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Nanobac Pharmaceuticals Inc – ‘424B3’ on 7/31/96

As of: Wednesday, 7/31/96 · Accession #: 950144-96-4736 · File #: 333-03908

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 7/31/96  Nanobac Pharmaceuticals Inc       424B3                  1:194K                                   Bowne of Atlanta Inc/FA

Prospectus — Rule 424(b)(3)
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 424B3       National Diagnostics, Inc. Form 424B3                 75    349K

Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Center Development and New Center Acquisitions Certain Transactions Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Company's Growth Strategy, The Company, The CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) Years ended December 31, 1995 and 1994 Description of Business Description of Securities Dividend Policy Executive Compensation Experts Government Regulation Legal Matters Legal Proceedings Liquidity and Capital Resources Management Management's Discussion and Analysis or Plan of Operation NDCI Mobile Services Notes to Consolidated Financial Statements Offering, The Operations Orange Park Facility, The Plan of Distribution Price Range of Common Equity Principal Shareholders Prospectus Summary Report of Independent Certified Public Accountants Risk Factors Selling Shareholders SunPoint Facility, The The Company The Company's Growth Strategy The Offering The Orange Park Facility The SunPoint Facility Use of Proceeds Warrants
1	1st Page - Filing Submission
3	Prospectus Summary
"	The Company
"	The Offering
4	Risk Factors
8	Use of Proceeds
9	Selling Shareholders
10	Plan of Distribution
"	Price Range of Common Equity
11	Dividend Policy
"	Management's Discussion and Analysis or Plan of Operation
15	Liquidity and Capital Resources
18	Description of Business
21	The Company's Growth Strategy
"	Center Development and New Center Acquisitions
24	Operations
25	The SunPoint Facility
"	The Orange Park Facility
26	NDCI Mobile Services
28	Government Regulation
32	Legal Proceedings
33	Management
34	Executive Compensation
35	Certain Transactions
37	Principal Shareholders
"	Description of Securities
38	Warrants
40	Legal Matters
"	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
"	Experts
52	Report of Independent Certified Public Accountants
59	CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) Years ended December 31, 1995 and 1994
60	Notes to Consolidated Financial Statements

424B3 1st Page of 75 TOC ↑Top Previous Next ↓Bottom Just 1st

SUBJECT TO COMPLETION, DATED JULY 2, 1996

Prospectus

Filed pursuant to Rule 424b3
Registration No. 333-03908

742,864 SHARES

NATIONAL DIAGNOSTICS, INC.

Common Stock

Of, the Common Stock, no par value, being offered hereby, 92,705
shares will be sold by the Company upon exercise of the Company's stock
purchase warrants sold in connection with the Company's initial public offering
(the "Warrants") and 650,159 shares will be sold from time to time by the
selling shareholders. The Company will pay certain of the expenses of this
offering; however, the selling shareholders will bear the cost of all brokerage
commissions and discounts incurred in connection with the sale of their shares.
The Company will not receive any of the proceeds from the sale of the shares
being sold by the selling shareholders. Of the shares being offered by the
selling shareholders, a total of 487,533 shares (75.0% of the selling
shareholders' shares and 19.2% of the total number of shares outstanding as of
the date of this Prospectus) are being offered by the Company's Chief Executive
Officer and President (both of whom also are directors) or persons or entities
whose shares they are deemed to beneficially own, and by two of the Company's
outside directors.

The Common Stock is quoted on the Nasdaq SmallCap Market under the
symbol "NATD." On June 27, 1996, the closing price of the Common Stock was
$3-7/8.

SEE "RISK FACTORS" ON PAGES 4 THROUGH 7 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
COMMON STOCK TO WHICH THIS PROSPECTUS RELATES.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

[Enlarge/Download Table]

=======================================================================================================================
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT COMPANY (1) SHAREHOLDERS(2)
-----------------------------------------------------------------------------------------------------------------------

Per Share $ 3.00 -0- $ 3.00
-----------------------------------------------------------------------------------------------------------------------
Total $278,115.00 -0- $278,115.00
=======================================================================================================================

(1) Before deduction of expenses payable by the Company estimated at
$25,000.
(2) The selling shareholders will not receive any proceeds from the
exercise of the Warrants. Proceeds to the selling shareholders from
the sale of their shares will depend on the market price of the Common
Stock at the time of sale.

Sales by the Company will be made directly to the Warrant holders.
Sales by the selling shareholders may be made in the over-the-counter market or
on one or more exchanges, or otherwise at prices and at terms then prevailing
or at prices related to the then current market price, or in negotiated
transactions, or to one or more underwriters for resale to the public.

The date of this Prospectus is July 19, 1996.

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AVAILABLE INFORMATION

The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports and other information with the Securities
and Exchange Commission (the "Commission"). Reports and other information
concerning the Company may be inspected at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the regional offices of the Commission:
New York Office, Seven World Trade Center, 13th Floor, New York, New York 10048
and Chicago Office, Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material may also be obtained
from the public reference section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549-1004 at prescribed rates. The Commission also maintains
a Web site that contains reports, proxy and information statements and other
information regarding registrants, including the Company, that file
electronically with the Commission. The address of such Web site is
http://www.sec.gov.

This Prospectus does not contain all the information set forth in the
Registration Statement and exhibits thereto which the Company has filed with
the Commission under the Securities Act of 1933, as amended, to which reference
is hereby made.

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PROSPECTUS SUMMARY

The following is a summary of certain information contained elsewhere
in this Prospectus. Reference is made to, and this summary is qualified in its
entirety by, the more detailed information and financial statements, including
the notes thereto, contained elsewhere in this Prospectus. Unless the context
requires otherwise, the term "the Company" as used in this Prospectus refers to
National Diagnostics, In. and its subsidiaries.

THE COMPANY

National Diagnostics, Inc. and its wholly-owned subsidiaries (the
"Company") provide diagnostic imaging services through several outpatient
centers in Florida. The Company's principal facility, located in Brandon,
Florida, just east of Tampa, accounted for 63% of the Company's net revenues
during 1995. The Company provides full service diagnostic imaging services to
patients and physicians in a comfortable, service-oriented environment located
outside an institutional setting. Diagnostic imaging services provided include
magnetic resonance imaging, computer tomography, ultrasound, nuclear medicine,
general radiology and fluoroscopy, neurodiagnostic testing and mammography.

The Company was incorporated in Florida in June 1994. Its executive
headquarters are located at 737B West Brandon Boulevard, Brandon, Florida
33511, and its telephone number is (813) 661-9501.

THE OFFERING

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Common Stock offered by the Company . . . . . . . . . . . . . . . . . . . . 92,705 Shares
Common Stock offered by the Selling Shareholders . . . . . . . . . . . . . . 650,159 Shares
---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 742,864 Shares
=========
Common Stock to be outstanding after the Offering . . . . . . . . . . . . . 2,732,334 Shares

Use of proceeds by the Company(1) . . . . . . . . . . . . . . . . . . . . . Working capital
Symbol for the Common Stock . . . . . . . . . . . . . . . . . . . . . . . . "NATD"

------------------------
(1) The Company will not receive any of the proceeds from the sale of shares of
Common Stock by the selling shareholders.

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RISK FACTORS

Prospective investors should carefully consider the following
information in conjunction with the other information contained or incorporated
by reference in this Prospectus before purchasing shares of Common Stock in the
offering.

Significant Long-Term Liabilities, Including Capitalized Lease
Obligations. The Company has significant outstanding debt comprised
principally of capitalized lease obligations relating to the Company's
equipment. As of March 31, 1996, the Company had total outstanding
indebtedness, including capitalized lease obligations, of approximately $3.1
million. The typical equipment lease is secured by a first lien on the
equipment, as well as other assets. The Company is the primary obligor under
each such lease. Certain of the Company's long-term debt obligations are
personally guaranteed by the Company's principal shareholders and their
spouses. A default under an equipment lease could materially adversely affect
the operations of the Company.

Net Losses; Accumulated Deficit; Working Capital Deficit. As a result
of a net loss of $835,000 for the year ended December 31, 1995, the Company had
an accumulated deficit of $806,500 as of year-end 1995 and $706,100 as of March
31, 1996. During the fourth quarter of 1995, due to the rapid expansion of
facilities and increase in additional personnel and related costs, the Company
began to experience difficulty in timely meeting its current obligations to its
trade vendors and interpreting physicians. See "Management's Discussion and
Analysis or Plan of Operations." As a result, the interpreting physician group
for two of the Company's facilities terminated its contract and filed suit
against the Company alleging breach of contract for failure to timely pay its
fees. See "Business -- Legal Proceedings." Due to cost-cutting measures that
the Company began implementing at the end of 1995 and increases in revenues
during 1996 that resulted in a net profit of $100,370 for the three months
ended March 31, 1996, the Company presently believes that it can satisfy its
working capital needs. However, there can be no assurance that the Company
will not experience negative cash flow in the future.

Limitations and Delays in Reimbursement. The health care environment
is undergoing significant change as third party payors attempt to control the
cost, utilization and delivery of health care services. Although patients are
ultimately responsible for the payment for services rendered, substantially all
of the Company's revenues are derived from third party payors, including
commercial insurers and Medicare. Medicare, Medicaid and managed care
providers, including HMOs, have historically represented more than 50% of the
Company's annual collections. Medicare allowable fees are less than the
Company's standard billing rates. In addition, many of the Company's managed
care and HMO providers typically negotiate with the Company for discounts from
the Medicare allowable rates. Over the last few years, Medicare rates payable
with respect to certain imaging procedures have been reduced, and the Company
believes that additional reductions may be implemented from time to time.
Reduction in Medicare rates may lead to reductions in reimbursement rates by
other third-party payors as well. Further, successful efforts by such
third-party payors to contain or reduce payments made to health care providers
through the reduction of reimbursement amounts and rates, closer scrutiny of
reimbursement claims, changes in services covered, delays or denials of
reimbursement claims, negotiated or discounted pricing and other similar
measures could materially adversely affect the Company's revenues,
profitability and cash flow. The Company's reimbursement cycles are dependent
upon the reimbursement policies of third- party payors, as well as the ability
of the Company to properly document, file and collect claims for reimbursement
in a timely manner.

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Restrictions Imposed by Government Regulation. The health care
industry is highly regulated. The ownership, operation and acquisition of
outpatient diagnostic centers is subject to various federal and state laws,
regulations and approvals concerning such matters as physician referrals and
licensing of facilities and personnel. Violation of these laws can result in,
among other penalties, the closing of the Company's facilities and loss of
Medicare and Medicaid reimbursement.

Dependence on Referring Physicians. Certain physicians, in private
practice or affiliated with managed care organizations, refer a significant
percentage of the Company's patients. A significant reduction in the number of
patients referred could materially adversely affect the Company's operating
results.

Development Strategy. The Company's strategy for growth includes
increasing the revenues and profitability of existing facilities in addition to
developing or acquiring additional satellite or full service offices in
Florida, with potential for expansion to other regions in the southeastern
United States. There can be no assurance, however, that additional suitable
expansion locations can be found, that necessary financing can be obtained for
the acquisition of additional diagnostic equipment or that the operations of
satellite centers or additional full service offices can be effectively or
profitably operated and integrated into the Company's existing operations.
Competition in expansion areas is expected to be intense and, in addition to
local hospital and physician groups, will include regional and national
diagnostic imaging service companies, many of which have greater financial
resources that the Company. In addition, new centers may incur operating
losses, which could be significant, during their development stages, and could
materially adversely affect the operating results and financial condition of
the Company.

Dependence on Key Personnel. The Company is dependent upon the
services of its President and Chief Operating Officer, Curtis L. Alliston. The
loss of Mr. Alliston could have a material adverse effect on the Company's
operations and plans for future development. The Company currently does not
carry key-man life insurance on Mr. Alliston.

Dependence on Qualified Interpreting Physicians. The Company's
strategy of maintaining the high quality of its services is dependent upon its
ability to obtain and maintain arrangements with qualified interpreting
physicians. No assurance can be given that the Company's contractual
arrangements with its interpreting physician groups can be maintained, or if
terminated, that other agreements could be reached on terms no less favorable
to the Company that those contained in its existing arrangements. No assurance
can be given that the Company's current interpreting physician groups will
continue to perform satisfactorily or continue to practice in the markets
served by the Company. In addition, with respect to new centers, there can be
no assurance that arrangements can be entered into on acceptable terms with
existing or new interpreting groups.

Technological Obsolescence. The software and, to a lesser extent,
hardware utilized by the Company in the provision of diagnostic imaging
services have been characterized by rapid technological changes. Although the
Company believes that its equipment can generally be upgraded as necessary, the
development of new technologies or refinements of existing technologies might
make the Company's existing equipment technologically or economically obsolete.
If such obsolescence were to occur, the Company might have to purchase new
equipment which could have a material adverse effect on the Company's earnings
and cash flow. Although the Company is not currently aware of any pending
technological developments which the Company's equipment cannot be upgraded to
incorporate, there can be no assurance that such developments will not occur.

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Lack of Medical Malpractice Insurance. Insofar as the Company is not
engaged in the practice of medicine, it does not carry medical malpractice
insurance. Although the Company has never been subject to a malpractice claim,
the filing of a malpractice claim against the Company, even if ultimately
unsuccessful, could result in significant costs to the Company. Interpreting
physicians are required to carry their own medical malpractice insurance.

Control by Existing Shareholders. Jugal K. Taneja and Curtis L.
Alliston, executive officers and directors of the Company, will have the
ability to elect all directors, authorize certain transactions that require
shareholder approval and otherwise control the Company's policies, without
concurrence of the Company's minority shareholders. As of the date of this
Prospectus, Mr. Taneja beneficially owned 1,155,013 shares of Common Stock
(45.5% of the shares outstanding), including an aggregate of 235,013 shares
held by Mr. Taneja's wife, a trust for the benefit of Mr. Taneja's children
and a limited partnership of which Mr. Taneja is the general partner, each of
whom is a selling shareholder. As of the date of this Prospectus, Mr. Alliston
beneficially owned 585,013 shares of Common Stock (23.0% of the shares
outstanding), including 100,000 shares held by a limited partnership which was
established for the benefit of Mr. Alliston's children and which is a selling
shareholder. If all the shares offered pursuant to this Prospectus are sold by
the selling shareholders whose shares are deemed beneficially owned by Messrs.
Taneja or Mr. Alliston, Mr. Taneja would beneficially own 920,000 shares
(36.2% of the Common Stock outstanding as of the date of this Prospectus) and
Mr. Alliston would beneficially own 350,000 shares (13.8% of the Common Stock
outstanding as of the date of this Prospectus), and together will continue to
control a majority of the Company's outstanding Common Stock. See "Selling
Shareholders."

Absence of Cash Dividends. Management of the Company does not intend
to declare or pay cash dividends in the foreseeable future. Under the terms of
its credit facility with SouthTrust Bank of West Florida, the Company is
prohibited from paying dividends without the bank's prior written consent.

Volatility of Price of Common Stock. The price of securities of
publicly traded corporations may fluctuate over a wide range. Moreover,
because the Common Stock is thinly traded, it may experience wide fluctuations
in price. Sales of substantial amounts of the Common Stock, or the perception
that such sales may occur, could adversely affect the market price of the
Common Stock.

Impact of Potential Delisting from the Nasdaq SmallCap Market on
Marketability of Securities. Under current rules of the NASD for continued
listing on The Nasdaq SmallCap Market, a company generally must maintain at
least $2,000,000 in total assets, at least $1,000,000 in net worth and a
minimum bid price of $1.00 per share. The Company had approximately $1,273,400
in total stockholders' equity as of December 31, 1995 and $1,373,800 as of
March 31, 1996.

If the Company should incur additional operating losses, it may be
unable to maintain the standards for continued listing and the Common Stock
could be subject to delisting from the Nasdaq system. If the Company's Common
Stock was delisted by Nasdaq, trading in the Common Stock thereafter could be
conducted on the NASD bulletin board or in the over-the-counter market in what
is commonly referred to as the "Pink Sheets." If this results were to occur,
an investor would find it more difficult to dispose of or to obtain accurate
quotations as to the price of the Common Stock. In addition, if the Common
Stock was delisted, it would be subject to a rule that imposes additional sales
practice requirements on broker-dealers who sell such securities to persons
other than certain established customers and institutional accredited
investors. For transactions covered by this rule, the broker-dealer must make
a special suitability determination for the purchaser and have received the
purchaser's written consent to the

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transaction prior to sale. Consequently, the delisting, if it were to occur,
would adversely affect the ability of broker-dealers to sell the Company's
securities and the ability of purchasers in this offering to sell their
securities in the secondary market.

Further Issuance of Securities by the Company. The Company has
9,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock
authorized for issuance, of which 2,539,629 shares of Common Stock were
outstanding as of the date of this Prospectus. An additional 142,705 shares
are reserved for issuance upon exercise of warrants (including the Warrants
underlying a portion of the shares of Common Stock to which this Prospectus
relates) with an exercise price of $3.00 per share expiring on September 19,
1997 and 100,000 shares are reserved for exercise upon exercise of warrants
with an exercise price of $3.00 share held by a selling shareholder. The
remaining shares not issued or reserved for specific purposes may be issued
without any action or approval of the Company's shareholders. Although there
are no present plans, agreements or undertakings involving the issuance of such
shares, other than 80,000 shares proposed to be issued to a consultant
("Management's Discussion and Analysis or Plan of Operation -- Liquidity and
Capital Resources"), any such issuances could be used as a method of
discouraging, delaying or preventing a change in control of the Company or
could dilute the public ownership of the Company. There can be no assurance
that the Company will not undertake to issue such shares if it deems it
appropriate to do so.

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THE COMPANY

The Company was incorporated in Florida in June 1994. Its executive
headquarters are located at 737B West Brandon Boulevard, Brandon, Florida
33511, and its telephone number is (813) 661-9501.

USE OF PROCEEDS

The net proceeds from the sale of shares by the Company will be used
by the Company for working capital. The Company will not receive any of the
proceeds from the sale of shares of Common Stock by the selling shareholders.
See "Selling Shareholders" and "Plan of Distribution."

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SELLING SHAREHOLDERS

The following table sets forth certain information concerning the
shareholders offering for sale a portion of the shares of Common Stock to which
this Prospectus relates (the "Selling Shareholders").

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SHARES BENEFICIALLY OWNED MAXIMUM SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING NUMBER OF AFTER OFFERING (2)
------------------------- SHARES BEING -------------------------
NAME SHARES PERCENT OFFERED (1) SHARES PERCENT
---- ---------- ------- ------------ --------- --------

Curtis L. Alliston (3) . . . . . 485,013 19.1% 135,013 350,000 13.3%

Alliston Family Limited
Partnership (3) . . . . . . . . . 100,000 3.9% 100,000 -- --

Ronald Baugh (4) . . . . . . . . 56,790 2.2% 56,790 -- --

First Delhi Trust (5) . . . . . 100,000(12) 3.9% 100,000 -- --

Philip Lieber (6) . . . . . . . . 5,836 * 5,836 -- --

Mark A. Marsella (7) . . . . . . 100,000 3.8%(7) 100,000 -- --

Manju Taneja (8) . . . . . . . . 100,000(12) 3.9% 100,000 -- --

Martin A. Traber (9). . . . . . . 11,671 * 11,671 -- --

Donald G. Ward (10) . . . . . . . 5,836 * 5,836 -- --

Westminster Trust Company
Limited Partnership (11) . . . . 35,013(12) 1.4% 35,013 -- --
--------- ---- ------- ------- ----

TOTAL . . . . . . . . . . . . . . 1,000,159 37.9% 650,159 350,000 13.3%
========= ==== ======= ======= ====

---------------------------
*Less than 1%.

(1) Except for the shares being offered by the Alliston Family Limited
Partnership, Mark A. Marsella and Manju Taneja and except for 33,448
of the shares being offered by Ronald Baugh, the shares being offered
by the Selling Shareholders consist of shares they received from the
Company in December 1995 in exchange for their interests in a real
estate partnership that owns the Company's fixed site facility in
Orange Park, Florida.
(2) The Selling Shareholders may sell from time to time all or a portion
of the shares offered by each. The amounts shown assume the sale of
all the shares being offered by each Selling Shareholder.
(3) Mr. Alliston is the President, Chief Operating Officer and a director
of the Company. In addition to owning 485,013 shares individually, he
also is deemed to be the beneficial owner of the 100,000 shares owned
by the Alliston Family Limited Partnership.
(4) Mr. Baugh is the President and Chief Operating Officer of the
Company's wholly-owned subsidiary, National Diagnostics/Orange Park,
Inc.
(5) First Delhi Trust is a trust established for the benefit of the
children of Jugal K. Taneja, Chief Executive Officer and a director
of the Company.
(6) Mr. Lieber is a consultant to the Company.

(7) Mark A. Marsella, a consultant to the Company will receive warrants to
purchase Common Stock at a price of $3 per share in exchange for
consulting services. The shares proposed to be sold by Mr. Marsella
in the offering are issuable upon exercise of such warrants.

(8) Manju Taneja is the wife of Jugal K. Taneja, Chief Executive Officer
and a director of the Company.
(9) Mr. Traber is a director of the Company and a partner in the law firm
of Foley & Lardner, counsel to the Company.
(10) Mr. Ward is a director of the Company.
(11) The general partner of Westminster Trust Company Limited Partnership
is Jugal K. Taneja, Chief Executive Officer and a director of the
Company.
(12) Mr. Taneja is deemed to be the beneficial owner of these shares. As
of the date of this Prospectus, Mr. Taneja is deemed to be the
beneficial owner of an aggregate of 1,155,013 shares. If all the
shares of First Delhi Trust, Manju Taneja and Westminster Trust
Company Limited Partnership proposed to be sold by such persons in the
offering are so sold, Mr. Taneja will beneficially own 920,000 shares
(36.2% of the Common Stock outstanding as of the date of this
Prospectus).

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PLAN OF DISTRIBUTION

The shares to be sold by the Company upon exercise of the Warrants
will be sold directly by the Company. No commissions will be paid in
connection with sales by the Company. The shares to be sold from time to time
by the Selling Shareholders or by their permitted transferees may be sold in
sales made in the over-the-counter market or on one or more exchanges, or
otherwise at prices and at terms then prevailing or at prices related to the
then current market price, or in negotiated transactions, or to one or more
underwriters for resale to the public. The shares sold may be sold by one or
more of the following: (a) a block trade in which the broker or dealer so
engaged will attempt to sell the shares as agent but may position and resell a
portion of the block as principal to facilitate the transaction; (b) purchases
by a broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus; (c) an exchange distribution in accordance
with the rules of such exchange; (d) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; or (e) an underwritten
public offering. In effecting sales, brokers or dealers engaged by the Selling
Shareholders may arrange for other brokers or dealers to participate. Brokers
or dealers will receive commissions or discounts from the Selling Shareholders
in amounts to be negotiated immediately prior to the sale. Such brokers or
dealers and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933 in connection
with such sales. In addition, any securities covered by this Prospectus which
qualify for sale pursuant to Rule 144 may be sold under Rule 144 rather than
pursuant to this Prospectus.

Brokers or dealers may be entitled to indemnification by the Company
and the Selling Shareholders against certain liabilities, including liabilities
under the Securities Act of 1933.

PRICE RANGE OF COMMON EQUITY

Since October 12, 1994, the Company's Common Stock has been traded
separately in the Nasdaq SmallCap Market under the symbol NATD and NATW,
respectively. The following table sets forth the high and low bid prices for
the Common Stock 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.

[Download Table]

COMMON STOCK WARRANTS
------------------------ ----------------------
HIGH LOW HIGH LOW
------ -------- ------ -----

1994
Fourth Quarter (from October 12) $4-3/4 $3 $2-7/8 $ 3/4

1995
First Quarter $6-1/4 $1-7/8 $3-3/4 $ 1/2
Second Quarter $4 $1-1/2 $1-1/8 $ 1/4
Third Quarter $1-7/8 $1 $13/16 $7/16
Fourth Quarter $3-1/2 $1-11/16 $ 5/8 $ 3/8

1996
First Quarter $3-1/4 $2-5/16 $ 1/4 $ 1/4
Second Quarter $4-1/2 $2-1/2 $1-1/8 $ 1/4

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On June 27, 1996, the closing price for the Common Stock was $3-7/8
per share, and there were approximately 35 holders of record. The majority of
over 300 individual shareholders held their stock in a "street name". On June
25, 1996, the closing price for the Warrants was $7/8 per Warrant, and there
were approximately four holders of record.

DIVIDEND POLICY

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.
Furthermore, under the terms of an existing $800,000 credit facility
(consisting of a $300,000 term loan and a $500,000 line of credit) with
SouthTrust Bank of West Florida, Brandon Diagnostic Center, Ltd.'s ability to
pay dividends and make distributions is restricted. In accordance with the
agreement the Company may not pay or declare dividends without prior written
consent of the bank. 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.

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 and pro forma consolidated
financial information included elsewhere herein.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995.

Net revenues for the three months ended March 31, 1996 were $2,189,706
compared to $1,342,031 for the same period in 1995, representing a 63%
increase. The increase is primarily attributable to an increase in the volume
of procedures performed. The Company generated net revenues of $445,127 and
$134,214 in the first quarter of 1996 as a result of the addition of the
National Diagnostics/Orange Park, Inc ("Orange Park") in February 1995 and
National Diagnostics/Cardiology, Inc. ("Cardiology") in September 1995,
respectively.

Direct operating expenses for the three months ended March 31, 1996
were $1,056,156 compared to $677,517 for the same period in 1995, representing
a 55.9% increase. Direct operating expenses as a percentage of net revenue
decreased to 48.2% from 50.5% for the three months ended March 31, 1996 and
1995, respectively. The increase in direct operating expenses was primarily
due to the addition of Orange Park and Cardiology. The decrease of direct
costs as a percent of net revenue was a result of certain cost cutting measures
taken by the Company in December 1995 including obtaining more favorable
contracts for medical supplies.

General and administrative expenses for the three months ended March
31, 1996 were $722,904 compared to $470,217 for the same period in 1995,
representing a 53.7% increase. The increase is primarily attributable to the
addition of the Orange Park and Cardiology facilities and additional personnel

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costs. Personnel were added in response to the increase volume of procedures
performed overall and the expansion of facilities.

The substantial increase in net revenues over that experienced in 1995
(a 14% or $264,000 increase in revenues from the preceding quarter ending
December 31, 1995 and containment of operating expenses down 7% or $157,000
from the preceding quarter ending December 31, 1995) resulted in a net profit
of $100,370 for the three months ended March 31, 1996 from a net (loss) of
$(72,529) for the three months ended March 31, 1995. Net income for the
Brandon Diagnostic Center ("Brandon"), the Company's most mature center,
increased to $318,355 on revenues of $1,272,847 for the three months ended
March 31, 1996 from $140,824 on revenues of $1,029,128 for the three months
ended March 31, 1995 as a result of expanded services and additional capacity
to perform services. Net income for the National Diagnostics/SunPoint, Inc.
("SunPoint") facility increased to $21,247 on revenues of $337,518 for the
three months ended March 31, 1996 from a loss of $(110,438) on revenues of
$270,257 for the same period in 1995 as a result of increased revenues and
decreased expenses. National Diagnostics/Orange Park, Inc. ("Orange Park") did
not become a full fixed site facility until the 3rd quarter of 1995. However,
Orange Park realized a loss of $(108,151) on revenues of $445,127 for the
quarter ending March 31, 1996 compared to the preceding quarter's loss of
$(147,312) on revenues of $504,366. National Diagnostics/Cardiology, Inc.
("Cardiology") was not operational until the 3rd quarter of 1995. However,
Cardiology realized a profit of $1,003 on revenues of $134,214 for the quarter
ending March 31, 1996 compared to the preceding quarter's loss of $15,662 on
revenues of $132,806. National Diagnostics, Inc. ("Parent") company which
provides executive management, billing and accounting functions for its
subsidiaries realized a loss of $(128,563) on management fees of $173,000 for
the quarter ending March 31, 1996 compared to a loss of $(65,314) on management
fees of $56,000 for the same period in 1995. The management fees charged to
its subsidiaries eliminated upon consolidation. The billing services and costs
did not commence until the 3rd quarter of 1995.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994.

Net revenues for fiscal 1995 were $6,232,515 as compared to $3,708,603
for fiscal 1994, representing a 68% increase. This increase was primarily
attributable to new start up facilities and an increase in the volume of
procedures performed at pre-existing facilities. SunPoint completed its first
full year of operation (two months operation in 1994); Orange Park mobil
operations started up in February 1995, opening a fixed site facility in
August; and in September a mobil MRI facility and a mobil cardiology unit were
placed in service. The 1995 start ups accounted for approximately 52% of the
increased in revenues. The Brandon facility increased its revenues 8% to
$3,922,000 in 1995.

The Company's net accounts receivable increased $886,145 to $1,500,841
from $614,696 at December 31, 1995 and 1994, respectively. Approximately 87%
of this increase is the direct result of the Company's start up operations
inclusive of the SunPoint facility opened in November, 1994. The cash position
of the Company decreased to $128,094 from $1,497,510 at December 31, 1995 and
1994, respectively. Approximately 23% or $309,000 of this decrease was a
result of the Company's operational losses (for further discussion regarding
cash and liquidity see "Liquidity and Capital Resources").

The following table sets forth selected operating results as a
percentage of net revenues for 1995 as compared to 1994.

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[Download Table]

FISCAL FISCAL
1995 1994
------ ------

Net Revenue 100.0% 100.0%
Direct Operating Expenses 56.0 44.4
General and Administrative Expense 42.3 27.8
Depreciation and Amortization 14.2 15.2
Operating Income (loss) (12.6) 12.6
Interest 5.3 7.3
Other Income 1.7 0.3
Income Taxes (benefit) (2.9) 0.2
Net Income (Loss) (13.3) 5.4

Direct operating expenses increased 112.3% to $3,494,691 for 1995 from
$1,646,175 for 1994, also increasing as a percentage of net revenue. This
increase is attributable to several factors: (1) an increase in certain costs
which do not vary proportionately with revenue changes (example: rents
increased approximately $147,000 to $189,915 and compensation for start ups and
expansion increased approximately $493,000 to $898,317) and (2) increased fee
expense to the Company for its interpreting physicians for Brandon in
accordance with the terms of their agreement (an increase of approximately
$234,000 to $786,713). The increase was also a result of the additional cost
of medical supplies resulting from the increase in the volume of procedures
performed.

General and Administrative Expenses increased 155.8% to $2,639,696 for
1995 as compared to $1,031,807 for 1994, also increasing as a percentage of net
revenue. This increase was primarily attributable to the addition of personnel
and the related payroll and related benefit costs associated with such
personnel. Such personnel costs increased approximately $826,000 to $1,178,440
inclusive of executive compensation. The personnel were added in response to
the expansion of facilities and increased volume of procedures performed.
Executive compensation increased from approximately $163,000 in 1994 to
$468,000 in 1995 as a result of changes in employment contracts (see Note 11 to
the financial statements) and the employment of two additional executives in
1995. General and administrative expenses also increased more rapidly than net
revenues because of start-up operations relating to the addition of Orange Park
and Cardiology (an increase of $477,000 exclusive of personnel related costs).
Additionally, the Company took a charge of $82,000 against earnings
representing costs associated with a secondary stock offering which the Board
determined not to be in the best interest of the Company due to market
conditions.

Depreciation and Amortization increased 58.3% to $889,530 in 1995 as
compared to $561,767 during 1994, while decreasing as a percentage of net
revenue. The dollar increase was attributable to the acquisition of new
equipment for the start-ups and amortization of previously capitalized start-up
costs which are amortized over 12 months.

Interest expenses increased to $334,499 in 1995 from $273,466 in 1994
as a result of additional financing for equipment acquisitions and working
capital.

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The increase in net revenues was offset by greater increases in
expenses resulting in a net loss of $(835,058) for 1995 compared to a net
profit of $119,535 in 1994. 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. Revenues
have steadily increased through out the year while operating losses have been
declining since the second quarter high.

YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993.

Net revenues for fiscal 1994 were $3,708,603 as compared to $2,766,532
for fiscal 1993, representing a 34% increase. This increase was primarily
attributable to an increase in the volume of procedures performed. The
increased number of procedures was attributable, in turn, to an expansion of
the Company's physician referral base resulting from marketing initiatives
implemented by the clinical coordinator added to the Company's Brandon staff in
late 1993 and referrals obtained from the shareholders of the prior corporate
limited partner of Brandon Diagnostic Center, Ltd. The Company also generated
additional net revenues of approximately $87,000 in 1994 as a result of the
opening of its SunPoint Diagnostic Center on November 7, 1994.

The following table sets forth selected operating results as a
percentage of net revenues for 1994 as compared to 1993.

[Download Table]

FISCAL FISCAL
1994 1993
------ ------

Net Revenue 100.0% 100.0%
Direct Operating Expenses 44.4 46.8
General and Administrative Expense 27.8 27.9
Depreciation and Amortization 15.2 18.2
Operating Income 12.6 7.1
Interest 7.3 11.1
Other Income 0.3 0.2
Income Taxes 0.2 -
Net Income (Loss) 5.4 (3.8)

Direct operating expenses increased 27.3% to $1,646,175 for 1994 from
$1,293,568 for 1993, while decreasing as a percentage of net revenue. This
increase is attributable primarily to an increase in the cost of medical
supplies resulting from the increase in the volume of procedures performed.
Also, as net revenue increased throughout 1993 and 1994, the compensation paid
by the Company to its Brandon interpreting physician group increased (by
$180,000 in 1994 over 1993, or 47%) in accordance with the terms of its
agreement. Because of the fixed cost nature of the Company's diagnostic
equipment, the Company's direct operating expenses resulting from the increase
in the volume of procedures performed increased at a rate less than the rate of
increase in the Company's net revenue.

General and Administrative Expenses increased 33.8% to $1,031,807 for
1994 as compared to $770,987 for 1993, while decreasing slightly as a
percentage of net revenue. This increase was

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attributable to the addition of personnel in response to the increased volume
of procedures performed and the additional payroll and related benefit costs
associated with such personnel.

Depreciation and Amortization increased 11.4% to $561,767 in 1994 as
compared to $504,466 during 1993, while decreasing as a percentage of net
revenue. The dollar increase was attributable to the acquisition of upgrades
to the Company's MRI equipment and the amortization of goodwill.

Interest expenses decreased to $273,466 in 1994 from $309,629 in 1993
as a result of the refinancing of certain of the Company's long-term capital
lease obligations, which included a reduction in the interest rates paid by the
Company described below under "Liquidity and Capital Resources."

The substantial increase in net revenues resulted in increases in
operating and net income. Throughout fiscal 1994, the Company's net revenue
increased as a result of an increase in diagnostic procedures performed to a
level sufficient to cover the Company's fixed costs associated with the
diagnostic equipment. As a result, incremental increases in net revenues
resulted in increased net income.

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 12.25% to a variable rate equal to the bank prime rate, plus 1
to 2%. In June 1993 certain lease obligations approximating $2,400,000 were
refinanced extending the terms of the leases approximately 16 months and
lowering the interest rates an average 1.1% to approximately 10.2%. This was
the primary factor affecting the $36,000 reduction of interest expense to
$273,466 in 1994 from $309,629 in 1993. Certain of the Company's long-term
debt obligations are personally guaranteed by Messrs. Taneja and Alliston and
their spouses.

Capital expenditures, including capital lease obligations, for the
years ended December 31, 1995 and 1994 totaled approximately $2,610,000 and
$1,376,000, respectively. The Company anticipates capital expenditures of
approximately $1,100,000 during 1996, including costs associated with the
anticipated establishment of a new facility, equipment and leasehold
improvement costs. The Company anticipates that capital expenditures pertaining
to equipment will be financed primarily through capital leases and debt
financing currently being negotiated. The Company has already entered into a
$624,000 capital lease commitment with an interest rate of approximately 11%
for an equipment upgrade the Company expects to take receipt of in the first
half of 1996. The Company's determination whether to proceed with new
facilities in Florida or elsewhere in the southeastern 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.

On March 6, 1995, Brandon Diagnostic Center, Ltd. entered into a
credit facility with SouthTrust Bank of West Florida, consisting of a $300,000
five-year term loan and a $500,000 revolving line of credit. The proceeds of
the term loan were used to refinance an existing $300,000 term loan with
another

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financial institution. Interest on both the revolving line of credit and term
loan are payable at the bank's prime rate (9.0% as of May 5, 1996), plus one
percent. As of June 27, 1996, the outstanding principal balance thereunder was
$400,500. Pursuant to the terms of the agreement, as of June 27, 1996, an
additional $99,500 of available credit remained to be borrowed.

The revolving line of credit discussed in the preceding paragraph is
secured by the Brandon facility's account receivables which approximated
$910,000, or 49% of the Company's total receivables, as of March 31, 1996. The
Company's receivables at March 31, 1996 increased 23% to $1,852,148 from
December 31, 1995, and its receivables at December 31, 1995 were $1,500,841, or
144% higher than at December 31, 1994. The Company attributes this increase
mainly to start-up operations. While the Company has experienced some delays
in collections at its newest facility, the Company feels it is merely a
temporary condition.

The revolving line of credit originally expired on May 30, 1996 but
was extended until June 30, 1996, and the Company is currently negotiating to
obtain a renewal. The Company is also discussing the possibility of increasing
or refinancing the line of credit by financing all of its trade receivables,
thereby expanding available credit by as much as $400,000. Additionally, the
Company is placing additional emphasis on the collection of receivables with an
increase in staff and refinement of its existing billing and collection efforts.

Due to the rapid expansion of facilities and increase in additional
personnel and related costs, the Company began to experience in the fourth
quarter of 1995 difficulty in meeting timely its current obligations to its
trade vendors and interpreting physicians. The physician group for Brandon and
SunPoint terminated the reading contract and subsequently entered into
litigation (see "Business--Legal Proceedings"). All fixed commitments to the
Company's banking and leasing creditors have been timely satisfied. In
December 1995, the Company identified over $650,000 in annual cost cutting
measures, all of which management has acted upon. These measures included but
were not limited to: reduction of radiologist fees by renegotiated contracts
(annual savings $227,000); personnel cutbacks and realignments (annual savings
$202,000); one time cost reductions ($77,000); group and liability insurance
premium reductions (annual savings $49,000) and others. The Company
attributes the positive performance of the first quarter of 1996 to these
savings and increased revenues (based on unaudited numbers). The Company
expects this trend to continue. However, there is no assurance that these
goals will be met.

In 1995 the Company reduced its net cash by $1,369,000. Operating
activities utilized 23% or $376,000 of the total cash reduction of $1,643,000;
77% or $1,267,000 of the total cash reduction resulted from the Company's
investing activities which consisted primarily of the purchase of property and
equipment for its start up facilities. Net cash of $273,000 from financing
activities reduced the total utilization of cash to the net reduction of
$1,369,000.

The Company generated $158,130 from operations in the 1st quarter 1996
compared to the same period in 1995 when operations used $(211,717). Investing
activities used $18,927 for the acquisition of equipment. Financing activities
used $103,778; approximately $163,000 was used toward debt retirement offset by
approximately $58,000 of proceeds from additional borrowing. The Company
increased its net cash balance after the above transaction by approximately
$35,000. The Company attributes the positive performance experienced in the
first quarter to the increase in revenues and certain cost cutting measures the
Company undertook in December 1995. Based on the Company's belief that the
positive performance from operations will continue and other financing factors
discussed herein, the Company believes that its presently anticipated short and
long-term needs for operations, capital debt

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repayments and capital expenditures with respect to its current operations can
be satisfied through internally generated funds, third party leasing, and its
existing credit facilities with South Trust Bank of West Florida. (See also
the Company's growth strategy below). There is no assurance that these
short-term needs can be met.

Pursuant to a prior and a subsequent agreement the Company issued in
the 2nd quarter 33,448 common shares of stock to retire approximately $67,000
of current debt owed to a Company executive. Additionally, a $50,000 note
payable to the Company executive was refinanced with a principal reduction to
be made in twelve equal monthly installments commencing September, 1996.

On September 19, 1995, the Company concluded its offer to the
Company's holders of outstanding common stock purchase warrants to exchange
every five warrants owned by them for two shares of the Company's common stock.
Ninety four percent of the outstanding warrants were tendered in exchange for
642,918 shares of common stock. The Board believes the exchange simplified the
Company's capital structure.

The Company's remaining growth strategies will require additional
funds. In the event the Company proceeds with the establishment of additional
facilities, or encounter favorable acquisition opportunities in the near
future, the Company may incur, from time to time, additional indebtedness and
attempt to issue equity or debt securities in public or private transactions.
The Company entered into a contract effective April 1, 1996 with financial
consultants. They will assist in the formulation and execution of the
Company's continued acquisition and financing program. As partial compensation
the Company intends to issue warrants to purchase 40,000 common shares
exercisable at $2.50 per share and 40,000 common shares exercisable at $3.00
per share. Additionally, the Company entered into a consulting contract
effective April 1, 1996 to structure the Company's management and financial
information systems for future expansion. As partial compensation the Company
will issue warrants to purchase 100,000 shares, exercisable at $3.00 per share.
There is no assurance that the Company will be successful in securing
additional financing or capital through equity or debt securities.

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 and have only recently been measurable.
Approximately 47% 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. Additionally, the Company has entered into
certain capitation contracts with minimum flooring reimbursements which the
Company believes will ultimately bring new found business to the Centers. The
capitation contracts are fixed fee arrangements made with HMO's wherein the
Company receives a fixed fee per HMO participant regardless of whether the
participant receives patient services or not. A minimum floor reimbursement
(example: 65% of the Medicare allowable rate) is agreed to which serves to
minimize the risk to the Company should an excess number of participants
require patient services. The advantage to the Company results when the
aggregated fixed fee per HMO participant exceeds the fees earned from actual
HMO participant patient services rendered. Additionally, the Company may
obtain regular fee for service revenues from referred HMO participants for
services not covered under the capitation contract.

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SEASONALITY

The Company usually experiences approximately 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 1995 due to the upward
trend for services 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 believes 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.

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/Cardiology, Inc. ("Cardiology"), 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 63% of the Company's net revenues in 1995. The
Company also opened a new facility in Ruskin, Florida in November, 1994 and
acquired, through its Orange Park subsidiary, substantially all of the assets
of an existing mobil 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 mobil facilities by adding both a mobil MRI unit and mobil
cardiology unit in the Jacksonville area.

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 1994 and 1995, the
Company's total net revenues were $3,708,603 and $6,232,515, respectively,
reflecting approximately 18,000 and 29,000 respective diagnostic imaging
procedures.

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The Company's Brandon facility is operated through Brandon Diagnostic
Center, Ltd., a Florida limited partnership 60% of which is held by Alpha
Associates as the sole general partner, and, prior to November, 1993, 40% of
which was held by a corporate limited partner owned by shareholders who were
physicians that referred patients to the Brandon facility. To comply with the
referral prohibition laws, Alpha Acquisitions was formed in September of 1993
for the purpose of acquiring the limited partnership interest held by the
limited partner. Effective November 1, 1993, Alpha Acquisitions acquired all
of the limited partner interest for a total purchase price of approximately
$450,000, which included the assumption of debt obligations in the aggregate
amount of approximately $408,000 with interest accruing on the outstanding
principal balance at various rates ranging from the prime rate plus one percent
to eleven percent per annum, payable in installments through September 1, 1995.
Prior to the formation of the Company as a holding company, all of the issued
and outstanding shares of Alpha Associates and Alpha Acquisitions were owned by
Jugal K. Taneja and Curtis L. Alliston. In connection with the formation of
the Company as a holding company, Messrs. Taneja and Alliston transferred all
of the issued and outstanding shares of Alpha Associates and Alpha Acquisitions
to the Company in exchange for 1,200,000 common shares and 1,200,000 common
share purchase warrants. Neither Mr. Taneja nor Mr. Alliston are physicians.

The Company was incorporated in Florida in June of 1994. The
Company's executive headquarters are located at 737B West Brandon Blvd.,
Brandon, Florida 33511, and its telephone number is (813) 661-9501.

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 4,800 in 1994.
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.

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

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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 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

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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

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
1994, the Brandon facility was expanded to provide additional capacity for its
general radiographic and fluoroscopy services to meet the increasing demand for
such services in the Brandon area. The Brandon facility was further expanded
in March, 1995 to include a Center for Women that focuses on providing
additional mammography and ultrasound services.

In June, 1995, the Company relocated Orange Park's principal facility
from Middleburg to Orange Park and expanded the range of diagnostic imaging
services offered thereby. With the addition of a mobil MRI unit in September,
1995 to its modalities Orange Park became a full-service imaging facility.
See "--The Orange Park Facility."

In September, 1995, Cardiology placed into service a mobile cardiology
unit and has expanded its service area in the Northeast Florida to the greater
Jacksonville area, Fernandina Beach, Lake City and Palatka.

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."

Center Development and New Center Acquisitions.

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 Southeastern United States. 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

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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.

Currently, the Company intends to slow its external expansion in
1996; focusing more directly on the continuing effort to build efficiencies and
profitability into existing new start ups. There are plans to open one
additional fixed site facility in the Riverside area of Jacksonville, Florida
in mid 1996. No assurances can be given, however, that adequate financing will
be available to fund the development of this or any other new facilities.

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 20-30% 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, however, 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 and placed into operation in September, 1995. 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 have diminished 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. 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.

The Company believes that it can successfully integrate the operations
of its new facilities and any facilities that it chooses to acquire by
achieving economics of scale using its existing corporate infrastructure.

Increased Mobile Diagnostic Imaging Capabilities.

The Company's growth strategy also includes expanding its mobile
diagnostic imaging capabilities. In January, 1995, the Company entered into an
agreement with an established group of cardiologists in Orange Park, Florida to
provide mobile nuclear cardiology imaging services. In September 1995 the
Company placed into operation a fully operational mobile unit to service such
group as well as other cardiological centers and specialists. See "--NDCI
Mobile Services." The Company's Orange Park facility currently provides mobile
ultrasound and neurological diagnostic imaging services. The Company expanded
the operations of its Orange Park subsidiary in September, 1995 with the
inclusion of mobile MRI services. See "--The Orange Park Facility."

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There can be no assurances that the Company can or will successfully
implement its center growth or external growth strategies.

THE BRANDON, FLORIDA FACILITY

The Brandon, Florida facility was established in 1991 as a
full-service diagnostic facility specializing in outpatient radiology. 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 1994
and 1995, the Brandon facility generated net revenues of approximately
$3,600,000 and $3,900,000, respectively, reflecting approximately 17,000 and
21,000 respective diagnostic imaging procedures.

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.

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

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:

[Download Table]

Equipment Price Range
------------------------- -------------------------------------

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 80,000
Neurology 25,000 to 60,000

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. Annual expenses for equipment maintenance and
repairs at the Brandon facility were approximately $105,000 and $137,000 for
the fiscal years ended December 31, 1994 and December 31, 1995, respectively.
The Company typically enters into agreements with equipment manufacturers or
other third parties for equipment maintenance.

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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 leases are
personally guaranteed by Messrs. Taneja and Alliston and their spouses.

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 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. Patients at the Brandon facility are invoiced in the name of Brandon
Diagnostic Center. The interpreting physician's professional association
("P.A.") with which the Company has currently contracted for interpreting
physician services at the Brandon facility receives a fixed percentage
(fourteen percent) of monthly collections. The interpreting physician's P.A.
is responsible for subcontracting with additional physicians to assure adequate
coverage during peak times, absences, etc. 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.

Brandon facility's interpreting physician is certified by the American
Board of Radiology. The following is a brief biographical summary of the
Brandon facility's principal interpreting physician:

DR. ROBERT D. MARSHALL, M.D. received his Doctor of Medicine degree
from the University of Miami School of Medicine, Miami, Florida in June, 1974.
Dr. Marshall performed his internship and residency from 1974 to 1978 at the
University of South Florida, School of Medicine, Tampa, Florida. In February,
1987 Dr. Marshall received a fellowship in MRI at Huntington Memorial Hospital,
Pasadena, California. In addition to training in MRI, Dr. Marshall received
training and experience in computer tomography, mammography, ultrasound and
nuclear medicine in 1977 and 1978.

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

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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 "--The Brandon Facility--Operations,"
with the exception that patients are invoiced in the name of SunPoint
Diagnostic Center. The SunPoint facility is staffed by eight 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 (fourteen percent) of
monthly collections.

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. (See Note 12 to the Consolidated Financial
Statements.)

Orange Park currently provides mobile and fixed site neurological and
ultrasound imaging diagnostic services in Clay, Duval, Nassau and St. Johns
counties in northeastern Florida. Its principal facility is located in Orange
Park, Florida, where it has three units for neurology and one unit for
ultrasound. All equipment at the Orange Park facility is either owned directly
or leased through an independent leasing company. The Orange Park became a
full service imaging facility, including MRI, by September, 1995. The Company
has one unit for each of CT, nuclear medicine, mammography, radiology,
fluoroscopy and a mobile MRI facility 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."

Orange Park follows the same operational procedures as the Company's
other facilities, except that patients are invoiced directly in the name of
Orange Park. The Orange Park facility is currently staffed by seven employees,
including three trained medical technologists who perform all of the imaging
services at the Orange Park facility. All interpreting services are provided
by eight interpreting

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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.

The Orange Park 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.

NDCI MOBILE SERVICES

In January, 1995, the Company, through its NDCI subsidiary, entered
into an exclusive agreement with Diagnostic Cardiology Associates, an
established group of 18 cardiologists based in Jacksonville and other physician
groups in northeast Florida, to provide mobile nuclear cardiology imaging
services. The Company acquired a mobile unit and placed it into operation in
September, 1995. Since then the Company has expanded its operations to
Fernandina Beach, Lake City and Palatka, Florida. The Company will seek to
enter into similar arrangements with other groups of cardiologists, but no
assurances can be made that such opportunities exist or can be realized.

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.

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. The Company
generally accepts assignment by the patient of payment from insurers and is
reimbursed for services performed by payment, directly and indirectly,

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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 1995 in each of the following categories:

[Download Table]

PERCENT OF
SOURCE COLLECTIONS
---------------------------- -----------

Managed Care/HMO 31%
Private Insurance 31
Medicare/Medicaid 23
Private Pay 11
Workmen's Compensation 4

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 seven of the Company's employees are involved in
reimbursement, billing and collection activities. There can be no assurance
that the Company will be successful with respect to the foregoing.

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 1995 and 1994, approximately .3% and 0.6%, respectively, 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 sole

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competitor in the immediate Brandon area is a 120 bed hospital providing full
inpatient service and its 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, but, to
the best of management's knowledge, none of these competitors is a full
modality center offering mobile and fixed site diagnostic imaging services.

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 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
Cardiology 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

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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 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.

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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 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.

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 Stock or
Warrants to purchase Common Stock of the Company is prohibited from making
Medicare and other federal

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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, however, 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
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 May 17, 1996, the Company had 79 employees (all full time),
including 4 executive officers, 41 administrative personnel, 1 sales and
marketing person and 33 technical personnel. The Company is not a party to any
collective bargaining agreement and considers its relationship with its
employees to be good.

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INSURANCE

The Company carries workmen's 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.

LEGAL PROCEEDINGS

In December, 1995 the physician group which contracted with Brandon and
SunPoint for radiology readings terminated the contract. On February 9, 1996
the physician group filed a suit entitled East Pasco Radiology Associates, P.A.
vs. Brandon Diagnostic Center, Ltd., and SunPoint Diagnostic Center, Inc. in the
Hillsborough County Florida Circuit Court against the Company alleging the
center materially breached the contract by failing to pay physician fees timely
and incorrectly billing certain procedures. The physician group seeks $400,000
in damages. The Company denies any material breach of the contract, and the
court recently denied the plaintiff's motion for partial summary judgment for
$400,000 in damages. Management feels it has reserved an adequate loss
provision in the event of an adverse outcome.

On March 10, 1995 legal action was instituted against A.T. Brod & Co.,
Inc. (a national stock brokerage firm) by a terminated employee of A. T. Brod &
Co., Inc ("A.T. Brod"). A. T. Brod was a major market maker for National
Diagnostic, Inc. stock. The Company was named in the suit entitled James I.
Blackey vs. A.T. Brod & Co., Inc., Arthur M. Stupay, Jugal Taneja, R.K. Khosla,
Bancapital Investment Corporation, and National Diagnostics, Inc. pending the
Supreme Court of the State of New York, County of Erie, Index Number
I-1995-2249. Mr. J. Taneja is Chairman and Chief Executive Officer of the
Company and a director of both A. T. Brod (which has ceased operations) and the
Company. The action alleges wrongful discharge, breach of contract, defamation
of character, conspiracy and tortious interference with a contract arising out
of the alleged wrongful termination of the plaintiff by A.T. Brod and seeks
compensatory and punitive damages of $2,830,000. On June 14, 1995, a motion
was made under the rules of the National Association of Dealers to compel
arbitration of the matter and to stay the action in entirety against the
Company pending the outcome of the arbitration. Upon receiving the motion, the
plaintiff's attorney indicated he agreed with the defendants' position,
consenting to arbitration and to stay the action pending the outcome of that
arbitration. Through June 27, 1996, the plaintiff's attorney has taken no
steps to advance his claim in arbitration. Based upon information available to
defendants' counsel through this date, the claim appears to be not meritorious.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company are as follows:

JUGAL K. TANEJA, Age 51, is (since the Company's inception in June,
1994) a director, the Chief Executive Officer and Secretary of the Company. He
also serves as a Chief Executive Officer and President of Bancapital Mortgage
Corporation. The Bancapital group of entities are involved in mortgage banking
and venture capital activities. Mr. Taneja also serves (since October, 1991)
as the Chairman, Chief Executive Officer and director of NuMED Home Health
Care, Inc. and Chief Executive Officer and director of NuMED Surgical, Inc.,
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. and Chief Operating Officer, Senior Vice President and director
of BT Energy Corporation, entities involved in the oil and gas industry. Mr.
Taneja serves as a director of Bristol Financial Ventures, Inc., an entity
involved in venture capital activities and Direct Rx, Inc., a mail order
pharmacy supply operation. Before his association with Bancapital and NuMED,
Mr. Taneja served as Senior Vice President of Union Commerce Bank and
Huntington National Bank.

CURTIS L. ALLISTON, Age 52, is (since the Company's inception in June,
1994) 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.

MARTIN A. TRABER, Age 48, is a director (since the Company's inception
in June, 1994) of the Company. He is also a partner in the law firm of Foley &
Lardner, a national general practice law firm. He has also served as an
Adjunct Professor of Law at Cleveland Marshall Law School where he structured a
course on and lectured in the area of real estate finance. Prior to joining
Foley & Lardner in August, 1994, he practiced with Arter & Hadden since 1970
and was a partner in its Cleveland office. Mr. Traber is a director of
Bancapital Mortgage Company, Emory Mortgage Corporation and Schmidt Mortgage
Company, mortgage lending entities affiliated with the Bancapital Corporation.

DONALD G. WARD, Age 53, a director of the Company since March, 1995,
has served as Administrative Director of Clay Cardiology Associates, P.A., a
group of cardiology specialists associated with several major hospitals in
northeastern Florida and northeastern Georgia, since 1992. From 1990 to 1992,
Mr. Ward was the Director of Special Projects/Mobile Imaging Services for St.
Vincent's Health Care Systems in Jacksonville, Florida. Prior thereto, he has
served in various positions in the health care industry.

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SUSAN J. CARMICHAEL, Age 48, a director of the Company since the
second quarter of 1995, is currently President and Chief Operating Officer
(since September, 1993) of NuMED Home Health Care, Inc. and has served as a
director of NuMED since 1991. Ms. Carmichael was the past President of Whole
Person Home Health Care and Pennsylvania Medical Concepts prior to its being
purchased by NuMED in 1991 as NuMED's entrance into the home health industry.
NuMED employs an average of 500+ employees and cares for 700+ clients in
Florida, Pennsylvania, and Ohio. From 1981 to 1985, Ms. Carmichael, was
co-owner, President, and Chairperson of the Board of Health Consulting
Associates (1981-1985).

EXECUTIVE COMPENSATION

The following table sets forth certain information concerning
compensation paid to or earned by the Company's Chief Executive Officer and
President. No other executive officer earned more than $100,000 for the fiscal
years ended December 31, 1994 and 1995. The directors of the Company receive
no compensation.

SUMMARY COMPENSATION TABLE

[Enlarge/Download Table]

LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
-----------------------------------------------------------------------------
FISCAL ALL OTHER SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS
---------------------------------------------------------------------------------------------------------------

Jugal K. Taneja, 1995 $ 76,250 $75,614 $18,958(1) 25,000
Chief Executive Officer 1994 10,000 10,000 16,400(1) -
1993 - - - -

Curtis L. Alliston, 1995 $150,000 $69,125 $19,708(1) 25,000
President and Chief 1994 83,600 54,000 8,700(1) -
Operating Officer 1993 75,000 - 6,750(1) -

--------------------------
(1) Represents club dues and automobile expense allowance.

The following table sets forth information with respect to grants of
options to purchase shares of Common Stock during 1995 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.

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STOCK OPTION GRANTS IN 1995

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Market POTENTIAL REALIZABLE VALUE AT
% OF TOTAL Price per ASSUMED
OPTIONS Share of ANNUAL RATES OF STOCK PRICE
Number of GRANTED TO Underlying APPRECIATION FOR OPTION TERM(2)
Securities EMPLOYEES Security on -------------------------------
Underlying IN FISCAL EXERCISE Date of EXPIRATION
NAME Options Granted 1995 PRICE PER SHARE Grant(1) DATE 0% 5% 10%
------------------------ --------------- ---------- --------------- ----------- ---------- ------- --------- ---------

Jugal K. Taneja . . . . 25,000 41.7% $1.06 $1.06 04/21/05 -0- $16,666 $42,234
Curtis L. Alliston . . 25,000 41.7% 1.06 1.06 04/21/05 -0- 16,666 42,234

------------------------
(1) The options shown on this table were immediately exercisable on the
date of grant.
(2) The options shown on this table were exercised on December 6, 1995.

The following table sets forth information concerning each exercise of
options during 1995 by the executive officers named in the Summary Compensation
Table. No options were outstanding as of December 31, 1995.

OPTION EXERCISES IN 1995

[Download Table]

SHARES ACQUIRED ON
NAME EXERCISE VALUE REALIZED ($)
-------------------------------------- ------------------ ------------------

Jugal K. Taneja . . . . . . . . . . . 25,000 $56,313
Curtis L. Alliston . . . . . . . . . 25,000 56,313

CERTAIN TRANSACTIONS

The Company provides diagnostic imaging services in Brandon, Florida
through Brandon Diagnostic Center, Ltd., a limited partnership ("Brandon").
Brandon is 60% owned by its general partner, Alpha Associates, Inc., a Florida
corporation ("Alpha Associates"), and 40% owned by its sole limited partner
Alpha Acquisition Corp., a Florida corporation ("Alpha Acquisition"). Prior to
the formation of the Company in June 1994, all of the issued and outstanding
capital stock of Alpha Associates and Alpha Acquisition was owned by Messrs.
Taneja and Alliston. In connection with the formation of the Company, Messrs.
Taneja and Alliston transferred all of the capital stock of Alpha Associates
and Alpha Acquisition to the Company in exchange for an aggregate of 1,200,000
shares of Common Stock and warrants to purchase 1,200,000 shares of Common
Stock at $7.20 per share. Alpha Associates and Alpha Acquisition thereupon
became wholly-owned subsidiaries of the Company.

From April to December, 1995, the Company's wholly-owned subsidiary,
National Diagnostics/Orange Park, Inc. ("Orange Park"), was a party to a lease
agreement with Sundance Partners, a Florida general partnership ("Sundance").
The lease related to Orange Park's approximately 5,100 square foot diagnostic
facility in Orange Park, Florida and was for a term of ten years providing
annual rental payments of approximately $44,000, subject to annual adjustments
based on the Consumer Price Index. The Company was the guarantor of Orange
Park's

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obligations under the lease. Messrs. Taneja, Alliston, Traber and Ward
(directors of the Company) and Mr. Baugh (the President and Chief Operating
Officer of Orange Park) were all general partners of Sundance and collectively
own a 95% interest therein. Mr. Alliston was the managing partner of Sundance.
In December 1995, the Company purchased a 100% interest in Sundance for
$346,000, paid through the assumption of mortgage indebtedness and the balance
in shares of Common Stock. See Note 13 to the Notes to Consolidated Financial
Statements. At the time Company executives (Messrs. Taneja and Alliston)
owning approximately a 65% interest in the Company held a controlling interest
(approximately 60%) in Sundance. Sundance's cost basis in the underlying
property was approximately $346,000 with an appraised value of $660,000 (see
note 12 to the financial statements).

Mr. Taneja previously advanced funds, evidenced by four demand
promissory notes, to Alpha Associates. The funds were advanced on March 26,
April 18, November 4 and December 29, 1993 and April 1, 1994. The loans bore
interest at 10% per annum and were payable on demand. The Company repaid the
aggregate amount outstanding to Mr. Taneja pursuant to such loans with the
proceeds from the Company's initial public offering (the "Offering") completed
in September 1994.

Mr. Alliston previously advanced funds, evidenced by three demand
promissory notes, to Alpha Associates. The funds were advanced on October 12,
1993, December 29, 1993 and April 1, 1994. The loans bore interest at 10% per
annum and were payable on demand. The Company repaid the aggregate amount
outstanding to Mr. Alliston pursuant to such loan with the Proceeds from the
Offering.

In connection with Brandon's start-up expenses, including costs
associated with the initial buildout and obtaining equipment, furniture and
fixtures, the shareholders of Alpha Associates, including Mr. Alliston,
advanced approximately $287,000 in 1992, evidenced by promissory notes issued
by Alpha Associates. In connection with Mr. Taneja's purchase of 67% of the
outstanding common stock of Alpha Associates in March 1993, the outstanding
debt was restructured to substitute Mr. Taneja as a lender. Interest on the
outstanding balance pursuant to the advance accrued at the prime rate plus 1
1/2% annually. The Company repaid the aggregate amount outstanding to Messrs.
Taneja and Alliston pursuant to such loan with the proceeds from the Offering.

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 is 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.

In 1995 pursuant to the Director Plan members of the Board of
Directors were issued options for 80,000 shares. These options were exercised
at $1.06 per share for which the Company received $84,800. During 1995 there
were no options granted under the Employee Plan and at December 31, 1995 there
were no outstanding options under either plan.

In July, 1995 the Company offered to holders of 1,700,000 outstanding
common stock purchase warrants the opportunity to exchange five warrants for
two shares of Common Stock. In September, 1995 the offer was concluded.
Approximately 94% of the outstanding warrants were tendered in exchange for
642,918 shares of Common Stock. Messrs. Taneja and Alliston received 320,000
and 160,000 shares of Common Stock, respectively in exchange for the warrants
they were holding.

All future material affiliated transactions and loans will be made or
entered into on terms no less favorable to the Company than those that can be
obtained from unaffiliated third parties, and all future material affiliated
members of the Company's board of directors who do not have an interest in the
transaction.

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PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the
beneficial ownership of Common Stock as of June 15, 1996, with respect to: (i)
each of the Company's directors; (ii) each of the Company's executive officers
named in the Summary Compensation Table above; (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.

[Enlarge/Download Table]

BENEFICIALLY OWNED
NAME SHARES PERCENT
-------------------------------------------------------------- --------- -------

Jugal K. Taneja(1)(2) . . . . . . . . . . . . . . . . . . . . 1,155,013 45.5%
Curtis L. Alliston(1)(3) . . . . . . . . . . . . . . . . . . 585,013 23.0
Donald G. Ward . . . . . . . . . . . . . . . . . . . . . . . 5,936 *
Martin A. Traber . . . . . . . . . . . . . . . . . . . . . . 11,671 *
Susan J. Carmichael . . . . . . . . . . . . . . . . . . . . . - -
Directors and executive officers as a group (5 persons)(4) 1,757,633 69.2

--------------------------
* Less than 1%

(1) The business address of Messrs. Taneja and Alliston is 737B West
Brandon Boulevard, Brandon, Florida 33511.
(2) Includes 100,000 shares of Common Stock held by First Delhi Trust,
which was established for the benefit of Mr. Taneja's children and
over which Mr. Taneja exercises voting rights, and 35,013 shares of
Common Stock held by Westminster Trust, which is a limited partnership
controlled by Mr. Taneja, and 100,000 shares of Common Stock held by
Manju Taneja, Mr. Taneja's wife.
(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 exercises voting rights.
(4) Includes notes (1) through (3) above.

DESCRIPTION OF SECURITIES

GENERAL

The authorized capital stock of the Company consists of 9,000,000
shares of Common Stock, no par value and 1,000,000 shares of Preferred Stock.
As of the date of this Prospectus, there were 2,539,629 shares of Common Stock
issued and outstanding and no shares of Preferred Stock issued and outstanding.
Additionally, 92,705 Warrants were outstanding as of that date.

COMMON STOCK

The holders of Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of shareholders. Cumulative
voting in the election of directors is not permitted. Subject to preferences
that may be granted to holders of preferred stock, holders of Common Stock are
entitled to receive ratably such dividends as may be declared by the Board of
Directors out of funds legally available therefor. See "Dividend Policy." In
the event of the liquidation, dissolution or

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winding up of the Company, holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities and the
liquidation preference granted to the holders of preferred stock. Holders of
Common Stock have no conversion, preemptive or other rights to subscribe for
additional shares or other securities, and there are no redemption or sinking
fund provisions with respect to such shares. The issued and outstanding shares
of Common Stock are, and the shares of Common Stock offered hereby will be upon
payment therefor, fully paid and nonassessable.

PREFERRED STOCK

The Board of Directors has the authority to issue up to 1,000,000
shares of Preferred Stock in one or more series and to fix the number of shares
constituting any such series and the rights and preferences thereof, including
dividend rates, terms of redemption (including sinking fund provisions),
redemption price or prices, voting rights, conversion rights and liquidation
preferences of the shares constituting such series, without any further vote or
action by the Company's stockholders. Issuances of shares of Preferred Stock
may have the effect of making it more difficult to remove the present
management of the Company or obtain control of the Company.

WARRANTS

One Warrant represents the right of the registered holder to purchase
one share of Common Stock at an exercise price of $3.00 per share, subject to
adjustment (the "Purchase Price"). The Purchase Price was lowered from $7.20
to $3.00 effective May 24, 1996 by action of the Company's Board of Directors.
A holder of Warrants may exercise such Warrants by surrendering the certificate
evidencing such Warrants to the warrant agent (which also is the Company's
transfer agent), together with the form of election to purchase on the reverse
side of such certificate properly completed and executed and the payment of the
exercise price and any transfer tax. If less than all of the Warrants
evidenced by the certificate are exercised, a new certificate will be issued
for the remaining number of Warrants. The Warrants will be entitled to the
benefit of adjustments in the Purchase Price and in the number of shares of
Common Stock and/or other securities deliverable upon the exercise thereof upon
the occurrence of certain events, including a stock dividend, stock split,
reclassification, reorganization, consolidation or merger. The Warrants may be
exercised at any time on or before September 19, 1997.

No holder, as such, of Warrants shall be entitled to vote or receive
dividends or be deemed the holder of Common Stock for any purpose whatsoever
until such Warrants have been duly exercised and the Purchase Price has been
paid in full.

The Company has the right, upon 20 days' prior written notice, to call
the Warrants: (i) for the price of $0.01 per Warrant if the last sale price of
the Common Stock has equaled or exceeded $7.20 for at least 20 consecutive
trading days; or (ii) at such a price and subject to such terms and conditions
as the underwriter for the Company's initial public offering may agree. The
Warrants can only be redeemed if a current Prospectus covering the Warrants and
the Common Stock issuable thereunder is then in effect. The Warrants will
remain exercisable during the 20 day notice period. Redemption of the Warrants
may force the holders to: (i) exercise the Warrants and pay the exercise price
at a time when it may be disadvantageous for them to do so; or (ii) sell the
Warrants at the current market price when they might otherwise wish to hold the
Warrants.

The form of the Warrant has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.

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CERTAIN PROVISIONS OF FLORIDA LAW

The Company is subject to several anti-takeover provisions under
Florida law that apply to a public corporation organized under Florida law
unless the corporation has elected to opt out of such provisions in its
Articles of Incorporation or (depending on the provision in question) its
Bylaws. The Company has not elected to opt out of these provisions. The
Florida Business Corporation Act (the "Florida Act") contains a provision that
prohibits the voting of shares in a publicly-held Florida corporation which are
acquired in "control share acquisition" unless the Board of Directors approves
the control share acquisition or the holders of a majority of the corporation's
voting shares (exclusive of shares held by officers of the corporation, inside
directors or the acquiring party) approve the granting of voting rights as to
the shares acquired in the control share acquisition. A control share
acquisition is defined as an acquisition that immediately thereafter entitles
the acquiring party to vote in the election of directors within each of the
following ranges of voting power: (i) one-fifth or more but less than one
third of such voting power, (ii) one third or more but less than a majority of
such voting power and (iii) more than a majority of such voting power.

The Florida Act also contains an "affiliated transaction" provision
that prohibits a publicly-held Florida corporation from engaging in a broad
range of business combinations or other extraordinary corporate transactions
with an "interested stockholder" unless (i) the transaction is approved by a
majority of disinterested directors before the person becomes an interested
stockholder, (ii) the interested stockholder has owned at least 80% of the
corporation's outstanding voting shares for at least five years, or (iii) the
transaction is approved by the holders of two-thirds of the corporation's
voting shares other than those owned by the interested stockholder. An
interested stockholder is defined as a person who together with affiliates and
associates beneficially owns more than 10% of the corporation's outstanding
voting shares.

INDEMNIFICATION

The Company's By-Laws provide that the Company shall indemnify and
hold harmless all directors or officers of the Company, any person serving at
the request of the Company as a director or officer of another corporation, or
any person serving at the request of the Company as a director or officer of
another corporation, or any person serving as its representative in a
partnership, joint venture, trust or other enterprise, to the fullest extent
legally permissible under the laws of the State of Florida from time to time in
effect, against any liability asserted against such person and incurred in any
such capacity or arising out of such status.

Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock and the Warrants
is American Securities Transfer, Inc., Lakewood, Colorado.

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LEGAL MATTERS

The validity of the shares of Common Stock to which this Prospectus
relates will be passed upon for the Company by Foley & Lardner, Tampa, Florida.
Martin A. Traber, a partner of Foley & Lardner, owns 11,671 shares of Common
Stock and is a Selling Shareholder.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE

On November 21, 1995, the Company replaced Kirkland, Brakeman, Russ,
Murphy & Tapp and engaged Grant Thornton LLP as its new independent accountant.
During the Company's two most recent fiscal years and any subsequent interim
period preceding the change in accountants, there were no disagreements with
the former accountant on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure.

EXPERTS

The consolidated financial statements of the Company as of and for the
year ended December 31, 1995, have been included herein and in the registration
statement in reliance upon the report of Grant Thornton LLP, independent
certified public accountants, and upon the authority of said firm as experts in
accounting and auditing. The consolidated financial statements of the Company
as of December 31, 1994 have been included herein and in the registration
statement in reliance upon the report of Kirkland, Brakeman, Russ, Murphy &
Tapp, independent certified public accountants, and upon the authority of said
firm as experts in accounting and auditing.

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NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

[Enlarge/Download Table]

PAGE NUMBER
-----------

CONDENSED CONSOLIDATED BALANCE SHEETS
at December 31, 1995 and March 31, 1996 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
for the three months ended March 31, 1995 (unaudited) and 1996 (unaudited) . . . . . . . . . . . . . . . . . . . F-4

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
for three months ended March 31, 1995 (unaudited) and 1996 (unaudited) . . . . . . . . . . . . . . . . . . . . . F-5

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . F-6

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-12

REPORT OF INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-13

CONSOLIDATED BALANCE SHEETS
As of December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-14

CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-16

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-17

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years ended December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-19

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-20

F-1

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NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

[Download Table]

March 31,
December 31, 1996
1995 (Unaudited)
------------- -----------

Current assets:

Cash $ 128,094 $ 163,519

Accounts receivable, net of allowance of $342,900
and $365,300 in 1995 and 1996, respectively 1,500,841 1,852,148

Prepaid expenses and other current assets 301,761 355,661
----------- -----------

Total current assets 1,930,696 2,371,328
----------- -----------

Property and equipment 6,732,150 6,812,914

Less: accumulated depreciation and amortization (2,197,420) (2,423,971)
----------- -----------

Net property and equipment 4,534,730 4,388,943
----------- -----------

Other assets:

Excess of purchase price over net assets acquired,
net of accumulated amortization of $36,547 and
$42,916 in 1995 and 1996 respectively
452,914 446,545
Deposits 53,115 56,471
Other 57,805 45,844
Total other assets 563,834 548,860
----------- -----------

$ 7,029,260 $7,309,131
=========== ==========

SEE ACCOMPANYING NOTES.

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NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES

LIABILITIES AND STOCKHOLDERS' EQUITY

[Download Table]

March 31,
December 31, 1996
1995 (Unaudited)
------------ -----------

Current liabilities:
Lines of Credit $ 409,500 $ 450,500
Note Payable 8,000 8,000
Note due to related party 49,243 50,000
Current installments of long-term debt 100,487 98,000
Current installments of obligations under
capital leases 648,909 652,000
Accounts payable 604,479 668,987
Accrued radiologist fees 225,815 281,198
Accrued expenses, other 411,262 439,155
Due to related party 57,231 75,057
----------- -----------

Total current liabilities 2,514,926 2,722,897

Long-term liabilities:
Long-term debt, excluding current installments 541,124 520,414
Obligations under capital leases, excluding
current installments 2,489,444 2,415,759
Deferred lease payments 210,335 276,260
----------- -----------

Total liabilities 5,755,829 5,935,330
----------- -----------

Commitments and contingencies

Stockholders' equity:
Preferred stock, no par value, 1,000,000
shares authorized, no shares issued and
outstanding - -

Common stock, no par value, 9,000,000
shares authorized, 2,539,629 shares issued
and outstanding in 1996 and 1995 668 668

Additional paid-in capital 2,079,267 2,079,267
Retained earnings (deficit) (806,504) (706,134)
----------- -----------

Net stockholders' equity 1,273,431 1,373,801
----------- -----------
$ 7,029,260 $ 7,309,131
=========== ===========

SEE ACCOMPANYING NOTES.

F-3

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NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

[Download Table]

Three months
Three months ended
ended March 31,
March 31, 1995 1996
(Unaudited) (Unaudited)
-------------- ------------

Revenue, net $1,342,031 $2,189,706
---------- ----------

Operating expenses:
Direct operating expenses 677,517 1,056,156
General and administrative 470,217 722,904
Depreciation and amortization 198,594 244,881
---------- ----------

Total operating expenses 1,346,328 2,023,941
---------- ----------

Operating income (loss) (4,297) 165,765

Interest expense 75,538 97,837
Other income (loss) 7,306 32,442
---------- ----------

Income (loss) before income taxes (72,529) 100,370
Income taxes - -
---------- ----------

Net income (loss) $(72,529) $100,370
========== ==========

Net income (loss) per common share $(.04) $.04
========== ==========

Weighted average number of
common shares outstanding $1,700,000 $2,539,629
========== ==========

SEE ACCOMPANYING NOTES.

F-4

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NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

[Enlarge/Download Table]

Three months
Three months ended
ended March 31,
March 31, 1995 1996
(Unaudited) (Unaudited)
-------------- -------------

Cash flows from operating activities:

Net income (loss) $ (72,529) $100,370

Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Income taxes (11,000) -
Depreciation and amortization 198,594 244,881
Provision for bad debts - 22,400
Increase in accounts receivable (241,914) (373,707)
Loss on disposition of equipment - 4,377
(Increase) in prepaid expenses and other current assets (141,289) (53,900)
Increase in organization & start-up costs (28,732) -
Increase in accounts payable 85,153 64,508
Increase in accrued radiologist fees - 55,383
Increase in other accrued expenses - 27,893

Increase in deferred lease payments - 65,925
--------- --------

Net cash provided by operating activities (211,717) 158,130
--------- --------

Cash flows provided (used) by investing activities:
Purchases of property and equipment (176,211) (18,927)
Increase in notes receivable (17,089) -
Increase in goodwill (69,535) -
--------- --------

Net cash used by investing activities (262,835) (18,927)
--------- --------

Cash flows provided (used) by financing activities:
Increase (net) in line of credit - 41,000
Repayment of long-term borrowings (313,567) (23,197)
Proceeds of borrowing from related parties - 18,583
Principal payments under capital lease obligations (132,411) (136,808)
Proceeds from borrowings on long-term debt 345,378 -
Increase in deposits (88,678) -
Proceeds from borrowings on other notes payable 48,697 (3,356)
--------- --------

Net cash (used) by financing activities (140,581) (103,778)
--------- --------

Net increase (decrease) in cash (615,133) 35,425

Cash at beginning of period 1,497,510 128,094
--------- --------

Cash at end of period $ 882,377 $163,519
========= ========

Supplemental disclosure of cash flow information:
Interest paid $ 76,649 $ -
========= ========

Asset added under capital lease $ - $ 66,214
========= ========

SEE ACCOMPANYING NOTES.

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NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES

MARCH 31, 1996
(UNAUDITED)

(1) SIGNIFICANT ACCOUNTING POLICIES

The accounting policies followed by National Diagnostics, Inc., and
Subsidiaries (the "Company") for quarterly financial reporting
purposes are the same as those disclosed in the Company's annual
financial statements. In the opinion of management, the accompanying
condensed consolidated financial statements reflect all adjustments
(which consist only of normal recurring adjustments) necessary for a
fair presentation of the information presented. The interim results
are not necessarily indicative of the results that may be expected for
the full fiscal year.

The quarterly condensed consolidated financial statements herein have
been prepared by the Company without audit. Certain information and
footnote disclosures included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. Although the Company management believes the
disclosures are adequate to make the information not misleading, it is
suggested that these quarterly condensed consolidated financial
statements be read in conjunction with the audited annual financial
statements and footnotes thereto.

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. Actual results could differ
from those estimates.

(2) PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

[Download Table]

Estimated
December 31, March 31, service
1995 1996 life (years)
------------ ---------- ------------

Land $ 85,000 $ 85,000
Building 253,041 253,041 39
Medical Equipment 5,200,475 5,277,900 7
Office furniture and equipment 477,739 483,347 7
Vehicles 232,542 228,165 5
Leasehold improvements 483,353 485,461 3-5
---------- ----------
$6,732,150 $6,812,914
========== ==========

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NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES

(3) LINES OF CREDIT

The banks have a first security interest on certain accounts
receivable. The lines have varying interest rates ranging from bank
index plus 1 to 2 percent (at March 31, 1996, 10.25%).

[Download Table]

Line of credit limit $550,000
Qualifying borrowing base 550,000
Outstanding loan balance 450,500

Payment and declaration of dividends are restricted. In accordance
with the loan agreement the Company may not pay or declare dividends
without the prior written consent of the bank. No dividends have been
paid or declared at March 31, 1996.

(4) LONG-TERM DEBT

Long-term debt is summarized as follows:

[Download Table]

December 31, March 31,
1995 1996
------------ ---------

Installment loans payable which consist of a number of
separate installment loan contracts secured by
equipment and vehicles. The loans require monthly
installments of principal and interest over terms that
vary from two to five years. At March 31, 1996, the
loans bear interest at rates ranging from 9.5% to
12.25%. 346,334 324,071

Mortgage note payable in monthly installments of
$2,445.88 including interest at 8.75%; maturing April,
2020; secured by mortgaged real estate property. 295,277 294,343
-------- --------

Total long-term debt 641,611 618,414

Less current installments of long-term debt 100,487 98,000
-------- --------

Long-term debt, excluding current installments $541,124 $520,414
======== ========

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NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES

The aggregate principal payments of long-term debt required annually
are:

[Download Table]

Nine months ending December 31: 1996 $ 77,289
Year ending December 31: 1997 96,493
1998 91,967
1999 74,142
2000 5,184
2001 5,657
Thereafter 267,682
--------
$618,414
========

(5) LEASES

The Company has entered into capital leases for medical equipment
which expire in 2002. The gross amount of equipment and related
accumulated amortization recorded under capital leases are as follows:

[Download Table]

December 31, March 31,
1995 1996
------------ ----------

Medical equipment $5,012,412 $4,630,105
Less accumulated amortization 2,045,692 1,887,248
---------- ----------
$2,966,720 $2,742,857
========== ==========

Amortization of assets held under capital lease is included with
depreciation expense.

The present value of future minimum capital lease payments is as
follows:

[Download Table]

Nine months ending December 31: 1996 $514,777
Year ending December 31: 1997 791,556
1998 877,911
1999 501,317
2000 238,418
2001 142,474
Thereafter 1,306
--------

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NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES

[Download Table]

Present value of minimum capital lease
payments 3,067,759

Less current installments of
obligations under capital leases 652,000
----------

Obligations under capital leases,
excluding current installments $2,415,759
==========

The Company is obligated under noncancellable operating leases that
expire through 2001.

Rental expense related to these noncancellable leases was
approximately $53,600 and $100,250 for the three months ended March
31, 1995 and 1996, respectively.

(6) NOTE PAYABLE TO RELATED PARTY

Note payable to related party is as follows:

[Download Table]

December 31, March 31,
1995 1996
------------ ---------

Note payable with interest at 8.5%, payable in twelve
monthly installments of $4,167 plus interest commencing
September 1996. $49,243 $50,000
======= =======

Interest expense to related parties totaled $379 and $757 for the
three months ended March 31, 1995 and 1996, respectively.

(7) OTHER NOTES PAYABLE

Other notes payable are summarized as follows:

[Download Table]

December 31, March 31,
1995 1996
------------ ---------

Note payable with interest at 9.5%, due April, 1996;
unsecured $8,000 $8,000
====== ======

(8) INCOME TAXES

The Company had no income tax expense for the three months ended March
31, 1995 and 1996.

The income tax provision for 1995 and 1996 reconciled to the tax
computed at the statutory rate of 34% is as follows:

F-9

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NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES

[Download Table]

1995 1996

Income taxes (benefit) at statutory rate $(25,000) $34,000
State income taxes (3,000) 4,000
Increase in valuation allowance 24,000 -
Nondeductible expenses 4,000 3,000
Utilization of operating loss carryforwards - (41,000)
--------- -------
$ - $ -
========= =======

The deferred tax asset and liability consist of the following:

[Download Table]

December 31, March 31,
1995 1996
------------ ---------

Assets
Net operating loss carry forward $158,000 $110,000
Allowance for doubtful accounts 133,700 142,500
Deferred rents 75,800 107,700
Accrued compensation 18,600 -
Pre-opening costs 29,900 25,900
Acquisition basis difference 122,300 122,000
-------- --------
538,300 508,100
Less: valuation allowance (310,900) (269,300)
-------- --------
227,400 238,800
-------- --------

Liabilities
Fixed assets 227,000 238,300
Goodwill 400 500
-------- --------
227,400 238,800
-------- --------
Deferred taxes $ - $ -
======== ========

At March 31, 1996 approximately $232,000 in net operating carry
forwards remain which will expire if not utilized by 2010.

(9) BUSINESS COMBINATIONS

On February 1, 1995, the Company formed a wholly-owned subsidiary,
National Diagnostics/Orange Park, Inc. (Orange Park) and purchased
certain assets for $112,000 from a

F-10

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NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES

medical imaging diagnostic center in Middleburg, Florida. This
transaction was accounted for as a purchase. The purchase price is
paid as follows: $62,000 was paid at closing and $50,000 is to be
paid in 12 monthly installments beginning September 1996 as reflected
in the December 31, 1995 balance sheet as a "Note due to related
party" for $49,243. Pro forma information is not provided herein
because of the transaction's insignificant effect on the Company's
financial statement.

Additionally, the Company is to issue an amount of its unregistered
stock which when multiplied by a price per share equal to the average
of the bid and ask price for the five trading days immediately
preceding the Closing date equals the amount paid by the seller for
operating expenses on behalf of the Company during the period February
1, 1995 (date of purchase) through July 31, 1995. The amount to be
reimbursed to this individual, $57,231, is reflected in the December
31, 1995 balance sheet as "Due to related party". This issuance of
Common Stock relates to expense reimbursements and is not associated
with a contingent purchase price adjustment.

(10) LEGAL ACTION

On February 9, 1996 the physician group, which in December, 1995
terminated its contract for reading services with the Brandon and
SunPoint centers, filed suit against the centers alleging the centers
materially breached the contract by failing to pay physician fees
timely and incorrectly billed certain procedures. The Company denies
any material breach to the contract and has filed a motion to dismiss.
Management feels it has reserved an adequate loss provision in the
event of an adverse outcome.

On March 10, 1995 legal action was instituted against A.T. Brod & Co.,
Inc. (a national stock brokerage firm) by a terminated employee of
A.T. Brod & Co., Inc. ("A.T. Brod"). A.T. Brod was a major market
maker for National Diagnostics, Inc. stock. The action alleges
wrongful discharge, breach of contract, defamation of character,
conspiracy and tortious interference with a contract arising out of
the alleged wrongful termination of the plaintiff by A.T. Brod. The
Company was named in the suit. Compensatory and punitive damages of
$2,830,000 are sought. On June 14, 1995, a motion was made under the
rules of the National Association of Dealers to compel arbitration of
the matter and to stay the action in entirety against the Company
pending the outcome of the arbitration. Upon receiving the motion,
the plaintiff's attorney indicated he agreed with the defendants'
position, consenting to arbitration and to stay the action pending the
outcome of that arbitration. Through June 27, 1996, the plaintiff's
attorney has taken no steps to progress his claim in arbitration.
Based upon information available to defendants' counsel through this
date, counsel indicates the claim appears to be not meritorious. The
Company feels the suit is without merit and intends to vigorously
defend itself. The ultimate outcome of this legal matter cannot be
determined at this time, and accordingly, no adjustments have been
made to the consolidated financial statements.

F-11

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GRANT THORNTON
GRANT THORNTON LLP Accountants and
Management Consultants

The U.S. Member Firm of
Grant Thornton International

Suite 3850
101 East Kennedy Boulevard
Tampa, FL 33602-5154
813 229-7201

FAX 813 223-3015

Report of Independent Certified Public Accountants

Board of Directors
National Diagnostics, Inc.

We have audited the accompanying consolidated balance sheet of National
Diagnostics, Inc. and Subsidiaries as of December 31, 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year 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 audit.

We conducted our audit 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 audit provides 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, 1995, and the
consolidated results of their operations and their consolidated cash flows for
the year then ended in conformity with generally accepted accounting principles.

GRANT THORNTON LLP

Tampa, Florida
March 20, 1996

F-12

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KIRKLAND, BRAKEMAN,
RUSS, MURPHY & TAPP
CERTIFIED PUBLIC ACCOUNTANTS

13577 Feather Sound Drive, Suite 400
Clearwater, FL 34622-5539
(813) 572-1400 Fax (813) 571-1933

Independent Auditors' Report

Board of Directors and Stockholders
National Diagnostics, Inc. and
Subsidiaries:

We have audited the accompanying consolidated balance sheet of National
Diagnostics, Inc. and subsidiaries as of December 31, 1994, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the year then ended. These financial statements are the
responsibility of National Diagnostics, Inc. and subsidiaries' management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

In our opinion, the consolidated 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, 1994, and the
consolidated results of their operations and their cash flows for the year then
ended, in conformity with generally accepted accounting principles.

Kirkland, Brakeman, Russ, Murphy & Tapp

February 19, 1995
Clearwater, Florida

F-13

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NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS

[Download Table]

December 31, December 31,
1995 1994
---------- ----------

Current assets:

Cash $ 128,094 $1,497,510

Accounts receivable, net of allowance
of $342,900 and $98,600 in 1995 and
1994, respectively 1,500,841 614,696

Prepaid expenses and other current assets 301,761 91,265
---------- ----------

Total current assets 1,930,696 2,203,471
---------- ----------

Property and equipment 6,732,150 4,755,227

Less: accumulated depreciation and
amortization (2,197,420) (1,598,884)
---------- ----------

Net property and equipment 4,534,730 3,156,343
---------- ----------

Other assets:

Excess of purchase price over net
assets acquired, net of accumulated
amortization of $36,547 and $12,400 in
1995 and 1994, respectively 452,914 407,567

Deposits 53,115 13,534

Other 57,805 91,388
---------- ----------

Total other assets 563,834 512,489
---------- ----------

$7,029,260 $5,872,303
========== ==========

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

F-14

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NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES

LIABILITIES AND STOCKHOLDERS' EQUITY

[Download Table]

December 31, December 31,
1995 1994
------------ ------------

Current liabilities:
Lines of credit $ 409,500 $ -
Note Payable 8,000 -
Note due to related party 49,243 -
Current installments of long-term debt 100,487 73,000
Current installments of obligations under
capital leases 648,909 556,415
Current installments of other notes payable - 102,187
Accounts payable 604,479 284,587
Accrued radiologist fees 225,815 -
Accrued expenses, other 411,262 216,470
Due to related party 57,231 -
Income taxes payable - 11,000
----------- -----------

Total current liabilities 2,514,926 1,243,659

Long-term liabilities:
Long-term debt, excluding current installments 541,124 237,665
Obligations under capital leases, excluding
current installments 2,489,444 2,249,346
Deferred lease payments 210,335 -
Deferred income taxes payable - 169,000
----------- -----------

Total liabilities 5,755,829 3,899,670
----------- -----------

Commitments and contingencies
Stockholders' equity:

Preferred stock, no par value, 1,000,000 shares
authorized, no shares issued and outstanding - -

Common stock, no par value, 9,000,000 shares
authorized, 2,539,629 and 1,700,000 shares
issued and outstanding in 1995 and 1994 668 500

Additional paid-in capital 2,079,267 1,943,579

Retained earnings (deficit) (806,504) 28,554
----------- -----------

Net stockholders' equity 1,273,431 1,972,633
----------- -----------

$ 7,029,260 $ 5,872,303
=========== ===========

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

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NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

[Download Table]

Year Ended Year Ended
December 31, December 31,
1995 1994
------------ ------------

Revenue, net $6,232,515 $3,708,603

Operating expenses:
Direct operating expenses 3,494,691 1,646,175
General and administrative 2,634,973 1,031,807
Depreciation and amortization 889,530 561,767
---------- ----------

Total operating expenses 7,019,194 3,239,749
---------- ----------

Operating income (loss) (786,679) 468,854

Interest expense 334,499 273,466
Other income 106,120 12,147
---------- ----------
Income (loss) before income taxes (1,015,058) 207,535
Income tax (benefit) (180,000) 9,000
---------- ----------

Net income (loss) $ (835,058) $ 198,535
========== ==========

Pro forma data:
Historical net income $ 198,535

Pro forma adjustment to provision
income taxes (unaudited) 79,000
----------

Pro forma net income (unaudited) $ 119,535
==========

Historical net (loss) per common share $ (.44)
==========
Pro forma net income per common share
(unaudited) $ .09
==========

Weighted average number of
common shares outstanding 1,887,672 1,331,507
========== ==========

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

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NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

[Download Table]

Year ended Year ended
December 31, December 31,
1995 1994
------------ ------------

Cash flows from operating activities:
Net income (loss) $ (835,058) $ 198,535
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities: 799,889 561,767
Depreciation and amortization 244,300 21,000
Provision for bad debts (169,000) (2,000)
Deferred income taxes (37,712) -
Gain on disposition of equipment
Increase in accounts receivable (1,130,445) (233,879)
Increase in prepaid expenses and other
current assets (187,898) (138,725)
Increase in accounts payable and accrued expenses 740,499 152,152
Increase (decrease) in income taxes payable (11,000) 11,000
Increase in deferred lease payments 210,335 -
---------- ----------

Net cash provided (used) by operating activities (376,090) 569,850
---------- ----------

Cash flows provided by (used in) investing activities:
Purchases of property and equipment (1,204,763) (447,140)
Payment for purchase of Orange Park (62,000) -
---------- ----------
Net cash used in investing activities (1,266,763) (447,140)
---------- ----------

Cash flows provided by (used in) financing activities:
Proceeds from issuance of common stock, net 84,800 2,396,360
Proceeds from borrowings on line of credit 409,500 -
Proceeds from note payable 8,000 -
Proceeds from borrowings on long-term debt 415,464 75,684
Repayment of cash overdraft - (7,355)
Repayment of long-term borrowings (84,518) (185,795)
Proceeds of borrowing from related parties 106,474 84,667
Repayment of related parties borrowings - (494,982)
Repayment of other notes payable (102,187) (125,866)
Principal payments under capital lease obligations (524,515) (366,173)
Increase in deposits (39,581) (1,740)
---------- ----------

Net cash provided by financing activities $ 273,437 $1,374,800
---------- ----------

F-17 (continued)

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NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES

[Download Table]

Year ended Year ended
December 31, December 31,
1995 1994
------------ ------------

Net increase (decrease) in cash (1,369,416) 1,497,510

Cash at beginning of period 1,497,510 -
---------- ----------

Cash at end of period $ 128,094 $1,497,510
========== ==========

Supplemental disclosure of cash flow information:

Interest paid $ 330,000 $ 267,000
========== ==========

Income tax paid 15,723 -
========== ==========

Capital lease obligations incurred $1,066,889 $ 929,000
========== ==========

In February 1995, the Company acquired certain business assets (principally
mobil equipment) totaling $203,000 related to its Orange Park facility for
consideration of $62,000 cash, issuance of a note payable of $45,000, the
obligation to issue common stock in the amount of $51,000 and the assumption of
liabilities of $45,000 (see note 12).

In December of 1995, the Company acquired a partnership interest representing
real estate assets of $346,000 by assuming long-term debt of $295,000 and the
issuance of common stock of $51,000 (see note 12).

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

F-18

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NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

YEARS ENDED DECEMBER 31, 1995 AND 1994

[Enlarge/Download Table]

Retained Net
Additional Earnings Stockholders'
Common Paid-In (accumulated Equity
Stock Capital deficit) (deficit)
------ ----------- ------------ -------------

Balances at December 31, 1993 $400 $ 3,900 $(455,562) $ (451,262)

Sale of 500,000 shares of National
Diagnostics, Inc. common stock at
$6.00 per share, net of offering
costs 100 2,396,260 - 2,396,360

Reinstate deferred income taxes on
termination of S Corporation status - - (171,000) (171,000)

Reclassify undistributed earnings in S
Corporation to additional paid-in capital - (456,581) 456,581 -

Net Income - - 198,535 198,535
---- ---------- --------- ----------

Balances at December 31, 1994 $500 $1,943,579 $ 28,554 $1,972,633
---- ---------- --------- ----------

Exchange of 642,918 shares of National
Diagnostics, Inc. common stock at
$1.5625 per share for 1,607,295
warrants at $.625 per warrant 129 (129) - -

Exercise of director stock options
(80,000 shares) 16 84,784 - 84,800

Issuance of common stock
(116,711 shares) 23 51,033 - 51,056

Net Loss - - (835,058) (835,058)
---- ---------- --------- ----------

Balance at December 31, 1995 $668 $2,079,267 $(806,504) $1,273,431
==== ========== ========= ==========

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

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NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

DECEMBER 31, 1995 AND 1994

1) ORGANIZATION AND BASIS OF PRESENTATION

The consolidated financial statements include the accounts of National
Diagnostics, Inc. (Company), Alpha Associates, Inc. (Associates), and
Alpha Acquisitions Corp. (Acquisitions). Associates and Acquisitions
hold 100% of the partnership interests in Brandon Diagnostic Center,
Ltd. (Brandon). National Diagnostics, Inc., is a holding company
which was formed in June 1994. The Company, Associates, and
Acquisitions had common stockholders. In September 1994, the
stockholders exchanged all of their shares of common stock of
Associates and Acquisitions for 1,200,000 shares of common stock and
1,200,000 common share purchase warrants exercisable at $7.20 per
share of the Company. The stock exchange resulted in a combination of
entities under common control and was accounted for by combining the
historical amount of the companies (similar to a pooling of
interests). These consolidated financial statements reflect the
retroactive combination of the Company, Associates, and Acquisitions.

Effective September 20, 1994, the Company completed an Initial Public
Offering (IPO) of 500,000 units wherein each unit consists of one
share of common stock and one common share purchase warrant
exercisable at $7.20 per share. The net proceeds from this sale were
approximately $2,400,000.

On November 7, 1994, the Company formed a wholly-owned subsidiary and
opened SunPoint Diagnostic Center, Inc. (SunPoint).

On February 1, 1995, the Company formed a wholly-owned subsidiary,
National Diagnostics/Orange Park, Inc. (Orange Park) and purchased
the assets of a mobile company. Orange Park opened a fixed site
center in July, 1995, to add to its radiology services.

On September 1, 1995, the Company formed a wholly-owned subsidiary
National Diagnostics/Cardiology, Inc. (Cardiology) and placed into
service a mobil cardiology unit.

On December 31, 1995, the Company and Orange Park acquired a 100%
interest in a real estate partnership which owns the fixed site
facility for Orange Park.

The Company provides medical imaging services to patients in Brandon
(Brandon), Ruskin (SunPoint), and greater Jacksonville area (Orange
Park and Cardiology), Florida.

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NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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 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.

B) INCOME TAXES

The stockholders of the Company, Associates and Acquisitions
previously elected to file federal income tax returns under
"Subchapter S" of the Internal Revenue Code. As an S
Corporation, the earnings of each company are reported by the
individual shareholders and therefore the Company is not
responsible for federal or certain state income taxes.

The S Corporation elections terminated in connection with the
IPO of common stock. The accompanying statements of
operations for the period ended December 31, 1994 reflect a
provision for income taxes on a proforma basis as if the
Company were liable for federal, state and local income taxes
as taxable corporate entities through September 20, 1994.

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, personnel costs for
training, equipment testing and calibration and office set up
which are incurred prior to Center opening are deferred and
amortized over 12 months commencing with a Center's opening.
Such costs which are included in other assets and other
current assets totaled approximately $196,518 and $87,000 at
December 31, 1995 and 1994, respectively.

D) EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED

Excess of purchase price over net assets acquired are
amortized over 20 years. Management reviews the performance
of the related assets on a quarterly basis to

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NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

determine if impairment has taken place. No impairment costs
have been realized in the current years.

E) CASH AND CASH EQUIVALENTS

For financial statements purposes cash equivalents include
short-term investments with an original maturity of ninety
days or less. At December 31, 1995 and 1994, respectively,
the Company had investments in money market accounts of $4,384
and $1,344,514.

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

In March 1995, the Financial Accounting Standards Board issued
the Statement of Financial Accounting Standards 121,
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of (SFAS 121). SFAS 121
requires that long-lived assets and certain identifiable
intangibles held and used by an entity along with goodwill
should be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset
may not be recoverable. If the sum of the expected future
cash flows (undiscounted and without interest) is less than
the carrying amount of the asset, an impairment loss is
recognized. Measurement of that loss would be based on the
fair value of the asset. SFAS 121 also generally requires
long-lived assets and certain identifiable intangibles to be
disposed of to be reported at the lower of the carrying amount
or the fair value less cost to sell. SFAS 121 is effective
for the Company's 1996 fiscal year end. The Company has not
finalized its assessment of the potential impact of adopting
SFAS 121 at this time; however, on a preliminary basis
management does not believe the impact will be material to the
financial statements.

G) REVENUE RECOGNITION

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. For all years presented,
approximately 19% to 23% 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 63% and 98% of total revenues
for 1995 and 1994, respectively.

H) ACCOUNTING FOR STOCK BASED COMPENSATION

SFAS No. 123 "Accounting for Stock Based Compensation" was
issued by the Financial Accounting Standards Board in October
1995. As it relates to stock options granted to

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NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

employees, SFAS No. 123 permits companies to continue using the
accounting method promulgated by the Accounting Principals
Board Opinion No. 25 ("APB No. 25"), "Accounting for Stock
Issued to Employees," to measure compensation or to adopt the
fair value based method prescribed by SFAS No. 123. If APB No.
25's method is continued, pro forma disclosures are required as
if SFAS No. 123 accounting provisions were followed. SFAS No.
123's accounting recognition method can be adopted anytime
subsequent to the issuance of the Statement in October 1995,
and would pertain to stock option awards granted or modified or
settled for cash after the date of adoption. If the Company
elects to continue using the method under APB No. 25, SFAS No.
123's pro forma disclosures are required after December 31,
1995. Management has not completely analyzed the provisions of
SFAS No. 123; accordingly, management has not determined
whether or not SFAS No. 123's accounting recognition provisions
will be adopted or APB No. 25's method will be continued. In
addition, management has not yet determined the potential
effect that SFAS No. 123's accounting provisions, if adopted,
will have on the Company's financial statements.

I) EARNINGS PER COMMON SHARE

Earnings (loss) per share for the years ended December 31, 1995
and 1994, are computed using the weighted average number of
common shares. Generally, common stock equivalents such as
outstanding incentive stock options and warrants are included
in the calculation if they have a dilutive effect on earnings
per share. The Company's options and warrants were not
included in the calculation because they had an antidilutive
effect.

J) FAIR VALUE OF FINANCIAL INSTRUMENTS

At December 31, 1995, 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, current and long-term portions of notes
payable, and long-term obligations approximate fair market
value since the interest rates on most of these instruments
change with market interest rates.

K) OPERATIONAL MATTERS AND LIQUIDITY

During the current year the Company experienced losses of
$(835,000) and began to experience in the fourth quarter
difficulty in meeting timely its current obligations to its
trade vendors. This was attributed to the rapid expansion of
facilities and increase in additional personnel and related
costs. All fixed commitments to its banking and leasing
creditors have been timely satisfied. In response, in
December 1995, the Company identified over $650,000 in annual
cost cutting measures; all of which management has acted upon.
These measures include but are not limited to: reduction of
radiologist fees by renegotiated contracts (annual savings
$227,000); personnel cutbacks and realignments (annual savings
$202,000); one time cost reductions ($77,000); group and
liability insurance premium reductions (annual savings
$49,000) and others. The Company feels

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NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

that this action coupled with the continued increase in revenues will
return the Company to a profitable situation. The Company has already
felt the positive effect of these savings and increased revenues
(based on unaudited numbers) with a profitable January. The Company
expects this trend to continue with a favorable first quarter, 1996.
There is no assurance that these goals will be met.

3) PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

[Download Table]

Estimated
December 31, December 31, service
1995 1994 life (years)
------------ ------------ ------------

Land $ 85,000 $ - -
Buildings 253,041 - 39
Medical Equipment 5,200,475 4,123,789 7
Office furniture and equipment 477,739 341,231 7
Leasehold improvements 483,353 279,351 3-5
Vehicles 232,542 - 5-7
Construction in progress - 10,856
---------- ----------

$6,732,150 $4,755,227
========== ==========

4) LINES OF CREDIT

The banks have a first security interest on certain accounts
receivable. The lines have varying interest rates ranging from bank
index plus 1 to 2 percent (at December 31, 1995, 10.75%).

[Download Table]

1995
--------

Line of credit limit $550,000
Qualifying borrowing base 483,719
Outstanding loan balance 409,500

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NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

5) LONG-TERM DEBT

Long-term debt is summarized as follows:

[Download Table]

December 31, December 31,
1995 1994
------------ ------------

Note payable in monthly installments of $8,508
including interest, at prime plus 1.50% (10% at
December 31, 1995), through April 1996 and a final
installment of $213,000 due in May 1996; secured
by equipment and personal guarantees of
officers/stockholders $ - $310,665

Installment loans payable which consist of a
number of separate installment loan contracts
secured 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, 1995, the loans bear
interest at rates ranging from 9.5% to 12.25%. 346,334 -

Mortgage note payable in monthly installments of
$2,445.88 including interest at 8.75%; maturing
April, 2020; secured by mortgaged real estate
property. 295,277 -
------- --------

Total long-term debt 641,611 310,665

Less current installments of long-term debt 100,487 73,000
-------- --------

Long-term debt, excluding current installments $541,124 $237,665
======== ========

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NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The aggregate principal payments of long-term debt required annually
are:

[Download Table]

Year ending December 31: 1996 $100,487
1997 96,493
1998 91,967
1999 74,142
2000 5,184
Thereafter 273,338
--------
$641,611
========

6) LEASES

The Company has entered into capital leases for medical equipment
which expire in 2001. The gross amount of equipment and related
accumulated amortization recorded under capital leases are as follows:

[Download Table]

December 31, December 31,
1995 1994
------------ ------------

Medical equipment $5,012,412 $3,709,065
Less accumulated amortization 2,045,692 1,283,141
---------- ----------

$2,966,720 $2,425,924
========== ==========

Amortization of assets held under capital lease is included with
depreciation expense.

The present value of future minimum capital lease payments is as
follows:

[Download Table]

Year ending December 31: 1996 $ 648,909
1997 781,416
1998 866,730
1999 488,989
2000 224,834
Thereafter 127,475
----------

Present value of minimum capital lease
payments 3,138,353

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NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

[Download Table]

Less current installments of
obligations under capital leases 648,909
-----------

Obligations under capital leases,
excluding current installments $ 2,489,444
===========

The Company is obligated under noncancellable operating leases that
expire through 1999.

Future minimum lease payments under these leases are as follows:

[Download Table]

Year ending December 31:
1996 $ 401,000
1997 279,000
1998 168,000
1999 92,000
2000 53,000
Thereafter 55,000
----------
$1,048,000
==========

Rental expense related to these non-cancelable leases was
approximately $396,000 and $105,000 for the years ended December 31,
1995 and 1994, respectively.

7) NOTE PAYABLE TO RELATED PARTY

Note payable to related party is as follows:

[Download Table]

December 31, December 31,
1995 1994
------------ ------------

Note payable with imputed interest at 10%,
due January 31, 1996 $49,243 $ -
======= ========

Interest expense to related parties totaled $4,021 and $41,300 for the
years ended December 31, 1995 and 1994, respectively.

8) OTHER NOTES PAYABLE

Other notes payable are summarized as follows:

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NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

[Download Table]

December 31, December 31,
1995 1994
------------ ------------

Promissory note payable with interest imputed at 11%,
due September 1, 1995: Repaid in 1995 $ - $ 79,779

Promissory note payable with interest imputed at 11%,
due April 1, 1995: Repaid in 1995 - 22,408

Note payable with interest at 9.5%, due April, 1996;
unsecured 8,000 -
------ --------

Total other notes payable $8,000 $102,187
====== ========

9) INCOME TAXES

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

[Download Table]

1995 1994
--------- --------

Current $ (11,000) $ 11,000
Deferred (169,000) (2,000)
--------- --------
$(180,000) $ 9,000
========= ========

The income tax provision for 1995 and 1994 reconciled to the tax
computed at the statutory rate of 34% is as follows:

[Download Table]

1995 1994
--------- --------

Income taxes at statutory rate $(345,100) $ 73,000
State income taxes (50,800) 5,000
Alternative minimum taxes - 8,000
Effect of S Corporation earnings - (77,000)
Increase in valuation allowance,
exclusive of amount due to acquisition 188,600 -
Nondeductible expenses 15,300 -
Other 12,000 -
--------- --------
$(180,000) $ 9,000
========= ========

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NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The deferred tax asset and liability consist of the following at
December 31:

[Download Table]

1995 1994
-------- --------

Assets
Net operating loss carry forward $158,000 $ -
Allowance for doubtful accounts 133,700 38,000
Deferred rents 75,800 -
Nondeductible accrued compensation 18,600 -
Pre-opening costs 29,900 -
Acquisition basis difference 122,300 -
-------- --------
538,300 38,000
Less: valuation allowance (310,900) -
-------- --------
227,400 38,000
-------- --------
Liabilities
Fixed assets 227,000 207,000
Goodwill 400 -
-------- --------
227,400 207,000
-------- --------

Net deferred taxes $ - $169,000
======== ========

On December 31, 1995 the Company and Orange Park acquired a 100%
interest in a real estate partnership in a taxable transaction (see
notes 1 and 12). The Company will elect to step up the basis in the
assets of the partnership for income tax purposes while the assets are
recorded at historical cost for financial reporting purposes. This
results in the acquisition basis deferred tax asset shown above. A
valuation allowance of an equal amount has been recorded due to the
uncertainty of the asset's realization.

Management, using SFAS 109 criteria and based principally on 1995
taxable loss along with expectations for 1996, concluded that the
above valuation allowance at December 31, 1995, was reasonable. In
the fourth quarter deferred tax liabilities were offset by deferred
tax assets.

At December 31, 1995 approximately $405,000 in net operating carry
forwards remain which will expire if not utilized by 2010.

Deferred income taxes payable of $171,000 were recorded at September
30, 1994 with a corresponding charge to retained earnings representing
the tax effect of the cumulative temporary differences as a result of
the termination of the S Corporation tax status.

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AND SUBSIDIARIES

Notes to Consolidated Financial Statements

10) CONCENTRATION OF ACCOUNTS RECEIVABLE

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

[Download Table]

December 31, December 31,
1995 1994
------------ ------------

Commercial insurance carriers $ 530,000 $146,800
Managed care providers 382,400 255,800
Private patients 528,400 189,300
Worker's compensation 100,700 35,900
Medicare 302,241 85,496
---------- --------

$1,843,741 $713,296
========== ========

11) COMMITMENTS AND CONTINGENCIES

A) GUARANTEES

The lines of credit and an equipment loan of the Company are fully or
partially guaranteed by its majority stockholders.

B) EMPLOYMENT CONTRACTS

In April 1995 the Company entered into new contracts with the
President and Chief Executive Officer effective April 1, 1995. The
President and Chief Executive Officer received increased salaries
under the new contracts, $150,000 and $75,000 respectively plus
certain benefits.

In November 1995 these contracts were replaced with new three year
contracts effective July 1, 1995. Under the new contracts the bonus
arrangement was restructured. Each executive is 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 2.5% of net revenue in excess of
the prior year's net revenue is to be paid to each executive.

Total compensation earned by the Chief Executive Officer and the
President under the current and previously existing contracts for the
years ended December 31, 1995 and 1994 was approximately $414,764 and
$102,000, 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 $85,000
plus certain benefits. In addition, the executive will earn a 10%
bonus based on the increase in adjusted profits of the Orange Park
center.

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NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

In November, 1995 the Company entered into a three year employment
agreement with the Vice President of Development. The executive is to
receive a salary of $85,000 plus certain benefits.

C) PROFESSIONAL SERVICES AGREEMENT

The Company had entered into agreements with a physician group to
provide radiological services. For the period January 1, 1994 through
December 1995, the Company paid the physician group operating in
Brandon 15% of the first $200,000 net receipts from reading fees and
25% of net receipts from reading fees over $200,000.

For the period November 1, 1994 through December 1995, the Company
paid the physician group operating in SunPoint 15% of the first
$100,000 on net receipts and 20% of net receipts over $100,000.

These contracts were terminated in December and the Company entered
into new contracts wherein physicians' reading fees for both Brandon
and SunPoint are paid at the rate of 14% of net receipts.

The Company pays the physician group operating in Orange Park 17% of
net receipts from reading fees.

The Company is currently negotiating the reading contracts to make
them similar for each location.

Physician service expense under the current and previously existing
contracts for the years ended December 31, 1995 and 1994 was
approximately $1,013,424 and $562,000, respectively.

12) BUSINESS COMBINATIONS

On February 1, 1995, the Company purchased certain assets for $112,000
from a medical imaging diagnostic center in Middleburg, Florida. This
transaction was accounted for as a purchase. The purchase price was
paid as follows: $62,000 was paid at closing and $50,000 is to be
paid in 12 monthly installments beginning September 1996 as reflected
in the December 31, 1995 balance sheet as a "Note due to related
party" for $49,243. Pro forma information is not provided herein
because of the transaction's insignificant effect on the Company's
financial statement.

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AND SUBSIDIARIES

Notes to Consolidated Financial Statements

On December 31, 1995 the Company and a subsidiary purchased for
$346,334 (approximately the seller's cost basis) a 100% interest in a
general partnership formed earlier in 1995 which owns the fixed site
facility used by Orange Park. As the Company's consideration for the
partnership interest, a mortgaged note of $295,278 was assumed and
116,711 shares of Common Stock were issued. Since the Company's
controlling shareholders also controlled the general partnership, the
combination was recorded at historical cost similar to a pooling of
interest. Accordingly, a value of $.44 per share was ascribed to the
stock issued. This combination had an immaterial impact on the
Company's statement of operations of 1995.

13) SHAREHOLDERS' EQUITY

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.

In 1995 pursuant to the director plan the Board of Directors were
issued options for 80,000 shares. These options were exercised at
$1.06 per share for which the Company received $84,800.

During 1995 there were no options granted under the Employee Plan and
at December 31, 1995 there are no outstanding options under either
plan.

WARRANTS

In July, 1995, in order to simplify its capital structure the Company
offered to holders of outstanding common stock purchase warrants
(1,700,000) the opportunity to exchange five warrants for two shares
of stock. In September, 1995 the offer was concluded. Approximately
94% of the outstanding warrants were tendered in exchange for 642,918
shares of common stock.

At December 31, 1995 there remains outstanding 92,705 stock purchase
warrants which are exercisable at $7.20 per share through their
expiration date on September 19, 1997.

14) RELATED PARTIES

In February 1995, the Company purchased certain assets of a mobil
facility (see Purchase Transactions) and hired as President of Orange
Park the owner of the mobil facility. At December 31, 1995 the
Company is indebted to this executive approximately for $106,000
which is reflected in the December 31, 1995 balance sheet as a "Note
due to related party" for $49,243 and "Due to related party" for
$57,231.

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AND SUBSIDIARIES

Notes to Consolidated Financial Statements

In December 1995, the Company purchased for $346,000 a 100% interest
in a general partnership (see Purchase Transactions). At the time
certain Company executives owning approximately 69% interest in the
Company held controlling interest (approximately 60%) in the general
partnership. The partnership costs in the underlying property was
approximately $346,000 with an appraised value of $660,000 (see note
12).

15) LEGAL ACTION

On February 9, 1996 the physician group, which in December, 1995
terminated its contract for reading services with the Brandon and
SunPoint centers, filed suit against the centers alleging the centers
materially breached the contract by failing to pay physician fees
timely and incorrectly billed certain procedures. The Company denies
any material breach to the contract and has filed a motion to
dismiss. Management believes it has reserved an adequate loss
provision in the event of an adverse outcome.

On March 10, 1995 legal action was instituted against A.T. Brod &
Co., Inc. (a national stock brokerage firm) by a terminated employee
of A.T. Brod & Co., Inc. ("A.T. Brod"). A.T. Brod was a major market
maker for National Diagnostics, Inc. stock. The Company was named in
the suit entitled James I. Blackey vs. A.T. Brod & Co., Inc., Arthur
Stupay, Jugal Taneja, R.K. Khosla, Bancapital Investment Corporation,
and National Diagnostics, Inc. pending the Supreme Court of the State
of New York, County of Erie, Index Number I-995-2249. Mr. J. Taneja
is Chairman, Chief Executive Officer and Director of both A.T. Brod
and the Company. The action alleges wrongful discharge, breach of
contract, deformation of character, conspiracy and tortious
interference with a contract arising out of the alleged wrongful
termination of the plaintiff by A.T. Brod and seeks compensatory and
punitive damages of $2,830,000. On June 14, 1995, a motion was made
under the rules of the National Association of Dealers to compel
arbitration of the matter and to stay the action in entirety against
the Company pending the outcome of the arbitration. Upon receiving
the motion, the plaintiff's attorney indicated he agreed with the
defendants' position, consenting to arbitration and to stay the
action pending the outcome of that arbitration. Through June 27,
1996, the plaintiff's attorney has taken no steps to progress his
claim in arbitration. Based upon information available to
defendants' counsel through this date, counsel indicates the claim
appears to be not meritorious. The Company feels the suit is without
merit and intends to vigorously defend itself. The ultimate outcome
of this legal matter cannot be determined at this time, and
accordingly, no adjustments have been made to the consolidated
financial statements.

16) SUBSEQUENT EVENT

The Company in March 1996 entered into a lease commitment for medical
equipment it expects to take receipt of in June, 1996. It will be an
upgraded replacement for a previously leased piece of equipment.
Cost of the unit will approximate $624,000 which will be financed with

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AND SUBSIDIARIES

Notes to Consolidated Financial Statements

a 72 month lease to be accounted for as a capital lease. Payment
will be made in 66 monthly installments of $12,770. Future minimum
lease payments are as follows:

[Download Table]

FUTURE LEASE PAYMENTS
---------------------

1996 $26,000
1997 153,000
1998 153,000
1999 153,000
2000 139,000

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================================================================================

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITERS. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION.

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

TABLE OF CONTENTS

[Download Table]

Page
----

PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . 3
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . 4
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . 8
SELLING SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . 9
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . 10
PRICE RANGE OF COMMON EQUITY . . . . . . . . . . . . . . . . . . 10
DIVIDEND POLICY . . . . . . . . . . . . . . . . . . . . . . . . . 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION . . . . . . . . . . . . . . . . . . . . . . . . . 11
DESCRIPTION OF BUSINESS . . . . . . . . . . . . . . . . . . . . . 18
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . 34
CERTAIN TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . 35
PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . 37
DESCRIPTION OF SECURITIES . . . . . . . . . . . . . . . . . . . . 37
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . 40
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . 40
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . F-1

742,864 Shares

National
Diagnostics, Inc.

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

PROSPECTUS

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

Common Stock

July 19, 1996

================================================================================

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘424B3’ Filing	Date	First	Last	Other Filings

	9/19/97	7	72
	12/31/96	42	43	10KSB, NT 10-K
Filed on:	7/31/96
	7/19/96	1	75
	7/2/96	1		SB-2/A
	6/30/96	16		10QSB
	6/27/96	1	73
	6/25/96	11
	6/15/96	37
	5/30/96	16
	5/24/96	38
	5/17/96	31
	5/5/96	16
	4/1/96	17
	3/31/96	4	50	10QSB/A
	3/20/96	52
	2/9/96	32	73
	1/31/96	67
	12/31/95	4	72	10KSB40/A
	12/6/95	35
	11/21/95	40
	9/19/95	17
	9/1/95	19	68
	7/31/95	51	71
	7/1/95	70
	6/14/95	32	73
	4/21/95	36	72
	4/1/95	68	70
	3/31/95	11	49
	3/10/95	32	73
	3/6/95	15
	2/19/95	53
	2/1/95	50	71
	1/1/95	30
	12/31/94	12	71
	11/7/94	14	60
	11/1/94	71
	10/12/94	10
	9/30/94	69
	9/20/94	60	61
	4/1/94	36
	1/1/94	71
	12/31/93	14	59
	12/29/93	36
	11/1/93	19
	10/12/93	36
	4/9/92	30
	3/13/92	30
				List all Filings

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Filing Submission 0000950144-96-004736 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Nanobac Pharmaceuticals Inc – ‘424B3’ on 7/31/96

As of: Wednesday, 7/31/96 · Accession #: 950144-96-4736 · File #: 333-03908

Prospectus — Rule 424(b)(3)Filing Table of Contents

Document Table of Contents

Dates Referenced Herein and Documents Incorporated by Reference

Prospectus — Rule 424(b)(3)
Filing Table of Contents