UNITED DIAGNOSTIC INC, 10QSB, 2000-04-10

UNITED DIAGNOSTIC INC
10QSB, 2000-04-10
MEDICAL LABORATORIES

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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-QSB

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

For the quarterly period ended JUNE 30, 1999

/__/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from _____________________ to _______________________

Commission File No. 0-11772

UNITED DIAGNOSTIC, INC.
------------------------------------------------------------
(Exact name of registrant as specified in its charter)

Delaware 25-1411971
- ---------------------------------- ----------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation of organization)

476 Main Street - Suite 3-DFL Wakefield, Rhode Island 02879
- ----------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (401) 789-9995

------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)

Check whether the Issuer (1) filed all reports required to be filed 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

As of March 31, 2000, there were issued and outstanding 682,622 shares
of common stock of the registrant, adjusted for a 70 for 1 reverse stock split
effected on December 23, 1998.

Transitional small business disclosure format

Yes __ No X

Page 1 of 29

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United Diagnostic, Inc.

Quarterly Report on Form 10-QSB

Table of Contents

<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I FINANCIAL INFORMATION

Item 1. Financial Statements 3
Notes to Consolidated Financial Statements 6

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

PART II OTHER INFORMATION

Item 1. Legal Proceedings 23

Item 6. Exhibits and Reports on Form 8-K 25

SIGNATURES 27

Exhibit 27 Financial Data Schedule 28
</TABLE>

Page 2 of 29

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United Diagnostic, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)

June 30 December 31
1999 1998
----------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,163,230 $ 176,848
Prepaid expenses and other current assets 21,606 69,577
----------------------------------
Total current assets 2,184,836 246,425

Equipment, net 3,671 4,631
Deposits 950 4,371
----------------------------------
Total Assets $ 2,189,457 $ 255,427
==================================

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long term debt $ 81,969 $ 276,970
Current portion of capitalized lease obligations - 1,165
Accounts payable 192,545 479,735
Accrued expenses 283,335 475,457
Contract payable 55,571 55,571
----------------------------------

Total current liabilities 613,420 1,288,898
----------------------------------

Commitments and contingencies - -

Stockholders' equity (deficit):
Series A convertible preferred stock, $.01 par value; 2,000,000
authorized; 2,826 issued and outstanding at June 30, 1999, and
December 31, 1998
(liquidation preference of $2,826,000 at June 30, 1999) 28 28
Common stock, $.01 par value; 50,000,000
shares authorized; 682,622 shares issued and
outstanding at June 30, 1999, and December 31, 1998 6,826 6,826
Capital in excess of par value 59,716,870 56,466,870
Accumulated deficit (58,147,687) (57,507,195)
----------------------------------
Total stockholders' equity (deficit) 1,576,037 (1,033,471)
----------------------------------

Total liabilities and stockholders' equity (deficit) $ 2,189,457 $ 255,427
==================================

</TABLE>

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United Diagnostic, Inc. and Subsidiaries
Consolidated Statements of Operations

(Unaudited)

For the three months ended For the six months ended
June 30 June 30 June 30 June 30
1999 1998 1999 1998
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Medical billing services revenues $ - $ 22,428 $ - $ 113,179
---------------------------------------------------------------------------------
Total revenues, net - 22,428 - 113,179

Operating costs:
Medical billing services expenses - 38,198 - 167,672
Sales, general and administrative expenses 211,125 324,809 496,788 655,813
Depreciation and amortization 481 799 961 20,988
Write down of intangibles - - - 645,472
---------------------------------------------------------------------------------
Total operating 211,606 363,806 497,749 1,489,945
---------------------------------------------------------------------------------

Operating loss (211,606) (341,378) (497,749) (1,376,766)

Other income (expense):
Non-recurring miscellaneous revenue 3,250,000 - 3,250,000 -
Equity loss in subsidiary (3,250,000) (1,339,880) (3,250,000) (2,974,658)
Investment and interest income 7,175 750,000 7,175 750,000
Interest expense (32,672) (29,513) (84,918) (34,766)
---------------------------------------------------------------------------------
Total other income (expense) (25,497) (619,393) (77,743) (2,259,424)
---------------------------------------------------------------------------------

Loss before income taxes (237,103) (960,771) (575,492) (3,636,190)

Income taxes expense (65,000) - (65,000) -
---------------------------------------------------------------------------------

Net loss $ (302,103) $ (960,771) $ (640,492) $ (3,636,190)
=================================================================================

Net loss per common share - basic and diluted $ (0.44) $ (1.41) $ (0.94) $ (5.33)
=================================================================================

Weighted average shares outstanding 682,622 682,622 682,622 682,622
=================================================================================

</TABLE>

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United Diagnostic, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

For the six months ended
June 30 June 30
1999 1998
---------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (640,492) $ (3,636,190)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation, amortization and write down of intangibles 961 666,460
Amortization of debt discount 60,000 143,000
Equity in loss in subsidiary 3,250,000 2,974,658
Changes in operating assets and liabilities:
Accounts receivable, prepaids, and other current
assets, inventory and deposits 51,392 44,708
Accounts payable and accrued expenses (479,313) 460,053
---------------------------------------
Net cash provided by operating activities 2,242,548 652,689

INVESTING ACTIVITIES
Capital proceeds, net - 10,502
Deconsolidation of Physicians Clinical Laboratory, Inc. cash - (1,462,824)
---------------------------------------
Net cash used in investing activities - (1,452,322)

FINANCING ACTIVITIES
Proceeds from issuance of debt - 250,000
Repayment of notes payable and lease obligations (256,166) (169,423)
---------------------------------------

Net cash provided by (used in) financing activities (256,166) 80,577
---------------------------------------
Net increase (decrease) in cash and cash equivalents 1,986,382 (719,056)

Cash and cash equivalents at beginning of period 176,848 1,524,942
---------------------------------------
Cash and cash equivalents at end of period $ 2,163,230 $ 805,886
=======================================

Supplemental disclosure of cash flow information:
Taxes paid $ 1,200 $ 6,837
Interest paid 33,506 5,885
---------------------------------------
$ 34,706 $ 12,722
=======================================

</TABLE>

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United Diagnostic, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 1999

(Unaudited)

1. BASIS OF PRESENTATION

United Diagnostic, Inc. ("United" or the "Company"), was originally
organized under the laws of the State of Delaware in September 1981 under the
name of "Applied DNA Systems, Inc." On November 16, 1994, the Company changed
its name to Nu-Tech Bio-Med, Inc. On December 23, 1998, the Company changed its
name to United Diagnostic, Inc.

Due to a necessary delay in retaining new independent auditors,
compounded by the Company's acquisition of a majority interest in a significant
subsidiary in October 1997 which required audited financial statements of such
acquired subsidiary, the Company was unable to complete certain financial and
textual information required to be included in its annual report on Form 10-KSB
for the years ended December 31, 1997 and December 31, 1998, or its quarterly
reports on Form 10-QSB for the periods ended March 31, 1998, June 30, 1998,
September 30, 1998, March 31, 1999, June 30, 1999, and September 30, 1999,
within the time which such reports were otherwise required to be filed.
Accordingly, this report on Form 10-QSB for the quarter ended June 30, 1999, is
being filed late. The Company's report on Form 10-KSB for the year ended
December 31, 1997, was filed on September 2, 1999, Form 10-QSB for the three
months ended March 31, 1998, was filed on October 15, 1999, Form 10-QSB A/1 for
the three months ended March 31, 1998, was filed on January 26, 2000, Form
10-QSB for the six months ended June 30, 1998, was filed on October 29, 1998,
Form 10-QSB A/1 for the six months ended June 30, 1998, was filed on January 26,
2000, Form 10-QSB for the nine months ended September 30, 1998, was filed on
November 4, 1999, Form 10-QSB A/1 for the nine months ended September 30, 1998,
was filed on January 26, 2000, Form 10-KSB for the year ended December 31, 1998,
was filed on January 13, 2000, and Form 10-QSB for the three months ended March
31, 1999, is being filed simultaneously with this Form 10-QSB. Unless otherwise
indicated, as used herein, all references to shares of the Company's Common
Stock and to prices with respect to shares of the Company's Common Stock give
effect to a seventy to one reverse stock split effective December 23, 1998.

In the opinion of management of United Diagnostic, Inc., the
accompanying unaudited financial statements contain all adjustments necessary to
present fairly the financial position of the Company at June 30, 1999, and the
results of operations and cash flows for the six months ended June 30, 1999 and
1998.

The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Analytical Biosystems Corporation
("ABC") (inactive since November 3, 1997), and NTBM Billing Services, Inc.
("NTBM") (inactive since April 1998). The 1998 consolidated financial statements
also include the accounts of Physicians Clinical

Page 6 of 29
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Laboratory, Inc. ("PCL") originally a 52.6%-owned subsidiary of the Company (as
of October 3, 1997) and now a 49.9%-owned subsidiary (as of June 16, 1998)
(inactive since May 10, 1999, when substantially all of the assets of PCL were
sold) (Note 3a). All material intercompany transactions and balances have been
eliminated. Where appropriate, prior year amounts have been reclassified for
comparative purposes.

ABC was a clinical oncology laboratory service and research company
located in Rhode Island (inactive since November 1997). NTBM was a medical
billing service business located in Florida (inactive since April 1998, Note
3b). PCL was a full service medical laboratory facility which operated
throughout the State of California (inactive since May 10, 1999, Note 3a).

The consolidated financial statements have been prepared on the basis
that the Company will continue as a going concern. The Company generated no cash
from operations and, therefore, has not achieved sufficient revenues to support
future operations. In addition, the Company's subsidiary is in default under a
substantial portion of its debt agreements, which allows its lenders the right
to accelerate the debt repayment. Subsequent to default, PCL sold all of its
assets and the consideration for the sale was paid to the debt holders.
Historically, the Company has reported consistent going concern opinions for the
previous three years. The Company does not have any present, ongoing business
which is a source of revenue from operations. These conditions may 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 or any other adjustments that
might be necessary should the Company be unable to continue as a going concern.

On December 23, 1998, the Company effected a seventy to one common
stock reverse split. An amount equal to the par value of the common shares
relinquished was transferred from the common stock account to capital in excess
of par value. All references to number of common shares and to per share
information in the consolidated financial statements have been adjusted to
reflect the stock reverse split on a retroactive basis.

The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six month period ended June 30, 1999,
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1999. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-KSB for the year ended December 31, 1998.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company commenced full consolidation of Physicians Clinical
Laboratory, Inc. ("PCL") in October 1997 upon its acquisition of a majority
ownership (52.6%) of PCL. During

Page 7 of 29
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the time which the Company owned a majority interest in PCL, the Company
accounted for its investment in PCL under the consolidation method, and
continued to recognize its 52.6% share of PCL losses, through June 10, 1998. On
June 10, 1998, the Company sold a portion of its share ownership in PCL, and the
Company's ownership percentage in PCL was reduced from 52.6% to 49.9%. As such,
subsequent to June 10, 1998, the Company commenced to account for its remaining
investment in PCL under the equity method of accounting, rather than the
consolidation method. Under the equity method, investments are recorded at cost
reduced by the Company's proportionate share of losses. Any losses in excess of
the investment are not recognized until future profits or additional investments
occur. The Company's share of PCL losses recognized from date of acquisition
through June 10, 1998, exceeded its investment in PCL. In the deconsolidation of
PCL, the Company adjusted its negative investment to zero and recorded the
remainder as an adjustment to capital in excess of par value. On April 5, 1999,
PCL entered into an Asset Purchase Agreement for the sale of the business and
substantially all assets to Unilab Corp for a total purchase price of
approximately $40 million. The sale closed on May 10, 1999. Concurrent with the
sale, the Stockholder Agreement was amended to provide payment to the Company of
$3.25 million in cash upon satisfaction of certain conditions. The Company
received this payment in May 1999. The transaction was recorded by the Company
as non-recurring miscellaneous revenue with a corresponding charge for prior
years' unused equity loss in subsidiary. Such equity loss in subsidiary was
recorded as an adjustment to capital in excess of par value.

For the six months ended June 30, 1999, and 1998, the statement of
operations includes the operations of a subsidiary which is recorded under the
equity method of accounting. Under the equity method, any positive net
investment is presented in the balance sheet, and the share of losses is
presented as one amount in the statements of operations. Any losses in excess of
the investment are not recognized until future profits or additional investments
occur. For the six months ended June 30, 1999, and 1998, the Company's
proportionate share of PCL losses are presented on the statement of operations
as equity loss in subsidiary. The three months ended March 31, 1998, was
restated to reflect the deconsolidation and the six months ended June 30, 1998,
presents the Company's share of PCL losses for the six months on the equity
method.

3. ACQUISITIONS AND DISPOSITIONS

a. PHYSICIANS CLINICAL LABORATORY, INC.

In June, 1998, the Company sold 67,500 shares of its Physicians
Clinical Laboratory, Inc. ("PCL") common stock to a senior lender and
significant stockholder of PCL for $750,000, in conjunction with a loan by that
stockholder of $4 million to PCL. As a result of the sale, United's ownership
was reduced from 52.6% to 49.9% of the issued and outstanding shares of PCL.

On April 5, 1999, PCL entered into an Asset Purchase Agreement for the
sale of the business and substantially all assets to Unilab Corp for a total
purchase price of approximately $40 million. The sale closed on May 10, 1999.
Concurrent with the sale, the Stockholder Agreement was amended to provide
payment to the Company of $3.25 million in cash upon satisfaction of certain
conditions. The Company received this payment in May 1999.

Page 8 of 29
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As a result of the above transaction, the Consolidated Financial
Statements relating to six months ended June 30, 1999 and 1998, are presented on
the basis of the Company's 49.9% ownership of PCL under the equity method of
accounting as described in Note 2.

b. NTBM BILLING SERVICES, INC. (d/b/a PROMPT MEDICAL BILLING)

On October 21, 1996, the Company, through a newly formed wholly-owned
subsidiary, NTBM Billing Services, Inc. ("NTBM"), acquired all of the medical
billing service assets of Prompt Medical Billing Services, Inc., a privately
owned Florida corporation engaged in the medical billing service business. The
Company entered into employment and consulting agreements with the former owners
of Prompt Medical Billing.

In late March 1998, the former owners ceased performing their duties.
NTBM subsequently lost its principal customer and ceased operations during the
second quarter of 1998. The Company has ceased paying the former owners under
the employment and consulting agreements.

On July 8, 1998 an arbitration was commenced before the AAA in Miami,
Florida entitled JUDITH PRUSSIN AND HEALTH SYSTEMS DEVELOPMENT CORPORATION
AGAINST NTBM BILLING SERVICES, INC AND NU-TECH BIO MED, INC. (Case No. 32 160
00219 98). The case concerned employment and consulting agreements between the
Company and claimants, which agreements were executed in conjunction with the
purchase by the Company of the claimants' business, Prompt Medical Billing, Inc.
("PMBI"), in October of 1996. Specifically in dispute were the amounts owed to
claimants in light of the cessation of PMBI's business operations. Claimants
sought damages in the amount of $44,187.28 along with interest, costs and
attorneys fees associated with the arbitration. The matter was settled by
confidential agreement of the parties, dated on or about May 28, 1999 and
formally dismissed on June 17, 1999. The settlement provided, among other items,
that the Company pay $35,000 to claimants and the claimants assign the right to
collect an outstanding account payable to PMBI in the amount of $70,000. The
first $10,000 collected from the outstanding account is to be paid to the
Company, with any additional amounts collected to be split 50/50 amongst
claimants and the Company. The right to collect the $70,000 reverts to the
Company if at least $10,000 has not been collected by November 1, 1999 and a
payment plan for the remainder is not in place.

On July 22, 1998 an arbitration was commenced before the AAA in New
York, New York entitled NU-TECH BIO MED, INC. AND NTBM BILLING SERVICES, INC V.
JUDITH PRUSSIN, JEFFREY PRUSSIN AND PROMPT MEDICAL BILLING, INC. (Case No. 13
180 00703 98). The case arose from the purchase by the Company of the
respondents' business, PMBI, in October of 1996. Subsequent to the purchase, the
business lost its principal customer and ceased operations. In the arbitration,
the Company sought from the former owners of PMBI, INTER ALIA, a judgment which
constituted the return of the purchase price of PMBI (i.e., the return of
approximately $100,000 in cash and the right to certain stock held in escrow
pursuant to the Purchase Agreement). In an Award originally dated April 9, 1999
(and affirmed by the arbitrator on May 27, 1999), the arbitrator denied the
relief sought by the Company and refused to grant the relief sought by
respondents. On April 19, 1999, the Company initiated a Special Proceeding in
the Supreme Court of the State

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of New York, County of New York captioned IN RE THE ARBITRATION OF CERTAIN
CONTROVERSIES BETWEEN NU-TECH BIO MED, INC. AND NTBM BILLING SERVICES, INC V.
JUDITH PRUSSIN, JEFFREY PRUSSIN AND PROMPT MEDICAL BILLING, INC. (Index No.
108158/99) to affirm the Award. The Special Proceeding is currently at the
initial pleadings stage.

4. DEBT

In March 1998, the Company obtained a loan in the principal amount of
$250,000. Principal and interest at 10% were due on the earlier of April 1999 or
consummation of a private placement with defined proceeds. Principal and
interest were paid in full on May 13, 1999. This loan was secured by a pledge of
125,000 shares of PCL stock. As a condition to making the loan, the lender
required, and the board approved, issuing the lender warrants to purchase 44,000
shares of common stock stated on a presumed post-reverse split basis. The
exercise price was to be equal to the closing bid of the common stock on the
first business day following the effective date of the reverse split, subject to
reduction if a private placement is made following the reverse split at a lower
price. The warrants are exercisable until the fifth anniversary of the reverse
split. The warrants have not been issued and the exercise price is not
determinable since the Company's common stock was delisted prior to the
effective date of the reverse split. The Company estimated the value of the
warrants using an exercise price based upon market price at the date of the loan
as adjusted for the reverse split. The Company recorded a discount on the debt
of $143,000 for the prorata warrant value and recognized approximately $60,000
in interest expense during the six months ended June 30, 1999, relating to the
discount (non-cash item).

SAFE HARBOR STATEMENT

Certain statements in this Form 10-QSB, including information set forth
under Item 2 "Management's Discussion and Analysis of Financial Condition and
Results of Operations" constitute or may constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
"Act"). United Diagnostic, Inc. (the "Company") desires to avail itself of
certain "safe harbor" provisions of the Act and is therefore including this
special note to enable the Company to do so. Forward-looking statements included
in this Form 10-QSB or hereafter included in other publicly available documents
filed with the Securities and Exchange Commission, reports to the Company's
stockholders and other publicly available statements issued or released by the
Company involve known and unknown risks, uncertainties, and other factors which
could cause the Company's actual results, performance (financial or operating)
or achievements to differ from the future results, performance (financial or
operating) achievements expressed or implied by such forward-looking statement.
Such future results are based upon management's best estimates based upon
current conditions and the most recent results of operations. These risks
include, but are not limited to, the ability of the Company to identify and
obtain a viable business and all of the risks (known and unknown) relating to
any new and as yet unidentified business within the timeframe inherent in the
Company's cash limitations. The Company, in the future, may need additional
funds from loans and/or the sale of equity securities. No assurance can be given
that such funds will be available or, if available, will be on commercially
reasonable terms satisfactory to the Company. In addition the report of the
Company's independent auditors on the consolidated financial statements of the
Company for the year ended December 31, 1998, contains an explanatory paragraph
that there are certain

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conditions that raise substantial doubt about the ability to continue as a going
concern. The Company to date has been materially dependent upon the efforts of
its President and Chief Executive Officer, Mr. J. Marvin Feigenbaum. The loss of
Mr. Feigenbaum's services may have a materially adverse effect upon the business
or operations of the Company.

Balance of Page Intentionally Left Blank

Page 11 of 29
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS PRELIMINARY NOTES TO MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

1. HIGHLIGHTS

On May 10, 1999, Physicians Clinical Laboratory, Inc. ("PCL"), which is
49.9% owned by the Company, disposed of substantially all of its assets to
Unilab Corporation ("Unilab") in exchange for a combination of cash, a
convertible promissory note of Unilab and Unilab common stock. The sale
consideration was valued in the aggregate at approximately $40 million. Until
the date of the sale of its assets, PCL had been engaged in the business of
providing clinical laboratory services in the State of California. The proceeds
of sale were principally used to satisfy a portion of PCL's secured
indebtedness, which aggregated approximately $70 million at the time of sale.
PCL was in default under all of this indebtedness at the time of the sale.

No proceeds of the sale of PCL assets were available for distribution
to the PCL shareholders. However, in connection with the sale, the Company
received a payment of $3,250,000 in cash from certain holders of PCL's secured
indebtedness.

2. DISPOSITIONS

a. PHYSICIANS CLINICAL LABORATORY, INC.

As a result of the above transaction, the Management's Discussion and
Analysis of Financial Condition and Results of Operations relating to the six
months ended June 30, 1999 and 1998, are presented on the basis of the Company's
49.9% ownership of PCL under the equity method of accounting as described in
Note 2.

b. NTBM BILLING SERVICES, INC. (d/b/a PROMPT MEDICAL BILLING)

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medical billing service business. The Company entered into employment and
consulting agreements with the former owners of Prompt Medical Billing.

As a result, Management's Discussion and Analysis of Financial
Condition and Results of Operations relating to the six months ended June 30,
1998, do include the operations of NTBM; however, the six months ended June 30,
1999, do not include the operations of NTBM.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company commenced full consolidation of Physicians Clinical
Laboratory, Inc. ("PCL"), in October 1997 upon its acquisition of a majority
ownership (52.6%) of PCL. During the time which the Company owned a majority
interest in PCL, the Company accounted for its investment in PCL under the
consolidation method, and continued to recognize it's 52.6% share of PCL losses,
through June 10, 1998. On June 10, 1998, the Company sold a portion of its share
ownership in PCL, and the Company's ownership percentage in PCL was reduced from
52.6% to 49.9%. As such, subsequent to June 10, 1998, the Company commenced to
account for its remaining investment in PCL under the equity method of
accounting, rather than the consolidation method. Under the equity method,
investments are recorded at cost reduced by the Company's proportionate share of
losses. Any losses in excess of the investment are not recognized until future
profits or additional investments occur. The Company's share of PCL losses
recognized from date of acquisition through June 10, 1998, exceeded its
investment in PCL. In the deconsolidation of PCL, the Company adjusted its
negative investment to zero and recorded the remainder as an adjustment to
capital in excess of par value. On April 5, 1999, PCL entered into an Asset
Purchase Agreement for the sale of the business and substantially all assets to
Unilab Corp for a total purchase price of approximately $40 million. The sale
closed on May 10, 1999. Concurrent with the sale, the Stockholder Agreement was
amended to provide payment to the Company of $3.25 million in cash upon
satisfaction of certain conditions. The Company received this payment in May
1999. The transaction was recorded by the Company as other income and the equity
loss in subsidiary was recorded as an adjustment to capital in excess of par
value.

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<PAGE>

THREE MONTHS ENDED JUNE 30, 1999, COMPARED WITH THREE MONTHS ENDED JUNE 30, 1998

Results of Operations

The Company reported no operating revenues for the three months ended
June 30, 1999. Total operating revenues for the three months ended June 30,
1998, were $22,428. The decrease in total operating revenues is primarily due to
the loss of medical billing services revenues upon the closure of NTBM Billing
Services, Inc. ("NTBM") during the second quarter of 1998.

The Company reported no medical billing services revenues for the three
months ended June 30, 1999, due to the loss of medical billing services revenues
upon the closure of NTBM during the second quarter of 1998. Medical billing
services revenues were $22,428 for the three months ended June 30, 1998.

Total operating costs for the three months ended June 30, 1999, were
$211,606 compared to $363,806 for the three months ended June 30, 1998. The
decrease in total operating costs of $152,200 is primarily due to decreases in
medical billing services expenses of $38,198, and selling, general and
administrative expenses of $113,684.

The Company reported no medical billing services expenses for the three
months ended June 30, 1999, due to the reduction of medical billing services
expenses upon the closure of NTBM during the second quarter of 1998. Medical
billing services expenses were $38,198 for the three months ended June 30, 1998.

Selling, general and administrative expenses for the three months ended
June 30, 1999, were $211,125 compared to $324,809 for the three months ended
June 30, 1998. The decrease in selling, general and administrative expenses of
$113,684 is primarily due to decreases in consultants, accounting, legal and
proxy expenses.

Operating loss for the three months ended June 30, 1999, was $211,606
compared to $341,378 for the three months ended June 30, 1998. The decrease in
operating loss of $129,772 is primarily due to a decrease in total operating
costs of $152,200, primarily due to decreases in medical billing services
expenses of $38,198 and selling, general and administrative expenses of
$113,684, offset by a decrease in total revenues of $22,428 due primarily to the
loss of medical billing services revenues upon the closure of NTBM during the
second quarter of 1998.

Non-recurring miscellaneous revenue for the three months ended June 30,
1999, was $3,250,000. Concurrent with the sale of PCL assets to Unilab (Note
3a), a payment was provided to the Company of $3.25 million in cash upon
satisfaction of certain conditions. The Company received this payment in May
1999. The transaction was recorded by the Company as non-recurring miscellaneous
revenue with a corresponding charge for prior years' unused equity loss in
subsidiary. Such equity loss in subsidiary was recorded as an adjustment to
capital in excess of par value.

Equity loss in subsidiary for the three months ended June 30, 1999, was
$3,250,000. Concurrent with the sale of PCL assets to Unilab (Note 3a), a
payment was provided to the

Page 14 of 29
<PAGE>

Company of $3.25 million in cash upon satisfaction of certain conditions. The
Company received this payment in May 1999. The transaction was recorded by the
Company as non-recurring miscellaneous revenue with a corresponding charge for
prior years' unused equity loss in subsidiary. Such equity loss in subsidiary
was recorded as an adjustment to capital in excess of par value.

Investment and interest income for the three months ended June 30,
1999, was $7,175 compared to $750,000 for the three months ended June 30, 1998.
In June 1998, the Company sold 67,500 shares of PCL common stock to a senior
lender and significant stockholder of PCL for $750,000, in conjunction with a
loan by that stockholder of $4 million to PCL.

Interest expense for the three months ended June 30, 1999, was $36,672
compared to $29,513 for the three months ended June 30, 1998. The interest is
primarily related to a loan in the principal amount of $250,000 obtained by the
Company in March 1998, comprised of accrued interest for the period and the
amortized portion of the original portion of debt discount recorded for the
original estimated value of warrants issued in connection with such debt.
Principal and interest were paid in full on May 13, 1999.

Loss before income taxes for the three months ended June 30, 1999, was
$237,103 as compared to $960,771 for the three months ended June 30, 1998. The
decrease in loss before income taxes of $723,668 is primarily due to decreases
in equity loss in subsidiary of $1,339,880 as well as operating loss of
$129,772, offset by a decrease in investment and interest income of $750,000. In
June 1998, the Company sold 67,500 shares of PCL common stock to a senior lender
and significant stockholder of PCL for $750,000, in conjunction with a loan by
that stockholder of $4 million to PCL.

Income taxes expense for the three months ended June 30, 1999, was
$65,000. An estimated alternative minimum tax expense was incurred by the
Company upon the receipt of $3.25 million in non-recurring miscellaneous
revenue. Concurrent with the sale of PCL assets to Unilab (Note 3a), a payment
was provided to the Company of $3.25 million in cash upon satisfaction of
certain conditions.

Net loss for the three months ended June 30, 1999, was $302,103 as
compared to $960,771 for the three months ended June 30, 1998. The decrease in
net loss of $658,668 is primarily due to decreases in equity loss in subsidiary
of $1,339,880 as well as operating loss of $129,772, offset by a decrease in
investment and interest income of $750,000 and an increase in income taxes
expense of $65,000.

Net loss per share of Common Stock for the three months ended June 30,
1999, was $.44 compared to $1.41 for the three months ended June 30, 1998. The
decrease is primarily due to a decrease in net loss. Weighted average shares
were 682,622 for the three months ended June 30, 1999, and 1998.

Page 15 of 29
<PAGE>

SIX MONTHS ENDED JUNE 30, 1999, COMPARED WITH SIX MONTHS ENDED JUNE 30, 1998

Results of Operations

The Company reported no operating revenues for the six months ended
June 30, 1999. Total operating revenues for the six months ended June 30, 1998,
were $113,179. The decrease in total operating revenues is primarily due to the
loss of medical billing services revenues upon the closure of NTBM Billing
Services, Inc. ("NTBM") during the second quarter of 1998.

The Company reported no medical billing services revenues for the six
months ended June 30, 1999, due to the closure of NTBM during the second quarter
of 1998. Medical billing services revenues were $113,179 for the six months
ended June 30, 1998.

Total operating costs for the six months ended June 30, 1999, were
$497,749 compared to $1,489,945 for the six months ended June 30, 1998. The
decrease in total operating costs of $992,196 is primarily due to decreases in
medical billing services expenses of $167,672, selling, general and
administrative expenses of $159,025, depreciation and amortization expense of
$20,027 and write down of intangibles of $645,472.

The Company reported no medical billing services expenses for the six
months ended June 30, 1999, due to the closure of NTBM during the second quarter
of 1998. Medical billing services expenses were $167,672 for the six months
ended June 30, 1998.

Selling, general and administrative expenses for the six months ended
June 30, 1999, were $496,788 compared to $655,813 for the six months ended June
30, 1998. The decrease in selling, general and administrative expenses of
$159,025 is primarily due to decreases in travel, consultants, accounting, legal
and proxy expenses.

The Company reported no write down of intangibles for the six months
ended June 30, 1999. For the six months ended June 30, 1998, write down of
intangibles was $645,472. During 1998, the Company charged off the balance of
the remaining goodwill relating to NTBM Billing Services, Inc.

Operating loss for the six months ended June 30, 1999, was $497,749
compared to $1,376,766 for the six months ended June 30, 1998. The decrease in
operating loss of $879,017 is primarily due to a decrease in total operating
costs of $992,196, offset by a decrease in medical billing revenues of $113,179
due to the closure of NTBM during the second quarter of 1998. The decrease in
total operating costs is primarily due to decreases in medical billing services
expenses of $167,672, selling, general and administrative expenses of $159,025,
depreciation and amortization expense of $20,027 and write down of intangibles
of $645,472.

Non-recurring miscellaneous revenue for the six months ended June 30,
1999, was $3,250,000. Concurrent with the sale of PCL assets to Unilab (Note
3a), a payment was provided to the Company of $3.25 million in cash upon
satisfaction of certain conditions. The Company received this payment in May
1999. The transaction was recorded by the Company as non-recurring miscellaneous
revenue with a corresponding charge for prior years' unused equity

Page 16 of 29
<PAGE>

loss in subsidiary. Such equity loss in subsidiary was recorded as an adjustment
to capital in excess of par value.

Equity loss in subsidiary for the six months ended June 30, 1999, was
$3,250,000. Concurrent with the sale of PCL assets to Unilab (Note 3a), a
payment was provided to the Company of $3.25 million in cash upon satisfaction
of certain conditions. The Company received this payment in May 1999. The
transaction was recorded by the Company as non-recurring miscellaneous revenue
with a corresponding charge for prior years' unused equity loss in subsidiary.
Such equity loss in subsidiary was recorded as an adjustment to capital in
excess of par value.

Investment and interest income for the six months ended June 30, 1999,
was $7,175 compared to $750,000 for the six months ended June 30, 1998. In June
1998, the Company sold 67,500 shares of PCL common stock to a senior lender and
significant stockholder of PCL for $750,000, in conjunction with a loan by that
stockholder of $4 million to PCL.

Interest expense for the six months ended June 30, 1999, was $84,918
compared to $34,766 for the six months ended June 30, 1998. The interest is
primarily related to a loan in the principal amount of $250,000 obtained by the
Company in March 1998, comprised of accrued interest for the period and the
amortized portion of the original portion of debt discount recorded for the
estimated value of warrants issued in connection with such debt. Principal and
interest were paid in full on May 13, 1999.

Loss before income taxes for the six months ended June 30, 1999, was
$575,492 as compared to $3,636,190 for the six months ended June 30, 1998. The
decrease in loss before income taxes of $3,060,698 is primarily due to decreases
in equity loss in subsidiary of $2,974,658, as well as, operating loss of
$879,017, offset by a decrease in investment and interest income of $750,000. In
June 1998, the Company sold 67,500 shares of PCL common stock to a senior lender
and significant stockholder of PCL for $750,000, in conjunction with a loan by
that stockholder of $4 million to PCL.

Income taxes expense for the six months ended June 30, 1999, was
$65,000. An estimated alternative minimum tax expense was incurred by the
Company upon the receipt of $3.25 million in non-recurring miscellaneous
revenue. Concurrent with the sale of PCL assets to Unilab (Note 3a), a payment
was provided to the Company of $3.25 million in cash upon satisfaction of
certain conditions.

Net loss for the six months ended June 30, 1999, was $640,492 as
compared to $3,636,190 for the six months ended June 30, 1998. The decrease in
net loss of $2,995,698 is primarily due to decreases in equity loss in
subsidiary of $2,974,658, as well as, operating loss of $879,017, offset by a
decrease in investment and interest income of $750,000 and increase in income
taxes expense of $65,000.

Net loss per share of Common Stock for the six months ended June 30,
1999, was $.94 compared to $5.33 for the six months ended June 30, 1998. The
decrease is primarily due to a

Page 17 of 29
<PAGE>

decrease in net loss. Weighted average shares were 682,622 for the six months
ended June 30, 1999, and 1998.

LIQUIDITY AND CAPITAL RESOURCES

Presently, the Company's sole source for liquidity and capital
resources is the balance of cash from the $3.25 million payment received in May
1999. The Company had utilized a portion of this payment to satisfy certain
outstanding debts and obligations. The remaining cash on hand will be used for
working capital.

The Company had $2,163,230 in cash and cash equivalents at June 30,
1999.

Total current assets were $2,184,836 at June 30, 1999, as compared to
$246,425 at December 31, 1998. The increase of $1,938,411 is primarily due to a
net increase of cash and cash equivalents of $1,986,382. On May 10, 1999,
substantially all of PCL assets were sold to Unilab Corp. (Note 3). Concurrent
with the sale, the Stockholder Agreement was amended to provide payment to the
Company of $3,250,000 in cash upon satisfaction of certain conditions. The
Company received this payment on May 10, 1999. The increase in cash of
$3,250,000 is offset by the decrease in current liabilities of $740,479 and the
use of funds to support operating activities.

Prepaid expenses and other current assets were $21,606 at June 30,
1999, as compared to $69,577 at December 31, 1998.

A note receivable of $100,000 was outstanding at June 30, 1999, and
December 31, 1998. During 1998, the Company recorded an allowance against the
receivable based upon an evaluation of collectibility and collateral.

Equipment, net of accumulated depreciation, was $3,671 at June 30,
1999, compared to $4,631 at December 31, 1998.

Deposits were $950 at June 30, 1999, as compared to $4,371 at December
31, 1998.

Total assets at June 30, 1999, were $2,189,457 as compared to $255,427
at December 31, 1998. The increase of $1,934,030 is primarily due to a net
increase of cash and cash equivalents of $1,986,382, offset by a decrease in
prepaid expenses and other current assets of $47,971.

Total current liabilities at June 30, 1999, were $613,420 as compared
to $1,288,898 at December 31, 1998. The decrease of $740,479 is primarily due to
decreases in current portion of long-term debt of $195,001, accounts payable of
$287,190 and accrued expenses of $257,123.

YEAR 2000 COMPLIANCE

The Company has no existing products and no material internal systems
which may be impacted by the Company's failure to effect Year 2000 ("Y2K")
compliance. The Company believes that no material expenditures will be required
to address Y2K compliance of the

Page 18 of 29
<PAGE>

Company's internal computer systems. In the event the Company acquires any
assets or commences any operations which would require it to address Y2K
compliance, it will do so at such time. At this time, the Company has not
encountered any Y2K issues which would have a material adverse effect on its
business.

PLAN OF OPERATIONS AND REQUIREMENT FOR ADDITIONAL FUNDS

The consolidated financial statements of the Company have been prepared
on the basis that the Company will continue as a going concern. Historically,
the Company has reported consistent going concern opinions for the previous
three years. The Company does not have any present, ongoing business which is a
source of revenue from operations. These conditions have raised substantial
doubt about the Company's ability to continue as a going concern.

Through June 30, 1999, the Company generated no cash from operations
and, therefore, has not achieved sufficient revenues to support future
operations. The Company had working capital of approximately $1,636,000 at June
30, 1999. During the twelve months ended December 31, 1998, the Company
generated net cash from financing activities of approximately $173,100, which
was principally utilized by the Company for general working capital purposes,
including cash used from operations of the Company and its then principal
subsidiary, NTBM Billing Services, Inc. ("NTBM"). The Company's remaining cash
and cash equivalents at June 30, 1999, and December 31, 1998, were
approximately$2,163,230 and $177,000, respectively.

On May 10, 1999, Physicians Clinical Laboratory, Inc. ("PCL"), which is
49.9% owned by the Company, disposed of substantially all of its assets to
Unilab (Note 3a). In connection with the sale of assets by PCL, the Company
received a payment of $3.25 million from certain holders of PCL's secured
indebtedness (Note 3a). Presently, the Company's sole source for liquidity and
capital resources is the balance of cash from the $3.25 million payment received
in May 1999. The Company had utilized a portion of this payment to satisfy
certain outstanding debts and obligations. The remaining cash on hand will be
used for working capital. The Company believes its present cash position is
adequate and sufficient for the Company's current cash needs through December
31, 2000. However, no assurances can be given that this action will result in
achieving profitability or positive cash flows. The ability of the Company to
obtain additional financing or to achieve an adequate level of revenues is
dependent upon future events, the outcome of which is presently not
determinable. While the Company may seek to raise additional funds through debt
or equity financing, no assurance may be given that the Company will be able to
do so or, if that such financing is available, that same will be on terms
acceptable to the Company.

EFFECTS OF INFLATION

The Company does not view the effects of inflation to have a material
effect upon its business.

Page 19 of 29
<PAGE>

HISTORICAL LOSSES AND ACCUMULATED DEFICIT OF UNITED; GOING CONCERN
QUALIFICATION OF INDEPENDENT AUDITORS' REPORT

Through the third quarter ended September 30, 1996, the Company was
classified as a development-stage company for financial accounting purposes by
reason of the fact that it had not generated significant revenues from
operations prior to such date. As a result of the acquisition of Prompt Medical
Billing and its subsequent operations under NTBM Billing Services, Inc., and the
ownership, at that time, of MSI, the Company ceased to be classified as a
development-stage company as of December 31, 1996. Since 1990, the Company's
principal business had been conducted through its wholly-owned subsidiary, ABC.
Prior to 1990, the Company, through other subsidiary corporations, had engaged
in other unrelated businesses which have been discontinued. Since inception
(February 1, 1982) through June 30, 1999, the Company has incurred an
accumulated deficit of approximately$58,083,000. For the fiscal years ended
December 31, 1998, 1997, and 1996, and the six months ended June 30, 1999, the
Company incurred net losses of approximately $4,217,000, $31,626,000,
$7,788,000, and $575,000, respectively. The amount of stockholders' equity at
June 30, 1999 was approximately $1,641,000. The amount of its working capital at
June 30, 1999, was approximately $1,636,000. There can be no assurance that the
Company will be able to ultimately identify or acquire any new business or the
Company will have adequate financial resources with which to consummate
potential transactions that may become available to the Company. In addition,
the report of the Company's independent auditors on the consolidated financial
statements of the Company for the year ended December 31, 1998, in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1998, contains an
explanatory paragraph that there are certain conditions that raise substantial
doubt about the ability to continue as a going concern.

OTHER RISKS

PLEDGE OF PRINCIPAL ASSETS TO SECURE EXISTING LOANS FROM THE STATE OF
RHODE ISLAND

In connection with a series of loans obtained during 1993 and 1994 by
the Company from the State of Rhode Island Economic Development Small Business
Loan Fund Corporation ("SBLFC") in the principal aggregate amount of $791,000,
the Company executed two patent security agreements granting the SBLFC a
security interest in ABC's patents to secure $541,000 of the $791,000 of SBLFC
loans (the principal balance of which, as of June 30, 1999, was approximately
$82,000). All of the SBLFC loans, including those which are subject to the
patent security interest, are further secured by a security interest in the
Company's accounts receivable, inventory and equipment. Each of these loans were
for a term of five years from its respective loan date, bearing interest at the
rate of 5.4% and, as to each loan, after the first year is amortized monthly as
to principal and interest. In March 1998, the terms of these loans were modified
to 9.5% interest with principal due on demand. The aggregate amount of monthly
interest payments is approximately $1,000 per month. In the event that the
Company, for whatever reason, is unable to continue to meet its loan repayment
obligations, the assets which are pledged will be subject to the rights of the
SBLFC as a secured party. Further, until the SBLFC loans are repaid, it is
unlikely that the Company or ABC will be able to obtain additional secured
financing utilizing this collateral.

Page 20 of 29
<PAGE>

DEPENDENCE UPON KEY PERSONNEL

The Company is dependent upon the executive abilities of its Chairman,
J. Marvin Feigenbaum, to implement its present and anticipated future plans and
programs. The Company has entered into an employment agreement with Mr.
Feigenbaum for a term ending April 30, 2002. The loss of Mr. Feigenbaum's
services may have a materially adverse effect on the business or prospects of
the Company.

CLASSIFIED BOARD OF DIRECTORS

At the Annual Meeting of Stockholders held in June, 1997, Messrs.
Feigenbaum and Fagenson were elected Class 1 Directors to serve until the 2000
Annual Meeting of Stockholders. At the Annual Meeting of Stockholders held on
August 27, 1996, Mr. Sterling was elected Class 2 Director until the 1999 Annual
Meeting of Stockholders, which meeting has not been held to date. Due to the
financial position of the Company, the Company has been unable to attract and
retain any directors other than Messrs. Feigenbaum, Sterling and Fagenson.

CONVERSION OF SERIES A CONVERTIBLE PREFERRED STOCK, INCREASE OF
AUTHORIZED CAPITAL, DELISTING FROM THE NASDAQ SMALLCAP MARKET AND REVERSE STOCK
SPLIT

As of December 19, 1997, the Company had 47,783,554 pre-reverse split
shares of its Common Stock issued and outstanding (including 45,099,336
pre-reverse split shares of Common Stock previously issued upon conversion of
11,174 shares of Preferred Stock). Consequently, the Company did not have a
sufficient number of unreserved shares of Common Stock to accommodate any
additional conversions of the Preferred Stock and suspended the acceptance of
future conversions.

On June 1, 1998, the Company was notified by The Nasdaq Stock Market
that the Company's Common Stock would be delisted from the Nasdaq Small Cap
Market, effective as of the close of business on June 1, 1998. The Company
believes that the delisting of the Common Stock has had a depressive effect upon
the market price of the Common Stock and adversely affected the liquidity of the
Common Stock because, subsequent to May 15, 1998, the Common Stock has been
quoted in the "pink sheets" maintained by National Quotation Bureau, Inc., which
is not an established trading market.

The Company's Series A Convertible Preferred Stock is convertible into
such number of shares of common stock as shall equal $1,000 divided by a
conversion rate equal to the lesser of (i) 75% of the average closing price of
the common stock for the 5 days immediately preceding the date of the holder's
notice of conversion or (ii) $1,225.00, subject to certain adjustments. Since
the conversion price of the preferred stock is related to the Nasdaq bid price
for the common stock, a conversion price is presently indeterminable;
consequently, the Company has suspended the acceptance of future conversions.

Page 21 of 29
<PAGE>

NO DIVIDENDS AND NONE ANTICIPATED

United has never declared nor paid a dividend on any shares of its
capital stock and the Board of Directors intends to continue this policy for the
foreseeable future.

Balance of Page Intentionally Left Blank

Page 22 of 29
<PAGE>

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

The Company had heretofore filed, and withdrew, a registration
statement relating to the shares of its Common Stock to be issued upon
conversion of the Company's 14,000 shares of Series A Convertible Preferred
Stock ("Preferred Stock"). At the time of such filing, the Company believed that
it had not received valid written demand by a majority of the holders of the
Preferred Stock to require it to proceed with such registration statement. The
Company further believes that, at the time such registration statement was
withdrawn, it did not receive a written demand by the holders of a majority of
Preferred Stock to file a registration statement. Subsequently, the Company did
file a Registration Statement relating to the shares of its Common Stock to be
issued upon conversion of the Company's 14,000 shares of Preferred Stock with
the Securities and Exchange Commission on July 21, 1997.

On February 4, 1998, a complaint was filed against the Company and
others in an action in the United States District Court for the Southern
District of New York captioned GORRA HOLDING AND BARRAS INVESTMENT V. NU-TECH
BIO-MED, INC., J. MARVIN FEIGENBAUM AND ROBERT B. FAGENSON (Docket No. 98 Civ.
764 (JMP)). The complaint alleged that the Company and the other defendants
violated Section 10(b) and Section 20 of the Securities Exchange Act of 1934
(the "Exchange Act") and Rule 10b-5 promulgated thereunder. The complaint also
alleged common law fraud, conversion and breach of contract. These claims
against the Company were purportedly based on allegations that the Company
participated in a scheme to deprive its Series A Convertible Preferred
Shareholders of their conversion and registration rights. The complaint sought
compensatory damages of at least $1.25 million and punitive damages of at least
$3 million or, in the alternative, an order for the Company to allow the
plaintiffs to exercise certain conversion and registration rights, together with
reasonable costs and attorneys' fees. On March 3, 1999, following dismissal of
all claims other than breach of contract, plaintiffs stipulated to a dismissal
of the action without prejudice.

In a Current Report on Form 8-K, dated May 29, 1997, the Company
reported a complaint against the Company captioned MORDECHAI GURARY V. ISAAC
WINEHOUSE, ISAAC WINEHOUSE d/b/a WALL & BROAD EQUITIES AND NU-TECH BIO-MED, INC.
(Docket No. 97 Civ. 3803 (LBS)) filed on May 23, 1997 in the United States
District Court for the Southern District of New York. The complaint alleged that
the Company and the other defendants violated Section 10(b) of the Securities
Exchange Act of 1934 (the "Exchange Act") and Section 349 of the General
Business Law of the State of New York (the "GBL"). The claims against the
Company under the Exchange Act and the GBL were purportedly based on allegations
that the Company knew of and failed to disclose, among other things, unlawful
trading activity in the Company's securities by the other defendants named in
the action. The complaint sought compensatory damages in an unstated amount,
sought to enjoin the Company from registering certain Series A Convertible
Preferred Stock until the determination of the action, and sought reasonable
attorneys' and expert fees as well as treble and punitive damages. On February
9, 1998, the court dismissed with prejudice the federal claims of violations of
Section 10(b) of the Exchange Act for failure to state a claim and dismissed the
state claims of violations of Section 349 of the GBL. The dismissal of this
action was appealed by the plaintiff. On August 24, 1999, the United States

Page 23 of 29
<PAGE>

Court of Appeals for the Second Circuit issued its opinion affirming the
district court's granting of summary judgment dismissing the complaint.

On July 6, 1999, an action was commenced in the Superior Court of the
State of Delaware in and for New Castle County entitled J & B ASSOCIATES PROFIT
SHARING PLAN & TRUST V. UNITED DIAGNOSTIC, INC., although it was not served upon
the defendant until July 20, 1999. The plaintiff, which purports to be an
Illinois corporation, alleges that it purchased 300 shares of Series A
Convertible Preferred Stock from the Company for $300,000 pursuant to a
Preferred Stock Securities Purchase Agreement dated November 19, 1996 (the
"Agreement"). While the plaintiff converted a portion of the Preferred Stock it
held into Common Stock, it alleges that it was unable to convert additional
shares of Preferred Stock because the Company's Common Stock was delisted from
the Nasdaq SmallCap Market ("NSCM"). The complaint alleges that in the
Agreement, the Company warranted that the Common Stock would remain listed on
the NSCM and, therefore, that it breached the terms of the Agreement. The
complaint alleges claims for breach of contract and unjust enrichment against
the Company, and seeks $200,000 in compensatory damages plus attorneys' fees and
costs. On the Company's motion, the complaint was dismissed, and the time to
appeal from the dismissal order has expired.

Page 24 of 29
<PAGE>

On December 28, 1999, a motion was filed against the Company by Fausto
Mendez, Jr. ("Mendez") in the United States Bankruptcy Court for the Central
District of California to reopen the Chapter 11 Case of Medical Science
Institute ("MSI"). As part of MSI's Chapter 11 case, the Company purchased the
assets of MSI and entered into an Employment Agreement with Mendez, MSI's
president. By the Employment Agreement, Mendez was employed by MSI for a period
of two years from the effective date of MSI's First Amended Plan of
Reorganization ("the Plan"). Subsequent to the purchase of MSI, the Company sold
MSI to Physicians Clinical Laboratories, Inc. ("PCL"). The motion alleges that
under the Plan and the Employment Agreement, the Company was obligated (1) to
issue $2 million in restricted shares of the Company's common stock to Mendez
valued using the average market price per share for the fifteen days preceding
November 23, 1996, (2) to pay $271,561 of MSI's pre-petition payroll taxes, (3)
to provide Mendez term life insurance benefits for the two years of his
employment by MSI, (4) to appoint Mendez to a seat on MSI's Board of Directors,
and (5) to assume the cost of a certain computer system. The motion further
alleges that the Company, and PCL as successor to the Company in MSI, failed to
comply with their obligations under the Plan and the Employment Agreement. The
motion sought an order to reopen MSI's chapter 11 case in order to construe the
terms of the Plan and enforce its terms. On February 9, 2000, the Bankruptcy
Court, after a hearing, denied the motion in its entirety and declined to reopen
the Chapter 11 case.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

Exhibit No. Description
----------- -----------

3.1* Amended and Restated Certificate of Incorporation filed
with the Secretary of State of Delaware on November 16, 1996
(Exhibit 3.1.5 to Amendment No. 1 to Registration Statement on
Form SB-2, file No. 33-84622)

3.2* Amended and Restated By-Laws effective November 16, 1996
(Exhibit 3.2.2 to Registration Statement on Form SB-2, File
No. 33-846221)

3.3* Amended and Restated Certificate of Incorporation filed
with the Secretary of State of Delaware on October 21, 1997
(Exhibit 3 on Form 8-K, file No. 001-13900)

27 Financial Data Schedule

Page 25 of 29
<PAGE>

(b) Reports on Form 8-K

During the quarter ended June 30, 1999, the following report was filed
on Form 8-K by the Registrant:

<TABLE>

<S> <C> <C>
May 20, 1999 Item 5. Other Events Sale of Physicians Clinical
Laboratory, Inc.'s assets to
Unilab Corporation

June 23, 1999 Item 5. Other Events J. Marvin Feigenbaum's
Amended and Restated
Employment Agreement
Dated May 19, 1999

Subsequent to the quarter ended June 30, 1999, the following reports on
Form 8-K were filed by the Registrant:

March 16, 2000 Item 4. Changes in Registrant's The Company reported the
(Form 8-K/A Amending Certifying Accountants termination of Grant
Form 8-K dated Thornton LLP and the
March 3, 2000) Item 7. Exhibits engagement of Richard A.
Eisner & Company, LLP as
the Company's independent
auditors.

</TABLE>

Page 26 of 29
<PAGE>

SIGNATURES

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

UNITED DIAGNOSTIC, INC.

Dated: April 10, 2000 by: /s/ J. MARVIN FEIGENBAUM
------------------------
J. Marvin Feigenbaum
President, Chief Executive

Page 27 of 29

<PAGE>
<ARTICLE> 5
<CIK> 0000716778
<NAME> UNITED DIAGNOSTIC, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 2,163,230
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,184,836
<PP&E> 3,671
<DEPRECIATION> 5,936
<TOTAL-ASSETS> 2,189,457
<CURRENT-LIABILITIES> 613,420
<BONDS> 0
0
28
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<INTEREST-EXPENSE> 84,918
<INCOME-PRETAX> (575,492)
<INCOME-TAX> (65,000)
<INCOME-CONTINUING> (640,492)
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<CHANGES> 0
<NET-INCOME> (640,492)
<EPS-BASIC> (0.94)
<EPS-DILUTED> (0.94)

</TABLE>