UNITED DIAGNOSTIC INC, 10KSB, 2000-05-31

UNITED DIAGNOSTIC INC
10KSB, 2000-05-31
MEDICAL LABORATORIES

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-KSB

/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR

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

Commission file number: 0-11772

UNITED DIAGNOSTIC, INC.
(Name of Small Business Issuer as Specified in Its Charter)

DELAWARE 25-1411971
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

476 MAIN STREET, SUITE 3-DFL, WAKEFIELD, RHODE ISLAND 02879
(Address of Principal Executive Offices)

(401) 789-9995
(Issuer's Telephone Number, Including Area Code)

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 $.01 PER SHARE
(Title of Class)

Check whether the issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Act")
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 any amendment to this
Form 10-K. /X/

Transitional Small Business Disclosure Format (check one):
Yes / / No /X/

On May 24, 2000, the aggregate market value of the voting stock
of United Diagnostic, Inc. held by nonaffiliates of the registrant was
approximately $42,664. The Company's common stock is reported in the "pink
sheets" maintained by the National Quotation Bureau, LLC. The Company does
not believe that its common stock is the subject of an active market. On May
24, 2000, the high bid and low ask prices of such stock as reported in the
"pink sheets" were $75.00 and $0.15, respectively. For purposes of
calculating the market value of the Company's common stock, the Company has
utilized $0.0625, the closing sale price for the common stock as reported by
the "pink sheets" on May 10, 2000, the last date on which an actual
transaction was reported.

The registrant had 682,622 shares of common stock, $.01 par value
per share, outstanding at May 24, 2000.

Documents Incorporated by Reference: None.

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UNITED DIAGNOSTIC, INC.
ANNUAL REPORT ON FORM 10-KSB

TABLE OF CONTENTS

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PAGE

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PART I............................................................................................................1
ITEM 1. DESCRIPTION OF BUSINESS................................................................1
ITEM 2. DESCRIPTION OF PROPERTIES..............................................................6
ITEM 3. LEGAL PROCEEDINGS......................................................................6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....................................8

PART II...........................................................................................................9

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS...............9
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.10
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...........................................15
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..15

PART III.........................................................................................................17

ITEM 9. DIRECTORS & EXECUTIVE OFFICERS OF THE REGISTRANT......................................17
ITEM 10. EXECUTIVE COMPENSATION................................................................20
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........................25
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................26
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.......................27

SIGNATURES.......................................................................................................28

EXHIBIT INDEX....................................................................................................30

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PART I

SPECIAL NOTE REGARDING LATE FILING OF ANNUAL AND QUARTERLY REPORTS

Due to the Registrant's delay in retaining new independent auditors,
compounded by the Registrant's acquisition of a majority interest in a
significant subsidiary in October 1997 which required audited financial
statements of such acquired subsidiary, the Registrant 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, December 31, 1998,
and December 31, 1999, 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. The Company's annual report on Form 10-KSB for
the year ended December 31, 1997 was filed on September 3, 1999, its quarterly
report on Form 10-QSB for the three months ended March 31, 1998 was filed on
October 15, 1999 and subsequently amended on January 26, 2000, its quarterly
report on Form 10-QSB for the six months ended June 30, 1998 was filed on
October 29, 1999 and subsequently amended on January 26, 2000, and its quarterly
report on Form 10-QSB for the nine months ended September 30, 1998 was filed on
November 4, 1999 and subsequently amended on January 26, 2000. The Company's
annual report on Form 10-KSB for the year ended December 31, 1998 was filed on
January 13, 2000. The Company's quarterly reports on Form 10-QSB for the three
months ended March 31, 1999, six months ended June 30, 1999, and nine months
ended September 30, 1999 were filed on April 10, 2000. The Company is filing
herewith its annual report on Form 10-KSB for the year ended December 31, 1999.
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 1-for-70 reverse stock split effective December
23, 1998.

ITEM 1. DESCRIPTION OF BUSINESS

ORGANIZATION

United Diagnostic, Inc. (hereinafter referred to as "United" or the
"Company"), was originally organized under the laws of the State of Delaware in
September 1981 under the name "Applied DNA Systems, Inc." On November 16, 1994,
the Company changed its name to "Nu-Tech Bio-Med, Inc." Effective December 23,
1998, the Company changed its name to its present name. One of the Company's
wholly-owned subsidiaries, Analytical Biosystems Corp. ("ABC") (inactive since
November 3, 1997), was organized under the laws of the State of Delaware in
August, 1985. On October 21, 1996, the Company acquired substantially all of the
medical billing service assets of Prompt Medical Billing, Inc. through the
Company's wholly-owned subsidiary, NTBM Billing Services Inc. (inactive since
April, 1998), organized under the laws of the State of Delaware on September 10,
1996. Physicians Clinical 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), was organized under the laws of the State
of Delaware in April, 1992. Medical Science Institute, Inc. ("MSI"), organized
under the laws of the State of California on January 9, 1985, was a wholly owned
subsidiary of United from November 18, 1996 until February 26, 1997, when United
sold its equity interests in MSI to PCL. Effective December 15, 1997, the
Company's executive offices are located at 476 Main Street, Suite 3-DFL,
Wakefield, Rhode Island 02879, telephone number (401) 789-9995.

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CERTAIN BUSINESS, OPERATIONAL AND BACKGROUND INFORMATION

From 1990 until 1997, the Company operated, through its ABC subsidiary,
principally as a specialized clinical oncology laboratory service and research
company. Its principal business was the development, marketing and performance
of an IN VITRO chemosensitivity assay known as the Fluorescent Cytoprint Assay
("FCA"). During that period, however, revenues attributable to sales of the FCA
did not reach a material level. The inability of the Company to increase sales
of the FCA was, in the opinion of management, principally attributable to the
refusal of most insurance carriers to reimburse patients and hospitals for
performance of the FCA by the Company. In large part as a consequence of the
Company's lack of success in marketing the FCA, the Company experienced
significant losses during this period. Ultimately, in the fall of 1997, the
Company suspended marketing the FCA, and closed its laboratory facilities, which
were then located in Rhode Island. Shortly prior to the closing of its
laboratory facility, the Company changed its focus from operating a clinical
laboratory marketing chemosensitivity assay services to maintaining a presence
as a full service licensed clinical laboratory through its ownership of a
majority interest in PCL and, indirectly, a majority interest in MSI.

ACQUISITION OF MSI; SALE OF MSI TO PCL

On November 18, 1996, the United States Bankruptcy Court of the
Central District of California (the "Court") approved the reorganization plan
of MSI, a California corporation, which had been jointly submitted to the
Court by the Company and MSI. MSI had been operating as a
debtor-in-possession under chapter 11 of the Bankruptcy Code, 11 U.S.C.
ss.ss. 101-1330 ("Chapter 11") since October 26, 1995. Pursuant to the plan,
the Company acquired all of the capital stock of MSI and MSI became a
wholly-owned subsidiary of the Company. MSI was a full service medical
laboratory facility. Its primary executive offices were located in Burbank,
California, and MSI operated throughout the State of California. The
completion of the acquisition of MSI was with the intent to resell and pass
through its ownership in MSI to PCL so as to result in the Company indirectly
owning a majority interest in MSI through its majority interest in PCL.

On February 26, 1997, the Company completed the sale of its ownership
interest in MSI to PCL for approximately $7.6 million. The Company received
approximately $2.6 million in cash and a secured promissory note of PCL in the
principal amount of $5 million that was secured by all the assets of PCL, but
was subordinate to certain other claims and other administrative expenses (the
"MSI Acquisition Note"). In accordance with the approval of the United States
Bankruptcy Court having jurisdiction over PCL (as further described below), the
Company became the owner of 52.6% of the outstanding capital stock of PCL, and
the MSI Acquisition Note was cancelled in satisfaction of the Company's
obligation to contribute $5 million to the capital of PCL.

ACQUISITION OF MAJORITY INTEREST IN PCL AND PCL'S CHAPTER 11 BANKRUPTCY
PROCEEDING

In connection with its efforts to expand its operations through
acquisitions, during 1996 the Company commenced negotiations with the management
of PCL, and certain of its institutional debtholders concerning the possible
acquisition by the Company of a controlling interest in PCL. Pursuant to the
agreement reached with the Debtors (as defined below), the Company and the
holders of approximately $80 million of PCL's senior secured debt ("PCL Senior
Debt") and approximately $40 million of PCL's subordinated debt (collectively,
the "Proponents"), the Company purchased approximately $13.3 million of PCL
Senior Debt for $10 million on November 7, 1996, in advance of the commencement
of the bankruptcy proceeding by PCL. On November 8, 1996 (the "Petition Date"),
PCL and its subsidiaries, Quantum Clinical Laboratories, Inc., Regional
Reference Laboratory Governing Corporation, Diagnostic Laboratories, Inc., and
California

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Regional Reference Laboratory (collectively with PCL, the "Debtors"), commenced
their respective reorganization cases by filing voluntary petitions for relief
under Chapter 11. On December 2, 1996, the Proponents submitted a plan of
reorganization under Chapter 11 (as modified and amended, the "Plan"), which
became effective on October 3, 1997 (the "Effective Date"). In accordance with
the Plan, the PCL Senior Debt purchased by the Company was exchanged for 35.6%
of the common stock of PCL as of the Effective Date. Also in accordance with the
Plan, the Company acquired an additional 17.0% of the common stock of PCL as of
the Effective Date in exchange for cancellation of the MSI Acquisition Note (see
"Acquisition of MSI"). As a result, the Company acquired, in the aggregate,
52.6% of the outstanding common stock of PCL on the Effective Date.

The principal business of PCL was to provide clinical laboratory
services in the State of California. PCL was a "hybrid" among clinical
laboratory companies in that it served both as a traditional reference
laboratory for office-based physicians/clients and as an independent clinical
laboratory to acute hospital customers. PCL operated throughout the State of
California and its executive offices were located in Sacramento, California. For
its fiscal year ended February 28, 1997, PCL reported revenues of $90,392,000
and incurred a net loss of $73,184,000. For the seven month fiscal period ended
September 30, 1997, PCL reported revenues of $40,322,835 and incurred a loss
before extraordinary gain of $17,925,180 (unaudited).

EFFECTIVENESS OF CHAPTER 11 REORGANIZATION

The Plan embodied the terms of a prepetition termsheet agreed to among
the Company and the Proponents, which provided for a new investment into PCL and
an overall restructuring of PCL's balance sheet. On January 17, 1997, the
Proponents filed a modified joint plan of reorganization, which contained
certain amendments to the joint plan of reorganization filed on December 2,
1996. On February 11, 1997, the Proponents filed the Second Amended Plan of
Reorganization of the Debtors with the Court, which contained certain amendments
to the plan of reorganization filed on January 17, 1997.

By order dated April 23, 1997, the Court confirmed the Plan pursuant to
section 1129 of the Bankruptcy Code. By separate order dated April 23, 1997, the
Debtors' Chapter 11 estates were substantively consolidated. Pursuant to the
Plan, all conditions to the Effective Date of the Plan were to be satisfied or
waived on or before July 22, 1997, unless such date was extended by the Court.

FINANCING OF PURCHASE OF INTEREST IN PCL - PRIVATE PLACEMENT OF SERIES
A CONVERTIBLE PREFERRED STOCK

In order for the Company to acquire the PCL Senior Debt which was
converted into 52.6% of the common stock of PCL as part of the Plan, in October
1996, the Company commenced a private placement of 14,000 shares of its Series A
Convertible Preferred Stock (the "Preferred Stock") at a price of $1,000 per
share, from which it realized aggregate gross proceeds of $14 million. On
November 5, 1996, the Company completed the first closing of the offering, from
which the Company realized gross proceeds of $10 million from the sale of 10,000
shares of Series A Preferred Stock. On December 2, 1996, the Company completed
the offering and received additional gross proceeds of $4 million. The Company
received net proceeds of $12,849,000 in connection with the offering. Each share
of Preferred Stock, by its terms, 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 a share of Common Stock
reported by the Nasdaq SmallCap Stock Market for the five trading days prior to
the date of the holder's notice of conversion or (ii) $1,225, subject to
adjustment. Through May 24, 2000, an aggregate of 644,276 shares of Common Stock
were issued upon

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conversion of 11,174 shares of Preferred Stock. All of the shares were converted
based on the "floating" Conversion Rate referenced in (i) above.

The Company filed a registration statement relating to the shares of
Common Stock issuable upon conversion of the Preferred Stock (the "Conversion
Shares") in December 1996, but withdrew the registration statement in February
1997. The Company subsequently filed a new registration statement in April 1997
relating to the Conversion Shares, which was declared effective by the
Commission on July 23, 1997. The selling stockholders under such registration
statement each represented to the Company that they were not part of any "group"
as defined in Rule 13d-5 under the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended, and each represented that he or it
was the sole beneficial owner of Common Stock of the Company registered in his
or its name or issuable upon conversion of additional shares of Preferred Stock.
As a result of the Company's acquisition of a 52.6% interest in PCL, in October
1997, the Company suspended further sales of Conversion Shares pursuant to the
registration statement pending stockholder authorization of additional shares of
Common Stock to be issued upon conversion of the Preferred Stock, the
preparation and filing by the Company of additional reports with the Commission
relating to the completion of the acquisition of its majority interest in PCL,
and the Company amending its registration statement to reflect the completion of
the PCL transaction. On October 20, 1997, the Company filed an initial Current
Report on Form 8-K relating to its acquisition of such majority interest in PCL
and, under the applicable rules for such form, had 60 days therefrom to file the
requisite financial statements of PCL. Sales under the registration statement
remained suspended pending the preparation and filing of such additional
reports, principally relating to the requisite PCL financial statements, which
additional reports have not been completed to date. As of the date hereof, no
post-effective amendment to the registration statement has been filed and sales
under that registration statement remain suspended.

For information regarding certain litigation concerning conversion of
the Preferred Stock into Common Stock and ability to sell under the Selling
Shareholder Registration Statements, see "Legal Proceedings".

DESCRIPTION OF THE SALE OF THE SHARES OF THE COMMON STOCK OF PCL BY THE
COMPANY TO OAKTREE

On June 16, 1998, the Company sold 67,500 shares of common stock of PCL
to Oaktree Capital Management LLC ("Oaktree"). Following the reorganization of
PCL under Chapter 11, the Company owned approximately 52.6% of the issued and
outstanding capital stock of PCL. In June 1998, PCL's business required $4
million for working capital purposes. The Company, however, did not have
sufficient monies available to independently lend or participate in a new
lending to PCL. Oaktree, the holder of approximately 44% of the issued and
outstanding capital stock of PCL and approximately 96% of the outstanding
principal amount of PCL's $55 million Senior Secured Notes Due 2004, agreed to
loan PCL the additional working capital. As consideration for the loan, Oaktree
required and received certain promissory notes from PCL in the aggregate
principal amount of $4 million, the right to purchase the 67,500 shares of
common stock of PCL, par value $0.01 per share (the "PCL Common Stock") from the
Company (representing approximately 2.7% of the issued and outstanding capital
stock of PCL), and the right to elect a majority of PCL's Board of Directors. As
a result of this sale Oaktree and the Company now own approximately 46.8% and
49.9%, respectively, of the issued and outstanding capital stock of PCL. In
connection with the sale of the 67,500 shares of PCL Common Stock, the Company
and Oaktree entered into a stock purchase agreement dated as of June 12, 1998,
and the Company, PCL, Oaktree and J. Marvin Feigenbaum (the "Stockholders")
entered into an Amended and Restated Stockholders Agreement which amended and
restated an Initial Stockholders Agreement by and among the Stockholders dated
September 30, 1997. The Amended and Restated Stockholders Agreement was further
amended on October 29, 1998 in connection with the issuance by PCL

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of an additional promissory note to Oaktree in the principal amount of $2
million, upon the same terms and conditions as those notes issued by PCL in
June, 1998.

SALE BY PCL OF SUBSTANTIALLY ALL OF ITS ASSETS TO UNILAB

On May 10, 1999, PCL 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. The
proceeds of sale were principally used by PCL 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.

CERTAIN COMPANY CORPORATE MATTERS - INCREASE OF AUTHORIZED CAPITAL,
DELISTING FROM THE NASDAQ SMALLCAP MARKET, AND REVERSE STOCK SPLIT

As a result of the decline in the market price of the Common Stock
following the closing of the private placement in November and December, 1996,
the number of shares of Common Stock issuable upon conversion of Series A
Preferred Stock was far in excess of the number that would have been required to
be issued based on the market price of the Common Stock at the time of the
consummation of the private placement, and was in excess of the amount of
authorized and unissued shares of Common Stock under the Company's charter. As
of October 15, 1997, a majority of the Company's stockholders as of August 8,
1997 approved an amendment to the Company's Amended and Restated Certificate of
Incorporation to increase the total number of shares of all classes of capital
stock which the Company may issue to fifty-two million shares; such increase
having been effected by increasing the number of shares of Common Stock from
twelve million shares to fifty million shares and by increasing the number of
shares of preferred stock from one million shares to two million shares. This
proposal was made via a consent solicitation proxy statement on behalf of the
Company's Board of Directors. The amendment was declared effective by the
Secretary of the State of Delaware on October 21, 1997. By reason of such
amendment, the Company was able to legally issue shares of its Common Stock from
time to time as future conversions of Preferred Stock occurred.

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.

By letter dated April 17, 1998, from The Nasdaq Stock Market, the
Company was advised that Nasdaq had commenced proceedings to delist the
Company's Common Stock from inclusion in the Nasdaq SmallCap Market ("NSCM") by
reason of the inability of the Company to file its Annual Report on Form 10-KSB
for the year ended December 31, 1997. The inability of the Company to file its
Annual Report on Form 10-KSB was occasioned because the audit of the Company's
financial statements for the year ended December 31, 1997 was delayed by reason
of a pending change in the Company's independent auditors. The Company requested
a hearing with respect to the delisting proceedings. On June 1, 1998, the
Company was notified by The Nasdaq Stock Market that the Company's Common Stock
would be delisted from the NSCM, effective as of the close of business on June
1, 1998. The notification resulted from a determination by a

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Nasdaq Listing Qualifications Panel, following a hearing held on May 14, 1998,
to reject the Company's request for continued inclusion on the NSCM. The
Company's Common Stock was quoted on the NSCM through May 15, 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 Stock
Market bid price for the Common Stock, a conversion price is presently
indeterminable; consequently, the Company has suspended the acceptance of future
conversions.

Pursuant to prior stockholder authorization, the Company filed a
Certificate of Amendment to its Certificate of Incorporation effective December
23, 1998, (i) effecting a 1-for-70 reverse stock split of its issued and
outstanding Common Stock, resulting in each 70 issued and outstanding shares of
the Common Stock being changed into one share, and (ii) changing the name of the
Company to United Diagnostic, Inc.

EMPLOYEES

As of May 24, 2000, the Company had two employees, including its one
executive officer. None of the Company's employees are represented by a labor
union, and the Company considers its relationship with its employees to be good.

ITEM 2. DESCRIPTION OF PROPERTIES

The Company's principal executive offices, located at 476 Main Street,
Suite 3-DFL, Wakefield, Rhode Island 02879, consist of approximately 500 square
feet of office space under a lease with a term of one year commencing January 1,
2000, which lease may be renewed by the Company, at a monthly rental of $925 per
month. The Company believes that its present facilities are adequate for its
present needs.

ITEM 3. LEGAL PROCEEDINGS

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, d/b/a MSI Laboratories ("MSI"), captioned IN RE MEDICAL SCIENCE
INSTITUTE, DBA MSI Laboratories (Docket No. 95-37790 TD). 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
("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 $271,561.42 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

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Directors, and (5) to assume the cost of a computer system known as the Atrium
Computer System. The motion further alleged 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 reopening
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.

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. At November 1, 1999, no payments had been
collected against the outstanding $70,000 and the right to collect has
reverted to the Company.

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 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 pending before the
Court.

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

7
<PAGE>

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
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, alleged 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.

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

Not applicable.

8
<PAGE>

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS

MARKET INFORMATION

The Company believes that there is currently no established public
trading market for the Common Stock. From December 20, 1994 until May 15, 1998,
the Company's Common Stock was listed on the Nasdaq SmallCap Market. On June 1,
1998, The Nasdaq Stock Market advised the Company that it was delisting the
Common Stock from the SmallCap Market effective at the close of business on that
date. Nasdaq had commenced delisting proceedings in April 1998 following the
failure of the Company to file with the Commission and Nasdaq its Annual Report
on Form 10-KSB for the year ended December 31, 1997 (the "1997 Form 10-KSB"),
which was required to be filed by April 15, 1998. Nasdaq also cited as a reason
for delisting the fact that the bid price of the Common Stock had failed to
equal or exceed $1.00 since February 23, 1998, the date on which new Nasdaq
rules went into effect requiring, as a condition to continued listing of
securities on the SmallCap Market, that the minimum bid price of the security
equal or exceed $1.00. Subsequent to May 15, 1998, the last date that the Common
Stock was quoted on Nasdaq, the Common Stock was quoted on the "pink sheets"
maintained by the National Quotation Bureau, Inc. under the symbol "UNDI." The
Company believes if the Common Stock is currently being traded, it is being
traded on the "pink sheets".

The following table sets forth the range of high and low reported bid
prices for the years ended December 31, 1999 and 1998. Quotations represent
prices between dealers and do not reflect retail markups, mark-downs or
commissions and may not necessarily represent actual transactions.

<TABLE>
<CAPTION>
Bid Prices of Common Stock
--------------------------------------
Low High
-------------- ----------------------
<S> <C> <C>
Year Ended December 31, 1999:
First Quarter(1) 1/1000 1/1000
Second Quarter(4) N/A N/A
Third Quarter(4) N/A N/A
Fourth Quarter(1) 1/1000 1/100
Year Ended December 31, 1998:
First Quarter(2) $ 4.375 $ 8.75
Second Quarter(3) $ 0.070 $ 8.75
Third Quarter(1) $ 0.07 $ 7.00
Fourth Quarter(1) $ 0.007 $ 4.375

</TABLE>

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

(1) As quoted on the "pink sheets" maintained by the National Quotation
Bureau, Inc.
(2) As reported by the Nasdaq SmallCap Market ("NSCM").
(3) As reported by NSCM from April 1, 1998 through May 15, 1998 and as quoted
on the pink sheets from May 16, 1998 through June 30, 1998.
(4) No quotations appear on the pink sheets during this period.

9
<PAGE>

HOLDERS

The number of holders of record of the Company's Common Stock as of May
24, 2000 was approximately 1,080.

DIVIDENDS

The Company has never paid a dividend, whether in cash or property, on
its shares of Common Stock, and has no present expectation of doing so in the
foreseeable future.

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

The Company currently has no active business operations nor has it
realized revenues from ongoing operations. But for the Company's infusion of
cash which the Company received as a result of the sale by PCL of its business
and assets, there is no assurance that the Company would be able to sustain
itself beyond December 31, 2000. For the fiscal year ended December 31, 1998,
and the years prior thereto, the Reports on the Company's financial statements
contained an explanatory paragraph based upon substantial doubt existing about
the Company's ability to continue as a going concern.

The following discussion should be read in conjunction with the
financial statements of the Company and related notes included elsewhere in this
Report. All statements contained herein (other than historical facts) including,
but not limited to, statements regarding the Company's future development plans,
the Company's ability to generate cash from its operations and any losses
related thereto, are based upon current expectations. These statements are
forward looking in nature and involve a number of risks and uncertainties.
Actual results may differ materially from the anticipated results or other
expectations expressed in the Company's forward looking statements. Generally,
the words "anticipate," "believe," "estimate," "expects," and similar
expressions as they relate to the Company and/or its management, are intended to
identify forward looking statements. Among the factors that could cause actual
results to differ materially are the following: the inability of the Company to
obtain additional financing to meet its capital needs; competition within the
clinical laboratory testing industry; and general business and economic
conditions.

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.

10
<PAGE>

The Company, in May 2000, made a $200,000 investment for an initial
7.5% common stock interest in a newly formed company which is majority owned
by Mr. J. Marvin Feigenbaum (Chairman and stockholder of the Company). Such
investment was pursuant to an affirmative vote (with Mr. Feigenbaum
abstaining) by the Board of Directors at a meeting held April 17, 2000.

2. 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.

As a result of the above transactions, the Management's Discussion and
Analysis of Financial Condition and Results of Operations relating to the twelve
months ended December 31, 1999, and 1998, are presented on the basis of the
Company's 49.9% ownership of PCL which is recorded under the equity method of
accounting (Note 2 below).

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.

As a result, Management's Discussion and Analysis of Financial
Condition and Results of Operations relating to the twelve months ended December
31, 1998, do include the operations of NTBM; however, the twelve months ended
December 31, 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

11
<PAGE>

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. PCL continued to have losses
after June 1998, and the Company's share of losses were not further recognized
in 1998. The 1998 statements present the Company's investment in PCL on the
equity method restated to January 1, 1998.

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.

TWELVE MONTHS ENDED DECEMBER 31, 1999, COMPARED WITH TWELVE MONTHS ENDED
DECEMBER 31, 1998

Results of Operations

The Company reported no revenues for the twelve months ended December
31, 1999. Total revenues for the twelve months ended December 31, 1998, were
$113,179. The lack of total revenues is primarily due to closure of NTBM Billing
Services, Inc. ("NTBM") during the second quarter of 1998.

The Company reported no medical billing services revenues for the
twelve months ended December 31, 1999, due to closure of NTBM during the second
quarter of 1998. Medical billing services revenues were $113,179 for the twelve
months ended December 31, 1998.

Total operating costs for the twelve months ended December 31, 1999,
were $923,473 compared to $1,893,917 for the twelve months ended December 31,
1998. The decrease in total operating costs of $970,444 is primarily due to
decreases in medical billing services expenses of $167,020, selling, general and
administrative expenses of $137,047, depreciation and amortization expense of
$20,805 and write down of intangibles of $645,572.

The Company reported no medical billing services expenses for the
twelve months ended December 31, 1999, due to closure of NTBM during the second
quarter of 1998. Medical billing services expenses were $167,020 for the twelve
months ended December 31, 1998.

Selling, general and administrative expenses for the twelve months
ended December 31, 1999, were $921,552 compared to $1,058,599 for the twelve
months ended December 31, 1998. The decrease in selling, general and
administrative expenses of $137,047 is primarily due to decreases in legal,
accounting and consultants expenses.

12
<PAGE>

The Company reported no write down of intangibles for the twelve months
ended December 31, 1999. During 1998, the Company charged off the balance of the
remaining goodwill relating to NTBM Billing Services, Inc. For the twelve months
ended December 31, 1998, write down of intangibles was $645,572.

Operating loss for the twelve months ended December 31, 1999, was
$923,473 compared to $1,780,738 for the twelve months ended December 31, 1998.
The decrease in operating loss of $857,265 is primarily due to a decrease in
total operating costs of $970,444, primarily due to decreases in medical billing
services expenses of $167,020, selling, general and administrative expenses of
$137,047, depreciation and amortization expense of $20,805 and write down of
intangibles of $645,572, offset by a decrease in total revenues of $113,179
primarily due to closure of NTBM during the second quarter of 1998.

Non-recurring miscellaneous revenue for the twelve months ended
December 31, 1999, was $3,250,000. Concurrent with the sale of PCL assets to
Unilab (Note 2a above), a payment was provided to the Company of $3,250,000 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' unrecognized
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 twelve months ended December 31,
1999, was $3,250,000 as compared to $2,974,658 for the twelve months ended
December 31, 1998. Concurrent with the sale of PCL assets to Unilab (Note 2a
above), a payment was provided to the Company of $3,250,000 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.

Provision for bad debt of note receivable for the twelve months ended
December 31, 1999 and 1998, was $100,000. On February 10, 1997, a $100,000 loan
was issued to the former sole stockholder and president of MSI, as part of the
employment agreement between the Company and the stockholder. The loan is
secured by the shares of Common Stock issued to the stockholder under the MSI
Plan. During 1998, the Company recorded an allowance against the receivable
based upon an evaluation of collectibility and collateral.

Investment and interest income for the twelve months ended December 31,
1999, was $56,222 compared to $750,000 for the twelve months ended December 31,
1998. For the twelve months ended December 31, 1999, the interest income of
$56,222 is primarily due to an increase in cash and cash equivalents upon which
interest is earned. 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 (Note 2a
above).

Interest expense for the twelve months ended December 31, 1999, was
$93,297 compared to $113,036 for the twelve months ended December 31, 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 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.

13
<PAGE>

Loss before income taxes for the twelve months ended December 31, 1999,
was $960,548 as compared to $4,216,932 for the twelve months ended December 31,
1998. The decrease in loss before income taxes of $3,256,384 is primarily due to
decreases in equity loss in subsidiary of $2,974,658, operating loss of
$857,265, provision for bad debt of $100,000 and interest expense of $19,739,
offset by a decrease in investment and interest income of $693,778.

Income tax expense for the twelve months ended December 31, 1999, was
$65,000. An estimated alternative minimum tax expense was incurred by the
Company upon the receipt of $3,250,000 in non-recurring miscellaneous revenue.
Concurrent with the sale of PCL assets to Unilab (Note 2a above), a payment was
provided to the Company of $3,250,000 in cash upon satisfaction of certain
conditions.

Net loss for the twelve months ended December 31, 1999, was $1,025,548
as compared to $4,216,932 for the twelve months ended December 31, 1998. The
decrease in net loss of $3,191,384 is primarily due to a decrease in loss before
income taxes of $3,256,384, offset by an increase in income tax expense of
$65,000.

Net loss per share of Common Stock for the twelve months ended December
31, 1999, was $1.50 compared to $6.18 for the twelve months ended December 31,
1998. The decrease is due to a decrease in net loss. Weighted average shares
were 682,622 for the twelve months ended December 31, 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 $1,709,067 in cash and cash equivalents at December 31,
1999.

Total current assets were $1,778,709 at December 31, 1999, as compared
to $246,425 at December 31, 1998. The increase of $1,532,284 is primarily due to
a net increase of cash and cash equivalents of $1,532,219. On May 10, 1999,
substantially all of PCL assets were sold to Unilab Corp. 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 $697,510 and the use of funds to support
operating activities.

Total assets at December 31, 1999, were $1,782,369 as compared to
$255,427 at December 31, 1998. The increase of $1,526,942 is primarily due to a
net increase of cash and cash equivalents of $1,532,219.

Current liabilities at December 31, 1999, were $591,388 as compared to
$1,288,898 at December 31, 1998. The decrease of $697,510 is primarily due to
decreases in current portion of long-term debt of $148,308, accounts payable of
$249,578 and accrued expenses of $298,459.

14
<PAGE>

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 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.

ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Index to Financial Statements attached hereto.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

As previously reported by the Company on a current report on Form 8-K
filed with the Commission on March 3, 2000, as amended on March 16, 2000, by
resolution of the Board of Directors adopted on February 25, 2000, the Board of
Directors of the Company approved the engagement of Richard A. Eisner & Company,
LLP as its independent auditors for the fiscal year ending December 31, 1999 to
replace the firm of Grant Thornton LLP, who were dismissed as auditors of the
Company effective February 25, 2000.

The reports of Grant Thornton LLP on the Company's financial statements
for the past two fiscal years did not contain an adverse opinion or a disclaimer
of opinion and were not qualified as to audit scope, or accounting principles.
However, their report was modified to include an explanatory paragraph with
respect to there being substantial doubt about the Company's ability to continue
as a going concern.

In connection with the Company's financial statements for each of the
two fiscal years ended December 31, 1998, and in the subsequent interim periods
through February 25, 2000, there were no disagreements with Grant Thornton LLP
on any matters of accounting principles or practices, financial statement
disclosure, or auditing scope and procedures which, if not resolved to the
satisfaction of Grant Thornton LLP would have caused Grant Thornton LLP to make
reference to the matter in their report.

As previously reported by the Company on a current report on Form 8-K/A
filed with the Commission on May 19, 1998, by letter dated May 5, 1998, the
Company was notified by Ernst & Young LLP ("E&Y") that E&Y's relationship as
independent auditors for the Company had ceased. The Company believes that
termination of the auditing relationship was due to the inability of the Company
to pay to that firm fees previously incurred and past due and owing, and that
such decision did not result from any disagreement or dispute concerning
accounting principles or practices, financial statement disclosure or auditing
scope or procedure.

For the year ended December 31, 1996, the report of E&Y on the
Company's financial statements for such year was modified to include an
explanatory paragraph with respect to there being substantial doubt about the
Company's ability to continue as a going concern. For the years ended December
31, 1995 and 1994, no modification was included in the reports of E&Y on the
financial statements of the Company for such years.

15
<PAGE>

During the years ended December 31, 1996 and December 31, 1997 and for
the interim period from January 1, 1998 through May 5, 1998, (i) there were no
disagreements between the Company and E&Y on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of E&Y, would have
caused it to make a reference to the subject matters of such disagreements in
connection with their report and (ii) there were no "reportable events" (as that
term is described in Item 304(a)(1)(v) of Regulation S-K) involving E&Y and the
Company.

The notification from E&Y that its relationship as independent auditors
for the Company has ceased also included a similar notification for PCL, in
which, at the time of the notification, the Company owned 52.6% of the
outstanding common stock.

[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]

16
<PAGE>

PART III

ITEM 9. DIRECTORS & EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS

Set forth below is certain information relating to the members of the
Board of Directors of the Company during the fiscal year ended December 31,
1999.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------

<S> <C> <C>
J. Marvin Feigenbaum 49 Chairman of the Board of Directors, President
and Chief Executive Officer of the Company;
Chairman of the Board of Directors, Chief
Executive and Chief Financial Officer of ABC;
Chairman of the Board of Directors, President
and Chief Executive Officer of PCL from
October 3, 1997 until May 12, 1999;
Chief Operating Officer of PCL from the
fourth quarter of the year ended December 31,
1996 until October 3, 1997.
David A. Sterling 42 Secretary and Director of the Company;
Director of PCL from October 3, 1997 until
May 12, 1999.
Chriss W. Street 48 Director of the Company until March 1, 1999.
Robert B. Fagenson 49 Director of the Company.

</TABLE>

The number of directors comprising the entire Board of Directors is
such number as determined in accordance with the By-Laws of the Company. The
Company's By-Laws provide for the number of directors to be not less than three
or more than eleven in number. The Company's Certificate of Incorporation
provides for a classified or "staggered" Board of Directors. The classified or
"staggered" Board of Directors is comprised of three classes of directors
elected for three (3) year terms. By reason of the classified Board of
Directors, one class of the Board comes up for re-election each year. Any
further amendment to the Company's Certificate of Incorporation affecting the
classified Board may only be adopted upon the affirmative vote of not less than
75% of the issued and outstanding shares entitled to vote thereon.

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. However, 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.
The Company's remaining director during the period covered by this Report
resigned on the date indicated above.

The following sets forth certain biographical information for the
current Directors and Officers:

J. MARVIN FEIGENBAUM. Mr. J. Marvin Feigenbaum was first elected to the
Board of Directors in June 1994, at which time he was also elected to the Board
of Directors of ABC and appointed Chief Executive Officer of the Company and
Chief Executive and Chief Financial Officer of ABC. Mr. Feigenbaum has served as
President of the Company since June 1, 1994, and as Chairman of the Board,
President and Chief Executive

17
<PAGE>

Officer of PCL from October 3, 1997 until May 12, 1999. From August 1993 to June
1994, Mr. Feigenbaum served as a consultant to the Company, primarily with
respect to the Company's business development and plans and programs relating to
the marketing of the Company's laboratory and medical testing services. From
1987 to June 1994, Mr. Feigenbaum acted as an independent consultant in the
medical and health care industry. He has over 25 years of experience in the
health care industry. Prior to being an independent consultant, Mr. Feigenbaum,
from 1982 to mid-1987, served as Chairman, President and Chief Executive Officer
of Temco Home Health Care Products, Inc., a durable medical equipment
manufacturer. For a period of four years until he voluntarily resigned in May,
1999, Mr. Feigenbaum served as a member of the Board of Directors and
Vice-Chairman of Comprehensive Care Corporation ("CompCare"),a publicly owned
company engaged in the health care business, previously listed on the New York
Stock Exchange. On February 24, 1995, a group of holders of CompCare 7 1/2%
Convertible Subordinated Debentures filed an involuntary petition against
CompCare under Chapter 7 of the United States Bankruptcy Code in the United
States Bankruptcy Court for the Northern District of Texas, Fort Worth Division.
This petition was dismissed by the Court on March 7, 1995 upon the joint motion
of CompCare and petitioners.

DAVID A. STERLING. Mr. David A. Sterling was elected to the Board of
Directors on December 6, 1994. Mr. Sterling, for in excess of seven years, has
been President of Sterling & Sterling, Inc., a general insurance agency. Mr.
Sterling holds a BBA Degree from Hofstra University, New York.

ROBERT B. FAGENSON. Mr. Robert B. Fagenson is a Class 1 Director as the
nominee of Starr Securities, Inc., the Corporation's investment banking firm.
Under the terms of its underwriting agreement with Starr Securities entered into
in December 1994 in connection with the Corporation's public offering, the
Corporation agreed to use its best efforts for a period of five years to
nominate and have elected to its Board of Directors one nominee of Starr
Securities. Mr. Fagenson has, for more than the past five years, been President
and a Director of Fagenson & Co., Inc., a registered broker-dealer, and
Vice-President and Director of Starr Securities Inc., a registered
broker-dealer. Mr. Fagenson is a Director of Rent-Way, Inc., a multi
store retail chain in the rent-to-own industry, and Intrenet Inc., a long
haul trucking company.

The following sets forth certain biographical information for the
additional Director of the Company during the period covered by this Report:

CHRISS W. STREET. Mr. Chriss W. Street was elected a Class 3 Director
of the Corporation at the Company's 1995 Annual Meeting and served until his
resignation on March 1, 1999. Mr. Street is the President of Chriss Street and
Company, Inc., a financial advisory firm which provides a wide variety of
financial advisory and research services. Mr. Street founded the firm in 1992.
Prior thereto, and from 1987 to 1992, Mr. Street was a Managing Director of
Seidler Amdec Securities, Inc. Mr. Street has, since 1993, served as Chairman
and, since 1994, has additionally served as President and Chief Executive
Officer of CompCare. On February 24, 1995, a group of holders of CompCare 7 1/2%
Convertible Subordinated Debentures filed an involuntary petition against
CompCare under Chapter 7 of the United States Bankruptcy Code in the United
States Bankruptcy Court for the Northern District of Texas, Fort Worth Division.
This petition was dismissed by the Court on March 7, 1995 upon the joint motion
of CompCare and petitioners. Mr. Street is Chief Financial Officer of Hacienda
Village Modernization Corp., which is a joint venture construction firm founded
by Mr. Street in 1994 to bid for federally funded construction contracts
rehabilitating housing projects in Los Angeles, California inner city
neighborhoods. In addition, in March 1995, he was elected as a Director of
Micropolis Corporation, a company traded on the Nasdaq Stock Market.

18
<PAGE>

INDEMNIFICATION OF DIRECTORS AND OFFICERS

The General Corporation Law of Delaware provides generally that a
corporation may indemnify any person who was or is a party to or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, or investigative in nature,
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys' fees)
and, in a proceeding not by or in the right of the corporation, judgments, fines
and amounts paid in settlement, actually and reasonably incurred by him in
connection with such suit or proceeding, if he acted in good faith and in a
manner believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reason to believe his conduct was unlawful. Delaware law further provides that a
corporation will not indemnify any person against expenses incurred in
connection with an action by or in the right of the corporation if such person
shall have been adjudged to be liable for negligence or misconduct in the
performance of his duty to the corporation unless and only to the extent that
the court in which such action or suit was brought shall determine that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for the expenses
which such court shall deem proper.

The By-Laws of the Company provide for indemnification of officers and
directors of the Company to the greatest extent permitted by Delaware law for
any and all fees, costs and expenses incurred in connection with any action or
proceeding, civil or criminal, commenced or threatened, arising out of services
by or on behalf of the Company, providing such officer's or director's acts were
not committed in bad faith. The By-Laws also provide for advancing funds to pay
for anticipated costs and authorizes the Board to enter into an indemnification
agreement with each officer or director.

In accordance with Delaware law, the Company's Certificate of
Incorporation contains provisions eliminating the personal liability of
directors, except for (i) breaches of a director's fiduciary duty of loyalty to
the Company or to its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law, and
(iii) any transaction in which a director receives an improper personal benefit.
These provisions only pertain to breaches of duty by directors as such, and not
in any other corporate capacity, e.g., as an officer. As a result of the
inclusion of such provisions, neither the Company nor its stockholders may be
able to recover monetary damages against directors for actions taken by them
which are ultimately found to have constituted negligence or gross negligence,
or which are ultimately found to have been in violation of their fiduciary
duties, although it may be possible to obtain injunctive or equitable relief
with respect to such actions. If equitable remedies are found not to be
available to stockholders in any particular case, stockholders may not have an
effective remedy against the challenged conduct.

The Company has entered into Indemnification Agreements with each of
its directors and officers (the "Indemnitees") pursuant to which it has agreed
to provide for indemnification, to the fullest extent permitted by law and the
Company's By-Laws, against any and all expenses, judgments, fines, penalties and
amounts paid in settlement arising out of any claim in connection with any
event, occurrence or circumstance related to such individual serving as a
director or officer of the Company. Such indemnification includes the advance of
expenses to the Indemnitees (including the payment of funds in trust therefor
under certain circumstances) and is subject to there not having been determined
that the Indemnitee would not be permitted to be indemnified under applicable
law. The rights of indemnification are in addition to any other rights which the

19
<PAGE>

Indemnitees may have under the Company's Certificate of Incorporation, By-Laws,
the Delaware General Corporation Law or otherwise.

SECTION 16 REPORTING

No person who, during the year ended December 31, 1999, was a director,
officer or beneficial owner of more than ten percent of the Company's Common
Stock (which is the only class of securities of the Company registered under
Section 12 of the Securities Exchange Act of 1934 (the "Act") (a "Reporting
Person") failed to file on a timely basis, reports required by Section 16 of the
Act during the most recent fiscal year or prior years. The foregoing is based
solely upon a review by the Company of Forms 3 and 4 during such fiscal year as
furnished to the Company under Rule 16a-3(d) under the Act, and Forms 5 and
amendments thereto furnished to the Company with respect to such fiscal year,
and any representation received by the Company from any reporting person that no
Form 5 is required.

ITEM 10. EXECUTIVE COMPENSATION

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION.

EXECUTIVE COMPENSATION.

The following provides certain information concerning all Plan and
Non-Plan (as defined in Item 402 (a)(ii) of Regulation S-B) compensation awarded
to, earned by, paid or accrued by the Company during the years ended December
31, 1999, 1998 and 1997, to the Chief Executive Officer and each of the named
executive officers of the Company.

SUMMARY COMPENSATION TABLE.

<TABLE>
<CAPTION>
LONG TERM COMPENSATION AWARDS
ANNUAL COMPENSATION RESTRICTED SECURITIES PAYOUTS
------------------- ----------------------------- -----------
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY COMPENSATION STOCK AWARD(S) OPTIONS COMPENSATION
------------------ ---- ------ ------------ -------------- ------- ------------
($) ($) ($)
<S> <C> <C> <C> <C> <C> <C>
J. Marvin Feigenbaum 1999 $255,667(3) $88,604(4) -- -- $74,897(5)
President and Chief 1998 $381,333(6) -- -- -- $11,784(7)
Executive Officer(1)(2) 1997 $299,000(8) $30,154(9) -- -- $15,163(7)

</TABLE>

---------------------
(1) President and Chief Executive Officer commencing June 1, 1994. Chief
Financial Officer from June 1, 1994 until present. President and Chief
Executive Officer of PCL from October 3, 1997 until May 12, 1999. PCL was
a majority-owned subsidiary of the Company from October 3, 1997 until
June 12, 1998. Prior to October 3, 1997 and until PCL emerged from its
Chapter 11 proceeding, Mr. Feigenbaum served as Chief Operating Officer
of PCL.

20
<PAGE>

(2) The Company was a majority stockholder of PCL for the period commencing
October 3, 1997 continuing through June 12, 1998. During this period, Mr.
Feigenbaum received a base salary of $104,000 through October 31, 1997
and $208,000 per annum thereafter as compensation from PCL for serving as
PCL's Chairman, President and Chief Executive Officer.

(3) Includes (i) approximately $208,000 earned by Mr. Feigenbaum pursuant to
his employment agreement with the Company and (ii) approximately $47,667
that should have been paid to Mr. Feigenbaum during 1998, but due to the
financial condition of the Company, was voluntarily deferred by Mr.
Feigenbaum as a convenience to the Company and paid to Mr. Feigenbaum in
1999 (see note 6).

(4) Represents accrued vacation paid in cash, bonus and interest earned on
payroll deferred by Mr. Feigenbaum as a convenience to the Company and
paid to Mr. Feigenbaum in 1999.

(5) Represents automobile allowance, automobile insurance premiums,
automobile maintenance and garage fees, life insurance premiums,
disability insurance premiums and relocation expenses.

(6) Includes approximately (i) $208,000 earned by Mr. Feigenbaum pursuant to
his employment agreement with the Company, (ii) $208,000 paid to Mr.
Feigenbaum by PCL during the 12 month period ended December 31, 1998, and
(iii) $13,000 of his salary voluntarily deferred by Mr. Feigenbaum during
1997 and paid during 1998 (see note 5); excludes approximately $47,667
that should have been paid to Mr. Feigenbaum during 1998 but, due to the
financial condition of the Company, was voluntarily deferred by Mr.
Feigenbaum as a convenience to the Company and paid to Mr. Feigenbaum in
1999 (see note 3).

(7) Represents automobile allowance, automobile insurance premiums and life
insurance premiums.

(8) Includes approximately (i) $208,000 earned by Mr. Feigenbaum pursuant to
his employment agreement with the Company, and (ii) $104,000 paid to Mr.
Feigenbaum in connection with his services as Chief Operating Officer of
PCL; excludes approximately $13,000 that should have been paid to Mr.
Feigenbaum during 1997 but, due to the financial condition of the
Company, was voluntarily deferred by Mr. Feigenbaum as a convenience to
the Company and paid to Mr. Feigenbaum in 1998.

(9) Represents accrued vacation paid in cash.

OPTIONS/SAR GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
(B) (C)
NUMBER OF SECURITIES % OF TOTAL (D)
UNDERLYING OPTIONS/SARS GRANTED EXERCISE (E)
(A) OPTIONS/SARS TO EMPLOYEES IN OR BASE EXPIRATION
YEAR NAME GRANTED(#) FISCAL YEAR PRICE ($/SH) DATE
---- ---- ---------- ----------- ----------- ----
<S> <C> <C> <C> <C> <C>
1999 J. Marvin Feigenbaum -- -- -- --

</TABLE>

21
<PAGE>

AGGREGATED OPTIONS/SAR EXERCISES IN MOST RECENT FISCAL YEAR
AND FISCAL YEAR-END OPTIONS/SAR VALUES.

The following table summarizes options exercised by the named executive
officers during the year ended December 31, 1999, and the number and value of
options held by all executive officers named in the Summary Compensation Table
at the respective year end. The Company does not have any outstanding stock
appreciation rights granted to executive officers.

<TABLE>
<CAPTION>
NUMBER OF VALUE OF
UNEXERCISED IN-THE-MONEY
OPTIONS/WARRANTS OPTIONS/WARRANTS
AT FY-END AT FY-END ($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
YEAR NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE(1)
---- ---- ----------- -------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
1999 J. Marvin Feigenbaum - - - -

</TABLE>

EMPLOYMENT AGREEMENTS.

The Company entered into an Amended and Restated Employment Agreement
(the "Restated Agreement") with Mr. Feigenbaum, the Company's Chairman,
President and Chief Executive Officer, dated May 19, 1999. The Restated
Agreement amends and extends Mr. Feigenbaum's original employment agreement with
the Company, dated June 1, 1994, as amended. The Restated Agreement is effective
as of May 1, 1999 and expires April 30, 2002. The Restated Agreement provides
for Mr. Feigenbaum's continued employment as Chairman of the Board, President
and Chief Executive Officer of the Company, as well as Mr. Feigenbaum's
continued employment as Chief Executive and Chief Financial Officer of ABC and
contemporaneous employment as Chairman, President and Chief Executive Officer of
PCL. Pursuant to the Restated Agreement, the Company has agreed to pay Mr.
Feigenbaum a base salary of $208,000 per year (such amount does not include any
compensation from PCL). The Company further agreed to (a) make a lump sum
payment to Mr. Feigenbaum in an amount equal to that portion of his salary
deferred by Mr. Feigenbaum, as a convenience to the Company, since June, 1998,
with simple interest at a rate of 12%, and (b) pay to Mr. Feigenbaum a one-time
bonus in the amount of $50,000 upon execution of the Restated Agreement. In
addition, the Restated Agreement provides for vacation benefits, life insurance,
an automobile allowance, relocation expenses, and cellular telephone and travel
and entertainment expenses. The Restated Agreement further contains provisions
for termination of the Restated Agreement by mutual consent, for cause, without
cause by the Company, for death or disability of Mr. Feigenbaum and for good
reason by Mr. Feigenbaum, as well as provisions regarding the failure of the
parties to renew the Restated Agreement for an additional term. In addition, the
Restated Agreement provides that in the event of a change in control of the
Company (as defined), Mr. Feigenbaum will be paid for the remainder of the
unexpired term of the Restated Agreement plus an additional sum of $208,000.

Mr. Feigenbaum received a salary in the amount of $208,000 during each
of the years ended December 31, 1998 and 1997, pursuant to the then current
Employment Agreement, as amended. Due to the financial condition of the Company,
during the year ended December 31, 1998, approximately $47,667 of cash
compensation which should have been paid to Mr. Feigenbaum in 1998 was
voluntarily deferred by Mr. Feigenbaum until 1999 as a convenience to the
Company, and, during the year ended December 31, 1997, approximately $13,000 of
cash compensation which should have been paid to Mr. Feigenbaum in 1997 was
voluntarily deferred by Mr. Feigenbaum until 1998 as a convenience to the
Company. During the year ended December 31, 1994, in connection with his then
current Employment Agreement, Mr. Feigenbaum was issued, in lieu of a cash bonus
for past services rendered to the Corporation, while acting as a consultant to
the Corporation, 714 shares of Common Stock of the Corporation which has been
valued at $245 per share. All

22
<PAGE>

of said shares were immediately vested, and the Corporation paid Mr. Feigenbaum,
on April 14, 1995, a one time cash bonus equal to $108,000 representing the
amount of the combined federal and applicable state and city income tax
associated with such stock grant. In addition, Mr. Feigenbaum was granted,
directly or indirectly, options to purchase 2,143 shares of the Corporation's
Common Stock exercisable commencing in June, 1995 through December 31, 2002 at
an option exercise price equal to the $490 per share. On June 8, 1995, the
Company granted and issued to Mr. Feigenbaum 1,429 restricted shares of its
Common Stock, $.01 par value (the "Restricted Shares"). On December 2, 1996, Mr.
Feigenbaum agreed to terminate this grant of Restricted Shares by exchanging
1,357 Restricted Shares for warrants to purchase 4,286 shares of common stock of
the Company at $490 per share.

Mr. Feigenbaum also devoted substantial amounts of time to PCL as its
Chairman, President and Chief Executive Officer during the years ended December
31, 1998 and 1997, including serving as Chief Operating Officer of PCL from the
fourth quarter of the year ended December 31, 1996 until October 3, 1997, for
which Mr. Feigenbaum received a base salary at the rate of $104,000 for the
period commencing in the fourth quarter of the year ended December 31, 1996
through October 31, 1997 and $208,000 per annum thereafter. Mr. Feigenbaum
resigned as Chairman, President and Chief Executive Officer on May 12, 1999. In
connection with his employment by PCL, PCL granted to Mr. Feigenbaum options to
purchase 100,000 shares of PCL's common stock at an exercise price of $.25 per
share and granted options to purchase an additional 100,000 shares of PCL's
common stock at an exercise price of $5 per share, which latter options were
scheduled to vest and become exercisable based on PCL's performance for each of
the years ended December 31, 1997, 1998 and 1999. In October, 1997 the exercise
price of the latter 100,000 options was reduced to $.25 per share and the
options were immediately vested.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Mr. Feigenbaum, the Corporation's Chairman, Chief Executive Officer and
a Class 1 Director, served as a member of the Board of Directors and
Vice-Chairman of Comprehensive Care Corporation ("CompCare") for approximately 4
years until his resignation on April 23, 1999. Mr. Chriss W. Street, a Class 3
Director of the Corporation from September, 1994 until his resignation on March
1, 1999, has served as President and Chief Executive Officer of CompCare.

COMPENSATION OF DIRECTORS

Directors who are employees of the Company do not receive any fee in
addition to their regular salary for serving on the Board of Directors.
Directors who are not employees of the Company receive a directors fee of $6,000
per annum, paid quarterly, and an attendance fee of $500 per meeting attended.
In addition, Directors are reimbursed for travel expenses for attendance at
board meetings. Non-Employee Directors are also eligible for an initial and
annual grant of stock options under the Company's Non-Employee Director Stock
Option Plan (see "Non-Employee Director Stock Option Plan" below).

1994 INCENTIVE STOCK OPTION PLAN

In August, 1994, the Board of Directors adopted a 1994 Incentive Stock
Option Plan (the "Plan") which Plan was approved and adopted by the stockholders
of the Company on November 16, 1994. The Plan provides for the issuance of up to
5,000 shares of the Company's Common Stock upon the exercise of options granted
to officers, directors, full time employees and consultants rendering services
to the Company. Under the terms of the Plan, options granted thereunder will be
designated as options which qualify for incentive stock option treatment
("ISO's") under Section 422 of the Internal Revenue Code of 1986, as amended
(the

23
<PAGE>

"Code"), or options which do not so qualify ("Non-ISO's"). Unless sooner
terminated, the Plan will expire on August 1, 2004 and options may be granted at
any time or from time to time through such date. The purpose of the Plan is to
promote the interests of the Company and its stockholders by strengthening the
ability of the Company to attract and retain officers, employees and consultants
by furnishing suitable recognition of their ability to contribute to the success
of the Company and to align their interests and efforts with the long term
interest of the Company. The Plan succeeds the Company's 1992 Incentive Stock
Option Plan, which has been terminated.

The Plan is administered by the Board of Directors or by a Stock Option
Committee designated by the Board of Directors (the "Plan Administrator"). The
Plan Administrator has the discretion to determine the eligible employees and
consultants to whom, and the times and the prices at which, options will be
granted; whether such options shall be ISO's or Non-ISO's; the periods during
which each option will be granted; and the number of shares subject to each
option. The Plan Administrator shall have full authority to interpret the plan
and to establish and amend rules and regulations relating thereto.

Under the Plan, the exercise price of an option designated as an ISO
shall not be less than the fair market value of the Common Stock on the date the
option is granted. However, in the event an option designated as an ISO is
granted to a ten percent stockholder (as defined in the Plan) such exercise
price shall be at least 110% of such fair market value. Exercise prices of
Non-ISO's may not be less than 85% of such fair market value. The aggregate fair
market value of shares subject to an option designated as an ISO for which any
participant may be granted such an option in any calendar year, shall not exceed
$100,000 plus any unused carryovers (as defined in Section 422 of the Code) from
a prior year. The "fair market value" will be the closing Nasdaq bid price or,
if the Company's Common Stock is not quoted by Nasdaq, the low bid as reported
by the National Quotation Bureau, Inc. or a market maker of the Company's Common
Stock or, if the Common Stock is not quoted by any of the above, by the Board of
Directors acting in good faith.

Options may be granted under the Plan for such periods as determined by
the Plan Administrator; provided however that no option designated as an ISO
granted under the Plan shall be exercisable over a period in excess of ten
years, or in the case of a ten percent stockholder, five years. Options may be
exercised in whole at any time or in part from time to time. Options are not
transferable except to the estate of an option holder; provided, however, in the
case of a Non-ISO, and subject to Rule 16b-3 promulgated under Section 16 of the
Securities Exchange Act of 1934 (the "Exchange Act") and prevailing
interpretations thereunder by the staff of the Commission, a recipient of a
Non-ISO may, with the consent of the Plan Administrator, designate a named
beneficiary of the Non-ISO in the event of the death of such recipient, or
assign such Non-ISO.

Except as described below, the Plan Administrator may from time to time
amend the Plan as it deems proper and in the best interests of the Company
without further approval of the stockholders.

The Board of Directors and the Plan Administrator may not amend certain
features of the Plan without the approval of the Company's stockholders to the
extent such approval is required for compliance with Section 422 of the Code
with respect to ISO's, Section 162(m) of the Code with respect to Non-ISO's or
Rule 16b-3 promulgated under Section 16 of the Exchange Act with respect to
awards made to individuals subject to Section 16 of the Exchange Act. Such
amendments would include (a) increasing the maximum number of shares of Common
Stock that may be issued under the Plan, (b) materially modifying the
requirements as to eligibility for participation in the Plan, or (c) otherwise
materially increasing the benefits accruing to participants under the Plan.

24
<PAGE>

Options for a total of 2,500 Shares have been granted under the Plan,
including options for 2,143 shares granted directly or indirectly to Mr.
Feigenbaum.

NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN

In August, 1994, the Board of Directors adopted the Non-Employee
Director Stock Option Plan (the "Director Plan") which Director Plan was
approved and adopted by the stockholders of the Company on November 16, 1994 and
amended by the stockholders of the Company on August 27, 1996. The Director Plan
provides for issuance of a maximum of 2,857 shares of Common Stock upon the
exercise of stock options granted under the Director Plan. Options may be
granted under the Director Plan until August 1, 2004 to the Company's
non-employee directors (as defined). The Director Plan provides that each
non-employee director will automatically be granted an option to purchase 71
shares upon joining the Board of Directors (or, for those persons who are
directors on the date of approval of the Director Plan by the stockholders, on
such date), and options to purchase 114 shares on each anniversary of the
initial date of service or date of approval, as the case may be.

Under the terms of the Director Plan, the sum of the number of shares
to be received upon any grant multiplied by the fair market value of each share
at the time of grant may not exceed $75,000. All awards shall be reduced to the
extent they exceed such amount. The exercise price for options granted under the
Director Plan shall be 100% of the fair market value of the Common Stock on the
date of grant. Until otherwise provided in the Director Plan, the exercise price
of options granted under the Director Plan must be paid at the time of exercise,
either in cash, by delivery of shares of Common Stock of the Company or by a
combination of each. The term of each option is five years from the date of
grant, unless terminated sooner as provided in the Director Plan. The Director
Plan is administered by a committee of the Board of Directors composed of not
fewer than two persons who are officers of the Company (the "Committee"). The
Committee has no discretion to determine which non-employee director will
receive options or the number of shares subject to the option, the term of the
option or the exercisability of the option. However, the Committee will make all
determinations of the interpretation of the Director Plan. Options granted under
the Director Plan do not qualify for incentive stock option treatment.

Options for a total of 413 shares have been granted under the Director
Plan, including options for 119 shares to Mr. Sterling and 147 shares to each of
Mr. Fagenson and Mr. Street.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information as of May 24, 2000
with respect to the ownership of Common Stock by (i) the persons (including any
"group" as that term is used in Section 13(d)(3) of the Securities Exchange Act
of 1934, as amended), known by the Company to be the beneficial owner of more
than five percent of any class of the Company's voting securities, (ii) each
director and each officer identified in the Summary Compensation Table, and
(iii) directors and executive officers as a group. The most current information
available to the Company is set forth below.

The Company believes that relevant to an understanding of the ownership
of the Common Stock is the fact that from December 1996 to December 19, 1997,
the most recent date on which Preferred Stock was converted, the Company issued
an aggregate of 644,276 shares of Common Stock upon the conversion of 11,174
shares of Preferred Stock. In the event that the remaining 2,826 shares of
Preferred Stock are

25
<PAGE>

converted, the Company is presently unable to determine the number of shares
issuable upon such conversion. In July, 1997, the holders of the Preferred Stock
represented to the Company that they are not part of any "group" as defined in
Rule 13d-5 under the General Rules and Regulations under the Securities Exchange
Act of 1934, as amended, and each represented that he or it is the sole
beneficial owner of Common Stock of the Company registered in his or its name or
issuable upon conversion of additional shares of Preferred Stock.

<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT OF AND NATURE PERCENTAGE
OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS
------------------- ----------------------- --------
<S> <C> <C>
J. Marvin Feigenbaum................ 10,075(1) *
476 Main Street, Suite 3-DFL
Wakefield, RI 02879
David A. Sterling................... 119(2) *
476 Main Street, Suite 3-DFL
Wakefield, RI 02879
Robert B. Fagenson.................. 147(3) *
476 Main Street, Suite 3-DFL
Wakefield, RI 02879
Craig Osborne(4).................... 89,963 19%
10351 Santa Monica Boulevard,
Suite 101A
Los Angeles, CA 90025
All Officers and Directors as a Group
(5 persons in number)............. 10,260(1)(2)(3) *

</TABLE>

--------------------------
* Less than one percent.

(1) Includes (i) 142 shares of Common Stock owned by Mr. Feigenbaum; (ii) 647
shares of Common Stock held in a trust for the benefit of a minor child
of Mr. Feigenbaum, as to which shares Mr. Feigenbaum disclaims beneficial
ownership; (iii) 779 options owned by the Feigenbaum Foundation, a
charitable foundation, as to which options Mr. Feigenbaum disclaims a
beneficial interest in, and (iv) options and warrants to purchase an
aggregate of 8,507 shares of Common Stock.

(2) Includes options to purchase 119 shares of Common Stock under the
Company's Non-Employee Director Stock Option Plan.

(3) Includes options to purchase 147 shares of Common Stock under the
Company's Non-Employee Director Stock Option Plan.

(4) Based upon a Schedule 13D filed with the Commission by Mr. Osborne on May
26, 1999.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

For information regarding Mr. Feigenbaum's employment agreement and his
relationship with the Company and PCL, see "Executive Compensation - Employment
Agreements".

[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]

26
<PAGE>

ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(A) 1. Financial Statements.

See Index to Financial Statements Attached hereto.

2. Financial Statement Schedules.

Not Applicable.

3. Exhibits.

Incorporated by reference to the Exhibit Index at the end of this
Report.

(B) Reports on Form 8-K.

During the period commencing last quarter of the period covered by this
Report to date, the following reports on Form 8-K were filed by the Registrant:

<TABLE>
<CAPTION>
DATE OF REPORT ITEM REPORTED DESCRIPTION OF ITEM
-------------- ------------- -------------------
<S> <C> <C>
March 16, 2000 (Form Item 4. Changes in Registrant's Certifying The Company reported the termination of Grant Thornton
8-K/A Amending Form 8-K Accountants LLP and the engagement of Richard A. Eisner & Company,
dated March 3, 2000) Item 7. Exhibits LLP as the Company's independent auditors.

</TABLE>

[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]

27
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on May 31, 2000.

UNITED DIAGNOSTIC, INC.

By:
/s/ J. Marvin Feigenbaum
-------------------------------------
J. Marvin Feigenbaum
Chairman of the Board of Directors,
President and Chief Executive Officer

Pursuant to the requirements 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 dates indicated.

SIGNATURE

<TABLE>

<S> <C>
/s/ J. Marvin Feigenbaum
------------------------------------- May 31, 2000
J. Marvin Feigenbaum
Chairman of the Board of Directors,
President and Chief Executive Officer

/s/ David Sterling
------------------------------------- May 31, 2000
David Sterling
Director

/s/ Robert Fagenson
------------------------------------- May 29, 2000
Robert B. Fagenson
Director

</TABLE>

28
<PAGE>

CONSOLIDATED FINANCIAL STATEMENTS
AND REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTS

UNITED DIAGNOSTIC, INC.
(FORMERLY KNOWN AS NU-TECH BIO-MED, INC.)
AND SUBSIDIARIES

December 31, 1999 and 1998

F-1
<PAGE>

CONTENTS

PAGE

<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-3

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEET F-5

CONSOLIDATED STATEMENTS OF OPERATIONS F-6

CONSOLIDATED STATEMENT OF STOCKHOLDER'S
EQUITY (CAPITAL DEFICIT) F-7

CONSOLIDATED STATEMENTS OF CASH FLOWS F-8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-9

</TABLE>

F-2
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
United Diagnostic, Inc.
Wakefield, Rhode Island

We have audited the accompanying consolidated balance sheet of United
Diagnostic, Inc. and subsidiaries as of December 31, 1999 and the related
consolidated statements of operations, stockholders' equity (capital deficit)
and cash flows for the year ended December 31, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

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

In our opinion, the financial statements enumerated above present fairly, in all
material respects, the consolidated financial position of United Diagnostic,
Inc. and subsidiaries, as of December 31, 1999, and the consolidated results of
their operations and their consolidated cash flows for the year ended December
31, 1999 in conformity with generally accepted accounting principles.

Richard A. Eisner & Company, LLP

New York, New York
May 12, 2000

F-3
<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Stockholders
United Diagnostic, Inc.

We have audited the accompanying consolidated statements of operations,
stockholders' deficit and cash flows of United Diagnostic, Inc. and Subsidiaries
for the year ended December 31, 1998. 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 audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and cash flows of
United Diagnostic, Inc. and Subsidiaries for the year ended December 31, 1998 in
conformity with generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
that United Diagnostic, Inc. will continue as a going concern. The Company has
expended cash in excess of cash generated from operations, has a working capital
deficiency and has no current operations. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are discussed in Note 1. 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 may result from the outcome of this
uncertainty.

/s/ Grant Thornton LLP
--------------------------

San Francisco, California
December 24, 1999

F-4
<PAGE>

UNITED DIAGNOSTIC, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

DECEMBER 31
1999
-----------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,709,067
Prepaid expenses and other current assets 69,642
-----------
Total current assets 1,778,709

Equipment, net 2,710
Deposits 950
-----------
$ 1,782,369
===========

LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIT)
Current liabilities:
Notes payable $ 128,662
Accounts payable 230,157
Accrued expenses 176,998
Contract payable 55,571
-----------

Total current liabilities 591,388
-----------

Commitments and contingencies

Stockholders' equity (capital deficit):
Series A convertible preferred stock, $.01 par value;
2,000,000 authorized; 2,826 issued and outstanding
at December 31, 1999 (liquidation preference of
$2,826,000 at December 31, 1999) 28
Common stock, $.01 par value; 50,000,000
shares authorized; 682,622 shares issued and
outstanding at December 31, 1999 6,826
Capital in excess of par value 59,716,870
Accumulated deficit (58,532,743)
-----------
Total stockholders' equity (capital deficit) 1,190,981
-----------

$ 1,782,369
===========

</TABLE>

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

F-5
<PAGE>

UNITED DIAGNOSTIC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

YEAR ENDED DECEMBER 31,
1999 1998
---------------------------------------
<S> <C> <C>
Revenues:
Medical billing services revenues $ - $ 113,179
---------------------------------------

Operating costs:
Medical billing services expenses - 167,020
Sales, general and administrative expenses 921,552 1,058,599
Depreciation and amortization 1,921 22,726
Write down of intangibles - 645,572
---------------------------------------
Total operating costs 923,473 1,893,917
---------------------------------------

Operating loss (923,473) (1,780,738)

Other income (expense):
Non-recurring miscellaneous revenue 3,250,000 -
Equity loss in subsidiary (3,250,000) (2,974,658)
Provision for bad debt - note receivable - (100,000)
Gain on equipment - 1,500
Investment and interest income 56,222 750,000
Interest expense (93,297) (113,036)
---------------------------------------
Total other income (expense) (37,075) (2,436,194)
---------------------------------------

Loss before income taxes (960,548) (4,216,932)

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

Net loss $ (1,025,548) $ (4,216,932)
=======================================

Net loss per common share - basic and diluted $ (1.50) $ (6.18)
=======================================

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

</TABLE>

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

F-6
<PAGE>

UNITED DIAGNOSTIC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CAPITAL DEFICIT)

NUMBER OF SERIES A
SHARES OF CONVERTIBLE
SERIES A PREFERRED NUMBER OF
CONVERTIBLE STOCK AT SHARES OF COMMON
PREFERRED $.01 PAR COMMON STOCK AT $.01
STOCK VALUE STOCK PAR VALUE
------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 2,826 $ 28 682,622 $ 6,826

Deconsolidation of subsidiary - - - -

Amortization of deferred consulting expense - - - -

Common stock warrants issued to lender - - - -

Net loss - - - -
------------------------------------------------------

Balance at December 31, 1998 2,826 28 682,622 6,826

Payment received in concurrence with
sale of subsidiary - - - -

Net Loss - - - -
------------------------------------------------------

Balance at December 31, 1999 2,826 $ 28 682,622 $ 6,826
======================================================

CAPITAL IN DEFERRED
EXCESS OF CONSULTING ACCUMULATED
PAR VALUE EXPENSE DEFICIT TOTAL
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 $ 39,310,422 $ (41,254) $ (53,290,263) $ (14,014,241)

Deconsolidation of subsidiary 17,013,448 - - 17,013,448

Amortization of deferred consulting expense - 41,254 - 41,254

Common stock warrants issued to lender 143,000 - - 143,000

Net loss - - (4,216,932) (4,216,932)
-----------------------------------------------------------

Balance at December 31, 1998 56,466,870 - (57,507,195) (1,033,471)

Payment received in concurrence with
sale of subsidiary 3,250,000 - - 3,250,000

Net Loss - - (1,025,548) (1,025,548)
-----------------------------------------------------------

Balance at December 31, 1999 $ 59,716,870 $ - $ (58,532,743) $ 1,190,981
===========================================================

</TABLE>

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

F-7
<PAGE>

UNITED DIAGNOSTIC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEAR ENDED DECEMBER 31,
1999 1998
---------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (1,025,548) $ (4,216,932)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation, amortization and write down of intangibles 1,921 668,298
Provision for bad debt - 100,000
Interest expense from issuance of warrants 60,000 83,000
Gain on equipment - (1,500)
Equity in loss in subsidiary - 2,974,658
Gain on sale of subsidiary stock - (750,000)
Changes in operating assets and liabilities:
Accounts receivable - 52,100
Prepaids, other current assets and deposits 46,130 (18,417)
Accounts payable and accrued expenses (548,037) 290,022
---------------------------------
Net cash used in operating activities (1,465,534) (818,771)
---------------------------------

INVESTING ACTIVITIES:
Capital proceeds, net - 10,401
Proceeds on sale of subsidiary stock - 750,000
Payment received in concurrence with sale of subsidiary 3,250,000 -
Deconsolidation of Physicians Clinical Laboratory, Inc., cash - (1,462,824)
---------------------------------
Net cash provided by (used in) investing activities 3,250,000 (702,423)
---------------------------------

FINANCING ACTIVITIES:
Proceeds from issuance of debt - 250,000
Repayment of notes payable and lease obligations (252,247) (76,900)
---------------------------------

Net cash (used in) provided by financing activities (252,247) 173,100
---------------------------------
Net increase (decrease) in cash and cash equivalents 1,532,219 (1,348,094)
Cash and cash equivalents at beginning of year 176,848 1,524,942
---------------------------------
Cash and cash equivalents at end of year $ 1,709,067 $ 176,848
=================================

Supplemental disclosure of cash flow information:
Taxes paid $ 1,336 $ 8,099
Interest paid 48,361 27,391

Non-cash financing activity:
D&O insurance financing $ 42,774

</TABLE>

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

F-8
<PAGE>

UNITED DIAGNOSTIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1999 and 1998

1. BASIS OF PRESENTATION

United Diagnostic, Inc. (United or the Company), was originally
organized under the laws 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.

The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Analytical Biosystems Corporation
("ABC"), NTBM Billing Services, Inc. ("NTBM"), Medical Science Institute, Inc.
("MSI") through February 26, 1997 (see Note 3), and Physicians Clinical
Laboratory, Inc. ("PCL") of which the Company acquired 52.6% on October 3, 1997.
Presently, the Company does not operate or have an equity investment in a
business which is a source of revenue from operations. In 1998, the Company's
ownership percentage in PCL was reduced from 52.6% to 49.9%. The 1998
consolidated financial statements include the Company's investment in PCL on the
equity method of accounting (see Note 4). All material intercompany transactions
and balances have been eliminated. Where appropriate, prior year amounts have
been reclassified to permit comparison.

ABC was a clinical oncology laboratory service and research company
located in Rhode Island. As of November 3, 1997, ABC ceased processing specimens
for assay and has suspended its laboratory operations (see Note 3c). NTBM was a
medical billing service business located in Florida until April 1998 when NTBM
ceased operations. MSI was a full service medical laboratory facility which
operated throughout the state of California (see Note 3a). PCL was a full
service medical laboratory facility which operated throughout the state of
California until the sale of its business in May 1999 (see Note 4). PCL operated
within the health care industry which is undergoing significant changes such as
managed care (including capitated payment arrangements), proposed federal and
state health care reform measures, third party payor reimbursement decreases
(including Medicare, MediCal and private insurance), industry consolidation and
increasing regulation of laboratory operations. The Company, since the sale of
PCL in 1999, does not operate or have an equity investment in a business which
is a source of revenue from operations.

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 4). 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. Presently, the Company's sole source of liquidity and capital
resources is the balance of cash remaining from the $3.25 million payment
received in May 1999.

On December 23, 1998, the Company effected a seventy to one common
stock reverse split. All references to number of common shares and to per share
information in the consolidated

F-9
<PAGE>

UNITED DIAGNOSTIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1999 and 1998

1. BASIS OF PRESENTATION - CONTINUED

financial statements have been adjusted to reflect the stock reverse split on a
retroactive basis. The shares authorized and par value per share did not change.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. USE OF ESTIMATES

The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.

b. CASH AND CASH EQUIVALENTS

The Company considers all highly liquid instruments with an original
maturity of three months or less to be cash equivalents.

c. ACCOUNTS RECEIVABLE AND REVENUE RECOGNITION

Revenues are recognized when services are performed. Expenses are
accrued on a monthly basis as services are provided.

d. EQUIPMENT

Equipment is recorded at cost. Depreciation has been provided using the
straight-line method over five years for financial reporting purposes.

e. FAIR VALUES OF FINANCIAL INSTRUMENTS

For cash and accounts payable the carrying amounts approximate fair
value. The carrying amount of the Company's debt approximates fair value based
on similar debt instruments available.

F-10
<PAGE>

UNITED DIAGNOSTIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1999 and 1998

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

f. OTHER ASSETS

In March 1995, the FASB issued Statement No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of.

The Company accounted for goodwill at the lower of amortized cost or
fair value. On an ongoing basis, management reviews to determine if "impairment
indicators" are present. If impairment indicators are present, the Company
performs a periodic assessment of assets for impairment. This review consists of
the Company reevaluating significant assumptions used in determining the
original cost of the acquired business and related goodwill. These assumptions
include operating results, cash flows and other indicators of value. Based upon
this periodic assessment, management determines whether there has been a
permanent impairment of the value of goodwill and adjusts the carrying value
accordingly. The Company determines fair value based upon independent appraisals
or cash flows discounted at a risk adjusted rate, as appropriate in the
circumstances. As a result of this process, during 1998, the Company charged off
the balance of the remaining goodwill relating to NTBM totaling $645,572.

g. STOCK BASED COMPENSATION

The Company grants qualified stock options for a fixed number of shares
to employees with an exercise price equal to the fair value of the shares at the
date of grant. The Company accounts for stock option grants in accordance with
APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and, accordingly,
recognizes no compensation expense for qualified stock option grants.

For certain non-qualified stock options, restricted stock and warrants
granted to employees, the Company recognizes as compensation expense the excess
of the market value of the common stock issuable upon exercise of such options
over the aggregate exercise price of such options. For warrants granted to
non-employees, the Company recognizes as a charge the deemed fair value of the
warrants or the value of the services provided, whichever is more reliably
measurable. Such charges are amortized over the vesting period of each option or
warrant or the recipient's service period, if shorter.

F-11
<PAGE>

UNITED DIAGNOSTIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1999 and 1998

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

h. INCOME TAXES

The liability method is used to account for income taxes. Deferred tax
assets and liabilities are determined based on differences between financial
reporting and income tax basis of assets and liabilities as well as net
operating loss carryforwards and are measured using the enacted tax rates and
laws that will be in effect when the differences reverse. Deferred tax assets
are reduced by a valuation allowance to reflect the uncertainty associated with
their ultimate realization.

i. NET LOSS PER COMMON SHARE

Effective December 31, 1997, the Company adopted Financial Accounting
Standards Statement No. 128, EARNINGS PER SHARE (SFAS 128). SFAS 128 requires
companies to change the method previously used to compute earnings per share and
to restate all prior periods for comparability. Basic loss per common share is
computed using the weighted average number of common shares outstanding during
the year. Diluted loss per share excludes potential common stock since the
effect would be antidilutive. The potential common stock excluded from the
diluted loss per share consists of outstanding warrants (Note 9e), outstanding
options (Note 9e) and convertible preferred stock (Note 9f).

LOSS SHARES
(NUMERATOR) (DENOMINATOR) PER SHARE
-----------------------------------------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Consolidated net loss $ (1,025,548)
------------

LOSS PER SHARE-BASIC AND DILUTED
Loss attributable to common stockholders $ (1,025,548) 682,622 $ (1.50)
===============================================

YEAR ENDED DECEMBER 31, 1998
Consolidated net loss $ (4,216,932)
------------

LOSS PER SHARE-BASIC AND DILUTED
Loss attributable to common stockholders $ (4,216,932) 682,622 $ (6.18)
===============================================

</TABLE>

F-12
<PAGE>

UNITED DIAGNOSTIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1999 and 1998

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

j. SEGMENT INFORMATION

Statement of Financial Accounting Standards No. 131, Disclosure about
Segments of an Enterprise and Related Information, requires that a public
business enterprise reports financial and descriptive information about its
reportable operating segments. The Company has determined it operates in one
segment.

3. ACQUISITIONS AND DISPOSITIONS

a. ACQUISITION AND SALE OF MEDICAL SCIENCE INSTITUTE

On November 18, 1996, the United States Bankruptcy Court of the Central
District of California approved the First Amended Plan of Reorganization (the
"MSI Plan") of Medical Science Institute ("MSI") pursuant to which the Company
acquired all of the capital stock of MSI for a total purchase price of
approximately $6,952,000. The acquisition was in the form of a purchase. MSI was
engaged in the medical laboratory business primarily in the State of California
and had been operating under Chapter 11 of the U.S. Bankruptcy Code since
October 26, 1995. MSI was a California corporation with its principal executive
offices located in Burbank, California.

In connection with this acquisition, the Company recorded $5,681,437
of excess cost over the fair market value of net assets acquired ("goodwill")
related to this transaction and the remainder was allocated to the net assets of
MSI acquired based on their estimated fair value.

The former sole stockholder and president of MSI had entered into an
employment agreement with MSI. As part of the employment agreement, the employee
borrowed $100,000 from the Company, secured by the shares of common stock issued
to him under the MSI Plan. In the fourth quarter of 1998, the Company recorded
an allowance against the receivable based on an evaluation of collectibility and
collateral. He also received options to purchase 142 shares of United common
stock for every $1,000,000 of annual collectible revenues obtained by MSI
through the acquisition of other businesses by MSI in which he acted as the
procuring cause. The options to be granted, if any, will bear an exercise price
equal to the fair market value of United's common stock at the time of the
grant. At December 31, 1998, no options had been granted.

F-13
<PAGE>

UNITED DIAGNOSTIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1999 and 1998

3. ACQUISITIONS AND DISPOSITIONS - CONTINUED

On February 26, 1997, the Company completed the sale of its ownership
interest in MSI to Physicians Clinical Laboratory, Inc. ("PCL") (see Note 4).
The Company sold its interests in MSI to PCL for its original costs aggregating
approximately $7.6 million. The Company received approximately $2.6 million in
cash and a secured promissory note of PCL in the principal amount of $5,000,000.
The note was secured by all the assets of PCL but subordinate to certain other
claims and administrative expenses. The Company used approximately $2 million of
the sale proceeds to repay in full an outstanding secured loan which the Company
had incurred to acquire MSI. PCL assumed all other obligations incurred by
United in connection with the MSI acquisition, including United's guarantee of
certain remaining obligations under the MSI Plan.

Subsequently, 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 (see Note 14).

b. ACQUISITION OF BUSINESS ASSETS OF PROMPT MEDICAL BILLING
COMPANY, INC.

On October 21, 1996, the Company, through a newly formed wholly-owned
subsidiary, 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 acquisition was in the form of a
purchase. The Company acquired the assets for a total consideration of $675,000
consisting of $100,000 in cash and 535 shares of restricted common stock of the
Company. The number of shares may be subject to increase in the event the fair
market value of the shares at the termination of the two year period is less
than $500,000 or in the event the holders are unable to sell the shares. All
consideration paid by the Company had been placed into escrow for a period of up
to two years, to be released upon the attainment of certain performance levels.
In 1998, the cash consideration was released from escrow.

In connection with this acquisition, the Company recorded $754,591 of
excess cost over the fair market value of net assets acquired ("goodwill")
related to this transaction.

In connection with this acquisition, the Company entered into
employment and consulting agreements with the former owners of Prompt Medical
Billing. In March 1998, the former owners ceased performing their duties. NTBM
subsequently lost its principal customer and ceased operations. The former
owners commenced an arbitration against the Company in the state of Florida for
breach of these agreements (see Note 14). The matter was settled by

F-14
<PAGE>

UNITED DIAGNOSTIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1999 and 1998

3. ACQUISITIONS AND DISPOSITIONS - CONTINUED

agreement of the parties in 1999. The settlement provided, among other items,
that the Company pay $35,000 to the former owners and the former owners assign
the right to collect an outstanding account receivable in the amount of $70,000.
The Company recorded the settlement payable of $35,000 at December 31, 1998. The
first $10,000 collected from the outstanding $70,000 is to be paid to the
Company, with any additional amounts collected to be split 50/50 between the
former owners 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. At November 1, 1999, no payments
had been collected against the outstanding $70,000 and the right to collect has
reverted to the Company. The receivable has not been recorded based upon an
evaluation of collectibility.

The Company commenced an arbitration proceeding in 1998 against the
former owners in the City of New York under the asset purchase agreement for
damages which the Company alleges to have sustained by reason of the breach of
the representations and warranties and covenants of the former owners (see Note
14). In an Award issued in 1999, the arbitrator denied the relief sought by the
Company and refused to grant the relief sought by former owners. On April 19,
1999, the Company initiated a Special Proceeding in the Supreme Court of the
State of New York, County of New York to affirm the Award. The Special
Proceeding is currently at the initial pleadings stage.

c. SUSPENSION OF ANALYTICAL BIOSYSTEMS CORPORATION'S LABORATORY
OPERATIONS

Analytical Biosystems Corporation ceased processing specimens for the
assay and suspended its laboratory operations in Rhode Island in November, 1997.

4. INVESTMENT IN PHYSICIANS CLINICAL LABORATORY, INC.

In 1996, the Company acquired certain debt securities of PCL, a
Delaware corporation. United reached an agreement (the "PCL Plan") with the
holders of the Senior Debt, Subordinated Debt and the management of PCL whereby
United would acquire a 52.6% interest in PCL. The terms of the agreement
provided that PCL file a plan to effectuate the agreement. As required by the
aforementioned agreement, the Company purchased approximately $13,300,000 of
Senior Debt for $10,000,000 on November 7, 1996. On November 8, 1996, PCL and
its then subsidiaries filed a petition for relief under Chapter 11 of the
Federal Bankruptcy Laws in the United States Bankruptcy Court. In December 1996,
the Company received a distribution totaling $575,561 which was applied against
the Company's investment in the senior debt of PCL.

F-15
<PAGE>

UNITED DIAGNOSTIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1999 and 1998

4. INVESTMENT IN PHYSICIANS CLINICAL LABORATORY, INC. - CONTINUED

During the period from November 8, 1996 through October 3, 1997, PCL
operated as debtor-in-possession. In accordance with the PCL Plan, certain
holders of Senior Debt contributed $10,000,000 in debtor-in-possession financing
to PCL, which was forgiven under the terms of the reorganization. The Bankruptcy
court confirmed PCL's Second Amended Plan of Reorganization on April 18, 1997
and PCL emerged from bankruptcy on October 3, 1997, the effective date of the
plan. Pursuant to the reorganization plan, all subsidiaries of PCL, including
MSI, were merged with and into PCL.

On the effective date, as required under the PCL Plan, the debt
purchased by United was converted into 35.6% of the common stock of PCL. United
acquired an additional 17% of the common stock in exchange for the $5,000,000
MSI note (Note 3a), resulting in United owning 52.6% of the outstanding common
stock of PCL. United accounted for the acquisition under the purchase method.
The Company's acquisition cost consisted of the $15 million investment above,
plus deferred acquisition costs of $1,248,324, less a deferred gain on the sale
of MSI of $1.1 million. The Company recorded approximately $2 million in excess
cost over the fair market value of net assets acquired ("goodwill").

PCL accounted for the reorganization using the principles of fresh
start accounting, as required by Statement of Position 90-7 ("SOP 90-7"),
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code",
issued by the American Institute of Certified Public Accountants. Under the
principles of fresh start accounting, as of September 30, 1997, PCL's total
assets were recorded at their assumed reorganization value, with the
reorganization value allocated to identifiable assets on the basis of their
estimated fair value and PCL's prior accumulated deficit was eliminated. The
excess of the reorganization value over the value of identifiable assets was
reported as "reorganization value in excess of amounts allocable to identifiable
assets".

The total reorganization value was determined in consideration of
several factors. The methodology employed involved estimation of PCL's
enterprise value (the market value of its stockholders' equity and its debt),
taking into account the new investment by United and market rates for similar
debt instruments. This resulted in an estimated reorganization value of
approximately $87 million, of which the reorganization value in excess of
amounts allocable to identifiable assets was approximately $71 million. The
excess reorganization value was being amortized over 15 years.

After the reorganization, PCL continued to experience customer losses
and reduction in third party reimbursements, and has been unable to completely
achieve the operating performance anticipated in the reorganization plan. These
factors resulted in cash flow deficits and continued operating losses. As a
result of the subsequent sale by PCL (see below), management reevaluated

F-16
<PAGE>

UNITED DIAGNOSTIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1999 and 1998

4. INVESTMENT IN PHYSICIANS CLINICAL LABORATORY, INC. - CONTINUED

the recoverability of the excess reorganization value based upon an estimated
loss on the sale, including costs of disposal. In 1997, PCL recorded a
write-down of excess reorganization value of approximately $45.3 million and the
Company charged off the balance of the remaining goodwill relating to PCL of
approximately $2 million.

Effective with PCL's Plan of Reorganization, United entered into a
Stockholders Agreement with certain of the other PCL stockholders who received
Senior Secured Notes issued by PCL. The agreement provides for restrictions on
transfers of PCL stock and certain other rights to designate Board of Directors.
The agreement includes corporate governance provisions relating to PCL,
including limitations on certain issuance of securities, merger or sale, capital
expenditures, issuance of debt, or modifications to the certificate of
incorporation, bylaws or the president's employment agreement.

In connection with the acquisition of PCL, United entered into a
Noncompetion Agreement with PCL, under which United will not directly or
indirectly engage in any business involved in the provision of clinical
laboratory services in the United States as long as United or affiliates own at
least 25% of the common stock of PCL, subject to defined exceptions.

Pursuant to its Plan of Reorganization and a Warrant Agreement, PCL
issued warrants in 1997 for the purchase of an aggregate of 131,579 shares of
its common stock. The exercise price under the warrants is $13.30 per share and
the warrants expire October 3, 2002. The agreement includes anti-dilution
provisions for the adjustment of number of shares and exercise price upon the
occurrence of certain events.

On June 10, 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. After the sale, United
owned 49.9% of the issued and outstanding shares of PCL and 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 the 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. PCL continued to have losses after June 1998,
and the Company's share of losses were not further recognized in 1998. The 1998
statements present the Company's investment in PCL on the equity method restated
to January 1, 1998.

F-17
<PAGE>

UNITED DIAGNOSTIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1999 and 1998

4. INVESTMENT IN PHYSICIANS CLINICAL LABORATORY, INC. - CONTINUED

The following table contains summarized financial information of PCL
for its fiscal year ended February 28, 1999:

CONDENSED STATEMENT OF OPERATIONS Year ended February 28, 1999
--------------------------------- ----------------------------
<S> <C>

Net revenues $ 55,571,000
Operating loss $ (12,086,000)

Net loss $ (22,076,000)

CONDENSED BALANCE SHEET At February 28, 1999
----------------------- --------------------
Current assets $ 13,335,000
Noncurrent assets $ 22,102,000
Total assets $ 35,437,000

Current liabilities $ 77,219,000
Noncurrent liabilities $ 9,210,000
Capital deficit $ (50,992,000)
Total liabilities and capital deficit $ 35,437,000

</TABLE>

The sale of shares also resulted in amendment of the Stockholder
Agreement. The agreement as amended provides the lender stockholder with the
right to elect the majority of the board and provides United certain other
corporate governance rights. Additional loans to PCL by the same stockholder
resulted in further modifications to certain corporate governance rights
previously granted to the Company.

On April 5, 1999, PCL entered into an Asset Purchase Agreement for the
sale of the business and substantially all assets to Unilab Corp ("Unilab") for
a total purchase price of approximately $40 million. The sale closed on May 10,
1999. The purchase price includes approximately $9 million cash, one million
shares of common stock of Unilab, assumption of approximately $3 million in
liabilities, and a convertible note for $25 million. The note has a 7.5%
interest rate, with $10 million annual principal payments, which may be paid in
cash or in shares of Unilab common stock, at Unilab's option, at a $3.00 per
share conversion price for 75% of the note, with the balance converting at
then-current market price. The stock is subject to a registration rights
agreement. The agreement also provides for the merger of Bio-Cypher Funding
Corp. into PCL prior to closing, and repayment of the credit facility with
Daiwa.

F-18
<PAGE>

UNITED DIAGNOSTIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1999 and 1998

4. INVESTMENT IN PHYSICIANS CLINICAL LABORATORY, INC. - CONTINUED

PCL began liquidation after the sale. The proceeds were principally
used to satisfy a portion of PCL's secured indebtedness. No proceeds of the sale
were available to the PCL shareholders. 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; and in 1999 recognized such proceeds as a credit to
additional paid in capital, and recognized its share of previously unrecognized
PCL loss of a like amount.

5. EQUIPMENT

Equipment consists of the following:

<TABLE>

<S> <C>
Computer Equipment $ 9,607
Less accumulated depreciation (6,897)
----------
$ 2,710
==========

</TABLE>

Depreciation expense was $1,921 and $2,915 for the years ended December 31,
1999, and 1998, respectively.

F-19
<PAGE>

UNITED DIAGNOSTIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1999 and 1998

6. DEBT

Debt consists of the following:

<TABLE>

<S> <C>
Notes payable to State of Rhode Island's $ 85,888
Small Business Loan Fund Corporation (SBLFC),
in default in April 1998, subsequently modified in June 1998,
to 9.5% interest with all past due interest paid upon
execution of modified agreements, principal due on demand,
collateralized by virtually all of the assets of United and ABC

Note payable to financing company, interest at 42,774
8.2% repayable in monthly installments of
$5,513 commencing February 2000 for
Directors' and Officers' Insurance premium

--------------
$ 128,662
==============

</TABLE>

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. As further consideration for the loan, the Company agreed to adjust the
exercise price of previously issued warrants to purchase 1,428 shares issued in
conjunction with a January 1997 loan (paid in full in February 1997), to the
same price as the new warrants. 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 $83,000 in 1998 and $60,000 in 1999 in interest expense, relating
to the discount (non-cash item).

F-20
<PAGE>

UNITED DIAGNOSTIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1999 and 1998

7. ACCRUED EXPENSES

Accrued expenses consist of the following:

<TABLE>

<S> <C>
Employee compensation $ 15,150
Accrued vacation 3,930
Accrued taxes 65,000
Consulting and professional fees 92,918
-----------

$ 176,998
===========

</TABLE>

8. LEASE COMMITMENTS

The Company maintains a lease with a term of one year, commencing each
January 1st, which may be renewed by the Company at a monthly rental of $925 per
month.

Rental expense was $17,185 and $13,071 for the years ended December 31,
1999 and 1998, respectively.

9. STOCKHOLDERS' EQUITY

a. SERIES A CONVERTIBLE PREFERRED STOCK

On December 2, 1996, the Company completed a private placement offering
for a total of 14,000 shares of Series A Convertible Preferred Stock for a total
aggregate purchase price of $14,000,000. The Company realized net proceeds of
approximately $12,135,000 after deducting expenses totaling $1,865,000. In
connection with this offering, the Company issued 857 shares of common stock and
warrants to purchase 1,224 shares of common stock exercisable at $1,050.00 per
share.

The Series A Convertible Preferred Stock is convertible, by its terms,
into shares of common stock at the option of the holder commencing on the 45th
day after the issue date. Up to one third of the shares of the Series A
Convertible Preferred Stock may be converted into common stock on each of the
45th day, 75th day and 105th day after the issue date.

F-21
<PAGE>

UNITED DIAGNOSTIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1999 and 1998

9. STOCKHOLDERS' EQUITY - CONTINUED

Commencing upon the 270th day following completion of the private placement, the
Company has the right, upon 30 days' prior notice, to cause the Series A
Convertible Preferred Stock to be converted into common stock at the then
applicable conversion price. The shares are 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.

The holders of a majority of the Series A Convertible Preferred Stock
were granted one "demand" registration right with respect to the common stock
underlying the Series A Convertible Preferred Stock. In the event that the
Company does not file with, and have declared effective by, the Commission, a
registration statement under the Act within 120 days of receipt of the demand
notice of the investors holding the shares of the Series A Convertible Preferred
Stock, the then applicable conversion price of the Series A Convertible
Preferred Stock will be reduced by 10%. Further, for each 30 day period after
the 120 day period that the registration statement has not been declared
effective, the conversion price will be reduced by an additional 2%, up to an
aggregate of 12%. See Note 14 for information regarding certain litigation
concerning conversion of the Preferred Stock into Common Stock and ability to
sell under the Selling Shareholder Registration Statements.

The Company filed a registration statement relating to the shares of
Common Stock issuable upon conversion of the Preferred Stock (the "Conversion
Shares") in December 1996, but withdrew the registration statement in February
1997. The Company subsequently filed a new registration statement in April 1997
relating to the Conversion Shares, which was declared effective by the
Commission on July 23, 1997. The selling stockholders under such registration
statement each represented to the Company that they were not part of any "group"
as defined in Rule 13d-5 under the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended. Additionally, each represented that
he or it was the sole beneficial owner of Common Stock of the Company registered
in his or its name or issuable upon conversion of additional shares of Preferred
Stock. As a result of the Company's acquisition of a 52.6% interest in PCL, in
October 1997, the Company suspended further sales of Conversion Shares pursuant
to the registration statement pending stockholder authorization of additional
shares of Common Stock to be issued upon conversion of the Preferred Stock, the
preparation and filing by the Company of additional reports with the Commission
relating to the completion of the acquisition of its majority interest in PCL,
and the Company amending its registration statement to reflect the completion of
the PCL transaction. On October 20, 1997, the Company filed an initial Current
Report on Form 8-K relating to its acquisition of such majority interest in PCL
and, under the applicable rules for such form, had 60 days therefrom to file the
requisite financial statements of PCL. Sales under the registration statement
remained suspended pending the preparation and

F-22
<PAGE>

UNITED DIAGNOSTIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1999 and 1998

9. STOCKHOLDERS' EQUITY - CONTINUED

filing of such additional reports, principally relating to the requisite PCL
financial statements, which additional reports have not been completed to date.
As of the date hereof, no post-effective amendment to the registration statement
has been filed and sales under that registration statement remain suspended (see
Note 14).

Holders of shares of the Series A Convertible Preferred Stock are not
entitled to receive dividends in cash or otherwise. The holders of shares of the
Series A Convertible Preferred Stock are not entitled to voting rights. In
addition, effective June 1, 1998 the Company's common stock was delisted from
the Nasdaq SmallCap Market. Since the conversion price of the Preferred Stock is
related to The Nasdaq Stock Market bid price for the Common Stock, a conversion
price is presently indeterminable; consequently, the Company has suspended the
acceptance of future conversions.

b. COMMON STOCK

Effective June 1, 1998, the Company's common stock was delisted from
the Nasdaq SmallCap Market, due to failure to file reports with the
Securities and Exchange Commission and the failure of the Company to meet new
Nasdaq minimum financial requirements. 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.

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, except shares
authorized, and to per share information in the consolidated financial
statements have been adjusted to reflect the stock reverse split on a
retroactive basis.

c. AUTHORIZED SHARES

On October 21, 1997, the stockholders of the Company approved an
amendment to the Company's Amended and Restated Certificate of Incorporation to
increase the total number of shares of all classes of capital stock which the
Company may issue to 52,000,000 shares. Such increase has been effected by
increasing the number of shares of common stock from 12,000,000 shares to
50,000,000 shares and by increasing the number of shares of preferred stock from
1,000,000 shares to 2,000,000 shares.

F-23
<PAGE>

UNITED DIAGNOSTIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1999 and 1998

9. STOCKHOLDERS' EQUITY - CONTINUED

d. STOCK OPTION PLANS

At December 31, 1999, the Company has stock option plans as follows:

i. 1994 PLAN

The Company has reserved 5,000 shares of common stock under the 1994
Employee Stock Option Plan (the 1994 Plan). Options granted under the 1994 Plan
may be incentive options or nonqualified stock options, and shall be designated
as such at the time of grant. The 1994 Plan permits the granting of incentive
options only to officers and full-time employees of the Company, at no less than
100% of the fair market value of the Company's common stock at the date of the
grant. Nonqualified stock options may be granted to officers, employees,
consultants, and advisors of the Company, as well as to members of the Board of
Directors, at a price determined by the Plan administrator but in no case less
than 85% of the fair market value of the Company's common stock at the date of
the grant. To the extent that any option intended to be an incentive option
shall fail to qualify as such under Section 422 of the Internal Revenue Code of
1986, such options shall be deemed to be nonqualified options. The 1994 Plan is
administered by the Option Committee of the Board of Directors, which has full
power to determine the specific terms of each option granted, subject to the
provisions of the 1994 Plan. Due to the current number of Directors, there is no
functioning committee. As of December 31, 1999, the Company has granted options
outstanding for a total of 2,500 shares under this Plan.

ii. DIRECTOR'S PLAN

The Company has reserved 2,857 shares of common stock under the
Non-Employee Director Stock Option Plan (the Director Plan). Each non-employee
director, upon election of the Company's Board of Directors, shall be granted
options for 71 shares of common stock, and each shall be granted on subsequent
annual anniversary dates of the initial grant, additional options for 114 shares
of common stock. Under the terms of the agreement, the sum of the number of
shares to be received upon any grant multiplied by the fair market value of each
share at the time of the grant may not exceed $75,000. As of December 31, 1999,
the Company has granted options outstanding for a total of 413 shares under this
Plan.

The exercise price of each option shall be 100% of the fair market
value of the Company's common stock at the date of the grant. The Director Plan
is administered by the Director Plan Committee, which is comprised of not less
than two directors of the Company who are not entitled to participate in the
Director Plan. Due to the current number of Directors, there is no functioning
committee.

F-24
<PAGE>

UNITED DIAGNOSTIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1999 and 1998

9. STOCKHOLDERS' EQUITY - CONTINUED

iii. 1992 PLAN

During 1999, the remaining 41 shares of common stock reserved under a
1992 Stock Option Plan ("1992 Plan") expired. In August 1994, the 1992 Plan was
terminated except for then outstanding options and replaced by the 1994 Plan. At
December 31, 1999, no options remain reserved under the 1992 Plan.

iv. OTHER STOCK OPTIONS

The Company also has 82 stock options outstanding at December 31, 1999,
that were not issued under any specific plan.

e. FAS 123 DISCLOSURES

The Company has adopted the disclosure provisions only of Statement of
Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION
("FAS 123") and will continue to account for its employee stock options in
accordance with the provisions of APB 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES.

The following table presents the combined activity of United's stock
option plans for the years ended December 31, as follows:

1999 1998
----------------------------- ------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
----------------------------- ------------------------------
<S> <C> <C> <C> <C>
Outstanding at January 1 3,107 $ 543.64 3,257 $ 546.70
Granted - - - -
Exercised - - - -
Canceled (112) 490.00 (150) 610.38
----------------------------- ------------------------------
Outstanding at December 31 2,995 $ 545.62 3,107 $ 543.64
============================= ==============================

Options exercisable at December 31 2,995 $ 545.62 3,107 $ 543.64
============================= ==============================

</TABLE>

F-25
<PAGE>

UNITED DIAGNOSTIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1999 and 1998

9. STOCKHOLDERS' EQUITY - CONTINUED

The Company granted warrants in connection with financing activities,
merger and acquisitions activity, and as a form of compensation to employees and
consultants. Expiration dates vary on outstanding warrants ranging from October
2000 through December 2003.

The following table presents the combined activity for all United's
warrants issued for the years ended December 31, as follows:

1999 1998
-------------------------- -----------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
WARRANTS PRICE WARRANTS PRICE
-------------------------- -----------------------------
<S> <C> <C> <C> <C>
Outstanding at January 1 57,125 $ 137.81 15,207 $ 767.20
Granted - - 45,429 6.58
Exercised - - - -
Canceled (209) 637.00 (3,511) 1,165.07
-------------------------- -----------------------------
Outstanding at December 31 56,916 $ 135.98 57,125 $ 137.81
========================== =============================

Options exercisable at December 31 56,916 $ 135.98 57,125 $ 137.81
========================== =============================

</TABLE>

The following table presents weighted average price and life information about
significant United's option groups outstanding at December 31, 1999:

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------------------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE (YRS.) PRICE EXERCISABLE PRICE
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Less than $525.00 2,582 3.0 $ 488.44 2,582 $ 488.44
$525.00 - $1,050.00 413 1.3 $ 902.52 413 $ 902.52
------------- ------------

2,995 2,995
============= ============

</TABLE>

F-26
<PAGE>

UNITED DIAGNOSTIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1999 and 1998

9. STOCKHOLDERS' EQUITY - CONTINUED

The following table presents weighted average price and life
information about significant United's warrant groups outstanding at December
31, 1999:

WARRANTS OUTSTANDING WARRANTS EXERCISABLE
---------------------------------------------------- --------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE (YRS.) PRICE EXERCISABLE PRICE
------------------------------------------------------------------------------------ --------------------------------
<S> <C> <C> <C> <C> <C>
Less than $10.00 45,429 3.9 $ 6.58 45,429 $ 6.58
$10.00 - $525.00 5,436 1.8 $ 489.08 5,436 $ 489.08
$525.00 - $1,050.00 6,051 2.0 $ 790.03 6,051 $ 790.03
------------- -------------

56,916 56,916
============= =============

</TABLE>

The weighted average fair value per share and exercise price of
United's options and warrants granted during 1999 and 1998 were as follows:

1999 1998
----------------------------------- -----------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
FAIR VALUE EXERCISE PRICE FAIR VALUE EXERCISE PRICE
----------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
Share price = Exercise price $ N/A $ N/A $ 6.58 $ 6.58

</TABLE>

f. COMMON STOCK RESERVED

The Company has reserved 59,911 shares of common stock for the exercise
of options and warrants. The Company was not able to reserve a sufficient number
of common shares to provide for the conversion of the Series A Convertible
Preferred Stock as of December 31, 1999. The Company is presently unable to
determine the number of shares issuable upon such conversion.

F-27
<PAGE>

UNITED DIAGNOSTIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1999 and 1998

9. STOCKHOLDERS' EQUITY - CONTINUED

g. 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, and recorded an
adjustment to capital in excess of par value. The transaction was recorded by
the Company as non-recurring miscellaneous revenue with a corresponding charge
for prior years' unrecognized equity loss in subsidiary.

10. CONTRACT RESEARCH

a. RESEARCH FUNDING AGREEMENT

On December 14, 1990, the Company entered into an agreement with the
Rhode Island Partnership for Science and Technology (RIPSAT) to fund research,
development, testing and validation of an IN VITRO assay to predict the outcome
of x-ray mediated chemotherapy enhancement anticancer therapy (the project) or
radiation mediated chemotherapy enhancement (RMCE; the product).

The project consists of two phases as follows:

Applied research--RIPSAT will fund operating and capital costs incurred
in the performance of the Applied Research Phase up to a maximum of $320,338.
RIPSAT will not fund more than 60% of the total project cost. Such research is
paid for by the Company and reimbursed by RIPSAT. Through December 31, 1993,
approximately $531,500 of total operating costs have been expended on this
project. These operating costs included $362,255 in reimbursable costs expended
by Brown University of which $320,338 of these reimbursable costs (the total
grant) were reimbursed by RIPSAT. RIPSAT has been informed and has acknowledged
that the Applied Research Phase will not be completed for an indeterminate
period of time.

Commercialization--During the Commercialization Phase, the Company will
pay amounts to RIPSAT equal to the funds received during the Applied Research
Phase. Payment will begin at the end of the first calendar quarter in which
sales of the product are recorded. Payments will be calculated as follows (i) 3%
of quarterly net sales of the FCA, but not exceeding an aggregate of $107,000,
and (ii) 5% of quarterly net sales of the RMCE. The 3% and 5%, under certain

F-28
<PAGE>

UNITED DIAGNOSTIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1999 and 1998

10. CONTRACT RESEARCH - CONTINUED

circumstances, may be increased to 6% and 10%, respectively. At December 31,
1999, the Commercialization Phase has not commenced.

b. RESEARCH AND LICENSE AGREEMENT

In May 1991, the Company entered into a Research Agreement with Brown
University (Brown). Under the agreement, the Company will fund Brown for all
direct and indirect costs incurred in the performance of the research which
shall not exceed $375,604 without written authorization from the Company. The
total reimbursable costs expended by Brown University under this agreement
through December 31, 1993, were $362,255, of which $320,338 was reimbursed to
the Company by RIPSAT. Of the $362,255, the Company has paid $306,684 to Brown
leaving a balance of $55,571 at December 31, 1999.

Under the provisions of the agreement, the Company has an option to
license intellectual property developed in the performance of the agreement. The
Company will pay royalties to Brown at a rate of 2% of sales which shall
commence two years from issuance of a patent and extend for the life of the
license.

11. INCOME TAXES

a. NET OPERATING LOSS CARRYFORWARDS

The Company files consolidated tax returns with its wholly-owned
subsidiaries. At December 31, 1999, the Company and its wholly-owned
subsidiaries have net operating loss carryforwards of approximately $20 million
for income tax purposes that expire at various times from 2001 to 2019,
including approximately $3 million of these losses that are limited in usage. No
income tax benefit has been recorded during the years ended December 31, 1999,
and 1998.

F-29
<PAGE>

UNITED DIAGNOSTIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1999 and 1998

The principal components of the Company's deferred tax assets were as
follows:

<TABLE>

<S> <C>
Deferred tax assets:
Net operating loss carryforwards $ 8,686,000
Allowance for bad debts 40,000
Intangibles -
Federal general business tax credits 150,000
Other 7,000
------------
8,883,000
Valuation allowance (8,883,000)
------------
Net deferred tax assets $ -
============

</TABLE>

Net deferred tax assets are reduced by a valuation allowance to reflect
the uncertainty associated with their ultimate realization. The valuation
allowance increased $340,000 in 1999 (after eliminating the PCL portion) from
increases in net operating loss carryforwards.

b. ALTERNATIVE MINIMUM INCOME TAX

An estimated alternative minimum income tax ("AMT") of $65,000 was
incurred by the Company for the year ended December 31, 1999, upon the receipt
of $3.25 million in cash in connection with the PCL transaction (see Note 4).
The Company can apply such AMT payments against future non-AMT income taxes, if
any.

12. OTHER AGREEMENTS

In 1995, the Company entered into an agreement with an investment
banker whereby the investment banker can earn cash commissions and up to 2,857
warrants with an exercise price of $665.00 if certain events, as defined, occur.
The agreement expires in June 2000. In 1996, the investment banker earned a cash
transaction fee totaling $300,000 and was granted 1,071 warrants. In 1997, the
investment banker earned $183,450 in cash commissions and earned 826 warrants
with an exercise price of $665.00 per share.

On March 6, 1997, the Company adopted an Indemnification Trust (the
"Trust") for the benefit of the current officers and directors of the Company.
The Trust is in furtherance of the

F-30
<PAGE>

UNITED DIAGNOSTIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1999 and 1998

12. OTHER AGREEMENTS - CONTINUED

Company's indemnification obligations to its officers and directors and is
intended to establish a mechanism to assure a source of funding for any payments
the Company may be required to make under such Indemnification Agreements. The
board of directors authorized to fund the Trust in the amount of $250,000. The
Trust has not been funded to date.

13. EMPLOYMENT AGREEMENTS

The Company has an employment agreement with its president and CEO with
a term of three years at a base salary of $208,000 through May 2002. Other
benefits typical of such agreements are also provided. The Company may terminate
the agreement before the end of its term for cause. The Company may also
terminate the agreement without any cause by providing severance pay equal to
the base salary for the unexpired portion of the agreement plus one year. The
Company is obligated to pay the base salary for the unexpired portion of the
agreement upon the death or disability of the executive. If the agreement is not
renewed at the end of its term, the Company is obligated to pay severance equal
to one year's base salary. Upon termination for other than cause or upon
resignation during a one year period from a change in control, as defined,
severance pay will be provided equal to the base salary for the unexpired
portion of the agreement plus one year.

14. LITIGATION

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

F-31
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UNITED DIAGNOSTIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1999 and 1998

14. LITIGATION - CONTINUED

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.

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.

On July 22, 1998 an arbitration was commenced before the American
Arbitration Association ("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 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.

F-32
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UNITED DIAGNOSTIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1999 and 1998

14. LITIGATION - CONTINUED

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. At November 1, 1999, no payments had been collected against the
outstanding $70,000 and the right to collect has reverted to the Company.

F-33
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UNITED DIAGNOSTIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1999 and 1998

14. LITIGATION - CONTINUED

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

15. SUBSEQUENT EVENT

The Company, in May 2000, made a $200,000 investment for an initial
7.5% common stock interest in a newly formed company, controlled by Mr. J.
Marvin Feigenbaum (Chairman and stockholder of the Company). Such investment was
pursuant to an affirmative vote (with Mr. Feigenbaum abstaining) by the Board of
Directors at a meeting held April 17, 2000.

F-34

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EXHIBIT INDEX

EXHIBITS DESIGNATED WITH AN ASTERISK (*) HAVE PREVIOUSLY BEEN FILED
WITH THE COMMISSION AND ARE INCORPORATED HEREIN BY REFERENCE TO THE
DOCUMENT REFERENCED IN PARENTHETICALS FOLLOWING THE DESCRIPTIONS OF
SUCH EXHIBITS.

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2.1* Asset Purchase Agreement dated September 13, 1996, among Nu-Tech
Bio-Med, Inc., NTBM Billing Services, Inc., Prompt Medical
Services, Inc., Judith Prussin and Jeffrey Prussin (filed without
exhibits or schedules) (filed as Exhibit 2.1 to Current Report on
Form 8-K filed September 25, 1996).

2.2* Order Confirming Medical Science Institute's First Amended Plan of
Reorganization dated November 18, 1996 (US Central District of
California Case No. LA 95-37790 ID) together with First Amended
Disclosure Statement and Plan of Reorganization for Medical
Science Institute (filed as Exhibit 2.2 to Current Report on Form
8-K filed on December 3, 1996).

2.3* Disclosure Statement of Physicians Clinical Laboratory as filed
with the U.S. Bankruptcy Court (Central District of California
Case No. SV96-23185-GM) (filed as Exhibit 2.3 to Form S-3 File No.
333-17859).

2.4* Joint Plan of Reorganization of Physicians Clinical Laboratory as
filed with the U.S. Bankruptcy Court (Central District of
California Case No. SV96-23185-GM) (filed as Exhibit 2.4 to Form
S-3 File No. 333-17859).

2.5* Motion of PCL for Entry of Order authorizing PCL to acquire all of
the Issued and Outstanding Stock of Medical Science Institute
(filed as Exhibit 2.5 to Current Report on Form 8-K filed January
29, 1997).

3.1* Amended and Restated Certificate of Incorporation filed with the
Secretary of State of Delaware on November 16, 1994 (filed as
Exhibit 3.1.5 to Amendment No. 1 to Registration Statement on Form
SB-2, File No. 33-84622).

3.2* Amended Certificate of Designations, Preferences and Rights and
Number of Shares of Series A Preferred Stock as filed with the
Secretary of State of Delaware on October 23, 1996 (filed as
Exhibit 3.3 to Report on Form 10QSB for the fiscal quarter ended
September 30, 1996).

3.3* Certificate of Amendment of Amended Certificate of Designations,
Preferences and Rights and Number of Shares of Series A
Convertible Preferred Stock as filed with the Secretary of State
of Delaware on November 20, 1996.

3.4* Amendment to the Registrant's Certificate of Incorporation (filed
as Exhibit 3 to Current Report on Form 8-K for October 23, 1997).

3.5* Amended and Restated Certificate of Incorporation filed with the
Secretary of State of Delaware on October 21, 1997 (filed as
Exhibit 3 to Current Report on Form 8-K for November 4, 1997).

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3.6* Amendment to the Registrants's Certificate of Incorporation filed
with the Secretary of State of Delaware on December 23, 1998
(filed as Exhibit 3.6 to Report on Form 10-KSB for the fiscal year
ended December 31, 1997).

3.7* Amended and Restated By-Laws effective November 16, 1994 (filed as
Exhibit 3.2.2 to Registration Statement on Form SB-2, File No.
33-84622).

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

4.1* Form of Common Stock Certificate (filed as Exhibit 4.1 to
Registration Statement on Form SB-2, File No. 33-84622).

4.2* Form of Warrant and Warrant Agreement relating to Warrants to
purchase an aggregate of 114,286 shares of Common Stock issued to
certain individuals on August 9, 1994 in connection with a Bridge
Financing (filed as Exhibit 4.2 to Registration Statement on Form
SB-2, File No. 33-84622).

4.3* Form of Warrant Agreement issued to Starr Securities, Inc. and
Stein, Shore Securities, Inc. (filed as Exhibit 4.4 to
Registration Statement on Form SB-2, File No. 33-84622).

4.4* Form of Registration Rights Agreement dated August 9, 1994 between
the Registrant and certain individuals in connection with
completed Bridge Financing (filed as Exhibit 4.5 to Registration
Statement on Form SB-2, File No. 33-84622).

10.1* Amended and Restated Employment Agreement with J. Marvin
Feigenbaum (filed as Exhibit 10.2 to Registration Statement on
Form SB-2, File No. 33-84622).

10.2* Employment Agreement with Dr. Kenneth E. Blackman as of July 1,
1994 (filed as Exhibit 10.3 to Registration Statement on Form
SB-2, File No. 33-84622).

10.3* Patent No. 4,559,299 dated December 17, 1985 (filed as Exhibit
10.4 to Registration Statement on Form SB-2, File No. 33-84622).

10.4* Patent No. 4,734,372 dated March 29, 1988 (filed as Exhibit 10.5
to Registration Statement on Form SB- 2, File No. 33-84622).

10.5* Patent No. 4,937,298 dated June 26, 1990 (filed as Exhibit 10.6 to
Registration Statement on Form SB-2, File No. 33-84622).

10.6* Assignment of Patent No. 4,559,299, recorded on March 29, 1993, by
Brown University Research Foundation, in favor of Analytical
Biosystems Corporation (filed as Exhibit 10.7 to Registration
Statement on Form SB-2, File No. 33-84622).

10.7* Assignment of Patent No. 4,734,372, recorded on March 29, 1993, by
Brown University Research Foundation, Inc., in favor of Analytical
Biosystems Corporation (filed as Exhibit 10.8 to Registration
Statement on Form SB-2, File No. 33-84622).

10.8* Assignment of Patent No. 4,937,187, recorded on March 29, 1993, by
Brown University Research Foundation, Inc. in favor of Analytical
Biosystems Corporation (filed as Exhibit 10.9 to Registration
Statement on Form SB-2, File No. 33-84622).

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10.9* Consulting Agreement with Starr Securities, Inc. (filed as Exhibit
10.10 to Amendment No. 1 to Registration Statement on Form SB-2,
File No. 33-84622).

10.10* Funding Agreement dated December 14, 1990 between Rhode Island
Partnership for Science and Technology and Analytical Biosystems
Corporation (filed as Exhibit 10.11 to Registration Statement on
Form SB-2, File No. 33-84622).

10.11* Loan Agreement dated February 11, 1993 between State of Rhode
Island Economic Development Small Business Loan Fund Corporation
("SBLFC") and Analytical Biosystems Corporation in the amount of
$150,000 (filed as Exhibit 10(iii) to Report on Form 10-KSB for
the fiscal year ended December 31, 1992).

10.12* Loan Agreement dated February 25, 1993 between SBLFC and
Analytical Biosystems Corporation in the amount of $100,000 (filed
as Exhibit 10(iii) to Report on Form 10-KSB for the fiscal year
ended December 31, 1992).

10.13* Loan Agreement dated April 19, 1993 between SBLFC and Analytical
Biosystems Corporation in the amount of $250,000 (filed as Exhibit
10(i)(a) to Current Report on Form 8-K dated April 30, 1993).

10.14* Loan Agreement dated October 22, 1993 between SBLFC and Analytical
Biosystems Corporation in the amount of $166,666 (filed as Exhibit
10(iii)(d) to Report on Form 10-KSB for the fiscal year ended
December 31, 1993).

10.15* Loan Agreement dated February 17, 1994 between SBLFC and
Analytical Biosystems Corporation in the amount of $125,000 (filed
as Exhibit 10(iii)(e) to Report on Form 10-KSB for the fiscal year
ended December 31, 1993).

10.16* Security Agreement dated October 22, 1993 between SBLFC and
Analytical Biosystems Corporation (filed as Exhibit 10.17 to
Registration Statement on Form SB-2, File No. 33-84622).

10.17* Patent Security Agreement dated April 19, 1993 between SBLFC and
Analytical Biosystems Corporation (filed as Exhibit 10.18 to
Registration Statement on Form SB-2, File No. 33-84622).

10.18* Patent Security Agreement dated October 22, 1993 between SBLFC and
Analytical Biosystems Corporation (filed as Exhibit 10.19 to
Registration Statement on Form SB-2, File No. 33-84622).

10.19* Form of Indemnification Agreements between Registrant and
Registrant's Directors and Officers (filed as Exhibit 10.20 to
Registration Statement on Form SB-2, File No. 33-84622).

10.20* Lease Agreement as of November 1, 1994 for facility located at 55
Access Road, Warwick, Rhode Island 02886 (filed as Exhibit 10.21
to Amendment No. 1 to Registration Statement on Form SB-2, File
No. 33-84622).

10.21* Consulting Agreement and Warrant with Dr. Elliot Fishkin (filed as
Exhibit 10.22 to Amendment No. 1 to Registration Statement on Form
SB-2, File No. 33-84622).

10.22* Redacted copy of Clinical Trials Agreement dated August 14, 1995
between Analytical Biosystems Corporation and research institution
and certain individuals (filed as Exhibit 10.1 to Current Report
on Form 8-K dated August 11, 1995).

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10.23* Agreement dated April 10, 1995 between Analytical Biosystems
Corporation and Loats Associates (filed as Exhibit 10.1 to Current
Report on Form 8-K dated April 20, 1995).

10.24* Form of Registration Rights Agreement entered into among the
Company and the holders of the Company's Series A Preferred Stock
entered into on December 2, 1996 (filed as Exhibit 10.24 to
Registration Statement on Form S-3 File 333-17857).

10.25* Form of Registration Rights Agreement entered into among the
Company and certain holders of the Company's Common Stock entered
into on April 12, 1996 in connection with private placement
offering completed on April 12, 1996 (filed as Exhibit 10.25 to
Registration Statement on Form S-3 File 333-17857).

10.26* Form of Promissory Note of Nu-Tech Bio-Med, Inc. in the principal
amount of $2,000,000 dated January 23, 1997 in favor of The
Michael Jesselson Trust (filed as Exhibit 10.29 to Current Report
on Form 8-K filed January 29, 1997).

10.27* Security Agreement dated January 23, 1997 between Nu-Tech Bio-Med,
Inc. and The Michael Jesselson Trust (filed as Exhibit 10.30 to
Current Report on Form 8-K filed January 29, 1997).

10.28* Form of Common Stock Purchase Warrant dated January 23, 1997 to
purchase 100,000 shares of Common Stock at an exercise price of
$11.50 per share (filed as Exhibit 10.31 to Current Report on Form
8-K filed January 29, 1997).

10.29* Amended and Restated Employment Agreement by and between the
Company and J. Marvin Feigenbaum, dated June 6, 1997 (filed as
Exhibit 10 to Current Report on Form 8-K filed June 9, 1997).

10.30* Amended and Restated Employment Agreement by and between the
Company and J. Marvin Feigenbaum, dated May 19, 1999 (filed as
Exhibit 10 to Current Report on Form 8-K for June 23, 1999).

16.1* Letter from Ernst & Young LLP required pursuant to Rule 304(a)3 of
Regulation S-B (filed as Exhibit 1 to Amended Current Report on
Form 8-K for May 19, 1998).

16.2 Letter from Grant Thornton LLP required pursuant to Rule 304(a)3
of Regulation S-B.

27 Financial Data Schedule

99.1* 1992 Stock Option Plan (filed as Exhibit 28 to Report on Form 10-Q
for the quarter ended March 31, 1992).

99.2* 1994 Incentive Stock Option (filed as Exhibit 99.2 to Registration
Statement on Form SB-2, File No. 33-84622).

99.3* Non Employee Director Stock Option Plan (filed as Exhibit 99.3 to
Registration Statement on Form SB-2, File No. 33-84622).

99.4* Amended and Restated Non-Employee Director Stock Option Plan
(filed as Exhibit A to the Company's Proxy Statement for the
Annual Meeting held August 27, 1996).

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99.5* Summons and Complaint in the action "Mordechai Gurary v. Isaac
Winehouse, Isaac Winehouse d/b/a Wall & Broad Equities and Nu-Tech
Bio-Med, Inc." Case No. 97 Civ. 3803 (LBS) in the United States
District Court, Southern District of New York (filed as Exhibit 99
to Current Report on Form 8-K filed May 30, 1997).

99.6* Indenture, dated as of September 30, 1997, among PCL and First
Trust National Association "FTNA" (filed as Exhibit 99.1 to
Current Report on Form 8-K for October 20, 1997).

99.7* Security Agreement, dated as of September 30, 1997, by and among
PCL and FTNA (filed as Exhibit 99.2 to Current Report on Form 8-K
for October 20, 1997).

99.8* Stockholders Agreement, dated as of September 30, 1997, by and
among PCL, Nu-Tech and Oaktree (filed as Exhibit 99.3 to Current
Report on Form 8-K for October 20, 1997).

99.9* Pledge Agreement, dated as of September 30, 1997, between PCL and
FTNA (filed as Exhibit 99.4 to Current Report on Form 8-K for
October 20, 1997).

99.10* Employment Agreement, made as of September 30, 1997, by and among
PCL and J. Marvin Feigenbaum (filed as Exhibit 99.5 to Current
Report on Form 8-K for October 20, 1997).

99.11* Noncompetition Agreement, made as of September 30, 1997, by and
among PCL and Nu-Tech (filed as Exhibit 99.6 to Current Report on
Form 8-K for October 20, 1997).

99.12* Healthcare Receivables Purchase and Transfer Agreement, dated as
of September 30, 1997 (filed as Exhibit 99.7 to Current Report on
Form 8-K for October 20, 1997).

99.13* Summons and Complaint in the action AGorra Holding and Barras
Investment v. Nu-Tech Bio-Med, Inc. Case No. 98 Civ. 764 (JMP) in
the United States District Court, Southern District of New York
(filed as Exhibit 99 to Current Report on Form 8-K for February
23, 1998).

99.14* Stock Purchase Agreement, dated as of June 12, 1998 between the
Registrant and Oaktree, acting as agent on behalf of certain funds
and accounts (filed as Exhibit 99.1 to Current Report on Form 8-K
for June 22, 1998).

99.15* Amended and Restated Stockholders Agreement, dated as of June 12,
1998, by and among the Registrant, PCL, Oaktree and J. Marvin
Feigenbaum (filed as Exhibit 99.2 to Current Report on Form 8-K
for June 22, 1998).
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