SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB


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


                  For the quarterly period ended June 30, 1999


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


                         Commission File Number: 0-24696


                           NATIONAL DIAGNOSTICS, INC.
             ------------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)



             FLORIDA                                     59-3248917
 -------------------------------            ------------------------------------
 (State or other jurisdiction of            (I.R.S. Employer Identification No.)
  incorporation or organization)


   755 WEST BRANDON BLVD., BRANDON, FLORIDA                       33511
   ----------------------------------------                     ----------
   (Address of Principal Executive Offices)                     (Zip Code)


   Registrant's Telephone Number, including area code:           (813) 882-6567

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


Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:

<TABLE>
<CAPTION>

<S>                                                           <C>                                <C>
Class:  Common Stock, No Par Value                            Outstanding at December 1, 1999,   8,880,000

Transitional Small Business Disclosure Format (check one)     YES [ ]        NO [X]
</TABLE>


                                  Page 1 of 14


<PAGE>

                           NATIONAL DIAGNOSTICS, INC.

                              INDEX TO FORM 10-QSB




                                                                          PAGE
                                                                         NUMBER
                                                                         ------

PART I.  FINANCIAL STATEMENTS


Item 1.  Financial Statements

              Condensed Consolidated Balance Sheets at
                     December 31, 1998 and June 30, 1999                    3

              Condensed Consolidated Statements of Operations
                     for the three and six months ended June 30,
                     1998 and 1999                                          5

              Condensed Consolidated Statements of Cash Flows for the
                     three and six months ended June 30, 1998 and 1999      6

              Notes to Condensed Consolidated Financial Statements          8

Item 2.    Management's Discussion and Analysis of Financial
                      Condition and Results of Operations                  10

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings                                                 13

Item 3.  Defaults on Senior Securities                                     13

Item 6.  Exhibits and Reports on Form 8-K                                  13

SIGNATURES                                                                 14

                                       2

<PAGE>

ITEM - 1.
                           NATIONAL DIAGNOSTICS, INC.
                                AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                     ASSETS
                                     ------
<TABLE>
<CAPTION>

                                                                         DECEMBER 31,        JUNE 30, 1999
                                                                            1998               (UNAUDITED)
                                                                         ------------        -------------
<S>                                                                      <C>                 <C>
Current Assets:
   Cash                                                                  $         --        $    103,578
   Related party receivable from net accounts receivable financing                 --           2,091,134
   Accounts receivable, net of allowance of $887,300                                                   --
   in 1998                                                                  1,958,813
   Due from related party                                                          --              32,090
   Prepaid expenses and other current assets                                   63,033              51,640
                                                                         ------------        ------------

             Total current assets                                           2,021,846           2,278,442
                                                                         ------------        ------------

   Property and equipment                                                  10,023,116           9,901,686
     Less:  accumulated depreciation and
       amortization                                                        (5,800,043)         (5,996,811)
                                                                          ------------        ------------

             Net property and equipment                                     4,223,073           3,904,875
                                                                         ------------        ------------

      Other assets:
        Excess of purchase price over net assets acquired,
            net of accumulated amortization of $96,360 and
            $106,860 in 1998 and 1999 respectively                            323,567             313,067
Other                                                                          85,507              52,276
                                                                         ------------        ------------

         Total other assets                                                   409,074             365,343
                                                                         ------------        ------------

                                                                         $  6,653,993        $  6,548,660
                                                                         ============        ============

</TABLE>


                                       3

See Accompanying Notes.

<PAGE>


                           NATIONAL DIAGNOSTICS, INC.
                                AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS

                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------
<TABLE>
<CAPTION>


                                                    DECEMBER 31,        JUNE 30, 1999
                                                       1998              (UNAUDITED)
                                                    ------------        -------------
<S>                                                <C>                 <C>
Current liabilities:
  Lines of credit                                  $  1,130,863        $  1,625,667
  Note payable                                        1,633,511           1,633,511
  Note due to related party                              87,500             128,450
  Current installments of long-term debt                686,085             620,507
  Current installments of obligations
    under capital leases                                799,319           2,932,613
  Deferred lease payments                                    --              82,472
  Accounts payable                                    1,863,185           1,915,653
  Accrued expenses other                              1,266,456           1,417,824
  Due to related party                                       --              44,709
                                                   ------------        ------------
          Total current liabilities                   7,466,919          10,401,406
Long-term liabilities:
 Obligations under capital leases,
   excluding current installments                     2,137,486                  --
 Deferred lease payments                                113,390                  --
                                                   ------------        ------------
          Total liabilities                           9,717,795          10,401,406
                                                   ------------        ------------

 Stockholders' equity (deficit):
 Preferred stock, no par value, 1,000,000
   shares authorized, 500,000 shares issued
   and 368,815 shares outstanding                     1,475,260           1,475,260
 Common stock, no par value, 9,000,000
   shares authorized, 8,880,000
   shares issued and outstanding                          1,936               1,936
 Additional paid-in  capital                          3,422,721           3,422,721
 Note receivable from stockholder                    (1,326,000)         (1,170,135)
 Retained earnings (accumulated deficit)             (6,637,689)         (7,582,528)
                                                   ------------       -------------
          Net stockholders' equity (deficit)         (3,063,772)         (3,852,746)
                                                   ------------       -------------
                                                   $  6,653,993           6,548,660
                                                   ============        ============
</TABLE>


                                       4

See Accompanying Notes.

<PAGE>

                           NATIONAL DIAGNOSTICS, INC.
                                AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

                                                      THREE MONTHS     THREE MONTS      SIX MONTHS         SIX MONTHS
                                                      ENDED            ENDED            ENDED              ENDED
                                                      JUNE 30, 1998    JUNE 30, 1999    JUNE 30, 1998      JUNE 30, 1999
                                                      (UNAUDITED)      (UNAUDITED)      (UNAUDITED)        (UNAUDITED)
                                                      -------------    -------------    -------------      -------------
<S>                                                   <C>               <C>               <C>               <C>
Revenue, net                                          $  2,320,991      $  1,517,648      $  5,118,294      $  3,726,386
                                                      ------------      ------------      ------------      ------------
Operating expenses:
  Direct operating expenses                              1,394,089           845,950         2,625,208         2,113,629
  General and administrative                             1,023,464           875,121         2,076,455         1,951,680
  Depreciation and amortization                            342,130           267,959           686,109           536,030
                                                      ------------      ------------      ------------      ------------

           Total operating expenses                      2,759,683         1,989,030         5,387,772         4,601,339
                                                      ------------      ------------      ------------      ------------

           Operating loss                                 (438,692)         (471,382)         (269,478)         (874,953)

Interest expense                                           172,645           186,984           328,185           388,134
Interest income                                                 --            36,705                --           102,688
Other income                                                    10           198,386            81,474           215,560
                                                      ------------      ------------      ------------      ------------

Loss before income taxes                                  (611,327)         (423,275)         (516,189)         (944,839)

Income taxes                                                    --                --                --                --
                                                      ------------      ------------      ------------      ------------

          Net loss                                        (611,327)         (423,275)         (516,189)         (944,839)
                                                      ------------      ------------      ------------      ------------

Dividends to preferred shareholders (intrinsic
  value of beneficial conversion
  features - see Note 2)                                        --                --       (25,473,612)               --
                                                      ------------      ------------      ------------      ------------

Net loss available to common shareholders             $   (615,327)     $   (423,275)     $(25,989,801)     $   (944,839)
                                                      ============      ============      ============      ============

Net (loss) per common share                           $       (.07)     $       (.05)     $      (4.04)     $       (.11)
                                                      ============      ============      ============      ============
Weighted average number of common
  shares outstanding                                     8,880,000         8,880,000         6,432,943         8,880,000
                                                      ============      ============      ============      ============

Other comprehensive income (loss):
   Net loss                                           $   (611,327)     $         --      $   (516,189)     $         --
   Other comprehensive income (loss), net of tax:
      Unrealized loss on securities                       (125,382)               --          (125,382)               --
                                                      ------------      ------------      ------------      ------------
   Comprehensive income (loss)                        $   (736,709)               --      $   (641,571)     $         --
                                                      ============      ============      ============      ============

</TABLE>

                                       5

See Accompanying Notes.

<PAGE>

                           NATIONAL DIAGNOSTICS, INC.
                                AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                             THREE MONTHS   THREE MONTHS  SIX MONTHS      SIX MONTHS
                                                             ENDED          ENDED         ENDED           ENDED
                                                             JUNE 30, 1998  JUNE 30, 1999 JUNE 30, 1998   JUNE 30, 1999
                                                             (UNAUDITED)    (UNAUDITED)   (UNAUDITED)     (UNAUDITED)
                                                             -------------  ------------- -------------   -------------
<S>                                                          <C>            <C>            <C>            <C>
Cash flows from operating activities:
  Net (loss)                                                 $(611,327)     $(423,275)     $(516,189)     $(944,839)
  Adjustments to reconcile net (loss) to
     net cash provided by operating activities:
       Depreciation and amortization                           342,130        268,009        686,109        536,080
       Provision for Bad Debts                                  77,347         31,138       (333,244)       120,700
       (Increase) decrease  in accounts receivable              14,531        171,826       (126,828)      (405,356)
       Decrease in related party receivable                         --        152,335             --        152,335
       Increase in due from related party                           --        (13,203)            --        (13,203)
       Decrease in prepaid expenses
           and other current assets                             56,898         98,464          7,069         30,653
       Increase (decrease) in accounts payable                 349,078       (122,667)       488,650         52,468
       Increase in other accrued expenses                       40,273         74,855         98,596        151,368
       Decrease in deferred lease payments                     (15,443)       (15,444)       (30,887)       (30,888)
                                                             ---------      ---------      ---------      ---------

        Net cash provided (used) by operating activities       253,487        222,038        273,276       (350,682)
                                                             ---------      ---------      ---------      ---------

Cash flows provided (used) by investing activities:

  Purchases of property and equipment                           (1,849)        (3,764)       ( 1,849)       (38,749)
  Disposal of property and equipment                                --        111,223             --        111,223
  Increase in deposits                                            (103)            --           (162)            --
                                                             ---------      ---------      ---------      ---------

      Net cash provided (used) by investing activities          (1,952)       107,459         (2,011)        72,474
                                                             ---------      ---------      ---------      ---------

Cash flows provided (used) by financing activities:
  Increase (decrease) in line of credit                       (209,423)      (164,653)      (200,309)       494,804
  Repayment of long-term borrowings                            (19,802)       (40,718)       (34,382)       (65,578)
  Proceeds of borrowing from related parties                    65,000         18,697        181,000         50,250
  Repayment of borrowing from related parties                       --             --             --         (9,300)
  Repayment of other notes payable                             (68,630)            --        (68,630)            --
  Proceeds from note receivable from stockholder                    --        155,865             --        155,865
  Principal payments under capital lease obligations           (46,787)      (195,110)      (148,944)      (244,255)
                                                             ---------      ---------      ---------      ---------
      Net cash provided (used) by financing activities        (279,642)      (225,919)      (271,265)       381,786
                                                             ---------      ---------      ---------      ---------
Net decrease in cash                                          (281,107)       103,578             --        103,578

Cash  at beginning of period                                    28,107             --             --             --
                                                             ---------      ---------      ---------      ---------

Cash at end of period                                        $      --      $ 103,578      $      --      $ 103,578
                                                             =========      =========      =========      =========
</TABLE>

 See Accompanying Notes.                                             (continued)

                                       6
<PAGE>

                           NATIONAL DIAGNOSTICS, INC.
                                AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                THREE MONTHS       THREE MONTHS     SIX MONTHS       SIX MONTHS
                                                                ENDED              ENDED            ENDED            ENDED
                                                                JUNE 30, 1998      JUNE 30, 1999    JUNE 30, 1998    JUNE 30, 1999
                                                                (UNAUDITED)        (UNAUDITED)      (UNAUDITED)      (UNAUDITED)
                                                                --------------     -------------    -------------    -------------
<S>                                                              <C>                 <C>            <C>               <C>
Supplemental disclosure of cash
  flow information - Interest paid                               $  86,416          $   85,825      $   175,936      $  205,697
                                                                 ============       ==========      ===========      ==========

      Preferred stock issued for non-cash item                   $                  $               $ 2,000,000      $
                                                                 ============       ==========      ===========      ==========

      Assets added under capital leases                          $                                  $                $  265,885
                                                                 ============       ==========      ===========      ==========
</TABLE>

The Company recognized $25,568,750 of preferred dividends for the first quarter
of 1998 based on the intrinsic value of beneficial conversion features (see
Note 2).

In February of 1999 the Company refinanced its line of credit approximating
$1,210,000 with a new line from AESI Funding, Inc. (a company wholly owned by
American Enterprise Solutions, Inc.). The Company transfers its accounts
receivables in exchange for the line of credit.

                                       7

See Accompanying Notes.


<PAGE>


                           NATIONAL DIAGNOSTICS, INC.
                                AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1)      SIGNIFICANT ACCOUNTING POLICIES

         The accounting policies followed by National Diagnostics, Inc., and
         Subsidiaries (the "Company") for quarterly financial reporting purposes
         are the same as those disclosed in the Company's annual financial
         statements. In the opinion of management, the accompanying condensed
         consolidated financial statements reflect all adjustments (which
         consist only of normal recurring adjustments) necessary for a fair
         presentation of the information presented.

         The quarterly condensed consolidated financial statements herein have
         been prepared by the Company without audit. Certain information and
         footnote disclosures included in financial statements prepared in
         accordance with generally accepted accounting principles have been
         condensed or omitted. Although the Company management believes the
         disclosures are adequate to make the information not misleading, it is
         suggested that these quarterly condensed consolidated financial
         statements be read in conjunction with the audited annual financial
         statements and footnotes thereto.

         In preparing financial statements in conformity with generally accepted
         accounting principles, management makes estimates and assumptions that
         affect the reported amounts of assets and liabilities and disclosures
         of contingent assets and liabilities at the date of the financial
         statements, as well as the reported amounts of revenues and expenses
         during the reporting period. Actual results could differ from those
         estimates.

         OPERATIONAL MATTERS AND LIQUIDITY

         The Company has a net loss for the quarter ending June 30, 1999 of
         $423,000 and at June 30, 1999 has a working capital deficiency of
         approximately $8,060,000 after reclassification of the Company's major
         long-term lease commitments to current (more fully discussed below) and
         at June 30, 1999, the Company had a deficiency of net assets of
         ($3,853,000). Collectively, these factors have resulted in the Company
         being in default of its major lease and loan agreements. In view of
         these matters, recoverability of a major portion of the recorded asset
         amounts shown in the accompanying balance sheet is dependent upon
         continued operation of the Company, which in turn is dependent upon
         either the Company's ability to succeed in its future operations and
         its ability to cure its lease and loan defaults. The financial
         statements do not include any adjustments relating to the
         recoverability and classification of recorded asset amounts or amounts
         and classification of liabilities that might be necessary should the
         Company be unable to continue in existence. The following commentary
         addresses the Company's operations for the second quarter of 1999 and
         its plan to improve future results.

         The Company continued to consolidate its Jacksonville operations in the
         second quarter of 1999 in response to continued losses from its Orange
         Park and Riverside facilities. The Company closed its Orange Park
         facility and downsized its staffing in Jacksonville. Equipment from the
         Jacksonville site was either sold or utilized elsewhere in the Company
         where the demand for services warrants. In March of 1999 the Company
         entered into a sales agreement for its Orange Park facility, which in
         July of 1999 failed to close due to a defect in the title (subsequently
         cured). In July, a mortgage holder foreclosed on the property due to
         payment arrearages. The Company estimates its loss from foreclosure to
         approximate $16,000. The Company, with the underwriting of AESI,
         entered into an agreement in April of 1999, which would allow the
         Company to cure its arrearages with its major lessor. The Company has
         fallen behind in its payments, and at December 7, 1999, has not
         obtained a waiver of default from the lessor. The long-term capital
         lease obligations have been reclassified to current due to acceleration
         clauses contained in the contract. The Company is discussing
         alternatives with the lender to bring the lease obligations current and
         satisfy a $1,633,000 term loan.

                                       8

<PAGE>


                           NATIONAL DIAGNOSTICS, INC.
                                AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

         The Company is continuing with its merger plans with American
         Enterprise Solutions, Inc. ("AES") and hopes to complete the merger
         process by year end. The Company believes with a successful conclusion
         to its financing arrangements, and an increase in revenues, its
         financial condition will strengthen; though no absolute assurances can
         be given.

(2)      PREFERRED STOCK TRANSACTION

         In March, 1997, the Securities and Exchange Commission (SEC) announced
         its position on accounting for the issuance of convertible preferred
         stock with a nondetachable conversion feature that is deemed "in the
         money" at the date of issue (a "beneficial conversion feature"). The
         beneficial conversion feature is initially recognized and measured by
         allocating a portion of the preferred stock proceeds equal to the
         intrinsic value of that feature to additional paid-in capital. This
         initial value is calculated at the date of issue as the difference of
         the conversion price and the quoted market price of the company's
         common stock into which the security is convertible, multiplied by the
         number of shares into which the security is convertible. The discount
         resulting from the allocation of proceeds in the beneficial convertible
         feature is treated as dividend and is recognized as a return to the
         preferred shareholder over the minimum period in which the preferred
         shareholders can realize that return (i.e. from the date the securities
         are issued to the date they are first convertible). The accounting for
         the beneficial conversion feature requires the use of an unadjusted
         quoted market price (i.e., no valuation discounts allowed) as the full
         value used in order to determine the intrinsic value dividend. The
         intrinsic value of the dividends to the preferred shareholder is
         deducted from the net income before calculating the net loss per common
         share. The intrinsic value of beneficial conversion features to
         preferred shareholders is $25,568,750. Upon merger with AES, the effect
         of the beneficial conversion features is reversed.

(3)      LEGAL ACTION

         On March 14, 1999, Carnegie Capital, Ltd. ("Carnegie Capital") was
         awarded a final judgement of foreclosure on the Company's Orange Park
         facility due to arrearages. Carnegie Capital agreed to stay its
         foreclosure action until June 11, 1999, pending a sale of the property
         by the Company. Due to a technical defect in the title, the sale did
         not take place and in July the property was foreclosed.

                                       9

<PAGE>

                           NATIONAL DIAGNOSTICS, INC.
                                AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ITEM- 2.

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

The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the condensed
consolidated financial statements and notes thereto included elsewhere herein.

RESULTS OF OPERATIONS

Net revenues for the second quarter ended June 30, 1999 were $1,518,000 compared
to $2,321,000 for the same period in 1998, representing an 35% decrease.
Approximately 70% of the $803,000 decline is attributable to the Orange Park
facility, which was closed in the 2nd quarter. The remaining diagnostic centers
realized a net decline in revenues of approximately $239,000, or 13% compared to
the same period in the preceding year.

Direct operating expenses for the second quarter ended June 30, 1999 were
$846,000 compared to $1,394,000 for the same period in 1998, representing a 39%
decrease. Excluding the effect of the Orange Park facility, direct costs
declined $328,000 or 32% from the same period in the preceding year. Direct
costs as a percent of net revenue declined 4% to 56% from the same period in the
corresponding year. The Company has not determined whether this decline will
continue since some of the Orange Park direct costs will transfer to other
Centers upon transfer of the medical equipment.

General and administrative expenses for the second quarter ended June 30, 1999
were $875,000 compared to $1,023,000 for the same period in 1998, representing a
14% decrease. Excluding the effect of the Orange Park facility, general and
administrative costs increased approximately 6% or $52,000, caused generally by
an overall increase in general and administrative costs. Depreciation and
amortization costs decreased to $268,000 from $342,000 for the quarters ending
June 30, 1999 and 1998, respectively. This is attributable to costs being fully
amortized. Interest expense has increased to $187,000 from $173,000 for the
quarters ending June 30, 1999 and 1998, respectively. This is due primarily from
the increase in the line of credit.

The decrease in expenses was not sufficient to offset the decrease in revenues
resulting in a quarter loss of $423,000 compared to $611,000 for the same period
in 1998. The Riverside facility contributed a $182,000 loss compared to a
$195,000 for the same period in 1998. The Orange Park facility (closed in the
second quarter) incurred a loss of $298,000 compared to a $232,000 loss for the
same quarter in 1998. The Brandon facility experienced a profit of $312,000
compared to a $8,000 profit in 1998. The Sun Point facility posted an $102,000
profit for the quarter compared to a loss of $18,000 for the same period in
1998.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 1999, the Company has a working capital deficiency of approximately
$8,060,000 after the reclassification of its major long-term lease obligations
to current (more fully discussed below) and a deficiency of net assets of
approximately $3,853,000, which collectively resulted in the Company being in
default of its major lease and loan agreements. The Company is discussing with
its major lessor alternatives to cure defaults of the Company's lease
obligations and an unpaid $1,633,000 term loan due June of 1999. During this
period the Company has not received a waiver of default and therefore, has
reclassified its long-term lease obligation to short-term. At June 30, 1999,
excluding the defaulted mortgages (see Note. 3 to the financial Statements), the
Company was in arrears approximately $11,000 with certain bank debt. Generally,
the banks have been cooperating with the Company during this delinquency period.
No waiver of default has been received and therefore the Company has
reclassified its long-term debt to current.

                                       10

<PAGE>

In an agreement entered into with AES Funding Corporation ("AES Funding", a
wholly owned subsidiary of American Enterprise solutions, Inc.) the Company
sells its accounts receivables to AES Funding in exchange for an amount equal to
the eligible receivables net of an allowance for doubtful accounts. AES Funding
funds its purchase of the receivables by a 5 million dollar loan agreement it
has with Healthcare Capital Resources (agent) and HCR Pool III Funding Corp.
(lender). Interest is at the rate of Prime plus 1.5%. The Company is not in
compliance with certain loan covenants. In this event, the lender has the right
to call the loan. The Company is not aware of the intent of the lender to
exercise this right and is currently striving to achieve compliance. At June 30,
1999, the Company has borrowed $1,626,000 on the line with no additional
availability.

In the quarter ending June 30, 1999, the Company's cash position increased to
$103,000. Cash from operating activities approximately $222,000 and investing
activities provided $107,000. Financing activities utilized approximately
$226,000 cash ($165,000 primarily paying down the line of credit) with
approximately $195,000 utilized for debt retirement.

The Company closed its Orange Park operations due to continued losses and either
integrated the Orange Park equipment into other operations or sold it (see Note
1 to the financial Statements).

In August of 1999, the Company opened a new 1,500 square foot fixed site
location ("Long Lake") in Tampa, florida, as a branch of the Brandon Diagnostic
Center, Ltd. A five (5) year lease with two (2) optional five (5) year terms was
entered into effective May 15, 1999. The net lease calls for monthly payments of
$1,250 plus sales tax. Medical modalities include general radiology,
mammography, ultrasound, and bone densitomitry studies. The equipment came from
the closed Orange Park facility. The location has two technicians and two
support persons.

The Company is continuing the merger process with American Enterprise.Com
("Aes", formerly American Enterprise Solutions, Inc.) which owns 100% of the
Company's outstanding Preferred Stock and 65% of the outstanding Common Stock.
AES is currently engaged in obtaining equity and debt financing. AES has
received an engagement agreement from a tier-one New York investment banking
firm to make a $25 million Private Placement; a $2 million commitment for a
Florida investment firm using convertible securities; and is currently
discussing a $15 million dollar debt refinancing arrangement for all subsidiary
companies.

As a result of its cost cutting measures, if the Company can increase revenues,
return to profitability, if costs can be contained, if the Company's vendors
continue work with the Company, and if the Company is successful in curing its
lease and loan defaults, the Company believes that its presently anticipated
short-term needs for operation, capital repayments and capital expenditures for
its current operations can be satisfied. The Company feels that its ability in
the short-term to improve its working capital is reasonably attainable. There is
no assurance that these short-term needs can be met.

The Company's financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. The Company's independent certified public
accountant's report on the Company's 1998 Financial Statements contained in the
Company's Annual Form 10-KSB included a going concern qualification. The
information contained in Note 2 to the Financial Statements included in the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1998 remains relevant related to the status of certain of the Company's
operational and funding matters and, accordingly, should be referred to in
conjunction with this Form 10-QSB.

                                       11

<PAGE>

YEAR 2000 ISSUES

         It is widely known that many computerized system and software programs
were made to recognize two-digit rather than four-digit numbers to represent
years. The "19" that precedes dates in this century was assumed. Consequently,
systems that use dates to perform calculations, comparisons, or sorting may
generate incorrect results when looking at the "00" in the year 2000.

         The Company has identified the areas wherein the Y2K problems could
affect the Company. The Company is near to completing its compliant plan.

         The following areas are believed to be impacted by the Y2K issues:
billing, accounting, payroll, and accounts receivable financing. Each is
addressed, outlining the Company's state of readiness, the risks to the company,
costs to address the issues, and the Company's contingency plans, if required.

         The Company performs radiological diagnostic procedures and bills
insurance providers and patients for its services. The Company's current billing
software is Y2K compliant. Also, the Company in early 1999 began contracting its
billing and collection processes with a Company that specializes in medical
billing. The billing company has indicated that they are Y2K complaint. The
Company has identified certain computers in its Diagnostic Centers which are not
Y2K complaint. Upgrades that will bring them into compliance are scheduled to be
completed by the 3rd week in December.

         The Company, effective January 1, 1999, began outsourcing its
accounting function. The service Company has indicated that they are compliant.

         The Company, effective January 1, 1999, began utilizing a human
resource leasing firm. The leasing firm is Y2K compliant; a certificate of
compliance is being processed by the employee leasing firm.

         The Company finances it's receivables with a lender specializing in
medical receivables. The reports required to process the loan transactions are
generated by the billing company mentioned above.

                                       12

<PAGE>

PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

           There has been no significant change in the Company's legal
proceedings.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

           The Company defaulted on a second mortgage note for its fixed site
Orange Park Facility. The property was foreclosed for arrearages of
approximately $126,000 in July of 1999.

           The Company is in default of its major lease commitments due to
arrearages. Total in default approximates $3,015,000 at June 30, 1999, with
arrearages approximating $669,000. The Company is in discussion with its major
lessor to resolve the arrearage.

           The Company is in default of a Term loan of approximately $1,634,000
due June 1, 1999, to its major lessor. The Company is in discussion with its
major lessor to resolve the default.

           The Company is in technical default of certain covenants with its
credit line and is working toward satisfying these defaults. The credit line
approximates $1,878,000 as of December 7, 1999.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
------
        (a)     EXHIBITS
                --------
        27      Financial Data Schedule (for SEC use only).

        (b)     REPORTS ON FORM 8-K
                -------------------

           None

                                       13

<PAGE>

                                   SIGNATURES

Pursuant to the requirements 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.


Date: December 9, 1999


    NATIONAL DIAGNOSTICS, INC.


    /s/ CURTIS L. ALLISON                   /s/ CHUCK BROES
    -------------------------------------   ----------------------------------
    Curtis L. Alliston                      Chuck Broes
    President and Chief Operating Officer   Chief Executive Officer




    /s/ DENNIS C. HULT                       /s/ ANTHONY F.  MANISCALCO
    ------------------------------------     ---------------------------------
    Dennis C. Hult                           Anthony F. Maniscalco
    Comptroller                              Executive Vice President, Finance
                                             American Enterprise Solutions, Inc.


                                       14
<PAGE>



                           NATIONAL DIAGNOSTICS, INC.

                          EXHIBIT INDEX TO FORM 10-QSB

EXHIBIT
NUMBER                            DESCRIPTION OF DOCUMENT
--------                          -----------------------

27                                Financial Data Schedule (for SEC use only)