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

                                    FORM 10-Q


(Mark One)
[ x ]           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended September 30, 1998

                                       OR

[   ]             TRANSITION REPORT PURSUANT TO SECTION 13 OR
                  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________to_________________

                        Commission file number 000-19636

                        HEALTHCARE IMAGING SERVICES, INC.
             (Exact name of registrant as specified in its charter)

         Delaware                                          22-3119929

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

200 Schulz Drive, Red Bank, New Jersey                                07701
--------------------------------------                                -----
(Address of principal executive offices)                            (Zip Code)

                                 (732) 224-9292
              (Registrant's telephone number, including area code)

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

Yes  X   No

         Indicate  the  number of  shares  outstanding  of each of the  issuer's
classes of common stock, as of the latest practicable date.
         Class                                Outstanding at November 13, 1998

         Common Stock, $.01 par value                  11,356,974 shares




<PAGE>




               HEALTHCARE IMAGING SERVICES, INC. AND SUBSIDIARIES

                                      INDEX


PART I.  FINANCIAL INFORMATION:                                    PAGE

Item 1.           Financial Statements:

  Consolidated Balance Sheets -
         September 30, 1998 and December 31, 1997                      3

  Consolidated Statements of Operations  -
         Three and nine months ended September 30, 1998 and 1997       4

  Consolidated Statements of Changes in Stockholders
         Equity - For the nine months ended September 30, 1998         5

  Consolidated Statements of Cash Flows -
         Nine months ended September 30, 1998 and 1997                 6

  Notes to Consolidated Financial Statements                           8

Item 2.           Management's Discussion and Analysis of
                  Financial Condition and Results of Operations       12

Item 3.           Quantitative and Qualitative Disclosure About
                  Market Risk                                         20

PART II.          OTHER INFORMATION

Item 6.           Exhibits and Reports on Form 8-K                    21

SIGNATURES                                                            22















                                   2

<PAGE>



                     HEALTHCARE IMAGING SERVICES, INC. AND SUBSIDIARIES
                                    Consolidated Balance Sheets



                                      September 30,          December 31,
                                         1998                     1997
                                      (Unaudited)
ASSETS
Current assets:
    Cash and cash equivalents                  $   320,530         $    70,626
    Accounts receivable - net                    6,757,198           5,375,351
    Prepaid expenses and other                     161,551             186,082
                                                 ---------           ---------
         Total current assets                    7,239,279           5,632,059
                                                 ---------           ---------
Property, plant and equipment - net              6,360,042           5,518,772
                                                 ---------           ---------
Other assets:
    Advances to licensee                           180,695             197,815
    Goodwill - net                               1,610,460           1,695,054
    Due from officer                               264,125             264,125
    Deferred transaction and financing costs     1,119,102             232,810
                                                 ---------           ---------
                                                 3,174,382           2,389,804
                                                 ---------           ---------
Total assets                                   $16,773,703          13,540,635
                                               ===========         ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Borrowing under line of credit              $ 1,857,169        $ 1,462,000
    Accounts payable and accrued expenses         1,777,178          1,354,200
    Current portion of capital lease obligations  1,655,507          1,647,148
    Income taxes payable                             16,986             16,044
                                                   --------          ---------
         Total current liabilities                5,306,840          4,479,392
                                                  ---------          ---------
Noncurrent liabilities:
    Capital lease obligations                     3,703,049          2,780,447
    Reserve for restructuring costs                 268,005            321,465
                                                  ---------          ---------
         Total noncurrent liabilities             3,971,054          3,101,912
                                                  ---------          ---------

Minority interests                                  840,388            546,433
                                                  ---------          ---------

Stockholders' equity:
  Convertible  preferred stock,  $.10 par value; 
  1,000,000  shares  authorized, 11,500 and
  185,000 shares  outstanding at September 30,
  1998 and December 31, 1997, respectively
  (each convertible into seven (7) shares of
   common stock)                                      1,150             18,500
  Common stock, $.01 par value;
   50,000,000 shares authorized, 10,526,474 and
   9,286,974 shares outstanding at September 30,
   1998 and December 31, 1997, respectively         105,265             92,870
  Additional paid-in capital                     12,734,594         12,694,678
  Accumulated deficit                            (6,185,588)        (7,393,150)
                                                 -----------        -----------
         Total stockholders' equity               6,655,421          5,412,898
                                                  ---------          ---------
Total liabilities and stockholders' equity      $16,773,703        $13,540,635
                                                ===========        ===========




           See accompanying notes to consolidated  financial statements.



                                                             3

<PAGE>



               HEALTHCARE IMAGING SERVICES, INC. AND SUBSIDIARIES
                      Consolidated Statements of Operations

<TABLE>
<CAPTION>
  

                                                      Three Months Ended                              Nine Months Ended
                                                           September 30,                                  September 30,
                                                        -------------------                            ----------------
                                                    1998                 1997                      1998                1997
                                                    ----                 ----                      ----                ----
                                                  (Unaudited)       (Unaudited)
   <S>                                                      <C>                <C>                     <C>                   <C>
Revenues:                                               $3,257,547          $2,566,669              $9,760,201          $7,672,300
                                                        ----------          ----------              ----------          ----------

Operating Expenses:
 Salaries                                                  930,326             689,718               2,620,030           2,045,402
 Other operating expenses                                  675,883             754,634               2,155,216           2,351,991
 Films and supplies                                        129,011             125,353                 400,886             376,923
 Equipment maintenance
  and repairs                                              146,300             146,266                 413,813             463,931
 Consulting and marketing
  fees                                                     139,161             152,250                 513,361             286,866
 Professional fees                                         119,210             161,799                 370,974             381,335
 Depreciation and
  amortization                                             412,654             397,173               1,262,899           1,085,798
 Interest                                                  167,328             162,200                 554,777             387,277
 Gain on sale of property,
  plant and equipment                                            -                   -                (151,767)           (105,000)
                                                         ---------           ---------                ---------           ---------

                                                         2,719,873           2,589,393               8,140,189           7,274,523
                                                         ---------           ---------               ---------           ---------
Income (loss) before non-cash  compensation charge, 
 minority interests in joint
 ventures and income taxes                                 537,674             (22,724)              1,620,012             397,777

Non-cash compensation
  charge                                                         -             (89,265)                      -            (370,376)

Minority interests in
  joint ventures                                          (132,230)           (167,339)               (379,950)           (331,140)
                                                          ---------           ---------               ---------           ---------

Operating income (loss)
  before income taxes                                      405,444            (279,328)              1,240,062            (303,739)

Income tax provision                                        13,014               8,665                  32,500              32,596
                                                           -------             -------               ---------              ------

Net income (loss)                                         $392,430           $(287,993)             $1,207,562           $(336,335)
                                                          ========           ==========             ==========           ==========

Net income (loss) per
 common share-Basic                                       $    .04           $    (.04)             $      .12           $    (.06)
                                                          ========           ==========             ==========           ==========

Weighted average common
 shares outstanding-Basic                               10,512,017           6,771,854              10,236,835           5,782,769
                                                        ==========           =========              ==========           =========

Net income (loss) per
 common share-Diluted                                     $    .04           $    (.04)             $      .11          $    (.06)
                                                          ========           ==========             ==========          ==========

Weighted average common
 shares outstanding-Diluted                             10,950,834           6,771,854              11,248,767          5,782,769
                                                        ==========           =========              ==========          =========
</TABLE>

            See  accompanying   notes  to  consolidated financial statements. 
                        4
  
<PAGE>





               HEALTHCARE IMAGING SERVICES, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                        Additional                      Total
                                                                                          Paid-in     Accumulated   Stockholders'
                                                                                          Capital       Deficit         Equity
                                       Preferred Stock            Common Stock
                                       Shares       Amount     Shares       Amount
      <S>                                <C>        <C>         <C>            <C>          <C>             <C>              <C>  
BALANCE, JANUARY 1, 1998               185,000    $18,500      9,286,974     $92,870    $12,694,678   $(7,393,150)       $5,412,898
Conversion of Series C Convertible
Preferred Stock                       (173,500)   (17,350)      1,214,500     12,145         5,205            --               --

Compensation in connection with stock
option grant                                                                                34,961                          34,961

Record cashless exercise of stock option
grant                                                              25,000       250          (250)

Net income for the nine months ended
September 30, 1998                                                                                       1,207,562        1,207,562
                                    ----------- ----------   ------------  ---------    -----------     -----------       ---------
BALANCE, SEPTEMBER 30, 1998              11,500     $1,150     10,526,474  $105,265    $12,734,594     $(6,185,588)      $6,655,421
                                    =========== ==========  ============= ===========  ============= ============= ================



</TABLE>





                See accompanying notes to consolidated financial statements.

                                                              5

<PAGE>



                            HEALTHCARE IMAGING SERVICES, INC. AND SUBSIDIARIES
                                 Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>

                                                                     Nine Months Ended
                                                                        September 30,
                                                                  1998                1997
                                                                        (Unaudited)
           <S>                                               <C>                         <C>
Cash flows from operating activities:
  Net income (loss)                                     $1,207,562                   $(336,335)
  Adjustments to reconcile net income
       (loss) to net cash provided by
       operating activities:
       Depreciation and amortization                     1,262,899                   1,085,798
       Gain on sale of property, plant and
           equipment                                      (151,767)                   (105,000)
       Amortization of non-cash compensation                     -                     370,376
       Minority interests in joint ventures                379,950                     331,140
       Allowance for doubtful accounts                     742,000                     431,000
Changes in assets and liabilities:
    Accounts receivable                                 (2,187,328)                   (923,548)
    Prepaid expenses and other                              24,531                      13,995
    Advances to licensee                                    17,120                     130,403
    Due from officer                                             -                     (76,315)
    Accounts payable and accrued expenses                  457,939                     (74,404)
    Income taxes payable                                       942                      (1,510)
    Other assets                                          (886,217)                    (92,054)
                                                           --------                    --------
      Net cash provided by operating activities            867,631                     753,546
                                                           -------                     -------

Cash flows from investing activities:
    Proceeds from sale of marketable securities                  -                     625,000
    Proceeds from sale of property, plant and
   equipment                                               655,000                           -
    Purchases of property, plant and equipment             (32,339)                   (158,133)
                                                           --------                   ---------
      Net cash provided by investing act                   622,661                     466,867
                                                           -------                     -------

Cash flows from financing activities:
  Borrowings under the revolving line of
   credit                                                  395,169                     400,000
  Proceeds from sale of property, plant
   and equipment related to restructured
   operations                                                    -                     105,000
  Distributions to limited partners of
   joint ventures                                          (85,995)                   (316,941)
  Payments on capital lease obligations                 (1,496,102)                 (1,004,073)
  Proceeds on subleases from restructured
   operations                                              140,155                     127,843
  Payments against reserve for restructuring
   costs                                                  (193,615)                   (336,383)
                                                          ---------                   ---------
    Net cash used in financing activities               (1,240,388)                 (1,024,554)
                                                        -----------                 -----------
  Increase in cash and cash equivalents                    249,904                     195,859
Cash and cash equivalents at beginning
   of period                                                70,626                     173,879
                                                          --------                     --------
Cash and cash equivalents at end
   of period                                              $320,530                    $369,738
                                                          ========                    ========

</TABLE>

                                                              6

<PAGE>

<TABLE>



                             HEALTHCARE IMAGING SERVICES INC. AND SUBSIDIARIES
                             Consolidated Statements of Cash Flows (Continued)


                                                          Nine Months Ended
                                                             September 30,
                                                       1998                1997
                                                              (Unaudited)


        <S>                                                <C>                   <C>
Supplemental Cash Flow Information:

Interest paid during the period                          $557,796              $357,924
                                                         ========              ========

Income taxes paid during the period                      $ 31,558              $ 34,107
                                                         ========              ========

Supplemental Schedule of Non-cash Investing
  and Financing Activities:

Capital leases principally for
  property, plant and equipment                        $2,427,063            $1,135,084
                                                       ==========            ==========


Reinstatement of mobile MRI unit
  related to previously recorded
  restructured operations                                                      $421,973
                                                                               ========


Reinstatement of capital lease
  obligation related to previously
  recorded restructured operations                                             $574,575
                                                                               ========


</TABLE>























                  See accompanying notes to consolidated financial statements.

                                                              7

<PAGE>




               HEALTHCARE IMAGING SERVICES, INC. AND SUBSIDIARIES
              Notes to Unaudited Consolidated Financial Statements
                      Nine Months Ended September 30, 1998

    Note 1. - Basis of Presentation

         The accompanying  unaudited consolidated condensed financial statements
have been prepared in accordance with generally accepted  accounting  principles
for interim  financial  information  and with the  instructions to Form 10-Q and
Rule 10-01 of Regulation  S-X.  Accordingly,  certain  information  and footnote
disclosures  normally included in annual consolidated  financial statements have
been omitted from the accompanying interim consolidated financial statements. In
the opinion of management,  the accompanying  unaudited  consolidated  financial
statements  contain all  adjustments  necessary to present  fairly the Company's
financial  position  as of  September  30, 1998 and the  related  statements  of
operations  and cash flows for the periods  ended  September  30, 1998 and 1997.
There is no  substantial  income tax provision for the periods  presented due to
significant historical net operating loss carryforwards.

         The results of operations for the nine months ended  September 30, 1998
are not  necessarily  indicative of the results of  operations  expected for the
year ending December 31, 1998 or any other period.  The  consolidated  financial
statements  included herein should be read in conjunction  with the consolidated
financial  statements and notes thereto contained in the Company's Annual Report
on Form 10-K for the year  ended  December  31,  1997  which is on file with the
Securities and Exchange Commission.

    Note 2. - Earnings Per Share

         Basic  earnings  (loss) per common  share are  computed by dividing net
income (loss) by the number of weighted  average common shares  outstanding  for
the three and nine months  ended  September  30, 1998 and 1997,  as  applicable.
Diluted  earnings  (loss) per common  share are  computed by dividing net income
(loss) by the weighted average number of common shares outstanding for the three
and nine months  ended  September  30, 1998 and 1997,  as  applicable,  plus the
incremental shares that would have been outstanding upon the assumed exercise of
dilutive stock option awards and conversion of the preferred shares.

         The following is a reconciliation of the numerators and denominators of
the basic and diluted earnings (loss) per share computations:

                                                         8

<PAGE>

<TABLE>
<CAPTION>

<CAPTION>
   <S>                         <C>                <C>            <C>              <C>              <C>             <C>          

                                          For the Three Months Ended September 30,
                                                 1998                                             1997
                             --------------------------------------------     --------------------------------------------
                                                                 Per-                                             Per-
                                 Income          Shares          Share             Loss           Shares          Share
                              (Numerator)     (Denominator)     Amount         (Numerator)     (Denominator)     Amount
Basic EPS
Net Income (Loss)                 $ 392,430        10,512,017  $     0.04       $  (287,993)         6,771,854  $   (0.04)
                                                               ==========                                       ==========

Effect of Dilutive
Securities
Stock Options                             -           358,317                              -                 -
Convertible preferred stock               -            80,500                              -                 -
                             -------------- -----------------                 -------------- -----------------
                                  $ 392,430        10,950,834  $     0.04      $   (287,993)         6,771,854  $   (0.04)
Diluted EPS
Net Income (Loss)
                             ============== ================= ===========     ============== ================= ===========


                                                        For the Nine Months Ended September 30,
                                                 1998                                             1997
                             --------------------------------------------     --------------------------------------------
                                                                 Per-                                             Per-
                                 Income          Shares          Share             Loss           Shares          Share
                              (Numerator)     (Denominator)     Amount         (Numerator)     (Denominator)     Amount
Basic EPS
Net Income (Loss)                $1,207,562        10,236,835  $     0.12       $  (336,335)         5,782,769  $  ( 0.06)
                                                               ==========                                       ==========

Effect of Dilutive
Securities
Stock Options                             -           646,188                              -                 -
Convertible preferred stock               -           365,744                              -                 -
                             -------------- -----------------                 -------------- -----------------
                                 $1,207,562        11,248,767  $     0.11       $  (336,335)         5,782,769  $   (0.06)
Diluted EPS
Net Income (Loss)
                             ============== ================= ===========     ============== ================= ===========
</TABLE>

    Note 3. - Sale of Mobile MRI Unit

         In  November  1996,   the  Company  formed  with  Practice   Management
Corporation  ("PMC") a limited  liability  company,  of which the Company  owned
sixty (60%) percent,  to provide  on-site MRI services to  Meadowlands  Hospital
Medical Center (the "Meadowlands MRI Facility") located in Secaucus, New Jersey.
The site  commenced  operations  on May 8, 1997  utilizing  one of the Company's
mobile MRI units.  Based upon losses sustained at such site and the expectations
of  continuing  losses,  the Company  decided to sell the mobile MRI unit and to
cease its MRI services at the Meadowlands  MRI Facility.  In order to facilitate
the wind-down of operations, in March 1998, an agreement was reached whereby the
Company acquired (for nominal consideration) the joint venture interest owned by
PMC effective as of December 31, 1997.

         In May 1998, the Company sold its remaining mobile MRI unit (previously
utilized at the Meadowlands  MRI Facility) to an unaffiliated  third party. As a
result of the sale of the mobile MRI unit, the Company  recorded a one-time gain
of $151,767, which was recorded in the second quarter of fiscal 1998. The sale

                                                         9

<PAGE>



enabled the Company to  substantially  eliminate the overhead  costs  associated
with the operations of the Meadowlands MRI Facility,  including the related debt
service.

    Note 4. - Subsequent Event

         On October 2, 1998  (effective  October 1, 1998),  HIS  Imaging  Co., a
wholly-owned  subsidiary of the Company,  acquired (the "Beran Acquisition") all
of the assets and business of, and assumed certain liabilities  relating to (i.)
Echelon MRI, P.C.,  which  operated a fixed-site  MRI facility in Voorhees,  New
Jersey,  (ii.) Mainland  Imaging Center,  P.C.,  which operated a multi-modality
diagnostic  imaging facility in Northfield,  New Jersey and a radiology facility
in Ocean City, New Jersey,  (iii.) Bloomfield  Imaging  Associates,  P.A., which
operated a multi-modality diagnostic imaging facility in Bloomfield, New Jersey,
(iv.) North  Jersey  Imaging  Management  Associates,  L.P.,  which  managed the
Bloomfield,  New Jersey  facility and (v.) Irving N. Beran,  M.D.,  P.A.,  which
operated  a   multi-modality   diagnostic   imaging  facility  in  Voorhees  and
Williamstown,  New Jersey and a radiology facility in Atco and Williamstown, New
Jersey  (collectively,  the "Beran  Entities").  The consideration  given by the
Company in the Beran Acquisition was (i.) the assumption of certain  obligations
and liabilities of the Beran Entities, (ii.) cash in the amount of $11.5 million
and (iii.) the issuance of 887.385  shares of Series D  Cumulative  Accelerating
Redeemable  Preferred  Stock of the Company  (the  "Series D  Preferred  Stock")
having an aggregate  liquidation  preference of $9,317,542.50 (i.e., $10,500 per
share liquidation preference),  subject to post closing adjustments. The Company
also loaned the Beran  Entities an aggregate of $2.5  million,  which loan bears
interest at 8% per annum and matures upon the terms and conditions  contained in
the related  promissory  notes. The Company used the proceeds of a $14.0 million
loan from DVI Financial  Services,  Inc.  ("DFS") to pay the cash portion of the
purchase price and to fund the loan to the Beran Entities (the "DFS Loan").  The
terms of the DFS Loan  provide for  interest at twelve  (12%)  percent per annum
with no payment due in month one (1)(i.e., October 1998), interest only payments
of $140,000  in each of months two (2) through  four  (4)(i.e.,  November  1998,
December  1998  and  January   1999),   principal   and  interest   payments  of
approximately  $308,000 in each of months  five (5) and six (6) (i.e.,  February
1999 and March 1999), with a balloon payment of approximately  $13.8 million due
in month seven (7) (i.e., April 1999). In addition,  options to purchase 400,000
shares of common stock,  par value $.01 per share  ("Common  Stock"),  of the
Company  at an  exercise  price of  $1.03125  per share  were  issued to DFS for
providing  the DFS  Loan.  The  Beran  Acquisition  will be  accounted  for as a
purchase.

                                                        10

<PAGE>



         The preferences and rights of the Series D Preferred Stock, and certain
covenants of the Company related to the issuance  thereof,  are set forth in the
Certificate of  Designations,  Preferences  and Rights of the Series D Preferred
Stock  filed by the  Company  with the  Secretary  of the State of  Delaware  on
October 2, 1998 (the "Certificate"). Among other things, dividends on the Series
D Preferred  Stock will accrue  commencing  on the date of issuance  (the "Issue
Date") at the rate of 8% of the  liquidation  preference and will increase by an
additional  2% upon  each  three  month  anniversary  of the  date of  issuance;
provided,  however,  that in no event will the dividend rate be in excess of 15%
of the liquidation preference.  All accrued and unpaid dividends will be payable
quarterly  in cash  commencing  January  10,  1999.  After  March 1, 1999,  (the
"Convertibility  Date"),  the  holders of the Series D  Preferred  Stock will be
entitled to convert the Series D Preferred  Stock into Common Stock equal to the
quotient of (x) the aggregate  liquidation  preference of the Series D Preferred
Stock  being  converted  divided  by (y) the  Conversion  Price (as  hereinafter
defined);  provided that unless the Company obtains stockholder  approval of the
issuance of the Series D Preferred  Stock, the holders of the Series D Preferred
Stock  only  will be able to  convert  into  Common  Stock  representing  in the
aggregate  19.9% of the  outstanding  Common  Stock as of the  Issue  Date.  The
"Conversion  Price"  shall be equal to the average of the market  prices for the
Common Stock for the twenty (20) consecutive trading days immediately  preceding
the  Convertibility   Date  and  shall  be  subject  to  adjustment  in  certain
circumstances.  The holders of the Series D Preferred  Stock will be entitled to
vote,  on an  as-converted  basis,  with the holders of the Common  Stock as one
class on all matters submitted to a vote of the Company  stockholders;  provided
that  unless the Company  obtains  stockholder  approval of the  issuance of the
Series D Preferred  Stock,  the holders of the Series D Preferred Stock will not
be able to  exercise  their  aggregate  voting  rights in excess of 19.9% of the
outstanding Common Stock as of the Issue Date. The Company may redeem the Series
D  Preferred  Stock,  in whole but not in part,  at any time at its  liquidation
preference plus all accrued and unpaid dividends to the date of redemption.  The
Series D Preferred Stock may not be transferred until the Convertibility Date.

    Note 5. - Deferred Transaction and Financing Costs

         Deferred transaction and financing costs relate to expenses incurred in
connection  with the Beran  Acquisition  and DFS Loan and in connection with the
Company's   strategic  expansion  of  its  operations  into  physician  practice
management.

                                                        11

<PAGE>




Item 2.    Management's Discussion and Analysis of Financial
Condition and Results of Operations

         This  Quarterly  Report  contains  certain  forward-looking  statements
within  the  meaning of the  Private  Securities  Litigation  Reform Act of 1995
including,  without  limitation,  statements  regarding  the  expansion  of  the
Company's  strategic  focus,  and  sufficiency  of the  Company's  liquidity and
sources of capital.  Any  statements  contained  herein which are not historical
facts  or  which  contain  the  words   "anticipate,"   "believe,"   "continue,"
"estimate,"  "expect,"  "intend,"  "may" or "should,"  and similar  expressions,
shall  be  deemed  to be  forward-looking  statements.  These  forward-  looking
statements reflect the current view of the Company with respect to future events
and are subject to certain risks,  uncertainties,  assumptions and other factors
which  could  cause  actual  results to differ  materially,  including,  but not
limited to, the ability to establish physician practice  management  operations,
availability of financing,  reimbursement of healthcare  costs,  delayed payment
and risk of non-payment  and reliance on key personnel.  Additional  information
regarding  factors that could  potentially  affect the Company or its  financial
results are included in the  Company's  other  filings with the  Securities  and
Exchange Commission.

Nine Months Ended September 30, 1998 vs. September 30, 1997

         For the nine months ended September 30, 1998,  revenues were $9,760,201
as compared to  $7,672,300  for the nine months ended  September  30,  1997,  an
increase  of  approximately  $2,088,000.  This  increase  was  primarily  due to
increased revenues at the Company's multi-modality  fixed-site facility in Ocean
Township, New Jersey (approximately $1,098,000), the acquisition of a fixed-site
MRI facility,  with  ultrasound,  located in New York City, New York in November
1997  (approximately  $678,000) (the "New York City MRI Facility") and increased
revenues  at the  Company's  MRI  facility in Wayne,  New Jersey  (approximately
$238,000)  (the "Wayne MRI  Facility"),  all of which were  partially  offset by
decreased  revenues at the Company's MRI facility located in Brooklyn,  New York
(approximately $290,000) (the "Brooklyn MRI Facility").

         For the nine months ended September 30, 1998,  operating  expenses were
$8,140,189  as compared to  $7,644,899  for the nine months ended  September 30,
1997, an increase of approximately  $495,000. This increase was primarily due to
(i) expenses  incurred in connection with the operation of the New York City MRI
Facility (approximately $542,000), (ii) increased salary expense due to staffing
requirements relating to the Company's expanded strategic focus into the area of
physician practice management, as well as to

                                                        12

<PAGE>



the increased  number of procedures  being performed at certain of the Company's
facilities   (approximately   $426,000),  and  (iii)  increased  consulting  and
marketing fees (approximately  $208,000),  all of which were partially offset by
certain non-cash  compensation  charges which were fully amortized during fiscal
1997  (approximately  $370,000  was  amortized  during  the  nine  months  ended
September 30, 1997). The non-cash  compensation  charges resulted primarily from
the grant of (x) stock  options and a  restricted  stock award to the  Company's
Chairman of the Board, President and Chief Executive Officer (the "CEO") and (y)
stock options to a former financial  advisor pursuant to a consulting  agreement
(the "Financial  Advisor's  Consulting  Agreement").  See "Liquidity and Capital
Resources of the Company."

         The operating results for the Company have been negatively  impacted by
the Brooklyn MRI Facility and the Company's MRI joint ventures in  Philadelphia,
Pennsylvania (the  "Philadelphia MRI Facility") and at the Meadowlands  Hospital
Medical Center in Secaucus,  New Jersey (the  "Meadowlands  MRI  Facility").  In
connection  with the  Company's  review of the  viability  of the  Brooklyn  MRI
Facility,  among  other  things,  the  Company  has  entered  into  a new  lease
arrangement  with  respect to the lease of this  facility.  See  "Liquidity  and
Capital  Resources of the Company." The Company is  negotiating  the purchase of
the interest in the  Philadelphia  MRI Facility not currently owned by it (i.e.,
the limited  partners'  interests) and it expects to consummate such purchase by
the end of fiscal 1998. However,  notwithstanding  the foregoing efforts,  there
can be no assurance  that the purchase of the interest in the  Philadelphia  MRI
Facility or other revenue enhancement efforts will be successfully  concluded or
that the procedures generated at the Brooklyn MRI Facility will be sufficient to
better support the operations of the Brooklyn MRI Facility.  In May 1998,  based
upon losses  already  sustained and the  expectation of continuing  losses,  the
Company  decided to close the  Meadowlands  MRI Facility and sell the mobile MRI
unit  it  was  using  at  such  facility.   The  sale  enabled  the  Company  to
substantially eliminate the overhead costs associated with the operations of the
Meadowlands MRI Facility, including the related debt service.

         In furtherance of the Company's previously announced expanded strategic
focus into the area of establishing  physician practice management operations in
New Jersey,  New York and  Philadelphia,  Pennsylvania,  the Company is actively
negotiating affiliations with several primary care and multi-specialty physician
practices,  as well as the faculty practices of certain hospitals.  Although the
Company has entered into various letters of intent,  the Company has not entered
into any definitive  acquisition agreements or administrative service agreements
with respect to its physician

                                                        13

<PAGE>



practice management operations, although it expects to do so within
the next several months.

For the Three Months Ended September 30, 1998 v. September 30, 1997

         For the three months ended September 30, 1998, revenues were $3,257,547
as compared to  $2,566,669  for the three months ended  September  30, 1997,  an
increase of approximately $691,000. This increase was primarily due to increased
revenues at the Company's multi-modality  fixed-site facility in Ocean Township,
New Jersey  (approximately  $280,000),  the acquisition of the New York City MRI
Facility in November 1997 (approximately $248,000) and increased revenues at the
Wayne MRI Facility (approximately $150,000).

         For the three months ended September 30, 1998,  operating expenses were
$2,719,873  as compared to $2,678,658  for the three months ended  September 30,
1997, an increase of approximately  $41,000.  This increase was primarily due to
(i) expenses  incurred in connection with the operation of the New York City MRI
Facility  (approximately  $182,000)  and (ii)  increased  salary  expense due to
staffing  requirements  relating to the Company's  expanded strategic focus into
the area of physician practice management, as well as to the increased number of
procedures being performed at certain of the Company's facilities (approximately
$192,000)  all of which were  partially  offset by (x)  decreased  rent  expense
(approximately  $67,000) mainly  attributed to the new lease arrangement for the
Brooklyn MRI Facility and (y) certain non-cash  compensation  charges which were
fully amortized during fiscal 1997  (approximately  $89,000 was amortized during
the three months ended September 30, 1997).  The non-cash  compensation  charges
resulted  primarily from the grant of stock options and a restricted stock award
to the CEO. See "Liquidity and Capital Resources of the Company."

         As discussed  above,  the  operating  results for the Company have been
negatively   impacted  by  the  Brooklyn,   Philadelphia   and  Meadowlands  MRI
Facilities.  In  connection  with the  Company's  review of the viability of the
Brooklyn MRI Facility,  among other  things,  the Company has entered into a new
lease arrangement with respect to the lease of this facility. See "Liquidity and
Capital  Resources of the Company." The Company is  negotiating  the purchase of
the interest in the  Philadelphia  MRI Facility not currently owned by it (i.e.,
the limited  partners'  interests) and it expects to consummate such purchase by
the end of fiscal 1998. However,  notwithstanding  the foregoing efforts,  there
can be no assurance  that the purchase of the interest in the  Philadelphia  MRI
Facility or other revenue enhancement efforts will be successfully  concluded or
that the Brooklyn MRI Facility's new lease terms and the procedures generated at
such  facility  will be  sufficient  to better  support  the  operations  of the
Brooklyn MRI Facility. In May

                                                        14

<PAGE>



1998,  based upon losses  already  sustained and the  expectation  of continuing
losses,  the Company  decided to close the Meadowlands MRI Facility and sell the
mobile MRI unit it was using at such  facility.  The sale enabled the Company to
substantially eliminate the overhead costs associated with the operations of the
Meadowlands MRI Facility, including the related debt service.

Liquidity and Capital Resources of the Company

         As of September  30, 1998,  the Company had a cash balance of $320,530,
current assets of  $7,239,279,  and working  capital of  $1,932,439.  Cash flows
provided by operating  activities  for the nine months ended  September 30, 1998
were  $867,631,   which  consisted   primarily  of  net  income  of  $1,207,562,
depreciation  and  amortization of $1,262,899,  an increase in the allowance for
doubtful  accounts  receivable  of  $742,000  and  minority  interests  in joint
ventures  of  $379,950.  Other  significant  components  of cash  flows  used in
operating  activities  include an increase in accounts  receivable of $2,187,328
due to an increase in the number of procedures  being performed at the Company's
facilities  and an increase in other assets of $886,217 due to costs incurred in
connection  with  the  Company's  expanded  strategic  focus  into  the  area of
physician  practice  management,  both of  which  were  partially  offset  by an
increase in accounts payable and accrued expenses of $457,939.

         Cash flows  provided by investing  activities for the nine months ended
September 30, 1998 were $622,661  primarily due to proceeds from the sale of the
mobile  MRI unit in May 1998  which had been  utilized  at the  Meadowlands  MRI
Facility.

         Cash flows  used in  financing  activities  for the nine  months  ended
September 30, 1998 were  $1,240,388,  which  consisted  primarily of payments on
capital  lease   obligations  of  $1,496,102,   payments  against  reserves  for
restructuring costs of $193,615,  and distributions to limited partners of joint
ventures of  $85,995,  partially  offset by  borrowings  of  $395,169  under the
revolving  line of credit and proceeds of $140,155  from (i) the  collection  of
certain  accounts  receivable  assigned to the  Company to satisfy  indebtedness
relating  to  previously  restructured  mobile  MRI  operations  and (ii)  lease
payments  relating to the  Company's  sublease of its MRI equipment and facility
located in Catonsville, Maryland.

         The Philadelphia MRI Facility,  which has been operating since November
1992,  continues to operate at a loss resulting in negative cash flows. In order
to become  profitable,  this  joint  venture  must  attain a  certain  volume of
business and it is uncertain whether

                                                        15

<PAGE>



such  business  level will ever be  attained.  The  Company is  negotiating  the
purchase of the present limited partners'  interests in such joint venture which
it expects to  consummate  by the end of fiscal 1998.  However,  there can be no
assurance that these negotiations will be successfully concluded.

         The nature of the  Company's  operations  require  significant  capital
expenditures which generally have been financed through the issuance of debt and
capital  leases  and  proceeds  received  from  the sale of  equity  securities,
including the Company's  initial public  offering of common stock and redeemable
warrants in November 1991, the subsequent  exercise of such redeemable  warrants
and the sale of Series C Convertible Preferred Stock in February 1996. Continued
expansion of the Company's  business,  including the  establishment of physician
practice management operations, will require substantial cash resources and will
have an impact on the Company's liquidity.  The Company believes that cash to be
provided  by  the  Company's  operating   activities  together  with  borrowings
available from the Company's revolving line of credit will enable the Company to
meet its anticipated cash  requirements for its present  operations for the next
twelve  months.  Continued  expansion of the Company's  business,  including the
establishment  of  physician  practice  management   operations,   will  require
additional sources of financing.

Other Matters

         On October 2, 1998  (effective  October 1, 1998),  HIS  Imaging  Co., a
wholly-owned  subsidiary of the Company,  acquired (the "Beran Acquisition") all
of the assets and business of, and assumed certain liabilities  relating to (i.)
Echelon MRI, P.C.,  which  operated a fixed-site  MRI facility in Voorhees,  New
Jersey,  (ii.) Mainland  Imaging Center,  P.C.,  which operated a multi-modality
diagnostic  imaging facility in Northfield,  New Jersey and a radiology facility
in Ocean City, New Jersey,  (iii.) Bloomfield  Imaging  Associates,  P.A., which
operated a multi-modality diagnostic imaging facility in Bloomfield, New Jersey,
(iv.) North  Jersey  Imaging  Management  Associates,  L.P.,  which  managed the
Bloomfield,  New Jersey  facility and (v.) Irving N. Beran,  M.D.,  P.A.,  which
operated  a   multi-modality   diagnostic   imaging  facility  in  Voorhees  and
Williamstown,  New Jersey and a radiology facility in Atco and Williamstown, New
Jersey  (collectively,  the "Beran  Entities").  The consideration  given by the
Company in the Beran Acquisition was (i.) the assumption of certain  obligations
and liabilities of the Beran Entities, (ii.) cash in the amount of $11.5 million
and (iii.) the issuance of 887.385  shares of Series D  Cumulative  Accelerating
Redeemable  Preferred  Stock of the Company  (the  "Series D  Preferred  Stock")
having an aggregate liquidation

                                                        16

<PAGE>



preference of $9,317,542.50  (i.e.,  $10,500 per share liquidation  preference),
subject to post closing  adjustments.  Dividends on the Series D Preferred Stock
will  accrue  commencing  on the  date  of  issuance  at the  rate  of 8% of the
liquidation  preference  and will  increase by an  additional 2% upon each three
month anniversary of the date of issuance;  provided,  however, that in no event
will the dividend rate be in excess of 15% of the  liquidation  preference.  All
accrued  and unpaid  dividends  will be  payable  quarterly  in cash  commencing
January 10,  1999.  The Company  also loaned the Beran  Entities an aggregate of
$2.5  million,  which loan bears  interest at 8% per annum and matures  upon the
terms and conditions contained in the related promissory notes. The Company used
the proceeds of a $14.0 million loan from DVI Financial  Services,  Inc. ("DFS")
to pay the cash portion of the purchase  price and to fund the loan to the Beran
Entities  (the "DFS  Loan").  The terms of the DFS Loan  provide for interest at
twelve  (12%)  percent  per annum  with no  payment  due in month one  (1)(i.e.,
October  1998),  interest  only  payments  of $140,000 in each of months two (2)
through four (4)(i.e., November 1998, December 1998 and January 1999), principal
and interest  payments of approximately  $308,000 in each of months five (5) and
six (6)  (i.e.,  February  1999 and  March  1999),  with a  balloon  payment  of
approximately $13.8 million due in month seven (7) (i.e., April 1999).
 
         In October 1998, the Company entered into a five (5) year Financial and
Consulting  Services  Agreement  with  DFS  (the  "DFS  Consulting  Agreement").
Pursuant to the DFS Consulting  Agreement,  DFS agreed to provide  assistance to
the  Company in  financing  and  structuring  acquisitions.  Pursuant to the DFS
Consulting  Agreement,  DFS has been  granted  options  (the "DFS  Options")  to
purchase an aggregate of 500,000  shares of common stock,  par value  $.01 per
share, of the Company  ("Common Stock") at exercise prices ranging from $0.90625
to $1.46875 per share,  subject to the various terms and conditions  outlined in
the applicable option  agreements.  Options to purchase 400,000 shares of Common
Stock were issued to DFS in  connection  with the  provision of the DFS Loan. In
connection  with the  issuance of the DFS  Options,  the Company  will record an
aggregate non-cash  compensation  charge of $367,308,  $320,011 of which will be
amortized over the repayment terms of the DFS Loan.

         As of  January  30,  1996,  the  Company  entered  into  the  Financial
Advisor's  Consulting  Agreement  the term of which was  extended,  from time to
time,  through  January  1999.  In  consideration  for the  rendition of certain
financial advisory services,  during fiscal 1996, Biltmore Securities,  Inc. was
issued  options to purchase  750,000  shares of Common Stock at a cash  exercise
price of $0.75 per share and, during fiscal 1998, upon consummation of the Beran
Acquisition,  certain  transferees  of Biltmore were issued  750,000 shares
of Common Stock.

         Prior to September  1998,  the Company leased the Brooklyn MRI Facility
from DMR Associates,  L.P. ("DMR"). The Company leases the MRI equipment at such
facility from DFS. DMR is owned by MR Associates,  as the general  partner,  and
DFS, as a limited partner.  MR Associates is in turn owned by the CEO and Joseph
J. Raymond, another director of the Company. The Company's lease payments to

                                                        17

<PAGE>



DMR were  structured to fully  satisfy  DMR's costs and expenses  related to the
facility,  including  mortgage  payments,  taxes and  other  related  costs.  In
December 1996, the Company  agreed to guarantee an  approximately  $250,000 loan
(the "DFS  Loan") from DFS to DMR in  connection  with DMR's  refinancing  of an
equipment  lease related to this Brooklyn  facility.  This loan bore interest at
twelve  percent (12%) per annum and was repayable over  thirty-four  (34) months
commencing  February  15,  1997.  The  outstanding  balance  of  this  loan  was
approximately  $178,000 at December 31, 1997.  In September  1998,  DMR sold its
interest in this  facility to an  affiliate of DFS which,  in turn,  has entered
into a lease  arrangement  (the "New  Lease  Arrangement")  with the  Company in
respect  of this  facility  and repaid the DFS Loan.  As a result,  the  Company
anticipates   realizing  cash  and   corresponding   rent  expense   savings  of
approximately $163,000 on an annualized basis under the New Lease Arrangement.

         In consideration for Mr. Raymond's  agreement to such sale, the Company
granted Mr. Raymond (subject to stockholder  ratification and approval)an option
to purchase 150,000 shares of Common Stock (at an exercise price per share equal
to the closing sales price of the Common Stock on The Nasdaq  National Market on
the date  stockholder  ratification  and  approval of such stock option grant is
obtained),  which  option  will become 100%  exercisable  upon such  stockholder
ratification and approval for a ten (10) year period.  In addition,  the Company
has agreed that, to the extent the Company  exercises its purchase  option under
the New Lease  Arrangement  and sells such facility to an unrelated  third party
(other than in connection with a merger,  consolidation,  sale of  substantially
all of the assets of the Company or similar  transaction),  Mr.  Raymond will be
entitled  to receive an amount  equal to 60% of any  "profits"  realized  by the
Company upon such sale (i.e., the net proceeds received by the Company upon such
sale less the Company's  depreciated basis in the property).  In connection with
such stock option grant, the Company will record a non-cash compensation charge,
the amount of such charge and  recognition  therefore  will be determined on the
date stockholder ratification and approval is obtained.

         Effective  December  26,  1996,  the  Company  entered  into a Loan and
Security Agreement with DVI Business Credit Corporation ("DVIBC"),  an affiliate
of DFS, to provide a revolving line of credit to the Company. The maximum amount
available under such credit facility was $2.0 million, which amount increased to
$3.0  million in October 1998 in  connection  with the Beran  Acquisition,  with
advances limited to seventy-five  percent (75%) of eligible accounts receivable,
as determined by the DVIBC. Borrowings under the line of credit bear interest at
the rate of three  percent (3%) over the prime  lending  rate and are  repayable
within two years from

                                                        18

<PAGE>



the execution of the aforementioned loan and security agreement,  which date was
extended to May 1999. The Company's  obligations  under the credit  facility are
collateralized  through a grant of a first  security  interest  in all  eligible
accounts receivable.  The agreement contains customary  affirmative and negative
covenants   including  covenants  requiring  the  Company  to  maintain  certain
financial  ratios and minimum levels of working  capital.  Borrowings under this
credit  facility will be used to fund working capital needs as well as acquiring
businesses which are  complementary  to the Company.  At September 30, 1998, the
Company had $1,857,169 outstanding under this credit facility.

         In December  1997,  in  conjunction  with the  Company's  execution  of
letters  of  intent  in  respect  of  its   acquisition  of  Jersey   Integrated
HealthPractice,  Inc.  ("JIHP"),  the  management  services  organization  which
manages  Pavonia  Medical  Associates,  P.A.  ("Pavonia")  (the "JIHP Letters of
Intent"),  the Company  agreed to  guarantee a loan of $1.0  million from DFS to
JIHP.  This loan bears  interest at 12% per annum and is payable in  forty-eight
(48) monthly installments of $26,330 which commenced February 1998. In addition,
pursuant to the DFS Consulting  Agreement  described  above, the Company granted
10,000 of the previously  described DFS Options as compensation  for the funding
provided to JIHP. Pavonia and each physician  stockholder of Pavonia have agreed
that to the  extent  that the  Company  is or  becomes  liable in respect of any
indebtedness or other liability or obligation of either Pavonia or JIHP, and the
acquisition  by the Company of JIHP is not  consummated as  contemplated  by the
JIHP Letters of Intent,  then Pavonia and each physician  stockholder of Pavonia
agrees to  indemnify  and hold the  Company  harmless  from and against any such
liabilities.

         The "Year 2000 issue" is a result of computer  programs  written  using
two digits  instead of four  digits to refer to a  particular  year.  Therefore,
these computer  programs may recognize a date using "00" as the year 1900 rather
than the year 2000.  This  could  result in a system  failure or  miscalculation
causing  disruptions of operations,  including,  among other things, a temporary
inability to process  transactions,  send  invoices or engage in similar  normal
business  activities.  Like most  companies  today,  the Company  uses  computer
technology  in  conducting  its  operations.  In  connection  with the Company's
expanded  strategic  focus  into the  area of  establishing  physician  practice
management  operations,  the  Company  has  identified  a new  state  of the art
information  system that is represented to be Year 2000 compliant to be utilized
by the entire  Company in a wide area network  setting.  With this in mind,  the
Company  anticipates   achieving  internal  Year  2000  compliance  through  the
integration of new information systems. However, there can be no assurance that
the Company will purchase this new information system at all, or if and when it
does, be able to integrate the system in time to prevent any Year 2000 issues.

                                                       19

<PAGE>



Except as set forth above,  the Company has not yet addressed the Year 2000
issue nor made any  assessments  as to what effect,  if any, the Year 2000 issue
will have on the Company as a result of its information  systems or those of its
lessees,  licenses,  third-party  payors or other related third parties or as to
what costs, if any, the Company will incur to attain Year 2000  compliance.  The
Company has not evaluated  the status of other third  parties'  compliance  with
Year 2000 issues nor developed alternatives and contingency plans.  Accordingly,
no assurances  can be given that the effect of the Year 2000 issue will not have
a material adverse effect on the Company's operations and financial conditions.



ITEM 3.           Quantitative and Qualitative Disclosures About Market
                  Risk

         Not Applicable.


                                                        20

<PAGE>


                 PART II - OTHER INFORMATION

    Items 1 through 5 have been  omitted  because  the  related  information  is
either inapplicable or has been previously reported.


Item 6.           Exhibits and Reports on Form 8-K

    (a)           Exhibit 27 - Financial Data Schedule.

    (b)  Reports on Form 8-K

                  The  Company  filed a  Current  Report  on Form  8-K  with the
                  Securities  and  Exchange  Commission  on  September  18, 1998
                  relating to the issuance of its Press Release on September 17,
                  1998  announcing  the  signing  of  definitive  agreements  to
                  acquire  the five (5) New  Jersey - based  diagnostic  imaging
                  facilities operated by the Beran Entities.





                                                        21

<PAGE>



                                                    SIGNATURES


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.



                               HEALTHCARE IMAGING SERVICES, INC.
                                         (Registrant)




                               /s/ ELLIOTT H. VERNON
                               ---------------------
DATE: November 13, 1998        Elliott H. Vernon,
                               Chairman of the Board,
                               President and Chief
                               Executive Officer
                               (Principal Executive Officer)








DATE: November 13, 1998        /s/ SCOTT P. MCGRORY
                               --------------------
                               Scott P. McGrory,
                               Vice President - Controller
                               (Principal Financial and
                               Accounting Officer)








                                                        22

<PAGE>



                              HEALTHCARE IMAGING SERVICES, INC.

        Quarterly Report on Form 10-Q for the Quarter Ended September 30, 1998

                                       INDEX TO EXHIBITS




EXHIBIT                                                         PAGE


27                Financial Data Schedule






                                                        23