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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
(Mark One)
[X]             ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                EXCHANGE  ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended DECEMBER 31, 1998

                                       OR

[ ]             TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF  THE
                SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from             to 
                              ------------    ----------

Commission file number 0-6906
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                                 MEDICORE, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)


           FLORIDA                                          59-0941551
-------------------------------                          ----------------
(State or other jurisdiction of                          (I.R.S. Employer
incorporation or organization)                          Identification No.)

    2337 WEST 76TH STREET, HIALEAH, FLORIDA                         33016  
  -------------------------------------------                    ------------
    (Address of principal executive offices)                      (Zip Code)

        Registrant's telephone number, including area code (305) 558-4000
                                                           --------------

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

           Securities registered pursuant to Section 12(g) of the Act:

                               Title of each class
                          Common Stock, $.01 par value

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X No____

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not 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-K or any
amendment to this Form 10-K. [ X ]

         The aggregate  market value of the voting stock held by  non-affiliates
of the registrant  based upon the closing price of the common stock on March 12,
1999 was approximately $6,225,000.

         As of March 12, 1999 the Company had  outstanding  5,715,540  shares of
common stock.

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<PAGE>

                       DOCUMENTS INCORPORATED BY REFERENCE

         Part III incorporates information by reference from the Proxy Statement
in connection with the Registrant's Annual Meeting of Shareholders to be held on
June 9, 1999.

         Registrant's  Annual Reports,  Forms 10-K, for the years ended December
31, 1994, 1995 and 1997, Part IV, Exhibits.

         Annual Reports for Registrant's Subsidiary,  Techdyne, Inc., Forms 10-K
for the years ended December 31, 1991, 1995 and 1997, Part IV, Exhibits.

         Registration Statement of Registrant's Subsidiary, Techdyne, Inc., Form
SB-2, effective September 13, 1995,  Registration No. 33-94998-A,  Part II, Item
27, Exhibits.

         Registration Statement of Registrant's Subsidiary, Techdyne, Inc., Form
S-3, Effective December 11, 1996, Registration No. 333-15371,  Part II, Item 16,
Exhibits.

         Annual  Report for  Registrant's  Subsidiary  Dialysis  Corporation  of
America,  Form 10-K for the years ended December 31, 1996,  1997 and 1998,  Part
IV, Exhibits.

         Registration Statement of Registrant's Subsidiary, Dialysis Corporation
of America,  Form SB-2,  effective April 17, 1996,  Registration No. 333-80877A,
Part II, Item 27, Exhibits.


<PAGE>

                                 MEDICORE, INC.

                       INDEX TO ANNUAL REPORT ON FORM 10-K
                          YEAR ENDED DECEMBER 31, 1998
                                                                           Page
                                                                           ----
PART I

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

         Item 2.    Properties............................................   19

         Item 3.    Legal Proceedings.....................................   21

         Item 4.    Submission of Matters to a Vote of Security Holders...   21

PART II

         Item 5.    Market for the Registrant's Common Equity
                    and Related Stockholder Matters.......................   21

         Item 6.    Selected Financial Data...............................   22

         Item 7.    Management's Discussion and Analysis of
                    Financial Condition and Results of Operations.........   22

         Item 7A.   Quantitative and Qualitative Disclosures About
                    Market Risk...........................................   35

         Item 8.    Financial Statements and Supplementary Data...........   35

         Item 9.    Changes in and Disagreements with Accountants
                    on Accounting and Financial Disclosure................   35

PART III

         Item 10.   Directors and Executive Officers of the
                    Registrant............................................   36

         Item 11.   Executive Compensation................................   36

         Item 12.   Security Ownership of Certain
                    Beneficial Owners and Management......................   36

         Item 13.   Certain Relationships and Related Transactions........   37

PART IV

         Item 14.   Exhibits, Financial Statement Schedules,
                    and Reports on Form 8-K...............................   38

<PAGE>

                                     PART I

             CAUTIONARY NOTICE REGARDING FORWARD-LOOKING INFORMATION

         The  statements  contained in this Annual  Report on Form 10-K that are
not historical are forward-looking  statements within the meaning of Section 27A
of  the  Securities  Act of  1933  ("Securities  Act")  and  Section  21E of the
Securities  Exchange Act of the 1934. The Private  Securities  Litigation Reform
Act  of  1995  (the  "Reform  Act")  contains  certain  safe  harbors  regarding
forward-looking  statements.  Certain of the forward-looking  statements include
management's expectations,  intuitions and beliefs with respect to the growth of
the  Company,  the  nature of the  electronics  industry  in which its 62% owned
public subsidiary,  Techdyne,  Inc.  ("Techdyne") is involved as a manufacturer,
the nature of and future  development of the dialysis  industry in which its 68%
owned public subsidiary,  Dialysis  Corporation of America ("DCA"),  is engaged,
the Company's business strategies and plans for future operations, its needs for
capital  expenditures,  capital resources,  liquidity and operating results, and
similar  matters  that  are not  historical  facts.  See  Item 7,  "Management's
Discussion and Analysis of Financial  Condition and Results of Operations." Such
forward-looking  statements are subject to substantial  risks and  uncertainties
that could cause actual results to materially differ from those expressed in the
statements,  including general economic and business  conditions,  opportunities
pursued  or  abandoned,  competition,  changes  in  federal  and  state  laws or
regulations  affecting  the  Company  and  its  operations,  and  other  factors
discussed  periodically in the Company's filings.  Many of the foregoing factors
are beyond the control of the Company. Among the factors that could cause actual
results to differ  materially are the factors detailed in the risks discussed in
the "Risk Factors"  section  included in the Company's  Registration  Statement,
Form S-3, as filed with the  Securities and Exchange  Commission  ("Commission")
(effective  May 15,  1997)  and the  Registration  Statements  of the  Company's
subsidiaries,  Techdyne's  Registration Statements as filed with the Commission,
Form SB-2 (effective  September 13, 1995) and Forms S-3 (effective  November 11,
1996 and November 4, 1997, respectively), and DCA's Registration Statement, Form
SB-2, as filed with the Commission  (effective on April 17, 1996).  Accordingly,
readers  are  cautioned  not to place  undue  reliance  on such  forward-looking
statements which speak only as of the date made and which the Company undertakes
no obligation to revise to reflect events after the date made.


ITEM 1.  BUSINESS

GENERAL

         Medicore,  Inc.,  incorporated  in Florida in 1961,  has three business
segments.  One  is  the  medical  product  division  which  distributes  medical
supplies.  This division  recently  initiated its own  production of lancets.  A
second  business  segment  is  the  international   contract   manufacturing  of
electronic and electro-mechanical  products,  primarily for the data processing,
telecommunications,  instrumentation and food preparation  equipment industries.
This is  accomplished  through  Medicore,  Inc.'s 62% owned  public  subsidiary,
Techdyne, Inc. ("Techdyne"). Techdyne's wholly-owned subsidiaries include Lytton
Incorporated  ("Lytton")  acquired  in July 1997,  Techdyne  (Scotland)  Limited
("Techdyne  (Scotland)")  and  Techdyne  Livingston  Limited,  a  subsidiary  of
Techdyne (Scotland). The third business segment involves the operation of kidney
dialysis centers through its 68% owned public subsidiary Dialysis Corporation of
America ("DCA"). See Note 6 to "Notes to Consolidated Financial Statements."

         Medicore and its subsidiaries are collectively  hereinafter referred to
as "Medicore" or the "Company."

<PAGE>

         The Company's  executive  offices are located at 2337 West 76th Street,
Hialeah,  Florida 33016 and at 777 Terrace Avenue, Hasbrouck Heights, New Jersey
07604.  Its telephone  number in Florida is (305)  558-4000 and in New Jersey is
(201) 288-8220.

MEDICAL PRODUCTS

         The  Company  develops  and  distributes  medical  supplies,  primarily
disposables,  both domestically and internationally,  to hospitals, blood banks,
laboratories and retail pharmacies.  Products  distributed  include exam gloves,
prepackaged swabs and bandages and glass tubing products for  laboratories.  The
Company additionally  distributes a line of blood lancets used to draw blood for
testing. Developed by the Company and previously manufactured by Techdyne, which
lancet  manufacturing has recently been taken over by Medicore,  the lancets are
distributed under the names  Medi-Lance(TM) and Lady Lite(TM) or under a private
label if requested by the customer.  Marketing of medical  products is conducted
by independent manufacturer representatives and employees of the Company.

ELECTRONIC MANUFACTURING INDUSTRY

         Techdyne is an  international  contract  manufacturer of electronic and
electro-mechanical  products,  primarily manufactured to customer specifications
and designed for original equipment  manufacturers  ("OEMs") and distributors in
the data processing,  telecommunications,  instrumentation  and food preparation
equipment  industries.  Included  among its  customers  are several  Fortune 500
companies.  Approximately  89% of sales are  domestic  and 11% are  effected  by
Techdyne's Scottish subsidiary,  Techdyne (Scotland) in the European markets and
to a limited extent in the Middle East.

         Custom-designed  products that the Company  produces  through  Techdyne
primarily  include  complex printed circuit boards  ("PCBs"),  conventional  and
molded cables and wire harnesses,  and electro-mechanical  assemblies.  Techdyne
also provides OEMs with value-added, turnkey contract manufacturing services and
total systems  assembly and  integration,  and delivers  manufacturing  and test
engineering   services   and   materials    management,    with   flexible   and
service-oriented   manufacturing   and  assembly  services  for  its  customers'
high-tech and rapidly changing products.

         The Company  believes that many OEMs view contract  manufacturers as an
integral part of their manufacturing  strategy.  Outsourcing their manufacturing
of electronic  assemblies enables OEMs to focus on product  development,  reduce
working capital  requirements,  improve inventory  management and marketability.
OEMs are looking more to contract  manufacturers,  like  Techdyne,  to provide a
broader scope of value-added services, including manufacturing,  engineering and
test  services.  OEMs  rely on  contract  manufacturers  for  partial  component
assemblies  and complete  turnkey  manufacturing  of entire  finished  products.
Another  factor which leads OEMs to utilize  contract  manufacturers  is reduced
time-to-market  using the  contract  manufacturer's  expertise  and advanced and
automated manufacturing processes.

         TECHDYNE'S BUSINESS STRATEGY

         In recent years,  the electronic  contract  manufacturing  industry has
exhibited substantial growth. The Company believes this growth has resulted from
a vastly increased number of OEMs adopting an external manufacturing  philosophy
coupled with the overall growth of the electronics industry.  This philosophy is
motivated by the increased capital necessary to acquire modern, highly automated
manufacturing   equipment   for  the  OEMs  to  access   leading   manufacturing
technologies and capabilities,

                                       2

<PAGE>

to reduce inventory, and to realize the cost benefits of the improved purchasing
power, labor efficiency and overall cost benefits of contract manufacturers.  In
response  to these  industry  trends,  the  Company's  objective  is to become a
stronger  competitive  force and provider of electronic  contract  manufacturing
services for OEM  customers,  particularly  in view of  constantly  changing and
improving technology and therefore,  shorter product life cycles.  Techdyne will
continue to seek to develop strong,  long-term  alliances with major-growth OEMs
of complex,  market  leading  products.  The Company  believes that creating and
maintaining  long-term  relationships  with  customers  requires  providing high
quality,  cost-effective  manufacturing  services  marked  by a high  degree  of
customer  responsiveness  and  flexibility.  The Company intends to maintain its
high quality of service through  expansion of Techdyne's  vertically  integrated
manufacturing capabilities, final system assemblies and testing.

         Management  also  believes  it  develops  closer and more  economically
beneficial  relationships with its customers through its geographically  diverse
manufacturing  and assembly  operations,  presently  located in Florida,  Texas,
Massachusetts, Ohio and Scotland. Techdyne's diverse locations help reduce costs
and ensure  timely  delivery to its  customers.  Management  continues to pursue
expansion in different  markets to better serve  existing  customers  and obtain
additional new customers.  Techdyne's acquisition of Lytton in 1997 provided the
Company with a new  geographic  and end user market and  continues to complement
Techdyne's  operations  and  further its  business  strategy  by  expanding  its
customer base,  broadening its product line,  entering new geographic areas, and
enhancing its manufacturing capabilities.

         More  emphasis  is  placed  on  value-added  turnkey  business  for the
manufacture of complete finished assemblies.  This is accomplished with extended
technology,  continuous  improvement  of its  processes,  and  Techdyne's  early
involvement  in the  design  process  using its  computer-aided  design  ("CAD")
system.

         Techdyne is improving its material acquisition process in an attempt to
better its purchasing power by identifying  materials used across customer lines
through  installation  of a new software  program.  See  "Supplies  and Material
Management"  and Item 7,  "Management's  Discussion  and  Analysis of  Financial
Condition  and  Results  of  Operations."   Management  is  also  attempting  to
consolidate vendors to achieve better purchasing power.  Techdyne believes these
efforts will  provide it with better  leverage in material  pricing,  and permit
Techdyne to be more competitive when bidding for manufacturing  work and turnkey
business by allowing it to track actual costs against customer  quotes,  thereby
enabling it to reduce costs and more accurately manage operating margins.

         PRODUCTS AND SERVICES

         Approximately  850  products,   including   complete  turnkey  finished
products,   sub-assemblies,   molded  and  non-molded  cable  assemblies,   wire
harnesses,   PCBs,  injection  molded  and  electronic  assembly  products,  are
manufactured by Techdyne for over 100 OEM customers.

         PRINTED CIRCUIT BOARDS

         PCB assemblies are electronic  assemblies consisting of a basic printed
circuit  laminate  with  electronic  components  including  diodes,   resistors,
capacitors and transistors,  inserted and wave soldered. PCBs may be used either
internally within the customer's products or in peripheral devices.  The variety
of PCBs produced by Techdyne include  pin-through-hole  ("PTH") assemblies,  low
and  medium  volume  surface  mount  technology  ("SMT")  assemblies,  and mixed
technology PCBs, which include multilayer PCBs.

                                       3
<PAGE>

         PTH assembly  involves  inserting  electronic  components  with pins or
leads  through  pre-drilled  holes  in a PCB  and  soldering  the  pins  to  the
electrical circuit.

         In SMT  production,  electronic  components  are  attached and soldered
directly onto the surface of a circuit board rather than inserted through holes.
SMT components are smaller,  can be spaced more closely together and, unlike PTH
components,  can be placed  on both  sides of a PCB.  This  allows  for  product
miniaturization,  while enhancing the electronic  properties of the circuit. SMT
manufacturing  requires  substantial capital investment in expensive,  automated
production  equipment  which  requires  high usage.  Techdyne  has  computerized
testing for  substantially  all of its PCBs to verify that  components have been
installed  properly and meet certain functional  standards,  that the electrical
circuits  have been properly  completed,  and that the PCB assembly will perform
its intended functions.

         Techdyne also produces  multilayer PCBs, which consist of three or more
layers of a PCB laminated  together and  interconnected by plated-through  holes
with metallic  interconnecting  paths on a  non-conductive  material,  typically
laminated  epoxy glass.  Holes  drilled in the laminate and plated  through with
conductive material from one surface to another,  called  plated-through  holes,
are used to receive  component  leads and to  interconnect  the circuit  layers.
Multilayer  boards  increase  packaging   density,   improve  power  and  ground
distribution,  and permit the use of higher speed circuitry.  The development of
electronic  components with increased speed, higher performance and smaller size
has  stimulated  a  demand  for  multilayer  PCBs,  as  they  provide  increased
reliability, density and complexity.

         Fiscal 1996 reflected sales revenues of  approximately  8% derived from
PCBs.  However,  1997 expansions,  particularly the acquisition of Lytton,  have
resulted in PCB  manufacturing  yielding  approximately  48% of Techdyne's  1998
sales revenues.

         CABLE AND HARNESS ASSEMBLIES

         A cable is an assembly of  electrical  conductors  insulated  from each
other and twisted  around a central core and  jacketed.  Cables may be molded or
non-molded.

         Techdyne offers a wide range of custom  manufactured  cable and harness
assemblies  for molded and mechanical  applications.  These  assemblies  include
multiconductor,  ribbon,  co-axial cable  assemblies,  and discrete wire harness
assemblies.  Techdyne uses advanced automated and  semi-automated  manufacturing
processes, in-line inspection and computer testing.

         Techdyne   maintains  a  large   assortment  of  standard  tooling  for
D-Subminiature  ("D-Subs"),  DIN  connectors  and phono  connectors.  D-Subs are
connectors  which are  over-molded  with the imprint of the customer's  name and
part number. DIN connectors are circular  connectors with from two to four pairs
of  wires  used for  computer  keyboards.  Today's  computers  are  multi-media,
providing audio as well as video, such as the CD-ROM.

         Flat  ribbon  cable or ribbon  cable  assemblies  are cables with wires
(conductors)  on the same plane with  connectors at each end. Flat ribbon cables
are used in computer assemblies and instrumentation.

         Discrete  cable  assemblies  are wires with  contacts  and  connectors.
Harnesses are  prefabricated  wiring with  insulation and terminals  ready to be
attached to connectors.  The cable sales of Techdyne comprised approximately 42%
of its total sales revenue for 1998.

                                       4
<PAGE>

         CONTRACT MANUFACTURING

         Contract  manufacturing  involves the manufacture of complete  finished
assemblies with all sheet metal, power supplies,  fans, PCBs as well as complete
sub-assemblies for integration into an OEM's finished products,  such as speaker
and lock-key  assemblies and diode  assemblies that consist of wire,  connectors
and diodes that are over-molded,  packaged and bar coded for distribution. These
products can be totally designed and manufactured by the Company through its CAD
system,  engineering and supply  procurement.  Techdyne  develops  manufacturing
processes and tooling and test sequences for new products of its  customers.  It
also  provides  design and  engineering  services in the early stages of product
development  thereby  assuring  mechanical  and  electrical  considerations  are
integrated  with  a  total  system.  Alternatively,  the  customer  may  provide
specifications  and the  Company  will assist in the design and  engineering  or
manufacture to the customer's  specifications.  Contract  manufacturing products
include rack  assemblies  for data  processing and video editing and custom disk
drive enclosures for OEMs.

         REWORKING AND REFURBISHING

         Customers provide Techdyne with materials and  sub-assemblies  acquired
from other sources which the customer has determined requires modified design or
engineering changes. Techdyne redesigns,  reworks, refurbishes and repairs these
materials and sub-assemblies.

         Contract   manufacturing,   medical   product   sales,   reworking  and
refurbishing  together  amounted to  approximately  10% of sales of Techdyne for
1998. Management believes that PCB sales and contract manufacturing will provide
Techdyne with substantial increases in revenues in the next few years.

         MANUFACTURING

         Components  and  products  are custom  designed  and  developed  to fit
specific customer requirements and specifications.  Techdyne attempts to develop
a  "partnership"  relationship  with  many  of  its  customers  by  providing  a
responsive,   flexible,  total  manufacturing  service.  Such  service  includes
computer  integrated  manufacturing and engineering  services,  quick-turnaround
manufacturing  and  prototype  development,   materials   procurement,   quality
assurance, inventory management,  development of special manufacturing processes
and acquisition of special equipment for that particular customer and its needs,
tooling and test sequences for new products from product  designs  received from
its customers or developed by Techdyne from customer requirements. The Company's
industrial,  electrical and mechanical  engineers work in close liaison with its
customers'  engineering  departments from inception through design,  prototypes,
production  and  packaging.  Upon  completion  of  engineering,  a prototype  or
preproduction  samples are produced.  Materials  procurement  includes planning,
purchasing  and  warehousing  electronic  components  and materials  used in the
assemblies and finished products.

         Techdyne's  PCB assembly  operations  are geared  toward  advanced SMT.
Lytton provides Techdyne with increased PCB production through  state-of-the-art
manufacturing  equipment  and  processes  and a highly  trained and  experienced
engineering and  manufacturing  workforce.  The  manufacturing  of PCBs involves
several steps including the attachment of various electronic components, such as
integrated circuits, capacitors, microprocessors and resistors.

         Techdyne  also  offers a wide range of custom  manufactured  cables and
harnesses  for molded and  mechanical  applications.  The Company uses  advanced
manufacturing  processes,  in-line  inspection  and  testing to focus on process
efficiencies and quality. The cable and harness assembly process is accomplished
with automated and semi-automated preparation and insertion equipment and manual

                                       5
<PAGE>

assembly  techniques.  Techdyne maintains a large assortment of standard tooling
and modern  state-of-the-art  equipment at all of its  facilities  for crimping,
stripping,  terminating,  soldering,  sonic  welding  and sonic  cleaning  which
permits it to produce conventional and complex molded cables.

         In addition to assembly operations in the last few years,  Techdyne has
become  more  involved  in  contract  manufacturing  of  moderate to high volume
turnkey assemblies and sub-assemblies, including injection molded and electronic
assembly products.

         The Scottish manufacturing facility,  located in Livingston,  Scotland,
focuses mainly on the electronics  industry producing  primarily wire harnesses,
electro-mechanical  assemblies,  and molded cables,  incorporating  multifaceted
design and production capabilities.

         SUPPLIES AND MATERIALS MANAGEMENT

         Materials used in Techdyne's  operations consist of metals,  electronic
components such as cable, wire, resistors,  capacitors, diodes, PCBs and plastic
resins.  These materials are readily  available from a large number of suppliers
and manufacturers,  and Techdyne has not experienced any significant disruptions
from  shortages of materials or delivery  delays of its  suppliers  and believes
that its present  sources and the  availability  of its required  materials  are
adequate.  Techdyne  utilizes a  computerized  system of  material  requirements
planning,  purchasing,  sales and  marketing  functions,  which is being updated
through  the  installation  of the Visual  Manufacturing  software in all of its
facilities,  most  of  which  has  been  accomplished,  and  is  expected  to be
completely integrated in its Ohio and Scottish facilities by June 30, 1999. This
new software not only has improved its material  acquisition process but is also
Year 2000  compliant.  See Item 7,  "Management's  Discussion  and  Analysis  of
Financial Condition and Results of Operations."

         Techdyne procures  components from a select group of vendors which meet
its  standards for timely  delivery,  high quality and cost  effectiveness,  and
orders  supplies  generally when it has a purchase order or commitment  from its
customer for the completed assembly.  Techdyne's inventory management allows its
customers  to  increase  or  decrease  volume  requirements  within  established
frameworks and results in reduced obsolescence problems,  which in turn improves
overall  efficiency.  See  Item 7,  "Management's  Discussion  and  Analysis  of
Financial Condition and Results of Operations."

         QUALITY AND PROCESS CONTROL

         Quality  control is essential to Techdyne's  operations  since low-cost
and high quality production are primary  competitive  standards and are vital to
the services of the Company.  See  "Competition"  below. In March,  1995 for its
Hialeah, Florida facility Techdyne received from Underwriter's Laboratories,  an
independent  quality  assurance  organization,  the ISO 9002  quality  assurance
designation,  which is the international standard of quality with respect to all
systems  of  operations,  including,  among  others,  purchasing,   engineering,
manufacturing,   sales,  inventory  control  and  quality.  Techdyne  (Scotland)
received  its BS  5750  quality  assurance  designation  in  1991  from  British
Standards  Institute.  Lytton received its ISO 9002 quality  designation in 1995
from Eagle Registrations, Inc. Product components, assemblies and sub-assemblies
manufactured by Techdyne are thoroughly inspected visually and electronically to
assure all components are made to strict  specifications  and are functional and
safe.  These  quality   assurance   designations  are  only  provided  to  those
manufacturers  which exhibit  stringent  quality and process control  assurances
after extensive  evaluation and auditing by these independent  quality assurance
organizations.

                                       6
<PAGE>

         Strict process controls are also standard operating procedure.  Process
controls deal with the controls  relating to the entire  manufacturing  process.
Techdyne  strives  for a CPK  of  two,  i.e.,  twice  as  critical  as  customer
tolerances.  During the course of initial  qualification and production  cycles,
new and existing  customers inspect Techdyne and its operations.  Over the years
Techdyne's  product and manufacturing  quality has received  excellent  ratings.
Management  believes  it is one of the  manufacturers  of  choice  for the major
Fortune  500  companies,  certain  of which are its  customers,  based  upon its
excellent record of quality production.

         Total   quality,   timely   delivery  and  customer   satisfaction   is
management's  philosophy.  High  levels of quality  in every area of  Techdyne's
operations are essential.  Quality standards are established for each operation,
performance  tracked  against those  standards,  and  identifying  work flow and
implementing  necessary  changes  to deliver  higher  quality  levels.  Techdyne
maintains  regular  contact with its  customers to assure  adequate  information
exchange and other activities  necessary to assure customer  satisfaction and to
support its high level of quality and on-time delivery.

         CUSTOMERS

         Techdyne  serves  a wide  range  of  businesses  from  emerging  growth
companies  to  multinational  OEMs  involved  in a variety of markets  including
computer networking systems,  computer  workstations,  telecommunications,  mass
data storage systems, instrumentation and food preparation equipment industries.
Techdyne's revenue was distributed over the following industry segments:

                                                Year Ended December 31,    
                                    --------------------------------------------
                                      1998               1997              1996
                                    --------           --------         --------
Data processing                       29%                40%                74%
Telecommunications                    20%                 7%                 9%
Instrumentation                       17%                16%                 8%
Food preparation equipment (1)        18%                19%                --%

(1)  Accomplished through Lytton, a Techdyne subsidiary acquired in July, 1997.

         The Company seeks to serve a sufficiently  large number of customers to
avoid dependence on any one customer or industry.  Nevertheless,  historically a
substantial  percentage of Techdyne's net sales have been to multiple  locations
of a small number of customers. Significant reductions or delays in sales to any
of those major customers  would have a material  adverse effect on the Company's
results of operations.  In the past,  certain  customers have  terminated  their
manufacturing  relationship with Techdyne,  or otherwise  significantly  reduced
their product orders.  There can be no insurance that any major customer may not
terminate or otherwise  significantly reduce or delay manufacturing  orders, any
of which  such  terminations  or changes in  manufacturing  orders  could have a
material adverse effect on the Company's results of operations.

         Techdyne and  consequently the Company are dependent upon the continued
growth, viability and financial stability of Techdyne's customers,  which are in
turn substantially  dependent on the growth of the personal  computer,  computer
peripherals,  the  communications,  instrumentation,  data  processing  and food
preparation   equipment   industries.   Most  of  these   industries  have  been
characterized by rapid technological change, short product life cycles,  pricing
and  margin  pressures.  In  addition,  many of  Techdyne's  customers  in these
industries are affected by general economic  conditions.  The factors  affecting
these industries in general, and/or the Company's customers in particular, could
have a material adverse effect on the Company's results of operations.

                                       7
<PAGE>

         Techdyne also generates  significant  accounts receivable in connection
with providing  manufacturing  services to its customers.  If one or more of its
customers  were to become  insolvent  or  otherwise  were  unable to pay for the
manufacturing services provided by Techdyne, the Company's operating results and
financial condition would be adversely affected.

         In 1998,  50% of  Techdyne's  sales were made to numerous  locations of
five major customers.  The table below sets forth the respective  portion of net
sales for the applicable period  attributable to customers and related suppliers
who accounted for more than 10% of net sales in any respective period.

                            Percentage of Net Revenue

                                                1998         1997       1996
                                                ----         ----       ----
PMI Food Equipment Group ("PMI")                 18%           *          *
Compaq Computer Corporation ("Compaq")            *            *         35%
International Business Machines ("IBM")           *           19%        18%
EMC                                               *           10%        12%
Motorola, Inc ("Motorola")                       10%           *          *

* less than 10% for that year

         Techdyne  sells to  approximately  an additional  100 other  companies,
which comprise the remaining 50% of sales.  Lytton had  approximately 41% of its
sales for fiscal 1998 to PMI. Techdyne  (Scotland) had a substantial  portion of
its 1998 sales,  approximately 26%, to Compaq and related suppliers.  During the
last three years,  bidding for Compaq orders became more  competitive due to Far
Eastern  competitors  which  resulted  in  substantially  reduced  sales to that
customer with lower profit margins on remaining sales. See Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

         MARKETING AND SALES

         Techdyne  continues  to pursue  expansion  and  diversification  of its
customer  base  and it is  targeting  emerging  OEMs  in  high  growth  industry
segments.  The Company's  principal sources of new business are the expansion in
the volume and scope of services provided to existing customers,  referrals from
customers and  suppliers,  direct sales through its sales managers and executive
staff,  and through  its  independent  sales  representatives.  Sales  managers,
directed and supported by the executive  staff,  identify and attempt to develop
relationships with potential customers who exemplify financial stability, a need
for  electronic and  electro-mechanical  component  assembly and  manufacturing,
anticipated unit volume, and a history of establishing long-term relationships.

         Domestic sales are generated by six regional  sales  managers  covering
the Northeast, Southeast, West and Southwest regions of the United States. There
are also 11 in-house  sales/marketing  personnel,  including  Barry Pardon,  the
President  of  Techdyne.  The  regional  sales  managers  have four  independent
manufacturer   representative   agencies  who  employ   approximately  13  sales
representatives.  Sales are also  generated  through  catalogues,  brochures and
trade shows.

         Techdyne  (Scotland) has four in-house  sales  personnel who market its
products,  primarily ribbon,  harness and cable  assemblies,  electro-mechanical
products,  and molded cable assemblies,  as well as its reworked and refurbished
products  (see  "Business - Electronic  Manufacturing  Industry - Reworking  and
Refurbishing" above) to customers in Scotland, England, Ireland, Germany and the
Middle East.

                                       8
<PAGE>

         Substantially all of Techdyne's sales and reorders are effected through
competitive  bidding.  Most sales are accomplished  through purchase orders with
specific  quantity,  price and delivery terms. Some distribution is accomplished
under open purchase orders with components released against customer requests.

         BACKLOG

         On  December  31,  1998,  Techdyne's  backlog  of  orders  amounted  to
approximately $11,817,000, of which approximately $8,354,000 (approximately 71%)
was  represented  by the orders  from its Lytton  operations  and  approximately
$673,000  (approximately  6%) was represented by orders for Techdyne  (Scotland)
operations.  Last  year  the  backlog  was  approximately  $14,029,000  of which
approximately  $7,300,000 was derived from Lytton  operations and  approximately
$2,054,000  was  represented  by  orders  of  Techdyne  (Scotland)   operations.
Management  believes,  based  on past  experience  and  relationships  with  its
customers and knowledge of its manufacturing  capabilities,  that  substantially
all of  Techdyne's  backlog  orders  are firm and  should be filled  within  six
months.  The purchase orders that Techdyne has do not provide for  cancellation,
but Techdyne  occasionally allows  cancellations and frequently  rescheduling of
deliveries at its  discretion.  Over the last several years  cancellations  have
been minimal and management does not believe that any significant  amount of the
backlog  orders  will be  canceled.  The  variations  in the size  and  delivery
schedules  of purchase  orders  received by Techdyne  may result in  substantial
fluctuations in backlog from period to period.  Since orders and commitments may
be rescheduled or cancelled,  and customers'  lead times may vary,  backlog does
not necessarily reflect the timing or amount of future sales.

DIALYSIS OPERATIONS

         The Company, through DCA and its subsidiaries,  currently operates five
outpatient  dialysis  treatment  centers,  four in  Pennsylvania  and one in New
Jersey,  with a current  capacity of 41 licensed  stations  but  designed  for a
maximum of 71 stations. The Company also provides inpatient dialysis services to
several  hospitals  where the dialysis  facilities  are located.  The outpatient
dialysis centers in Pennsylvania are located in Carlisle, Lemoyne, Wellsboro and
Chambersburg,  Pennsylvania.  The New Jersey facility is situated in Manahawkin,
New Jersey,  and another  facility in Toms River,  New Jersey is in development.
Other new dialysis  facilities are anticipated,  presently through  construction
and development of new dialysis centers as opposed to acquisition.

         Home patient dialysis services,  or Method II patient treatment,  which
includes  dialysis  training  for  patients at home,  primarily  for  continuous
ambulatory   peritoneal  dialysis  ("CAPD")  or  continuous  cycling  peritoneal
dialysis ("CCPD"),  which involves providing  equipment and supplies,  training,
patient monitoring and follow-up  assistance to patients who are able to perform
treatment  at home.  DCA Medical  Services,  Inc.  ("DCAMS")  is a wholly  owned
subsidiary which operates the homecare operations in Pennsylvania.

         ESRD TREATMENT OPTIONS

         Kidneys  generally  act as a filter  removing  harmful  substances  and
excess water from the blood,  enabling  the body to maintain  proper and healthy
balances of chemicals and water.  Chronic  kidney  failure,  or End-Stage  Renal
Disease  ("ESRD"),  which results from  chemical  imbalance and buildup of toxic
chemicals,  is a state of kidney disease  characterized by advanced irreversible
renal impairment.  ESRD is a likely consequence of complications  resulting from
diabetes, hypertension, advanced age, and

                                       9
<PAGE>

specific hereditary,  cystic and urological diseases.  Without regular treatment
or kidney transplantation ESRD is fatal.

         Treatment options for ESRD patients include (1) hemodialysis, performed
either at (i) an outpatient  facility,  or (ii) inpatient hospital facility,  or
(iii) the patient's home; (2) peritoneal dialysis,  either CAPD or CCPD, usually
performed at the patient's home; and/or (3) kidney  transplant.  The significant
portion of ESRD patients  receive  treatments at non-hospital  owned  outpatient
dialysis  facilities  (approximately 83%) with the remaining patients treated at
home through hemodialysis or peritoneal  dialysis.  Patients treated at home are
monitored by a designated outpatient facility.

         The most prevalent form of treatment for ESRD patients is hemodialysis,
which involves the use of an artificial kidney, known as a dialyzer,  to perform
the  function of removing  toxins and excess  fluids from the  bloodstream.  The
toxins and excess fluid pass through a semi-permeable  membrane into one chamber
and the dialysis fluid is circulated through the other chamber.  On the average,
patients  usually receive three  treatments per week with each treatment  taking
three to five hours.  Dialysis  treatments  are  performed  by teams of licensed
nurses and trained technicians pursuant to the staff physician's instruction and
supervision.

         A second treatment for ESRD patients is peritoneal  dialysis,  which is
usually  performed at home.  All forms of peritoneal  dialysis use the patient's
peritoneal  (abdominal)  cavity to eliminate  fluid and toxins from the patient.
CAPD utilizes dialysis solution installed manually into the patient's peritoneal
cavity through a  surgically-placed  catheter  remaining in the abdominal cavity
for a three to five hour period and is then drained. The cycle is then repeated.
CCPD is performed in a manner similar to CAPD, but utilizes a mechanical  device
to cycle dialysis solution while the patient is sleeping.

         The third  modality for patients  with ESRD is kidney  transplantation.
While this is the most desirable form of therapeutic intervention,  the scarcity
of suitable donors and possibility of donor rejection limits the availability of
this surgical procedure as a treatment option.

         DCA'S BUSINESS STRATEGY

         DCA,  having  22  years  experience  in  successfully   developing  and
operating  dialysis  treatment  facilities,  plans  to use such  experience  and
expertise to expand its dialysis  operations,  including  provision of ancillary
services to patients.  First in DCA's objectives is top quality patient care. In
June, 1998, there were approximately  3,470 Medicare approved ESRD facilities of
which   approximately   65%  were   independent   for-profit   dialysis  centers
(non-hospital  centers).  A substantial number of these freestanding centers are
owned  by  physicians  or  major  corporations,  certain  of  which  are  public
companies. Management intends to continue to establish alliances with physicians
and hospitals and to initiate  dialysis service  arrangements with nursing homes
and managed care  organizations,  and to continue to emphasize  its high quality
patient  care,  its  smaller  size  which  allows it to focus on each  patient's
individual  needs while  remaining  sensitive  to the  physicians'  professional
concerns.

         A new Vice  President was added to DCA management in 1998 to direct and
supervise the development and acquisition of new dialysis facilities.  Under his
direction,  DCA is actively seeking and negotiating  with several  physicians to
establish new outpatient  dialysis  facilities at several  locations.  While the
Company is continually pursuing new opportunities, there are no firm agreements,
other than the Toms  River,  New  Jersey  facility,  to  acquire or develop  any
additional  facilities  or to  provide  inpatient  dialysis  treatment,  and  no
assurance can be given that any such agreements will be made or that development
of the Toms River facility will be completed.

                                       10
<PAGE>

         DCA endeavors to increase  same center  growth by adding  quality staff
and  management  and  attracting  new  patients to its  existing  facilities  by
rendering high caliber  patient care in convenient,  safe and serene  conditions
for everyone involved.  The Company believes that it has existing adequate space
and stations within DCA's  facilities to accommodate  greater patient volume and
maximize its  treatment  potential and is working to achieve such  increase,  to
lower its fixed costs, and operate at a greater efficiency level.

         One of the primary  elements in acquiring or  developing  facilities is
locating an area with an existing patient base under the current  treatment of a
local nephrologist. Other considerations in evaluating a proposed acquisition or
development of a dialysis  facility are the  availability  and cost of qualified
and skilled  personnel,  particularly  nursing and technical staff, the size and
condition of the facility and its  equipment,  the  atmosphere for the patients,
the area's  demographics and population  growth  estimates,  state regulation of
dialysis and healthcare services,  and the existence of competitive factors such
as hospital or proprietary  non-hospital owned and existing  outpatient dialysis
facilities within reasonable proximity to the proposed center.

         Expansion of the  Company's  dialysis  operations  is being  approached
presently through the development of its own dialysis facilities. Acquisition of
existing  outpatient  dialysis  centers,  which the  Company has not done in the
past, is a faster but much more costly means of growth.

         To construct and develop a new facility  ready for  operations may take
an average of four to six months and 12 months or longer to generate income, all
of which are subject to location,  size and competitive elements. To construct a
12 station  facility  may cost in a range of $600,000 to $750,000  depending  on
location,  size and related  services to be provided by the  proposed  facility.
Acquisition  of  existing  facilities  may range from  $40,000  to  $70,000  per
patient.  Therefore,  a facility with 30 patients could cost from  $1,200,000 to
$2,100,000 subject to location, competition, nature of facility and negotiation.

         OPERATIONS OF DIALYSIS FACILITIES

         DCA's  dialysis  facilities  are designed  specifically  for outpatient
hemodialysis  and  generally   contain,   in  addition  to  space  for  dialysis
treatments,  a nurses'  station,  a patient  weigh-in area, a supply room, water
treatment  space  used to purify the water used in  hemodialysis  treatments,  a
dialyzer  reprocessing  room (where,  with both the  patient's  and  physician's
consent,  the  patient's  dialyzer is  sterilized  for reuse),  staff work area,
offices and a staff lounge.  DCA's  facilities  also have a designated  area for
training patients in home dialysis.  Each facility also offers amenities for the
patients, such as a color television with headsets for each dialysis station, to
ensure the patients are comfortable and relaxed.

         In accordance with  participation  requirements under the Medicare ESRD
program,  each facility retains a medical director  qualified and experienced in
the practice of nephrology and the  administration of a renal dialysis facility.
See  "Physician  Relationships"  below.  Each  facility  is  overseen by a nurse
administrator who supervises the daily operations and the staff,  which consists
of registered  nurses,  licensed practical nurses,  patient care technicians,  a
part-time social worker and a part-time registered dietitian,  who all supervise
each  aspect of patient  treatments.  The Company  must  continue to attract and
retain skilled nurses and other staff, competition for whom is intense.

                                       11
<PAGE>

         DCA's facilities offer  high-efficiency and conventional  hemodialysis,
which, in the Company's experience,  provides the most viable treatment for most
patients.  The Company  considers  its dialysis  equipment to be both modern and
efficient,  providing  state  of the art  treatment  in a safe  and  comfortable
environment.  In 1998,  DCA  leased an  additional  17  machines  which are more
advanced and include better safety features and updated technology. The addition
of the improved  equipment  enhances  DCA's  ability to provide  more  efficient
treatment.

         DCA's  facilities  also offer home  dialysis,  primarily CAPD and CCPD.
Training  programs for CAPD or CCPD  generally  encompass  two to three weeks at
each facility,  and such training is conducted by the  facility's  home training
nurse. After the patient completes training,  they are able to perform treatment
at home with equipment and supplies provided by DCA.

         Dialysis Services of PA., Inc. - Lemoyne commenced  operations in June,
1995 and for the years ended December 31, 1997 and 1998, provided  approximately
7,241 and 7,468 dialysis  treatments,  respectively.  Dialysis  Services of PA.,
Inc. - Wellsboro commenced operations in September, 1995 and for the years ended
December  31,  1997 and 1998,  provided  2,298 and  3,602  dialysis  treatments,
respectively.  Dialysis Services of PA., Inc. -Carlisle commenced  operations in
the third quarter of 1997,  providing  1,346  treatments at year end and for the
year ended December 31, 1998,  provided  3,483  treatments.  From July,  1998 to
December 31, 1998, Dialysis Services of NJ - Manahawkin provided 247 treatments.
The Chambersburg, Pennsylvania facility became operational in January, 1999.

         The Company  estimates  that on average DCA's centers were operating at
approximately  56% of capacity as of December 31, 1998,  based on the assumption
that a  dialysis  center is able to  provide  up to three  treatments  a day per
station,  six days a week. The Company believes that DCA may increase the number
of  dialysis  treatments  at  its  centers  without  making  additional  capital
expenditures.

         DCA sold four of its dialysis  centers in 1989,  and since that time it
has incurred  operational  losses.  Although DCA has  reflected  income over the
years,  this was due to interest  income,  including  interest on funds received
through advances to the Company.

         INPATIENT SERVICES

         Management is also seeking to increase  acute  dialysis care  contracts
with hospitals for inpatient dialysis services.  The Company provides acute care
inpatient dialysis services to three hospitals in areas serviced by three of the
Company's  five  dialysis  facilities  and  is in  the  process  of  negotiating
additional contracts in the areas surrounding its other facilities and in tandem
with  development  of future  proposed  sites.  Each of its dialysis  facilities
provides  training,  supplies and on-call  support  services for home peritoneal
patients.  Hospitals are willing to enter into such inpatient care  arrangements
to eliminate the administrative  burdens of providing dialysis services to their
patients as well as the  expense  involved in  maintaining  dialysis  equipment,
supplies and personnel.  DCA believes that these  arrangements are beneficial to
its  operations,  since the contract  rates are  negotiated and are not fixed by
government  regulation as is the case with Medicare  reimbursement fees for ESRD
patient treatment.

         ANCILLARY SERVICES

         The Company's dialysis facilities provide certain ancillary services to
ESRD patients,  including the  administration of  erythropoietin  ("EPO") upon a
physician's  prescription.  EPO is a bio-engineered protein which stimulates the
production of red blood cells and is used in  connection  with dialysis to treat
anemia,  a medical  complication  frequently  experienced by ESRD patients.  EPO
decreases the necessity

                                       12
<PAGE>

for blood  transfusions  in ESRD  patients.  Other  ancillary  services that DCA
provides  to  patients  in  addition  to EPO are  electrocardiograms  and  blood
transfusions,  all of which are separately reimbursed by Medicare. See "Medicare
and Medicaid Reimbursement" below.

         PHYSICIAN RELATIONSHIPS

         An integral  element to the  success of a facility  is its  association
with area  nephrologists.  A dialysis  patient  generally  seeks  treatment at a
facility  near the  patient's  home and where such  patient's  nephrologist  has
established  practice  privileges.  Consequently,  DCA relies on its  ability to
attract and satisfy the needs of  referring  nephrologists  to gain new patients
and to provide quality dialysis care through these referring physicians.

         The  conditions  of a facility's  participation  in the  Medicare  ESRD
program  mandate  that  treatment  at a dialysis  facility  be under the general
supervision  of a medical  director who is a  physician.  DCA retains by written
agreement  qualified  physicians  or groups of qualified  physicians to serve as
medical directors for each of its facilities.  Generally,  the medical directors
are board  eligible or board  certified in internal  medicine by a  professional
board  specializing  in nephrology and have had at least 12 months of experience
or training in the care of dialysis  patients at ESRD facilities.  DCA's medical
directors  are  typically a  significant  source of referrals to the  particular
center served.

         Agreements with medical  directors are usually for a term of five years
or  more  with  renewal   provisions.   Each  agreement  specifies  the  duties,
responsibilities and compensation of the medical director. Under each agreement,
the medical director or professional  association  maintains his, her or its own
medical malpractice  insurance.  The agreements also provide for non-competition
in a limited geographic area surrounding that particular  dialysis center during
the term of the agreement and upon termination for a limited period.

         The Company's  ability to establish a dialysis facility in a particular
area is  significantly  geared to the  availability of a qualified  physician or
nephrologist  with an existing  patient base to serve as the  Company's  medical
director. The loss of a medical director who could not be readily replaced would
have a material  adverse effect on the operations of that facility,  DCA and the
Company.

         QUALITY ASSURANCE

         DCA implements a quality  assurance program to maintain and improve the
quality of dialysis  treatment  and care it  provides  to its  patients in every
facility.  Quality assurance  activities involve the ongoing examination of care
provided,  the  identification  of  deficiencies  in that care and any necessary
improvements  of the  quality of care.  DCA's  manager of  compliance,  who is a
registered  nurse,  oversees this program in addition to ensuring that DCA meets
federal and state compliance requirements for dialysis centers. See "Regulation"
below.

         PATIENT REVENUES

         DCA's  net  revenues  are  derived  primarily  from four  sources:  (i)
outpatient hemodialysis services; (ii) home dialysis services,  including Method
II  services;  (iii)  inpatient  hemodialysis  services  for acute  patient care
provided through  agreements with hospitals and other healthcare  entities;  and
(iv) ancillary services associated with dialysis  treatments,  primarily certain
tests and the  administration  of EPO. For each of the two years ended  December
31,  1997 and  1998,  approximately  74% of DCA's  revenues  were  derived  from
Medicare reimbursement. Average net revenue per treatment, which

                                       13
<PAGE>

includes all sources of payments,  governmental or private,  for DCA's in-center
and home patients,  including ancillary services, was approximately $205 for the
year ended  December 31, 1998,  as compared to $206 for the year ended  December
31, 1997.

         According  to  statistics   published  by  the  Health  Care  Financing
Administration ("HCFA"), 92% of all ESRD patients who receive dialysis treatment
are funded under the Medicare ESRD Program established by the federal government
under the Social  Security Act, and  administered  in accordance with prescribed
rates set by HCFA of the Department of Health and Human Services ("HHS").  Under
the ESRD Program, payments for dialysis services are determined pursuant to Part
B of the Medicare Act which  presently pays  approximately  80% of the allowable
charges for each dialysis treatment furnished to patients.  The maximum payments
vary based on location of the center.  See "Medicare  Reimbursement"  below. The
remaining  20% may be paid by Medicaid if the  patient is  eligible,  or if not,
from private insurance funds or the patient's  personal funds.  Pennsylvania and
New Jersey,  presently the states in which the Company operate, provide Medicaid
or comparable  benefits to qualified  recipients to  supplement  their  Medicare
coverage.

         Medicare  and  Medicaid  programs  are subject to  regulatory  changes,
statutory limitations and governmental funding restrictions, which may adversely
affect DCA's and the  Company's  revenues and dialysis  services  payments.  See
"Medicare and Medicaid Reimbursement" below.

         The inpatient  dialysis  services are paid for by the hospital pursuant
to  contractual   pre-determined   fees.   Inpatient  treatments  accounted  for
approximately  16% and 11% of DCA's  revenues  for the years ended  December 31,
1997 and 1998, respectively.

         MEDICARE AND MEDICAID REIMBURSEMENT

         DCA is reimbursed primarily from third party payors including Medicaid,
commercial   insurance   companies,   and  substantially  by  Medicare  under  a
prospective  reimbursement  system  for  chronic  dialysis  services,  including
dialysis treatments, supplies used for such treatments, certain laboratory tests
and medications. Under this system, the reimbursement rates are fixed in advance
and have been adjusted from time to time by Congress. This form of reimbursement
limits the allowable charge per treatment, but provides DCA with predictable and
recurring per treatment revenues and allows it to retain any profit earned.

         DCA receives reimbursement for outpatient dialysis services provided to
Medicare-eligible patients at rates that are currently between $122 and $124 per
treatment,  depending upon regional wage variations.  The Medicare reimbursement
rate is subject to change by  legislation  and  recommendations  by the Medicare
Payment  Advisory  Commission  ("MedPAC"),  a new  commission  mandated  by  the
Balanced Budget Act of 1997 and continuing the work of the  Prospective  Payment
Assessment  Commission  ("PROPAC").  Congress  increased the ESRD  reimbursement
rate, effective January 1, 1991, resulting in an average ESRD reimbursement rate
of $126 per treatment for  outpatient  dialysis  services.  The current  maximum
composite  reimbursement rate is $134 per treatment.  In 1990, Congress required
that HHS and PROPAC study dialysis costs and  reimbursement and make findings as
to the  appropriateness  of ESRD  reimbursement  rates.  Any  rate  increase  by
Congress must be considered in the context of Medicare  budgetary  concerns.  In
1998,  MedPAC  recommended  a 2.7%  increase  in the  amount  paid  to  dialysis
facilities  for  performance  of services,  which if passed by  Congress,  would
constitute the second increase that has been approved for the ESRD program since
its  inception.  Congress is not required to implement such  recommendation  and
could either raise or lower the reimbursement rate.

                                       14
<PAGE>

         Other   ancillary   services   and  items  are  eligible  for  separate
reimbursement  under Medicare and are not part of the composite rate,  including
certain drugs such as EPO. The proposal to reduce the reimbursement  rate of EPO
from $10 per 1000 units to $9 per 1000 units could adversely impact DCA's income
from EPO if the proposal is enacted by Congress in 1999.  There is no assurance,
though, that Congress will legislate the EPO reduction into law.

         Medicaid programs are state  administered  programs partially funded by
the federal  government.  These  programs are  intended to provide  coverage for
patients  whose  income and assets fall below state  defined  levels and who are
otherwise uninsured.  The programs also serve as supplemental insurance programs
for the Medicare  co-insurance portion and provide certain coverages (e.g., oral
medications)  that are not covered by Medicare.  DCA is a licensed ESRD Medicaid
provider in Pennsylvania, and has applied to be an approved Medicaid provider in
New Jersey.

         The Company is unable to predict what, if any, future changes may occur
in  the  rate  of  reimbursement.   Any  reduction  in  the  Medicare  composite
reimbursement  rate or  Medicaid  reimbursement  could have a  material  adverse
effect on DCA and the Company's business, revenues and net earnings.

REGULATION

         TECHDYNE

         Techdyne's  operations are subject to certain federal,  state and local
regulatory  requirements  relating to environmental  waste management and health
and safety  matters.  These  regulations  provide for civil and criminal  fines,
injunctions and other sanctions and, in certain  instances,  allow third parties
to sue to enforce  compliance.  Management  believes that Techdyne complies with
applicable  regulations  pertaining  to  health  and  safety  in the  workplace,
including  those  promulgated  by OSHA,  and the  use,  storage,  discharge  and
disposal of chemicals used in its manufacturing processes. Techdyne periodically
generates  and  temporarily  handles  limited  amounts  of  materials  that  are
considered  hazardous waste. The current costs of compliance are not material to
Techdyne  or  the  Company.  Nevertheless,  no  assurances  can  be  given  that
additional or modified requirements will not be imposed in the future, and if so
imposed, will not involve substantial additional expenditures.

         DCA

         Dialysis  treatment  centers must comply with various state and federal
health  laws  which are  generally  applicable  to  healthcare  facilities.  The
dialysis center must meet a variety of governmental  standards including but not
limited to  maintenance of equipment and proper  records,  personnel and quality
assurance  programs.  Each of the dialysis facilities must be certified by HCFA,
and the Company must comply with certain rules and  regulations  established  by
HCFA regarding  charges,  procedures and policies.  Each dialysis center is also
subject to periodic  inspections  by federal and state  agencies to determine if
their operations meet the appropriate  regulatory standards.  These requirements
have been satisfied by each of the Company's dialysis facilities.

         DCA's record of compliance with federal,  state and local  governmental
laws and  regulations  remains  excellent.  DCA  regularly  reviews  legislative
changes  and  developments  and  will  restructure  a  business  arrangement  if
management determines such might place it in material  noncompliance  with  such
law or regulation. To date, none of DCA's business arrangements with physicians,
patients or

                                       15
<PAGE>

others have been the  subject of  investigation  by any governmental  authority.
No assurance can be given, however, that DCA's business arrangements will not be
the subject of a future investigation or prosecution by a federal or state  gov-
ernmental  authority  which could  result in civil and/or criminal sanctions.

         The Social  Security Act prohibits,  as do many state laws, the payment
of patient referral fees for treatments that are otherwise paid for by Medicare,
Medicaid or similar state programs  under the Medicare and Medicaid  Patient and
Program   Protection   Act  of  1987,  or  the   "Anti-kickback   Statute."  The
Anti-kickback Statute and similar state laws impose criminal and civil sanctions
on persons  who  knowingly  and  willfully  solicit,  offer,  receive or pay any
remuneration, directly or indirectly, in return for, or to include, the referral
of a patient for treatment,  among other things.  The federal government in 1991
and 1992 published regulations that established  exceptions,  "safe harbors," to
the  Anti-kickback  Statute for certain business  arrangements that would not be
deemed to violate the illegal  remuneration  provisions of the federal  statute.
All conditions of the safe harbor must be satisfied to meet the  exception,  but
failure to satisfy all elements does not mean the business  arrangement violates
the illegal remuneration provision of the statute.

         DCA attempts to  structure  its  arrangements  with its  physicians  to
comply with the Anti-Kickback  Statute.  However, many of these physicians refer
patients to DCA's facilities,  therefore the federal Anti-kickback Statute could
be found to apply to referrals by such  physicians to the Company's  facilities.
Management believes that the illegal remuneration provisions described above are
primarily  directed at abusive  practices that increase the utilization and cost
of services covered by  governmentally  funded programs.  The dialysis  services
provided by DCA generally cannot, by their very nature, be over-utilized,  since
dialysis  treatment  is not elective  and cannot be  prescribed  unless there is
temporary or permanent  kidney  failure.  However,  these  relationships  do not
satisfy all of the criteria  for the safe harbor,  and there can be no assurance
that the relationships with DCA's medical directors will not subject DCA and the
Company to investigation or prosecution by enforcement agencies. There can be no
assurance  that DCA will not be required to change its practices or experience a
material adverse effect as a result of any such potential challenge. The Company
cannot predict the outcome of the rule-making  process or whether changes in the
safe  harbor  rules  will  affect the  Company's  position  with  respect to the
Anti-kickback Statute, but does believe it will remain in compliance.

         The  Physician  Ownership and Referral Act ("Stark II") was adopted and
incorporated  into the  Omnibus  Budget  Reconciliation  Act of 1993 and  became
effective  January 1, 1995.  Stark II bans  physician  referrals,  with  certain
exceptions,  for certain  "designated health services" as defined in the statute
to entities in which a physician or an immediate  family member has a "financial
relationship"  which  includes an  ownership  or  investment  interest  in, or a
compensation  arrangement  between the  physician  and the  entity.  This ban is
subject  to several  exceptions.  If Stark II is found to be  applicable  to the
facility,  the entity is prohibited  from claiming  reimbursement,  will receive
civil penalties and may be excluded from the Medicare program.

         Last year,  HCFA released  proposed rules that interpret the provisions
of Stark II ("Proposed  Rules").  Management  believes,  based upon the Proposed
Rules and the  industry  practice,  that  Congress  did not  intend  to  include
dialysis  services  and the  services  and items  provided  by DCA  incident  to
dialysis  services within the Stark II prohibitions.  There can be no assurance,
though, that final Stark II regulations will adopt such a position.

         If the provisions of Stark II were found to apply to DCA's arrangements
with its medical  directors,  however,  the Company believes that it would be in
compliance. DCA compensates its

                                       16
<PAGE>

nephrologist-physicians as medical directors of its dialysis centers pursuant to
Medical Director  Agreements.  Also, acute care inpatient  hospital arrangements
for dialysis services are excluded under the Proposed Rules from the prohibition
on  physician  referrals  based  upon  the fact that the services provided under
these arrangements are rendered under emergency circumstances  and are necessary
treatments.  The Company  believes that DCA's contractual arrangements with hos-
pitals  for acute  care inpatient  dialysis services are in compliance with this
exception.

         If HCFA or any other government entity takes a contrary position in the
Stark II final  regulations  or  otherwise,  DCA may be required to  restructure
certain existing compensation agreements with its medical directors,  or, in the
alternative,  to refuse to accept referrals for designated  health services from
certain physicians.  There can be no assurance that such prospective compliance,
if permissible, would not have a material adverse effect on the Company.

         In 1996, President Clinton signed the Health Insurance  Portability and
Accountability Act of 1996 ("HIPA"), a package of health insurance reforms which
include a variety of  provisions  important  to  healthcare  providers,  such as
significant  changes to the Medicare and  Medicaid  fraud and abuse laws.  Under
these  programs,  these  governmental  entities  will  undertake  a  variety  of
monitoring  activities  which were  previously  left to  providers  to  conduct,
including medical  utilization and fraud review,  cost report audits,  secondary
payor determinations,  reports of fraud and abuse actions against providers will
be shared as well as encouraged by rewarding whistleblowers with money collected
from civil fines.

         The Company's  dialysis centers are subject to hazardous waste laws and
non-hazardous  medical  waste  regulation.   Most  of  the  Company's  waste  is
non-hazardous. HCFA requires that all dialysis facilities have a contract with a
licensed medical waste handler for any hazardous waste. Medical waste at each of
DCA's facilities is handled by licensed local medical waste sanitation agencies,
who are primarily responsible for compliance.

         There are a variety of regulations  promulgated  under OSHA relating to
employees exposed to blood and other potentially  infectious materials requiring
employers,  including  dialysis  centers,  to provide  protection.  The  Company
adheres to OSHA's protective  guidelines,  including regularly testing employees
and patients for exposure to hepatitis B and providing employees subject to such
exposure  with  hepatitis  B  vaccinations  on an  as-needed  basis,  protective
equipment, a written exposure control plan and training in infection control and
waste disposal.

         Although the Company  believes  that DCA  substantially  complies  with
currently  applicable state and federal laws and regulations and to date has not
had any  difficulty  in  maintaining  its  licenses or its Medicare and Medicaid
authorizations,  the  healthcare  service  industry  is and will  continue to be
subject to substantial  and continually  changing  regulation at the federal and
state  levels,  and the scope and effect of such and its impact on the Company's
operations cannot be predicted.  No assurance can be given that DCA's activities
will not be reviewed or challenged by regulatory authorities.

PATENTS AND TRADE NAMES

         The Company  sells certain of its medical  supplies and products  under
the trade name Medicore(TM). Certain of its lancets are marketed under the trade
names Medi-Lance(TM) and Lady Lite(TM).

         The Company is the assignee of three  patents  relating to its lancets.
The issuance of a patent does not assure  protection  against the development of
similar, if not superior processes,  know-how and products. The Company does not
rely on  patents  or  trademarks  in its  electro-manufacturing  operations  and

                                       17
<PAGE>

manufacturing  of medical  products.  The Company  instead places its importance
more upon  design,  engineering,  manufacturing  cost  containment,  quality and
marketing skills to establish or maintain market position.

COMPETITION

         The medical supply operations are extremely competitive and the Company
is not a significant competitive factor in this area.

         In the  electronics  manufacturing  industry,  the Company  experiences
substantial  competition from many areas including divisions of large electronic
and high-technology firms, as well as from numerous smaller but more specialized
companies.  Competitive  price  advantages  may also be available to competitors
with less expensive off-shore  operations,  especially in the Far East. Techdyne
also competes with  in-house  manufacturing  operations of current and potential
customers.  Although  Techdyne  has been  expanding,  certain  of the  Company's
competitors  have  broader  geographic  coverage  to serve their  customers  and
attract  additional  business,  and are more  established  in the industry  with
substantially greater financial,  manufacturing and marketability resources than
the Company.  Management  believes the primary  competitive factors to be price,
quality of production, manufacturing capability, prompt customer service, timely
delivery,  engineering  expertise,  and technical  assistance to customers.  The
Company believes it competes  favorably in these areas.  During downtimes in the
electronics  industry,  OEMs become more price sensitive and those manufacturers
who have greater direct buying power with component  suppliers or who have lower
cost structures are more competitive.  In the PCB area major competitors include
SCI Systems,  Inc., Jabil Circuit,  Sanmina Corporation,  Benchmark Electronics,
Inc., ACT  Manufacturing,  Inc. and others.  Major  competitors in the cable and
harness assembly market include Volex Interconnect  Systems,  Inc., Foxconn, ACT
Manufacturing, Inc., Escod Industries and others.

         The operation of kidney dialysis  centers is extremely  competitive and
DCA competes  with numerous  providers,  many of which are  facilities  owned by
physicians  or major  corporations,  some of which  are  public.  The  Company's
operations  are small in  comparison  to these public  companies.  Many of these
competitors,  including  Fresenius AG, Renal Care Group,  Inc., Total Renal Care
Holdings, Inc., and Everest Healthcare Service Corp., have substantially greater
financial  resources and many more centers and patients than DCA, which provides
these  larger   facilities  with  a  significant   advantage  in  competing  for
acquisitions  of  dialysis  facilities  and the  ability to  attract  and retain
qualified  nephrologists,  who are normally a substantial source of patients for
the  dialysis  center.  Hospitals  and other  outpatient  dialysis  centers also
compete with the Company's  dialysis  operations.  Competitive  factors that are
most  significant  in dialysis  treatment  are the quality of care and  service,
convenience of location,  availability of a local nephrologist, and pleasantness
of  environment.  The Company is not a significant  competitive  force in kidney
dialysis  services  primarily  based upon DCA's ownership of a limited number of
centers and the size of each of its facilities.

         Based upon  advances in surgical  techniques,  immune  suppression  and
computerized  tissue  typing,  cross-matching  of donor  cells and  donor  organ
availability,   renal   transplantation   instead  of  dialysis  is  becoming  a
competitive  factor.  It is presently  the second most commonly used modality in
ESRD therapy.

EMPLOYEES

         The Company and its  subsidiaries  employ  approximately  560 full time
employees of which 14 are administrative, 42 are with the dialysis operations, 6
are  engaged  in the  medical  supply  operations,  and 503 are with  Techdyne's
electronic  manufacturing  operations  (domestic  and  Scotland).  In  addition,
Techdyne

                                       18
<PAGE>

utilizes  approximately 70 temporary  workers,  retained through local agencies,
on a regular  basis,  and DCA  employs 16  part-time  and 9  part-time  contract
employees.

ITEM 2.  PROPERTIES

         The  Company  leases  2,800  square feet for its  executive  offices in
Hialeah,  Florida, and at a different location in Hialeah, Florida, leases 5,000
square feet for its medical supply  operations,  each lease through December 31,
2002. It also leases 3,900 square feet of space for other  executive  offices in
Hasbrouck Heights, New Jersey through March 31, 2001.

         DCA owns two properties, one located in Lemoyne,  Pennsylvania, and the
second in Easton,  Maryland.  The Maryland  property  consists of  approximately
7,400  square  feet which is leased to the  purchaser  (in 1989) of one of DCA's
dialysis  centers and a competitor of DCA,  through March 31, 2003.  The Lemoyne
property of  approximately  15,000 square feet houses DCA's  dialysis  center of
approximately  5,400  square  feet and  2,500  square  feet of its space for its
executive  offices.  DCA's subsidiary leases this facility from DCA under a five
year lease that commenced  December 23, 1998,  with two renewal  periods of five
years. The Easton, Maryland and Lemoyne,  Pennsylvania properties are subject to
mortgages from a Maryland banking institution extending through November,  2003.
As of December 31, 1998, the remaining  principal  amount of the mortgage on the
Lemoyne  property  was  approximately  $160,000  and on the Easton  property was
approximately  $200,000.  Each mortgage bears interest at 1% over the prime rate
and is  secured  by the  real  property  and  DCA's  personal  property  at each
location.  The bank has a lien on rents due DCA and security  deposits  from the
leases. The bank has to approve all leases, subleases, alterations, improvements
and sales relating to the properties.  See Item 7, "Management's  Discussion and
Analysis of Financial Condition and Results of Operations."

         As lessor, DCA also leases space at its Lemoyne,  Pennsylvania property
to one other  unrelated  party for their own  business  activities  unrelated to
dialysis services or to the Company. The lease is for approximately 1,500 square
feet through December 31, 2002.

         The  dialysis   facility  in   Wellsboro,   Pennsylvania   consists  of
approximately  3,500 square feet,  leased by DCA's  subsidiary  in Wellsboro for
five years through September, 27, 2000 with two renewals of five years each. The
Carlisle,  Pennsylvania  4,340 square foot  dialysis  facility is leased under a
five year lease  through  June 30,  2002,  with two renewals of five years each.
DCA's subsidiary in Manahawkin,  New Jersey signed a five year lease for its new
dialysis  facility  for  approximately  3,700  square  feet,  renewable  for two
consecutive  five year periods  commencing  December 1, 1998, with an additional
940 square  feet of space free of rent until  June 30,  2000,  after  which time
DCA's  subsidiary will pay the agreed per square foot price as stipulated in the
original lease. The facility in Chambersburg,  Pennsylvania, consisting of 7,000
square feet of space, is leased for a five year term with two renewal periods of
five years each commencing January 1, 1999.  Approximately 1,800 square feet was
sublet to a medical practice.

         DCA's  new  subsidiary  in  Toms  River  signed  a lease  agreement  to
construct a new facility in Toms River, New Jersey for a term of five years from
December 8, 1998, with two renewal periods of five years each.

         The  Lemoyne  and  Wellsboro,  Pennsylvania  facilities,  both of which
initiated  operations in 1995, are currently  operating at approximately 72% and
68%  capacity,  respectively,  and  Carlisle,  Pennsylvania  has operated at 47%
capacity  for 1998.  Since  DCA's  subsidiaries  in  Manahawkin,  New Jersey and

                                       19
<PAGE>

Chambersburg,   Pennsylvania,   recently  commenced   operations,   an  accurate
operational  capacity  is  not  known  at  this  point.  The  existing  dialysis
facilities  could  accommodate  greater  patient  volume  subject  to  obtaining
appropriate governmental approval.

         The dialysis stations are equipped with modern dialysis equipment under
a November,  1996  master-lease/purchase  agreement ("1996 Master Lease") with a
$1.00  purchase  option at the end of the term. DCA leased new equipment for its
Manahawkin,  New Jersey and Chambersburg,  Pennsylvania facilities beginning May
and November, 1998, respectively, under the 1996 Master Lease in addition to the
1997 leases for equipment at the Lemoyne and Carlisle, Pennsylvania facilities.

         Techdyne's  domestic  operations are headquartered in Hialeah,  Florida
which  consists  of 16,000  square feet of space for its  executive  offices and
12,000 square feet for its manufacturing facilities and warehousing, leased from
the Company under five year leases expiring March 31, 2000. These facilities are
located in two adjacent  buildings acquired by the Company from Techdyne in 1990
which also included the purchase of a parcel of land adjacent to these buildings
used for parking.  See "Certain  Relationships and Related  Transactions" of the
Company's Proxy  Statement  relating to the Annual Meeting of Shareholders to be
held on June 9, 1999 incorporated  herein by reference.  The Company also owns a
small parcel of land near Techdyne's  offices in Hialeah,  Florida which is used
as a  parking  lot,  and a small,  undeveloped  parcel  adjacent  to  Techdyne's
warehouse available for future expansion.

         Techdyne leases manufacturing, warehousing and office facilities in (i)
Houston,  Texas for 15,000 square feet, leased until April,  2002,  (anticipates
subleasing  certain  non-manufacturing  space),  (ii)  Austin,  Texas for 18,225
square feet under a lease to May,  2002, and (iii)  Milford,  Massachusetts  for
5,500 square feet of space  through  March,  2002.  Each lease has one five year
renewal. Techdyne is using the additional space at its Austin, Texas facility by
combining its Houston  non-manufacturing  and part of its Houston  manufacturing
operations.  A minimal  portion  of the  Austin  facility  has been  sublet on a
month-to-month   basis.  The  Company  keeps  a  sales   representative  at  its
manufacturing facility in Houston, Texas.

         In July, 1997,  Techdyne acquired Lytton in Dayton,  Ohio and with that
acquisition  leased a 77,800 square foot manufacturing and office facility under
a lease to July 31, 2002 with two renewals of five years each.  The landlord,  a
limited  liability  company,  is owned by the former  president  of Lytton.  See
"Certain   Relationships  and  Related  Transactions"  of  the  Company's  Proxy
Statement  relating to the Annual Meeting of  Shareholders to be held on June 9,
1999,  incorporated  herein by reference.  Techdyne has a right of first refusal
and an option to  purchase  these  premises.  This  lease is  guaranteed  by the
Company.

         Techdyne  (Scotland) owns an approximately  31,000 square foot facility
in Livingston, Scotland subject to a 15-year mortgage due July, 2009 which has a
U.S. dollar equivalency of approximately $545,000 at December 31, 1998. See Item
7, "Management's  Discussion and Analysis of Financial  Condition and Results of
Operations."

         Techdyne  maintains  state-of-the-art  manufacturing,  quality control,
testing and packaging equipment at all of these facilities and believes that its
equipment and facilities are adequate for Techdyne's current operations.

                                       20
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

         The Company is not  involved in or subject to any claims or  litigation
of a material nature or that any adverse  outcome would have a material  adverse
effect  on  the  Company's  financial  condition.   See  Note  7  to  "Notes  to
Consolidated Financial Statements."

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

         No matter was  submitted  during the  fourth  quarter of the  Company's
fiscal year to a vote of security holders through the solicitation of proxies or
otherwise.


                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The Company's  common stock traded on the American Stock Exchange until
June 3, 1996 when its Common  Stock  commenced  trading  on the Nasdaq  National
Market  under the  symbol  "MDKI."  The table  below  reflects  for the  periods
indicated the high and low closing  sales prices for the Company's  common stock
as reported by the Nasdaq National Market.

                                                    SALE PRICE
                                                    ----------
                                           HIGH                  LOW
                                           ----                  ---
         1997
         1st Quarter.................     $5.00                 $2.63
         2nd Quarter.................      4.50                  2.00
         3rd Quarter.................      3.38                  2.13
         4th Quarter.................      3.00                  1.88

                                           HIGH                  LOW
                                           ----                  ---
         1998
         1st Quarter.................     $2.38                 $1.94
         2nd Quarter.................      2.88                  1.84
         3rd Quarter.................      2.13                  1.25
         4th Quarter.................      1.56                  0.94


         The high and low sales price of Medicore common stock at March 15, 1999
were $1.88 and $1.25, respectively.

         As of March 15,  1999,  there were 1,266  shareholders  of record.  The
Company estimates, based upon its 1997 proxy solicitation, that its common stock
is beneficially held by approximately 2,100 shareholders.

                                       21
<PAGE>

         The  Company  has not paid any cash  dividends  in the last two  years.
Dividends  are paid at the  discretion  of the board of  directors,  and no such
payments are expected to be made in the future. Any earnings of the Company will
be retained for use in the business.


ITEM 6.  SELECTED FINANCIAL DATA

         The following  selected  financial  data should be read in  conjunction
with the consolidated  financial  statements,  related notes and other financial
information included herein.
<TABLE>
<CAPTION>

                                                         CONSOLIDATED STATEMENTS OF OPERATIONS DATA
                                                          (in thousands except per share amounts)
                                                                   YEARS ENDED DECEMBER 31
                                          -------------------------------------------------------------------------
                                                1998          1997(1)         1996(2)          1995           1994
                                                ----          ----            ----             ----           ----
<S>                                           <C>            <C>             <C>            <C>             <C>    
Revenues                                      $50,149        $44,119         $34,719        $36,660         $24,552
Net income                                         98          2,241           2,417          2,251             864
Income per common share:
   Basic                                        $.02           $.39            $.44           $.41            $.17
   Diluted                                      $.01           $.36            $.39           $.37            $.16

                                                             CONSOLIDATED BALANCE SHEET DATA
                                                                      (in thousands)
                                                                        DECEMBER 31 
                                          -------------------------------------------------------------------------
                                                1998          1997(1)         1996(2)          1995           1994
                                                ----          ----            ----             ----           ----
<S>                                           <C>            <C>             <C>           <C>             <C>     
Working capital                               $15,421        $18,857         $13,844       $  7,034        $  4,871
Total assets                                   36,310         40,862          27,085         21,247          15,955
Long-term debt                                  5,127          5,240           1,677            964           1,667
Stockholders' equity                           15,368         16,077          13,021          9,754           8,027
</TABLE>

(1)      REFLECTS  (I)  FIVE  MONTHS  OPERATIONS  OF  LYTTON,  AND  ITS  ASSETS,
         LIABILITIES  AND  STOCKHOLDERS'  EQUITY,  WHICH COMPANY WAS ACQUIRED BY
         TECHDYNE ON JULY 31,  1997;  AND (II) THE SALE OF THE FLORIDA  DIALYSIS
         OPERATIONS ON OCTOBER 31, 1997 FOR $5,065,000  CONSISTING OF $4,585,000
         OF CASH WITH THE BALANCE CONSISTING OF 13,873 SHARES OF COMMON STOCK OF
         THE  PURCHASER.  SEE ITEM 7,  "MANAGEMENT'S  DISCUSSION AND ANALYSIS OF
         FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND NOTE 12 TO "NOTES TO
         CONSOLIDATED FINANCIAL STATEMENTS."

(2)      IN 1996, THE COMPANY RECORDED  ESTIMATED COSTS OF $305,000 FOR SHUTDOWN
         OF ITS DURABLE MEDICAL EQUIPMENT OPERATIONS.


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

GENERAL

         Techdyne's electronic and electro-mechanical  manufacturing  operations
continue to depend upon a relatively small number of customers for a significant
percentage  of  its  net  revenue.   Significant  reductions  in sales to any of
Techdyne's large customers would have a material adverse effect  on  Techdyne's 
and the Company's results of operations.  The level and timing of orders  placed
by  a  customer  vary  due  to the customer's attempts to balance its inventory,
changes in  a customer's  manufacturing  strategy, acquisitions of or consolida-
tions among customers, and variation in demand for a customer's products due to,
among  other  things,  product  life  cycles, competitive conditions and general
economic  conditions.    Any  terminations  of  manufacturing  relationships  or
changes, reductions or delays in orders could have an

                                       22
<PAGE>

adverse  effect  on  the Company's results of operations or financial condition.
The Company's and Techdyne's results also depend to a substantial  extent on the
success of Techdyne's  OEM customers in marketing  their  products.  Techdyne is
always  seeking to diversify its customer base to reduce its reliance on its few
major customers.  See "Techdyne's  Business Strategy" and "Customers" under Item
1, "Business - Electronic Manufacturing Industry."

         The industry  segments served by Techdyne and the electronics  industry
generally are subject to rapid  technological  change and product  obsolescence.
Discontinuance or modification of products containing components manufactured by
Techdyne  could  adversely  affect  the  Company's  and  Techdyne's  results  of
operations.  The electronics industry is also subject to economic cycles and has
in the past experienced, and is likely in the future to experience, recessionary
periods,  which  could  have a  material  adverse  effect on the  Company's  and
Techdyne's business,  financial condition and results of operations. To continue
to grow and be a successful competitor, the Company must be able to maintain and
enhance  its  technological  capabilities,   develop  and  market  manufacturing
services  which meet  changing  customer  needs and  successfully  anticipate or
respond to technological changes in manufacturing  processes on a cost-effective
and timely basis.

         Techdyne must continuously develop improved manufacturing procedures to
accommodate  customer needs for increasingly  complex  products.  To continue to
grow and be a  successful  competitor,  the Company must be able to maintain and
enhance  its  technological  capabilities,   develop  and  market  manufacturing
services  which meet  changing  customer  needs and  successfully  anticipate or
respond to technological changes in manufacturing  processes on a cost-effective
and  timely  basis.  There  can  be no  assurance  that  the  Company's  process
development   efforts  will  be   successful   or  that  the  emergence  of  new
technologies,  industry  standards or customer  requirements will not render the
Company's technology, equipment or processes obsolete or uncompetitive. Further,
to the  extent  that the  Company  determines  that  new  assembly  and  testing
technologies and equipment are required to remain  competitive,  the acquisition
and  implementation  of such  technologies  and  equipment are likely to require
significant capital investment.

         Techdyne  uses  enterprise   resource   planning   through  its  Visual
Manufacturing system (see Item 1, "Business - Electronic  Manufacturing Industry
- Supplies and Materials  Management"  and "Year 2000  Readiness"  below) in its
efforts  to  continuously   develop   accurate   forecasts  of  customer  volume
requirements.   Techdyne  is  dependent  on  the  timely  availability  of  many
components.  Component  shortages  could  result in  manufacturing  and shipping
delays or increased  component prices which could have a material adverse effect
on Techdyne's  and the Company's  results of  operations.  It is paramount  that
Techdyne  efficiently  manages inventory,  follows proper timing of expenditures
and allocates physical and personnel  resources in anticipation of future sales,
the evaluation of economic conditions in the electronics  industry,  and the mix
of products for  manufacture.  See  "Manufacturing"  and "Supplies and Materials
Management" under Item 1, "Business - Electronic Manufacturing Industry."

         Techdyne  continues to seek to expand its  geographic and customer base
through establishment of new manufacturing facilities and operations in areas to
better  serve  existing  customers  and to attract  new OEMs,  as well as direct
acquisition of contract  manufacturing  businesses  complimentary  to Techdyne's
operations.  For such expansion  opportunities,  the Company  competes with much
larger electronic manufacturing  entities.  Further, in  order to effectuate any
such transactions, it may result in potentially dilutive  issuance of equity se-
curities, the Company's incurrence of debt and amortization  expenses related to
goodwill and other  intangible  assets, as well as other costs and expenses, all
of which could materially  adversely  affect the Company's and Techdyne's finan-
cial results. Any expansion may also involve numerous business risks,  including
difficulties in successfully integrating acquired operations,  technologies  and
products or formalizing anticipated synergies, which would require the diversion
of management's attention

                                       23
<PAGE>

from other business concerns. In the event that any such transaction does occur,
there  can  be  no assurance that there would be a beneficial effect on Techdyne
and the Company's business and financial results.

         Techdyne's,  and in turn, the Company's  results of operations are also
affected by other factors, including price competition,  the level and timing of
customer  orders,  fluctuations  in material  costs,  the overhead  efficiencies
achieved in managing the costs of its operations,  experience in manufacturing a
particular  product,  the timing of  expenditures  in  anticipation of increased
orders, and selling,  general and administrative  expenses.  Accordingly,  gross
margins and operating  income margins have generally  improved during periods of
high volume and high capacity utilization.  Techdyne generally has idle capacity
and reduced operating margins during periods of lower-volume production.

         With respect to the Company's  dialysis  operations  engaged in through
DCA, essential to the Company's profitability is Medicare  reimbursement,  which
is at a fixed rate  determined by HCFA. The level of DCA's,  and therefore,  the
Company's  revenues and profitability may be adversely affected by any potential
legislation  resulting in rate cuts. Operating costs of the Company in treatment
tend to  increase  over the years  with the  commencement  of  treatment  at new
centers.  There also may be reductions in commercial  third-party  reimbursement
rates.

         The healthcare and in particular,  the dialysis industry, is subject to
extensive  regulations of federal and state authorities.  There are a variety of
fraud and abuse  measures  promulgated  by the  government to combat  government
waste, which include anti-kickback regulations,  extensive prohibitions relating
to  self-referrals,  violations  of which are  punishable  by  criminal or civil
penalties,  including  exclusion from Medicare and other governmental  programs.
Although DCA and the Company have never been challenged under these  regulations
and  believe  that DCA  complies  in all  material  respects  with such laws and
regulations,  there can be no  assurance  that there  will not be  unanticipated
changes  in  healthcare  programs  or laws or that DCA will not be  required  to
restructure its practice and will not experience  material  adverse effects as a
result of any such challenges or changes.

         DCA's future growth depends  primarily on the  availability of suitable
dialysis  centers for  development or acquisition in appropriate  and acceptable
areas,  and DCA's  ability to develop these new  potential  dialysis  centers at
costs within its budget while competing with larger companies, some of which are
public  companies or divisions of public  companies  with greater  personnel and
financial  resources  who  have a  significant  advantage  in  acquiring  and/or
developing facilities in areas targeted by the Company.  Additionally,  there is
intense   competition  for  retaining   qualified   nephrologists,   who  are  a
significant,  if not the sole,  source of patient  referrals and are responsible
for the  supervision of the dialysis  centers.  There is no certainty as to when
any  new  centers  or  inpatient   service  contracts  with  hospitals  will  be
implemented,  or the number of stations, or patient treatments such may involve,
or if such will ultimately be profitable.  Newly  established  dialysis centers,
although  contributing to increased  revenues,  also adversely affect results of
operations due to start-up costs and expenses with a smaller  developing patient
base.

RESULTS OF OPERATIONS

         1998 COMPARED TO 1997

         Consolidated  revenues  increased by approximately  $6,029,000 (14%) in
1998 compared to the previous year.  Sales revenues  increased by  approximately
$10,494,000 (27%) compared to the preceding year.  1997  revenues  included both
a gain of $4,431,000 on the sale of certain assets  of  DCA's

                                       24
<PAGE>

subsidiaries and a gain of $90,000  on  subsidiary  warrant exercises.  See Note
12 to "Notes to Consolidated Financial Statements."

         Techdyne sales increased  approximately  $11,647,000 (35%) for the year
December 31, 1998 compared to the preceding year. The increase was  attributable
principally  to the inclusion of sales of Lytton for which sales of  $20,062,000
were included  during the current year compared to $7,170,000  for the preceding
year commencing with the Company's acquisition of Lytton on July 31, 1997. There
was an overall  increase  in  domestic  sales of  $13,771,000  (52%),  including
Lytton,  and a decrease in European  sales of $2,125,000  (31%)  compared to the
preceding year. The decline in European-based sales was mainly attributable to a
decrease  of  approximately  $1,656,000  (58%) in sales to  Compaq  (Europe)  by
Techdyne  (Scotland)  which was  partially  offset by sales to new customers and
increased sales to existing customers.

         Approximately  50% of  Techdyne's  consolidated  sales  and  45% of the
Company's  consolidated  sales for 1998 were made to five  customers.  Customers
generating  in  excess  of  10%  of  Tecdyne's  consolidated  sales  with  their
respective  portions of Techdyne's and the Company's  consolidated sales include
Motorola, which  accounted for 10%  and  9%, and PMI Food Group, which accounted
for 18% and 17%, respectively.  Approximately $8,183,000 (41%) of Lytton's sales
for 1998 were to PMI Food Group, its  major  customer.  The loss of, or substan-
tially reduced sales to any of Techdyne's major customers would  have a material
adverse effect on Techdyne's and the Company's operations if such  sales are not
replaced.

         Revenues of Techdyne's  Scotland-based  subsidiary  Techdyne (Scotland)
continue  to be  highly  dependent  on  sales to  Compaq,  which  accounted  for
approximately 26% of sales for the current year compared to 42% in the preceding
year.  The  bidding  for Compaq  orders has become  more  competitive  which has
continued to result in  substantial  reductions in Compaq sales and lower profit
margins on remaining Compaq sales.  Techdyne (Scotland) is pursuing new business
development  and has offset some of the lost Compaq business with sales to other
customers.  However there can be no assurance as to the success of such efforts.

         Medical  product sales  revenues  decreased by  approximately  $373,000
(22%) for 1998  compared  to the  previous  year due to  decreased  sales of the
principal  product  of  this  division.  This  was  due to substantially reduced
government purchase and foreign competition. Management is attempting to be more
competitive  in  lancet  sales  through overseas production and expansion of its
customer base.  The Medical Products Division is also expanding its product line
with several diabetic disposable products.   No assurance can be given that said
efforts will be successful.

         Medical service revenues,  represented by the revenues of the Company's
dialysis  division,  DCA,  decreased  approximately  $823,000 (19%) for the year
ended December 31, 1998 compared to the preceding year. This  decrease  reflects
a  decrease  of  approximately   $1,663,000   compared  to  the  preceding  year
attributable to the sale of the Company's Florida dialysis operations on October
31, 1997, which was offset to some degree by increased revenues of the Company's
Pennsylvania  dialysis  centers  of  approximately  $782,000 including increased
revenues of approximately $510,000  at the Company's  dialysis center located in
Carlisle, Pennsylvania, which  commenced operations in July, 1997,  and  $58,000
from a new dialysis  center  located  in  Manahawkin, New Jersey, which received
regulatory approval in December, 1998.  Although the operations of these centers
have resulted in additional revenues, they  are  in the developmental stage and,
accordingly, their  operating  results  will  adversely  affect  DCA's  and  the
Company's results of operations until they achieve a sufficient patient count to
cover fixed operating costs.

                                       25


<PAGE>

         Cost of goods sold as a percentage of  consolidated  sales increased to
86% for the year ended December 31, 1998 compared to 83% for the preceding year.

         Cost of goods  sold for  Techdyne  as a  percentage  of sales  remained
relatively stable amounting to 88% for the year ended December 31, 1998 compared
to 87% for the preceding year.

         Cost of goods sold by the medical  products  division  increased to 69%
for 1998  compared  to 65% for the  preceding  year,  as a result of a change in
product mix due to decreased sales of the principal product of the division.

         Cost of medical services sales increased to 71% in 1998 compared to 62%
in 1997  reflecting  increases  in  healthcare  salaries  and supply  costs as a
percentage  of sales,  including  the  operations  of the  Company's  centers in
Carlisle,  PA and Manahawkin,  NJ which are still in their developmental  stage.
The preceding year included higher  hospital  treatment  revenues,  which have a
substantially   lower  cost  of  sales,  with  the  Company's  Florida  hospital
operations having been sold on October 31, 1997.

         Selling,  general and  administrative  expenses  increased $508,000 for
1998 compared to the preceding  year. This increase  reflected  inclusion of the
selling,  general and  administrative  expenses of Lytton for all of 1998 versus
five  months  in  1997,  as well as  inclusion  of the new  dialysis  center  in
Carlisle,  Pennsylvania for all of 1998, expenses in connection with the startup
of  a  new  dialysis  center  in  Manahawkin,   New  Jersey,  a  new  center  in
Chambersburg,  Pennsylvania,  which commenced  operations in January,  1999, and
another center presently under  construction in New Jersey,  which was offset by
the  decline in  expenses  resulting  from DCA's  sale of its  Florida  dialysis
operations on October 31, 1997. Included in 1997 was stock compensation  expense
that  occurred  during the fourth  quarter of 1997 in the amount of  $322,000 in
conjunction with forgiveness of notes from option exercises of DCA common stock.

         Interest expense increased by approximately  $199,000 for 1998 compared
to the preceding year. This increase  included  additional  interest of $122,000
associated  with the financing the Lytton  acquisition and increases in Lytton's
financing  and debt  agreements  of  approximately  $81,000  which was partially
offset from DCA's reduced average outstanding borrowings.

         The Company  recorded an adjustment to the valuation allowance relating
to its deferred tax asset of approximately $300,000 during the fourth quarter of
1998  and  $700,000  during  the  fourth  quarter  of 1997 which offset taxes of
approximately  $1,700,000  of  DCA  which  resulted from the sale of its Florida
dialysis operations.

         A substantial portion of the Company's outstanding  borrowings are tied
to the prime  interest  rate.  The prime rate was 7.75% at December 31, 1998 and
8.25% at December 31, 1997.

         1997 COMPARED TO 1996

         Consolidated  revenues  increased by approximately  $9,400,000 (27%) in
1997 compared to the previous year. Sales revenues increased by $9,208,000 (31%)
compared to the preceding year. 1997 revenues  included a $4,431,000 gain on the
sale of  certain  assets of DCA's  subsidiaries  with  1996  having  included  a
$1,521,000  gain on securities  offering of DCA, and a gain of $2,584,000 on the
sale of marketable securities attributable to the sale of Viragen (a former sub-
sidiary  of  the  Company)  common  stock  for which the carrying value had been
written-off in previous periods.  See Note 2 to "Notes to Consolidated Financial
Statements."  Other income decreased by $273,000 for 1997 compared to the

                                       26


<PAGE>

previous year which included $140,000 from a litigation  settlement and $228,000
on the Viragen note recovery.

         Techdyne sales increased  approximately  $8,903,000  (37%) for the year
ended  December  31, 1997  compared to the  preceding  year.  The  increase  was
attributable principally to the inclusion of sales

by Lytton totaling $7,170,000 since August 1, 1997.  There  was  an  increase in
domestic sales of $12,184,000  (87%) that was offset by  a  decrease in European
sales of $3,281,000 (33%) compared to the same period of the preceding year. The
decrease in  European-based sales  was  largely  attributable  to  a decrease of
approximately $5,580,000 in sales to Compaq which  was partially offset by sales
to new and existing customers.

         Approximately  63% of  Techdyne's  consolidated  sales  and  54% of the
Company's  consolidated  sales for 1997 were  made to six  customers.  Customers
generating  in  excess  of 10%  of  Techdyne's  consolidated  sales  with  their
respective  portions of Techdyne's and the Company's  consolidated sales include
IBM which  accounted  for 19% and 17% and EMC and its related  suppliers for 10%
and 8%, respectively. Approximately $2,727,000 (38%) of Lytton's sales since its
acquisition by Techdyne on July 31, 1997 were to its major customer. Significant
reductions in sales to any of Techdyne's  major  customers would have a material
effect on the Company's results of operation if such sales are not replaced.

         Revenues of Techdyne's  Scottish-based  subsidiary  Techdyne (Scotland)
continue  to be  highly  dependent  on  sales to  Compaq,  which  accounted  for
approximately 42% and 84% of the sales of Techdyne (Scotland) for 1997 and 1996,
respectively.  The bidding for Compaq orders has become more  competitive  which
has resulted in  substantially  reduced Compaq sales and lower profit margins on
remaining Compaq sales. Techdyne (Scotland) is pursuing new business development
and has offset some of the lost Compaq  business  with sales to other  customers
and is also  continuing cost reduction  efforts to remain  competitive on Compaq
business. However, there can be no assurance as to the success of such efforts.

         Medical  product sales  revenues  decreased by  approximately  $304,000
(18%) for 1997  compared to the  previous  year.  The  decrease  reflected  lost
revenues  from  All  American  Medical  & Supply  Corp.  ("All  American"),  the
Company's home healthcare durable  subsidiary which  discontinued  operations in
March, 1997.

         Medical services revenues, represented by the revenues of the Company's
dialysis  division,  DCA,  increased  approximately  $544,000 (14%) for the year
ended December 31, 1997 compared to the preceding  year. This growth was largely
attributable to increased  revenues of  approximately  $533,000 at the Company's
Lemoyne,  Pennsylvania  facility,  which  commenced  operations in June 1995 and
$329,000 from a new dialysis  center  located in Carlisle,  Pennsylvania,  which
commenced  operations  in July 1997.  These  increased  revenues  were offset by
approximately  $312,000 of lost revenues from the sale of the Company's  Florida
dialysis  operations  on October 31, 1997.  Although the  operations  of the new
Carlisle  center have resulted in additional  revenues during 1997, it is in the
developmental  stage  and,  accordingly,   its  operating  results  will  likely
adversely  affect the  Company's  results  of  operations  until they  achieve a
sufficient patient count to cover fixed operating costs.

         Cost of goods  sold as a  percentage  of  consolidated  sales  remained
relatively  stable,  increasing  to 83% for the year  ended  December  31,  1997
compared to 82% for the preceding  year.  The net increase in cost of goods sold
is primarily attributable to the reasons noted above for fluctuations in sales.

                                       27
<PAGE>

         Cost of goods  sold for  Techdyne  as a  percentage  of sales  remained
relatively  stable,  increasing  to 87% for the year  ended  December  31,  1997
compared to 86% for the preceding  year.  The net increase in cost of goods sold
is primarily attributable to the reasons noted above for fluctuations in sales.

         Cost of goods sold by the medical  products  division  decreased to 63%
for 1997 compared to 68% for the preceding year,  which reflects  relatively low
margins in 1996 for the Company's medical  durable  subsidiary,  All American in
the preceding year. The Company decided to shutdown the medical durable subsidi-
ary during the first quarter of 1997 due to its unprofitable operations.

         Selling,  general and  administrative  expenses  increased $404,000 for
1997  compared to the  preceding  year.  This  increase  reflected  the selling,
general  and  administrative  expenses  of  Lytton  commencing  August  1,  1997
($730,000)  after Lytton was  acquired by Techdyne on July 31, 1997,  as well as
substantially   increased   operations  of  Techdyne's  Round  Rock,  Texas  and
Massachusetts  facilities.  The increase also  reflected  DCA's opening of a new
Pennsylvania  dialysis  center in Carlisle and its  expansion of the facility in
Lemoyne,  Pennsylvania,  which was offset by the decline in costs resulting from
DCA's  sale of its  Florida  dialysis  operations  on October  31,  1997 and the
shutdown of All American  ($652,000  including  shutdown costs of  approximately
$305,000).  Included in 1997 was stock compensation expense that occurred during
the  fourth  quarter  of 1997 in the  amount of  $322,000  in  conjunction  with
forgiveness  of notes from option  exercises of DCA common  stock  compared to a
similar expense of $344,000 in the preceding year.

         Interest expense increased by approximately  $175,000 for 1997 compared
to the preceding year. This increase  included  interest of $100,000  associated
with Techdyne's  financing of the Lytton  acquisition and interest from Lytton's
financing and debt agreements of $71,000.

         The Company recorded an adjustment to  the valuation allowance relating
to its deferred tax assets of approximately  $700,000  in the fourth  quarter of
1997 which offset taxes of approximately $1,700,000 of DCA  which  resulted from
the sale of its Florida dialysis operations.

         A substantial portion of the Company's outstanding  borrowings are tied
to the prime  interest  rate.  The prime rate was 8.50% at December 31, 1997 and
8.25% at December 31, 1996.

         During 1998, the Company adopted the provisions of Financial Accounting
Standards Board Statements  No. 130,  "Reporting Comprehensive Income"  and  No.
131, "Disclosure About  Segments of an Enterprise and Related Information."  The
adoption of FAS 130 and FAS 131 did not have a material  effect on the Company's
consolidated  financial  statements and did not significantly change its segment
reporting disclosures. See  Note  1  to  "Notes to Consolidated Financial State-
ments."

LIQUIDITY AND CAPITAL RESOURCES

         Working  capital  totaled  $15,421,000  at  December  31,  1998,  which
reflected a decrease of $3,436,000 (18%) during 1998. Included in the changes in
components  of working  capital  was a decrease of  $3,805,000  in cash and cash
equivalents,  which  included net cash used in operating  activities  of $28,000
(including a decrease in income  taxes  payable of  $1,356,000  largely from tax
payments on the gain on the Florida dialysis  operations sale), net cash used in
investing  activities  of  $3,397,000  (including  funds used for  redemption of
minority interest of dialysis  subsidiaries of $385,000,  additions to property,
plant  and  equipment  of  $1,776,000,   additional  consideration  of  $154,000
regarding the Lytton acquisition, $253,000 proceeds from the sale of securities,
and an advance of $1,278,000  toward the Lytton stock price  guarantee)  and net
cash used in financing  activities  of $380,000  (including  stock

                                       28
<PAGE>

purchases of $205,000, borrowings  on  Techdyne's  line of credit of $600,000 to
fund the advance on the subsidiary acquisition price guarantee, borrowings under
Lytton's  line  of  credit  of  $414,000,  and  payments  on  long-term  debt of
$1,082,000).

         Techdyne has a five-year  $1,500,000  ("notional  amount under interest
rate swap agreement")  commercial term loan with monthly  principal  payments of
$25,000 plus interest at 8.60%,  which had an outstanding  balance of $1,200,000
at  December  31, 1998 and  $1,500,000  at  December  31, 1997; and a $1,600,000
commercial revolving line of credit with interest at prime which was fully drawn
down as of December 31, 1998 with an outstanding balance of $1,000,000 as of De-
cember 31, 1997.  The commercial  term  loan  matures  December 15, 2002 and the
commercial line of credit, no  longer  a  demand line, matures May 1, 2000.  See
Note 3 to "Notes to Consolidated Financial Statements."

         Techdyne  had  obtained  in 1996 two other term loans from its  Florida
bank. One is a $712,500 term loan,  which had a remaining  principal  balance of
$636,000 at December 31, 1998 and $663,000 at December 31, 1997,  and is secured
by two  buildings  and land  owned by the  Company.  The  second  term  loan for
$200,000,  which had a remaining  principal  balance of $87,000 at December  31,
1998 and $127,000 at December 31, 1997,  is secured by the  Techdyne's  tangible
personal property,  goods and equipment.  The Company has guaranteed these loans
and subordinated the  intercompany  indebtedness due it from Techdyne,  provided
that  Techdyne may make payments to the Company on this  subordinated  debt from
additional equity that is injected into the Techdyne and from earnings.
See Note 3 to "Notes to Consolidated Financial Statements."

         Techdyne  has  outstanding  borrowings  of  $145,000  from a local bank
with  interest  payable  monthly with the note,  which was renewed  during 1997,
maturing  April 2000.  Techdyne  (Scotland) had a line of credit with a Scottish
bank, with a U.S. dollar  equivalency of approximately  $330,000 at December 31,
1997 that was secured by assets of Techdyne  (Scotland)  and  guaranteed  by the
Techdyne.  This line of credit, which was not renewed,  operated as an overdraft
facility.  No  amounts  were  drawn on this  line of credit  during  1998 and no
amounts were outstanding at December 31, 1997. In July, 1994 Techdyne (Scotland)
purchased  the  facility  housing its  operations  for  approximately  $730,000,
obtaining  a  15-year   mortgage  which  had  a  U.S.   dollar   equivalency  of
approximately  $545,000 at December  31, 1998 and $569,000 at December 31, 1997,
based on exchange  rates in effect at each of these dates.  See Note 3 to "Notes
to Consolidated Financial Statements."

         On July 31, 1997, the Techdyne acquired Lytton, which is engaged in the
manufacture  and assembly of PCBs and other  electronic  products for commercial
customers.  This acquisition  required  $2,500,000 cash,  funded by the modified
bank line of credit,  as well as 300,000 shares of the  Techdyne's  common stock
which had a fair value of approximately $1,031,000 based on the closing price of
the  Techdyne's  common stock on the date of  acquisition.  Techdyne  guaranteed
$2,400,000  minimum  proceeds from the sale of these  securities based on Lytton
having achieved certain earnings  objectives.  The Stock Purchase Agreement also
provides for incentive  consideration to be paid in cash based on specific sales
levels of Lytton for each of three  successive  specified  years,  resulting  in
additional  consideration of approximately  $154,000 for the first year of sales
levels  paid  in April 1998.  The Lytton  acquisition has expanded the Company's
customer  base,   broadened  its  product  line,   enhanced  its   manufacturing
capabilities  and  provided a new  geographic  area to better  serve  Techdyne's
existing customer base with opportunities to attract new customers.  See Note 11
to "Notes to Consolidated Financial Statements."

         The Guaranty in the Stock  Purchase  Agreement was modified by Techdyne
and the seller.  Techdyne  advanced  approximately  $1,278,000 to the seller. In
addition to the seller  having sold 5,000

                                       29
<PAGE>

shares of Techdyne's common stock in July 1998, the seller is to sell sufficient
shares to yield  aggregate proceeds of no more than $1,3000,000 toward the Modi-
fied Guaranty.  Upon the sale of seller's remaining shares up to 195,000 shares,
she will repay the advance. Techdyne  funded  the  advance to the seller largely
through a drawdown of the previously  unused  $600,000 of its line of credit and
advances from the Company.  To  the  extent  that  seller  does not have 150,000
shares remaining, Techdyne would make up the difference.  If the sale of  shares
is insufficient  to  repay the advance, the balance would be forgiven.  Pursuant
to the Extended Guaranty, sale of the remaining Techdyne shares is guaranteed to
yield no less than $1,100,000 if sold on  or  prior  to  July 1,  1999  or  else
Techdyne will make up the difference in either cash or additional  common  stock
or  a  combination  of  both.  See  Note 11 to  "Notes to Consolidated Financial
Statements."

         Lytton has a $1,500,000 revolving bank line of credit requiring monthly
interest  payments  at prime  plus  1/2%  which  matured  August 1, 1998 and was
renewed on the same terms and  conditions.  There was an outstanding  balance on
this loan of $962,000 as of December 31, 1998 with $549,000 outstanding December
31, 1997.  Lytton has a $1,000,000  installment loan with the same bank maturing
August 1, 2002, at an annual rate of 9% until July 1999,  with monthly  payments
of $16,667  plus  interest,  at which time Lytton will have an option to convert
the  note  to a  variable  rate.  The  balance  outstanding  on  this  loan  was
approximately  $733,000 at December  31,  1998 and  $933,000 as of December  31,
1997.  Lytton also has a $500,000  equipment  loan  agreement with the same bank
payable through August 1, 2003 with interest at prime rate plus 1%. There was no
outstanding  balance on this loan as of December  31, 1998 or December 31, 1997.
All these bank loans are secured by  the  business  assets of Lytton. See Note 3
to "Notes to Consolidated Financial Statements."

         Lytton  conducts a portion of its operations  with  equipment  acquired
under  equipment  financing  obligations  which  extend  through  July 1999 with
interest  rates ranging from 8.55% to 10.09%.  The remaining  principal  balance
under these financing  obligations amounted to $112,000 at December 31, 1998 and
$390,000  at  December  31,  1997.  Lytton  has an  equipment  loan at an annual
interest rate of 5.5% maturing in April 2002 with monthly  payments of principal
and  interest of $4,298.  This loan has a balance of  approximately  $157,000 at
December 31, 1998 and $198,000 at December 31, 1997 and is secured by equipment.
See Note 3 to "Notes to Consolidated Financial Statements."

         Techdyne is seeking to further expand its operations  possibly  through
acquisitions of companies in similar businesses, as with the Lytton acquisition.
There  can  be no  assurance  that  Techdyne  would  be  able  to  finance  such
acquisitions  from its own  capital  or be able to  obtain  sufficient  external
financing.

         A  significant  customer  of  Techdyne  (which  sales to this  customer
represented  9% of Techdyne's  and 8% of the Company's 1998 sales) has been slow
in  paying  amounts  owed  to  Techdyne.  At December  31, 1998,  Techdyne had a
receivable of approximately  $879,000 from this customer,  and held inventory of
approximately  $1,160,000 to fulfill a sales contract relating to this customer,
which  represents  15% and 13%, and 14% and 13% of Techdyne's  and the Company's
accounts receivable and inventory balances, respectively, at that date. Techdyne
anticipates an ongoing business relationship with this customer and believes the
receivables and inventories  relating to the customer are recoverable.  However,
future events may occur which could have a material adverse effect on Techdyne's
and the Company's results of operations and financial positions.

         DCA has mortgages on its two buildings, one  in  Lemoyne,  Pennsylvania
and  the  other in Easton, Maryland, with  a  combined  balance  of  $360,000 at
December 31, 1998. In 1998, DCA was in default of certain  covenants relating to
these  mortgages.  The  covenants  principally related to debt service ratio re-
quirements for which the lender has waived compliance through December 31, 1998.

                                       30
<PAGE>

         The debt service ratio requirement  is  tested  on  an annual basis and
thus, is effectively waived through December 31, 1999  as  compliance  with  the
covenant  will  not  be determined until final results for 1999 are available in
early 2000.

         The bank has liens on the real and personal property of DCA,  including
a lien on all  rents  due  and  security  deposits  from  the  rental  of  these
properties.  Through November 30, 1997, the loans contained a provision allowing
the bank mandatory repayment upon 90 days written notice after five years, which
resulted  in  the  unpaid  principal,  balances  being  reflected  as a  current
liability.  The loans  were  modified  effective  December  1, 1997 and the call
provision was removed  thereby  eliminating the necessity of carrying the entire
debt balance as current.  An unaffiliated  Maryland dialysis center continues to
lease space from DCA in its building.  The Pennsylvania  center relocated during
1995 and DCA constructed its own dialysis  facility at the  property  that  com-
menced treatments in  June 1995.  See Note 3 to "Notes to Consolidated Financial
Statements."

         DCA has an equipment  financing  agreement for kidney dialysis machines
for its  facilities.  There was  additional  financing  of $245,000  during 1998
pursuant to this agreement. DCA had an outstanding balances under this agreement
of $449,000 at December 31, 1998 and $285,000 at December 31, 1997.

         During 1998, DCA repurchased  105,000 shares of its outstanding  common
stock  for  approximately  $109,000.  See  Note  13 to  "Notes  to  Consolidated
Financial Statements."

         In February  1998 DCA redeemed the 20% minority  interest in two of its
subsidiaries whose assets were included in the Florida dialysis  operations sale
for a total  consideration of $625,000,  including $385,000 cash and one-half of
the purchaser's  securities  valued at $240,000 with the total value of $480,000
for securities received having been guaranteed by the purchaser.

         DCA opened its fourth  center in  Manahawkin,  New Jersey and  received
regulatory approval as a Medicare provider during the fourth quarter of 1998 and
opened its fifth center in Chambersburg,  Pennsylvania  during the first quarter
of 1999 and received appropriate regulatory approval and is constructing another
dialysis center in New Jersey.  The professional  corporation  providing medical
director services to both the New Jersey centers has a 20% interest in those DCA
subsidiaries.

         DCA,  having  operated  on a larger  scale in the past,  is  seeking to
expand its outpatient dialysis treatment facilities and inpatient dialysis care.
Such  expansion,  whether  through  acquisitions  of  existing  centers  or  the
development of its own dialysis  centers requires  capital,  which was the basis
for the  Company's  security  offering in 1996 and sale of its Florida  dialysis
operations  in  1997.  No  assurance  can be  given  that  the  Company  will be
successful  in  implementing  its  growth  strategy  or that the funds  from its
securities  offering and Florida  dialysis  operations  sale will be adequate to
finance such expansion.  See Item 1, "Business - Business  Strategy" and Notes 8
and 12 to "Notes to Consolidated Financial Statements."

         In November 1997, the Company  announced its intent to repurchase up to
$1,000,000  of  its  outstanding  common  stock.  The  Company  has  repurchased
approximately  141,000  shares of its common stock for  approximately  $221,000,
having  repurchased  approximately  133,000 shares at a cost of $205,000  during
1998.

         The   bulk   of  the   Company's   cash   balances   are   carried   in
interest-yielding  vehicles at various  rates and mature at different  intervals
depending on the anticipated cash requirements of the Company.

                                       31
<PAGE>

         The Company  anticipates  that  current  levels of working  capital and
working capital from operations will be adequate to successfully  meet liquidity
demands for at least the next twelve  months,  including  the debt and financing
obligations incurred in the acquisition of Lytton.

YEAR 2000 READINESS

         The Year 2000 computer information processing challenge associated with
the upcoming millennium change concerns the ability of computerized  information
systems  to  properly  recognize  date  sensitive  information,  with which many
companies,  public and private,  are faced to ensure continued proper operations
and  reporting  of financial  condition.  Failure to correct and comply with the
Year 2000  change  may cause  systems  that  cannot  recognize  the new date and
millenium information to generate erroneous data or to fail to operate.  Manage-
ment is fully  aware of the Year  2000 issues, has  made its assessments and has
evaluated its  computerized  systems and equipment, and  communicated  with  its
major  vendors,  and has  substantially  made the operations of the Company Year
2000 compliant.

         In 1997,  the  Company  commenced  upgrading  its  operations  software
program in  conjunction  with  Techdyne by acquiring a new Visual  Manufacturing
software  package.  The Visual  Manufacturing  software  system is primarily for
Techdyne,  although several  computers and certain software were acquired by and
applied to the  Company.  The system is in the process of being  installed  into
Lytton's and Techdyne (Scotland)'s operations which should be completed sometime
prior  to June 30,  1999.  This  new  system  has  greatly  enhanced  Techdyne's
enterprise  resources planning,  essential to bids for new business,  production
scheduling,  inventory  and  information  technology,  and  overall  operations.
Management  believes  this new system is providing it with  leverage in material
pricing, production and timely-delivery, thereby enabling the Company to be more
competitive  in  bidding for manufacturing business.   This Visual Manufacturing
system also enables the Company to better track actual costs against its quotes,
thereby allowing the Company  to  more  effectively  control  costs  and  manage
operating  margins.  The cost of this  new  software program for the  Company is
approximately  $58,000  and  for  Techdyne  was  approximately $367,000,  for an
aggregate cost of approximately $425,000.  The cost for the software program for
Techdyne's  Ohio  and  Scottish  operations  is  estimated  to  be approximately
$220,000.  The Visual Manufacturing system has been pre-tested and guaranteed by
the manufacturer to be Year 2000 compliant.  The  Company  has  an ongoing  con-
sulting, training and servicing  arrangement with the system's  manufacturer for
approximately $25,000 per annum.  The Visual  Manufacturing system also provides
the  bookkeeping, accounting and financial recording  and  information functions
for the Company and its subsidiaries.

         With respect to  non-information  technology  systems  which  typically
include embedded technology such as  microcontrollers,  the major equipment used
in the Company's manufacturing  operations as well as in its dialysis operations
are not date  sensitive,  and should not pose any  threat of a system  breakdown
due to the Year 2000 issue.  Techdyne's  quality control  "Cirrus  testers" have
recently been tested and are Year  2000 compliant.  Techdyne's personal computer
hardware and software systems have been checked and most have been determined to
be Year 2000 compliant.  Any upgrading and replacements would cost approximately
$1,500 per unit.

         The Company has communicated with its key vendors,  customers and other
third  parties  with whom its  operations  are  essential  to  inquire  of their
assessment  of their Year 2000 issues and actions  being taken to resolve  those
issues.  Approximately  90% have  responsed  of which  half have  given  written
assurance  that they are Year 2000  compliant,  with the  balance  assuring  the
Company they will be Year  2000  compliant  before the millenium change.  To the
extent  such third parties are potentially  adversely  affected by the Year 2000
issues, and such is not timely and properly resolved by such persons, this could

                                       32
<PAGE>

disrupt Techdyne's operations to the extent that it will have  to  find alterna-
tive  vendors  or  customers  that  have  resolved their Year  2000  issues.  No
assurance can be given that the  Company's  new  Visual  Manufacturing  software
program will be successful in its anticipated  operational  benefits as assessed
above  or  that  key  vendors  and  customers  will  have  successful conversion
programs, and  that  any  such  failures, whether  relating to the manufacturing
operational efficiencies  or  the Year  2000  issue, will  not have  a  material
adverse  effect on Techdyne's and the Company's  business, results of operations
or financial condition.

         The  singular  area  impacting DCA with respect to the Year 2000 change
is  in  its  electronic  billing of Medicare, Medicaid and third-party insurance
companies.   DCA receives approximately  74% of its revenues  from  Medicare for
the treatment of dialysis patients and related services.  HCFA, through whom the
Medicare program and payments are effected, has indicated it is doing everything
to become Year 2000 compliant and is assuring the Medicare  program will operate
smoothly. In 1998, DCA installed a new electronic billing software program  that
was developed according to Medicare's compliance  guidelines,  which  guidelines
require  not  only  system  but  also  Year  2000  compatibility.  The  software
designer has  tested  the  software  for Year 2000  compliance and DCA initiated
its  first  billing  and   reimbursement  with  the  new  software  without  any
problems.  DCA  has  also  successfully  electronically  billed  Medicaid  using
the new software.  Therefore, with  respect  to any  financial  impact  in  view
of  electronic  billing  and maintenance of  receivables,  management  does  not
presently anticipate any future problems.   No other significant computer issues
are presently  known by the Company  that would  affect DCA's  ability to  elec-
tronically  bill  or  otherwise  maintain  its  records  and  conduct  its daily
operations.   The  costs  of  the  software  modifications  have  been  minimal,
approximately $1,000, and  the  Company  does  not  anticipate  that  any  costs
involved  in  any future Year 2000 compliance will be material or that they will
have a material  adverse effect on its business.

         DCA's bookkeeping, financial records and statements, and accounting are
accomplished  through  certain common officers and personnel and facilities with
the  Company.  See  "Certain  Relationships  and  Related  Transactions"  of the
Company's Proxy  Statement  relating to the Annual Meeting of Shareholders to be
held on June 9, 1999, incorporated herein by reference. The Visual Manufacturing
system presently handles these programs. Management is evaluating new, Year 2000
compliant accounting packages,  which would provide DCA with its own independent
system  of  bookkeeping,   accounting  and  financial  records  and  reduce  its
dependence on the Company's  personnel and  facilities.  Management  anticipates
such Year 2000  compliant  accounting and  bookkeeping  system to be ready at or
about June 30, 1999.  The cost of such new  accounting  system is estimated in a
range of approximately $10,000 to $20,000.

         Another area that could significantly  impact the Company's  operations
in providing  dialysis  treatment to patients relates to third-party  providers,
specifically,  the utility  companies  providing  water, an extremely  necessary
resource for dialysis treatments, and electricity.  These providers and services
are beyond the control of the  Company.  Should any of these  utilities  fail to
provide  services,  such  would  seriously  adversely  impact the  Company,  its
patients, as well as the Company's competitors in such affected areas.

         There can be no assurance,  however, that the Year 2000 issues, whether
internal and believed to have been  addressed,  or from third parties,  although
the  Company  has  checked  and been  assured  that its  third-party  payors and
suppliers are Year 2000 compliant or will be prior to the end of 1999,  will not
have a material adverse effect on the Company's business,  results of operations
or financial condition.

                                       33
<PAGE>

OTHER MATTERS

         The Company is exposed to market risks from  changes in interest  rates
and  foreign  currency  exchange rates.  Sensitivity of results of operations to
interest  rate  risks  on the Company's investments is managed by conservatively
investing liquid funds in  short-term government securities and interest bearing
accounts  at  financial  institutions  in  which  the  Company had approximately
 $6,700,000 invested as of December 31, 1998.

         Interest rate risk on debt  is  managed  by  negotiation of appropriate
rates on new financing obligations based  on  current market rates and by use of
interest rate swap and other agreements which cap  interest rates on some of its
debt  obligations.   Agreements  which cap interest  rates totaled approximately
$1,933,000 as of December 31, 1998  and  contain  provisions  which  can  either
result in a gain or a loss to the Company  for  early  settlement of the related
debt depending on whether rates have increased or decreased since the agreements
were  negotiated.  At December 31, 1998, early  settlement of these debt obliga-
tions  would  have a negative  impact on the  Company's results of operations of
approximately $17,000.

         The Company has exposure to both rising and falling interest rates.

         It  has  an  interest  rate  exposure on debt  agreements with variable
interest rates of which the Company had approximately  $3,800,000  of  such debt
outstanding as  of December 31, 1998.  A 1% increase  in  interest  rates on its
year-end  variable  rate debt would result in a negative impact of approximately
$23,000 on the Company's results of operations.

         A 1/2% decrease in rates on the Company's  year-end  investments  would
result in a negative impact of approximately $14,000  on  its  results of opera-
tions.

         The Company's  exposure  to  market risk from foreign currency exchange
rates relates to Techdyne's Scottish subsidiary whose results of operations when
translated into U.S. Dollars are impacted by changes in foreign  exchange rates.
A 10% strengthening of the U.S. Dollar against the local Scottish  currency, the
pound, would have negatively impacted 1998 earnings  by  approximately  $27,000.
The Company has not incurred any significant realized losses on foreign exchange
transactions and does not utilize  foreign  exchange  contracts to hedge foreign
currency fluctuations.  If  realized  losses on foreign transactions were to be-
come significant, the Company would  evaluate  appropriate strategies, including
the possible use of foreign exchange contracts to reduce such losses.

NEW ACCOUNTING PRONOUNCEMENTS

         In June, 1998, the  Financial  Accounting Standards Board issued Finan-
cial Accounting Standards Board Statement No. 133,  "Accounting  For  Derivative
Instruments and Hedging Activities" (FAS 133).  FAS 133 is  effective for fiscal
quarters of fiscal  years  beginning after June 15, 1999.  FAS  133  establishes
accounting  and  reporting  standards for derivative instruments and for hedging
activities and requires, among other  things, that all derivatives be recognized
as either  assets or liabilities in the statement of financial position and that
those instruments be measured  at  fair value.  The Company is in the process of
determining the impact that the  adoption  of  FAS 133 will have on its consoli-
dated financial statements.

                                       34
<PAGE>

INFLATION

         Inflationary factors have not had a significant effect on the Company's
operations.  The  Company  attempts  to pass on  increased  costs  and  expenses
incurred  in  the  electronic  and  electro-mechanical   products  divisions  by
increasing  selling prices when and where  possible and by developing  different
and improved  products  for its  customers  that can be sold at targeted  profit
margins.  In the  Company's  medical  services  segment,  revenue  per  dialysis
treatment is subject to  reimbursement  rates  established  and regulated by the
federal government.  These rates do not automatically adjust for inflation.  Any
rate adjustments  relate to legislation and executive and  Congressional  budget
demands,  and  have  little  to do  with  the  actual  cost of  doing  business.
Therefore,  dialysis services  revenues cannot be voluntarily  increased to keep
pace with increases in supply costs or nursing and other patient care costs.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         This discussion is presented  under the heading  "Other  Matters"  with
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations," and incorporated herein by reference.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The response to this item is  submitted  as a separate  section to this
report.

ITEM 9.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE

         None.

                                       35
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Information  on directors of the Company is included  under 

         The executive  officers  of  the Company are appointed each year by the
board of  directors  at its  first  meeting  following  the  Annual  Meeting  of
Shareholders  to  serve during the ensuing year. The following information indi-
cates the position with the Company and age of the  executive  officers at March
15, 1999.

                                      CURRENT POSITION AND             POSITION
NAME                     AGE         AREAS OF RESPONSIBILITY         HELD SINCE
----                     ---         -----------------------         ----------

Thomas K. Langbein        53         Chairman of the Board of            1980
                                       Directors, Chief Executive
                                       Officer and President

Seymour Friend            78         Vice President and                  1981
                                       Director                          1975

Daniel R. Ouzts           52         Vice President (Finance)            1986
                                       and Controller                    1983

         For more detailed information about executive officers and directors of
the  Company  you  are  referred to the caption "Information About Directors and
Executive Officers"  of the  Company's  Proxy Statement  relating  to the Annual
Meeting of Shareholders to be held on June 9, 1999, which is incorporated herein
by reference.

ITEM 11.  EXECUTIVE COMPENSATION

         Information  on executive  compensation  is included  under the caption
"Executive Compensation" of the Company's Proxy Statement relating to the Annual
Meeting  of  Shareholders  to be held on June 9,  1999,  incorporated  herein by
reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Information on beneficial  ownership of the Company's voting securities
by each director and all officers and directors as a group,  and for each of the
named  executive  officers  disclosed  in the  Summary  Compensation  Table (see
"Executive Compensation" of the Company's Proxy Statement relating to the Annual
Meeting  of  Shareholders  to be held on June 9,  1999,  incorporated  herein by
reference),  and by any  person  known to  beneficially  own more than 5% of any
class  of  voting  security  of the  Company,  is  included  under  the  caption
"Beneficial  Ownership  of the  Company's  Securities"  of the  Company's  Proxy
Statement  relating to the Annual Meeting of  Shareholders to be held on June 9,
1999, incorporated herein by reference.

                                       36
<PAGE>

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Information  on  certain  relationships  and  related  transactions  is
included under the caption "Certain  Relationships and Related  Transactions" of
the Company's Proxy Statement  relating to the Annual Meeting of Shareholders to
be held on June 9, 1999, incorporated herein by reference.

                                       37
<PAGE>

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)      The following is a list of documents filed as part of this report.

         1.       All financial statements - See Index to Consolidated Financial
                  Statements.

         2.       Financial  statement  schedules  - See  Index to  Consolidated
                  Financial Statements.

         3.       Refer to subparagraph (c) below.

(b)      Current Reports on Form 8-K filed during fourth quarter.

         1.       The Company filed a Current  Report on Form 8-K dated November
                  25, 1998, Item 5, "Other Events,"  announcing the execution of
                  a financial  advisory  agreement  with  Dominick & Dominick on
                  November 16, 1998 to provide financial  consulting services to
                  the Company and its subsidiary, Techdyne, Inc.

(c)      Exhibits*

              (3)(i) Restated   Certificate   of   Incorporation,   Articles  of
                     Incorporation, as amended (incorporated by reference to the
                     Company's Annual Report on Form 10-K for the year ended De-
                     cember 31, 1997  ("1997 Form 10-K"), Part IV, Item 14(c)(3)
                     (i)).

                (ii) By-laws,  as amended (incorporated by reference to the Com-
                     pany's 1997 Form 10-K, Part IV, Item 14(c)(3)(ii)).

              (4)    Instruments   defining  the  rights  of  security  holders,
                     including indentures.

                 (i) 1989  Stock  Option  Plan (incorporated by reference to the
                     Company's 1997 Form 10-K, Part IV, Item 4(i)).

                (ii) Form of Stock Option  Agreement issued pursuant to the 1989
                     Stock  Option  Plan  (incorporated by reference to the Com-
                     pany's 1997 Form 10-K, Part IV, Item 4(ii)).

               (iii) Form of  Additional  Non-Qualified  Stock Option  Agreement
                     issuable under the Stock  Option Agreement (incorporated by
                     reference  to  the  Company's 1997 Form 10-K, Part IV, Item
                     4(iii)).

             (10)    Material contracts.

                 (i) Employment  Agreement  between  the  Company  and Thomas K.
                     Langbein dated August, 1998.

                                       38
<PAGE>

                (ii) Lease  between the Company  and Heights  Plaza  Associates,
                     dated  April 30, 1981  (incorporated  by  reference  to the
                     Company's 1997 Form 10-K, Part IV, Item 14(c)(10)(ii)).

               (iii) Amendment  to lease  between the Company and Heights  Plaza
                     Associates, dated March 31, 1996 (incorporated by reference
                     to  the   Company's   1997  Form   10-K,   Part  IV,   Item
                     14(c)(10)(iii)).

                (iv) Lease Agreement  between the Company and Techdyne,  Inc.(1)
                     dated  July  17,  1990   (incorporated   by   reference  to
                     Techdyne's  Annual  Report on Form 10-K for the year  ended
                     December 31, 1991, Part IV, Item 14(a) 3 (10)(i)).

                 (v) Lease Renewal Letter from Techdyne,  Inc.(1) dated December
                     19,  1994   (incorporated   by  reference   to   Techdyne's
                     Registration  Statement  on  Form  SB-2,  Registration  No.
                     33-94998-A  ("Techdyne's  Form  SB-2"),  Part II,  Item 27,
                     10(b)).

                (vi) Royalty Agreement between the Company and Viragen,  Inc.(2)
                     dated  November 7, 1986  (incorporated  by reference to the
                     Company's 1997 Form 10-K, Part IV, Item 14(c)(10)(vi)).

               (vii) Amended Royalty  Agreement between the Company and Viragen,
                     Inc.(2) dated November 21, 1989  (incorporated by reference
                     to  the   Company's   1997  Form   10-K,   Part  IV,   Item
                     14(c)(10)(vii)).

              (viii) Employment Agreement between Techdyne (Scotland) Limited(3)
                     and John Clark Grieve dated March 11, 1988 (incorporated by
                     reference to Techdyne's  Annual Report on Form 10-K for the
                     year ended December 31, 1997 ("Techdyne's 1997 Form 10-K"),
                     Part IV, Item 14(a)(10)(v)).

                (ix) Guarantee of Techdyne (Scotland)  Limited(3) Line of Credit
                     with The Royal  Bank of  Scotland  Plc dated  March 3, 1989
                     (incorporated  by  reference  to the  Techdyne's  1997 Form
                     10-K, Part IV, Item 14(a)(10)(vi)).

                 (x) Promissory Note of Techdyne,  Inc. (1) to the Company dated
                     April 10, 1991  (incorporated  by reference  to  Techdyne's
                     Form SB-2, Part II, Item 27, 3(4)).

                (xi) Lease  between  the  Company  and  Viragen,  Inc.(2)  dated
                     December  8,  1992   (incorporated   by  reference  to  the
                     Company's 1997 Form 10-K, Part IV, Item 14(c)(10)(xi)).

               (xii) Addendum to Lease between the Company and Viragen,  Inc.(2)
                     dated  January 15, 1993  (incorporated  by reference to the
                     Company's 1997 Form 10-K, Part IV, Item 14(c)(10)(xii)).

[*]      Confidential  portions  omitted  have been  filed  separately  with the
         Securities and Exchange Commission.

                                       39
<PAGE>

              (xiii) Lease  Renewal  Letter by the Company to  Viragen,  Inc.(2)
                     lease dated August 12, 1997  (incorporated  by reference to
                     the   Company's    1997   Form   10-K,    Part   IV,   Item
                     14(c)(10)(xiii)).

               (xiv) Loan Agreement  between Dialysis  Corporation of America(4)
                     and   Mercantile-Safe   Deposit  and  Trust  Company  dated
                     November 30, 1988(5) (incorporated by reference to Dialysis
                     Corporation  of America's  Form 10-Q for the quarter  ended
                     March 31, 1998 ("DCA's  March,  1998 Form 10-Q"),  Part II,
                     Item 6(a), Part II, Item 10(iii)).

                (xv) First   Amendment  to  Loan  Agreement   between   Dialysis
                     Corporation of America(4) and  Mercantile-Safe  Deposit and
                     Trust Company dated  December 1, 1997(5)  (incorporated  by
                     reference  to  Dialysis  Corporation  of  America's  Annual
                     Report on Form 10-K  for  the  year ended December 31, 1997
                     ("DCA's 1997 Form 10-K"), Part IV, Item 14(c)(xxviii)).

               (xvi) Promissory  Note  to  Mercantile-Safe   Deposit  and  Trust
                     Company  by  Dialysis   Corporation  of  America(4)   dated
                     November 30,  1988(5)  (incorporated  by reference to DCA's
                     March,  1998 Form 10-Q,  Part II, Item 6(a),  Part II, Item
                     10(ii)).

              (xvii) First  Amendment and  Modification  to  Promissory  Note to
                     Mercantile-Safe  Deposit  and  Trust  Company  by  Dialysis
                     Corporation of America(4)(5)  (incorporated by reference to
                     DCA's 1997 Form 10-K, Part IV, Item 14(c)(xxix)).

             (xviii) Lease Agreement  between Dialysis Services of Pennsylvania,
                     Inc.  -  Wellsboro(6)  and  James and  Roger  Stager  dated
                     January  15,  1995   (incorporated   by  reference  to  the
                     Company's   1994  Form   10-K,   Part  IV,   Item  14(a)  3
                     (10)(lxii)).

               (xix) Lease  between  Dialysis   Corporation  of  America(4)  and
                     Dialysis Services of Pennsylvania,  Inc. - Lemoyne(6) dated
                     December  23, 1998  (incorporated  by reference to Dialysis
                     Corporation of America's Annual Report on Form 10-K for the
                     year ended December 31, 1998 ("DCA's 1998 Form 10-K"), Part
                     IV, Item 14(c)(ii)).

                (xx) Medical Director  Agreement  between  Dialysis  Services of
                     Pennsylvania, Inc. - Wellsboro(6) and George Dy, M.D. dated
                     September  29, 1994 [*]  (incorporated  by reference to the
                     Company's  Quarterly  Report on Form  10-Q for the  quarter
                     ended   September  30,  1994  as  amended   January,   1995
                     ("September, 1994 Form 10-Q"), Part II, Item 6(a)(10)(i)).

               (xxi) Agreement  for  In-Hospital   Dialysis   Services   between
                     Dialysis Services of Pennsylvania,  Inc. - Wellsboro(6) and
                     Soldiers & Sailors  Memorial  Hospital dated  September 28,
                     1994  [*]  (incorporated  by  reference  to  the  Company's
                     September, 1994 Form 10-Q, Part II, Item 6(a)(10)(ii)).

[*]      Confidential  portions  omitted  have been  filed  separately  with the
         Securities and Exchange Commission.

                                       40
<PAGE>

              (xxii) Medical Director  Agreement  between  Dialysis  Services of
                     Pennsylvania, Inc. - Lemoyne(6) and Herbert I. Soller, M.D.
                     dated  January 30, 1995 [*]  (incorporated  by reference to
                     the  Company's  1994  Form  10-K,  Part  IV,  Item  14(a) 3
                     (10)(lx)).

             (xxiii) Agreement  for  In-Hospital   Dialysis   Services   between
                     Dialysis  Services of  Pennsylvania,  Inc. - Lemoyne(6) and
                     Pinnacle   Health   Hospitals   dated   June  1,  1997  [*]
                     (incorporated  by  reference  to  Dialysis  Corporation  of
                     America's  Current  Report on Form 8-K dated June 19, 1997,
                     Part II, Item 7(c)(10)(i)).

              (xxiv) Form of Exclusive Sales  Representative  Agreement  between
                     Techdyne, Inc.(1) and sales representative ** (incorporated
                     by reference to the Company's 1994 Form 10-K, Part IV, Item
                     14(a) 3 (10)(lxiv)).

               (xxv) 1994 Stock Option Plan of Techdyne,  Inc.(1)  (incorporated
                     by reference to the Company's 1994 Form 10-K, Part IV, Item
                     14(a) 3 (10)(lxv)).

              (xxvi) Form of Stock  Option  Certificate  issued under 1994 Stock
                     Option Plan of Techdyne, Inc.(1) (incorporated by reference
                     to the  Company's  1994 Form  10-K,  Part IV,  Item 14(a) 3
                     (10)(lxvi)).

             (xxvii) Form of Stock  Option  Agreement  dated  February  17, 1995
                     issued to directors of Techdyne,  Inc.(1) *** (incorporated
                     by reference to the Company's 1994 Form 10-K, Part IV, Item
                     14(a) 3 (10)(lxvii)).

            (xxviii) Lease  Agreement  between the Company and Brett D. Anderson
                     and   Suzanne  M.   Anderson   dated   November   17,  1992
                     (incorporated by reference to the Company's 1997 Form 10-K,
                     Part IV, Item 14(c)(10)(xxix)).

              (xxix) Lease Renewal  Letter from the Company to Brett and Suzanne
                     Anderson dated October 20, 1997  (incorporated by reference
                     to  the   Company's   1997  Form   10-K,   Part  IV,   Item
                     14(c)(10(xxx)).

               (xxx) Mortgage  between  Techdyne  (Scotland)  Limited(3) and The
                     Royal Bank of Scotland  dated August 8, 1994  (incorporated
                     by reference to the Company's  June,  1994 Form 10-Q,  Part
                     II, Item 6(a)(28)(vi)).

              (xxxi) Agreement    ("Missives")   between   Techdyne   (Scotland)
                     Limited(3) and Livingston Development Corporation regarding
                     Purchase by Techdyne (Scotland)  Limited(3) of its Facility
                     dated  June 15,  1994  (incorporated  by  reference  to the
                     Company's   June,   1994   Form   10-Q,   Part   II,   Item
                     6(a)(28)(vii)).

[*]      Confidential  portions  omitted  have been  filed  separately  with the
         Securities and Exchange Commission.

                                       41
<PAGE>

             (xxxii) Loan and Security  Agreement between Techdyne,  Inc.(1) and
                     Barnett Bank of South Florida,  N.A.  ("Barnett  Bank") for
                     $2,000,000   dated  February  8,  1996   (incorporated   by
                     reference to Techdyne,  Inc.'s  Current  Report on Form 8-K
                     dated February 23, 1996  ("Techdyne's  February,  1996 Form
                     8-K), Item 7(c)(99)(i)).

            (xxxiii) Loan Agreement for $712,500 between  Techdyne,  Inc.(1) and
                     Barnett  Bank  dated  February  8,  1996  (incorporated  by
                     reference  to  Techdyne's  February,  1996 Form  8-K,  Item
                     7(c)(99)(v)).

            (xxxiv)  Promissory  Note for  $712,500  from  Techdyne,  Inc.(1) to
                     Barnett  Bank,  dated  February  8, 1996  (incorporated  by
                     reference  to  Techdyne's  February,  1996 Form  8-K,  Item
                     7(c)(99)(vi)).

             (xxxv)  Mortgage  and  Security  Agreement  between the Company and
                     Barnett  Bank  dated  February  8,  1996  (incorporated  by
                     reference  to  Techdyne's  February,  1996 Form  8-K,  Item
                     7(c)(99)(vii)).

            (xxxvi)  Assignment  of Leases,  Rents and Profits by the Company in
                     favor of Barnett Bank dated February 8, 1996  (incorporated
                     by reference to  Techdyne's  February,  1996 Form 8-K, Item
                     7(c)(99)(viii)).

           (xxxvii)  Promissory  Note for  $200,000  from  Techdyne,  Inc.(1) to
                     Barnett  Bank  dated  February  8,  1996  (incorporated  by
                     reference  to  Techdyne's  February,  1996 Form  8-K,  Item
                     7(c)(99)(ix)).

           (xxviii)  Security  Agreement between  Techdyne,  Inc.(1) and Barnett
                     Bank dated February 8, 1996  (incorporated  by reference to
                     Techdyne's February, 1996 Form 8-K, Item 7(c)(99)(x)).

            (xxxix)  First  Amendment  to  Loan  and  Security  Agreement,  Loan
                     Agreement and Security Agreement between Techdyne,  Inc.(1)
                     and Barnett Bank, N.A. dated July 31, 1997 (incorporated by
                     reference to  Techdyne's  Current  Report on Form 8-K dated
                     August 12, 1997 ("Techdyne  August,  1997 Form 8-K"),  Item
                     7(c)(99)(i)).

               (xl)  Revolving Demand Promissory Note from Techdyne,  Inc.(1) to
                     Barnett Bank,  N.A.  dated July 31, 1997  (incorporated  by
                     reference  to  Techdyne's  August,   1997  Form  8-K,  Item
                     7(c)(99)(ii)).

              (xli)  Unconditional  and  Continuing  Guaranty  of  Payments  and
                     Performance  by the Company in favor of Barnett Bank,  N.A.
                     dated  July  31,  1997   (incorporated   by   reference  to
                     Techdyne's August, 1997 Form 8-K, Item 7(c)(99)(iii)).

             (xlii)  Subordination  Agreement  among the Company,  Barnett Bank,
                     N.A. and the Company dated July 31, 1997  (incorporated  by
                     reference  to  Techdyne's  August,   1997  Form  8-K,  Item
                     7(c)(99)(iv)).

[*]      Confidential  portions  omitted  have been  filed  separately  with the
         Securities and Exchange Commission.

                                       42
<PAGE>

            (xliii)  Second  Amendment  to Loan and Security  Agreement  between
                     Techdyne,  Inc.(1)  and  Barnett  Bank,  N.A.  dated  as of
                     December 29, 1997  (incorporated by reference to Techdyne's
                     Form 8-K dated January 20, 1998 ("Techdyne's  January, 1998
                     Form 8-K"), Item 7(c)(99)(i)).

             (xliv)  Revolving Promissory Note from Techdyne, Inc.(1) to Barnett
                     Bank,  N.A.  for  $1,600,000  dated as of December 29, 1997
                     (incorporated by reference to Techdyne's January, 1998 Form
                     8-K, Item 7(c)(99)(ii)).

              (xlv)  Unconditional  and  Continuing   Guaranty  of  Payment  and
                     Performance(7)  by the  Company in favor of  Barnett  Bank,
                     N.A.  dated  as  of  December  29,  1997  (incorporated  by
                     reference  to  Techdyne's  January,  1998  Form  8-K,  Item
                     7(c)(99)(iii)).

             (xlvi)  Subordination  Agreements(8)  among  the  Company,  Barnett
                     Bank, N.A. and Techdyne, Inc.(1) (incorporated by reference
                     to Techdyne's January, 1998 Form 8-K, Item 7(c)(99)(iv)).

            (xlvii)  Loan Agreement for $1,500,000 between Techdyne, Inc.(1) and
                     Barnett   Bank,   N.A.   dated  as  of  December  29,  1997
                     (incorporated by reference to Techdyne's January, 1998 Form
                     8-K, Item 7(c)(99)(v)).

           (xlviii)  Promissory  Note from  Techdyne,  Inc.(1) to Barnett  Bank,
                     N.A.  for   $1,500,000   dated  as  of  December  29,  1997
                     (incorporated by reference to Techdyne's January, 1998 Form
                     8-K, Item 7(c)(99)(vi)).

              (xlix) Commercial Security Agreement between Techdyne, Inc.(1) and
                     Barnett   Bank,   N.A.   dated  as  of  December  29,  1997
                     (incorporated by reference to Techdyne's January, 1998 Form
                     8-K, Item 7(c)(99)(vii)).

                 (l) International   Swap  Dealers   Association,   Inc.  Master
                     Agreement between Techdyne,  Inc.(1) and Barnett Bank, N.A.
                     dated as of December 22, 1997 (incorporated by reference to
                     Techdyne's January, 1998 Form 8-K, Item 7(c)(99)(viii)).

                (li) Employment Agreement between Techdyne,  Inc.(1)  and  Barry
                     Pardon dated March 13, 1996  (incorporated  by reference to
                     Techdyne,  Inc.'s  Annual  Report on Form 10-K for the year
                     ended December 31, 1995, Part IV, Item 14(a)(10)(viii)).

               (lii) Service Agreement between the Company and Techdyne Inc.(1),
                     dated  October  25,  1996  (incorporated  by  reference  to
                     Techdyne's Registration Statement on Form S-3, Registration
                     No. 333-15371, Part II, Item 16, Exhibit 10(a)).

              (liii) Service  Agreement  renewal  letter  from  the  Company  to
                     Techdyne, Inc.(1), dated September 30, 1998.

[*]      Confidential  portions  omitted  have been  filed  separately  with the
         Securities and Exchange Commission.

                                       43
<PAGE>

               (liv) Lease  Agreement  between  Techdyne,  Inc.(1) and Route 495
                     Commerce  Park  Limited  Partnership  dated  March 25, 1997
                     (incorporated  by reference to Techdyne's  Quarterly Report
                     on Form 10-Q for the  quarter  ended March 30,  1997,  Item
                     6(a), Part II, Item 10(i)).

                (lv) Lease  Agreement  between  Techdyne,  Inc.(1)  and  PruCrow
                     Industrial   Properties,   L.P.   dated   April  30,   1997
                     (incorporated by reference to Techdyne's  Current Report on
                     Form 8-K dated June 4, 1997  ("Techdyne's June 4, 1997 Form
                     8-K"), Item 7(c)(10)(i)).

               (lvi) Lease Agreement between  Techdyne,  Inc.(1) and EGP Houston
                     Partners  Ltd.  dated  April  29,  1997   (incorporated  by
                     reference  to  Techdyne's  June  4,  1997  Form  8-K,  Item
                     7(c)(10)(ii)).

              (lvii) Stock  Purchase  Agreement  between  Patricia A.  Crossley,
                     Lytton Incorporated(3) and Techdyne, Inc.(1) dated July 31,
                     1997 (incorporated by reference to Techdyne's August,  1997
                     Form 8-K, Item 7(c)(2)(i)).

             (lviii) Amendment to Stock  Purchase  Agreement  between  Techdyne,
                     Inc.(1)  and   Patricia   Crossley   dated  June  29,  1998
                     (incorporated by reference to Techdyne's  Current Report on
                     Form 8-K dated July 6, 1998, Item 7(c)(99)(i)).

              (lvix) 1995  Stock   Option  Plan  of  Dialysis   Corporation   of
                     America(4)  (incorporated  by  reference  to the  Company's
                     Annual Report on Form 10-K for the year ended  December 31,
                     1995   ("1995   Form   10-K"),   Part  IV,   Item  14(a)  3
                     (10)(lxiii).

                (lx) Form of Stock Option  Certificate  dated  November 10, 1995
                     issued under 1995 Stock Option Plan of Dialysis Corporation
                     of America(4)  (incorporated  by reference to the Company's
                     1995 Form 10-K, Part IV, Item 14(a) 3 (10)(lxiv).

               (lxi) 1995  Stock   Option  Plan  of  Dialysis   Corporation   of
                     America(4)  (November 10, 1995)  (incorporated by reference
                     to DCA Form SB-2, Part II, Item 27, 10(5)).

              (lxii) Form of Dialysis  Corporation  of  America(4)  Stock Option
                     Certificate  under 1995 Stock  Option  Plan  (November  10,
                     1995) (incorporated by reference to DCA Form SB-2, Part II,
                     Item 27, 10(4)).

             (lxiii) Form of Dialysis  Corporation  of America(4)  Non-Qualified
                     Stock  Option  granted to  Medical  Directors  of  Dialysis
                     Corporation  of  America(4)  (incorporated  by reference to
                     Dialysis  Corporation  of America's  Annual  Report on Form
                     10-K for the year  ended  December  31,  1996 (" DCA's 1996
                     Form 10-K"), Part IV, Item 14(a) 3 (10)(xxi)).

              (lxiv) Lease between Dialysis  Services of PA., Inc. - Carlisle(6)
                     and Lester P. Burkholder, Jr. and Kirby K. Burkholder dated
                     November 1, 1996  (incorporated  by reference to DCA's 1996
                     Form 10-K, Part IV, Item 14(a) 3 (10)(xxiii)).

[*]      Confidential  portions  omitted  have been  filed  separately  with the
         Securities and Exchange Commission.

                                       44
<PAGE>

               (lxv) Lease   between   Dialysis   Services   of  NJ.,   Inc.   -
                     Manahawkin(9)  and William P. Thomas dated January 30, 1997
                     (incorporated  by reference  to DCA's 1996 Form 10-K,  Part
                     IV, Item 14(a) 3 (10)(xxiv)).

              (lxvi) Addendum to Lease  Agreement  between William P. Thomas and
                     Dialysis  Services of NJ., Inc. - Manahawkin(9)  dated June
                     4, 1997 (incorporated by reference to DCA's 1997 Form 10-K,
                     Part IV, Item 14(c)(10)(xviii)).

             (lxvii) Medical Director Agreement between Dialysis Services of NJ,
                     Inc. - Manahawkin(9)  and Atlantic  Nephrology  Group, Inc.
                     dated  January  21,   1998(10)(11)  [*]   (incorporated  by
                     reference   to  DCA's  1998  Form  10-K,   Part  IV,   Item
                     14(c)(xxv)).

            (lxviii) Medical Director  Agreement  between  Dialysis  Services of
                     PA., Inc. - Carlisle(6) and Herb Soller, M.D. dated October
                     1,  1996(12)  [*]  (incorporated  by  reference to Dialysis
                     Corporation of America's  Quarterly Report on Form 10-Q for
                     the quarter ended  September 30, 1996,  Part II, Item 6(a),
                     Part II, Exhibit 10(ii)).

            (lxvix)  Equipment  Master Lease Agreement  BC-105 between  Dialysis
                     Corporation of America(4) and B. Braun Medical,  Inc. dated
                     November 22, 1996  (incorporated by reference to DCA's 1996
                     Form 10-K, Part IV, Item 14(a) 3 (10)(xxvii)).

               (lxx) Schedule of Leased  Equipment 0597  commencing June 1, 1997
                     to  Master  Lease  BC-105  (incorporated  by  reference  to
                     Dialysis  Corporation of America's Quarterly Report on Form
                     10-Q for the quarter ended June 30, 1997 ("DCA's June, 1997
                     10-Q"), Part II, Item 6(a), Part II, Exhibit 10(i)).(13)

              (lxxi) Asset Purchase Agreement by and among Dialysis  Corporation
                     of  America,  Dialysis  Services  of  Florida,  Inc. - Fort
                     Walton Beach(6),  DCA Medical Services,  Inc.(6),  Dialysis
                     Medical,  Inc.(6), Renal Care Group, Inc., Renal Care Group
                     of the  Southeast,  Inc.  and Henry M.  Haire,  M.D.  dated
                     October 31, 1997  (incorporated  by  reference  to Dialysis
                     Corporation  of America's  Current Report on Form 8-K dated
                     November 12, 1997, Part II, Item 7(c)(2.1)).

             (lxxii) Form  of   Techdyne,   Inc.(1)   1997  Stock   Option  Plan
                     (incorporated by reference to Techdyne's  Current Report on
                     Form 8-K dated June 24,  1997  ("Techdyne's  June 24,  1997
                     Form 8-K"), Item 7(c)(4)(i)).

            (lxxiii) Form of  Techdyne,  Inc.(1)  1997  Incentive  Stock  Option
                     (incorporated by reference to Techdyne's June 24, 1997 Form
                     8-K, Item 7(c)(4)(ii)).

             (lxxiv) Form of Techdyne,  Inc.(1) 1997 Non-Qualified  Stock Option
                     (incorporated by reference to Techdyne's June 24, 1997 Form
                     8-K, Item 7(c)(4)(iii)).

[*]      Confidential  portions  omitted  have been  filed  separately  with the
         Securities and Exchange Commission.

                                       45
<PAGE>

              (lxxv) Form of Stock Option to The Investor  Relations Group, Inc.
                     (incorporated by reference to Techdyne's  Current Report on
                     Form 8-K dated May 28, 1998, Item 7(c)(10)(i)).

             (lxxvi) Supplement to Techdyne, Inc.'s(1) Prospectus dated July 13,
                     1998  (incorporated  by  reference  to  Techdyne's  Current
                     Report on Form 8-K dated July 13, 1998, Item 7(c)(99)(i)).

            (lxxvii) Lease   between   Dialysis   Services   of  PA.,   Inc.   -
                     Chambersburg(6)  and BPS Development  Group dated April 13,
                     1998  (incorporated by reference to DCA's March,  1998 Form
                     10-Q, Part II, Item 6(a), Part II, Item 10(i)).

           (lxxviii) Lease between Dialysis Services of NJ, Inc. - Toms River(9)
                     and   Lotano   Development,   Inc.   dated   July  1,  1998
                     (incorporated  by reference  to DCA's 1998 Form 10-K,  Part
                     IV, Item 14(c)(10)(xxv)).

            (lxxix)  Stock Purchase  Agreement  between Dialysis  Corporation of
                     America(4)   and   Atlantic    Nephrology    Group,    Inc.
                     (incorporated  by  reference  to  Dialysis  Corporation  of
                     America's  Quarterly  Report on Form  10-Q for the  quarter
                     ended June 30,  1998,  Part II,  Item 6(a),  Part II,  Item
                     10(i)).

             (lxxx)  Lease  between  Dialysis   Corporation  of  America(4)  and
                     Wirehead Networking Solutions,  Inc. dated December 1, 1998
                     (incorporated  by reference  to DCA's 1998 Form 10-K,  part
                     IV, Item 14(c)(10)(xxvi)).

               (21)  Subsidiaries of the registrant.

               (23)  Consent of experts and counsel.

                     (i)   Consent of Independent Certified Public Accountants.

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

---------

(1)      62% owned subsidiary.
(2)      Former  public  subsidiary of the Company;  spun-off in 1986.  (3) 100%
         owned subsidiary of Techdyne, Inc.
(4)      68% owned subsidiary.
(5)      Dialysis  Corporation  of America  has two loans with  Mercantile  Safe
         Deposit and Trust Company and such loan documents and promissory  notes
         conform to the exhibit filed but for the amount of each loan.
(6)      100% owned subsidiary of Dialysis Corporation of America.

                                       46
<PAGE>

(7)      Each of the $1,600,000 Revolving Loan and $1,500,000 Term Loan has been
         unconditionally  guaranteed  by  the  Company  and  each  unconditional
         guarantee  agreement is substantially  similar to the exhibit filed for
         the Revolving Loan.
(8)      The Company has subordinated indebtedness due to it from Techdyne, Inc.
         to the  Revolving  and Term  Loans;  each  Subordination  Agreement  is
         substantially similar to the exhibit filed for the Revolving Loan.
(9)      80% owned subsidiary of Dialysis Corporation of America.
(10)     Previously  filed  with  the  same  Medical  Director  under  the  name
         Oceanview Medical Group, P.A.
(11)     There are two Medical  Director  Agreements  with  Atlantic  Nephrology
         Group, Inc. and such Medical Director Agreements conform to the exhibit
         filed but for the compensation  and facility.
(12)     There are two Medical Director  Agreements with Herbert I. Soller, M.D.
         and such agreements  conform to the exhibit filed but for the facility,
         the other being located in Chambersburg, Pennsylvania.
(13)     Dialysis  equipment  is leased from time to time and a new  Schedule is
         added to the Master  Lease;  other than the nature of the equipment and
         length of the lease, the Schedules conform to the exhibit filed and the
         terms of the Master Lease remain the same.

*            Documents incorporated by reference not included in Exhibit Volume.

**           There are four such Agreements,  all the same but for the territory
             assigned.

***          Options  to  directors  are  the  same  except  as  to  amounts  of
             underlying shares purchasable.

                                       47

<PAGE>

(d)     Schedule II - Valuation and Qualifying Accounts
        Medicore, Inc. and Subsidiaries
        December 31, 1998

<TABLE>
<CAPTION>
------------------------------------------   ----------  -----------------------   ------------   ----------
COL. A                                        COL. B            COL. C               COL. D        COL. E
------------------------------------------   ----------  -----------------------   ------------   ----------
                                                           Additions
                                                         (Deductions) Additions       Other
                                                           Charged     Charged       Changes
                                             Balance at   (Credited)   to Other        Add         Balance
                                             Beginning   to Cost and   Accounts      (Deduct)     at End of
Classification                               of Period     Expenses    Describe      Describe       Period
------------------------------------------   ----------  -----------------------   ------------   ----------
<S>                                           <C>          <C>                     <C>            <C>
YEAR ENDED DECEMBER 31, 1998:
Reserves and allowances deducted
 from asset accounts:
  Allowance for uncollectable accounts        $  231,000   $ 106,000               $ (20,000)(1)   $  317,000
  Reserve for inventory obsolescence             238,000     437,000                (116,000)(3)      559,000
  Valuation allowance for deferred tax asset     850,465    (322,465)                    ---          528,000
                                              ----------   ---------   ---------   ---------       ----------
                                              $1,319,465   $ 220,535   $       0   $ (136,000)     $1,404,000
                                              ==========   =========   =========   ==========      ==========

YEAR ENDED DECEMBER 31, 1997:
Reserves and allowances deducted
 from asset accounts:
  Allowance for uncollectable accounts        $  385,000   $  42,000               $(150,000)(1)   $  231,000
                                                                                     (46,000)(3)
  Reserve for inventory obsolescence             169,000     153,000                 (84,000)(3)      238,000
  Valuation allowance for deferred tax asset   1,587,723    (737,258)                    ---          850,465
                                              ----------   ---------   ---------   ---------       ----------
                                              $2,141,723   $(542,258)  $       0   $(280,000)      $1,319,465
                                              ==========   =========   =========   =========       ==========

YEAR ENDED DECEMBER 31, 1996:
Reserves and allowances deducted
 from asset accounts:
  Allowance for uncollectable accounts        $  244,000   $ 275,408               $(134,408)(1)   $  385,000
  Reserve for inventory obsolescence             319,000      91,913                (241,913)(2)      169,000
  Valuation allowance for deferred tax asset   2,205,113    (617,390)                    ---        1,587,723
                                              ----------   ---------   ---------   ---------       ----------
                                              $2,768,113   $(250,069)  $       0   $(376,321)      $2,141,723
                                              ==========   =========   =========   =========       ==========

(1) Uncollectable accounts written off, net of recoveries.
(2) Net write-offs against inventory reserves.
(3) Sale of subsidiaries' assets.

<PAGE>

                                   SIGNATURES

         Pursuant to the  requirements of Sections 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.

                                  MEDICORE, INC.


                                  By /s/ THOMAS K. LANGBEIN
                                    --------------------------------------------
                                         THOMAS K. LANGBEIN, Chairman
                                         of the Board of Directors, Chief
                                         Executive Officer and President

March 22, 1999

         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.

</TABLE>
<TABLE>
<CAPTION>

Name                                                 Title                                   Date
----                                                 -----                                   ----
<S>                                         <C>                                        <C> 
/s/ THOMAS K. LANGBEIN                      Chairman of the Board of Directors,
------------------------------------        Chief Executive Officer and President       March 22, 1999
    Thomas K. Langbein                      

/s/ SEYMOUR FRIEND                          Vice President and Director                 March 22, 1999
------------------------------------
    Seymour Friend

/s/ DANIEL R. OUZTS                         Vice-President, Principal Financial
------------------------------------        Officer and Controller                      March 22, 1999
    Daniel R. Ouzts

/s/ PETER D. FISCHBEIN                      Director                                    March 22, 1999
------------------------------------
    Peter D. Fischbein

/s/ ANTHONY C. D'AMORE                      Director                                    March 22, 1999
------------------------------------
    Anthony C. D'Amore

/s/ ROBERT P. MAGRANN                       Director                                    March 22, 1999
------------------------------------
    Robert P. Magrann
</TABLE>

                                       
<PAGE>




                           ANNUAL REPORT ON FORM 10-K
                   ITEM 8, ITEM 14(A) (1) AND (2), (C) AND (D)
         LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
                   FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
                                CERTAIN EXHIBITS
                          FINANCIAL STATEMENT SCHEDULES
                          YEAR ENDED DECEMBER 31, 1998
                                 MEDICORE, INC.
                                HIALEAH, FLORIDA

<PAGE>


                        FORM 10-K--ITEM 14(a)(1) AND (2)

                         MEDICORE, INC. AND SUBSIDIARIES

                          LIST OF FINANCIAL STATEMENTS

The  following   consolidated   financial  statements  of  Medicore,   Inc.  and
subsidiaries are included in Item 8:

                                                                            Page
                                                                            ----

Consolidated Balance Sheets--December 31, 1998 and 1997 ..................   F-3

Consolidated Statements of Income--Years ended December 31, 1998,
   1997, and 1996 ........................................................   F-4

Consolidated Statements of Stockholders' Equity--
   Years ended December 31, 1998, 1997 and 1996...........................   F-5

Consolidated Statements of Cash Flows--Years ended
   December 31, 1998, 1997, and 1996 .....................................   F-6

Notes to Consolidated Financial Statements--December 31, 1998 ............   F-7

The following financial statement schedule of Medicore, Inc. and
subsidiaries is included in Item 14(d):

         Schedule II-Valuation and qualifying accounts.

         All other  schedules  for  which  provision  is made in the  applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related  instructions  or are  inapplicable,  and therefore  have been
omitted.

                                      F-1
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



Shareholders and Board of Directors
Medicore, Inc.

We have audited the accompanying  consolidated balance sheets of Medicore,  Inc.
and subsidiaries as of December 31, 1998 and 1997, and the related  consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period  ended  December  31,  1998.  Our audits also  included  the
Financial  Statement Schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management.  Our
responsibility  is to  express  an opinion  on these  financial  statements  and
schedule based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Medicore,  Inc.  and  subsidiaries  at  December  31,  1998  and  1997,  and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity  with generally
accepted  accounting  principles.  Also, in our opinion,  the related  financial
statement  schedule,   when  considered  in  relation  to  the  basic  financial
statements  taken as a whole,  presents  fairly  in all  material  respects  the
information set forth therein.

                                            /s/ ERNST & YOUNG LLP


March 22, 1999
Miami, Florida

                                      F-2
<PAGE>
<TABLE>
<CAPTION>
                                     MEDICORE, INC. AND SUBSIDIARIES

                                       CONSOLIDATED BALANCE SHEETS
                                                                            DECEMBER 31,    DECEMBER 31,
                                                                                1998            1997
                                                                            ------------    ------------
                                        ASSETS
<S>                                                                         <C>             <C>         
CURRENT ASSETS
  Cash and cash equivalents                                                 $  7,294,707    $ 11,099,418
  Marketable securities                                                          210,007         726,538
  Accounts receivable, less allowances of
    $317,000 in 1998 and $231,000 in 1997                                      6,260,748       6,298,089
  Inventories, less allowance for obsolescence
    of $559,000 in 1998 and $238,000 in 1997                                   8,393,770       8,683,439
  Prepaid expenses and other current assets                                      648,088         862,613
  Deferred tax asset                                                             561,822       1,294,535
                                                                            ------------    ------------
                  Total current assets                                        23,369,142      28,964,632

PROPERTY AND EQUIPMENT
  Land and improvements                                                        1,018,455       1,017,255
  Building and building improvements                                           3,073,777       3,066,889
  Equipment and furniture                                                     10,279,217       9,129,583
  Leasehold improvements                                                       1,489,445         715,316
                                                                            ------------    ------------
                                                                              15,860,894      13,929,043
  Less accumulated depreciation and amortization                               6,360,632       5,024,016
                                                                            ------------    ------------
                                                                               9,500,262       8,905,027
DEFERRED EXPENSES AND OTHER ASSETS                                               183,771         141,844

COSTS IN EXCESS OF NET TANGIBLE ASSETS ACQUIRED,
   less accumulated amortization of $585,000 in 1998 and $438,000 in 1997      3,256,915       2,850,016
                                                                            ------------    ------------
                                                                            $ 36,310,090    $ 40,861,519
                                                                            ============    ============
                         LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
  Short-term bank borrowings                                                $    962,407    $    548,698
  Accounts payable                                                             3,607,414       4,384,430
  Accrued expenses and other current liabilities                               2,023,030       2,342,197
  Current portion of long-term debt                                              953,452       1,073,924
  Income taxes payable                                                           402,333       1,758,723
                                                                            ------------    ------------
                  Total current liabilities                                    7,948,636      10,107,972

LONG-TERM DEBT                                                                 5,126,530       5,240,034

DEFERRED INCOME TAXES                                                          1,800,143       2,592,843

MINORITY INTEREST IN SUBSIDIARIES                                              6,067,089       6,843,412

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
  Common stock, $.01 par value; authorized 12,000,000 shares;
     5,856,940 shares issued and 5,715,540 shares outstanding
     in 1998; 5,856,940 shares issued and 5,848,740 shares
     outstanding in 1997                                                          58,569          58,569
  Capital in excess of par value                                              12,470,817      13,040,877
  Retained earnings                                                            2,948,938       2,850,517
  Accumulated other comprehensive income:
     Foreign currency translation adjustment                                     (19,457)        (31,128)
     Unrealized gain on marketable securities for sale                           130,204         175,213
                                                                            ------------    ------------
          Total accumulated other comprehensive income                           110,747         144,085
                                                                            ------------    ------------
  Treasury stock at cost; 141,400 shares at December 31, 1998
     8,200 shares at December 31, 1997                                          (221,379)        (16,790)
                                                                            ------------    ------------
                  Total Stockholders' Equity                                  15,367,692      16,077,258
                                                                            ------------    ------------
                                                                            $ 36,310,090    $ 40,861,519
                                                                            ============    ============
</TABLE>
                             See notes to consolidated financial statements.

                                                   F-3
<PAGE>

<TABLE>
<CAPTION>

                                    MEDICORE, INC. AND SUBSIDIARIES

                                   CONSOLIDATED STATEMENTS OF INCOME

                                                                        YEAR ENDED DECEMBER 31,
                                                             ------------------------------------------

                                                                 1998            1997          1996
                                                             ------------    -----------   -----------
<S>                                                          <C>             <C>           <C>        
  REVENUES
    Sales                                                    $ 49,381,765    $38,888,233   $29,680,520
    Gain on sale of subsidiaries' assets                               --      4,430,663            --
    Gain on subsidiary securities offering and
        warrants exercise                                              --         89,898     1,521,127
    Realized gain on sale of marketable securities                 12,780         49,493     2,583,500
    Other income                                                  753,984        661,195       934,259
                                                             ------------    -----------   -----------
                                                               50,148,529     44,119,482    34,719,406
  COST AND EXPENSES
    Cost of goods sold                                         42,460,760     32,198,701    24,247,403
    Selling, general and administrative expense                 7,123,888      6,615,768     6,211,485
    Interest expense                                              592,414        393,515       217,615
                                                             ------------    -----------   -----------
                                                               50,177,062     39,207,984    30,676,503
                                                             ------------    -----------   -----------
      (LOSS) INCOME BEFORE INCOME TAXES
          AND MINORITY INTEREST                                   (28,533)     4,911,498     4,042,903

  Income tax (benefit) provision                                 (352,369)       953,000     1,350,746
                                                             ------------    -----------   -----------

      INCOME BEFORE MINORITY INTEREST                             323,836      3,958,498     2,692,157

  Minority interest in income of consolidated subsidiaries        225,415      1,717,527       274,888
                                                             ------------    -----------   -----------

         NET INCOME                                          $     98,421    $ 2,240,971   $ 2,417,269
                                                             ============    ===========   ===========

Earnings per share:
   Basic                                                     $        .02    $       .39   $       .44
                                                             ============    ===========   ===========
   Diluted                                                   $        .01    $       .36   $       .39
                                                             ============    ===========   ===========
</TABLE>

                            See notes to consolidated financial statements.

                                                  F-4
<PAGE>
<TABLE>
<CAPTION>
                                                    MEDICORE, INC. AND SUBSIDIARIES

                                           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                                                                    ACCUMULATED
                                                 CAPITAL IN     COMPRE-  RETAINED      OTHER    NOTES
                                        COMMON    EXCESS OF     HENSIVE  EARNINGS COMPREHENSIVE RECEIVABLE   TREASURY
                                         STOCK    PAR VALUE     INCOME   (DEFICIT)    INCOME    OPTIONS       STOCK        TOTAL
                                         -----    ---------     -------  ---------    ------    -------       -----        -----
<S>                                     <C>      <C>          <C>       <C>         <C>        <C>            <C>        <C>
Balance at January 1, 1996              $54,549  $11,540,953           $(1,807,723) $ 293,060  $(326,400)                $9,754,439
Comprehensive income:
Net income                                                    $2,417,269 2,417,269
   Foreign currency translation 
     adjustments                                                 229,887              229,887
   Unrealized gain on marketable
     securities:
   Unrealized holding gain arising
      during period, net of tax                                  721,313              721,313
Less: Reclassification adjustment,
   net of tax, for gain 
   included in net income                                       (380,172)            (380,172)
                                                              ----------
Comprehensive income                                          $2,988,297                                                  2,988,297
                                                              ==========
Issuance of 2,000 shares of 
   common stock as compensation              20        5,540                                                                  5,560
Forgiveness of stock option
    notes June 1996                                                                              326,400                    326,400
Exercise of subsidiary stock options                  (3,652)                                                                (3,652)
Conversion of portion of Techdyne note               (49,586)                                                               (49,586)
                                         ------  -----------           -----------  ---------  ---------   ----------   -----------
Balance December 31, 1996                54,569   11,493,255               609,546    864,088        -0-        -0-    13,021,458
Comprehensive income:
   Net income                                                 $2,240,971 2,240,971
   Foreign currency translation                                  (23,757)             (23,757)
     adjustments                         
   Unrealized loss on 
     marketable securities:
   Unrealized holding loss 
      arising during period, 
      net of tax                                                (663,882)            (663,882)
Less reclassification adjustments,
   net of tax, for gain included 
   in net income                                                 (32,364)             (32,364)
                                                              ----------            
Comprehensive income                                          $1,520,968                                                  1,520,968
                                                              ==========
   Exercise of stock options for
      400,000 shares of common stock      4,000      713,000                                                                717,000
   Exercise of subsidiary stock options              (66,534)                                                               (66,534)
   Conversion of portion of Techdyne note            (48,217)                                                               (48,217)
   Repurchase of stock by subsidiary                 (28,155)                                                               (28,155)
Subsidiary stock issuance 
   for acquisition                                   977,528                                                                977,528
Repurchase of 8,200 common shares                                                                              (16,790)     (16,790)
                                         ------  -----------            ----------  ---------  ---------   -----------   ----------
Balance at December 31, 1997             58,569   13,040,877             2,850,517    144,085          0       (16,790)  16,077,258
Comprehensive income:
   Net income                                                  $  98,421    98,421
   Foreign currency translation
     adjustments                                                  11,671               11,671
   Unrealized loss on
     marketable securities:
   Unrealized holding loss arising
      during period, net of tax                                  (45,009)             (45,009)
                                                              ----------
Comprehensive income                                           $  65,083                                                     65,083
                                                              ==========
Exercise of subsidiary stock options                (150,756)                                                              (150,756)
Repurchase of stock by subsidiary                     78,696                                                                 78,696
Subsidiary advance toward 
  acquisition price guarantee                       (785,792)                                                              (785,792)
Subsidiary acquisition price adjustment              251,600                                                                251,600
Subsidiary acquisition 
  of minority interest                                23,386                                                                 23,386
Consultant stock options                              12,806                                                                 12,806
Repurchase of 133,200 common shares                                                                           (204,589)    (204,589)
                                         ------- -----------           -----------  ---------  ---------    ----------  -----------
   Balance December 31, 1998             $58,569 $12,470,817           $ 2,948,938  $ 110,747  $       0    $ (221,379) $15,367,692
                                         ======= ===========           ===========  =========  =========    ==========  ===========
</TABLE>

    See notes to consolidated financial statements.

                                                                 F-5
<PAGE>

<TABLE>
<CAPTION>

                                        MEDICORE, INC. AND SUBSIDIARIES

                                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                               YEAR ENDED DECEMBER 31,
                                                                  --------------------------------------------
                                                                      1998            1997              1996
                                                                  ------------    ------------    ------------
OPERATING ACTIVITIES
<S>                                                               <C>             <C>             <C>         
  Net income                                                      $     98,421    $  2,240,971    $  2,417,269
  Adjustments to reconcile net income
     to net cash used in operating activities:
     Gain of sale of subsidiaries' assets                                   --      (4,430,663)             --
     Depreciation                                                    1,434,638       1,019,253         657,640
     Amortization                                                      161,542         106,126          79,329
     Bad debt expense                                                  106,364          42,276         275,408
     Gain on Viragen note collection                                        --              --        (227,703)
     Provision for inventory obsolescence                              437,095         153,011          91,913
     Stock compensation expense                                             --         322,125           5,560
     Gain on sale of securities                                        (12,780)        (49,493)     (2,583,500)
     Minority interest                                                 225,415       1,717,527         274,888
     Forgiveness of option notes and accrued interest                       --              --         344,871
     Deferred income taxes                                             (29,295)       (493,000)        581,266
     Consultant stock option expense                                    17,651              --              --
     Gain on subsidiary stock offering and warrants exercise                --         (89,899)     (1,521,127)
     Increase (decrease) relating to operating activities from:
        Accounts receivable                                            (59,740)     (1,735,304)        (63,409)
        Inventories                                                   (138,866)     (2,615,706)        320,742
        Prepaid expenses and other current assets                      181,018        (237,547)        160,999
        Accounts payable                                              (783,100)        374,871        (867,608)
        Accrued expenses and other current liabilities                (307,010)       (101,702)       (249,504)
        Income taxes payable                                        (1,359,496)        753,219         279,708
                                                                  ------------    ------------    ------------
            Net cash used in operating activities                      (28,143)     (3,023,935)        (23,258)
INVESTING ACTIVITIES
  Redemption of minority interest in subsidiaries                     (385,375)             --              --
  Proceeds from sale of subsidiaries' assets                                --       4,583,662              --
  Subsidiary acquisition payments                                     (153,818)     (2,166,010)             --
  Advance on subsidiary acquisition price guarantee                 (1,277,711)             --              --
  Additions to property and equipment, net of minor disposals       (1,776,381)     (2,135,213)       (797,968)
  Payments received on note receivable from Viragen, Inc.                   --              --         373,948
  Proceeds from sale of securities                                     252,780          49,493       2,583,500
  Deferred expenses and other assets                                   (56,414)         30,801          98,041
  Purchase portion of minority interest in subsidiary                       --              -- 
                                                                  ------------    ------------    ------------
            Net cash (used in) provided by investing activities     (3,396,919)        362,733       2,257,521
FINANCING ACTIVITIES
  Borrowings to finance subsidiary acquisition                         600,000       2,500,000              --
  Short-term line of credit borrowings                                 413,709         548,698              --
  Net proceeds from subsidiary stock offering                               --              --       3,445,158
  Proceeds from long-term borrowings                                        --              --         181,476
  Payments on long-term borrowings                                  (1,081,928)       (430,976)       (270,945)
  Proceeds from exercise of stock options and warrants                   1,150         695,953          59,700
  Subsidiary repurchase of stock                                      (108,690)       (206,250)             --
  Repurchase of stock                                                 (204,589)        (16,790)             --
  Dividend payments to minority shareholders                                --          (3,966)         (7,467)
  Deferred financing costs                                                  --          (2,657)        (14,438)
                                                                  ------------    ------------    ------------
            Net cash (used in) provided by financing activities       (380,348)      3,084,012       3,393,484
  Effect of exchange rate fluctuations on cash                             699        (118,690)        142,085
                                                                  ------------    ------------    ------------
  (Decrease) increase in cash and cash equivalents                  (3,804,711)        304,120       5,769,832
  Cash and cash equivalents at beginning of year                    11,099,418      10,795,298       5,025,466
                                                                  ------------    ------------    ------------
  Cash and cash equivalents at end of year                        $  7,294,707    $ 11,099,418    $ 10,795,298
                                                                  ============    ============    ============


                                See notes to consolidated financial statements.

                                                      F-6
</TABLE>
<PAGE>

                         MEDICORE, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1998

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         BUSINESS:  The  Company  has three  operating  business  segments.  The
electro-mechanical  segment, Techdyne, is an international contract manufacturer
of electronic and electro-mechanical products primarily manufactured to customer
specifications in the data processing,  telecommunication,  instrumentation  and
food preparation equipment  industries.  The medical services segment, DCA, owns
and operates five kidney dialysis centers located in Pennsylvania and New Jersey
and has agreements to provide inpatient dialysis treatments to various hospitals
and provides  supplies and  equipment for dialysis  home  patients.  The medical
products  segment is  engaged in the  manufacture  and  distribution  of medical
supplies.

         CONSOLIDATION:   The  Consolidated  Financial  Statements  include  the
accounts  of  Medicore,  Inc.,  Medicore's  68.0%  owned  subsidiary,   Dialysis
Corporation of America ("DCA") and Medicore's 61.5% owned subsidiary,  Techdyne,
Inc. ("Techdyne") and its subsidiaries Lytton Incorporated ("Lytton"),  Techdyne
(Scotland) Limited ("Techdyne  (Scotland)"),  and Techdyne  (Livingston) Limited
which is a subsidiary of Techdyne (Scotland), collectively known as the Company.
All material  intercompany  accounts and  transactions  have been  eliminated in
consolidation.

         ESTIMATES:  The preparation of financial  statements in conformity with
generally accepted  accounting  principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

         SALE OF STOCK BY SUBSIDIARIES: The Company follows an accounting policy
of  recognizing  income on sales of stock by its  subsidiaries,  which  includes
exercise of warrants issued in subsidiary stock offerings.

         MARKETABLE  SECURITIES:  The Company  follows  Statement  of  Financial
Accounting  Standards No. 115,  "Accounting for Certain  Investments in Debt and
Equity  Securities".  Under this Statement,  the Company is required to classify
its marketable  equity securities as either trading or  available-for-sale.  The
Company does not purchase equity securities for the purpose of short-term sales;
accordingly,  its securities are  classified as  available-for-sale.  Marketable
securities are recorded at fair value.  Unrealized  gains and losses relating to
available-for-sale   securities   are  included  as  a  separate   component  of
shareholders'  equity, net of income tax effect, until realized.  Realized gains
and losses are computed based on the cost of securities  sold using the specific
identification method. Marketable securities are comprised of the following:

                                                     DECEMBER 31,   DECEMBER 31,
                                                         1998           1997
                                                    ------------   ------------
Viragen, Inc.
(259,268  shares with $.81 per share market value
at December 31, 1998;  259,268 shares with $1.09
per share market value at December 31, 1997)        $    210,007   $    282,602

Renal Care Group, Inc. 
(13,873 shares with $32.00 per share market value
at December 31, 1997)                                         --        443,936
                                                    ------------   ------------
                                                    $    210,007   $    726,538
                                                    ============   ============

                                       F-7
<PAGE>

                         MEDICORE, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
                                DECEMBER 31, 1998

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED

         INVENTORIES:  Inventories  are  valued at the lower of cost  (first-in,
first-out  method)  or  market  value.  The cost of  finished  goods and work in
process consists of direct materials, direct labor and an appropriate portion of
fixed and variable  manufacturing  overhead.  Inventories  are  comprised of the
following:

                                              DECEMBER 31,      DECEMBER 31,
                                                  1998             1997
                                             --------------   --------------
Electronic and mechanical components, net:
   Finished goods                            $      794,297   $      554,903
   Work in process                                1,845,954        1,772,724
   Raw materials and supplies                     5,234,249        5,997,682
                                             --------------   --------------
                                                  7,874,500        8,325,309
   Medical supplies                                 519,270          358,130
                                             --------------   --------------
                                             $    8,393,770   $    8,683,439
                                             ==============   ==============

         PROPERTY  AND  EQUIPMENT:  Property  and  equipment  is stated at cost.
Depreciation  is  computed by the straight-line method over the estimated useful
lives of the  assets, which  range from 5 to 34 years for buildings and improve-
ments;  3  to  10  years  for  machinery,  computer  and  office  equipment, and
furniture; and  5  to  15  years  for  leasehold improvements.  Replacements and
betterments  that  extend  the lives of assets are capitalized.  Maintenance and
repairs  are  expensed  as incurred.  Upon the sale or retirement of assets, the
related  cost  and  accumulated depreciation are removed and any gain or loss is
recognized.

         LONG-LIVED ASSET IMPAIRMENT: Pursuant to Financial Accounting Standards
Board  Statement  No. 121 "Accounting for the Impairment of Long-lived Assets to
be Disposed of," impairment of long-lived assets, including  intangibles related
to such assets, is recognized  whenever events or changes in circumstances indi-
cate that the carrying amount of the asset, or related groups of assets, may not
be  fully recoverable from estimated future cash flows and the fair value of the
related assets is less than their carrying value.  The Company, based on current
circumstances, does not believe any indicators of impairment are present.

         COSTS IN EXCESS OF NET TANGIBLE ASSETS ACQUIRED: The costs in excess of
net  tangible  assets acquired are being amortized on a straight-line basis over
25 years.  If, in  the  opinion of  management,  an  impairment in value occurs,
based  on  the undiscounted cash flow method,  any writedowns will be charged to
expense.

         DEFERRED EXPENSES:  Deferred expenses,  except for deferred loan costs,
are amortized on the straight-line  method,  over their estimated benefit period
ranging to 60 months.  Deferred loan costs are  amortized  over the lives of the
respective loans.

         INCOME  TAXES:  Deferred  income  taxes at the end of each  period  are
determined by applying  enacted tax rates  applicable to future periods in which
the taxes are expected to be paid or recovered to differences  between financial
accounting and tax basis of assets and liabilities.

         The Company  filed  consolidated  federal  and state tax  returns  with
Techdyne  until October 2, 1995,  the date  Techdyne's  securities  offering was
completed,  after which  Techdyne  files  separate  income tax returns  with its
income tax  liability  reflected on a separate  return  basis.  DCA was likewise
included in the  consolidated tax returns of the Company until the completion of
its public  offering in April 1996,  after  which it files  separate  income tax
returns with its income tax liability reflected on a separate return basis.

                                      F-8

<PAGE>

                         MEDICORE, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
                                DECEMBER 31, 1998

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED

         STOCK BASED  COMPENSATION:  The Company follows  Accounting  Principles
Board Opinion No. 25  "Accounting  for Stock Issued to  Employees"  (APB 25) and
related Interpretations in accounting for its employee stock options.  Financial
Accounting  Standards  Board  Statement  No. 123,  "Accounting  for  Stock-Based
Compensation"(FAS  123)  permits a company  to elect to  follow  the  accounting
provisions of APB 25 rather than the alternative fair value accounting  provided
under  FAS 123 but  requires  pro  forma  net  income  and  earnings  per  share
disclosures as well as various other  disclosures  not required under APB 25 for
companies following APB 25.

         FOREIGN CURRENCY  TRANSLATION:  The financial statements of the foreign
subsidiary have been  translated into U.S.  dollars in accordance with Statement
of Financial  Accounting  Standards No. 52. All balance sheet accounts have been
translated  using the current  exchange rates at the balance sheet date.  Income
statement  amounts have been translated  using the average exchange rate for the
year. The  translation  adjustments  resulting from the change in exchange rates
from year to year have been reported  separately  as a component of  accumulated
other comprehensive  income included in stockholders'  equity.  Foreign currency
transaction gains and losses, which are not material, are included in results of
operations. These gains and losses result from exchange rate changes between the
time  transactions  are recorded and settled  and, for  unsettled  transactions,
exchange rate changes between the time transactions are recorded and the balance
sheet date.

         OTHER INCOME:  Other income is comprised as follows:

                                            YEAR ENDED DECEMBER 31,
                                ------------------------------------------
                                     1998          1997            1996
                                ------------   ------------   ------------
Interest income                 $    417,339   $    448,950   $    414,207
Gain on Viragen note recovery             --             --        227,703
Litigation settlement                     --             --        139,645
Other                                336,645        212,245        152,704
                                ------------   ------------   ------------
                                $    753,984   $    661,195   $    934,259
                                ============   ============   ============

         EARNINGS  PER  SHARE:  Diluted  earnings  per  share  gives  effect  to
potential  common shares that were dilutive and  outstanding  during the period,
such as stock options and warrants,  using the treasury stock method and average
market price.

         Following is a reconciliation  of amounts used in the basic and diluted
computations:
<TABLE>
<CAPTION>
                                                                                  YEAR ENDED DECEMBER 31,
                                                                       -----------------------------------------
                                                                           1998          1997            1996
                                                                       -----------    -----------    -----------
<S>                                                                    <C>            <C>            <C>        
Net income, numerator-basic computation                                $    98,421    $ 2,240,971    $ 2,417,269
Adjustment due to subsidiaries' dilutive securities                        (52,219)      (102,697)       (61,971)
                                                                       -----------    -----------    -----------
Net income as adjusted, numerator-diluted computation                  $    46,202    $ 2,138,274    $ 2,355,298
                                                                       ===========    ===========    ===========

Weighted average shares, denominator-basic computation                   5,804,506      5,733,104      5,456,251
Effect of dilutive stock securities:
Stock options                                                                   --        285,088        552,872
                                                                       -----------    -----------    -----------
Weighted average shares as adjusted, denominator-diluted computation     5,804,506      6,018,192      6,009,123
                                                                       ===========    ===========    ===========

Earnings per share:
Basic                                                                  $       .02    $        39    $       .44
                                                                       ===========    ===========    ===========
Diluted                                                                $       .01    $       .36    $       .39
                                                                       ===========    ===========    ===========
</TABLE>
                                                       F-9

<PAGE>

                         MEDICORE, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
                                DECEMBER 31, 1998

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED

         CASH AND CASH  EQUIVALENTS:  The Company  considers  all highly  liquid
investments  with a maturity of three  months or less when  purchased to be cash
equivalents.  The carrying  amounts,  reported in the balance sheet for cash and
cash equivalents  approximate their fair values. The credit risk associated with
cash and cash  equivalents  are  considered  low due to the high  quality of the
financial institutions in which these assets are invested.

         CUSTOMER PAYMENT TERMS: The majority of the Company's sales are made at
payment terms of net amount due in 30-45 days, depending on the customer.

         RECLASSIFICATIONS: Certain reclassifications have been made to the 1997
and 1996 financial statements to conform to the 1998 presentation.

         ESTIMATED  FAIR VALUE OF FINANCIAL  INSTRUMENTS:  The carrying value of
cash,  accounts  receivable and debt in the  accompanying  financial  statements
approximate  their  fair  value  because  of the  short-term  maturity  of these
instruments,  and in the case of debt because  such  instruments  bear  variable
interest rates which approximate market.

         BUSINESS SEGMENTS:  The Company has adopted the provisions of Financial
Accounting Standards Board Statement No. 131, " Disclosures About Segments of an
Enterprise  and  Related  Information"  (FAS  131)  required  for  fiscal  years
beginning after December 15, 1997. FAS 131  establishes  standards for reporting
information  about  operating  segments  in  annual  financial  statements  with
operating  segments  representing  components of an enterprise  evaluated by the
enterprise's  chief  operating  decision maker for purposes of making  decisions
regarding resource  allocation and performance  evaluation.  The adoption of FAS
131 has not changed the Company's reported business  segments,  but has resulted
in changes in the Company's segment reporting disclosures.

         COMPREHENSIVE INCOME:  In 1998 the Company adopted Financial Accounting
Standards Board Statement No. 130, "Reporting  Comprehensive  Income" (FAS 130).
This statement establishes rules for the reporting  of  comprehensive income and
its components.  Comprehensive income  consists of net  income, foreign currency
translation  adjustments  and  unrealized  gains on marketable securities and is
presented  in  the  Consolidated  Statement of Shareholders' Equity.  Prior year
financial statements have been reclassified to conform with these requirements.

         NEW PRONOUNCEMENTS:  In June, 1998, the Financial Accounting Standards
Board issued Financial Accounting Standards Board Statement No. 133, "Accounting
for Derivative Instruments and Hedging Activities" (FAS 133).  FAS 133 is effec-
tive for fiscal quarters of fiscal years beginning after June 15, 1999.  FAS 133
establishes  accounting  and  reporting standards for derivative instruments and
for hedging activities and requires, among other things, that all derivatives be
recognized  as  either assets or liabilities in the statement of financial posi-
tion  and  that  those instruments be measured at fair value.  The Company is in
the  process of determining the impact that the adoption of FAS 133 will have on
its consolidated financial statements.

NOTE 2--TRANSACTIONS WITH VIRAGEN, INC.

         The Company owns  approximately  259,000 shares of Viragen  (formerly a
majority-owned  subsidiary of the Company) common stock as of December 31, 1998.
During 1997 and 1996 the Company sold  approximately  10,000  shares and 682,000
shares of  Viragen  stock and  recognized  gains of  approximately  $49,000  and
$2,584,000,  respectively.  In accordance with the Company's  accounting policy,
these shares are  reflected at fair value,  using  quoted  market  prices by the
Nasdaq Stock Market, and the unrealized gain is included as a separate component
of accumulated other comprehensive income included in shareholders'  equity. The
closing bid price of Viragen  common  stock was $.81 as of December 31, 1998 and
$1.09 as of December 31, 1997.

                                      F-10

<PAGE>

                         MEDICORE, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
                                DECEMBER 31, 1998

NOTE 2-TRANSACTIONS WITH VIRAGEN, INC.--CONTINUED

         The Company had a second mortgage and related note due from Viragen. In
March,  1996,  Viragen prepaid  $165,000 on this note and paid off the remaining
principal and accrued  interest in August 1996. As a result of Viragen  repaying
amounts which had been offset by an allowance for amounts previously written off
as  uncollectable,  the Company  recognized a gain of approximately  $228,000 in
1996.

         The Company has a royalty agreement with Viragen,  pursuant to which it
is to  receive a  royalty  on  Viragen's  net sales of  interferon  and  related
products.  The agreement provides for aggregate royalty payments of $2.4 million
to be paid based on the following  percentages of Viragen sales: 5% of the first
$7 million,  4% of the next $10  million,  and 3% of the next $55  million.  The
effective date of the agreement was November 15, 1994, with royalty payments due
quarterly,  commencing  March 31, 1995.  No royalty  income was earned under the
agreement in 1998 or 1997.  In addition,  a payment of  approximately  $108,000,
earned under a previous royalty agreement, is due as the final payment under the
new agreement.

NOTE 3--LONG-TERM DEBT

         On February 8, 1996, Techdyne refinanced its term loan by entering into
three loan  agreements with a Florida bank. One credit facility was a $2,000,000
line  of  credit  due on  demand  secured  by  Techdyne's  accounts  receivable,
inventory,  furniture,  fixtures and intangible  assets and bore interest at the
bank's prime rate plus 1.25%.  In  conjunction  with  Techdyne's  acquisition of
Lytton on July 31,  1997,  the line of credit  was  modified  and  increased  to
$2,500,000  with the interest  rate reduced to prime plus .75% and various other
modifications.  The line was fully  drawn  down in  connection  with the  Lytton
acquisition with $2,500,000 remaining  outstanding,  with interest due at 9.25%,
until the line was refinanced in December 1997.

         The  $2,500,000  line of credit  agreement was  refinanced and replaced
effective December 29, 1997 with a five year $1,500,000 commercial term loan and
$1,600,000  commercial  revolving line of credit.  The $1,600,000 line of credit
had an outstanding  balance of $1,600,000 at December 31, 1998 and $1,000,000 at
December  31, 1997.  This line  matures May 1, 2000 and has monthly  payments of
interest at prime.  Both credit  facilities are  collateralized by the corporate
assets of Techdyne.  The new commercial term loan with an outstanding balance of
$1,200,000  at December  31, 1998 and  $1,5000,000  at December 31, 1997 matures
December 15, 2002 with monthly principal  payments of $25,000 plus interest.  In
connection  with the term loan,  the Company  entered into an interest rate swap
agreement  with the bank to manage  Techdyne's  exposure  to  interest  rates by
effectively converting a variable note obligation with an interest rate of LIBOR
plus 2.25% to a fixed rate of 8.60%.  Early  termination of the swap  agreement,
either through prepayment or default on the term loan, may result in a cost or a
benefit to  Techdyne.  The December  29, 1997  refinancing  represents a noncash
financing  activity  which is a  supplemental  disclosure  required by Financial
Accounting Standards Board Statement No 95 "Statement of Cash Flows" (FAS 95).

         The bank  extended  two  commercial  term loans to Techdyne in February
1996,  one for $712,500 for five years expiring on February 7, 2001 at an annual
rate of interest equal to 8.28% with a monthly payment of principal and interest
of $6,925 based on a 15-year amortization schedule with the unpaid principal and
accrued  interest due on the expiration  date. This term loan had an outstanding
balance of approximately  $636,000 at December 31, 1998 and $663,000 at December
31, 1997 and is secured by a mortgage on properties in Hialeah, Florida owned by
the Company, two of which properties are leased to Techdyne and one parcel being
vacant land used as a parking lot.  Under this term loan,  Techdyne is obligated
to adhere to a variety of affirmative and negative covenants.

                                      F-11
<PAGE>

                         MEDICORE, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
                                DECEMBER 31, 1998

NOTE 3--LONG-TERM DEBT--CONTINUED

         The  second  commercial  term  loan  was for the  principal  amount  of
$200,000  for a period of five  years  bearing  interest  at a per annum rate of
1.25% over the bank's prime rate and requiring monthly  principal  payments with
accrued interest of $3,333 through expiration on February 7, 2001. This $200,000
term loan which had a balance of approximately  $87,000 at December 31, 1998 and
$127,000 at December 31, 1997 is secured by all of Techdyne's  tangible personal
property,  goods  and  equipment,  and all  cash  or  noncash  proceeds  of such
collateral.

         The February 1996 financing under the term loans provided cash proceeds
to Techdyne of  approximately  $181,000 and included  payment of the balance due
under Techdyne's previous term loan of $517,000 and payment of a mortgage of the
Company,  including  accrued  interest,  on a  building  leased to  Techdyne  of
$215,000 which represent  noncash  financing  activities which is a supplemental
disclosure required by FAS 95.

         The Company has unconditionally  guaranteed the payment and performance
by Techdyne of the revolving  loan and the three  commercial  term loans and has
subordinated Techdyne's  intercompany  indebtedness to the Company to the bank's
interest.  There  are  cross  defaults  between  the  revolving  and term  loans
exclusive of the $200,000 term loan.

         Lytton has a $1,500,000 revolving bank line of credit requiring monthly
interest  payments  at prime  plus  1/2%  which  matured  August 1, 1998 and was
renewed on the same terms and  conditions  through June 30,  1999.  There was an
outstanding balance on this loan of approximately  $962,000 at December 31, 1998
and $549,000 at December 31, 1997.  The interest  rate on this loan was 8.25% at
December  31,  1998 and 9% as of  December  31,  1997.  Lytton has a  $1,000,000
installment loan with the same bank maturing August 1, 2002 at an annual rate of
9% until July 1999,  with monthly  payments of $16,667 plus  interest,  at which
time,  Lytton will have an option to convert the note to a variable  rate.  This
loan is subject to a  prepayment  penalty  during  the fixed  rate  period.  The
balance  outstanding on this loan was approximately  $733,000 as of December 31,
1998 and $933,000 as of December 31, 1997. Lytton also has a $500,000  equipment
loan  agreement  with the same bank payable through August 1, 2003 with interest
at  prime  plus 1%. There was no outstanding balance on this loan as of December
31, 1998  or  December  31, 1997.  All  of  these  bank loans are secured by the
business assets of Lytton.

<TABLE>
<CAPTION>
  Long-term debt is as follows:
                                                                                           DECEMBER 31,
                                                                                   --------------------------
                                                                                      1998             1997
                                                                                   ----------       ---------
        <S>                                                                        <C>             <C>      
         Term loan secured by real property with a carrying value of $976,000 at
            December 31,  1998.  Monthly  payments of principal  and interest as
            described above.                                                        $ 636,438       $ 662,533

         Term loan secured by tangible  personal  property,  goods and equipment
            with a carrying  value of $6,190,000  at December 31, 1998.  Monthly
            payments of  principal  and  interest  as  described  above.               86,763         126,764

         Commercial  term loan secured by  corporate  assets of Techdyne  with a
            carrying value of approximately $14,762,000 as of December 31, 1998.
            Monthly  payments of  principal  and  interest as  described  above.
                                                                                    1,200,000       1,500,000

         Three-year  revolving  line of credit  agreement  maturing May 1, 2000.
            Secured by  corporate  assets of Techdyne  with a carrying  value of
            approximately  $14,762,000 at December 31, 1998.  Monthly payment of
            interest as described above.                                            1,600,000       1,000,000
</TABLE>

                                      F-12
<PAGE>

                         MEDICORE, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
                                DECEMBER 31, 1998

NOTE 3--LONG-TERM DEBT--CONTINUED
<TABLE>
<CAPTION>

                                                                                            DECEMBER 31,
                                                                                   ---------------------------
                                                                                       1998             1997
                                                                                   ----------       ----------
        <S>                                                                           <C>             <C>      
         Mortgage  note  secured by land and  building  with a net book value of
            $840,000 at December 31, 1998.  Quarterly  payments of approximately
            $20,000  based on exchange  rates at December  31, 1998 for 15 years
            commencing  October,  1997 including  interest at 2% above bank base
            rate.                                                                     544,528         569,431
         Promissory  note  secured by three  certificates  of deposit.  A single
            principal  payment is due on April 21,  2000 with  interest  payable
            monthly at prime.                                                         145,000         145,000

         Mortgage note secured by land and building  with a net book value of of
            $414,000 at December 31, 1998.  Monthly principal payments of $3,333
            plus  interest  at 1% over the prime  rate  through  November  2003.
                                                                                      200,040         240,036

         Mortgage  note  secured by land and  building  with a net book value of
            $706,000 at December 31, 1998.  Monthly principal payments of $2,667
            plus  interest  at 1% over the prime  rate  through  November  2003.
                                                                                      159,960         191,963

         Equipment financing  agreement secured by DCA equipment with a net book
            value of $487,000 at December 31, 1998.  Combined  monthly  payments
            pursuant to various  schedules  of $8,582 as of December 31, 1998 as
            described below, including principal and interest,  with interest at
            rates ranging from 5.47% to 11.84%.                                       448,566         284,518

         Mortgage  note  secured by land with a net book  value of  $107,000  at
            December  31,  1998.  Monthly  principal  payments  of  $1,083  plus
            interest at 1.5% over the prime rate.  The entire  unpaid  principal
            balance and accrued interest is due May 1, 2003.                           56,288          69,295

         Installment loan requiring monthly payments of $16,667 plus interest at
            9%.  The loan is  secured by all  business  assets of Lytton  with a
            carrying  value of  approximately  $9,111,000.  Monthly  payments of
            principal and interest as described above.                                733,333         933,333

         Equipment loan requiring monthly payments of $4,298 including  interest
            at 5.5% and maturing in April 2002. The loan is secured by equipment
            of  Lytton  with a  carrying  value  of  approximately  $503,000  at
            December 31, 1998.                                                        156,746         198,445

         Equipment financing  obligations requiring combined monthly payments of
            $19,467  as of  December  31,  1998 as  described  below,  including
            interest  at rates  ranging  from 8.55% to 10.09% and secured by the
            related  assets of Lytton  with a  carrying  value of  approximately
            $341,000 at December 31, 1998.                                            112,320         390,033

         Other                                                                             --           2,607
                                                                                   ----------      ----------
                                                                                    6,079,982       6,313,958
         Less current portion                                                         953,452       1,073,924
                                                                                   ----------      ----------
                                                                                   $5,126,530      $5,240,034
                                                                                   ==========      ==========
</TABLE>

         The  prime  rate was  7.75% as of  December  31,  1998 and  8.50% as of
December 31, 1997.

         The Company re-paid a mortgage in February 1996 through Techdyne's bank
loan  refinancing.  This  represents  noncash  financing  activity  which  is  a
supplemental disclosure required by FAS 95.

                                      F-13
<PAGE>

                         MEDICORE, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
                                DECEMBER 31, 1998

NOTE 3--LONG-TERM DEBT--CONTINUED

         The DCA equipment  financing  agreement  provides  financing for kidney
dialysis  machines for DCA's  facilities in Pennsylvania  and New Jersey and was
amended in 1996 to include  equipment  for DCA's Florida  facility.  The initial
principal  balance was  approximately  $195,000.  Additional  financing  totaled
approximately  $124,000  in 1996  $190,000  in 1997 and  $245,000  in  1998.  In
conjunction  with DCA's sale of its Florida  dialysis  operations on October 31,
1997, the  purchaser assumed  approximately  $112,000 of these financing obliga-
tions.  Payments under the agreement are pursuant to various schedules extending
through July 2002.  Financing under the equipment financing  agreement is a non-
cash financing activity which is a supplemental disclosure required by FAS 95.

         Lytton  conducts a portion of its operations  with  equipment  acquired
under  equipment  financing  obligations  which extend  through  July 1999.  The
present value of annual future minimum  payments  required under these financing
obligations is included in the schedule of long-term debt above. Financing under
these  agreements  is a  noncash  financing  activity  which  is a  supplemental
disclosure required by FAS 95.

         Techdyne  (Scotland)  had a line of credit with a Scottish  bank with a
U.S. dollar equivalency of approximately $330,000 at December 31, 1997 which was
not renewed.  No amounts were drawn down on this line of credit  during 1998 and
no amounts were outstanding under this line of credit as of December 31, 1997.

         Scheduled maturities of long-term debt outstanding at December 31, 1998
are: 1999 - $953,000; 2000 - $2,613,00; 2001 - $1,371,000; 2002- $666,000; 2003-
$165,000;  thereafter  -  $312,000.  Interest  payments on all of the above debt
amounted to $583,000, $355,000 and $224,000 in 1998, 1997 and 1996.

         The  Company's  various debt  agreements  contain  certain  restrictive
covenants that, among other things, restrict the payment of dividends,  restrict
rent  commitments,  restrict  additional  indebtedness,   prohibit  issuance  or
redemption of capital stock and require maintenance of certain financial ratios.
In 1998, DCA was in default of certain covenants relating to its mortgage agree-
ments totaling $360,000. The covenants principally related to debt service ratio
requirements, for which  the  lender  has waived compliance through December 31,
1998.

NOTE 4--INCOME TAXES

         The Company  has net  operating  loss  carryforwards  of  approximately
$2,590,000  at  December  31,  1998  and  $5,000,000  at  December 31, 1997 that
expire in years 2003 through 2010.  Of these  net  operating loss carryforwards,
$2,400,000 and $5,000,000, respectively, are available to offset future Techdyne
(US) taxable income which became a 62.5% owned subsidiary pursuant to its public
offering  completed on October 2, 1995 and which began  filing  separate federal
and  state  income  tax returns with its income tax  liability  reflected  on  a
separate  return  basis  subsequent  to  that  date. Techdyne's  new subsidiary,
Lytton, is included in Techdyne's  consolidated  federal  tax  return  effective
August 1, 1997 with Techdyne's net operating loss  carryforwards able to be uti-
lized to offset any income  taxable for federal tax return purposes generated by
Lytton.  Of the December 31, 1998 net operating loss carryforwards, $190,000 are
available to offset future taxable income, excluding the results of Techdyne and
DCA.

         Deferred   income  taxes  reflect  the  net  tax  effect  of  temporary
differences between the carrying amounts of assets and liabilities for financial
reporting  purposes  and the amounts used for income tax  purposes.  Significant
components of the Company's deferred tax liabilities and assets are as follows:

                                       F-14
<PAGE>

                         MEDICORE, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
                                DECEMBER 31, 1998

NOTE 4--INCOME TAXES--CONTINUED

                                                     DECEMBER 31,
                                             --------------------------
                                                 1998           1997
                                             -----------    -----------
Deferred tax liabilities:
  Tax over book depreciation                 $   201,943    $   408,000
  Gain on sale of Techdyne and DCA stock       2,067,000      2,067,000
  Unrealized gain on marketable securities        79,052        106,343
  Other                                           24,965         11,500
                                             -----------    -----------
      Total deferred tax liability             2,372,960      2,592,843

Deferred tax assets:
  Obsolescence and other reserves                463,051        373,000
  Tax credits                                     48,000             --
  Inventory capitalization                        73,688        113,000
  Accrued expenses and other                     135,106        227,000
                                             -----------    -----------
      Sub-total                                  719,845        713,000

Net operating loss carryforward                  942,794      1,432,000
Valuation allowance                             (528,000)      (850,465)
                                             -----------    -----------
Net deferred tax asset                         1,134,639      1,294,535
                                             -----------    -----------
Net deferred tax liability                   $ 1,238,321    $ 1,298,308
                                             ===========    ===========

Due to the  uncertainty  as to the  realizability  of  deferred  tax  assets,  a
valuation  allowance  of $528,000  and  $850,465 was recorded as of December 31,
1998 and December 31, 1997, respectively.

Deferred  taxes in the  accompanying  balance  sheets  consist of the  following
components:

                                                DECEMBER 31,
                                       --------------------------
                                           1998           1997
                                       -----------    -----------
Current deferred tax asset             $   590,133    $ 1,294,535
Current deferred tax liabilities           (28,311)            --
                                       -----------    -----------
Net current deferred tax asset             561,822      1,294,535

Long-term deferred tax asset               544,506             --
Long-term deferred tax liability        (2,344,649)    (2,592,843)
                                       -----------    -----------
Net long-term deferred tax liability    (1,800,143)    (2,592,843)
                                       -----------    -----------
Net deferred tax liability             $(1,238,321)   $(1,298,308)
                                       ===========    ===========

         A deferred  tax  liability  of  $2,067,000  at  December  31,  1998 and
December 31, 1997, resulted from income tax expense recorded on gains recognized
for financial reporting purposes, but not for income tax purposes,  resulting in
a difference between book and tax basis of the Company's  investment in Techdyne
and DCA. This temporary  difference would reverse upon the occurrence of certain
events  relating to the  divestiture  of Techdyne  and DCA.  This  deferred  tax
liability has been classified as noncurrent along with the remaining  portion of
noncurrent  deferred tax liabilities  resulting from differences in book and tax
depreciation of Techdyne  (Scotland).  A current deferred tax liability has been
recorded for the unrealized gain on marketable securities. See Note 2.

                                      F-15
<PAGE>

                         MEDICORE, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
                                DECEMBER 31, 1998

NOTE 4--INCOME TAXES--CONTINUED

For financial reporting purposes, (loss) income before income taxes includes the
following components:

                                   YEAR ENDED DECEMBER 31,
                         -----------------------------------------
                             1998           1997           1996
                         -----------    -----------    -----------
United States income     $   508,933    $ 5,201,054    $ 3,260,262
Foreign (loss) income       (537,466)      (289,556)       782,641
                         -----------    -----------    -----------
                         $   (28,533)   $ 4,911,498    $ 4,042,903
                         ===========    ===========    ===========

Significant  components  of the  provision  (benefit)  for  income  taxes are as
follows:

                            YEAR ENDED DECEMBER 31,
                -----------------------------------------
                    1998           1997           1996
                -----------    -----------    -----------
Current:
  Federal       $  (415,468)   $ 1,306,000    $   440,000
  Foreign                --        (96,000)       259,270
  State              92,394        236,000         70,000
                -----------    -----------    -----------
                $  (323,074)   $ 1,446,000        769,270
Deferred:
 Federal             66,602       (493,000)       578,000
 Foreign            (95,897)            --          3,476
                -----------    -----------    -----------
                    (29,295)      (493,000)       581,476
                -----------    -----------    -----------
                $  (352,369)   $   953,000    $ 1,350,746
                ===========    ===========    ===========

         The  reconciliation  of income tax attributable to income before income
taxes and minority  interests  computed at the U.S. federal statutory rate (34%)
to income tax expense is as follows:

<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                                                         -----------------------------------------
                                                             1998           1997           1996
                                                         -----------    -----------    -----------
<S>                                                      <C>            <C>            <C>        
 Tax at statutory rate                                   $    (9,526)   $ 1,669,909    $ 1,374,587
 Adjustments resulting from:
   State income taxes-net of federal income tax effect       105,215        180,770         49,898
   Lower effective income taxes of other countries            86,841         13,096         (7,826)
   Non deductible items                                       62,235             --             --
   Prior year tax return to provision adjustment            (287,623)            --             --
   Change in valuation allowance                            (322,465)      (737,258)       (65,913)
   Other                                                      12,954       (173,517)            --
                                                         -----------    -----------    -----------
                                                         $  (352,369)   $   953,000    $ 1,350,746
                                                         ===========    ===========    ===========
</TABLE>

         Undistributed  earnings of the Company's foreign subsidiary amounted to
approximately  $2,294,000  at December 31, 1998 and  $2,736,000  at December 31,
1997.  Those  earnings  are  considered  to  be  indefinitely   reinvested  and,
accordingly,  no  provision  for U.S.  federal and state  income  taxes has been
provided  thereon.  Upon distribution of those earnings in the form of dividends
or otherwise, the Company would be subject to both U.S. income taxes (subject to
an  adjustment  for  foreign  tax  credits)  and   withholding   taxes  payable.
Determination of the amount of unrecognized  deferred  U.S. income tax liability
is not practicable because of the complexities associated  with  its  hypotheti-
cal calculation; however, foreign  tax  credits  may be available to reduce some
portion of the U.S. liability.  Withholding  taxes of approximately $115,000 and
$137,000 would be payable upon remittance of all previously  unremitted earnings
at December 31, 1998 and December 31, 1997, respectively.

         Income tax payments were approximately  $1,203,000 in 1998, $811,000 in
1997 and $487,000 in 1996.

                                      F-16
<PAGE>

                         MEDICORE, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
                                DECEMBER 31, 1998

NOTE 5--STOCK OPTIONS AND STOCK COMPENSATION

         The Company has elected to follow  Accounting  Principles Board Opinion
No.  25,  "Accounting  for  Stock  Issued  to  Employees"  (APB 25) and  related
Interpretations  in accounting  for its employee  stock options  because,  as is
discussed  below,  Financial  Accounting  Standards  Board  Statement  No.  123,
"Accounting  for Stock  Based  Compensation"  (FAS123),  requires  use of option
valuation  models  that were not  developed  for use in valuing  employee  stock
options. Under APB 25, because the exercise price of the Company's stock options
equals  the  market  price of the  underlying  stock on the  date of  grant,  no
compensation expense was recognized.

         In September  1994, the Company granted options to a consulting firm to
purchase  400,000 shares of common stock  exercisable at $1.25 per share through
September  30,  1997.  Options  for  200,000  shares  were  transferred  by  the
consulting  firm to another party in September  1996.  The options vested on the
basis of 25% of the aggregate as of the end of each quarter  beginning  with the
quarter ended  December 31, 1994.  Options for 200,000  shares were exercised in
August  1997 and the  remaining  options for 200,000  shares were  exercised  in
September 1997.

         In September 1994,  options to purchase  480,000 shares of common stock
at $.69 per share were exercised.  The Company  received cash payment of the par
value  and  the  balance  in  three  year  promissory  notes,  presented  in the
Stockholders'  Equity section of the balance sheet,  with interest at 5.36%. The
notes  were  secured  by the  480,000  shares  purchased,  held in escrow by the
Company,  with voting rights held by the  shareholders  until  default,  if any,
under the notes.  In June 1996,  the Company  forgave the balances due under the
notes  including  accrued  interest  and,  accordingly,  recorded  approximately
$344,000 in compensation expense.

         The Company has  1,000,000  shares of common stock  reserved for future
issuance  pursuant to its 1989 Stock Option Plan. On April 18, 1995, the Company
granted non-qualified stock options for 809,000 shares of its common stock, as a
service award to officers,  directors,  and certain employees of the Company and
certain of its subsidiaries under its 1989 Plan. The options were exercisable at
$3.00 per share,  reduced to $2.38 per share on December 31, 1996, through April
17, 2000. On June 11, 1997, the Company's board of directors granted a five-year
non-qualified  stock  option under the 1989 Plan for 35,000  shares  immediately
exercisable  with an  exercise  price  of  $3.75 to a new  board  member,  which
exercise  price was reduced to $2.38 per share on September  10, 1997,  the fair
market  value on that date.  Including  the June 1997  grant,  there are 841,000
options outstanding at December 31, 1998 under the 1989 plan.

         On May 6, 1996, the Company adopted a Key Employee Stock Plan reserving
100,000  shares of its common stock for issuance  from time to time to officers,
directors, key employees,  advisors and consultants as bonus or compensation for
performances  and or services  rendered to the  Company or  otherwise  providing
substantial  benefit for the  Company.  2,000  shares  under this plan have been
issued to the managing director of the Company's  European  operations for which
the Company  recorded  approximately  $6,000 in compensation  expense during the
second quarter of 1996.

         In May 1994,  Techdyne  adopted a stock  option  plan for up to 250,000
options.  Pursuant to this plan,  in May 1994,  the board of  directors  granted
227,500  options to certain of its officers,  directors,  and  employees.  These
options are  exercisable for a period of five years at $1 per share. On June 30,
1998,  115,000  of these  options  were  exercised,  with a  balance  of  56,600
outstanding  as of December 31, 1998.  The Company  received cash payment of the
par value and the balance in three year promissory notes with interest at 5.16%.

                                      F-17
<PAGE>

                         MEDICORE, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
                                DECEMBER 31, 1998

NOTE 5--STOCK OPTIONS AND STOCK COMPENSATION--CONTINUED

         On February 27, 1995 Techdyne granted  non-qualified stock options, not
part of the 1994 Plan, to directors of Techdyne and its  subsidiary  for 142,500
shares  exercisable at $1.75 per share for five years.  In April 1995,  Techdyne
granted a  non-qualified  stock option for 10,000  shares,  not part of the 1994
Plan,  to its  general  counsel  at the same  price and terms as the  directors'
options.

         In June 1997, Techdyne's board of directors adopted a Stock Option Plan
for up to 500,000 options, and pursuant to the plan the Board guaranteed 375,000
options  exercisable for five years through June 22, 2002 at $3.25 per share the
closing price of the common stock on the date of grant.

         In November  1995,  DCA  adopted a stock  option plan for up to 250,000
options.  Pursuant to this plan,  in  November  1995,  DCA's board of  directors
granted 210,000 options to certain of its officers,  directors and employees and
consultants of which there are 4,500  outstanding as of December 31, 1998. These
options  vested  immediately  and are  exercisable  for a period  of five  years
through  November 9, 2000 at $1.50 per share.  On June 10, 1998,  DCA's board of
directors  granted an option under the 1995 plan to a new board member for 5,000
shares exercisable at $2.25 per share though June 9, 2003. On December 31, 1997,
162,500  options were exercised by officers for which the Company  received cash
payments of the par value and the Company forgave the remaining  balance due and
recorded compensation expense of $322,000.

         In  August  1996,  DCA's  board of  directors  granted  15,000  medical
directors at its three  kidney  dialysis  centers of which  10,000  options were
outstanding as of December 31, 1998.  These options vested  immediately  and are
exercisable  for a period of three  years  through  August 18, 1999 at $4.75 per
share with the  exercise  price of 5,000 of the options  having been  reduced to
$2.25 per share on June 10, 1998.

         In May, 1998, as part of the consideration  pursuant  to  an  agreement
for  investor  relations  and  corporate  communications services agreement, the
Company granted options for 20,000 shares of its  common  stock  exercisable for
three years through  May 14, 2001  at  $2.25  per  share  and  Techdyne  granted
options  for  25,000  shares  of  its  common  stock exercisable for three years
through  May  14, 2001  at  $4.25  per  share.  Options  for 5,000 shares of the
Company's  common  stock  and  6,250  shares  of  Techdyne's common stock vested
during  1998  with  no  additional  options to vest due to cancellation  of this
agreement in August, 1998.  Pursuant  to  FAS 123, the Company recorded approxi-
mately $18,000 expense for options vesting under this agreement.

         Pro forma  information  regarding  net income and earnings per share is
required by FAS 123, and has been determined as if the Company had accounted for
its employee  stock options under the fair value method of that  Statement.  The
fair  value  for  these  options  was  estimated  at the date of  grant  using a
Black-Scholes   option   pricing  model  with  the  following   weighted-average
assumptions  for  option  grants  in  1998,   option  grants  in  1997,   option
modifications  in 1996,  and  options  grants in 1995,  respectively:  risk-free
interest rates of 5.55%,  5.59%, 5.65% and 6.75%; no dividend yield;  volatility
factor of the expected market price of the Company's common stock of .72 for the
options  issued in 1998,  .97 for the options  issued  during 1997,  .68 for the
option  modifications in 1996 and option grants in 1995; and an expected life of
3 years for the options  issued  during 1998 for the 1997  options of 2.5 years,
and for the options  modified  in 1996 of .75 years and for the 1995  options of
2.5 years.

                                      F-18
<PAGE>
                         MEDICORE, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
                                DECEMBER 31, 1998

NOTE 5--STOCK OPTIONS AND STOCK COMPENSATION--CONTINUED

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

         For  purposes of pro forma  disclosures,  the  estimated  fair value of
options is amortized to expense over the options' vesting period.  The Company's
pro forma information which includes the pro forma effect of its own options, as
well as the pro forma effects related to the Company's  interest in Techdyne and
DCA pro forma adjustments follows:

                                         1998         1997             1996
                                         ----         ----             ----

         Pro forma net income          $87,212     $1,671,720       $2,067,004
                                       =======     ==========       ==========
         Pro forma earnings per share
            Basic                        $.02         $.29              $.35
                                         ====         ====              ====
            Diluted                      $.01         $.26              $.23
                                         ====         ====              ====

         A  summary  of  the  Company's  stock  option  activity,   and  related
information  for the years ended December 31,  follows,  with its newly modified
options  being  reflected  as grants  and the  original  grants  being  modified
reflected as cancellations:

<TABLE>
<CAPTION>
                                       1998                              1997                                1996
                                       ----                              ----                                ----
                                                    WEIGHTED-                       WEIGHTED-                       WEIGHTED-
                                                     AVERAGE                         AVERAGE                         AVERAGE
                                     OPTIONS     EXERCISE PRICE      OPTIONS      EXERCISE PRICE      OPTIONS     EXERCISE PRICE
                                     -------     --------------      -------      --------------      -------     --------------
<S>                                   <C>                           <C>               <C>            <C>               <C>  
Outstanding-beginning of year         841,000        $2.38          1,207,000         $2.01          1,209,000         $2.42
Granted                                 5,000         2.25             35,000          2.47            809,000          2.38
Cancellations                              --                             ---                         (809,000)         3.00
Exercised                                  --                        (400,000)         1.25                ---
Forfeited                                  --                             ---                           (1,000)         3.00
Expired                                    --                          (1,000)         2.38             (1,000)         3.00
                                           --                         -------                        ---------
Outstanding-end of year               846,000                         841,000                        1,207,000          2.01
                                      =======                         =======                        =========
Exercisable at end of year:
1994, 1995 and 1997 options           841,000         2.38            841,000          2.38            803,500          1.82
1998 options                            5,000         2.25                 --                               --
                                      -------                         -------                        ---------
                                      846,000                         841,000                          803,500
                                      =======                         =======                        =========
Weighted-average fair value of
   Options granted, including
   Modified options, during the year   $.98                           $  2.47                           $.59
                                       ====                           =======                           ====
</TABLE>

         The weighted average remaining contractual life at December 31, 1998 of
the 1995 and 1997 of options is 1.4 years.  The  remaining  contractual  life at
December 31, 1998 for the 1998 options is 2.4 years.

         The  Company  has  1,503,000  shares  reserved  for future  issuance at
December 31,  1998, including: 1,000,000 shares for 1989 plan; 98,000 shares for
key  employee stock plan; 5,000 shares for consultant stock options; and 400,000
shares for employment agreement.

                                      F-19

<PAGE>

                         MEDICORE, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
                                DECEMBER 31, 1998

NOTE 5-STOCK OPTIONS AND STOCK COMPENSATION--CONTINUED

         The fair value of Techdyne  options was  estimated at the date of grant
using a Black-Scholes  option pricing model with the following  weighted average
assumptions for the options issued during 1998 and 1997, respectively: risk-free
interest rate of 5.55% and 5.59%;  no dividend yield;  volatility  factor of the
expected market price of Techdyne common stock of .58% and .60%; and an expected
life of the options of 3 years for the options  issued during 1998 and 2.5 years
for the options issued during 1997.

         A summary of Techdyne's stock option activity,  and related information
for the years ended December 31, follows:

<TABLE>
<CAPTION>
                                               1998                          1997                          1996
                                               ----                          ----                          ----
                                                      WEIGHTED-                     WEIGHTED-                         WEIGHTED-
                                                       AVERAGE                       AVERAGE                           AVERAGE
                                      OPTIONS       EXERCISE PRICE   OPTIONS      EXERCISE PRICE       OPTIONS      EXERCISE PRICE
                                      -------       --------------   -------      --------------       -------      --------------
<S>                                   <C>                            <C>                               <C>    
Outstanding-beginning of year         699,100                        326,500                           378,400
Granted                                 6,250            $4.25       375,000         $3.25                 ---
Exercised                            (115,000)            1.00          (300)         1.00             (50,700)         $1.00
Expired                                    --                         (2,100)         1.00              (1,200)          1.00
                                      -------                        -------                           -------
Outstanding-end of year               590,350                        699,100                           326,500
                                      =======                        =======                           =======
Outstanding and exercisable
   at end of year:
May 1994 options                       56,600             1.00       171,600          1.00             174,000           1.00
February and April 1995 options       152,500             1.75       152,500          1.75             152,500           1.75
June 1997 options                     375,000             3.25       375,000          3.25                  --
May 1998 options                        6,250             4.25            --                                --
                                      -------                        -------                           -------
                                      590,350                        699,100                           326,500
                                      =======                        =======                           =======
Weighted-average fair value of
   options granted during the          $2.04                          $1.33
   year                                =====                          =====
</TABLE>

         The remaining  contractual  life at December 31, 1998 is 3.4 years, 1.2
years and .39 years for the options issued in 1997, 1995 and 1994, respectively.

         The fair value of DCA options was estimated at the date of grant  using
a Black-Scholes option pricing model with the following weighted average assump-
tions  for  options  granted/modified  during 1998 and the options issued during
1996 risk-free interest rates of 5.55%  and 5.75%; no dividend yield; volatility
factor of DCA common stock of .93  for  the options granted/modified during 1998
and .50 for the options granted in 1996  and a weighted average expected life of
the options of 2.0 years for the  options  granted/modified  during 1998 and 1.5
years for the options granted in 1996.

         A summary of DCA's stock option activity,  and related  information for
the years ended December 31, follows:

<TABLE>
<CAPTION>
                                          1998                            1997                              1996
                                          ----                            ----                              ----
                                            WEIGHTED-AVERAGE                WEIGHTED-AVERAGE                  WEIGHTED-AVERAGE
                                   OPTIONS   EXERCISE PRICE       OPTIONS    EXERCISE PRICE       OPTIONS      EXERCISE PRICE
                                   -------   --------------       -------    --------------       -------      --------------
<S>                                <C>            <C>             <C>                            <C>    
Outstanding-beginning of year      29,000                         209,000                        210,000
Granted                            10,000         $4.75                --                         15,000            $4.75
Cancellations                      (5,000)         4.75                --                             --
Exercised                              --                        (162,500)      $1.50             (6,000)            1.50
Forfeited                              --                                                             --
Expired                           (14,500)         1.50           (17,500)       2.43            (10,000)            1.50
                                  -------                        --------                        -------
Outstanding-end of year            19,500                          29,000                        209,000
                                  =======                        ========                        =======
Outstanding and exercisable                         
   at end of year:
   November 1995 options            4,500          1.50            19,000        1.50            194,000             1.50
   August 1996 and June 1998       10,000          2.25            10,000        4.75             15,000             4.75
options
   August 1996 options              5,000          4.75                --                             --
                                  -------                        --------                        -------
                                   19,500                          29,000                        209,000
                                  =======                        ========                        =======
Weighted-average fair value of
   options granted during the year  $.79                                                          $1.30
                                    =====                                                         =====
</TABLE>

                                       F-20

<PAGE>

                         MEDICORE, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
                                DECEMBER 31, 1998

NOTE 5-STOCK OPTIONS AND STOCK COMPENSATION--CONTINUED

         The remaining  contractual  life at December 31, 1998 is 4.4 years,  .6
year and 1.9 years for the options issued in June 1998, August 1998 and November
1995, respectively.

NOTE 6-BUSINESS SEGMENT AND GEOGRAPHIC AREA DATA

         The following summarizes information about the Company's three reported
business segments.  The medical products division has been shown separately even
though not required by FAS 131.  Corporate  activities include general corporate
revenues and expenses.  Corporate  assets included  unallocated  cash,  deferred
income  taxes,  corporate  fixed assets and goodwill not allocated to any of the
segments. Intersegment sales are generally intended to approximate market price.

<TABLE>
<CAPTION>

BUSINESS SEGMENT REVENUES
                                                          1998            1997            1996
                                                      ------------    ------------    ------------
<S>                                                   <C>             <C>             <C>         
Electro-Mechanical
     External                                         $ 44,755,164    $ 32,954,795    $ 24,155,715
     Intersegment Sales                                    171,567         213,985         278,465
Medical Products                                         1,335,128       1,708,488       2,012,498
Medical Services                                         4,003,935       9,220,798       4,136,970
Corporate                                                  310,713         488,268       4,671,800
Elimination of corporate rental charges
     to electro-mechanical manufacturing                   (93,444)        (93,640)       (103,450)
Elimination of corporate interest charge
     to electro-mechanical                                (156,197)       (151,901)       (139,672)
Elimination of corporate interest charge
     to medical services                                    (5,878)         (7,326)        (14,455)
Elimination of medical services
     interest charge to corporate                             (892)             --              --
Elimination of electro-mechanical
     manufacturing sales to medical products              (171,567)       (213,985)       (278,465)
                                                      ------------    ------------    ------------
                                                      $ 50,148,529    $ 44,119,482    $ 34,719,406
                                                      ============    ============    ============
BUSINESS SEGMENT PROFIT (LOSS)
Electro-Mechanical                                    $    924,924    $    861,248    $  1,010,454
Medical Products                                           (87,818)          6,485        (638,858)
Medical Services                                          (441,010)      4,266,683         (10,988)
Corporate                                                 (424,629)       (222,918)      3,682,295
                                                      ------------    ------------    ------------
                                                      $    (28,533)   $  4,911,498    $  4,042,903
                                                      ============    ============    ============
BUSINESS SEGMENT ASSETS
Electro-Mechanical                                    $ 23,767,144    $ 24,625,147    $ 13,224,196
Medical Products                                           667,955         606,305       1,000,710
Medical Services                                         9,348,924      11,637,765       7,552,289
Corporate                                                2,579,117       4,018,482       5,323,157
Elimination of intersegment trade receivables              (53,050)        (26,180)        (15,500)
                                                      ------------    ------------    ------------
                                                      $ 36,310,090    $ 40,861,519    $ 27,084,852
                                                      ============    ============    ============
OTHER BUSINESS SEGMENT INFORMATION
INTEREST INCOME:
Electro-Mechanical                                    $     78,315    $    136,054    $    166,134
Medical Products                                                --              --             140
Medical Services                                           296,943         227,790         168,950
Corporate                                                  205,048         244,333         233,110
Elimination of corporate intercompany
     interest charge to electro-mechanical                (156,197)       (151,901)       (139,672)
Elimination of corporate intercompany
     interest charge to medical services                    (5,878)         (7,326)        (14,455)
Elimination of medical services intercompany
     interest change to corporate                             (892)             --              --
                                                      ------------    ------------    ------------
                                                      $    417,339    $    448,950    $    414,207
                                                      ============    ============    ============
</TABLE>

                                       F-21
<PAGE>

                        MEDICORE, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
                                DECEMBER 31, 1998

NOTE 6--BUSINESS SEGMENT AND GEOGRAPHIC AREA DATA--Continued

<TABLE>
<CAPTION>
                                                          1998             1997            1996
                                                      ------------    ------------    ------------
<S>                                                   <C>             <C>             <C>
INTEREST EXPENSE:
Electro-Mechanical                                    $    662,856    $    456,621    $    271,736
Medical Products                                                --              --           1,498
Medical Services                                            81,531          86,129          86,694
Corporate                                                   10,994           9,992          11,814
Elimination of corporate intercompany
     interest charge to electro-mechanical                (156,197)       (151,901)       (139,672)
Elimination of corporate intercompany
     interest charge to medical services                    (5,878)         (7,326)        (14,455)
Elimination of medical services intercompany
     interest charge to corporate                             (892)             --              --
                                                      ------------    ------------    ------------
                                                      $    592,414    $    393,515    $    217,615
                                                      ============    ============    ============
DEPRECIATION AND AMORTIZATION:
Electro-Mechanical                                    $  1,115,023    $    669,239    $    384,048
Medical Products                                            35,617          40,657          43,083
Medical Services                                           334,387         289,877         210,550
Corporate                                                  111,153         125,606          99,288
                                                      ------------    ------------    ------------
                                                      $  1,596,180    $  1,125,379    $    736,969
                                                      ============    ============    ============
OTHER SIGNIFICANT NON-CASH ITEMS:
Electro mechanical:
     Provision for inventory obsolescence             $    437,095    $    153,011    $     91,913
Medical services:
     Stock compensation expense                                 --         322,125              --
UNUSUAL ITEMS:
Medical services:
     Gain on sale of subsidiaries' assets             $         --    $  4,430,663    $         --
CORPORATE:
     Gain on subsidiary securities offering           $         --    $     89,898    $  1,521,127
     Gain on sale of marketable securities                  12,780          49,493       2,583,500
CAPITAL EXPENDITURES:
Electro-Mechanical                                    $    832,410    $  1,396,260    $    704,304
Medical Products                                            23,652           4,595         149,505
Medical Services                                         1,149,373         825,427         386,502
Corporate                                                   24,438          74,296          27,136
                                                      ------------    ------------    ------------
                                                      $  2,029,873    $  2,300,578    $  1,267,447
                                                      ============    ============    ============
GEOGRAPHIC AREA SALES
United States                                         $ 44,735,318    $ 32,116,905    $ 19,628,229
Europe(1)                                                4,646,447       6,771,328      10,052,291
                                                      ------------    ------------    ------------
                                                      $ 49,381,765    $ 38,888,233    $ 29,680,520
                                                      ============    ============    ============

(1) Techdyne (Scotland) sales are primarily 
    to customers in the United Kingdom.

GEOGRAPHIC AREA PROPERTY, PLANT AND EQUIPMENT (NET)
United States                                         $  8,114,120    $  7,421,547    $  4,410,961
Europe                                                   1,386,142       1,483,480       1,628,248
                                                      ------------    ------------    ------------
                                                      $  9,500,262    $  8,905,027    $  6,039,209
                                                      ============    ============    ============
</TABLE>

MAJOR CUSTOMERS

         A majority  of the  Company's  electro-mechanical  sales are to certain
major customers.  The loss of, or  substantially  reduced sales to, any of these
customers  would have an adverse  effect on the  Company's  operations,  if such
sales were not replaced, as occurred with Compaq and Avid as noted below.

                                      F-22
<PAGE>

                         MEDICORE, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
                                DECEMBER 31, 1998

NOTE 6--BUSINESS SEGMENT AND GEOGRAPHIC AREA DATA--Continued

         Electro-mechanical  sales to major customers  comprising 10% or more of
the Company's sales are as follows:
                                               YEAR ENDED DECEMBER 31,
                                      --------------------------------------
                   CUSTOMERS             1998           1997          1996
                   ---------          ----------     ---------     ---------
  PMI Food Equipment Group(1)         $8,183,000     $      --     $      --
  Compaq Computer Corp.(1)(2)                 --            --     8,497,000
  IBM(2)                                      --     6,437,000     4,275,000

-----------------
(1)      Less than 10% of sales for 1997.
(2)      Less than 10% of sales for 1998.

         Sales to PMI Food Equipment Group by Lytton  represented  approximately
41% of Lytton's  sales,  18% of Techdyne's  sales and 17% of the Company's sales
for the year ended December 31, 1998.

         Sales to Compaq  Computer  Corp.,  which has been a major  customer  of
Techdyne  (Scotland)  amounted to  $1,192,000  in 1998,  $2,847,000  in 1997 and
$8,427,000  in 1996  representing  26%,  42% and 84% of the  sales  of  Techdyne
(Scotland) for 1998,  1997 and 1996,  respectively.  Sales to this customer have
shown substantial  declines as a result of increased  competition in bidding for
Compaq  business  which has also resulted in reduced profit margins on remaining
Compaq sales.  Sales by Techdyne  (Scotland)  to Compaq  accounted to 13% of its
sales for the fourth  quarter  of 1998  compared  to 35% for the same  period of
1997.

         A  significant  customer  of  Techdyne  (which  sales to this  customer
represented  9% of Techdyne's  and 8% of the Company's 1998 sales) has been slow
in paying  amounts owed to the company.  At December 31, 1998, the company had a
receivable of approximately  $879,000 from this customer,  and held inventory of
approximately  $1,160,000 to fulfill a sales contract relating to this customer,
which  represents  15% and 13% and 14% and 13% of  Techdyne's  and the Company's
accounts receivable and inventory balances, respectively, at that date. Techdyne
anticipates an ongoing  business  relationship  with this customer,  and it also
believes  the  receivables  and  inventories   relating  to  this  customer  are
recoverable.  However, future events may occur to  cause  the  Company to change
its  estimate  of loss which  could have a material adverse effect on Techdyne's
and the Company's results of operations and financial position.

         Medical services  revenues,  which represent  revenues of the Company's
dialysis division,  are attributable to payments received under Medicare,  which
is  supplemented  by Medicaid or comparable  benefits in the states in which the
Company  operates.  Reimbursement  rates  under  these  programs  are subject to
regulatory changes and governmental funding  restrictions.  Although the Company
is not aware of any future rate changes,  significant  changes in  reimbursement
rates could have a material effect on the Company's operations.

         Medical  product  sales are highly  dependent on  government  contracts
which have become increasingly  difficult to secure due to changes in government
procurement  procedures.  Significant reductions in government contract revenues
would  have had a  material  adverse  effect on the  operations  of the  Medical
Products  Division.  During  1996,  the Company  decided to shutdown the durable
medical   equipment  portion  of  its  medical  products  business  due  to  its
unprofitable  operations and recorded in 1996 approximately $305,000 in costs in
connection with this shutdown. See Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations".

                                      F-23
<PAGE>

                         MEDICORE, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
                                DECEMBER 31, 1998

NOTE 7--COMMITMENTS AND CONTINGENCIES

COMMITMENTS

         The Company  and its  subsidiaries  have leases on several  facilities,
which expire at various dates.  The aggregate lease  commitments at December 31,
1998 are approximately:  1999 - $865,000; 2000 - $819,000; 2001 - $773,000; 2002
-  $572,000,  2003-$382,000.  Total rent  expense  was  approximately  $916,000,
$748,000 and $608,000 in 1998, 1997 and 1996, respectively.

         Lytton leases its operating facilities from an entity which is owned by
Lytton's former owner and former President.  The operating lease,  which expires
July 31, 2002, requires monthly lease payments of approximately  $17,900 for the
first year,  adjusted in subsequent  years for the change in the Consumer  Price
Index,  and  contains  renewal  options for a period of five to ten years at the
then fair market rental value.

         Effective  January 1,  1997,  DCA  established  a 401(k)  savings  plan
(salary  deferral plan) with an  eligibility  requirement of one year of service
and 21 year old age requirement.  DCA has made no contributions  under this plan
as of December 31, 1998.

         Lytton sponsors a 401(k) Profit Sharing Plan covering substantially all
of its employees.  The  Company  and  Techdyne have adopted this plan as partici
pating employers effective July 1, 1998. The  discretionary  profit  sharing and
matching  expense including that of the Company, Techdyne  and  Lytton  for  the
years  ended  December 31, 1998  and December 31, 1997 amounted to approximately
$49,000 and $16,000, respectively.

CONTINGENCIES

         In  the  first  quarter  of  1996,  a  temporary  worker  provided by a
temporary personnel agency was injured while working at Techdyne. The worker was
insured  through the temporary  personnel  agency.  While the full extent of the
temporary  worker's  injuries  and the  ultimate  costs  associated  with  those
injuries are not presently known, the Company  anticipates that its insurance is
adequate to cover any potential claims which might arise.

NOTE 8--SUBSIDIARY STOCK OFFERINGS

         DCA  completed  a public  offering  in April  1996,  with net  offering
proceeds of approximately $3,445,000,  for which the Company has recorded a gain
of approximately  $943,000, net of applicable income taxes of $578,000. See Item
7, "Management's  Discussion and Analysis of Financial  Condition and Results of
Operations."

         In accordance with its accounting policy, the Company recognized a gain
of  approximately  $56,000,  net of  applicable  income  taxes of  approximately
$34,000, during 1997 related to Techdyne warrant exercises.

NOTE 9--RELATED PARTY TRANSACTIONS

         During 1998, 1997 and 1996, the Company paid premiums of  approximately
$589,000, $529,000 and $516,000,  respectively, for insurance through a director
and stockholder, and the relative of a director and stockholder.

                                      F-24
<PAGE>

                         MEDICORE, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
                                DECEMBER 31, 1998

NOTE 9-RELATED PARTY TRANSACTIONS--CONTINUED

         During  1998,  1997 and 1996,  legal  fees of  approximately  $277,000,
$191,000  and  $202,000,  respectively,  were paid by the Company and its public
subsidiaries to an officer of the Company and DCA.

         Lytton has a deferred compensation  agreement with its former President
dated August 1, 1997 in the amount of $200,140.  The agreement calls for monthly
payments of $8,339  provided  that Lytton's cash flow is adequate to cover these
payments with  interest to be  calculated on any unpaid  balance as of August 1,
1999.  During the period  ended  December  31,  1998 a total of $59,000 was paid
under this agreement.  The balance  outstanding under this agreement amounted to
approximately $108,000 at December 31, 1998 and $167,000 at December 31, 1997.

NOTE 10 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

         The following summarizes certain quarterly operating data:
<TABLE>
<CAPTION>
                                      YEAR ENDED DECEMBER 31, 1998                     YEAR ENDED DECEMBER 31, 1997
                             --------------------------------------------     --------------------------------------------
                             MARCH 31    JUNE 30     SEPT. 30     DEC. 31     MARCH 31    JUNE 30      SEPT. 30    DEC. 31
                             --------    -------     --------     -------     --------    -------      --------    -------
                                                            (In thousands except per share data)
<S>                           <C>         <C>         <C>          <C>          <C>         <C>         <C>         <C>    
Net Sales                     $13,020     $12,754     $12,130      $11,478      $7,758      $8,087      $10,628     $12,415
Gross profit                    2,089       1,866       1,780        1,186       1,593       1,550        1,764       1,782
Gain on sale of
   subsidiaries' assets            --          --          --           --          --          --           --       4,431
Gain on subsidiary
   securities offering and
   warrant exercise                --          --          --           --          61          29           --          --
Realized gain on sale of
   marketable securities           --          --          --           --          49          --           --          --
Net income (loss)                 212         169          76         (359)        266         116           31       1,828
Earnings (loss)per share:
   Basic                         $.04        $.03        $.01        $(.06)       $.05        $.02         $.01        $.31
   Diluted                       $.03        $.02        $.01        $(.06)       $.04        $.02         $ --        $.30
</TABLE>

         Since the computation of earnings per share is made  independently  for
each  quarter  using the  treasury  stock  method,  the  total of four  quarters
earnings do not necessarily equal earnings per share for the year.

         The Company  recorded an adjustment to the valuation allowance relating
to its deferred tax asset of approximately $300,000 during the fourth quarter of
1998 and $700,000 during the fourth quarter of 1997.

                                      F-25
<PAGE>

                         MEDICORE, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
                                DECEMBER 31, 1998

NOTE 11--ACQUISITION

         On July 31, 1997,  Techdyne  acquired  Lytton,  which  manufactures and
assembles printed circuit boards and other electronic  products,  for $2,500,000
cash, paid at closing, and issuance of 300,000 shares of Techdyne's common stock
which have been  registered  for the seller.  Techdyne has  guaranteed  that the
seller will  realize a minimum of  $2,400,000  from the sale of these  shares of
common stock based on Lytton having achieved certain earnings objectives.  Those
earnings objectives were achieved in 1998,  resulting in an increase of $400,000
to the valuation of $2,000,000  originally  recorded for these  securities.  The
difference (of $968,750)  between the fair value of the common stock at the date
of acquisition  and the guaranteed  value was considered part of the cost of the
acquisition  and is  reflected  as  additional  paid  in  capital  on  Techdyne.
Additional  contingent  consideration  may be due if Lytton reaches  pre-defined
sales levels.  Additional consideration of approximately $154,000 based on sales
levels was paid in April 1998 with the Stock  Purchase  Agreement  providing for
possible  additional  sales  level  incentives  over a two year  period.  As the
contingencies are resolved, if additional consideration is due, the then current
fair value of the  consideration  will be  recorded as  goodwill,  which will be
amortized over the remainder of the initial 25 year life of the goodwill.

         The  acquisition  was  accounted  for  under  the  purchase  method  of
accounting  and,  accordingly,  the  results of  operations  of Lytton have been
included in the accompanying  consolidated  condensed  statement of income since
August 1, 1997. The net purchase price in excess of the fair value of net assets
acquired is being  amortized  over twenty five years.  The net  purchase  price,
including the original  $2,000,000 and the additional  1998  consideration,  was
allocated as follows:

<TABLE>
<CAPTION>
                                           ORIGINAL 1997  ADDITIONAL 1998    TOTAL
                                            -----------   ---------------  -----------
<S>                                         <C>            <C>            <C>
     Working capital, other than cash       $ 1,398,588                   $ 1,398,588
     Property, plant and equipment            1,959,751                     1,959,751
     Other assets                                 3,000                         3,000
     Goodwill                                 2,230,103        553,818      2,783,921
     Other liabilities                       (1,335,432)                   (1,335,432)
                                            -----------    -----------    -----------
                                            $ 4,256,010    $   553,818    $ 4,809,828
                                            ===========    ===========    ===========

     Net cash portion of purchase  price,
       including  costs                     $ 2,166,010    $   153,818    $ 2,319,828
     Estimated costs of acquisition              90,000                        90,000
     Common stock issued                      2,000,000        400,000      2,400,000
                                            -----------    -----------    -----------
                                            $ 4,256,010    $   553,818    $ 4,809,828
                                            ===========    ===========    ===========
</TABLE>

         The terms of the Guaranty in the Stock Purchase Agreement were modified
in June, 1998 by the Company and the Seller ("Modified Guaranty").  The modified
terms  provide  that the Seller  will sell an amount of common  stock which will
provide  $1,300,000 gross proceeds,  and the Company will guarantee that, to the
extent  that the Seller has less than  150,000  shares of the  Company's  common
stock remaining, the Company will issue additional shares to the Seller. In July
1998,  the Company  advanced  the Seller  approximately  $1,278,000  ("Advance")
toward the $1,300,000  from the sale of the Company's  common in addition to the
Seller  having sold 5,000 shares of common stock in July,  1998.  The advance is
presented in the  Stockholders'  Equity Section of the balance  sheet.  Proceeds
from the sale of the Company's  common stock owned by the Seller,  up to 195,000
shares,  would  repay the Advance  and to the extent  proceeds  from the sale of
these shares were  insufficient  to pay the advance,  the balance of the Advance
would be forgiven.  The Advance has been presented in the  Stockholder's  Equity
section  of the  balance  sheet.  The  Company  has also  guaranteed  the Seller
aggregate  proceeds of no less than  $1,100,000  from the sale of the  remaining
common stock if sold on or prior to July 31, 1999 ("Extended Guaranty").

                                      F-26
<PAGE>

                         MEDICORE, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
                                DECEMBER 31, 1998

NOTE 11-ACQUISITION--CONTINUED

         The following summary pro  forma  financial  information  reflects  the
Lytton  acquisition  as  if  it  had occurred on January 1, 1996.  The pro forma
financial information does not  purport  to  represent what the Company's actual
results of operations would have been had the acquisition occurred as of January
1, 1996 and may not be indicative of operating results for any future periods.

                          SUMMARY PRO FORMA INFORMATION
                                                   YEAR ENDED DECEMBER 31,
                                         --------------------------------------
                                             1997                       1996
                                         -----------                -----------
         Total revenues                  $54,818,000                $50,818,000
                                         ===========                ===========

         Net income                      $ 2,501,000                $ 2,648,000
                                         ===========                ===========
         Earnings per share:
              Basic                         $.44                       $.49
                                            ====                       ====
              Diluted                       $.40                       $.43
                                            ====                       ====

NOTE 12--SALE OF SUBSIDIARIES' ASSETS

         On October 31, 1997, DCA concluded a sale ("Sale") of substantially all
of the  assets  of two of its  80%  owned  subsidiaries,  Dialysis  Services  of
Florida,  Inc. - Ft. Walton Beach  ("DSF")  (dialysis  operations)  and Dialysis
Medical,  Inc.  ("DMI")  (Florida  Method  2 home  patient  operations),  and an
in-patient hospital service agreement of its 100% owned subsidiary,  DCA Medical
Services,  Inc. pursuant to an Asset Purchase  Agreement.  Consideration for the
assets sold was $5,065,000  consisting of $4,585,000 in cash and $480,000 of the
purchaser's  common stock which the purchaser has agreed to register  within one
year.  Provided  that the shares are sold within 30 days of their  registration,
the purchaser  agreed to make up any difference by which the sales proceeds were
less than $480,000 in cash or additional  registered  shares of the purchaser at
its discretion. These shares were carried at their market value of approximately
$444,000 at December 31, 1997 with the difference  between the guaranteed  value
and the market  value being  reflected as a receivable  from the  purchaser.  In
February 1998, DCA acquired,  in a  transaction  accounted  for  as  a purchase,
the remaining  20%  minority  interests  in two of the subsidiaries whose assets
were sold. The purchase price totaled  $625,000,  which included one-half of the
common shares  originally  received as part of the  consideration  of  the Sale.
The  remaining  shares were sold in  September  1998 for  approximately $253,000
resulting in a gain of approximately $13,000.

         The pro forma consolidated  condensed financial  information  presented
below  reflects the Sale as if it had occurred on January 1, 1997.  For purposes
of pro forma  statement of operations  information,  no assumption has been made
that expenses  have been  eliminated  which were  included in corporate  expense
allocations  by the Company and DCA to the  business  operations  sold and which
were  included in the actual  result of  operations  of these  businesses.  Such
expenses  amounted to  approximately  $125,000  for the year ended  December 31,
1997.  No  assumption  has been  included  in the pro  forma  information  as to
investment income to be realized from investment of the proceeds of the sale.

                                       F-27
<PAGE>

                         MEDICORE, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
                                DECEMBER 31, 1998

NOTE 12-SALE OF SUBSIDIARIES' ASSETS--CONTINUED

         The following summary  pro  forma financial information, which excludes
the gain on the Sale, is not  necessarily  representative  of what the Company's
results of operations  would  have been if the Sale had actually  occurred as of
January 1, 1996 and may not be indicative of the Company's operating results for
any future periods.

                          SUMMARY PRO FORMA INFORMATION
                                                 YEAR ENDED DECEMBER 31,
                                           ----------------------------------
                                               1997                   1996
                                           -----------            -----------
          Total revenue                    $37,978,000            $32,685,000
                                           ===========            ===========

          Net income                       $   517,000            $ 2,112,000
                                           ===========            ===========

          Earnings per share:
             Basic                            $.09                   $.39
                                              ====                   ====
             Diluted                          $.07                   $.34
                                              ====                   ====

         DCA  recorded  a  gain  on  the  sale  of   approximately   $2,747,000,
representing a pre-tax gain of approximately $4,431,000, net of estimated income
taxes of approximately  $1,684,000,  of which approximately  $537,000 of the net
after tax gain relates to the 20% minority  interest in two of the  subsidiaries
whose  assets were sold.  The  Company's  portion of the net gain of  $2,210,000
amount to approximately  $1,527,000 with the balance of  approximately  $683,000
applicable to minority interest.

NOTE 13--REPURCHASE OF COMMON STOCK

         In November 1997, the Company  announced its intent to repurchase up to
$1,000,000 of its  outstanding  common stock.  The shares that may be reacquired
may be used to fund stock  option  obligations.  As of December  31,  1998,  the
Company had repurchased  approximately  141,000 shares of common stock at a cost
of approximately $221,000 which is reflected as treasury stock.

         In September 1998, DCA announced its intent to repurchase up to 300,000
shares of its outstanding  common stock.  DCA has repurchased a total of 205,000
shares for  approximately  $315,000,  including  100,000 shares acquired in June
1998.

                                      F-28