<PAGE>   1
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

        [X]       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

        [ ]       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                          COMMISSION FILE NUMBER 0-24696

                           NATIONAL DIAGNOSTICS, INC.
                 (Name of small business issuer in its charter)

         FLORIDA                                                 59-3248917
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

         6800 North Dale Mabry Highway, Suite 100
                  TAMPA, FLORIDA  33614                             33511
         (Address of principal executive offices)                 (Zip Code)

                                 (813) 882-6567
                (Issuer's telephone number, including area code)

       SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT: NONE

              SECURITIES REGISTERED UNDER SECTION 12(G) OF THE ACT:

        UNITS CONSISTING OF ONE SHARE OF COMMON STOCK, WITHOUT PAR VALUE,
                      AND ONE COMMON STOCK PURCHASE WARRANT
                                (TITLE OF CLASS)

                         COMMON STOCK, WITHOUT PAR VALUE
                                (TITLE OF CLASS)

                         COMMON STOCK PURCHASE WARRANTS
                                (TITLE OF CLASS)

         Check whether the issuer (1) 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  [ ]

         Check if no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is contained herein, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]

         Issuer's revenues for the fiscal year ended December 31, 1998 were
$8,774,419.

         As of March 31, 1999, there were outstanding 8,880,000 shares of Common
Stock, no par value. The aggregate market value of the voting stock held by
non-affiliates of the registrant based on the closing bid price reported on the
OTC Bulletin Board as of April 13, 1999, was $1,671,013.

                      DOCUMENTS INCORPORATED BY REFERENCE:

DOCUMENTS                                                   FORM 10-K REFERENCE
---------                                                   -------------------


            TRADITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
                         Yes  [ ]                        No  [X]

                               Page 1 of 65 Pages




<PAGE>   2





                           NATIONAL DIAGNOSTICS, INC.

                            FORM 10-KSB ANNUAL REPORT

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

PAGE NO.
--------
PART I
<S>            <C>                                                                                               <C>
  Item 1       Description of Business.......................................................................     3
  Item 2       Description of Property.......................................................................    17
  Item 3       Legal Proceedings.............................................................................    18
  Item 4       Submission of Matters to a Vote of Security Holders...........................................    19

PART II
  Item 5       Market for Common Equity and Related Stockholder Matters.......................................   19
  Item 6       Management's Discussion and Analysis or Plan of Operation......................................   20
  Item 7       Financial Statements ..........................................................................   28
  Item 8       Changes In and Disagreements with Accountants on Accounting and Financial
                    Disclosure................................................................................   54

PART III
  Item 9       Directors, Promoters and Control Persons; Compliance with
                    Section 16(a) of the Exchange Act.........................................................   54
  Item 10      Executive Compensation.........................................................................   56
  Item 11      Security Ownership of Certain Beneficial Owners and Management.................................   57
  Item 12      Certain Relationships and Related Transactions.................................................   58
  Item 13      Exhibits and Reports on Form 8-K...............................................................   60
</TABLE>

                                     PART I


CAUTIONARY STATEMENTS FOR FORWARD-LOOKING INFORMATION

         National Diagnostics, Inc. (the "Company") has made forward-looking
statements in this document that are subject to risks and uncertainties. The
statements contained in this report on Form 10-K that are not purely historical
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
including statements regarding the Company's expectations, hopes, beliefs,
intentions, or strategies regarding the future. Forward looking statements
include statements regarding, among other things: (I) the potential loss of
material customers; (ii) the failure to properly manage growth and successfully
integrate acquired businesses; (iii) the Company's financial plans; (iv) trends
affecting the Company's financial condition or results of operations; (v) the
Company's growth and operating strategies; (vi) the impact of competition from
new and existing competitors; (vii) potential increases in the Company's costs;
(viii) the declaration and payment of dividends; (ix) the potential for
unfavorable interpretation of existing government regulations or new government
legislation; (x) the ability of the Company and its significant suppliers to
address the year 2000 Issue; and (xi) the outcome of certain litigation
involving the company. Prospective investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and




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<PAGE>   3




uncertainties, and that actual results may differ materially from those
projected in the forward-looking statements as a result of various factors. All
forward-looking statements included in this document are based on information
available to the Company on the date hereof, and the company assumes no
obligation to update any such forward-looking statement. Among the factors that
could cause actual results to differ materially are the factors detailed in
Items 1 through 3 and 7 of this report and the risks discussed under the caption
"Risk Factors" included in the company's fillings under the Securities Act of
1933. Prospective investors should also consult the risks described from time to
time in the Company's Reports on Form 10-Q, 8-K, 10-K and Annual Reports to
Shareholders.

ITEM 1 -- DESCRIPTION OF BUSINESS

GENERAL

         National Diagnostics, Inc., its wholly-owned subsidiaries, SunPoint
Diagnostic Center, Inc. ("SunPoint"), National Diagnostics/Orange Park, Inc.
("Orange Park"), National Diagnostics/Riverside, Inc. ("Riverside"), Alpha
Associates, Inc. ("Alpha Associates") and Alpha Acquisitions Corp. ("Alpha
Acquisitions"), and Brandon Diagnostic Center, Ltd., a limited partnership of
which Alpha Associates and Alpha Acquisitions are the general and limited
partner, respectively, provide diagnostic imaging services through several
outpatient centers located in the State of Florida. Sundance Partners (a
wholly-owned general partnership) owns the land and building associated with the
outpatient center leased to Orange Park. (As used herein, the term "Company"
refers to National Diagnostics, Inc., including its subsidiaries.) The Company's
principal facility is located in Brandon, just east of Tampa. This facility
accounted for 51% of the Company's net revenues in 1998. The SunPoint facility
is located in Ruskin, Florida. The Company acquired, through its Orange Park
subsidiary, substantially all of the assets of an existing mobile diagnostic
imaging business in greater metropolitan Jacksonville in February, 1995. In
August, 1995 the company opened in the Jacksonville area a third fixed site
facility. In September, 1995 the Company expanded its mobile facilities by
adding both a mobile MRI unit and mobile cardiology unit in the Jacksonville
area. In July 1996, the Company opened its fourth fixed site facility with its
Riverside facility in Jacksonville. This expansion from one facility to four was
made financially possible by the Company's initial public offering in September,
1994 and other credit arrangements.

         The Company provides full service diagnostic imaging services to
patients and physicians in a comfortable, service-oriented environment located
outside of an institutional setting. Diagnostic imaging services provided
include magnetic resonance imaging ("MRI"), computer tomography ("CT"),
ultrasound, nuclear medicine, general radiology and fluoroscopy, neurodiagnostic
testing, and mammography. The Company's diagnostic imaging procedures are
performed by trained radiologic technologists and board certified radiologists.
Medical services are provided at each facility by interpreting physicians, who
are board certified radiologists and members of physician groups with whom the
Company has entered into long-term contracts. The Company provides management,
administrative, marketing and technical services, as well as equipment and
facilities, to its interpreting physicians. The Company accepts Medicare,
Medicaid, Worker's Compensation and most commercial insurance. The Company has
contracted with many health maintenance organizations and preferred provider
organizations. In 1997 and 1998, the Company's total net revenues were
$9,942,000 and $8,944,000 respectively, reflecting approximately 60,000 and
69,000 respective diagnostic imaging procedures.

         The Company was incorporated in Florida in June of 1994. The Company's
executive headquarters are located at 6800 North Dale Mabry Highway, Suite 100,
Tampa, Florida 33614, and its



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telephone number is (813) 882-6567.

         On February 23, 1998, the Company entered into a definitive "Merger
Agreement", amended March 17, April 29, and July 24, 1998, with American
Enterprise Solutions, Inc. ("AESI"). The Company filed Form 8-K on March 10,
1998 describing the merger transaction. Upon merger, the separate existence of
AESI will cease and National Diagnostics, Inc. being the surviving corporation,
will change its name to American Enterprise Solutions, Inc. On March 27, 1998,
AESI acquired 500,000 shares of the Company's Series A Preferred Stock valued at
$2,000,000. Subsequently, AESI converted a portion of its Preferred Stock for
5,786,570 shares of the Company's Common, giving AESI a 65% controlling
interest.

         AESI was founded in September, 1997, for the purpose of acquiring
seasoned and profitable high growth firms with operations and facilities to
create Community Healthcare Delivery Systems. These systems are designed to
provide comprehensive delivery of all healthcare services while electronically
interactively linking with AESI's proprietary Internet/Intranet and virtual
network gateways. The network can link all of the healthcare industry's trading
partners, from patient/consumer/employees to the providers, payors, employers
and government agencies.

         AESI consists of businesses acquired in 1998 which complements AESI'
goal to create numerous Community Healthcare Enterprises (an organization that
owns and operates a complete community wide healthcare delivery system). These
businesses include: multi specialty and primary care physician groups;
behavioral and mental healthcare facilities; a provider of referral management
services for physician groups and insurance companies; a home healthcare and
pediatric home healthcare provider; and a medical management service group.

         On March 30, 1998, Mr. Charles Broes and Mr. Cardwell C. Nuckols,
Ph.D., were appointed to the Company's Board of Directors. Mr. Broes and Dr.
Nuckols are CEO and Executive Vice President of AESI. On March 31, 1998, Mr.
Broes and Dr. Nuckols were appointed as Officers of the Company in the capacity
as CEO and Secretary, respectively.


DIAGNOSTIC IMAGING SERVICES INDUSTRY

  Overview

         During the past ten years, the diagnostic imaging industry has
experienced substantial growth as well as a major shift from inpatient to
outpatient delivery of services. Due to the contrast and detail of a high
quality MRI scan, the use of MRI equipment frequently facilitates the
identification of disease and disorders of a patient and often reduces the
amount and cost of care needed to treat the patient and the need for certain
invasive procedures, like exploratory surgery. The number of MRI units in
operation has increased from fewer than 100 in 1984 to more than 5,500 in 1998.
This rapid growth resulted from increasing acceptance by physicians and patients
of MRI as well as an increasing need for MRI usage in imaging different body
organ systems and disease conditions. New software programs and hardware
capabilities, coupled with new contrast agents (chemicals administered to the
patient that enhance the signal generated by body tissues), are anticipated to
expand further the usage of the technology by physicians.


                                       4
<PAGE>   5

         In addition, inpatient health care cost containment pressures have led
to the growth of outpatient delivery of services. Prior to 1983, most imaging
services were delivered to patients in a hospital radiology department. In 1983,
the federal government instituted the Prospective Payments System, which limited
the amount paid by Medicare to hospitals for inpatient care for most categories
of diseases. This restrictive reimbursement environment was a prime factor in
the shift from inpatient to freestanding, outpatient imaging centers, since
hospitals became less likely to purchase or lease expensive diagnostic imaging
equipment.

         Ownership of outpatient diagnostic imaging centers remains highly
fragmented, with no dominant national provider. Most of the equity in outpatient
centers is owned by hospitals, independent radiologists, management companies or
other groups. This fragmentation provides the Company with potential acquisition
opportunities.

  Equipment and Modalities

         Diagnostic imaging systems are based on the ability of energy waves to
penetrate human tissue and generate images of the body which can be displayed
either on film or on a video monitor. Imaging systems have evolved from
conventional x-rays to the advanced technologies of MRI, computerized
tomography, ultrasound, nuclear medicine, neurology and mammography. The
principal diagnostic imaging modalities used by the Company include the
following:

                  Magnetic Resonance Imaging. MRI is a sophisticated diagnostic
         imaging system that utilizes a strong magnetic field in conjunction
         with low energy electromagnetic waves which are processed by a
         dedicated computer to produce high resolution multiple images of body
         tissue. A principal virtue of MRI imaging is that atoms in various
         kinds of body tissue behave differently in response to a magnetic
         field, enabling the differentiation of internal organs and normal and
         diseased tissue. During an MRI procedure, a patient is placed in a
         large, cylindrical magnet. Multiple images to various planes and
         cross-sections can be created without moving the patient. The images
         can be displayed on a computer screen, stored within the computer, or
         transferred to film for interpretation by a physician and retention in
         a patient's file. Unlike computerized tomography and general radiology
         and fluoroscopy, MRI does not utilize ionizing radiation which can
         cause tissue damage in high doses. As with many other diagnostic
         imaging technologies, MRI is generally non-invasive.

                  Computerized Tomography. CT is used to detect tumors and other
         conditions affecting the skeleton and internal organs. CT provides
         higher resolution images than conventional x-rays, but generally not as
         well defined as those produced by MRI. During a CT procedure, a patient
         is placed inside a ring on which a rotating x-ray tube is mounted. A
         dedicated computer directs the movement of the x-ray tube to produce
         multiple cross sectional images of a particular organ or area of the
         body.

                  Ultrasound. Ultrasound has widespread application,
         particularly for procedures in obstetrics, gynecology and cardiology.
         Ultrasound imaging relies on the computer-assisted processing of sound
         waves to develop images of internal organs and the vascular system. The
         sound waves are generated and recorded by probes that are either passed
         over or inserted into the body. A dedicated computer processes sound
         waves as they are reflected by body tissue, providing an image that may
         be viewed immediately on a computer screen or recorded continuously or
         in



                                       5
<PAGE>   6

         single images for further interpretation.

                  Nuclear Medicine. Nuclear medicine is used primarily to study
         anatomy and metabolic functions. During a nuclear medicine procedure,
         short-lived radioactive isotopes are administered to the patient by
         ingestion or injection. The isotopes break down rapidly, releasing
         small amounts of radioactivity that can be recorded by a gamma or
         scintigraphic camera and processed by a computer to produce a flat
         image of various anatomical structures.

                  General Radiology and Fluoroscopy. The most frequently used
         type of imaging equipment, radiology uses "x-rays" or ionizing
         radiation to penetrate the body and record its images on film.
         Fluoroscopy uses a video viewing system for real-time monitoring of the
         organs being visualized.

                  Neurology. Neurological diagnostic testing, consisting of
         nerve conduction studies, electromyography, evoked-potentials and
         electroencephalography (EEG), is used for the evaluation of patients
         with suspected radiculophy of the cervical and lumbar nerves and
         diseases of the nervous system, such as multiple sclerosis (MS).
         Neurological diagnostic testing equipment is designed to assess the
         integrity, conduction ability and functioning of the nervous system
         through electro-physiological stimulation.

                  Mammography. Mammography is a specialized form of radiology
         equipment using low dosage x-rays to visualize breast tissue. It is the
         primary screening tool for breast cancer.


THE COMPANY'S GROWTH STRATEGY

         Due to the recency of the pending merger between AESI and the Company,
the Company is not able to elicit the growth strategies for the numerous
businesses that will be part of the merger with AESI. The focus will be on the
Company's Diagnostic Division as it is prior to the merger.

         The Company's strategy for growth involves increasing the revenues and
profitability of its existing facilities, establishing and developing additional
diagnostic imaging centers and acquiring existing imaging facilities in certain
target markets, as well as expanding its existing operations to include mobile
diagnostic imaging capabilities.

  Expansion of Existing Facilities.

         The Brandon facility is currently a full service imaging facility. In
early 1998, Brandon began offering bone density studies to diagnose
osteoporosis.

         The SunPoint Diagnostic Center is a full-service imaging facility, with
the exception of MRI. The Company intends to add MRI capabilities to the
SunPoint facility at such time as the demand for such services warrants the
acquisition of MRI equipment. See "The SunPoint Facility." In 1998, SunPoint
also began offering bone density studies for the diagnosis of osteoporosis.

         In early 1998, the Orange Park facility also began offering bone
density studies for the diagnosis of osteoporosis.

                                       6
<PAGE>   7

         In early 1999, the Company entered into an Agreement to sell its Orange
Park fixed site facility and retain a presence at the site utilizing its mobile
services. The Company expects to realize a gain on the sale and use the proceeds
to satisfy the property's mortgage debt.

  Center Development and New Center Acquisitions.

         The Company continued to defer its external expansion in 1998, focusing
more directly on the continuing effort to build efficiencies and profitability
into existing new start ups. With the resources that will be available to the
Company as a result of the merger with AESI, the Company intends, subsequent to
the merger, to embark on its external growth strategies in 1999. Due to the
synergies which will be experienced with other businesses in the AESI fold, new
growth strategies will be developed which will include all other business merged
into the Company.

         The Company's external growth strategy includes the development and/or
acquisition of diagnostic imaging facilities in target areas identified by
management initially in the State of Florida, with the potential for expansion
to other regions in the United States where AESI already has a presence. The
Company intends to operate each newly developed or acquired facility through a
separate, wholly-owned subsidiary. In seeking suitable locations for the
development of new centers or the acquisition of existing centers, the Company
will focus primarily on demographic studies and its analysis of local
competition, physician referral patterns and imaging services supply and demand.
Also, the Company will focus on its ability to either utilize the professional
services of its existing interpreting physicians to interpret test results or
affiliate with other qualified interpreting physicians.

         Installation and maintenance costs on equipment can be substantial,
particularly with respect to MRI units. Consequently, new facilities initially
will include most or all of the modalities offered by the existing Brandon
facility, with the exception of MRI. MRI has historically accounted for
approximately 20-34% of the Company's revenues. MRI procedures are expensive to
perform and have historically generated high margins for the Company. Due to the
significant capital expenditure required to install and maintain MRI equipment a
minimum average number of procedures must be performed daily at each facility
offering MRI to cover fixed costs associated with MRI equipment. As a result,
the Company currently intends to perform all MRI procedures required by its
facilities not offering MRI directly either at the Company's nearest full
service facility or via a mobile MRI unit acquired by Orange Park. The Company
expects to provide MRI services in this manner until such time as management
determines that the demand for MRI procedures at a particular facility is at a
level that will generate revenue sufficient to cover fixed costs associated with
MRI equipment.

         The Company also believes that it can successfully acquire existing
imaging centers. Acquisition opportunities that were tied to the enactment of
federal and state laws and regulations restricting physician referrals to health
care facilities in which such physicians have a financial interest and limiting
permissible affiliations between tax exempt hospitals and "for profit"
outpatient medical centers have diminished. See "Business-Government
Regulation." The required divestitures of physician-owned centers have already
occurred. Nevertheless, management believes that acquisition opportunities
continue to exist due to the fragmented nature of the imaging center business.

         No assurances can be given that adequate financing will be available to
fund the development of this or any other new facilities.

                                       7
<PAGE>   8

  Increased Mobile Diagnostic Imaging Capabilities.

         The Company's growth strategy also includes expanding its mobile
diagnostic imaging capabilities. The Company currently provides mobile
ultrasound, mobile nuclear cardiology imaging, mobile MRI services, and mobile
bone density diagnostic imaging services.

         THERE CAN BE NO ASSURANCES THAT THE COMPANY CAN OR WILL SUCCESSFULLY
IMPLEMENT ITS CENTER GROWTH OR EXTERNAL GROWTH STRATEGIES.

  Imaging Equipment.

         The Company obtains its imaging equipment from large, well-established
companies, including Siemens Medical Systems Inc., Toshiba, Inc., Lo-Red Co. and
Raytheon, Inc. The Company is not dependent on any one supplier and believes
that it has satisfactory relationships with its suppliers.

         Equipment acquisition costs can vary dramatically, depending upon the
model and peripheral equipment acquired. The Company reviews the technological
capabilities of new product offerings in order to improve and upgrade equipment
when necessary. Currently, equipment costs range as follows:

<TABLE>
<CAPTION>

                  EQUIPMENT                                            PRICE RANGE
                  ---------                                            -----------

                  <S>                                         <C>      <C>               <C>
                  MRI                                         $900,000           to      $1,700,000
                  CT                                           300,000           to         900,000
                  Ultrasound                                   100,000           to         250,000
                  Nuclear Medicine                             250,000           to         400,000
                  Radiology                                     40,000           to          75,000
                  Fluoroscopy                                  200,000           to         350,000
                  Mammography                                   50,000           to         105,000
                  Neurology                                     25,000           to          60,000
</TABLE>

         Installation and maintenance costs on the equipment can be substantial,
particularly with respect to MRI units. Installation costs can range from
$35,000 to $125,000 for an MRI unit, depending on the particular installation
circumstances.

         The Company generally obtains financing for its equipment from lenders
and lessors, with the equipment and other assets serving as security for the
loans. Leases for smaller medical equipment average three years and leases for
larger medical equipment are for seven years. Certain of such loans are
personally guaranteed by Mr. Alliston.

  Operations

         The Company provides diagnostic imaging services to patients referred
by physicians who are either in private practice or affiliated with managed care
providers or other groups. Patients are scheduled for an appointment, informed
of any medications needed for the test, and pre-qualified with respect to their
medical requirements and insurance coverage by Company personnel. Procedures are
designed to avoid the admission and administrative complexities of in-hospital
diagnostic imaging services. All of the Company's imaging services are performed
on an outpatient basis by trained medical technologists under


                                       8
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the direction of the interpreting physician. Following the diagnostic
procedures, the images are reviewed by the interpreting physicians, who prepare
a report of these tests and their findings. These reports are transcribed by
Company personnel and then delivered to the referring physicians. The
interpreting physicians are board certified specialists in radiology, nuclear
medicine, nuclear cardiology or neuroradiology, as appropriate. Such
interpreting physicians are members of an independent health care provider group
with which the Company has entered into a long-term contract, and are not
employees of the Company. The Company is not engaged in the practice of
medicine.

         Typically, patients are charged an all-inclusive fee for the imaging
studies. The administrative staff is responsible for billing and collecting the
fee.

         The Company contracts for interpreting physician services for which
typically the interpreting physician receives a fixed fee or a fixed percentage
of monthly collections. The Company believes that the structure of its
compensation arrangement with its interpreting physicians encourages high
quality service and fairly compensates these physicians for the interpretation
services they provide. The Company's agreement with its interpreting physicians
is typically for a three-year term and requires each physician to obtain medical
malpractice insurance.


THE BRANDON, FLORIDA FACILITY

         The Brandon, Florida facility was established in 1991 as a full-service
diagnostic facility specializing in outpatient radiology. In 1994, it became a
wholly-owned subsidiary of National Diagnostics, Inc. The Brandon facility
generally provides medical diagnostic services to the general population living
within approximately ten miles of Brandon, Florida. The Brandon, Florida area
population, currently in excess of 250,000, consists primarily of an expanding
base of middle income families and retirees. In 1997 and 1998, the Brandon
facility generated net revenues of approximately $4,600,000 and $4,500,000,
respectively, reflecting approximately 32,000 and 35,000 respective diagnostic
imaging procedures.

         The Brandon facility currently has one unit for each of MRI, CT and
nuclear medicine and two units for each of mammography, radiology, ultrasound
and fluoroscopy.

         Annual expenses for equipment maintenance and repairs at the Brandon
facility were approximately $280,000 and $337,000 for the fiscal years ended
December 31, 1997 and December 31, 1998, respectively. The Company typically
enters into agreements with equipment manufacturers or other third parties for
equipment maintenance.

         Patients at the Brandon facility are invoiced in the name of Brandon
Diagnostic Center. The interpreting physician's P.A. with which the Company has
currently contracted for interpreting physician services at the Brandon facility
receives a fixed percentage fee for services performed.

         Brandon facility's interpreting physician is certified by the American
Board of Radiology. The interpreting physician's P.A. is responsible for
subcontracting with additional physicians to assure adequate coverage during
peak times, absences, etc. The Brandon facility has forty-six employees.

         The Brandon facility is open from 7:30 a.m. to 6:00 p.m. Monday,
Wednesday and Friday, 7:30 a.m. to 8:00 p.m. on Tuesday and Thursday, 8:00 a.m.
to 2:00 p.m. on Saturdays and on an as-needed


                                       9
<PAGE>   10


basis on Sundays.


THE SUNPOINT FACILITY

         The Company, through its SunPoint subsidiary, opened its SunPoint
Diagnostic Center in Ruskin, Florida, approximately twenty miles south of
Brandon, in November, 1994. This facility is located near the Sun City Center
retirement community. The Ruskin area has a total population of approximately
45,000, including roughly 38,000 retirees. The SunPoint facility is a
full-service imaging facility, with the exception of MRI. It currently has one
unit for each of CT, ultrasound, nuclear medicine, mammography, radiology and
fluoroscopy. The equipment located at the SunPoint facility is obtained from the
same manufacturers as the Brandon facility equipment.

         Consistent with the Company's expansion strategy, the Company intends
to add MRI capabilities to the SunPoint Diagnostic Center only as the demand for
such services develops and warrants the acquisition of MRI equipment. Until such
time, all MRI procedures required by SunPoint facility patients will be
performed at the nearby Brandon facility. All SunPoint patients requiring MRI
procedures are offered a free shuttle service to and from the Brandon facility.


         The operational procedures at the SunPoint facility are virtually
identical to those described above under "Operations," the patients are invoiced
in the name of SunPoint Diagnostic Center. The SunPoint facility is staffed by
thirteen employees and one interpreting physician, who rotates with the other
interpreting physician serving the Brandon facility. The interpreting
physician's P.A. with which the Company has currently contracted for
interpreting physician services at the SunPoint Diagnostic Center receives a
fixed percentage fee for services rendered.

         The SunPoint facility is currently open from 7:30 a.m. to 5:30 p.m.
Monday through Friday, and on an as needed basis on Saturdays.


THE ORANGE PARK FACILITY

         In February, 1995, the Company, through its Orange Park subsidiary,
acquired substantially all of the assets of Medical Imaging Consultants, Inc.
and certain of its affiliates, providers of both mobile and fixed site
ultrasound and related diagnostic testing services in the cardiac, cerebral
vascular and neurophysiology areas.

         Orange Park provided mobile and fixed diagnostic services in Clay,
Duval, Nassau and St. Johns counties in northeastern Florida in 1998. Its
principal facility is located in Orange Park, Florida, where it has three mobile
units for neurology, two units for ultrasound, one each for nuclear cardiology
and MRI. All equipment at the Orange Park facility is either owned directly or
leased through an independent leasing company. The Orange Park facility became a
full service imaging facility, with its mobile facilities, by September, 1995.
The Company has one unit for each for CT, ultrasound, mammography, radiology,
and fluoroscopy at its Orange Park subsidiary. This mobile unit is used to
provide MRI services at Orange Park and any future facilities developed by the
Company in northeastern Florida. See "-The Company's Growth Strategy-Center
Development and New Center Acquisitions." The Orange Park fixed site facility
was closed in early 1999 due to continual losses. The operations are to be
consolidated with Riverside

                                       10

<PAGE>   11



while maintaining a presence at Orange Park by use of its mobile facilities. The
Company entered into an agreement to sell the physical plant and expects to
close in the second quarter of 1999. The Company expects to realize a gain on
the sale and use the proceeds to satisfy existing mortgages.

         Orange Park followed the same operational procedures as the Company's
other facilities, except that patients are invoiced directly in the name of
Orange Park. All interpreting services were provided by eight interpreting
physicians who are members of an independent health care provider group with
which the Company has entered into a long-term contract. These physicians are
not employees of the Company and the Company is not engaged in the practice of
medicine. The interpreting physician group with which the Company has contracted
for interpreting physician services at the Orange Park facility receives a
monthly fee equal to 17% of the monthly collections.

         In 1997, the Orange Park facility was awarded the Certificate of
Accreditation from the Joint Commission of Accreditation of Healthcare
Organizations.


THE RIVERSIDE FACILITY

         The Company, through its Riverside subsidiary, opened in July of 1996
the Riverside Diagnostic Center in the Riverside area of Jacksonville, Florida.
The facility is located in proximity of a thousand bed hospital in a residential
area of Jacksonville. The Riverside facility is a full-service imaging facility,
inclusive of mobile MRI services which it obtains from the Orange Park facility
(see Orange Park Facility). It currently has one unit each for CT, ultrasound,
nuclear cardiology, nuclear medicine and radiology and two units each for
mammography and fluoroscopy.

         Riverside follows the same operational procedures as the Company's
other facilities, except that patients are invoiced directly in the name of
Riverside. The Riverside facility is currently staffed by fourteen employees.
All interpreting services are provided by a group of physicians who received a
percentage (15% of the first $200,000 and 20% thereafter) of monthly
collections.

         The Riverside facility is currently open from 7:30 a.m. to 5:30 p.m.
Monday through Friday. The Riverside facility was awarded the Certificate of
Accreditation from the Joint Commission of Accreditation of Healthcare
Organizations.


MARKETING

         The Company provides diagnostic imaging services to patients referred
by physicians who are either in private practice or affiliated with managed care
providers or groups. Consequently, the Company's marketing program focuses on
establishing and maintaining referring physician relationships by efficiently
providing needed medical services to patients of those physicians, and
maximizing reimbursement yields. The Company's marketing program targets
selected market segments consisting of local physicians who may have a need for
diagnostic imaging services. The Company utilizes a variety of marketing
techniques in its market areas to educate physicians in the availability and
capabilities of the various imaging technologies, including personal visits by
the Company's clinical coordinators to local physicians and their staffs, direct
mailings of marketing brochures and participation in seminars on recent
developments in diagnostic imaging and related technology.


                                       11
<PAGE>   12

         The Company's clinical coordinators seek to maintain the satisfaction
of referring physicians by frequent contact with them, both to ascertain the
physicians' needs and, when appropriate, to seek suggestions on how to improve
the Company's delivery of services. The Company continually seeks to improve the
quality of its services by encouraging interaction between referring physicians
and interpreting physicians. The Company has also developed a database
containing referring physician and patient information in order to more
effectively coordinate its marketing activities with respect to its referring
physicians. The Company has joined the Florida Imaging Network, Inc., an
association recently established to develop and operate a statewide diagnostic
imaging services network to interface with managed care providers in the State
of Florida. The Company believes that this will provide an additional method of
expanding its referral base.


REIMBURSEMENT, BILLING AND COLLECTION

         The Company charges patients a fee for each imaging study performed,
which is billed in the name of the applicable diagnostic center or the
interpreting physician group. The Company generally accepts assignment by the
patient of payment from insurers and is reimbursed for services performed by
payment, directly and indirectly, from third-party commercial insurers, managed
care organizations, government payors, workmen's compensation and other sources.
In many instances, the patient is responsible for payment of a co-payment or
deductible and, in some instances, the patient remains responsible for payment
of the entire fee. The extent to which services provided by the Company are
reimbursable depends upon a number of factors, including the type of insurance
coverage carried by the patient, the type of imaging services provided to the
patient, prevailing practices in the relevant geographic area and the identity
of the third-party payor.

         The following table sets forth the approximate percentages of
collections received during 1997 in each of the following categories:

<TABLE>
<CAPTION>

                        PERCENT OF
                          SOURCE                                         COLLECTIONS
                          ------                                         -----------
                  <S>                                                    <C>
                  Managed Care/HMO                                           33%
                  Private Insurance                                          40
                  Medicare/Medicaid                                          14
                  Private Pay                                                10
                  Workers Compensation                                        3
</TABLE>


           The Company maintains a competitive billing strategy based upon
evaluation of available pricing data. The Company maintains sufficient price
flexibility to enable it to compete with other MRI imaging services provided in
the local community.

           Obtaining the maximum amount of allowable reimbursement and
collecting receivables on a timely basis are critical to the Company's success
and are a priority of management. The Company has developed and is continuing to
develop systems to process claims. The Company endeavors to provide complete and
accurate claims data to the relevant payor sources to obtain the maximum amount
of allowable reimbursement and to accelerate the collection of accounts
receivable. Approximately eighteen of the Company's employees are involved in
reimbursement, billing and collection activities. There can


                                       12
<PAGE>   13


be no assurance that the Company will be successful with respect to the
foregoing. In late 1998 and early 1999, the Company outsourced its billing and
collection process with an affiliated subsidiary of AESI which specializes in
medical billings and collections.

           Third-party payors, including Medicare, Medicaid and certain
commercial payors, have taken extensive steps to contain or reduce the costs of
health care. A significant change in coverage or a reduction in payment rates by
third-party payors could have a material adverse effect upon the Company's
business. In 1997 and 1998, less than 1% of the Company's total revenues were
derived from providing imaging services to patients involved in personal injury
claims. The Company sometimes experiences significant collection delays in
connection with these services due to the fact that the Company may not be paid
for its services until the underlying legal action is resolved.

COMPETITION

           The outpatient diagnostic imaging industry is highly competitive. The
Company believes that its principal competitors are hospitals, independent or
management company-owned imaging centers, some of which are owned, in whole or
in part, by physician investors, and mobile diagnostic units. Some of these
competitors have greater financial and other resources than the Company. The
Company's competitors in the immediate Brandon area are a 120 bed hospital
providing full inpatient service and a new outpatient diagnostic center opened
in January of 1997. The Brandon facility has experienced a 3% increase in gross
revenues in 1998 compared to 1997. The Company's sole competitor in the Ruskin
area is a 50 bed hospital also providing full inpatient service. The Company has
many competitors in the Jacksonville area, including hospitals, independent or
management company-owned imaging centers and mobile diagnostic units.

           The Jacksonville operation experienced a decline of 26% in gross
revenues in 1998 compared to 1997. The Company is currently down sizing its
Jacksonville operations and assessing its market position for future operations
in the Jacksonville area.

           The Company believes that as a result of its operating efficiencies,
it can provide outpatient diagnostic services more competitively than other
local providers. Principal competitive factors include quality and timeliness of
test results, type and quality of equipment, facility location, convenience of
scheduling and availability of patient appointment times. The Company may
benefit, or experience increased competition, to the extent proposed or future
regulations will reduce self referrals from physician investors and make their
referrals part of the market for which any center may compete. The Company
currently has no physician investors and, therefore, derives 100% of its
revenues from non-investor referrals.

GOVERNMENT REGULATION

           The health care industry is highly regulated at the federal, state
and local levels. Although the following is not an exhaustive discussion, it
summarizes the key regulatory factors that affect the Company's operations and
development activities:

           Certificates of Need and Licensing. Under Certificate of Need laws, a
health care provider is typically required to substantiate the need for, and
financial feasibility of, certain expenditures related to the construction of
new facilities, commencement of new services or purchases of medical equipment
in excess of statutory thresholds. The provision of outpatient health services,
including outpatient MRI, is


                                       13
<PAGE>   14


exempt from Certificate of Need review in the State of Florida. The operations
of outpatient imaging centers are subject to federal and state regulations
relating to licensure, standards of testing, accreditation of certain personnel
and compliance with governmental reimbursement programs. The Company is required
to obtain and maintain general business licenses from certain counties in which
it operates centers, as well as licenses from the State of Florida for the
handling and disposal of radioactive materials used in nuclear medicine
procedures. Radioactive materials are currently delivered daily to the Company's
Brandon, SunPoint and Orange Park facilities. Medical waste contaminated with
radioactive material is placed in locked hazardous waste containers and picked
up daily for disposal by a licensed hazardous waste vendor. The Company is
subject to surprise inspection by nuclear inspectors. Although the Company
believes that it has obtained all necessary licenses, the failure to obtain a
required license could have a material adverse effect on the Company's business.
The Company believes that diagnostic testing will continue to be subject to
intense regulation at the federal and state levels and it cannot predict the
scope and effect thereof.

           Medicare/Medicaid Anti-Kickback Provisions. The Medicare/Medicaid
Anti-Kickback Statute (the "Anti-Kickback Statute") prohibits the offering,
payment, solicitation or receipt of any form of remuneration in return for the
referral of Medicare or Medicaid patients for any item or service that is
covered by Medicare or Medicaid. Violation of the Anti-Kickback Statute is
punishable by substantial fines, imprisonment for up to five years or both. In
addition, the Medicare and Medicaid Patient and Program Protection Act of 1987
(the "Protection Act") provides that persons guilty of violating the
Anti-Kickback Statute may be excluded from participating as providers or
suppliers in the Medicare or Medicaid programs. Investigations leading to
prosecutions and/or program exclusion may be conducted by the Office of the
Inspector General ("OIG") of the United States Department of Health and Human
Services ("HHS"), the United States Department of Justice and State of Florida
agencies.

           Under the Anti-Kickback Statute, law enforcement authorities, HHS and
the courts are increasingly scrutinizing arrangements between health care
providers and referral sources (such as physicians) in order to ensure that the
arrangements are not designed as a mechanism to exchange remuneration for
patient referrals. This scrutiny is not limited to financial arrangements that
involve a direct payment for patient referrals, but extends to payment
mechanisms that carry the potential for inducing Medicare or Medicaid referrals,
including situations where physicians hold investment interests in, or
compensation arrangements with, a health care entity to which such physicians
refer patients.

           Safe Harbor Regulations. The Protection Act directed the OIG to
publish regulations delineating health care payment practices that would not be
subject to criminal prosecution and would not provide a basis for program
exclusion under the Anti-Kickback Statute. In 1991, the OIG published final safe
harbor regulations that specify the conditions under which certain kinds of
financial arrangements, including (i) investment interests in public companies,
(ii) investment interests in small entities, (iii) management and personal
services contracts, and (iv) leases of space and equipment, will be protected
from criminal prosecution or civil sanctions under the Anti-Kickback Statute.
The OIG has stated that failure to satisfy the conditions of an applicable "safe
harbor" does not necessarily indicate that the arrangement in question violates
the Anti-Kickback Statute, but means that the arrangement is not among those
that the "safe harbor" regulations protect from criminal or civil sanctions
under that law.

           One provision of the Safe Harbor Regulations includes a public
company exception applicable to investment in the Company by referring
physicians. The Company currently does not qualify for this exception. A return
on investment, such as a dividend or interest, is not a prohibited payment if,
within the previous fiscal year or 12 month period, the public company possesses
more than $50 million in


                                       14
<PAGE>   15


undepreciated net tangible assets which are related to the furnishing of health
care items and services and the Company meets all five of the following
standards:

         i)       Equity securities must be registered with the Commission under
                  15 U.S.C. 78l(b) or (g);

         ii)      The investment interest of an investor in a position to make
                  or influence referrals to, furnish items or services to, or
                  otherwise generate business for, the Company must be obtained
                  on terms equally available to the public through trading on a
                  registered national securities exchange or on NASDAQ;

         iii)     The Company or any investor must not market or furnish the
                  Company's items or services to passive investors
                  (non-management shareholders) differently than to
                  non-investors;

         iv)      The Company must not loan funds to or guarantee a loan for an
                  investor who is in a position to make or influence referrals
                  to furnish items or services to, or otherwise generate
                  business for the entity if the investor uses any part of the
                  loan to make the investment; and

         v)       The amount of payment to the investor in return for the
                  investment interest must be directly proportional to the
                  amount of the investor's capital investment.



         The Company does not meet the $50 million net tangible assets criterion
and, therefore, in order to avoid any issue as to fraud and abuse compliance, a
physician who owns any of the Company's securities might be prohibited from
making any patient referrals to the Company's diagnostic imaging facilities,
whether or not the remaining standards have been complied with.

         With respect to the arrangements between the Company and its
interpreting physicians, there is a safe harbor for personal service agreements
which requires that such arrangements be in writing and last for at least one
year, and that the compensation paid to the physicians be based on the fair
market value of the professional services they provide and not on any referrals
or business generated between the parties. To the extent that the compensation
arrangements with the interpreting physicians do not fit within all of the
requirements of the safe harbor, they are not per se illegal, but in order to
avoid all risk of fraud and abuse issues, the interpreting physicians would not
be permitted to make any referrals to the Company for imaging services.

         Florida Prohibition of Referrals. On March 13, 1992, the Florida
Legislature passed the "Patient Self-Referral Act of 1992" (the "1992 Act"),
which took effect April 9, 1992. The Act, as amended in 1993, prohibits
physicians' referrals of patients for designated health services, including
diagnostic imaging services, to facilities in which they own an investment
interest. Therefore, physicians who own Common Shares or Common Share Purchase
Warrants are prohibited from making any patient referrals to the Company's
diagnostic imaging facilities.

         Medicare Reimbursement. Diagnostic imaging services provided to
Medicare beneficiaries are reimbursed based on Medicare's Resource-Based
Relative Value Scale, which sets limits on reimbursement for both the technical
and physician components of these services. There is no guarantee that the
amount paid by Medicare, either now or in the future, will be adequate to meet
the Company's costs of providing


                                       15
<PAGE>   16


the imaging services. There is also no guarantee that the U.S. Government will
not enact law or adopt regulations restricting the ability of free-standing
diagnostic imaging centers from providing services to Medicare or Medicaid
patients, although the Company is currently unaware of any proposal to do so. In
1998, the Medicare allowable increased approximately 7%.

         Omnibus Budget Reconciliation Act of 1993. As part of the Omnibus
Budget Reconciliation Act of 1993, Congress passed the "Stark II" law, which
prohibits a physician from referring Medicare and other federal program patients
for designated health services, including imaging services, to certain entities
with which the physician or a member of his or her immediate family has a
financial relationship. A "financial relationship" would include either an
ownership interest in, or compensation arrangement with, the entity. The Stark
II law has been incorporated into Section 1877 of Title XVIII of the Social
Security Act. The Company, as a provider of radiology and other diagnostic
services, would be such an entity, and therefore, a physician with such a
financial relationship with the Company could not make referrals of Medicare or
Medicaid business to the Company, unless the relationship falls within one of
the limited exceptions offered by Stark II. These limitations became effective
January 1, 1995.

         Stark II provides an exception for referrals by a physician who, or a
member of whose immediate family, owned investment securities in a public entity
which may be purchased on terms generally available to the public, but only if
the entity met the following criteria: (i) its securities are listed on a
recognized stock exchange or traded on NASDAQ; and (ii) the entity has at the
end of its most recent fiscal year or on average during the previous three
fiscal years, stockholder equity exceeding $75 million. The Company does not
meet these criteria and, therefore, a physician who owns Common Shares or Common
Share Purchase Warrants of the Company is prohibited from making Medicare and
other federal program patient referrals to any of the Company's diagnostic
imaging facilities. The Company also is prohibited from presenting a claim for
services rendered in connection with such a prohibited referral. It would not be
necessary for the Company to have knowledge that the referral was unlawful in
order for there to be a violation for which the penalty could be denial of
payment for the claim or a refund to the payer. Penalties of up to $15,000 for
each violation and exclusion from Medicare and other programs could be assessed
if a bill is presented and the entity knows or should have known that it is the
result of a prohibited referral.

         Physicians with compensation arrangements with the Company, such as its
interpreting physicians, also are subject to the foregoing referral prohibition,
unless the arrangement fits within a Stark II exception. Stark II permits
personal arrangements between such physicians and the Company if various
criteria are met, including that the arrangement is set out in writing, has a
duration of at least one year and the compensation paid to the physicians
represents the fair market value of the professional services provided and does
not take into account the volume or value of any referrals or other business
generated between the parties. Stark II also specifically states that a
prohibited referral does not include a request by a radiologist for diagnostic
radiology services if such services are furnished by or under the supervision of
that radiologist.

         To its knowledge the Company currently does not have any physicians who
are significant shareholders and, therefore, the Company's revenue growth has
been derived entirely from non-investor physician referrals. In the event the
Company has physician shareholders in the future federal and state law will
prohibit referrals by such investors to any of the Company's imaging centers.

         As a provider of diagnostic services, the Company is required to report
the names and unique identification number of physicians who, or whose immediate
family members, have an investment interest in or compensation arrangement with
the Company. The Company's current shareholders are not



                                       16
<PAGE>   17


physicians and, therefore, do not provide referrals in potential violation of
the foregoing provisions. In the future, however, many of the Company's Common
Shares or Warrants may be held by physicians or their immediate family members
or in "street name", and therefore, not readily subject to discovery. Management
believes that monitoring of such ownership would be extremely difficult.
However, management is investigating methods of minimizing its exposure to
inadvertently accepting a prohibited referral. Management will also assess and
monitor its compensation arrangements with physicians.

         Although the Company believes that it is in material compliance with
all applicable federal and state laws and regulations, there can be no assurance
that such laws or regulations will not be enacted, interpreted or applied in the
future in such a way as to have a material adverse impact on the Company, or
that federal or state governments will not impose additional restrictions upon
all or a portion of the Company's activities, which might adversely affect the
Company's business.

EMPLOYEES

         As of March 21, 1999, the Company had 87 employees (all full time),
including 1 executive officer, 53 administrative personnel, 1 sales and
marketing person and 31 technical personnel. The Company is not a party to any
collective bargaining agreement and considers its relationship with its
employees to be good.

INSURANCE

         The Company carries workers' compensation insurance, comprehensive and
general liability coverage, fire and allied perils coverage in amounts deemed
adequate by management. The Company is not engaged in the practice of medicine
and, therefore, does not carry medical malpractice insurance. See "Risk
Factors." There is no assurance that potential claims will not exceed the
coverage amounts, that the cost of coverage will not substantially increase or
require the Company to insure itself or that certain coverages will not be
reduced or become unavailable. The Company also requires that physicians
practicing at the imaging centers carry medical malpractice insurance to cover
their individual practices. The interpreting physicians are responsible for the
costs of this insurance.


ITEM 2 -- DESCRIPTION OF PROPERTY

         The Company's executive offices were relocated to Tampa, Florida,
sharing space with AESI and other subsidiaries of AESI in August, 1998.

         The Company's primary diagnostic facility is located in Brandon,
Florida and occupies approximately 11,325 square feet of space. The Company
entered into a lease with respect to such facilities on September 1, 1994,
expiring August 31, 1997, which is followed by a renewal option of five years.
The Company exercised its option to renew and incurred, pursuant to the lease
agreement, a one-time 10% escalation upon exercise of the renewal option. The
new lease consolidated prior leases pertaining to the Brandon facility's then
existing space and provided additional space to accommodate the Company's Center
for Women. Under both prior leases and its existing lease, the Company paid an
aggregate of approximately $215,000 (including common area maintenance and real
estate taxes) in fiscal 1998 for space at such facility. Pursuant to the lease
terms, the annual rental for the Brandon facility is subject to an annual
escalation of up to four percent based upon the Consumer Price Index.

                                       17
<PAGE>   18


         The Company also has entered into a lease relating to its 6,390 square
foot SunPoint facility in Ruskin, Florida. The initial term of the Ruskin lease
is five years, beginning September 1, 1994, with one five year renewal option.
Pursuant to the lease terms, the annual rental for the Ruskin facility is
subject to a four percent annual escalation after 1996. Rent expense with common
area maintenance approximated $57,000 in 1998.

         The Orange Park mobile operations and fixed site facility are based in
a 5,100 square foot medical building located in Orange Park, Florida. The
facility is owned by Sundance Partners, a Florida general partnership which is
owned 100% by the Company. A triple net lease was entered into with an initial
term of ten years, beginning April 1, 1995. Rent expense for 1998 approximated
$46,000 which is eliminated upon consolidation. In early 1999 the Company
entered into a sale agreement for the building. The company will maintain a
presence with its mobile services.

         The Company entered into a triple net lease for its Riverside facility
(which opened in July of 1996) with Sundance Partners II, a Florida general
partnership in which the general partners are officers/directors and majority
shareholders of the Company. The facility was a newly constructed 7,100 square
foot stand alone medical center constructed to Company specifications. The lease
has an initial term of five years with a one time renewal option for five more
years. Base rental payments are $110,050 annually. The base rent shall escalate
up each year by $.25 per square foot. Rent expense for 1998 approximated
$119,000.

         The Company believes its present and anticipated leased facilities to
be in excellent condition and suitable for their intended operations.


ITEM 3 -- LEGAL PROCEEDINGS

         On May 20,1998, Carnegie Capital, Ltd. ("Carnegie Capital") filed suit
in the Circuit Court of the Fourth Judicial Circuit for Clay County, Florida,
for foreclosure against the Company and its wholly owned partnership, Sundance
Partners for alleged default of a second mortgage note held by Carnegie Capital.
The debt outstanding at December 31, 1998, approximates $127,000 plus interest
approximating $8,300 which the Company has provided for. The property involved
is the fixed site facility occupied by the Company's Orange Park diagnostic
subsidiary. The Company filed a counter suit alleging certain improprieties on
the part of Carnegie Capital. On October 6, 1998, The Company entered into a
stipulation agreement where in the Company agreed to pay $9,077.78 per month
through January 15, 1999 with the remaining balance to be paid in full by
January 31, 1999. The Company did not make its final two payments and Carnegie
Capital was awarded a final judgment of foreclosure on March 14, 1999. Carnegie
Capital has agreed to stay its foreclosure action until June 11, 1999, pending
the sale of the property by the Company (see subsequent events).

         On March 30 of 1999, Mr. Jugal Taneja, former CEO and Chairman of the
Board and current stockholder, filed suit in the Circuit Court of the
Thirteenth Judicial Circuit for Hillsborough County, Florida, on behalf of
himself, similarly situated shareholders of the Company and National
Diagnostics against the current Chairman of the Board, the Company's CEO and
AESI. The suit alleges, among other things, that: the consideration given by
AESI in exchange for the Preferred Stock of the Company were less than the
value of the Preferred Stock received by AESI; and breach of fiduciary
responsibility and misrepresentation of fact. The suit seeks temporary and


                                       18
<PAGE>   19



permanent injunction against the merger taking place, rescinding the stock
purchase agreement, and damages "in excess of $15,000" (not otherwise stated)
sustained by the Company. Management believed the suit was without merit.
The suit was dismissed May 4, 1999, and AESI will acquire the stock held
by Mr. Taneja.


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

         No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 1998.


                                     PART II

ITEM 5 -- MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         From October 12, 1994 through August 18, 1997, the Company's Common
Shares had been traded separately in the NASDAQ SmallCap Market under the symbol
NATD. Since August 18, 1997 the Company's Common Shares have been traded
separately on the Over The County Bulletin Board. The following table sets forth
the high and low bid prices for Common Shares as reported by NASDAQ for the
periods indicated. These prices are not necessarily indicative of prices at
which actual buy and sell transactions could occur.
<TABLE>
<CAPTION>

                                                              HIGH              LOW
                                                              ----              ---
1997
<S>                                                           <C>               <C>
         First Quarter                                        $2-7/16           $1-1/4
         Second Quarter                                       $1-41/64          $0-13/6
         Third Quarter                                        $1-7/8            $0-5/8
         Fourth Quarter                                       $0-30/32          $0-14/32

1998
         First Quarter                                        $1-5/16           $0-15/16
         Second Quarter                                       $1-15/32          $0-13/16
         Third Quarter                                        $1                $0-1/2
         Fourth Quarter                                       $0-13/16          $0-17/64

1999
         First Quarter                                        $1-1/16           $0-19/64
</TABLE>

         On April 13, 1999, the closing bid quote for the Common Shares was
$0.875 per share, and there were 38 holders of record of Common Shares. The
majority of over 280 individual shareholders held their stock in a "street name"
i.e., the name of the brokerage or clearing house.


                                       19
<PAGE>   20



         The Company has not paid cash dividends on its Common Shares and does
not anticipate doing so in the foreseeable future. The Company intends to retain
earnings, if any, for future growth and expansion opportunities. Payment of cash
dividends in the future, as to which there can be no assurance, will be
dependent upon the Company's earnings, financial condition, capital requirements
and other factors determined to be relevant by the Board of Directors.

         In March of 1998 the Company entered into a private placement Stock
Purchase Agreement with AESI. The preferred stock issue was in exchange for
"cash, assets, and credit underwriting" valued at $2,000,000. The assets were
inclusive of 8,000,000 common shares of Halis, Inc. (HLIS:OTCBB) .

 Five hundred thousand shares of Series A Preferred Stock of the Company were
issued with voting rights of eight votes per preferred share and conversion
rights at the rate of 44.11 shares of NDI common stock per preferred share. In
March of 1998, AESI exercised its right to convert 131,185 shares of the
Company's Preferred Stock into 5,786,570 shares of Common Stock. This
effectively gave AESI 65% of the voting rights for the Company's Common Stock.

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

         The following discussion and analysis of the Company's financial
condition and results of operations should be read in conjunction with the
Company's audited consolidated financial statements included elsewhere herein.
Due to the Company's net loss for 1998 of $2,679,000, and operating losses for
1998 and 1997 which resulted in an accumulated deficit of $6,637,689, at
December 31, 1998, our independent certified public accountants have qualified
their accountants' report dated April 15, 1999, on the Company's 1998 financial
statements as to a going concern uncertainty. The following commentary within
"Management Discussion and Analysis" addresses the Company's operations for 1998
and its plan to improve future results.


RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997.

         The following table sets forth selected operating results as a
percentage of net revenues for 1998 as compared to 1997.
<TABLE>
<CAPTION>

                                                                 FISCAL 1998                        FISCAL 1997
                                                                 -----------                        -----------
<S>                                                              <C>                                <C>
Net Revenue                                                         100.0%                             100.0%
Direct Operating Expenses                                            61.4                               53.6
General and Administrative Expense                                   46.8                               44.3
Depreciation and Amortization                                        15.1                               14.5
Operating loss                                                       23.4                              (12.5)
Interest                                                              8.6                                7.0
Other Income                                                          1.4                                0.2
Income Taxes (benefit)                                                0                                  0
Net Loss                                                            (30.5)                             (19.2)
</TABLE>

         Net revenues for fiscal 1998 were $8,774,000 as compared to $9,942,000
for fiscal 1997, representing an approximately 12% decrease. This decrease was
primarily attributable to the Orange Park


                                       20
<PAGE>   21



and Riverside facilities; although a modest decline of less than 2% was
experienced in Brandon and SunPoint facilities. Orange Park mobile operations
started up in February 1995, opening a fixed site facility in August; and in
September a mobile MRI facility and a mobile cardiology unit were placed in
service. Riverside operations started up in July, 1996. The newer facilities
accounted for approximately $1,062,000 of the decrease in revenues. The Brandon
facility's net revenues decreased $62,000 or approximately 1% to $4,531,000 in
1998. SunPoint's revenues decreased $43,000 or approximately 3% to $1,462,000 in
1998.

         The Company's net accounts receivable decreased $100,000 to $1,959,000
from $2,059,000 at December 31, 1998 and 1997 respectively. This is the result
of a decline in revenues and an increase in contractual allowances. The cash
position of the Company remained unchanged from 1997 to 1998, all available
funds being utilized for current operations.

         Direct operating expenses increased slightly by approximately 1% to $
5,386,000 for 1998 from $5,331,000 for 1997. This increase is primarily the
result of increased supply costs and higher costs for radiology. Direct costs as
a percentage of net revenue increased approximately 8% from the preceding year.
This is attributable to various costs that do not vary proportionately with net
revenue.

         General and administrative expenses decreased approximately 7% to
$4,109,000 for 1998 as compared to $4,406,000 for 1997. This decrease was
primarily attributable to the reduction of personnel and the related payroll and
benefit costs associated with such personnel. Such personnel costs decreased
approximately $435,000 to $1,894,000 inclusive of executive compensation. The
personnel were reduced in response to the decrease in revenues. General and
administrative expenses also decreased slightly due to cost savings.

         Depreciation (depreciation expense approximating $1,226,000) and
amortization decreased 8% to $1,330,000 in 1998 as compared to $1,445,000 during
1997. The dollar decrease was principally attributable to normal amortization.

         Interest expense increased to $753,000 in 1998 from $695,000 in 1997 as
a result of higher interest costs charged due to technical default of Company
indebtedness, such as in the receivable financing.

         The decrease in net revenues was only slightly offset by a decrease in
expenses resulting in a net loss of $2,679,000 for 1998 compared to a net loss
of $1,910,000 in 1997. This is primarily attributable to the newer operations
which bear the costs of a fully operational diagnostic facility while building
its patient and referring physician base from day one. Orange Park in its third
full year of operation has a loss of $ 843,000. Riverside in its second full
year of operation has a loss of $904,000. The ramp up of revenues for the new
starts did not meet the Company's expectations. The Company has responded in the
last quarter of 1998 and first quarter of 1999 by realigning and terminating
personnel and consolidating its operations. In early 1999, the Company entered
into an agreement to sell its Orange Park facility, but will continue to
maintain a presence at the site with its mobile facilities.



                                       21
<PAGE>   22






YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996.


         The following table sets forth selected operating results as a
percentage of net revenues for 1997 as compared to 1996.

<TABLE>
<CAPTION>

                                                                 FISCAL 1997                        FISCAL 1996
                                                                 -----------                        -----------
<S>                                                              <C>                                <C>
Net Revenue                                                         100.0%                             100.0%
Direct Operating Expenses                                            53.6                               54.6
General and Administrative Expense                                   44.3                               40.3
Depreciation and Amortization                                        14.5                               13.6
Operating loss                                                      (12.5)                              (8.6)
Interest                                                              7.0                                6.3
Other Income                                                          0.2                                 .9
Income Taxes (benefit)                                                0                                  0
Net Loss                                                            (19.2)                             (14.0)
</TABLE>

         Net revenues for fiscal 1997 were $9,942,000 as compared to $8,877,000
for fiscal 1996, representing an approximately 12% increase. This increase was
primarily attributable to new start up facilities and an increase in the volume
of procedures performed at these facilities. Orange Park mobile operations
started up in February 1995, opening a fixed site facility in August; and in
September a mobile MRI facility and a mobile cardiology unit were placed in
service. Riverside operations started up in July, 1996. The start up facilities
accounted for approximately $1,171,000 of the increase in revenues. The Brandon
facility decreased its revenues $334,000 or approximately 7% to $4,593,000 in
1997. SunPoint increased its revenues $228,000 or approximately 18% to
$1,505,000 in 1997.

         The Company's net accounts receivable decreased $72,000 to $2,059,000
from $2,131,000 at December 31, 1997 and 1996 respectively. This is the result
of additional collection efforts made to collect receivables and an adjustment
to reserves for approximately $316,000 for older accounts receivable deemed
uncollectable. The cash position of the Company decreased to $0 from $104,000 at
December 31, 1997 and 1996, respectively.

         Direct operating expenses increased approximately 10% to $5,331,000
for 1997 from $4,850,000 for 1996. This increase is a direct result of the
increased number of diagnostic procedures performed in 1997 compared to the
preceding year. Direct costs as a percentage of net revenue decreased
approximately 1% from the preceding year. This is attributable to various costs
that do not vary proportionately with net revenue.

         General and administrative expenses increased approximately 23% to
$4,406,000 for 1997 as compared to $3,576,000 for 1996. This increase was
primarily attributable to the addition of the Riverside facility which completed
its first full year of operation and personnel and the related payroll and
related benefit costs associated with such personnel. Such personnel costs
increased approximately $462,000 to $2,448,000 inclusive of executive
compensation. The personnel were added in response to the increased volume of
procedures performed. General and administrative expenses also increased because
of current operating expenses for start-up operations relating to the addition
of Riverside (an increase of $180,000 exclusive of personnel related costs).


                                       22
<PAGE>   23


         Depreciation (depreciation expense approximating $1,319,000) and
amortization increased 19% to $1,445,000 in 1997 as compared to $1,210,000
during 1996. The dollar increase was principally attributable to the acquisition
of new equipment for the start-ups and amortization (approximately $60,000) of
previously capitalized start-up costs which are amortized over 12 months
commencing with the date of first patient services.

         Interest expense increased to $695,000 in 1997 from $564,000 in 1996 as
a result of additional financing for equipment acquisitions and working capital.

         The increase in net revenues was offset by a greater increase in
expenses resulting in a net loss of $1,910,000 for 1997 compared to a net loss
of $1,242,000 in 1996. This is primarily attributable to the start up operations
which bear the costs of a fully operational diagnostic facility while building
its patient and referring physician base from day one. Orange Park in its second
full year of operation has a loss of $660,000. Riverside in its first full year
of operation has a loss of $635,000. Revenues increased steadily; however, the
ramp up of revenues for the new starts did not meet the Company's expectations.
The Company has responded in the first quarter of 1997 by realigning and
terminating personnel. The Company estimates this will save approximately
$141,000 in compensation. Additionally, the Board had acted effective of January
1, 1997 to eliminate C.E.O. and C.O.O. bonuses (in the 1996 this approximated
$136,000) until the Company becomes profitable for two consecutive quarters.


LIQUIDITY AND CAPITAL RESOURCES

         Medical equipment, capital improvements, acquisitions and new center
development historically have been funded through third-party capital lease and
debt obligations and internally generated cash flow. The leases are generally
secured by the equipment, and sometimes other assets, of particular facilities.
Interest rates in connection with the leases and borrowing range from fixed
rates of up to 15% to a variable rate equal to the bank prime rate, plus 1 to
2%. The Company at December 31, 1998 was in default of its capital lease
obligations due to late payments of approximately $94,000 as a result of its
liquidity problems discussed more fully below. Generally, while in default the
lessor may accelerate the lease obligation (at December 31, 1998 total long-term
portion of all leases approximated $2,137,000). The Company's major lessor has
been cooperating and working with the Company during the period of delinquency
and has refrained from exercising its rights under default. Subsequently, in
March of 1999, the Company entered into an agreement with its major lessor
allowing the Company to make installments through September 1999 for its
arrearages. The other remaining lessors (approximately 15% of the total lease
obligations outstanding at December 31, 1998) have been cooperating with the
Company, generally allowing not more than 60 days past due on lease payments.
There is no assurance the Company will be successful in achieving these goals.

         Capital expenditures, including capital lease obligations, for the
years ended December 31, 1998 and 1997 totaled approximately $48,000 and
$539,000, respectively.

         In October 1997, the Company refinanced with HealthCare Financial
Partners, Inc. ("HCFP", a lender specializing in medical receivables), its
existing $2,000,000 line of credit. An additional term loan for $235,000
($220,000 at January 1, 1998) calling for 24 monthly installments of $9,792 with
interest were also financed by HCFP. The lender has a first security interest on
all accounts receivable and the term loan is personally guaranteed by the
principals. Interest was at prime plus 2.0%. During the year 1998, the Company
completed paying off $136,000 representing an amount the Company had drawn in
excess of its borrowing base. Commensurate with the Company converting the
Company's Convertible


                                       23
<PAGE>   24


Preferred Stock (issued in a private placement to AESI) to Common, which gave
AESI 65% controlling interest, HCFP considered the Company to be in technical
default of its loan covenants, since HCFP did not approve of the change of
control. Thereupon, HCFP accelerated payment of term loan and charged default
interest rates of approximately 15% on the loans. The company successfully paid
off the term loan by September, 1998. In November of 1998 HCFP waived the
default arising from the change in control; reestablished the interest rate at
prime plus 5%, and loaned the Company an additional $80,000 to be used in
operation, with a payback of $5,000 per day. The company paid off the loan by
January 31, 1999 and refinanced its line of credit with a new lender in
February, terminating its relationship with HCFP. The refinancing of the
receivables was made through AES Funding Corp. ("AESFC") a subsidiary of AESI.
The bears interest at 1.5% over prime and allowed the Company to better leverage
its receivables. Proceeds of the refinancing were applied to paying off HCFP
(approximately $1,188,000), with the balance (approximately $33,000) utilized in
current operations.

         In March of 1998 the Company entered into a private placement Stock
Purchase Agreement with AESI. The preferred stock issue was in exchange for
"cash, assets, and credit underwriting" valued at $2,000,000 . The assets were
inclusive of 8,000,000 common shares of Halis, Inc. (HLIS:OTCBB).

          Five hundred thousand shares of Series A Preferred Stock of the
Company were issued with voting rights of eight votes per preferred share and
conversion rights at the rate of 44.11 shares of NDI common stock per preferred
share. In March of 1998, AESI exercised its right to convert 131,185 shares of
the Company's Preferred Stock into 5,786,570 shares of Common Stock. This
effectively gave AESI 65% of the voting rights for the Company's Common Stock.
Concurrent with the merger with AESI the Board will call for all the preferred
shares issued to be converted into common stock. Upon completion of the merger
NDI "old" shareholders (those of record before the Preferred Stock Issue and
merger) effectively will hold approximately 10% interest in ("new") NDI common
stock after the merger. AESI "old" shareholders effectively hold approximately a
90% interest in the new NDI common stock after the merger.

         In July of 1998 the company exchanged its Halis, Inc. common shares
for a note from AESI collateralized by the shares of an AESI acquired operating
subsidiary that offers medical management, billing and collection services.

         Due to the unsatisfactory performance and continued losses from the
Company's newest centers the Company has continued to experience difficulty in
meeting timely its current obligations to its lessors (discussed above) and
trade creditors. At year end, the Company has past due payables in the amount of
approximately $1,625,000. Most of the vendors have accepted late payments.
However, certain vendors will ship only on a cash on delivery basis. The Company
has been able to operate to date with no lost revenues.

         In 1998 the Company's cash position remained unchanged with all
available cash utilized in its operations and debt retirement. Operations
contributed the total cash increases of $528,000. Investing for capital assets,
primarily equipment, utilized approximately $60,000; proceeds from a note
receivable generated $199,000, while net financing activities used approximately
$666,000.

         Subsequent to the Private Placement AESI has advanced net cash of
approximately $674,000 to the Company to help meet its operating needs. The
advance is inclusive of $475,000 paid to the Company's major lessor to bring the
Company current on its lease obligations in October of 1998.


                                       24
<PAGE>   25

         The Company expects to implement additional financial and operational
strategies it believes will enhance stockholder value. The Company continues to
re-evaluate its financing alternatives; looking present equipment financing and
future needs. In early 1999 the Company entered into a sale agreement for its
Orange Park fixed site facility. The relatively new operation continued with a
disappointing ramp up of revenues. The Company will maintain a presence at
Orange Park with its mobile fleet. The operations were consolidated with its
Riverside facility. Senior management was reduced and replaced. The Company is
continuing to monitor the Jacksonville operations and evaluating other
alternatives.

         Effective January 1, 1999 the Company contracted with AESI Service
Group, Inc. (a subsidiary of AESI) for management services, billing and
collections. The Company believes this too will add efficiencies not otherwise
attainable within the Company. The Company believes debt re-alignment, equipment
refinancing, operational efficiencies, consolidation, management re-alignment,
capital infusion alternatives which may include selling additional stock,
acquisitions, and new start ups will all play a role in returning the Company to
satisfactory operation levels. There is no assurance that these goals will be
met.

          The Company's determination whether to proceed with new facilities in
Florida or elsewhere in the United States will depend on management's
consideration of such factors as (i) the demographics of a particular area, (ii)
competition from other diagnostic service providers in such area, (iii)
physician referral patterns, (iv) the mix of managed care providers,
Medicare/Medicaid patients and patients insured by commercial insurance
carriers, (v) estimates of potential sales in relation to the capital investment
required to establish a facility, (vi) the availability of commercial lease
property for a start-up facility, and (vii) financial analysis of potential
acquisition targets.

         The Company has over the last few years experienced increased pressures
on reimbursement from third parties. The Company expects such pressures to cause
reduced pricing in the aggregate for diagnostic procedures in the future. Due
primarily from the Company's revenue mix the effects of reduced pricing have
been minimized. Approximately 49% of the company's revenue has been derived from
private insurance carriers, individuals, worker's compensation and other sources
that have not experienced reimbursement pressures characteristic of managed care
providers, Medicare and Medicaid.


YEAR 2000 ISSUES

         The Company is currently addressing the Y2K issues and assessing its
impact on the Company. It is widely known that many computerized system and
software programs were made to recognize two-digit rather than four-digit
numbers to represent years. The "19" that precedes dates in this century was
assumed. Consequently, systems that use dates to perform calculations,
comparisons, or sorting may generate incorrect results when looking at the "00"
in the year 2000.

         The Company has identified the areas wherein the Y2K problems could
affect the Company. The Company is currently reviewing these areas and to
determine if they are Y2K compliant. In areas where they are not, the Company is
reviewing its alternatives and contingency plans.

         The following areas are believed to be impacted by the Y2K issues:
billing, accounting, payroll, and accounts receivable financing. Each is
addressed, outlining the Company's state of readiness, the risks to the company,
costs to address the issues, and the Company's contingency plans.


                                       25
<PAGE>   26

         The Company performs radiological diagnostic procedures and bills
insurance providers and patients for its services. The Company's current billing
software is not Y2K compliant. However, the Company in early 1999 began
contracting its billing and collection processes with a Company that specializes
in medical billing. The billing company has indicated that currently they are in
the process of evaluating their systems, and estimated their cost (inclusive of
hardware and software) to bring their system Y2K compliant will approximate
$125,000. The Company will not bear this cost. In the event the billing company
is unable to comply, the Company will either find a compliant billing company or
upgrade its own billing systems (cost estimate $70,000) and prepare its own
billing and collections.

         The Company's accounting functions were not Y2K compliant. The Company,
effective January 1, 1999, is outsourcing its accounting function. The service
Company is utilizing software which it intends to upgrade and bring it into
compliance. Its hardware is compliant. No cost estimate was given. As a
contingency plan the Company will take back its accounting function and upgrade
its own software at a cost approximating $4,000.

         The Company, effective January 1, 1999, began utilizing a human
resource leasing firm. The leasing firm is Y2K compliant; a certificate of
compliance is being processed by the employee leasing firm.

         The Company finances it's receivables with a lender specializing in
medical receivables. The reports required to process the loan transactions are
generated by the billing company mentioned above. In the event the billing
company is unable to become Y2K compliant, the Company's own billing software,
once upgraded, will be able to process the necessary reporting.

         The Company intends to continue to monitor the Y2K process of the third
party servicers mentioned above to assure compliance and, in the event of
non-compliance, enable the Company sufficient time to enact its contingency
plans.


SEASONALITY

         The Company, in prior years, has experienced an 8 to 12% decrease in
revenues during the third quarter of the fiscal year due to reduced activity
during the summer months. This trend was not evident in 1997 or 1998 partially
due to the ramp up experienced in the new start ups.


EFFECTS OF INFLATION

         The impact of inflation and changing prices on the Company has been
primarily limited to salary, medical and film supplies and rent increases and
has not been material to the Company's operations to date. Management is aware
of increased inflationary expectations and realizes that the Company may not be
able to raise the prices for its diagnostic imaging procedures in an amount
sufficient to offset inflation. The Company, however, does believe that this can
be offset by increased volume.


NEW ACCOUNTING PRONOUNCEMENTS

         SFAS No. 130, Reporting Comprehensive Income, is effective for fiscal
years beginning after December 15, 1997. This statement establishes standards
for the reporting and display of comprehensive


                                       26
<PAGE>   27



income and its components in a full set of general-purpose financial statements.
The new rule requires that the Company (a) classify items of other comprehensive
income by their nature in a financial statement, and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of the balance sheet. The
Company adopted SFAS No. 130 in 1998 and no material impact to the Company's
financial statement presentation.

         SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, is effective for fiscal years beginning after December 15, 1997.
This Statement supersedes SFAS No. 14, Financial Reporting for Segments of a
Business enterprise, and amends SFAS No. 94, Consolidation of All Majority-Owned
Subsidiaries. This Statement requires annual financial statements to disclose
information about products and services, geographic areas and major customers
based on management approach, along with interim reports. The management
approach requires disclosing financial and descriptive information about an
enterprise's reportable operating segments based on reporting information the
way management organizes the segments for making business decisions and
assessing performance. It also eliminates the requirement to disclose additional
information about subsidiaries that were not consolidated. The Company adopted
SFAS No. 131 in 1998 with no impact to the Company's disclosure information and
its results of operations.

         The AICPA's Accounting Standards Executive Committee has issued SOP
98-5, Reporting on the Costs of Start-Up Activities. The SOP requires that costs
of start-up activities, including organization costs, be expensed as incurred.
It applies to all nongovernmental entities. Start-up activities are broadly
defined and include one-time activities related to opening a new facility,
introducing a new product or service, conducting business in a new territory,
conducting business with a new class of customer or beneficiary, initiating a
new process in an existing facility, commencing some new operation, and
organizing a new entity. SOP 98-5 is generally effective for financial
statements for fiscal years beginning after December 15, 1998, with initial
application reported as the cumulative effect of a change in accounting
principle. The Company has had the policy of capitalizing pre-opening costs. At
December 31, 1997, there exist $0 unamortized cost. Therefore, the adoption of
SOP 98-5 did not have an effect on the Company's financial statements.



                                       27
<PAGE>   28





ITEM 7 -- FINANCIAL STATEMENTS
<TABLE>
<CAPTION>


                                     INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<S>                                                                                                             <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS...............................................................29

CONSOLIDATED BALANCE SHEETS
         As of December 31, 1998 and 1997........................................................................30

CONSOLIDATED STATEMENTS OF OPERATIONS
         Years ended December 31, 1998 and 1997..................................................................32

CONSOLIDATED STATEMENTS OF CASH FLOWS
         Years ended December 31, 1998 and 1997..................................................................33

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
         Years ended December 31, 1998 and 1997..................................................................36

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.......................................................................37
</TABLE>



                                       28
<PAGE>   29



               Report of Independent Certified Public Accountants






Board of Directors
National Diagnostics, Inc.




We have audited the accompanying consolidated balance sheets of National
Diagnostics, Inc. and Subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of National
Diagnostics, Inc. and Subsidiaries as of December 31, 1998 and 1997 and the
consolidated results of their operations and their consolidated cash flows for
the years then ended in conformity with generally accepted accounting
principles.

The accompanying financial statements have been prepared, assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred a net loss of $2,679,393 during the year ended December 31,
1998, and as of that date, the Company has a retained earnings (accumulated
deficit) of $6,637,689 and current liabilities exceed current assets by
$5,166,588. The company's present financial condition has resulted in the
Company being in default of its major lease and loan agreements. The Company's
ability to fund its operations and meet its obligations in 1999 will be
dependent upon the Company improving its overall level of profitability. In
addition, the success of the company could, among other things, require
obtaining additional financing or an infusion of capital. These factors, among
other, addressed in Note 2L. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.


                                             GRANT THORNTON LLP

Tampa, Florida
April 15, 1999, except for
paragraph two of Note 10E
herein as to which the date
is May 4, 1999.


                                       29
<PAGE>   30

                           NATIONAL DIAGNOSTICS, INC.
                                AND SUBSIDIARIES


                           CONSOLIDATED BALANCE SHEETS


                                     ASSETS
                                     ------


<TABLE>
<CAPTION>

                                                            DECEMBER 31,       DECEMBER 31,
                                                                1998              1997
                                                            ------------       -----------

<S>                                                         <C>               <C>
Current assets:
Accounts receivable, net of allowances of $887,300 and
     $1,011,942 in 1998 and 1997, respectively                 1,958,813         2,058,647
Prepaid expenses and other current assets                         63,033           148,903
                                                            ------------       -----------

             Total current assets                              2,021,846         2,207,550
                                                            ------------       -----------

Property and equipment                                        10,023,116         9,974,924
  Less:  accumulated depreciation and
     amortization                                             (5,800,043)       (4,574,173)
                                                            ------------       -----------

              Net property and equipment                       4,223,073         5,400,751
                                                            ------------       -----------

Other assets:
Excess of purchase price over net assets acquired,
     net of accumulated amortization of $96,360 and
     $85,751 in 1998 and 1997, respectively                      323,567           403,711
  Deposits                                                        67,589            54,941
  Other                                                           17,918            41,894
                                                            ------------       -----------


              Total other assets                                 409,074           500,546
                                                            ------------       -----------



                                                            $  6,653,993       $ 8,108,847
                                                            ============       ===========
</TABLE>





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



                                       30
<PAGE>   31


                           NATIONAL DIAGNOSTICS, INC.
                                AND SUBSIDIARIES


                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                 ----------------------------------------------

<TABLE>
<CAPTION>

                                                            DECEMBER 31,      DECEMBER 31,
                                                                1998              1997
                                                            -----------       -----------

<S>                                                         <C>               <C>
Current liabilities:
  Line of credit                                            $ 1,130,863       $ 1,309,612
  Note payable                                                1,633,511                --
  Note due to related party                                      87,500            62,500
  Current installments of long-term debt                        686,085           413,243
  Current installments of obligations under
     capital leases                                             799,319         3,820,933
  Accounts payable                                            1,863,185         1,655,858
  Accrued radiologist fees                                      360,501           439,066
  Accrued expenses, other                                       905,955           696,814
                                                            -----------       -----------

             Total current liabilities                        7,466,919         8,398,026


Long-term liabilities:
  Long-term debt, excluding current installments                     --           594,064
  Obligations under capital leases,
     excluding current installments                           2,137,486                --
  Deferred lease payments                                       113,360           175,136
                                                            -----------       -----------

             Total liabilities                                9,717,765         9,167,226
                                                            -----------       -----------

Commitments and contingencies                                        --                --

Stockholders' equity (deficit):
  Preferred stock, no par value, 1,000,000
     shares authorized, 500,000 shares issued
     and 368,815 outstanding                                  1,475,260                --
  Common stock, no par value, 9,000,000
     shares authorized, 8,880,000 and 3,093,430 shares
     issued and outstanding in 1998 and 1997                      1,936               779
  Additional paid-in capital                                  3,422,721         2,899,138
Note receivable from stockholder                             (1,326,000)               --
Retained earnings (accumulated deficit)                      (6,637,689)       (3,958,296)
                                                            -----------       -----------

             Net stockholders' equity (deficit)              (3,063,772)       (1,058,379)
                                                            -----------       -----------

                                                            $ 6,653,993       $ 8,108,847
                                                            ===========       ===========
</TABLE>


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

                                       31
<PAGE>   32




                           NATIONAL DIAGNOSTICS, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                              YEAR ENDED         YEAR ENDED
                                                             DECEMBER 31,       DECEMBER 31,
                                                                 1998               1997
                                                             ------------       ------------
<S>                                                          <C>                <C>
Net revenue                                                  $  8,774,419       $  9,942,050
                                                             ------------       ------------

Operating expenses:
  Direct operating expenses                                     5,385,967          5,331,362
  General and administrative                                    4,108,572          4,405,975
  Depreciation and amortization                                 1,329,988          1,445,492
                                                             ------------       ------------

             Total operating expenses                          10,824,527         11,182,829
                                                             ------------       ------------

             Operating loss                                    (2,050,108)        (1,240,779)

Interest expense                                                  752,530            694,575
Other income                                                      123,245             25,223
                                                             ------------       ------------

Loss before income taxes                                       (2,679,393)        (1,910,131)

Income taxes                                                           --                 --
                                                             ------------       ------------

Net loss                                                     $ (2,679,393)      $ (1,910,131)
                                                             ------------       ============

Dividends to preferred shareholders (intrinsic value of
        beneficial conversion to common shareholders          (25,568,750)
                                                             ------------

Net loss available to common shareholders                    $(28,248,143)
                                                             ============

Net loss per common share  - basic and dilutive              $      (3.75)      $       (.60)
                                                             ============       ============
Weighted average number of common
  shares outstanding - basic and dilutive                       7,532,443          3,159,884
                                                             ============       ============
</TABLE>




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



                                       32
<PAGE>   33







                           NATIONAL DIAGNOSTICS, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                    YEAR ENDED        YEAR ENDED
                                                                    DECEMBER 31,      DECEMBER 31,
                                                                        1998              1997
                                                                    -----------       -----------

<S>                                                                 <C>               <C>
Cash flows provided by operating activities:
  Net loss                                                          $(2,679,393)      $(1,910,131)
  Adjustments to reconcile net loss to
     net cash provided by operating activities:
        Depreciation and amortization                                 1,329,988         1,445,492
        Common stock issued for services                                     --            48,397
        Increase (decrease) in accounts receivable allowances          (124,642)          347,540
        Gain (loss) on disposition of equipment                              --            (5,086)
        (Increase) in accounts receivable                               224,476          (274,903)
        Decrease in prepaid expenses and
          other assets                                                   85,872            13,325
        Increase  in accounts payable and
          accrued expenses                                            1,753,479           799,465
        Increase due to related party                                        --            23,819
        (Decrease) in deferred lease payments                           (61,776)          (61,776)
                                                                    -----------       -----------

        Net cash provided by operating activities                       528,004           426,142
                                                                    -----------       -----------

Cash flows provided by in investing activities:
        Increase in intangible assets                                        --           (38,963)
        Purchases of property and equipment                             (48,192)         (207,732)
        Proceeds from note due related party                            199,000                --
        Deposits                                                        (12,648)            1,563
                                                                    -----------       -----------

        Net cash provided by (used) in investing activities             138,160          (245,132)
                                                                    -----------       -----------

Cash flows provided by (used in) financing activities:
        Proceeds from issuance of common stock, net                          --            77,990
        Proceeds from borrowings (repayment) on line of credit         (178,749)          315,794
        Proceeds from note payable                                           --           205,000
        Repayment of notes payable                                           --          (209,294)
        Proceeds from borrowings on long-term debt                           --           385,000
        Repayment of long-term borrowings                              (321,225)         (102,330)
        Proceeds of borrowing from related parties                      224,000           125,000
        Repayment of borrowings from related parties                   (199,000)          (70,742)
        Principal payments under capital lease obligations             (191,190)       (1,011,763)
                                                                    -----------       -----------

        Net cash used by financing activities                          (666,164)         (285,345)
                                                                    -----------       -----------
</TABLE>





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


                                       33
<PAGE>   34

                                                                    (continued)


                           NATIONAL DIAGNOSTICS, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                             YEAR ENDED          YEAR ENDED
                                                                            DECEMBER 31,        DECEMBER 31,
                                                                                 1998                1997
                                                                           ---------------       -----------

<S>                                                                        <C>                  <C>
Net increase (decrease) in cash                                                         --          (104,335)

Cash at beginning of period                                                             --           104,335
                                                                           ---------------       -----------

Cash at end of period                                                                   --       $        --
                                                                           ===============       ===========

Supplemental disclosure of cash flow information:

     Interest paid                                                         $       657,314       $   747,113
                                                                           ===============       ===========

     Income tax paid                                                       $            --       $        --
                                                                           ===============       ===========

     Non-cash investing financing activities:

          Capital lease obligations incurred                               $            --       $   274,288
                                                                           ===============       ===========

          Common Stock issued as satisfaction of related party
          debt (See Note 13)                                               $            --       $   275,604
                                                                           ===============       ===========

          Common Stock issued as satisfaction for trade creditor debt      $            --       $   205,140
                                                                           ===============       ===========

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

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

          Common Stock exchange for marketable securities rescinded        $            --       $(1,800,000)
                                                                           ===============       ===========

          Preferred stock issued for non-cash item (See Note 11)           $     2,000,000       $        --
                                                                           ===============       ===========
</TABLE>

         In October of 1997 the Company refinanced its line of credit
         approximating $1,200,000 with a new line from HealthCare Financial
         Partners, Inc., ("HCFP") including a term loan of $235,000 personally
         guaranteed by principals and giving the lender a first security
         interest on all accounts receivable.

         In 1998 the note receivable from stockholder of $2,000,000 (see note
         11) was reduced by offsetting the $674,000 inter-company payable to
         the stockholder. The inter-company payable was created by a $199,000
         cash advance from the stockholder and the stockholders direct payment
         of $475,000, made on behalf of the Company, to reduce certain debt.

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


                                       34
<PAGE>   35



                           NATIONAL DIAGNOSTICS, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS


         In November of 1998, the Company refinanced its major lease obligations
         with its lessor. The lessor accepted a note for past arrearages through
         June, 1998 on certain of its capital lease and maintenance obligations.
         The $1,633,511 note will mature June 1, 1999 with interest at 10% annum
         due at maturity. AESI (having a 65% common stock interest in the
         Company) has guaranteed the lease obligations and in October, 1998
         contributed $475,000 toward satisfying the Company's arrearages from
         June through October, 1998.

         In 1998, 131,185 of the 500,000 shares of preferred stock issued in
         March of 1998 for $2,000,000 in consideration were converted into
         5,786,570 shares of the Company's Common Stock.




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


                                       35
<PAGE>   36


                           NATIONAL DIAGNOSTICS, INC.
                                AND SUBSIDIARIES

            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

                     YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>

                                                                                            RETAINED
                                                                          ADDITIONAL        EARNINGS            NOTE
                                          PREFERRED        COMMON           PAID-IN       (ACCUMULATED       RECEIVABLE
                                            STOCK           STOCK           CAPITAL         DEFICIT)         STOCKHOLDER
                                            -----           -----           -------          --------        -----------

<S>                                      <C>               <C>           <C>              <C>                <C>
Balances at December 31, 1996            $        --       $   686       $  2,320,497       $(2,048,165)      $        --

Issuance of common stock
  (1,872,041 shares)                              --           375          2,300,369                --                --

Common stock issue rescinded                      --          (292)        (1,799,708)               --                --

Exercise of warrants
  (52,000 shares)                                 --            10             77,980                --                --

Net Loss                                          --            --                 --        (1,910,131)               --
                                         -----------       -------       ------------       -----------       -----------

Balances at December 31, 1997            $        --       $   779       $  2,899,138       $(3,958,296)               --


Issuance of preferred stock
  (500,000 shares)                         2,000,000            --         25,568,750                --                --

Preferred stock dividend
  (intrinsic value of beneficial
  conversion features)                            --            --        (25,568,750)               --                --

Note receivable - stockholder
(related to preferred stock)                      --            --                 --                --        (2,000,000)

Conversion of preferred stock to
common stock
 (131,185 preferred shares for
5,786,570 common shares)                    (524,740)        1,157            523,583                --                --

Reduction of note receivable -
stockholder                                       --            --                 --                --           674,000

Net Loss                                          --            --                 --        (2,679,393)               --
                                         -----------       -------       ------------       -----------       -----------

Balance at December 31, 1998             $ 1,475,260       $ 1,936       $  3,422,721       $(6,637,689)      $(1,326,000)
                                         ===========       =======       ============       ===========       ===========
</TABLE>




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



                                       36
<PAGE>   37


                           NATIONAL DIAGNOSTICS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 1998 AND 1997


1)       ORGANIZATION AND BASIS OF PRESENTATION

         The consolidated financial statements include the accounts of National
         Diagnostics, Inc. and its subsidiaries (Company): Alpha Associates,
         Inc. (Associates); Alpha Acquisitions Corp. (Acquisitions); SunPoint
         Diagnostic Center, Inc. (SunPoint); National Diagnostics/Orange Park,
         Inc. (Orange Park); and National Diagnostics/Riverside, Inc.
         (Riverside). Associates and Acquisitions hold 100% of the partnership
         interests in Brandon Diagnostic Center, Ltd. (Brandon). The Company and
         Orange Park hold 100% of the partnership interests in Sundance Partners
         (a real estate holding partnership.) The Company provides medical
         imaging services to patients at its centers or mobile facilities in
         Brandon (Brandon), Ruskin (SunPoint), and greater Jacksonville area
         (Orange Park and Riverside), Florida.

         In February 1998, the company signed a definitive merger agreement with
         American Enterprise Solutions, Inc. (AESI), a private company recently
         formed to acquire and develop community health care enterprises. In
         conjunction with the merger agreement, the parties in March 1998
         executed a stock purchase agreement whereby AESI acquired 500,000
         shares of the Company's preferred stock. In March 1998, AESI converted
         131,185 shares of the preferred stock into approximately 65% of the
         company's outstanding shares of common stock. As part of the merger,
         the remaining preferred stock will be converted so that 22,057,407 in
         total common stock would be issued in conjunction with the merger,
         whereby AESI will own approximately 88% of the Company. No further
         shares of preferred stock have been converted since March 1998, nor has
         the merger been completed as of April 15, 1999.

         In preparing financial statements in conformity with generally accepted
         accounting principles, management makes estimates and assumptions that
         affect the reported amounts of assets and liabilities and disclosures
         of contingent assets and liabilities at the date of the financial
         statements, as well as the reported amounts of revenues and expenses
         during the reporting period. An example of such an estimate is the
         Company's determination of its contractual adjustments and doubtful
         accounts provision. Actual results could differ from those estimates.

         The consolidated financial statements include the accounts of the
         Company and its wholly owned subsidiaries and their affiliates. All
         significant inter-company balances and transactions have been
         eliminated.

2)       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         A)       PROPERTY AND EQUIPMENT

                  Property and equipment is stated at cost. Depreciation expense
                  is charged to operations over the estimated useful service
                  period of the assets using the straight-line method. Property
                  and equipment held under capital leases are generally
                  amortized straight-line over the shorter of the lease term or
                  estimated useful life of the asset. The Company uses
                  accelerated depreciation for tax purposes.



                                       37
<PAGE>   38


         B)       INCOME TAXES

                  Income taxes are provided based upon provisions of Statement
                  of Financial Accounting Standards No. 109, "Accounting for
                  Income Taxes". Under the asset and liability method of
                  Statement 109, deferred tax assets and liabilities are
                  recognized for the future tax consequences attributable to
                  differences between the financial statement carrying amounts
                  of existing assets and liabilities and their respective tax
                  bases. Deferred tax assets and liabilities are measured using
                  enacted tax rates expected to apply to taxable income in the
                  years in which those temporary differences are expected to be
                  recovered or settled. Under Statement 109, the effect on
                  deferred tax assets and liabilities of a change in tax rates
                  is recognized in income in the period that includes the
                  enactment date.

         C)       PRE-OPENING COSTS

                  Pre-opening costs consisting of outside consulting, other
                  directly related professional fees, equipment testing and
                  calibration and office set up which are incurred prior to
                  opening are deferred and amortized over 12 months commencing
                  with a Center opening. All pre-opening costs were fully
                  amortized by December 31, 1997. Amortization expense for
                  pre-opening costs for 1997 was $59,089. The Company did not
                  incur pre-opening costs in 1998. In the future the Company
                  will expense such costs. (See note 2K)

         D)       EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED

                  Excess of purchase price over net assets acquired is amortized
                  over 20 years. Management reviews the performance of the
                  related assets on a quarterly basis to determine if impairment
                  has taken place. Impairment of goodwill was realized in the
                  Orange Park facility in 1998 due to loss of revenues and
                  unsatisfactory results of operations. Approximately $55,000
                  un-amortized goodwill was written off in 1998. Amortization
                  expense for the excess of purchase price over net assets
                  acquired for 1998 and 1997 was $80,144 (including $55,000
                  write-off) and $24,187, respectively.

         E)       CASH AND CASH EQUIVALENTS

                  For financial statement purposes cash equivalents include
                  short-term investments with an original maturity of ninety
                  days or less. At December 31, 1998 and 1997, respectively, the
                  Company had no cash equivalents.

         F)       ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
                  LONG-LIVED ASSETS TO BE DISPOSED OF

                  On a quarterly basis, the Company evaluates the projected
                  undiscounted cash flows of each business unit to determine,
                  when indicators of impairment are present, whether or not
                  there has been permanent impairment of its long-lived assets,
                  and accrues expenses for the amount, if any, determined to be
                  permanently impaired. Except for the write off of goodwill
                  (see note 2d), no other impairment losses were incurred during
                  1998 and 1997.

         G)       REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE

                  Revenues are recognized on the date services and related
                  products are provided to patients and are recorded at amounts
                  estimated to be received under reimbursement arrangements with
                  third party payors, including private insurers, prepaid health
                  plans, Medicare and Medicaid. Net revenue represents gross
                  revenue less contractual adjustments and provision for bad
                  debts (bad debts are not


                                       38
<PAGE>   39



                  material to the Company's financial statements). The Company's
                  management at least quarterly determines the adequacy of the
                  accounts receivable valuation allowances by, among other
                  procedures, reviewing historical experience for changes in
                  factors affecting billing and collections (e.g. third party
                  reimbursement arrangements). For all years presented,
                  approximately 15% to 18% of the Company's revenues are
                  reimbursed under arrangements with Medicare/Medicaid. No other
                  third party payor group represents 10% or more of the
                  Company's revenues. Therefore, concentration of credit risk
                  with respect to the remaining accounts receivable is limited
                  due to the large number of payors representing the patient
                  base.

                  The Brandon facility contributed approximately 51% and 46% of
                  total revenues for 1998 and 1997, respectively.

         H)       ACCOUNTING FOR STOCK BASED COMPENSATION

                  The Company applies the disclosure provisions statement of
                  Financial Accounting Standard (SFAS) No. 123, "Accounting for
                  Stock-Based Compensation," as it relates to employment awards.
                  The Company applies APB Opinion No. 25, "Accounting for Stock
                  Issued to Employees," and related interpretations in
                  accounting for its plans and accordingly, does not recognize
                  compensation expense for its employee stock-based compensation
                  plans other than for restricted stock.

         I)       LOSS PER COMMON SHARE

                  The Company has adopted SFAS No. 128, "Earnings Per Share" as
                  this standard became effective for financial statements issued
                  after December 15, 1997. SFAS No. 128 eliminates primary and
                  fully dilutive net income per common share and replaces them
                  with basic and diluted net income per common share. Basic loss
                  per share is the same as the diluted loss per share since the
                  Company had a net loss for the year ended December 31, 1998
                  and 1997. Outstanding stock options and warrants have not been
                  considered in these computations since the effect of their
                  inclusion would be antidilutive.


                                       39
<PAGE>   40

                           NATIONAL DIAGNOSTICS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                  The following table reconciles the numerator and denominator
                  of the basic and dilutive EPS computation:

<TABLE>
<CAPTION>

                  Numerator:                                                             1998              1997
                                                                                    ------------       -----------

<S>                                                                                 <C>                <C>
                     Net loss                                                       $ (2,679,393)      $(1,910,131)
                                                                                    ------------       -----------
                     Dividends to preferred shareholders (intrinsic value
                       of beneficial conversion features)                            (25,568,750)
                                                                                    ------------       -----------

                      Net loss available to common shareholders                     $(28,248,143)      $(1,910,131)
                                                                                    ============       ===========
                  Denominator:
                    Weighted average number of common shares used in basic EPS         7,532,443         3,159,884
                    Effect of dilutive stock options and warrants                             --                --
                                                                                    ------------       -----------
                    Weighted number of common shares and dilutive potential
                       common stock used in diluted EPS                                7,532,443         3,159,884
                                                                                    ============       ===========
</TABLE>

                  At December 31, 1997, the Company had potentially dilutive
                  securities outstanding consisting of options and warrants for
                  75,000 and 85,205 common shares, respectively. In December 31,
                  1998, the Company had outstanding options for 10,000 common
                  shares. In both 1997 and 1998, the options and warrants would
                  have had an anti-dilutive effect on EPS and are, therefore,
                  not included in the denominator.



         J)       FAIR VALUE OF FINANCIAL INSTRUMENTS

                  At December 31, 1998 and 1997, the carrying amount of cash,
                  accounts receivable, accounts payable and accrued expenses
                  approximate fair value because of the short-term maturities of
                  these assets.

                  The carrying amounts of current obligations approximate the
                  fair market value due to either the short-term maturity of the
                  obligation or the interest rate changes with market interest
                  rates. Carrying amounts of long-term obligations approximate
                  the fair market value due to either the fact that the
                  obligation was recently financed or refinanced, or in the case
                  of other obligations, the interest rates approximate that
                  which the Company is able to obtain currently.

         K)       NEW ACCOUNTING PRONOUNCEMENTS

                  In 1998 the Company adopted SFAS No. 130, Reporting
                  Comprehensive Income, which establishes standards for the
                  reporting and display of comprehensive income and its
                  components in a full set of general-purpose financial
                  statements. The new rule requires that the Company (a)
                  classify items of other comprehensive income by their nature
                  in a financial statement, and (b) display the accumulated
                  balance of other comprehensive income separately from retained
                  earnings and additional paid-in capital in the equity section
                  of the balance sheet. The adoption of SFAS No. 130 had no
                  material impact to the Company's financial statement
                  presentation.


                                       40
<PAGE>   41
                           NATIONAL DIAGNOSTICS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  SFAS No. 131, Disclosures about Segments of an Enterprise and
                  Related Information, is effective for fiscal years beginning
                  after December 15, 1997. This Statement supersedes SFAS No.
                  14, Financial Reporting for Segments of a Business Enterprise,
                  and amends SFAS No. 94, Consolidation of All Majority-Owned
                  Subsidiaries. This Statement requires annual financial
                  statements to disclose information about products and
                  services, geographic areas and major customers based on a
                  management approach, along with interim reports. The
                  management approach requires disclosing financial and
                  descriptive information about an enterprise's reportable
                  operating segments based on reporting information the way
                  management organizes the segments for making business
                  decisions and assessing performance. It also eliminates the
                  requirement to disclose additional information about
                  subsidiaries that were not consolidated. The Company adopted
                  SFAS No. 131 in 1998 with no impact to the company's results
                  of operations or its disclosures.

                  The AICPA's Accounting Standards Executive Committee has
                  issued SOP 98-5, Reporting on the Costs of Start-Up
                  Activities. The SOP requires that costs of start-up
                  activities, including organization costs, be expensed as
                  incurred. It applies to all non-governmental entities.
                  Start-up activities are broadly defined and include one-time
                  activities related to opening a new facility, introducing a
                  new product or service, conducting business in a new
                  territory, conducting business with a new class of customer or
                  beneficiary, initiating a new process in an existing facility,
                  commencing some new operation, and organizing a new entity.
                  SOP 98-5 is generally effective for financial statements for
                  fiscal years beginning after December 15, 1998, with initial
                  application reported as the cumulative effect of a change in
                  accounting principal. The Company has had the policy of
                  capitalizing pre-opening costs. At December 31, 1997 and 1998
                  there exists no un-amortized cost. Therefore, the adoption of
                  SOP 98-5 has no significant effect on the Company's financial
                  statements.


         L)       OPERATIONAL MATTERS AND LIQUIDITY

                  The Company has a net loss for 1998 of $2,679,393 and at
                  December 31,1998 has a retained earnings accumulated deficit
                  of $6,637,689 and a working capital deficit of $5,445,073. In
                  view of these matters, recoverability of a major portion of
                  the recorded asset amounts shown in the accompanying balance
                  sheet is dependent upon continued operation of the Company,
                  which in turn is dependent upon the Company improving its
                  overall level of profitability. In addition, the success of
                  the Company could also, among other things, require obtaining
                  additional financing or capital infusions. The financial
                  statements do not include any adjustments relating to the
                  recoverability and classification of recorded asset amounts or
                  amounts and classification of liabilities that might be
                  necessary should the Company be unable to continue in
                  existence.

                  In response to the Company's continued losses from its Orange
                  Park and Riverside facilities, the Company began to
                  consolidate its Jacksonville operations in the first quarter
                  of 1999 to more efficiently utilize its fixed assets and human
                  resources. In March of 1999 the Company entered into a sales
                  agreement for its Orange Park facility, which will result in a
                  gain. The proceeds are expected to satisfy the Company's
                  mortgage commitments on the property. The Company downsized
                  its staffing in Jacksonville in response to the sale of the
                  facility and the decreased revenues. The site will be utilized
                  by the buyer for offering other medical services. The company,
                  then, will maintain its presence by offering mobile diagnostic
                  services. Other pieces of equipment from the site will be
                  utilized elsewhere in the Company where the demand for
                  services warrants.


                                       41
<PAGE>   42

                           NATIONAL DIAGNOSTICS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                  The Company, with the underwriting of AESI, entered into an
                  agreement in April of 1999, allowing the Company to cure its
                  arrearages with its major lessor. Additionally, in February of
                  1999, the Company refinanced its account receivables, allowing
                  the Company to better leverage its trade receivables.


3)       PROPERTY AND EQUIPMENT

         Property and equipment consists of the following:
<TABLE>
<CAPTION>

                                                                                Estimated
                                               December 31,     December 31,      service
                                                   1998            1997         life (years)
                                               -----------      ----------      ------------

           <S>                                 <C>              <C>             <C>
           Land                                $    85,000      $   85,000           --
           Buildings                               253,041         253,041           39
           Medical Equipment                     7,889,923       7,846,004            7
           Office furniture and equipment          733,203         728,930            7
           Leasehold improvements                  836,732         836,732          3-5
           Vehicles                                225,217         225,217          5-7
                                               -----------      ----------

                                               $10,023,116      $9,974,924
                                               ===========      ==========
</TABLE>



         Depreciation and amortization expense totaled $1,329,988 and $1,445,492
         for the year ended December 31, 1998 and 1997, respectively.


4)       LINES OF CREDIT

         In 1997 the Company refinanced its line of credit with a lender that
         specializes in medical receivable financing. The lender has a first
         security interest on all accounts receivable. The borrowing base on the
         line fluctuates proportionately with accounts receivable balance and is
         adjusted on a daily basis. The agreement was amended in November of
         1998, whereby lender waived the event of default arising from the
         change in control of the Company that occurred when AESI purchased
         controlling interest of the Company. The amendment also adjusted the
         interest rate to prime plus 5% (at December 31, 1998, 14.75%), which
         was down slightly from the default interest rate of 15%. The interest
         is paid monthly. The line matures September 1999. Additionally, in
         November, 1998, the lender advanced an additional $80,000 on the line,
         to be used in current operations, with a subsequent agreement to pay
         the additional amount off in $5,000 per day installments beginning in
         January, 1999. The Company had completed its installment payments by
         February 2, 1999. The Company refinanced its receivables with a new
         lender in February, 1999 (see subsequent events).

<TABLE>
<CAPTION>

                                                                                    1998
                                                                                 ----------

                     <S>                                                         <C>
                     Line of credit limit                                        $2,000,000
                     Qualifying borrowing base                                    1,131,304
                     Outstanding loan balance at December 31, 1998                1,130,863
</TABLE>


                                       42
<PAGE>   43
                           NATIONAL DIAGNOSTICS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


5)         LONG-TERM DEBT
<TABLE>
<CAPTION>


           <S>                                                                        <C>             <C>
           Long-term debt is summarized as follows:                                   December 31,    December 31,
                                                                                          1998            1997
                                                                                      ------------      ----------
           Installment loans payable which consist of a number of separate
           installment loan contracts collateralized by equipment and vehicles
           The loans require monthly installments of principal and interest over
           terms that vary from two to five years. At December 31, 1998, the
           loans bear interest at rates ranging from 9.0% to 12.25%                   $    275,069      $  348,259

           Mortgage notes payable in monthly installments of $3,821 including
           interest at 8.75% and 11%; maturing through April, 2020;
           collateralized by mortgaged real estate property                                411,016         438,262

           Installment loan payable, collateralized by accounts receivable and
           personal guarantees. The loan was accelerated due to technical
           default (see line of credit) and accrued interest at 15% until paid
           in full by September, 1998, original maturity October, 1999                          --         220,786
                                                                                      ------------      ----------

           Total long-term debt                                                            686,085       1,007,307

           Less current installments of long-term debt                                     686,085         413,243
                                                                                      ------------      ----------

           Long-term debt, excluding current installments                             $         --      $  594,064
                                                                                      ============      ==========
</TABLE>

         At December 31, 1998 the Company was in default of certain loan
         covenants due to late payments. Generally, when in default the lender
         may accelerate the loan. The Company has not received a waiver of
         default from its lenders and has therefore reclassified the long-term
         portion of debt to short-term. The mortgage notes are expected to be
         paid off upon closing of the sale of property. (See subsequent events.)

6)       LEASES

         The Company has entered into capital leases for medical equipment which
         expire in 2003. The gross amount of equipment and related accumulated
         depreciation recorded under capital leases are as follows:

<TABLE>
<CAPTION>

                                                 December 31,    December 31,
                                                      1998            1997
                                                 ------------    ------------
              <S>                                <C>             <C>
              Medical equipment                  $  6,574,000    $  6,574,000

              Less accumulated depreciation         4,085,000       3,004,000
                                                 ------------    ------------

                                                 $  2,489,000    $  3,570,000
                                                 ============    ============
</TABLE>


                                       43
<PAGE>   44
                           NATIONAL DIAGNOSTICS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         The present value of future minimum capital lease payments based on
         interest rates ranging from 9% to 14.5% is as follows:

<TABLE>
<CAPTION>

           <S>                                                                 <C>    <C>
           Year ending December 31:                                            1999   $  799,319
                                                                               2000      666,600
                                                                               2001      642,900
                                                                               2002      605,100
                                                                               2003      222,886
                                                                                      ----------


                Present value of minimum capital lease payments                        2,936,805

                Less current installments of obligations under capital leases            799,319
                                                                                      ----------

                Obligations under capital leases, excluding
                   current installments                                               $2,137,486
                                                                                      ==========
</TABLE>

         In November, 1998, the Company refinanced with its major lessor its
         major medical capital lease obligations. At December 31, 1998, the
         Company was in default of its refinancing agreement due to a late
         payment of $95,000. Generally, while in default the lessor may
         accelerate the lease obligation. In March, 1999, the Company entered
         into an agreement with its major lessor, which allows the Company to
         make installments through September, 1999, for its arrearages. The
         other remaining lessors (approximately 15% of the total leases
         obligations outstanding at December 31, 1998) have also been
         cooperating with the Company; generally allowing not more than 60 days
         past due on lease payments. In light of the agreement, classification
         of the long-term capital lease obligations to current has not been
         adjusted in the Company's financial statements.

         The Company is obligated under non-cancelable operating leases that
         expire through 2004.

         Future minimum lease payments under these leases are as follows:

<TABLE>
<CAPTION>

         <S>                                                         <C>          <C>
         Year ending December 31:                                    1999            861,800
                                                                     2000            823,100
                                                                     2001            818,500
                                                                     2002            739,000
                                                                     2003            323,200
                                                                     Thereafter      130,800
                                                                                  ----------
                                                                                  $3,696,400
                                                                                  ==========
</TABLE>

         Rental expense related to these non-cancelable leases was approximately
         $1,183,000 and $1,161,000 for the years ended December 31, 1998 and
         1997, respectively.


                                       44
<PAGE>   45
                           NATIONAL DIAGNOSTICS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


7)       NOTES PAYABLE TO RELATED PARTIES

         Note payable to related parties are as follows:

<TABLE>
<CAPTION>

                                                  December 31,    December 31,
                                                       1998            1997
                                                  ------------    ------------
           <S>                                    <C>             <C>
           Note payable with interest at 9%,
           payable on demand                      $     62,500    $     62,500

           Notes payable with interest at 7%
           payable on demand                            25,000
                                                  ------------    ------------
                                                  $     87,500    $     62,500
                                                  ============    ============
</TABLE>

         Interest expense to related parties approximated $5,800 and $8,500 for
         the years ended December 31, 1998 and 1997, respectively.

8)       INCOME TAXES

         The provision for income tax expense (benefit) at December 31, consists
         of the following:
<TABLE>
<CAPTION>

                                   1998              1997
                               -----------      ------------
                 <S>           <C>              <C>
                 Current       $        --      $         --
                 Deferred                                 --
                               -----------      ------------

                               $        --      $         --
                               ===========      ============
</TABLE>

         The income tax provision for 1998 and 1997 reconciled to the tax
         computed at the statutory rate of 34% is as follows:
<TABLE>
<CAPTION>

                                                                                  1998              1997
                                                                              -----------       -----------

           <S>                                                                <C>               <C>
           Income taxes at statutory rate                                     $  (911,000)      $  (649,400)
           State income taxes                                                    (134,200)          (95,800)
           Current year net operating loss not utilized                         1,033,354           730,900
           Non deductible expenses                                                 11,846            14,300
                                                                              -----------       -----------

                                                                              $        --       $        --
                                                                              ===========       ===========

           The deferred tax asset and liability consist of the following
                 December 31:
                                                                                  1998              1997
                                                                              -----------       -----------
           Assets
                Net operating loss carry forward                              $ 2,277,200       $ 1,196,300
                Allowance for doubtful accounts                                   346,000           394,700
                Deferred rents                                                     42,800            65,300
                      Other                                                         1,000               600
                Nondeductible accrued compensation                                     --             2,000
                Pre-opening costs                                                  35,900            54,000
</TABLE>


                                       45
<PAGE>   46
                           NATIONAL DIAGNOSTICS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>


<S>                                    <C>               <C>
     Acquisition basis difference          114,700           118,200
                                       -----------       -----------
                                         2,817,600         1,831,100
     Less:  valuation allowance         (2,526,800)       (1,493,800)
                                       -----------       -----------
                                           290,800           337,300
                                       -----------       -----------

Liabilities
     Fixed assets                          288,400           335,700
     Goodwill                                2,400             1,600
                                       -----------       -----------
                                           290,800           337,300
                                       -----------       -----------
Net deferred taxes                     $        --       $        --
                                       ===========       ===========
</TABLE>


         Management, using SFAS 109 criteria and placing greater weight on the
         1997/1998 taxable losses along with expectations for 1999, concluded
         that the above valuation allowance at December 31, 1998, was
         reasonable. The net increase in the valuation allowance in 1998
         approximated $1,033,000.

         At December 31, 1998 approximately $5,838,000 in net operating carry
         forwards remain which will expire if not utilized by 2012. The
         Company's preferred stock issuance in 1998 resulted in change of
         ownership pursuant to Internal Revenue Code Section 382 which places a
         yearly limitation on the utilization of the Company's net operating
         losses.


9)       CONCENTRATION OF ACCOUNTS RECEIVABLE

         The Company's accounts receivable are due from the following:

<TABLE>
<CAPTION>

                                               December 31,    December 31,
                                                   1998            1997
                                               ------------    ------------
           <S>                                 <C>             <C>
           Commercial insurance carriers       $  1,201,100    $  1,410,200
           Managed care providers                   937,800         710,900
           Private patients                         166,213         475,189
           Worker's compensation                     87,500         105,500
           Medicare/Medicaid                        453,500         358,300
                                               ------------    ------------

                                                  2,846,113       3,060,089
           Less allowances:
             Contractual adjustments                676,100         626,842
             Doubtful accounts                      211,200         374,600
                                               ------------    ------------

                                               $  1,958,813    $  2,058,647
                                               ============    ============
</TABLE>

                                       46
<PAGE>   47
                           NATIONAL DIAGNOSTICS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10)        COMMITMENTS AND CONTINGENCIES

           A)     GUARANTEES

           A term loan and certain equipment loans of the Company approximating
           $102,000 are fully guaranteed by an officer/stockholder.

           B)     EMPLOYMENT CONTRACTS

           The President and Chief Executive Officer operated under three year
           employment contracts that became effective July 1, 1995. The
           President and Chief Executive Officer received salaries of $150,000
           and $75,000, respectively, plus certain benefits. Under the contracts
           each executive was to receive a 5% bonus of the annual net income of
           the Company in excess of the prior fiscal year's income.
           Additionally, a bonus equal to 2.5% of net revenue in excess of the
           prior year's net revenue was to have been paid to each executive. In
           1997 the bonus arrangement was eliminated until the Company
           experiences two consecutive profitable quarters. The Chief Executive
           Officer resigned and the employment contract was terminated effective
           January 19, 1998.

           Total compensation earned by the Chief Executive Officer and
           President under the existing contracts for the years ended December
           31, 1998 and 1997 was approximately $169,000 and $240,900
           respectively.

           The Company entered into an employment agreement with the President
           of Orange Park for a three year period commencing February 1, 1995.
           The executive is to receive as compensation an annual salary of
           $100,000 plus certain benefits. In addition, the executive will earn
           a 10% bonus based on the increase in adjusted profits of the Orange
           Park center. No bonus was awarded in 1997 or 1998. The employment
           agreement was extended through June, 1998. The employment of this
           executive ended the 1st quarter of 1999.

           Effective January 1, 1999 the Company contracted with AESI for all of
           its management, accounting, and billing and collection services. The
           compensation for such services is to be 6% of gross collections.

           C)     PROFESSIONAL SERVICES AGREEMENT

           The Company enters into agreements with physician groups to provide
           radiological services. The physicians are paid with a percentage of
           the net receipts or fixed fee amount. The contracts are generally
           three years or less.

           The Company entered into radiological service contracts that were
           effective for the period February 1 through June 30, 1997, for its
           Brandon, SunPoint and Orange Park facilities. The contracts were
           terminated by the Company effective June 30, 1997 due to
           non-performance of all representations made by the contracted
           radiologist group. A settlement of $238,000 was reached wherein the
           Company agreed to pay for services rendered. The agreement calls for
           the assumption of a $48,000 liability due to tenant locums used by
           the Centers; a $50,000 payment due March 15, 1998, and the balance of
           $140,000 to be paid evenly in 12 monthly installments thereafter. The
           Company adequately reserved for these amounts in 1997 and assumed the
           liability. At December 31, 1998 the Company had remaining
           approximately $53,000 toward this indebtedness.

                                       47

<PAGE>   48

                           NATIONAL DIAGNOSTICS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

           In November of 1998, the Company entered into a five year
           professional services agreement for radiological services with a
           company that specializes in radiological services. The agreement may
           be terminated at any time without cause upon 180 day prior written
           notice. The fees for services are based on 14% of gross receipts for
           services rendered.

           Physician service expense under the current and previously existing
           contracts for the years ended December 31, 1998 and 1997 was
           approximately $1,293,000 and $1,284,000, respectively.

           (D)  YEAR 2000 ISSUE

           The Year 2000 issue relates to limitations in computer systems and
           applications that may prevent proper recognition of the Year 2000.
           The potential effect of the Year 2000 issue on the Company and its
           business partners will not be fully determinable until the Year 2000
           and thereafter. If Year 2000 modifications are not properly completed
           either by the Company or entities with which the Company conducts
           business, the Company's revenues and financial condition could be
           adversely impacted.

           (E)  LEGAL ACTIONS

           On May 20,1998, Carnegie Capital, Ltd. ("Carnegie Capital") filed
           suit for foreclosure against the Company and its wholly owned
           partnership, Sundance Partners for alleged default of a second
           mortgage note held by Carnegie Capital. The debt outstanding at
           December 31, 1998, approximates $127,000 plus interest approximating
           $8,300 which the Company has provided for. The property involved is
           the fixed site facility occupied by the Company's Orange Park
           diagnostic subsidiary. The Company filed a counter suit alleging
           certain improprieties on the part of Carnegie Capital. On October 6,
           1998, The Company entered into a stipulation agreement where in the
           Company agreed to pay $9,077.78 per month through January 15, 1999
           with the remaining balance to be paid in full by January 31, 1999.
           The Company did not make its final two payments and Carnegie Capital
           was awarded a final judgment of foreclosure on March 14, 1999.
           Carnegie Capital has agreed to stay its foreclosure action until June
           11, 1999, pending the sale of the property by the Company (see
           subsequent events).

           On March 30, 1999, Mr. Jugal Taneja, former CEO and Chairman of the
           Board and current stockholder, filed suit on behalf of himself,
           similarly situated shareholders of the Company and National
           Diagnostics against the current Chairman of the Board, the Company's
           CEO and AESI. The suit alleges, among other things, that: the
           consideration given by AESI in exchange for the Preferred Stock of
           the Company were less than the value of the Preferred Stock received
           by AESI; and breach of fiduciary responsibility and misrepresentation
           of fact. The suit seeks temporary and permanent injunction against
           the merger taking place, rescinding the stock purchase agreement, and
           damages "in excess of $15,000" (not otherwise stated) sustained by
           the Company. Management believed the suit was without merit. The suit
           was dismissed on May 4, 1999. AESI will acquire the stock held by Mr.
           Taneja.


                                       48

<PAGE>   49

                           NATIONAL DIAGNOSTICS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


11)        SHAREHOLDERS' EQUITY

           COMMON STOCK

           In 1997, the Company issued 104,815 shares of common stock in
           satisfaction of $156,742 of trade creditor debt.

           In June of 1997, the Company entered into an agreement for consulting
           and funding services which called for compensation payable in nine
           installments of 14,483 shares of common stock each, four quarterly
           installments of $43,750 each in value of common stock at the
           prevailing market price, plus options. The Company subsequently, in
           1997, terminated the contract and in January of 1998, entered into a
           release and settlement agreement. The Company issued 29,166 shares of
           Common Stock under the contract and settled with a payment of $15,000
           in 1998.

           The Company on June 27, 1997 acquired 127,773 shares of common stock
           (net of 14,197 shares given in payment of commission) of Equisure,
           Inc. (American Stock Exchange: EQE) from an investment trust in
           exchange for its own common stock. There was an agreement in place
           with the trust that in the event the market value of the shares would
           go down, additional shares would be issued to effectively eliminate
           the market risk. On August 4, 1997 the AMEX called a halt to trading
           EQE shares on the AMEX. On September 9, 1997 the Company and the
           trust agreed to rescind the transaction in its entirety.

           On March 27, 1998 a portion of the Company's Preferred Shares were
           converted to 5,786,570 Common shares giving AESI 65% of the total
           8,880,000 shares of Common Stock outstanding on March 27, 1998.

           PREFERRED STOCK

                  SERIES A PREFERRED STOCK

                  In March 1998, the Company's articles of incorporation were
                  amended to provide the authorization of 1,000,000 shares
                  Series A Preferred Stock at no par value. The shares are
                  entitled to receive dividends on a non-cumulative basis to the
                  extent declared on the common stock, and the dividends cannot
                  be in excess of $.10 per share. The liquidation and redemption
                  price on each share of preferred stock is $4.00 and $4.30,
                  respectively. Holders of the preferred stock voting as a
                  separate class have the right to 8 votes per share, and have
                  the right to elect 50% of the authorized number of members of
                  the Board of Directors. In addition, the preferred stock can
                  be converted at any time into common stock at a ratio of 44.11
                  shares of common stock per share of preferred stock. In
                  conjunction with the company's merger with AESI in March 1998,
                  the company issued 500,000 shares of Series A Preferred Stock
                  to AESI for consideration valued at $2,000,000. AESI converted
                  131,185 shares of preferred stock into 5,786,570 shares of the
                  company's common stock.

                  BENEFICIAL CONVERSION FEATURE

                  In March, 1997, the Securities and Exchange Commission (SEC)
                  announced its position on accounting for the issuance of
                  convertible preferred stock with a non-detachable conversion
                  feature that is deemed "in the money" at the date of issue (a
                  "beneficial conversion feature"). The beneficial conversion
                  feature is initially recognized and measured by allocating a
                  portion of the preferred stock proceeds equal to the intrinsic
                  value of that feature to additional paid-in capital. This
                  initial value is calculated at the

                                       49

<PAGE>   50

                           NATIONAL DIAGNOSTICS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  date of issue as the difference of the conversion price and
                  the quoted market price of the company's common stock into
                  which the security is convertible, multiplied by the number of
                  shares into which the security is convertible. The discount
                  resulting from the allocation of proceeds in the beneficial
                  convertible feature is treated as dividend and is recognized
                  as a return to the preferred shareholder over the minimum
                  period in which the preferred shareholders can realize that
                  return (i.e. from the date the securities are issued to the
                  date they are first convertible). The accounting for the
                  beneficial conversion feature requires the use of an
                  unadjusted quoted market price (i.e., no valuation discounts
                  allowed) as the full value used in order to determine the
                  intrinsic value dividend. The intrinsic value of the dividends
                  to the preferred shareholder is deducted from the net income
                  before calculating the net loss per common share. The
                  intrinsic value of beneficial conversion features to preferred
                  shareholders is $25,568,750 (based on 500,000 shares of
                  preferred stock valued at $4.00 a share each immediately
                  convertible into 44.11 shares of common stock, which in March
                  of 1998 had an unadjusted quoted market price of $1.25 a
                  share).

           NOTE RECEIVABLE - STOCKHOLDER

           In conjunction with the Company's merger agreement with AESI in March
           1998, the Company issued 500,000 shares of Series A Preferred Stock
           to AESI in consideration for $2,000,000 in cash, assets and credit
           underwriting in order to maintain the Company's financial stability.
           In order for AESI to satisfy this obligation to the Company, AESI
           initially transferred its ownership in 8,000,000 shares of restricted
           common stock of Halis, Inc. (a public company) that AESI held, along
           with another 4,048,325 shares, as an investment which accounted for
           approximately 27% of Halis, Inc.'s outstanding shares of common stock
           at that time. AESI's CEO and Vice Chairman was also a director of
           Halis, Inc.; in addition, another officer/director of AESI was an
           officer of one of Halis, Inc.'s subsidiary. The shares of common
           stock of Halis, Inc. were valued by the company at $2,000,000 based
           on Halis, Inc.'s quoted market price less a 10% discount factor to
           reflect its restricted nature and the fact that it represented a
           large block of stock. This valuation also approximated AESI's cost of
           the Halis, Inc.'s common stock. It was AESI's intent to provide the
           company with permanent capitalization of $2,000,000. While the
           company did not specifically use the common stock as collateral or
           such, or sell all or a portion of the common stock of Halis, Inc., it
           was generally available to do so. Since AESI's acquisition of its
           interest in the Company, it has successfully assisted the Company in
           refinancing its line of credit and certain of the capital leases.

           In July 1998, AESI exchanged all the common stock of Halis, Inc. that
           AESI and the company held for all the outstanding shares of common
           stock of one of Halis, Inc.'s wholly-owned subsidiaries. AESI and the
           Company substituted a promissory note for $2,000,000 collateralized
           by the common stock of the former wholly owned subsidiary of Halis,
           Inc. for the shares of Halis, Inc. that were being held by the
           company. The note bears interest at 7% per annum, with both principal
           and interest due July 1, 2000. With both parties' approval, payments
           can be made in advance. At December 31, 1998, the note balance was
           reduced to $1,326,000 as the parties agreed to offsetting the
           intercompany account balance due AESI at that time. As the note
           relates to the issuance of the Company" capital stock, the note is
           presented in the Statement of Stockholders' Equity as a contra
           account.


                                       50
<PAGE>   51


                           NATIONAL DIAGNOSTICS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

           STOCK OPTIONS

           On April 21, 1995 the Board of Directors approved an Employee Stock
           Option Plan ("employee plan") and a Non-employee Director Stock
           Option plan ("director plan") for the purpose of competing
           successfully in attracting, motivating, and retaining employees and
           non-employee directors with outstanding abilities. Options granted
           under the employee plan are intended to be incentive stock options.
           The total number of shares to which options may be granted under the
           employee and director plans are 200,000 shares. Generally, the
           exercise price shall be fixed at no less than 100% of the average
           fair market value of the shares at date of option.

           No options were granted in 1997 or 1998 under the employee or
           director plans. In 1997, options for 15,000 shares were issued to a
           consultant to the Company for services rendered.

           A summary of the status of the Company's outstanding stock options as
           of December 31, 1998, and 1997, and changes during the years ending
           on those dates is presented below.


<TABLE>
<CAPTION>
                                                                                                      Weighted Average
                                                                                  Shares               Exercise Price
                                                                                 -------              ----------------
           <S>                                                                   <C>                  <C>
           Options outstanding, December 31, 1996                                 60,000                  $  6.69
           Options granted                                                        15,000                  $  1.50
           Options exercised                                                           -                        -
           Options outstanding, December 31, 1997                                 75,000                  $  5.95
           Options granted                                                             -                        -
           Options exercised                                                           -                        -
           Options expired                                                       (65,000)
           Options outstanding, December 31, 1998                                 10,000                  $  3.00
</TABLE>


           The following table summarizes information concerning currently
           outstanding and exercisable stock options.

<TABLE>
<CAPTION>
                                                                                               Weighted          Weighted
                                                 Range of               Number             Remaining Contract    Average
                                              Exercise Prices        Outstanding               Life (Years)      Exercise
                                              ---------------        -----------           ------------------    --------
<S>                                           <C>                    <C>                   <C>                   <C>
           Outstanding Options:
                                                 $ 3.00                 10,000                    9               $ 3.00

           Exercisable Options:
                                                 $ 3.00                 10,000                    9               $ 3.00
</TABLE>

           The Company has adopted only the disclosure provisions of SFAS No.
           123 "Accounting of Stock-Based Compensation," as it relates to
           employment awards. It applies APB Opinion No. 25, "Accounting for
           Stock Issued to Employees," and related interpretations in accounting
           for its plans. The Company did not grant any options to employees
           during 1997 and 1998. Accordingly, SFAS No. 123 pro forma disclosures
           are not necessary.

                                       51

<PAGE>   52
                           NATIONAL DIAGNOSTICS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

           WARRANTS

           Pursuant to consulting agreement dated March 29, 1996 between the
           Company and an outside computer consultant the Board authorized
           100,000 warrants exercisable at $3.00 to be issued for services
           rendered. The warrants were issued on July 25, 1996 and valued at the
           fair value of the contracted services performed ($8,000.) 50,000 of
           these warrants were exercised during 1996; the remaining warrants
           were exercised in 1997.

           A summary of the status of the Company's outstanding warrants as of
           December 31, 1998 and 1997, and changes during the years ending on
           those dates is presented below.

<TABLE>
<CAPTION>
                                                                                                             Weighted Average
                                                                                        Warrants              Exercise Price
                                                                                       ----------            ----------------
           <S>                                                                         <C>                   <C>
           Warrants outstanding, December 31, 1996                                      137,205                  $7.20
           Warrants granted                                                                   -                      -
           Warrants exercised                                                            52,000                   1.50(1)
           Warrants outstanding, December 31, 1997                                       85,205                   3.00
           Warrants expired                                                             (85,205)                     -
           Warrants granted                                                                   -                      -
           Warrants exercised                                                                 -                      -
           Warrants outstanding, December 31, 1998                                            -                      -
</TABLE>

           (1)  Effective June 17, 1997, the Company lowered the strike
                price to $1.50 a share for all outstanding warrants at
                that date.

(13)      RELATED PARTIES

           In 1997, the Company issued its common stock valued at $51,804 as
           satisfaction of its indebtedness to the President of Orange Park for
           the reimbursement of expenses that he paid on behalf of the Company
           and purchase of certain medical equipment valued at $20,000 and
           reimbursement of expenses paid by this executive on behalf of the
           Company.

           The Company through its Orange Park facility utilizes various
           diagnostic and office equipment leased by Neurophysiology Associates,
           Inc. ("NPA"). NPA is 100% owned by the President and Chief Operating
           Officer of Orange Park. The Company has agreed to compensate NPA in
           no more or less favorable terms than the original lease calls for.
           Monthly payments approximate $950 and $1,920 in 1998 and 1997,
           respectively. Annual rent expense approximated $11,400 and $23,000 in
           1998 and 1997. Certain payments by the Company are made directly to
           the third party lessor.

           In July of 1996, the Company entered into a month to month rental
           arrangement for its regional office (approximately 2,200 square feet)
           in northeast Florida with Medical Consultants Inc. The President and
           Chief Operating Officer of Orange Park is 100% owner of Medical
           Consultants, Inc. The agreement calls for rental payments of $1,500
           per month. Rent expense for these spaces in 1998 and 1997 totaled
           $7,500 and $18,000, respectively. The office was closed in May 1998.

           In July of 1996, a triple net lease became effective between the
           Company and Sundance Partners II (a

                                       52

<PAGE>   53
                           NATIONAL DIAGNOSTICS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

           Florida general partnership) for a free standing 7,100 medical
           facility used for Riverside's Diagnostic Center. The facility is
           located in the Riverside area of Jacksonville, Florida. The lease
           term is for an initial five years with a one time option to extend
           for a five year period. Rent expense for 1998 and 1997 approximated
           $119,000 and $117,000, respectively. Sundance Partners II is 100%
           owned by the Company's Chief Executive Officer and President.

           In November 1996, J. Taneja and C. Alliston loaned the Company
           approximately $33,000 each. The loans were due on demand and bear an
           8% interest rate. In 1997, the officers each accepted stock valued at
           $121,900 as payment of this indebtedness and unpaid bonuses from
           1996.

           One of the Company's directors (currently resigned), Mr. Traber is a
           partner of Foley and Lardner, a law firm that is one of the Company's
           legal counselors. Total expense to the firm amounted to approximately
           $36,000 in 1996. In 1997, the firm accepted stock value at $150,000
           in settlement for the Company's indebtedness which, at the time,
           approximated that amount.

           In March 1997, the Company borrowed $125,000 from a related party
           corporation (majority owned by Messrs. Taneja and Alliston). The
           proceeds were used to pay property taxes. The loan was due April 29,
           1997 and is expected to be paid out of receipts from overdue provider
           payments. The loan was paid down and a remaining $62,500 remains to
           be paid and appears in the balance sheet as "Note Due Related Party".

           The Company has contracted with Healthy Services, Inc. which performs
           bone density diagnostic services. Mr. Curtis Alliston (President and
           COO) owns 50% interest in Healthy Services. The Company bills and
           collects for the services rendered and retains a percentage of
           collection varying from 25% to 50%. Total net fees earned by Healthy
           Services for 1998 and 1997 approximate $122,000 and $68,000
           respectively. In November of 1998 Healthy Services was acquired by
           AESI; subsequently, certain diagnostic equipment was transferred to
           the Company at no gain to AESI.

           The Company engages Alan Serna (D.B.A.: Clearway Cleaning) to perform
           janitorial services and laundry services for the corporate office,
           Brandon and SunPoint facilities. Mr. Serna is the step son-in-law of
           Mr. Alliston.

           In March of 1996, the Company entered into an agreement with Judson
           Enterprises, LTD to provided financial, consulting and banking
           services. As compensation for these services the Company agreed to
           pay Judson Enterprises, Inc. $16,000 and issue warrants for the
           purchase of 80,000 shares of common stock. Forty thousand (40,000)
           warrants will be exercisable at $2.50 per share expiring March, 1999;
           forty thousand (40,000) warrants will be exercisable at $3.00 per
           share expiring March, 2001. Currently, the Company owes $12,000
           toward the balance and has not issued the warrants.

           About the time that AESI acquired its 65% interest in the Company,
           AESI began to advance monies to the Company on an as needed basis to
           accommodate the Company's cash needs. Certain monies were repaid.
           AESI advanced a total of $1,209,500 in 1998, inclusive of $475,000 it
           paid on behalf of the Company to its major creditor to bring the
           Company current through October of 1998 with its work-out agreement.
           The Company paid AESI back $535,500. At December 31, 1998, AESI and
           the Company agreed to reduce the note receivable from AESI (See Note
           11) by the intercompany balance of $674,000.



                                     53

<PAGE>   54

                           NATIONAL DIAGNOSTICS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

           (14)      SUBSEQUENT EVENTS

           Effective January 1, 1999 the Company contracted with AESI Service
           Group, Inc. (a subsidiary of AESI) for management services, billing
           and collections.

           On January 15, 1999, the Company entered into a Loan and Security
           Agreement with Healthcare Capital Resources, Inc. The agreement
           allowed the Company to terminate its line of credit borrowing
           arrangements with its prior lender and better leverage its accounts
           receivables.

           In response to the Company's continued losses from its Orange Park
           and Riverside facilities, the Company began to consolidate its
           Jacksonville operations in the first quarter of 1999 to more
           efficiently utilize its fixed assets and human resources. In March of
           1999 the Company negotiated a $550,000 sales agreement for its fixed
           site facility at Orange Park. The sale will enable the Company to
           better utilize its major pieces of equipment elsewhere in the
           organization and allow a continued presence at the Orange Park
           facility with mobile services. The site is to be utilized by the
           buyer for offering other medical services. Additionally, the Company
           will be able to minimize its work force by fully staffing only the
           Riverside facility. The Company intends to utilize the proceeds from
           the sale to satisfy its mortgages on the facility, one of which is
           has a stay of foreclosure sale until June 11, 1999.

           In March of 1999, the Company entered into an agreement with its
           major lessor, which will allow the Company to make installment
           payments through August 1999, toward the Company's arrearages. The
           Company will then make its regular monthly installments under the
           extended terms of its refinanced agreement arrived at in November,
           1998.

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

           None.

                                    PART III

ITEM 9 -  DIRECTOR, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
          COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Prior to January 19, 1998, the Board of Directors consisted of Curtis L.
Alliston and Jugal K. Taneja. Mr. Taneja resigned as director and officer
effective January 19, 1998. In March 1998, Chuck Broes and Cardwell C. Nuckols
were elected to the Board of Directors. Subsequently, Mr. Broes was appointed
Chief Executive Officer and Mr. Nuckols was appointed Treasurer.

CHUCK BROES. Mr. Broes is a business and healthcare visionary with over 30 years
of experience in the healthcare and technology industries, in both domestic and
foreign markets. He has had and continues to serve in influential positions,
including COP, CEO, COO, CIO and board member of both private and public
companies. He currently serves as COB and CEO of Optimark Data Systems, Inc.
(ODS-on the Vancouver Stock Exchange). Mr. Broes also sits on several private
company Boards and the Ethics Committee of Moffitt Cancer Center. Mr. Broes
served ten years as the visionary of Wellmark, Inc., a subsidiary of Primark
Corporation (NYSE), one of the nation's first healthcare information clearing
houses. He was point man for a coalition of healthcare, technology, business and
financial experts, specializing in corporate reengineering, business incubating,
investment and merchant banking and acquisition and mergers via strategic
partnering.

                                       54
<PAGE>   55

Mr. Broes has participated in 28 projects, including the turnaround of two
public companies, and moving one private company near bankruptcy to be NASDAQ
publicly traded. He also achieved the turnaround of another near bankrupt
company to a positive state where it was acquired by a public company. Mr. Broes
recently has accepted the position of CEO of American Enterprise Solutions, Inc.
(AES). Mr. Broes' areas of expertise include strategic analysis to establish a
vision, market development to target product and service placement, and
strategic partnering to leverage the market position and in corporate financing.

Mr. Broes has been on numerous local and national radio and TV shows, served as
keynote speaker at healthcare conferences, given healthcare visionary lectures
across the country and conducted information technology seminars coast to coast.
In addition, Mr. Broes has served as a quoted source in many healthcare
publications, including: Healthweek, Computers in Health Care, Computers
Infomatics, Modern Healthcare, and other prestigious publications.

CARDWELL C. NUCKOLS, PH.D. Dr. Nuckols is the President and sits on the Board of
Directors of American Enterprise Solutions, Inc. (AES).

An internationally recognized expert in such areas as behavioral medicine and
addictions treatment, Cardwell C. Nuckols, Ph.D. has been a clinical and
developmental consultant for over twenty years. During this time, he has
consulted with The Central Labor Council (AFL-CIO), United Auto Workers, DuPont,
General Motors, United Airlines and other industries in the area of enhancing
productivity. He served as a trainer and consultant to the Federal Bureau of
Investigation, federal court systems and branches of the armed forces
specializing in the areas of antisociality, violence and trauma. Dr. Nuckols has
also served as hospital administrator, having led numerous successful start-up
and turn-around efforts in the health care area.

Dr. Nuckols' educational background includes advanced work in medical research,
pharmacology, and psychology. Dr. Nuckols is widely published, having authored
more than 30 journal articles, 14 books and workbooks, 21 videos and 17
audiotape series.

Dr. Nuckols received the Gooderham Award for outstanding contributions in the
alcohol and drug addiction field. He was recently selected by the American
Society of Addiction Medicine to assist in the development of patient placement
criteria for dual disorder patients. Dr. Nuckols is also Chairman of the
editorial review board of Counselor Magazine.

CURTIS L. ALLISTON, Age 52, currently is a director, the President and Chief
Operating Officer of the Company. He also serves as a director and the President
and Chief Executive Officer of Brandon Clinical Associates, Inc., a home health
care group, and President and Chief Executive Officer of Alliston Enterprises,
an investment and construction Company. From 1988 to 1992, he served as
President and Chief Executive Officer of Tampa Medical Group Management, a
medical practice management firm, and President and Chief Executive Officer of
Bay Cardiac Imaging, a mobile cardiac ultrasound service provider. Mr. Alliston
was the founder of Positron Partners, Inc., a joint venture specializing in
positron emission tomography, and served as its President and Chief Executive
Officer from 1990 to 1992. Also, from 1990 to 1993, Mr. Alliston served as the
President and Chief Executive officer of Cleveland Avenue Real Estate Partners,
a medical real estate investment group.

JUGAL K. TANEJA, Age 51, resigned as director, the Chief Executive officer and
Secretary of the Company effective January 19, 1998. Mr. Taneja also serves as
Chief Executive Officer and director of NuMED Surgical, Inc., Chairman, Chief
Executive Officer and director of NuMED Home Health Care, Inc., and past
publicly-held entities involved in the home health care and medical equipment
industries. He also serves as the President and director of Bancequity
Petroleum, Inc. Before his association with Bancapital and NuMED, Mr. Taneja
served as Senior Vice President of Union Commerce Bank and Huntington National
Bank.


                                       55

<PAGE>   56

RON BAUGH. Age 51, served as President of National Diagnostics of Orange Park,
Inc. and in charge of all Jacksonville operations. Mr. Baugh's employment
terminated in March, 1999. Prior to joining the Company in 1995, Mr. Baugh spent
seven years in clinical medicine and healthcare delivery and became a specialist
in diagnostic vascular ultrasound and neurodiagnostic testing. He served as
Administrator of the Florida Neurological Institute, an outpatient diagnostic
center, Vice President of American Medical Imaging Corporation and as a board
member. He is a Fellow of the American Academy of Physician Assistants and past
President of the Middleburg Rotary Club.


COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, officers and holders of more than 10% of the Common Stock to file
with the Securities Exchange commission initial reports of beneficial ownership
and reports of changes in beneficial ownership of Common Stock and any other
equity securities of the Company. To the Company's knowledge, based solely upon
a review of the forms filed with the Company by such person, all such Section
16(a) filing requirements were complied with by such persons in 1998 except for
the following: Mr. Broes and Mr. Nuckols have not filed but intend to file Forms
3 and 5 to comply with section 16(a) in the future. Mr. Alliston intends to file
Form 5 to comply with section 16(a) in the future.

ITEM 10 -- EXECUTIVE COMPENSATION

                             EXECUTIVE COMPENSATION

The following table sets forth certain information concerning compensation paid
to or earned by the Company's Chief Executive Officer and President and
President of Orange Park. No other executive officer earned more than $100,000
for the fiscal years ended December 31, 1997 and 1998. The directors of the
Company receive no compensation.


<TABLE>
<CAPTION>
                                                                                                      LONG-TERM
                                                  ANNUAL COMPENSATION                            COMPENSATION AWARDS
                                       ----------------------------------------        -----------------------------------------
                                       FISCAL                                            ALL OTHER         SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION             YEAR            SALARY            BONUS        COMPENSATION               OPTIONS
---------------------------            ------          -------           ------        ------------        ---------------------
<S>                                    <C>             <C>               <C>           <C>                 <C>
Jugal K. Taneja,                        1998             3,941(3)             -                -                     -
   Chief Executive Officer              1997            75,000                -            7,950                     -
                                        1996            75,000           68,015(2)        20,356(1)                  -

Curtis L. Alliston,                     1998           150,000                -           14,891                     -
   President and Chief                  1997           150,000                -            7,950(1)
    Operating Officer                   1996           150,000           68,015(2)        20,356(1)                  -

Ron Baugh,                              1998           100,000                -           19,383(1)
   President of Orange Park             1997           100,000                -           10,200(1)                  -
</TABLE>



----------------------
(1)   Represents club dues and automobiles expense allowance.
(2)   Received stock in lieu of payment.
(3)   Mr. Taneja  resigned as a Director, Chief Executive Officer and Secretary
      as of January 19, 1998.

                                       56

<PAGE>   57


The following tables set forth information with respect to grants of options to
purchase shares of Common Stock during 1998 to the executive officers named in
the Summary Compensation Table. The amounts shown as potential realizable values
on the options are based on assumed annualized rates of appreciation in the
price of the Common Stock of 0%, 5% and 10% over the term of the options, as set
forth in rules of the Securities and Exchange Commission. Actual gains, if any,
on stock option exercises are dependent on future performance of the Common
Stock. There can be no assurance that the potential realizable values reflected
in this table will be achieved.


                           STOCK OPTION GRANTS IN 1998


<TABLE>
<CAPTION>
                                                           MARKET                       POTENTIAL REALIZABLE VALUE AT ASSUMED
                              % OF TOTAL                  PRICE PER                         ANNUAL RATES OF STOCK PRICE
                                OPTIONS                   SHARE OF                         APPRECIATION FOR OPTION TERM(2)
              NUMBERS OF      GRANTED TO                  UNDERLYING                 -------------------------------------------
              SECURITIES      EMPLOYEES                   SECURITY ON
              UNDERLYING      IN FISCAL      EXERCISE       DATE OF      EXPIRATION
  NAME     OPTIONS GRANTED      1997      PRICE PER SHARE   GRANT(1)        DATE           0%              5%             10%
--------- ---------------- -------------  --------------- ------------  -----------  -------------  --------------  ------------
<S>       <C>              <C>            <C>             <C>           <C>          <C>            <C>             <C>

</TABLE>

  No options were granted to executive officers in 1998.


The following table sets forth information concerning each exercise of options
during 1998 by the executive officers named in the Summary Compensation Table.
No options were outstanding as of December 31, 1998.


                            OPTION EXERCISES IN 1998

<TABLE>
<CAPTION>
                                    SHARES ACQUIRED ON
        NAME                            EXERCISE            VALUE REALIZED($)
--------------------                ------------------      -----------------
<S>                                 <C>                     <C>

</TABLE>

No options were exercised by executives in 1998.


ITEM 11 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

                             PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of the Record Date, March 31, 1999, with respect
to: (i) each of the Company's directors; (ii) each of the Company's executive
officers named in the Summary Compensation Table; (iii) all directors and
executive officers of the Company as a group; and (iv) each person known by the
Company to own beneficially more than 5% of the Common Stock. Except as
otherwise indicated, each of the shareholders listed below has sole voting and
investment power over the shares beneficially owned.


                                       57

<PAGE>   58








<TABLE>
<CAPTION>
                                                                  BENEFICIALLY OWNED
                                                                ----------------------

NAME                                                              SHARES       PERCENT
----                                                            ---------      -------
<S>                                                             <C>           <C>
Jugal K. Taneja(1)(2) ....................................        659,900       7.4%
Curtis L. Alliston(3)(4) .................................        622,000       7.0%
Ron Baugh(5) .............................................         77,320         *
Chuck Broes(6) ...........................................             --        --
Cardwell C. Nuckols,  Ph.D.(6) ...........................             --        --
American Enterprise Solutions, Inc. ......................      5,786,570      65.2%
Directors and executive officers as a group (3 persons)(7)      7,145,790      80.0%
</TABLE>

* Less than 1%



(1)   The business address of Mr. Taneja is 6950 Bryan Dairy Road, Largo,
      Florida 33777.
(2)   Includes 459,900 shares held by Twenty First Century Health Care Fund, LLC
      ("CHCF") over which Mr. Taneja has no economic interest but shares voting
      rights with other members of CHCF. The 659,900 shares shown does not
      include 115,000 shares held by Mrs. Taneja's children, who are over the
      age of 21 years.
(3)   Includes 100,000 shares of Common Stock held by Alliston Family Limited
      Partnership, which was established for the benefit of Mr. Alliston's
      children, over which Mr. Alliston will exercise voting rights.
(4)   The business address of Mr. Alliston is 755 West Brandon Boulevard,
      Brandon, Florida 33511.
(5)   The address of Mr. Baugh is 633 Cherry Grove Road, Orange Park, Florida
      32073
(6)   Mr. Broes and Mr. Nuckols are CEO and President, respectively, and
      Directors of American Enterprise Solutions, Inc. Their business address is
      6800 North Dale Mabry, Tampa, Florida 33614
(7)   Includes notes (1) through (5) above.

ITEM 12 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


                              CERTAIN TRANSACTIONS


The Company has an Employee Stock Option Plan ("employee plan") and a
Non-employee Director Stock Option plan ("director plan"). Options granted under
the employee plan are intended to be incentive stock options. The total number
of shares to which options may be granted under the employee and director plans
are 200,000 shares. Generally, the exercise price shall be fixed at no less than
100% of the average fair market value of the shares at date of option. At
December 31, 1998 there are no outstanding options under the Director Plan and
there are 10,000 outstanding options under the Employee Plan.

In March of 1996, the Company entered into an agreement with Judson Enterprises,
LTD to provided financial, consulting and banking services. As compensation for
these services the Company agreed to pay Judson Enterprises, Inc. $16,000 and
issue warrants for the purchase of 80,000 shares of common stock. Forty thousand
(40,000) warrants will be exercisable at $2.50 per share expiring March, 1999;
forty thousand (40,000) warrants will be exercisable at $3.00 per share expiring
March, 2001. Currently, the Company owes $12,000 toward the balance and has not
issued the warrants.

The Company through its Orange Park facility utilizes various diagnostic and
office equipment leased by Neurophysiology Associates, Inc. ("NPA"). NPA is 100%
owned by the President and Chief Operating Officer of Orange Park. The Company
has agreed to compensate NPA in no more or less favorable terms than the
original

                                       58

<PAGE>   59

lease calls for. Monthly payments approximate $1,920 and $950 in 1998 and 1997,
respectively. Annual rent expense approximated $11,400 and $23,000 in 1998 and
1997. Certain payments by the Company are made directly to the third party
lessor.

In July of 1996, the Company entered into a month to month rental arrangement
for its regional office (approximately 2,200 square feet) in northeast Florida
with Medical Consultants Inc. President and Chief Operating Officer of Orange
Park is 100% owner of Medical Consultants, Inc. The agreement calls for rental
payments of $1,500 per month. Rent expense for these spaces in 1998 and 1997
totaled $7,500 and $18,000, respectively. The office was closed in May 1998.

In July of 1996, a triple net lease became effective between the Company and
Sundance Partners II (a Florida general partnership) for a free standing 7,100
medical facility used for Riverside's Diagnostic Center. The facility is located
in the Riverside area of Jacksonville, Florida. The lease term is for an initial
five years with a one time option to extend for a five year period. Rent expense
for 1998 and 1997 approximated $119,000 and $117,000, respectively. Sundance
Partners II is 100% owned by the Company's Chief Executive Officer and
President.

In November 1996, J. Taneja and C. Alliston loaned the Company approximately
$33,000 each. The loans were due on demand and bear an 8% interest rate. In
1997, the officers each accepted stock valued at $121,900 as payment of this
indebtedness and unpaid bonuses from 1996.

One of the Company's former directors, Mr. Traber is a partner of Foley and
Lardner, a law firm that is one of the Company's legal counselors. In 1997, the
firm accepted stock valued at $150,000 in settlement for the Company's
indebtedness which, at the time, approximated that amount.

In March 1997, the Company borrowed $125,000 from a related party corporation
(majority owned by Messrs. Taneja and Alliston). The proceeds were used to pay
property taxes. The loan was due April 29, 1997 and is expected to be paid out
of receipts from overdue provider payments. The loan was paid down and a
remaining $62,500 remains to be paid and appears in the balance sheet as "Note
Due Related Party".

The Company has contracted with Healthy Services, Inc. which performs bone
density diagnostic services. Mr. Curtis Alliston (President and COO) owns 50%
interest in Healthy Services. The Company bills and collects for the services
rendered and retains a percentage of collection varying from 25% to 50%. Total
net fees earned by Healthy Services for 1998 and 1997 approximate $122,000 and
$68,000 respectively. In November of 1998 Healthy Services was acquired by AESI;
subsequently, certain diagnostic equipment was transferred to the Company at no
gain to AESI.

The Company engages Alan Serna (D.B.A.: Clearway Cleaning) to perform janitorial
services and laundry services for the corporate office, Brandon and SunPoint
facilities. Mr. Serna is the step son-in-law of Mr. Alliston. Total janitorial
and laundry expense approximated $93,000 in 1998.

About the time that AESI acquired its 65% interest in the Company, AESI began to
advance monies to the Company on an as needed basis to accommodate the Company's
cash needs. Certain monies were repaid. AESI advanced a total of $1,209,500 in
1998, inclusive of $475,000 it paid on behalf of the Company to its major
creditor to bring the Company current through October of 1998 with its work-out
agreement. The Company paid back $535,500; with a net advance of $674,000 made
to the Company by AESI. The advances are shown netted against the $2,000,000
receivable received by the Company from AESI in exchange for the securities it
had earlier received in exchange for the Company's 500,000 Preferred Shares.

Effective January 1, 1999 the Company contracted with AESI Service Group, Inc.
(a subsidiary of AESI) for management services, billing and collections.

                                       59
<PAGE>   60

ITEM 13 -- EXHIBITS AND REPORTS ON FORM 8-K

  (a) List of exhibits filed as part of this report:

<TABLE>
<CAPTION>
Exhibit
Number                                            Description
-------                                           -----------
<S>      <C>
3.1      Articles of Incorporation of the Company (Exhibit 3.1 to the Company's Form SB-1 Registration Statement (Reg.
         No. 33-80612) is incorporated by reference herein).

3.2      By-laws of the Company (Exhibit 3.2 to the Company's Form SB-1 Registration Statement (Reg. No. 33-80612) is
         incorporated by reference herein).

4.1      1995 Employee Stock Option Plan. (Exhibit 4.1 of Company's Form S-8 Registration No.33-80293 is incorporated by
         reference herein).

4.2      1995 Non-Employee Director Stock Option Plan. (Exhibit 4.2 of Company's Form S-8 Registration No. 80293 is
         incorporated by reference herein).

4.3      Warrants Agreement (Exhibit 4.4 to Amendment No. 3 to the Company's Form SB-1 Registration Statement (Reg. No.
         33-80612) is incorporated by reference herein).

10.3     Lease Agreement dated April 1, 1995 by and between National Diagnostics/Orange Park, Inc. and Sundance
         Partners. (Exhibit 10.3 of Company's Form 10-QSB for the period ended March 31, 1995 is incorporated by
         reference herein).

10.4     Employment Agreement by and between the Company and Curtis L. Alliston dated November 10, 1995. (Exhibit 10.1
         of Company's Form 10-QSB for the period ended September 30, 1995 is incorporated by reference herein).

10.5     Employment Agreement by and between the Company and Jugal K. Taneja dated November 10, 1995. (Exhibit 10.2 of
         Company's Form 10-QSB for the period ended September 30, 1995 is incorporated by reference herein).

10.6     Lease Agreement dated July 12, 1995 between National Diagnostics/Orange Park, Inc. and Siemens Medical Systems,
         Inc. effective September 14, 1995. (Exhibit 10.3 of Company's Form 10-QSB for the period ended September 30,
         1995 is incorporated by reference herein).

10.7     Purchase Agreement dated February 19, 1996 between National Diagnostics, Inc., National Diagnostics/Orange
         Park, Sundance Partners, and partners (Exhibit 10.9 of the Company's Form 10-KSB for the period ended December
         31, 1995 filed on April 1, 1996 is incorporated by reference herein).

10.8     Agreement of Partnership of Sundance Partners (a Florida partnership) dated March 1, 1995. (Exhibit 10.10 of
         the Company's Form 10-KSB for the period ended December 31, 1995 filed on April 1, 1996 is incorporated by
         reference herein).

10.9     Lease Agreement dated September 3, 1991 and modification thereto dated August 8, 1992 by and between Brandon
         Diagnostic Center, Ltd. and Bay Land Investment, Inc. relating to a portion of the Company's Brandon, Florida
         facility. (Exhibit 10.2 to the Company's Form SB-1 Registration Statement (Reg. No. 33-80612) is incorporated
         by reference herein).
</TABLE>

                                       60
<PAGE>   61


<TABLE>
<S>      <C>
10.10    Lease Agreement dated February 1, 1992 and modification thereto dated August 8, 1992 by and between Brandon
         Diagnostic Center, Ltd. and Bay Land Investment, Inc. relating to a portion of the Company's Brandon, Florida
         facility. (Exhibit 10.3 to the Company's Form SB-1 Registration Statement Reg. No. 33-80612) is incorporated by
         reference herein).

10.11    Lease Agreement dated January 15, 1993 by and between Brandon Diagnostic Center, Ltd. and Bay Land Investment,
         Inc. relating to a portion of the Company's Brandon, Florida facility. (Exhibit 10.4 to the Company's Form SB-1
         Registration Statement (Reg. no. 33-80612) is incorporated by reference herein).

10.12    Lease Agreement dated May 4, 1994 by and between Alpha Associates, Inc. and Sun Point Associates, Inc. and Sun
         Point Associates relating to the Company's Ruskin, Florida facility. (Exhibit 10.5 to the Company's for SB-1
         Registration Statement (Reg. No. 33-80612) is incorporated by reference herein).

10.13    Equipment Lease Agreement dated September 11, 1991 by and between Brandon Diagnostic Center, Ltd. and Siemens
         Credit Corporation and supplements thereto relating to the Company's magnetic resonance imaging equipment.
         (Exhibit 10.6 to the Company's Form SB-1 Registration Statement (Reg. No. 33-80612) is incorporated by
         reference herein).

10.14    Equipment Lease Agreement dated September 11, 1991 by and between Brandon Diagnostic Center, Ltd. and Siemens
         Credit Corporation and supplement thereto relating to the Company's computer tomography equipment. (Exhibit
         10.7 to the Company's Form SB-1 Registration Statement (Reg. No. 33-80612) is incorporated by reference
         herein).

10.15    Equipment Lease Agreement dated November 18, 1991 by and between Brandon Diagnostic Center, Ltd. and Siemens
         Credit Corporation and supplements thereto relating to the Company's nuclear medicine equipment. (Exhibit 10.9
         to the Company's Form SB-1 Registration Statement (Reg. No. 33-80612) is incorporated by reference herein).

10.16    Lease Agreement dated September 1, 1994 by and between Highland Properties of Gulf Coast, Ltd. and Brandon
         Diagnostic Center, Ltd. relating to the Company's Brandon, Florida facility. (Exhibit 10.21 to Amendment No. 3
         to the Company's Form SB-1 Registration Statement (Reg. No. 33-80612 is incorporated by reference herein).

10.17    Asset Purchase Agreement effective November 1, 1993 by and between Alpha Acquisitions Corp. and Equipment
         Company of Brandon, Inc. pertaining to the acquisition by Alpha Acquisitions Corp. of the 40% limited
         partnership interest in Brandon Diagnostic Center, Ltd. (Exhibit 10.22 to Amendment No. 3 to the Company's Form
         SB-1 Registration Statement (Reg. No. 33-80612) is incorporated by reference herein).

10.18    Unit Purchase Option dated September 27, 1994 relating to 50,000 Units (Exhibit 4.5 to Amendment No. 2 to the
         Company's Form SB-1 Registration Statement (Reg. No. 33-80612) is incorporated by reference herein).

10.19    Equipment Lease Agreement dated July 19, 1994 by and between Medical Consultants of Middleburg, Inc. and
         Copelco Capital Corporation relating to Orange Park's ultrasound equipment. (Exhibit 10.17 to the Company's
         Form 10-KSB for December 31, 1994 is incorporated by reference herein).
</TABLE>

                                       61
<PAGE>   62

<TABLE>
<S>      <C>
10.20    Master Lease Agreement dated June 27, 1994 by and between Alpha Associates, Inc. d/b/a Brandon Diagnostic
         Center and Copelco Leasing Corporation and schedules thereto relating to SunPoint's diagnostic imaging
         equipment. (Exhibit 10.18 to the Company's Form 10-KSB for December 31, 1994 is incorporated by reference
         herein).

10.21    Equipment Lease Agreement dated August 1, 1994 by and between Brandon Diagnostic Center, Ltd. and Siemens
         Credit Corporation relating to SunPoint's diagnostic imaging equipment. (Exhibit 10.19 to the Company's Form
         10-KSB for December 31, 1994 is incorporated by reference herein).

10.22    Asset Purchase Agreement, dated February 6, 1995 and effective as of January 31, 1995, as amended, by and among
         Middleburg Medical Imaging Consultants, Inc. (renamed National Diagnostics/Orange Park, Inc.), Medical
         Consultants of Middleburg, Inc. and Medical Imaging Consultants, Inc. (Exhibit 10.20 to the Company's Form
         10-KSB for December 31, 1994 is incorporated by reference herein).

10.23    Employment Contract, dated February 6, 1995 and effective as of January 31, 1995, by and between Ronald D.
         Baugh and Middleburg Medical Imaging Consultants, Inc. (Exhibit 10.21 to the Company's Form 10-KSB for December
         31, 1994 is incorporated by reference herein).

10.24    Professional Services Agreement, dated November 30, 1994, by and between the Company and Drs. Hurt, Isaacs,
         Johnston and Cranford, P.A. (Exhibit 10.23 to the Company's Form 10-KSB for December 31, 1994 is incorporated
         by reference herein).

10.25    Services Agreement, dated November 17, 1994, by and between Diagnostic Cardiology Associates, P.A. and the
         Company. (Exhibit 10.24 to the Company's Form 10-KSB for December 31, 1994 is incorporated by reference
         herein).

10.26    Lease Agreement dated August 15, 1995 between National Diagnostics/Riverside, Inc. ("Riverside") and Sundance
         Partners II relating to the Company's Riverside fixed site facility. (Exhibit 10.33 to the Company's 10-QSB for
         June 30, 1996 is incorporated by reference herein).

10.27    Equipment Lease Agreement dated July 15, 1996 between National Diagnostics/Riverside, Inc. and Siemens Credit
         Corporation relating to Riverside's computer tomography equipment. (Exhibit 10.34 to the Company's 10-QSB for
         September 30, 1996 is incorporated by reference herein).

10.28    Equipment Lease Agreement dated August 12, 1996 between National Diagnostics/Riverside, Inc. and Siemens Credit
         Corporation relating to the Riverside's ultrasound equipment. (Exhibit 10.35 to the Company's 10-QSB for
         September 30, 1996 is incorporated by reference herein).

10.29    Promissory Note and Business Loan Agreement dated September 9, 1996 between Brandon Diagnostic Center, Ltd. and
         South Hillsborough Community Bank related to equipment refinancing. (Exhibit 10.36 to the Company's 10-QSB for
         September 30, 1996 is incorporated by reference herein).

10.30    Equipment Lease Agreement dated September 11, 1996 between National Diagnostics/Riverside, Inc. ("Riverside")
         and Siemens Credit Corporation relating to Riverside's Sireskop C. (Exhibit 10.37 to the Company's 10-QSB for
         September 30, 1996 is incorporated by reference herein).

10.31    Loan and Security Agreement dated September 13,1996 between National Diagnostics, Inc. and DVI Business Credit
         Corporation relating to the Company's line of credit. (Exhibit 10.38 to the Company's 10-QSB for September 30,
         1996 is incorporated by reference herein).
</TABLE>

                                       62

<PAGE>   63

<TABLE>
<S>      <C>
10.32    Promissory Note and Business Loan Agreement dated December 23, 1996 between Brandon Diagnostic Center, Ltd. and
         South Hillsborough Community Bank related to the purchase of Stereotactic Mammography equipment. (Exhibit 10.37
         to the Company's Form 10-KSB for December 31, 1996 is incorporated by reference herein).

10.33    Equipment Lease Agreement dated January 22, 1997 between Brandon Diagnostic Center, Ltd. ("Brandon") and
         Siemens Credit Corporation relating to Brandon's Sireskop CX. (Exhibit 10.38 to the Company's Form 10-KSB for
         December 31, 1996 is incorporated by reference herein).

10.34    Professional Service Agreement, effective February 1, 1997, by and between SunPoint Diagnostic Center, Inc. and
         TeleQuest, Inc. (Exhibit 10.39 to the Company's Form 10-KSB for December 31, 1996 is incorporated by reference
         herein).

10.35    Professional Service Agreement, effective February 1, 1997, by and between National Diagnostics/Orange Park,
         Inc. and TeleQuest, Inc. (Exhibit 10.40 to the Company's Form 10-KSB for December 31, 1996 is incorporated by
         reference herein).

10.36    Professional Service Agreement, effective February 1, 1997, by and between Brandon Diagnostic Center, Ltd. and
         TeleQuest, Inc. (Exhibit 10.41 to the Company's Form 10-KSB for December 31, 1996 is incorporated by reference
         herein).

10.37    Exchange Agreement, dated June 27, 1997 by and between National Diagnostics, Inc. and Sudafric Suisse Trustees.
         (Exhibit 10.43 to the Company's Form 8-K dated July 22, 1997 is incorporated by reference herein).

10.38    Professional Services Agreement, dated May 15, 1997 by and between National Diagnostics, Inc. and University of
         Florida, for and on behalf of the Board of Regents of the State of Florida, for the Benefit of the Department
         of Radiology/UFHSCJ, College of Medicine, University of Florida. (Exhibit 10.44 to the Company's Form 10-QSB
         for June 30, 1997 is incorporated by reference herein.)

10.39    Professional Services Agreement dated August 1, 1997 by and between National Diagnostics, Inc. and Nancy C.
         Lawhon, M.D., P.C. (Exhibit 10.47 to the Company's Form 10-QSB for June 30, 1997 is incorporated by reference
         herein).

10.40    Loan and Security Agreement, dated October 3, 1997 by and between National Diagnostics, Inc., SunPoint
         Diagnostic Center, Inc., National Diagnostics/Orange Park, Inc., National Diagnostics/Riverside, Inc., Alpha
         Associates, Inc., Alpha Acquisitions, Inc., Brandon Diagnostic Center, Ltd., and HealthCare Financial Partners
         Funding, Inc. (Exhibit 10.48 to the Company's Form 10-QSB for September 30, 1997 is incorporated by reference
         herein).

10.41    Merger Agreement dated February 23, 1998 by and between National Diagnostics, Inc., a Florida Corporation, and
         American Enterprise Solutions, Inc., a Florida Corporation. (Exhibit 10.49 to the Company's Form 8-K dated
         March 10, 1998 is incorporated by reference herein).

10.42    Stock Purchase Agreement dated March 17, 1998 by and between National Diagnostics, Inc., a Florida Corporation
         and American Enterprise Solutions, Inc., a Florida Corporation. (Exhibit 10.50 to the Company's Form 10-KSB
         dated December 31, 1997, is incorporated by reference herein).

10.43    Professional Services Agreement dated October 13, 1997 by and between National Diagnostics, Inc. and Lisa
         Porter-Grenn, M.D. (Exhibit 10.51 to the Company's Form 10-KSB dated December 31, 1997, is incorporated by
         reference herein).
</TABLE>


                                       63


<PAGE>   64

<TABLE>
<S>      <C>
10.44    First Amendment to Merger Agreement by and between National Diagnostics, Inc. and American Enterprise
         Solutions, Inc. effective March 17, 1998. (Exhibit 10.53 to the company's Form 10-QSB dated March 31, 1998 is
         incorporated by reference herein).

10.45    Second Amendment to Merger Agreement by and between National Diagnostics, Inc. and American Enterprise
         Solutions, Inc. effective April 29, 1998. (Exhibit 10.52 of the Company's Form 10-KSB dated December 31, 1997
         is incorporated herein).

10.46    Third Amendment to Merger Agreement by and between National Diagnostics, Inc. and American Enterprise Solution,
         Inc. effective July 24, 1998. (Exhibit 10.54 of the Company's Form 10-QSB dated June 30, 1998 is Incorporated
         herein).

10.47    Professional Services Agreement by and between National Diagnostics, Inc. and NAVIX MSO Punta Gorda, Inc. dated
         November 17, 1998.

10.48    Professional Services Agreement by and between National Diagnostics, Inc. and AES Service Group, Inc. effective
         October 1, 1998.

20.1     National Diagnostics, Inc. Offer to Exchange dated July 6, 1995. (Exhibit 20.1 to the Company's Form 10-QSB for
         the period ended June 30, 1995 is incorporated by reference herein).

21       Subsidiaries of Registrant (Exhibit 21 of the Company's Form 10-KSB for the period ended December 31, 1995
         filed on April 1, 1996 is incorporated by reference herein).

24       Powers of Attorney (included on signature page) (Exhibit 24 of the Company's Form 10-KSB for the period ended
         December 31, 1995 filed on April 1, 1996 is incorporated by reference herein).

27.1     Financial Data Schedule
</TABLE>


   (b)   Reports on Form 8-K.

         No Form 8-K was filed by the Company in the fourth quarter of 1998.



<PAGE>   65


                                   SIGNATURES

         IN ACCORDANCE WITH SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.



Date:  May 26, 1999                NATIONAL DIAGNOSTICS, INC.



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



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



                                       65
<PAGE>   66



                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
                                                                                                                   Pagination by
                                                                                                                   Sequential
Exhibit                                                                                                            Numbering
Number                                      Description of Document                                                System
-------                                     -----------------------                                                -------------
<S>      <C>                                                                                                       <C>
3.1      Articles of Incorporation of the Company (Exhibit 3.1 to the Company's Form
         SB-1 Registration Statement (Reg. No. 33-80612) is incorporated
         by reference herein).

3.2      By-laws of the Company (Exhibit 3.2 to the Company's Form SB-1 Registration
         Statement (Reg. No. 33-80612) is incorporated by reference herein).

4.1      1995 Employee Stock Option Plan. (Exhibit 4.1 of Company's Form S-8
         Registration No.33-80293 is incorporated by reference herein).

4.2      1995 Non-Employee Director Stock Option Plan. (Exhibit 4.2 of Company's
         Form S-8 Registration No. 80293 is incorporated by reference herein).

4.3      Warrants Agreement (Exhibit 4.4 to Amendment No. 3 to the Company's Form
         SB-1 Registration Statement (Reg. No. 33-80612) is incorporated by reference
         herein).

10.3     Lease Agreement dated April 1, 1995 by and between National
         Diagnostics/Orange Park, Inc. and Sundance Partners. (Exhibit 10.3 of
         Company's Form 10-QSB for the period ended March 31, 1995 is
         incorporated by reference herein).

10.4     Employment Agreement by and between the Company and Curtis L. Alliston
         dated November 10, 1995. (Exhibit 10.1 of Company's Form 10-QSB for the
         period ended September 30, 1995 is incorporated by reference herein).

10.5     Employment Agreement by and between the Company and Jugal K. Taneja
         dated November 10, 1995. (Exhibit 10.2 of Company's Form 10-QSB for the
         period ended September 30, 1995 is incorporated by reference herein).

10.6     Lease Agreement dated July 12, 1995 between National Diagnostics/Orange
         Park, Inc. and Siemens Medical Systems, Inc. effective September 14,
         1995. (Exhibit 10.3 of Company's Form 10-QSB for the period ended
         September 30, 1995 is incorporated by reference herein).

10.7     Purchase Agreement dated February 19, 1996 between National
         Diagnostics, Inc., National Diagnostics/Orange Park, Sundance Partners,
         and partners. (Exhibit 10.9 of the Company's Form 10-KSB for the period
         ended December 31, 1995 filed on April 1, 1996 is incorporated by
         reference herein).

10.8     Agreement of Partnership of Sundance Partners (a Florida partnership)
         dated March 1, 1995. (Exhibit 10.10 of the Company's Form 10-KSB for
         the period ended December 31, 1995 filed on April 1, 1996 is
         incorporated by reference herein).
</TABLE>




<PAGE>   67




                                  EHIBIT INDEX
<TABLE>
<CAPTION>
                                                                                                                   Pagination by
                                                                                                                   Sequential
Exhibit                                                                                                            Numbering
Number                                      Description of Document                                                System
-------                                     -----------------------                                                -------------
<S>      <C>                                                                                                       <C>
10.9     Lease Agreement dated September 3, 1991 and modification thereto dated August 8,
         1992 by and between Brandon Diagnostic Center, Ltd. and Bay Land Investment,
         Inc. relating to a portion of the Company's Brandon, Florida facility.  (Exhibit 10.2 to
         the Company's Form SB-1 Registration Statement (Reg. No. 33-80612) is
         incorporated by reference herein).

10.10    Lease Agreement dated February 1, 1992 and modification thereto dated August 8,
         1992 by and between Brandon Diagnostic Center, ltd. and Bay Land Investment,
         Inc. relating to a portion of the Company's Brandon, Florida facility.   (Exhibit 10.3
         to the Company's Form SB-1 Registration Statement Reg. No. 33-80612) is
         incorporated by reference herein).

10.11    Lease Agreement dated January 15, 1993 by and between Brandon Diagnostic
         Center, Ltd. and Bay Land Investment, Inc. relating to a portion of the Company's
         Brandon, Florida facility.  (Exhibit 10.4 to the Company's Form SB-1 Registration
         Statement (Reg. no. 33-80612) is incorporated by reference herein).

10.12    Lease Agreement dated May 4, 1994 by and between Alpha Associates, Inc. and
         Sun Point Associates, Inc. and Sun Point Associates relating to the Company's
         Ruskin, Florida facility.   (Exhibit 10.5 to the Company's for SB-1 Registration
         Statement (Reg. No. 33-80612) is incorporated by reference herein).

10.13    Equipment Lease Agreement dated September 11, 1991 by and between
         Brandon Diagnostic Center, ltd. and Siemens Credit Corporation and
         supplements thereto relating to the Company's magnetic resonance
         imaging equipment. (Exhibit 10.6 to the Company's Form SB-1
         Registration Statement (Reg. No. 33-80612) is incorporated by reference
         herein).

10.14    Equipment Lease Agreement dated September 11, 1991 by and between
         Brandon Diagnostic Center, Ltd. and Siemens Credit Corporation and
         supplement thereto relating to the Company's computer tomography
         equipment.   (Exhibit 10.7 to the Company's Form SB-1 Registration Statement
         (Reg. No. 33-80612) is incorporated by reference herein).

10.15    Equipment Lease Agreement dated November 18, 1991 by and between Brandon
         Diagnostic Center, Ltd. and Siemens Credit Corporation and supplements thereto
         relating to the Company's nuclear medicine equipment.  (Exhibit 10.9 to the
         Company's Form SB-1 Registration Statement (Reg. No. 33-80612) is incorporated
         by reference herein).
</TABLE>





<PAGE>   68

                                  EXHIBIT INDEX
<TABLE>
<CAPTION>
                                                                                                                   Pagination by
                                                                                                                   Sequential
Exhibit                                                                                                            Numbering
Number                                      Description of Document                                                System
-------                                     -----------------------                                                -------------
<S>      <C>                                                                                                       <C>
10.16    Lease Agreement dated September 1, 1994 by and between Highland
         Properties of Gulf Coast, Ltd. and Brandon Diagnostic Center, Ltd.
         relating to the Company's Brandon, Florida facility. (Exhibit 10.21 to
         Amendment No. 3 to the Company's Form SB-1 Registration Statement (Reg.
         No. 33-80612 is incorporated by reference herein).

10.17    Asset Purchase Agreement effective November 1, 1993 by and between
         Alpha Acquisitions Corp. and Equipment Company of Brandon, Inc.
         pertaining to the acquisition by Alpha Acquisitions Corp. of the 40%
         limited partnership interest in Brandon Diagnostic Center, Ltd.
         (Exhibit 10.22 to Amendment No. 3 to the Company's Form SB-1
         Registration Statement (Reg. No. 33-80612) is incorporated by reference
         herein).

10.18    Unit Purchase Option dated September 27, 1994 relating to 50,000 Units
         (Exhibit 4.5 to Amendment No. 2 to the Company's Form SB-1 Registration
         Statement (Reg. No. 33-80612) is incorporated by reference herein).

10.19    Equipment Lease Agreement dated July 19, 1994 by and between Medical
         Consultants of Middleburg, Inc. and Copelco Capital Corporation
         relating to Orange Park's ultrasound equipment. (Exhibit 10.17 to the
         company's Form 10-KSB for December 31, 1994 is incorporated by
         reference herein).

10.20    Master Lease Agreement dated June 27, 1994 by and between Alpha
         Associates, Inc. d/b/a Brandon Diagnostic Center and Copelco Leasing
         Corporation and schedules thereto relating to SunPoint's diagnostic
         imaging equipment. (Exhibit 10.18 to the Company's form 10-KSB for
         December 31, 1994 is incorporated by reference herein).

10.21    Equipment Lease Agreement dated August 1, 1994 by and between Brandon
         Diagnostic Center, Ltd. and Siemens Credit Corporation relating to
         SunPoint's diagnostic imaging equipment. (Exhibit 10.19 to the
         Company's Form 10-KSB for December 31, 1994 is incorporated by
         reference herein).

10.22    Asset Purchase Agreement, dated February 6, 1995 and effective as of
         January 31, 1995, as amended, by and among Middleburg Medical Imaging
         Consultants, Inc. (renamed National Diagnostics/Orange Park, Inc.),
         Medical Consultants of Middleburg, Inc. and Medical Imaging
         Consultants, Inc. (Exhibit 10.20 to the Company's form 10-KSB for
         December 31, 1994 is incorporated by reference herein).
</TABLE>



<PAGE>   69

                                  EXHIBIT INDEX
<TABLE>
<CAPTION>
                                                                                                                   Pagination by
                                                                                                                   Sequential
Exhibit                                                                                                            Numbering
Number                                      Description of Document                                                System
-------                                     -----------------------                                                -------------
<S>      <C>                                                                                                       <C>
10.23    Employment Contract, dated February 6, 1995 and effective as of January
         31, 1995, by and between Ronald D. Baugh and Middleburg Medical Imaging
         Consultants, Inc. (Exhibit 10.21 to the Company's Form 10-KSB for
         December 31, 1994 is incorporated by reference herein).

10.24    Professional Services Agreement, dated November 30, 1994, by and
         between the Company and Drs. Hurt, Isaacs, Johnston and Cranford, P.A.
         (Exhibit 10.23 to the Company's Form 10-KSB for December 31, 1994 is
         incorporated by reference herein).

10.25    Services Agreement, dated November 17, 1994, by and between Diagnostic
         Cardiology Associates, P.A. and the Company. (Exhibit 10.24 to the
         Company's Form 10-KSB for December 31, 1994 is incorporated by
         reference herein).

10.26    Lease Agreement dated August 15, 1995 between National
         Diagnostics/Riverside, Inc. ("Riverside") and Sundance Partners II
         relating to the Company's Riverside fixed site facility. (Exhibit 10.33
         to the Company's 10-QSB for June 30, 1996 is incorporated by reference
         herein).

10.27    Equipment Lease Agreement dated July 15, 1996 between National
         Diagnostics/Riverside, Inc. and Siemens Credit Corporation relating to
         Riverside's computer tomography equipment. (Exhibit 10.34 to the
         Company's 10-QSB for September 30, 1996 is incorporated by reference
         herein).

10.28    Equipment Lease Agreement dated August 12, 1996 between National
         Diagnostics/Riverside, Inc. and Siemens Credit Corporation relating to
         the Riverside's ultrasound equipment. (Exhibit 10.35 to the Company's
         10-QSB for September 30, 1996 is incorporated by reference herein).

10.29    Promissory Note and Business Loan Agreement dated September 9, 1996
         between Brandon Diagnostic Center, Ltd. and South Hillsborough
         Community Bank related to equipment refinancing. (Exhibit 10.36 to the
         Company's 10-QSB for September 30, 1996 is incorporated by reference
         herein).

10.30    Equipment Lease Agreement dated September 11, 1996 between National
         Diagnostics/Riverside, Inc. ("Riverside") and Siemens Credit
         Corporation relating to Riverside's Sireskop CX. (Exhibit 10.37 to the
         Company's 10-QSB for September 30, 1996 is incorporated by reference
         herein).
</TABLE>


<PAGE>   70



                                  EXHIBIT INDEX
<TABLE>
<CAPTION>
                                                                                                                   Pagination by
                                                                                                                   Sequential
Exhibit                                                                                                            Numbering
Number                                      Description of Document                                                System
-------                                     -----------------------                                                -------------
<S>      <C>                                                                                                       <C>
10.31    Loan and Security Agreement dated September 13,1996 between National
         Diagnostics, Inc. and DVI Business Credit Corporation relating to the
         Company's line of credit. (Exhibit 10.38 to the Company's 10-QSB for
         September 30, 1996 is incorporated by reference herein).

10.32    Promissory Note and Business Loan Agreement dated December 23, 1996
         between Brandon Diagnostic Center, Ltd. and South Hillsborough
         Community Bank related to the purchase of Stereotactic Mammography
         equipment. (Exhibit 10.37 to the Company's Form 10-KSB for December 31,
         1996 is incorporated by reference herein.)

10.33    Equipment Lease Agreement dated January 22, 1997 between Brandon
         Diagnostic Center, Ltd. ("Brandon") and Siemens Credit Corporation
         relating to Brandon's Sireskop CX. (Exhibit 10.38 to the Company's Form
         10-KSB for December 31, 1996 is incorporated by reference herein).

10.34    Professional Service Agreement, effective February 1, 1997, by and
         between SunPoint Diagnostic Center, Inc. and TeleQuest, Inc. (Exhibit
         10.39 to the Company's Form 10-KSB for December 31, 1996 is
         incorporated by reference herein).

10.35    Professional Service Agreement, effective February 1, 1997, by and
         between National Diagnostics/Orange Park, Inc. and TeleQuest, Inc.
         (Exhibit 10.40 to the Company's Form 10-KSB for December 31, 1996 is
         incorporated by reference herein).

10.36    Professional Service Agreement, effective February 1, 1997, by and
         between Brandon Diagnostic Center, Ltd. and TeleQuest, Inc. (Exhibit
         10.41 to the Company's Form 10-KSB for December 31, 1996 is
         incorporated by reference herein).

10.37    Exchange Agreement, dated June 27, 1997 by and between National
         Diagnostics, Inc. and Sudafric Suisse Trustees. (Exhibit 10.43 to the
         Company's Form 8-K dated July 22, 1997 is incorporated by reference
         herein).

10.38    Professional Services Agreement, dated May 15, 1997 by and between
         National Diagnostics, Inc. and University of Florida, for and on behalf
         of the Board of Regents of the State of Florida, for the Benefit of the
         Department of Radiology/UFHSCJ, College of Medicine, University of
         Florida. (Exhibit 10.44 to the Company's Form 10-QSB for June 30, 1997
         is incorporated by reference herein.)
</TABLE>


<PAGE>   71


                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
                                                                                                                   Pagination by
                                                                                                                   Sequential
Exhibit                                                                                                            Numbering
Number                                      Description of Document                                                System
-------                                     -----------------------                                                -------------
<S>      <C>                                                                                                       <C>
10.39    Professional Services Agreement dated August 1, 1997 by and between
         National Diagnostics, Inc. and Nancy C. Lawhon, M.D., P.C. (Exhibit
         10.47 to the Company's Form 10-QSB for June 30, 1997 is incorporated by
         reference herein).

10.40    Loan and Security Agreement, dated October 3, 1997 by and between
         National Diagnostics, Inc., SunPoint Diagnostic Center, Inc., National
         Diagnostics/Orange Park, Inc., National Diagnostics/Riverside, Inc.,
         Alpha Associates, Inc., Alpha Acquisitions, Inc., Brandon Diagnostic
         Center, Ltd., and HealthCare Financial Partners Funding, Inc. (Exhibit
         10.48 to the Company's Form 10-QSB for September 30, 1997 is
         incorporated by reference herein).

10.41    Merger Agreement dated February 23, 1998 by and between National
         Diagnostics, Inc., a Florida Corporation, and American Enterprise
         Solutions, Inc., a Florida Corporation. (Exhibit 10.49 to the Company's
         Form 8-K dated March 10, 1998 is incorporated by reference herein).

10.42    Stock Purchase Agreement dated March 17, 1998 by and between National
         Diagnostics, Inc., a Florida Corporation and American Enterprise
         Solutions, Inc., a Florida Corporation. (Exhibit 10.50 to the Company's
         Form 10-KS13 dated December 31, 1997, is incorporated by reference
         herein).

10.43    Professional Services Agreement dated October 13, 1997 by and between
         National Diagnostics, Inc. and Lisa Porter-Grenn, M.D. (Exhibit 10.51
         to the Company's Form 10-KS13 dated December 31, 1997, is incorporated
         by reference herein).

10.44    First Amendment to Merger Agreement by and between National
         Diagnostics, Inc. and American Enterprise Solutions, Inc. effective
         March 17, 1998. (Exhibit 10.53 to the Company's Form 10-QSB dated March
         31, 1998 is incorporated by reference herein).

10.45    Second Amendment to Merger Agreement by and between National
         Diagnostics, Inc. and American Enterprise Solutions, Inc. effective
         April 29, 1998. (Exhibit 10.52 of the Company's Form 10-KSB dated
         December 31,1997 is incorporated herein).

10.46    Third Amendment to Merger Agreement by and between National
         Diagnostics, Inc. and American Enterprise Solution, Inc. effective July
         24, 1998. (Exhibit 10.54 of the Company's Form 10-QSB dated June 30,
         1998 is incorporated herein).

10.47    Professional Services Agreement by and between National Diagnostics,
         Inc. and NAVIX MSO Punta Gorda, Inc. dated November 17, 1998.

10.48    Professional Services Agreement by and between National Diagnostics,
         Inc. and AES Service Group, Inc. effective October 1, 1998.
</TABLE>




<PAGE>   72

<TABLE>
<S>      <C>                                                                                                       <C>
20.1     National Diagnostics, Inc. Offer to Exchange dated July 6, 1995.
         (Exhibit 20.1 to the Company's Form 10-QSB for the period ended June
         30, 1995 is incorporated by reference herein).

21       Subsidiaries of Registrant (Exhibit 21 of the Company's Form 10-KSB
         for the period ended December 31, 1995 filed on April 1, 1996 is
         incorporated by reference herein).

24       Powers of Attorney (included on signature page) (Exhibit 24 of the
         Company's Form 10-KSB for the period ended December 31, 1995 filed on
         April 1, 1996 is incorporated by reference herein).

27.1     Financial Data Schedule
</TABLE>