<PAGE>   1

                       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, 1998


         [ ]   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
incorporation or organization)                              Identification No.)


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:

Class:  Common Stock, No Par Value               Outstanding at August 13, 1998,
                                                 8,880,000

Transitional Small Business Disclosure Format (check one)     YES [ ]     NO [X]




                                       1

<PAGE>   2

                           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, 1997 and June 30, 1998                      3

             Condensed Consolidated Statements of Operations
                    for the three and six months ended June 30,
                    1997 and 1998                                            5


             Condensed Consolidated Statements of Cash Flows
                    for the three and six months ended 
                    June 30, 1997 and 1998                                   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                                                  12

Item 6.  Exhibits and Reports on Form 8-K                                   12


SIGNATURES                                                                  13









                                       2

<PAGE>   3

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



<TABLE>
<CAPTION>
                                                       ASSETS
                                                                                                                 June 30,
                                                                                     December 31,                 1998,
                                                                                         1997                  (Unaudited)
                                                                                    -------------              -----------
<S>                                                                                <C>                       <C>    
Current Assets:
   Accounts receivable, net of allowance of $678,700
     and 1,011,942 in 1998 and 1997 respectively                                   $   2,058,647             $   2,518,717
   Prepaid expenses and other current assets                                             148,903                   141,834
                                                                                   -------------             -------------

             Total current assets                                                      2,207,550                 2,660,551
                                                                                   -------------             -------------

   Property and equipment                                                              9,974,924                 9,976,773
     Less:  accumulated depreciation and
       amortization                                                                   (4,574,173)               (5,235,994)
                                                                                   -------------             -------------

             Net property and equipment                                                5,400,751                 4,740,779
                                                                                   -------------             -------------

Other assets:
  Excess of purchase price over net assets acquired,
    net of accumulated amortization of $85,751 and
    $61,274 in 1997 and 1996 respectively                                                403,711                   391,471
Deposits                                                                                  54,941                    55,103
Marketable securities                                                                          -                 1,874,618
Other                                                                                     41,894                    29,847
                                                                                   -------------             -------------

         Total other assets                                                              500,546                 2,351,039
                                                                                   -------------             -------------


                                                                                   $   8,108,847             $    9,752,369
                                                                                   =============             ==============
</TABLE>





See Accompanying Notes.





                                       3

<PAGE>   4

                           NATIONAL DIAGNOSTICS, INC.
                                AND SUBSIDIARIES


<TABLE>
<CAPTION>
                                        LIABILITIES AND STOCKHOLDERS' EQUITY
                                                                                                                 June 30,
                                                                                      December 31,                1998,
                                                                                         1997                  (Unaudited)
                                                                                   ---------------             -----------
<S>                                                                                <C>                       <C>    
Current liabilities:
  Lines of credit                                                                  $   1,309,612             $   1,109,303
  Note due to related party                                                               62,500                   243,500
  Note payable, other                                                                                              152,156
  Current installments of long-term debt                                                 413,243                   388,000
  Current installments of obligations
   under capital leases                                                                3,820,933                 3,447,989
  Accounts payable                                                                     1,655,858                 2,144,508
  Accrued radiologist fees                                                               439,066                   284,040
  Accrued expenses other                                                                 696,814                   950,436
                                                                                   -------------             -------------

          Total current liabilities                                                    8,398,026                 8,719,932

Long-term liabilities:
  Long-term debt, excluding current installments                                         594,064                   364,139
  Obligations under capital leases,
   excluding current installments                                                                                  224,000
  Deferred lease payments                                                                175,136                   144,249
                                                                                   -------------             -------------

          Total liabilities                                                            9,167,226                 9,452,320
                                                                                   -------------             -------------

Commitments and contingencies

Stockholders' equity (deficit):
  Preferred stock, no par value, 1,000,000
   shares authorized, 500,000 shares issued
   and 368,815 shares outstanding in 1998                                                      -                 1,475,260
  Common stock, no par value, 9,000,000
   shares authorized, 3,093,430 and 8,880,000
   shares issued and outstanding in 1997 and 1998                                            779                     1,936
  Additional paid-in capital                                                           2,899,138                 3,422,720
  Retained earnings:
   Unappropriated (accumulated deficit)                                               (3,958,296)               (4,474,485)
   Accumulated other comprehensive income:
     net unrealized loss on marketable securities                                                                 (125,382)
                                                                                   -------------             -------------
       Net stockholders' equity (deficit)                                             (1,058,379)                  300,049
                                                                                   -------------             -------------

                                                                                   $   8,108,847             $   9,752,369
                                                                                   =============             =============
</TABLE>

See Accompanying Notes.




                                       4

<PAGE>   5


                           NATIONAL DIAGNOSTICS, INC.
                                AND SUBSIDIARIES


                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                Three months      Three months       Six months        Six months
                                                                    Ended             Ended            Ended             Ended
                                                                June 30, 1997     June 30, 1998    June 30, 1997     June 30, 1998
                                                                 (Unaudited)       (Unaudited)      (Unaudited)       (Unaudited)
                                                                -------------     -------------    -------------     -------------
<S>                                                             <C>               <C>              <C>               <C>      
Revenue, net                                                    $   2,612,347     $   2,320,991    $   5,189,235     $   5,118,294
                                                                -------------     -------------    -------------     -------------
Operating expenses:
  Direct operating expenses                                         1,497,388         1,394,089        2,895,834         2,625,208
  General and administrative                                        1,012,833         1,023,464        1,980,128         2,076,455
  Depreciation and amortization                                       372,842           342,130          738,927           686,109
                                                                -------------     -------------    -------------     -------------
           Total operating expenses                                 2,883,013         2,759,683        5,614,889         5,387,772
                                                                -------------     -------------    -------------     -------------
           Operating loss                                            (270,666)         (438,692)        (425,654)         (269,478)

Interest expense                                                      188,528           172,645          358,274           328,185
Other income                                                              299                10            5,781            81,474
                                                                -------------     -------------    -------------     -------------

Loss before income taxes                                             (458,895)         (611,327)        (778,147)         (516,189)

Income taxes                                                                -                 -                -                 -
                                                                -------------     -------------    -------------     -------------
          Net loss                                                   (458,895)         (611,327)        (778,147)         (516,189)
                                                                -------------     -------------    -------------     -------------
Dividends to preferred shareholders (intrinsic value of
   beneficial conversion features - see Note 2)                             -                 -                -       (25,473,612)
                                                                -------------     -------------    -------------     -------------

Net loss available to common shareholders                       $    (458,895)    $    (611,327)   $    (778,147)    $ (25,989,801)
                                                                =============     =============    =============     =============

Net (loss) per common share                                     $        (.17)    $        (.07)   $        (.29)    $       (4.04)
                                                                =============     =============    =============     =============

Weighted average number of common 
 shares outstanding                                                 2,714,341         8,880,000        2,671,696         6,432,943
                                                                =============     =============    =============     =============

Other comprehensive income (loss):
   Net loss                                                     $    (458,895)    $    (611,327)   $    (778,147)    $    (516,189)
   Other comprehensive income (loss), net of tax:
    Unrealized loss on securities                                           -          (125,382)               -          (125,382)
                                                                -------------     -------------    -------------     -------------
   Comprehensive income (loss)                                  $    (458,895)    $    (736,709)   $    (778,147)    $    (641,571)
                                                                =============     =============    =============     =============
</TABLE>


See Accompanying Notes.





                                       5


<PAGE>   6


                           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, 1997     June 30, 1998    June 30, 1997     June 30, 1998
                                                                 (Unaudited)       (Unaudited)      (Unaudited)       (Unaudited)
                                                                -------------     -------------    -------------     -------------
<S>                                                             <C>               <C>              <C>               <C>           
Cash flows from operating activities:
  Net (loss)                                                    $    (458,895)    $    (611,327)   $   (778,147)     $    (516,189)
  Adjustments to reconcile net (loss) to 
     net cash provided by operating activities:
       Income taxes
       Depreciation and amortization                                  372,842           342,130         738,927            686,109
       Provision for Bad Debts                                         80,872            77,347          71,353           (333,244)
       (Increase) decrease in accounts receivable                     (70,618)           14,531        (279,079)          (126,828)
       Loss on disposition of equipment                                     -                             2,770                  -
       Decrease in prepaid 
       expenses and other current assets                               16,093            56,898          82,985              7,069
       Increase in accounts payable                                   169,072           349,078         340,405            488,650
       Increase (decrease) in accrued radiologist fees                118,882           (34,788)         72,855           (155,026)
       Increase (decrease) in other accrued expenses                  (93,172)           75,061         (26,524)           253,622
       Decrease in deferred lease payments                            (14,251)          (15,443)        (29,695)           (30,887)
                                                                -------------     -------------    ------------      -------------

        Net cash provided by operating activities                     120,825           253,487         195,850            273,276
                                                                -------------     -------------    ------------      -------------

Cash flows provided (used) by investing activities:                         
  Purchases of property and equipment                                 (78,841)           (1,849)       (217,288)            (1,849)
  Increase in deposits                                                   (200)             (103)           (819)              (162)
  Increase in organization & start-up costs                            (3,403)                          (66,588)                 -
                                                                -------------     -------------    ------------      -------------
      Net cash used by investing activities                           (82,444)           (1,952)       (284,695)            (2,011)
                                                                -------------     -------------    ------------      -------------
Cash flows provided (used) by financing activities: 
  Increase in line of credit                                          178,100          (209,423)        230,836           (200,309)
  Proceeds from long-term borrowings                                  150,000                 -         150,000                  -
  Repayment of long-term borrowings                                   (18,637)          (19,802)        (38,250)           (34,382)
  Proceeds of borrowing from related parties                                -            65,000         125,000            181,000
  Repayment of borrowing from related parties                          (2,001)                -          (6,167)                 -
  Proceeds from other notes payable                                         -                           205,000                  -
  Repayment of other notes payable                                    (93,165)          (68,630)       (142,212)           (68,630)
  Principal payments under capital lease obligations                 (331,773)          (46,787)       (466,823)          (148,944)
                                                                -------------     -------------    ------------      -------------

      Net cash provided (used) by financing activities               (117,476)         (279,642)         57,384           (271,265)
                                                                -------------     -------------    ------------      -------------

Net decrease in cash                                                  (79,095)          (28,107)        (31,461)                 -

Cash at beginning of period                                           151,969            28,107         104,335                  -
                                                                -------------     -------------    ------------      -------------

Cash at end of period                                           $      72,874     $           -    $     72,874      $           -
                                                                =============     =============    ============      =============
</TABLE>
                                                                     (continued)


See Accompanying Notes.



                                      6


<PAGE>   7

                           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, 1997     June 30, 1998    June 30, 1997     June 30, 1998
                                                                 (Unaudited)       (Unaudited)      (Unaudited)       (Unaudited)
                                                                -------------     -------------    -------------     -------------
<S>                                                             <C>               <C>              <C>               <C>      
Supplemental disclosure of cash
  flow information - Interest paid                              $     251,330     $      86,416    $     402,287     $     175,936
                                                                =============     =============    =============     =============

      Stock issued as satisfaction for trade creditor debt      $     175,520     $                $     175,520     $            
                                                                =============     =============    =============     =============

      Stock issued for equipment acquisition                    $      20,000     $                $      20,000     $            
                                                                =============     =============    =============     =============

      Stock issued as satisfaction of related party debt        $     275,604     $                $     275,604     $            
                                                                =============     =============    =============     =============

      Stock issued in exchange for marketable securities        $   1,800,000     $                $   1,800,000     $   2,000,000
                                                                =============     =============    =============     =============

      Asset added under capital lease                           $      68,925     $                $     265,580     $            
                                                                =============     =============    =============     =============
</TABLE>



















See Accompanying Notes.




                                       7

<PAGE>   8

                           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, 1998 of
          $516,189 and at June 30, 1998 has a working capital deficiency of
          approximately $6,059,000 after reclassification of the Company's
          major long-term lease commitments to current (more fully discussed
          below). Prior to a private placement for $2,000,000 in securities on
          March 27, 1998, the Company had a deficiency of net assets of
          ($963,000). 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 1998 and its plan to improve future results.


          The Company attributes the loss in the second quarter primarily to
          losses sustained by its relatively new start up facilities, which
          experienced a loss in revenues in the second quarter. The Orange Park
          facility experienced a 44% decrease in net revenue (approximately
          $388,000) from that of the corresponding quarter in the previous year
          which resulted in a loss approximating $232,000 compared to a $61,000
          loss for the same quarter in 1997. The Riverside facility had a loss
          of $195,000 compared to a loss of $188,000 in the corresponding
          quarter of 1997. Due to losses experienced in the Company's
          relatively new start up facilities and the Company's expansion and
          growth the Company's working capital has decreased to the extent that
          the Company had fallen behind in meeting its lease, vendor and
          certain loan obligations. During the quarter, the Company has
          negotiated with many of its major vendors, lessors, and lending
          institutions terms, which will allow the Company to bring its
          obligations current by year-end. The Company is actively





                                       8

<PAGE>   9

                           NATIONAL DIAGNOSTICS, INC.
                                AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


          seeking financing alternatives for it accounts receivables as a
          result of its current asset lender imposing unfavorable loan
          restrictions on the Company as a result of the change in control of
          the Company. The Company expects to close on a refinancing package
          with its major lessor by the end of August, which will bring its
          lease obligations current. During this period the Company has not
          received a waiver of default from its lessors and therefore, has
          reclassified its long-term lease obligation to short-term.


          The Company is continuing with its merger plans with American
          Enterprise Solutions, Inc. ("AES") and hopes to complete the merger
          process by third quarter end. AES has loaned the Company
          approximately $181,000 through June 30, 1998. 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.

          At June 30, 1998, the market value of the Company's marketable
          securities decrease slightly to $1,874,618. The Company believes the
          decline to be temporary. The Company recorded an unrealized net loss
          on securities of $125,382.


(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 May 20,1998, Carnegie Capital, Ltd. ("Carnegie Capital") filed
          suit for foreclosure against the Company and its wholly owned
          partnership, Sundance Partners for alleged default of a second
          mortgage note held by Carnegie Capital. The debt outstanding at July
          31, 1998, approximates $150,000 plus interest approximating $14,000
          which the Company has provided for. The property involved is the
          fixed site facility occupied by the Company's Orange Park diagnostic
          subsidiary. The Company has filed a counter suit alleging certain
          improprieties on the part of Carnegie Capital.




                                       9

<PAGE>   10


                           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, 1998 were $2,320,991
compared to $2,612,347 for the same period in 1997, representing an 11%
decrease. The decrease is primarily attributable to the Company's two
relatively new start up facilities. Year to date revenues are down a modest 1%.

Direct operating expenses for the second quarter ended June 30, 1998 were
$1,394,089 compared to $1,497,388 for the same period in 1997, representing a
7% decrease. Direct costs as a percent of net revenue increased slightly by
2.8%, with a year to date decline of 4.6%. This over all decrease is the result
of the Company achieving lower medical supply costs.

General and administrative expenses for the second quarter ended June 30, 1998
were $1,023,464 compared to $1,012,833 for the same period in 1997,
representing a 1% increase. The increase is primarily attributable to an
increase in property taxes on the relatively new equipment for the Riverside
facility. Depreciation and amortization costs decreased to $342,000 from
$373,000 for the quarters ending June 30, 1998 and 1997, respectively. This is
primarily attributable to the Riverside start-up costs being fully amortized.
Interest expense has decreased to $173,000 from $189,000 for the quarters
ending June 30, 1998 and 1997, respectively. This is due primarily from the
amortization of Company debt.

The decrease in operating costs was not sufficient to offset the decrease in
revenues resulting in a quarter loss of $605,000 compared to $459,000 for the
same period in 1997. The relatively new Riverside facility contributed a
$195,000 loss compared to a $188,000 for the same period in 1997. The Orange
Park facility (its fixed site opened July of 1995) incurred a loss of $232,000
compared to a $61,000 loss for the quarter in 1997. The Brandon facility
experienced a profit of $8,000 compared to a $31,000 profit in 1997. The Sun
Point facility posted an $18,000 loss for the quarter compared to a loss of
$23,000 for the same period in 1997. The Company has not determined if the
decrease in revenues experienced in the 2nd quarter will continue through the
3rd quarter.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 1998, the Company has a working capital deficiency of approximately
$6,059,000 after the reclassification of its major long-term lease obligations
to current (more fully discussed below). Prior to a private placement for
$2,000,000 in marketable securities on March 27, 1998, the Company has a
deficiency of net assets of approximately $963,000, which collectively resulted
in the Company being in default of its major lease and loan agreements. The
Company is concluding discussions with its major lessor whereby the Company
expects to enter into a refinancing agreement, which will cure the defaults.
During this discussion period the Company has not received a waiver of default
and therefore, has reclassified its long-term lease obligation to short-term.
Additionally, the Company is in default of a second mortgage loan on one of its
fixed site facilities. The lender filed a suit of foreclosure on May 12, 1998.
The Company has filed a counter suit alleging certain improprieties on the part
of the lender (see the Company's Form 10-QSB for March 31, 1998).

The Company's marketable securities experienced a market decline and has valued
them at $1,874,618 at June 30, 1998. The Company believes this market decline
to be of a temporary nature.





                                      10

<PAGE>   11

The Company is continuing in the merger process with American Enterprise
Solutions, Inc. ("AES"). The Company hopes to consummate the merger in the
third quarter of 1998. During this period the Company has negotiated terms with
many of its vendors which will allow the Company to become current on its
obligation be year end. To this end AES has loaned to the Company on an as
needed basis $181,000 through June 30, 1998.

The Company has a $2,000,000 line of credit with Health Care Financial
Partners, Inc. ("HCFP"). The lender has a first security interest on all
accounts receivable. HCFP considers the Company to be in technical default of a
loan covenant, wherein HCFP has not approved the change of control that
resulted when AES acquired a majority interest in the Company. Subsequently,
HCFP has required acceleration of a term loan with payment of $4,000 per day
toward the balance of $152,000 remaining at June 30, 1998, and has increased
the interest rate to 15% from prime plus 2%. At August 12th, the term loan was
paid through October 1998, with a balance of $112,000. At June 30, 1998, due to
a change in liquidity factors, the Company became over borrowed on its line of
credit by approximately $65,000. The Company eliminated this overage by July
29, 1998. At August 12, 1998, the Company's loan balance on its line of credit
was $1,018,000, with zero availability. The Company is actively pursuing 
alternative financing.

In the quarter ending June 30, 1998, the company's cash remained unchanged.
Operations contributed $253,000. Financing utilized $2,000 and the remaining
cash was used for debt retirement.

The Company had intended to curtail its external expansion (new start-ups or
acquisitions) until the Company's current relatively new start-ups achieve
acceptable levels of operation, and/or the Company achieved additional capital
infusion. It is likely that external expansion will not take place until
subsequent to the merger; at which time the Company will evaluate the synergies
developing through merger and the recourses available to the Company then
develop a plan for further external expansion.

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 long term growth strategies will require additional funds. The
Company feels that the financial resources will be more easily attainable
subsequent to the merger. In the event that the Company proceeds with the
establishment of additional facilities, or encounters favorable acquisition
opportunities in the near future, the Company may incur, from time to time,
additional indebtedness and attempt to issue equity or debt securities in
public or private transactions. There is no assurance that the Company will be
successful in securing additional financing or capital through equity or debt
securities.

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 1997 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,
1997 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>   12

PART II.                       OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

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


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

        (a)    Exhibits

        10.54  Third Amendment to Merger Agreement by and between National
               Diagnostics, Inc. and American Enterprise Solutions, Inc.
               effective July 24, 1998.

        27.    Financial Data Schedule (for SEC use only).

        (b)    Reports on Form 8-K

               None











                                      12

<PAGE>   13

                                  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: August 19, 1998


        NATIONAL DIAGNOSTICS, INC.



        /s/ Curtis L. Alliston
        -------------------------------------
        Curtis L. Alliston
        President and Chief Operating Officer




        /s/ Dennis C. Hult
        -------------------------------------
        Dennis C. Hult
        Comptroller












                                      13

<PAGE>   14

                           NATIONAL DIAGNOSTICS, INC.

                          EXHIBIT INDEX TO FORM 10-QSB

<TABLE>
<CAPTION>
Exhibit
Number                                     Description of Document
-------                                    -----------------------
<S>        <C>
10.54      Third Amendment to Merger Agreement by and between National Diagnostics, Inc.
           and American Enterprise Solutions, Inc. effective July 24, 1998
</TABLE>

















                                      14