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, 2004

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

              For the transition period from ________ to _________

                         Commission file number: 0-11772

                                SPO MEDICAL INC.
                (Name of small business issuer as in its charter)

                 Delaware                                   25-1411971
       (State or other jurisdiction of                    (I.R.S. Employer
        incorporation or organization)                    Identification No.)

    21860 Burbank Blvd., North Building, Suite 380, Woodland Hills, CA 91367
                    (Address of principal executive offices)

                                 (818) 888-4380
                (Issuer's Telephone Number, Including Area Code)

                             UNITED DIAGNOSTIC, INC.
                  124 W. 60th Street, #33L, New York, New York 10023
         (Former name or former address, if changed since last report.)

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

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

                     Common Stock, Par Value $.01 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 there is no disclosure  of delinquent  filers in response to Item
405 of Regulation S-B is not contained in this form,  and 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 10-KSB. |_|

The issuer's revenues for the fiscal year ended December 31, 2004, were $0

      On June 6, 2005,  the  aggregate  market  value of the voting stock of SPO
Medical Inc. held by nonaffiliates of the registrant was approximately $629,515.
The Company's  common stock is reported in the "pink  sheets"  maintained by the
National  Quotation  Bureau,  LLC.  The Company does not believe that its common
stock is the  subject of an active  market.  May 6,  2005,  was the last date on
which an actual  transaction in the Company's common stock was reported.  On May
6, 2005,  the high bid and low ask prices of such stock as reported in the "pink
sheets" were $.05 and $.05, respectively. For purposes of calculating the market
value of the Company's  common stock, the Company has utilized $.05, the closing
sale price for the common stock as reported by the "pink sheets" on May 6, 2005.

      The registrant had 17,053,621 post  forward-split  shares of common stock,
$.01 par value per share, outstanding at June 6, 2005.

                   Documents Incorporated by Reference: None.


<PAGE>

                                SPO MEDICAL INC.
                   (formerly known as United Diagnostic, Inc.)
                          ANNUAL REPORT ON FORM 10-KSB

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                         Page
<S>                                                                                       <C>
PART I......................................................................................2
         ITEM 1.      DESCRIPTION OF BUSINESS...............................................2
         ITEM 2.      DESCRIPTION OF PROPERTY...............................................4
         ITEM 3.      LEGAL PROCEEDINGS.....................................................4
         ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................4
PART II.....................................................................................5
         ITEM 5.      MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL
                      BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES........................5
         ITEM 6.      MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.............6
         ITEM 7.      FINANCIAL STATEMENTS .................................................8
         ITEM 8.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                      AND FINANCIAL DISCLOSURE..............................................8
         ITEM 8A.     CONTROLS AND PROCEDURES...............................................9
         ITEM 8B.     OTHER INFORMATION.....................................................9

PART III...................................................................................10
         ITEM 9.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...................10
         ITEM 10.     EXECUTIVE COMPENSATION...............................................13
         ITEM 11.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                      MANAGEMENT AND RELATED STOCKHOLDER MATTERS...........................17
         ITEM 12.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................17
         ITEM 13.     EXHIBITS.............................................................18
         ITEM 14.     PRINCIPAL ACCOUNTANT FEES AND SERVICES...............................18

SIGNATURES.................................................................................19
EXHIBIT INDEX..............................................................................20
</TABLE>


<PAGE>

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

Organization

      SPO Medical Inc., formerly known as United Diagnostic,  Inc.  (hereinafter
referred to as "SPO" or the "Company"),  was originally organized under the laws
of the State of Delaware in September  1981 under the name "Applied DNA Systems,
Inc." On November 16, 1994,  the Company  changed its name to "Nu-Tech  Bio-Med,
Inc." On December 23, 1998, the Company  changed its name to United  Diagnostic,
Inc. Effective April 21, 2005, the Company changed its name to its present name,
SPO Medical Inc. pursuant to a Capital Stock Exchange  Agreement entered into on
February  28,  2005,  as amended and  restated on April 21, 2005 (the  "Restated
Exchange Agreement"). One of the Company's wholly-owned subsidiaries, Analytical
Biosystems Corp.  ("ABC") (inactive since November 3, 1997), was organized under
the laws of the State of Delaware in August,  1985.  On October  21,  1996,  the
Company  acquired  substantially  all of the medical  billing  service assets of
Prompt Medical Billing, Inc. through the Company's wholly-owned subsidiary, NTBM
Billing Services Inc. (inactive since April, 1998),  organized under the laws of
the State of Delaware on September  10, 1996.  On October 15, 2001,  the Company
closed  its  office in  Wakefield,  Rhode  Island,  and  discontinued  reporting
activities  until January 2003.  Since  February  2003, the Company has remained
inactive. In February 2005, the Company filed its Form 10-KSB for the year ended
December 31,  2002,  its Form 10-QSB for the quarter  ended March 31, 2003,  its
Form 10-QSB for the quarter ended June 30, 2003, its Form 10-QSB for the quarter
ended  September 30, 2003, its Form 10-KSB for the year ended December 31, 2003,
its Form 10-QSB for the quarter  ended March 31,  2004,  its Form 10-QSB for the
quarter ended June 30, 2004, and its Form 10-QSB for the quarter ended September
30, 2004.

Recent Events

      Pursuant to the Restated  Exchange  Agreement,  the Company  issued to the
shareholders  of SPO Ltd. an  aggregate  of  5,769,106  shares of Common  Stock,
representing approximately 90% of the Common Stock issued and outstanding (after
giving effect to the transactions  contemplated by Restated Exchange Agreement).
As a result  of the  Acquisition  Transaction,  SPO Ltd.  became a wholly  owned
subsidiary of the Company as of April 21, 2005.

      The foregoing description of the Acquisition  Transaction and the Restated
Exchange  Agreement  does not purport to be  complete  and is  qualified  in its
entirety by reference to the Restated Exchange  Agreement,  filed as Exhibit 2.1
to Current Report Form 8-K as filed on April 21, 2005, and  incorporated  herein
by reference.

      Upon consummation of the Acquisition Transaction,  the Company effectuated
a forward stock split of the Company's Common Stock issued and outstanding after
giving effect to the transactions contemplated by Restated Exchange Agreement on
a 2.65285:1 basis. Following the forward stock split, the Company has 17,053,621
shares of Common Stock issued and outstanding and the former shareholders of SPO
Ltd. hold  approximately  15,303,620  shares,  representing 90% of the Company's
issued and outstanding  stock.  The amount of issued and  outstanding  shares of
Common Stock does not include  446,380  shares of Common Stock issuable upon the
exercise  of penny  warrants  issued to Mr.  Israel  Sarussi,  SPO Ltd.'s  Chief
Technology Officer.

      As the former  shareholders  of SPO Ltd. hold 90% of the Company's  issued
and outstanding shares, and because the business of SPO Ltd. represents the only
business operations of the Company,  the acquisition of SPO Ltd. is deemed to be
a reverse acquisition for accounting purposes. SPO Ltd., the acquired entity, is
regarded as the predecessor entity of the Company as of April 21, 2005.


                                       2
<PAGE>

      The shares of Common Stock  issued to the  shareholders  of SPO Ltd.  were
issued in reliance upon an exemption from registration  under the Securities Act
of 1933, as amended.

      Pursuant to the Restated Exchange Agreement,  upon the consummation of the
Acquisition  Transaction,   a  new  board  of  directors  for  the  Company  was
constituted.  See PART III - ITEM 9.  Directors  and  Executive  Officers of the
Registrant.

      Upon the  consummation  of the  Acquisition  Transaction,  the name of the
Company was changed to "SPO Medical Inc." and the  certificate of  incorporation
and the bylaws of the Company  were each amended and restated in the forms filed
as Exhibit 3.2 and Exhibit 3.2, respectively to Current Report Form 8-K as filed
on April 21, 2005, and incorporated herein by reference. The Company changed its
name from "United Diagnostic,  Inc." to "SPO Medical Inc." in order to provide a
new identity for the Company's new business. In connection with the name change,
the  Company  expects  that its  trading  symbol on the pink sheets will also be
changed.

      In order to facilitate the Acquisition  Transaction,  and to raise working
capital,  on April 21,  2005,  the Company  commenced a private  placement  (the
"Private  Placement") to certain  private and  institutional  investors of up to
$1,150,000 by the sale of units of its  securities,  with each unit comprised of
(i) a 18 month 6% Promissory  Note (the "Notes") and (ii) two year warrants (the
"Warrants")  to  purchase  up to such  number of  shares of Common  Stock of the
Company as are  determined  by principal  amount of the Note being  purchased by
such investor  divided by $ 0.85,  at a per share  exercise  price of $0.85.  On
April 21,  2005,  the  Company  conducted  an  initial  closing  on the  Private
Placement for gross proceeds of $225,000.  Thereafter,  the Company will conduct
additional  closings.  As of May 10, 2005, an aggregate of $419,827 in principal
amount of Notes were sold to accredited investors and, in connection  therewith,
warrants to purchase up to approximately  493,915 shares of the Company's Common
Stock were issued.  These  securities  were issued in reliance upon an exemption
from registration under the Securities Act of 1933, as amended.

      In connection with the Acquisition  Transaction,  Mr. Israel Sarussi,  the
Chief Technology Officer of SPO Ltd., received 1,402,124 shares of the Company's
Common Stock in exchange for the shares of SPO Ltd.  that he held.  In addition,
Mr. Sarussi  exchanged  90,978  currently  exercisable  warrants of SPO Ltd. for
168,275  currently  exercisable  penny warrants of the Company at closing of the
Acquisition  Transaction.  Post forward stock subdivision  (discussed in further
detail in Item 5.03 below),  Mr.  Sarussi holds shares of the  Company's  Common
Stock, comprised of (i) 3,719,624 shares of Common Stock and (ii) 446,380 shares
of Common Stock issuable upon exercise of currently  exercisable penny warrants,
representing  approximately 23.8% of the Company's issued and outstanding shares
of Common  Stock.  Mr.  Sarussi is the only person  known to the Company to hold
beneficial  ownership  of 5% or  more of the  Company'  issued  and  outstanding
shares.

      Upon  the  consummation  of  the  Acquisition  Transaction,   the  Company
effectuated a forward  stock split of the Company's  Common Stock on a 2.65285:1
basis.  The  forward  stock  split was made to all  stockholders  of the Company
immediately  after the  Acquisition  Transaction.  The additional  shares issued
pursuant to the forward stock split are fully paid and  non-assessable.  All new
shares  will have the same par  value,  voting  rights  and other  rights as old
shares.  The stock split was  effectuated by increasing the number of issued and
outstanding  shares at the ratio of 2.65285:1.  Accordingly,  as a result of the
forward  stock split,  the Company has  17,053,621  shares  outstanding  and has
approximately  32,946,379  authorized  unissued shares of Common Stock available
for  issuance.  The Company also has  2,000,000  authorized  shares of preferred
stock,  none of which have been designated or are outstanding.  These shares may
be issued in the future in connection with acquisitions,  subsequent  financings
or as determined by the Company's board of directors.


                                       3
<PAGE>

      SPO Medical  Equipment Ltd. ("SPO Ltd."),  was organized under the laws of
the  State  of  Israel  in  August  1995.  SPO  Ltd.   develops   biosensor  and
microprocessor  technologies using reflectance pulse oximetry techniques for use
in  portable  monitoring  devices  to  capture  life-saving  and  life-enhancing
information within four key markets: medical care; home and remote-care;  sports
and  wellness;  and  general  security.  SPO Ltd.  has  developed  and  patented
proprietary  technology  that enables the use of pulse oximetry in a reflectance
mode of  operation  i.e. a sensor that can be affixed to a single side of a body
part. This technique is known as Reflectance Pulse Oximetry (RPO).  Using RPO, a
sensor  can be  positioned  on  various  places  of the body,  hence  minimizing
problems of motion and poor profusion. In addition, its unique design results in
substantially  lower power requirements,  which enable a wireless  configuration
with expanded commercial possibilities.

Employees

      As of May 15, 2005, the Company had two employees. The Company's employees
are not represented by a labor union, and the Company considers its relationship
with its employees to be good.

ITEM 2. DESCRIPTION OF PROPERTY

      The Company's  principal  administrative  office  address is 21860 Burbank
Blvd., North Building,  Suite 380, Woodland Hills, California 91367. The Company
believes that its present facilities are adequate for its present needs.

ITEM 3. LEGAL PROCEEDINGS

      None.

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

      None.

                   [BALANCE OF PAGE INTENTIONALLY LEFT BLANK]


                                       4
<PAGE>

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
        ISSUER PURCHASES OF EQUITY SECURITIES

                               MARKET INFORMATION

      The Company believes that there is currently no established public trading
market for the Common Stock.  The Company's  Common Stock is quoted on the "pink
sheets"  maintained  by the National  Quotation  Bureau,  Inc.  under the symbol
"UNDI"  through April 21, 2005.  Thereafter the Company began to be quoted under
the symbol  "SPOM."  Between April 22, 2005,  and May 12, 2005, the common stock
was quoted on the "pink sheets" under the symbol  "UNDG";  prior to such time it
was quoted under the symbol "UNDI." The Company  believes if the Common Stock is
currently being traded, it is being traded on the "pink sheets."

      The  following  table  sets forth the range of high and low  reported  bid
prices for the years  ended  December  31, 2004 and 2003.  The Company  does not
believe  that its common  stock is the subject of an active  market.  Quotations
represent  prices between dealers and do not reflect retail markups,  mark-downs
or commissions and may not necessarily represent actual transactions.

                                                    Bid Prices of Common Stock
                                                    --------------------------

                                                           Low     High
                                                           ---      ---

Year Ended December 31, 2004:
    First Quarter (1)                                      .00      .00
    Second Quarter (1)                                     .00      .00
    Third Quarter (1)                                      .00      .00
    Fourth Quarter (1)                                     .00      .00
Year Ended December 31, 2003:
    First Quarter (1)                                      .00      .00
    Second Quarter (1)                                     .00      .00
    Third Quarter (1)                                      .00      .00
    Fourth Quarter (1)                                     .00      .00

----------
(1)   As  quoted on the  "pink  sheets"  maintained  by the  National  Quotation
      Bureau, Inc.

                                     HOLDERS

      The number of holders of record of the  Company's  Common  Stock as of May
15, 2005, was approximately  604. The Company believes that a significant number
of shares of its Common  Stock are held in either  nominee  name or street  name
brokerage  accounts and,  consequently,  it is unable to determine the number of
beneficial owners of its stock.

                                    DIVIDENDS

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


                                       5
<PAGE>

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

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

Twelve  months  ended  December  31,  2004,  compared  with twelve  months ended
December 31, 2003

      Results of Operations

      The Company  reported no operating  revenues  for the twelve  months ended
December 31, 2004, and 2003 as it had no operating business.

      Total  operating  costs and expenses for the twelve months ended  December
31, 2004,  were $1,501  compared to $19,390 for the twelve months ended December
31,  2003.  The  decrease  of  $17,889  is  due to a  decrease  in  general  and
administrative expenses.

      General and  administrative  expenses for the twelve months ended December
31, 2004,  were $1,501  compared to $19,390 for the twelve months ended December
31,  2003.  The  decrease of $17,889 is  primarily  due to lack of activity  and
operations.

      Interest  expense for the twelve months ended December 31, 2004, and 2003,
was $6,259  representing  the annual  interest  incurred for funds loaned to the
Company (see Pledge of Principal  Assets to Secure Existing Loans from the State
of Rhode Island).

      Net loss for the twelve  months ended  December  31,  2004,  was $7,760 as
compared to $25,649 for the twelve months ended  December 31, 2003. The decrease
of  $17,889  in net loss is due to a  decrease  in  general  and  administrative
expenses.

      Net loss per share of Common Stock for the twelve  months  ended  December
31, 2004,  was nil compared to $(.02) for the year ended  December 31, 2003. The
decrease  is due to a  reduction  in net loss as well as an increase in weighted
average shares  outstanding.  Weighted average shares outstanding were 1,722,044
for the year ended  December 31, 2004,  compared to 1,610,009 for the year ended
December 31, 2003.


                                       6
<PAGE>

Liquidity and Capital Resources

      The Company has sustained  net losses of $7,760 and $25,649,  respectively
during the years ended December 31, 2004, and 2003, and as of December 31, 2004,
had  approximately  $7,600  in  cash  remaining  from  advances  on a  potential
acquisition (see next paragraph). The amount of stockholders' capital deficiency
and working  capital  deficiency  at December  31,  2004,  was  $652,403.  These
conditions raise  substantial doubt about the Company's ability to continue as a
going  concern.  Additionally,  as of December  31, 2004,  all of the  Company's
liabilities are either in default or past due.

      As previously  described in the  registrant's  Current  Report on Form 8-K
filed on March 2, 2005,  effective  February  28,  2005,  SPO  Medical  Inc.,  a
Delaware corporation (the "Company"), formerly known as United Diagnostic, Inc.,
entered into a Capital Stock Exchange Agreement (the "Exchange Agreement") among
the Company,  SPO Medical Equipment Ltd., a company  incorporated under the laws
of the State of Israel ("SPO Ltd."), and the shareholders of SPO Ltd., providing
for the acquisition by the Company of all of the issued and  outstanding  shares
of SPO Ltd. (the  "Acquisition  Transaction") in exchange for a specified number
of shares of the Company's  common stock, par value $0.01 per share (the "Common
Stock").  On April 21, 2005, the Exchange Agreement was amended and restated (as
so amended and restated the "Restated Exchange Agreement").

      SPO Ltd. has developed and patented  proprietary  technology  that enables
the use of pulse oximetry in a reflectance  mode of operation i.e. a sensor that
can be  affixed  to a single  side of a body part.  This  technique  is known as
Reflectance  Pulse  Oximetry  (RPO).  Using RPO, a sensor can be  positioned  on
various  places of the  body,  hence  minimizing  problems  of  motion  and poor
profusion.  In addition,  its unique design results in substantially lower power
requirements,  which enable a wireless  configuration  with expanded  commercial
possibilities.

      Pursuant  to  Restated  Exchange  Agreement,  the  Company  issued  to the
shareholders  of SPO Ltd. an  aggregate  of  5,769,106  shares of Common  Stock,
representing approximately 90% of the Common Stock issued and outstanding (after
giving effect to the transactions  contemplated by Restated Exchange Agreement).
As a result  of the  Acquisition  Transaction,  SPO Ltd.  became a wholly  owned
subsidiary of the Company as of April 21, 2005.

      The foregoing description of the Acquisition  Transaction and the Restated
Exchange  Agreement  does not purport to be  complete  and is  qualified  in its
entirety by reference to the Restated Exchange  Agreement,  filed as Exhibit 2.1
to Current Report Form 8-K as filed on April 21, 2005, and  incorporated  herein
by reference.

      Upon consummation of the Acquisition Transaction,  the Company effectuated
a forward stock split of the Company's Common Stock issued and outstanding after
giving effect to the transactions contemplated by Restated Exchange Agreement on
a 2.65285:1 basis. Following the forward stock split, the Company has 17,053,621
shares of Common Stock issued and outstanding and the former shareholders of SPO
Ltd. hold  approximately  15,303,620  shares,  representing 90% of the Company's
issued and outstanding  stock.  The amount of issued and  outstanding  shares of
Common Stock does not include  446,380  shares of Common Stock issuable upon the
exercise  of penny  warrants  issued to Mr.  Israel  Sarussi,  SPO Ltd.'s  Chief
Technology Officer.

      The Company had $7,597 in cash at December  31,  2004.  The Company had no
cash at December 31, 2003.

      Prepaid  expenses  and other  current  assets were $16,339 at December 31,
2004, as compared to $16,447 at December 31, 2003.

      Total current  liabilities  at December 31, 2004 were $676,339 as compared
to $661,090 at December 31, 2003.

      Amounts due to related  parties  represent  advances to the Company by its
former  officers  and a one-year  severance  accrual of  approximately  $208,000
pursuant to a previous Chief Executive Officer's employment agreement.


                                       7
<PAGE>

      Pledge of  Principal  Assets to Secure  Existing  Loans  from the State of
Rhode Island

      In connection  with a series of loans obtained during 1993 and 1994 by the
Company from the State of Rhode Island Economic  Development Small Business Loan
Fund Corporation  ("SBLFC") in the principal  aggregate amount of $791,000,  the
Company  executed two patent security  agreements  granting the SBLFC a security
interest in ABC's patents to secure $541,000 of the $791,000 of SBLFC loans (the
principal balance of which, as of December 31, 2004, was approximately $66,000).
All of the SBLFC  loans,  including  those  which  were  subject  to the  patent
security interest,  were further secured by a security interest in the Company's
accounts  receivable,  inventory and  equipment.  Each of these loans were for a
term of five years from its respective loan date,  bearing  interest at the rate
of 5.4% and, as to each loan,  after the first year is  amortized  monthly as to
principal and interest.  In June 1998, the terms of these loans were modified to
9.5% interest  with  principal  due on demand.  The aggregate  amount of monthly
interest  payments  is  approximately  $600 per  month.  The  Company  is not in
compliance with certain terms of these loans. In the event that the Company, for
whatever reason,  is unable to continue to meet its loan repayment  obligations,
the  assets  which are  pledged  will be subject to the rights of the SBLFC as a
secured party.  Further,  until the SBLFC loans are repaid,  it is unlikely that
the Company or ABC will be able to obtain additional secured financing utilizing
this collateral as security for new loans.

ITEM 7. FINANCIAL STATEMENTS

      See Index to Financial Statements attached hereto.

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

      On November 19, 2004, SPO Medical Inc. (the  "Company")  dismissed  Eisner
LLP as its independent accountant. Eisner LLP had been previously engaged as the
principal accountant to audit the Company's financial statements. The reason for
the  termination  was that a company  with which the  Company is  negotiating  a
potential  reverse merger  transaction  requested a change in  accountants.  The
decision to change accountants was approved by the Company's Board of Directors.

      Eisner LLP did not audit the Company's financial statements for any period
after the fiscal  year ended  December  31,  2001.  Eisner  LLP's  report on the
financial statements for the fiscal year ended December 31, 2001 did not contain
an  adverse  opinion  or  disclaimer  of  opinion  and  was not  modified  as to
uncertainty, audit scope, or accounting principles.

      During the  Company's two most recent  fiscal  years,  and the  subsequent
interim periods,  there were no  disagreements  with Eisner LLP on any matter of
accounting  principles or practices  financial  statement  disclosure,  auditing
scope, or procedure, which disagreements,  if no resolved to the satisfaction of
Eisner LLP,  would have caused it to make reference to the subject matter of the
disagreement in connection with its reports.

      On November 19, 2004, the Company  retained Marcum & Kliegman,  LLP as its
new  independent  accountant.  Marcum &  Kliegman,  LLP is  located at 655 Third
Avenue, 16th Floor, New York, New York 10017.


                                       8
<PAGE>

ITEM 8A. CONTROLS AND PROCEDURES

      EVALUATION OF DISCLOSURE  CONTROLS AND PROCEDURES.  We maintain disclosure
controls and procedures that are designed to ensure that information required to
be disclosed in our Exchange Act reports is recorded, processed,  summarized and
reported  within the time periods  specified  in the SEC's rules and forms,  and
that such information is accumulated and  communicated to management,  including
our Chief Executive Officer (and Principal Financial  Officer),  as appropriate,
to allow timely  decisions  regarding  required  disclosure based closely on the
definition of "disclosure controls and procedures" in Rule 13a-14(c).

      As of the end of the period  covered  by this  report,  we carried  out an
evaluation,   under  the  supervision  and  with  participation  of  management,
including our Chief Executive Officer (and Principal Financial Officer),  of the
effectiveness  of the  design  and  operation  of our  disclosure  controls  and
procedures.  Based on the foregoing,  our Chief Executive Officer (and Principal
Financial  Officer)  concluded that our disclosure  controls and procedures were
effective.

      CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING.  During the quarter
ended  December  31, 2004,  there have been no changes in our internal  controls
over financial reporting that have materially affected, or are reasonably likely
to materially affect, these controls.

ITEM 8B. OTHER INFORMATION

Reports on Form 8-K.

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

Date of Report             Item Reported              Description of Item
--------------             -------------              -------------------

November 19, 2004          Item 4.01 Changes in       The Company reported the
                           Company's Certifying       termination of Eisner
                           Accountant                 LLP and the engagement
                                                      of Marcum & Kliegman LLP

March 2, 2005              Item 1.01 Entry into a     The Company reported it
                           Material Definitive        entered into a Capital
                           Agreement of SPO Medical   Stock Exchange Agreement
                           Equipment Ltd.             to acquire all of the
                                                      issued and outstanding
                                                      equity capital

April 21, 2005             Item 1.01 Entry into a     Set forth under Item 2.01
                           Material Definitive
                           Agreement

                           Item 2.01 Completion of    The Company reported the
                           Acquisition amended and    completion of an
                           restated Capital Stock     acquisition transaction
                           Exchange Agreement         as described in the

                           Item 2.03 Creation of a    Set forth under Item 3.02
                           Direct Financial
                           Obligation


                                       9
<PAGE>

                           Item 3.02 Unregistered     The Company reported it
                           Sales Of Equity            conducted an initial
                           Securities                 closing on a private
                                                      placement of $225,000
                                                      and subsequently raised
                                                      $419,827 during May 2005

                           Item 5.01 Changes in       The Company reported a
                           Control Of Registrant      change of control as a
                           Transaction                result of the completion
                                                      of an acquisition

                           Item 5.02 Departure of     The Company reported the
                           Directors or Principal     resignation of existing
                           Officers; Election of      directors and the
                           Directors; Appointment     appointment of new
                           of Prinicipal              directors
                           Officers

                           Item 5.03 Amendments to    The Company reported a
                           Articles of                name change and the
                           Incorporation And Bylaws   filing of an amended and
                                                      restated Certificate of
                                                      Incorporation and Bylaws

                           Item 9.01 Financial        The Company reported
                           Statements And Exhibits    that financial statements
                                                      of business acquired and
                                                      pro forma financial

                                                      Information will be filed
                                                      with 60 days of this
                                                      Report and exhibits
                                                      identified in report are
                                                      attached


                                    PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors

      Set forth  below is certain  information  relating  to the  members of the
Board of Directors of the Company as of December 31, 2004.  Effective  April 21,
2005, pursuant to the completion of the Acquisition Transaction,  all members of
the Board of Directors of the Company resigned and new directors were appointed.
See Directors - Effective April 21, 2005.

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


                                       10
<PAGE>

      Directors - Prior to April 21, 2005

        NAME              AGE                                    POSITION
       ----               ---                                    --------

J. Marvin Feigenbaum       54      Chairman of the Board of Directors, President
                                   and Chief Executive Officer of the Company

      At a  Special  Meeting  of  Shareholders  held  September  25,  2001,  Mr.
Feigenbaum  was  elected as a Class 3 Director  to serve  until the 2004  annual
meeting.  The following  sets forth  certain  biographical  information  for the
Director and Officer as of December 31, 2004:

      J. Marvin  Feigenbaum.  Mr. J. Marvin  Feigenbaum was first elected to the
Board of Directors in June 1994,  at which time he was also elected to the Board
of Directors of ABC and  appointed  Chief  Executive  Officer of the Company and
Chief Executive and Chief Financial Officer of ABC. Mr. Feigenbaum has served as
President  of the  Company  since June 1, 1994,  and as  Chairman  of the Board,
President and Chief Executive  Officer of PCL from October 3, 1997 until May 12,
1999.  From August 1993 to June 1994, Mr.  Feigenbaum  served as a consultant to
the Company,  primarily with respect to the Company's  business  development and
plans and programs  relating to the  marketing of the Company's  laboratory  and
medical testing  services.  From 1987 to June 1994, Mr.  Feigenbaum  acted as an
independent  consultant in the medical and health care industry.  He has over 25
years of experience in the health care  industry.  Prior to being an independent
consultant, Mr. Feigenbaum, from 1982 to mid-1987, served as Chairman, President
and Chief Executive Officer of Temco Home Health Care Products,  Inc., a durable
medical equipment manufacturer.  For a period of four years until he voluntarily
resigned  in May  1999,  Mr.  Feigenbaum  served  as a  member  of the  Board of
Directors and Vice-Chairman of Comprehensive  Care Corporation  ("CompCare"),  a
publicly owned company engaged in the health care business, previously listed on
the New York Stock Exchange.

      Mr.  David A.  Sterling  resigned as a member of the Board of Directors of
the Company effective January 1, 2004.

      Directors - Effective April 21, 2005

      NAME               AGE                      POSITION
      ----               ---                      --------

Michael Braunold         45              Chief Executive Officer, President and
                                         Director of the Company

Pauline Dorfman          40              Director of the Company

Sidney Braun             44              Director of the Company

      Michael Braunold,  Chief Executive Officer,  President and Director. Since
March 1998, Mr. Braunold has been Chief Executive Officer of SPO. Prior to March
1998,  Mr.  Braunold  was Senior  Director  of  Business  Development  at Scitex
Corporation Ltd., a multinational corporation specializing in visual information
communication.  In such  capacity,  Mr.  Braunold  played  a  strategic  role in
managing a team of professionals assigned to M&A activities.  During his 12-year
tenure at Scitex, he held various  positions within the worldwide  organization,
including  a period  in the  United  States  as Vice  President  of an  American
subsidiary of Scitex  specializing in medical  imaging.  From March 2000 through
September 2000, Mr.  Braunold was also the Chief Executive  Officer and Chairman
of  Ambient   Corporation,   a  Delaware   company,   that  specializes  in  the
implementation   of   a   proposed   comprehensive    high-speed   communication
infrastructure   that  is  designed  to  utilize   existing   electrical   power
distribution lines as a high-speed  communication medium. Mr. Braunold served as
director  of Amedia  Networks,  Inc.  (formerly  TTR  Technologies,  Inc.)  from
February  2000 through  August 2002.  Mr.  Braunold  originates  from the United
Kingdom. He obtained a Bachelor of Science degree with honors in Engineering and
Management Sciences from Imperial College Business School, London.


                                       11
<PAGE>

      Pauline Dorfman,  Director.  Since January 2001 Mrs. Dorfman,  a qualified
chartered  accountant,  has been a  consultant  with  Berenblut  Consulting,  an
Ontario firm that assists commercial business,  law firms and governments across
North  America  and  Europe  in  several  areas  covering  economics,   finance,
accounting,  valuation  and strategy.  Mrs.  Dorfman  specializes  in conducting
analysis  and  financial   investigations   in  connection  with   international
development  disputes and economic damage  quantification for breach of contract
and personal medical  malpractice cases. Prior to this assignment,  Mrs. Dorfman
worked for 10 years with the Toronto Dominion Bank in the finance and commercial
lending  areas  analyzing  the financial  risk of various bank  investments  and
strategies,  assisting in the  development  of new bank products and meeting the
external and internal financial reporting requirements of the bank.

      Sidney  Braun,  Director.  Since  June 2004,  Mr.  Braun has served as the
President  and  COO  for  Med-Emerg   International   Inc.   (MEII),  a  company
incorporated in the Province of Ontario.  MEII is a publicly  listed  healthcare
services company  specializing in the coordination and delivery of emergency and
primary  health care  related  services in Canada  such as  physician  and nurse
staffing and recruitment, clinical management services, a national drug infusion
service and a comprehensive physician practice management program. Mr. Braun has
extensive  experience in commerce  both in North  America and Europe,  including
manufacturing,  distribution and trading. Prior to his current position at MEII,
Mr.  Braun  worked for 7 years as an  independent  consultant  to several  large
state-owned  corporations  from the former Eastern  European block on developing
business  strategies and adapting to new working  conditions in western markets.
In addition,  Mr. Braun  developed  expertise in emerging  financial  markets in
Europe and introduced several companies to the UK and German capital markets.

Section 16 Reporting

      Section 16(a) of the Exchange Act,  requires officers and directors of the
Company and persons who own more than ten percent of the Common  Stock,  to file
initial  statements of beneficial  ownership (Form 3), and statements of changes
in beneficial  ownership (Forms 4 or 5), of Common Stock with the SEC. Officers,
directors and greater than 10%  stockholders  are required by SEC  regulation to
furnish the Company with copies of all such forms they file.

      Based solely on review of the copies of such forms received by the Company
with respect to 2004, the Company believes that all of the filing obligations of
officers,  directors and 10%  stockholders  under Section 16(a) during 2004 have
been complied with.

Code of Ethics

      The Company has been  inactive  since early 2003 and has not yet adopted a
Code of Ethics applying to its executive officers.  The Company intends to adopt
a Code of Ethics applying to such persons during the fiscal year ending December
31, 2005.


                                       12
<PAGE>

ITEM 10. EXECUTIVE COMPENSATION

Summary of Cash and Certain Other Compensation.

Executive Compensation.

         The following provides certain information concerning all Plan and
Non-Plan (as defined in Item 402 (a)(ii) of Regulation S-B) compensation awarded
to, earned by, paid or accrued by the Company during the years ended December
31, 2004, 2003 and 2002, to the Chief Executive. No other executive officer was
paid a salary in excess of $100,000 during such years.

Summary Compensation Table.

<TABLE>
<CAPTION>
                                                                           LONG TERM COMPENSATION AWARDS
                                              ANNUAL COMPENSATION              RESTRICTED SECURITIES           PAYOUTS
                                              -------------------              ---------------------           -------

          NAME AND                                       OTHER ANNUAL       STOCK             UNDERLYING         ALL OTHER
     PRINCIPAL POSITION         YEAR       SALARY        COMPENSATION      AWARD(S)            OPTIONS          COMPENSATION
     ------------------         ----       ------        ------------      --------            -------          ------------
                                            ($)               ($)                                                     ($)
<S>                             <C>       <C>                <C>             <C>                <C>                 <C>
   J. Marvin Feigenbaum         2004      $     --           $    --             --               --                $ --
   President and Chief          2003      $     --           $    --             --               --                $ --
   Executive Officer(1)         2002      $277,333(3)        $    --             --               --                $916(2)
</TABLE>

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

(2)   Represents automobile garage fees.

(3)   Includes  $208,000 (one year) severance accrual pursuant to the Employment
      Agreement

Options/SAR Grants in Fiscal Year Ended December 31, 2004

      No options or stock  appreciation  rights  were  granted to the  Company's
Chief Executive  officer or any other  executive  officer during the fiscal year
ended December 31, 2004.

      Aggregated  Options/SAR  Exercises  in Most Recent  Fiscal Year and Fiscal
      Year-End Options/SAR Values.

      No options or stock  appreciation  rights were held by the Company's Chief
Executive  officer or any other  executive  officer during the fiscal year ended
December 31, 2004.


                                       13
<PAGE>

Employment Agreements.

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

      On April 30, 2002, the Restated Agreement expired by its terms and was not
renewed.  However, Mr. Feigenbaum remains the Chairman of the Board,  President,
Chief Executive Officer and Chief Financial Officer of the Company on an at-will
employment basis.  Effective May 1, 2002,  pursuant to the terms of the Restated
Agreement,  the Company accrued a severance payment of $208,000.  As of the date
of the filing of this report, this severance has not been paid.

      During the year ended December 31, 2004, Mr.  Feigenbaum did not receive a
salary.  During 2002 the Company  accrued  salary  amounting to $277,333,  which
includes a $208,000  one-year  severance  accrual,  pursuant to the then current
Employment  Agreement,  as amended. As of December 31, 2004, this amount was has
not been paid.  Due to the financial  condition of the Company,  during the year
ended December 31, 1998, approximately $47,667 of cash compensation which should
have  been  paid to Mr.  Feigenbaum  in 1998  was  voluntarily  deferred  by Mr.
Feigenbaum until 1999 as a convenience to the Company. On September 26, 2001, J.
Marvin  Feigenbaum,  relinquished  any and all rights to options  granted to him
that were voted upon and  approved by the  holders of shares of Common  Stock of
the  Company  at a  Special  Meeting  of  Stockholders  of the  Company  held on
September  25, 2001.  The option grant was for 500,000  shares of the  Company's
Common Stock at an exercise  price of $.66 per share.  Accordingly,  the options
were never issued.

Compensation of Directors

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


                                       14
<PAGE>

      Effective May 1, 2002,  Mr. J. Marvin  Feigenbaum  was the Chairman of the
Board,  President,  Chief Executive  Officer and Chief Financial  Officer of the
Company on an at-will  employment  basis until April 21, 2005. See Recent Events
under Item 1.

1994 Incentive Stock Option Plan

      In August 1994,  the Board of  Directors  adopted a 1994  Incentive  Stock
Option Plan (the "Plan") which Plan was approved and adopted by the stockholders
of the Company on November 16, 1994. The Plan provides for the issuance of up to
250 shares of the Company's Common Stock upon the exercise of options granted to
officers,  directors,  full time employees and consultants rendering services to
the Company.  Under the terms of the Plan,  options  granted  thereunder will be
designated  as options  which  qualify  for  incentive  stock  option  treatment
("ISO's")  under  Section 422 of the Internal  Revenue Code of 1986,  as amended
(the "Code"),  or options which do not so qualify  ("Non-ISO's").  Unless sooner
terminated,  the Plan will expire on August 1, 2004,  and options may be granted
at any time or from time to time through  such date.  The purpose of the Plan is
to promote the interests of the Company and its  stockholders  by  strengthening
the  ability of the  Company  to attract  and  retain  officers,  employees  and
consultants by furnishing suitable recognition of their ability to contribute to
the success of the Company and to align  their  interests  and efforts  with the
long  term  interest  of the  Company.  The Plan  succeeds  the  Company's  1992
Incentive Stock Option Plan, which has been terminated.

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

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

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


                                       15
<PAGE>

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

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

      As of December 31, 2004,  there are no outstanding  options  granted under
this plan.

Non-Employee Director Stock Option Plan

      In August 1994, the Board of Directors  adopted the Non-Employee  Director
Stock Option Plan (the  "Director  Plan") which  Director  Plan was approved and
adopted by the  stockholders of the Company on November 16, 1994, and amended by
the  stockholders  of the Company on August 27, 1996. The Director Plan provides
for  issuance of a maximum of 2,857  shares of Common Stock upon the exercise of
stock options granted under the Director Plan.  Options may be granted under the
Director Plan until August 1, 2004, to the Company's  non-employee directors (as
defined).  The Director  Plan  provides  that each  non-employee  director  will
automatically  be granted an option to purchase 71 shares upon joining the Board
of Directors (or, for those persons who are directors on the date of approval of
the Director Plan by the  stockholders,  on such date),  and options to purchase
114  shares  on each  anniversary  of the  initial  date of  service  or date of
approval,  as the case may be. No options have been  granted  under the Director
Plan since 1996 because the Company  essentially became inactive during 1997 and
a market  for the  Company's  Common  Stock  has  neither  been  established  or
sustained since that time.

      Under the terms of the Director  Plan,  the sum of the number of shares to
be received upon any grant  multiplied by the fair market value of each share at
the time of grant may not exceed  $75,000.  All  awards  shall be reduced to the
extent they exceed such amount. The exercise price for options granted under the
Director  Plan shall be 100% of the fair market value of the Common Stock on the
date of grant. Until otherwise provided in the Director Plan, the exercise price
of options granted under the Director Plan must be paid at the time of exercise,
either in cash,  by  delivery  of shares of Common  Stock of the Company or by a
combination  of each.  The term of each  option is five  years  from the date of
grant,  unless  terminated sooner as provided in the Director Plan. The Director
Plan is  administered  by a committee of the Board of Directors  composed of not
fewer than two persons who are  officers of the Company (the  "Committee").  The
Committee  has no  discretion  to determine  which  non-employee  director  will
receive  options or the number of shares subject to the option,  the term of the
option or the exercisability of the option. However, the Committee will make all
determinations of the interpretation of the Director Plan. Options granted under
the Director Plan do not qualify for  incentive  stock option  treatment.  As of
December 31, 2004, there are no options outstanding under this plan.


                                       16
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The  following  table sets forth certain  information  as of May 15, 2005,
with respect to the ownership of Common Stock by (i) the persons  (including any
"group" as that term is used in Section 13(d)(3) of the Securities  Exchange Act
of 1934, as amended),  known by the Company to be the  beneficial  owner of more
than five percent of any class of the  Company's  voting  securities,  (ii) each
director and each officer  identified  in the Summary  Compensation  Table,  and
(iii) directors and executive officers as a group. The most current  information
available to the Company is set forth below.

        NAME AND ADDRESS                    AMOUNT OF AND NATURE      PERCENTAGE
       OF BENEFICIAL OWNER                 OF BENEFICIAL OWNERSHIP     OF CLASS
       -------------------                 -----------------------     --------

Israel Sarussi
c/o 3 HaGavish St., Kfar Saba                     4,165,773(1)          23.8%
Israel 44641

All Officers and Directors as a Group (1          4,165,773(1)          23.8%
person in number)

(1)   Includes (i) 3,719,393  shares of Common Stock and (ii) 446,380  shares of
      Common  Stock  issuable  upon  exercise  of  currently  exercisable  penny
      warrants

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Due to Related Parties

      Due to related  parties  aggregating  to $284,785 at  December  31,  2004,
represent  advances to the Company by its former Chief  Executive  Officer and a
former board member and accrued and unpaid salary to the Company's  former Chief
Executive  Officer.  Such advances are  non-interest  bearing and due on demand.
During the year ended December 31, 2004, no transactions occurred.

      Employment Agreements

      The Company had an employment agreement with Mr. J. Marvin Feigenbaum, its
former  president  and CEO,  with a term of  three  years  at a base  salary  of
$208,000  through April 30, 2002. Other benefits typical of such agreements were
also provided.  Per the terms of the agreement,  a severance equal to one year's
base salary would be due if the  agreement  was not renewed by the  Company.  On
April 30, 2002, Mr. Feigenbaum's  employment  agreement expired by its terms and
was not renewed.  However,  Mr.  Feigenbaum  remained the Chairman of the Board,
President, Chief Executive Officer and Chief Financial Officer of the Company on
an at-will  employment  basis through April 21, 2005.  Effective May 1, 2002, as
per the terms of the  Employment  Agreement,  the  Company  accrued a  severance
payment of $208,000.

      One of the directors of the Company and the Chief Executive Officer of the
Company, Michael Braunold, is an executive officer of SPO Ltd. and will continue
in such capacity following the Acquisition Transaction.  The Company anticipates
that it will enter into an employment  agreement with Mr.  Braunold  pursuant to
which he will be retained as the Company's Chief Executive Officer. Mr. Braunold
is currently the Chief Executive Officer of the Company.


                                       17
<PAGE>

      Upon the consummation of the Acquisition Transaction,  the Company entered
into a  one-year  Consulting  Agreement  with J.  Marvin  Feigenbaum,  a  former
director and principal shareholder of the Company, under which Mr. Feigenbaum is
to provide certain consulting services to the Company. In consideration thereof,
the Company paid to Mr.  Feigenbaum  $100,000 at the closing of the  Acquisition
Transaction.  In addition, under the Consulting Agreement, the Company undertook
to (i) not consummate a reverse stock split without the prior written consent of
Mr. Feigenbaum,  (ii) grant to Mr. Feigenbaum of piggyback  registration  rights
with respect to all of the Common Stock of the Company owned by Mr.  Feigenbaum.
The foregoing  description of the consulting  agreement  between the Company and
Mr.  Feigenbaum does not purport to be complete and is qualified in its entirety
by reference to the Consulting  Agreement with Mr. Feigenbaum,  filed as Exhibit
1.01 to Current  Report  Form 8-K on April 21, 2005 and  incorporated  herein by
reference.

ITEM 13. EXHIBITS

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

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

      The following  table sets forth the fees billed to us for the fiscal years
ended  December  31,  2003  and  December  31,  2004 by  Marcum &  Kliegman  LLP
("MKLLP"):

                                Fiscal Year               Fiscal Year
                                  Ended                      Ended
                             December 31, 2003          December 31, 2004
                             -----------------          -----------------

Audit Fees (1)                   $25,000                     $25,000
Audit Related Fees (2)
Tax Fees (3)
All Other Fees (4)

      (1)  Consists of fees billed for  professional  services  rendered for the
audit of the  financial  statements  of the Company as of December  31, 2003 and
December  31,  2004 and  reviews of the  financial  statements  included  in the
Company's  Quarterly  Reports on Form 10-QSB for the quarters during such fiscal
years.  MKLLP was retained in November 2004 to conduct an audit of the Company's
financial  statements  as of December 31, 2003 and December 31, 2004 and for the
years then ended as well a review of the financial  statements to be included in
the Forms  10-QSB for such  years.  The amount of Audit  Fees  reported  in each
column of the table  includes  the fees billed for both fiscal  years since such
fees were not separately allocated to each of the two years.

      (2)  Consists of fees for  services  relating to  accounting  consultation
related to the performance of the audit that are not reported as audit fees.

      (3) Consists of tax filing and tax related  compliance  and other advisory
services.

      (4) None


                                       18
<PAGE>

Pre-Approval of Services by the Independent Auditor

      The Board of  Directors  has  adopted a policy for  approval  of audit and
permitted non-audit services by our independent auditor. The Board will consider
annually and approve the provision of audit services by our independent  auditor
and consider and, if appropriate, approve the provision of certain defined audit
and non-audit services. Our management, may, however, approve de minimus amounts
for non-audit services without the approval of the Board.

      The Board also will consider on a case-by-case  basis and, if appropriate,
approve specific engagements.  Any proposed specific engagement may be presented
to the  Board for  consideration  at its next  regular  meeting  or, if  earlier
consideration  is required,  to the any member of the Board who will then call a
special meeting of the Board to consider such engagement. During the fiscal year
ended December 31, 2004,  100% of the Audit Related Fees and all other fees were
approved by the Board.


                                       19
<PAGE>

                                   SIGNATURES

      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on June 7, 2005.

                                       SPO MEDICAL INC.

                                       By: /s/ Michael Braunold
                                           -------------------------------------
                                           Michael Braunold
                                           Chief Executive Officer (and
                                           Principal Financial Officer)

      Pursuant to the requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.

                                       Signature

                                       /s/ Michael Braunold        June 21, 2005
                                       --------------------
                                       Michael Braunold
                                       Chief Executive Officer (and Principal
                                       Financial Officer)


                                       20
<PAGE>

                                  EXHIBIT INDEX

      Exhibits  designated with an asterisk (*) have previously been filed
      with the Commission and are incorporated  herein by reference to the
      document referenced in parentheticals  following the descriptions of
      such exhibits.

Exhibit
  No.         Description Page
-------       ----------------

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

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

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

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

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

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

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

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

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

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

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

3.7*          Amended and  Restated  By-Laws  effective  July 11, 2000 (filed as
              Exhibit 3(ii) to Current Report on Form 8-K filed July 13, 2000)


                                       21
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                       22
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                       23
<PAGE>

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

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

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

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

10.30*        1992 Stock Option Plan (filed as Exhibit 28 to Report on Form 10-Q
              for the quarter ended March 31, 1992).

10.31*        1994 Incentive Stock Option (filed as Exhibit 99.2 to Registration
              Statement on Form SB-2, File No. 33-84622).

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

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

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

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

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

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

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

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

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

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


                                       24
<PAGE>

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

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

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

16.1*         Letter  dated  November  19,  2004 from the  Company to Eisner LLP
              (filed as Exhibit 16.1 to Current  Report on Form 8-K for November
              19, 2004).

16.2*         Letter dated  November 22, 2004 from Eisner LLP to the  Securities
              and Exchange  Commission  (filed as Exhibit 16.2 to Current Report
              on Form 8-K for November 19, 2004).

16.3*         Amended and Restated Capital Stock Exchange  Agreement dated April
              21, 2005, by and among the  Registrant  (formerly  known as United
              Diagnostic,   Inc.),  SPO  Medical   Equipment  Ltd.  And  certain
              shareholders as set forth on the Signature Pages to said Agreement
              (filed as Exhibit  2.1 to Current  Report on Form 8-K on April 21,
              2005).

21.1          List of Subsidiaries of the Company

31.1          Certification of Michael  Braunold  pursuant to Exchange Act Rules
              13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the
              Sarbanes-Oxley Act of 2002.

32.1          Certification  pursuant  to 18 U.S.C.  Section  1350,  as  adopted
              pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


                                       25
<PAGE>

                                SPO MEDICAL INC.
                       (FORMERLY UNITED DIAGNOSTIC, INC.)
                                AND SUBSIDIARIES

                                December 31, 2004


                                      F-1
<PAGE>

                                    CONTENTS

                                                                       Page

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                 F-3

CONSOLIDATED FINANCIAL STATEMENTS

         BALANCE SHEET AS OF DECEMBER 31, 2004                          F-4

         STATEMENTS OF OPERATIONS FOR THE
         YEARS ENDED DECEMBER 31, 2004 AND 2003                         F-5

         STATEMENTS OF STOCKHOLDERS' DEFICIENCY
         FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003                 F-6

         STATEMENTS OF CASH FLOWS
         FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003                 F-7

         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                     F-8


                                      F-2
<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
SPO Medical Inc. (formerly known as United Diagnostic, Inc.)

We have audited the accompanying  consolidated balance sheet of SPO Medical Inc.
(formerly known as United Diagnostic,  Inc.) and subsidiaries (the "Company") as
of December  31, 2004 and the related  consolidated  statements  of  operations,
stockholders'  deficiency  and cash flows for the years ended  December 31, 2004
and 2003. These consolidated  financial statements are the responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements  are free of material  misstatement.  The Company is not  required to
have,  nor were we engaged to perform,  an audit of its  internal  control  over
financial reporting.  Our audits included consideration of internal control over
financial  reporting  as  a  basis  for  designing  audit  procedures  that  are
appropriate  in the  circumstances,  but not for the  purpose of  expressing  an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting.  Accordingly,  we express  no such  opinion.  An audit also  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial   statements,   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 consolidated  financial  position of SPO
Medical Inc. (formerly known as United Diagnostic, Inc.), and subsidiaries as of
December 31, 2004, and the  consolidated  results of their  operations and their
cash flows for the years ended  December  31, 2004 and 2003 in  conformity  with
accounting principles generally accepted in the United States of America.

The accompanying  consolidated  financial statements have been prepared assuming
the  Company  will  continue as a going  concern.  As  discussed  in Note 1, the
Company  currently has no revenue  producing  activities,  has  experienced  net
losses and has a working capital deficiency.  These conditions raise substantial
doubt about the Company's  ability to continue as a going concern.  Management's
plans in regard to these matters are also discussed in Note 1. The  consolidated
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.

/s/ Marcum & Kliegman LLP
New York, NY

May 11, 2005


                                      F-3
<PAGE>

                        SPO MEDICAL INC. AND SUBSIDIARIES
                   (FORMERLY KNOWN AS UNITED DIAGNOSTIC, INC.)

                           CONSOLIDATED BALANCE SHEET
                                December 31, 2004

ASSETS
Current assets:
    Cash                                                           $      7,597
    Prepaid expenses and other current assets                            16,339
                                                                   ------------
       Total current assets                                        $     23,936
                                                                   ============

LIABILITIES AND STOCKHOLDER'S DEFICIENCY
Current liabilities:
    Notes payable, in default                                      $     65,888
    Advances on potential acquisition                                    18,850
    Accounts payable                                                    197,176
    Accrued expenses                                                     54,069
    Due to related parties                                              284,785
    Contract payable                                                     55,571
                                                                   ------------

       Total current liabilities                                        676,339
                                                                   ------------

Commitments and Contingencies

Stockholders' deficiency
    Series A convertible preferred stock, $.01 par value;
       2,000,000 authorized; none issued and outstanding                     --
    Common stock, $.01 par value; 50,000,000 shares authorized;
       1,722,034 shares issued and outstanding                           17,220
    Additional paid-in capital                                       59,786,689
    Accumulated deficit                                             (60,456,312)
                                                                   ------------
Total stockholders' deficiency                                         (652,403)
                                                                   ------------

       Total liabilities and stockholders' deficiency              $     23,936
                                                                   ============

See accompanying notes to the consolidated financial statements.


                                      F-4
<PAGE>

                        SPO MEDICAL INC. AND SUBSIDIARIES
                   (FORMERLY KNOWN AS UNITED DIAGNOSTIC, INC.)

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                       YEAR ENDED DECEMBER 31
                                                        2004           2003
                                                     --------------------------

Revenues:
                                                     $        --    $        --
                                                     --------------------------

Operating costs and expenses:
    General and administrative                             1,501         19,390
                                                     --------------------------

Total operating costs and expenses                         1,501         19,390
                                                     --------------------------

Operating loss                                            (1,501)       (19,390)
                                                     --------------------------

Other expense:
    Interest expense                                      (6,259)        (6,259)
                                                     --------------------------

Total other expenses                                      (6,259)        (6,259)
                                                     --------------------------

Net loss                                             $    (7,760)   $   (25,649)
                                                     --------------------------

Net loss per common share - basic and diluted                NIL    $     (0.02)
                                                     ==========================

Weighted average shares outstanding                    1,722,034      1,610,009
                                                     ==========================

See accompanying notes to the consolidated financial statements.


                                      F-5
<PAGE>

                        SPO MEDICAL INC. AND SUBSIDIARIES
                   (FORMERLY KNOWN AS UNITED DIAGNOSTIC, INC.)

                            CONSOLIDATED STATEMENT OF
                            STOCKHOLDERS' DEFICIENCY

<TABLE>
<CAPTION>
                                          Number of     Series A
                                          Shares of   Convertible
                                           Series A    Preferred    Number of
                                         Convertible    Stock at    Shares of     Common      Additional
                                          Preferred     $.01 Par     Common     Stock at $.01   Paid-In      Accumulated
                                            Stock        Value        Stock       Par Value     Capital        Deficit      Total
                                           ----------------------------------------------------------------------------------------

<S>                                        <C>           <C>        <C>             <C>       <C>           <C>           <C>
Balance at January 1, 2003                  2,826        $ 28       1,154,138       $11,541   $ 59,792,340  $(60,422,903) $(618,994)

Issuance of unregistered
    common stock in connection with
    conversion of Series A Convertible
    Preferred Stock                        (2,826)        (28)        567,896         5,679         (5,651)           --         (0)

Net Loss                                       --          --              --            --             --       (25,649)   (25,649)
                                           ----------------------------------------------------------------------------------------

Balance at December 31, 2003                   --          --       1,722,034       $17,220   $ 59,786,689  $(60,448,552) $(644,643)

Net Loss                                       --          --              --            --             --        (7,760)    (7,760)
                                           ----------------------------------------------------------------------------------------

Balance at December 31, 2004                   --        $ --       1,722,034       $17,220   $ 59,786,689  $(60,456,312) $(652,403)
                                           ========================================================================================
</TABLE>

See accompanying notes to the consolidated financial statements.


                                      F-6
<PAGE>

                        SPO MEDICAL INC. AND SUBSIDIARIES
                   (FORMERLY KNOWN AS UNITED DIAGNOSTIC, INC.)

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                        YEAR ENDED DECEMBER 31,
                                                          2004        2003
                                                        --------------------
Operating activities:
Net loss                                                $ (7,760)   $(25,649)
Adjustments to reconcile net loss to net
     cash used in operating activities:
        Changes in operating assets and liabilities:
           Prepaids expenses and other current assets        108         (58)
           Accounts payable                                5,000      14,076
           Accrued expenses                               (8,601)     (8,243)
                                                        --------------------
Net cash used in operating activities                    (11,253)    (19,874)
                                                        --------------------


FINANCING ACTIVITIES:
Advances from related parties                             18,850      15,887
                                                        --------------------
Net cash provided by financing activities                 18,850      15,887
                                                        --------------------
Net increase (decrease) in cash                            7,597      (3,987)
Cash at beginning of year                                     --       3,987
                                                        --------------------
Cash at end of year                                     $  7,597    $     --
                                                        ====================

See accompanying notes to the consolidated financial statements.


                                      F-7
<PAGE>

                        SPO MEDICAL INC. AND SUBSIDIARIES
                   (FORMERLY KNOWN AS UNITED DIAGNOSTIC, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2004 and 2003

1.    BASIS OF PRESENTATION

      SPO Medical Inc. (formerly known as United Diagnostic, Inc.) ("SPO" or the
"Company"), was organized under the laws of Delaware in September 1981 under the
name of "Applied DNA Systems,  Inc." On November 16, 1994,  the Company  changed
its name to Nu-Tech Bio-Med,  Inc. On December 23, 1998, the Company changed its
name to United Diagnostic,  Inc. On April 21, 2005, the Company changed its name
to SPO Medical Inc. in connection  with an  acquisition  transaction  (discussed
below and further in Note 9).

      The consolidated  financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Analytical Biosystems Corporation ("ABC") and
Prompt Medical Billing, Inc. All material intercompany transactions and balances
have  been  eliminated.  ABC was a  clinical  oncology  laboratory  service  and
research company located in Rhode Island.  As of November 3, 1997, ABC suspended
its laboratory operations. Prompt Medical Billing ceased operations in 1998.

      The consolidated financial statements have been prepared on the basis that
the Company will continue as a going concern,  which assumes the  realization of
assets and  satisfaction  of liabilities  in the normal course of business.  The
Company,  as  of  December  31,  2004,  did  not  have  any  revenue  generating
operations, had sustained net losses of $7,760 and $25,649,  respectively during
the years ended December 31, 2004,  and 2003, is not in compliance  with certain
terms of its notes  payable,  and has expended  virtually  all of its cash.  The
amount of  stockholders'  deficiency and working capital  deficiency at December
31, 2004,  was $652,403.  These  conditions  raise  substantial  doubt about the
Company's ability to continue as a going concern. During April and May 2005, the
Company,  in connection with the reverse  acquisition  discussed  below,  raised
approximately  $420,000.  The Company will continue to seek to raise  additional
debt and/or equity  financing;  however,  there is no assurance  that it will be
successful  in that endeavor and liquidate  its  liabilities.  The  consolidated
financial  statements  do not include any  adjustments  to reflect the  possible
future effects on the recoverability and classification of assets or the amounts
and  classification  of  liabilities  or any  other  adjustments  that  might be
necessary should the Company be unable to continue as a going concern.

      Effective  February 28,  2005,  the Company  entered into a Capital  Stock
Exchange  Agreement (the "Exchange  Agreement")  among the Company,  SPO Medical
Equipment  Ltd.,  a company  incorporated  under the laws of the State of Israel
("SPO Ltd."), and the shareholders of SPO Ltd., providing for the acquisition by
the  Company  of all of the  issued  and  outstanding  shares  of SPO Ltd.  (the
"Acquisition  Transaction")  in exchange for  5,769,106  shares of the Company's
common stock, par value $0.01 per share (the "Common Stock"). On April 21, 2005,


                                      F-8
<PAGE>

                        SPO MEDICAL INC. AND SUBSIDIARIES
                   (FORMERLY KNOWN AS UNITED DIAGNOSTIC, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2004 and 2003

1.    BASIS OF PRESENTATION - CONTINUED

the Exchange  Agreement was amended and restated (as so amended and restated the
"Restated Exchange Agreement").  The closing of the transactions contemplated in
the Restated Exchange Agreement and the acquisition by the Company of all of the
issued and  outstanding  shares of SPO Ltd.  was  completed  on April 21,  2005.
Accordingly, SPO Ltd. became a wholly-owned subsidiary of the Company.

      SPO Medical  Equipment Ltd. ("SPO Ltd."),  was organized under the laws of
the  State  of  Israel  in  August  1995.  SPO  Ltd.   develops   biosensor  and
microprocessor  technologies using reflectance pulse oximetry techniques for use
in  portable  monitoring  devices  to  capture  life-saving  and  life-enhancing
information within four key markets: medical care; home and remote-care;  sports
and wellness; and general security.

      Pursuant to the  Acquisition  Transaction,  the financial  statements have
been  retroactively  restated  for a forward  stock  split of 2.65285 to 1 basis
effected during April 2005.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      a.    Use of Estimates

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

b.    Fair Values of Financial Instruments

            The carrying amounts of cash,  accounts payable and accrued expenses
approximate fair value due to the short term maturity of these instruments.  The
carrying amount of the Company's debt  approximates  fair value based on similar
debt instruments available.


                                      F-9
<PAGE>

                        SPO MEDICAL INC. AND SUBSIDIARIES
                   (FORMERLY KNOWN AS UNITED DIAGNOSTIC, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2004 and 2003

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

      c.    Stock Based Compensation

            The Company,  in the past, has granted qualified stock options for a
fixed  number of shares to  employees  with an exercise  price equal to the fair
value of the  shares at the date of grant.  As  permitted  under  SFAS No.  148,
"Accounting  for Stock  Based  Compensation-Transition  and  Disclosure,"  which
amended SFAS No. 123,  "Accounting  for Stock-Based  Compensation,"  the Company
elected to continue to follow the intrinsic  value method in accounting  for its
stock-based employee compensation arrangements as defined by APB Opinion 25. APB
25 recognizes  no  compensation  expense for qualified  stock option grants with
exercise  prices  equal to the  market  price of the stock at the  option  grant
measurement date.

      For certain  non-qualified  stock options,  restricted  stock and warrants
granted to employees,  the Company recognizes as compensation expense the excess
of the market value of the common stock  issuable  upon exercise of such options
over the  aggregate  exercise  price of such  options.  For warrants  granted to
non-employees,  the Company  recognizes as a charge the deemed fair value of the
warrants  or the value of the  services  provided,  whichever  is more  reliably
measurable.  For the years ended December 31, 2004 and 2003, the Company did not
grant any options or warrants.

      d.    Income Taxes

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


                                      F-10
<PAGE>

                        SPO MEDICAL INC. AND SUBSIDIARIES
                   (FORMERLY KNOWN AS UNITED DIAGNOSTIC, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2004 and 2003

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

      e.    Net Loss Per Common Share

      The Company applies Statement of Financial  Accounting  Standards No. 128,
Earnings  Per Share (SFAS 128) to compute net loss per common  share.  Basic net
loss per common share is computed  using the weighted  average  number of common
shares  outstanding  during  the  year.  Diluted  net loss per  share  generally
includes  potential  common stock issuable  through stock options,  warrants and
convertible  debt since their effect would be  antidilutive.  As of December 31,
2004 and 2003, there are no common stock equivalents.

                                           Loss             Shares
                                         (Numerator)    (Denominator)  Per Share
                                         ---------------------------------------
Year ended December 31, 2004
----------------------------
Consolidated net loss                     $ (7,760)
                                          --------

LOSS PER SHARE-BASIC AND DILUTED
Loss attributable to common stockholders  $ (7,760)       1,722,034      Nil
                                          ======================================

Year ended December 31, 2003
----------------------------
Consolidated net loss                     $(25,649)
                                          --------

LOSS PER SHARE-BASIC AND DILUTED
Loss attributable to common stockholders  $(25,649)       1,610,009   $  (0.02)
                                          ======================================

      f.    New Pronouncements

      The  Company  does not  believe  that  any  recently  issued,  but not yet
effective  accounting standards would have a material effect on the accompanying
financial statements.


                                      F-11
<PAGE>

                        SPO MEDICAL INC. AND SUBSIDIARIES
                   (FORMERLY KNOWN AS UNITED DIAGNOSTIC, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2004 and 2003

3.    CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

      a.    Employment Agreement

      The Company had an employment agreement with Mr. J. Marvin Feigenbaum, its
former  president  and CEO,  with a term of  three  years  at a base  salary  of
$208,000  through April 30, 2002. Other benefits typical of such agreements were
also provided.  Per the terms of the agreement,  a severance equal to one year's
base salary would be due if the  agreement  was not renewed by the  Company.  On
April 30, 2002, Mr. Feigenbaum's  employment  agreement expired by its terms and
was not renewed.  However,  Mr.  Feigenbaum  remained the Chairman of the Board,
President, Chief Executive Officer and Chief Financial Officer of the Company on
an at-will employment basis through April 21, 2005. Upon the consummation of the
Acquisition  Transaction,  Mr.  Feigenbaum  entered  into a one year  consulting
agreement and was paid $100,000 at date of closing.  He also received  piggyback
registration rights for his shares for any future registration statements.

      b.    Due to Related Parties

      Due to related  parties  aggregating  to $284,785 at  December  31,  2004,
represent advances through December 31, 2003, to the Company by its former Chief
Executive Officer and a former board member and accrued and unpaid salary to the
Company's former Chief Executive Officer. Such advances are non-interest bearing
and due on demand.

4.    NOTES PAYABLE - IN DEFAULT

      In connection  with a series of loans obtained during 1993 and 1994 by the
Company from the State of Rhode Island Economic  Development Small Business Loan
Fund Corporation  ("SBLFC") in the principal  aggregate amount of $791,000,  the
Company  executed two patent security  agreements  granting the SBLFC a security
interest in ABC's patents to secure $541,000 of the $791,000 of SBLFC loans. All
of the SBLFC loans,  including those subject to patent security interests,  were
further  secured by a security  interest in the Company's  accounts  receivable,
inventory and equipment.  Each of these loans were for a term of five years from
its respective loan date, bearing interest at the rate of 5.4% per annum and, as
to each loan,  after the first year,  is amortized  monthly as to principal  and
interest.  In June 1998, the terms of these loans were modified to 9.5% interest
with principal due on demand.  The aggregate amount of monthly interest payments
is  approximately  $600 per month. The Company is not in compliance with certain
terms of these  loans which have an  outstanding  balance of $65,888 at December
31, 2004.  In the event that the  Company,  for  whatever  reason,  is unable to
continue to meet its loan  repayment  obligations,  the assets which are pledged
will be subject to the rights of the SBLFC as


                                      F-12
<PAGE>

                        SPO MEDICAL INC. AND SUBSIDIARIES
                   (FORMERLY KNOWN AS UNITED DIAGNOSTIC, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2004 and 2003

4.    NOTES PAYABLE - IN DEFAULT - CONTINUED

a secured party. Further,  until the SBLFC loans are repaid, it is unlikely that
the Company or ABC will be able to obtain additional secured financing utilizing
this collateral as security for new loans.

5.    ACCRUED EXPENSES

      Accrued expenses at December 31, 2004 consist of the following:

         Professional fees                              $ 8,769
         Payroll taxes                                   13,463
         Vacation                                        12,006
         Interest                                        19,831
                                                        -------

                                                        $54,069
                                                        =======

6.    CONTRACT PAYABLE

      A  contract  payable  with a balance  of $55,571  at  December  31,  2004,
represents the balance due to Brown  University from a prior research  agreement
which is no longer in effect.

7.    STOCKHOLDERS' DEFICIENCY

      a.    Stock Option Plans

      At December 31, 2004, the Company has stock option plans as follows:

            i.    1994 Plan

      The  Company  has  reserved  250  shares  of common  stock  under the 1994
Employee Stock Option Plan (the 1994 Plan).  Options granted under the 1994 Plan
may be incentive options or nonqualified stock options,  and shall be designated
as such at the time of grant.  The 1994 Plan  permits the  granting of incentive
options only to officers and full-time employees of the Company, at no less than
100% of the fair market value of the Company's common stock at the


                                      F-13
<PAGE>

                        SPO MEDICAL INC. AND SUBSIDIARIES
                   (FORMERLY KNOWN AS UNITED DIAGNOSTIC, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2004 and 2003

7.    STOCKHOLDERS' DEFICIENCY - CONTINUED

date of the grant.  Nonqualified  stock  options  may be  granted  to  officers,
employees,  consultants,  and advisors of the Company,  as well as to members of
the Board of Directors,  at a price determined by the Plan  administrator but in
no case less than 85% of the fair market value of the Company's  common stock at
the date of the grant. To the extent that any option intended to be an incentive
option shall fail to qualify as such under  Section 422 of the Internal  Revenue
Code of 1986, such options shall be deemed to be nonqualified  options. The 1994
Plan is  administered by the Option  Committee of the Board of Directors,  which
has full power to determine the specific terms of each option  granted,  subject
to the  provisions  of the 1994 Plan.  Due to the current  number of  Directors,
there is no functioning  committee.  As of December 31, 2004, the Company has no
outstanding  options  granted under this Plan, nor were there any grants made in
2004.

            ii.   Director's Plan

      The  Company  has  reserved  142  shares  of common  stock  under the 1994
Non-Employee  Director Stock Option Plan (the Director Plan).  Each non-employee
director,  upon election of the Company's  Board of Directors,  shall be granted
options for 4 shares of common  stock,  and each shall be granted on  subsequent
annual  anniversary dates of the initial grant,  additional options for 6 shares
of common  stock.  Under the terms of the  agreement,  the sum of the  number of
shares to be received upon any grant multiplied by the fair market value of each
share at the time of the grant may not  exceed  $75,000.  No  options  have been
granted  under the  Director  Plan since 1996  because the  Company  essentially
became  inactive  during 1997 and a market for the  Company's  common  stock has
neither been  established nor sustained since 1997. As of December 31, 2004, the
Company has no outstanding options granted under the Director Plan.

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

      The Company  has no  outstanding  options or  warrants as of December  31,
2004.


                                      F-14
<PAGE>

                        SPO MEDICAL INC. AND SUBSIDIARIES
                   (FORMERLY KNOWN AS UNITED DIAGNOSTIC, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2004 and 2003

8.    INCOME TAXES

      a.    Net Operating Loss Carryforwards

      At December 31, 2004, the Company and its wholly-owned  subsidiaries  have
total net operating loss carry forwards of approximately  $23 million for income
tax purposes. Approximately $18 million of these carry forwards expire from 2006
through  2023,  which may be  substantially  limited  pursuant to Section 382 of
Internal Revenue Code.

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

Net operating loss carryforwards                                    $ 9,257,000
Allowance for doubtful accounts                                          40,000
Alternative minimum tax credit                                           40,000
Federal general business tax credits                                    150,000
Other                                                                   112,000
                                                                    -----------
                                                                      9,599,000
Valuation allowance                                                  (9,599,000)
                                                                    -----------
Net deferred tax assets                                             $        --
                                                                    ===========

      Deferred  tax assets are reduced by a valuation  allowance  to reflect the
uncertainty associated with their ultimate realization.  The valuation allowance
increased by  approximately  $4,000 in 2004 due to an increase in net  operating
loss carry forwards.

b.    Alternative Minimum Income Tax

      An  estimated  alternative  minimum  income tax  ("AMT")  of  $40,000  was
incurred by the Company for the year ended  December 31, 1999,  upon the receipt
of $3.25  million in cash in  connection  with the sale of assets of  Physicians
Clinical Laboratory, Inc. The Company can apply such AMT payments against future
non-AMT income taxes, if any.


                                      F-15
<PAGE>

                        SPO MEDICAL INC. AND SUBSIDIARIES
                   (FORMERLY KNOWN AS UNITED DIAGNOSTIC, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2004 and 2003

9.    SUBSEQUENT EVENT

      Effective  February  28,  2005,  the  Company  entered  into  an  Exchange
Agreement  among  the  Company,  SPO  Ltd.,  and the  shareholders  of SPO Ltd.,
providing  for  the  acquisition  by  the  Company  of all  of  the  issued  and
outstanding  shares of SPO Ltd. (the "Acquisition  Transaction") in exchange for
5,769,106  of the  Company's  common  stock.  On April 21,  2005,  the  Exchange
Agreement was amended and restated. The closing of the transactions contemplated
in the Restated Exchange  Agreement and the acquisition by the Company of all of
the issued and  outstanding  ordinary  shares of SPO Ltd. was completed on April
21, 2005.  Pursuant to Restated  Exchange  Agreement,  the Company issued to the
shareholders  of SPO Ltd. an  aggregate  of  5,769,106  shares of Common  Stock,
representing approximately 90% of the Common Stock issued and outstanding.  As a
result of the Acquisition Transaction, SPO Ltd. became a wholly owned subsidiary
of the  Company  as of April 21,  2005.  Upon  consummation  of the  Acquisition
Transaction,  the Company  effectuated  a forward  stock split of the  Company's
Common Stock issued and  outstanding  after  giving  effect to the  transactions
contemplated by Restated Exchange  Agreement on a 2.65285:1 basis. As the former
shareholders of SPO Ltd. own 90% of the Company's issued and outstanding shares,
the acquisition of SPO Ltd. is deemed to be a reverse acquisition for accounting
purposes.  SPO Ltd., the acquired entity, is regarded as the predecessor  entity
of the Company as of April 21, 2005.

      In order to facilitate the Acquisition  Transaction,  and to raise working
capital,  on April 21,  2005,  the Company  commenced a private  placement  (the
"Private  Placement") to certain  private and  institutional  investors of up to
$1,150,000 by the sale of units of its  securities,  with each unit comprised of
(i) its 18 month 6%  Promissory  Note (the  "Notes") and (ii) two year  warrants
(the  "Warrants") to purchase up to such number of shares of Common Stock of the
Company as are  determined  by principal  amount of the Note being  purchased by
such investor  divided by $ 0.85,  at a per share  exercise  price of $0.85.  If
Notes in the aggregate  principal  amount of $1,150,000 are issued,  the maximum
number of shares of Common Stock  issuable upon exercise of the Warrants will be
1,352,942. Under the Private Placement,  subscription amounts are deposited into
an escrow account.  On April 21, 2005, the Company  conducted an initial closing
on the Private Placement for gross proceeds of $225,000. Thereafter, the Company
will conduct additional  closings.  As of May 10, 2005, an aggregate of $419,827
in  principal  amount  of  notes  were  sold to  accredited  investors  and,  in
connection therewith, warrants to purchase up to approximately 493,915 shares of
the Company's  common stock were issued.  The securities were issued in reliance
upon an  exemption  from  registration  under  the  Securities  Act of 1933,  as
amended.


                                      F-16