into

16
<PAGE>
account certain contractual adjustments or allowances. The revenue is generated
from professional medical services furnished to patients by physicians or other
clinicians under physician supervision. In several of the practices, the Company
has guaranteed that the net revenues of the practice will not decrease below the
net revenues that existed immediately prior to the agreement with the Company.
Under most management services agreements entered into after April 30, 1996, the
physicians receive a portion of the operating income of the practice which
amounts vary depending on the profitability of the practice. In 1997, the
Emerging Issues Task Force of the Financial Accounting Standards Board issued
EITF 97-2 concerning the consolidation of physician practice revenues. PPMs are
required to consolidate financial information of a physician where the PPM
acquires a "controlling financial interest" in the practice through the
execution of a contractual management agreement even though the PPM does not own
a controlling equity interest in the physician practice. EITF 97-2 outlines six
requirements for establishing a controlling financial interest. The Company
adopted EITF 97-2 in the fourth quarter of its fiscal year ended
January 31,1999. Adoption of this statement reduced previously reported revenues
and expenses for the year ended January 31, 1998 by $65.4 million. During
August 1998, the Company announced its plan to divest and exit the PPM business.
The Company has completed substantially all of these divestitures and the
remaining assets are recorded as assets held for sale at January 31, 2000.

RESULTS OF OPERATIONS

The Company's extensive losses in the past two years, its negative cash
flows from operations and its negative equity position, as well as management's
assessment that the Company will be unable to retire the Debentures at maturity,
raise substantial doubt about the Company's ability to continue as a going
concern. The consolidated financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that might result from
this uncertainty.

The following table shows the percentage of net revenue represented by
various expense categories reflected in the Consolidated Statements of
Operations. The information that follows should be read in

17
<PAGE>
conjunction with the Company's Consolidated Financial Statements and Notes
thereto included elsewhere herein.

<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Net Revenues......................................... 100.0% 100.0% 100.0%
Salaries, wages and benefits......................... 33.2% 32.5% 31.4%
Supplies............................................. 20.9% 20.6% 16.0%
Depreciation and amortization........................ 6.3% 5.1% 3.9%
Rent expense......................................... 8.2% 7.1% 5.9%
Provision for bad debts.............................. 3.5% 2.9% 2.1%
Loss (gain) on sale of assets........................ 0.0% (1.8%) (0.7%)
Provision for write-down of notes receivable......... 7.4% 0.9% 0.0%
Merger and other non-continuing expenses related to
CSL................................................ 0.0% 0.0% 3.9%
Goodwill impairment write-down....................... 19.4% 3.1% 0.0%
Nonrecurring expenses................................ 0.9% 3.6% 0.0%
Other (primarily capitation expense)................. 59.9% 38.9% 28.9%
------ ------ ------
Total operating costs and administrative
expenses......................................... 159.7% 112.9% 91.4%

Interest expense, net................................ 5.5% 2.7% 1.7%
(Income) from investment in affiliate................ 0.0% 0.0% (0.3%)
------ ------ ------
Loss before taxes and extraordinary item............. (65.2%) (15.7%) 7.2%
Income tax expense (benefit)......................... 0.1% (4.0%) 3.5%
------ ------ ------
Loss before extraordinary item....................... (65.3%) (11.7%) 3.7%
Extraordinary item, net of tax....................... 26.6% 33.2% 0.0%
------ ------ ------
Net income (loss).................................... (91.9%) (44.9%) 3.7%
====== ====== ======
</TABLE>

THE YEAR ENDED JANUARY 31, 2000 COMPARED TO THE YEAR ENDED JANUARY 31, 1999

The following discussion reviews the results of operations for the year
ended January 31, 2000 ("2000") compared to the year ended January 31, 1999
("1999").

REVENUES

The Company currently derives revenues primarily from the following
segments: provider network management, site management organizations and assets
held for sale. Revenues from provider network management are derived from
management services to management service organizations and administrative
services to health plans which include reviewing, processing and paying claims
and subcontracting with specialty care physicians to provide covered services.
Revenues from site management organizations are derived primarily from services
provided to pharmaceutical companies for clinical trials. Revenues from assets
held for sale are derived primarily from providing the following services:
physician practice management, diagnostic imaging, radiation therapy, home
healthcare, infusion therapy, real estate services and lithotripsy.

Net revenues during 2000 were $186.3 million and included $60.0 million or
32.2% attributable to provider network management; $33.8 million or 18.2%
related to site management organizations, and $92.5 million or 49.6%
attributable to assets held for sale.

Net revenues during 1999 were $291.3 million and included $93.5 million or
32.1% attributable to provider network management; $33.7 million or 11.6%
related to site management organizations, and $164.1 million or 56.3%
attributable to assets held for sale, including real estate services.

18
<PAGE>
The Company's net revenues from provider network management services
decreased by $33.5 million from $93.5 million for 1999 to $60.0 million for
2000. The majority of the decrease is attributable to the termination of an
unprofitable practice management agreement and the remaining decrease is the
result of restructuring a number of payor contracts. The Company's net revenues
from site management organizations increased by $0.1 million from $33.7 million
for 1999 to $33.8 million for 2000. The Company's net revenues from assets held
for sale decreased by $71.6 million from $164.1 million for 1999 to
$92.5 million for 2000, primarily attributable to the asset divestitures,
including the sale of the real estate service operations. The Company is
currently in litigation to collect management fees and working capital
investment from an IPA to which it provides management services pursuant to an
agreement with this IPA. The ultimate resolution of the litigation and
collection of any receivables due from the beginning of the year is uncertain;
therefore, the Company has not recorded revenue of $0.6 million due under the
agreement for 2000. For 1999 the Company recorded $2.4 million of net revenues
(which are included in revenues from the assets held for sale segment) from this
agreement.

EXPENSES

The Company's salaries, wages and benefits decreased by $32.8 million from
$94.7 million or 32.5% of net revenues during 1999 to $61.9 million or 33.2% of
net revenues in 2000. The decrease in dollars is primarily attributable to the
reductions in personnel in conjunction with the asset divestitures and to the
cost savings initiative which include the reduction of headcount in the Network
Management operation that was initiated in the third quarter.

The Company's supplies expense decreased by $21.0 million from
$60.0 million or 20.6% of net revenues during 1999 compared to $39.0 million or
20.9% of net revenues during 2000. The decrease in supplies expense is a result
of the asset divestitures.

The Company's depreciation and amortization expense decreased by
$3.1 million from $14.8 million in 1999 or 5.1% of net revenues to
$11.7 million or 6.3% of net revenues in 2000. The decrease in dollars is due to
assets sold during the year and the increase in percentage is due to the
reduction in income due to asset sales.

The Company's rent expense decreased by $5.4 million from $20.7 million or
7.1% of net revenues during 1999 to $15.3 million or 8.2% of net revenues during
2000. The dollar decrease is primarily a result of the asset divestitures.

The Company's provision for bad debt decreased by $1.9 million from
$8.4 million or 2.9% of net revenues during 1999 to $6.5 million or 3.5% of net
revenues during 2000. The increase as a percentage of revenues is primarily
attributable to the additional provision required on the businesses held for
sale.

The Company's gain on sale of assets of $5.4 million during 1999 represented
gains from the sale of real estate of approximately $4.5 million during
July 1998 and from the sale of a radiation therapy center of approximately
$0.9 million during February 1998.

The Company's nonrecurring charge of $10.5 million during 1999 represents
the charge resulting from the termination of several physician management and
employment agreements prior to the Company's decision in August 1998 to
restructure as well as write-off the remaining investment in an ambulatory
surgery center. The Company's nonrecurring charge of $1.7 million in 2000
represents additional severance costs in conjunction with the sale of assets and
the repositioning of the Company.

The Company's provision for the write-down on notes receivable of
$13.8 million and $2.7 million in 2000 and 1999, respectively, represents the
write-down of several notes receivable that were collateralized by shares of
Common Stock of the Company to their net realizable value. The $13.8 million
provision in 2000 also includes the write-off of the $10.9 million note
guaranteed by

19
<PAGE>
Mr. Gosman due to the probable insufficiency of the collateral securing the note
and the guarantee. Other notes were written off due to negotiations with the
debtors to reduce their notes in exchange for concessions which the Company
received in regards to potential liabilities of the Company.

The Company's goodwill impairment write-down of $9.1 during 1999 represents
the write-down of the remaining goodwill of the real estate services segment.
The asset of goodwill was determined to have been impaired because of the
Company's decision to significantly downsize the real estate segment and the
inability to generate future operating income without substantial revenue
growth, which was determined to be uncertain. Moreover, anticipated future cash
flows of the real estate segment indicated at that time that the recoverability
of the asset was not likely. For 2000, the Company wrote down $36.1 million of
goodwill due to the closure of certain unprofitable operations, both in clinical
studies and network management, and the impairment of the assets of several
sites as a result of SFAS 121, which requires the reduction of goodwill when
anticipated future cash flows are insufficient to cover the goodwill recorded on
the books for ongoing operations.

The Company's other expenses which includes professional fees and utilities
decreased by $1.8 million from $113.3 million or 38.9% of net revenues during
1999 to $111.5 million or 59.9% of net revenues during 2000. The dollar decrease
in other expenses is due to the reduction in capitation expenses, which decrease
corresponds to the decrease in revenues in the network management segment of the
business. Offsetting this decrease in capitation expenses is an increase in
other expenses such as, reserves established for settlement of litigation,
increased legal fees relative to asset sales, and additional write-downs on
assets held for sale.

The Company's extraordinary item of $96.8 million (net of tax of $0) during
1999 and $49.6 (net of tax of $0) during 2000 represents the charge resulting
from divestitures or disposals that had occurred subsequent to August 1998 as
well as the write-down of the assets of the businesses being held for sale. The
carrying value of the assets of these businesses was written down to their
estimated net realizable value (less costs to sell).

The Company's loss prior to income taxes and extraordinary item during 1999
was $45.5 million compared to $121.4 million in 2000. The deterioration of
income during 2000 is primarily due to several factors including: (i) the
deterioration of the operating results of certain of the businesses divested or
to be divested (the assets held for sale segment, including the real estate
service operation, generated a total pretax loss of $19.9 million during 2000
compared to pretax loss of $8.0 million during 1999), (ii) costs incurred in
repositioning the Company and building infrastructure to expand and integrate
the Company's two primary business lines: provider network management and
pharmaceutical services (site management organizations) (combined these
businesses generated a pretax loss, excluding nonrecurring charges and goodwill
write-down, of $22.5 million during 2000, compared to pretax loss of
$9.6 million in 1999), (iii) the $36.1 million write-off of goodwill due to the
closure of certain unprofitable operations, both in clinical studies and network
management in 2000, and the impairment of the assets of several sites as a
result of SFAS 121, which requires the reduction of goodwill when anticipated
future cash flows are insufficient to cover the goodwill recorded on the books
for ongoing operations (the 1999 goodwill write-off was $9.1 million); and
(iv) the $13.8 million write-down of notes receivable in 2000 (described above).

The Company's income tax expense (benefit) decreased by $11.7 million from
$(11.5) million or 25.4% of pretax loss (prior to extraordinary item) during
1999 to $0.2 million during 2000. The Company reasonably believes that because
of the large net operating loss for the years ended January 31, 2000 and 1999
and the anticipated losses due to the restructuring of the Company, the Company
may not be able to fully utilize all the net operating losses.

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THE YEAR ENDED JANUARY 31, 1999 COMPARED TO THE YEAR ENDED JANUARY 31, 1998

The following discussion review the results of operations for the year ended
January 31, 1999 ("1999") compared to the year ended January 31, 1998 ("1998").

REVENUES

Net revenues were $291.3 million during 1999. Of this amount, $93.5 million
or 32.1% of such revenues was attributable to provider network management;
$33.7 million or 11.6% was related to site management organizations;
$8.7 million or 3.0% was attributable to real estate services; and
$155.4 million or 53.3% was attributable to assets held for sale.

Net revenues were $281.2 million during 1998. Of this amount, $67.8 million
or 24.1% of such revenues was attributable to provider network management;
$30.0 million or 10.7% was related to site management organizations;
$31.1 million or 11.0% was attributable to real estate services; and
$152.3 million or 54.2% was attributable to assets held for sale.

EXPENSES

The Company's salaries, wages, and benefits increased by $6.5 million from
$88.2 million or 31.4% of net revenues during 1998 to $94.7 million or 32.5% of
net revenues during 1999. The increase is primarily attributable to the
additional salaries, wages and benefits from the acquisitions and affiliations
of the Company's business during 1998 and early 1999, offset in part, by
reductions in personnel in conjunction with the asset divestitures.

The Company's supplies expense increased by $15.1 million from
$44.9 million or 16.0% of net revenues during 1998 to $60.0 million or 20.6% of
net revenues during 1999. The increase in supplies expense as a percentage of
net revenues was due to the growth of various ancillary services specifically
infusion services, that are more supply intensive and for which the cost of
pharmaceutical supplies is higher.

The Company's depreciation and amortization expense increased by
$4.0 million from $10.8 million or 3.9% of net revenues during 1998 to
$14.8 million or 5.1% of net revenues during 1999. The increase is primarily a
result of the acquisitions completed after 1997 and the allocation of the
purchase prices as required by purchase accounting and also the effect of the
Company's change in policy regarding certain intangibles. Effective February 1,
1998, management changed its policies regarding amortization of its management
services agreement intangible assets. The Company adopted a maximum of 25 years
(from the inception of the respective intangible asset) as the useful life for
amortization of its management services agreement intangible assets. Using the
unamortized portion of the intangible at January 31, 1998, the Company began
amortizing the intangible over the remainder of the 25 year useful life. These
costs had historically been charged to expense through amortization using the
straight-line method over the periods during which the agreements are effective,
generally 30 to 40 years. This change represented a change in accounting
estimate and, accordingly, does not require the Company to restate reported
results for prior years. This change increased amortization expense relating to
existing intangible assets at January 31, 1998 by approximately $0.7 million
annually.

The Company's rent expense increased by $4.0 million from $16.6 million or
5.9% of net revenues during 1998 to $20.6 million or 7.1% of net revenues during
1999, primarily as a result of acquisitions of imaging centers and the expansion
of sites operated by the Company's site management organization. Rent expense as
a percentage of net revenue also varies depending upon the size of each of the
affiliated practice's offices, the number of satellite offices and the current
market rental rate for medical office space in a particular geographic market.

The Company's provision for bad debt increased by $2.5 million from
$5.9 million or 2.1% of net revenues during 1998 to $8.4 million or 2.9% of net
revenues during 1999. The increase as a

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percentage of revenues is primarily attributable to the additional provision
required on the businesses held for sale.

The Company's gain on sale of assets of $5.4 million during 1999 represents
gains from the sale of real estate of approximately $4.5 million during
July 1998 and from the sale of a radiation therapy center of approximately
$0.9 million during February 1998. The gain on sale of assets of $1.9 million
during 1998 resulted from the sale of real estate and a radiation therapy
center.

The Company's provision for write-down on notes receivable of $2.7 million
during 1999 represents the write-down of several notes receivable to their net
realizable value. These notes were nonrecourse and collateralized by shares of
Common Stock of the Company.

The Company's merger and other non-continuing costs of $11.1 million during
1998 represent the merger transaction costs of $10.2 million related to the CSL
merger as well as certain non-continuing salary, consulting and management fee
expenses incurred by CSL.

The Company's goodwill impairment write-down of $9.1 million during 1999
represents the write-down of the remaining goodwill of the real estate services
segment. The asset of goodwill was determined to have been impaired because of
the Company's decision to significantly downsize the real estate segment and the
inability to generate future operating income without substantial revenue
growth, which was determined to be uncertain. Moreover, anticipated future cash
flows of the real estate segment indicated that the recoverability of the asset
is not likely.

The Company's nonrecurring expenses of $10.5 million during 1999 primarily
represents the termination of several physician management and employment
agreements prior to the Company's decision in August 1998 to restructure, as
well as the write-off the remaining investment in an ambulatory surgery center.

The Company's other expenses (which includes capitation expenses) increased
by $32.0 million from $81.3 million or 28.9% of net revenues during 1998 to
$113.3 million or 38.9% of net revenues during 1999 primarily due to an increase
in the Company's provider network management services.

The Company's extraordinary item of $96.8 million during 1999 represents the
charge resulting from divestitures or disposals that had occurred subsequent to
August 1998 as well as the write-down of the assets of the businesses being held
for sale at January 31, 1999. The carrying value of the assets of these
businesses was written down to their estimated net realizable value (less costs
to sell) based primarily upon purchase agreements, letters of intent and
discussions with prospective buyers.

The Company's loss prior to income taxes and extraordinary charges during
1999 was $45.5 million compared to income prior to income taxes and
extraordinary charge during 1998 of $20.1 million. The deterioration of income
during 1999 is primarily due to several factors, including: (i) the downsizing
of the real estate services segment which was done in connection with the
repositioning of the Company, and in part due to the resignation of Bruce A.
Rendina as Chief Executive Officer of the Company's real estate services
segment. The real estate services segment generated a pretax loss of
$8.5 million during 1999 (which included a goodwill impairment write-down of
$9.1 million) compared to pretax income of $24.7 million during 1998,
(ii) nonrecurring charges of $10.5 million (described above), (iii) the
deterioration of the operating results during the second half of 1999 of certain
of the businesses divested or to be divested (the assets held for sale segment
generated pretax income, prior to extraordinary item, of $0.5 million during
1999 compared to pretax income of $13.9 million during 1998) and (iv) the
provision for write-down of notes receivable of $2.7 million (described above).

The Company's income tax expense (benefit) decreased by $21.4 million from
$9.8 million or 32.4% or pretax income (prior to merger expenses of
$10.2 million, which are not tax deductible) during 1998 to ($11.5) million or
25.4% of pretax loss (prior to extraordinary item) during 1999. The pro forma
net income and net income per share information in the consolidated statement of

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operations reflect the effect on historical results as if CSL had been a C
corporation rather than an S corporation and had paid income taxes.

Prior to the merger with CSL, CSL had elected to be treated as an S
corporation as provided under the Internal Revenue Code (the "Code"), whereby
income taxes are the responsibility of the stockholders. Accordingly, the
Company's statements of operations do not include provisions for income taxes
for income related to CSL. Prior to the merger, dividends were primarily
intended to reimburse stockholders for income tax liabilities incurred.

The pro forma net income and net income per share information in the
consolidated statement of operations reflect the effect on historical results as
if CSL had been a C corporation rather than an S corporation for income tax
purposes, and no tax benefit arose as a result of the change in tax status.

REAL ESTATE SERVICES

While the Company has historically derived significant revenues from real
estate services, the Company determined in 1999 that it was likely to generate
significantly less revenue from such services in the future. As a result, the
Company decided to significantly downsize its real estate services in 1999. In
the third quarter of fiscal 2000, the Company sold the remaining real estate
services operations.

The Company has derived its real estate service revenues by providing a
variety of services. In rendering such services, the Company generates income
without bearing the costs of construction, expending significant capital or
incurring substantial indebtedness. Net revenues from real estate services are
recognized at the time services are performed. In some cases, fees are earned
upon the achievement of certain milestones in the development process, including
the receipt of a building permit and a certificate of occupancy of the building.

During August 1998, Bruce A. Rendina resigned as CEO and President of DASCO
(the Company's real estate services subsidiary) and Vice Chairman of the
Company. During September 1998, Mr. Rendina entered into a Business Agreement
(the "Business Agreement") with the Company. The Business Agreement was entered
into in settlement of certain claims by both the Company and Mr. Rendina
relating to Mr. Rendina's future competition with the Company. The Business
Agreement provides that the Company has the exclusive development rights to 27
separate projects located in 12 states. In addition, the Company and
Mr. Rendina have agreed to share fees with respect to five asset conversion
projects in six medical facility development projects whereby Mr. Rendina is
entitled to the first 25% of the projected development fees received on any
shared fee project and the Company and Mr. Rendina evenly split the remaining
portion of the fees for such projects. The Business Agreement also permits
Mr. Rendina and his affiliates to pursue independently the development of six
separate projects in five states. Finally, the Company and Mr. Rendina have
provided mutual releases with respect to any event related to their business and
employment relationships. During 2000, the Company did not generate any revenue
under the Business Agreement and does not anticipate any future revenues under
the Business Agreement.

During the quarter ended January 31, 1999, the Company recorded a goodwill
impairment write-down of $9.1 million, which eliminates the remaining goodwill
of the real estate services segment. The asset of goodwill was determined to
have been impaired because of the Company's decision to significantly downsize
the real estate segment and the inability to generate future operating income
without substantial revenue growth, which was determined to be uncertain.
Moreover, the Company determined that anticipated future cash flows of the real
estate segment indicated that the recoverability of the asset is not likely.

During 1999, the Company's real estate services generated revenues of
$8.7 million and pretax income (prior to goodwill impairment write-down) of
$0.6 million. In addition, the real estate services segment recorded a gain on
sale of real estate of $4.5 million during 1999.

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LIQUIDITY AND CAPITAL RESOURCES

Cash used by operating activities was $28.2 million and $4.9 million during
2000 and 1999, respectively. At January 31, 2000, the Company's principal
sources of liquidity consisted of $25.6 million in cash and $2.4 million in
assets held for sale (see below for further discussion of assets held for sale).
The Company also had $149.2 million of current liabilities, including
approximately $111.7 million of current indebtedness, which is comprised,
primarily of $10.5 million outstanding under the line of credit and
$100 million of Debentures due 2003 which have been reclassified to current
liabilities on the balance sheet as of January 31, 2000, as the Company is not
in full compliance with the Indenture governing the Debentures (see below for
further discussion of the line of credit and Debentures).

Cash provided by investing activities was $42.5 million during 2000 and
primarily represented the net cash received from the sale of assets of
$48.7 million, offset by the funds required by the Company for capital
expenditures of $4.6 million and additional purchase price on acquisitions of
$1.4 million. Cash used by investing activities was $12.5 million during 1999.
This primarily represented the total funds required by the Company for
acquisitions and capital expenditures of $17.8 million and advances under notes
receivable of $2.6 million, offset by net cash received from the sale of assets
of $7.9 million.

Cash provided by financing activities was $1.2 million during 2000 and
primarily represented the net borrowings on the line of credit of $0.5 million
and the increase in restricted cash; offset by the purchase of treasury stock of
$1.5 million. Cash used by financing activities was $22.0 million during 1999
and primarily represented the repayment of debt of $10.2 million, purchase of
treasury stock of $0.8 million (an additional $0.4 million of treasury stock was
acquired in exchange for the reduction of a note receivable) and a
$10.9 million loan to a company principally owned by Mr. Gosman primarily
related to the development of a retirement community.

In conjunction with various acquisitions that have been completed, the
Company may be required to make various contingent payments in the event that
the acquired companies attain predetermined financial targets during established
periods of time following the acquisitions. If all of the applicable financial
targets were satisfied, for the periods covered, the Company would be required
to pay an aggregate of approximately $4.4 million over the next three years. The
payments, if required, are payable in cash and/or Common Stock of the Company.
In addition, in conjunction with the acquisition of a clinical research center,
an ownership interest in a network and in conjunction with a joint venture
entered into by the Company during the year ended January 31, 1998, the Company
may be required to make additional contingent payments based on revenue and
profitability measures over the next four years. The contingent payment will
equal 10% of the excess gross revenue, as defined, provided the gross operating
margins exceed 30%.

During July 1997, the Company entered into a management services agreement
to manage a network of over 100 physicians in New York. In connection with this
transaction, the Company would have been required to expend, in certain
circumstances, up to $40.0 million (of which none has been expended as of
January 31, 2000) to be utilized for the expansion of the network. The Company
has terminated this management agreement effective January 31, 2000, that
results in the elimination of any additional expenditures to expand this
network.

During February 1998, the Company completed the formation of an MSO in New
York, one-third of which it owns. The owners of the remaining two-thirds of the
MSO have the right to require the Company to purchase their interests at the
option price, which is based upon earnings, during years six and seven. This
relationship through which the Company provided services to approximately 1,700
physicians has been terminated by mutual agreement as of May 2000.

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During July 1997, the Company entered into a management services agreement
to manage a network of over 100 physicians in New York. In connection with this
transaction, the Company would have been required to expend, in certain
circumstances, up to $40.0 million (of which none has been expended as of
January 31, 2000) to be utilized for the expansion of the network. The Company
has terminated this management agreement effective January 31, 2000, that
results in the elimination of any additional expenditures to expand this
network.

In conjunction with certain of its acquisitions, the Company has agreed to
make payments in shares of Common Stock of the Company at a predetermined future
date. The number of shares to be issued is generally determined based upon the
average price of the Company's Common Stock during the five business days prior
to the date of issuance. As of January 31, 2000, the Company had committed to
issue $1.1 million of Common Stock of the Company using the methodology
discussed above and in April 2000 issued 5,187,627 million shares of Common
Stock. This amount is included in the current accrued liabilities on the balance
sheet. This relationship was terminated in May 2000.

In conjunction with the repositioning (as described earlier in
"Repositioning"), during the year ended January 31, 1999, the Board of Directors
approved a plan to divest and exit the Company's PPM business and certain of its
ancillary services businesses including diagnostic imaging, lithotripsy,
radiation therapy, home health and infusion therapy. During the year ended
January 31, 2000, the Company divested its investments in a surgery center and a
physician network and sold its real estate service operations. The Company has
nearly completed the process of terminating its management of individual and
group practices and divesting itself of related assets, and selling and
divesting itself of its ancillary medical services businesses. Based on fair
market value estimates, which have primarily been derived from purchase
agreements, letters of intent, letters of interest and discussions with
prospective buyers, the net realizable value of the remaining assets identified
to be divested or disposed was $2.4 million at January 31, 2000 (approximately
$0.9 million of which was realized subsequent to January 31, 2000) which has
been reflected as an asset held for sale on the balance sheet at January 31,
2000.

In conjunction with a physician practice management agreement with a
physician practice in Florida, the Company has filed suit against the practice
to enforce the guarantees executed in connection with the management agreement.
The practice has filed a counterclaim alleging fraudulent inducement and
illegality of the management agreement. The Company intends to vigorously
prosecute the case and defend the counterclaim. However, if the Company is not
successful it could be exposed to a maximum loss of $3.7 million. A reserve has
been established to reflect the probable loss.

In 1999 the Board of Directors of the Company authorized a share repurchase
plan pursuant to which the Company may repurchase up to $15.0 million of its
Common Stock from time to time on the open market at prevailing market prices.
As of January 31, 2000 the Company has repurchased approximately 1.3 million
shares at a net purchase price of approximately $2.2 million. Through May 3,
2000 the Company has repurchased no additional shares.

The Company's Common Stock was delisted from the NASDAQ as of the close of
business on December 8, 1999. The Company's Common Stock is now trading on the
OTC Bulletin Board. As a result, current information regarding bid and asked
prices for the Common Stock may be less readily available to brokers, dealers
and/or their customers. As a result of reduced availability of current
information, there may be a reduction in the liquidity of the market for the
Common Stock which, in

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turn, could result in decreased demand for the Common Stock, a decrease in the
stock price and an increase in the spread between the bid and asked prices for
the Common Stock.

During March 1999, the Company obtained a new $30.0 million revolving line
of credit which has a three-year term and availability based upon eligible
accounts receivable. The line of credit bears interest at prime plus 1.0% and
fees of 0.0875%. Approximately $9.2 million of proceeds from the new line of
credit were used to repay the previous line of credit, and approximately
$2.0 million was used as cash collateral for a $2.0 million letter of credit.
The line of credit is collateralized by the assets of the Company, limits the
ability of the Company to incur certain indebtedness and make certain dividend
payments and requires the Company to comply with customary covenants. Proceeds
from asset sales must be used to repay the line of credit to the extent the sold
assets included eligible accounts receivable. At January 31, 2000, approximately
$10.5 million was outstanding under the line. At May 24, 2000 the outstanding
balance was $4.4 million.

The Company's lender has alleged that the Company is in default of certain
non-financial covenants under its revolving line of credit, which alleged
defaults are subject to cure within specified periods. The Company disputes this
allegation and is currently in negotiations with its lender to resolve this
dispute. These negotiations will likely result in reducing the amount available
for borrowings under the Company's existing line of credit. However, the Company
believes that, assuming the Recapitalization described above under
"Repositioning" is effected, cash flow from operations, its available cash,
expected cash to be generated from assets held for sale and available borrowings
under its revolving line of credit, will be adequate to meet its liquidity needs
for the next 12 months although there can be no assurances that this will be the
case. The Company's capital needs over the next several years may exceed capital
generated from operations.

The Company anticipates that it will arrange for new working capital
financing in conjunction with the proposed Recapitalization. There can be no
assurances, however, that the Company will be able to obtain such working
capital financing on terms favorable to the Company or at all.

The Company currently has outstanding $100 million in face amount of
Debentures which bear interest at an annual rate of 6 3/4% payable semi-annually
on each June 15 and December 15. The next interest installment on the Debentures
is due June 15, 2000 with a 30 day grace period and the Debentures mature on
June 15, 2003. The Debentures are unsecured obligations of the Company and are
guaranteed by certain of the Company's wholly-owned subsidiaries. The Debentures
are convertible into Common Stock of the Company, at a conversion price of
$28.20 per share, subject to adjustment. The Company has the right to redeem the
Debentures at various redemption prices declining from 103.86% of the principal
amount to par on and after June 18, 1999. Debentureholders have the right to
require the Company to purchase all or any part of their Debentures upon the
occurrence of a "change in control" (as defined in the Indenture) on or before
June 1, 2003 for 100% of the principal amount thereof, together with accrued and
unpaid interest. The commencement by the Company or any subsidiary of any
voluntary case or proceeding under any bankruptcy, insolvency, reorganization or
other similar law as contemplated by the Recapitalization described above under
"Repositioning" would constitute an Event of Default under the Indenture
governing the Debentures. The Company has reclassified the Debentures as current
as of January 31, 2000, as it is not in full compliance with the terms of the
Indenture governing the Debentures.

In early April 2000, Moody's Investors Service downgraded the Debentures
from B3 to Caa3. According to Moody's, this rating action was in response to the
Company's declining revenue and continued operating losses in recent quarters.
On May 26, 2000, Moody's downgraded the Debentures from Caa3 to C, based on the
Company's announcement that it intends to complete the Recapitalization in
bankruptcy through the Prepackaged Plan.

The Company's extensive losses in the past two years, its negative cash flow
from operations and its net negative equity position, as well as management's
assessment that the Company is unable to

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retire the Debentures at maturity, raise substantial doubt about the Company's
ability to continue as a going concern. In response, the Company has developed
plans to improve profitability of its core business operations and to
recapitalize the Company by converting the Debentures into common equity as
described above in "Repositioning".

IMPACT OF THE YEAR 2000 ISSUE

The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Computer programs
that have date-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. The Company completed a comprehensive Year 2000
Compliance Program and has not experienced any systems or operational
disruptions associated with the Year 2000 issue.

The costs associated with the Year 2000 Compliance Program totaled
approximately $3.0 million, which includes costs for new systems and system
upgrades which would have been incurred regardless of the Year 2000 Compliance
Program.

RECENT ACCOUNTING PRONOUNCEMENTS AND OTHER MATTERS

The FASB recently issued statement No. 131, "Disclosures About Segments of
an Enterprise and Related Information", which is effective for the Company's
financial statements as of and for the year ended January 31, 1999. This
Statement requires reporting of summarized financial results for operating
segments as well as established standards for related disclosures about products
and services, geographic areas and major customers. Primary disclosure
requirements include total segment revenues, total segment profit or loss and
total segment assets. The adoption of SFAS 131 did not affect the Company's
results of operations or financial position but did affect the disclosure of
segment information.

In 1997, the Emerging Issues Task Force of the Financial Accounting
Standards Board issued EITF 97-2 concerning the consolidation of physician
practice revenues. PPMs will be required to consolidate financial information of
a physician where the PPM acquires a "controlling financial interest" in the
practice through the execution of a contractual management agreement even though
the PPM does not own a controlling equity interest in the physician practice.
EITF 97-2 outlines six requirements for establishing a controlling financial
interest. The Company adopted EITF 97-2 in the fourth quarter ended January 31,
1999. Adoption of this statement reduced reported revenues and expenses for the
years ended January 31, 1998 by $65.4 million.

In December 1999, the Staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 summarizes certain of the Staff's views in applying
accounting principles generally accepted in the United States to revenue
recognition in financial statements. The Company is currently assessing the
impact the provisions of this SAB will have on the financial statements.

In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation--an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the following: the definition of an employee for purposes of applying APB
Opinion No. 25; the criteria for determining whether a plan qualifies as a
non-compensatory plan; the accounting consequences of various modifications to
the terms of previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. The Company
does not expect the application of FIN 44 to have a material impact on the
Company's financial position or results of operations.

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FACTORS TO BE CONSIDERED

THE PARTS OF THIS ANNUAL REPORT ON FORM 10-K TITLED "BUSINESS", "LEGAL
PROCEEDINGS", AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS" CONTAIN CERTAIN FORWARD-LOOKING STATEMENTS WHICH
INVOLVE RISKS AND UNCERTAINTIES. WHEN USED IN THIS ANNUAL REPORT ON FORM 10-K,
THE WORDS "MAY", "WILL", "SEEK", "PLAN", "EXPECT", "BELIEVE", "ANTICIPATE",
"CONTINUE", "ESTIMATE", "PROJECT", "INTEND", AND SIMILAR EXPRESSIONS ARE
INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT REGARDING
EVENTS, CONDITIONS AND FINANCIAL TRENDS THAT MAY AFFECT THE COMPANY'S FUTURE
PLANS OF OPERATIONS, BUSINESS STRATEGY, RESULTS OF OPERATIONS AND FINANCIAL
POSITIONS. THE COMPANY WISHES TO ENSURE THAT SUCH STATEMENTS ARE ACCOMPANIED BY
MEANINGFUL CAUTIONARY STATEMENTS PURSUANT TO THE SAFE HARBOR ESTABLISHED IN THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. PROSPECTIVE INVESTORS ARE
CAUTIONED THAT ANY FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE
PERFORMANCE AND ARE SUBJECT TO RISKS AND UNCERTAINTIES AND THAT ACTUAL RESULTS
MAY DIFFER MATERIALLY FROM THOSE INCLUDED WITHIN THE FORWARD-LOOKING STATEMENTS
AS A RESULT OF VARIOUS FACTORS. SUCH FORWARD-LOOKING STATEMENTS SHOULD,
THEREFORE, BE CONSIDERED IN LIGHT OF VARIOUS IMPORTANT FACTORS, INCLUDING,
WITHOUT LIMITATION, THOSE SET FORTH BELOW AND UNDER "BUSINESS-POTENTIAL
LIABILITY AND INSURANCE" AND "BUSINESS-GOVERNMENT REGULATION", AND OTHERS SET
FORTH FROM TIME TO TIME IN THE COMPANY'S REPORTS AND REGISTRATION STATEMENTS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"). THE
COMPANY DISCLAIMS ANY INTENT OR OBLIGATION TO UPDATE SUCH FORWARD-LOOKING
STATEMENTS.

References in this section "FACTORS TO BE CONSIDERED" to "ICSL," the
"Company," "we," "us," "our Company" and "ourselves" refer to Innovative
Clinical Solutions, Ltd. unless the context clearly requires otherwise.

IF WE ARE UNABLE TO EFFECT THE RECAPITALIZATION, WE MAY NOT BE ABLE TO
IMPLEMENT OUR STRATEGIC PLAN AND WE MAY DEFAULT ON THE DEBENTURES

We are currently in a very competitive market. We believe that our strategic
plan to establish ourselves as a preeminent market share leader in
pharmaceutical contract research industry, specifically clinical trials site
management and outcomes research (the "Strategic Plan") is necessary to enable
us to stay competitive. If we do not complete the Recapitalization, we will not
have funds available to pay the Debentures at maturity and we may be unable to
make interest payments due prior to maturity unless there are significant
improvements in our financial position. In addition, if we do not complete the
Recapitalization:

- our ability to offer equity incentives to existing management and future
employment candidates will be significantly reduced;

- our ability to demonstrate to pharmaceutical companies and other potential
customers our financial stability and ability to complete long-term,
expensive clinical trials will be diminished; and

- our ability to access capital for the implementation of our Strategic
Plan, including acquisitions, will be impaired.

In addition, we do not believe that we will be able to significantly improve
our financial position and complete our Strategic Plan without completing the
Recapitalization. If we do not complete the Recapitalization through the
Prepackaged Plan, we will have to consider other alternatives, including
bankruptcy without a prepackaged plan, at or before maturity of the Debentures.
The results of these alternatives may be significantly less favorable to the
holders of the Debentures and the Company's Common Stock than the
Recapitalization.

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COMPLETION OF THE PREPACKAGED PLAN AND THE RECAPITALIZATION MAY DISRUPT OUR
BUSINESS

Even if the Prepackaged Plan is confirmed by the bankruptcy court on a
timely basis, a bankruptcy proceeding to confirm the Prepackaged Plan could have
a material adverse effect on our business. Among other things, it is possible
that a bankruptcy proceeding could adversely affect:

- our relationships with our customers;

- our relationships with our employees; and

- our relationships with key suppliers.

A bankruptcy proceeding will involve expenses and will divert the attention
of our management team from operation of our business and implementation of the
Strategic Plan.

WE CANNOT ASSURE YOU THAT THE STRATEGIC PLAN WILL REVERSE OUR HISTORY OF
OPERATING LOSSES

We have experienced and continue to experience operating losses. We have not
been able to achieve overall profitability since fiscal 1998. We had operating
losses of $121.6 million (including a $36.1 million write-down of goodwill and
$13.8 million write-down of notes receivable), for the year ended January 31,
2000. Our extensive losses over the past two years, our negative cash flows from
operations and our net negative equity position, as well as our assessment that
we will be unable to retire the Debentures at maturity, raise substantial doubt
as to our ability to continue as a going concern, resulting in a qualified
opinion from our independent accountants. Although we have been profitable in
the past, and we have developed plans to improve the profitability of our core
business operations, we cannot assure you even if we successfully implement the
Recapitalization that the Strategic Plan will lead to profitability or that we
will be able to maintain profitability, if achieved, on a short or long-term
basis.

WE EXPECT TO EXPAND OUR BUSINESS RAPIDLY AND WE MUST PROPERLY MANAGE THAT
EXPANSION

Our Strategic Plan calls for substantial expansion, particularly over the
next few years. This may strain our operational, human and financial resources,
particularly if we are unable to complete the Recapitalization. In order to
manage expansion, we must:

- continue to improve our operating, administrative and information systems;

- attract and retain qualified management, sales, professional, scientific
and technical operating personnel; and

- attract and retain sufficient business customers to support our expanded
infrastructure.

Also, if an acquired business does not meet our performance expectations, we
may have to restructure the acquired business or write-off the value of some or
all of the assets of the acquired business. If we are not able to properly
manage our expansion, we will experience a material adverse effect on our
business and results of operations.

OUR STRATEGIC PLAN DEPENDS ON OUR ABILITY TO CONTRACT WITH PROVIDERS AND GET
OUR CUSTOMERS TO ACCEPT OUR APPROACH

Our Strategic Plan depends upon our ability to contract with providers,
acquire sites and integrate our network management, healthcare research and
clinical studies operations. In order to accomplish this, we must demonstrate to
providers and potential acquisition targets that our business plan will benefit
them. We also must demonstrate to pharmaceutical companies and other research
organizations that the integration of our operations will benefit their product
development and testing. In some instances, pharmaceutical companies have been
reluctant to conduct all or a substantial portion of their clinical trials with
a single provider because the failure of that provider could result in a
substantial delay or cancellation of a project. Some providers are reluctant to
associate themselves with clinical

29
<PAGE>
research companies because of the increased demand on their time or the
perceived intrusion on their patients. Accordingly, there can be no assurance
that we will be able to integrate our clinical trials, healthcare research and
network management operations or that our customers will accept this business
model.

WE RELY ON HIGHLY QUALIFIED MANAGEMENT AND TECHNICAL PERSONNEL WHO MAY NOT
REMAIN WITH US

We rely on a number of key executives, including Michael T. Heffernan, our
President, Chief Executive Officer and Chairman, Gary S. Gillheeney, our Chief
Financial Officer and Treasurer, John Wardle, our Chief Operating
Officer--Network Management, R. Adrian Otte, M.D., our Chief Operating
Officer--Clinical Studies and Healthcare Research, and Bryan B. Dieter, our
Chief Information Officer. We do not maintain key-person life insurance on the
members of our executive management team. We will enter into agreements
containing non-competition restrictions with our senior officers in connection
with the completion of the Recapitalization. We expect to have employment
agreements with most of our senior officers but if any of these key executives
leaves the Company, it could have a material adverse effect on us. In addition,
in order to compete effectively, we must attract and maintain qualified sales,
professional, scientific and technical operating personnel. Competition for
these skilled personnel, particularly those with a medical degree, a Ph.D. or
equivalent degrees is intense. We may not be successful in attracting or
retaining key personnel.

WE DEPEND ON A SMALL NUMBER OF INDUSTRIES AND CLIENTS FOR ALL OF OUR
BUSINESS

We primarily depend on research and development expenditures by
pharmaceutical and biotechnology companies. Our operations could be materially
and adversely affected if:

- our clients experience financial problems or are affected by a general
economic downturn;

- consolidation in the drug or biotechnology industries leads to a smaller
client base; or

- our clients reduce their research and development expenditures.

THE LOSS, MODIFICATION, OR DELAY OF LARGE CONTRACTS MAY NEGATIVELY IMPACT
OUR FINANCIAL PERFORMANCE

Although our clinical research study contracts typically provide that we are
entitled to receive fees earned through the date of termination, as well as all
non-cancelable costs, generally, our clients can terminate their contracts with
us upon short notice or can delay execution of services. Clients terminate or
delay their contracts for a variety of reasons, including:

- products being tested fail to satisfy safety requirements;

- products have unexpected or undesired clinical results;

- the client decides to forego a particular study, perhaps for economic
reasons; or

- not enough patients enroll in the study.

In addition, we believe that drug companies may proceed with fewer clinical
trials if they are trying to reduce costs. These factors may cause drug
companies to cancel or delay contracts with clinical research companies at a
higher rate than in the past. The loss or delay of a large contract or the loss
or delay of multiple contracts could have a material adverse effect on our
financial performance.

WE MAY NOT BE ABLE TO MAKE STRATEGIC ACQUISITIONS IN THE FUTURE OR INTEGRATE
ANY FUTURE ACQUISITIONS

We will rely on our ability to make strategic acquisitions and enter into
strategic relationships to implement our Strategic Plan. We expect to make a
number of acquisitions and will continue to review future acquisition
opportunities. We may not be able to acquire companies on terms and conditions

30
<PAGE>
acceptable to us. In addition, we face several obstacles in connection with the
acquisitions we do consummate, including:

- difficulties and expenses in connection with the acquisitions and the
subsequent assimilation of the operations and services or products of the
acquired companies;

- Loss of customers during the integration period;

- diversion of management attention from other business concerns;

- loss of some or all of the key employees of the acquired company; and

- entering markets in which we have limited prior experience

To integrate acquired companies, we must install and standardize adequate
managerial, operational and control systems, implement marketing efforts in new
and existing locations, employ qualified personnel to provide technical and
marketing support for our various operating sites, and continue to expand our
managerial, operational, technical and financial resources. Failure to integrate
our existing and future operations or successfully manage our increasing size
may result in significant operating inefficiencies and cause a significant
strain on our managerial, operational and financial resources.

If we are unable to complete strategic acquisitions or enter into strategic
relationships, our ability to complete our Strategic Plan will be adversely
affected.

OUR BUSINESS DEPENDS ON CONTINUED COMPREHENSIVE GOVERNMENTAL REGULATION OF
THE DRUG DEVELOPMENT PROCESS AND OUR COMPLIANCE WITH THOSE REGULATIONS

In the United States, governmental regulation of the drug development
process is extensive and complicated. A significant aspect of the value we add
for our customers is our ability to navigate the complex regulatory scheme
quickly and accurately. If these regulations were significantly reduced, our
customers might not require our services to the same extent as they do currently
and our business and results of operations could be materially and adversely
affected.

Medical and pharmaceutical research involving human subjects is extensively
regulated by both state and federal governments. These regulations pertain to a
variety of issues, including, among others, informed consent, patient privacy
and safety. Certain categories of patients, such as people being treated for
drug or alcohol abuse and people who are HIV positive are provided special
additional protections. Our failure or inability to comply with these
regulations could result in termination of our ongoing research,
disqualification of research data, or substantial monetary penalties which could
have a material adverse effect on our business and results of operations.

In addition, medical and pharmaceutical research may involve the use of
radioactive material, exposure to blood borne pathogens, and the creation of
hazardous medical waste, all of which are subject to substantial state and
federal regulation. Failure to comply with applicable regulations could have a
material adverse effect on our business. Governmental agencies also could impose
costly additional requirements to ensure compliance, levy substantial monetary
penalties, terminate ongoing research or prohibit a planned project from going
forward.

WE MAY LOSE BUSINESS OPPORTUNITIES AS A RESULT OF HEALTH CARE REFORM

In the last few years, the U.S. Congress has entertained several
comprehensive health care reform proposals to control growing health care costs.
The proposals were generally intended to expand health care coverage for the
uninsured and reduce the growth of total health care expenditures. While none of
these proposals have been enacted into law, they may be enacted in the future.
If any of these proposals becomes law, drug and biotechnology companies may
react by spending less on research and development. If this were to occur, we
would have fewer business opportunities. We are unable to

31
<PAGE>
predict the likelihood that health care reform proposals will be enacted into
law or the effect such laws would have on our business.

WE FACE INTENSE COMPETITION

We primarily compete against dedicated research sites, independent group
physician practices, full service contract research organizations and, to a
lesser extent, universities, teaching hospitals and other site management
organizations. Some of these competitors have greater capital, technical and
other resources than we do. Investigative site management organizations
generally compete on the basis of:

- the ability to recruit investigators and patients;

- previous experience;

- medical and scientific expertise in specific therapeutic areas;

- the quality of services;

- the ability to integrate information technology with systems to improve
the efficiency of clinical research;

- financial strength and stability; and

- price.

WE MAY NOT HAVE ADEQUATE INSURANCE AND MAY HAVE SUBSTANTIAL EXPOSURE TO
PAYMENT OF PERSONAL INJURY CLAIMS

Clinical research services primarily involve the testing of experimental
drugs on consenting human volunteers pursuant to a study protocol. Such services
involve a risk of liability for personal injury or death to patients who
participate in the study or who use a drug approved by regulatory authorities
due to, among other reasons, unforeseen adverse side effects or improper
administration of the new drug by physicians. In certain cases, these patients
are already seriously ill and are at risk of further illness or death.

In addition, our Strategic Plan calls for the use and sharing of
confidential patient information. Although we believe that we maintain patient
confidentiality procedures that are adequate to protect confidential patient
information, privacy laws and regulations are constantly changing and subject to
judicial interpretation. For example, the federal government recently issued new
regulations regarding electronic medical records and privacy. We could face
substantial liability if we were to be found liable for breaching the
confidentiality of our patients. Our financial stability could be materially and
adversely affected if we had to pay damages or incur defense costs in connection
with a claim that is outside the scope of, or beyond the limits of, our
insurance coverage. In addition, we could be materially and adversely affected
if our liability exceeds the amount of our insurance. We may not be able to
continue to secure insurance on acceptable terms.

IF WE ARE FOUND TO HAVE VIOLATED THE CORPORATE PRACTICE OF MEDICINE OR THE
FEE-SPLITTING STATUTES, WE COULD BE SUBJECT TO FINES AND OTHER CONSEQUENCES

The health care industry and physicians' medical practices are highly
regulated at the state and federal levels. At the state level, all state laws
restrict the unlicensed practice of medicine, and many states also prohibit the
splitting or sharing of fees with non-physician entities and the enforcement of
non-competition agreements against physicians. Many states also prohibit the
"corporate practice of medicine" by an unlicensed corporation or other
non-physician entity that employs physicians. We have substantially divested our
physician practices. Instead, we manage physician groups, and the physicians
continue to be employed at the group level by professional associations or
corporations, which are specifically authorized under most state laws to employ
physicians.

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<PAGE>
Numerous state fee-splitting laws provide that a violation occurs only if a
physician shares fees with a referral source. We are not a referral source for
our managed groups, and therefore the fee-splitting laws in those states should
not restrict the payment of a management fee by the physician groups to us. In
Florida, however, the Board of Medicine has interpreted the Florida
fee-splitting law very broadly so as to arguably include the payment of any
percentage-based management fee, even to a management company that does not
refer patients to the managed group. Because of the structure of our
relationships with our affiliated physician groups and managed IPAs, and because
of the recent broad fee-splitting interpretation in the State of Florida, there
can be no assurance that review of our business by courts or other regulatory
authorities both in Florida and elsewhere will not result in determinations that
could adversely affect our financial condition or results of operations. If we
were found to have violated the corporate practice of medicine or fee-splitting
statutes, possible consequences could include revocation or suspension of the
physicians' licenses, unenforceable contracts, and/or liability for contract
damages resulting in reduced revenue and/or higher costs.

INSURANCE REGULATIONS MAY INCREASE OUR COST AND REDUCE OUR REVENUE

Our managed IPAs enter into contracts and joint ventures with licensed
insurance companies, such as HMOs, whereby the IPAs may be paid on a capitated
fee basis. Under capitation arrangements, health care providers bear the risk,
subject to certain loss limits, that the aggregate costs of providing medical
services to members will exceed the premiums received. To the extent that the
IPAs subcontract with physicians or other providers for those physicians or
other providers to provide services on a fee-for-service basis, the managed IPAs
may be deemed to be in the business of insurance, and thus subject to a variety
of regulatory and licensing requirements applicable to insurance companies or
HMOs resulting in increased costs to the managed IPAs, and corresponding reduced
revenue.

WE MAY NOT BE ABLE TO LIST OUR NEW COMMON STOCK ON NASDAQ AND THIS MAY
IMPAIR THE LIQUIDITY OF OUR NEW COMMON STOCK

If we are unable to list the New Common Stock on NASDAQ, the ability of our
stockholders to trade the New Common Stock may be adversely affected. On
December 8, 1999 our Common Stock was delisted by NASDAQ because we failed to
maintain net tangible asset and stock price thresholds required for NASDAQ
listing. In order to restore our listing on NASDAQ, we are required to meet
certain threshold requirements. To date, we have not achieved those threshold
criteria. Our existing Common Stock currently is traded on the Over-the-Counter
Bulletin Board and there can be no assurances that the Recapitalization will be
effected or, if effected, that we will be able to list our New Common Stock on
NASDAQ or that any trading market for our New Common Stock will develop or be
sustained. Although we are committed to use our reasonable best efforts to do
so, if we are unable to list the New Common Stock on NASDAQ, it may be difficult
to make purchases and sales of the New Common Stock or obtain timely and
accurate quotations with respect to trading of the New Common Stock. Failure to
obtain the listing of our New Common Stock on NASDAQ could adversely impact the
liquidity of our New Common Stock and may make it difficult to trade shares of
our New Common Stock.

CURRENTLY WE ARE CONTROLLED BY OUR EXISTING MANAGEMENT

All of the Company's executive officers and directors as a group
beneficially own approximately 24.7% of the outstanding shares of Common Stock.
As a result, such executive officers and directors, should they choose to act
together, may be able to exert effective control over the outcome of corporate
actions requiring stockholder approval and to control the election of the
Company's Board of Directors. Following the Recapitalization, if it occurs, our
former Debentureholders will own approximately 90% of our undiluted capital
stock. Nearly 50% of our undiluted capital stock will be controlled by one
former Debentureholder.

33
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is subject to market risk from exposure to changes in interest
rates based on its financing, investing and cash management activities. The
Company does not expect changes in interest rates to have a material effect on
income or cash flows for the year ended January 31, 2001, although there can be
no assurances that interest rates will not significantly change.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Information with respect to Item 8 of Part II is included herein as to the
Company's financial statements and financial statement schedules filed with this
report; See Item 14 of Part IV.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

34
<PAGE>
PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth certain information pertaining to the
Company's directors and executive officers.

<TABLE>
<CAPTION>
NAME CURRENT POSITION
---- ----------------
<S> <C>
Michael T. Heffernan................... Chairman of the Board of Directors, Chief Executive
Officer, President and Director
Bryan B. Dieter........................ Chief Information Officer
Gary S. Gillheeney..................... Chief Financial Officer and Treasurer
R. Adrian Otte, M.D.................... Chief Operating Officer for Clinical Studies and
Healthcare Research
John Wardle............................ Chief Operating Officer for Network Management
Hugh L. Carey.......................... Director
Abraham D. Gosman...................... Director
David M. Livingston, M.D............... Director
Kevin E. Moley......................... Director
Eric Moskow, M.D....................... Director
</TABLE>

Set forth below is a description of the backgrounds of each of the directors
and executive officers of the Company.

MICHAEL T. HEFFERNAN, age 35, since July 1999 has served as Chairman of the
Board of Directors and Chief Executive Officer, as President of the Company
since December 1998, as Co-Chief Executive Officer from April 1999 to July 1999
and as a director of the Company since February 1998. He also serves as the
Chief Executive Officer of the Company's subsidiary Clinical Studies, Ltd.
("CSL"), a multi-therapeutic site management organization acquired by the
Company in October 1997. Prior to the Company's acquisition of CSL,
Mr. Heffernan served as the President and Chief Executive Officer of CSL, a
position he held since 1995. From 1993 to 1995, Mr. Heffernan served as a
Regional Manager with Eli Lilly & Company.

BRYAN B. DIETER, age 42, has served as Chief Information Officer of the
Company since April 1999. From 1997 to April 1999 he was Director of Corporate
Development at IDX Systems Corporation. He also served as Senior Vice President
of Healthcare Informatics at Medaphis Corporation from 1995 until 1997. He was
also the founder and President of Decision Support Group, a healthcare
information systems consulting company from 1991 to 1995.

GARY S. GILLHEENEY, age 45, has served as Chief Financial Officer and
Treasurer of the Company since August 1999. Previously, he held several senior
management positions with Providence Energy Corporation, including Senior Vice
President, Chief Financial Officer, Treasurer and Assistant Secretary from 1996
until 1999, Vice President Financial Information Services and Treasurer from
1994 until 1996, and as Controller from 1989 until 1994.

R. ADRIAN OTTE, M.D., age 44, has served as Chief Operating Officer for
Clinical Studies and Healthcare Research, of the Company since July 1999. From
1997 until 1999, he served as Vice President of Medical Research for Zeneca
Pharmaceuticals. He held various positions at PAREXEL International in Europe
and the U.S. from 1991 to 1997, including Senior Vice President of Medical and
Site Management Services. Prior to joining PAREXEL International he spent ten
years at Solvay Pharmaceuticals as the Head of Clinical Research Europe.

JOHN WARDLE, age 45, has served as the Chief Operating Officer for Network
Management of the Company since April 1999. Previously, he served as Senior Vice
President of United Healthcare of New England from July 1997 to April 1999.
Mr. Wardle served as the General Manager for External

35
<PAGE>
Affairs at Southern Health Care from November 1995 to July 1997. He also served
United HealthCare Corporation as a Vice President from May 1994 to
November 1995 and as a Director of Subsidiary Network Development from
June 1993 to May 1994.

HUGH L. CAREY, age 80, has served as a director of the Company since
February 1996. Currently, he is of counsel to the New York law firm of Whitman
Breed Abbott & Morgan. He served as an Executive Vice President of W.R. Grace &
Company from 1987 to December 1995. He was Governor of the State of New York
from 1975 to 1983 and a member of Congress from 1960 until 1975. He is currently
a director of Triarc Companies, Inc. and China Trust Bank.

ABRAHAM D. GOSMAN, age 71, has served as a director of this Company since
its inception in 1995. From June 1994 until July 1999 he served as the Chairman
of the Board of Directors and Co-Chief Executive Officer of the Company.
Mr. Gosman has served as Chairman of the Board of CareMatrix Corporation, an
assisted living development and management company, since October 1996 and as
its Chief Executive Officer since April 1999. Previously, Mr. Gosman was the
Chief Executive Officer of The Mediplex Group, Inc. ("Mediplex"), a diversified
health care company, from its inception in 1982 to September 1988 and from
August 1990 to June 1994. In addition, Mr. Gosman served as Chairman of the
Board of Meditrust Corporation and Chairman of the Board, Chief Executive
Officer and Treasurer of Meditrust Operating Company from November 1997 to
August 1998 and Chairman of the Board and Chief Executive Officer of their
predecessor, Meditrust, from its inception in 1985 until November 1997.

DAVID M. LIVINGSTON, M.D., age 58, has served as a director of the Company
since January 1996. Dr. Livingston has previously served as Director of
Dana-Farber Cancer Institute in Boston, Massachusetts and has been employed as a
physician at the Institute since 1973. He currently serves as Chairman of the
Institute's Executive Committee for Research and as a Trustee of the Institute.
He is also the Emil Frei Professor of Medicine and Genetics at Harvard Medical
School where he has taught since 1973.

KEVIN E. MOLEY, age 53, has served as a director of the Company since
February 1999. From March to October of 1998, Mr. Moley was an executive
consultant to Kinetra LLC. He served as President and Chief Executive Officer of
Integrated Medical Systems, Inc. from January 1996 to March 1998. From
February 1993 to January 1996, he served as Senior Vice President to PCS Health
Systems, Inc. During the Administration of President George Bush, Mr. Moley
served in the United States Department of Health and Human Services in various
capacities including as a member of the Transition Team from February to May of
1989, as an Assistant Secretary for Management and Budget from May 1989 to
November 1991, and as a Deputy Secretary from November 1991 to January 1993.
Mr. Moley served as the Chairman of the Board of Patient Care Dynamics from
November 1998 until December 1999. Mr. Moley served as a director of each of
Cephalon, Inc., Merge Technology Inc. and Per Se Technology since March 1994,
February 1998, and April 1998, respectively. Mr. Moley has also served as a
director of Proxy Med since June 1999.

ERIC MOSKOW, M.D., age 41, has served as a director of the Company since
September 1996 and was Executive Vice President of Strategic Planning of the
Company from September 1996 until February 2000. He founded Physician's Choice
Management, LLC in October 1995 and served as its Executive Vice President from
October 1995 to October 1996. Prior to establishing Physician's Choice, he
served as Medical Director for Mediplex of Ridgefield from November 1994 to
August 1996 and as Associate Medical Director for US Healthcare in Connecticut
from 1988 to 1992. Dr. Moskow is board-certified in internal medicine and served
as President of the Family Medical Associates of Ridgefield for nine years.

36
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

To the Company's knowledge, each person who, by virtue of his, her, or its
position with the Company or ownership of the Company's capital stock, is
required to file reports pursuant to Section 16(a) of the Securities Exchange
Act of 1934, has timely filed such reports, except that Dr. Otte did not timely
file a Form 3 with the Securities Exchange Commission in connection with his
appointment as an executive officer of the Company on July 12, 1999. Dr. Otte's
holdings which were to have been reported on Form 3 were subsequently reported
on a Form 5 filed with the Securities and Exchange Commission on March 16, 2000.

ITEM 11. EXECUTIVE COMPENSATION

DIRECTOR COMPENSATION

Officers who are members of the Board of Directors do not receive
compensation for serving on the Board. Each other member of the Board receives
annual compensation of $15,000 for serving on the Board, plus a fee of $1,000
for each Board of Directors meeting attended. In addition, such directors
receive an additional fee of $500 for each committee meeting attended, except
that only one fee will be paid in the event that more than one such meeting is
held on a single day. All directors receive reimbursement of reasonable expenses
incurred in attending Board and committee meetings and otherwise carrying out
their duties. Each director who is a member of the Equity Incentive and
Compensation Committee on the first business day following each annual meeting
of the stockholders will receive an option to purchase 2,500 shares of Common
Stock. Any of such options granted to a member of the Equity Incentive and
Compensation Committee under the Equity Plan will be exercisable one year
following the date of grant.

37
<PAGE>
EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table contains a summary of the compensation paid or accrued
during the fiscal years ended January 31, 1998, 1999 and 2000 to the Chief
Executive Officer of the Company and the four other named executive officers
(the "Named Executive Officers").

<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------ -------------------
BONUS SECURITIES ALL OTHER
NAME AND SALARY COMPENSATION UNDERLYING OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) (#) ($)
--------------------------- -------- -------- ------------- ------------------- -------------
<S> <C> <C> <C> <C> <C>
Abraham D. Gosman (1)...... 2000 131,250 -- -- --
Former Chairman and 1999 225,000 -- -- --
Co-Chief Executive 1998 225,000 -- -- --
Officer

Michael T. Heffernan....... 2000 203,313 100,000 300,000 --
Chairman, President, 1999 214,842 100,000 -- --
Chief Executive Officer 1998 200,000 75,295 300,000 720(4)

James M. Hogan, M.D. (3)... 2000 188,277 -- -- 350,000
Chief Medical Officer 1999 507,200 -- -- --

Bryan B. Dieter (5)........ 2000 183,333 36,667 100,000 --
Chief Information Officer

R. Adrian Otte, M.D. (2)... 2000 218,710 27,542 200,000 --
Chief Operating Officer
Clinical Studies &
Healthcare Research

John Wardle (6)............ 2000 173,519 53,050 100,000 --
Chief Operating Officer
Network Management
</TABLE>

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

(1) Mr. Gosman resigned as Chairman and Co-Chief Executive Officer in
July 1999.

(2) Dr. Otte became an executive officer of the Company in July 1999.

(3) Dr. Hogan joined the Company in December 1997 and became an executive
officer of the Company in December 1998. He terminated his employment in
June 1999 and is receiving severance of $350,000 in semi-monthly
installments until March 17, 2000.

(4) Represents life insurance premiums paid by the Company.

(5) Mr. Dieter became an executive officer of the Company in February 1999.

(6) Mr. Wardle became an executive officer of the Company in April 1999.

38
<PAGE>
STOCK OPTION GRANTS

STOCK OPTION GRANTS IN THE LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL
INDIVIDUAL GRANTS RATES OF
----------------------------------------------------------- STOCK PRICE
NUMBER PERCENT OF APPRECIATION
OF TOTAL FOR OPTION
SECURITIES OPTIONS EXERCISE OR TERMS ($) (2)
UNDERLYING GRANTED TO BASE ---------------------
OPTIONS EMPLOYEES PRICE EXPIRATION FIVE TEN
NAME GRANTED (#) (1) IN FISCAL YEAR ($/SHARE) DATE PERCENT PERCENT
---- --------------- -------------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
M. Heffernan.................... 300,000 22.8% $1.6250 05/01/09 $306,586 $776,949
B. Dieter....................... 100,000 7.6% $1.6875 04/01/09 $106,126 $268,944
R. Otte......................... 200,000 15.2% $1.3750 08/01/09 $172,946 $438,279
J. Wardle....................... 100,000 7.6% $1.6250 05/01/09 $102,195 $258,983
</TABLE>

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

(1) All options were granted at a purchase price of 100% of the fair market
value of ICSL common stock on the date of grant.

(2) The dollar amounts under these columns are the result of calculations at 5%
and 10% rates set by the Securities and Exchange Commission and, therefore,
are not intended to forecast possible future appreciation, if any, of the
price of ICSL Common Stock. At a 5% and 10% annual rate of stock price
appreciation, the stock price would be approximately $2.75 and $4.38 at the
end of the ten-year term of the options granted April 1, 1999. The
corresponding stock prices for options granted May 1, 1999, would be $2.65
and $4.21, and for August 1, 1999 would be $2.24 and $3.57, respectively.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING VALUE OF UNEXERCISED
ACQUIRED UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ON VALUE AT FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)
EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
M. Heffernan......................... -0- -0- 300,000 300,000 -0- -0-
B. Dieter............................ -0- -0- 33,333 66,667 -0- -0-
R. Otte.............................. -0- -0- -0- 200,000 -0- -0-
J. Wardle............................ -0- -0- 33,333 66,667 -0- -0-
</TABLE>

39
<PAGE>
EMPLOYMENT AGREEMENTS

In connection with the Company's acquisition of Clinical Studies, Ltd.
("CSL"), on October 14, 1997, the Company entered into an employment agreement
with Mr. Heffernan to be the Chief Executive Officer of CSL. The agreement
provides for an initial three-year term (expiring on October 14, 2000), that may
be renewed upon agreement of the parties. The base salary for Mr. Heffernan
under the agreement is $200,000 per year, plus a guaranteed bonus of $100,000
per year, payable in quarterly installments. The agreement also provides for the
grant of an option to purchase 300,000 shares of the Common Stock of the Company
at $16.25 per share (the price per share of the Common Stock as of the date of
the agreement), which option is exercisable in three annual installments of
100,000 shares commencing on October 14, 1998. In addition, Mr. Heffernan is
entitled to receive other bonuses and benefits that may be offered by the
Company to its executive officers. The agreement may be terminated by the
Company without cause effective immediately upon delivery of written notice by
the Company to Mr. Heffernan. Mr. Heffernan may terminate the agreement upon
delivery of written notice to the Company if the Company (i) fails to pay any
sums due under the agreement, (ii) reassigns Mr. Heffernan from Providence,
Rhode Island without his consent, or (iii) materially changes his employment
duties without his consent. If the agreement is terminated by the Company
without cause or by Mr. Heffernan for one of the reasons noted in the preceding
sentence, Mr. Heffernan shall continue to receive his salary and guaranteed
bonus for a period of 18 months after such a termination or for the remainder of
the term of the agreement, whichever is longer. In the event of a "change in
control" (as defined in the agreement) of the Company or CSL during the term of
the agreement, Mr. Heffernan is entitled to receive a bonus payment from the
Company equal to 2.99 times the sum of his salary and guaranteed annual bonus.
The agreement contains restrictive covenants prohibiting Mr. Heffernan from
competing with the Company, or soliciting employees of the Company to leave,
during his employment and for a period equal to the longer of (i) one year after
termination of the agreement or (ii) the period during which Mr. Heffernan is
paid as a result of a termination of the agreement by the Company without cause
or by Mr. Heffernan for cause.

On January 27, 1997, the Company entered into an employment agreement with
James M. Hogan, M.D. The agreement provides for an initial three-year term
ending March 17, 2000, which is automatically renewed for successive one year
periods unless either the Company or Dr. Hogan provides a written notice of an
election not to renew at least 60 days but not more than 180 days before the
termination of the agreement. The base salary for Dr. Hogan under the agreement
is $500,000 per year, plus such benefits and bonuses as the Company in its sole
discretion may grant to him. The agreement also provides for the grant of an
option to purchase 100,000 shares of Common Stock at $12.50 per share (the fair
market value of the Common Stock on the date of the agreement), which option is
exercisable in three annual installments commencing on March 17, 1998. In
addition, Dr. Hogan is entitled to receive other bonuses and benefits that may
be offered by the Company to its executive officers. The Company may terminate
the agreement on 30 days written notice to Dr. Hogan. In addition, the Company
may terminate the agreement with cause if Dr. Hogan engages in certain
proscribed behavior. Dr. Hogan may terminate the agreement on 30 days written
notice to the Company if the Company fails to honor the terms of the agreement,
upon a change of control of the Company or if a material change in his title,
responsibilities, salary or benefits occurs. If the agreement is terminated by
the Company without cause or by Dr. Hogan for one of the reasons noted in the
immediately preceding sentence, Dr. Hogan shall continue to receive his salary
for a period of 12 months after such termination or for the remainder of the
term of the agreement, whichever is longer. The agreement contains restrictive
covenants prohibiting Dr. Hogan from competing with the Company, or soliciting
employees of the Company to leave during his employment or for a period equal to
the longer of (i) one year after the termination of the agreement or (ii) the
period during which Dr. Hogan is paid as a result of a termination of the
agreement by the Company without cause

40
<PAGE>
or by Dr. Hogan for cause. Dr. Hogan left the Company June 11, 1999 and is
receiving severance totaling $350,000 in equal semi-monthly installments through
March 17, 2000.

During 1999 the Company provided offer letters (the "Offer Letters," each an
"Offer Letter") to the following 3 Named Executive Officers: Dr. R. Adrian Otte,
Chief Operating Officer, Clinical Studies and Healthcare Research; Mr. John
Wardle, Chief Operating Officer, Network Management, and Mr. Bryan B. Dieter,
Chief Information Officer. The Company also, in 1999, provided an Offer Letter
to executive officer, Mr. Gary S. Gillheeney, Chief Financial Officer and
Treasurer. Each Offer Letter was acknowledged and agreed to by the respective
executive officers.

Under Dr. Otte's Offer Letter, dated May 21, 1999, his base salary is
established at $250,000 annually, with an annual bonus of $50,000, to be paid
quarterly, on the achievement of certain targeted goals. If 20% above the target
goals is realized, Dr. Otte will receive an additional $25,000. The $50,000
target bonus is guaranteed for the first year only. In addition, Dr. Otte's
Offer Letter provides for an initial grant of options to purchase 200,000 shares
of Company Common Stock, priced as of the close of business on May 28, 1999,
which are reflected in the Option Grant Table. The stock options vest over a
3 year period in approximately equal increments; however, on a material change
in ownership of the Company, all outstanding options will automatically vest.
Also under the terms of the Offer Letter, Dr. Otte will receive one year of base
compensation in case of his termination by the Company without cause.
Dr. Otte's Offer Letter also includes certain relocation provisions such as the
payment of moving costs, closing costs and realtors' fees for the purchase of a
new residence, and up to $10,000 for temporary living expenses.

Mr. Wardle's Offer Letter, dated March 2, 1999, indicates that Mr. Wardle is
to be paid a base salary of $210,000 annually and receive a $10,000 sign-on
bonus. The Officer Letter further provides for the receipt of a $25,000 maximum
annual bonus predicated on the achievement of certain mutually agreed upon
Company and personal performance objectives. Mr. Wardle also received an initial
grant of options to purchase 100,000 shares of Company Common Stock, priced as
of the close of business April 30, 1999, with a 3 year vesting period which are
reflected in the Option Grants Table. The vesting period for the options is
accelerated with a material change in control of the Company. The Offer Letter
also contains the provision that Mr. Wardle will receive one year of his base
compensation and the payment of COBRA premiums in the event of his termination
by the Company without cause or as a result of a material change in his
responsibilities, reporting relationships or location.

The Offer Letter of Mr. Dieter is dated January 20, 1999 and provides for a
base salary of $200,000 annually with a bonus potential of 20% of base salary if
certain Company and personal performance goals are met. Mr. Dieter, under the
terms of his Offer Letter, also received options to purchase 100,000 shares of
Company Common Stock under the same terms, except for the strike price, as those
granted to Mr. Wardle. Mr. Dieter's Offer Letter also provides for certain
relocation benefits which are identical to those described for Dr. Otte. Under
the Offer Letter, Mr. Dieter will receive one year of his base compensation in
the event of his termination by the Company without cause or as a result of a
material change in his responsibilities, reporting relationships or location.

Mr. Gillheeney's Offer Letter, dated August 9, 1999, indicates that he is to
be paid a base salary of $175,000 annually with an initial sign-on bonus of
$10,000. Mr. Gillheeney's base salary was subsequently increased to $200,000.
Also under the terms of the Offer Letter, Mr. Gillheeney has the potential to
receive up to 25% of his base annual salary as a bonus on the achievement of
certain performance objectives, both Company and personal. In addition,
Mr. Gillheeney received options to purchase 100,000 shares of Company Common
Stock under the same terms, except for the strike price, as those granted to
Mr. Wardle and Mr. Dieter. The Offer Letter also contains severance benefits as
described under Mr. Wardle's Offer Letter.

41
<PAGE>
All four Offer Letters indicate that benefits are to be received by the
executives as indicated under Company policies, except that Mr. Wardle's Offer
Letter provides that COBRA payments are to be reimbursed for 6 months.

Upon completion of the Recapitalization, Mr. Heffernan will receive a
payment in the amount of $897,000 in accordance with his employment agreement
and each of the other executive officers will receive a cash retention bonus of
$200,000.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of May 3, 2000 (unless otherwise
indicated), certain information regarding the beneficial ownership of shares of
Common Stock by each person known by the Company to be the beneficial owner of
more than 5% of outstanding Common Stock, by each director and each of the Named
Executive Officers of the Company and by all current directors and executive
officers as a group. Except as indicated in the footnotes, all of such shares of
Common Stock set forth in the following table are owned directly, and the
indicated person has sole voting and investment power with respect to all Common
Stock shown as beneficially owned by such person:

<TABLE>
<CAPTION>
AMOUNT OF BENEFICIAL OWNERSHIP
-------------------------------------
SHARES BENEFICIALLY PERCENTAGE OF
OWNED OUTSTANDING (1)
------------------- ---------------
<S> <C> <C>
DIRECTORS AND NAMED EXECUTIVE OFFICERS
Michael T. Heffernan (2).................................... 519,493 1.4%
Bryan B. Dieter (3)......................................... 33,333 *
John Wardle (4)............................................. 38,333 *
R. Adrian Otte, M.D......................................... -- *
Hugh L. Carey............................................... 7,500 *
Abraham D. Gosman (5)....................................... 8,537,126 23.0
David M. Livingston, M.D.................................... -- *
Kevin E. Moley.............................................. -- *
Eric Moskow, M.D. (6)....................................... 62,423 *

All current directors and executive officers as a group
(10 persons) (7).......................................... 9,198,208 24.7

OTHER 5% STOCKHOLDERS
Suffolk Construction Company, Inc. (8).................... 4,286,126 11.5
Hartz & Hartz, Ltd. (9)................................... 5,230,212 14.1
</TABLE>

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

* Less than one percent.

(1) Based upon a total of 37,198,845 shares of Common Stock outstanding on
May 3, 2000.

(2) Includes 300,000 shares that Mr. Heffernan has the right to acquire upon
exercise of an option.

(3) Includes 33,333 shares Mr. Dieter has the right to acquire upon exercise of
an option.

(4) Includes 33,333 shares Mr. Wardle has the right to acquire upon exercise of
an option.

(5) Includes (i) 4,018,707 shares held by Chancellor Partners Limited
Partnership I ("CPLP I") and (ii) 2,000,000 shares held in a revocable
trust. The sole general partner of CPLP I is CLP, Inc., which has sole
voting and dispositive powers as to the securities held by CPLP I.
Mr. Gosman is the sole stockholder and director of CLP, Inc. Mr. Gosman's
business address is ICSL Ltd., 3801 PGA Boulevard, Suite 901, Palm Beach
Gardens, Florida 33410.

42
<PAGE>
(6) Includes 12,101 shares held of record by Physician's Choice Management, LLC.
Dr. Moskow's options were cancelled February 1, 2000 when he terminated as
an employee and became a consultant.

(7) Includes 366,666 shares that the current directors and executive officers
have the right to acquire upon exercise of options.

(8) On February 24, 2000 a 13G filing was made by Suffolk Construction
Company Inc. stating that it has shared voting power with respect to
4,286,126 shares subject to a security interest pursuant to two stock pledge
agreements dated July 27, 1999. The address of Suffolk Construction
Company Inc. is 65 Allerton Street, Boston, MA 02119.

(9) Based solely on information provided to the Company in Form 3 and
Schedule 13G filed jointly by Susan M. Hartz and Stuart C. Hartz, each a 50%
owner of Hartz & Hartz, Ltd. ("Hartz"). According to Schedule 13G, Hartz is
the beneficial owner of 5,373,609 shares of Common Stock. According to
Form 3, 5,230,212 of these shares are owned directly by Hartz, 35,000 of
such shares are owned directly by Stuart C. Hartz, and 38,397 of such shares
are owned directly by Susan M. Hartz. The figure also includes options held
by Stuart C. Hartz and Susan M. Hartz, exercisable within 60 days, to
purchase 45,000 shares and 25,000 shares, respectively. Hartz may be deemed
to be the indirect beneficial owner of shares directly held by Stuart C.
Hartz and Susan M. Hartz. Each of Susan M. Hartz and Stuart C. Hartz may be
deemed to be the beneficial owners of each other's directly owned shares and
of shares directly owned by Hartz. The address of Hartz is 4 Malt Lane,
Lexington, MA 02421.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Prior to the sale of its DASCO real estate services operations in
August 1999, the Company provided construction management, development marketing
and consulting services to entities principally owned by Abraham D. Gosman
(former Chairman of the Board and former Chief Executive Officer) in connection
with the development and operation by such entities of several healthcare
related facilities (including a medical office building and a retirement
community). During the years ended January 31, 1999 and 1998, the Company
recorded revenues in the amount of $1.4 million and $10.5 million, respectively,
related to such services. The Company provided these services to such affiliated
parties on terms no more or less favorable to the Company than those provided to
unaffiliated parties.

During fiscal 1999, the Company advanced $10.9 million, which is reflected
in advances to stockholders and other assets at January 31, 1999, to Chancellor
Development Corp., a company principally owned by Mr. Gosman relating to the
development of a healthcare facility and retirement community. This
$10.9 million is evidenced by a note due July 2000 which accrues interest at the
prime rate and is guaranteed by Mr. Gosman. To secure his obligation under the
guarantee, Mr. Gosman pledged the stock of another company principally owned by
him ("Windrows") and (subject to prior pledges) 8.2 million shares of Company
Common Stock ("ICSL Pledged Shares"). Until the note has been repaid in full,
the Company has the right to vote the ISCL Pledged Shares, subject to the rights
of any prior pledgee. During November 1999, the Company agreed to waive claims
for interest on the note through the maturity date in consideration of waivers
of claims for unpaid rent with respect to certain leases and the termination or
amendment of these leases.

43
<PAGE>
approximately 35% of the units have been sold or are under contract, Windrows
anticipates a sell-out of the remaining units over the next 24 months. The
increased leverage and sell-out delays have reduced Windrows' residual interest
in the project and, correspondingly, the value of the Company's collateral. In
view of the reduction in Windrow's residual interest and the delays and
uncertainties inherent in proceeding against the Windrows stock and its
underlying assets, in January 2000, the Company completely wrote off the note.
Notwithstanding the write down, the Company is evaluating and intends to pursue
its options for collecting the note, including a lawsuit on the guarantee and/or
foreclosing on the pledged stock and Windrows interest in the project.

In May 1998 the Company made a loan in the original principal amount of
$1.0 million to Dr. Eric Moskow, a director and former employee of the Company.
Originally, this loan had an interest rate of 5.56% per annum and was due in
May 2005. On January 27, 2000, the Company entered into a Consulting Agreement
and Release with Dr. Moskow. Pursuant to this agreement, Dr. Moskow has ceased
his employment with the Company, but remains as a director and a consultant. The
agreement, among other provisions, provides for the termination of Dr. Moskow's
employment agreement, the cancellation of all outstanding stock options and the
cancellation of his indebtedness to the Company in the amount of $1 million. By
terminating Dr. Moskow's employment agreement, the Company avoided a payment of
$1 million that would have been due to Dr. Moskow under his employment agreement
upon the closing of the Recapitalization. Also, in August 1996, in connection
with the acquisition of his company, the Company loaned Dr. Moskow approximately
$448,000 on a non-recourse basis, secured by the pledge of 58,151 shares of
Company Common Stock. On December 29, 1999, the Company foreclosed on the
pledged shares.

During the year ended January 31, 2000, the Company leased office space at a
cost of $0.3 million for its Florida corporate office from PBG Medical Mall MOB
1 Properties, Ltd., of which Mr. Gosman is a partner.

As of January 31, 2000 and 1999, the Company had outstanding loans
receivable totaling $1.1 million and $1.9 million to various related entities
and individuals. For January 31, 2000 and 1999, the amount includes a
$1.0 million loan made in May 1998 to Dr. Moskow, described above, and a
$0.9 million unsecured note due on demand bearing interest of 10%, to a limited
partnership in which Mr. Gosman is a partner, which was paid off in April 2000.
Additionally, for January 31, 2000, the amount includes a $150,000 non-interest
bearing note to CareMatrix, a corporation of which Mr. Gosman is an officer
which is payable by May 31, 2000.

Mr. Ronai is a partner in the Connecticut law firm of Murtha, Cullina,
Richter and Pinney, which has been retained to perform certain legal services
for the Company. Mr. Ronai resigned as a director in December 1999.

During July 1995, the Company purchased the assets of and entered into a
15-year management agreement with a medical oncology practice with three medical
oncologists. Continuum Care of Massachusetts, Inc., a company principally owned
by Mr. Gosman, guarantees the performance of the Company's obligations under the
management agreement. The Company terminated the relationship with this practice
in March 2000.

Pursuant to a portfolio escrow agreement dated January 15, 1998, between
DASCO and Meditrust Corporation ("Meditrust"), of which, Mr. Gosman is the Chief
Executive Officer, DASCO agreed to escrow a portion of its consulting fees for
payment to Meditrust if certain assumptions regarding the purchase and
development of property acquired by Meditrust proved not to be correct. The
total escrow amount was $326,498. To date, $100,000 of the escrow amount has
been released to DASCO. The remaining $226,498, plus accrued interest, continues
to be held in escrow pending final resolution between Meditrust and DASCO of
lease commencement and tenant improvement allowance analysis and several
property issues.

44
<PAGE>
In January 1998, the Company assigned to CareMatrix, a corporation of which
Mr. Gosman is an officer, its rights under a management agreement with respect
to a 120 bed skilled facility to be located in Palm Beach Gardens for $800,000.
In exchange for concessions which the Company received in regard to potential
liabilities to CareMatrix, the Company agreed to reduce the receivable to
$350,000. To date, CareMatrix has paid $300,000 of the amount due with the
balance due on May 31, 2000.

PART IV

ITEM 14. FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K

(a) 1. Financial Statements

<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Financial Statements
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of January 31, 2000 and
1999...................................................... F-3
Consolidated Statements of Operations for the years ended
January 31, 2000, 1999 and 1998........................... F-4
Consolidated Statements of Changes in Stockholders' Equity
for the years ended January 31, 2000, 1999 and 1998....... F-5
Consolidated Statements of Cash Flows for the years ended
January 31, 2000, 1999 and 1998........................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>

2. Financial Statement Schedules

<TABLE>
<S> <C>
Report of Independent Accountants........................... S-1
Schedule II Valuation and Qualifying Accounts for the years
ended January 31, 2000, 1999 and 1998..................... S-2
</TABLE>

All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.

(b) Reports on Form 8-K

The Company filed a Current Report on Form 8-K on May 23, 2000 with the
Securities and Exchange Commission reporting under Item 5 the Company's plan to
convert its Debentures to common equity through a Prepackaged Plan of
Reorganization.

Please see the Exhibit Index to this Report which is incorporated herein by
reference.

(d) Financial Statements Excluded from Annual Report to Stockholders

Not Applicable

45
<PAGE>
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Annual
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized.

<TABLE>
<S> <C> <C>
INNOVATIVE CLINICAL SOLUTIONS, LTD

By: /s/ MICHAEL T. HEFFERNAN
-----------------------------------------
Michael T. Heffernan
CHAIRMAN OF THE BOARD OF DIRECTORS
AND CHIEF EXECUTIVE OFFICER
DATE: MAY 30, 2000
</TABLE>

Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dated indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Chairman of the Board of
/s/ MICHAEL T. HEFFERNAN Directors, Chief Executive
------------------------------------------- Officer and President May 30, 2000
Michael T. Heffernan (Principal Executive Officer)

/s/ GARY S. GILLHEENEY Chief Financial Officer and
------------------------------------------- Treasurer (Principal Financial May 30, 2000
Gary S. Gillheeney and Accounting Officer)

/s/ HUGH L. CAREY
------------------------------------------- Director May 30, 2000
Hugh L. Carey

------------------------------------------- Director
Abraham D. Gosman

/s/ DAVID W. LIVINGSTON, M.D.
------------------------------------------- Director May 30, 2000
David W. Livingston, M.D.

/s/ KEVIN E. MOLEY
------------------------------------------- Director May 30, 2000
Kevin E. Moley

/s/ ERIC MOSKOW, M.D.
------------------------------------------- Director May 30, 2000
Eric Moskow, M.D.
</TABLE>

46
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Accountants........................... F-2

Consolidated Balance Sheets as of January 31, 2000 and
1999...................................................... F-3

Consolidated Statements of Operations for the years ended
January 31, 2000, 1999, and 1998.......................... F-4

Consolidated Statements of Changes in Stockholders' Equity
for the years ended January 31, 2000, 1999, and 1998...... F-5

Consolidated Statements of Cash Flows for the years ended
January 31, 2000, 1999, and 1998.......................... F-6

Notes to Consolidated Financial Statements.................. F-7
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors and Stockholders of Innovative Clinical Solutions Ltd.:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and of changes in stockholders' equity and
of cash flows present fairly, in all material respects, the financial position
of Innovative Clinical Solutions Ltd. and its subsidiaries at January 31, 2000
and 1999, and the results of their operations and their cash flows for each of
the three years in the period ended January 31, 2000, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has experienced recurring losses from
operations, negative cash flows from operations and has net negative equity
which raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

PricewaterhouseCoopers LLP
Boston, Massachusetts
May 19, 2000

F-2
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS LTD.

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)

<TABLE>
<CAPTION>
JANUARY 31,
---------------------
2000 1999
--------- ---------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 25,558 $ 10,137
Receivables:
Accounts receivable, net of allowances of $3,846 and
$1,350 at January 31, 2000 and 1999, respectively..... 16,193 15,276
Income tax refund receivable............................ -- 10,789
Other receivables....................................... 4,710 6,760
Related party and other notes receivables (Notes 5 and
13)................................................... 7,222 5,060
Prepaid expenses and other current assets................. 394 1,260
Assets held for sale (Note2).............................. 2,419 100,795
--------- ---------
Total current assets.................................. 56,496 150,077
Property, plant and equipment, net (Note 6)................. 9,099 11,024
Notes receivable (Note 5)................................... 4,892 7,274
Goodwill, net (Note 2)...................................... 3,681 41,007
Management service agreements, net (Note 2)................. 8,612 28,167
Investment in affiliates (Note 7)........................... -- 98
Restricted cash............................................. 2,077 --
Advances to stockholder and other assets.................... 2,454 15,204
--------- ---------
Total assets.......................................... $ 87,311 $ 252,851
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of debt and capital leases (Note 9)....... 11,718 $ 12,192
Convertible subordinated debentures (Note 9).............. 100,000 --
Accounts payable.......................................... 11,859 13,602
Accrued compensation...................................... 2,060 1,475
Accrued and other current liabilities (Note 8)............ 23,575 11,623
--------- ---------
Total current liabilities............................. 149,212 38,892
Long-term debt and capital leases (Note 9).................. 4,234 5,465
Convertible subordinated debentures (Note 9)................ -- 100,000
Other long-term liabilities (Notes 3 and 12)................ 95 1,191
Minority interest........................................... 492 1,403
--------- ---------
Total liabilities..................................... 154,033 146,951
Commitments and contingencies (Notes 3 and 12)
Stockholders' equity:
Common stock, par value $.01, 40,000 shares authorized,
33,387 and 33,344 shares issued at January 31, 2000 and
1999, respectively 32,011 and 32,916 shares outstanding
at January 31, 2000 and 1999, respectively.............. 320 329
Treasury stock............................................ (2,664) (1,202)
Additional paid in capital................................ 224,771 224,715
(Accumulated deficit)..................................... (289,149) (117,942)
--------- ---------
Total stockholders' equity (deficit).................. (66,722) 105,900
--------- ---------
Total liabilities and stockholders' equity............ $ 87,311 $ 252,851
========= =========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-3
<PAGE>
INOVATIVE CLINICAL SOLUTIONS LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
2000 1999 1998
--------- --------- --------
<S> <C> <C> <C>
Net revenues (Note 2):
Net revenues from services.................................. $ 125,865 $ 179,472 $155,946
Net revenues from management service agreements............. 59,996 103,112 94,134
Net revenues from real estate services...................... 423 8,694 31,099
--------- --------- --------
Total revenue............................................... 186,284 291,278 281,179
--------- --------- --------
Operating costs and administrative expenses
Salaries, wages and benefits.............................. 61,924 94,710 88,221
Professional fees......................................... 22,962 16,287 9,597
Supplies.................................................. 39,014 60,055 44,909
Utilities................................................. 4,037 5,501 4,574
Depreciation and amortization............................. 11,699 14,786 10,800
Rent...................................................... 15,279 20,671 16,649
Provision for bad debts................................... 6,491 8,428 5,915
Loss (gain) on sale of assets (Note 6).................... 11 (5,414) (1,891)
Provision for write-down of notes receivable (Note 5)..... 13,840 2,674 --
Merger and other noncontinuing expenses related to CSL
(Note 3)................................................ -- -- 11,057
Goodwill impairment write-down (Note 2)................... 36,046 9,093 --
Nonrecurring expenses (Note 4)............................ 1,723 10,465 --
Capitation expenses and other............................. 84,465 91,542 67,182
--------- --------- --------
Total operating costs and administrative expenses........... 297,491 328,798 257,013
--------- --------- --------
Income (loss) from operations............................... (111,207) (37,520) 24,166
--------- --------- --------
Interest expense, net....................................... 10,220 8,005 4,775
(Income) from investments in affiliates..................... (46) -- (731)
--------- --------- --------
10,174 8,005 4,044
--------- --------- --------
Income (loss) before provision for income taxes and
extraordinary item........................................ (121,381) (45,525) 20,122
Income tax expense (benefit)................................ 194 (11,549) 9,823
--------- --------- --------
Net income (loss) before extraordinary item (Note 2)........ (121,575) (33,976) 10,299
Extraordinary loss, net of tax of $0 (Note 4)............... 49,632 96,784 --
--------- --------- --------
Net income (loss)........................................... $(171,207) $(130,760) $ 10,299
========= ========= ========
Net income (loss) per share--basic (Note 19)
Income (loss) before extraordinary item................... $ (3.45) $ (1.02) $ 0.35
Extraordinary item, net of tax of $0...................... $ (1.41) $ (2.89) $ --
Net income (loss)......................................... $ (4.86) $ (3.91) $ 0.35
Net income (loss) per share--diluted (Note 19)
Income (loss) before extraordinary item................... $ (3.45) $ (1.02) $ 0.35
Extraordinary item, net of tax of $0...................... $ (1.41) $ (2.89) $ --
Net income (loss)......................................... $ (4.86) $ (3.91) $ 0.35
Pro Forma Information (Note 2)
Adjustment to income tax expense............................ $ -- $ -- $ 624
Net Income.................................................. $ -- $ -- $ 9,675
Net income per share--basic................................. $ -- $ -- $ 0.33
Net income per share--diluted............................... $ -- $ -- $ 0.33
Weighted average shares outstanding--basic (Note 19)........ 35,235 33,401 29,690
Weighted average shares outstanding--diluted (Note 19)...... 35,235 33,401 30,229
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-4
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS LTD.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED JANUARY 31, 2000, 1999, AND 1998

(IN THOUSANDS)

<TABLE>
<CAPTION>
COMMON STOCK RETAINED
OUTSTANDING ADDITIONAL EARNINGS
------------------- TREASURY PAID-IN (ACCUMULATED
SHARES AMOUNT STOCK CAPITAL DEFICIT) TOTAL
-------- -------- -------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Balances--January 31, 1997............................... 27,625 $276 $ -- $150,026 $ 3,478 $ 153,780

Adjustment for immaterial pooling of interests........... -- -- -- -- 644 644
CSL's January 1997 earnings excluded from
Net income (as described in Note 2).................... -- -- -- -- 344 344
Purchase of treasury stock at cost....................... -- -- (75) -- -- (75)
Issuance of stock pursuant to acquisitions............... 3,430 34 -- 48,059 -- 48,093
Issuance of stock pursuant to stock plans................ 193 2 -- 920 -- 922
Issuance costs........................................... -- -- -- (112) -- (112)
Net income for the year ended January 31, 1998........... -- -- -- -- 10,299 10,299
Dividends................................................ -- -- -- -- (1,860) (1,860)

Balances--January 31, 1998............................... 31,248 312 (75) 198,893 12,905 212,035

Purchase of treasury stock at cost....................... (427) (4) (1,127) -- -- (1,131)
Issuance of stock pursuant to acquisitions............... 2,059 21 -- 25,785 -- 25,806
Issuance of stock pursuant to stock plans................ 36 -- -- 130 -- 130
Issuance costs and other................................. -- -- -- (93) (87) (180)
Net loss for the year ended January 31, 1999............. -- -- -- -- (130,760) (130,760)

Balances--January 31, 1999............................... 32,916 329 (1,202) 224,715 (117,942) $ 105,900

Issuance of stock pursuant to acquisitions............... 51 1 -- 56 -- 57
Purchase of treasury stock at cost....................... (956) (10) (1,462) -- -- (1,472)
Net loss for the year ended January 31, 2000............. -- -- -- -- (171,207) (171,207)

Balances--January 31, 2000............................... 32,011 $320 $(2,664) $224,771 $(289,149) $ (66,722)
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-5
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS LTD

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
--------------------------------
2000 1999 1998
--------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $(171,207) $(130,760) $ 10,299
Noncash items included in net income (loss):
Depreciation and amortization........................... 11,699 14,786 10,800
Extraordinary item...................................... 49,632 96,784 --
Loss (gain) on sale of assets........................... 11 (5,414) (1,891)
Nonrecurring charges.................................... 1,723 10,465 --
Write-down of notes receivable.......................... 13,840 2,674 --
Goodwill impairment write-down.......................... 36,046 9,093 --
Amortization of debt issuance costs..................... 1,415 1,708 727
Other................................................... (173) 656 (688)
Changes in receivables...................................... 7,986 (1,699) (8,571)
Changes in accounts payable and accrued liabilities......... 5,516 (1,020) 215
Changes in amounts due from physicians...................... -- 3,216 (6,243)
Changes in other assets..................................... 15,305 (5,393) (6,932)
--------- --------- --------
Net cash used by operating activities................... (28,207) (4,904) (2,284)
Cash flows from investing activities:
Capital expenditures...................................... (4,593) (6,601) (10,248)
Sale of assets............................................ 48,669 7,888 4,019
Notes receivable, net..................................... (198) (2,550) 6,957
Purchase of investments in affiliates..................... -- -- (1,354)
Other assets.............................................. -- (110) 439
Acquisitions, net of cash acquired (Note 17).............. (1,404) (11,164) (34,444)
--------- --------- --------
Net cash provided (used) by investing activities........ 42,474 (12,537) (34,631)
Cash flows from financing activities:
Borrowings under revolving lines of credit................ 22,311 -- 26,571
Repayments by (advances to) shareholders.................. 44 (10,904) --
Proceeds from issuance of common stock.................... -- 130 914
Dividends to shareholders................................. -- -- (1,861)
Changes in restricted cash................................ 2,077 -- --
Release of cash collateral................................ -- -- 4,504
Offering costs and other.................................. (15) (234) (88)
Repurchase of treasury stock.............................. (1,472) (769) --
Repayment of debt......................................... (21,791) (10,181) (25,239)
--------- --------- --------
Net cash provided (used) by financing activities........ 1,154 (21,958) 4,801
Increase (decrease) in cash and cash equivalents............ 15,421 (39,399) (32,114)
Cash and cash equivalents, beginning of year................ 10,137 49,536 81,650
--------- --------- --------
Cash and cash equivalents, end of year...................... $ 25,558 $ 10,137 $ 49,536
========= ========= ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-6
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.

NOTES TO CONSLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS AND RECENT EVENTS

DESCRIPTION OF BUSINESS

Innovative Clinical Solutions, Ltd. (together with its subsidiaries, the
"Company" or "ICSL") is repositioning itself as a company that provides diverse
services supporting the needs of the pharmaceutical and managed care industries.
The Company is focusing its operations on two integrated business lines:
pharmaceutical services, including investigative site management, clinical and
outcomes research and disease management, and multi and single-specialty
provider network management. Historically, the Company has been an integrated
medical management company that provided medical management services to the
medical community, certain ancillary medical services to patients and medical
real estate development and consulting services to related and unrelated third
parties. In August 1998, the Company announced that it planned to change this
business model. The Company has nearly completed the process of terminating its
management of individual and group physician practices and divesting itself of
related assets, and selling and divesting itself of its ancillary medical
service businesses, such as diagnostic imaging, radiation therapy, lithotripsy
services, home healthcare and infusion therapy. In conjunction with the change
in its business model, the Company also significantly downsized and then, in
August 1999, sold the operation of its real estate services. The Company
currently estimates that by the end of the second quarter of its current fiscal
year it will have exited all of its physician practice management ("PPM") and
ancillary medical service businesses.

Innovative Clinical Solutions, Ltd., formerly known as PhyMatrix Corp. which
was formerly known as Continuum Care Corporation, consummated an initial public
offering (the "offering") during January 1996. In conjunction with the offering,
the Company exchanged 13,040,784 shares of its Common Stock for all of the
outstanding common stock of several business entities (the "IPO entities")
which, prior to the offering, were operated under common control by Abraham D.
Gosman and, with respect to DASCO Development Corporation and affiliate
("DASCO") by Mr. Gosman and Bruce A. Rendina, since their respective dates of
acquisition. Subsequent to the offering, the Company changed its fiscal year end
from December 31 to January 31.

During October 1997, the Company combined with Clinical Studies, Ltd.
("CSL"). This business combination was accounted for as a pooling of interest.
CSL is a site management organization conducting clinical research for
pharmaceutical and biotechnology companies and clinical research organizations
at 42 centers located in 15 states. Accordingly, the financial statements for
all periods prior to the effective date of the merger have been restated to
include CSL and Clinical Marketing Ltd. ("CML") which was merged into CSL on
January 1, 1997.

SIGNIFICANT EVENTS

F-7
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.

NOTES TO CONSLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. DESCRIPTION OF BUSINESS AND RECENT EVENTS (CONTINUED)
infusion therapy. In the second quarter of 2000 the Company also decided to
divest its investments in a surgery center and a physician network, and sell its
real estate service operations. The revenue and pretax loss of these businesses
which have been identified to be divested or disposed for the year ended
January 31, 2000 were $92.5 million and $70.5 million, respectively. Net loss
for the year ended January 31, 2000 included an extraordinary item of
$49.6 million (net of tax of $0), which is primarily a non-cash charge related
to these divestitures. In accordance with APB 16, the Company is required to
record these charges as an extraordinary item since impairment losses are being
recognized for divestitures and disposals expected to be completed within two
years subsequent to a pooling of interests. Based on fair market value
estimates, which have primarily been derived from purchase agreements, letters
of intent, letters of interest and discussions with prospective buyers, the
Company currently expects to realize net proceeds of approximately $2.4 million
(subsequent to January 31, 2000 approximately $0.9 million was realized) from
the sale of the remaining businesses identified to be divested or disposed and
has recorded this amount as an asset held for sale on the balance sheet at
January 31, 2000.

The Company's extensive losses in the past two years, its negative cash
flows from operations and its net negative equity position, as well as
management's assessment that the Company will be unable to retire the
$100 million 6.75% convertible subordinated debentures due 2003, raise
substantial doubt as to the Company's ability to continue as a going concern.
Management has developed plans to improve profitability of its core business
operations and to convert the debtentures into common equity which is further
described in Note 23--Subsequent Events.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its 50% or greater owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated in consolidation.

ESTIMATES USED IN PREPARATION OF FINANCIAL STATEMENTS

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Estimates
are used when accounting for the estimated proceeds to be realized from the
assets held for sale, collectibility of receivables and third party settlements,
depreciation and amortization, taxes and contingencies.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of highly liquid instruments with
maturities at the time of purchase of three months or less.

F-8
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.

NOTES TO CONSLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION

Net revenues from services are reported at the estimated realizable amounts
from patients, third-party payors and others for services rendered. Revenue
under certain third-party payor agreements is subject to audit and retroactive
adjustments. Provisions for estimated third-party payor settlements and
adjustments are estimated in the period the related services are rendered and
adjusted in future periods as final settlements are determined. The provision
and related allowance are adjusted periodically, based upon an evaluation of
historical collection experience with specific payors for particular services,
anticipated reimbursement levels with specific payors for new services, industry
reimbursement trends and other relevant factors.

Net revenues from clinical studies (which are included in net revenues from
services) equal the fees to be received, primarily from pharmaceutical
companies, as services are provided to patients enrolled in the studies.
Revenues are recognized as patient visits are conducted and such services are
provided. Payments received prior to providing services are recorded as unearned
revenue.

Net revenues from management service agreements include fees paid to the
Company by the management service agreements for providing management services.
These fees generally are either a fixed amount per enrollee or a specified
percentage of capitated revenues. In addition, the Company may be entitled to
participate in risk pools.

In accordance with EITF 97-2, which the Company implemented during the
fourth quarter of fiscal 1999, net revenues from management service agreements
generally includes the net revenue generated by the physician practices net of
payments to physicians. Under the agreements, the Company, in most cases, is
responsible and at risk for the operating costs which include the reimbursement
of all medical practice operating costs. For the years ended January 31, 2000,
1999, and 1998, the payments to physicians which have been netted against
revenues were $42.5 million, $67.7 million and $65.4 million, respectively.

Net revenues from real estate services are recognized at the time services
are performed. In some cases fees are earned upon the achievement of certain
milestones in the development process, including the receipt of a building
permit and a certificate of occupancy of the building. Unearned revenue relates
to all fees received in advance of services being completed on development
projects.

THIRD PARTY REIMBURSEMENT

For the years ended January 31, 2000, 1999, and 1998, approximately 17%, 16%
and 19%, respectively, of the Company's net revenue was primarily from the
participation of the Company's home healthcare entities and physician practices
in Medicare programs. Medicare compensates the Company on a "cost reimbursement"
basis for home healthcare, meaning Medicare covers all reasonable costs incurred
in providing home healthcare. Medicare compensates the Company for physician
services based on predetermined fee schedules. In addition to extensive existing
governmental healthcare regulation, there are numerous initiatives at the
federal and state levels for comprehensive reforms affecting the payment for and
availability of healthcare services. Legislative changes to federal or state
reimbursement systems could adversely and retroactively affect recorded
revenues. As of January 31, 2000, the Company had divested or disposed of its
home healthcare businesses and substantially all of its physician practices.

F-9
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.

NOTES TO CONSLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ASSETS HELD FOR SALE

During the year ended January 31, 1999, the Board approved, consistent with
achieving its stated repositioning goal, a plan to divest and exit the Company's
PPM business and certain of its ancillary services businesses, including
diagnostic imaging, lithotripsy, radiation therapy, home health and infusion
therapy. In August 1999 the Company also decided to divest its investments in a
surgery center and a physician network, and sell its real estate service
operations. The revenue and pretax loss of these businesses which have been
identified to be divested or disposed for the years ended January 31, 2000 and
1999 were $92.5 million and $70.5 million, and $155.4 million and
$96.3 million, respectively. Net loss for the year ended January 31, 2000 and
1999 included an extraordinary item of $49.6 million (net of tax of $0), and
$96.8 million, respectively, which is primarily a non-cash charge related to
these divestitures. Based on fair market value estimates, which have primarily
been derived from purchase agreements, letters of intent, letters of interest
and discussions with prospective buyers, the Company currently expects to
realize net proceeds of approximately $2.4 million (subsequent to January 31,
2000 approximately $0.9 million was realized) from the sale of the remaining
businesses identified to be divested or disposed and has recorded this amount as
an asset held for sale on the balance sheet at January 31, 2000. Assets and
liabilities of the businesses held for sale have been removed from their
respective accounts and therefore are excluded from the foregoing footnote
disclosures related to these individual balance sheet items at January 31, 2000
and 1999, since these amounts have been reclassified to assets held for sale.

PROPERTY AND EQUIPMENT

Additions are recorded at cost, or in the case of capital lease property, at
the net present value of the minimum lease payments required, and depreciation
is recorded principally by use of the straight-line method of depreciation for
buildings, improvements and equipment over their useful lives. Upon disposition,
the cost and related accumulated depreciation are removed from the accounts and
any gain or loss is included in income. Maintenance and repairs are charged to
expense as incurred. Major renewals or improvements are capitalized. Assets
recorded under capital leases are amortized over the shorter of their estimated
useful lives or the lease terms.

INCOME TAXES

The Company follows the provisions of Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." Deferred taxes arise
primarily from the recognition of revenues and expenses in different periods for
income tax and financial reporting purposes.

Prior to the merger with CSL, CSL had elected to be treated as S
Corporations as provided under the Internal Revenue Code (the "Code"), whereby
income taxes are the responsibility of the shareholders. Accordingly, the
Company's statements of operations do not include provisions for income taxes
for income related to CSL prior to the merger. Prior to the merger, dividends
were primarily intended to reimburse shareholders for income tax liabilities
incurred.

F-10
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.

NOTES TO CONSLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRO FORMA INFORMATION

The pro forma net income and net income per share information in the
consolidated statement of operations reflect the effect on historical results
(prior to the merger with CSL) as if CSL had been a C corporation rather than an
S corporation for income tax purposes.

GOODWILL

Goodwill relates to the excess of cost over the value of net assets of the
businesses acquired. Amortization is calculated on a straight-line basis over
periods ranging from ten to 36 years. Accumulated amortization of goodwill was
$1.6 million and $3.2 million at January 31, 2000 and 1999, respectively. The
decrease in accumulated amortization of goodwill is primarily attributable to
the entities divested/disposed during the year ended January 31, 2000 and 1999
or the reclassification of accumulated amortization to assets held for sale at
January 31, 2000 and 1999. Statement of Financial Accounting Standards (SFAS)
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" requires that goodwill be written down if anticipated
future cash flows from operation are insufficient to justify the goodwill asset.
The Company recorded a $36.1 million write-off of goodwill for the year ended
January 31, 2000 due to the closure of certain unprofitable operations, both in
clinical studies and network management, and the impairment of the assets of
several sites as a result of SFAS 121.

In connection with the Board of Directors' plan to reposition the Company,
and due in part to the resignation of Bruce A. Rendina as Chief Executive
Officer of the Company's real estate services segment, the Company downsized its
real estate services segment in 1999 and subsequently sold the remaining real
estate assets in 2000. During the fourth quarter ended January 31, 1999, the
Company recorded a goodwill impairment write-down of approximately
$9.1 million, which eliminated the remaining goodwill of the real estate
services segment. The asset of goodwill was determined to have been impaired
because of the Company's decision to significantly downsize the real estate
segment and the inability to generate future operating income without
substantial revenue growth, which was determined to be uncertain. Moreover,
anticipated future cash flows of the real estate segment indicated that the
recoverability of the asset was not likely. The Company sold the real estate
operation in August 1999.

MANAGEMENT SERVICE AGREEMENTS

Management service agreements consist of the costs of purchasing the rights
to manage medical oncology, physician groups and certain diagnostic imaging
centers. These costs are amortized over the initial non-cancelable terms of the
related management service agreements ranging from ten to 25 years. Under the
long-term agreements, the medical groups have agreed to provide medical services
on an exclusive basis only through facilities managed by the Company.
Accumulated amortization of management service agreements was $.6 million and
$1.4 million at January 31, 2000 and 1999, respectively. The decrease in
accumulated amortization of management service agreements is primarily
attributable to the entities divested/disposed during the years ended
January 31, 2000 and 1999 or the reclassification of accumulated amortization to
assets held for sale at January 31, 2000 and 1999. Effective February 1, 1998,
management changed its policies regarding amortization of its management
services agreement intangible assets. The Company adopted a maximum of 25 years
(from the inception of the respective intangible asset) as the useful life for
amortization of its management

F-11
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.

NOTES TO CONSLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
services agreement intangible assets. Using the unamortized portion of the
intangible at January 31, 1998, the Company began amortizing the intangible over
the remainder of the 25 year useful life. These costs had historically been
charged to expense through amortization using the straight-line method over the
periods during which the agreements are effective, generally 30 to 40 years.
This change represented a change in accounting estimate and, accordingly, does
not require the Company to restate reported results for prior years. This change
increased amortization expense relating to existing intangible assets at
January 31, 1998, by approximately $0.7 million annually.

DEBT ISSUANCE COSTS

Offering costs of approximately $5.6 million related to the convertible
subordinated debentures and the revolving line of credit agreement (see Note 9)
have been deferred and are being amortized over the life of the convertible
subordinated debentures and the term of the revolving line of credit agreement,
respectively. The revolving line of credit agreement was amended during
December 1998 and the maturity was changed to March 1999. Therefore, the
amortization of the debt issuance costs related to this line of credit was
accelerated, resulting in additional amortization expense of $0.6 million and
$0.6 million for the years ended January 31, 2000 and 1999, respectively.
Amortization expense of $1.4 million, $1.7 million and $0.7 million has been
included as interest expense in the accompanying financial statements for the
years ended January 31, 2000, 1999 and 1998, respectively.

LONG-LIVED ASSETS

The Company periodically assesses the recoverability of long-lived assets,
including property and equipment and intangibles, when there are indications of
potential impairment, based on estimates of undiscounted future cash flows. The
amount of impairment is calculated by comparing anticipated discounted future
cash flows with the carrying value of the related asset. In performing this
analysis, management considers such factors as current results, trends and
future prospects, in addition to other economic factors.

INVESTMENTS

The equity method of accounting is used for investments when there exists a
non-controlling ownership interest in another company that is greater than 20%.
Under the equity method of accounting, original investments are recorded at cost
and adjusted by the Company's share of earnings or losses of such companies, net
of distributions. As of January 31, 2000 the Company's investment was $0 due to
divestitures during the year.

NET INCOME (LOSS) PER COMMON SHARE

Effective December 15, 1997, the Company adopted SFAS No. 128, "Earnings Per
Share". Under SFAS No. 128, the basic earnings per share is calculated by
dividing net income by the weighted average number of shares of Common Stock
outstanding during the period. Stock to be issued at a future date pursuant to
acquisition agreements is treated as outstanding in determining basic earnings
per share. In addition, diluted earnings per share is calculated using the
weighted average number of shares of Common Stock and common stock equivalents,
if dilutive.

F-12
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.

NOTES TO CONSLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK OPTION PLANS

On February 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation", which permits entities to recognize as expense over
the vesting period, the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made during the
years ended January 31, 2000, 1999, and 1998, and future years as if the
fair-value-based method defined in SFAS No. 123 had been applied. The Company
has elected to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS No. 123.

FISCAL YEAR

Upon the completion of the merger during October 1997, CSL changed its
fiscal year end from December 31 to January 31. Amounts consolidated for CSL for
the year ended January 31, 1997 were based on a December 31 fiscal year end. As
a result, CSL's historical results of operations for the month ending
January 31, 1997 are not included in the Company's consolidated statements of
operations or cash flows.

RECLASSIFICATIONS

Certain prior year balances have been reclassified to conform to the current
year presentation. Such reclassifications had no material effect on the
previously reported consolidated financial position, results of operations or
cash flows of the Company.

COMPREHENSIVE INCOME

For the periods included in the Form 10-K, the Company does not have items
of comprehensive income requiring reporting or disclosure.

ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS

In 1997, the Emerging Issues Task Force of the Financial Accounting
Standards Board issued EITF 97-2 concerning the consolidation of physician
practice revenues. PPMs are required to consolidate financial information of a
physician where the PPM acquires a "controlling financial interest" in the
practice through the execution of a contractual management agreement even though
the PPM does not own a controlling equity interest in the physician practice.
EITF 97-2 outlines six requirements for establishing a controlling financial
interest. EITF 97-2 is effective for the Company's financial statements
beginning in the year ended January 31, 1999. Adoption of this statement reduced
previously reported revenues and expenses for the years ended January 31, 1998
by $65.4 million. During August 1998, the Company announced its plan to divest
and exit the PPM business. The assets, which have not yet been divested, are
recorded as assets held for sale at January 31, 2000 and 1999.

During the year ended January 31, 1999, the Company adopted SFAS 131,
"Disclosures About Segments of an Enterprise and Related Information". This
Statement requires reporting of summarized financial results for operating
segments as well as established standards for related disclosures about products
and services, geographic areas and major customers. Primary disclosure
requirements include total segment revenues, total segment profit or loss and
total segment assets. The adoption of

F-13
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.

NOTES TO CONSLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SFAS 131 did not affect the Company's results of operations or financial
position but did affect the disclosure of segment information (see Note 21).

In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation--an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the following: the definition of an employee for purposes of applying APB
Opinion No. 25; the criteria for determining whether a plan qualifies as a
noncompensatory plan; the accounting consequences of various modifications to
the terms of previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. The Company
does not expect the application of FIN 44 to have a material impact on the
Company's financial position or results of operations.

3. ACQUISITIONS

YEAR ENDED JANUARY 31, 1999 TRANSACTIONS (ALL INFORMATION RELATED TO THE NUMBER
OF PHYSICIANS IS AS OF THE TRANSACTION DATE)

During February 1998, the Company purchased New England Research Center, a
clinical research center located in Massachusetts. At the time of its
acquisition, New England Research Center had over 50 ongoing studies, primarily
in allergy and asthma. In conjunction with the acquisition, the Company entered
into a 40-year agreement with the physicians and employees to manage the
clinical trials at New England Research Center. The purchase price was
approximately $5.7 million. Of such purchase price, approximately $1.5 million
was paid in cash and 333,006 shares of Common Stock were issued having a value
of $4.3 million. The purchase price was allocated primarily to management
services agreements and is currently being amortized over 25 years.

During February 1998, the Company completed the formation of an MSO with
Beth Israel Medical Center and the physician organizations that represented more
than 1,700 physicians of Beth Israel and its parent corporation. The Company
owns one-third of the MSO. The Company provides management services for the MSO
which provides the physicians and hospitals with medical management and contract
negotiation support for risk agreements with managed care payors. In connection
with the formation of the MSO, PhyMatrix Management Company, Inc.
("Management"), a subsidiary of the Company, agreed with Beth Israel Medical
Center ("Beth Israel") that Management and its affiliates (including the
Company) would not, directly or indirectly, (i) operate, manage or provide risk
contract management services to any physicians, IPAs or group practices located
in New York County, Kings County or Westchester County, New York (the
"Restricted Zone") which are affiliated with a hospital or hospital system or
any affiliate (with certain exceptions) or (ii) participate with a hospital or
hospital system or any affiliate (other than Beth Israel) in an MSO or other
person that operates, manages or provides risk contract management services
within the Restricted Zone (with

F-14
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.

NOTES TO CONSLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. ACQUISITIONS (CONTINUED)
certain exceptions). In addition, the owners of two-thirds of the MSO have the
right to require the Company to purchase their interests at the option price,
which is based upon earnings, during years six and seven. This relationship has
been terminated by mutual agreement effective May 2000.

During February 1998, the Company purchased a diagnostic imaging center
located in Delray Beach, Florida. The base purchase price was approximately
$6.6 million. The base purchase price was paid in 495,237 shares of Common Stock
of the Company. There was also a potential contingent payment up to a maximum of
$2.0 million, which was not earned. The purchase price was allocated to the
assets at fair market value including goodwill of $6.6 million. The resulting
intangible was being amortized over 25 years. At January 31, 1999, the Company
had recorded the estimated net realizable value of this business as assets held
for sale and the business was sold in the year ended January 31, 2000.

During March 1998, the Company entered into an administrative service
agreement with HIA Bensonhurst Imaging Associates, LLP, a diagnostic imaging
center in Brooklyn, New York. The consideration paid was approximately
$5.1 million of Common Stock. There is also a contingent payment up to a maximum
of $1.9 million based on the center's earnings before taxes, which is payable in
cash and/or Common Stock of the Company. As of January 31, 1999, this contingent
payment had not been earned. The purchase price was allocated to the assets at
fair market value including management services agreements of $5.1 million. The
resulting intangible was being amortized over 25 years. At January 31, 1999, the
Company had recorded the estimated net realizable value of this business as
assets held for sale and the business was subsequently disposed of in the year
ended January 31, 2000.

During April 1998, the Company completed the formation of an MSO, which is
51% owned by the Company, with LIPH, LLC. The Company manages for the MSO the
medical risk contracting for more than 2,600 physicians which are members in
IPAs in New York. The base purchase price was $3.0 million. Of such price,
$1.5 million was paid in cash and 143,026 shares of Common Stock were issued
having a value of $1.5 million. There are also contingent payments up to a
maximum of $5.0 million payable in cash and Common Stock, with $4.0 million of
such amount based upon earnings during the three years after the closing date
and the remaining $1.0 million based upon the achievement of certain conditions
during any twelve-month period during the three years after the closing date.
The Company and LIPH, LLC are in dispute as to amounts owed to the Company
primarily for management services provided. The Company is in the process of
negotiating the termination of this relationship.

During April 1998, the Company acquired the business and certain assets of a
clinical research company in Massachusetts. The base purchase price was
$2.6 million plus the assumption of liabilities of approximately $0.4 million.
Of such purchase price, $1.5 million was paid in 144,405 shares of Common Stock
of the Company, $70,000 is payable in shares of Common Stock on the first
anniversary of the closing date and $1.1 million is payable in shares of Common
Stock of the Company on the second anniversary of the closing date. In addition,
there is a contingent payment up to a maximum of $2.4 million payable in Common
Stock based on earnings before taxes during the next four years. Through
January 31, 2000, this contingent payment has not been earned. The purchase
price was allocated to the assets at fair market value including goodwill of
$2.7 million. The resulting intangible was being amortized over 20 years and in
the year ended January 31, 2000 was written off due to a FAS 121 evaluation and
the anticipation of insufficient cash flow to support the amount of goodwill

F-15
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.

NOTES TO CONSLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. ACQUISITIONS (CONTINUED)
being carried on the balance sheet. In April 2000 the Company issued
approximately 5.2 million shares of Common Stock in satisfaction of the
$1.1 million payable.

During January 1999, the Company acquired the stock of, and entered into a
management agreement with, a clinical research company specializing in allergy
and asthma research located in Illinois. The purchase price for the stock was
approximately $4.2 million. Of such purchase price, $1.6 million was paid in
cash during March 1999 and $2.6 million is payable primarily under non-interest
bearing promissory notes between the second and fifth anniversaries of the
closing date. The purchase price was allocated to the assets at fair market
value including management service agreements of $3.5 million. The resulting
intangible is being amortized over 25 years.

CSL MERGER

Effective October 15, 1997, a subsidiary of the Company merged with CSL in a
transaction that was accounted for as a pooling of interests. The Company
exchanged 5,204,305 shares of its Common Stock for all of the outstanding common
stock of CSL. The Company's historical financial statements for all periods have
been restated to include the results of CSL.

The following table, which is unaudited, reflects the combined revenues, net
income, net income per share and weighted average number of shares outstanding
for the respective periods. The Pro Forma Combined column adjusts the historical
net income for CSL to reflect the results of operations as if CSL had been a C
corporation rather than an S corporation for income tax purposes. The Adjusted
Pro Forma Combined column adjusts the Pro Forma Combined column by eliminating
certain noncontinuing charges incurred by CSL.

<TABLE>
<CAPTION>
PRO ADJUSTED
FORMA PRO FORMA
ICSL CSL COMBINED COMBINED
-------- -------- -------- ---------
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
FOR THE YEAR ENDED JANUARY 31, 1998
<S> <C> <C> <C> <C>
Revenues............................................. $251,211 $29,968 $281,179 $281,179
Net income........................................... $ 7,253 $ 2,422 $ 9,675 $ 20,368
Net income per share--basic.......................... $ 0.30 $ 0.46 $ 0.33 $ 0.69
Net income per share--diluted........................ $ 0.30 $ 0.46 $ 0.33 $ 0.68
Weighted average number of shares
outstanding--basic................................. 24,482 5,208 29,690 29,690
Weighted average number of shares
outstanding--diluted............................... 24,940 5,289 30,229 30,229
</TABLE>

Non-continuing charges, referred to above that were incurred by CSL include
management fees of $907,000 ($544,000 after tax) paid to the principal
shareholders of CSL.

As a result of using the pooling of interests method of accounting,
transaction expenses of $10.2 million were recorded as a one-time charge to the
Company's statement of operations during the

F-16
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.

NOTES TO CONSLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. ACQUISITIONS (CONTINUED)
quarter ended October 31, 1997 which represents the period in which the
transaction closed. A summary of these expenses is as shown below:

<TABLE>
<CAPTION>
CSL ICSL TOTAL
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Legal............................................... $ 200 $300 $ 500
Accounting.......................................... 200 175 375
Investment Banking.................................. 3,600 325 3,925
Other............................................... 250 100 350
------ ---- -------
Subtotal transaction expenses....................... 4,250 900 5,150
------ ---- -------
CNS Consulting(1)................................... 5,000 -- 5,000
------ ---- -------
Total............................................... $9,250 $900 $10,150
====== ==== =======
</TABLE>

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

(1) Represents buyout of consulting contract.

CONTRACT MANAGEMENT ACQUISITIONS

During April 1997, the Company acquired a pulmonary physician network
company for a base purchase price of $3.2 million. Of such purchase price,
$0.9 million was paid in cash and 180,717 shares of Common Stock of the Company
were issued during May 1997 having a value of $2.3 million. There is also a
contingent payment of up to a maximum of $2.0 million based on the acquired
entities' earnings before taxes during the three years subsequent to the
closing, which will be paid in cash and/or Common Stock of the Company. During
May 1998, the Company issued 88,149 shares of Common Stock of the Company having
a value of $1.1 million, representing a portion of the aforementioned contingent
payment. As of January 31, 2000, the Company no longer has this relationship and
therefore there is no further commitment.

During December 1997, the Company purchased the stock of Urology Consultants
of South Florida. The base purchase price was approximately $3.6 million, paid
in 244,510 shares of Common Stock of the Company. There is also a contingent
payment of up to a maximum of $2.0 million based on the acquired entities'
earnings before taxes during the three years subsequent to the closing, which
will be paid in cash and/or Common Stock of the Company. As of January 31, 2000,
this contingent amount has not been earned. The purchase price has been
allocated to the assets at their fair market value including goodwill of
$3.6 million. The resulting goodwill is being amortized over 30 years.

The accompanying financial statements include the results of operations
derived from the businesses purchased by the Company since their respective date
of acquisition. The following unaudited pro forma information presents the
results of operations of the Company for the years ended January 31, 1999 and
1998 as if the acquisition of the entities purchased during such fiscal years
had been consummated on February 1, 1997. Such unaudited pro forma information
is based on the historical financial information of the entities that have been
purchased and does not include operational or other changes that might have been
effected pursuant to the Company's management. The unaudited pro forma
information presented below is for illustrative informational purposes only

F-17
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.

NOTES TO CONSLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. ACQUISITIONS (CONTINUED)
and is not necessarily indicative of results which would have been achieved or
results which may be achieved in the future:

<TABLE>
<CAPTION>
PRO FORMA
JANUARY 31,
------------------------
1999 1998
----------- ----------
(UNAUDITED)
(IN THOUSANDS EXCEPT FOR
PER SHARE DATA)
<S> <C> <C>
Revenues............................................... $ 295,369 $310,729
Net income (loss)...................................... (129,070) 15,647
Net income (loss) per share--basic..................... $ (3.92) $ 0.48
Net income (loss) per share--diluted................... $ (3.92) $ 0.48
</TABLE>

4. EXTRAORDINARY ITEMS AND NONRECURRING CHARGES

During August 1998, the Company initiated its plan to divest and exit the
PPM business and certain of its ancillary service businesses. Through the nine
months ended October 31, 1998, the Company had recorded an extraordinary charge
(net of tax of $8.4 million) of $51.6 million related to the planned
divestitures. During the fourth quarter ended January 31, 1999, the Company
recorded an additional extraordinary charge of $45.2 million. In accordance with
APB 16, the Company is required to record these charges as an extraordinary item
since impairment losses are being recognized for divestitures and disposals
expected to be completed within two years subsequent to a pooling of interests
(the pooling of interests with CSL was effective October 15, 1997). The
$45.2 million extraordinary charge during the fourth quarter, which was
primarily a non-cash charge, consisted of (i) approximately $19.0 million
resulting from the entities divested during the fourth quarter as well as a
revision of the estimated proceeds, based on current fair market value
estimates, for the sale of the remaining businesses originally identified to be
divested or disposed; (ii) approximately $17.8 million primarily related to the
Company's decision, during the fourth quarter, to divest its home health
business and exit its infusion therapy business; and (iii) approximately
$8.4 million representing a tax benefit that was applied to the extraordinary
item during the nine months ended October 31, 1998 and subsequently applied to
ordinary income in the fourth quarter as required by SFAS 109. Extraordinary
items generated a tax loss of $54.0 million. This loss cannot reasonably be
expected to be utilized in the future. Accordingly, a full valuation allowance
has been established at January 31, 1999.

During the year ended January 31, 1999, the Company recorded a nonrecurring
pretax charge of $10.5 million. Of this amount, $8.7 million related primarily
to the termination of several physician management and employment agreements
prior to the Company's decision in August 1998 to reposition (see Note 1) and
$1.8 million related to the write-off of the remaining investment in an
ambulatory surgery center.

F-18
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.

NOTES TO CONSLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. EXTRAORDINARY ITEMS AND NONRECURRING CHARGES (CONTINUED)
During the year ended January 31, 2000, the Company recorded a nonrecurring
pretax charge of $1.7 million which represents additional severance costs in
conjunction with the sale of assets and the repositioning of the Company.

5. NOTES RECEIVABLE

As of January 31, 2000 and 1999, the Company had a non-recourse loan of
$2.7 million to the shareholders of Physicians Choice, LLC pursuant to the
agreement under which the Company purchased the remaining ownership interests in
Physicians Choice Management, LLC. The notes have a variable rate of interest, a
final maturity in April 2004 and are collateralized by shares of Common Stock of
the Company. These loans have been written down to the net realizable value of
the Common Stock of $0 and $1.0 million on January 31, 2000 and 1999. The
Company foreclosed on these notes and took back the stock in December 1999. The
Company recorded a pretax charge of approximately $1.0 million and $1.7 million
for the years ended January 31, 2000 and 1999, respectively.

In connection with the sale of real estate during the years ended
January 31, 1999 and 1998, the Company recorded notes receivable of
$5.2 million and $1.7 million, respectively. The outstanding balance of these
notes was $4.8 million and $6.9 million at January 31, 2000 and 1999,
respectively. The notes bear interest at 9.5% and 8.5%, respectively, and have
final maturities through August 2008. The purchaser defaulted on the
$5.2 million note and the Company renegotiated a $4.8 million cash settlement in
April 2000. Accordingly, the note was written down to $4.8 million as of
January 31, 2000.

In May 1998, the Company made a loan in the original principal amount of
$1.0 million to Dr. Eric Moskow, a director and former employee of the Company.
Originally, this loan had an interest rate of 5.56% per annum and was due in
May 2005. On January 27, 2000, the Company entered into a Consulting Agreement
and Release with Dr. Moskow. Pursuant to this agreement, Dr. Moskow has ceased
his employment with the Company, but remains as a director and a consultant. The
agreement, among other provisions, provides for the termination of Dr. Moskow's
employment agreement, the cancellation of all outstanding stock options and the
cancellation of his indebtedness to the Company in the amount of $1 million. By
terminating Dr. Moskow's employment agreement, the Company avoided a payment of
$1 million that would have been due to Dr. Moskow under his employment agreement
upon the closing of the Recapitalization described in Note 23--Subsequent
Events. Also, in August 1996, in connection with the acquisition of his company,
the Company loaned Dr. Moskow approximately $448,000 on a non-recourse basis,
secured by the pledge of 58,151 shares of Company Common Stock. On December 29,
1999, the Company foreclosed on the pledged shares and wrote-off the balance of
the note.

As of January 31, 2000 and 1999, the Company had outstanding loans
receivable totaling $1.1 million and $1.9 million to various related entities
and individuals. For January 31, 2000 and 1999, the amount includes a
$1.0 million loan made in May 1998 to Dr. Moskow, described above, and a
$0.9 million unsecured note due on demand bearing interest of 10%, to a limited
partnership in which Mr. Gosman is a partner, which was paid off in April 2000.
Additionally, for January 31, 2000, the amount includes a $0.2 million
non-interest bearing note to CareMatrix, a corporation of which Mr. Gosman is an
officer which is payable by May 31, 2000 (see Note 13).

During fiscal 1999, the Company advanced $10.9 million, which is reflected
in advances to stockholders and other assets at January 31, 1999, to Chancellor
Development Corp., a company

F-19
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.

NOTES TO CONSLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. NOTES RECEIVABLE (CONTINUED)
principally owned by Mr. Gosman relating to the development of a healthcare
facility and retirement community. This $10.9 million is evidenced by a note due
July 2000 which accrues interest at the prime rate and is guaranteed by
Mr. Gosman. To secure his obligation under the guarantee, Mr. Gosman pledged the
stock of another company principally owned by him ("Windrows") and (subject to
prior pledges) 8.2 million shares of Company Common Stock ("ICSL Pledged
Shares"). Until the note has been repaid in full, the Company has the right to
vote the ISCL Pledged Shares, subject to the rights of any prior pledgee. During
November 1999, the Company agreed to waive claims for interest on the note
through the maturity date in consideration of waivers of claims for unpaid rent
with respect to certain leases and the termination or amendment of these leases.

Since the ICSL Pledged Stock is subject to a prior pledge, the principal
security for the note is the guarantee and the Windrows stock. Windrows sole
asset is a 295 unit retirement community development in Princeton, New Jersey
which is substantially complete. At the time of the $10.9 million advance,
profits from unit sales were expected to be available to repay the note on
maturity in July 2000. However, delays in construction resulted in significantly
increased development costs and delays in unit sales, requiring Windrows to
increase its construction financing in December 1999. While approximately 35% of
the units have been sold or are under contract, Windrows anticipates a sell-out
of the remaining units over the next 24 months. The increased leverage and
sell-out delays have reduced Windrows' residual interest in the project and,
correspondingly, the value of the Company's collateral. In view of the reduction
in Windrow's residual interest and the delays and uncertainties inherent in
proceeding against the Windrows stock and its underlying assets, in
January 2000, the Company completely wrote off the note. Notwithstanding the
write-down, the Company is evaluating and intends to pursue its options for
collecting the note, including a lawsuit on the guarantee and/or foreclosing on
the pledged stock (See Note 13).

During the years ended January 31, 1999, the Company wrote down a note
receivable that was collateralized by shares of Common Stock of the Company to
its estimated net realizable value. The shares of Common Stock were tendered to
the Company in satisfaction of the notes and accordingly the Company recorded
the shares as treasury stock. Based on the estimated net realizable value of
this note receivable, the Company recorded a pretax charge of approximately
$1.0 million for the year ended January 31, 1999.

In connection with the divestiture of businesses in the years ended
January 31, 2000 and 1999, the Company had notes receivable outstanding of
approximately $6.3 million and $2.5 million for the years ended January 31, 2000
and 1999, respectively. These loans pay no interest and have maturities ranging
from 2002 to 2005 and the Company has imputed interest and reduced the notes to
their current present value.

F-20
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.

NOTES TO CONSLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
ESTIMATED JANUARY 31,
USEFUL LIFE -------------------
(YEARS) 2000 1999
----------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Land............................................ $ 3,090 $ 3,926
Building........................................ 15 0 795
Furniture and fixtures.......................... 5-7 3,538 5,152
Equipment....................................... 5-10 4,276 2,160
Computer software............................... 5 1,535 1,173
Leasehold improvements.......................... 4-20 411 640
------- -------
Property and equipment, gross................... 12,850 13,846
Less accumulated depreciation................... (3,751) (2,822)
------- -------
Property and equipment, net..................... $ 9,099 $11,024
======= =======
</TABLE>

Depreciation expense was $6.2 million, $6.1 million and $5.0 million,
respectively, for the years ended January 31, 2000, 1999 and 1998, respectively.

During the year ended January 31, 1999, the Company sold real estate and a
radiation therapy center for $7.8 million and $2.5 million, respectively. These
sales resulted in gains of $4.5 million and $0.9 million, respectively. In
connection with the sale of real estate, $2.6 million was paid in cash and the
Company recorded a note receivable for the balance of $5.2 million. As of
January 31, 2000 this note has been reduced to $4.8 million through
renegotiations and $0.5 million has been written off.

7. INVESTMENT IN AFFILIATES

On December 31, 1994, the Company purchased a 36.8% interest in Mobile
Lithotripter of Indiana Partners, for $2.7 million. During December 1998, the
Company, in connection with its plan to divest and exit the lithotripsy
business, sold this investment for $1.9 million. During August 1995, the Company
purchased a 46% interest in I Systems, Inc., for $0.2 million. I Systems, Inc.
is engaged in the business of claims processing and related services. The
Company has the option to purchase up to an additional 30% interest in I Systems
for $33,333 in cash for each additional one percent of ownership interest
purchased. As of January 31, 1999, the Company's ownership interest in I
Systems, Inc. was approximately 49% and such investment was included in assets
held for sale. This investment was sold November 1999 and no proceeds were
received. During 1997, the Company entered into a partnership agreement whereby
it became a 50% partner in an ambulatory surgery center. The Company contributed
approximately $1.5 million to the partnership for its partnership interest.
During the year ended January 31, 1999, the Company recorded a nonrecurring
pretax charge of $1.8 million to write-off its remaining investment in the
ambulatory surgery center as well as to accrue for its portion of the future
lease obligations. All the above affiliated interests have been terminated as of
January 31, 2000.

F-21
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.

NOTES TO CONSLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. ACCRUED AND OTHER CURRENT LIABILITIES

Accrued and other current liabilities consist of the following:

<TABLE>
<CAPTION>
JANUARY 31,
-------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accrued rent................................................ $ 1,397 $ 1,442
Accrued income taxes........................................ 62 515
Accrued professional fees................................... 3,746 2,116
Accrued additional purchase price........................... 6,070 1,000
Accrued interest............................................ 1,043 907
Unearned revenue............................................ 3,276 2,015
Other....................................................... 7,981 3,628
------- -------
Total accrued and other current liabilities................. $23,575 $11,623
======= =======
</TABLE>

9. LONG-TERM DEBT, NOTES PAYABLE AND CAPITAL LEASES

Long-term debt, notes payable and capital leases consist of the following:

<TABLE>
<CAPTION>
JANUARY 31,
-------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Convertible subordinated debentures, with an interest rate
of 6.75%, a maturity date of June 15, 2003, and a
conversion price of $28.20 per share...................... $100,000 $100,000
Mortgage note payable to a bank, collateralized by the
assets of an outpatient Surgery center, payable in monthly
installments of $6,628 including interest at 8.86% and a
final maturity of November 2001........................... -- 686
Note payable to former shareholders of a clinical research
company, which is non-interest bearing and has maturity
dates through January 2004................................ 2,207 3,760
Convertible acquisition notes payable with various maturity
dates through October 3, 2001 and an interest rate of
7%........................................................ 2,925 3,925
Acquisition earnouts payable with various maturity date
through 2001.............................................. 47 138
Revolving line of credit with a financial institution with a
maturity date of March 1999 and an interest rate of 9% at
January 31, 1999.......................................... -- 9,117
Revolving line of credit with a financial institution with a
maturity date of March 2002 and an interest rate of 9.5%
at January 31, 2000....................................... 10,463 --
Capital lease obligations with maturity dates through
September 2015 and interest rates ranging from 8.5% and
12%....................................................... 310 31
-------- --------
115,952 117,657
Less current portion of capital leases...................... (63) (6)
Less current portion of debt................................ (111,655) (12,186)
-------- --------
Long-term debt and capital leases........................... 4,234 $105,465
======== ========
</TABLE>

The convertible acquisition notes payable are convertible into Common Stock
of the Company. At the option of the note holders, $2.9 million of the amount
outstanding at January 31, 2000 is convertible at a conversion price of $16.425
per share. Of this amount, $1.0 million and $0.5 million

F-22
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.

NOTES TO CONSLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. LONG-TERM DEBT, NOTES PAYABLE AND CAPITAL LEASES (CONTINUED)
was repaid in cash during the years ended January 31, 2000 and 1999,
respectively. At the option of the Company, $10.0 million of the amount
outstanding at January 31, 1998 was payable in either cash or Common Stock of
the Company. Of such amount $5.0 million was paid in shares of Common Stock of
the Company during February 1998 and $5.0 million was paid in cash during
May 1998.

In September 1997, the Company entered into a secured credit agreement with
a bank providing for a $100 million revolving line of credit for working capital
and acquisition purposes. During December 1998, the Company amended the credit
agreement to reduce the availability thereunder, modify covenants and provide
for the expiration of the line of credit in March 1999. At January 31, 1999,
$14.6 million was outstanding ($5.5 million of which was for letters of credit).
The credit agreement existing at January 31, 1999 (i) prohibited the payment of
dividends by the Company; (ii) limited the Company's ability to incur
indebtedness and make acquisitions except as permitted under the credit
agreement and (iii) required the Company to comply with certain financial
covenants which include minimum net cash flow requirements. The maximum amount
outstanding under the line of credit during the year ended January 31, 1999 was
$10.0 million (not including letters of credit).

During March 1999, the Company obtained a new $30.0 million revolving line
of credit which has a three-year term and availability based upon eligible
accounts receivable. The line of credit bears interest at prime plus 1.0% and
fees of 0.0875%. Approximately $9.2 million of proceeds from the new line of
credit were used to repay the previous line of credit, and approximately
$2.0 million was used as cash collateral for a $2.0 million letter of credit.
The line of credit is collateralized by the assets of the Company, limits the
ability of the Company to incur certain indebtedness and make certain dividend
payments and requires the Company to comply with customary covenants. Proceeds
from asset sales must be used to repay the line of credit to the extent the sold
assets included eligible accounts receivable. At January 31, 2000, approximately
$10.5 million was outstanding under the line, which is included in the current
portion of debt and capital leases.

The Company's lender has alleged that the Company is in default of certain
non-financial covenants under its revolving line of credit, which alleged
defaults are subject to cure within specified periods. The Company disputes this
allegation and is currently in negotiations with its lender to resolve this
dispute. These negotiations will likely result in reducing the amount available
for borrowings under the Company's existing line of credit. However, the Company
believes that, assuming the Recapitalization described in Note 23--Subsequent
Events is effected, cash flow from operations, available cash, expected cash to
be generated from the assets held for sale and available borrowings under its
revolving line of credit, will be adequate to meet its liquidity needs for the
next 12 months although there can be no assurances that this will be the case.

The Company currently has outstanding $100 million in face amount of
convertible subordinated debentures (the "Debentures") which bear interest at an
annual rate of 6 3/4% payable semi-annually on each June 15 and December 15. The
next interest installment on the Debentures is due June 15, 2000 and the
Debentures mature on June 15, 2003. The Debentures are unsecured obligations of
the Company and are guaranteed by certain of the Company's wholly-owned
subsidiaries. The Debentures are convertible into Common Stock of the Company,
at a conversion price of $28.20 per share, subject

F-23
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.

NOTES TO CONSLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. LONG-TERM DEBT, NOTES PAYABLE AND CAPITAL LEASES (CONTINUED)
to adjustment. The Company has the right to redeem the Debentures at various
redemption prices declining from 103.86% of the principal amount to par on and
after June 18, 1999. Debentureholders have the right to require the Company to
purchase all or any part of their Debentures upon the occurrence of a "change in
control" (as defined in the Indenture) on or before June 1, 2003 for 100% of the
principal amount thereof, together with accrued and unpaid interest. The
commencement by the Company or any subsidiary of any voluntary case or
proceeding under any bankruptcy, insolvency, reorganization or other similar law
as contemplated by the Recapitalization described above under "Repositioning"
would constitute an Event of Default under the Indenture governing the
Debentures. The Company has reclassified the Debentures as current as of
January 31, 2000 as it is not in full compliance with the Indenture governing
the Debentures.

In early April 2000, Moody's Investors Service downgraded the Debentures
from B3 to Caa3. According to Moody's, this rating action was in response to the
Company's declining revenue and continued operating losses in recent quarters.
On May 26, 2000, Moody's downgraded the Debentures from Caa3 to C, based upon
the Company's announcement that it intends to complete a recapitalization in
bankruptcy as described in Note 23--Subsequent Events.

The Company's extensive losses from operations in the past two years, its
negative cash flows from operations and net negative equity position, as well as
management's assessment that the Company will be unable to retire the Debentures
at maturity, raise substantial doubt about the Company's ability to continue as
a going concern. In response, the Company has developed plans to improve
profitability of its core business operations and to recapitalize the Company by
converting the Debentures into common equity as described in
Note 23--Subsequent Events.

The following is a schedule of future minimum principal payments of the
Company's long-term and convertible debt and the present value of the minimum
lease commitments at January 31, 2000:

<TABLE>
<CAPTION>
CAPITAL
DEBT LEASES
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Through January 31, 2001.................................... $ 111,655 $ 93
Through January 31, 2002.................................... 3,204 95
Through January 31, 2003.................................... -- 89
Through January 31, 2004.................................... 736 65
Through January 31, 2005.................................... 47 33
Thereafter
--------- ----
Total....................................................... 115,642 375
Less amounts representing interest and executory costs...... (65)
--------- ----
Total long-term debt and present value of minimum lease
payments.................................................. 115,642 310
Less current portion........................................ (111,655) (63)
--------- ----
Long-term portion........................................... 3,987 247
========= ====
</TABLE>

10. LEASE COMMITMENTS

The Company leases various office space and certain equipment pursuant to
operating lease agreements.

F-24
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.

NOTES TO CONSLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. LEASE COMMITMENTS (CONTINUED)
Future minimum lease commitments (including entities held for sale)
consisted of the following at January 31 (in thousands):

<TABLE>
<S> <C>
2001........................................................ 4,795
2002........................................................ 4,206
2003........................................................ 3,180
2004........................................................ 2,591
2005........................................................ 1,469
Thereafter.................................................. 2,417
</TABLE>

11. TREASURY STOCK

During 1998, the Board of Directors authorized a share repurchase plan
pursuant to which the Company may repurchase up to $15.0 million of its Common
Stock from time to time on the open market at prevailing market prices. Through
January 31, 2000, the Company had repurchased 1,260,000 shares at a net purchase
price of $2.2 million and returned 120,000 to the treasury in exchange for notes
receivable of $0.4 million.

12. COMMITMENTS AND CONTINGENCIES

On October 18, 1997, the Florida Board of Medicine, which governs physicians
in Florida, declared that the payment of percentage-based fees by a physician to
a physician practice management company in connection with practice-enhancement
activities subjects a physician to disciplinary action for a violation of a
statute which prohibits fee-splitting. Some of the Company's contracts with
Florida physicians include provisions providing for such payments. The Company
appealed the ruling to a Florida District Court of Appeals and the Board stayed
the enforceability of its ruling pending the appeal. Oral arguments were held on
May 26, 1999, and the judge upheld the Board of Medicine's ruling. The Company
may be forced to renegotiate those provisions of the contracts that are affected
by the ruling. While these contracts call for re-negotiation in the event that a
provision is not found to comply with state law, there can be no assurance that
the Company would be able to renegotiate such provisions on acceptable terms.
The contracts affected by this ruling are with the physician practices the
Company has sold or has identified to be divested or disposed and for which the
assets are included in assets held for sale at January 31, 2000.

In conjunction with a physician practice management agreement with a
physician practice in Florida, the Company has filed suit against the practice
to enforce the guarantees executed in connection with the management agreement.
The practice has filed a counterclaim alleging fraudulent inducement and
illegality of the management agreement. The Company intends to prosecute and
defend the case. However, if the Company is not successful it may be required to
record an impairment charge up to a maximum of $3.7 million. A reserve has been
established to reflect the probable loss.

A subsidiary of the Company, Oncology Therapies, Inc. ("OTI") (formerly
Radiation Care, Inc., ("RCI")) is subject to the litigation which relates to
events prior to the Company's operation of RCI, and the Company has agreed to
indemnify and defend certain defendants in the litigation who were former
directors and officers of RCI, subject to certain conditions. The Company has
entered into

F-25
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.

NOTES TO CONSLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
definitive agreements to settle this litigation. The terms of the settlements
will not have a material adverse effect on the Company's business, financial
position or results of operations.

The Company has entered into employment agreements with certain of its
employees, which include, among other terms, non-competition provisions and
salary and benefits continuation. During December 1998, Robert A. Miller
resigned as President and a member of the Board of Directors of the Company. In
addition, during December 1998, the Company and Robert A. Miller entered into a
Separation and Severance Agreement (the "Miller Severance Agreement") and a
Consulting Agreement for Physician Practice Management Assets (the "Miller
Consulting Agreement"). Pursuant to the Miller Severance Agreement, the Company
is required to pay Mr. Miller a severance payment equal to $0.6 million, which
was recorded as severance expense during the fourth quarter ended January 31,
1999. Mr. Miller agreed not to solicit any employees of the Company and not to
compete against the Company for a period of two years from the termination of
the Miller Consulting Agreement. The Miller Consulting Agreement provides for
Mr. Miller to assist the Company in its divestiture of certain assets held for
sale. In consideration for such services, the Company was required to pay to
Mr. Miller $0.4 million. Mr. Miller has been paid all sums due to him as of
January 31, 2000.

In conjunction with the acquisition of a clinical research center during the
year ended January 31, 1998, the Company may be required to make contingent
payments based on revenue and profitability measures over the next five years.
The contingent payment will equal 10% of the excess gross revenue, as defined,
provided the gross operating margins exceed 30%. No amounts were earned during
2000 or 1999.

In conjunction with various acquisitions that were completed during the
years ended January 31, 1999, 1998 and 1997, the Company may be required to make
various contingent payments in the event that the acquired companies attain
predetermined financial targets during established periods of time following the
acquisitions. If all of the applicable financial targets were satisfied, for the
periods covered, the Company would be required to pay an aggregate of
approximately $4.4 million and $24.9 million for the years ended January 31,
2000 and 1999, respectively. Approximately $2.3 million was paid relative to the
January 31, 1999 fiscal year. The payments, if required, shall be payable in
cash and/or Common Stock of the Company.

In conjunction with certain of its acquisitions, the Company has agreed to
make payments in shares of Common Stock of the Company which are generally
issued one year from the closing date of such acquisitions with number of shares
generally determined based upon the average price of the stock during the five
business days prior to the date of issuance. As of January 31, 2000, the Company
had committed to issue $1.1 million of Common Stock of the Company using the
methodology discussed above. In April 2000 the Company issued approximately
5.2 million shares of Common Stock in satisfaction of this commitment.

F-26
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.

NOTES TO CONSLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Venture agreement, such obligations relating principally to certain financial
commitments concerning the Joint Venture. This litigation has recently been
stayed to allow the parties to negotiate an unwinding of the Joint Venture and
review the potential for a negotiated settlement. If the parties are unable to
reach agreement, the Company intends to file counterclaims against Tenet and
defend the case.

The Company is subject to legal proceedings in the ordinary course of its
business. While the Company cannot estimate the ultimate settlements or awards
with respect to these legal proceedings, if any, the outcome could have a
material adverse effect on the Company, its liquidity, financial position or
results of operations.

F-27
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.

NOTES TO CONSLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. RELATED PARTY TRANSACTIONS

Included in operating expenses for the year ended January 31, 1998 is
approximately $0.9 million discretionary management fees that were paid or
accrued, prior to the CSL merger, to the principal shareholders of CSL for
management-related services.

In January 1997, a privately held entity principally owned by Mr. Gosman
assumed the Company's obligations as lessee under a capital lease, which
obligations then exceeded the fair market value of the lease by $0.6 million.
The Company occupied office space for offices in West Palm Beach, Florida under
the terms of a lease that the Company assumed from a company the stockholders
and executive officers of which include Mr. Gosman and Frederick R.Leathers, a
former officer of the Company. The terms of the assumed lease are the same as
those to which such affiliated company was obligated. As of January 31, 1999,
the total amount of lease payments to be made under the assumed lease through
the end of the current lease term was estimated to be approximately
$0.4 million. During the year ended January 31, 2000, the Company leased office
space at a cost of $0.3 million for its Florida corporate office from PBG
Medical Mall MOB 1 Properties, Ltd., of which Mr. Gosman is a partner. During
the year ended January 31, 1999, the Company leased office space on behalf of
certain of its affiliated physicians from a limited partnership of which
Mr. Gosman owns a controlling interest in the limited partner and general
partner. The aggregate base rent paid during the year under such leases was
approximately $0.1 million.

DASCO provided development and other services in connection with the
establishment of health parks, medical malls and medical office buildings. DASCO
provided these services to or for the benefit of the owners of the new
facilities, which owners are either corporations or limited partnerships. As of
January 31, 1999, Mr. Gosman, individually and as trustee for his two sons, and
Mr. Leathers had obtained equity interests in an aggregate of 17 facilities
developed or being developed by DASCO and had interests in five of such
facilities. The interest of Mr. Gosman (individually and as trustee) in such
facilities ranged from 6.0% to 40.1%. The interest of Mr. Leathers ranged from
0.1% to 0.95%. During the years ended January 31, 1999 and 1998, DASCO recorded
revenues in the amount of approximately $3.0 million and $19.2 million,
respectively, related to facilities developed by DASCO in which equity interests
have been obtained by related parties. Meditrust Corporation and Meditrust
Operating Company, a publicly traded real estate investment trust (the
"Meditrust Companies") of which Mr. Gosman served as Chairman of the Board and
Chief Executive Officer, respectively, until August 1998, had provided financing
to customers of DASCO in the aggregate amount of approximately $229.0 million as
of January 31, 1998 for 25 facilities developed by DASCO. In January 1998, the
Meditrust Companies acquired, at fair market value, 21 medical office buildings
developed by DASCO from the corporate or limited partnership owners of such
facilities for an aggregate purchase price of approximately $200.0 million. The
Company received $9.1 million during 1998 in these transactions from the
corporation or limited partnership owners of such facilities. As a result of
their ownership interests in the corporations or limited partnerships owning the
facilities sold to the Meditrust Companies during 1998, Messrs. Gosman
(individually and as trustee for his two sons) and Leathers received
$4.7 million and $0.1 million, respectively, from the sale of the facilities.
DASCO conducted no business with related parties in the year ended January 31,
2000 and the business was sold in August 1999.

F-28
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.

NOTES TO CONSLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. RELATED PARTY TRANSACTIONS (CONTINUED)
Officer) in connection with the development and operation by such entities of
several healthcare related facilities (including a medical office building and a
retirement community). The Company provided these services to such affiliated
parties on terms no more or less favorable to the Company than those provided to
unaffiliated parties. During the years ended January 31, 1999 and 1998, the
Company recorded revenues in the amount of $1.4 million and $10.5 million,
respectively, related to such services.

During 1999, the Company advanced $10.9 million, which was reflected in
advances to stockholders and other assets at January 31, 1999, to Chancellor
Development Corp., a company principally owned by Mr. Gosman relating to the
development of a healthcare facility and retirement community. This
$10.9 million is evidenced by a note due June 2000 which accrues interest at the
prime rate and is personally guaranteed by Mr. Gosman. As collateral for his
obligation under the guarantee, Mr. Gosman has pledged the stock of another
company principally owned by him ("Windrows") and (subject to prior pledges)
8.2 million shares of Company Common Stock ("ICSL Pledged Shares"). Until the
note has been repaid in full, the Company has the right to vote the ISCL Pledged
Shares, subject to the rights of any prior pledgee. During November 1999, the
Company agreed to waive claims for interest on the note through the maturity
date in consideration of waivers of claims for unpaid rent with respect to
certain leases and the termination or amendment of these leases. This note was
written off in the fourth quarter of fiscal year 2000. (See Note 5)

In May 1998 the Company made a loan in the original principal amount of
$1.0 million to Dr. Eric Moskow, a director and former employee of the Company.
Originally, this loan had an interest rate of 5.56% per annum and was due in
May 2005. On January 27, 2000, the Company entered into a Consulting Agreement
and Release with Dr. Moskow. Pursuant to this agreement, Dr. Moskow has ceased
his employment with the Company, but remains as a director and a consultant. The
agreement, among other provisions, provides for the termination of Dr. Moskow's
employment agreement, the cancellation of all outstanding stock options and the
cancellation of his indebtedness to us in the amount of $1 million, which was
written off in the fourth quarter of 2000. By terminating Dr. Moskow's
employment agreement, the Company avoided a payment of $1 million that would
have been due to Dr. Moskow under his employment agreement upon the closing of
the Recapitalization (see Subsequent Events--Note 23). Also, in August 1996, in
connection with the acquisition of his company, the Company loaned Dr. Moskow
$448,000 on a non-recourse basis, secured by the pledge of 58,151 shares of
Company Common Stock. On December 29, 1999, the Company foreclosed on the
pledged shares.

Pursuant to a portfolio escrow agreement dated January 15, 1998, between
DASCO and Meditrust Corporation ("Meditrust"), of which Mr. Gosman is the Chief
Executive Officer, DASCO agreed to escrow a portion of its consulting fees for
payment to Meditrust if certain assumptions regarding the purchase and
development of property acquired by Meditrust proved not to be correct. The
total escrow amount was $326,498. To date, $100,000 of the escrow amount has
been released to DASCO. The remaining $226,498, plus accrued interest continues
to be held in escrow pending final resolution

F-29
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.

NOTES TO CONSLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. RELATED PARTY TRANSACTIONS (CONTINUED)
between Meditrust and DASCO of lease commencement and tenant improvement
allowance analysis and several property issues.

In January 1998, the Company assigned to CareMatrix, a corporation of which
Mr. Gosman is an officer, its rights under a management agreement with respect
to a 120 bed skilled facility to be located in Palm Beach Gardens for $800,000.
In exchange for concessions which the Company received in regard to potential
liabilities to CareMatrix, the Company agreed to reduce the receivable to
$350,000. To date, CareMatrix has paid $300,000 of the amount due with the
balance due on May 31, 2000.

14. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The methods and assumptions used to estimate the fair value of each class of
financial instruments, for which it is practicable to estimate that value, and
the estimated fair values of the financial instruments are as follows:

CASH AND CASH EQUIVALENTS

The carrying amount approximates fair value because of the short effective
maturity of these instruments.

LONG-TERM DEBT

The fair value of the Company's long-term debt and capital leases is
estimated based on the current rates offered to the Company for debt of the same
remaining maturities or quoted market prices. At January 31, 2000, the book
value of long-term debt (other than the Debentures) and capital leases,
including current maturities is $16 million and which approximates fair value.
At January 31, 2000, the estimated fair value of the Debentures was
$25 million. The estimated fair value of these Debentures is based on quoted
market prices at January 31, 2000.

15. EMPLOYEE BENEFIT PLAN

The Company sponsors a 401(k) plan, covering substantially all of its
employees. Contributions under the plan equal 50% of the participants'
contributions up to a maximum of 3 percent of eligible compensation per
participant per plan year.

16. INCOME TAXES

The Company became subject to federal and state income taxes effective the
date of the Company's initial public offering. As a result of the Company's
repositioning, large net operating losses were used to offset prior tax
liabilities.

F-30
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.

NOTES TO CONSLIDATED FINANCIAL STATEMENTS (CONTINUED)

16. INCOME TAXES (CONTINUED)
Significant components of the Company's benefit/(provision) for income taxes
for the years ended January 31, 2000, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal:
Current............................................. $ -- $(11,155) $9,032
Deferred............................................ -- (272) (813)
---- -------- ------
Total federal....................................... -- (11,427) 8,219
---- -------- ------
State:
Current............................................. 194 (54) 1,828
Deferred............................................ -- (68) (202)
---- -------- ------
Total state......................................... 194 (122) 1,626
---- -------- ------
Totals.............................................. $194 $(11,549) $9,845
==== ======== ======
</TABLE>

Significant components of the Company's deferred tax assets and liabilities
as of January 31, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax asset
Allowance for doubtful accounts, reserves and other
accrued expenses...................................... $ 7,610 $ 2,898
Net operating loss carryforward......................... 76,276 13,550
Assets held for sale.................................... 6,514 21,704
-------- --------
Total deferred tax assets............................... 90,400 38,152
-------- --------
Deferred tax liability
Property and depreciation............................... (121) (307)
Amortization............................................ (141) (1,767)
Installment gain........................................ (1,135) (1,210)
Other................................................... -- (296)
-------- --------
Total deferred tax liability............................ (1,397) (3,580)
-------- --------
Deferred tax asset (liability).......................... 89,003 34,572
-------- --------
Valuation allowance..................................... (89,003) (34,572)
-------- --------
Net deferred tax liability.............................. $ -- $ --
======== ========
</TABLE>

The Company reasonably believes that because of the large net operating loss
for the years ended January 31, 2000 and 1999 and the anticipated losses due to
the restructuring of the Company, the Company may not be able to fully utilize
all the net operating losses. Accordingly, the Company has established a full
valuation allowance on the Company's net deferred tax assets.

The net operating losses attributable to OTI of $33.1 million will begin to
expire in 2005.

F-31
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.

NOTES TO CONSLIDATED FINANCIAL STATEMENTS (CONTINUED)

16. INCOME TAXES (CONTINUED)
The reconciliation of income tax computed at statutory rates to income tax
expense is as follows:

<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Statutory rate......................................... (35%) (35%) 35%
Nondeductible merger expenses.......................... 0% 0% 18%
Permanent differences.................................. 13% 3% 1%
Basis difference, asset held for sale.................. (9%) 10% 0%
State income tax (net of federal benefit).............. 0% 0% 6%
Change in valuation allowance.......................... 32% 14% (11%)
---- ---- ----
1% (8%) 49%
==== ==== ====
</TABLE>

17. SUPPLEMENTAL CASH FLOW INFORMATION

During the years ended January 31, 2000, 1999 and 1998, the Company acquired
the assets and/or stock, entered into management and employment agreements,
assumed certain liabilities of various physician practices, ancillary service
companies, networks and organizations and sold certain assets. In addition,
during the years ended January 31,1999 and 1998, the Company issued shares of
stock which had been committed to be issued in conjunction with acquisitions
completed during the year ended January 31, 1998. During the years ended
January 31, 2000 and 1999, the Company also recorded a goodwill impairment
charge, terminated several physician management and employment agreements, wrote
down certain notes receivable to their estimated net realizable value and wrote
down certain assets that are being held for sale at January 31, 2000 to their
net realizable value (less cost to sell). The transactions had the following
non-cash impact on the balance sheets of the Company as of January 31, 2000,
1999 and 1998:

<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current assets.................................. $88,652 $ 50,284 $ 8,981
Property, plant and equipment................... (171) (33,806) 16
Intangibles..................................... 44,836 (105,661) 74,418
Other noncurrent assets......................... 1,003 (3,052) 1,391
Current liabilities............................. 4,751 (1,836) (535)
Debt............................................ (4,244) 6,520 (12,816)
Noncurrent liabilities.......................... (1,480) 339 9,740
Equity.......................................... (49,562) 90,489 (50,977)
</TABLE>

Cash paid for interest during the years ended January 31, 2000, 1999 and
1998 was $7.9 million, $9.3 million and $8.5 million, respectively. Cash paid
for income taxes for the years ended January 31, 2000, 1999 and 1998 was
$.3 million, $1.1 million and $10.8 million, respectively.

18. STOCK OPTION PLAN

The Company has adopted a stock option plan and authorized the issuance of
4.1 million shares of the Company's Common Stock to key employees and directors
of the Company. Under this plan, the exercise provision and price of the options
will be established on an individual basis generally with the exercise price of
the options being not less than the market price of the underlying stock at the
date of

F-32
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.

NOTES TO CONSLIDATED FINANCIAL STATEMENTS (CONTINUED)

18. STOCK OPTION PLAN (CONTINUED)
grant. The options generally will become exercisable beginning in the first year
after grant in 20%-33% increments per year and expire ten years after the date
of grant. Information related to the stock option plan is summarized as follows:

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
---------------------------------------------------------------
2000 1999 1998
------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
-------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of period............................ 3,026 $12.11 3,909 $16.12 2,201 $16.68
Options granted:
At fair market value........................................ 381 1.43 894 4.94 2,020 14.66
Above fair market value (CSL options--see below)............ 935 2.04 -- -- -- --
Options exercised........................................... -- (36) 3.61 (145) 6.31
Options canceled............................................ (1,359) 6.15 (1,741) 16.95 (167) 14.23
------ ------ ------ ------ ----- ------
Outstanding, end of period.................................. 2,983 $ 7.27 3,026 $12.11 3,909 $16.12
------ ------ ------ ------ ----- ------
Weighted average fair value of options
granted during the year..................................... $ 1.87 $ 4.94 $ 7.55
====== ====== ======
</TABLE>

At January 31, 2000, 1999 and 1998, options for 1.1 million, 1.3 million and
1.3 million, respectively, were exercisable.

Significant option groups outstanding at January 31, 2000 and related
weighted average price and life are as follows (in thousands):

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISEABLE
------------------------------------- -----------------------
SHARES SHARES
OUTSTANDING WEIGHTED EXERCISEABLE WEIGHTED
AT REMAINING AVERAGE AT AVERAGE
RANGE OF JANUARY 31, CONTRACTUAL EXERCISE JANUARY 31, EXERCISE
EXERCISE PRICE 2000 LIFE PRICE 2000 PRICE
-------------- ------------ ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
$ .50-$ 3.80............................ 1,100 9.3 Years $ 1.49 6 $ 3.13
$ 3.81-$13.30............................ 1,078 4.5 6.55 395 8.50
$13.31-$15.20............................ 305 2.7 14.51 271 14.45
$15.21-$19.00............................ 500 5.7 17.13 388 17.33
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions for grants in the years ended January 31, 2000, 1999 and 1998:
expected volatility (post-offering) of 150%, 65% and 56%, respectively; risk
free interest rates of 5.2%, 4.7% and 6.0%, respectively; expected option life
of 5.0, 4.5 and 4.4 years, respectively; and expected dividends of $0.

Options that were assumed in connection with CSL employees during 1996 were
valued using the minimum value method, which is appropriate for nonpublic
companies, assuming a ten-year option life, 5.5% risk free interest rate and no
volatility. These options were granted with an exercise price significantly
greater than the market value of the Company and accordingly had a fair market
value and associated expense of zero. Former CSL options have been converted to
108,914 of the Company's options with an exercise price of $3.13 and are
included above.

F-33
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.

NOTES TO CONSLIDATED FINANCIAL STATEMENTS (CONTINUED)

18. STOCK OPTION PLAN (CONTINUED)
The Company continues to account for stock based compensation under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", as allowed by SFAS No. 123, Accordingly, no compensation cost has
been recognized for options granted. Had compensation for those plans been
determined based on the fair value at the grant date for awards during the years
ended January 31, 2000, 1999 and 1998, consistent with SFAS No. 123, the
Company's net income (loss) and earnings (loss) per share would have been
reduced to the following pro forma amounts:

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
--------------------------------------
2000 1999 1998
----------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net income (loss)
As reported................................................. $(171,207) $(130,760) $10,299
Pro Forma................................................... $(176,221) $(133,844) $ 5,601
Basic earnings (loss) per share
As reported................................................. $ (4.86) $ (3.91) $ 0.35
Pro Forma................................................... $ (5.00) $ (4.01) $ 0.19
Diluted earnings (loss) Per share
As reported................................................. $ (4.86) $ (3.91) $ 0.35
Pro Forma................................................... $ (5.00) $ (4.01) $ 0.19
</TABLE>

Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.

F-34
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.

NOTES TO CONSLIDATED FINANCIAL STATEMENTS (CONTINUED)

19. NET INCOME PER SHARE

The following is a reconciliation of the numerators and denominators of the
basic and fully diluted earnings per share computations for net income:

<TABLE>
<CAPTION>
INCOME PER SHARE
(LOSS) SHARES AMOUNT
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
YEAR ENDED JANUARY 31, 2000
Basic loss per share
Loss available to common stockholders................... $(121,575) 35,235 $(3.45)
Extraordinary item...................................... (49,632) -- (1.41)
Net loss available to common stockholders................. (171,207) -- (4.86)
Effect of dilutive securities:............................ -- -- --
Diluted earnings per share................................ $(171,207) 35,235 $(4.86)
========= ====== ======
YEAR ENDED JANUARY 31, 1999
Basic loss per share
Loss available to common stockholders................... $ (33,976) 33,401 $(1.02)
Extraordinary item...................................... (96,784) -- (2.89)
--------- ------ ------
Net loss available to common stockholders................. (130,760) 33,401 (3.91)
Effect of dilutive securities:............................ -- -- --
--------- ------ ------
Diluted earnings per share................................ $(130,760) 33,401 $(3.91)
========= ====== ======
YEAR ENDED JANUARY 31, 1998
Basic earnings per share
Income available to common stockholders................. $ 10,299 29,690 $ 0.35
Effect of dilutive securities:
Stock options............................................. -- 145 --
Convertible debt.......................................... 191 394 --
--------- ------ ------
Diluted earnings per share................................ $ 10,490 30,229 $ 0.35
========= ====== ======
</TABLE>

For the years ended January 31, 2000, 1999 and 1998, approximately
3.0 million, 3.0 million and 3.5 million shares, respectively, related to stock
options were not included in the computation of diluted earnings per share
because the option exercise price was greater than the average market price of
the common shares.

For the years ended January 31, 2000, 1999 and 1998, no additional
securities or related adjustments to income were made for the common stock
equivalents related to the convertible subordinated debentures since the effect
would be antidilutive.

20. RATIO OF EARNINGS TO FIXED CHARGES

For the years ended January 31, 2000 and 1999, the ratio of earnings to
fixed charges was less than 1.0. For the year ended January 31, 1998 the ratio
of earnings to fixed charges was 2.29. For purposes of computing the ratio of
earnings to fixed charges, earnings represent income from operations before
minority interest and income taxes, plus fixed charges. Earnings also include
the equity in less-than-fifty-percent-owned investees only to the extent of
distributions. Fixed charges include interest,

F-35
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.

NOTES TO CONSLIDATED FINANCIAL STATEMENTS (CONTINUED)

20. RATIO OF EARNINGS TO FIXED CHARGES (CONTINUED)
amortization of financing costs and the portion of operating rental expense
which management believes is representative of the interest component of the
rental expense. For the year ended January 31, 2000, for purposes of computing
the ratio of earnings to fixed charges, the Company's earnings were inadequate
to cover fixed charges by $16.9 million.

21. SEGMENT INFORMATION

For the fiscal year ending January 31, 1999, the Company adopted SFAS 131.
The Company has determined that its reportable segments are those that are based
on its current method of internal reporting. The reportable segments are:
provider network management, site management organization, real estate services
(until 2000 when they became part of assets held for sale) and assets held for
sale, The accounting policies of the segments are the same as those described in
the "Summary of Significant Accounting Policies". There are no intersegment
revenues and the Company does not allocate corporate overhead to its segments.
The tables below present revenue, pretax income (loss) prior to extraordinary
item and net assets of each reportable segment for the indicated periods:

<TABLE>
<CAPTION>
SITE
PROVIDER MANAGEMENT REAL ASSETS
NETWORK AND RESEARCH ESTATE HELD FOR RECONCILING CONSOLIDATATED
MANAGEMENT ORGANIZATON (2) SALE ITEMS (1) TOTALS
---------- ------------ -------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED JANUARY 31, 2000
-------------------------------------------------
Net revenues..................................... $59,996 $33,813 -- $ 92,475 $ -- $ 186,284
Income (loss) before income
Taxes and extraordinary
Items.......................................... (35,490) (23,105) -- (20,873) (41,913) (121,381)
Net assets....................................... 7,817 15,811 -- 16,122 (106,472) (66,722)
YEAR ENDED JANUARY 31, 1999
-------------------------------------------------
Net revenues..................................... $93,479 $33,695 $ 8,694 $155,410 $ -- $ 291,278
Income (loss) before income
Taxes and extraordinary
Items.......................................... (2,907) (6,723) (8,471) 517 (27,941) (45,525)
Net assets....................................... 44,398 20,509 9,301 100,795 (69,103) 105,900
YEAR ENDED JANUARY 31, 1998
-------------------------------------------------
Net revenues..................................... $67,761 $29,968 $31,099 $152,351 $ -- $ 281,179
Income (loss) before income
Taxes and extraordinary items.................. 2,310 (7,970) 24,674 13,860 (12,752) 20,122
Net assets....................................... 45,966 12,195 15,582 189,785 (51,493) 212,035
</TABLE>

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

(1) Reconciling items consist of corporate expenses and corporate net assets
(primarily the convertible subordinated debentures, net of cash) which are
not allocated.

(2) Due to the decision to sell the real estate operations in the year ended
January 31, 2000, the real estate segmented information has been included in
assets held for sale.

F-36
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.

NOTES TO CONSLIDATED FINANCIAL STATEMENTS (CONTINUED)

22. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of the unaudited quarterly results of operations
for the periods shown (in thousands, except per share data):

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 2000
-----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues.......................................... $ 60,664 $ 49,852 $44,371 $ 31,397
Income (loss) before income taxes and extraordinary
item................................................ (11,135) (29,489) (9,986) (70,771)
Income (loss) before extraordinary item............... (11,185) (29,539) (9,933) (70,918)
Extraordinary item.................................... -- (49,632) --
Net income (loss)..................................... (11,185) (79,171) (9,933) (70,918)
Net income per share--basic:
Income (loss) before extraordinary item............... $ (0.33) $ (0.89) $ (0.28) $ (1.95)
Extraordinary item.................................... $ -- $ (1.49) -- --
Net income (loss)..................................... $ (0.33) $ (2.38) $ (0.28) $ (1.95)
Net income per share--diluted:
Income (loss) before extraordinary item............... $ (0.33) $ (0.89) $ (0.28) $ (1.95)
Extraordinary item.................................... $ -- $ (1.49) -- --
Net income (loss)..................................... $ (0.33) $ (2.38) $ (0.28) $ (1.95)
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 1999
-----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues........................................... $84,193 $77,362 $ 67,946 $ 61,777
Income (loss) before income taxes and extraordinary
item................................................. 9,601 75 (13,790) (41,411)
Income (loss) before extraordinary item................ 6,453 51 (9,119) (31,361)
Extraordinary item..................................... -- -- (51,552) (45,232)
Net income (loss)...................................... 6,453 51 (60,671) (76,593)
Net income per share--basic:
Income (loss) before extraordinary item................ $ 0.20 $ -- $ (0.27) $ (0.94)
Extraordinary item..................................... $ -- $ -- $ (1.54) $ (1.35)
Net income (loss)...................................... $ 0.20 $ -- $ (1.81) $ (2.29)
Net income per share--diluted:......................... $ 0.20 $ -- $ (0.27) $ (0.94)
Income (loss) before extraordinary item................ $ -- $ -- $ (1.54) $ (1.35)
Extraordinary item..................................... $ 0.20 $ -- $ (1.81) $ (2.29)
Net income (loss)......................................
</TABLE>

23. SUBSEQUENT EVENTS

The Company is highly leveraged due to its $100 million Debentures. This
hampers its ability to execute its strategic plan to grow the research, clinical
trials and network management sectors of its business. In connection with the
Company's repositioning, during the years ended January 31, 2000 and 1999 the
Company sold and divested itself of those assets and businesses that did not
support its new strategic direction. Based upon asset appraisals and comparable
sales within the industry, the Company believed that it could generate
sufficient cash from these divestitures to repay all or a portion of the
Debentures, thereby permitting the Company to focus on its core business lines
without the burden of

F-37
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.

NOTES TO CONSLIDATED FINANCIAL STATEMENTS (CONTINUED)

23. SUBSEQUENT EVENTS (CONTINUED)
the interest obligations associated with the Debentures. However, continued
decline in these industry segments resulted in the Company's failure to generate
sufficient cash proceeds from its asset divestitures to repay the Debentures.
The Company's highly leveraged position, due principally to the Debentures,
hampers its ability to execute its strategic plan to grow the research, clinical
trials and network management segments of its business. The Company therefore
has determined that it needs to reduce its indebtedness in order to implement
fully its strategic plan.

During the process of implementing its strategic plan, owners of more than
50% of the principal amount of the Debentures (the "Majority Holders")
approached the Company to discuss the possible exchange of some or all of the
Debentures for equity in order to reduce the Company's debt burden and improve
the Company's ability to execute its strategic plan. In this connection, in
November 1999, the Company retained the services of Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ") to advise it in connection with any refinancings,
repurchases or restructuring of its outstanding securities and indebtedness with
the goal of substantially reducing the outstanding principal amount of the
Debentures. The Majority Holders subsequently formed a steering committee of
Debentureholders (the "Steering Committee") to negotiate with the Company
regarding the terms of a recapitalization as a means of improving the Company's
capital structure and its ability to effect its strategic plan. The Company
sought DLJ's assistance and advice in connection with these negotiations which
have resulted in the proposed plan to recapitalize the Company (the
"Recapitalization") described below.

The Recapitalization involves the exchange of newly issued shares of common
stock of the Company (the "New Common Stock") representing 90% of the Company's
issued and outstanding capital stock following the Recapitalization for all of
the Debentures. As part of the Recapitalization, the Company intends to cancel
all issued and outstanding Common Stock and replace it with the New Common Stock
representing 10% of the Company's issued and outstanding capital stock following
the recapitalization.. In addition, the Company intends to cancel any options or
other rights to purchase the Common Stock and to issue options to purchase up to
16% of New Common Stock, on a fully diluted basis, after the Recapitalization.
Of these options, 1% will be issued to outside directors and 15% will be issued
or reserved for issuance to executive officers and key employees of the Company.

F-38
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.

NOTES TO CONSLIDATED FINANCIAL STATEMENTS (CONTINUED)

23. SUBSEQUENT EVENTS (CONTINUED)
amount of the Debentures that actually vote on the Prepackaged Plan and
(ii) more than one-half ( 1/2) in number of the Debentureholders that actually
vote on the Prepackaged Plan (the "Requisite Acceptances"). Each member of the
Steering Committee has entered into a Forebearance, Lock-up and Voting Agreement
pursuant to which it has agreed to forebear from exercising any rights or
remedies it may have with respect to any defaults arising under the Debentures
or the Indenture governing the Debentures and to vote in favor of the
Prepackaged Plan. The Prepackaged Plan also must be confirmed by a United States
bankruptcy court.

If the Company receives the Requisite Acceptances of the Prepackaged Plan,
the Company and its subsidiaries intend to commence the Bankruptcy Cases. The
Company anticipates that the Bankruptcy Cases will be commenced before it is in
default on the next interest payment on the Debentures which is due on June 15,
2000 and is subject to a 30 day grace period thereafter. The filing of the
Bankruptcy Cases would constitute an Event of Default under the Indenture
governing the Debentures.

The Recapitalization could result in a change in control of the Company for
federal income tax purposes, which could have an adverse effect on the net
operating loss tax carryovers for the Company.

F-39
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors and Stockholders of Innovative Clinical Solutions Ltd.:

Our audits of the consolidated financial statements referred to in our
report dated May 19, 2000 appearing in this Annual Report on form 10-K also
included an audit of the Financial Statement Schedule on page S-2 of this
Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.

PricewaterhouseCoopers LLP
Boston, Massachusetts
May 19, 2000

S-1
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS LTD.

VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED JANUARY 31, 2000, 1999 AND 1998

(IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONS RECLASSIFICATION BALANCE
BALANCE AT CHARGED TO DEDUCTIONS OF RESERVES TO AT END
BEGINNING OPERATING FROM ASSETS HELD OTHER OF
OF PERIOD EXPENSES RESERVES FOR SALE (A) PERIOD
---------- ---------- ---------- ---------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Year ended January 31, 2000........... $1,350 $112,940 $91,451 $18,993 $ -- $ 3,846
Year ended January 31, 1999........... 48,428 167,443 168,685 46,640 804 1,350
Year ended January 31, 1998........... 29,525 156,145 146,591 -- 9,349 48,428
</TABLE>

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

(A) Other represents the allowances of acquired entities.

S-2
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT INDEX
----------- -------------
<C> <S>
3.1(1) Restated Certificate of Incorporation of the Company.
3.2(l) By-laws of the Company.
4(2) Indenture with respect to the Company's 6 3/4% Convertible
Subordinated Debentures.
10.1(1) Registration Agreement dated January 29, 1996 between
PhyMatrix Corp. and various stockholders of PhyMatrix Corp.
10.2(2) Registration Agreement dated June 21, 1996 between PhyMatrix
Corp. and the Initial Purchasers.
10.3(l) Employment Agreement dated as of January 1, 1995 between
DASCO and Bruce A. Rendina. +
10.4(2) Employment Agreement dated January 29, 1996 between
PhyMatrix Corp. and Robert A. Miller. +
10.5(1) 1995 Equity Incentive Plan. +
10.6 Amended and Restated Agreement and Plan of Merger dated as
of July 15, 1997 by and among the Company, PhyMatrix
Acquisition I, Inc., Clinical Studies Ltd., Dr. Michael
Rothman, Dr. Walter Brown, Michael T. Heffernan and Ronald
Phillips as Trustee of The Alexander Rothman 1993 Qualified
Sub-Chapter S Trust and as Trustee of The Julie Rothman
Qualified Sub-Chapter 8 Trust (incorporated by reference
from the Company's Current Report on Form 8-K filed on
October 6, 1997).
10.7(3) Employment Agreement dated October 14, 1997 between
PhyMatrix Corp. and Michael T. Heffernan. +
10.8(3) Separation and Settlement Agreement dated April 30, 1998
between Frank Tidikis and PhyMatrix Corp. +
10.9(4) Loan and Security Agreement dated March 12, 1999 by and
among the Company, certain of its subsidiaries and HCFP
Funding, Inc.
10.10(4) Loan and Security Agreement dated March 12, 1999 by and
among the Company, PhyMatrix Diagnostic Imaging, Inc.,
PhyMatrix Management Company, Inc. and HCFP Funding, Inc.
10.11(4) Loan and Security Agreement dated March 12, 1999 by and
between the Company, Clinical Studies, Ltd., Clinical
Marketing, Ltd. and HCFP Funding, Inc.
10.12(4) Separation and Settlement Agreement dated December 8, 1998
between the Company and Robert A. Miller
10.13(4) Consulting Agreement for Physician Practice Management
Assets dated December 8, 1999 between the Company and RAM
Advisors, Inc. +
10.14(4) Business Agreement dated September 4, 1998 among the
Company, certain of its subsidiaries, Abraham D. Gosman, The
Rendina Companies, Inc., The Rendina Companies West, Inc.
and Bruce A. Rendina.
10.15(3) Section 3.4(a) of the Operating Agreement of Tri-State
Network Management, L.L.C. dated February 17, 1998 among
PhyMatrix Management Company, Inc. ("Management'), Beth
Israel Medical Center and Landmark Physicians Organization,
L.L.C., which imposes certain restrictions on Management and
PhyMatrix Corp.
10.16(5) Asset Purchase Agreement made as of July 14, 1999, by and
among PresGar Imaging L.C., Innovative Clinical Solutions,
Ltd., Phymatrix Management Company, Inc., Phymatrix
Diagnostic Imaging, Inc., Biltmore Imaging Center, Inc.,
BabRad, Inc., Phymatrix Diagnostic Imaging Northeast, Inc.,
and Deerco, Inc., for the sale of the Imaging Division
10.17(5) Confirmatory Revolving Note dated as of February 1, 1998 in
principal amount of $10.9 million payable by Chancellor
Development Corp. to Innovative Clinical Solutions, Ltd.
10.18(5) Confirmatory Guarantee of Abraham D. Gosman dated as of
February 1, 1998 in favor of Innovative Clinical Solutions,
Ltd.
10.19(5) Confirmatory Stock Pledge Agreement made as of November 30,
1999 by and among Abraham D. Gosman, Chancellor Partners
Limited Partnership I, Chancellor Development Corp. and
Innovative Clinical Solutions, Ltd.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT INDEX
----------- -------------
<C> <S>
10.20(5) Letter Agreement dated November 30, 1999 by and between PBG
Medical Mall MOB 1 Properties, Ltd. and Innovative Clinical
Solutions, Ltd. regarding Interest and Lease Payments
10.21(4) Employment Agreement between the Company and James M. Hogan,
M.D. +
*10.22 Employment Agreement between the Company and R. Adrian Otte,
M.D. +
*10.23 Employment Agreement between the Company and Gary S.
Gilheeney +
*10.24 Employment Agreement between the Company and Bryan B. Dieter
+
*10.25 Employment Agreement between the Company and John Wardle +
10.26(6) Forebearance, Lock-up and Voting Agreement dated April 25,
2000 between the Company and Third Avenue Trust and the MJ
Whitman Pilot Fish Opportunity Fund LP
*21 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP
*27 Financial Data Schedule.
</TABLE>

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

* Filed herewith.

+ Management or compensation arrangement

(1) All exhibits not filed herewith or otherwise incorporated by reference are
hereby incorporated by reference to the Company's Registration Statement on
Form S-1 (Registration No. 33-97854).

(2) Incorporated by reference to the Company's Registration Statement on
Form S-1 (Reg. No. 333-08269).

(3) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended January 31, 1998.

(4) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended January 31, 1999.

(5) Incorporated by reference to the Company's Form 10-Q for the period ended
October 31, 1999

(6) Incorporated by reference to the Company's Form 8-K/A dated May 31, 2000