U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

[x]      ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
         EXCHANGE ACT OF 1934
         For the fiscal year ended December 31, 1999

[ ]      TRANSITION  REPORT  UNDER  SECTION  13 OR  15(d)  OF  THE    SECURITIES
         EXCHANGE ACT OF 1934
         For the transition period from _______________  to __________________

Commission file number:  0-25339

                             U. S. Laboratories Inc.
                 (Name of small business issuer in its charter)

             Delaware
  (State or other jurisdiction of                       33-0586167
  incorporation or organization)           (I.R.S. Employer Identification No.)

7895 Convoy Court, Suite 18, San Diego, California                     92111
     (Address of principal executive offices)                        (Zip Code)

Issuer's telephone number: (858) 715-5800

Securities registered under Section 12(b) of the Act:  None

Securities registered under Section 12(g) of the Exchange Act:

                     Common Stock, $.01 par value per share
                                (Title of class)

         Check whether the issuer (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 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 ___.

         Check if  disclosure  of  delinquent  filers in response to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10KSB. [ ]

Issuer's revenues for its most recent fiscal year:  $16,397,060

Aggregate market value of voting stock held by  non-affiliates  of the issuer as
of March 15, 2000: $4,000,000

Number of shares of common stock,  no par value,  outstanding on March 15, 2000:
3,200,000

                       DOCUMENTS INCORPORATED BY REFERENCE

None

Transitional Small Business Disclosure Format:  Yes ___  No   X

<PAGE>
                             U. S. Laboratories Inc.

                                 Index to Annual
                              Report on Form 10-KSB
                   For The Fiscal Year Ended December 31, 1999

                                                                           Page

PART I.......................................................................3

Item 1.  Business............................................................3

Item 2.  Properties.........................................................14

Item 3.  Proceedings........................................................15

Item 4.  Submission of Matters to a Vote of Security Holders................15

PART II.....................................................................16

Item 5.  Market for Common Equity and Related Stockholder Matters...........16

Item 6.  Management's Discussion and Analysis of Financial
          Statements and Results of Operations..............................17

Item 7.  Financial Statements...............................................19

Item 8.  Changes In and Disagreements With Accountants
          on Accounting and Financial Disclosure............................19

PART III....................................................................20

Item 9.  Directors, Executive Officers, Promoters and Control
          Persons; Compliance with Section 16(a)
          of the Exchange Act...............................................20

Item 10. Executive Compensation.............................................22

Item 11. Security Ownership of Certain Beneficial
          Owners and Management.............................................25

Item 12. Certain Relationships And Related Transactions.....................26

Item 13. Exhibits and Reports on Form 8-K...................................27




                                      -2-

<PAGE>
                                     PART I

Item 1.  Business

Overview

         U.S.  Laboratories Inc. is a Delaware  corporation  formed in May 1998,
that offers quality  construction control services from conception to completion
of a  building  project  in  order  to  verify  that  the  project  conforms  to
construction  specifications.  We  analyze  the soil that will be built  upon to
determine  whether  it can hold the  proposed  structure.  We also  analyze  the
structural  strength of the concrete,  masonry,  and steel  materials to be used
during  construction.   We  use  universally   recognized  test  procedures  and
laboratory equipment to perform the analyses,  and all construction in the field
is verified by our  licensed  inspectors.  Our  projects  involve  every type of
construction:  high-rises,  low-rises, shopping centers,  residential,  schools,
hospitals,  bridges, tunnels, highways, stadiums, airports, military facilities,
and many other types of public and private improvements.  We work for government
agencies,  real estate developers,  general contractors,  school districts,  and
other types of landowners.

Description of Engineering Services

         Our service to clients  begins  before an actual  construction  project
commences. We evaluate construction sites, building plans, and designs to assure
compliance with the approved  construction  documents for the proposed facility.
We assess the  building  site by  testing  the soil and the  materials.  We also
evaluate  the  impact on the  environment.  We do this to detect  any  potential
problems with the proposed site that could prevent or complicate  the successful
completion  of the  project.  In  addition,  we  evaluate  the  onsite  building
conditions and recommend optimum methods and materials for building foundations,
site  preparation,  and  excavation.  We provide these services on an integrated
start  to  finish  basis  designed  to guide  clients  through  each  phase of a
construction  project.  We become an integral part of our client's project team,
offer  comprehensive  quality control  programs,  and create value by delivering
quality  control  and  problem  solving in a  cost-effective  manner to meet our
clients' time and budget requirements.

         When construction  commences,  we begin onsite consulting by monitoring
construction  quality.  We  visually  inspect  each  phase  of the  construction
project,  including  excavation,  foundations,  structural  framing,  mechanical
heating and air conditioning systems, electrical systems, underground utilities,
and roofing.  Where applicable,  we may use additional methods to test materials
and work quality,  testing the metals,  concrete,  and other  materials  used in
construction continues through each phase of the project. We are comprehensively
involved  during the  construction  phase to assure  compliance  with the design
specifications and to monitor the overall quality of work.

         During  construction,  we actively  maintain  contact with our clients'
project managers. Problems detected or anticipated are identified, and we assist
clients in determining  appropriate,  cost effective solutions.  We periodically
provide construction progress inspections and assessment reports. When a project
is  complete,  we prepare an  evaluation  report of the  project and certify the
inspections for our client.  We will also perform final inspections to determine
the moisture  resistance  of windows,  doors,  foundations,  and roofing.  After
construction,  we offer periodic building inspection services to assure that the
building is being  maintained in accordance  with  applicable  building codes to
assure  maximum  building life. We may also perform indoor air and water quality
tests during this period.

         Construction  Materials  Testing and Engineering  Services.  We provide
testing  and  client  representative  services  related  to  concrete  and steel
materials used in the construction  industry.  From the preconstruction stage of
evaluating  materials to the  completion  of the project,  our range of services
supporting  construction projects include quality assurance and quality control,
construction   specifications,    test   evaluations,    materials   performance
documentation,   and  problem   solving.   We  conduct  these  services  in  our
laboratories prior to and during construction,  in the fabrication plant, and at
the construction site.

         Our expertise in these areas provides valuable assistance to clients in
the construction of major buildings of all types and sizes including industrial,
commercial, office, retail, medical, school, military, and governmental, as well
as highways,  railroads,  dams, bridges,  transmission towers, airports runways,
water supply  facilities,

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<PAGE>
wastewater  treatment  facilities,  dock and  waterway  facilities,  solid waste
landfills,  power plants, and many other structures.  Potential clients includes
architects,  engineers,  contractors,  commercial developers,  local, state, and
federal government agencies, corporations, and other user-owners.

         We provide  testing of concrete and  structural and  reinforcing  steel
through proven systematic methods and procedures of quality control  management.
We  customize  project  work to meet our  clients'  specific  needs.  We deliver
materials  testing services on-site for the duration of a construction  project,
giving us a  competitive  advantage  over other  providers.  Concrete  is tested
during and after placement to measure its  consistency and strength.  Architects
or  engineers  develop  specifications  for  the  design  of  the  structure  or
foundation, and we verify them during construction.

         We also test steel  structures for  compliance.  While many steel tests
and  inspections  are performed at the project site,  tests and  inspections are
also done at the steel fabrication plant, where the process can be monitored and
imperfections  can be corrected  before  shipment to the  project.  Concrete and
steel  samples  collected  in the  field  are  transported  back  to  our  local
laboratory for analysis. Field representatives are deployed to the job site from
the nearest area office providing these services.  Typically,  a 100-mile radius
is the  most  economically  feasible  distance  for  providing  these  services.
Therefore,  we only provide these services in areas with construction activities
to support the necessary operational  resources.  Periodically field offices are
established to accommodate large projects.

         All of our field  personnel  work  directly  under the  supervision  of
licensed  civil/geotechnical  engineers. These engineers actively participate in
American   Society  of  Civil   Engineers,   American   Council  of  Independent
Laboratories,  American Public Works Association, and other similar professional
groups in order to remain  current with changes in the  industry.  As members of
the  International  Conference  of Building  Officials,  our  personnel  receive
notification  of all code changes.  All field  personnel must maintain and renew
licenses in their respective areas of inspection. All laboratories are inspected
biannually  by the Cement and  Concrete  Reference  Laboratory  ("CCRL")  of the
National  Institute of Standards and Measures.  Additionally,  our  laboratories
participate  in  proficiency   programs  conducted  by  CCRL  and  the  American
Association of State Highway & Transportation Officials.

         Infrastructure  Engineering Services. We provide inspection and testing
services  similar to those provided to our  construction  materials  testing and
engineering  services  and  geotechnical  engineering  services  clients.  These
services  are  provided  to  support  the  planning  and   construction  of  the
transportation network including highways,  bridges,  piers, tunnels,  airports,
and other similar structures; dams, drainage basins, and storm water facilities,
waste treatment facilities,  and utility transfer systems. One advantage we have
is that our laboratories in California and New Jersey have been certified by the
American  Association of State Highway & Transportation  Officials.  This AASHTO
certification  is often  required  in order to bid on  infrastructure  projects,
especially the larger  projects.  We believe that demand for these services will
increase in the future as the country repairs its  deteriorating  infrastructure
and as funding becomes  available as a result of Congress' recent TEA-21 funding
package  authorizing  approximately  $165 billion for highway and infrastructure
improvements.  As we have become active in providing infrastructure  engineering
services,  we believe we will  receive  additional  work from the  substantially
increased expenditures projected for transportation construction.

         Geotechnical  Engineering  and Consulting  Services.  Our  geotechnical
engineering and consulting services involve the analysis of soil data and design
of structures supported on or within the earth. Geotechnical services begin with
the project planning and design phase of a project, extend through construction,
and  often  continue  through  the  service  life of a  structure.  Geotechnical
engineers, geologists, and earth scientists conduct tests on the soil, rock, and
groundwater   to  determine   whether   sites  are  suitable  for  proposed  new
construction.  Our  professionals  have  expertise  in soil and rock  mechanics,
geophysics,  and  earthquake  engineering.  The design of a  subsurface  program
requires  familiarity with local geology and a thorough  knowledge of economical
construction  methods.  Our  offices  are  staffed by  professionals  with local
expertise in a wide variety of soil conditions.

         Soil tests are performed to determine soil  compaction  characteristics
both before  foundation design and after excavation or soil placement have taken
place.  These tests is determine the stability and load-bearing  characteristics
of a soil before,  during, and after  construction.  We use the expertise of our
geotechnical engineers,  geologists, and experienced field drilling personnel to
design a field  exploratory  program.  The field data


                                      -4-
<PAGE>

and  samples  are  brought to our soil  laboratories  for  further  testing  and
evaluation. The information obtained during the field exploration and laboratory
testing is used to provide our clients with cost-effective designs for high-rise
building   foundations,   site  improvements,   tunnels,   dams,   manufacturing
facilities,  landfills,  bridges,  and many other  structures.  We also  provide
specific  recommendations to avoid delays and cost overruns during construction,
particularly in the  weather-dependent  site preparation phase of a project.  An
engineering  report is  prepared  under the  direction  and review of a licensed
professional  engineer  familiar with the  particular  geologic  conditions  and
engineering requirements for the project.

Other Services and Products

         In  addition  to  the  core  services   described  above,  we  maintain
specialized  services  that  can be  integrated  with the  overall  needs of our
clients.  This is part of our overall  business  strategy to build and  maintain
client  relationships  while  adjusting  to the market  demand for  professional
services.  Most of these  services  have either  developed  within the last five
years  or  been  obtained  through  recent  acquisitions.  The  following  is  a
description  of some of the non-core  services we offer to  complement  our core
business.

         Building Condition Surveys.  As part of our integrated service strategy
for commercial and industrial clients, we also offer building condition surveys.
As a general  rule,  building  condition  surveys  involve an  evaluation of the
facility's heating,  ventilation,  and lighting systems, water services, roofing
system,  and structural or  architectural  construction or both. This service is
frequently  associated  with the  purchase  of real estate  where the  purchaser
requires an evaluation of operation and maintenance  exposures of property prior
to closing.  These services are also  integrated  with our other  commercial and
industrial  project  services  such  as  Phase  I  and  Phase  II  environmental
assessments,  asbestos assessments, and indoor air quality consulting. We are in
the process of promoting and developing building condition surveys on a national
level.

         Construction   Administrative   Services.  Our  services  also  include
construction  administrative  services.  These services range from acting as our
client's field representative during construction to overall  responsibility for
the  project's  quality  issues.  The  client  representative  assures  that the
construction  is done  according  to the plans and  specifications  developed by
either the architect or engineer.  These services are typically billed on either
daily rates or hourly rates plus expense reimbursement.

         An example of these services is a recent  long-term  contract to act as
the Orange County, Florida's school district field representative for all of its
new construction and building maintenance.  In the case of this school district,
which encompasses the entire city of Orlando, we act like a building department,
reviewing plans, conducting inspections, and certifying compliance with codes.

         Environmental   Assessment  Services.   The  majority  of  our  project
activities  within this segment  focus on  identifying  potential  environmental
hazards and risk  exposures.  We provide  environmental  consulting  services to
corporate and governmental clients. Many of these clients are large regional and
national corporations with multi-site consulting needs. Client relationships and
quality of service delivery primarily drive the market for these services.

Business Strategy and Current Year Developments

         Our  strategic  goal  is  to  be a  leading  provider  of  construction
materials  testing  and  engineering  services,   geotechnical  engineering  and
consulting  services,  and  infrastructure   engineering  services  through  the
consolidation  of  independent  companies  and internal  growth.  We achieve our
business objectives through strategic acquisitions, emphasis on premium national
accounts,  expansion of infrastructure engineering services, a balance of public
sector and private industry clients,  expansion of international  services,  and
expansion of domestic geographic markets.

         Pursue  Strategic  Acquisitions.  We  believe  that  the  industry  for
engineering  services is fragmented and that there are  opportunities to acquire
local engineering services companies. We estimate that there are 3,500 companies
whose  businesses  are  complementary  to ours.  We  believe  our  expertise  in
identifying,  completing,  and  integrating  acquisitions  provides  us  with  a
competitive advantage in entering new geographical markets. We plan to apply our
expertise in assimilating  acquired  companies'  personnel and branch operations
into our existing  infrastructure and


                                      -5-
<PAGE>

expanding acquired companies' service and product offerings to existing clients.
We further believe that our existing infrastructure provides a platform for tuck
in acquisitions of regional and local companies. A tuck in acquisition is one in
which we integrate the acquisition with our existing regional management.

         In analyzing new  acquisitions,  we normally pursue  acquisitions  that
either  provide  the  critical  mass to function  as a  profitable,  stand-alone
operation,  or are  geographically  situated so that they can be integrated into
our existing locations.  If we acquire a stand-alone operation,  it must possess
an experienced management team thoroughly committed to going forward with us. We
also must identify how the profitability of a new acquisition can be improved as
part of our  operations  through the  integration  of the new personnel into our
management  systems and the  expansion  of the service and product  offerings to
existing  clients.  We believe we can improve the operations of our acquisitions
by providing  superior  marketing  and sales  support,  customer  service,  cash
management, financial controls, and human resources support.

         Since 1993,  we have  implemented  this  strategy,  the key elements of
which are  designed to  establish  a national  infrastructure  of branch  office
locations and diversify our service  offerings.  We currently operate facilities
serving San Diego, Riverside,  San Bernardino,  Orange, and Los Angeles counties
in Southern California; Las Vegas, Nevada and the surrounding area; the New York
City  metropolitan  area and northern New Jersey;  Atlantic City and central New
Jersey;  Philadelphia and southwest New Jersey; and Miami, Fort Lauderdale, Palm
Beach,  Jupiter,  Ft. Myers/Naples and Orlando,  Florida.  Prior to 1999, we had
completed  a total  of  five  acquisitions,  and  during  1999  we  successfully
completed an additional two  acquisitions.  During the first quarter of 2000, we
have completed four acquisitions.

         In May 1999,  we entered  into an asset  purchase  agreement to acquire
substantially all the assets of Buena Engineers, Inc., which is headquartered in
Las Vegas, Nevada, one of the most explosive growth markets in the nation. Buena
is a stand-alone  operation,  and came with an  experienced  management  team, a
solid reputation,  and a well established client base. The engineering  services
provided by Buena  duplicate  those we provide  the gaming  industry in Atlantic
City  through our New Jersey  subsidiary,  and our  presence in two of the major
entertainment  centers  in the U.S.  will  create  a  positive  synergy  for our
customers  located  in both  markets.  We paid  approximately  $320,000  for the
operation which will generate in excess of $1 million in annual sales.
         In October  1999, we acquired  Advanced  Geo-Materials  Services,  Inc.
(AGS),  a long  standing  engineering  services  firm in the  Ft.  Myers/Naples,
Florida  region.  With  offices  already in Orlando,  Jupiter,  Palm Beach,  and
Plantation,  the  addition  of an  operation  on the west coast of  Florida  now
enables  PEICO,  the U.  S.  Labs  subsidiary  in  Florida,  to  offer  services
statewide.  AGS has been  merged  into the PEICO  operation  and its  successful
operations  since  the  acquisition  authenticate  the  validity  of the tuck in
concept. AGS was acquired for approximately $250,000 and will generate in excess
of $1 million in annual revenues. We also acquired an engineering firm from Gary
Elzweig,  a  stockholder,  for $30,000  cash.  This  acquisition  will allow our
company to bid on the privitization of public work in Florida.

         In January 2000, our company entered into a stock purchase agreement to
purchase all the  outstanding  shares of BTC  Laboratories,  Inc.  ("BTC") for a
total purchase price of $1,200,000  payable for $500,000 in cash, which has been
paid.  The buyer  will pay to  stockholders  cash  equal to the  collections  of
accounts  receivable  and  work-in-process  during  the six  months  immediately
following the closing date up to a maximum amount of $700,000.

         In January 2000,  Buena Engineers,  Inc., a wholly-owned  subsidiary of
U.S.  Laboratories,  Inc., entered into an asset purchase agreement with Stewart
Environmental,  Inc. ("Stewart") to purchase substantially all of the assets for
a purchase price of $60,000.

         In January 2000, San Diego Testing Engineers, Inc. entered into a asset
purchase agreement to purchase substantially all the assets of SAGE Engineering,
Inc. ("SAGE") for a total purchase price of $50,000 in cash and 15,000 shares of
common stock.

         In February 2000, our company entered into an asset purchase  agreement
with  Intertek  Technical  Services,  which will  operate  under the name Unitek
Technical  Services,  Inc.,  for a total  purchase  price of $1,650,000 in cash,
which has been paid.



                                      -6-
<PAGE>

         Target  Premium  National  Accounts.  As a  result  of our  acquisition
strategy,  we expanded our service  offerings and client base. This has resulted
in our  ability  to  attract  premium  national  accounts  such as  Home  Depot,
Marriott, Target, Wal-Mart, Disney, and Nordstrom. We expect these opportunities
to continue at an accelerated rate.

         Increase  Infrastructure  Accounts.  The successful  implementation  of
strategies designed to increase service offerings has resulted in our ability to
capitalize on certain high-growth market  opportunities.  We believe that we are
well positioned to take advantage of the approximately  $165 billion  authorized
under the TEA-21 for highway  construction and related services.  Our advantages
include a strong  presence in California,  which expects to receive $2.5 billion
in funds over the next six years,  or $800  million more than under the previous
legislation.  However,  we have no guaranty that we will secure contracts funded
by the TEA-21.

         Balance  Public Sector and Private  Industry  Services.  We continue to
successfully  maintain a balance  between  business  from the public  sector and
private industry  clients.  The private industry sector clients allow us to take
advantage  of  increases  in  private  construction  during  times  of  economic
expansion.  The public  sector  clients  provide us a continued  revenue  source
during  times of economic  slowing  because  public  sector  projects are not as
sensitive to downturns in the economy as private industry projects.

         Expand Geographic  Markets. We are targeting ten geographical areas for
expansion. We believe that one key executive can efficiently manage an operation
with $10  million in annual  sales.  Additionally,  as each  operating  division
grows,  it will continue to reduce  overhead as a percentage of sales.  Further,
because  we  provide  ancillary  administrative  support  necessary  to run each
division,   our  division  level  executives  are  encouraged  to  manage  these
operations in a more  decentralized  fashion.  Consequently,  our division level
managers  can  react to  regional  business  practices  and  traditions.  We are
committed  to  future  expansion  and  have  targeted  the  West  Coast  and the
Mid-Atlantic regions for expansion.

Contractual Arrangements

         We often  provide  services for our major  clients  under  arrangements
involving  continuing  service  agreements.  These arrangements are usually on a
time-and-materials, cost-plus-fixed-fee, or a fixed-price basis, and are usually
terminable on advance notice by either party. In 1999,  approximately 60% of our
projects were on a  time-and-materials  basis, under which we billed our clients
at fixed hourly rates plus  subcontracted  services and materials used. In 1999,
an additional 25% of our work was performed under cost-plus-fixed-fee agreements
where we and our client agreed to a budgeted  contract,  but our client  covered
overruns and was credited for any savings realized under budget.

         Fixed-price arrangements, under which we perform a stated service for a
set  price  regardless  of the time and  materials  cost  involved,  represented
approximately  15% of our business in 1999.  This  percentage may  significantly
change from time to time in the  future.  Although  this type of  contract  does
carry the risk that the cost to us for performing the  agreed-upon  services may
exceed the set price, a fixed-price  also has the benefit of potentially  higher
profit created by all savings under the contract amount. With military projects,
we have used fixed-price contracts very successfully where very detailed project
plans and specifications are available. When quoting a fixed-price contract, our
marketing  personnel  provide  detailed  breakdowns  of all  phases  of the work
specified including man-hours, tests, and construction schedule assumptions. The
fixed-price  contract  is thus  based upon a clearly  defined  scope of work and
contract  duration.  During  the  course of the  project  this scope of work and
contract  duration is  constantly  monitored,  and any expansion of the scope of
work or contract duration is billed as an extra to the contract.

         We have undertaken,  and may undertake in the future, projects in which
we  guarantee  performance  based  upon  defined  operating   specifications  or
guaranteed delivery dates or both.  Unsatisfactory  performance or unanticipated
difficulties in completing  these projects may result in client  dissatisfaction
and a  reduction  in payment to us or payment of damages by us to our clients or
other persons.  Either of these results could have a material  adverse effect on
our  financial  condition  or  our  results  of  operations.  Certain  contracts
involving government agencies are priced at cost or agreed upon labor rates plus
overhead.  Our  overhead  rates are  subject to audit and could  result in price
reductions  associated with disallowed  overhead costs or methods used to derive
overhead rates.



                                      -7-
<PAGE>

Marketing and Sales

         We  provide  our  professional  consulting,  engineering,  and  testing
services in the  construction  industry to Fortune  500  companies,  Engineering
News-Record  top 400  contractors  and  construction  engineering  firms,  small
companies,  real estate property owners and managers,  and federal,  state,  and
local  governments.  Our  contracts  are  obtained  by our sales  staff  through
relationship building followed by proposals and bidding. The current sales staff
consists  of one to two  sales  representatives  in each of our  locations,  and
estimators as well as clerical  staff back up these sales  personnel.  Referrals
from existing and former  clients,  architects,  and engineers are a significant
source of contract leads.  Clients are often  interested in more than one of our
services.  We  have  been  able  to  sell  construction  materials  testing  and
engineering services,  geotechnical services, and environmental services, to the
same clients.

         We  presently  market our  services  through our  subsidiaries.  Direct
marketing  is  accomplished  by  technical  sales   representatives,   technical
personnel,  and management  personnel who routinely call on prospective clients.
We also utilize  government  and  industry  publications  to identify  potential
services and requests for project proposals for submission of competitive bids.

         Recent trends in the engineering  and consulting  market require that a
service provider commit considerable resources toward maintaining and developing
client  relationships.  This shift from  project-specific  to  long-term  client
relationship  partnering  requires a service provider to dedicate both technical
and marketing resources toward tailoring services for a client. It also requires
the  provider to maintain a broad range of  responsive,  quality  services.  The
rewards of this client  relationship  partnering  and  quality,  service-focused
programs are continued  revenues from repeat  customers and, in many  instances,
sole source solicitation and award of work to the firm.

Key Clients and Projects

         Our services and products are  applicable  to a full range of business,
manufacturing,  institutional,  and government sectors. However, based on demand
for our services,  existing relationships,  and revenue generation potential, we
target real estate management and development firms,  large general  contracting
firms, large  construction  management firms,  national corporate  owners/users,
state transportation  agencies,  municipalities,  public school systems,  public
housing  authorities,  and the U.S.  Department of Defense as key client sectors
for development.


                                      -8-
<PAGE>

         Our client list is  comprised of hundreds of  different  customers.  We
serve the private  commercial market, the public sector, and a variety of public
interest or non-profit organizations.  In 1999, no single customer accounted for
more than 10% of our  revenues.  The following is a  representative  list of our
clients.

                          Private Commercial Clients
  Wal-Mart                                                         Nordstrom
  Neiman Marcus                                                   Home Depot
  Saks Fifth Avenue                                             Circuit City
  Lord & Taylor                                                     Marriott
  Hilton Hotels                                                  Walt Disney
  Claridge Casino Atlantic City                           Bally's Park Place
  Sea World San Diego                              Universal Studios Orlando
  Lockheed Martin                                           Sports Authority
  Rite-Aid                                                     Target Stores

                           Public Interest Clients
  Giants Meadowlands                           California State Universities
  San Diego Qualcomm Stadium                            Princeton University
  Florida Panthers Ice Hockey                       University of California

                            Public Sector Clients
  New Jersey Turnpike Authority                      Port Authority New York
  New Jersey Transit Authority                     Port Authority New Jersey
  New Jersey Sports & Expositions                                   CalTrans
  City of Los Angeles                                      City of San Diego
  San Diego County                                        Los Angeles County
  United States Navy                                Port Authority San Diego

         One  marketing and  operational  goal we have worked toward is an equal
balance between private industry and public sector work. We have maintained this
goal although the percentage  breakdown in the three regional areas we serve has
varied. In Southern  California,  Nevada and Florida,  the split between private
industry  and  public  sector  work  has  been  even.  In the New  Jersey  area,
approximately 25% of the work has been private industry and 75% public sector.

Backlog

         Backlog includes  anticipated  revenue from services on major long-term
contracts or continuing  service  agreements that provide for  authorization  of
funding on a task or fiscal period basis.  Excluded from backlog are anticipated
revenues  from  smaller  projects  done without  long-term  contracts or service
agreements.  At December 31, 1999, we had  approximately  $11.0 million of gross
revenue backlog compared to $8.1 million at December 31, 1998.

         We bill for our services monthly for work completed during the previous
month.  All billing is done on the regional level,  and all accounts  receivable
responsibilities are also handled on the regional level with overall supervision
from our headquarters.  Collection  periods for our receivables range between 85
and 100 days.  An  allowance  for  doubtful  accounts is  typically  established
equivalent to five percent of accounts receivables.

                                      -9-
<PAGE>

Competition

         The  services  that we provide are subject to intense  competition.  In
addition to the thousands of small consulting and testing firms operating in the
United States, we compete with several national engineering and consulting firms
including Law Companies Group,  Inc.,  Harding Lawson  Associates  Group,  Inc.,
Dames & Moore, Inc., and Professional Service Industries, Inc.

         Some of our present and future  competitors may have greater financial,
technical,  and  personnel  resources  than us. We cannot  predict the extent of
competition that we will encounter in the near future as construction  materials
testing and engineering, infrastructure, geotechnical and environmental services
industries  continue to mature and  consolidate.  Historically,  competition has
been based  primarily on the  quality,  timeliness,  and costs of services.  Our
ability to compete  successfully  will depend upon our  marketing  efforts,  our
ability to accurately  estimate costs,  the quality of the work we perform,  our
ability  to  hire  and  train  qualified  personnel,  and  the  availability  of
insurance.

Insurance

         We have a claims made professional  liability  insurance policy,  which
includes contractor's  pollution liability coverage.  The professional liability
insurance policy has a three-year term,  ending in November 2002. The policy has
limits  of $2  million  on both  the  annual  aggregate  and  per-claim,  with a
deductible  of $25,000  per claim.  Increased  limits  have been  obtained  on a
specific endorsement basis to meet the needs of particular clients or contracts.
A claims made policy only  insures  against  claims  filed  during the period in
which the policy is in effect. This policy covers both errors and omissions.

         We currently have no professional  liability  claims pending and we are
unaware  of any other  claims  that will have a material  adverse  effect of our
operations or financial condition. Although various claims have been made in the
past against our professional  liability  policy, to date no such claim has ever
resulted in an uninsured loss.

         We also carry an occurrence basis general liability insurance policy in
the amount of $2 million,  with a $5 million  umbrella.  This coverage  includes
products/completed  operations.  The general  liability  insurance  policy has a
one-year  term.  Our  policies  have been renewed in each of the years that they
have been in effect.

         In addition,  we have  secured a claims made  directors  and  officers'
liability  insurance  policy with an aggregate limit of $5 million.  This policy
has a one-year  term that has been  renewed  in  February  2000.  We can make no
assurance  that  insurance  coverage will continue to be renewed or available in
the future or offered at rates similar to those under the current policies.

         The Company  maintains key person life insurance  policies on the lives
of Dickerson Wright, Martin Lowenthal,  Mark Baron,  Christopher  O'Malley,  and
Gary  Elzweig.  According  to the  provisions  of those  policies,  our  company
receives the amount of $2,650,000, $650,000, $300,000, $300,000, and $1,000,000,
on the lives of Messrs.
Wright, Lowenthal, Baron, O'Malley, and Elzweig, respectively.

Government Regulation

         Except for state licensure  requirements for the engineering component,
there  is  limited   regulation  of  the  construction   materials  testing  and
engineering or geotechnical  consulting service  industries.  Industry standards
are set by agencies,  including the American  Society of Testing  Material,  the
American Association of State Highway & Transportation  Officials,  the American
Concrete Institute,  and the American Welding Society.  State and local building
codes, the stringency of which varies by location,  however, govern construction
projects themselves.

Personnel

         We employ approximately 260 regular, full-time employees, including 212
engineers,   inspectors,   and  field  lab  technicians  and  48  administrative
personnel. None of our employees is presently represented by a labor union.
We believe that relations with our employees are good.



                                      -10-
<PAGE>

Risks and Uncertainties

Potential  Limited  Growth of U.S.  Labs due to our  Inability  to Identify  and
  Acquire Companies that will Expand or Complement our Business

         One of our primary  strategies  is to pursue the  acquisition  of other
companies or assets that either complement or expand our existing  business.  We
cannot predict the likelihood of a material  acquisition  being completed in the
future. If we cannot identify and complete  acquisitions in the future, this may
have an adverse affect on our future operations and financial results.

We may not Profitably Manage Additional Companies or Successfully Integrate Them
  into our Operations

         Although we have successfully completed several acquisitions, there can
be  no  assurance  that  we  will  profitably  manage  additional  companies  or
successfully   integrate  these   additional   companies  into  our  operations.
Acquisitions may involve a number of special risks, including adverse effects on
our reported operating results,  substantial burdens on our management resources
and financial  controls,  dependence  on retention and hiring of key  personnel,
risks  associated  with  unanticipated   problems  or  legal  liabilities,   and
amortization of acquired  intangible  assets,  some or all of which could have a
material adverse effect on our operations and financial performance.

Potential  Professional  Liability  for  Structural  Failure,  Property  Damage,
  Personal Injury, or Economic Loss may Substantially Exceed the Fees Derived
  from our Engineering Services

         Due to the nature of our engineering advisory services,  we are exposed
to a risk of professional  liability for structural  failure,  property  damage,
personal injury, or economic loss that may substantially exceed the fees derived
from these services.  We maintain  various  insurance  policies that cover these
risks. Because customers may require that we maintain liability  insurance,  the
possible future  unavailability  of this insurance  could  adversely  affect our
ability to compete effectively.

Potential  Adverse  Effect on our Business if we Fix Prices that are too Low for
  Fixed-Price  Contracts or we Fail to Correctly  Estimate  Resources Required
  for Fixed-Price Contracts

         If  we  fail  to  accurately  estimate  the  resources  required  for a
fixed-price project or fail to complete our contractual  obligations in a manner
consistent with the project plan upon which its  fixed-price  contract was based
then our results of operations,  and business and financial condition,  could be
adversely  affected.  For  example,  we may  establish a price before the design
specifications are finalized, which could result in a fixed price that turns out
to be too low  and  therefore  adversely  affects  our  business  and  financial
condition.

We may have to Revise  Plans  During the  Course of a Project  that will Cost us
  Time and Resources and may Adversely Affect our Profitability

         We may be  required to commit  unanticipated  additional  resources  to
complete  certain  projects,  which  may  negatively  affect  the  profitability
generated  on such  projects.  We may have to revise  project  plans  during the
project or change project managers to ensure projects are completed on schedule.
Failure to anticipate  these needs could have a material  adverse  effect on our
business, financial condition, and results of operations.

Dependence  of U.S.  Labs on a Limited  Number of Key  Personnel  to Manage  our
  Company in a way that Provides Profitability and Continued Growth

         We  depend on the  efforts  and  abilities  of our  senior  management,
particularly those of Dickerson Wright and the key officers at our subsidiaries,
to manage our company in a way that provides profitability and continued growth.
The loss of any of these key officers  could have a material  adverse  affect on
our business.



                                      -11-
<PAGE>

Our Revenues and Profits are Subject to Seasonal Fluctuations

         Due primarily to more holidays and inclement  weather  conditions,  our
operating results during January,  February, and December are generally lower in
comparison  to other  months.  This means that our  revenues  and profits in the
quarters  ending  December  31 and  March  31 may be  lower  than  in our  other
quarters.

Potential  Adverse  Effect  on  our  Business  if  Additional  Financing  is not
  Available to Finance Acquisitions or Internal Growth

         We believe  that there will be adequate  funds  available  from the net
proceeds  of the  offering  and from  our  operating  cash to fund our  business
operations  and  obligations  at  least  through  the  next  twelve  months.  If
additional  funds are not available  when we need them,  your  investment may be
adversely  affected because we will not be able to grow through  acquisitions or
internal  operations.  Either  of these  situations  may  adversely  affect  our
financial  results and therefore cause the trading price of our common stock and
warrants to decrease.  Note,  however,  that we may be able to issue  additional
securities or borrow from banks to obtain funds. If we issue  additional  shares
of our  common  stock,  you will  suffer a  dilutive  effect on your  percentage
ownership.

There may be an Adverse Affect from the of Issuance of Preferred  Stock that has
  Greater Rights than our Common Stock by our Board of Directors and a Potential
  Adverse Affect if our Board Issues Preferred Stock to Delay or Prevent a
  Change in Control that may Benefit the Holders of our Common Stock or Warrants

         Our  corporate  documents  authorize  our board of  directors  to issue
shares of preferred stock without the approval of our common stockholders.  This
means that our board may approve  the  issuance  of  preferred  stock that would
grant dividend preferences,  liquidation preferences,  voting or other rights to
preferred  stockholders  that are  greater  than the rights you have as a common
stockholder.  This also means that our board may issue  preferred stock to delay
or prevent a change in control of U.S.  Labs,  even if a change in control would
result in you receiving  payment for your shares above their then current market
value.

You may not be able to Sell our  Securities due to a Potential Lack of Liquidity
  in our Common Stock if Broker-Dealers must Comply with Penny Stock Regulations
  that Make it More Difficult to Sell these Securities to their Customers

         If our common stock  trades below $5.00 per share,  and it is no longer
quoted on The Nasdaq  SmallCap  Market (SM), it may become  subject to the penny
stock  regulations.  If our shares are  subject to the penny  stock  rules,  the
market liquidity for them could be adversely  affected because the rules require
broker-dealers to make a special suitability determination for the purchaser and
to have received the purchaser's  written  consent to the  transaction  prior to
sale. This makes it more difficult  administratively  for  broker-dealers to buy
and sell  stock  subject  to the  penny  stock  regulations  on  behalf of their
customers.  Consequently,  the rule may affect the ability of  broker-dealers to
sell our shares or  warrants  and may affect the ability of holders to sell them
in the secondary market.

You may Suffer a Loss from your  Inability  to  Exercise  the  Warrants  for our
  Common Stock  due to the Lack of a Current Prospectus,  which is  Required  to
  Exercise your Warrants

         We have  undertaken to maintain a current  registration  statement that
will permit the public sale of the common stock  underlying  the  warrants  upon
exercise of the warrants.  The maintenance of a current  registration  statement
could  result in  substantial  expense to us. We cannot  assure you that we will
maintain a current prospectus covering the shares of common stock underlying the
warrants.  You will have the right to exercise  the warrants for the purchase of
shares of common stock only if a current  prospectus  relating to such shares is
then in  effect  and  only if the  shares  are  qualified  for  sale  under  the
securities laws of the state applicable to you.



                                      -12-
<PAGE>

Potential Loss from  Inability to Exercise the Warrants for our Common Stock due
  to the Offering being Registered in a Limited Number of States

         Although we intend to qualify the shares of common stock underlying the
warrants for sale in those states where the securities are offered,  except when
to do so would  require  us to  qualify  as a foreign  corporation,  there is no
assurance  that we will  obtain  these  qualifications.  Moreover,  even if such
qualifications are obtained, if you subsequently move to a state in which shares
of common stock underlying the warrants are not qualified,  you may not have the
right to exercise the warrants.  Consequently,  you may be deprived of any value
if a current prospectus  covering the shares underlying the warrants is not kept
effective or if such  underlying  shares are not or cannot be  registered in the
applicable state.

                Special Note Regarding Forward-Looking Statements

         We are a growth  company,  and as a  result,  a  substantial  number of
statements   contained  in  this  prospectus,   including  without   limitation,
statements containing the words "believes,"  "anticipates,"  "expects" and words
of  similar   import,   may   constitute   forward-looking   statements.   These
forward-looking  statements  involve known and unknown risks,  uncertainties and
other factors which may cause the actual results, performance or achievements of
our company,  or industry  results,  to be materially  different from any future
results,   performance   or   achievements   expressed   or   implied   by  such
forward-looking statements. These factors include, among others, those discussed
under the captions  "Risk  Factors,"  "Management's  Discussion  and Analysis of
Financial  Condition  and Results of  Operations,"  and  "Business,"  as well as
elsewhere in this annual report.  Given these  uncertainties,  you are cautioned
not to place undue  reliance  on such  forward-looking  statements.  Our company
disclaims  any  obligation  to update any  factors or to publicly  announce  the
result  of any  revisions  to any of the  forward-looking  statements  contained
herein to reflect future events or developments.



                                      -13-
<PAGE>

Item 2.

Properties

         We own no  real  estate,  and  all of our  locations  are  leased  from
independent  third  parties  as  follows,  except for the  Lincroft,  New Jersey
location which is leased from a related party:

Location                                Footage          Lease Expiration
--------                                -------          ----------------
South Coast Florida Office:
4350 West Sunrise Boulevard
Plantation, Florida                      6,000           July 2000

Central Coast Florida Office:
1001 Jupiter Park Drive
Jupiter, Florida                         2,000           June 2000
Central Florida Office:

Florida Mall Business Centre
1650 Sand Lake Road
Orlando, Florida                         1,671           February 2001

Southwest Florida Office:
10251 Metro Parkway
Ft. Myers, Florida                       2,970           January 2002

North New Jersey Office:
903 E. Hazelwood Avenue
Rahway, New Jersey                       7,000           December 2002

New Jersey Coast Office:
2511 Fire Road
Egg Harbor, New Jersey                   2,000           March 2000

South New Jersey Office:
443 Commerce Lane
West Berlin, New Jersey                  3,700           June 2001

New Jersey Accounting Office:
631 Newman Springs Road
Lincroft, New Jersey                     1,400           January 2002

Nevada Office:
3021 South Valley View Blvd.
Las Vegas, Nevada                        3,344           September 2000


                                      -14-
<PAGE>

Location                                Footage          Lease Expiration
--------                                -------          ----------------

Southern California Offices:

7895 Convoy Court
San Diego, California                   13,000           May 2003

17905 Skypark Circle
Irvine, California                       3,200           August 2001

Item 3.  Proceedings

         We are not a party to any material legal  proceedings.  Notwithstanding
this, from time to time we may be involved in material litigation.

Item 4.  Submission of Matters to a Vote of Security Holders

         No matters were submitted  during the fourth quarter of the fiscal year
covered  by  this  report  to  a  vote  of  the  security  holders  through  the
solicitation of proxies or otherwise.


                                      -15-
<PAGE>


                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

         Our  company's  common  stock has been  quoted on the  Nasdaq  SmallCap
market  under the symbol  "USLB"  since the  completion  of its  initial  public
offering  in February  1999.  Average  high and low bid  prices,  as reported on
Nasdaq, for each quarter within the last fiscal year were as follows:


            1999                       High          Low

      From February 23, 1999          $5.438       $3.750

      2nd Quarter                     $4.000       $3.000

      3rd Quarter                     $3.688       $2.500

      4th Quarter                     $3.453       $2.500

         These quotations reflect inter-dealer  prices,  without retail mark-up,
markdown  or  commission,  and  may not  represent  actual  transactions.  These
quotations do not include  intra-day highs and lows. On December 31, 1999, there
were  approximately 35 owners of record and  approximately 800 beneficial owners
of our company's common stock.

         No cash  dividends  have been declared to date on our company's  common
stock.  We expect  that all  earnings,  if any,  will be retained to finance the
growth  of our  company  and  that  no  cash  dividends  will  be  paid  for the
foreseeable future.

         Additionally,  our company has publicly traded warrants to purchase our
common stock that were originally issued in our initial public offering. We sold
1,000,000  units,  each  consisting  of one  share  of  common  stock,  and  one
redeemable warrant to purchase one share of common stock at an exercise price of
$7.80.  Each warrant  entitles a holder to purchase at any time over a five-year
period from  February 23,  1999,  one share of common stock at a price of $7.80,
subject to adjustment in accordance with certain anti-dilution  provisions.  The
warrants are traded separately on Nasdaq SmallCap under the symbol USLBW.

         On October 15, 1999, we entered into an agreement to acquire AGS/PEICO.
As part of the consideration  for this  acquisition,  we issued 20,000 shares of
common stock to two  stockholders  of  AGS/PEICO in March 2000.  We issued these
securities under the exemption from registration provided by Section 4(2) of the
Securities Act of 1933.

         Our  registration  statement  on Form  SB-2 was made  effective  by the
Securities  and Exchange  Commission  on February 23,  1999.  We sold  1,000,000
units,  each consisting of one share of common stock,  $.01 par value per share,
and one  redeemable  warrant to purchase on share of common stock at an exercise
price  of  $7.80.  We  sold  the  units  on  February  23,  1999.  Our  managing
underwriters were Cardinal Capital Management,  Inc. and Janda & Garrington LLC.
After deducting the underwriting discounts,  commissions, and all the offering's
expenses, we received approximately $4,233,000 from the offering.

         As of December 31, 1999, we have used the net proceeds from our initial
public offering as described in the table below.

                          Use                                Amount
          Acquisitions                                     $   405,000
          Repayment of Debt                                $ 2,150,000
          Working Capital for Operations                   $   630,000



                                      -16-
<PAGE>

Item 6. Management's Discussion and Analysis of Financial Statements and Results
        of Operations

Financial Condition and Results of Operations

         Revenue.  Revenue  for the fiscal  year  ended  December  31,  1999 was
$16,397,060, an increase of 38% over fiscal year 1998. The increase is primarily
attributable to an internal growth rate of approximately 31%, with the remaining
7%  attributed to the expansion of  operations  through the  acquisitions  of an
engineering  consulting  services companies in the second and fourth quarters of
1999.

         Gross Profit.  Gross profit for the fiscal year ended December 31, 1999
was $8,154,185, an increase of 56% over fiscal year 1998. This increase in gross
profit was due primarily to the increase in revenues described above.

         Income Before  Provision for Income Taxes.  Income before provision for
income  taxes for the fiscal year ended  December  31, 1999 was  $1,149,201,  an
increase of 13% over fiscal year 1998.  The profit  increased due to a reduction
in interest expense and an increase in interest income.

         Interest Expense. Interest expense was $90,632 in the fiscal year ended
December 31, 1999,  a decrease of 49% over fiscal year 1998.  This  decrease was
due primarily to reduced debt  associated with the funding of the initial public
offering.

         Income Taxes. The Company has provided for taxes of $499,000 for fiscal
year 1999.  The effective tax rates for fiscal year 1999 and 1998 were 43.4% and
43.8%, respectively.

         Net Income.  Net income for the fiscal year ended December 31, 1999 was
$650,201,  a increase of 14% over fiscal year 1998.  The  increase in net income
was primarily due to the acquisition and internal growth referenced above.

Liquidity and Capital Resources

         During the fiscal year ended  December 31,  1999,  our net cash used in
operating  activities  was  $68,019,  a decrease  of 115% over  fiscal year 1998
primarily  due to the payment of federal and state taxes in the second and third
quarter of 1999.

         In the third  quarter of 1999,  we entered into a $4,000,000  revolving
working capital line of credit facility as part of its ongoing efforts to ensure
appropriate  levels of liquidity.  As of December 31, 1999, this working capital
line of credit was unused and available for future use.

         In the third  quarter  of 1999,  we  entered  into a  $200,000  capital
purchases  line of credit  facility.  This line of credit is used for  equipment
purchases of the company and at the end of one year this  facility  will convert
to a five year term loan. As of December 31, 1999,  this capital  purchases line
of credit had an outstanding balance of $63,641.

         In the third  quarter  of 1999 we  entered  into a  $350,000  term loan
facility to refinance  existing  equipment  debt. As of December 31, 1999,  this
term loan facility was unused and available for future use.

         All of these  credit  facilities  are  secured  with the  assets of our
company and our subsidiaries and bear interest at the variable prime rate.

         We are currently  using  approximately  $2 million of the proceeds from
our initial public  offering to fund  acquisitions.  Additionally,  we intend to
make  acquisitions  through other  financing  mechanisms such as notes and other
instruments.

         Although it is not our  intention  to use  significant  amounts of U.S.
Laboratories Inc. stock as consideration while making acquisitions, from time to
time it may be necessary to do so. During 2000,  we intend to actively



                                      -17-
<PAGE>
continue  our  search  for  acquisitions  in order to  expand  our  geographical
representation and enhance our technical capabilities.

Year 2000 Compliance

         We believe  that the software  packages we currently  use and expect to
use,  and  those  used by our  vendors  prior to the year  2000,  are Year  2000
compliant.  We do not expect the financial  impact of required  modifications to
this software will be material to our financial position, cash flows, or results
of operations.

Inflation

         Inflation  does not  currently  affect  our  operations,  and we do not
expect inflation to affect them in the foreseeable future.

Seasonal Factors

         Due primarily to more holidays and inclement  weather  conditions,  our
operating results during January,  February, and December are generally lower in
comparison to other months. Because all field and most lab personnel are paid on
an hourly  basis,  we can  reduce  expenses  for  direct  labor as the  workload
decreases.  Historically enough work exists during the slow months to retain the
hourly work force at reduced  levels  until  volume  increases  after the winter
months.

Backlog

         As of December  31,  1999,  our backlog has reached  approximately  $11
million.  This figure has increased  approximately 36% or $2.9 million from $8.1
million at December 31, 1998.

         New contract awards to our  strategically  located  subsidiaries in the
northeast,  southeast and southwest regions of the United States are combined in
the total backlog.

         The  following   major  new  contracts  cover  projects  from  all  the
subsidiary regions.

        o   The Philadelphia Eagles Football Team's new practice facility
        o   The  Dolphin  Mall,  retail  and  entertainment  complex  near Miami
            Airport
        o   Deguardiola  Development  Ventures  Abacoa  Town  Center in Jupiter,
            Florida
        o   The Ocean Spray  Distribution  Center and various  projects for Boyd
            Gaming in Las Vegas, Nevada
        o   The Del Mar Marriott,  Sea World Attraction 2000 and Hollywood Water
            Quality Improvement Project in California

Forward Looking and Cautionary Statements

         Except for the historical information and discussions contained herein,
statements  contained  in this  Form  10-KSB  may  constitute  `forward  looking
statements' within the meaning of the Private  Securities  Litigation Reform Act
of 1995. These  statements  involve a number of risks,  uncertainties  and other
factors  that could cause actual  results to differ  materially,  including  the
company's failure to continue to develop and market new and innovative  products
and services and to keep pace with technological change;  competitive pressures;
failure  to  obtain  or  protect   intellectual   property   rights;   quarterly
fluctuations in revenues and volatility of stock prices;  the company's  ability
to attract and retain key  personnel;  currency  and customer  financing  risks;
dependence on certain suppliers;  changes in the financial or business condition
of  the  company's   distributors  or  resellers;   the  company's   ability  to
successfully  manage acquisitions and alliances;  legal,  political and economic
changes and other risks,  uncertainties  and factors  discussed in the company's
other  filings with the  Securities  and Exchange  Commission,  and in materials
incorporated therein by reference.



                                      -18-
<PAGE>

Item 7.  Financial Statements

                                                                          Page

Independent Auditor's Report                                               F-1

Consolidated Balance Sheets                                                F-2

Consolidated Statements of Income                                          F-4

Consolidated Statements of Changes in Stockholders' Equity                 F-5

Consolidated Statements of Cash Flows                                      F-6

Notes to Consolidated Financial Statements                                 F-8



Item 8.  Changes In and Disagreements With Accountants on Accounting and
         Financial Disclosure

         There  have been no changes in or  disagreements  with our  independent
auditors regarding  accounting and financial  disclosure required to be reported
under this item.


                                      -19-
<PAGE>

                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        with Section 16(a) of the Exchange Act

         Our directors and executive  officers and their ages and positions held
with us are as follows:

        Name               Age                      Positions

Dickerson Wright           53         Chief Executive Officer, President, and
                                      Chairman of the Board of Directors
Gary H. Elzweig            44         Executive Vice President and Director
Donald C. Alford           55         Executive Vice President, Secretary and
                                      Director
Mark Baron                 44         Executive Vice President and Director
Martin B. Lowenthal        43         Executive Vice President and Director
Joseph M. Wasilewski       50         Chief Financial Officer and Director
Thomas H. Chapman          69         Director
James L. McCumber          52         Director and Member of Audit and
                                      Compensation Committees
Robert E. Petersen         53         Director and Member of Audit and
                                      Compensation Committees

         Each of our directors is elected at the annual meeting of  stockholders
and serves until the next annual  meeting and until his successor is elected and
qualified, or until his earlier death, resignation, or removal. The underwriters
have the right to observe  board  meetings for a period of five years  following
the offering.  We intend to maintain at least two  independent  directors on our
board.

         Dickerson  Wright,  P.E., is our founder and has served as our chairman
of the board of directors and president since our incorporation in October 1993.
Mr. Wright is a registered  professional engineer with a history of building and
managing  engineering  service  companies  and over 25 years  experience  in the
independent testing and inspection  industry.  Prior to founding our company, he
was  the  co-owner  and  executive  vice   president  of  American   Engineering
Laboratories and a senior executive with Professional  Service  Industries.  Mr.
Wright also served as president  and chief  executive  officer of Western  State
Testing, as national group vice president of United States Testing Company,  and
as executive  vice  president of  Professional  Service  Industries  during this
period of time.

         Gary H. Elzweig, P.E., is a co-founder of Professional  Engineering and
has served as president of Professional  Engineering  since its incorporation in
March 1987.  Mr. Elzweig has served as our executive vice president and director
since May 1998. He is a registered  professional  engineer with over 20 years of
experience  in  engineering,   design,  and  testing.  Mr.  Elzweig  earned  his
Bachelor's  Degree from Columbia  University,  School of Engineers in 1977.  Mr.
Elzweig also serves as Chairman of Broward  County's  Board of Rules and Appeals
Foundations Subcommittee, and Building Envelope Subcommittee.

         Donald C. Alford,  M.B.A.,  has served as our executive  vice president
and director  since May 1998 and  secretary  since June 1999.  Mr. Alford was an
owner of Wyman  Enterprises,  Inc.  and served as its vice  president  and chief
financial officer from April 1996 until its acquisition by U.S. Labs. Mr. Alford
continued  to work for  U.S.  Labs as an  officer  of Wyman  Testing  after  the
acquisition of Wyman Enterprises,  Inc. Mr. Alford was co-founder of Cornerstone
Development,  a real  estate  company  that  developed  approximately  20  major
projects  in the San Diego  area from 1983 to 1991.  From  October  1991 to June
1994, Mr. Alford served as president of Procom Supply



                                      -20-
<PAGE>
Corporation,  a wholesale  distributor of telephone  equipment.  Mr. Alford also
served as  managing  partner  of S.A.  Assets,  LLC, a real  estate  development
company, from July 1994 to September 1996.

         Mark  Baron  has been  president  and  director  of San  Diego  Testing
Engineers  since May 1998 and has served as our  executive  vice  president  and
director  since May 1998. Mr. Baron also was employed in the position of manager
of business  development with Professional Service Industries from November 1989
to October 1996. He has over 20 years experience in the  construction  industry.
Mr. Baron is a certified OSHPD Class A Construction Inspector.

         Martin B. Lowenthal is president and a director of U.S. Engineering and
has served as our executive  vice president and director since May 30, 1998. Mr.
Lowenthal  has  served as  president  and  director  of U.S.  Engineering  since
November 1994 and as secretary of U.S.  Engineering  since its  incorporation in
October  1993.  Mr.  Lowenthal  has 16 years  of  management  experience  in the
engineering  and  testing  industry.  He has  overseen  inspection  and  testing
operations   in  six  states,   including  New  Jersey,   New  York,   Delaware,
Pennsylvania, Maryland, and Virginia.

         Joseph M. Wasilewski,  C.P.A./M.B.A., has served as our chief financial
officer,  treasurer  and  director  since July  1999.  Mr.  Wasilewski  has been
instrumental in establishing  accounting  systems and internal  controls for the
company and its  subsidiaries  since its  incorporation  in 1993 on a consulting
basis prior to becoming  CFO. He has over 30 years  experience  on the financial
side  of  the   inspection/consulting/engineering   business.  Mr.  Wasilewski's
previous  experience includes serving as CFO for LK Comstock & Co., Inc., a part
of a multinational  French-based  conglomerate performing construction services.
Before Comstock, he was the CFO for the 25-branch operation of SGS/United States
Testing Co., Inc., a multinational Swiss-based engineering conglomerate.

         Thomas  H.  Chapman,  R.C.E.,  has  served as a  director  of San Diego
Testing  Engineers since March 1997 and has served as one of our directors since
May 1998.  Mr.  Chapman  previously  served as  president  of San Diego  Testing
Engineers from March 1997 to May 1998 and has been employed by San Diego Testing
Engineers since May 1997. Mr. Chapman  originally  joined the predecessor to San
Diego Testing  Engineers in 1968 and eventually left San Diego Testing Engineers
in 1989  when he went to work  for Law  Engineering.  He  served  as the  office
manager for Law  Engineering  until he rejoined San Diego  Testing  Engineers in
1997.  He is currently a vice  president  of San Diego  Testing  Engineers.  Mr.
Chapman has been involved in several  notable  projects in San Diego,  including
the San  Diego  Convention  Center,  the Hyatt  Regency  Hotel,  the City  Front
Terrace,  and  One  Harbor  Drive.  Mr.  Chapman  earned  his  degree  in  Civil
Engineering from San Diego State University and is a California Registered Civil
Engineer.

         James L. McCumber is the chairman, chief executive officer, and founder
of McCumber Golf, an  internationally  recognized  firm noted for the design and
construction  of landmark golf courses.  McCumber Golf was founded in 1971.  Mr.
McCumber has been one of our directors since May 1998.  Additionally,  he serves
as a committee man for the United States Golf Association.

         Robert E. Petersen has served as one of our  directors  since May 1998.
Mr.  Petersen has served as president of Asset  Management  Group,  a retail and
industrial  property  management firm, since October 1983. Mr. Petersen has also
served  as  senior  vice  president  and  chief  financial  officer  of  Collins
Development Co. and vice president of La Jolla Development Co., both of which of
are real estate development companies, since October 1983.

Committees of the Board of Directors

         We have a standing compensation committee currently composed of Messrs.
Petersen and McCumber.  The compensation  committee  reviews and acts on matters
relating to compensation levels and benefit plans for our executive officers and
key  employees,  including  salary  and stock  options.  The  committee  is also
responsible for granting stock awards, stock options, stock appreciation rights,
and other awards to be made under our existing incentive  compensation plans. We
also have a standing audit committee composed of Messrs.  McCumber and Petersen.
The audit  committee  assists  in  selecting  our  independent  auditors  and in
designating services to be performed by, and maintaining effective communication
with, those auditors.



                                      -21-
<PAGE>

Limitation of Liability and Indemnification Matters

         Our amended and restated certificate of incorporation provides that our
directors  will not be personally  liable to us or you for monetary  damages for
breach of fiduciary duty as a director except for liability:

        o   for any breach of the director's duty of loyalty to us or you;

        o   for acts or omissions not in good faith or that involve  intentional
            misconduct or a knowing violation of law;

        o   under Section 174 of the Delaware  General  Corporation  Law,  which
            relates to unlawful  payment of dividends or unlawful stock purchase
            or redemption; or

        o   for any  transaction  from which the  director  derived any improper
            personal benefit.

         Our amended and restated  certificate  of  incorporation  also provides
that we will indemnify our  directors,  officers,  employees,  and agents to the
fullest extent permitted by Section 145 of the Delaware General Corporation Law.
Insofar as indemnification  for liabilities arising under the Securities Act may
be  permitted to  directors,  officers,  and  controlling  persons of U.S.  Labs
pursuant to the foregoing provisions,  or otherwise,  U.S. Labs has been advised
that in the opinion of the SEC such  indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.

         In addition,  we have  secured a claims made  directors  and  officers'
liability  insurance  policy with an aggregate limit of $5 million.  This policy
has a one-year term that renews in February  2000. We can make no assurance that
insurance  coverage  will  continue to be renewed or  available in the future or
offered at rates similar to those under the current policies.

Section 16(a) Beneficial Ownership Reporting Compliance

         Section 16(a) of the Exchange Act requires our  company's  officers and
directors,  and  persons  who own  more  than 10% of a  registered  class of our
company's  equity  securities,  to file  reports  of  ownership  and  changes in
ownership with the SEC and the Nasdaq SmallCap Market.  Our officers,  directors
and  greater  than 10%  beneficial  owners are  required by SEC  regulations  to
furnish us with copies of all Section 16(a) forms they file with the SEC.

         Based  solely  on  review of the  copies  of forms  furnished  to us or
written  representations  from  certain  reporting  persons that no Forms 5 were
required,  we believe  that,  during the 1999 fiscal  year,  except for one late
filing by Joseph  Wasilewski,  our  officers,  directors  and  greater  than 10%
beneficial   owners   complied   with  all   applicable   Section  16(a)  filing
requirements.

Item 10. Executive Compensation

Employment Agreements

         We  have  entered  into  employment  agreements  with  Messrs.  Wright,
Elzweig, Alford, Baron, Lowenthal, and Wasilewski.  Each of these agreements has
a term of three years,  and provides that we may terminate any of the agreements
with or without cause. These employment agreements also provide for 12 months of
severance pay at the rate of 50% of the applicable  executive's  compensation in
the event the executive is  terminated  other than for cause prior to the end of
the three-year term, except for Mr.  Wasilewski whose agreement  provides for 24
months of severance pay at a rate of 50%.



                                      -22-
<PAGE>


         The  following   table  sets  forth  certain   information   concerning
compensation  paid or accrued for the fiscal year ended  December 31, 1999 by us
to or for the benefit of our chief  executive  officer  and our other  executive
officers whose total annual compensation for 1999 exceeded $100,000.
<TABLE>

                                            Summary Compensation Table
<CAPTION>
                                                    Annual Compensation        Long-Term Compensation
                                                 ----------------------------------------------------------
                                                                                        Awards
                                                                               ----------------------------
                                                                                               Securities
                                                                                               Underlying
                                                                               Restricted      Options and        All Other
Name and Principal Position                       Salary            Bonus     Stock Awards      Warrants        Compensation

<S>                                <C>           <C>               <C>              <C>           <C>               <C>
Dickerson Wright                   1999          $192,664          $81,550 +        7,844          15,000           $32,015
Chief Executive Officer            1998          $175,000            -0-           --             170,000             *

Gary H. Elzweig                    1999          $140,000          $31,567 +       --              10,000             *
Executive Vice President           1998          $171,567            -0-           --              65,000             *

Martin B. Lowenthal                                                $23,000 +
Executive Vice President;          1999           $81,200           $5,000++        3,400           -0-               *
Director                           1998           $74,190**          -0-           --              35,000             *

Donald C. Alford
Executive Vice President;          1999           $91,708          $15,000 +       --              15,000             *
Secretary; Director                1998           $59,446**          -0-           --              30,000             *

Joseph M. Wasilewski
Chief Financial Officer;           1999           $91,000           $6,000          1,715          65,000             *
Director                           1998           $15,000**          -0-           --               5,000             *


         * The aggregate  amount of  perquisites  and other  personal  benefits,
securities or property was less than the lesser of either  $50,000 or 10% of the
total annual salary and bonus reported for the named executive officer.

         ** These officers and directors were employed by the Company for only a
portion of 1998.

         + The 1998 bonus was paid in 1999.

         ++ The 1999 bonus was paid in 1999.
</TABLE>


                                      -23-
<PAGE>

         The  following  table  provides the  specified  information  concerning
grants of options and warrants to purchase our common stock made during the year
ended December 31, 1999 to persons named in the Summary Compensation Table.


<TABLE>
                                      Options/SAR Grants in Last Fiscal Year
<CAPTION>
                                   Number of
                                  Securities              Percent Total
                                  Underlying           Options/SARs Granted
                                 Options/SARs            to Employees in         Exercise or Base       Expiration
Name                                Granted                Fiscal Year             Price ($/Sh)            Date
---------------------------    ------------------     -----------------------    ------------------    -------------
<S>                                     <C>                     <C>                    <C>               <C>
Dickerson Wright                        15,000                   9.8%                  $6.60             10/15/04
Gary H. Elzweig                         10,000                   6.6%                  $6.60             10/15/04
Donald C. Alford                        15,000                   9.8%                  $6.00             10/15/04
Joseph M. Wasilewski                    50,000                  32.8%                  $6.00             04/01/02
Martin B. Lowenthal                     15,000                   9.8%                  $6.00             10/15/04
</TABLE>


         The  following  table  provides  information  concerning  exercises  of
options  and  warrants  to  purchase  our common  stock in the fiscal year ended
December 31, 1999, and unexercised  options and warrants held at fiscal year end
by the  persons  named  in the  Summary  Compensation  Table.  The  value of the
unexercised  options  and  warrants  that are in the  money  was  calculated  by
determining  the  difference  between  the fair  market  value  per share of our
company's  common  stock on  December  31,  1999 and the  exercise  price of the
options and warrants.



                                      -24-
<PAGE>
<TABLE>
                                       Aggregated Option Exercises in Last Fiscal Year
                                              And Fiscal Year End Option Values
<CAPTION>
                             Number of
                               Shares                    Number of Securities Underlying          Value of Unexercised
                            Acquired on      Value           Unexercised Options and            In-the-Money Options and
Name                          Exercise      Realized      Warrants at December 31, 1999       Warrants at December 31, 1999
--------------------------  -------------  -----------   ---------------------------------  ----------------------------------
                                                          Exercisable     Unexercisable      Exercisable      Unexercisable
                                                         --------------  -----------------  --------------  ------------------

<S>                              <C>           <C>          <C>               <C>                <C>               <C>
Dickerson Wright                 0             $0           90,302            94,698             $0                $0
Gary H. Elzweig                  0             $0           60,302            14,698             $0                $0
Donald C. Alford                 0             $0           33,332            1,668              $0                $0
Joseph M. Wasilewski             0             $0           21,666            48,334             $0                $0
Martin B. Lowenthal              0             $0           35,000             -0-               $0                $0
</TABLE>


Director Compensation

         We reimburse our directors for all reasonable and necessary  travel and
other  incidental  expenses  incurred in  connection  with their  attendance  at
meetings  of the  board.  Beginning  in  December  1998,  we began  compensating
non-employee  directors $500 for each board meeting attended. In 1998, under the
1998  Stock  Option  Plan,  each  non-employee  director  received  an option to
purchase  5,000 shares of common stock at an exercise  price of $6.00 per share.
Directors  who are members of our  subsidiaries'  boards  received an additional
grant of an identical option to purchase 5,000 shares for each board membership.
In the  future,  a  director,  who is first  elected to the board may receive an
option to purchase  shares of common stock for the first year of the  director's
board term.  The board has not yet  determined  the number of option shares that
each director will receive for each additional year the director  remains on the
board.  These  options  will have an  exercise  price  equal to 100% of the fair
market value of the common stock on the grant date.

Item 11. Security Ownership of Certain Beneficial Owners and Management

         The following table sets forth certain information regarding beneficial
ownership  of our common  stock as of  December  31,  1999,  and as  adjusted to
reflect the sale of the units offered by us, by:

        o   each  person  who is known to own  beneficially  more than 5% of the
            outstanding shares of our common stock;

        o   each of our directors; and

        o   all our directors and executive officers as a group.

         The persons  listed  below have sole voting and  investment  power with
respect to all shares of common stock shown as being beneficially owned by them,
subject to  community  property  laws,  where  applicable.  The number of shares
column in the table  includes  shares  issuable  upon  exercise  of options  and
warrants  exercisable within 60 days of December 31, 1999. The number of options
and warrants  exercisable  within 60 days of December 31, 1999 are listed in the
shares issuable upon exercise of options or warrants column.  The address of all
stockholders is care of U.S. Laboratories Inc., 7895 Convoy Court, Suite 18, San
Diego, California 92111.



                                      -25-
<PAGE>

<TABLE>
<CAPTION>
                                                                              Shares Issuable Upon
Name and Address of                           Number of         Percentage    Exercise of Options
Beneficial Owner                                Shares           Ownership         or Warrants
----------------                                ------           ---------         -----------
<S>                                           <C>                   <C>               <C>
Dickerson Wright........................      1,818,638             59.65%            90,302
Gary H. Elzweig.........................        380,789             13.78%            60,302
Martin B. Lowenthal.....................         91,526              3.95%            35,000
Donald C. Alford........................        101,810              4.54%            43,332
Mark Baron..............................         74,852              3.59%            40,000
Thomas H. Chapman.......................         51,061              2.38%            25,000
Joseph M. Wasilewski....................         28,373              1.56%            21,666
James L. McCumber.......................          5,000                 *              5,000
Robert E. Petersen......................          7,000                 *              5,000
Horwitz & Associates, Inc.**............        222,750              6.98%                 0

All current directors and officers as a
group (9 persons).......................                           81.82%
---------------------
*  Represents less than 1%

** Based  solely on  information  contained in a Schedule 13G filed by Horwitz &
   Associates, Inc. with the SEC on February 14, 2000.

</TABLE>

Item 12. Certain Relationships And Related Transactions

         All ongoing  present and future  transactions  with our affiliates have
been,  and will continue to be, on terms no less favorable to us than could have
been obtained from unaffiliated  parties,  and will be approved by a majority of
no less than two of our independent directors.  These independent directors will
not have an interest in those transactions and will have access, at our expense,
to our counsel or independent legal counsel.

         During  1999,  we signed a three  year  office  building  lease  with a
related  party to lease office space in New Jersey for the  company's  financial
and mergers and acquisition staff. The rental payments are $1,600 per month plus
utilities.

         In December 1999, we entered into a stock purchase  agreement with Gary
Elzweig for all of the outstanding stock of the Building Department, Inc. (BDI),
for a total price of $93,000.  $30,000  cash was paid in 1999 and the balance of
$63,000 was paid in February 2000.

         At December 31, 1998, we owed  Dickerson  Wright,  the Chief  Executive
Officer and majority stockholder,  $81,461. The amounts are non-interest bearing
and are payable upon demand.  Mr.  Wright loaned these amounts to us through the
use of his personal line of credit that was personally  guaranteed by Mr. Wright
and his  spouse.  In May 1998,  we  repaid a  portion  of that line of credit by
borrowing  under a new  $1,700,000  line  of  credit  that  is  also  personally
guaranteed by Mr. Wright and his spouse. At December 31, 1999,  Dickerson Wright
owed our company $140,714.  The amount is non-interest bearing and is payable on
demand.



                                      -26-
<PAGE>

         In October 1998,  the $1,700,00  line of credit was  refinanced  into a
$1,200,000  note  payable  and a  $500,000  line of  credit,  both of which  are
guaranteed  by Mr.  Wright and his spouse.  In July 1998, we also entered into a
$500,000  line of credit that is  personally  guaranteed  by Mr.  Wright and his
spouse.  We used this  $500,000  line of credit to repay in full to the bank the
$480,000  loan  made to us  through  the use of Mr.  Wright's  personal  line of
credit.

         As part of the consideration for the acquisition of Wyman  Enterprises,
Inc.'s assets, we issued a non-interest-bearing note payable to Donald C. Alford
in the  principal  amount of $150,000.  The note  payments are due in four equal
annual installments of $37,500 beginning in March 1999.

         During the year ended  December  31,  1997 and 1996 and the nine months
ended  September 30, 1998 and 1997, we paid  $181,067,  $169,594,  $92,052,  and
$137,063,  respectively, in management fees to Gary Elzweig. The management fees
were  based on 5% of net  sales of a  subsidiary,  and  have  been  discontinued
effective January 1, 1999.

         On January 1, 1998, we issued (a) 315,488 shares of our common stock to
Gary H. Elzweig in exchange  for 100 shares of the common stock of  Professional
Engineering;  (b) 55,526  shares of our common  stock to Martin B.  Lowenthal in
exchange  for 18.5 shares of the common stock of U. S.  Engineering;  (c) 33,652
shares of our common  stock to Mark  Baron in  exchange  for 1.67  shares of the
common stock of San Diego Testing Engineers; and (d) 24,061 shares of our common
stock to Thomas H.  Chapman in exchange  for 5.67 shares of the common  stock of
San Diego Testing Engineers.

         On January  1, 1998,  we issued  10,937  shares of our common  stock to
Christopher  O'Malley,  Vice President of U. S. Engineering under the terms of a
restricted  stock  agreement  containing  restrictions on the disposition of the
common stock. The common stock was issued in exchange for a capital contribution
made by Mr. O'Malley to U. S. Engineering.

         On April 1, 1998, we issued 50,478 shares of our common stock to Donald
C. Alford in exchange  for 25 shares of the common  stock of Wyman  Enterprises,
Inc.

Item 13. Exhibits and Reports on Form 8-K

         (a) The exhibit list is located at the end of this report.

         (b) We filed no Form 8-Ks during the fourth quarter.


                                      -27-
<PAGE>

                                   SIGNATURES

         In accordance  with Section 13 or 15(d) of the Securities  Exchange Act
of 1934,  the  Registrant  caused  this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on March 24, 2000.

                                           U. S. Laboratories, Inc.


                                           By:   /s/ Dickerson Wright
                                                 Dickerson Wright
                                                 Chief Executive Officer

         In accordance with the  requirements of the Securities  Exchange Act of
1934,  this report has been signed below by the  following  persons on behalf of
the Registrant in the capacities indicated on March 24, 2000:




Signature                          Title                        Date
/s/ Dickerson Wright
---------------------------  Chief Executive Officer,
Dickerson Wright             President, and Chairman
                             of the Board                     March 24, 2000

/s/ Gary Elzweig
---------------------------  Executive Vice President
Gary Elzweig                 and Director                     March 24, 2000

/s/ Donald C. Alford
---------------------------  Executive Vice President,
Donald C. Alford             Secretary and Director           March 24, 2000

/s/ Mark Baron
---------------------------  Executive Vice President
Mark Baron                   and Director                     March 24, 2000

/s/ Martin B. Lowenthal
---------------------------  Executive Vice President
Martin B. Lowenthal          and Director                     March 24, 2000

/s/ Joseph Wasilewski
---------------------------  Chief Financial Officer,
Joseph Wasilewski            Assistant Secretary, and
                             Director                         March 24, 2000

/s/ Thomas H. Chapman
---------------------------
Thomas H. Chapman            Director                         March 24, 2000

/s/ James L. McCumber
---------------------------
James L. McCumber            Director                         March 24, 2000



                                      -28-
<PAGE>
Exhibit
Number                              Exhibit Description
     ***2.1  Asset Purchase Agreement between the Company and Wyman Enterprises,
             Inc.
  ******2.2  Stock Purchase Agreement between the Company and BTC Laboratories,
             Inc.
 *******2.3  Asset Purchase Agreement between the Company and Intertek, Inc.
       *3.1  Amended and Restated Certificate of Incorporation of the Company
       *3.2  Amended and Restated by-laws of the Company
     ***4.1  Warrant Agreement, including Form of Warrant
       *4.2  Form of Underwriters' Warrant
       *4.3  Form of Warrant Agency Agreement
     ***4.4  Specimen Certificate Representing Shares of Common Stock of the
             Company
    ***4..5  Revised Form of Underwriters' Warrant
     ***4.6  Form of Promotional Shares Escrow Agreement
     ***5.1  Opinion of Foley & Lardner regarding legality
    ***10.1  Bank Loan Agreement between North County Bank and the Company
             in Principal Amount of $500,000
    ***10.2  Bank Loan  Agreement between  Bank of America and the Company
    ***10.3  Lease for San Diego, California facility
     **10.4  Bonus Employment Agreement of Dickerson Wright
    **10..5  Bonus Employment Agreement of Gary Elzweig
     **10.6  1998 Stock Option Plan
    ***10.7  Form of Incentive Stock Option Agreement
    ***10.8  Form of Non-Qualified Stock Option Agreement
     **10.9  Share Exchange Agreement between the Company and Gary H. Elzweig
    **10.10  Share Exchange Agreement between the Company and Martin B.
             Lowenthal
    **10.11  Share Exchange Agreement between the Company and Mark Baron
    **10.12  Share Exchange Agreement between the Company and Thomas H. Chapman
    **10.13  Share Exchange Agreement between the Company and Donald C. Alford
   ***10.14  Employment Agreement of James D. Wait
  ****10.15  Employment Agreement of Mark Baron
  ****10.16  Employment Agreement of Martin B. Lowenthal
  ****10.17  Employment Agreement of Dickerson Wright
  ****10.18  Employment Agreement of Gary Elzweig
  ****10.19  Employment Agreement of Donald C. Alford
  ****10.20  Form of Employee Warrant Agreement
  ****10.21  Bank Loan Agreement between North County Bank and the Company
  ****10.22  Bonus Employment Agreement of Martin B. Lowenthal
  ****10.23  Bonus Employment Agreement of Mark Baron
  ****10.24  Bank Loan Agreement between North County Bank and the Company
  ****10.25  Acknowledgement of Termination and Replacement of Option(s) and
             Warrant
   ***10.26  Loan Agreement between Merrill Lynch Business Financial Services
             and the Company
 *****10.27  1999 Stock Bonus Plan
      10.28  Commercial Lease between Joseph Wasilewski and the Company
         21  List of Subsidiaries
         23  Consent of Singer Lewak Greenbaum & Goldstein, LLP.
         27  Financial Data Schedule


                                      -29-
<PAGE>

      *  Filed  with the  registration  statement  on Form SB-2  filed  with the
         Securities and Exchange Commission on October 29, 1998.

     **  Filed with Amendment No. 1 to the registration  statement on Form SB-2,
         filed with the Securities and Exchange Commission on January 8, 1999.

    ***  Filed with Amendment No. 2 to the registration  statement on Form SB-2,
         filed with the Securities and Exchange Commission on January 27, 1999.

   ****  Filed with Amendment No. 3 to the registration  statement on Form SB-2,
         filed with the Securities and Exchange Commission on February 5, 1999.

  *****  Filed with Amendment No. 3 to the registration  statement on Form SB-2,
         filed with the Securities and Exchange Commission on February 5, 1999.

  *****  Filed  with the  registration  statement  on Form S-8,  filed  with the
         Securities and Exchange Commission on March 1, 2000.

 ******  Filed  with the  report  on Form 8-K,  filed  with the  Securities  and
         Exchange Commission on January 21, 2000.

*******  Filed  with the  report  on Form 8-K,  filed  with the  Securities  and
         Exchange Commission on March 9, 2000.



                                      -30-
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


To the Board of Directors
U.S. Laboratories Inc.
San Diego, California


We have audited the accompanying consolidated balance sheet of U.S. Laboratories
Inc. and  subsidiaries  as of December 31,  1999,  and the related  consolidated
statements of income,  stockholders'  equity, and cash flows for each of the two
years in the period ended December 31, 1999. These financial  statements are the
responsibility of our company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial  position of U.S.  Laboratories
Inc. and subsidiaries as of December 31, 1999, and the  consolidated  results of
their  operations  and their  cash flows for each of the two years in the period
ended  December  31,  1999 in  conformity  with  generally  accepted  accounting
principles.


SINGER LEWAK GREENBAUM & GOLDSTEIN LLP

Los Angeles, California
February 23, 2000

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

                                      F-1
<PAGE>
                                         U.S. LABORATORIES INC. AND SUBSIDIARIES
                                                      CONSOLIDATED BALANCE SHEET
                                                               December 31, 1999

--------------------------------------------------------------------------------
                                     ASSETS

Current assets
     Cash and cash equivalents                                        $1,217,527
     Accounts receivable, net of allowance
       for doubtful accounts of $209,956                               4,783,095
     Work-in-process                                                     329,899
     Prepaid expenses and other current assets                            85,147
     Current portion of notes receivable -
       related party                                                      46,905
                                                                      ----------
              Total current assets                                     6,462,573

Notes receivable - related party, net of
   current portion                                                        93,809
Furniture and equipment, net of accumulated
   depreciation and amortization of $1,077,836                         1,102,149
Excess cost over fair value of net assets
   acquired, net of accumulated
   amortization of $575,420                                            1,629,826
Other assets                                                             303,420
                                                                      ----------
                  Total assets                                        $9,591,777
                                                                      ==========


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

                                      F-2
<PAGE>

                                         U.S. LABORATORIES INC. AND SUBSIDIARIES
                                                      CONSOLIDATED BALANCE SHEET
                                                               December 31, 1999

--------------------------------------------------------------------------------
                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
     Line of credit                                                 $    63,641
     Current portion of long-term debt                                  132,750
     Capitalized lease obligations                                        4,966
     Current portion of notes payable                                   157,325
     Accounts payable                                                   736,540
     Accrued payroll and payroll taxes                                  308,757
     Deferred income tax                                                306,203
     Income tax payable                                                 777,434
                                                                    -----------
         Total current liabilities                                    2,487,616

Long-term debt, net of current portion                                  283,173
Notes payable, net of current portion                                   225,000
                                                                    -----------

              Total liabilities                                       2,995,789
                                                                    -----------

Commitments and contingencies

Stockholders' equity
     Preferred stock, $0.01 par value
         5,000,000 shares authorized
         none issued and outstanding                                       --
     Common stock, $0.01 par value
         50,000,000 shares authorized
         3,200,000 shares issued and outstanding                         32,000
     Treasury stock, at cost                                           (114,088)
     Additional paid-in capital                                       5,188,442
     Retained earnings                                                1,489,634
                                                                    -----------
              Total stockholders' equity                              6,595,988
                                                                    -----------
                  Total liabilities and stockholders' equity        $ 9,591,777
                                                                    ===========


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


                                      F-3
<PAGE>
                                         U.S. LABORATORIES INC. AND SUBSIDIARIES
                                               CONSOLIDATED STATEMENTS OF INCOME
                                                For the Years Ended December 31,

--------------------------------------------------------------------------------
                                                      1999              1998
                                                   ------------    -------------

Revenue                                            $ 16,397,060    $ 11,879,948

Cost of goods sold                                    8,242,875       6,641,110
                                                   ------------    ------------

Gross profit                                          8,154,185       5,238,838

Selling, general, and administrative expenses         7,047,988       4,100,510
                                                   ------------    ------------

Income from operations                                1,106,197       1,138,328
                                                   ------------    ------------

Other income (expense)
     Interest expense                                   (90,632)       (177,231)
     Interest income                                     97,720           9,252
     Other income                                        32,752          27,795
     Gain on sale of furniture and equipment              3,164           4,094
     Rental income                                         --            12,640
                                                   ------------    ------------
         Total other income (expense)                    43,004        (123,450)
                                                   ------------    ------------

Income before provision for income taxes              1,149,201       1,014,878

Provision for income taxes                              499,000         444,857
                                                   ------------    ------------

Net income                                         $    650,201    $    570,021
                                                   ============    ============

Basic income per share                             $       0.21    $       0.26
                                                   ============    ============

Diluted income per share                           $       0.21    $       0.26
                                                   ============    ============

Weighted-average shares outstanding                   3,062,810       2,200,000
                                                   ============    ============


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


                                      F-4
<PAGE>
<TABLE>
                                                                                             U.S. LABORATORIES INC. AND SUBSIDIARIES
                                                                                     CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                                                                                    For the Years Ended December 31,
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                           Additional
                                                       Common Stock         Treasury         Paid-In       Retained
                                                   Shares         Amount       Stock         Capital        Earnings       Total

<S>                                               <C>         <C>           <C>            <C>            <C>           <C>
Balance, December 31, 1997                        1,709,858   $    17,099   $      --      $   380,901    $   269,412   $   667,412

Issuance of common stock in exchange for
   shares held by minority interest holders         490,142         4,901          --          589,351           --         594,252

Net income                                                                                                    570,021       570,021
                                                -----------   -----------   -----------    -----------    -----------   -----------

Balance, December 31, 1998                        2,200,000        22,000          --          970,252        839,433     1,831,685

Issuance of common stock in connection with
   initial public offering                        1,000,000        10,000          --        5,990,000           --       6,000,000

Offering costs                                         --            --            --       (1,767,053)          --      (1,767,053)

Purchase of 60,000 shares of treasury stock,
   at cost                                             --            --        (201,927)          --             --        (201,927)

Issuance of 26,065 shares of treasury stock
   to employees                                        --            --          87,839         (4,757)          --          83,082

Net income                                             --            --            --             --          650,201       650,201
                                                -----------   -----------   -----------    -----------    -----------   -----------

     Balance, December 31, 1999                   3,200,000   $    32,000   $  (114,088)   $ 5,188,442    $ 1,489,634   $ 6,595,988
                                                ===========   ===========   ===========    ===========    ===========   ===========


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

</TABLE>

                                                                F-5
<PAGE>

                                         U.S. LABORATORIES INC. AND SUBSIDIARIES
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                For the Years Ended December 31,
--------------------------------------------------------------------------------

                                                         1999            1998
                                                     -----------    ------------
Cash flows from operating activities
     Net income                                      $   650,201    $   570,021
     Adjustments to reconcile net income
         to net cash provided by
         operating activities
              Amortization                               132,939        110,754
              Depreciation                               325,441        215,660
              Deferred income tax                       (177,432)       444,857
              Gain on sale of furniture
                and equipment                              3,164          4,094
              Reissuance of treasury stock                83,082           --
     (Increase) decrease in
         Accounts receivable                          (1,011,045)    (1,065,457)
         Work-in-process                                 (75,117)       (73,010)
         Prepaid expenses and other
           current assets                                (34,435)        31,797
         Other assets                                    (85,436)       (63,573)
     Increase (decrease) in
         Accounts payable                                 76,255        267,698
         Accrued payroll and payroll taxes                79,297         34,817
         Other accrued expenses                           (9,688)       (30,085)
         Income tax payable                              (25,245)          --
                                                     -----------    -----------
                  Net cash provided by
                   (used in) operating activities        (68,019)       447,573
                                                     -----------    -----------
Cash flows from investing activities
     Purchase of furniture and equipment                (357,614)      (200,353)
     Note receivable - related party                    (140,714)          --
     Investment in Wyman Enterprises, Inc.,
        net of cash acquired                                --         (296,729)
     Investment in Professional Services
        Industries, Inc.                                    --          (13,900)
     Investment in Jupiter, Division of
        Fraser Engineering & Testing, Inc.                  --          (35,000)
                                                     -----------    -----------
                  Net cash used in
                     investing activities               (498,328)      (545,982)
                                                     -----------    -----------


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


                                      F-6
<PAGE>

                                         U.S. LABORATORIES INC. AND SUBSIDIARIES
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                For the Years Ended December 31,

--------------------------------------------------------------------------------
                                                         1999            1998
                                                     ------------  ------------
Cash flows from financing activities
     Increase (decrease) in book overdraft           $  (125,635)   $   116,245
     Line of credit, net                                (634,103)        15,907
     Due to stockholders, net                            (81,461)      (502,820)
     Payments on long-term debt                         (149,431)      (115,507)
     Payments on capitalized lease obligations           (13,112)        (9,021)
     Deferred offering costs                             552,738       (552,738)
     Increase in notes payable                            20,000      1,230,000
     Payments on notes payable                        (1,937,924)          --
     Due from Wyman Testing Laboratories, Inc.              --          (56,007)
     Purchase of treasury stock                         (201,927)          --
     Proceeds from public offering of common stock     6,000,000           --
     Offering costs                                   (1,767,053)          --
                                                     -----------    -----------

                  Net cash provided by
                    financing activities               1,662,092        126,059
                                                     -----------    -----------

                      Net increase in cash and
                        cash equivalents               1,095,745         27,650

Cash and cash equivalents, beginning of year             121,782         94,132
                                                     -----------    -----------

Cash and cash equivalents, end of year               $ 1,217,527    $   121,782
                                                     ===========    ===========


Supplemental disclosures of cash flow information

     Interest paid                                   $    90,632    $   177,231
                                                     ===========    ===========

     Income taxes paid                               $   598,482    $     2,064
                                                     ===========    ===========


Supplemental schedule of non-cash investing and financing activities
During the years  ended  December  31, 1999 and 1998,  the  Company  acquired an
automobile and trucks of $172,534 and $225,897, respectively, under note payable
agreements.

On January 1, 1998, the company  issued  490,142 shares of our company's  common
stock to minority  interest  holders in exchange  for all of their shares in the
subsidiaries.  In connection with the purchase,  the Company recorded additional
goodwill of $194,924.

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


                                      F-7
<PAGE>

                                         U.S. LABORATORIES INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999


NOTE 1 - ORGANIZATION AND BUSINESS

         U.S. Laboratories Inc. and subsidiaries  (collectively,  the "Company")
         offers   engineering   and   design   services,   project   management,
         construction  quality  control,   structural  engineering  and  design,
         environmental engineering and inspection,  and testing. The Company has
         facilities in California,  Nevada,  New Jersey,  and Florida and grants
         credit to customers in those states.

         Acquisitions
         In January  1998,  the  Company  purchased  all of the  shares  held by
         minority  stockholders in its  subsidiaries  for $533,052.  The Company
         issued an aggregate  of 439,664  shares of common stock in exchange for
         the purchase  price.  The shares were valued using a method  similar to
         previous Company acquisitions.  The Company recorded $194,924 in excess
         of cost over fair value of net assets acquired which is being amortized
         on a straight-line basis over fifteen years.

         On March 25,  1998,  Wyman  Testing  Laboratories,  Inc.  ("Wyman"),  a
         majority-owned  subsidiary of U.S.  Laboratories Inc., acquired certain
         assets and  liabilities of Wyman  Enterprises,  Inc. The purchase price
         for the assets was  $830,620.  The purchase  price was paid as follows:
         (i) $300,000 cash paid upon the closing,  (ii)  $468,993  notes payable
         issued to the stockholders of Wyman Enterprises, Inc., and (iii) 50,478
         shares of U.S. Laboratories Inc.'s common stock issued to a stockholder
         of Wyman Enterprises, Inc. valued at $61,200, using a method similar to
         previous  company  acquisitions.  Wyman recorded  $511,200 in excess of
         cost over fair value of net assets acquired which is being amortized on
         a  straight-line  basis over fifteen  years.  For  financial  statement
         purposes, the acquisition occurred on March 31, 1998.

         The assets acquired were as follows:

             Cash                                              $         22,690
             Accounts receivable                                        577,681
             Prepaids                                                    29,985
             Furniture and equipment                                     96,952
             Goodwill                                                   511,200
             Liabilities                                               (407,888)
                                                                ---------------

                 Total                                         $        830,620
                                                                ===============

         In April 1999,  the Company agreed to give Wyman  Enterprises,  Inc. an
         additional  $31,007  relating  to the  purchase  price and  $71,904  of
         accounts  receivable.   Upon  this  agreement,   the  Company  recorded
         additional goodwill of $102,911.



                                      F-8
<PAGE>
                                         U.S. LABORATORIES INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999


NOTE 1 - ORGANIZATION AND BUSINESS (Continued)

         Acquisitions (continued)
         In May 1998,  Wyman merged into San Diego  Testing  Engineers,  Inc., a
         majority-owned  subsidiary  of the  Company,  which  is  the  surviving
         corporation.  Each share of Wyman was converted  into one-half share of
         the surviving corporation.

         In May 1998, the Company  acquired  certain  equipment of  Professional
         Services  Industries,  Inc.  ("PSI")  for a purchase  price of $13,900,
         which has been paid.

         In May  1998,  the  Company  acquired  certain  equipment  of  Jupiter,
         Division  of Fraser  Engineering  &  Testing,  Inc.  ("Jupiter")  for a
         purchase price of $35,000, which has been paid.

         In May 1999, the Company acquired  substantially  all of the assets and
         contractual  rights of Buena Engineers,  Inc.  ("Buena") for a purchase
         price of $318,834,  plus the assumption of certain  liabilities,  which
         has been paid. The Company recorded $21,595 in excess of cost over fair
         value  of  net  assets   acquired   which  is  being   amortized  on  a
         straight-line basis over 15 years. The assets acquired were as follows:

             Accounts receivable                               $        305,785
             Furniture and equipment                                     16,823
             Goodwill                                                    21,595
             Liabilities                                                (25,369)
                                                               ----------------

                 Total                                         $        318,834
                                                               ================

         In October 1999, the Company acquired  substantially  all of the assets
         and contractual rights of Advanced Geo-materials Services, Inc. ("AGS")
         for the purchase  price of $257,325 in cash and 20,000 shares of common
         stock  issued  in  March  2000,  plus  the  assumption  of the  assumed
         liabilities.  The purchase price will be paid as follows:  (i) $100,000
         cash paid upon the closing, (ii) $100,000 note payable, which shall not
         bear  interest  and the  principal  of which  shall be payable in equal
         installments  of $50,000 on the first and second  anniversary  dates of
         the closing date, and (iii) an additional $7,325 by December 31, 2000.




                                      F-9
<PAGE>

                                         U.S. LABORATORIES INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999


NOTE 1 - ORGANIZATION AND BUSINESS (Continued)

         Acquisitions
         There are contingent payments as follows:  (i) the buyer will hold back
         cash in the  amount  of  $25,000  until  April 1,  2000,  with  payment
         contingent  upon the seller  maintaining  a minimum  net asset value of
         $100,000,  and if the value falls  below the  minimum,  the  contingent
         payment will be reduced accordingly.  Should the net asset value exceed
         the minimum as reconciled back to the date of closing,  then the seller
         and buyer shall share the overage  based on the seller  receiving a 25%
         share and the buyer  receiving  a 75%  share,  (ii) the buyer will hold
         back  additional  cash of $25,000 until January 15, 2001,  with payment
         contingent upon the buyer's net revenues, exceeding $1,500,000, for the
         12 months ending  December 31, 2000. The Company  recorded  $103,743 in
         excess of cost over fair  value of net assets  acquired  which is being
         amortized on a straight-line  basis over 20 years.  The assets acquired
         were as follows:

             Accounts receivable                              $        175,912
             Furniture and equipment                                   135,724
             Prepaid expenses                                            5,110
             Goodwill                                                  103,743
             Liabilities                                              (163,164)
                                                              ----------------

                 Total                                        $        257,325
                                                              ================

         On  November  30,  1999,  the  Company  entered  into a stock  purchase
         agreement  with a  related  party to  purchase  all of the  issued  and
         outstanding  shares of capital stock of The Building  Department,  Inc.
         ("BDI") for a purchase  price of $30,000 in cash,  which has been paid.
         An  additional  amount up to $50,000 will be paid at a later date to be
         determined after December 31, 1999.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Principles of Consolidation
         The  consolidated  financial  statements  include the  accounts of U.S.
         Laboratories  Inc.  and its  subsidiaries.  All  material  intercompany
         accounts and transactions have been eliminated.

         Cash and Cash Equivalents
         For purposes of the statements of cash flows, the Company considers all
         highly liquid investments  purchased with original  maturities of three
         months or less to be cash  equivalents.  Book overdraft  represents the
         bank balance at period end, plus deposits in transit,  less outstanding
         checks.




                                      F-10
<PAGE>

                                         U.S. LABORATORIES INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         Furniture and Equipment
         Furniture and equipment,  including equipment under capital leases, are
         recorded  at cost,  less  accumulated  depreciation  and  amortization.
         Depreciation  and  amortization  are provided  using the  straight-line
         method over the estimated useful lives as follows:

                Automobile and trucks                            3 to 5 years
                Furniture and fixtures                           5 to 7 years
                Office hardware and software                          5 years
                Machinery and equipment                          5 to 7 years
                Leasehold improvements                                5 years

         Maintenance,  repairs,  and minor  renewals  are  expensed as incurred.
         Expenditures  for additions  and major  improvements  are  capitalized.
         Gains  and  losses on  disposals  are  included  in the  statements  of
         operations.

         Intangibles
         Intangibles  consist of goodwill which is being amortized over either a
         15- or 20-year period. The Company continually evaluates whether events
         or  circumstances  have occurred that indicate the remaining  estimated
         value of goodwill may not be  recoverable.  When factors  indicate that
         the value of  goodwill  may be  impaired,  the  Company  estimates  the
         remaining value and reduces the goodwill to that amount.

         Revenue Recognition
         Revenue from services performed,  including  fixed-price and unit-price
         contracts,  is  recorded  as  earned  over the  lives of the  contract.
         Revenue from services is recognized  when services have been  performed
         and  accepted.  At the time a loss or a  contract  becomes  known,  the
         entire  amount of the  estimated  ultimate  loss is  recognized  in the
         financial  statements.  The Company has not  experienced  any  material
         losses on these contracts.

         Advertising
         The Company expenses  advertising costs as incurred.  Advertising costs
         for the  years  ended  December  31,  1999 and 1998  were  $65,214  and
         $42,882, respectively.


                                      F-11
<PAGE>
                                         U.S. LABORATORIES INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         Income Taxes
         Deferred tax assets and  liabilities  are  recognized  for the expected
         future  tax  consequences  of events  that have  been  included  in the
         financial statements or tax returns. Under this method, deferred income
         taxes  are  recognized  for the tax  consequences  in  future  years of
         differences  between the tax bases of assets and  liabilities and their
         financial  reporting amounts at each year-end based on enacted tax laws
         and  statutory  tax  rates  applicable  to the  periods  in  which  the
         differences are expected to affect taxable income. Valuation allowances
         are established,  when necessary,  to reduce deferred tax assets to the
         amount  expected  to  be  realized.  The  provision  for  income  taxes
         represents  the tax  payable  for the period and the change  during the
         period in deferred tax assets and liabilities.

         Stock Split
         Effective May 30, 1998,  the Company  effected a  20,324-for-one  stock
         split and on November 9, 1998, effected a one-for-0.8413  reverse stock
         split. The options and warrants to acquire common stock were unaffected
         by the  reverse  stock  split.  All share and per share  data have been
         retroactively restated to reflect the stock split.

         Estimates
         The  preparation of financial  statements in conformity  with generally
         accepted  accounting  principles  requires management to make 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.

         Fair Value of Financial Instruments
         For certain of the Company's financial instruments,  including cash and
         cash equivalents,  accounts  receivable,  accounts  payable,  and other
         accrued  expenses,  the carrying amounts  approximate fair value due to
         their  short  maturities.  The  amounts  shown for  long-term  debt and
         capital lease  obligations  also approximate fair value because current
         interest  rates and terms offered to the Company for similar  long-term
         debt and capital lease obligations are substantially the same.

         Concentrations of Risk
         The  Company  sells   products  and  provides   contract   services  to
         construction companies,  developers, and public and private industries,
         primarily in  California,  Nevada,  New Jersey,  and  Florida.  It also
         extends  credit  based on an  evaluation  of the  customer's  financial
         condition,  generally without requiring collateral.  Exposure to losses
         on receivables is principally  dependent on each  customer's  financial
         condition.  The Company  monitors its  exposure  for credit  losses and
         maintains allowances for anticipated losses.



                                      F-12
<PAGE>
                                         U.S. LABORATORIES INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         Net Income Per Share
         Basic  earnings  per share is computed by dividing net income to common
         stockholders   by  the   weighted-average   number  of  common   shares
         outstanding.

         Diluted  earnings per share is computed  similar to basic  earnings per
         share except that the denominator is increased to include the number of
         additional  common  shares  that  would  have been  outstanding  if the
         potential  common shares had been issued and if the  additional  common
         shares were dilutive.

         Comprehensive Income
         The  Company  utilizes  Statement  of  Financial  Accounting  Standards
         ("SFAS") No. 130,  "Reporting  Comprehensive  Income."  This  statement
         establishes  standards  for  reporting  comprehensive  income  and  its
         components in a financial  statement.  Comprehensive  income as defined
         includes  all  changes  in equity  (net  assets)  during a period  from
         non-owner  sources.  Examples of items to be included in  comprehensive
         income,  which are excluded from net income,  include foreign  currency
         translation   adjustments   and   unrealized   gains   and   losses  on
         available-for-sale securities. Comprehensive income is not presented in
         the Company's  financial  statements since the Company did not have any
         of the items of comprehensive income in any period presented.

         Recently Issued Accounting Pronouncements
         In June 1999, the Financial  Accounting Standards Board ("FASB") issued
         SFAS No. 136,  "Transfer of Assets to a Not-for-Profit  Organization or
         Charitable Trust that Raises or Holds  Contributions  for Others." This
         statement is not applicable to the Company.

         In June 1999, the FASB issued SFAS No. 137,  "Accounting for Derivative
         Instruments  and  Hedging  Activities."  The  Company  does not  expect
         adoption  of SFAS No. 137 to have a  material  impact,  if any,  on its
         financial position or results of operations.


NOTE 3 - CASH AND CASH EQUIVALENTS

         The Company  maintains  cash deposits at banks  located in  California,
         Nevada,  Florida, and New Jersey.  Deposits at each bank are insured by
         the  Federal  Deposit  Insurance  Corporation  up  to  $100,000.  As of
         December  31,  1999,  uninsured  portions  of  balances  held at  banks
         aggregated to $1,079,135. The Company has not experienced any losses in
         such accounts and believes it is not exposed to any significant  credit
         risk on cash.



                                      F-13
<PAGE>
                                         U.S. LABORATORIES INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999


NOTE 4 - FURNITURE AND EQUIPMENT

         Furniture  and  equipment  at  December  31,  1999   consisted  of  the
following:

        Automobile and trucks                                 $  963,259
        Furniture and fixtures                                   319,136
        Office hardware and software                             168,735
        Machinery and equipment                                  596,337
        Leasehold improvements                                   132,518
                                                              ----------
                                                               2,179,985
        Less accumulated depreciation and amortization         1,077,836
                                                              ----------
            Total                                             $1,102,149
                                                              ==========

         Depreciation and amortization  expense for the years ended December 31,
         1999 and 1998 was $325,441 and $215,660, respectively.


NOTE 5 - LINES OF CREDIT

         In September  1999, the Company  entered into a $200,000  non-revolving
         line of credit with a bank, which expires on July 31, 2000. Interest is
         payable  on a  monthly  basis at the  bank's  reference  rate  (8.5% at
         December  31,  1999).  The  line is used  only  for  financing  capital
         additions.  On August 31,  2000,  the line of credit will  convert to a
         five-year term loan, and the remaining  principal  balance will be paid
         in 60 equal monthly installments,  commencing August 31, 2000. The line
         is  collateralized   by  a  majority  of  the  Company's  assets.   The
         outstanding balance at December 31, 1999 was $63,641.

         In September 1999, the Company entered into a $4,000,000 line of credit
         with a bank,  which  expires on July 31,  2001.  The line is to be used
         only for financing working capital. The borrowing base is the lesser of
         (i)  $4,000,000  or (ii)  80% of the  balance  on  acceptable  accounts
         receivable and up to $400,000 in  work-in-process.  The line is secured
         by the assets of the Company and bears interest at the bank's reference
         rate,  which is payable on a monthly  basis.  At December 31, 1999, the
         line was unused.

         In September 1999, the Company entered into a $350,000 term loan with a
         bank.  The  term  loan  is to be used  only  for  refinancing  existing
         equipment.  The loan is available in one disbursement  from the bank on
         the date of the  agreement.  The  principal  balance is due in 36 equal
         monthly  installments of $9,722,  commencing  August 31, 1999. The term
         loan is secured by the assets of the Company and bears  interest at the
         bank's reference rate. At December 31, 1999, the term loan was unused.



                                      F-14
<PAGE>
                                         U.S. LABORATORIES INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999


NOTE 5 - LINES OF CREDIT (Continued)

         The credit  agreements  provide  for the  Company to  maintain  certain
         covenants. At December 31, 1999, the Company was in compliance with all
         of the reporting covenants.


NOTE 6 - LONG-TERM DEBT

         Long-term debt at December 31, 1999 consisted of the following:

           Notes payable to various motor credit corporations,
             collateralized by applicable equipment.  The
             notes are currently due in aggregate monthly
             payments of $17,100, including interest from
             7.75% to 13.5% per annum.                              $    415,923

           Less current portion                                          132,750
                                                                    ------------
                    Long-term portion                               $    283,173
                                                                    ============

         The following is a schedule by years of future  maturities of long-term
debt:

          Year Ending
         December 31,

             2000                                                    $   132,750
             2001                                                        132,565
             2002                                                        104,325
             2003                                                         37,426
             2004                                                          8,857
                                                                     -----------
                  Total                                              $   415,923
                                                                     ===========


NOTE 7 - NOTES PAYABLE

         Notes payable consisted of the following at December 31, 1999.

           Note payable to stockholder of Wyman
             Enterprises, Inc. in connection with
             the acquisition.  The remaining amount
             is to be paid in three annual
             installments of $37,500 on March 25,
             2000, 2001, and 2002.                                   $   112,500



                                      F-15
<PAGE>
                                         U.S. LABORATORIES INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999


NOTE 7 - NOTES PAYABLE (Continued)

           Note payable to stockholder of Wyman
             Enterprises, Inc. in connection
             with the acquisition.  The remaining
             amount is to be paid in three annual
             installments of $37,500 on March 25,
             2000, 2001, and 2002.                                   $   112,500

           Notepayable to stockholders of AGS
             in connection with the acquisition.
             The amount is to be paid in two
             annual installments of $50,000,
             commencing October 15, 2000. An
             additional $25,000 will be held
             until April 1, 2000 with payment
             contingent upon the seller
             maintaining a minimum net book
             asset of $100,000.  An additional
             $25,000 will be held back until
             January 15, 2001 with payment
             contingent upon the buyer's net
             revenues exceeding $1,500,000
             for the 12 months ending
             December 31, 2000. An additional
             $7,325 is due by December 31, 2000.                         157,325

                                                                         382,325
                  Less current portion                                   157,325
                                                                     -----------
                           Long-term portion                         $   225,000
                                                                     ===========

         The  following  is a schedule  by years of future  maturities  of notes
payable:

            Year Ending
           December 31,

               2000                                                  $   157,325
               2001                                                      150,000
               2002                                                       75,000
                                                                     -----------

                Total                                                $   382,325
                                                                     ===========


NOTE 8 - RELATED PARTY TRANSACTIONS

         Notes Payable - Related Party
         At December  31,  1999,  the Company had amounts due from the  majority
         stockholder of $140,714.  The amounts are non-interest  bearing and are
         payable in three equal annual installments.


                                      F-16
<PAGE>
                                         U.S. LABORATORIES INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999


NOTE 8 - RELATED PARTY TRANSACTIONS (Continued)

         Stockholder Management Fees
         During the year ended December 31, 1998, the Company  expensed  $92,052
         in management fees to a stockholder. The management fees are based upon
         5% of net sales of a subsidiary  and have been  discontinued  effective
         January 1, 1999.


NOTE 9 - COMMITMENTS AND CONTINGENCIES

         Leases
         The Company has entered into  non-cancelable  operating  leases for its
         corporate offices and facilities in California, New Jersey, Nevada, and
         Florida. The Company has the option to extend certain leases.

         Future minimum rental  commitments  under lease agreements with initial
         or  remaining  terms of one year or more at  December  31,  1999 are as
         follows:

           Year Ending
          December 31,

              2000                                                   $   331,000
              2001                                                       230,000
              2002                                                       166,000
              2003                                                        39,000
                                                                     -----------

                   Total                                             $   766,000
                                                                     ===========

         Rent expense was $375,614 and $301,598 for the years ended December 31,
         1999 and 1998, respectively.

         Employment Agreements
         During the years ended December 31, 1999 and 1998, the Company  entered
         into three-year employment agreements with certain key employees of the
         Company. The agreements require aggregate monthly payments of $84,167.

         Bonuses
         During the year ended December 31, 1999, the Company awarded bonuses to
         various  employees  in the  form of cash and  common  stock  valued  at
         $17,900 and $83,082,  respectively.  The Company  further awarded a key
         employee a bonus based upon the Company's  performance.  As of December
         31, 1999, accrued bonuses amounted to $25,000.


                                      F-17
<PAGE>
                                         U.S. LABORATORIES INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999


NOTE 9 - COMMITMENTS AND CONTINGENCIES (Continued)

         Severance
         In March 1999, an officer of the Company  resigned his position and was
         given a severance package equal to 50% of his base salary.  Included in
         accounts  payable  at  December  31,  1999 is  $24,000  related to this
         obligation.


NOTE 10 - PROFIT SHARING PLAN

         The  Company  has  a  voluntary   profit   sharing  plan  which  covers
         substantially  all  eligible  full-time  employees  who  meet  the plan
         requirements.  Annual  employer  contributions  are based on a years of
         service vesting  schedule.  Employer  contributions for the years ended
         December 31, 1999 and 1998 were $50,072 and $19,525, respectively.


NOTE 11 - INCOME TAXES

         A reconciliation  of the expected income tax computed using the federal
         statutory  income tax rate to the Company's  effective  income tax rate
         for the years ended December 31 is as follows:

                                                               1999     1998
                                                              ------   ------

     Income tax computed at federal statutory tax rate          34.0%   34.0%
     State taxes, net of federal benefit                         5.2     5.6
     Non-deductible goodwill amortization and other              4.2     4.2
                                                              ------  ------
         Total                                                  43.4%   43.8%
                                                              ======  ======

         Significant  components  of  the  Company's  deferred  tax  assets  and
         liabilities  for income  taxes for the year  ended  December  31,  1999
         consisted of the following:

     Deferred tax assets
         State taxes                                               $ 67,561
                                                                   --------
     Deferred tax liabilities
         Change in accounting method - cash to accrual              363,857
         Depreciation                                                 9,907
                                                                   --------

                                                                    373,764
                                                                   --------
              Net deferred tax liability                           $306,203
                                                                   ========


                                      F-18
<PAGE>
                                         U.S. LABORATORIES INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999


NOTE 11 - INCOME TAXES (Continued)

         The  components  of the income tax  provision  (benefit)  for the years
ended December 31 are as follows:

                                                1999             1998
                                            -----------      ------------
        Current
            Federal                          $ 589,000         $    --
            State                              124,998               800
                                             ---------         ---------

                                               713,998               800
                                             ---------         ---------

        Deferred
            Federal                           (182,048)          357,000
            State                              (32,950)           87,057
                                             ---------         ---------

                                              (214,998)          444,057
                                             ---------         ---------

                 Total                       $ 499,000         $ 444,857
                                             =========         =========


NOTE 12 - STOCKHOLDERS' EQUITY

         Initial Public Offering ("IPO")
         On  February  23,  1999,  the Company  completed  an IPO to offer up to
         $6,000,000  worth of shares of common  stock  consisting  of  1,000,000
         units at $6 per share. Each unit consisted of one share of common stock
         and one redeemable  warrant to purchase one share of common stock at an
         exercise  price of $7.80.  The  Company  generated  $4,232,947,  net of
         offering costs.

         Treasury Stock
         On November 2, 1999,  the  Company's  Board of  Directors  authorized a
         stock repurchase program.  The program allows the Company to repurchase
         up to 100,000  shares of common  stock from time to time in  connection
         with employee benefit programs and other corporate purposes.

         As of December 31, 1999, 60,000 shares of the 100,000 authorized shares
         have been  repurchased at a total cost of $201,927.  As of December 31,
         1999,  26,065 of these shares have been issued to various  employees in
         lieu of bonuses valued at $83,082.



                                      F-19
<PAGE>
                                         U.S. LABORATORIES INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999


NOTE 12 - STOCKHOLDERS' EQUITY (Continued)

         Stock Option Plan
         In July 1998,  the Board of  Directors  adopted and  approved  the 1998
         Stock  Option Plan (the  "Option  Plan") under which a total of 500,000
         shares of common stock have been reserved for  issuance.  In June 1999,
         the  Company's  Board of Directors  approved an amendment to the Option
         Plan to increase  the  authorized  number of shares of common  stock to
         810,000. Options under this plan may be granted to employees, officers,
         directors,  and  consultants of the Company.  The exercise price of the
         options is determined by the Board of Directors, but the exercise price
         may not be less  than  100% of the  fair  market  value  on the date of
         grant.  Options  vest over  periods not to exceed  five years.  In July
         1998,  the Company had 395,000  stock options  outstanding  at exercise
         prices which range from $5 to $5.50 per share,  of which  238,632 stock
         options were exercisable.

         In November 1998, the Company cancelled all of its outstanding options,
         and the Board of Directors approved a grant of 395,000 stock options at
         exercise  prices  which  range  from $6 to $6.60  per  share,  of which
         238,632 stock options were exercisable.

         The Company has adopted only the disclosure provisions of SFAS No. 123.
         It applies  Accounting  Principles  Bulletin  ("APB")  Opinion  No. 25,
         "Accounting for Stock Issued to Employees," and related interpretations
         in accounting for its plans and does not recognize compensation expense
         for its stock-based  compensation plans other than for restricted stock
         and  options/warrants  issued to outside third parties.  If the Company
         had elected to recognize compensation expense based upon the fair value
         at the  grant  date  for  awards  under  its plan  consistent  with the
         methodology  prescribed  by SFAS No. 123, the  Company's net income and
         earnings per share would be reduced to the pro forma amounts  indicated
         below for the years ended December 31, 1999 and 1998:

                                                           1999         1998
                                                      -----------   ------------
            Net income
                As reported                           $  650,201    $   570,021
                Pro forma                             $  389,887    $    25,455
            Basic earnings per common share
                As reported                           $     0.21    $      0.26
                Pro forma                             $     0.13    $      0.01


                                      F-20
<PAGE>
                                         U.S. LABORATORIES INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999


NOTE 12 - STOCKHOLDERS' EQUITY (Continued)

         Stock Option Plan (Continued)
         These pro forma amounts may not be representative of future disclosures
         because  they do not take into  effect pro forma  compensation  expense
         related to grants made before 1995. The fair value of these options was
         estimated at the date of grant using the  Black-Scholes  option-pricing
         model with the  following  weighted-average  assumptions  for the years
         ended  December  31,  1999  and  1998:  dividend  yields  of 0% and 0%,
         respectively;   expected  volatility  of  55%  and  0%,   respectively;
         risk-free interest rates of 6.3% and 4.3%,  respectively;  and expected
         lives of four and three years, respectively.  The weighted-average fair
         value of options  granted  during the years ended December 31, 1999 and
         1998 for which the exercise  price equals the market price on the grant
         date  was  $1.13  and  $4.16,  respectively,  and the  weighted-average
         exercise price was $6 and $6, respectively.  The weighted-average  fair
         value of options  granted  during the years ended December 31, 1999 and
         1998 for which the exercise  price was greater than the market price on
         the   grant   date  was  $1.13  and   $4.07,   respectively,   and  the
         weighted-average exercise price was $6 and $6.60, respectively.

         The  Black-Scholes  option  valuation  model was  developed  for use in
         estimating  the fair  value of traded  options  which  have no  vesting
         restrictions and are fully transferable.  In addition, option valuation
         models require the input of highly subjective assumptions including the
         expected stock price volatility.  Because the Company's  employee stock
         options  have  characteristics  significantly  different  from those of
         traded options, and because changes in the subjective input assumptions
         can materially affect the fair value estimate, in management's opinion,
         the  existing  models  do not  necessarily  provide a  reliable  single
         measure of the fair value of its employee stock options.

         The following  summarizes the stock option transactions under the stock
         option plan:

                                                                    Weighted-
                                                   Stock             Average
                                                  Options           Exercise
                                                Outstanding           Price

       Balance, December 31, 1997                       -          $     -
       Granted                                    395,000          $   6.22
                                               ----------

       Balance, December 31, 1998                 395,000          $   6.22
       Granted                                    152,500          $   6.00
       Cancelled                                   (7,000)         $   6.00
                                               ----------

           Balance, December 31, 1999             540,500          $   6.16
                                               ==========

           Exercisable, December 31, 1999         349,402          $   6.13
                                               ==========


                                      F-21
<PAGE>
                                         U.S. LABORATORIES INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999


NOTE 12 - STOCKHOLDERS' EQUITY (Continued)

         Stock Option Plan (Continued)
         The weighted-average  remaining contractual life of the options is 3.92
         years at December 31, 1999.

NOTE 13 - WARRANTS

         In July  1998,  the Board of  Directors  approved  the grant of 150,000
         stock  warrants  to certain  employees  of the  Company.  The  warrants
         entitle the holder to purchase  Company  common  stock at a price of $5
         per share.  The warrants are exercisable the earlier of (i) the date on
         which the closing  price of a share of the  Company's  common  stock as
         reported on the NASDAQ Small-Cap Market is greater than $12 or (ii) the
         date on which the  audited  consolidated  earnings  for the fiscal year
         ending December 31, 1998, or any fiscal year  thereafter,  are at least
         twice the base period  earnings of $841,041.  The warrants  expire upon
         termination or November 9, 2003.

         In  November  1998,  the  Company  cancelled  all  of  its  outstanding
         warrants,  and the Board of  Directors  approved  the grant of  150,000
         stock  warrants  to certain  employees  of the  Company.  The  warrants
         entitle the holder to purchase  Company  common  stock at a price of $6
         per share.  The warrants are exercisable the earlier of (i) the date on
         which the closing  price of a share of the  Company's  common  stock as
         reported on the NASDAQ  Small-Cap  Market is greater  than $12; or (ii)
         the date on which the audited consolidated earnings for the fiscal year
         ending December 31, 1998, or any fiscal year  thereafter,  are at least
         twice the base period  earnings of $841,041.  The warrants  expire upon
         termination or November 9, 2003.

         On February 23, 1999, the Company  entered into an underwriter  warrant
         agreement in  correlation  with the Company's IPO to issue  warrants to
         purchase  100,000 units at an initial exercise price of $9.60 per unit.
         The warrants may be exercised at any time from  February 23, 2000 until
         February  23,  2004,  the  expiration  date.  The units  consist of one
         fully-paid and non-assessable  share of common stock and one warrant to
         purchase one share of common stock.

         In March 1999, the Company granted  warrants to purchase 120,000 shares
         of  common  stock  at an  exercise  price  of  $3.88  per  share  to an
         investment relations firm. 70,000 warrants vest immediately, and 50,000
         warrants vest on the earlier of (i) the date on which the closing price
         of a share of stock as  reported on the NASDAQ  Small-Cap  Market is at
         least $7 for three  consecutive  trading days or (ii) the date on which
         the Company  determines that the value of the services  provided to the
         Company  during  the term of the  agreement  is  sufficient  to justify
         vesting.  This warrant will expire and will not be  exercisable  on the
         date five years from the date of grant.


                                      F-22
<PAGE>
                                         U.S. LABORATORIES INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999


NOTE 14 - YEAR 2000 ISSUE

         The  Company  has  completed  a  comprehensive  review of its  computer
         systems to identify  the systems that could be affected by ongoing Year
         2000  problems.   Upgrades  to  systems  judged  critical  to  business
         operations have been  successfully  installed.  To date, no significant
         costs have been incurred in the Company's  systems  related to the Year
         2000.

         Based on the review of the computer  systems,  management  believes all
         action necessary to prevent  significant  additional  problems has been
         taken.  While the Company has taken steps to  communicate  with outside
         suppliers,  it cannot  guarantee that they have all taken the necessary
         steps to prevent any service interruption that may affect the Company.


NOTE 15 - SUBSEQUENT EVENTS

         In January 2000, the Company entered into a stock purchase agreement to
purchase all the  outstanding  shares of BTC  Laboratories,  Inc.  ("BTC") for a
total purchase price of $1,200,000  payable for $500,000 in cash, which has been
paid.  The buyer  will pay to  stockholders  cash  equal to the  collections  of
accounts  receivable  and  work-in-process  during  the six  months  immediately
following the closing date up to a maximum amount of $700,000.

         In January 2000, Buena Engineers,  Inc., a majority-owned subsidiary of
U.S.  Laboratories,  Inc., entered into an asset purchase agreement with Stewart
Environmental,  Inc. ("Stewart") to purchase substantially all of the assets for
a purchase price of $60,000.

         In January 2000, San Diego Testing Engineers, Inc. entered into a asset
purchase agreement to purchase substantially all the assets of SAGE Engineering,
Inc. ("SAGE") for a total purchase price of $50,000 in cash and 15,000 shares of
common stock.

         In February 2000, the Company entered into an asset purchase  agreement
with  Intertek  Technical  Services,  which will  operate  under the name Unitek
Technical  Services,  Inc.,  for a total  purchase  price of $1,650,000 in cash,
which has been paid.


                                      F-23