<PAGE>

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                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                   ------------
                                    FORM 10-Q
                                   ------------

(Mark One)

    [X]  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934 for the quarterly period ended October 31, 1999

    [ ]  Transition Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934 for the Transition Period from         to
                                                         -------     -------

                         Commission file number 0-27568

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

       Delaware                                         65-0617076
(State of incorporation)                   (I.R.S. Employer Identification No.)

10 Dorrance Street, Suite 400, Providence, Rhode Island      02903
    (Address of principal executive offices)              (Zip Code)

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

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

         On December 7, 1999, the number of outstanding shares of the
registrant's Common Stock, par value $0.01 per share, was 32,003,429.


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

<PAGE>


                       INNOVATIVE CLINICAL SOLUTIONS, LTD.

                          QUARTERLY REPORT ON FORM 10-Q

                                      INDEX

<TABLE>
<CAPTION>

                                                                                                          PAGE
                                                                                                          ----
<S>                     <C>                                                                              <C>

PART I -                FINANCIAL INFORMATION

Item 1.                 Financial Statements

                        Consolidated Balance Sheets  October 31, 1999 (unaudited) and January 31,           3
                           1999


                        Consolidated Statements of Operations (unaudited)  Three and Nine Months            4
                           Ended October 31, 1999 and 1998


                        Consolidated Statements of Cash Flows (unaudited) - Nine Months Ended               5
                             October 31, 1999 and 1998


                        Notes to Consolidated Financial Statements (unaudited)  Three and Nine            6-13
                             Months Ended October 31, 1999 and 1998

Item 2.                 Management's Discussion and Analysis of Financial Condition and Results of       14-22
                           Operations



PART II -               OTHER INFORMATION

Item 6.                 Exhibits and Reports on Form 8-K                                                   23
</TABLE>


<PAGE>

 FINANCIAL INFORMATION

 ITEM 1.    FINANCIAL STATEMENTS

                       INNOVATIVE CLINICAL SOLUTIONS, LTD.
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                               OCTOBER 31,   JANUARY 31,
                                                                  1999          1999
                                                               -----------   -----------
                                                               (UNAUDITED)
<S>                                                               <C>          <C>
 ASSETS
 Current assets
     Cash and cash equivalents                                     $ 38,017     $ 10,137
     Receivables:
        Accounts receivable, net                                     27,994       15,276
        Income tax refund receivable                                      -       10,789
        Other receivables                                             7,082        6,760
        Notes receivable                                             12,819        5,060
     Prepaid expenses and other current assets                          878        1,260
     Assets held for sale                                            12,512      100,795
                                                                   --------     --------
           Total current assets                                      99,302      150,077

 Property, plant and equipment, net                                  11,352       11,024
 Notes receivable                                                     8,628        7,274
 Goodwill, net                                                       28,936       41,007
 Management service agreements, net                                   8,381       28,167
 Other assets (including advances to shareholder)                     2,328       15,302
                                                                   --------     --------
            Total assets                                          $ 158,927    $ 252,851
                                                                  ==========   =========

 LIABILITIES AND SHAREHOLDERS' EQUITY

 Current liabilities

     Current portion of debt and capital leases                    $ 16,055     $ 12,192
     Accounts payable                                                13,954       13,602
     Accrued compensation                                             2,088        1,475
     Accrued  and other current liabilities                          15,520       11,623
                                                                   --------     --------
           Total current liabilities                                 47,617       38,892

 Long-term debt less current maturities                               4,375        5,465
 Convertible subordinated debentures                                100,000      100,000
 Other long-term liabilities                                          2,063        1,191
 Minority interest                                                      673        1,403
                                                                   --------     --------
           Total liabilities                                        154,728      146,951

 Commitments and contingencies

 Shareholders' equity:
     Common stock, par value $.01, 40,000 shares authorized,
      33,387 and 33,344 shares issued at October 31, 1999
      and January 31, 1999 respectively, 32,003 and 32,916
      shares outstanding at October 31, 1999 and January 31,
      1999, respectively                                                320          329
     Treasury stock                                                  (2,674)      (1,202)
     Additional paid in capital                                     224,782      224,715
     Accumulated deficit                                           (218,229)    (117,942)
                                                                   --------     --------
           Total shareholders' equity                                 4,199      105,900
                                                                   --------     --------
           Total liabilities and shareholders' equity             $ 158,927    $ 252,851
                                                                  ==========   =========
</TABLE>

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

                                       -3-
<PAGE>


                       INNOVATIVE CLINICAL SOLUTIONS, LTD.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
                      (In Thousands, Except Per Share Data)

<TABLE>
<CAPTION>

                                                     THREE MONTHS ENDED    NINE MONTHS ENDED
                                                         OCTOBER 31,          OCTOBER 31,
                                                     ------------------    -----------------
                                                      1999       1998       1999       1998
                                                    --------- ---------   --------- --------
<S>                                                  <C>        <C>        <C>       <C>
 Net revenues from services                          $ 28,429   $ 42,563   $ 108,953 $ 141,140
 Net revenues from management service agreements       15,895     24,812      45,500    79,746
 Net revenues from real estate services                    47        571         434     8,616
                                                     --------   --------   --------- ---------
                 Total revenue                         44,371     67,946     154,887   229,502
                                                     --------   --------   --------- ---------

 Operating costs and administrative expenses:

         Salaries, wages and benefits                  13,195     23,029      48,847    69,873
         Professional fees                              4,689      3,943      14,111    11,549
         Supplies                                       9,930     15,016      34,706    44,047
         Utilities                                      1,240      1,412       3,586     4,125
         Depreciation and amortization                  2,287      3,827       9,099    10,971
         Rent                                           3,222      5,369      11,921    15,037
         Provision for bad debts                          463      2,393       2,127     4,282
         Provision for writedown of notes receivable        -      2,674           -     2,674
         Gain on sale of assets                             -          7           -    (5,415)
         Nonrecurring expenses                              -          -      15,825     5,305
         Other - primarily capitation expense          17,182     22,612      58,406    66,502
                                                     --------   --------   --------- ---------
          Total operating costs and administrative
                expenses                               52,208     80,282     198,628   228,950
                                                     --------   --------   --------- ---------
 Interest expense, net                                  2,207      1,608       6,925     5,254
 Income from investment in affiliates                     (58)      (154)        (58)     (588)
                                                     --------   --------   --------- ---------
                                                        2,149      1,454       6,867     4,666
                                                     --------   --------   --------- ---------
 Loss before provision for income taxes
      and extraordinary item                           (9,986)   (13,790)    (50,608)   (4,114)
 Income tax expense (benefit)                             (53)    (4,671)         47    (1,499)
                                                     --------   --------   --------- ---------

 Net loss before extraordinary item                    (9,933)    (9,119)    (50,655)   (2,615)
 Extraordinary item                                         -    (51,552)    (49,632)  (51,552)
                                                     --------   --------   --------- ---------
 Net loss                                            $ (9,933) $ (60,671) $ (100,287) $(54,167)
                                                     ========  =========  ==========  =========
 Net loss per share - basic
   Loss before extraordinary item                     $ (0.28)   $ (0.27)    $ (1.41)  $ (0.08)
   Extraordinary item                                 $     -    $ (1.54)    $ (1.38)  $ (1.55)
   Net loss                                           $ (0.28)   $ (1.81)    $ (2.79)  $ (1.63)
 Net loss per share - diluted
   Loss before extraordinary item                     $ (0.28)   $ (0.27)    $ (1.41)  $ (0.08)
   Extraordinary item                                 $     -    $ (1.54)    $ (1.38)  $ (1.55)
   Net loss                                           $ (0.28)   $ (1.81)    $ (2.79)  $ (1.63)

 Weighted average shares outstanding - basic           35,583     33,548      35,929    33,245
                                                       =======    =======     =======   ======
 Weighted average shares outstanding - diluted         35,583     33,548      35,929    33,245
                                                       =======    =======     =======   ======
</TABLE>


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



                                       -4-
<PAGE>


                       INNOVATIVE CLINICAL SOLUTIONS, LTD.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                    NINE MONTHS ENDED
                                                                      OCTOBER 31,
                                                                    -----------------
                                                                     1999       1998
                                                                    -------- ---------
<S>                                                               <C>           <C>
 Cash flows from operating activities:
         Net  loss                                                $ (100,287)   $ (54,167)
         Noncash items included in net income:
                 Depreciation and amortization                         9,099       10,971
                 Extraordinary item                                   49,632       49,444
                 Gain on sale of assets                                    -       (5,415)
                 Nonrecurring charges                                 14,204        4,401
                 Amortization of debt issuance costs                   1,193          796
                 Writedown of notes receivable                             -        2,674
                 Other                                                   (59)         667
         Changes in receivables                                       (4,785)      (3,074)
         Changes in accounts payable and accrued liabilities             795       (5,403)
         Changes in other assets                                      12,492       (1,724)
                                                                     -------       -------
             Net cash used by operating activities                   (17,716)         (830)
                                                                     -------       -------
 Cash flows from investing activities:

         Capital expenditures                                         (4,593)      (4,556)
         Sale of assets                                               51,171        5,125
         Notes receivable, net                                         1,344       (2,028)
         Other                                                             -         (109)
         Acquisitions, net of cash acquired                           (1,404)     (10,958)
                                                                     -------       -------
             Net cash provided (used) by investing activities         46,518      (12,526)
                                                                     -------       -------
 Cash flows from financing activities:

         Advances to shareholder                                           -       (3,116)
         Proceeds from issuance of common stock                            -          130
         Proceeds from issuance of debt                               21,709            -
         Offering costs and other                                         28         (215)
         Repayment of debt                                           (21,188)      (8,245)
         Purchase of treasury stock                                   (1,471)        (497)
                                                                     -------       -------
             Net cash used by financing activities                    (922)       (11,943)
                                                                     -------       -------
 Increase (decrease) in cash and cash equivalents                 $   27,880    $ (25,299)
                                                                  ==========    ==========
 Cash and cash equivalents, beginning of period                   $   10,137    $  49,536
                                                                  ==========    ==========
 Cash and cash equivalents, end of period                         $   38,017    $  24,237
                                                                  ==========    ==========
</TABLE>


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



                                       -5-
<PAGE>


                       INNOVATIVE CLINICAL SOLUTIONS, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        THREE AND NINE MONTHS ENDED OCTOBER 31, 1999 AND 1998 (UNAUDITED)

1.   ORGANIZATION AND BASIS OF PRESENTATION

     The accompanying unaudited interim consolidated financial statements
include the accounts of Innovative Clinical Solutions, Ltd. ("the Company" or
"ICSL") (formerly PhyMatrix Corp.). These interim consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles and the requirements of the Securities and Exchange Commission.
Accordingly, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is management's opinion that the
accompanying interim financial statements reflect all adjustments (which are
normal and recurring) necessary for a fair presentation of the results for the
interim periods. These interim financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the year ended January 31, 1999.
Operating results for the three and nine months ended October 31, 1999 are not
necessarily indicative of results that may be expected for the year.

2.   SIGNIFICANT EVENTS

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

     During August 1998, the Board approved, consistent with achieving its
stated restructuring goal, its plan to divest and exit the Company's
physician practice management ("PPM") business and certain of its ancillary
services businesses, including diagnostic imaging, lithotripsy and radiation
therapy. Subsequent to August 1998, the Company also decided to divest its
home health business and exit its infusion therapy business. During second
quarter ended July 31, 1999, the Company also decided to terminate an
additional physician practice management agreement, divest its investments in
a surgery center and a network of physicians, and sell its real estate
service operations. Net loss for the nine months ended October 31, 1998 and
net loss for the nine months ended October 31, 1999 includes an extraordinary
item of $51.6 million (net of tax benefit of $8.4 million) and $49.6 million
(net of tax of $0), respectively, which is primarily a non-cash charge
related to these divestitures. In accordance with APB 16, the Company is
required to record these charges as an extraordinary item since impairment
losses are being recognized for divestitures and disposals expected to be
completed within two years subsequent to a pooling of interests (the pooling
of interests with Clinical Studies, Ltd. ("CSL") was effective October 15,
1997). Based on fair market value estimates, which have primarily been
derived from purchase agreements, letters of intent, letters of interest and
discussions with prospective buyers, the Company currently expects to realize
net proceeds of approximately $12.5 million (subsequent to October 31, 1999
approximately $7.7 million was realized, prior to the payment of retained
liabilities of approximately $3.0 million) from the sale of the remaining
businesses identified to be divested or disposed and has recorded this amount
as an asset held for sale on the balance sheet at October 31, 1999.

     As part of the Company's repositioning, management continues to explore
options to align the Company's capital structure with its current operations
and growth strategy. On December 1, 1999, the Company retained Donaldson,
Lufkin & Jenrette Securities Corporation as its financial advisors to assist
the Company in evaluating a possible capital restructuring as well as
industry consolidation opportunities.

                                       -6-
<PAGE>


                       INNOVATIVE CLINICAL SOLUTIONS, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        THREE AND NINE MONTHS ENDED OCTOBER 31, 1999 AND 1998 (UNAUDITED)


3.   SUPPLEMENTAL CASH FLOW INFORMATION

     During the nine months ended October 31, 1998 the Company acquired the
assets and/or stock, entered into management and employment agreements,
and/or assumed certain liabilities of various ancillary service companies,
networks and organizations and sold certain assets. During the nine months
ended October 31, 1999 and 1998, the Company also made contingent payments
and issued shares of stock which had been committed to be issued in
conjunction with acquisitions. During the nine months ended October 31, 1999,
the Company terminated several physician management and employment
agreements, and sold certain ancillary service companies. The transactions
had the following non-cash impact on the balance sheets of the Company as of
the indicated dates:

<TABLE>
<CAPTION>

                                                               October 31,
                                                     ---------------------------------
                                                          1999              1998
                                                     ---------------    --------------
<S>                                                      <C>                 <C>
      Current Assets                                     $ (80,392)         $ 73,465
      Property, plant and equipment                             75           (33,418)
      Intangibles                                          (26,873)          (86,138)
      Other noncurrent assets                                 (485)            7,958
      Current liabilities                                   (5,722)           (7,063)
      Noncurrent liabilities                                 1,512              (196)
      Debt                                                  (1,649)          (10,784)
      Equity                                                49,562           (27,216)
</TABLE>

     During the nine months ended October 31, 1998, the Company sold real estate
and a radiation therapy center. These sales resulted in gains of $4.5 million
and $0.9 million, respectively.

4.   ASSETS HELD FOR SALE

     During the year ended January 31, 1999, the Board approved, consistent
with its stated restructuring goal, its plan to divest and exit the Company's
PPM business and certain of its ancillary services businesses, including
diagnostic imaging, lithotripsy, radiation therapy, home health and infusion
therapy. During the nine months ended, October 31, 1999, the Company also
decided to terminate an additional physician practice management agreement,
divest its investments in a surgery center and a network of physicians, and
sell its real estate service operations. During the nine months ended October
31, 1999, the Company exited its infusion therapy business, divested seven
physician practices, terminated its relationship with several employed
physicians and sold eight radiation therapy centers, its diagnostic imaging
division, its remaining lithotripsy business, its real estate service
operations, and its investment in a diagnostic imaging center. Subsequent to
October 31, 1999, the Company divested two physician practices. Based on fair
market value estimates, which estimates were primarily derived from purchase
agreements, letters of intent, letters of interest or discussions with
prospective buyers, the Company currently expects to realize net proceeds of
approximately $12.5 million (subsequent to October 31, 1999 approximately
$7.7 million was realized, prior to the payment of retained liabilities of
$3.0 million) from the sale of the remaining businesses identified to be
divested or disposed and has recorded this amount as an asset held for sale
on the balance sheet at October 31, 1999.

5.   NONRECURRING CHARGE

     The $15.8 million charge during the nine months ended October 31, 1999
(which was recorded during the second quarter) is comprised of a $14.1
million impairment charge for a management service organization and a
physician practice management agreement and $1.7 million primarily
representing additional severance costs in conjunction with the sale of
assets and the repositioning of the Company. During the nine months ended
October 31, 1998, the Company terminated several of its physician management
and

                                       -7-
<PAGE>


                       INNOVATIVE CLINICAL SOLUTIONS, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        THREE AND NINE MONTHS ENDED OCTOBER 31, 1999 AND 1998 (UNAUDITED)


employment agreements, which resulted in a charge of approximately $5.3
million during the second quarter. The charge is composed primarily of the
write-off of the remaining intangible assets as well as severance and legal
costs.

6.   REVOLVING LINE OF CREDIT

     During March 1999, the Company entered into a $30.0 million revolving
line of credit, which has a three-year term and availability, based upon
eligible accounts receivable. The line of credit bears interest at prime plus
1.0% and fees are 0.0875%. Approximately $9.2 million of proceeds from the
new line of credit were used to repay the previous line of credit, and
approximately $2.0 million were used as cash collateral for a $2.0 million
letter of credit. The line of credit is secured by the assets of the Company,
limits the ability of the Company to incur certain indebtedness and make
certain dividend payments and requires the Company to comply with other
customary covenants. Proceeds from asset sales must be used to repay the line
of credit to the extent the sold assets included eligible accounts
receivable. As of October 31, 1999, there was $14.3 million outstanding under
the line of credit, which is included in the current portion of debt and
capital leases.

7.   TREASURY STOCK

     The Board of Directors of the Company authorized a share repurchase plan
pursuant to which the Company may repurchase up to $15.0 million of its
Common Stock from time to time on the open market at prevailing market
prices. Through October 31, 1999, the Company has repurchased a total of
approximately 1.3 million shares at a net purchase price of approximately
$2.2 million.

                                       -8-
<PAGE>


                       INNOVATIVE CLINICAL SOLUTIONS, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        THREE AND NINE MONTHS ENDED OCTOBER 31, 1999 AND 1998 (UNAUDITED)


8.   NET INCOME PER SHARE

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

<TABLE>
<CAPTION>

                                                                          (Loss)                                      Per Share
(in thousands except per share data)                                      Income                  Shares                 Amount
                                                                          ------                  ------                 ------
<S>                                                                        <C>                   <C>                     <C>
THREE MONTHS ENDED OCTOBER 31, 1999

Basic loss per share

      Loss available to common stockholders                                $(9,933)              35,583                  $(0.28)
      Extraordinary item                                                         -                    -                       -
                                                                           -------               ------                  ------

      Net loss available to common stockholders                             (9,933)              35,583                   (0.28)

Effect of dilutive securities                                                    -                    -                       -
                                                                           -------               ------                  ------

Diluted loss per share                                                     $(9,933)              35,583                  $(0.28)
                                                                           =======               ======                  ======

THREE MONTHS ENDED OCTOBER 31, 1998

      Loss available to common stockholders                                $(9,119)              33,548                  $(0.27)
      Extraordinary item                                                   (51,552)                   -                   (1.54)
                                                                           -------               ------                  ------
      Net loss available to common stockholders                            (60,671)              33,548                   (1.81)

Effect of dilutive securities                                                    -                    -                       -
                                                                           -------               ------                  ------
Diluted loss per share                                                    $(60,671)              33,548                  $(1.81)
                                                                          ========               ======                  ======

NINE MONTHS ENDED OCTOBER 31, 1999

      Loss available to common stockholders                               $(50,655)              35,929                  $(1.41)
      Extraordinary item                                                   (49,632)                   -                   (1.38)
                                                                           -------               ------                  ------
      Net loss available to common stockholders                           (100,287)              35,929                   (2.79)

Effect of dilutive securities                                                    -                    -                       -
                                                                           -------               ------                  ------

Diluted loss per share                                                   $(100,287)              35,929                  $(2.79)
                                                                          ========               ======                   =====

NINE MONTHS ENDED OCTOBER 31, 1998

      Loss available to common stockholders                                $(2,615)              33,245                  $(0.08)
      Extraordinary item                                                   (51,552)                   -                   (1.55)
                                                                           -------               ------                  ------
      Net loss available to common stockholders                            (54,167)              33,245                   (1.63)

Effect of dilutive securities                                                    -                    -                       -
                                                                           -------               ------                  ------

Diluted loss per share                                                    $(54,167)              33,245                  $(1.63)
                                                                          ========               ======                  ======
</TABLE>


                                       -9-
<PAGE>

                       INNOVATIVE CLINICAL SOLUTIONS, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        THREE AND NINE MONTHS ENDED OCTOBER 31, 1999 AND 1998 (UNAUDITED)


     For the three and nine months ended October 31, 1999 and 1998, no
additional securities or related adjustments to income were made for the common
stock equivalents related to the Debentures since the effect would be
antidilutive.

9.   RATIO OF EARNINGS TO FIXED CHARGES

     For the three and nine months ended October 31, 1999, the ratio of earnings
to fixed charges was less than 1.0. For purposes of computing the ratio of
earnings to fixed charges, earnings represent income (loss) from operations
before minority interest and income taxes, plus fixed charges. Earnings also
includes the equity in less-than-fifty-percent-owned investments only to the
extent of distributions. Fixed charges include interest, amortization of
financing costs and the portion of operating rental expense which management
believes is representative of the interest component of the rental expense. For
the three and nine months ended October 31, 1999, for purposes of computing the
ratio of earnings to fixed charges, the Company's earnings were inadequate to
cover fixed charges by $10.0 million and $50.6 million, respectively.

10.  ACCOUNTING CHANGES AND PRONOUNCEMENTS

     In 1997, the Emerging Issues Task Force of the Financial Accounting
Standards Board issued EITF 97-2 concerning the consolidation of physician
practice revenues. PPMs are required to consolidate financial information of a
physician where the PPM acquires a "controlling financial interest" in the
practice through the execution of a contractual management agreement even though
the PPM does not own a controlling equity interest in the physician practice.
EITF 97-2 outlines six requirements for establishing a controlling financial
interest. EITF-92 was effective for the Company's financial statements for the
year ended January 31, 1999. Adoption of this statement reduced previously
reported revenues for the three and nine months ended October 31, 1998 by $15.2
million and $49.9 million, respectively. During August 1998, the Company
announced its plan to divest and exit the PPM business. The majority of these
assets, which have not yet been divested, are recorded as assets held for sale
at October 31, 1999.

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

     FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued in June 1998. It establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. As issued, Statement 133 was effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999. In August 1999, the
FASB issued Statement No. 137, which amended FASB Statement No. 133, and
deferred its effective date to all fiscal quarters of all fiscal years beginning
after June 15, 2000. The adoption of this statement is not expected to have a
material impact on the Company's results of operations, financial position or
cash flows or to produce any major changes in current disclosures.

11.      RELATED PARTY TRANSACTIONS

     The Company provided construction management, development marketing and
consulting services to entities principally owned by Abraham D. Gosman
(former Chairman of the Board and former Chief Executive Officer) in
connection with the development and operation by such entities of several
healthcare related facilities (including a medical office building and a
retirement community). During the years ended January 31, 1999 and 1998, the
Company recorded revenues in the amount of $1.4 million and $10.5 million,
respectively, related to such services. The Company provides these services
to such affiliated parties on terms no more or less favorable to the Company
than those provided to unaffiliated parties. As of October 31, 1999, the
Company advanced $10.9 million, which is due in July 2000, to a company
principally owned by Mr. Gosman relating to the development of a healthcare
facility. This $10.9 million is included in short term notes receivable on
the balance sheet at October 31, 1999. The advance accrues at the prime rate
and is guaranteed by Mr. Gosman. To secure his obligation under the
guarantee, Mr. Gosman has pledged the stock of another company principally
owned by him and (subject to prior pledges) 8.2 million shares of Company
Common Stock ("ICSL Pledged Shares"). Until the note has been repaid in full,
the Company has the right to vote the ISCL Pledged Shares, subject to the
rights of any prior pledges. During November 1999, the Company agreed to
waive claims for interest on the note through the maturity date in
consideration of waivers of claims for unpaid rent with respect to certain
leases and the termination or amendment of these leases.

                                       -10-
<PAGE>


                       INNOVATIVE CLINICAL SOLUTIONS, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        THREE AND NINE MONTHS ENDED OCTOBER 31, 1999 AND 1998 (UNAUDITED)


12.  LEGAL PROCEEDINGS

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

     In conjunction with a physician practice management agreement with a
physician practice in Florida, the Company has filed suit against the practice
to enforce the guarantees executed in connection with the management agreement.
The practice has filed a counterclaim. The Company intends to prosecute and
defend the case.

     In connection with a joint venture partnership (the "Joint Venture")
between the Company and Tenet Healthsystem Hospitals, Inc. ("Tenet"), to own
and operate an ambulatory surgical center and diagnostic radiology facility
in Florida, Tenet has filed suit against the Company on September 23, 1999 in
the Palm Beach, Florida circuit court, for (1) recission and (2) damages of
approximately $3.0 million for breach of contract, breach of fiduciary duty,
and breach of good faith and fair dealing. In a related matter, PBG Medical
Mall MOB 1 Properties (the "Mall"), which is principally owned by Abraham
Gosman, filed suit against Tenet (as tenant) and the Joint Venture (as
subtenant) on September 8, 1999 in the Palm Beach County, Florida county
court, for eviction. The Mall also filed suit against Tenet and the Company
on September 24, 1999, in the Palm Beach County, Florida circuit court, for
damages. The Tenet suit has been stayed while the parties attempt to
negotiate an unwind of the Joint Venture. In addition, the parties have
reached a tentative settlement on the Mall suit, pending final resolution of
the Tenet suit. If the parties are unable to reach agreement, the Company
intends to file counterclaims against both Tenet and the Mall, and defend
both cases.

                                       -11-
<PAGE>


                       INNOVATIVE CLINICAL SOLUTIONS, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        THREE AND NINE MONTHS ENDED OCTOBER 31, 1999 AND 1998 (UNAUDITED)


13.  SEGMENT INFORMATION

     For the fiscal year ending January 31, 1999, the Company adopted SFAS
131. The prior year's segment information has been restated to present the
Company's reportable segments. The Company has determined that its reportable
segments are those that are based on its current method of internal
reporting. The reportable segments are: provider network management, site
management organization and assets held for sale. The accounting policies of
the segments are the same as those described in the "Summary of Significant
Accounting Policies" in the Company's Annual Report on Form 10-K. There are
no intersegment revenues and the Company does not allocate corporate overhead
to its segments. The tables below present revenue, pretax income (loss) and
net assets of each reportable segment for the indicated periods:

<TABLE>
<CAPTION>

                                          Provider           Site               Assets
                                           Network        Management           Held for    Reconciling     Consolidated
                                       Management (2)    Organization            Sale       Items (1)         Totals
                                       --------------    ------------            ----       ---------         ------
<S>                                    <C>               <C>                 <C>           <C>              <C>
Quarter ended October 31, 1999

Net Revenues                            $ 12,876          $  9,200            $ 22,134      $     161        $ 44,371
Loss before income taxes
and extraordinary item                       (91)           (2,589)             (2,199)        (5,107)         (9,986)

Quarter ended October 31, 1998

Net Revenues                            $ 16,252          $  7,492            $ 43,392      $     810        $ 67,946
Loss before income taxes
and extraordinary item                    (2,237)           (3,694)             (3,803)        (4,056)        (13,790)

Nine months ended October 31, 1999

Net Revenues                            $ 43,603          $ 26,827            $ 84,236      $     221        $154,887
Loss before income taxes
and extraordinary item                   (15,724)           (8,034)             (9,006)       (17,844)        (50,608)
Net Assets                                16,648            22,547              12,512        (47,508)          4,199

Nine months ended October 31, 1998

Net Revenues                            $ 53,785          $ 26,649            $147,958      $   1,109        $229,502
Income (loss) before income taxes
and extraordinary item                       573            (3,109)             12,053        (13,631)         (4,114)
Net Assets                                85,768            22,436             123,220        (48,611)        182,813
</TABLE>



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

(2) Provider Network Management loss for the nine months ending October 31,
1999 includes an $11.2 million nonrecurring charge.

                                       -12-
<PAGE>


                       INNOVATIVE CLINICAL SOLUTIONS, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        THREE AND NINE MONTHS ENDED OCTOBER 31, 1999 AND 1998 (UNAUDITED)


14.  SUBSEQUENT EVENTS

     Subsequent to October 31, 1999, the Company divested of two physician
practices. Proceeds from these asset sales were approximately $7.7 million,
prior to the payment of retained liabilities of approximately $3.0 million.

     As part of the Company's repositioning, management continues to explore
options to align the Company's capital structure with its current operations
and growth strategy. On December 1, 1999, the Company retained Donaldson,
Lufkin & Jenrette Securities Corporation as its financial advisors to assist
the Company in evaluating a possible capital restructuring as well as
industry consolidation opportunities.

     During December 1999, the Company received notification from Nasdaq
that the Company's Common Stock has been delisted from the Nasdaq National
Market and is now eligible to trade on the OTC Bulletin Board.

15.  RECLASSIFICATIONS

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



                                       -13-
<PAGE>


                       INNOVATIVE CLINICAL SOLUTIONS, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        THREE AND NINE MONTHS ENDED OCTOBER 31, 1999 AND 1998 (UNAUDITED)


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

INTRODUCTION

     ICSL is repositioning itself as a company that provides diverse services
supporting the needs of the pharmaceutical and managed care industries. The
Company is focusing its operations on two integrated business lines:
pharmaceutical services, including investigative site management, clinical
and outcomes research and disease management, as well as multi and
single-specialty provider network management. Historically, the Company has
been an integrated medical management company that provides medical
management services to the medical community, certain ancillary medical
services to patients and medical real estate development and consulting
services to related and unrelated third parties. In August 1998, the Company
announced that it planned to change this business model. The Company is in
the process of terminating its management of individual and group physician
practices and divesting itself of related assets, and selling and divesting
itself of its ancillary medical service businesses, such as diagnostic
imaging, radiation therapy, lithotripsy services, home healthcare and
infusion therapy. In conjunction with the change in the business model, the
Company also significantly downsized and then, during the three months ended
October 31, 1999, sold the operation of its real estate services. The Company
currently estimates that by the end of its current fiscal year it will have
exited the majority of its physician practice management ("PPM") and
ancillary medical service businesses.

REPOSITIONING

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

     During the year ended January 31, 1999, the Board approved, consistent
with achieving its stated restructuring goal, its plan to divest and exit the
Company's PPM business and certain of its ancillary services businesses,
including diagnostic imaging, lithotripsy, radiation therapy, home health and
infusion therapy. During the nine months ended October 31, 1999, the Company
also decided to terminate an additional physician practice management
agreement and divest its investments in a surgery center and a network of
physicians, and sell its real estate service operations. The revenue and
pretax loss of these businesses which have been identified to be divested or
disposed for the nine months ended October 31, 1999 were $84.2 million and
$9.0 million, respectively. Net loss for the nine months ended October 31,
1999 included an extraordinary item of $49.6 million (net of tax of $0),
which is primarily a non-cash charge related to these divestitures. Based on
fair market value estimates, which have primarily been derived from purchase
agreements, letters of intent, letters of interest and discussions with
prospective buyers, the Company currently expects to realize net proceeds of
approximately $12.5 million (subsequent to October 31, 1999 approximately
$7.7 million was realized, prior to the payment of retained liabilities of
approximately $3.0 million) from the sale of the remaining businesses
identified to be divested or disposed and has recorded this amount as an
asset held for sale on the balance sheet at October 31, 1999.

ACCOUNTING TREATMENT

     The terms of the Company's relationships with its remaining affiliated
physicians are set forth in various asset and stock purchase agreements,
management services agreements and employment and consulting agreements. Through
the asset and/or stock purchase agreement, the Company acquired the equipment,
furniture, fixtures, supplies and, in certain instances, service agreements, of
a physician practice at the fair market value of the assets.



                                       -14-
<PAGE>


The accounts receivable typically were purchased at the net realizable value.
The purchase price of the practice generally consisted of cash, notes and/or
Common Stock of the Company and the assumption of certain debt, leases and other
contracts necessary for the operation of the practice. The management services
or employment agreements delineate the responsibilities and obligations of each
party.

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

     Net revenues from management services agreements include the revenues
generated by the physician practices net of payments to physicians. The Company,
in most cases, is responsible and at risk for the operating costs of the
physician practices. Expenses include the reimbursement of all medical practice
operating costs as required under the various management agreements. For
providing services under management services agreements entered into prior to
April 30, 1996, physicians generally received a fixed percentage of net revenue
of the practice. "Net revenues" is defined as all revenue computed on an accrual
basis generated by or on behalf of the practice after taking into account
certain contractual adjustments or allowances. The revenue is generated from
professional medical services furnished to patients by physicians or other
clinicians under physician supervision. In several of the practices, the Company
has guaranteed that the net revenues of the practice will not decrease below the
net revenues that existed immediately prior to the agreement with the Company.
Under most management services agreements entered into after April 30, 1996, the
physicians receive a portion of the operating income of the practice which
amounts vary depending on the profitability of the practice. In 1997, the
Emerging Issues Task Force of the Financial Accounting Standards Board issued
EITF 97-2 concerning the consolidation of physician practice revenues. PPMs are
required to consolidate financial information of a physician where the PPM
acquires a "controlling financial interest" in the practice through the
execution of a contractual management agreement even though the PPM does not own
a controlling equity interest in the physician practice. EITF 97-2 outlines six
requirements for establishing a controlling financial interest. The Company
adopted EITF 97-2 in the fourth quarter of its fiscal year ended January 31,
1999. Adoption of this statement reduced previously reported revenues and
expenses for the three and nine months ended October 31, 1998 by $15.2
million and $49.9 million respectively. During August 1998, the Company
announced its plan to divest and exit the PPM business. The Company is
currently working to complete these divestitures and the majority of these
assets are recorded as assets held for sale at October 31, 1999.

                                       -15-
<PAGE>


RESULTS OF OPERATIONS

     The following table shows the percentage of net revenue represented by
various expense categories reflected in the Consolidated Statements of
Operations. The information that follows should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto included elsewhere
herein.

<TABLE>
<CAPTION>

                                                         Three Months Ended             Nine Months Ended
                                                             October 31,                   October 31,
                                                        ----------------------        ----------------------
                                                           1999       1998               1999       1998
                                                           ----       ----               ----       ----

<S>                                                         <C>        <C>                <C>        <C>
Net Revenues                                                100.0%     100.0%             100.0%     100.0%

Salaries, wages and benefits                                 29.7%      33.9%              31.5%      30.4%
Supplies                                                     22.4%      22.1%              22.4%      19.2%
Depreciation and amortization                                 5.2%       5.6%               5.9%       4.8%
Rent expense                                                  7.3%       7.9%               7.7%       6.6%
Provision for bad debts                                       1.0%       3.5%               1.4%       1.9%
Gain on sale of assets                                        0.0%       0.0%               0.0%       2.4%
Non-recurring expenses                                        0.0%       0.0%              10.2%       2.3%
Provision for writedown of notes receivable                   0.0%       3.9%               0.0%       1.2%
Other (primarily capitation expense)                         52.1%      41.2%              49.1%      35.8%
                                                        ----------- ----------        ----------- ----------
   Total operating costs and administrative expenses        117.7%     118.2%             128.2%      99.8%

Interest Expense, net                                         5.0%       2.4%               4.5%       2.3%
(Income) from investment in affiliate                       (0.1%)      (0.2%)              0.0%      (0.3%)
                                                        ----------- ----------        ----------- ----------

Loss before taxes and extraordinary item                   (22.5%)    (20.3%)             (32.7%)     (1.8%)

Income tax expense (benefit)                                (0.1%)     (6.9%)               0.0%      (0.7%)
                                                        ----------- ----------        ----------- ----------

Loss before extraordinary item                              (22.4%)    (13.4%)            (32.7%)     (1.1%)
Extraordinary item, net of tax                                0.0%      75.9%              32.0%      22.5%
                                                        ----------- ----------        ----------- ----------

Net loss                                                    (22.4%)     (89.3%)           (64.7%)    (23.6%)
                                                             =====       ====              =====      ====
</TABLE>

THE THREE AND NINE MONTHS ENDED OCTOBER 31, 1999 COMPARED TO THE THREE AND NINE
MONTHS ENDED OCTOBER 31, 1998

     The following discussion reviews the results of operations for the three
and nine months ended October 31, 1999 (the "2000 Quarter" and "2000 Period"),
respectively, compared to the three and nine months ended October 31, 1998 (the
"1999 Quarter" and "1999 Period"), respectively.

REVENUES

     During the 2000 Quarter and the 2000 Period the Company derived revenues
primarily from the following segments: provider network management, site
management organizations and assets held for sale. Revenues from provider
network management are derived from management services to management service
organizations and administrative services to health plans which include
reviewing, processing and paying claims and subcontracting with specialty
care physicians to provide covered services. Revenues from site management
organizations are derived primarily from services provided to pharmaceutical
companies for clinical trials. Revenues from assets held for sale are derived
primarily from providing the following services: physician practice
management, diagnostic imaging, radiation therapy, home healthcare, infusion
therapy, real estate services and lithotripsy.

                                       -16-
<PAGE>


     Net revenues were $44.4 million and $154.9 million during the 2000
Quarter and 2000 Period, respectively. Of this amount, $12.9 million and
$43.6 million or 29.0% and 28.2% of such revenues was attributable to
provider network management; $9.2 million and $26.8 million or 20.7% and
17.3% was related to site management organizations; and $22.1 million and
$84.2 million or 49.9% and 54.4% was attributable to assets held for sale.

     Net revenues were $67.9 million and $229.5 million during the 1999
Quarter and 1999 Period, respectively. Of this amount, $16.3 million and
$53.8 million or 23.9% and 23.4% of such revenues was attributable to
provider network management; $7.5 million and $26.6 million or 11.0% and
11.6% was related to site management organizations; and $43.4 million and
$148.0 million or 63.8% and 64.5% was attributable to assets held for sale.

     The Company's net revenues from provider network management services
decreased by $3.4 million from $16.3 million for the 1999 Quarter to $12.9
million for the 2000 Quarter and by $10.2 million from $53.8 million for the
1999 Period to $43.6 million for the 2000 Period. The decrease is primarily
attributable to a reduction in capitation revenue from one contract managed
by the Company. The Company's net revenues from site management organizations
increased by $1.7 million from $7.5 million for the 1999 Quarter to $9.2
million for the 2000 Quarter and by $0.2 million from $26.6 million for the
1999 Period to $26.8 million for the 2000 Period. The Company's net revenues
from assets held for sale decreased by $21.3 million from $43.4 million for
the 1999 Quarter to $22.1 million for the 2000 Quarter and by $63.8 million
from $148.0 million for the 1999 Period to $84.2 million for the 2000 Period
primarily attributable to the asset divestitures including the sale of the
real estate service operations. The Company is currently negotiating the
termination of a management services agreement to manage a network of over
100 physicians. The ultimate resolution of the negotiations and collection of
any receivables due from the beginning of the year is uncertain; therefore,
the Company has not recorded revenue from the agreement for the 2000 Quarter
and the 2000 Period. For the 1999 Quarter and the 1999 Period, the Company
recorded $4.6 million and $14.7 million of net revenues (which are included
in revenues from the assets held for sale segment) from this agreement.

EXPENSES

     The Company's salaries, wages and benefits decreased by $9.8 million from
$23.0 million or 33.9% of net revenues during the 1999 Quarter to $13.2 million
or 29.7% of net revenues during the 2000 Quarter and by $21.1 million from $69.9
million or 30.4% of net revenues during the 1999 Period to $48.8 million or
31.5% of net revenues during the 2000 Period. The decrease in dollars is
primarily attributable to the reductions in personnel in conjunction with the
asset divestitures.

     The Company's supplies expense was $15.0 million or 22.1% of net
revenues during the 1999 Quarter and $9.9 million or 22.4% of net revenues
during the 2000 Quarter and was $44.0 million or 19.2% of net revenues during
the 1999 Period and $34.7 million or 22.4% of net revenues during the 2000
Period. The increase in supplies expense as a percentage of net revenues was
primarily due to the relative increase, due to other asset divestitures, in
the size of the Company's infusion and cancer service businesses, which are
more supply intensive and for which the cost of pharmaceutical supplies is
higher.

     The Company's rent expense decreased by $2.2 million from $5.4 million
or 7.9% of net revenues during the 1999 Quarter to $3.2 million or 7.3% of
net revenues during the 2000 Quarter and by $3.1 million from $15.0 million
or 6.6% of net revenues during the 1999 Period to $11.9 million or 7.7% of
net revenues during the 2000 Period. The decrease in dollars is primarily a
result of the asset divestitures.

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

     The Company's nonrecurring charge of $5.3 million during the second
quarter of the 1999 Period represents the charge resulting from the
termination of several physician management and employment agreements. The
Company's nonrecurring

                                       17
<PAGE>


charge of $15.8 million during the second quarter of the 2000 Period
represents a $14.1 million impairment charge for a physician practice
management agreement and management service organization and the balance
primarily represents additional severance costs in conjunction with the sale
of assets and the repositioning of the Company.

       The Company's provision for the loss on notes receivable of $2.7 million
during the 1999 Quarter and the 1999 Period represents the writedown of several
notes receivable that were collateralized by shares of Common Stock of the
company to their net realizable value.

     The Company's other expenses decreased by $4.9 million from $28.0
million or 41.2% of net revenues during the 1999 Quarter to $23.1 million or
52.1% of net revenues during the 2000 Quarter and by $6.1 million from $82.2
million or 35.8% of net revenues during the 1999 Period to $76.1 million or
49.1% of net revenues during the 2000 Period. The increase in other expenses
as a percentage of net revenues is primarily due to an increase in capitation
revenues related to the Company's provider network management services as a
percentage of total revenues.

     The Company's interest expense increased by $0.6 million from $1.6
million or 2.4% of net revenues during the 1999 Quarter to $2.2 million or
5.0% of net revenues during the 2000 Quarter and by $1.6 million from $5.3
million or 2.3% of net revenues during the 1999 Period to $6.9 million or
4.5% of net revenues during the 2000 Period. The acceleration of the
amortization of debt issuance costs related to the line of credit which was
repaid during the 2000 Period resulted in increased interest expense of $0.3
million during the 2000 Period.

     The Company's extraordinary item of $49.6 million (net of tax of $0)
during the 2000 Period and $51.6 (net of tax benefit of $8.4 million) during
the 1999 Period represents the charge resulting from divestitures or
disposals that had occurred subsequent to August 1998 as well as the
write-down of the assets of the businesses being held for sale at October 31,
1999,and 1998, respectively. The carrying value of the assets of these
businesses was written down to their estimated net realizable value (less
costs to sell).

     The Company's loss prior to income taxes and extraordinary item during
the 2000 Quarter and 2000 Period was $10.0 million and $50.6 million compared
to loss prior to income taxes and extraordinary item during the 1999 Quarter
and 1999 Period $13.8 million and $4.1 million. The deterioration of income
during the 2000 Quarter and 2000 Period is primarily due to several factors
including: (i) the sale of the real estate service operations during the
three months ended October 31, 1999, which was done in connection with the
repositioning of the Company, and in part due to the resignation of Bruce A.
Rendina as Chief Executive Officer of the Company's real estate services (the
real estate service operations, which are included in the assets held for
sale segment generated a pretax loss of $0.1 million and $1.9 million during
the 2000 Quarter and the 2000 Period compared to pretax income of $0.6
million and $6.7 million during the 1999 Quarter and the 1999 Period), (ii)
the deterioration of the operating results of certain of the businesses
divested or to be divested (the assets held for sale segment, including the
real estate service operation discussed above, generated a total pretax loss
of $2.2 million and $9.0 million during the 2000 Quarter and the 2000 Period
compared to pretax loss of $3.8 million and pretax income of $12.1 million
during the 1999 Quarter and the 1999 Period), and (iii) the Company is in the
process of repositioning and building infrastructure to expand and integrate
its two primary business lines: provider network management and
pharmaceutical services (site management organizations) (combined these
businesses generated a pretax loss, prior to nonrecurring charges, of $2.7
million and $12.5 million during the 2000 Quarter and the 2000 Period
compared to pretax loss of $5.9 million and $2.5 million during the 1999
Quarter and the 1999 Period).

                                       -18-
<PAGE>

REAL ESTATE SERVICES

     Prior to the repositioning, the Company had historically derived
significant revenues from real estate services. During August 1998, Bruce A.
Rendina resigned as CEO and President of DASCO (the Company's real estate
services subsidiary) and Vice Chairman of the Company. During September 1998,
Mr. Rendina entered into a Business Agreement (the "Business Agreement") with
the Company. The Business Agreement was entered into in settlement of certain
claims by both the Company and Mr. Rendina relating to Mr. Rendina's future
competition with the Company. The Business Agreement provides that the Company
has the exclusive development rights to 27 separate projects located in 12
separate states. In addition, the Company and Mr. Rendina agreed to share fees
with respect to five asset conversion projects and six medical facility
development projects whereby Mr. Rendina is entitled to the first 25% of the
projected development fees received on any shared fee project and the Company
and Mr. Rendina evenly split the remaining portion of the fees for such
projects. The Business Agreement also permits Mr. Rendina and his affiliates to
pursue independently the development of six separate projects in five states.
Finally, the Company and Mr. Rendina have provided mutual releases of each other
with respect to any event related to the business and employment relationships
of the parties.

     During the year ended January 31, 1999, the Company recorded a goodwill
impairment writedown of $9.1 million which eliminated the remaining goodwill
of the real estate services subsidiary. The asset of goodwill was determined
to have been impaired because of the Company's decision to significantly
downsize the real estate services. During the three months ended October 31,
1999, the Company sold the remaining real estate service operations.

LIQUIDITY AND CAPITAL RESOURCES

     Cash used by operating activities was $17.7 million during the 2000
Period. Cash used by operating activities was $0.8 million during the 1999
Period. At October 31, 1999, the Company's principal sources of liquidity
consisted of working capital of $51.7 million which included $38.0 million in
cash, and $12.5 million in assets held for sale (see below for further
discussion of assets held for sale) offset by the current portion of debt and
capital leases. The Company also had $47.6 million of current liabilities,
including approximately $16.1 million of indebtedness which is comprised
primarily of $14.3 million outstanding under the line of credit (see below
for further discussion of the line of credit).

     Cash provided by investing activities was $46.5 million during the 2000
Period and primarily represented the net cash received from the sale of
assets of $51.2 million, offset by the funds required by the Company for
capital expenditures of $4.6 million and additional purchase price of $1.4
million. Cash used by investing activities was $12.5 million during the 1999
Period. This primarily represents the total funds required by the Company for
acquisitions and capital expenditures of $15.5 million and advances under
notes receivable of $2.0 million offset by the cash received from the sale of
assets of $5.1 million.

     Cash used by financing activities was $0.9 million during the 2000
Period and primarily represented proceeds from the issuance of debt of $21.7
million, offset by the repayment of debt of $21.2 million and the purchase of
treasury stock of $1.5 million. Cash used by financing activities was $11.9
million during the 1999 Period and primarily represented the repayment of
debt of $8.2 million and advances to shareholder of $3.1 million.

     In conjunction with various acquisitions that have been completed, the
Company may be required to make various contingent payments in the event that
the acquired companies attain predetermined financial targets during
established periods of time following the acquisitions. If all of the
applicable financial targets were satisfied, for the periods covered, the
Company would be required to pay an aggregate of approximately $13.4 million
over the next four years, of which $5.0 million represents a minimum option
price for an additional 29% ownership interest in a network which may be
required to be purchased by the Company any time between November 1999 and
November 2001. The payments, if

                                       19
<PAGE>


required, are payable in cash and/or Common Stock of the Company. In
addition, in conjunction with the acquisition of a clinical research center,
an ownership interest in a network and in conjunction with a joint venture
entered into by the Company during the year ended January 31, 1998, the
Company may be required to make additional contingent payments based on
revenue and profitability measures over the next five years.

     During July 1997, the Company entered into a management services agreement
to manage a network of over 100 physicians in New York. In connection with this
transaction, the Company may expend, in certain circumstances, up to $40.0
million (of which none has been expended as of October 31, 1999) to be utilized
for the expansion of the network. The Company is currently in the process of
terminating this management agreement which, if terminated, is expected to
result in the elimination of any additional expenditures to expand this network.

     During February 1998, the Company completed the formation of an MSO in New
York, one-third of which it owns. The owners of the remaining two-thirds of the
MSO have the right to require the Company to purchase their interests at the
option price, which is based upon earnings, during years six and seven.

     In conjunction with certain of its acquisitions the Company has agreed to
make payments in shares of Common Stock of the Company at a predetermined future
date. The number of shares to be issued are generally determined based upon the
average price of the Company's Common Stock during the five business days prior
to the date of issuance. As of October 31, 1999, the Company had committed to
issue $1.1 million of Common Stock of the Company using the methodology
discussed above. This amount is included in other long-term liabilities on the
balance sheet. The Company also guarantees a loan in the amount of $3.5 million
which matures in March 2000.

     In conjunction with the repositioning (as described earlier in
"Significant Events"), during the year ended January 31, 1999, the Board of
Directors approved its plan to divest and exit the Company's PPM business and
certain of its ancillary services businesses including diagnostic imaging,
lithotripsy, radiation therapy, home health and infusion therapy. During the
nine months ended October 31, 1999, the Company also decided to terminate an
additional physician practice management agreement, divest its investments in
a surgery center and a network of physicians and sell its real estate service
operations. The revenue and pretax loss of these businesses which have been
identified to be divested or disposed for the nine months ended October 31,
1999 were $84.2 million and $9.0 million. Based on fair market value
estimates, which have primarily been derived from purchase agreements,
letters of intent, letters of interest and discussions with prospective
buyers, the net realizable value of the remaining assets identified to be
divested or disposed was $12.5 million at October 31, 1999 (subsequent to
October 31, 1999 approximately $7.7 million was realized, prior to the
payment of retained liabilities of $3.0 million) which has been reflected as
an asset held for sale on the balance sheet at October 31, 1999.

     In conjunction with a physician practice management agreement with a
physician practice in Florida, the Company has filed suit against the practice
to enforce the guarantees executed in connection with the management agreement.
The practice has filed a counterclaim. The Company intends to prosecute and
defend the case.

     The Board of Directors of the Company authorized a share repurchase plan
pursuant to which the Company may repurchase up to $15.0 million of its
Common Stock from time to time on the open market at prevailing market
prices. As of October 31, 1999 the Company has repurchased approximately 1.3
million shares at a net purchase price of approximately $2.2 million.

     The Company's Common Stock was delisted from the Nasdaq National Market
as of the close of business on December 8, 1999. The Company's Common Stock
is now trading on the OTC Bulletin Board. As a result, current information
regarding bid and asked prices for the common stock may be less readily
available to brokers, dealers and/or their customers. As a result of reduced
availability of current information, there may be a reduction in the
liquidity of the market for the Common Stock which, in turn, could result in
decreased demand for the Common Stock, a decrease in the stock price and an
increase in the spread between the bid and asked prices for the Common Stock.

     The development and implementation of the Company's management
information system will require ongoing capital expenditures. The Company has
estimated the total costs to be incurred for completion of its Year 2000
strategy is approximately $3.0 million, which includes costs for new systems
and system upgrades which would have been incurred regardless of the need to
remedy the Year 2000 issue. The Company expects that its working capital of
$51.7 million at October 31, 1999, which includes cash of $38.0 million and
the expected cash to be generated from the assets held for sale, will be
adequate to satisfy the Company's cash requirements for the next 12 months.
The Company's capital needs over the next several years may exceed capital
generated from operations.

     During March 1999, the Company obtained a new $30.0 million revolving line
of credit which has a three-year term and availability based upon eligible
accounts receivable. Approximately $9.2 million of proceeds from the new line of
credit were used to repay the previous line of credit. The new line of credit is
secured by the assets of the Company, limits the ability of the Company to incur
certain indebtedness and make certain dividend payments,



                                       20
<PAGE>


and requires the Company to comply with customary covenants. Proceeds from
asset sales must be used to repay the line of credit to the extent the sold
assets included eligible accounts receivable. At October 31, 1999,
approximately $14.3 million was outstanding under the line.

RISKS ASSOCIATED WITH YEAR 2000

     The Year 2000 date change issue is believed to affect virtually all
companies and organizations. If not corrected, many computer applications could
fail or create erroneous results by or at the year 2000. The Company recognizes
the need to ensure its operations will not be adversely impacted by the
inability of the Company's information systems to process data having dates on
or after January 1, 2000 (the "Year 2000" issue). The Company has completed its
full assessment of the Year 2000 issue.

     The Company has a committee, led by its Chief Information Officer,
charged with building, developing and implementing the information systems
required for its pharmaceutical and provider network management services
business lines and to assess and remediate the effect of the Year 2000 issue
on the Company's operations. The Company has contacted its clients, principal
suppliers and other vendors to assess whether their Year 2000 issues, if any,
will affect the Company. There is no guarantee that the systems of other
companies on which the Company relies will be corrected in a timely manner or
that the failure to correct such systems will not have a material adverse
effect on the Company's systems. Many year 2000 deficiencies have already
been identified and addressed through planned systems and infrastructure
evolution, replacement or elimination. The continuing program described below
is designed to permit the Company to identify and address all remaining Year
2000 systems and deficiencies well in advance of the millenium change.

     The programs consist of three phases, which are, (i) conducting an
inventory of all systems and deficiencies that may be affected by the Year
2000 issue as well as the assessment and categorization of all the
inventoried systems and deficiencies by level of priority, (ii) reflecting
their potential impact on business continuation, and (iii) bringing each
system to full compliance as well as general contingency planning in the
event that any critical systems cannot be made fully compliant by January 1,
2000. All phases of the program are substantially complete.

     The Company's information technology systems ("IT Systems") can be broadly
categorized into the following areas: (i) clinical studies information systems,
(ii) managed care information systems, (iii) other administrative information
systems including financial accounting, payroll, human resource and other
desktop systems and applications and (iv) information systems of business held
for sale.

     The Company recognizes that investment in information systems is
integral to its operations. The majority of the Company's technology
expenditures are related to the development and implementation of both
clinical information and managed care information systems that are Year 2000
compliant. The clinical information systems, currently implemented in the
Clinical Studies locations, and the managed care information systems are
fully operational. The Company believes that the Year 2000 issue-related
remediation costs incurred through the 2000 Quarter have not been material to
its results of operations. The Company has estimated the total costs to be
incurred for completion of its Year 2000 strategy is approximately $3.0
million, which includes costs for new systems and system upgrades which would
have been incurred regardless of the need to remedy the Year 2000 issue.

     The Company's financial accounting system is fully Year 2000 compliant
at a total cost of approximately $30,000. The Company expects to complete
within the next month the disposition of the majority of the remaining assets
held for sale. The Company has completed all three phases of the program
discussed above for the remaining assets held for sale in the event that
there are assets which are not sold or divested prior to December 31, 1999.
The Company believes that it has adequately identified and addressed any Year
2000 issues that may arise related to the assets currently included in assets
held for sale which are not sold by December 31, 1999.

     Risks involved in the managed care applications include the risk that
failures in the Company's managed care systems causing a backlog of claims or
failures at one or more of the Company's payors will cause a delay in the
payment of claims and capitation payments, either of which could negatively
affect cash flows of the Company. The Company has developed contingency plans
for failures at the Company's electronic trading partners.

                                       -21-
<PAGE>


The nature of the Year 2000 issue, and the lack of historical experience in
addressing it, however, could result in unforeseen risks.

     The Company bills and collects for medical services from numerous third
party payors in operating its business. These third parties include fiscal
intermediaries that process claims and make payments on behalf of the
Medicare program as well as insurance companies, HMO's and other private
payors. As part of the Company's Year 2000 strategy, a comprehensive survey
has been completed of all significant payors, principal clients, suppliers,
and other vendors to assess their timeline for Year 2000 compliance and the
impact to the Company of any potential interruptions in services or payments
and the Company has been assured that such third party systems are or will be
Year 2000 compliant.

     The foregoing assessment is based on information currently available to the
Company. The Company can provide no assurance that applications and equipment
that the Company believes to be Year 2000 compliant will not experience
problems. Failure by the Company or third parties on which it relies to resolve
Year 2000 problems could have a material adverse effect on the Company's results
of operations.

FACTORS TO BE CONSIDERED

     The part of this Quarterly Report on Form 10-Q captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contains certain forward-looking statements which involve risks and
uncertainties. Readers should refer to a discussion under "Factors to be
Considered" contained in Part I, Item 1 of the Company's Annual Report on Form
10-K for the year ended January 31, 1999 concerning certain factors that could
cause the Company's actual results to differ materially from the results
anticipated in such forward-looking statements. This discussion is hereby
incorporated by reference into this Quarterly Report.



                                       -22-
<PAGE>


                           PART II--OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

<TABLE>
<S>               <C>
Exhibit 10.10     Asset Purchase Agreement made as of July 14, 1999, by and
                  among PresGar Imaging L.C., Innovative Clinical Solutions,
                  Ltd., Phymatrix Management Company, Inc., Phymatrix
                  Diagnostic Imaging, Inc., Biltmore Imaging Center, Inc.,
                  BabRad, Inc., Phymatrix Diagnostic Imaging Northeast,
                  Inc., and Deerco, Inc., for the sale of the Imaging Division

Exhibit 10.11 (a) Confirmatory Revolving Note dated as of February 1, 1998 in
                  principal amount of $10.9 million payable by Chancellor
                  Development Corp. to Innovative Clinical Solutions, Ltd.

Exhibit 10.11 (b) Confirmatory Guarantee of Abraham D. Gosman dated as of
                  February 1, 1998 in favor of Innovative Clinical Solutions,
                  Ltd.

Exhibit 10.11 (c) Confirmatory Stock Pledge Agreement made as of November 30,
                  1999 by and among Abraham D. Gosman, Chancellor Partners
                  Limited Partnership I, Chancellor Development Corp. and
                  Innovative Clinical Solutions, Ltd.

Exhibit 10.11 (d) Letter Agreement dated November 30, 1999 by and between PBG
                  Medical Mall MOB 1 Properties, Ltd. and Innovative Clinical
                  Solutions, Ltd. regarding Interest and Lease Payments

Exhibit 27 Financial Data Schedule
</TABLE>

(b) Reports on Form 8-K

The Company filed a Current Report on Form 8-K on September 13, 1999 with the
Securities and Exchange Commission reporting under Item 2 the sale of the
Diagnostic Imaging Division.

                                       -23-
<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, on the 15th day of December, 1999.



                                  INNOVATIVE CLINICAL SOLUTIONS, LTD.


                                  By: /s/ Gary S. Gillheeney
                                      -----------------------------------------
                                      Chief Financial Officer and Treasurer



                                       -24-