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                      US Securities and Exchange Commission
                              Washington, DC 20549

                                  FORM 10-KSB
                                Amendment No. 2

     (Mark One)
        [X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                 EXCHANGE ACT OF 1934 [Fee Required]

                  For the fiscal year ended December 31, 2004.

        [ ]     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
                EXCHANGE ACT OF 1934 [No Fee Required]

                         Commission File Number 0-12365

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

                      Utah                         58-1475517
                ----------------                ---------------
         (State or other jurisdiction of         (IRS Employer
         incorporation or organization)        Identification No.)

         9191 Towne Centre Drive, Suite 400, San Diego, California 92122
                    (Address of principal executive offices)

                    Issuer's telephone number: (858) 455-7127

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

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

Title of each class
-------------------
Common Stock, $0.15 Par Value

         Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports); and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No[ ]

         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

State issuer's revenues for its most recent fiscal year $18,933,062.

The aggregate market value of outstanding common stock held by non-affiliates of
the Registrant (based upon the closing bid price of such shares as listed on the
over-the-counter NASD Bulletin Board on March 15, 2005) was approximately
$3,423,000.

As of March 15, 2005, Registrant had outstanding 16,465,194 shares of the
registrant's common stock and 3,378,376 shares of Series A Convertible Preferred
Stock. The Preferred Stock was sold during the quarter ended September 30, 2004
by means of a private placement under exemptions pursuant to the Securities Act
of 1933, as amended.

Our common stock, par value $0.15 per share, is traded over-the-counter on the
NASD Bulletin Board under the symbol "MRDG". Our outstanding preferred stock,
par value $0.01 per share, is not registered as it is privately held.

Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]

DOCUMENTS INCORPORATED BY REFERENCE

Certain sections of the Registrant's definitive Proxy Statement for the 2005
Annual Meeting of Stockholders to be held on May 26, 2004, are incorporated by
reference in Part III of this Form 10-KSB to the extent stated herein.



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                                TABLE OF CONTENTS

                                     PART I

Item 1.   Description of the Business........................................1

Item 2.   Description of Property...........................................22

Item 3.   Legal Proceedings.................................................22

Item 4.   Submission of Matters to a Vote of Security Holders...............22

                                     PART II

Item 5.   Market for Registrant's Common Equity and Related Stockholder
          Matters ..........................................................23

Item 6.   Management's Discussion and Analysis and Plan of Operations.......23

Item 7.   Financial Statements..............................................31

Item 8.   Changes In and Disagreements with Accountants on Accounting
          and Financial Disclosure..........................................31

Item 8a.  Controls and Procedures...........................................31

                                    PART III

Item 9.   Directors, Executive Officers, Promoters and Control Persons,
          Compliance with Section 16(a) of the Exchange Act.................32

Item 10.  Executive Compensation............................................33

Item 11.  Security Ownership of Certain Beneficial Owners and
          Management........................................................33

Item 12.  Certain Relationships and Related Transactions....................33

Item 13.  Exhibits and Reports on Form 8-K..................................34

Item 14.  Principal Accountant Fees and Services............................36




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                                     PART I

This Annual Report on Form 10-KSB and the documents incorporated herein by
reference contain forward-looking statements that have been made pursuant to the
provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are based on current expectations, estimates, and
projections about Miracor Diagnostics' industry, management beliefs, and certain
assumptions made by Miracor Diagnostics' management. Words such as
"anticipates," expects," "intends," "plans," "believes," "seeks," "estimates,"
variations of such words, and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future
performance and are subject to certain risks, uncertainties, and assumptions
that are difficult to predict; therefore, actual results may differ materially
from those expressed or forecasted in any such forward-looking statements.
Unless required by law, we undertake no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events, or otherwise. However, readers should carefully review the risk factors
set forth in this Annual Report on Form 10-KSB and in other reports and
documents that we file from time to time with the Securities and Exchange
Commission, particularly the Quarterly Reports on Form 10-QSB and any Current
Reports on Form 8-K. All references to "us", "we", "Miracor", or "the Company"
refer to Miracor Diagnostics, Inc., its predecessors and its subsidiaries.

ITEM 1.  DESCRIPTION OF THE BUSINESS

RISK FACTORS

THE OWNERSHIP AND INVESTMENT IN OUR SECURITIES INVOLVES SUBSTANTIAL RISKS, OUR
COMMON SHARES SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO LOSE THEIR
ENTIRE INVESTMENT, PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THESE RISKS
RELATING TO OUR COMPANY.

RISKS RELATING TO OUR BUSINESS

WE HAVE INCURRED SUBSTANTIAL OPERATING LOSSES FOR THE LAST SEVERAL YEARS. AS A
RESULT WE HAVE A SUBSTANTIAL ACCUMULATED DEFICIT AND NEGATAIVE WORKING CAPITAL
POSITION ON DECEMBER 31, 2004. IF WE ARE UNABLE TO IMPROVE OUR FINANCIAL
PERFORMANCE, WE MAY BE UNABLE TO PAY OUR OBLIGATIONS.

We have incurred net losses of $1.7 million and $2.2 million during the years
ended December 31, 2003 and 2004, respectively. At December 31, 2004, we had a
negative working capital position of $2.5 million and an accumulated
stockholders' deficit of $29.2 million which includes losses from our prior
operations and from our first three years of operating in the medical diagnostic
imaging business. Our ability to achieve profitability depends upon our ability
to successfully market our medical diagnostic imaging business, of which there
can be no assurance. While we believe we have taken steps and other actions to
solidify our financial condition, we cannot give assurances that we will be able
to generate sufficient cash flow from operations to satisfy our debt
obligations. If we cannot satisfy our debt obligations, we may no longer be able
to continue in business.

BECAUSE OUR INDUSTRY IS CAPITAL INTENSIVE, WITH HIGH FIXED COSTS, A FAILURE TO
MEET OUR CAPITAL EXPENDITURE REQUIREMENTS, PARTICULARLY FOR INITIAL START UP AND
DEVELOPMENT EXPENSES, BUT ALSO FOR UPGRADES OF EQUIPMENT, COULD ADVERSELY AFFECT
OUR BUSINESS.

We operate in a capital intensive, high fixed-cost industry that requires
significant amounts of capital to fund operations, particularly the initial
start-up and development expenses of new diagnostic imaging centers and the
acquisition of additional centers and new diagnostic imaging equipment. We incur
capital expenditures to, among other things, upgrade and replace existing
equipment for existing facilities and expand within our existing markets and
enter new markets. Most of our capital expenditures are 100% financed and
therefore we estimate our out-of-pocket capital expenditure requirements over
the next twelve months to be less than $200,000. We currently have sufficient
assets to adequately meet these expenditures as well as fund our current
operations; however, to the extent we are unable to generate sufficient cash
from our operations, funds are not available from our lenders or we are unable
to structure or obtain financing through operating leases, long-term installment
notes or capital leases, we may be unable to meet our capital expenditure
requirements. This situation would have an adverse affect on our ability to
continue as a business.

OUR ABILITY TO GENERATE SUFFICIENT CASH FROM OUR OPERATIONS TO MAKE PAYMENTS ON
OUR DEBT AND OTHER CONTRACTUAL OBLIGATIONS DEPENDS ON OUR FUTURE FINANCIAL
PERFORMANCE. THERE ARE MANY FACTORS, MANY OUTSIDE OUR CONTROL, WHICH MAY MEAN
THAT WE MAY NOT BE ABLE TO GENERATE SUFFICIENT CASH FLOW TO MEET OUR DEBT
SERVICE OBLIGATIONS.

Our ability to generate sufficient cash flow from operations to make payments on
our debt and other contractual obligations will depend on our future financial
performance. As of December 31, 2004 our total contractual obligations were
approximately $16.8 million for notes payable, $2.5 million for capital leases
and $3.3 million for operating leases. We currently have sufficient assets to
meet these obligations on a monthly basis; however, our ability to generate
sufficient cash flow from operations to make payments on our debt and other
contractual obligations will depend on our future financial performance.

                                       -1-
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A range of economic and business (see "RISKS RELATING TO OUR BUSINESS" page 1),
competitive(see page 3), regulatory and legislative (see "RISKS RELATING TO
GOVERNMENT REGULATION OF OUR BUSINESS" page 6), factors, many of which are
outside of our control, will affect our financial performance. A negative affect
on our financial performance may create an inability to generate sufficient cash
flow to satisfy our debt and other contractual obligations which would adversely
impact our business, financial condition and results of operations. This
situation would have an adverse affect on our ability to continue as a business.

WE DEPEND UPON REFERRALS FROM PHYSISCIANS. OUR ABILITY TO GENERATE REVENUE
DEPENDS IN LARGE PART UPON SUCH REFERRALS FROM PHYSICIANS. A SIGNIFICANT
EDUCTION IN REFERRALS WOULD HAVE A NEGATIVE IMPOACT ON OUR BUSENESS.

A significant reduction in referrals would have a negative impact on our
business. We derive substantially all of our net revenue, directly or
indirectly, from fees charged for the diagnostic imaging services performed at
our facilities. We depend on referrals of patients from unaffiliated physicians
and other third parties who have no contractual obligations to refer patients to
us for a substantial portion of the services we perform. If a sufficiently large
number of these physicians and other third parties were to discontinue referring
patients to us, our scan volume could decrease, which would reduce our net
revenue and operating margins. Further, commercial third-party payors have
implemented programs that could limit the ability of physicians to refer
patients to us. For example, prepaid healthcare plans, such as health
maintenance organizations, sometimes contract directly with providers and
require their enrollees to obtain these services exclusively from those
providers. Some insurance companies and self-insured employers also limit these
services to contracted providers. These "closed panel" systems are now common in
the managed care environment. Other systems create an economic disincentive for
referrals to providers outside the system's designated panel of providers. If we
are unable to compete successfully for these managed care contracts, our results
and prospects for growth could be adversely affected. This situation would have
an adverse affect on our ability to continue as a business.

BECAUSE WE HAVE HIGH FIXED COSTS, LOWER SCAN VOLUMES PER SYSTEM COULD ADVERSELY
AFFECT OUR BUSINESS. WITH SUCH HIGH FIXED COSTS, WE MUST HAVE A STRONG REVENUE
FLOW TO BE SUCCESSFUL. DECREASED REVENUE COULD NEGATIVELY IMPACT OUR BUSINESS,
MAKING US LESS PROFITABLE OR UNPROFITABLE.

The principal components of our expenses, excluding depreciation, consist of
compensation paid to technologists, salaries, real estate lease expenses and
equipment maintenance costs. Because a majority of these expenses are fixed, a
relatively small change in our revenue could have a disproportionate effect on
our operating and financial results depending on the source of our revenue.
Thus, decreased revenue as a result of lower scan volumes per system could
result in lower margins, which would adversely affect our business, making us
less profitable or unprofitable.

To be specific, compensation expense for technologists in 2004 was approximately
$2,076,000 as compared to $1,929,000 in 2003, representing an increase of
$147,000 or 7.6%. We expect this trend to continue as the cost of salaries
increases as well as with an increase in volume, but do not expect a material
increase overall. Salaries and wages expense aside from compensation expense for
technologists in 2004 was approximately $3,256,000 as compared to approximately
$3,040,000 for 2003, an increase of $216,000 or 7.1%. We expect this trend to
continue with the rising cost of salaries and slightly with an increase in
volume, but do not expect a material change. Real estate lease expense was
approximately $1,333,000 in 2004 as compared to $1,233,000 in 2003, an increase
of $100,000 or 8.1%. We expect this trend to continue but do not expect a
material increase and expect no increase with an increase in volume. Equipment
maintenance expense in 2004 was approximately $1,281,000 as compared to
$1,235,000 in 2003, an increase of $46,000 or 3.7%. As our equipment ages, we
expect the cost of maintenance to increase further but not to a material amount.

A PRIME OBJECTIVE OF HEALTH MAINTENANCE AND PREFERRED PROVIDER ORGANIZATIONS IS
TO CONTROL THE COST OF HEALTHCARE SERVICES. SUCH CONTRACTING CAN BE COMPETITIVE.
PRESSURE TO CONTROL HEALTHCARE COSTS COULD HAVE A NEGATIVE IMPACT ON OUR
RESULTS.

One of the principal objectives of health maintenance organizations and
preferred provider organizations is to control the cost of healthcare services.
Managed care contracting has become very competitive, and reimbursement
schedules are at or below Medicare reimbursement levels. The development and
expansion of health maintenance organizations, preferred provider organizations
and other managed care organizations within the geographic areas covered by our
networks could have a negative impact on the utilization and pricing of our
services, because these organizations will exert greater control over patients'
access to diagnostic imaging services, the selections of the provider of such
services and reimbursement rates for those services.

                                       -2-
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WE HAVE AN ONGOING REQUIREMENT FOR CAPITAL BECAUSE WE MUST CONTINUALLY PURCHASE
NEW EQUIPMENT TO UPGRADE AND REPLACE OUR EXISTING EQUIPMENT. AS A RESULT, WE
EXPECT TO NEED ADDITIONAL CAPITAL TO OPERATE AND EXPAND OUR OPERATIONS

We utilize capital to purchase new diagnostic imaging equipment, to upgrade and
replace existing equipment, to expand within existing markets and to enter new
markets. Our capital sources have consisted primarily of borrowings under our
credit facility, borrowings under secured leases, and issuance of common stock.
The borrowing capacity under our credit facility at December 31, 2004 was
$2,728,027. Our ability to accomplish our goals and to execute our business
strategy depends on our continued ability to access capital on appropriate
terms. Our growth could be limited and our existing operations impaired unless
we are able to obtain additional capital through subsequent debt or equity
financings. Over the next 12 months, we anticipate purchasing one to two MRI
systems with a total cost of $1 million to $3 million. Although we currently do
not have the resources, these purchases would be funded through vendor financing
as in the past. There can be no assurance that borrowing capacity under our
credit facility will be available to us when needed or that we will be able to
obtain additional financing or that, if available, such financing will be on
terms acceptable to us. As a result, there can be no assurance that we will be
able to implement our business strategy successfully.

WE HAVE HISTORICALLY RELIED ON ACQUISITIONS AS A METHOD TO EXPAND OUR BUSINESS.
IF WE DO NOT SUCCESSFULLY INTEGRATE ACQUISITIONS, WE MAY NOT BE ABLE TO ACHIEVE
THE EXPECTED BENEFITS FROM FUTURE ACQUISITIONS WHICH WOULD ADVERSELY AFFECT OUR
FINANCIAL CONDITION AND RESULTS.

We have historically relied on acquisitions as a method of expanding our
business. We have not presently identified any potential future acquisition
candidates and may not successfully locate what we consider to be suitable
acquisition candidates. However, we will consider future acquisitions as
opportunities arise. If we do not successfully integrate acquisitions we plan to
continue with our current operations but may not realize anticipated operating
advantages and cost savings. The integration of companies that have previously
operated separately involves a number of risks, including:

         o        demands on management related to the increase in our size
                  after an acquisition;
         o        the diversion of our management's attention from the
                  management of daily operations to the integration of
                  operations;
         o        difficulties in the assimilation and retention of employees;
         o        potential adverse effects on operating results; and
         o        challenges in retaining clients.

We may not be able to maintain the levels of operating efficiency acquired
companies will have achieved or might achieve separately. Successful integration
of each of their operations will depend upon our ability to manage those
operations and to eliminate redundant and excess costs. Because of difficulties
in combining operations, we may not be able to achieve the cost savings and
other size related benefits that we hoped to achieve after these acquisitions
which would harm our financial condition and operating results.

WE DEPEND UPON OUR MANAGEMENT TEAM TO A SUBSTANTIAL EXTENT. LOSS OF KEY
EXECUTIVES AND FAILURE TO ATTRACT QUALIFIED MANAGERS, TECHNOLOGISTS AND
MARKETING PERSONS COULD LIMIT OUR GROWTH AND NEGATIVELY IMPACT OUR OPERATIONS.

We depend upon our management team to a substantial extent. As we grow, we will
increasingly require field managers and sales persons with experience in our
industry and skilled technologists to operate our diagnostic equipment. It is
impossible to predict the availability of qualified field managers, sales
persons and technologists or the compensation levels that will be required to
hire them. In particular, there is a very high demand for qualified
technologists who are necessary to operate our systems. We may not be able to
hire and retain a sufficient number of technologists, and we may be required to
pay bonuses and higher salaries to our technologists, which would increase our
expenses. The loss of the services of any member of our senior management or our
inability to hire qualified field managers, sales persons and skilled
technologists at economically reasonable compensation levels could adversely
affect our ability to operate and grow our business.

THE MARKET FOR DIAGNOSTIC IMAGING SERVICES IS COMPETITIVE. WE COMPETE
PRINCIPALLY ON THE BASIS OF OUR REPUTATION FOR PROVIDING OUR CONVENIENTYLY
LOCATED CENTERES AND COST-EFFECTIVE, HIGH-QUALITY DIAGNOSTIC IMAGING SERVICES.
WE MAY EXPERIENCE COMPETITION FROM OTHER DIAGNOSTIC IMAGING COMPANIES. THIS
COMPETITION COULD ADVERSELY AFFECT OUR REVENUE AND OUR BUSINESS.

                                       -3-

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The market for diagnostic imaging services is competitive. We compete
principally on the basis of our reputation for providing our conveniently
located centers and our cost-effective, high-quality diagnostic imaging
services. We compete locally with groups of radiologists and some
non-radiologist physician practices, established hospitals, clinics and certain
other independent organizations that own and operate imaging equipment. Our
major national competitors include Radiologix, Inc., Alliance Imaging, Inc.,
Healthsouth Corporation and Insight Health Services. Some competitors are better
established and have substantially greater financial, marketing and other
resources than us. Further, most of our competitors have been in existence for a
substantially longer period of time and may be better established in those
markets where we intend to sell our services. As a result of our relative lack
of financial, marketing and other resources, there can be no assurance that we
will be able to market our MRI services successfully, or compete in the
diagnostic imaging industry.

WE DERIVE MOST OF OUR REVENUES FROM DIRECT BILLINGS TO PATIENTS AND THIRD PARTY
PAYORS. CHANGES IN THE RATES OR METHODS OF THIRD-PARTY REIMBURSEMENTS FOR
DIAGNOSTIC IMAGING SERVICES COULD RESULT IN REDUCED DEMAND FOR OUR SERVICES
WHICH WOULD RESULT IN A DECLINE IN OUR REVENUES AND HARM TO OUR FINANCIAL
POSITION.

We derive most of our revenues from direct billings to patients and third-party
payors such as Medicare or private health insurance companies. Any changes in
the rates or methods of reimbursement for the services we provide could have a
significant negative impact our net revenues. In the past, initiatives have been
proposed which, if implemented, would have had the effect of substantially
decreasing reimbursement rates for diagnostic imaging services. Similar
initiatives enacted in the future may have an adverse impact on our financial
condition and our operations. Any change in the rates of or conditions for
reimbursement could substantially reduce the number of procedures for which we
can obtain reimbursement or the amounts reimbursed to us or our clients for
services provided by us. For example, recent legislative changes in California's
workers compensation rules will have a negative impact on reimbursement rates
for diagnostic imaging services, although because we derive only a small portion
of our net revenue from California's workers compensation, we do not expect this
particular legislation to have a significant impact on us.

WE MUST USE CURRENT TECHNOLOGY TO BE COMPETITIVE. TECHNOLOGICAL CHANGE IN OUR
INDUSTRY COULD REDUCE THE DEMAND FOR OUR SERVICES AND REQUIRE US TO INCUR
SIGNIFICANT COSTS TO UPGRADE OUR EQUIPMENT.

We must use current technology to be competitive. The development of new
technologies or refinements of existing modalities may require us to upgrade and
enhance our existing equipment before we may otherwise intend. Many companies
currently manufacture diagnostic imaging equipment. Competition among
manufacturers for a greater share of the diagnostic imaging equipment market may
result in technological advances in the speed and imaging capacity of new
equipment. This may accelerate the obsolescence of our equipment, and we may not
have the financial ability to acquire the new or improved equipment. In that
event, we may be unable to deliver our services in the efficient and effective
manner which payors, physicians and patients expect and thus our revenue could
substantially decrease.

IT IS DIFFICULT TO ESTIMATE OUR UNCOLLECTIBLE ACCOUNTS RECEIVABLE AND
CONTRACTUAL ALLOWANCES FOR BILLED CHARGES, WHICH MAY IMPACT OUR EARNINGS.

Due to the complex nature of billing for healthcare services, it is difficult
for us to estimate our uncollectible accounts receivable and our contractual
allowances for billed charges. If we have to significantly revise our estimates
and our existing reserves are not adequate, this may impact our earnings.
However, write-offs are accounted for when determining the level of allowance
for doubtful accounts resulting in minor revisions of allowance for doubtful
accounts on a continual and consistent basis; therefore, we have not
historically incurred any significant write-offs causing a revision of
estimates, but cannot guarantee that we may not do so in the future.. Our
accounts receivable and related allowance for doubtful accounts at December 31,
2004 are $15,032,998 and $8,848,734 respectively.

OUR RECORDED GOODWILL AMOUNTS MAY BE IMPAIRED UNDER NEW ACCOUNTING STANDARDS.

At December 31, 2004, we had approximately $7.8 million recorded as goodwill. On
an annual basis, we assess our recorded goodwill amounts for impairment by
applying a fair-value-based test. If our goodwill is impaired, we are required
to record a non-cash charge by writing down all or a portion of our recorded
goodwill amounts. Such a write down could have a material impact on our results
of operations in 2005 or future periods. To the extent we sell or close
diagnostic imaging centers in the future, we may write-down all or a portion of
our goodwill amounts.

We took this action in connection with our decision to dispose of net assets of
certain centers in Jacksonville and Orange Park, Florida. We disposed of these
facilities as a result of continuing operating losses We assigned an impairment
charge which amounted to $994,445 primarily related to previously recorded
goodwill associated with the Florida centers but including a small impairment of
$6,795 related to the closure of our Newport Beach center.

                                       -4-

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TIMELY, EFFECTIVE SERVICE IS ESSENTIAL TO MAINTAINING OUR REPUTATION AND HIGH
UTILIZATION RATES ON OUR IMAGING SYSTEMS. WE MAY BE UNABLE TO EFFECTIVELY
MAINTAIN OUR IMAGING SYSTEMS OR GENERATE REVENUE WHEN OUR SYSTEMS ARE NOT
WORKING.

Timely, effective service is essential to maintaining our reputation and high
utilization rates on our imaging systems. Repairs to one of our systems can take
up to two weeks and result in a loss of revenue. Our warranties and maintenance
contracts do not fully compensate us for loss of revenue when our systems are
not working. The principal components of our operating costs include
depreciation, payroll, annual system maintenance costs and insurance. Because
the majority of these expenses are fixed, a reduction in the number of scans
performed due to out-of-service equipment will result in lower revenues and
margins. Repairs of our equipment are performed for us by the equipment
manufacturers. These manufacturers may not be able to perform repairs or supply
needed parts in a timely manner. Thus, if we experience greater than anticipated
system malfunctions or if we are unable to promptly obtain the service necessary
to keep our systems functioning effectively, our revenues could decline and our
ability to provide services would be harmed.

WE MAY BE SUBJECT TO PROFESSIONAL LIABILITY RISKS WHICH COULD BE COSTLY AND
NEGATIVELY IMPACT OUR BUSINESS AND FINANCIAL RESULTS.

We may be subject to professional liability claims. Although there currently are
no known hazards associated with MRI or our other scanning technologies when
used properly, hazards may be discovered in the future. Furthermore, there is a
risk of harm to a patient during an MRI if the patient has certain types of
metal implants or cardiac pacemakers within his or her body. Patients are
carefully screened to safeguard against this risk, but screening may
nevertheless fail to identify the hazard. To protect against possible
professional liability, we maintain professional liability insurance. However,
if we are unable to maintain insurance in the future at an acceptable cost or at
all or if our insurance does not fully cover us, and a successful claim was made
against us, we could be exposed. Any claim made against us not fully covered by
insurance could be costly to defend against, result in a substantial damage
award against us and divert the attention of our management from our operations,
which could have an adverse effect on our financial performance.

OUR STOCK IS VOLATILE, HAS A LIMITED PUBLIC MARKET, AND YOU MAY NOT BE ABLE TO
RESELL YOUR SHARES AT OR ABOVE YOUR PURCHASE PRICE.

We have a limited public market for our common stock. In addition, the stock
market has, from time to time, experienced extreme price and volume fluctuations
that have particularly affected the market prices of companies in the healthcare
service industries and that have often been unrelated to the operating
performance of the affected companies. Announcements of changes in reimbursement
policies of third-party payors, legislative or regulatory developments, economic
news and other external factors, including geopolitical developments, may have a
significant impact on the market price of healthcare stocks. Although our common
stock trades on the NASD Bulletin Board, an active trading market for our shares
may never be sustained. From December 31, 2003 to December 31, 2004, the
purchase prices of our stock has ranged from $0.30 to $0.70. Your purchase price
may vary from the market price of our common stock after your purchase. If you
purchase shares of common stock, you may not be able to resell those shares at
or above your purchase price. The market price of our common stock may fluctuate
significantly in response to numerous factors, some of which are beyond our
control, including the following:

         -        factors affecting national security markets;
         -        actual or anticipated fluctuations in our operating results;
         -        changes in financial estimates by securities analysts or our
                  failure to perform in line with such estimates;
         -        changes in market valuations of other similar companies,
                  particularly those that sell products and services such as
                  ours;
         -        a change in interest rates;
         -        announcements by us or our competitors of significant
                  technical innovations, acquisitions, strategic partnerships,
                  joint ventures or capital commitments;
         -        introduction of technologies or product enhancements that
                  reduce the need for our products or services; and
         -        departures of key personnel.

BUYING A LOW-PRICED PENNY STOCK SUCH AS OURS IS RISKY AND SPECULATIVE.

Our shares are defined as a penny stock under the Securities and Exchange Act of
1934, and rules of the Commission. The Exchange Act and such penny stock rules
generally impose additional sales practice and disclosure requirements on
broker-dealers who sell our securities to persons other than certain accredited
investors who are, generally, institutions with assets in excess of $5,000,000
or individuals with net worth in excess of $1,000,000 or annual income exceeding
$200,000, or $300,000 jointly with spouse, or in transactions not recommended by
the broker-dealer. For transactions covered by the penny stock rules, a
broker-dealer must make a suitability determination for each purchaser and
receive the purchaser's written agreement prior to the sale. In addition, the
broker-dealer must make certain mandated disclosures in penny stock
transactions, including the actual sale or purchase price and actual bid and
offer quotations, the compensation to be received by the broker-dealer and
certain associated persons, and deliver certain disclosures required by the
Commission. Consequently, the penny stock rules may affect the ability of
broker-dealers to make a market in or trade our common stock and may also affect
your ability to sell any of our shares you may own in the public markets.

                                       -5-

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THE OVER-THE-COUNTER MARKET FOR STOCK SUCH AS OURS HAS HAD EXTREME PRICE, SPREAD
AND VOLUME FLUCTUATIONS.

The securities of companies such as ours have historically experienced extreme
price, spread and volume fluctuations during certain periods. These broad market
fluctuations and other factors, such as new product developments and trends in
the our industry and in the investment markets generally, as well as economic
conditions and quarterly variations in our operational results, may have a
negative effect on the market price of our common stock.

WE HAVE PROVISIONS IN OUR CORPORATE ORGANIZATIONAL DOCUMENTS WHICH COULD
DISCOURAGE ACQUISITION PROPOSALS AND MAKE DIFFICULT A CHANGE OF CONTROL.

Our Articles of Incorporation and By-Laws contain provisions that may make the
acquisition of control of Miracor by means of tender offer, over-the-counter
market purchases, a proxy fight or otherwise, more difficult. Consequently,
limit the price that investors might be willing to pay in the future for shares
of our common stock. These provisions include the inability to remove directors
except for cause and our ability to issue, without further stockholder approval,
shares of preferred stock with rights and privileges senior to the common stock.
This could prevent security holders from realizing a premium on their
securities.

We also have a staggered board of directors, which is a further impediment to a
change in control. In addition, we have also entered into employment agreements
with our executive officers, which contain provisions that require us to pay
certain amounts to the executives upon their termination following a change of
control. These agreements may delay or prevent a change in control of Miracor.
Some or all of these conditions could be revised if the company pursues a
friendly transaction.

WE HAVE A NUMBER OF RESTRICTED SHARES ELIGIBLE FOR FUTURE SALE

At December 31, 2004, there were 2,972,185 shares of common stock that were
issued and outstanding that are "restricted securities" as that term is defined
by Rule 144 of the Securities Act, all of which are currently eligible for
resale in compliance with Rule 144 of the Securities Act. Of these shares, 34%
are owned by our current officers and directors.

Rule 144 provides that, in general, a person holding restricted securities for a
minimum period of one (1) year may, every three (3) months thereafter, sell in
brokerage transactions an amount of shares which does not exceed the greater of
one percent (1%) of Miracor's then outstanding common stock or the average
weekly trading volume of the common stock during the four (4) calendar weeks
immediately prior to such sale. Rule 144 also permits, under certain
circumstances; the sale of shares without any quantity limitations by a person
who is not an affiliate of Miracor's and was not an affiliate at any time during
the ninety (90) day period immediately prior to such sale, and who has satisfied
a two (2) year holding period. Sales of Miracor's common stock by shareholders
under Rule 144 may have a depressive effect on the market price of our common
stock.

In raising new financing, we may need to issue common stock at a discount to the
current market price and we may need to issue warrants to complete such a
transaction.

RISKS RELATING TO GOVERNMENT REGULATION OF OUR BUSINESS

STATE AND FEDERAL ANTI-KICKBACK AND ANTI-SELF-REFERRAL LAWS MAY ADVERSELY AFFECT
OUR INCOME.

The federal Physician Self-Referral or "Stark" law prohibits a physician from
referring Medicare patients for certain "designated health services" to an
entity with which the physician (or an immediate family member of the physician)
has a financial relationship unless an exception applies. In addition, the
receiving entity is prohibited from billing for services provided pursuant to
the prohibited referral.

                                       -6-

<PAGE>

Designated health services under Stark include radiology services (MRI, CT,
x-ray, ultrasound and others), radiation therapy, inpatient and outpatient
hospital services and several other services. A violation of the Stark Law does
not require a showing of intent. If a physician has a financial relationship
with an entity that does not qualify for any exceptions, the referral of
Medicare patients to that entity for designated health services is prohibited
and, if the entity bills for such services, the Stark sanctions apply.

Sanctions for violating Stark include denial of payment, mandatory refunds,
civil money penalties and/or exclusion from the Medicare program. In addition,
some courts have allowed federal False Claims Act lawsuits premised on Stark Law
violations.

The federal Stark Law prohibition is expansive, and its statutory language and
implementing regulations are ambiguous. Consequently, the statute has been
difficult to interpret. In 1995, the Centers for Medicare and Medicaid Services,
CMS, published final regulations interpreting the Stark prohibition as applied
to clinical laboratory services. In 1998, CMS released proposed regulations
interpreting Stark as applied to all designated health services. In 2001, CMS
published Phase I of the final Stark regulations which went into effect in
January 2002. On March 26, 2004, CMS published Phase II of the final Stark
regulations which became effective in July 2004. Phase II included some
additional regulatory exceptions and definitions providing more flexibility in
some areas and more specificity in other, but did not extend designated health
services to PET or nuclear medicine.

With each set of regulations, CMS' interpretation of the statue has evolved.
This has resulted in considerable confusion concerning the scope of the referral
prohibition and the requirements of the various exceptions. It is noteworthy,
however, that CMS has taken the position that the Stark Law is self-effectuating
and does not require implementing regulations. Thus, the government believes
that physicians and others must comply with the Stark Law prohibitions
regardless of the state of the regulatory guidance.

The Stark Law does not directly prohibit referral of Medicaid patients, but
rather denies federal financial participations to state Medicaid programs for
services provided pursuant to a tainted referral. Thus, Medicaid referrals are
subject to whatever sanctions the relevant state has adopted. Several states in
which we operate have enacted or are considering legislations that prohibits
"self-referral" arrangements or requires physicians or other healthcare
providers to disclose to patients any financial interest they have in a
healthcare provider to whom they refer patients. Possible sanctions for
violating these state statutes include loss of licensure, civil fines and
criminal penalties. The laws vary from state to state and seldom have been
interpreted by the courts or regulatory agencies. Nonetheless, strict
enforcement of these requirements is likely.

We believe our operations materially comply with the federal and state physician
self-referral laws. However, given the ambiguity of these statutes, the
uncertainty of the regulations and the lack of judicial guidance on many key
issues, we can give no assurance that the Stark Law or other physician
self-referral regulations will not be interpreted in a manner that could
adversely affect our business, financial condition and results of operations.

ENFORCEMENT OF FEDERAL AND STATE PRIVACY AND ASSOCIATED LAWS MAY ADVERSELY
AFFECT OUR INCOME. How providers and their business associates use and disclose
certain healthcare information has come under increasing public sensitivity and
scrutiny. Additional risks for healthcare providers and their business
associates are posed by the new HIPAA federal standards, which set forth
guidelines concerning how individually-identifiable health information may be
used and disclosed. Historically, state law has governed confidentiality issues.
But as a result of the enactment of HIPAA, some states are considering revisions
to their existing laws and regulations. These changes may or may not be
consistent with the federal HIPAA provisions. As a provider of healthcare
services, we must conform to all applicable laws, both federal and state. We
believe that our operations are compliant with these legal standards.
Nevertheless, these laws and regulations are new and few have been interpreted
by government regulators or courts. Consequently, our interpretations and
activities may be challenged. If a challenge to our activities is successful, it
could have an adverse effect on our operations.

                                       -7-

<PAGE>

FEDERAL FALSE CLAIMS ACT VIOLATIONS COULD AFFECT OUR PARTICIPATION IN GOVERNMENT
PROGRAMS.

The Federal False Claims Act provides, in part, that the federal government may
bring a lawsuit against any person whom it believes has knowingly presented, or
caused to be presented, a false or fraudulent request for payment from the
federal government, or who has made a false statement or used a false record to
get a claim approved. The Federal False Claims Act further provides that a
lawsuit thereunder may be initiated in the name of the United States by an
individual who is an original source of the allegations. The government has
taken the position that claims presented in violation of the federal
anti-kickback law or Stark Law may be considered a violation of the Federal
False Claims Act. Penalties include fines ranging from $5,500 to 11,000 for each
false claim, plus three times the amount of damages that the federal government
sustained because of the act of that person. We believe that we are in
compliance with the rules and regulations that apply to the Federal False Claims
Act. However, we could be found to have violated certain rules and regulations
resulting in sanctions under the Federal False Claims Act. If we are found in
violation, any sanctions imposed could result in fines and penalties and
restrictions on and exclusions from participation in federal and state
healthcare programs that are integral to our business.

OUR AGREEMENTS WITH THE CONTRACTED RADIOLOGY PRACTICES MUST BE STRUCTURED TO
AVOID THE CORPORATE PRACTICE OF MEDICINE AND FEE-SPLITTING.

The laws of many states prohibit us from exercising control over the medical
judgments or decisions of physicians and from engaging in certain financial
arrangements, such as splitting professional fees with physicians. These laws
and their interpretations vary from state to state and are enforced by state
courts and regulatory authorities, each with broad discretion. We structure our
relationships with the radiology practices, including the purchase of diagnostic
imaging centers, in a manner that we believe keeps us from engaging in the
practice of medicine or exercising control over the medical judgments or
decisions of the radiology practices or their physicians or violating the
prohibitions against fee-splitting. State regulatory authorities or other
parties may assert that we are engaged in the corporate practice of medicine or
that the payment of service fees to us by the radiology practices constitutes
fee-splitting. If such a claim were successfully asserted, we could be subject
to civil and criminal penalties and could be required to restructure or
terminate the applicable contractual arrangements. This result, or our inability
to successfully restructure our relationships to comply with these statutes,
could jeopardize our business strategy.

LICENSING AND CERTIFICATION LAWS MAY LIMIT OUR ABILITY TO EXPAND.

Ownership, construction, operation, expansion and acquisition of diagnostic
imaging centers are subject to various federal and state laws, regulations and
approvals concerning licensing of centers, personnel, certificates of need and
other required certificates for certain types of healthcare centers and major
medical equipment. The laws of some of the states in which we operate limit our
ability to acquire new diagnostic imaging equipment or expand or replace our
existing equipment at diagnostic imaging centers in those states. In addition,
freestanding diagnostic imaging centers that provide services that are not
performed as part of a physician office must meet Medicare requirements to be
certified as an independent diagnostic testing facility to bill the Medicare and
Medicaid programs. We may not be able to receive the required regulatory
approvals for any future acquisitions, expansions or replacements, and the
failure to obtain these approvals could limit the market for our services.

THE REGULATORY FRAMEWORK IS UNCERTAIN AND EVOLVING.

Healthcare laws and regulations may change significantly in the future. We
continuously monitor these developments and modify our operations from time to
time as the regulatory environment changes. We cannot assure you, however, that
we will be able to adapt our operations to address new regulations or that new
regulations will not adversely affect our business. In addition, although we
believe that we are operating in compliance with applicable federal and state
laws, neither our current or our anticipated business has been the subject of
judicial or regulatory interpretation. We cannot assure you that a review of our
business by courts or regulatory authorities will not result in a determination
that could adversely affect our operations or that the healthcare regulatory
environment will not change in a way that restricts our operations.

                                       -8-

<PAGE>

Certain states have enacted statutes or adopted regulations affecting risk
assumption in the healthcare industry, including statutes and regulations that
subject any physician or physician network engaged in risk-based managed care
contracting to applicable insurance laws and regulations. These laws and
regulations may require physicians and physician networks to meet minimum
capital requirements and other safety and soundness requirements. Implementing
additional regulations or compliance requirements could result in substantial
costs to us and limits our ability to enter into capitated or other risk sharing
managed care arrangements.

WE COULD BE HARMED IF WE ARE UNABLE TO TIMELY CONTINUE TO COMPLY WITH HIPAA
STANDARD TRANSACTION AND CODE SET REQUIREMENTS.

The administrative provisions of HIPAA direct the federal government to adopt
national electronic standards for automated transfer of certain healthcare data
between healthcare payors, plans and providers. HIPAA is designed to enable the
entire healthcare industry to communicate electronic data using a single set of
standards, thus eliminating all nonstandard formats currently in use. Our
diagnostic imaging centers are "covered entities" under HIPAA, and as such, had
to comply with the HIPAA electronic data interchange mandates by the October 16,
2003 deadline. We are able to produce compliant transactions and we continue to
test to ensure that there are no unexpected claims or payment delays. We
continue to believe there may be some cash flow disruption once CMS and other
payor contingency plans for noncompliant transactions are no longer in effect. A
failure in our continued ability to comply with HIPAA Standards or the
discontinuance of CMS or payor contingency plans could cause us to experience a
delay in its claims processing by its payors or lead to a large number of
rejected or denied claims. Either of these results may slow our cash collections
and increase our accounts receivable days sales outstanding.

WE COULD BE HARMED IF WE EXPERIENCE DELAYED PAYMENTS FROM THIRD-PARTY PAYORS
AFTER THE HIPAA EDI REQUIREMENTS DEADLINE. In September 2003, CMS announced that
it would implement a contingency plan to accept noncompliant electronic
transactions after the October 16, 2003 compliance deadline to ensure processing
of claims from providers who could not meet the deadline and otherwise would
have had their Medicare claims rejected. CMS will regularly reassess provider
readiness and determine how long the contingency plan will be in effect. We may
experience a delay in its claims processing by its payors or lead to a large
number of rejected or denied claims. Either of these results may slow our cash
collections and increase our accounts receivable days sales outstanding.

If our cash reserves or credit lines prove to be insufficient for our cash flow
needs, our business and operations could be adversely affected. This, in turn,
may limit our access to capital for growth.

BUSINESS OVERVIEW

Miracor Diagnostic Inc. and its subsidiaries have been operating freestanding
diagnostic imaging centers since 1998. We are an independent provider of medical
diagnostic imaging services; specifically magnetic resonance imaging ("MRI") and
computed tomography ("CT") services through our network of company-owned and
operated fixed-site, freestanding outpatient facilities. We operate 14
wholly-owned centers. We acquired nine of the centers and internally developed
five facilities. Our centers, all of which operate from facilities leased from
third parties, are clustered in the following five states: California, Florida,
Illinois, Ohio and Oregon.

We have strategically organized our facilities into regional networks in markets
which have either or both high-density and expanding populations. We target our
growth/expansion in the areas in which we currently operate. This clustering
strategy brings many benefits including lower costs, management coverage and
name recognition.

All of our facilities employ modern equipment and technology in modern,
patient-friendly settings. Four of our facilities are multi-modality sites,
offering various combinations of MRI, CT, mammography, ultrasound, bone
densitometry, diagnostic radiology, or X-ray and fluoroscopy. Ten of our
facilities are single-modality sites, offering MRI and in several cases x-ray
services. Consistent with our regional network strategy, we locate our
single-modality facilities near multi-modality sites to obtain favorable managed
care/insurance contracts.

                                       -9-

<PAGE>

Most of the centers offer open MRI equipment that affords greater patient
comfort especially for larger or claustrophobic patients. All of our MRI
equipment has the most recent software upgrades for enhanced state-of-the-art
imaging quality. We believe there is a continuing trend towards the movement out
of hospitals and into freestanding centers. The outpatient market for diagnostic
imaging now exceeds that of the inpatient market. This is due to a number of
factors including increased efficiencies of outpatient services, the
patient-friendly nature of independent centers and federal regulatory changes
that favor the outsourcing of diagnostic imaging services by hospitals.

At our facilities, we provide all of the equipment as well as all non-medical
operational, management, financial and administrative services necessary to
provide diagnostic imaging services. We give our facility managers authority to
run the facilities to meet the demands of local market conditions, while our
corporate structure provides economies of scale, corporate training programs,
standardized policies and procedures and sharing of best practices across our
networks. Each facility managers is responsible for meeting our standards of
patient service, managing relationships with local physicians and payors and
maintaining profitability.

We derive substantially all of our revenue, directly or indirectly, from fees
charged for the diagnostic imaging services performed at our facilities with 81%
of our 2004 revenues derived from MRI services, 10% from CT services and 9% from
other diagnostic imaging services for the year ended December 31, 2004. We
performed approximately 30,000 diagnostic imaging scans and generated net
revenue from continuing operations of approximately $19 million for the year
ended December 31, 2004.

Our common stock, par value $0.15 per share, is traded over-the-counter on the
NASD Bulletin Board under the symbol "MRDG".

SIGNIFICANT EVENTS

In January 2004, we opened a diagnostic imaging center located in Orange Park,
Florida. We financed MRI equipment and tenant improvements through a note
payable to a finance company. The agreement has a carrying amount of
approximately $1,125,000 with a monthly installment payment of $23,204 over 66
months with an interest rate of 8.06%. (See further discussion below and
Subsequent Events for the sale of this diagnostic imaging center.)

In May 2004, Envision Open MRI, LLC, a subsidiary of which we owned 51%, located
in Newport Beach, California ceased operations. As the 49% partner closed its
operations and our leases for the equipment and office space were expiring,
management determined it was no longer economically feasible to continue
operating this facility. Accordingly, the assets and liabilities, as applicable,
are classified as held for sale and the related results of operations are
reported in discontinued operations in the accompanying consolidated financial
statements. Certain reclassifications within the accompanying consolidated
financial statements have been made to reflect the effects of discontinued
operations for all periods presented.

In July 2004, we completed a private placement of 3% Series A Convertible
Preferred Stock for a total of 3,378,376 shares, which are convertible on a
one-for-one basis into common stock, at $0.37 per share subject to certain
limitations and registrations. In addition to the preferred shares, 1,013,525
warrants were issued and are exercisable at $0.55 per share for a period of five
years from the date of issuance. The 3% Series A Convertible Preferred Stock has
preferences in the payment of dividends and upon liquidation as well as voting
and anti-dilution rights and was offered by means of a private placement under
exemptions pursuant to the Securities Act of 1933, as amended. We received
proceeds of $1,096,507, net of closing costs.

In addition, 439,189 warrants, valued at $192,850, were issued as finder fees.
These warrants are exercisable for the five year period from the date of
issuance with 337,837 of the warrants at an exercise price of $0.37 and the
remaining 101,352 warrants at a price of $0.55. During the quarter ended
December 31, 2004, $16,692 in cash dividends were paid to preferred
stockholders.

During the fourth quarter of 2004, management elected to hold for sale the
centers in Jacksonville and Orange Park, Florida. As these centers are start-up
facilities and long-term investments, management determined the length of time
for these centers to become profitable is beyond the time horizon set forth in
our strategic objectives. Accordingly, the assets and liabilities, as
applicable, are classified as held for sale and the related results of
operations are reported in discontinued operations in the accompanying
consolidated financial statements. Certain reclassifications within the
accompanying consolidated financial statements have been made to reflect the
effects of discontinued operations for all periods presented.

                                      -10-

<PAGE>

For year ended December 31, 2004, loss from discontinued operations includes a
$994,445 pre-tax charge to write-down the related goodwill associated with the
diagnostic imaging centers that have been closed or designated as held for sale.

During 2004, we continued our focused efforts to improve our financial position
and liquidity by restructuring and reducing our indebtedness on favorable terms.
In March 2005, we completed the restructure of seven notes payable and capital
leases. Payments were reduced to approximately interest only for a 3-12 month
period followed by a lesser reduction for the remaining term of the obligations.
Most of the obligations' remaining terms were lengthened from 1 to 2 years with
balloon payments at the end of the term. At December 31, 2004 the aggregate
amount due after restructure for each of these obligations is listed in the
following table:

                          Aggregate
Type                     Amount Due
----                   -------------
Note                   $  4,010,535
Note                      3,171,215
Note                      2,827,736
Note                      1,709,496
Note                      1,291,726
Capital Lease             2,010,241
Capital Lease               557,265
                       -------------
Total                  $ 15,578,214

INDUSTRY OVERVIEW

Diagnostic imaging services are noninvasive procedures that generate
representations of the internal anatomy and convert them to film or digital
media. Diagnostic imaging systems facilitate the early diagnosis of diseases and
disorders, often minimizing the cost and amount of care required and reducing
the need for costly and invasive diagnostic procedures. Diagnostic imaging
procedures include: magnetic resonance imaging (MRI), computed tomography (CT),
positron emission tomography (PET), nuclear medicine, ultrasound, mammography,
bone densitometry (DEXA), general radiography (X-ray) and fluoroscopy.

MAGNETIC RESONANCE IMAGING. MRI utilizes a strong magnetic field in conjunction
with low energy electromagnetic waves that are processed by a computer to
produce high-resolution, three-dimensional, cross-sectional images of body
tissue. Due to its superior image quality, MRI is the preferred imaging
technology for evaluating soft tissue and organs, including the brain, spinal
cord and other internal anatomy. With advances in MRI technology, MRI is
increasingly being used for new applications such as imaging of the heart, chest
and abdomen. Conditions that can be detected by MRI include multiple sclerosis,
tumors, strokes, infections, and injuries to the spine, joints, ligaments, and
tendons. Unlike x-rays and computed tomography, MRI does not expose patients to
potentially harmful radiation. A typical MRI examination takes from 20 to 45
minutes. During 2004 the average revenue per MRI procedure was $588. New MRI
systems are priced in the range of $900,000 to $2,000,000.

COMPUTED TOMOGRAPHY. CT utilizes a computer to direct the movement of an X-ray
tube to produce multiple cross-sectional images of a particular organ or area of
the body. CT is used to detect tumors and other conditions affecting bones and
internal organs. It is also used to detect the occurrence of strokes,
hemorrhages and infections. CT provides higher resolution images than
conventional X-rays, but generally not as well-defined as those produced by
magnetic resonance. A typical CT examination takes from 15 to 45 minutes. During
2004, the average revenue per CT procedure was $302. New CT systems are priced
in the range of $300,000 to $1,200,000.

POSITRON EMISSION TOMOGRAPHY/COMPUTED TOMOGRAPHY. PET/CT combines the technology
of both Positron Emission Tomography and Computed Tomography. PET scanning
involves the administration of a radiopharmaceutical agent with a positron
emitting isotope and the measurement of that isotope to capture the metabolic
activity of cells and create images for diagnostic purposes while CT's advanced
algorithms allow the physician to see precise patient anatomy. The fused image
provides a highly accurate profile of a disease, helping to effectively plan the
course of treatment. New PET/CT scanners are priced in the range of $1,800,000
to $2,200,000. We do not provide PET at any of our locations at this time.

ULTRASOUND. Ultrasound imaging utilizes high-frequency sound waves to develop
images of internal organs, fetuses and the vascular system. Ultrasound has
widespread applications, particularly for procedures in obstetrics, gynecology
and cardiology. New ultrasound systems are priced in the range of $90,000 to
$250,000.

MAMMOGRAPHY. Mammography is a specialized form of radiology utilizing low dosage
X-rays to visualize breast tissue and is the primary screening tool for breast
cancer. Mammography procedures and related services assist in the diagnosis and
treatment planning for breast cancer. New mammography systems are priced in the
range of $70,000 to $300,000.

BONE DENSITOMETRY. Bone densitometry uses an advanced technology called
dual-energy X-ray absorptiometry, or DEXA, which safely, accurately and
painlessly measures bone density and the mineral content of bone for the
diagnosis of osteoporosis and other bone diseases. New bone densitometry systems
are priced in the range of $40,000 to $90,000.

                                      -11-

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GENERAL RADIOGRAPHY (OR X-RAY) AND FLUOROSCOPY. X-rays utilize roentgen rays to
penetrate the body and record images of organs and structures on film.
Fluoroscopy utilizes ionizing radiation combined with a video viewing system for
real time monitoring of organs. X-ray and fluoroscopy are the most frequently
used imaging modalities. Digital X-ray systems add computer image processing
capability to traditional X-ray images. New X-ray systems are priced in the
range of $50,000 to $250,000.

While general X-ray remains the most commonly performed diagnostic imaging
procedure, the fastest growing and higher margin procedures are MRI, CT and PET.
The number of MRI and CT scans continues to grow due to their wider acceptance
by physicians and payors, an increasing number of applications for their use and
a general increase in demand due to the aging population in the United States.

IMV, a provider of database and market information products and services to the
analytical, clinical diagnostic, biotechnology, life science and medical imaging
industries, estimates that over 21.9 million MRI procedures and 45.4 million CT
procedures were conducted in the United States in 2002, representing a 22% and
15% increase over the 2001 volume of MRI and CT procedures, respectively. IMV
indicates that the number of MRI procedures in the United States has increased
at a rate of 12% per year since 1998. This data is particularly relevant to us,
given that revenue from MRI and CT scans constituted approximately 91% of our
net revenue for the year ended December 31, 2004.

INDUSTRY TRENDS

Industry analysts are projecting the MRI and CT markets' growth over the next 5
years will exceed 15% each year according to Frost & Sullivan as cited by
Advance Imaging & Oncology Administrators Newsmagazine, 2003. We believe the
major reasons for this continued growth include the following:

THE ESCALATING DEMAND FOR HEALTHCARE SERVICES FROM AN AGING POPULATION. Persons
over the age of 65 comprise one of the fastest growing segments of the
population in the United States. According to the United States Census Bureau,
this group is expected to increase as much as 14% from 2000 to 2010. Because
diagnostic imaging use tends to increase as a person ages, we believe the aging
population will generate more demand for diagnostic imaging procedures.

THE INCREASING ROLE OF DIAGNOSTIC IMAGING IN HEALTHCARE. Advanced imaging
equipment and modalities are allowing physicians to diagnose a wide variety of
diseases and injuries quickly and accurately without exploratory surgery or
other surgical or invasive procedures, which are usually more expensive, involve
greater risk to patients and result in longer rehabilitation time. We believe
that future technological advances will continue to enhance the ability of
radiologists to diagnose and influence treatment. For example, MRI techniques,
such as magnetic resonance spectroscopic imaging, are used to show the functions
of the brain and to investigate how epilepsy, AIDS, brain tumors, Alzheimer's
disease and other abnormalities affect the brain. In addition, advanced imaging
systems are gaining wider acceptance among payors, as they are increasingly seen
and accepted as a tool for reducing long-term healthcare costs.

GREATER CONSUMER AWARENESS OF AND DEMAND FOR PREVENTIVE DIAGNOSTIC SCREENING.
Diagnostic imaging is increasingly being used as a screening tool for preventive
care. Consumer awareness of and demand for diagnostic imaging as a less-invasive
and preventive screening method has added to the growth in diagnostic imaging
procedures. Consumers are now more aware of the advanced procedures that are
available to them and are requesting them as preventive procedures from their
physicians and healthcare providers. We believe that, with increased
technological advancements, there will be greater consumer awareness of and
demand for diagnostic imaging procedures as preventive and less-invasive
procedures for early diagnosis of diseases and disorders.

AN INCREASED NUMBER OF HIGH-END PROCEDURES THAT UTILIZE ADVANCEMENTS IN
TECHNOLOGY. Recent technological advancements include: magnetic resonance
spectroscopic imaging, which can differentiate malignant from benign lesions;
magnetic resonance angiography, which can produce three-dimensional images of
body parts and assess the status of blood vessels; and enhancements in
teleradiology systems, which permit the digital transmission of radiological
images from one location to another for interpretation. Additional improvements
in imaging technologies, contrast agents and scanning capabilities are leading
to new, less invasive methods of diagnosing diseases. For example, these
improvements are aiding in detecting blockages in the heart's vital arteries,
liver metastases, pelvic diseases and certain vascular abnormalities without
exploratory surgery. We do not currently offer magnetic resonance spectroscopic
imaging but do have MRI systems at all of our centers and teleradilogy systems
at 11 of our centers.

                                      -12-

<PAGE>

We believe that the use of the diagnostic capabilities of MRI and other imaging
services will continue to increase because they are cost-effective,
time-efficient and non-invasive, as compared to alternative procedures,
including surgery, and that newer technologies and future technological
advancements will continue the increased use of imaging services. In addition,
we believe the growing popularity of elective full-body scans will further
increase the use of imaging services. At the same time, we believe the industry
has increasingly used upgrades to existing equipment to expand applications,
extend the useful life of existing equipment, improve image quality, reduce
image acquisition time and increase the volume of scans that can be performed.
We believe this trend toward equipment upgrades rather than equipment
replacements will continue, as we do not foresee new imaging technologies on the
horizon that will displace MRI or CT as the principal advanced diagnostic
imaging modalities.

IMAGING SETTINGS

MRI, CT, and other imaging services are typically provided in one of the
following settings:

o HOSPITALS AND CLINICS. Imaging systems are located in and owned and operated
by a hospital or clinic. These systems are primarily used by patients of the
hospital or clinic, and the hospital or clinic bills third-party payors, such as
health insurers, Medicare or Medicaid.

o FIXED-SITE, FREESTANDING OUTPATIENT DIAGNOSTIC FACILITIES. These facilities
range from single-modality to multimodality facilities and are not generally
owned by hospitals or clinics. These facilities depend upon physician referrals
for their patients and generally do not maintain dedicated, contractual
relationships with hospitals or clinics. In fact, these facilities may compete
with hospitals or clinics that have their own imaging systems to provide
services to these patients. These facilities bill third-party payors, such as
managed care organizations, insurance companies, Medicare or other governmental
agencies. All of our facilities are in this category.

o OUTSOURCED. Imaging systems, largely located in mobile trailers but also
provided in fixed facilities, provide services to a hospital or clinic on a
shared-service or full-time basis. Generally, the hospital or clinic contracts
with the imaging service provider to perform scans of its patients, and the
imaging service provider is paid directly by that hospital or clinic instead of
by a third-party payor.

Of the approximately 22 million MRI scans in 2002, 40% were performed by
non-hospital imaging sites per, IMV, Medical Information Division, dated October
10, 2003. In 2004, 60% of the business is composed of outpatient diagnostic
imaging while the remainder is hospital-based imaging according to industry
analysts. We believe there is a continuing trend towards the movement out of
hospitals and into freestanding, outpatient centers.

COMPETITIVE STRENGTHS

ADVANTAGES OF LOCAL NETWORKS WITH EXPANDED GEOGRAPHIC COVERAGE. The organization
of our diagnostic imaging facilities into networks around major population
centers offers unique benefits to our patients, our referring physicians, our
payors and us.

-     We are able to increase the convenience of our services to patients by
      implementing scheduling systems within geographic regions, where
      practical. For example, many of our diagnostic imaging facilities within a
      particular region can access the patient appointment calendars of other
      facilities within the same regional network to efficiently allocate time
      available and to meet a patient's appointment, date, time or location
      preferences.

-     We have found that many third-party payors representing large groups of
      patients often prefer to enter into managed care contracts with providers
      that offer a broad array of diagnostic imaging services at convenient
      locations throughout a geographic area. We believe that our network
      approach and our utilization management system make us an attractive
      candidate for selection as a preferred provider for these third-party
      payors.

                                      -13-

<PAGE>

-     The grouping of our facilities within local networks enables us to easily
      move technologists and other personnel, as well as equipment, from
      under-utilized to over-utilized facilities on an as-needed basis. This
      results in operating efficiencies and better equipment utilization rates
      and improved response time for our patients.

We depend on referrals of patients from physicians and other third parties who
have no contractual obligations to refer patients to us for a substantial
portion of the services we perform. A significant reduction in referrals would
have a negative impact on our local network strategy and therefore may reduce
our scan volume thus reducing our revenue.


COMPREHENSIVE DIAGNOSTIC IMAGING SERVICES. At each of our multi-modality
facilities, we offer patients and referring physicians one location to serve
their needs for multiple procedures. Furthermore, we have complemented our
multi-modality sites with single-modality sites to accommodate overflow and to
provide a full range of services within a local area consistent with demand.
This can help patients avoid multiple visits or lengthy journeys between
facilities, thereby decreasing costs and time delays.

The development of new technologies or refinements of existing systems may
require us to upgrade and enhance our existing equipment before we may otherwise
intend. In that event, we may be unable to deliver our services in the efficient
and effective manner which payors, physicians and patients expect and thus our
revenue could substantially decrease.


DIVERSIFIED PAYOR MIX AND MULTI-MODALITY SERVICE OFFERINGS. Our revenue base
comprises a diverse mix of payors, including managed care organizations,
traditional indemnity providers, Medicare and other payors. For the year ended
December 31, 2004, revenue generated at our diagnostic imaging centers consisted
of 45% from commercial third-party payors, 25% from contracts with physican
groups, 25% from Medicare and other governmental agencies, and 5% from other
payors. In addition, we have experienced relatively stable pricing, with modest
increases in most markets and across most modalities. We believe our payor
diversity and multi-modality service offerings mitigate our exposure to possible
unfavorable reimbursement trends within any one payor class and to
modality-specific rate changes. The development and expansion of health
maintenance organizations, preferred provider organizations and other managed
care organizations within the geographic areas covered by our network could have
a negative impact on the utilization and pricing of our services, because these
organizations will exert greater control over patients' access to diagnostic
imaging services, the selections of the provider of such services and
reimbursement rates for those services. This could negatively impact our
diversified payor mix and resulting in an adverse effect on our business
overall.

STRONG RELATIONSHIPS WITH LEADING RADIOLOGY PRACTICES. In each of our regional
network markets, we contract with leading radiology practices to provide
professional radiology services in connection with our diagnostic imaging
centers. We believe that our affiliation with these leading radiology practices
enhances our reputation with referring physicians and their patients. In light
of an ongoing shortage of radiologists, we believe that our contractual
relationships with large, established radiology practices are important to
maintaining our high quality service. Competition for these services and the
loss of these contracts with established radiology practices could prevent us
from maintaining or increasing our current scan volume and could cause an
increase in fees paid to radiologists. Both of these circumstances would
adversely affect our business.

EXPERIENCED AND COMMITTED MANAGEMENT TEAM. We have an experienced executive
management team. Our management team has created our differentiated approach
based on their comprehensive understanding of the diagnostic imaging industry
and a disciplined expansion strategy. The loss of their services or our
inability in the future to attract and retain management and other key personnel
could hinder the implementation of our business strategy which could have an
adverse affect on our business.

BUSINESS STRATEGY

We intend to enhance our operations and increase scan volume and revenue at our
existing facilities by:

         o        expanding within existing markets,
         o        expanding into new regional markets,
         o        updating software
         o        improving operating efficiencies within the existing imaging
                  centers,
         o        providing outstanding service to referring physicians and
                  patients,
         o        maximizing radiologist and technologist expertise and
                  proficiency, o utilizing state-of-the-art diagnostic imaging
                  equipment,
         o        employing and invest in qualified management, and
         o        expediting the collection of cash.

                                    -14-
<PAGE>


While we are focused on becoming profitable on our current operations, we plan
to seek, evaluate and, if such evaluation warrants, to acquire controlling
interests in business opportunities that are similar in nature to our existing
medical diagnostic imaging centers. We plan to concentrate our search for
opportunities located in the regions in which our existing diagnostic centers
are located. We may seek a business opportunity in the form of centers which
have recently commenced operations or are mature businesses.

In seeking business opportunities, we will base our decision upon the objective
of seeking long-term appreciation in market value of our common stock. We will
attempt to analyze all relevant factors and make a determination based upon
reasonable investigative measures and available data.

Our ability to obtain additional sources of financing cannot be assured. Our
growth is dependent upon our ability to obtain additional funding to expand our
existing operations and acquire other diagnostic centers.


OPERATION OF CENTERS

At December 31, 2004, we operated 14 diagnostic imaging centers located in 5
states. We utilize sophisticated technology and technical expertise to perform a
broad range of imaging procedures such as MRI, CT, ultrasound, mammography, DEXA
and X-ray. As part of operating our diagnostic imaging centers, we purchase and
maintain diagnostic imaging equipment, hire and train employees, schedule
patient appointments, perform patient procedures, process bills, keep records
and obtain and maintain permits, licenses and insurance.

Our facilities provide standardized services, regardless of location, to ensure
patients, physicians and payors consistency in service and quality. We monitor
our level of service, including patient satisfaction, timeliness of services to
patients and reports to physicians.

The key features of our services include:

         o        Patient-friendly, non-clinical environments,
         o        A 24-hour turnaround on routine examinations,
         o        Flexible patient scheduling, including same-day appointments,
         o        Extended operating hours, including weekends,
         o        Reports delivered via courier, fax or email, and
         o        Standardized fee schedules by region.

Managed care organizations, insurers and other entities often represent large
groups of patients who are dispersed throughout a wide geographic area. These
entities influence referring physicians' decisions by entering into provider
agreements with, or otherwise selecting or approving, healthcare service
providers, including diagnostic imaging service providers. Our experience is
that entities representing large groups of patients often prefer to enter into
managed care contracts with providers who offer a broad array of diagnostic
imaging services throughout a corresponding geographic area. We have developed
our diagnostic imaging networks, in part, to be selected as a preferred provider
for these entities more frequently, which may increase physician referrals to
our centers.

We focus on providing quality patient care and service to ensure patient and
referring physician satisfaction. Our development of comprehensive radiology
networks permits us to invest in technologically advanced imaging equipment,
including MRI, open MRI and spiral CT. Our consolidation of diagnostic imaging
centers into coordinated networks improves response time, increases overall
patient accessibility, permits us to standardize certain customer relations
procedures and permits us to tailor our services to the needs of the patient,
physician and local health care markets. By focusing on further improving and,
where appropriate, standardizing the operations of our diagnostic imaging
centers, we believe that we can increase patient and referring physician
satisfaction, which should lead to increased referrals and increased utilization
of our diagnostic imaging centers.

We contract with radiology practices to provide professional services, including
supervision and interpretation of diagnostic imaging procedures performed in our
diagnostic imaging centers. We believe that we do not engage in the practice of
medicine nor do we employ physicians. The radiology practices maintain full
control over the provision of professional radiological services. The contracted
radiology practices generally have outstanding physician and practice
credentials and reputations; strong competitive market positions; a broad
sub-specialty mix of physicians; a history of growth and potential for continued
growth; and a willingness to embrace our strategy for the delivery of diagnostic
imaging services.

Payment for diagnostic imaging services comes primarily from commercial
third-party payors, governmental payors (including Medicare), private payors and
others. Our centers are principally dependent on our ability to attract
referrals from primary care physicians, specialists and other healthcare
providers. The referral often depends on the existence of a contractual
arrangement with the referred patient's health benefit plan. For the year ended
December 31, 2004, approximately only 1% of our revenue generated at our
diagnostic imaging centers was generated from capitated arrangements. The
following table illustrates our approximate payor mix, based on revenue
generated at our diagnostic imaging centers, for the years ended December 31,
2004 and 2003:

                                      -15-



<PAGE>

         Percentage of Total Net Revenue

         Payor                                             2004       2003
         ---------------------------------------           ----       ----
         Commercial insurance                               28%        29%
         Special group contract                             25%        24%
         Managed Care                                       16%        16%
         Medicare and other governmental programs           16%        15%
         Workers compensation                                9%        10%
         Other                                               6%         6%


DIAGNOSTIC IMAGING CENTERS

At December 31, 2004, we owned and operated 14 freestanding diagnostic imaging
centers in five states. We lease the premises at which these facilities are
located. Of our 14 centers, 4 centers offer multiple modalities of diagnostic
imaging services. Consistent with our local network strategy, we locate our
single-modality facilities near multi-modality facilities, to help accommodate
overflow in targeted demographic areas.

Information related to these diagnostic imaging centers is set forth below:

CURRENT CENTERS INFORMATION & METRICS:

<TABLE>
<S> <C>
                        YEAR
                      ACQUIRED                              NUMBER OF                            2004 MRI     2004 CT
LOCATION              OR OPENED    EQUIPMENT                EMPLOYEES      PAYOR MIX               SCANS       SCANS
--------              ---------    ---------                ----------     ----------            ---------    -------
California
----------
Laguna Niguel           2001       MRI: Siemens Symphony 1.5     9      Managed Care, Medicare     3,855
Long Beach Medical      2002       MRI: GE Signa                17      Contract, Managed Care,    4,101
                                   CT:  GE CTI                          Medicare                               1,747
Long Beach Wide Open    2001       MRI: GE Profile               7      Contract, Managed Care,    3,390
                                                                        Medicare
Santa Barbara           2003       MRI: Hitachi Airis II         3      Commercial Insurance,      1,201
                                                                        Medicare

Florida*
--------
Mandarin*               2002       MRI: Hitachi Airis II        14      Managed Care, Medicare     1,373
                                   CT:  GE CTI                                                                 1,297
Orlando                 1998       MRI: GE Profile               8      Auto Ins., Commercial,     1,381
                                                                        Managed Care
Kissimmee               2002       MRI: GE Profile               7      Auto Ins., Commercial,     1,107
                                   CT: GE CTI                           Managed Care                             915

Illinois
--------
Oak Brook              1999        MRI: Hitachi 7000            10      Managed Care, Medicare     2,727
                                   CT:  GE CTI                                                                   937
Carol Stream           2002        MRI: Phillips 1.5             7      Managed Care, Medicare     1,162
                                   CT:  GE Pro Speed                                                             223
Woodridge              2002        MRI: Hitachi Airis II         5      Managed Care, Medicare     1,546

Ohio
----
Perrysburg             2001        MRI: Hitachi Airis II        12      Managed Care, Medicare     3,160
Sylvania               1998        MRI: Hitachi 7000             9      Managed Care, Medicare,    2,042
                                                                        Worker's Comp.
Oregon
------
Coos Bay               2002        MRI: Hitachi Airis II        21      Managed Care, Medicare     1,764
                                   CT: GE CTI                                                                  1,053

</TABLE>

* During the fourth quarter of 2004, management elected to hold for sale the
centers in Jacksonville and Orange Park, Florida. In March 2005, the Orange Park
center was sold. Therefore, this center is not included in the above table. See
Note 16 to our consolidated financial statements.


                                      -16-



<PAGE>

DIAGNOSTIC IMAGING EQUIPMENT

At December 31, 2004 we operated 35 diagnostic imaging units in 14 centers.
These include 14 fixed MRI units, 6 CT units, 6 x-ray units, 4 ultrasound units,
4 mammography units, and 1 DEXA unit. The average age of our MRI units is 4.6
years and CT units 4.0 years.

SALES AND MARKETING

As of December 31, 2004, we also had 13 marketing representatives who are
focused on increasing the number of scans performed with our systems by
educating physicians about our new imaging applications and service capabilities
and who identify and contact potential clients. The marketing representatives
are located at each center and are under local management. Furthermore, certain
of our executive officers also spend a portion of their time participating in
contract negotiations.

COMPETITION

The market for diagnostic imaging is highly competitive. We compete principally
on the basis of our reputation and our ability to provide competitive services
at our facilities. We compete locally with groups of radiologists, established
hospitals, clinics and other independent organizations that own and operate
imaging equipment. Our major national competitors include Radiologix, Inc.,
Alliance Imaging, Inc., Healthsouth Corporation and Insight Health Services.
Some of our competitors may now or in the future have access to greater
financial resources than we do and may have access to newer, more advanced
equipment.

In addition, in the past some non-radiologist physician practices have refrained
from establishing their own diagnostic imaging facilities because of the federal
physician self-referral legislation. Final regulations issued in January 2001
clarify exceptions to the physician self-referral legislation, which created
opportunities for some physician practices to establish their own diagnostic
imaging facilities within their group practices and to compete with us. In the
future, we could experience significant competition as a result of those final
regulations.

CORPORATE LIABILITY AND INSURANCE

We may be subject to professional liability claims including, without
limitation, for improper use or malfunction of our diagnostic imaging equipment.
We maintain insurance policies with coverage that we believe is appropriate in
light of the risks attendant to our business and consistent with industry
practice. We also require the contracted radiology practices to maintain
sufficient professional liability insurance consistent with industry practice.
However, adequate liability insurance may not be available to us and the
contracted radiology practices in the future at acceptable costs or at all.

Providing medical services entails the risk of professional malpractice and
other similar claims. The physicians employed by the contracted radiology
practices are from time to time subject to malpractice claims. We structure our
relationships with the practices under our agreements with them in a manner that
we believe does not constitute the practice of medicine by us or subject us to
professional malpractice claims for acts or omissions of physicians in the
contracted radiology practices. Nevertheless, claims, suits or complaints
relating to services provided by the contracted radiology practices may be
asserted against us in the future, including malpractice.

Any claim made against us not fully covered by insurance could be costly to
defend against, result in a substantial damage award against us and divert the
attention of our management from our operations, which could have an adverse
effect on our financial performance. In addition, claims might adversely affect
our business or reputation.

The contracted radiology practices maintain professional liability insurance
coverage primarily on a claims made basis. This insurance provides coverage for
claims asserted when the policy is in effect, regardless of when the events that
caused the claim occurred. The contracted radiology practices are required by
the terms of the service agreements to maintain medical malpractice liability
insurance consistent with minimum limits mandated by applicable state law.

We maintain general liability and umbrella coverage in commercially reasonable
amounts. Additionally, we maintain workers' compensation insurance on all
employees. Coverage is placed on a statutory basis and responds to each state's
specific requirements.

                                      -17-



<PAGE>

We have assumed and succeeded to substantially all of the obligations of the
operations that we have acquired. Therefore, claims may be asserted against us
for events that occurred prior to our acquiring these acquisitions. The sellers
of the operations that we have acquired have agreed to indemnify us for certain
claims. However, we may not be able to collect payment under these indemnity
agreements which could affect us adversely.


EMPLOYEES

As of December 31, 2004, we employed six full-time and one part-time employees
at our headquarters and 101 full-time and 28 part-time employees at our fourteen
diagnostic imaging centers. None of our employees are covered by collective
bargaining contracts. We believe that our relationship with our employees is
good.


GOVERNMENT REGULATION AND SUPERVISION

GENERAL. The healthcare industry is highly regulated, and we can give no
assurance that the regulatory environment in which we operate will not change
significantly in the future. Our ability to operate profitably will depend in
part upon us, the contracted radiology practices and their affiliated physicians
obtaining and maintaining all necessary licenses, certificates of need and other
approvals and operating in compliance with applicable healthcare regulations. We
believe that healthcare regulations will continue to change. Therefore, we
monitor developments in healthcare law and modify our operations from time to
time as the business and regulatory environment changes. Although we intend to
continue to operate in compliance, we cannot ensure that we will be able to
adequately modify our operations to address changes in the regulatory
environment.

Although we believe that we are operating in compliance with applicable federal
and state laws and have not had any instances of noncompliance in the last two
years, neither our current or anticipated business operations nor the operations
of the contracted radiology practices have been the subject of judicial or
regulatory interpretation. We cannot assure you that a review of our business by
courts or regulatory authorities will not result in a determination that could
adversely affect our operations or that the healthcare regulatory environment
will not change in a way that restricts our operations.


LICENSING AND CERTIFICATION LAWS. Ownership, construction, operation, expansion
and acquisition of diagnostic imaging centers are subject to various federal and
state laws, regulations and approvals concerning licensing of centers,
personnel, certificates of need and other required certificates for certain
types of healthcare centers and major medical equipment. Freestanding diagnostic
imaging centers that provide services not performed as part of a physician
office must meet Medicare requirements to be certified as an independent
diagnostic testing facility to bill the Medicare program. We may not be able to
receive the required regulatory approvals for any future acquisitions,
expansions or replacements, and the failure to obtain these approvals could
limit the market for our services.

CORPORATE PRACTICE OF MEDICINE. The laws of many states prohibit us from
exercising control over the medical judgments or decisions of physicians and
from engaging in certain financial arrangements, such as splitting professional
fees with physicians. These laws and their interpretations vary from state to
state and are enforced by state courts and regulatory authorities, each with
broad discretion. A component of our business has been to enter into service
agreements with radiology practices. We structure our relationships with the
radiology practices in a manner that we believe keeps us from engaging in the
practice of medicine or exercising control over the medical judgments or
decisions of the radiology practices or their physicians or violating the
prohibitions against fee-splitting. State regulatory authorities or other
parties may assert that we are engaged in the corporate practice of medicine. If
such a claim were successfully asserted, we could be subject to civil and
criminal penalties and could be required to restructure or terminate the
applicable contractual arrangements. This result or our inability to
successfully restructure our relationships to comply with these statutes could
jeopardize our business strategy.

MEDICARE AND MEDICAID REIMBURSEMENT FRAUD AND ABUSE. Our revenue is derived
through our ownership, operation and management of diagnostic imaging centers.
During the year ended December 31, 2004, approximately 16% of our revenue
generated at our diagnostic imaging centers was derived from Medicare and other
government sponsored healthcare programs.

                                      -18-

<PAGE>

Federal law prohibits the knowing and willful offer, payment, solicitation or
receipt of any form of remuneration in return for, or to induce, (i) the
referral of a person, (ii) the furnishing or arranging for the furnishing of
items or services reimbursable under the Medicare, Medicaid or other
governmental programs or (iii) the purchase, lease or order or arranging or
recommending purchasing, leasing or ordering of any item or service reimbursable
under the Medicare, Medicaid or other governmental programs. Enforcement of this
anti-kickback law is a high priority for the federal government, which has
substantially increased enforcement resources and is likely to continue
increasing such resources. The applicability of the anti-kickback law to many
business transactions in the healthcare industry has not yet been subject to
judicial or regulatory interpretation. Noncompliance with the federal
anti-kickback legislation can result in exclusion from the Medicare, Medicaid or
other governmental programs and civil and criminal penalties.

We receive fees under our service agreements for management and administrative
services, which include contract negotiation and marketing services. We do not
believe we are in a position to make or influence referrals of patients or
services reimbursed under Medicare, Medicaid or other governmental programs to
radiology practices or their affiliated physicians or to receive referrals.
However, we may be considered to be in a position to arrange for items or
services reimbursable under a federal healthcare program. Because the provisions
of the federal anti-kickback statute are broadly worded and have been broadly
interpreted by federal courts, the government could take the position that our
arrangements with the contracted radiology practices implicate the federal
anti-kickback statute. Violation of the law can result in monetary fines, civil
and criminal penalties, and exclusion from participation in federal or state
healthcare programs, any of which could have an adverse effect on our business
and results of operations. While our service agreements with the contracted
radiology practices will not meet a safe harbor to the federal anti-kickback
statute, failure to meet a safe harbor does not mean that agreements violate the
anti-kickback statute. We have sought to structure our agreements to be
consistent with fair market value in arms' length transactions for the nature
and amount of management and administrative services rendered. For these
reasons, we do not believe that service fees payable to us should be viewed as
remuneration for referring or influencing referrals of patients or services
covered by such programs as prohibited by statute.

Significant prohibitions against physician referrals have been enacted by
Congress. These prohibitions are commonly known as the Stark Law. The Stark Law
prohibits a physician from referring Medicare or Medicaid patients to an entity
providing designated health services, including, without limitation, radiology
services, in which the physician has an ownership or investment interest or with
which the physician has entered into a compensation arrangement. The penalties
for violating the Stark Law include a prohibition on payment by these
governmental programs and civil penalties of as much as $15,000 for each
violative referral and $100,000 for participation in a circumvention scheme. We
believe that, although we receive fees under our service agreements for
management and administrative services, we are not in a position to make or
influence referrals of patients.

On January 4, 2001, the Centers for Medicare and Medicaid Services published
final regulations to implement the Stark Law. Under the final regulations,
radiology and certain other imaging services and radiation therapy services and
supplies are services included in the designated health services subject to the
self-referral prohibition. Under the final regulations, such services include
the professional and technical components of any diagnostic test or procedure
using X-rays, ultrasound or other imaging services, CT, MRI, radiation therapy
and diagnostic mammography services (but not screening mammography services).
The final regulations, however, exclude from designated health services: (i)
X-ray, fluoroscopy or ultrasound procedures that require the insertion of a
needle, catheter, tube or probe through the skin or into a body orifice; (ii)
radiology procedures that are integral to the performance of, and performed
during, non-radiological medical procedures; (iii) nuclear medicine procedures;
and (iv) invasive or interventional radiology, because the radiology services in
these procedures are merely incidental or secondary to another procedure that
the physician has ordered.

                                      -19-

<PAGE>

The Stark Law provides that a request by a radiologist for diagnostic radiology
services or a request by a radiation oncologist for radiation therapy, if such
services are furnished by or under the supervision of the radiologist or
radiation oncologist pursuant to a consultation requested by another physician,
does not constitute a referral by a referring physician. If these requirements
are met, the Stark Law self-referral prohibition would not apply to such
services. The effect of the Stark Law on the radiology practices, therefore,
depends on the precise scope of services furnished by each such practice's
radiologists and whether such services derive from consultations or are
self-generated. We believe that, other than self-referred patients, all of the
services covered by the Stark Law provided by the contracted radiology practices
derive from requests for consultations by non-affiliated physicians. Therefore,
we believe that the Stark Law is not implicated by the financial relationships
between us and the contracted radiology practices.

In addition, we believe that we have structured our acquisitions of the assets
of existing practices, and we intend to structure any future acquisitions, to
not violate the anti-kickback and Stark Law and regulations. Specifically, we
believe the consideration paid by us to physicians to acquire the tangible and
intangible assets associated with their practices is consistent with fair market
value in arms' length transactions and is not intended to induce the referral of
patients. Should any such practice be deemed to constitute an arrangement
designed to induce the referral of Medicare or Medicaid patients, then our
acquisitions could be viewed as possibly violating anti-kickback and
self-referral laws and regulations. A determination of liability under any such
laws could have an adverse effect on our business, financial condition and
results of operations.

The federal government routinely performs audits of all Medicare carriers, which
are the companies that adjudicate and pay Medicare claims. These audits are
expected to intensify governmental scrutiny of individual providers. An
unsatisfactory audit of any of our diagnostic imaging facilities or contracted
radiology practices could result in any significant repayment obligations,
exclusion from the Medicare, Medicaid or other governmental programs, and/or
civil and criminal penalties.

Federal regulatory and law enforcement authorities have increased enforcement
activities with respect to Medicare and Medicaid fraud and abuse regulations and
other reimbursement laws and rules, including laws and regulations that govern
our activities and the activities of the contracted radiology practices. Our or
the radiology practices' activities may be investigated, claims may be made
against us or the radiology practices and these increased enforcement activities
may directly or indirectly have an adverse effect on our business, financial
condition and results of operations.

STATE ANTI-KICKBACK AND PHYSICIAN SELF-REFERRAL LAWS. All of the states in which
our diagnostic imaging centers are located have adopted a form of anti-kickback
law and almost all of those states have also adopted a form of Stark Law. The
scope of these laws and the interpretations of them vary from state to state and
are enforced by state courts and regulatory authorities, each with broad
discretion. Generally, state laws cover all referrals by all healthcare
providers for all healthcare services. A determination of liability under these
laws could result in fines and penalties and restrictions on our ability to
operate in these jurisdictions.

FEDERAL FALSE CLAIMS ACT. The Federal False Claims Act provides, in part, that
the federal government may bring a lawsuit against any person whom it believes
has knowingly presented, or caused to be presented, a false or fraudulent
request for payment from the federal government, or who has made a false
statement or used a false record to get a claim approved. The Federal False
Claims Act further provides that a lawsuit thereunder may be initiated in the
name of the United States by an individual who is an original source of the
allegations. The government has taken the position that claims presented in
violation of the federal anti-kickback law or Stark Law may be considered a
violation of the Federal False Claims Act. Penalties include civil penalties of
not less than $5,500 and not more than $11,000 for each false claim, plus three
times the amount of damages that the federal government sustained because of the
act of that person. We believe that we are in compliance with the rules and
regulations that apply to the Federal False Claims Act. However, we could be
found to have violated certain rules and regulations resulting in sanctions
under the Federal False Claims Act, and if we are so found in violation, any
sanctions imposed could result in fines and penalties and restrictions on and
exclusion from participation in federal and state healthcare programs that are
integral to our business.

                                      -20-

<PAGE>

HEALTHCARE REFORM INITIATIVES. Healthcare laws and regulations may change
significantly in the future. We continuously monitor these developments and
modify our operations from time to time as the regulatory environment changes.
We cannot assure you, however, that we will be able to adapt our operations to
address new regulations or that new regulations will not adversely affect our
business. In addition, although we believe that we are operating in compliance
with applicable federal and state laws, neither our current or anticipated
business operations nor the operations of the contracted radiology practices has
been the subject of judicial or regulatory interpretation. We cannot assure you
that a review of our business by courts or regulatory authorities will not
result in a determination that could adversely affect our operations or that the
healthcare regulatory environment will not change in a way that restricts our
operations.

HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT OF 1996. In an effort to
combat healthcare fraud, Congress enacted the Health Insurance Portability and
Accountability Act of 1996 ("HIPAA"). HIPAA, among other things, amends existing
crimes and criminal penalties for Medicare fraud and enacts new federal
healthcare fraud crimes, including actions affecting non-government payors Under
HIPAA, a healthcare benefit program includes any private plan or contract
affecting interstate commerce under which any medical benefit, item or services
is provided. A person or entity that knowingly and willfully obtains the money
or property of any healthcare benefit program by means of false or fraudulent
representations in connection with the delivery of healthcare services is
subject to a fine and/or imprisonment. In addition, HIPAA authorizes the
imposition of civil money penalties against entities that employ or enter into
contracts with excluded Medicare or Medicaid program participants if such
entities provide services to federal health program beneficiaries. A finding of
liability under HIPAA could have a material adverse effect on our business,
financial condition and results of operations.

Further, HIPAA requires healthcare providers and their business associates to
maintain the privacy and security of individually identifiable health
information. HIPAA imposes federal standards for electronic transactions with
health plans, the security of electronic health information and for protecting
the privacy of individually identifiable health information. Organizations such
as ours were obligated to be compliant with the initial HIPAA regulations by
April 14, 2003, and with the electronic data interchange mandates by October 16,
2003. The final security regulations were issued in February 2003 with a
compliance date of April 2005. We believe that we are in compliance with the
current requirements, but we anticipate that we may encounter certain costs
associated with future compliance. A finding of liability under HIPAA's privacy
or security provisions may also result in criminal and civil penalties, and
could have a material adverse effect on our business, financial condition, and
results of operations.

Although our electronic systems are HIPAA compatible, consistent with the HIPAA
regulations, we cannot guarantee the enforcement agencies or courts will not
make interpretations of the HIPAA standards that are inconsistent with ours. A
finding of liability under the HIPAA standards may result in criminal and civil
penalties. Noncompliance also may result in exclusion from participation in
government programs, including Medicare and Medicaid. These actions could have a
material adverse effect on our business, financial condition, and results of
operations.

Many states recently have adopted statutes and regulations that are similar to
the HIPAA privacy standards. In some cases these restrictions are difficult to
harmonize with the federal regulations.

COMPLIANCE PROGRAM. We have voluntarily implemented a program to monitor
compliance with federal and state laws and regulations applicable to healthcare
entities. Our President and Chief Operating Officer has been appointed as our
compliance officer and is charged with implementing and supervising our
compliance program, which includes the adoption of (i) "Code of Conduct" for our
employees and affiliates and (ii) a process that specifies how employees,
affiliates and others may report regulatory or ethical concerns to our
compliance officer. We believe that our compliance program meets the relevant
standards provided by the Office of Inspector General of the Department of
Health and Human Services. An important part of our compliance program consists
of conducting periodic reviews of various aspects of our operations.

                                      -21-

<PAGE>

ENVIRONMENTAL MATTERS. The facilities we operate or manage generate hazardous
and medical waste subject to federal and state requirements regarding handling
and disposal. We believe that the facilities that we operate and manage are
currently in compliance in all material respects with applicable federal, state
and local statutes and ordinances regulating the handling and disposal of such
materials. We do not believe that we will be required to expend any material
additional amounts in order to remain in compliance with these laws and
regulations or that compliance will materially affect our capital expenditures,
earnings or competitive position.

HOW TO OBTAIN OUR SEC FILINGS

We file annual, quarterly, and special reports, proxy statements, and other
information with the Securities Exchange Commission (SEC). Reports, proxy
statements and other information filed with the SEC can be inspected and copied
at the public reference facilities of the SEC at 450 Fifth Street NW,
Washington, DC 20549. Such material may also be accessed electronically by means
of the SEC's website at www.sec.gov.

Our inventor relations department can be contacted at our principal executive
office located at 9191 Towne Centre Drive, Suite 400, San Diego, California
92122. Our telephone number is 858/455-7127, and our website is www.miracor.net.


ITEM 2.  DESCRIPTION OF PROPERTY

Our corporate headquarters and executive offices are in San Diego, CA, where we
lease an office facility which expires August 31, 2005. In addition, we lease
medical office facilities in five states for our fourteen diagnostic centers.
Expiration dates on these medical office leases range from 2004 to 2011. We
believe that our current facilities will be sufficient to meet our needs for at
least the next 12 months.

We also lease or have pledged as collateral under note payable obligations all
of our MRI machines and various other medical equipment. These long-term
obligations expire on dates ranging from 2005 to 2011. See Part II, Item 7
"Notes to Consolidated Financial Statements" - Notes 5 and 7 for information
regarding our obligations under facilities leases and financing activities.

ITEM 3.  LEGAL PROCEEDINGS

From time to time we have been named as a defendant in a lawsuit. As of December
31, 2004, there were no legal proceedings to which we were a party, which could
have a material adverse effect on our business, financial condition or operating
results.


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

No matters were submitted to our shareholders during the fourth quarter.

                                      -22-



<PAGE>


                                     PART II

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

Our common stock is traded over-the-counter on the NASD Bulletin Board under the
symbol MRDG. The following table sets forth, for the periods indicated, the high
and low bid prices for the common stock, as listed on the over-the-counter NASD
Bulletin Board during 2004 and 2003.

                                                           Bid Price
                                                   High                 Low
                                                  ----------------------------
2003
----
         First Quarter                            $ 0.34              $  0.23
         Second Quarter                           $ 0.30              $  0.16
         Third Quarter                            $ 0.31              $  0.21
         Fourth Quarter                           $ 0.49              $  0.24
2004
----
         First Quarter                            $ 0.70              $  0.32
         Second Quarter                           $ 0.66              $  0.31
         Third Quarter                            $ 0.60              $  0.31
         Fourth Quarter                           $ 0.51              $  0.30

On March 15, 2005, the closing bid and asked prices of our common stock, as
listed on the over-the-counter NASD Bulletin Board, were $0.26 and $0.26 per
share, respectively.

On March 15, 2005, we had approximately 1,247 holders of record of common stock.

We have not paid any cash dividends with respect to our common stock, and it is
unlikely that we will pay any dividends on our common stock in the foreseeable
future. We are required to pay dividends on our Series A Preferred Stock at the
rate of $0.002775 per share per quarter. During the year ended December 31,
2004, we paid $16,692 in cash dividends to preferred stockholders. Otherwise,
earnings, if any, that we may realize will be retained in the business for
further development and expansion.

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

The following discussion should be read in conjunction with, and is qualified in
its entirety by, the consolidated financial statements and notes there included
in Item 7 in this Annual Report on Form 10-KSB. This item contains
forward-looking statements that involve risks and uncertainties. Actual results
may differ materially from those indicated in such forward-looking statements.
Factors that may cause such a difference include, but are not limited to, those
discussed in "Item 1: Description of the Business - Risk Factors."

FORWARD-LOOKING STATEMENTS

When used in this discussion as well as in other Items in this Annual Report on
Form 10-KSB, words such as "anticipates," expects," "intends," "plans,"
"believes," "seeks," "estimates," variations of such words, and similar
expressions are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and are subject to certain
risks, uncertainties, and assumptions that are difficult to predict; therefore,
actual results may differ materially from those expressed or forecasted in any
such forward-looking statements. Unless required by law, we undertake no
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events, or otherwise. However, readers should
carefully review the risk factors set forth in this Annual Report on Form 10-KSB
and in other reports and documents that we file from time to time with the
Securities and Exchange Commission, particularly the Quarterly Reports on Form
10-QSB and any Current Reports on Form 8-K.


OVERVIEW

We are an independent provider of medical diagnostic imaging services through
our network of company-owned and operated fixed-site, freestanding outpatient
facilities. We operate 14 wholly-owned centers, clustered in the following five
states: California, Florida, Illinois, Ohio and Oregon. We have strategically
organized our facilities into regional networks in markets which have either or
both high-density and expanding populations as well as attractive payor
diversity. We target our growth/expansion in the areas in which we currently
operate. This clustering strategy bring many benefits including lower costs,
management coverage and name recognition.

                                      -23-



<PAGE>

All of our facilities employ modern equipment and technology in modern,
patient-friendly settings. Four of our facilities are multi-modality sites,
offering various combinations of MRI, CT, mammography, ultrasound, bone
densitometry, diagnostic radiology, or X-ray and fluoroscopy. Ten of our
facilities are single-modality sites, offering MRI and in several cases x-ray
services. Consistent with our local network strategy, we locate our
single-modality facilities near multi-modality sites to obtain favorable managed
care/insurance contracts.

We derive substantially all of our revenue, directly or indirectly, from fees
charged for the diagnostic imaging services performed at our facilities. For the
year ended December 31, 2004, we derived 91% of our net revenue from MRI and CT
scans. Over the past several years, we have increased net revenue primarily
through acquisitions, expansions of existing facilities, upgrades in equipment
and development of new facilities.

The fees charged for diagnostic imaging services performed at our facilities are
paid by a diverse mix of payors, as illustrated for the years ended December 31,
2004 and 2003 by the following table:

         Percentage of Total Net Revenue

         Payor                                             2004       2003
         ---------------------------------------           ----       ----
         Commercial insurance                               28%        29%
         Special group contract                             25%        24%
         Managed Care                                       16%        16%
         Medicare and other governmental programs           16%        15%
         Workers compensation                                9%        10%
         Other                                               6%         6%

Payment for diagnostic imaging services comes primarily from commercial
third-party payors, governmental payors (including Medicare), private payors and
others. Our centers are principally dependent on our ability to attract
referrals from primary care physicians, specialists and other healthcare
providers. The referral often depends on the existence of a contractual
arrangement with the referred patient's health benefit plan. If we do not
successfully manage the utilization of our services under these agreements, we
could incur unanticipated costs not offset by additional revenue, which would
reduce our operating margins.

The principal components of our fixed operating expenses, excluding
depreciation, consist of compensation paid to technologists and other facility
employees, and expenses related to equipment rental and purchases, real estate
leases and insurance, including errors and omissions, malpractice, general
liability, workers' compensation and employee medical. The principal components
of our variable operating expenses include professional fees paid to
radiologists, expenses related to equipment maintenance, medical supplies,
marketing, business development and corporate overhead. Because a majority of
our expenses are fixed, increased revenue as a result of higher scan volumes per
system can significantly improve our margins, while lower scan volumes can
result in significantly lower margins.


SIGNIFICANT EVENTS

In January 2004, we opened a diagnostic imaging center located in Orange Park,
Florida. We financed MRI equipment and tenant improvements through a note
payable to a finance company. The agreement has a carrying amount of
approximately $1,125,000 with a monthly installment payment of $23,204 over 66
months with an interest rate of 8.06%.

In May 2004, Envision Open MRI, LLC, a subsidiary of which we owned 51%, located
in Newport Beach, California ceased operations. As the 49% partner closed its
operations and our leases for the equipment and office space were expiring,
management determined it was no longer economically feasible to continue
operating this facility. Accordingly, the assets and liabilities, as applicable,
are classified as held for sale and the related results of operations are
reported in discontinued operations in the accompanying consolidated financial
statements. Certain reclassifications within the accompanying consolidated
financial statements have been made to reflect the effects of discontinued
operations for all periods presented.

                                      -24-

<PAGE>

In July 2004, we completed a private placement of 3% Series A Convertible
Preferred Stock for a total of 3,378,376 shares, which are convertible on a
one-for-one basis into common stock, at $0.37 per share subject to certain
limitations and registrations. In addition to the preferred shares, 1,013,525
warrants were issued and are exercisable at $0.55 per share for a period of five
years from the date of issuance. The 3% Series A Convertible Preferred Stock has
preferences in the payment of dividends and upon liquidation as well as voting
and anti-dilution rights and was offered by means of a private placement under
exemptions pursuant to the Securities Act of 1933, as amended. We received
proceeds of $1,096,507, net of closing costs.

In addition, 439,189 warrants, valued at $192,850, were issued as finder fees.
These warrants are exercisable for the five year period from the date of
issuance with 337,837 of the warrants at an exercise price of $0.37 and the
remaining 101,352 warrants at a price of $0.55. During the quarter ended
December 31, 2004, $16,692 in cash dividends were paid to preferred
stockholders.

During the fourth quarter of 2004, management elected to hold for sale the
centers in Jacksonville and Orange Park, Florida. As these centers are start-up
facilities and long-term investments, management determined the length of time
for these centers to become profitable is beyond the time horizon set forth in
our strategic objectives. Accordingly, the assets and liabilities, as
applicable, are classified as held for sale and the related results of
operations are reported in discontinued operations in the accompanying
consolidated financial statements. Certain reclassifications within the
accompanying consolidated financial statements have been made to reflect the
effects of discontinued operations for all periods presented.

For year ended December 31, 2004, loss from discontinued operations includes a
$994,445 pre-tax charge to write-down the related goodwill associated with the
diagnostic imaging centers that have been closed or designated as held for sale.

During 2004, we continued our focused efforts to improve our financial position
and liquidity by restructuring and reducing our indebtedness on favorable terms.
In March 2005, we completed the restructure of seven notes payable and capital
leases. Payments were reduced to approximately interest only for a 3-12 month
period followed by a lesser reduction for the remaining term of the obligations.
Most of the obligations' remaining terms were lengthened from 1 to 2 years with
balloon payments at the end of the term.


RESULTS OF OPERATIONS

Our operations are comprised of the ownership and operation of our 14 diagnostic
imaging centers; however, we report the results of our operations on a
consolidated basis. During 2004, the impact of losses from discontinued
operations was $2,012,862 including an impairment charge to goodwill for
$994,445. Certain reclassifications in the results of operations for the year
ended December 31, 2003 have been made to reflect the effects of discontinued
operations. The impact of the loss from discontinued operations in 2003 was
$458,884.

Year ended December 31, 2004 compared to year ended December 31, 2003.

NET REVENUE

Net patient service revenue for the year ended December 31, 2004 from continuing
operations increased $1,535,847 to $18,933,062 from $17,397,215 for the year
ended December 31, 2003. This represents an increase of 8.8% and is primarily
attributed to an increase in scan volume. We experienced an increase in scan
volume due to maturing operations at our start-up centers, additional contracts
being entered into with physicians groups and a more concentrated effort to
market our imaging services in each region in which we operate. Though our
operations will continue to mature and we plan to continue our marketing efforts
and enter into yet additional contracts, there is no guarantee our scan volume
will continue to increase.

In addition to the above, our diagnostic imaging center located in Santa
Barbara, CA which opened mid-year 2003 experienced its first full year of
operations. This location provided an increase of $327,540 in net revenue to
$672,732 in 2004 from net revenue of $345,192 in 2003.

Revenue from diagnostic imaging centers is generated by providing scanning
services for the healthcare market and accounted for all of the net revenue
during the years ended December 31, 2004 and 2003.

                                      -25-



<PAGE>

OPERATING EXPENSES

Costs of services from continuing operations decreased by $4,703, a decrease of
0.05%, to $9,363,914 for the year ended December 31, 2004 from $9,368,617 for
the year ended December 31, 2003. Though revenue increased, costs of services
remained constant due to management's increased emphasis on increasing
efficiencies in spending areas, a decrease in equipment depreciation due to
assets being fully depreciated early in 2004 and our operating expense being
primarily fixed. Though we plan to continue our emphasis on reduction of
operating expenses, there is no guarantee the consistency in operating expense
will continue.

Selling, general and administrative expenses increased $508,447 to $8,286,710
for the year ended December 31, 2004 from $7,778,263 for the year ended December
31, 2003. The increase of 6.5% is partly due to increased marketing efforts
described above. The increased marketing efforts produces increased wages and
commissions paid to our marketing representatives and also an increase in
dollars spent for marketing promotions. In addition to increases marketing
expenses, we also hired consultants for various aspects of our business
operations, namely consultants focusing on increased collections and consultants
for investment banking services. Due to rising costs of salaries, we also
experienced increases in salaries and wages including health and workers
compensation insurance.

INTEREST EXPENSE

Interest expense from continuing operations decreased $31,929, or 2.1%, to
$1,505,607 for the year ended December 31, 2004 from $1,537,536 for the year
ended December 31, 2003 due to notes payable and capital lease obligations
maturing and a reduction of new obligations. We expect this trend to continue
based on our debt restructuring agreement dated March 2005.

NET LOSS

Loss from continuing operations for the year ended December 31, 2004 was
$223,169 as compared to the loss of $1,265,343 for the year ended December 31,
2003; representing an decrease in loss of 82.4% or $1,042,174. The decrease is
directly tied to our ability to increase revenue during 2004. We anticipate
being able to further increase revenues during the coming year and hope to
become profitable.

Net loss for the year ended December 31, 2004 was $2,236,031, an increase of
$511,804, or 0.30% as compared to the loss of $1,724,227 for the year ended
December 31, 2003. Basic and diluted loss per common share were $0.14 for the
year ended December 31, 2004 compared to the basic and diluted loss per common
share of $0.11 for the year ended December 31, 2003. As discussed previously,
the increase in net loss was primarily attributed to a $994,445 write-down of
goodwill due to impairment. This is a non-recurring charge which we do not
expect in the future.


LIQUIDITY AND CAPITAL RESOURCES

To date, we have funded our capital requirements for the current medical
diagnostic imaging operations from cash flows from operations and the public and
private sale of debt and equity securities as well as from the issuance of
common stock in exchange for services. Our cash position at December 31, 2004
was $436,008 as compared to $455,453 at December 31, 2003, representing a 4.3%
decrease.

For the year ended December 31, 2004, our line of credit decreased by $150,061.
During the year ended December 31, 2004, we made the following cash payments:
$993,575 of principal payments on notes payable, $22,917 of principal payments
on notes payable to related parties, $1,498,036 of principal payments on capital
lease obligations and purchased equipment of $431,098. We received proceeds of
$114,563 for disposal of equipment and incurred a loss of $125,197 from
disposing other equipment. We also received net proceeds from sale of preferred
stock of $1,096,507. In addition during the year ended December 31, 2004,
operating activities provided $1,858,465 of net cash, which included a net loss
of $2,236,031. Accounts receivable increased by $149,929; accounts payable and
accrued expenses increased by $342,110; other net assets (excluding cash)
increased by $448,205. The following items decreased net income but did not
affect cash:

                                      -26-



<PAGE>

         -        $151,935 in common stock paid for services in lieu of cash,
         -        $1,706,319 in depreciation and amortization for continued
                  operations,
         -        $474,941 in depreciation and amortization for discontinued
                  operations,
         -        &994,445 write-down of goodwill included in discontinued
                  operations, and
         -        $24,672 accrued interest on notes payable.

Changes in current assets and current liabilities resulted in a negative working
capital position of $2,472,188 at December 31, 2004 as compared to a negative
working capital of $1,650,868 at December 31, 2003. Our working capital is
negative due to our line of credit being presented as a current liability.

In June 2003, we secured financing from an investment company. The convertible
note totaled $1,250,000 with interest of 12% to be paid quarterly. The principal
amount may be prepaid at anytime and is due June 2007. After June 2006, the note
holder may convert any portion of the outstanding balance into common stock at
$0.25 per share. The noteholder was awarded warrants to purchase 400,000 shares
of common stock at an exercise price of $0.26 per share over the five year life
of the warrants. In addition, individuals who brokered the transaction were
awarded warrants to purchase 212,500 shares of common stock at an exercise price
of $0.25 per share over the five year life of the warrants. Associated with this
transaction, we recorded warrants and the related deferred interest valued at
$115,348. Deferred interest will be amortized to interest expense over the four
year life of the related convertible note. Lender and finder fees related to the
convertible note totaled $146,250.

Throughout 2004, our receivables line of credit has been serviced by a bank
which passed on our collections but which was subject to renewals on a very
short-term basis. In March 2005, the bank approved a two year renewal consisting
of a six-month commitment. After the six-month period, it would be renewed for
an additional eighteen months subject to us meeting certain covenants. The line
of credit has a capacity of $3,000,000 subject to a borrowing base which was
$2,728,027 at December 31, 2004. The interest rate is the bank's reference rate
plus 2.5% (8.1% at December 31, 2004). The outstanding balance was $2,606,822
and $2,756,883 at December 31, 2004 and 2003, respectively.

During the year ended December 31, 2004, we completed a private placement of 3%
Series A Convertible Preferred Stock for a total of 3,378,376 shares, which are
convertible on a one-for-one basis into common stock, at $0.37 per share subject
to certain limitations and registrations. In addition to the preferred shares,
1,013,525 warrants were issued and are exercisable at $0.55 per share for a
period of five years from the date of issuance. The 3% Series A Convertible
Preferred Stock has preferences in the payment of dividends and upon liquidation
as well as voting and anti-dilution rights and was offered by means of a private
placement under exemptions pursuant to the Securities Act of 1933, as amended.
We received proceeds of $1,096,507, net of closing costs. In addition, 439,189
warrants, valued at $192,850, were issued as finder fees. These warrants are
exercisable for the five year period from the date of issuance with 337,837 of
the warrants at an exercise price of $0.37 and the remaining 101,352 warrants at
a price of $0.55. During the year ended December 31, 2004, we paid $16,692 in
cash dividends to preferred stockholders.

During 2004, we continued our focused efforts to improve our financial position
and liquidity by restructuring and reducing our indebtedness on favorable terms.
In March 2005, we completed the restructure of seven notes payable and capital
leases. Payments were reduced to approximately interest only for a 3-12 month
period followed by a lesser reduction for the remaining term of the obligations.
Most of the obligations' remaining terms were lengthened from 1 to 2 years with
balloon payments at the end of the term.

The following describes our start-ups and acquisitions since January 2003:

In January 2003, we opened a start-up diagnostic imaging center located in
Jacksonville, Florida. We financed MRI equipment pledged under a capital lease
with a finance company. The agreement has a carrying amount of approximately
$950,000 with a monthly installment payment of $16,182 over 66 months. We also
financed other medical equipment totaling $451,000 with various finance
companies.

In June 2003, we opened a start-up diagnostic imaging center located in Santa
Barbara, California. We financed MRI equipment and tenant improvements through a
note payable to a finance company. The agreement has a carrying amount of
approximately $1,197,000 with a monthly installment payment of $25,537 over 66
months with an interest rate of 9.91%. In March 2005, this note was
restructured. See Note 6.

                                      -27-

<PAGE>

In January 2004, we opened a diagnostic imaging center located in Orange Park,
Florida. We financed MRI equipment and tenant improvements through a note
payable to a finance company. The agreement has a carrying amount of
approximately $1,125,000 with a monthly installment payment of $23,204 over 66
months with an interest rate of 8.06%. Subsequent to December 31, 2004, we sold
this center for $1,800,000. We netted approximately $300,000 after retiring
$1,500,000 of debt collateralized by equipment held at the facility.

In October 2003, Regional MRI of Jacksonville, Inc., one of our wholly-owned
subsidiaries, consolidated its operations from two medical diagnostic centers to
one.

PLAN OF OPERATION

SIGNIFICANT CHANGES

We do not anticipate that we will have any significant changes in our expenses
or the number of personnel we employee; however, no assurances can be given that
significant changes will not occur.

CAPITAL REQUIREMENTS

Cash requirements during the next year will be for funding growth of the
operation and expansion of our existing centers, for potential future
acquisitions of additional diagnostic imaging centers, and for repaying our
current liabilities and long-term debt. During the next 12 months, we plan to
finance our long-term operations and capital requirements with the cash flow
generated from the operations of our diagnostic imaging centers. We are seeking
to raise our line of credit from $3,000,000 to $4,000,000. However, we have no
definite agreement at this time.

Despite our recent funding, we believe that we may be required to obtain funds
to maintain our existing business and to acquire additional diagnostic centers.
No assurances can be given that any such additional funds can be obtained.

CRITICAL ACCOUNTING ESTIMATES

Our discussion and analysis of financial condition and results of operations are
based on our consolidated financial statements that were prepared in accordance
with generally accepted accounting principles, or GAAP. Management makes
estimates and assumptions when preparing financial statements. These estimates
and assumptions affect various matters, including:

- Our reported amounts of assets and liabilities in our consolidated balance
sheets at the dates of the financial statements;

- Our disclosure of contingent assets and liabilities at the dates of the
financial statements; and

- Our reported amounts of net revenue and expenses in our consolidated
statements of operations during the reporting periods.

These estimates involve judgments with respect to numerous factors that are
difficult to predict and are beyond management's control. As a result, actual
amounts could materially differ from these estimates.

The Securities and Exchange Commission, or SEC, defines critical accounting
estimates as those that are both most important to the portrayal of a company's
financial condition and results of operations and require management's most
difficult, subjective or complex judgment, often as a result of the need to make
estimates about the effect of matters that are inherently uncertain and may
change in subsequent periods. In Note 2 to our consolidated financial
statements, we discuss our significant accounting policies, including those that
do not require management to make difficult, subjective or complex judgments or
estimates. The most significant areas involving management's judgments and
estimates are described below.

                                      -28-

<PAGE>

REVENUE RECOGNITION

Revenue consists of net patient fee for service revenue. Net patient service
revenue is recognized when diagnostic imaging services are rendered. Net patient
service revenue is recorded net of contractual adjustments and other
arrangements for providing services at less than established patient billing
rates. Allowances for contractual adjustments and bad debts are provided for
accounts receivable based on estimated collection rates. We estimate contractual
allowances based on the patient mix at each diagnostic imaging facility, the
impact of contract pricing and historical collection information. We operate 14
facilities, each of which has multiple insurance contracts and a different
patient mix. The estimated contractual allowance rates for each diagnostic
imaging facility are reviewed on a monthly basis. We adjust the contractual
allowance rates, as changes to the factors discussed above become known. As
these factors change, the historical collection experience is revised
accordingly in the period known. These allowances are reviewed periodically and
adjusted based on historical payment rates. Depending on the changes made in the
contractual allowance rates, net revenue may increase or decrease. For the years
ended December 31, 2004 and 2003, there was no material change in the estimates
of prior period contractual adjustments. Should circumstances change (shift in
payor mix, decline in economic conditions or deterioration in aging of patient
receivables) our estimates of the net realizable value of accounts receivable
could be reduced by a material amount. For example, a decrease of 1% in the
collectibility rate on gross billings would impact net patient service revenue
by approximately $400,000 for the year ended December 31, 2004 and the impact on
the net realizable value of accounts receivable would have been a decrease of
approximately $150,000 at December 31, 2004. Thus, while such contractual
allowance rates have historically been within our expectations and the
provisions established, an inability to accurately estimate contractual
allowances in the future could have a material adverse impact on our operating
results and financial position.


ACCOUNTS RECEIVABLE

Substantially all of the accounts receivable are due under fee-for-service
contracts from third party payors, such as insurance companies and
government-sponsored healthcare programs or directly from patients. Services are
generally provided pursuant to contracts with healthcare providers or directly
to patients. Accounts receivable for services rendered at the diagnostic imaging
centers have been recorded at their established charges and reduced by the
estimated contractual adjustments and bad debts. Contractual adjustments result
from the differences between the rates charged for services performed and
reimbursements by government-sponsored healthcare programs and insurance
companies for such services. Receivables generally are collected within industry
norms for third-party payors. We continuously monitors collections from our
customers and maintains an allowance for bad debts based upon any specific payor
collection issues that have been identified, the historical collection
experience including each diagnostic imaging center's patient mix, industry
experiences, and the aging of patient accounts receivable balances. We either
use in-house billing or local billing companies in each region in which we
operate. Therefore, we analyze our accounts receivable and allowance for
doubtful accounts on a regional and site-by-site basis as opposed to a
company-wide basis. This allows us to be more detailed and more accurate with
our collectibility estimates. While such credit losses have historically been
within our expectations and the provisions established, an inability to
accurately estimate credit losses in the future could have a material adverse
impact on our operating results.

Our policy is to collect patient's co-payment at the time of check in before the
diagnostic imaging scan is performed. The amount of money collected from each
patient is determined through an insurance verification process. Thereafter, our
collections policies differ by region. In most regions, accounts are worked by
the billing company for up to one year and then sent to our in-house billing
prior to being sent to a collection agency. In some regions, accounts are sent
to the collection agency 180 days after we perform the diagnostic service. All
accounts are recorded at its specifically identified net collectible amount when
the service is completed. Accounts older than one year are generally written off
manually although collections are maintained. Days of sales outstanding (DSOs)
was 97 days during 2004 and 96 days during 2003.

As previously stated, in addition to our in-house billing and collecting staff,
we utilize four external billing and collecting companies. Each of the companies
provide varied reports regarding the outstanding receivables under their charge
and, therefore, consolidation of the reports is not possible. As a result, we
evaluate the estimated recoverability of our receivables on a detailed
site-by-site basis. We believe that our ability to estimate our allowance for
doubtful accounts is not materially impaired under our current system.

                                      -29-

<PAGE>

VALUATION OF GOODWILL AND LONG-LIVED ASSETS

We account for long-lived assets in accordance with the provisions of Statement
of Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long Lived Assets" ("SFAS 144"). SFAS 144 requires that long-lived
assets be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to undiscounted future net cash flows expected to be
generated by the asset. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized by the amount by which the
carrying amount of the asset exceeds the fair value of the asset. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell Potential indicators of impairment can include, but are not
limited to the following:

         o        History of operating losses or expected future losses,
         o        Significant adverse change in legal factors,
         o        Changes in the extent or manner in which the assets are used,
         o        Current expectations to dispose of the assets by sale or other
                  means, and
         o        Reductions or expected reductions of cash flow.

The value of goodwill is stated at the lower of cost or fair value. At December
31, 2004, we had $7.8 million of goodwill related to the acquiring of several
diagnostic centers. We adopted the provisions of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS
142"), as of January 1, 2002. SFAS 142 requires that goodwill and intangible
assets with indefinite useful lives no longer be amortized, but instead be
tested for impairment at least annually. Under SFAS No. 142, goodwill and other
intangible assets with an indefinite useful life are no longer amortized as
expenses of operations, but rather carried on the balance sheet as permanent
assets. We have discontinued amortization of goodwill as of January 1, 2002 for
financial reporting purposes and will comply with periodic impairment test
procedures. During the fourth quarter of 2004, based on the factors described in
Notes 3 and 4 to the consolidated financial statements, we performed a valuation
analysis in accordance with SFAS 142 and recognized a goodwill impairment charge
primarily associated with two of our centers located in the Jacksonville,
Florida area which have been classified as discontinued operations and held for
sale as of December 31, 2004. We have further completed our annual review of our
remaining reporting units and have concluded that the fair value of each
reporting unit exceeds its carrying value, indicating no goodwill impairment is
present as of December 31, 2003 and 2004. However, if our estimates or the
related assumptions change in the future, we may be required to record
impairment charges to reduce the carrying amount of goodwill or other long-lived
assets.


RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No.123 (revised 2004) "Share-Based
Payment," ("SFAS 123R"), which requires companies to begin to expense the
estimated fair value of employee stock options and similar awards. The
accounting provisions of SFAS 123R will be effective for our first quarter of
2006. We will adopt the provisions of SFAS 123R using the Black-Scholes option
pricing formula with a modified prospective application. Modified prospective
application recognizes compensation expense for outstanding awards for which the
requisite service had not been rendered as of the effective date over the
remaining service period using the compensation cost calculated for pro forma
disclosure purposes under SFAS 123. As disclosed in Note 2 had we recognized
compensation expense in accordance with the fair-value-based provisions of SFAS
123 for equity instruments, earnings would have been reduced by approximately
$0.01, per basic and diluted share for the years ended December 31, 2004 and
2003. Compensation cost for stock options for which the requisite future service
has not yet taken place will be disclosed as a pro forma expense by applying the
provisions of SFAS 123 during 2005, which is estimated to have a pro-forma
dilutive effect of approximately $0.01 per basic and diluted share. Compensation
cost for stock options vesting in periods beginning in the first quarter of
2006, and all restricted stock, will be expensed in accordance with the
provisions of SFAS 123R, which is expected to have a dilutive effect of
approximately $0.01 per basic and dilutive share for 2006.

                                      -30-

<PAGE>

ITEM 7.  FINANCIAL STATEMENTS

                                      INDEX
                                      -----
                                                                        Page No.
                                                                        --------

Independent Auditors' Report                                              F-1

Consolidated Balance Sheets as of December 31, 2004 and 2003              F-2

Consolidated Statements of Operations for the
Years Ended December 31, 2004 and 2003                                    F-3

Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 2004 and 2003                                    F-4

Consolidated Statements of Cash Flows for the
Years Ended December 31, 2004 and 2003                                    F-6

Notes to Consolidated Financial Statements                                F-7


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

None.

ITEM 8A. CONTROLS AND PROCEDURES

Within the 90 days prior to the date of this report, our Chief Executive Officer
and our Chief Financial Officer evaluated the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Rule 13a-15b
under the Securities Exchange Act of 1934. Based on their review of our
disclosure controls and procedures, they have concluded that our disclosure
controls and procedures are effective in timely alerting each of them to
material information relating to us that is required to be included in our
periodic SEC filings. Further, there were no significant changes in the internal
controls or in other factors that could significantly affect these disclosure
controls after the evaluation date and the date of this report.

                                      -31-



<PAGE>

                                    PART III

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

The directors and executive officers, on December 31, 2004, and their ages,
positions held with the Company, length of time in such positions, and term of
office are set forth below:

 Name and Age          Current Position          Director Since   Officer Since
 ------------          ----------------          --------------   -------------

 M. Lee Hulsebus       Chairman of the Board,        11/11/94         8/31/94
 Age 66                Chief Executive Officer

 Robert S. Muehlberg   President,                     3/11/99         5/14/01
 Age 51                Chief Operating Officer

 Ross S. Seibert       Chief Financial and Principal                  2/21/00
 Age 42                Accounting Officer

 Don L. Arnwine        Director                        3/6/95
 Age 72

 Stephen A McConnell   Director                       5/23/01
 Age 52


The principal occupations and positions for the past several years of each of
the our executive officers and directors are as follows:

M. Lee Hulsebus has been in the health care field since 1964. From January 1990
until he joined Miracor in August 1994, he was the President and owner of his
own health care consulting firm. From 1990 to 1992, Mr. Hulsebus also served as
President and Chief Operating Officer of Sports Support, Inc., a sports medicine
company. From 1988 until 1990, he served as Medical Group President (worldwide
operations) for Teleflex, Inc. For 22 years prior to that, Mr. Hulsebus was
employed by Becton-Dickinson & Co. and C.R. Bard, Inc., both of which are
leading companies in the health care industry. Mr. Hulsebus has served in the
capacity of President/Chief Executive Officer since 1979 for various companies.

Robert S. Muehlberg has been President and Chief Operating Officer since May
2001. Prior to joining Miracor he served as President and Chief Executive
Officer of Envision Management, Inc., a company that provided management and
consulting services to the health care industry since 1997. Mr. Muehlberg served
as Chairman and Chief Executive Officer from 1994 until 1997 of Medical Imaging
Centers of America, Inc. (MICA), a company he joined in 1985. Prior to joining
MICA, Mr. Muehlberg held various management positions at International Imaging,
Inc., Chicago, IL and American Medical International (AMI) Clearwater, FL. Mr.
Muehlberg holds a Bachelor's degree in Health Science from the University of
Missouri and a Masters degree in Business Administration from Nova Southeastern
University.

Ross S. Seibert, CPA, joined the Company in February 2000 as the Chief Financial
Officer. Mr. Seibert was with Deloitte & Touche for 13 years. He worked with a
wide range of clients and has experience with SEC reporting, mergers and
acquisitions, internal controls and information systems. He received a BS in
accounting from Indiana University and an MBA in finance from San Diego State
University.

Don L. Arnwine has been President of Arnwine Associates of Irving, Texas, a
company he founded to provide specialized advisory services to the health care
industry, since 1988. Mr. Arnwine served as Chairman and Chief Executive Officer
from 1985 until 1988 of Voluntary Hospitals of America (VHA), a company he
joined in 1982. Prior to joining VHA, Mr. Arnwine served as President and Chief
Executive Officer of Charleston Area Medical Center, a 1000-bed regional
facility care center in the State of West Virginia. Mr. Arnwine holds a BS
degree in Business Administration from Oklahoma Central State University and a
Masters degree in Hospital Management from Northwestern University.

                                      -32-



<PAGE>

Stephen A McConnell has been a Director of the Company since May 2001. He is the
President of Solano Ventures, a firm involved in private capital investments. He
served as chairman of G-L Industries, LLC, a Salt Lake City-based manufacturer
of wood glu-lam beams used in the construction industry between 1998 and 2004.
He has served, between 1991 and 1997, as Chairman of the Board and majority
stockholder in Mallco Lumber & Building Materials, Inc., a wholesale distributor
of construction lumber and doors. From 1991 to 1995, Mr. McConnell was President
of Belt Perry Associates, Inc., a property tax appeal firm. He was President and
Chief Executive Officer of N-W Group, Inc., a publicly held corporation, from
1985 through 1991. Mr. McConnell presently serves on the boards of Mobile Mini,
Inc. and Capital Title Group, Inc. Mr. McConnell holds a BA from Harvard College
and an MBA from Harvard Business School.


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

Section 16(a) of the Securities Exchange Act of 1934 (the "34 Act") requires our
officers and directors and persons owning more than ten percent of our common
stock to file initial reports of ownership and changes in ownership with the
SEC. Additionally, Item 405 of Regulation S-B under the 34 Act requires us to
identify in our Form 10-KSB and proxy statement those individuals for whom one
of the above referenced reports was not filed on a timely basis during the most
recent year or prior years. Given these criteria, we have no one to identify in
this Form 10-KSB or in our proxy statement.

ITEM 10.  EXECUTIVE COMPENSATION

The information required by this Item, which will be set forth under the caption
"Executive Compensation" in the Company's definitive Proxy Statement for the
2005 Annual Meeting of Shareholders, is incorporated herein by reference.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item, which will be set forth under the caption
"Voting Securities and Principal Holders Thereof" in the Company's definitive
Proxy Statement for the 2005 Annual Meeting of Shareholders, is incorporated
herein by reference.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In June 2001, we issued two convertible notes payable for $200,000 and $75,000
to Robert S. Muehlberg, who subsequently became our president and a director,
related to the acquisitions of Envision Healthcare, LLC and Envision Open MRI,
LLC, respectively. At the noteholder's option, the noteholder may elect to
convert the outstanding balance of the notes into shares of the Company's common
stock at a conversion price of $0.75. The notes are interest only at 10% for the
first year with the principal to be paid down during the following two years. In
June 2002, we issued 25,000 shares of Restricted Rule 144 common stock valued at
$3,250 as consideration for extending the monthly interest only payments due
dates by six months each with principal balance due December 2004. In November
2003, we negotiated to suspend principal payments for one year. In November
2004, we resumed principal payments as previously negotiated. The balance of
these notes was $137,500 at December 31, 2004 and $160,417 at December 31, 2003.

                                      -33-



<PAGE>

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

REPORTS ON FORM 8-K

We filed current reports on Form 8-K on September 29, 2004; August 19, 2004;
July 26, 2004; and May 13, 2004.

EXHIBITS

The following is a complete list of Exhibits as part of the Annual Report.
Exhibit numbers correspond to the numbers in the Exhibit Table of Item 601(a) of
Regulation S-B, which are incorporated herein:

                                  EXHIBIT NO.
                                  -----------

1.5      Certificate of Designation with respect to the 6% Cumulative
         Convertible Series A Preferred Stock (1)

3.1      Articles of Incorporation of Gold Probe, Inc. a Utah corporation, filed
         February 6, 1980 (2)

3.2      Certificate of Amendment to the Articles of Incorporation of Gold
         Probe, Inc. filed January 27, 1982 (2)

3.3      Certificate of Amendment to the Articles of Incorporation of Hailey
         Energy Corporation filed October 26, 1986 (2)

3.4      Certificate of Amendment to the Articles of Incorporation of Hailey
         Energy Corporation filed November 2, 1990 (2)

3.5      Certificate of Amendment to the Articles of Incorporation of Hailey
         Energy Corporation filed November 17, 1992 (2)

3.6      Certificate of Amendment to the Articles of Incorporation of Cytoprobe
         Corporation filed May 18, 1995 (3)

3.7      Certificate of Amendment to the Articles of Incorporation of Medical
         Device Technologies, Inc. filed December 14, 1995 (3)

3.8      Certificate of Amendment to the Articles of Incorporation of Medical
         Device Technologies, Inc. filed January 17, 1996 (4)

3.9      Certificate of Amendment to the Articles of Incorporation of Medical
         Device Technologies, Inc. filed January 19, 1996 (4)

3.10     By-Laws of Medical Device Technologies, Inc. (2)

3.11     Certificate of Amendment to the Articles of Incorporation of Medical
         Device Technologies, Inc. filed August 5, 1999. (5)

3.12     By-Laws of Miracor Diagnostics, Inc. dated March, 2000. (5)

3.13     Amended and Restated By-Laws of Miracor Diagnostics, Inc., dated
         November 11, 2002. (7)

4.1      Specimen certificate for 6% Cumulative Convertible Series A Preferred
         Stock (1)

4.2      Form of Representative's Warrant Agreement, including form of Specimen
         Certificate for Representative's Warrant. (1)

4.3      Form of Warrant Agreement dated October 31, 1994 by and between the
         Company and the holders of the 1994 Unit Warrants for the purchase of
         259,375 shares. (2)

4.6      Form of Stock Purchase Warrant dated April 13, 2000 between the Company
         and Swartz Private Equity, LLC. (5)

4.7      Registration Rights Agreement dated April 13, 2000 between the Company
         and Swartz Private Equity, LLC related to the registration of shares.
         (5)

4.8      Form of Common Stock Purchase Warrant dated June 17, 2003 between the
         Company and Global Capital Funding Group, LP. (8)

                                      -34-



<PAGE>

4.9      Specimen Form of Common Stock Purchase Warrant dated June 11, 2003. (8)

4.10     Certificate of the Designations, Powers, Preferences and Rights of
         Series A Preferred Stock. (9)

4.11     Form of Common Stock Purchase Warrant. (9)

10.1     Equity Purchase Agreement with Envision Open MRI, LLC, dated May 25,
         2001. (6)

10.2     Equity Purchase Agreement with Envision Healthcare, LLC, dated May 25,
         2001. (6)

10.3     Asset Purchase Agreement with U.S. Diagnostics, Inc, dated May 29,
         2001. (6)

10.4     Asset Purchase Agreement with Woodridge Open MRI, LLC, dated January
         18, 2002. (6)

10.5     Capital Stock Purchase Agreement with South Coast Radiologists Holding,
         Inc., dated December 3, 2002. (7)

10.6     Partnership Interest Purchase Agreement with PG Diagnostic Imaging,
         LLC, dated December 3, 2002. (7)

10.7     Asset Purchase Agreement with New View Diagnostics, Inc., dated
         December 13, 2002. (7)

31.1     Certification of Chief Executive Officer pursuant to Rule
         13a-14(a)/15(d)-14(a)

31.2     Certification of Chief Financial Officer pursuant to Rule
         13a-14(a)/15(d)-14(a)

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

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

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

(1)   Previously filed as an exhibit to Registration Statement on Form S-1,
      dated June 24, 1996, registration no. 333-02727 .
(2)   Previously filed as an exhibit to Registration Form S-3, dated May 15,
      1996, Registration no. 333-1150.
(3)   Previously filed as an exhibit to the Company's Form 8-K Report dated
      January 15, 1996
(4)   Previously filed as an exhibit to the Company's Form 8-K Report dated
      January 31, 1996
(5)   Previously filed as an exhibit to the Company's Form SB-2, dated June 15,
      2000, Registration no. 333-39406.
(6)   Previously filed as an exhibit to the Company's Annual Report Form 10-KSB
      Report dated March 29, 2002.
(7)   Previously filed as an exhibit to the Company's Annual Report Form 10-KSB
      Report dated March 30, 2003.
(8)   Previously filed as an exhibit to the Company's Annual Report Form 10-KSB
      Report dated March 30, 2004.
(9)   Previously filed as an exhibit to the Company's Form 8-K Report dated July
      26, 2004.

                                      -35-



<PAGE>

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees: Our auditors are Tschopp, Whitcomb, & Orr, P.A. and their
subcontractor Chastang, Ferrell, Sims and Eiserman, L.L.C., located at 2600
Maitland Center Parkway Suite 330, Maitland, FL 23751 and 1400 W. Fairbanks Ave
Suite 102, Winterpark, FL 32789.

We paid them $138,100 in audit and review fees during the year ended December
31, 2004, and $162,974 during the year ended December 31, 2003.

Tax Fees: We paid to Deloitte & Touche LLP at 701 "B" Street Suite 1900, San
Diego, CA 92101 $29,375 in fees related to tax compliance, tax advice, and tax
planning during the year ended December 31, 2004, and $46,405 during the year
ended December 31, 2003.

The Audit Committee pre-approves all audit and permissible non-audit services
provided by the independent auditors. These services may include audit services,
audit-related services, tax services and other services. Pre-approval is
generally provided for up to one year, and any pre-approval is detailed as to
the particular service or category of services and is generally subject to a
specific budget. The independent auditors and management are required to
periodically report to the Audit Committee regarding the extent of services
provided by the independent auditors in accordance with this pre-approval, and
the fees for the services performed to date. The Audit Committee may also
pre-approve particular services on a case-by-case basis

                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

MIRACOR DIAGNOSTICS, INC.

      SIGNATURE                     TITLE                          DATE
      ---------                     -----                          ----

/s/ M. Lee Hulsebus        Chairman of the Board,             September 2, 2005
------------------------   Chief Executive Officer
    M. Lee Hulsebus

/s/ Robert S. Muehlberg    President,                         September 2, 2005
------------------------   Chief Operating Officer
    Robert S. Muehlberg

/s/ Ross S. Seibert        Chief Financial and Principal      September 2, 2005
------------------------   Accounting Officer
    Ross S. Seibert

/s/ Don L. Arnwine         Director                           September 2, 2005
------------------------
    Don L. Arnwine

/s/ Stephen A McConnell    Director                           September 2, 2005
------------------------
    Stephen A McConnell

                                      -36-



<PAGE>


                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------

The Board of Directors
Miracor Diagnostics, Inc.
San Diego, California

We have audited the accompanying consolidated balance sheets of Miracor
Diagnostics, Inc. and subsidiaries (the "Company") as of December 31, 2004 and
2003, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Miracor Diagnostics,
Inc. and subsidiaries at December 31, 2004 and 2003, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.

By /s/ TSCHOPP, WHITCOMB & ORR, P.A.
   ----------------------------------------
       TSCHOPP, WHITCOMB & ORR, P.A.

Maitland, Florida
March 11, 2005

                                      F-1



<PAGE>

<TABLE>
                             MIRACOR DIAGNOSTICS, INC. AND SUBSIDIARIES

                                    CONSOLIDATED BALANCE SHEETS

                                     December 31, 2004 and 2003
<CAPTION>

                                                                        2004              2003
                                                                  -------------      -------------
<S>                                                               <C>                <C>
ASSETS
------
Current assets:
     Cash and cash equivalents                                    $    436,008       $    455,453
     Accounts receivable (net of contractual adjustments and
       allowances of $8,848,734 and $8,374,078)                      6,184,263          5,942,191
     Prepaid expenses and other assets                                  74,429            187,992
     Assets held for sale                                            1,987,100          1,581,560
                                                                  -------------      -------------
               Total current assets                                  8,681,800          8,167,196
                                                                  -------------      -------------

Property and equipment:
     Equipment under capital leases                                  4,613,460          6,703,155
     Machinery and equipment                                         7,088,104          4,434,687
     Leasehold improvements                                          1,250,642          1,240,220
     Furniture and fixtures                                             98,001             96,303
                                                                  -------------      -------------
                                                                    13,050,207         12,474,365

          Less accumulated depreciation                             (7,516,795)        (5,814,392)
                                                                  -------------      -------------
Net property and equipment                                           5,533,412          6,659,973

Goodwill                                                             7,819,498          8,807,148

Other assets                                                           382,371            456,385
                                                                  -------------      -------------
               Total assets                                       $ 22,417,081       $ 24,090,702
                                                                  =============      =============

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

Current liabilities:
     Accounts payable                                             $  2,074,695       $  1,307,588
     Accrued expenses                                                1,285,386          1,381,201
     Line of credit                                                  2,606,822          2,756,883
     Notes payable, related parties - current portion                  137,500             22,917
     Notes payable - current portion                                   425,755          1,444,556
     Capital lease obligations - current portion                       564,268          1,230,103
     Liabilities associated with assets held for sale                2,009,998          1,674,813
                                                                  -------------      -------------
               Total current liabilities                             9,104,424          9,818,061

Other liabilities:
     Notes payable, related parties - long term                             --            137,500
     Notes payable - long term                                       9,683,676          9,202,851
     Capital lease obligations - long term                           1,456,774          1,871,151
                                                                  -------------      -------------
               Total liabilities                                    20,244,874         21,029,563
                                                                  -------------      -------------

Commitments and contingencies (note 9)

Stockholders' equity
     Preferred stock, $.01 par value (10,000,000 shares
         authorized; 3,378,376 and 0 shares outstanding)                33,784                 --
     Common stock, $.15 par value (100,000,000 shares
         authorized; 16,322,304 and 15,968,054 outstanding)          2,448,346          2,395,208
     Additional paid-in capital                                     28,857,164         27,580,295
     Accumulated deficit                                           (29,167,087)       (26,914,364)
                                                                  -------------      -------------
               Total stockholders' equity                            2,172,207          3,061,139
                                                                  -------------      -------------
               Total liabilities and stockholders' equity         $ 22,417,081       $ 24,090,702
                                                                  =============      =============
</TABLE>

                                                F-2



<PAGE>
<TABLE>

                   MIRACOR DIAGNOSTICS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                     Years ended December 31, 2004 and 2003


                                                            2004              2003
                                                       -------------     -------------
<S>                                                    <C>               <C>
Net patient service revenue                            $ 18,933,062      $ 17,397,215

Operating expenses:
  Costs of services                                       9,363,914         9,368,617
  Selling, general and administrative expenses            8,286,710         7,778,263
                                                       -------------     -------------
Total operating expenses                                 17,650,624        17,146,880
                                                       -------------     -------------

Income from continuing operations                         1,282,438           250,335

 Interest expense                                         1,505,607         1,537,536
                                                       -------------     -------------
Loss before minority interest and discontinued
  operations                                               (223,169)       (1,287,201)

Minority interest                                                --            21,858
                                                       -------------     -------------
Loss from continuing operations                        $   (223,169)     $ (1,265,343)

Loss from discontinued operations                        (2,012,862)         (458,884)
                                                       -------------     -------------
Net loss                                               $ (2,236,031)     $ (1,724,227)
                                                       =============     =============

Loss per share:
Basic loss from continuing operations per share         $     (0.01)      $     (0.08)
Basic loss from discontinued operations per share       $     (0.13)      $     (0.03)
                                                        ============      ============
Basic loss per share                                    $     (0.14)      $     (0.11)
                                                        ============      ============

Diluted loss from continuing operations per share       $     (0.01)      $     (0.08)
Diluted loss from discontinued operations per share     $     (0.13)      $     (0.03)
                                                        ============      ============
Diluted loss per share                                  $     (0.14)      $     (0.11)
                                                        ============      ============

Weighted average shares outstanding-basic                16,164,506        15,440,846
Weighted average shares outstanding-diluted              16,164,506        15,440,846

</TABLE>


See notes to consolidated financial statements.

                                                F-3



<PAGE>
<TABLE>

                             MIRACOR DIAGNOSTICS, INC. AND SUBSIDIARIES

                          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                               Years ended December 31, 2004 and 2003

<CAPTION>
                                                      PREFERRED STOCK                  COMMON STOCK
                                                --------------------------      --------------------------
                                                   SHARES        AMOUNT            SHARES        AMOUNT
                                                ------------   -----------      ------------  ------------
<S>                                               <C>           <C>            <C>           <C>
Balance, January 1, 2004                                 --            --        15,968,054   $ 2,395,208

Common stock issued for services                         --            --           354,250        53,138

Preferred stock and warrants sold                 3,378,376    $   33,784                --            --

Warrants issued with debt                                --            --                --            --

Cash dividends issued to preferred stockholders          --            --                --            --

Net loss                                                 --            --                --            --
                                                ------------   -----------      ------------  ------------
Balance, December 31, 2004                        3,378,376    $   33,784        16,322,304   $ 2,448,346
                                                ============   ===========      ============  ============
</TABLE>
<TABLE>

(continued below)
                                                    ADDITIONAL
                                                      PAID-IN       ACCUMULATED
                                                      CAPITAL         DEFICIT          TOTAL
                                                    ------------   -------------   ------------
<S>                                                 <C>            <C>             <C>
Balance, January 1, 2004                            $27,580,295    $(26,914,364)   $  3,061,139

Common stock issued for services                         98,798              --         151,935

Preferred stock and warrants sold                     1,062,723              --       1,096,507

Warrants issued with debt                               115,348              --         115,348

Cash dividends issued to preferred stockholders              --         (16,692)        (16,692)

Net loss                                                     --      (2,236,031)     (2,236,031)
                                                   -------------   -------------   -------------
Balance, December 31, 2004                         $ 28,857,164    $(29,167,087)   $  2,172,206
                                                   =============   =============   =============

</TABLE>

                                                     F-4



<PAGE>

<TABLE>

                            MIRACOR DIAGNOSTICS, INC. AND SUBSIDIARIES

                          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                               Years ended December 31, 2004 and 2003

<CAPTION>
                                                                  COMMON STOCK            ADDITIONAL
                                                           ----------------------------    PAID-IN
                                                              SHARES        AMOUNT         CAPITAL
                                                           -------------  -------------  -------------
<S>                                                          <C>          <C>            <C>
Balance, January 1, 2003                                     15,111,182   $  2,266,677   $ 27,580,045

Common stock issued for compensation, legal
     and other professional services                            479,375         71,907         49,124

Common stock issued from the exercise of warrants               327,497         49,124        (49,124)

Common stock issued from the Employee Incentive Stock
     Option Plan and Deferred Stock Compensation Plan            50,000          7,500            250

Net loss                                                             --             --             --
                                                           -------------  -------------  -------------
Balance, December 31, 2003                                   15,968,054   $  2,395,208   $ 27,580,295
                                                           =============  =============  =============
</TABLE>
(continued below)

<TABLE>
<CAPTION>
                                                               DEFERRED        ACCUMULATED
                                                             COMPENSATION       DEFICIT          TOTAL
                                                             ------------   -------------   -------------
<S>                                                          <C>             <C>             <C>
Balance, January 1, 2003                                     $      7,750    $(25,190,137)   $ 4,664,335

Common stock issued for compensation, legal
    and other professional services                                    --              --        121,031

Common stock issued from the exercise of warrants                      --              --             --

Common stock issued from the Employee Incentive Stock
     Option Plan and Deferred Stock Compensation Plan              (7,750)             --             --

Net loss                                                               --      (1,724,227)    (1,724,227)
                                                            -------------    -------------    -----------
Balance, December 31, 2003                                  $          --    $(26,914,364)   $ 3,061,139
                                                            =============    =============    ===========

See notes to consolidated financial statements.

</TABLE>

                                                          F-5



<PAGE>
<TABLE>

                               MIRACOR DIAGNOSTICS, INC. AND SUBSIDIARIES

                                 CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 Years ended December 31, 2004 and 2003
<CAPTION>
                                                                                     2004              2003
                                                                                 ------------      ------------
<S>                                                                              <C>               <C>
Cash flows from operating activities:
     Net loss                                                                    $(2,236,031)      $(1,724,227)
     Adjustments to reconcile net income to net cash provided by
       operating activities including discontinued operations:
           Common stock issued for services                                          151,935           121,031
           Minority interest                                                              --           (21,858)
           Depreciation and amortization - continuing operations                   1,706,319         1,852,466
           Depreciation and amortization - discontinued operations                   474,941           346,516
           Write-down of goodwill included in discontinued operations                994,445                --
           Interest expense added to notes payable                                    24,672           113,667
           Loss on disposal of property and equipment                                125,197                --
           Changes in assets and liabilities excluding net assets acquired:
              Accounts receivable                                                   (149,929)         (849,921)
              Other assets                                                           448,205          (235,970)

              Accounts payable and accrued expenses                                  342,110           620,500
                                                                                 ------------      ------------
                     Net cash provided by operating activities                     1,881,864           222,204
                                                                                 ------------      ------------

Cash flows from investing activities:
     Proceeds from disposal of property and equipment                                114,563                --
     Purchase of property and equipment                                             (431,098)         (133,144)
                                                                                 ------------      ------------
                     Net cash used in investing activities                          (316,535)         (133,144)
                                                                                 ------------      ------------

Cash flows from financing activities:
     Increase (decrease) in line of credit                                          (150,061)        1,286,580
     Proceeds from notes payable                                                          --         1,250,000
     Net proceeds from the sale of preferred stock and warrants,
          net of closing costs                                                     1,096,507                --
     Cash dividends issued to preferred stockholders                                 (16,692)               --
     Principal payments on notes payable, related parties                            (22,917)         (133,333)
     Principal payments on notes payable                                            (993,575)         (650,528)
     Principal payments on capital lease obligations                              (1,498,036)       (1,765,527)
                                                                                 ------------      ------------
           Net cash used in financing activities                                  (1,584,774)          (12,808)
                                                                                 ------------      ------------

Net increase (decrease) in cash and cash equivalents                                 (19,445)           76,252

Cash and cash equivalents, beginning of year                                         455,453           379,201
                                                                                 ------------      ------------

Cash and cash equivalents, end of year                                           $   436,008       $   455,453
                                                                                 ============      ============
</TABLE>

See notes to consolidated financial statements.

                                                     F-6



<PAGE>

                   MIRACOR DIAGNOSTICS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                     Years ended December 31, 2004 and 2003

<TABLE>
<CAPTION>
                                                               2004            2003
                                                           -----------     -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<S>                                                        <C>             <C>
PAYMENTS FOR:
     Interest                                              $1,202,687      $1,450,867
     Income taxes                                          $   19,826      $   19,939

SUPPLEMENTAL DISCLOSURE OF NON-CASH FLOW INFORMATION:

STOCK ISSUED FOR:
     COMPENSATION AND SERVICES:
     Legal, professional and employee services             $   76,600      $   67,246
     Directors' fees                                           75,335          53,785
                                                           -----------     -----------
                                                           $  151,935      $  121,031
                                                           ===========     ===========

Equipment Financed Using Notes Payable                     $1,478,962      $1,218,410
                                                           ===========     ===========

Equipment Financed Using Capital Leases                    $       --      $1,655,031
                                                           ===========     ===========
</TABLE>


Pursuant to employee agreements, 50,000 shares of accrued employee common stock
grants were issued during the year ended December 31, 2003. Accordingly,
deferred stock compensation of $7,750 was reclassified to common stock and
additional paid-in capital during 2003.

See notes to consolidated financial statements.

                                      F-7



<PAGE>

                   MIRACOR DIAGNOSTICS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 For the years ended December 31, 2004 and 2003

(1) DESCRIPTION OF BUSINESS

Miracor Diagnostics, Inc. was incorporated on February 6, 1980, under the laws
of the state of Utah. Since January 1994, the Company has been a medical based
company.

Between 1994 and 1998, the Company engaged in the development of the Fluid Alarm
System, which monitored the integrity of infection control barriers worn during
medical procedures, and the Cell Recovery System, which was a cell "brushing"
and retrieval system that used an automated biopsy brush for the collection of
specimen cells for diagnostic purposes. The Company has the patent licensing
rights through the life of the patents which expire from 2008 to 2010. In 1998,
the Company wrote off their investments in each of these licenses. However, the
Company may elect to reintroduce or sell either product at a later date,
although the Company has no plans to do so at this time.

In 1998, the Company redefined their business focus from medical devices to
medical diagnostic imaging services and emerged as an operating company through
the acquisition of medical diagnostic imaging centers. In October 1999, the
Company changed their name to Miracor Diagnostics, Inc. to reflect their focus
in medical diagnostic imaging. Miracor Diagnostics, Inc. and subsidiaries are
independent providers of medical diagnostic imaging services; specifically
magnetic resonance imaging ("MRI"), computed tomography ("CT") and other
diagnostic imaging services through our network of company-owned and operated
fixed-site, freestanding outpatient facilities. Additionally, the Company
continues to identify suitable acquisition targets to position the Company for
growth. The Company now owns fourteen diagnostic centers in five states with two
of such centers being held for sale as follows:

         Date Acquired/Opened             Diagnostic Center Location
         --------------------             ---------------------------
         July 1998                        Orlando, Florida
                                          Oak Brook, Illinois
                                          Sylvania, Ohio
         June 2001                        Laguna Niguel, California
                                          Long Beach, California
         October 2001                     Perrysburg, Ohio
         February 2002                    Woodridge, Illinois
         December 2002                    Coos Bay, Oregon
                                          Kissimmee, Florida
                                          Long Beach, California
                                          Carol Stream, Illinois
         January 2003                     Jacksonville, Florida (Held for sale)
         June 2003                        Santa Barbara, California
         January 2004                     Orange Park, Florida (Held for sale)

In October 2003, Regional MRI of Jacksonville, Inc., a wholly-owned subsidiary
of the Company, consolidated its operations from two medical diagnostic centers
to one.

In May 2004, Envision Open MRI, LLC, a subsidiary of which the Company owned
51%, located in Newport Beach, California ceased operations. Accordingly, the
assets and liabilities, as applicable, are classified as held for sale and the
related results of operations are reported in discontinued operations in the
accompanying consolidated financial statements. Certain reclassifications within
the accompanying consolidated financial statements have been made to reflect the
effects of discontinued operations for all periods presented.

During the fourth quarter of 2004, the Company elected to hold for sale the
Orange Park, Florida and the Jacksonville, Florida centers. As these centers are
start-up facilities and long-term investments, management determined the length
of time for these centers to become profitable is beyond the time horizon set
forth in its strategic objectives. Accordingly, the assets and liabilities, as
applicable, are classified as held for sale and the related results of
operations are reported in discontinued operations in the accompanying
consolidated financial statements. Certain reclassifications within the
accompanying consolidated financial statements have been made to reflect the
effects of discontinued operations for all periods presented.

                                      F-8



<PAGE>

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION AND BASIS OF FINANCIAL STATEMENT PRESENTATION

The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States and include the
accounts of the Company and its wholly owned and majority owned subsidiaries.
All significant intercompany transactions have been eliminated. Investments in
entities that the Company does not control, but in which it has a substantial
ownership interest and can exercise significant influence, are accounted for
using the equity method.

As more fully described in Note 16, the Company has classified the assets,
liabilities and results of operations of three centers as discontinued
operations. Accordingly, the financial statements as reported in the Company's
2003 Form 10-KSB have been reclassified to conform to the 2004 presentation.
These reclassifications did not effect the net assets, equity or net loss as
reported in the Company's 2003 Form 10-KSB.


USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
results of operations and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. These estimates involve judgments with
respect to numerous factors that are difficult to predict and are beyond
management's control. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with original maturities of
three months or less as cash equivalents.



REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE

Substantially all of the accounts receivable are due under fee-for-service
contracts from third party payors, such as insurance companies and
government-sponsored healthcare programs or directly from patients. Services are
generally provided pursuant to contracts with healthcare providers or directly
to patients at standard fixed or determinable rates which are often based on
Medicare rates. No contingencies or recourse are created once the service is
performed; therefore, revenue is recorded at the time of services. Accounts
receivable for services rendered at the diagnostic imaging centers have been
recorded at their established charges and reduced by the estimated contractual
adjustments and bad debts. Contractual adjustments result from the differences
between the rates charged for services performed and reimbursements by
government-sponsored healthcare programs and insurance companies for such
services. Receivables generally are collected within industry norms for
third-party payors. The Company continuously monitors collections from our
customers and maintains an allowance for bad debts based upon any specific payor
collection issues that have been identified, the historical collection
experience including each diagnostic imaging center's patient mix, industry
experiences, and the aging of patient accounts receivable balances. The Company
is not aware of any material claims, disputes or unsettled matters with
third-party payors. Charity care provided by the Company is insignificant and,
when it does occur, a write-off of the entire amount is immediately recorded
against the corresponding revenue. The Company either uses in-house billing or
local billing companies in each region in which it operates. Therefore, the
Company analyzes its accounts receivable and allowance for doubtful accounts on
a regional and site-by-site basis as opposed to a company-wide basis. This
allows the Company to be more detailed and more accurate with its collectibility
estimates. While such credit losses have historically been within our
expectations and the provisions established, an inability to accurately estimate
credit losses in the future could have a material adverse impact on our
operating results.

Revenue consists of net patient fee for service revenue. Net patient service
revenue is recognized when diagnostic imaging services are rendered. Net patient
service revenue is recorded net of contractual adjustments and other
arrangements for providing services at less than established patient billing
rates. Allowances for contractual adjustments and bad debts are provided for
accounts receivable based on estimated collection rates. The Company estimates
contractual allowances based on the patient mix at each diagnostic imaging
facility, the impact of contract pricing and historical collection information.
The Company operates fourteen facilities in six regions, each of which has
multiple insurance contracts and a different patient mix. The estimated
contractual allowance rates for each diagnostic imaging facility are reviewed on
a monthly basis. The Company adjusts the contractual allowance rates, as changes
to the factors discussed above become known. As these factors change, the
historical collection experience is revised accordingly in the period known.
These allowances are reviewed periodically and adjusted based on historical
payment rates. Depending on the changes made in the contractual allowance rates,
net revenue may increase or decrease.

The Company estimates the recoverability of its receivables based on its history
of collections of similar receivables. The net revenue recorded at the time of
the performed service is net of estimated bad debts and contractual adjustments.
As a result, bad debt expense, the nature of which consists almost entirely of
small, homogeneous patient balances, is taken into account in determining net
revenue. Bad debt expense recorded against revenue was approximately $195,000
and $180,000 for the years ended December 31, 2004 and 2003, respectively.

                                      F-9



<PAGE>

During 2004 and 2003, the principal source of revenue is from diagnostic imaging
services. The Company is presently operating in this one business segment and
only in the United States. As referrals for diagnostic imaging services at the
Company's centers primarily come from referring physicians, including primary
care physicians and specialists, the Company does not provide care to patients
who are financially unable to pay for services.


PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, net of accumulated depreciation and
amortization. Property and equipment are depreciated using the straight-line
method over the estimated useful lives of the related assets which range from
three to nine years. Amortization of assets under capital leases is included in
depreciation and amortization.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company accounts for long-lived assets in accordance with the provisions of
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long Lived Assets" ("SFAS 144"). SFAS 144 requires
that long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to undiscounted future net cash
flows expected to be generated by the asset. If the carrying amount of an asset
exceeds its estimated future cash flows, an impairment charge is recognized by
the amount by which the carrying amount of the asset exceeds the fair value of
the asset. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell potential indicators of impairment can
include, but are not limited to the following:

         o        History of operating losses or expected future losses,
         o        Significant adverse change in legal factors,
         o        Changes in the extent or manner in which the assets are used,
         o        Current expectations to dispose of the assets by sale or other
                  means, and
         o        Reductions or expected reductions of cash flow.

GOODWILL

The value of goodwill is stated at the lower of cost or fair value. At December
31, 2004, the Company had $7.8 million of goodwill related to the acquiring of
several diagnostic centers. The Company adopted the provisions of Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets"
("SFAS 142"), as of January 1, 2002. SFAS 142 requires that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead be tested for impairment at least annually. Under SFAS No. 142, goodwill
and other intangible assets with an indefinite useful life are no longer
amortized as expenses of operations, but rather carried on the balance sheet as
permanent assets. The Company has discontinued amortization of goodwill as of
January 1, 2002 for financial reporting purposes and will comply with periodic
impairment test procedures.

The Company evaluates goodwill, at a minimum, on an annual basis and whenever
events and changes in circumstances suggest that the carrying amount may not be
recoverable in accordance SFAS No. 142. Goodwill is allocated to the Company's
various reporting units, which are its six geographical regions. As certain
centers are under one local manager and operate in the same geographical and
economic environments, the Company has grouped the centers into the six
reporting units by region for the year ended December 31, 2004. Impairment of
goodwill is tested at the reporting unit level by comparing the reporting unit's
carrying amount, including goodwill, to the fair value of the reporting unit.
The fair values of the reporting units are estimated using a combination of the
income or discounted cash flows approach and the market approach, which uses
comparable market data. If the carrying amount of the reporting unit exceeds its
fair value, goodwill is potentially impaired and a second test is performed to
measure the amount of impairment loss, if any. Prior to the fourth quarter of
2004, the fair value of the Company's reporting units exceeded the carrying
value and consequently no impairment was recorded. For the year ended December
31, 2004, the Company evaluated the recoverability of the carrying amount of
certain long-lived assets and recognized an impairment charge of $994,445 to
reduce these assets to their fair market value. (see note 4)

                                      F-10



<PAGE>

FINANCIAL INSTRUMENTS FAIR VALUE, CONCENTRATION OF BUSINESS AND CREDIT RISKS

The carrying amount reported in the balance sheet for cash, accounts receivable,
accounts payable and accrued expenses approximates fair value because of the
immediate or short-term maturity of these financial instruments. The carrying
amounts reported in the accompanying balance sheet for notes payable and capital
lease obligations approximates fair value because the actual interest rates do
not significantly differ from current rates offered for instruments with similar
characteristics. Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of accounts receivable. The
Company operates and grants credit to customers in Oregon, California, Florida,
Illinois, and Ohio. In addition, the Company files claims with numerous
insurance carriers, managed care groups, Medicare and Medicaid intermediaries
located throughout the United States.

Consequently, the Company's ability to collect the amounts due from customers,
managed care groups, insurance companies and government agencies may be affected
by economic fluctuation and governmental regulations in the healthcare industry.

With respect to accounts receivable, we routinely assesses the financial
strength of our customers and third-party payors and, based upon factors
surrounding their credit risk, establish a provision for bad debt. At December
31, 2003 and 2004 the Company's accounts receivable were primarily from
customers in the healthcare industry. To reduce credit risk, the Company
performs periodic credit evaluations of its customers, but does not generally
require advance payments or collateral. Credit losses to customers in the
healthcare industry have not been material. Net revenue by payor for the years
ended December 31, 2004 and 2003 were:

         Percentage of Total Net Revenue

         Payor                                           2004    2003
         ---------------------------------------         ----    ----
         Commercial insurance                             28%     29%
         Special group contract                           25%     24%
         Managed Care                                     16%     16%
         Medicare and other governmental programs         16%     15%
         Workers compensation                              9%     10%
         Other                                             6%      6%

Management believes that its accounts receivable credit risk exposure, beyond
allowances that have been provided, is limited.

INCOME TAXES

Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", (SFAS No. 109).
This statement employs an asset and liability approach for financial accounting
and reporting of deferred income taxes. Generally, SFAS No. 109 allows for
recognition of deferred tax assets in the current period for the future benefit
of net operating loss carryforwards and items for which expenses have been
recognized for financial statement purposes but will be deductible in future
periods. A valuation allowance is recognized if, on the weight of available
evidence, it is more likely than not that some portion or all of the deferred
tax assets will not be realized.

MARKETING

Marketing costs and promotions are expensed as incurred. Marketing expense for
the years ended December 31, 2004 and 2003 was $392,922 and $358,372
respectively and is included in selling, general and administrative expenses in
the accompanying consolidated financial statements.

RECLASSIFICATIONS

Certain reclassifications, including the effects of discontinued operations,
within the accompanying consolidated financial statements have been made to
conform to the 2004 presentation.

COMPREHENSIVE INCOME

For the years ended December 31, 2003 and 2004, the Company did not have any
components of other comprehensive income as defined in Statement of Financial
Accounting Standards No. 130. Therefore, statements of comprehensive income have
not been presented.

                                      F-11



<PAGE>

SEGMENT REPORTING

The chief operating decision makers review the operating results of the
Company's six geographic regions for the purpose of making operating decisions
and assessing performance. Based on the aggregation criteria in Statement of
Financial Accounting Standards No. 131, the Company has aggregated the results
of its six geographic regions into one reportable segment.

EARNINGS(LOSS)PER COMMON SHARE

Basic earnings (loss) per share is computed by dividing net income available to
common stockholders by the weighted average common shares outstanding for the
period. Diluted earnings (loss) per share is computed giving effect to all
potentially dilutive common shares. Potentially dilutive common shares may
consist of incremental shares issuable upon the exercise of stock options,
adjusted for the assumed repurchase of the common stock, at the average market
price, from the exercise proceeds and also may include incremental shares
issuable in connection with convertible securities. The following table sets
forth the computations of basic and diluted earnings (loss) per share for the
years ended December 31, 2004 and 2003:

<TABLE>
                                                            2004            2003
                                                        ------------    ------------
<S>                                                     <C>             <C>
Net loss from continuing operations                     $  (223,169)    $(1,265,343)
Net loss from discontinued operations                    (2,012,862)       (458,884)
                                                        ------------    ------------
Net loss for earnings per share computation             $(2,236,031)    $(1,724,227)
                                                        ============    ============

BASIC LOSS PER SHARE:

Weighted average common shares outstanding               16,164,506      15,440,846

Basic loss from continuing operations per share         $     (0.01)    $     (0.08)
Basic loss from discontinued operations per share       $     (0.13)    $     (0.03)
                                                        ============    ============
Basic loss per share                                    $     (0.14)    $     (0.11)
                                                        ============    ============

DILUTED LOSS PER SHARE:

Weighted average common shares used in
  calculating diluted loss per share                     16,164,506      15,440,846

Diluted loss from continuing operations per share       $     (0.01)    $     (0.08)
Diluted loss from discontinued operations per share     $     (0.13)    $     (0.03)
                                                        ============    ============
Diluted loss per share                                  $     (0.14)    $     (0.11)
                                                        ============    ============
</TABLE>

For the years ended December 31, 2004 and 2003, all outstanding options,
warrants and convertible debentures were excluded from the computations of
diluted loss per share because inclusion of such securities would have an
antidilutive effect on loss per share.

STOCK-BASED AWARDS

In December 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure" ("SFAS No. 148"). SFAS No. 148
provides companies alternative methods of transitioning to Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation"
("SFAS No. 123") fair value of accounting for stock-based employee compensation.
It also requires certain disclosure in both annual and quarterly financial
statements about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. SFAS No. 148 does not
mandate fair value accounting for stock-based employee compensation, but does
require all companies to meet the disclosure requirements. The Company does not
recognize compensation expense for stock option grants, which are issued at fair
value at the date of grant. The Company has not adopted fair value accounting
for its employee stock options.

                                      F-12



<PAGE>

The Company accounts for stock based compensation awards using the intrinsic
value method prescribed under APB Opinion No. 25, "Accounting for Stock Issued
to Employees," and its related interpretations. The Company accounts for
stock-based compensation of non-employees under the provisions of SFAS No. 123.
During 2003, the Company awarded warrants to purchase 212,500 shares of common
stock, valued at $115,348, as finder fees associated the issuance of a
convertible note payable. The Company recorded these warrants and the related
deferred interest valued at $115,348 which is being amortized to interest
expense over the four year life of the related convertible note. During 2004,
the Company issued 439,189 warrants, valued at $192,850, as finder fees
associated the issuance of its 3% Series A Convertible Preferred Stock. Thus,
Company recorded these warrants and the related finders fee, valued at $192,850
as closing costs, which was netted with the proceeds from the preferred stock.
All other employee stock-based awards were granted with an exercise price equal
to the market value of the underlying common stock on the date of grant and no
compensation cost is reflected in the Company's operating results for those
awards.

SFAS No. 123 also requires that companies electing to continue to use the
intrinsic value method make pro forma disclosure of net income and net income
per share as if the fair value method of accounting had been applied. The
Company used the Black-Scholes option-pricing model to estimate the fair value
of options. For purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' expected vesting period.
Had compensation cost for the Company's stock option plan been determined based
on the estimated fair value at the grant dates for awards under the plan
consistent with the fair value method of SFAS No. 123 utilizing the
Black-Scholes option-pricing model, the Company's net income (loss) and basic
and diluted earnings (loss) per share for the years ended December 31, would
have approximated the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                               2004              2003
                                                           -------------     ------------
<S>                                                        <C>              <C>
Net loss
     As reported                                           $ (2,236,031)     $(1,724,227)
     Pro forma                                               (2,376,720)      (1,856,350)

Net loss attributable to common stockholders
     As reported                                             (2,236,031)      (1,724,227)
     Pro forma                                               (2,376,720)      (1,856,350)

Basic and diluted loss per share
     As reported                                           $      (0.14)     $     (0.11)
     Pro forma                                             $      (0.15)     $     (0.12)
</TABLE>

The fair value of options and warrants is estimated on the date of grants
utilizing the Black-Scholes option pricing model with the following weighted
average assumptions for years ended December 31, 2004 and 2003: expected life
ranging from 5 to 10 years; expected volatility of 50%; risk-free interest rate
ranging from 3.3% to 6.7%; and a 0% dividend yield. The weighted average fair
value at the date of grant of the options and warrants granted during 2004 and
2003 approximated $0.50 and $0.25, respectively.

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

                                      F-13



<PAGE>

(3) ACQUISITIONS, START-UPS AND DIVESTITURES

ACQUISITIONS

No acquisitions were completed in 2003 or 2004.

START-UPS

In January 2003, the Company opened a diagnostic imaging center located in
Jacksonville, Florida. The Company financed MRI equipment pledged under a
capital lease with a finance company. The agreement has a carrying amount of
approximately $950,000 with a monthly installment payment of $16,182 over 66
months. The Company also financed other medical equipment of approximately
$451,000 with various finance companies.

In June 2003, the Company opened a diagnostic imaging center located in Santa
Barbara, California. The Company financed MRI equipment and tenant improvements
through a note payable to a finance company. The agreement has a carrying amount
of approximately $1,197,000 with a monthly installment payment of $25,537 over
66 months with an interest rate of 9.91%.

In January 2004, the Company opened a diagnostic imaging center located in
Orange Park, Florida. The Company financed MRI equipment and tenant improvements
through a note payable to a finance company. The agreement has a carrying amount
of approximately $1,125,000 with a monthly installment payment of $23,204 over
66 months with an interest rate of 8.06%.

DIVESTITURES AND ASSETS HELD FOR SALE

Prior to the fourth quarter of 2004, the Company had been monitoring the results
of operations of certain centers experiencing significant losses which
management believed to be a temporary condition. As a result of this analysis,
plans were implemented late in the third quarter and early in the fourth quarter
to attempt to improve the profitability of those centers. However, during the
fourth quarter of 2004 there appeared to be little or no improvement in their
profitability and management later decided to dispose of these particular
centers located in Orange Park and Jacksonville, Florida. Accordingly, the
results of operations of these centers as well as the Company's Newport Beach
center (discussed further herein) have been included in loss from discontinued
operations in the accompanying consolidated statements of operations.

In October 2003, Regional MRI of Jacksonville, Inc., one of our wholly-owned
subsidiaries, consolidated its operations from two medical diagnostic centers to
one. During the fourth quarter of 2004, the Company elected to hold the
remaining center for sale. As this center is a start-up facility and a long-term
investment, management determined the length of time for this center to become
profitable is beyond the time horizon set forth in its strategic objectives.
Accordingly, the assets and liabilities, as applicable, are classified as held
for sale and the related results of operations are reported in discontinued
operations in the accompanying consolidated financial statements. The imaging
center will be sold for the assumption of certain obligations. Certain
reclassifications within the accompanying consolidated financial statements have
been made to reflect the effects of discontinued operations for all periods
presented. (see note 16)

In May 2004, Envision Open MRI, LLC, a subsidiary of which we owned 51%, located
in Newport Beach, California ceased operations. As the 49% partner closed its
operations and the Company's leases for the equipment and office space were
expiring, the Company determined it was no longer economically feasible to
continue operating this facility. Accordingly, the assets and liabilities, as
applicable, are classified as held for sale and the related results of
operations are reported in discontinued operations in the accompanying
consolidated financial statements. Certain reclassifications within the
accompanying consolidated financial statements have been made to reflect the
effects of discontinued operations for all periods presented. (see note 16)

During the fourth quarter of 2004, the company elected to hold for sale the
Orange Park, Florida center, which was opened in January of 2004. As this center
is a start-up facility and a long-term investment, management determined the
length of time for this center to become profitable is beyond the time horizon
set forth in its strategic objectives. The imaging center was sold in 2005 for
$1.8 million without the assumption of any obligations. Accordingly, the assets
and liabilities, as applicable, are classified as held for sale and the related
results of operations are reported in discontinued operations in the
accompanying consolidated financial statements. Certain reclassifications within
the accompanying consolidated financial statements have been made to reflect the
effects of discontinued operations for all periods presented. (see note 16)

                                      F-14



<PAGE>

(4) GOODWILL

The Company adopted the provisions of Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), as of
January 1, 2002. SFAS 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead be tested for
impairment at least annually. The Company has discontinued amortization of
goodwill as of January 1, 2002 for financial reporting purposes and will comply
with periodic impairment test procedures.

Goodwill was recorded as a result of acquiring diagnostic centers. In connection
with several acquisitions, consideration paid exceeded the estimated fair value
of the assets acquired (including estimated liabilities assumed as part of the
transaction). The excess of the consideration paid over the fair value of the
net assets acquired has been recorded as goodwill. Based on the nature of the
Company's business, freestanding, outpatient diagnostic facilities, the each
acquired center did not warrant the allocating of a portion of the purchase
price to other intangible assets as the facility depend upon physician referrals
for their patients and do not maintain long-term contractual relationships.

In connection with management's decision to dispose of the net assets of certain
centers in Jacksonville and Orange Park, Florida and as a result of continuing
operating losses, the Company evaluated the recoverability of the carrying
amount of certain long-lived assets including goodwill and determined that an
impairment charge was warranted. The impairment charge amounted to $994,445
primarily related to previously recorded goodwill associated with the Florida
centers but including a small impairment of $6,795 related to the closure of the
Company's Newport Beach center. Accordingly, this charge has been included in
the loss from discontinued operations in the accompanying consolidated statement
of operations for the year ended December 31, 2004.

At December 31, 2004, the Company had $7.8 million of goodwill related to the
acquiring of several diagnostic centers. Changes in the carrying amount of
goodwill are as follows:

Balance at December 31, 2002                           $ 8,959,513
Deletions to goodwill during the year                      145,570
                                                       ------------
Balance outstanding, December 31, 2003                   8,813,943
                                                       ------------
Goodwill impairment (see notes 2 and 16)                  (994,445)
                                                       ------------
Balance outstanding, December 31, 2004                 $ 7,819,498
                                                       ============

(5) LINE OF CREDIT

Throughout 2004, the Company's receivables line of credit has been serviced by a
bank which passed on the Company's collections but which was subject to renewals
on a very short-term basis. In March 2005, the bank approved a two year renewal
consisting of a six-month commitment. After the six-month period, it would be
renewed for an additional eighteen months subject to the Company meeting certain
covenants. The line of credit has a capacity of $3,000,000 subject to a
borrowing base which was $2,728,027 at December 31, 2004. The interest rate is
the bank's reference rate plus 2.5% (8.1% at December 31, 2004). The outstanding
balance was $2,606,822 and $2,756,883 at December 31, 2004 and 2003,
respectively.

                                      F-15



<PAGE>

(6) NOTES PAYABLE

Notes payable consisted of the following:
<TABLE>
<CAPTION>
                         Interest      Monthly                         Foot-     December 31,  December 31,
   Type of Lender          Rate        Payment       Due Date          note          2004           2003
   ---------------      ----------    ---------    --------------      ----      ------------   ------------
   <S>                     <C>          <C>          <C>                  <C>    <C>            <C>
   Bank                     9.85%       $50,680      April 2009           A      $ 2,362,556    $ 2,545,004
   Bank                     8.54%        36,215      January 2010         B        1,924,734      2,078,006
   Bank                     8.54%        32,194      January 2010         C        1,711,013      1,847,265
   Finance Company         10.84%        35,596      December 2008        D        1,426,949      1,643,090
   Investment Company      12.00%            --      June 2007            E        1,250,000      1,250,000
   Bank                     9.91%        25,537      January 2009         F        1,075,979      1,205,041
   Finance Company          1.99%         5,129      November 2007        -          174,268             --
   Finance Company          4.63%         5,211      July 2007            -          152,001             --
   Finance Company         10.50%         1,434      December 2005        -           16,265         30,918
   Bank                    10.20%           464      April 2008           -           15,666         19,421
   Finance Company         10.50%            --      August 2004          -               --         22,325
   Finance Company         10.50%            --      March 2004           -               --          6,337
                                                                                 ------------   ------------
                                                                                 $10,109,431    $10,647,407

   Less current portion                                                             (425,755)    (1,444,556)
                                                                                 ------------   ------------
   Long term portion                                                             $ 9,683,676    $ 9,202,851
                                                                                 ============   ============
</TABLE>

In March 2005, we restructured five notes payable and two capital leases.
Payments were reduced to approximately interest only for a 3-12 month period
followed by a lesser reduction for the remaining term of the obligations. Most
of the obligations' remaining terms were lengthened from 1 to 2 years with
balloon payments at the end of the term. The table above reflects the effects of
the restructuring.

A)       In September 2002, the Company purchased MRI equipment for its Laguna
         Niguel center funded by a note payable. Upon purchase of this
         equipment, an existing note payable was refinanced and included with
         the purchase price of the equipment. The total note payable was
         $2,806,846 and included equipment and leasehold improvements totaling
         approximately $1,590,000. The equipment is pledged as collateral for
         the note payable. This note was restructured from monthly payments of
         $50,680 to interest-only for 3 months followed by monthly payments of
         $30,000. The term was extended 18 months with a balloon payment of $1.8
         million at that time.

B)       In December 2002, the Company assumed the operations of a diagnostic
         center located in Long Beach, California, through a partnership
         interest purchase agreement. The center's medical equipment is pledged
         as collateral for the note payable. This note was restructured from
         monthly payments of $36,215 to interest-only for 3 months followed by
         monthly payments of $20,000. The term was extended 19 months with a
         balloon payment of $1.5 million at that time.

C)       In December 2002, the Company assumed the operations of a diagnostic
         center located in Coos Bay, Oregon, through a capital stock purchase
         agreement. The center's medical equipment is pledged as collateral for
         the note payable. This note was restructured from monthly payments of
         $32,194 to interest-only for 3 months followed by monthly payments of
         $17,500. The term was extended 19 months with a balloon payment of $1.4
         million at that time.

D)       In December 2002, the Company acquired a diagnostic center located in
         Carol Stream, Illinois through an asset purchase agreement. The
         center's medical equipment is pledged as collateral for the note
         payable. This note was restructured from monthly payments of $35,596 to
         approximately interest-only for one year followed by monthly payments
         of $30,007.

E)       In June 2003, the Company secured financing from an investment company.
         The convertible note totaled $1,250,000 with interest of 12% to be paid
         quarterly. The principal amount may be prepaid at anytime and is due
         June 2007. After June 2006, the note holder may convert any portion of
         the outstanding balance into common stock at $0,25 per share. Lender
         and finder fees to execute the convertible note totaled $146,250.

                                      F-16



<PAGE>

     F)  In June 2003, the Company opened a diagnostic imaging center located in
         Santa Barbara, California. The Company financed MRI equipment and
         tenant improvements through a note payable. The MRI equipment is
         pledged as collateral for the note payable. This note was restructured
         from monthly payments of $25,537 to interest-only for 3 months followed
         by monthly payments of $17,650. The term was extended 18 months.

In January 2004, the Company opened a diagnostic imaging center located in
Orange Park, Florida. The Company financed MRI equipment and tenant improvements
through a note payable to a finance company. The MRI equipment was pledged as
collateral for the note payable. During the fourth quarter of 2004 the Company
elected to designate this site as held for sale (see note 16); therefore, the
balance of this note in the amount of $1,048,037 is not reflected in the above
table. Subsequent to December 31, 2004 this site was sold and the balance of
this note was paid in full.

At December 31, 2004, future minimum annual principal payments on the notes
payable are as follows:

                        Year-ending December 31,
                        ------------------------
                                  2005                                425,755
                                  2006                                705,524
                                  2007                              2,011,181
                                  2008                                735,353
                                  2009                                810,051
                                  Thereafter                        5,471,830
                                                                  ------------
                                                                  $10,159,694
                                                                  ============

(7) NOTES PAYABLE TO RELATED PARTIES

In June 2001, the Company issued two convertible notes payable for $200,000 and
$75,000 to an officer/director related to its acquisition of Envision
Healthcare, LLC and Envision Open MRI, LLC, respectively. At the noteholder's
option, the noteholder may elect to convert the outstanding balance of the notes
into shares of the Company's common stock at a conversion price of $0.75. The
notes are interest only at 10% for the first year with the principal to be paid
down during the following two years. In June 2002, the Company issued 25,000
shares of Restricted Rule 144 common stock valued at $3,250 as consideration for
extending the monthly interest only payments due dates by six months each with
principal balance due December 2004. In November 2003, the Company negotiated to
suspend principal payments for one year. In November 2004, the Company resumed
principal payments as previously negotiated. At December 31, 2004 and December
31, 2003 the balance of these notes was $137,500 and $160,417, respectively.
Principal payments on these notes will be paid in full by December 31, 2005.

(8) LEASES

Capital Lease obligations consisted of the following:

<TABLE>
<CAPTION>
                         Interest      Monthly                             December 31,   December 31,
   Type of Lender          Rate        Payment       Due Date                   2004           2003
   ---------------      ----------    ---------    --------------          ------------   ------------
   <S>                     <C>          <C>          <C>                   <C>            <C>
   Bank (see A below)      11.54%       $23,615      April 2007            $   738,702    $   865,245
   Bank (see B below)      12.18%        30,050      September 2005            416,163        613,645
   Finance Company          8.48%        16,469      February 2006             205,921        366,970
   Finance Company          9.56%         5,728      January 2008              182,927        231,615
   Finance Company          9.78%         4,203      May 2008                  145,990        180,304
   Finance Company          6.10%         7,175      February 2006              96,714        174,317
   Bank                    11.54%         1,654      March 2007                 44,200         58,069
   Bank                    11.55%         1,622      February 2007              40,607         54,499
   Finance Company          7.03%           886      September 2008             35,787         44,101
   Bank                    12.92%        27,892      November 2004              26,830        131,325
   Finance Company          4.33%        12,643      February 2005              25,286             --
   Finance Company          7.80%           591      August 2008                22,595         27,720
   Finance Company         10.43%           568      July 2008                  20,310         24,755
   Finance Company          9.45%         1,053      December 2005              12,012         22,945
   Finance Company          5.75%         3,529      February 2005               6,998         47,299
   Finance Company          5.97%            --      November 2004                  --        142,842
   Finance Company          4.20%            --      July 2004                      --        115,603
                                                                           ------------   ------------
                                                                           $ 2,021,042    $ 3,101,254

   Less current portion                                                       (564,268)    (1,230,103)
                                                                           ------------   ------------
   Long term portion                                                       $ 1,456,774    $ 1,871,151
                                                                           ============   ============
</TABLE>

                                      F-17



<PAGE>

Capital leases are collateralized by various medical equipment including MRI,
CT, X-ray, Mammography, Ultrasound, Bone Densitometry and Laser Imager equipment
and by tenant improvements.

In March 2005, the Company restructured five notes payable and two capital
leases as discussed in note 6. The table above reflects the effects of the
restructuring.

         A) This lease was restructured from monthly payments of $23,615 to
            interest-only for 3 months followed by payments of $15,000. The term
            was extended 15 months with a balloon payment of $300,000 at that
            time.

         B) This lease was restructured from monthly payments of $30,050 to
            interest-only for 3 months followed by payments of $11,500. The term
            was extended 20 months with a balloon payment of $200,000 at that
            time.

As of December 31, 2004, two imaging centers were designated as held for sale
over the next twelve months and are included in discontinued operations (see
note 16). The capital lease obligations related to discontinued operations are
detailed as follows:

<TABLE>

                         Interest      Monthly                             December 31,   December 31,
   Type of Lender          Rate        Payment       Due Date                   2004           2003
   ---------------      ----------    ---------    --------------          ------------   ------------
   <S>                     <C>          <C>          <C>                   <C>            <C>
   Finance Company          2.33%        15,675      May 2008                  617,110        788,606
   Finance Company          8.71%         3,582      June 2008                 129,273        159,549
   Finance Company          3.67%         1,369      June 2008                  53,869         68,032
   Finance Company          6.25%         1,260      June 2008                  47,418         59,172
   Finance Company          4.76%         1,142      April 2008                 42,183         53,591
   Bank                    10.99%           807      April 2008                 26,919         33,258
   Finance Company          8.79%           508      June 2008                  17,841         22,101
   Finance Company          5.81%           785      July 2006                  14,219         22,551
   Bank                     9.64%           421      December 2007              13,129         16,729
   Finance Company          4.33%            --      February 2005                  --        140,089
                                                                           ------------    -----------
                                                                           $   961,961     $1,363,678
                                                                           ============    ===========
</TABLE>

The Company is currently leasing all of its offices under operating leases which
expire at various dates through 2011.

At December 31, 2004, future minimum annual rental commitments under
noncancellable lease obligations are as follows:

<TABLE>
<CAPTION>
                                                                        Capital           Operating
                        Year-ending December 31,                        Leases              Leases
                        ------------------------                     -----------         -----------
                               <S>                                   <C>                 <C>
                                  2005                                  714,440           1,235,793
                                  2006                                  546,380             957,842
                                  2007                                  469,924             605,654
                                  2008                                  436,405             296,319
                                  2009                                  360,741             107,561
                               Thereafter                                    --              96,800
                                                                     -----------         -----------

      Total minimum lease payments                                    2,527,890          $3,299,969
      Less amounts representing interest (at rates of 2.33% to                           ===========
      12.92%)                                                          (506,848)
                                                                     -----------

      Present value of net minimum lease payments                     2,021,042

          Less current portion                                         (564,268)
                                                                     -----------

      Capital lease obligations - long term                          $1,456,774
                                                                     ===========
</TABLE>

                                      F-18



<PAGE>

Rent expense for operating leases, including month to month leases, was
$1,543,477 and $1,500,657 for the years ended December 31, 2004 and 2003,
respectively.

(9) COMMITMENTS AND CONTINGENCIES

EMPLOYEE AGREEMENTS

In August 1994, the Company entered into an employment and severance agreement
with the Chief Executive Officer. The severance agreement provides, among other
things, that in the event a change in control of the Company occurs or the Chief
Executive Officer is involuntarily terminated, suffers a disability while
employed by the Company or dies while employed by the Company, then the Chief
Executive Officer or his heirs are entitled to receive certain benefits from the
Company. Such benefits may include some or all of the following: an amount based
on the base salary as provided for in the employment agreement; an amount based
on the bonus paid or payable to the Chief Executive Officer as provided for in
the employment agreement; the right to receive common stock that shall vest
immediately; and the right to exercise any warrants or stock options held by or
granted to the Chief Executive Officer under the employment agreement or any
stock option plan of the Company or both, health insurance and disability
insurance. The Chief Executive Officer will not receive any benefits upon
voluntarily termination of employment with the Company or if the Company
terminates the Chief Executive Officer "for cause", which is defined as the
conviction of the Chief Executive Officer after appeal of a felony.

In March 2004, the term of the Chief Executive Officer's employment agreement
and severance agreement were extended for one additional year, or until August
31, 2007.

In May 2002, the Company entered into an employment agreement with the
President. The agreement provides for an eighteen-month severance upon
involuntary termination. In March 2004, the term of the President's employment
agreement was extended for one additional year, or until May 20, 2007.

In May 2002, the Company entered into an employment agreement with the Chief
Financial Officer. The agreement provides for a twelve-month severance upon
involuntary termination. In March 2004, the term of the Chief Financial
Officer's employment agreement was extended for one additional year, or until
May 20, 2006.

The above employment agreements obligate the Company for approximately
$1,200,000 beyond December 31, 2004.

LEGAL MATTERS

From time to time the Company has been named as a defendant in a lawsuit. As of
December 31, 2004, there were no legal proceedings, to which the Company was a
party, which could have a material adverse effect on the Company's business,
financial condition or operating results.

(10) STOCKHOLDERS' EQUITY

PREFERRED STOCK

In April 1995, the Company authorized 10,000,000 shares of $.01 par value
preferred stock. The preferred stock may be issued in one or more classes or
series with such designations, rights, preferences and restrictions as may be
determined from time to time by the Board of Directors.

During the year ended December 31, 2004, the Company completed a private
placement of 3% Series A Convertible Preferred Stock for a total of 3,378,376
shares, which are convertible on a one-for-one basis into common stock, at $0.37
per share subject to certain limitations and registrations. In addition to the
preferred shares, 1,013,525 warrants to purchase shares of common stock were
issued on a one for one basis, which are exercisable at $0.55 per share for a
period of five years commencing from the date of issuance, July 13, 2004 and
August 18, 2004. The 3% Series A Convertible Preferred Stock has preferences in
the payment of dividends and upon liquidation as well as voting and
anti-dilution rights and was offered by means of a private placement under
exemptions pursuant to the Securities Act of 1933, as amended. Dividends are
paid at the rate of $0.002775 cents per share per quarter and are identical to
any that may be paid to common stockholders. In the event of any liquidation
event, holders of this preferred stock shall be entitled to receive a per share
amount equal to 100% of the original purchase price in preference to common
stockholders. The Company received proceeds of $1,096,507, net of closing costs.
In addition, 337,837 warrants to purchase shares of common stock on a one for
one basis exercisable at $0.37 and 101,352 warrants exercisable at $0.55 per
share for a period of five years commencing from the date of issuance, July 13,
2004 and August 18, 2004 ,were issued as finder fees and included with the
closing costs. During the year ended December 31, 2004, $16,692 in cash
dividends were paid to preferred stockholders.

                                      F-19



<PAGE>

There were 3,378,376 and 0 outstanding shares of preferred stock as of December
31, 2004 and December 31, 2003, respectively.


COMMON STOCK

In June 2003, the Company secured financing from an investment company. The
convertible note totaled $1,250,000 with interest of 12% to be paid quarterly.
The principal amount may be prepaid at anytime and is due June 2007. After June
2006, the note holder may convert any portion of the outstanding balance into
common stock at $0.25 per share. The noteholder was issued warrants to purchase
400,000 shares of common stock at an exercise price of $0.26 per share over the
five year life of the warrants. In addition, individuals who founded the
transaction were awarded warrants to purchase 212,500 shares of common stock at
an exercise price of $0.25 per share over the five year life of the warrants.
Associated with this transaction, the Company recorded warrants and the related
deferred interest valued at $115,348. Deferred interest will be amortized to
interest expense over the four year life of the related convertible note. Lender
and finder fees related to the convertible note totaled $146,250.

In 2000, the Company entered into and subsequently terminated an investment
agreement with Swartz Private Equity LLC ("Swartz"). The investment agreement
entitled the Company, at the Company's option, to issue and sell its common
stock for up to an aggregate of $15 million from time-to-time during a
three-year period through April 2003. The registration statement went effective
on July 12, 2000. During 2000 pursuant to this agreement, the Company sold
202,430 shares of common stock and issued 779,024 warrants to purchase shares of
the Company's common stock at exercise prices ranging from $0.10 to $0.28 with
exercise periods of five years from date of grant. The sale of stock has been
recorded net of related offering costs of approximately $35,000. This equity
financing agreement did not provide the necessary resources to pursue the
Company's acquisition strategy; therefore, the agreement was terminated
effective October 16, 2000. In November 2003, 511,194 of the warrants were
exercised using a cashless exercise provision resulting in the issuance of
327,497 shares of common stock with exercise prices ranging from $0.10 to $0.17.
At December 31 2004, 267,830 warrants are still outstanding.

(11) OPTIONS AND WARRANTS

The Company has issued options and warrants in connection with various private
placements, certain debt securities and certain other agreements with
compensation to employees and consultants. The Company's options and warrants
allow the holder to purchase one share of the Company's common stock at a
specified price.

Options and warrants granted and issued by the Company consisted of:

                                                                      Weighted
                                                                       Average
                                                          Number       Price
                                                        -----------  -----------

Balance outstanding, December 31, 2002                   2,928,668        $0.33
                                                        ===========

Options granted                                            775,000         0.24
Options expired                                            (60,000)        0.54
Options exercised                                                -            -
Warrants granted                                           612,500         0.26
Warrants exercised                                        (327,497)        0.16
Warrants cancelled                                        (183,841)        0.18
                                                        -----------
Balance outstanding, December 31, 2003                   3,744,830        $0.32
                                                        -----------

Options granted                                            305,000         0.50
Options expired                                            (55,000)        0.38
Options exercised                                                -            -
Warrants granted                                         1,452,714         0.50
Warrants exercised                                               -            -
Warrants cancelled                                        (100,000)        0.01
                                                        -----------
Balance outstanding, December 31, 2004                   5,347,544        $0.38
                                                        ===========

Options and warrants exercisable                         4,228,794        $0.40

                                      F-20



<PAGE>

Compensation expense was not recorded for any issuance of options and warrants
to officers or employees in 2004 and 2003 as the fair market value of the
options and warrants was at or below the exercise price on their respective
dates of issuance.

Information relating to options and warrants at December 31, 2004 summarized by
exercise price is as follows:
<TABLE>
<CAPTION>

                Outstanding                                                 Exercisable
                                            Weighted Average             Weighted Average
      Exercise Price       Equiv.          Life       Exercise          Equiv.      Exercise
        Per Share          Shares         (Year)       Price            Shares       Price
        ---------          ------         ------       -----            ------       -----
      <S>                 <C>              <C>        <C>              <C>           <C>
      $    0.10            11,341          0.7       $ 0.10             11,341      $0.10
           0.15           130,329          0.7         0.15            130,329       0.15
           0.16           125,000          0.2         0.16            125,000       0.16
           0.17             1,160          0.7         0.17              1,160       0.17
           0.20           175,000          1.0         0.20            175,000       0.20
           0.22           475,000          1.1         0.22            475,000       0.22
           0.23            50,000          8.7         0.23             12,500       0.23
           0.24           675,000          8.2         0.24            168,750       0.24
           0.25           212,500          3.5         0.25            212,500       0.25
           0.26           465,000          5.5         0.26            465,000       0.26
           0.27           700,000          7.2         0.27            400,000       0.27
           0.37           337,837          4.6         0.37            337,837       0.37
           0.50           275,000          9.2         0.50                  -       0.50
           0.55         1,114,877          4.6         0.55          1,114,877       0.55
           0.69           294,500          5.0         0.69            229,500       0.69
           0.81           230,000          4.0         0.81            230,000       0.81
           1.00            75,000          5.2         1.00             75,000       1.00
                        ---------                                    ---------
                        5,347,544          5.1       $ 0.38          4,228,794      $0.40
                        =========                                    =========
</TABLE>

(12) COMPENSATORY STOCK BENEFIT PLANS

On October 1, 2003, the Company's board of directors approved the registration
of 500,000 shares of common stock under Form S-8, pursuant to the Company's 2003
Stock Compensation Plan, whereby services are obtained in exchange for issuance
of free trading stock of the Company. As of December 31, 2004, 63,088 shares
remain available under this registration which may be awarded until October 1,
2008. During the years ended December 31, 2004 and 2003, 354,250 and 504,375
shares, respectively, of common stock under Form S-8 registrations were issued
for directors fees, compensation, and legal and professional services provided
to the Company.

During the years ended December 31, 2004 and 2003, 0 and 25,000 shares,
respectively, of Restricted Rule 144 common stock were issued for employee
bonuses, compensation, interest, principal of trade notes payable, and legal and
professional services provided to the Company.

Pursuant to employee agreements, 50,000 shares of accrued employee common stock
grants were issued during the year ended December 31, 2003. Accordingly,
deferred stock compensation of $7,750 was reclassified to common stock and
additional paid-in capital during the year ended December 31, 2003.

In 2000, the board of directors approved the registration of 1,500,000 shares of
common stock to be issued pursuant to the 1997 Stock Option Plan. In May 2003,
the Company's shareholders approved an amendment to the 1997 Stock Option Plan
raising the number of shares to 3,000,000. The board of directors approved the
registration of such shares in October 2003. As of December 31, 2004, 629,250
shares remain available under this registration which may be awarded until
October 1, 2008.

(13) EMPLOYEE BENEFIT PLAN

On November 1, 2000, the Company adopted the 401(k) Profit Sharing Plan and
Trust (the "Plan") for employees of the Company. The Plan allows employees who
satisfy the age and service requirements to contribute up to 15% of pre-tax
wages, limited to the maximum amount permitted under federal law. The Company
has made no contributions to the Plan for the years ended December 31, 2004 and
2003.

                                      F-21



<PAGE>

(14) RELATED PARTY TRANSACTIONS

In June 2001, the Company issued two convertible notes payable for $200,000 and
$75,000 to the President, who is also a director, related to its acquisition of
Envision Healthcare, LLC and Envision Open MRI, LLC, respectively. At the
noteholder's option, the noteholder may elect to convert the outstanding balance
of the notes into shares of the Company's common stock at a conversion price of
$0.75. The notes are interest only at 10% for the first year with the principal
to be paid down during the following two years. In June 2002, the Company issued
25,000 shares of Restricted Rule 144 common stock valued at $3,250 as
consideration for extending the monthly interest only payments due dates by six
months each with principal balance due December 2004. In November 2003, the
Company negotiated to suspend principal payments for one year. In November 2004,
the Company resumed principal payments as previously negotiated. The balance of
these notes was $137,500 and $160,417 at December 31, 2004 and 2003,
respectively.


(15) INCOME TAXES

The components of the net deferred income tax balances are as follows at
December 31:

                                                    2004              2003
                                                ------------     ------------
Deferred income tax assets (liabilities):

   Net operating loss carryforwards             $ 2,954,000      $ 2,109,000
   Depreciation and amortization                   (891,000)      (1,139,000)
                                                ------------     ------------
   Net deferred income tax assets                 2,063,000          970,000

   Less deferred income tax asset
     Valuation allowance                         (2,063,000)        (970,000)
                                                ------------     ------------

   Net deferred income tax balance              $         -      $         -
                                                ============     ============

At December 31, 2004, the Company had approximately $8,016,000 in federal and
$4,834,000 in state net operating loss carryforwards to offset future taxable
income. These carryforwards will expire in various years through 2024. Federal
net loss carryforwards are subject to limitations related to their utilization
under Section 382 of the Internal Revenue Code. If a greater than 50% change in
ownership (as determined in accordance with Section 382 of the Internal Revenue
Code) were to occur, the net operating loss carryovers may be subject to
limitation in future years.

The Company provides a valuation allowance for deferred tax assets when it is
more likely than not, based on available evidence, that some portion or all of
the deferred tax assets will not be realized. As of December 31, 2004, it cannot
be determined if it is more likely than not that the Company will generate
sufficient future taxable income before 2024, the year after which all current
available net operating loss carryforwards expire, to utilize all of the
Company's deferred assets. A valuation allowance has been recognized for the
full amount of the deferred tax asset at December 31, 2004 and 2003.

Income tax expense attributable to income before income taxes differs from the
amount computed by applying the US Federal income tax rate of 34% to income from
operations before income taxes principally as a result of use of net operating
loss carryforwards and changes in the valuation allowance.


(16) DISCONTINUED OPERATIONS

As of December 31, 2004, two imaging centers were designated as held for sale
over the next twelve months that are included in discontinued operations. As
these centers are start-up facilities and long-term investments, the Company
determined the length of time for these centers to become profitable is beyond
the time horizon set forth in its strategic objectives. In October 2003,
Regional MRI of Jacksonville, Inc., one of our wholly-owned subsidiaries,
consolidated its operations from two medical diagnostic centers to one. During
the fourth quarter of 2004, the Company elected to hold the remaining center for
sale. During the years ended December 31, 2003 and 2004, the Jacksonville center
generated net patient service revenue of $1,248,330 and $1,621,086,
respectively. During the years ended December 31, 2003 and 2004, the
Jacksonville center incurred net losses of $341,030, and $425,168, respectively.
During the fourth quarter of 2004, the company elected to hold for sale the
Orange Park, Florida center, which was opened in January of 2004. The imaging
center was sold in March 2005 for $1.8 million without the assumption of any
obligations. During the year ended December 31, 2004, the Orange Park center
generated net patient service revenue of $250,460 and incurred net losses of
$446,789.

                                      F-22



<PAGE>

In addition, Envision Open MRI, LLC, a subsidiary of which we owned 51%, located
in Newport Beach, California ceased operations in May 2004. As the 49% partner
closed its operations and the Company's leases for the equipment and office
space were expiring, the Company determined it was no longer economically
feasible to continue operating this facility. The equipment was abandoned and
returned to the vendor. Approximately $91,000 of equipment costs were written
off and an $18,050 pre-tax charge for an equipment lease termination fee was
recognized in 2004. During the years ended December 31, 2003 and 2004, the
center generated net patient service revenue of $554,015 and $177,600,
respectively. During the years ended December 31, 2003 and 2004, the center
incurred net losses of $81,227, and $146,460, respectively.

All of the diagnostic imaging centers that have been closed or designated for
sale are included in discontinued operations in the accompanying consolidated
statements of operations. Certain reclassifications within the accompanying
consolidated statements of operations for the year ended December 31, 2003 have
been made to reflect the effects of discontinued operations. For year ended
December 31, 2004, loss from discontinued operations includes a $994,445 pre-tax
charge to write-down the goodwill related to these imaging centers (See note 4).
The assets and liabilities of discontinued operations are segregated in the
accompanying consolidated balance sheets. The following table sets forth the
assets and liabilities included in discontinued operations:

<TABLE>
                                                 Florida Component         California Component

                                                2004           2003         2004          2003
                                            ------------   -----------   -----------  ------------
Assets included in discontinued operations:
<S>                                         <C>           <C>            <C>          <C>
    Current assets                          $        --   $        --    $       --   $   115,489
    Net Property and equipment                1,987,100     1,206,509            --       127,767
    Goodwill                                         --            --            --         6,795
    Other assets                                     --       125,000            --            --
                                            ------------  ------------   -----------  ------------
    Total assets included
       in discontinued operations             1,987,100     1,331,509    $       --   $   250,051
                                            ============   ===========   ===========  ============

Liabilities included in discontinued operations:

    Current liabilities                     $        --   $   200,000    $       --   $   111,136
    Notes payable                             1,048,037            --            --            --
    Capital lease obligations                   961,961     1,223,588            --       140,089
                                            ------------  ------------   -----------  ------------
    Total liabilities included
       in discontinued operations           $ 2,009,998   $ 1,423,588    $       --   $   251,225
                                            ============  ============   ===========  ============
</TABLE>

                                      F-23



<PAGE>

(17) SUMMARIZED QUARTERLY DATA (UNAUDITED)

Following is a summary of the quarterly results of operations for the years
ended December 31, 2004 and 2003 (in 000's except per share data and average
shares outstanding):

<TABLE>
<CAPTION>
                                                            Quarter ended
                              ------------------------------------------------------------------------
                                 March           June         September      December
                                   31             30             30             31            Total
                              ------------   ------------   ------------   ------------   ------------
<S>                           <C>            <C>            <C>            <C>            <C>
2004
----
Net revenue from continuing
  operations                  $     4,685    $     4,972    $     4,574    $     4,702    $     18,933
Income/(loss) from continuing
  operations                           25             80            (60)          (268)           (223)
Loss on discontinued
  operations                         (209)          (369)          (239)        (1,196)         (2,013)
                                    ------         ------         ------        -------         -------
Net loss                      $      (184)   $      (289)   $      (299)   $    (1,464)   $     (2,236)
                                    ======         ======         ======        =======         =======

Basic income/(loss) per share
  from continuing operations  $      0.00     $     0.01     $    (0.00)   $     (0.02)   $      (0.01)
Basic loss per share from
  discontinued operations           (0.01)         (0.03)         (0.02)         (0.07)          (0.13)
                                    ------        -------        -------        -------         -------
Basic loss per share          $     (0.01)    $    (0.02)    $    (0.02)   $     (0.09)   $      (0.14)
                                    ======        =======        =======        =======         =======

Diluted income/(loss) per share
  from continuing operations  $      0.00     $     0.01     $    (0.00)   $     (0.02)   $      (0.01)
Diluted loss per share from
  discontinued operations           (0.01)         (0.03)         (0.02)         (0.07)          (0.13)
                                    ------        -------        -------        -------         -------
Diluted loss per share        $     (0.01)    $    (0.02)    $    (0.02)   $     (0.09)   $      (0.14)
                                    ======        =======        =======        =======         =======

Basic and diluted weighted
  average shares outstanding   16,031,145     16,117,391     16,205,195     16,302,331      16,164,506

2003
----
Net revenue from continuing
  operations                  $     4,029    $     4,425    $     4,601    $     4,342    $     17,397
Loss from continuing
  operations                         (364)          (216)          (238)          (448)         (1,266)
Loss on discontinued
  operations                         (108)          (107)          (105)          (138)           (458)
                                    ------         ------         ------        -------         -------
Net loss                      $      (472)   $      (323)   $      (343)   $      (586)   $     (1,724)
                                    ======         ======         ======        =======         =======

Basic loss per share
  from continuing operations  $     (0.02)   $     (0.01)   $     (0.02)   $     (0.03)   $      (0.08)
Basic loss per share from
  discontinued operations           (0.01)         (0.01)         (0.00)         (0.01)          (0.03)
                                    ------        -------        -------        -------         -------
Basic loss per share          $     (0.03)   $     (0.02)   $     (0.02)   $     (0.04)   $      (0.11)
                                    ======        =======        =======        =======         =======

Diluted loss per share
  from continuing operations  $     (0.02)   $     (0.01)   $     (0.02)   $     (0.03)   $      (0.08)
Diluted loss per share from
  discontinued operations           (0.01)         (0.01)         (0.00)         (0.01)          (0.03)
                                    ------        -------        -------        -------         -------
Basic loss per share          $     (0.03)   $     (0.02)   $     (0.02)   $     (0.04)   $      (0.11)
                                    ======        =======        =======        =======         =======
Basic and diluted weighted
  average shares outstanding   15,193,466     15,352,157     15,439,064     15,806,813      15,440,846

</TABLE>

                                      F-24



<PAGE>

(18) RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No.123 (revised 2004) "Share-Based
Payment," ("SFAS 123R"), which requires companies to begin to expense the
estimated fair value of employee stock options and similar awards. The
accounting provisions of SFAS 123R will be effective for the Company's first
quarter of 2006. The Company will adopt the provisions of SFAS 123R using the
Black-Scholes option pricing formula with a modified prospective application.
Modified prospective application recognizes compensation expense for outstanding
awards for which the requisite service had not been rendered as of the effective
date over the remaining service period using the compensation cost calculated
for pro forma disclosure purposes under SFAS 123. As disclosed in Note 2 had the
Company recognized compensation expense in accordance with the fair-value-based
provisions of SFAS 123 for equity instruments, earnings would have been reduced
by approximately $0.01, per basic and diluted share for the years ended December
31, 2004 and 2003. Compensation cost for stock options for which the requisite
future service has not yet taken place will be disclosed as a pro forma expense
by applying the provisions of SFAS 123 during 2005, which is estimated to have a
pro-forma dilutive effect of approximately $0.01 per basic and diluted share.
Compensation cost for stock options vesting in periods beginning in the first
quarter of 2006, and all restricted stock, will be expensed in accordance with
the provisions of SFAS 123R, which is expected to have a dilutive effect of
approximately $0.01 per basic and dilutive share for 2006.


(19) SUBSEQUENT EVENTS

In March 2005, the Company restructured seven notes payable and capital leases.
Payments were reduced to approximately interest only for a 3-12 month period
followed by a lesser reduction for the remaining term of the obligations. Most
of the obligations' remaining terms were lengthened from 1 to 2 years with
balloon payments at the end of the term. The consolidated financial statements
and the related footnotes reflect the effects of the restructuring.

In March 2005, the Company sold its Orange Park, Florida center for $1.8
million. The Company netted approximately $340,000 after retiring $1.5 million
of debt collateralized by equipment held at the facility.

In March 2005, the Company's receivables line of credit was approved by a bank
for a two year renewal consisting of a six-month commitment. After the six-month
period, it would be renewed for an additional eighteen months subject to the
Company meeting certain covenants.

                                      F-25