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

                                    FORM 10-K
(Mark One)

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

                     FOR THE FISCAL YEAR ENDED JUNE 30, 2000

                                       OR

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

                    FOR THE TRANSITION PERIOD FROM       TO

                         COMMISSION FILE NUMBER 0-28622

                          INSIGHT HEALTH SERVICES CORP.
             (Exact name of Registrant as specified in its charter)


             DELAWARE                                   33-0702770
         (State or other                             (I.R.S. Employer
          jurisdiction                                 Identification
       of incorporation or                                   No.)
          organization)

            4400 MACARTHUR BLVD., SUITE 800, NEWPORT BEACH, CA 92660
            (Address of principal executive offices)     (Zip code)

                                 (949) 476-0733
               (Registrant's telephone number including area code)

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                          COMMON STOCK, $.001 PAR VALUE
                                (Title of Class)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained to the best
of the Registrant's knowledge, in definitive proxy or informative statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.

The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of August 15, 2000 (based on the closing price on the NASDAQ Small
Cap Market on that date) was $18,716,263. The number of shares outstanding of
the Registrant's common stock as of August 15, 2000 was 2,993,543.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for the next Annual Meeting of stockholders of
the Registrant are incorporated herein by reference in Part III.

Certain exhibits are incorporated herein by reference as set forth in Item 14(a)
(3), Exhibits, in Part IV.


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                                     PART I

ITEM 1.   BUSINESS

The principal executive offices of InSight Health Services Corp. (the "Company"
or "InSight") are located at 4400 MacArthur Blvd., Suite 800, Newport Beach,
California 92660, and its telephone number is (949) 476-0733.

CENTERS IN OPERATION

The Company provides diagnostic imaging, treatment and related management
services in 30 states throughout the United States. The Company's services are
provided through a network of 77 mobile magnetic resonance imaging ("MRI")
facilities ("Mobile Facilities"), 42 fixed-site MRI facilities ("Fixed
Facilities"), 26 multi-modality imaging centers ("Centers"), four mobile
lithotripsy facilities, one Leksell Stereotactic Gamma Unit ("Gamma Knife")
treatment center, one positron emission therapy ("PET") fixed-site facility and
one radiation oncology center. An additional radiation oncology center is
operated by the Company as part of one of its Centers. The Company's operations
are located throughout the United States, with a substantial presence in
California, Texas, New England, the Carolinas and the Midwest (Illinois, Indiana
and Ohio).

At its Centers, the Company offers other services in addition to MRI,
including computed tomography ("CT"), diagnostic and fluoroscopic x-ray,
mammography, diagnostic ultrasound, nuclear medicine, bone densitometry,
nuclear cardiology, and cardiovascular services. The Company offers
additional services through a variety of arrangements including equipment
rental, technologist services, marketing, radiology management services, and
billing and collection services.

DIAGNOSTIC IMAGING AND TREATMENT TECHNOLOGY

During approximately the last 30 years there has been a major effort undertaken
by the medical and scientific communities to develop cost-effective diagnostic
imaging technologies and to minimize the risks associated with the application
of such technologies. The major categories of diagnostic imaging systems
currently offered in the medical marketplace are MRI systems, CT scanners,
digital ultrasound systems, computer-based nuclear gamma cameras, conventional
x-ray and radiography/fluoroscopy systems, each of which (other than
conventional x-ray) represents the marriage of computer technology and various
medical imaging modalities. Patients exposed to x-rays and to gamma rays
employed in nuclear medicine receive potentially harmful ionizing radiation.
Much of the thrust of product development during the period has been to reduce
the hazards associated with conventional x-ray and nuclear medicine techniques
and to develop new, virtually harmless imaging technologies such as ultrasound
and MRI.

MRI: Magnetic resonance is a technique that utilizes low energy radiowaves to
manipulate protons (usually hydrogen) in the body. MRI systems place patients in
a magnetic field. Once in the magnetic field, the protons in a patient's body
will tend to align with the magnetic field. Radio frequency ("RF") waves,
produced by a radio antenna coil, which surrounds the body part to be imaged,
are "pulsed" against the magnetic field. The RF energy is then turned off, and
the protons are observed for different types of behavior, movement or
"relaxation." Different tissues have different relaxation times, depending on
the amount of hydrogen or water in each proton. The data on each proton's
behavior is collected digitally by the system's computer and then reconstructed
into cross-sectional images in three-dimensional planes of orientation. The
resulting image reproduces soft tissue anatomy (as found in the brain, spinal
cord and interior ligaments of body joints such as the knee) with superior
clarity, not available by any other currently existing imaging modality. A
typical MRI examination takes from 20 to 45 minutes. MRI systems are typically
priced in the range of $0.9 million to $2 million each, depending upon the
system configuration, magnet design and field strength.

There are no known hazards to the general population from magnetic and RF fields
of the intensity to which a patient is exposed in a clinical MRI system.
Equipment literature nonetheless recommends that, until further information is
available, pregnant women should be scanned only under limited circumstances.
Furthermore, MRI magnets may disrupt the operation of cardiac pacemakers and may
react with ferrous clips utilized in various surgical procedures, so that
individuals with such devices may be excluded from examination with MRI systems,
and access to the area


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surrounding the MRI facility may also be controlled to avoid these possible
hazards. Additionally, some MRI examinations require injection of a
paramagnetic contrast material. Although it is extremely unusual, some
patients may develop a significant adverse reaction to this contrast
material; however, chances of fatalities as a result of such reaction are
remote.

Because the signals used to produce magnetic resonance images contain both
chemical and structural information, the Company believes this technique has
greater potential for many important diagnostic applications than any other
imaging technology currently in use. While existing MRI systems demonstrate
excellent portrayals of anatomical structures within the human body, of even
greater significance is the fact that MRI is also sensitive to subtle
differences between tissues. Thus, MRI offers not only the opportunity for
highly effective classical diagnosis, but also the potential for future
monitoring of chemical processes within the body.

OPEN MRI: Recent technological advances in software and gradient coil technology
for MRI systems have allowed equipment with lower magnetic field strength and
open architecture design to offer significantly improved image quality. Most
Open MRI systems use permanent electromagnetic technology, which substantially
lowers both siting and service costs, but does not provide images as efficiently
as high-field MRI systems. The open design allows for studies not normally
possible in conventional MRI systems, including exams of infants, pediatric
patients, claustrophobic patients, large or obese patients and patients
suffering from post-traumatic stress syndrome. Open MRI is also capable of
conducting musculoskeletal exams that require the patient to move or flex, such
as kinematic knee studies. A typical Open MRI non-kinematic exam takes from 45
to 90 minutes. Open MRI systems are priced in the range of $0.6 million to $1
million each.

CT: CT technology consists of a doughnut-shaped gantry structure into which a
patient, resting on a remotely controlled couch assembly, is positioned to scan
the anatomical region of interest. The scanning process is performed by the
rotation of a high output x-ray tube around the patient. The x-ray tube emits a
thin fan-shaped beam of x-rays that passes through the patient and is absorbed
by an array of x-ray detectors located on the opposite side of the patient from
the x-ray tube. The detected x-rays are then converted into digital measurements
of x-ray intensity directly proportional to the density of the portion of the
patient through which the beam passes. These digital measurements of x-ray
intensity are then processed by a specialized image reconstruction computer
system into a cross-sectional image of the anatomical region of interest. The
patient is then indexed on the couch and another scan performed and then
another, creating a "stack" of cross-sectional images constituting the complete
diagnostic imaging procedure.

Typical scanning times for a single cross-sectional image are in the one second
to six second range. A complete CT examination takes from 15 to 45 minutes,
depending on the complexity of the examination and number of individual
cross-sectional images required. The current selling prices of CT systems fall
in the range of $0.3 million to $0.8 million each, depending upon the specific
performance characteristics of the systems. Based on the fact that CT systems
have been commercially marketed for approximately 30 years, the Company believes
that CT is a relatively mature technology and, therefore, not subject to
significant risk of obsolescence.

Certain CT examinations require the injection of an iodine-based contrast
material, allowing for better visualization of the anatomy. Although it is very
unusual, some patients may develop a significant adverse reaction to this
contrast material. Fatalities as a result of such reaction have occurred but are
rare. In an effort to scan only appropriate patients, all patients are required
to answer a questionnaire, which helps to identify those patients who may suffer
an adverse reaction to this contrast material.

PET: PET scanning involves the administration of a radiopharmaceutical agent
with a positron-emitting isotope and the measurement for the distribution of
that isotope to create images for diagnostic purposes. PET scans provide the
capability to determine how metabolic activity impacts other aspects of
physiology in the disease process by correlating the reading from the PET
study with other studies such as CT or MRI. PET technology has been found
highly effective and appropriate in certain clinical circumstances for the
detection and assessment of tumors throughout the body, the evaluation of
certain cardiac conditions and the assessment of epilepsy seizure sites. The
information provided by PET technology often obviates the need to perform
further highly invasive and/or diagnostic surgical procedures. Interest in
PET scanning has increased recently due to several factors including:
expansion of available hardware options through the introduction of dual head
gamma camera coincidence detection; increased payor coverage and
reimbursement; the availability of the isotopes without an in-house
cyclotron; and a growing recognition by clinicians that PET is a powerful
diagnostic tool that can be used to evaluate and guide management of a
patient's disease. PET systems are priced in the range of $1.0 million to
$1.4 million each. Distribution networks have been established across the
United States to ensure consistent availability of and access to the
isotopes. The development of these networks has made mobile PET a business
development opportunity.

ULTRASOUND: Ultrasound systems emit, detect and process high frequency sound
waves to generate images of soft tissues and internal body organs. The sound
waves used in ultrasound do not involve ionizing radiation and are not known to
cause any harmful effects to the patient.

NUCLEAR MEDICINE: Nuclear medicine gamma cameras, which are based upon the
detection of gamma radiation generated by radioactive pharmaceuticals injected
or inhaled into the body, are used to provide information about organ function
as opposed to anatomical structure.


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X-RAY: X-ray is the most common energy source used in imaging the body and is
now employed in the three following imaging modalities: (i) conventional x-ray
systems, the oldest method of imaging, are typically used to image bones and
contrast-enhanced vasculature and organs and constitute the largest number of
installed systems; (ii) CT scanners utilize computers to produce cross-sectional
images of particular organs or areas of the body; and (iii) digital x-ray
systems add computer image processing capability to conventional x-ray systems.

RADIATION ONCOLOGY: Radiation oncology generally uses external beam radiation
from a linear accelerator to treat cancer with ionizing radiation of the same
type, but at higher doses, as for diagnostic x-rays. In addition to x-rays,
certain linear accelerators have the capacity to produce electrons. While x-ray
radiation can penetrate the body a certain distance before delivering its
maximum dose, and therefore can treat internal structures, electrons have less
penetrating ability and permit the clinician to treat superficial lesions.
Radiation oncology also includes brachytherapy, which implants radioactive
sources directly into or near a tumor.

LITHOTRIPSY: Lithotripsy is a non-invasive procedure for the treatment of kidney
stones, typically performed on an outpatient basis, that eliminates the need for
lengthy hospital stays and extensive recovery periods associated with surgery.
Lithotripters shatter kidney stones through the use of extracorporeal
shockwaves, following which the resulting kidney stone fragments pass out of the
body naturally.

BONE DENSITOMETRY: Bone densitometry, using an advanced technology called DEXA
(dual-energy X-ray absorptiometry), safely, accurately and painlessly measures
bone density and the mineral content of bone for the diagnosis of osteoporosis
and other bone diseases. Bone densitometry uses an extremely low level of
radiation and gives a quantifiable measurement of the patient's bone mass. When
detected in its earlier stages, osteoporosis and other bone diseases can be
treated with new drug therapies that have been shown to effectively slow or
reverse the bone-loss process.

GAMMA KNIFE: The Gamma Knife is a radiosurgical device used to treat
intracranial neoplasma and vascular anomalies, which are inaccessible or
unsuitable for conventional invasive surgery. The Gamma Knife was designed to
provide neurosurgeons and radiation therapists with the ability to perform
radiosurgery, using high-energy gamma rays, instead of conventional invasive
techniques (open surgery), thereby generally eliminating the risk of infection
and intracerebral bleeding. The Gamma Knife delivers a single high dose of
ionizing radiation emanating from 201 individual Cobalt 60 sources focused on a
common target producing an intense concentration of radiation at the target
site, destroying the lesion while spreading the entry radiation dose uniformly
and harmlessly over the patient's skull. The Gamma Knife treatment requires no
open surgical intervention, no lengthy hospital stay and no risk of
post-surgical bleeding or infection. When compared to the average length of stay
and costs associated with conventional surgery, the Gamma Knife greatly reduces
the cost of neurosurgical treatment. Typical treatment time is approximately 10
to 15 minutes per area of interest. In addition, other applications for the
Gamma Knife continue to be developed, including treatment of patients for
chronic pain and motion disorders such as Parkinson's disease, epilepsy and
trigeminal neuralgia. The current selling price of a Gamma Knife system is
approximately $3 million.


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BUSINESS STRATEGY

The Company believes a consolidation in the diagnostic imaging industry is
occurring and is necessary in order to provide surviving companies the
opportunity to achieve operating and administrative efficiencies through
consolidation. The Company's strategy is to further develop and expand
regional diagnostic imaging networks that emphasize quality of care, produce
cost-effective diagnostic information and provide superior service and
convenience to its customers. The strategy of the Company is focused on the
following components: (i) to further participate in the consolidation
occurring in the diagnostic imaging industry by continuing to build its
market presence in its existing regional diagnostic imaging networks through
geographically disciplined acquisitions; (ii) to develop or acquire
additional regional networks in strategic locations where the Company can
offer a broad range of services to its customers and realize increased
economies of scale; (iii) to continue to market current diagnostic imaging
applications through its existing facilities to optimize and increase overall
procedure volume; (iv) to strengthen the regional diagnostic imaging networks
by focusing on managed care customers; and (v) to implement a variety of new
products and services designed to further leverage its core business
strengths, including: Open MRI systems and the radiology co-source product
which involves the joint ownership and management of the physical and
technical operations of the multi-modality radiology department of a hospital
or multi-specialty physician group.

In fiscal 1999, the Company completed two acquisitions as follows: a 70%
interest in a partnership which owns four Centers and two Fixed Facilities in
Buffalo, New York; and a 100% interest in three Centers and two Fixed Facilities
in Phoenix, Arizona. The Company utilized the bank financing described below
(see Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations," included elsewhere in this report) to fund the purchase
price of these acquisitions.

In fiscal 2000, the Company completed two acquisitions as follows: two Fixed
Facilities in Indianapolis and Clarksville, Indiana, respectively; and a 90%
interest in a partnership which owns a Center in Wilkes-Barre, Pennsylvania. The
Company utilized its bank financing to fund the purchase price of these
acquisitions.

In fiscal 2000, the Company opened the following: its second radiology co-source
outpatient Fixed Facility in Granada Hills, California; its third radiology
co-source outpatient Center in Henderson, Nevada; and an Open MRI Fixed Facility
in Pleasanton, California. These were financed through both capital leases with
General Electric Company ("GE") and internally generated funds.

In the first quarter of fiscal 2001, the Company opened its fourth radiology
co-source Fixed Facility in Marina del Rey, California which was financed with a
capital lease from GE and a PET Fixed Facility in Louisville, Kentucky, which
was financed with outside financing.

GOVERNMENT REGULATION

The health care industry is highly regulated and changes in laws and regulations
can be significant. Changes in the law or new interpretation of existing laws
can have a material effect on permissible activities of the Company, the
relative costs associated with doing business and the amount of reimbursement by
government and other third-party payors. The federal government and all states
in which the Company currently operates regulate various aspects of the
Company's business. Failure to comply with these laws could adversely affect the
Company's ability to receive reimbursement for its services and subject the
Company and its officers to penalties.

ANTI-KICKBACK STATUTES: The Company is subject to federal and state laws, which
govern financial and other arrangements between health care providers. These
include the federal anti-kickback statute which prohibits bribes, kickbacks,
rebates and any other direct or indirect remuneration in return for or to induce
the referral of an individual to a person for the furnishing, directing or
arranging of services, items or equipment for which payment may be made in whole
or in part under Medicare, Medicaid or other federal healthcare programs.
Violation of the anti-kickback statute may result in criminal penalties and
exclusion from the Medicare and other federal health care programs. Many states
have enacted similar statutes, which are not limited to items and services paid
for under Medicare or a federally funded health care program. In recent years,
there has been increasing scrutiny by law enforcement authorities, the
Department of Health and Human Services ("HHS"), the courts and Congress of
financial arrangements between health care providers and potential sources of
patient and similar referrals of


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business to ensure that such arrangements are not designed as mechanisms to
pay for patient referrals. HHS interprets the anti-kickback statute broadly
to apply, under certain circumstances, to distributions of partnership and
corporate profits to investors who refer federal health care program patients
to a corporation or partnership in which they have an ownership interest and
to payments for service contracts and equipment leases that are designed to
provide direct or indirect remuneration for patient referrals or similar
opportunities to furnish reimbursable items or services. In July 1991, HHS
issued "safe harbor" regulations that set forth certain provisions which, if
met, will assure that health care providers and other parties who refer
patients or other business opportunities, or who provide reimbursable items
or services, will be deemed not to violate the anti-kickback statute. The
Company is also subject to separate laws governing the submission of false
claims. The Company believes that its operations materially comply with the
anti-kickback statutes.

STARK II, STATE PHYSICIAN SELF-REFERRAL LAWS: A federal law, commonly known as
the "Stark Law" or "Stark II," also imposes civil penalties and exclusions for
referrals for "designated health services" by physicians to certain entities
with which they have a financial relationship (subject to certain exceptions).
"Designated health services" include, among other things, radiology services,
including MRIs, CTs and ultrasound, and inpatient and outpatient hospital
services. The law applies only to services reimbursable by Medicare or Medicaid.
The Stark Law is self-effectuating and does not require implementing regulation;
however, while implementing regulations have been issued relating to referrals
for clinical laboratory services, final regulations have not been issued
regarding the other designated health services. In addition, several states in
which the Company operates have enacted or are considering legislation that
prohibits "physician self-referral" arrangements or requires physicians to
disclose to their patients any financial interest they may have with a health
care provider whom they recommend. Possible sanctions for violating these
provisions include loss of licensure and civil and criminal sanctions. Such
state 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. Although the Company believes its operations materially
comply with these federal and state physician self-referral laws, there can be
no assurance that Stark II or other regulations will not be interpreted or
changed in a manner that would have a material adverse effect on the Company's
business, financial condition or results of operations.

FDA: The U.S. Food and Drug Administration ("FDA") has issued the requisite
premarket approval for all of the MRI, CT, lithotripsy and Gamma Knife systems
utilized by the Company. The Company does not believe that any further FDA
approval is required in connection with equipment currently in operation or
proposed to be operated; except under regulations issued by the FDA pursuant to
the Mammography Quality Standards Act of 1992, all mammography facilities are
required to be accredited by an approved non-profit organization or state
agency. Pursuant to the accreditation process each facility providing
mammography services must comply with certain standards including annual
inspection.

Compliance with these standards is required to obtain payment for Medicare
services and to avoid various sanctions, including monetary penalties, or
suspension of certification. Although all of the Company's facilities which
provide mammography services are currently accredited by the Mammography
Accreditation Program of the American College of Radiology and the Company
anticipates continuing to meet the requirements for accreditation, the
withdrawal of such accreditation could result in the revocation of
certification. Congress has extended Medicare benefits to include coverage of
screening mammography subject to the prescribed quality standards described
above. The regulations apply to diagnostic mammography and image quality
examination as well as screening mammography.

RADIOLOGIST LICENSING: The radiologists with whom the Company may enter into
agreements to provide professional services are subject to licensing and related
regulations by the states. As a result, the Company requires its radiologists to
have and maintain appropriate licensure. The Company does not believe that such
laws and regulations will either prohibit or require licensure approval of its
business operations, although no assurances can be made that such laws and
regulations will not be interpreted to extend such prohibitions or requirements
to the Company's operations.

LIABILITY INSURANCE: The hospitals and physicians who use the Company's
diagnostic imaging systems are involved in the delivery of health care services
to the public and, therefore, are exposed to the risk of liability claims. The
Company's position is that it does not engage in the practice of medicine. The
Company provides only the


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equipment and technical components of diagnostic imaging, including certain
limited nursing services, and has not experienced any material losses due to
claims for malpractice. Nevertheless, claims for malpractice have been
asserted against the Company in the past and any future claims, if
successful, could result in substantial damage awards to the claimants, which
may exceed the limits of any applicable insurance coverage. The Company
maintains professional liability insurance in amounts it believes are
adequate for its business of providing diagnostic imaging, treatment and
management services. In addition, the radiologists or other health care
professionals with whom the Company contracts are required by such contracts
to carry adequate medical malpractice insurance. Successful malpractice
claims asserted against the Company, to the extent not covered by the
Company's liability insurance, could have a material adverse effect on the
Company's business, financial condition and results of operations.

INDEPENDENT PHYSIOLOGICAL LABORATORIES; INDEPENDENT DIAGNOSTIC TREATMENT
FACILITIES: Under past Medicare policy, imaging centers generally
participated in the Medicare program as either medical groups or, subject to
the discretion of individual Medicare carriers, Independent Physiological
Laboratories ("IPLs"). The IPL was a loosely defined Medicare provider
category that was not specifically authorized to provide imaging services.
Accordingly, certain carriers permitted IPLs to provide imaging services and
others did not. In the past, the Company preferred, to the extent possible,
to operate imaging centers for Medicare purposes as IPLs. The Company
believed that the designation of its imaging centers as IPLs gave it greater
operational control than it would have had if its imaging centers were
operated under the medical group model, where the Company would function as a
"manager".

The Health Care Financing Administration ("HCFA") has established a new
category of Medicare provider intended to replace IPLs, referred to as
Independent Diagnostic Treatment Facilities ("IDTFs"). Under these
regulations, imaging centers have the option to participate in the Medicare
program as either IDTFs or medical groups. The Company believes that the
impact of the IDTF regulations is likely to be positive overall. Accordingly,
the Company has converted most of its imaging centers from IPLs to IDTFs,
except in those states where the medical group model is required. In
addition, since the IDTF designation is new, it is unclear to what extent and
in what manner IDTFs will be monitored by HCFA, but it is probable that HCFA
will exercise increased oversight of IDTFs compared to IPLs, which could have
a material adverse effect on the Company's business, financial condition and
results of operations.

CERTIFICATES OF NEED: Some states require hospitals and certain other health
care facilities to obtain a certificate of need ("CON") or similar regulatory
approval prior to the commencement of certain health care operations or services
and/or the acquisition of major medical equipment including MRI and Gamma Knife
systems. CON regulations may limit or preclude the Company from providing
diagnostic imaging services or systems in certain states. The Company believes
that it will not be required to obtain CONs in most of the states in which it
intends to operate, and in those states where a CON is required, the Company
believes it has complied or will comply with such requirements. Nevertheless, a
significant increase in the number of states regulating the Company's business
within the CON or state licensure framework could adversely affect the Company's
business, financial condition and results of operations. Conversely, repeal of
existing CON regulations in jurisdictions where the Company has obtained or
operates under a CON could also adversely affect the Company's business,
financial condition and results of operations as barriers to entry are reduced
or removed. This is an area of continuing legislative activity, and there can be
no assurance that the Company will not be subject to CON and licensing statutes
in other states in which it operates or may operate in the future.

REIMBURSEMENT OF HEALTH CARE COSTS

MEDICARE: Beginning in late 1983, prospective payment regulations became
effective under the federal Medicare program. The Medicare program provides
reimbursement for hospitalization, physician, diagnostic and certain other
services to eligible persons 65 years of age and over and certain others.
Providers of service are paid by the federal government in accordance with
regulations promulgated by the HHS and generally accept said payment with
nominal co-insurance amounts required to be paid by the service recipient, as
payment in full. In general, these regulations provide for a specific
prospective payment to reimburse hospitals for inpatient treatment services
based upon the diagnosis of the patient.


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On April, 7, 2000, HCFA published its final rules concerning a new
prospective payment system ("OPPS") for most outpatient services in
Medicare-participating hospitals. Effective August 1, 2000, Medicare will pay
hospitals for outpatient services based on ambulatory payment classification
("APC") groups rather than on a hospital's costs. Each APC has been assigned
a payment weight by HCFA. Under the new OPPS, the payment due a hospital for
performing an outpatient service will be an amount based on the APC weight, a
dollar based conversion factor, a geographic adjustment factor to account for
area labor cost differences and any other adjustments applicable to the
hospital or case. Because the new OPPS may initially have a severe adverse
economic effect on hospitals, Congress enacted additional legislation in the
Balanced Budget Refinement Act of 1999 ("BBA") to ease such effect for a
specific period of time (through 2003). Under the BBA, hospitals may receive
additional payments for new technologies, transitional pass-through for
innovative medical devices, drugs and biologics, outlier adjustments and
transitional corridors.

Congressional and regulatory actions reflect industry-wide cost containment
pressures which the Company believes will affect all health care providers
for the foreseeable future. A recent initiative by HCFA to impose a 24%
reduction in diagnostic imaging reimbursement over a four year period
beginning January 1999 was indefinitely postponed due to flaws in HCFA's
imaging center cost study. HCFA has indicated that it will continue to
evaluate diagnostic imaging reimbursement; although, in January 2000, HCFA
increased reimbursement for diagnostic imaging services by approximately 3%
to 4% depending on the type of diagnostic imaging services provided.

MEDICAID: The Medicaid program is a combined federal and state program
providing coverage for low-income persons. The specific services offered and
reimbursement methods vary from state to state. In many states, Medicaid
reimbursement is patterned after the Medicare program. Changes in Medicaid
program reimbursement are not expected to have a material adverse impact on
the Company's business, financial condition and results of operations.

MANAGED CARE: Health Maintenance Organizations ("HMOs") and Preferred
Provider Organizations ("PPOs") attempt to control the cost of health care
services. Managed care contracting has become very competitive and
reimbursement schedules are at or below Medicare reimbursement levels. The
development and expansion of HMOs, PPOs and other managed care organizations
within the Company's regional networks could have a negative impact on
utilization of the Company's services in certain markets and/or affect the
revenue per procedure which the Company can collect, since such organizations
will exert greater control over patients' access to diagnostic imaging
services, the selection of the provider of such services and the
reimbursement thereof. The Company also expects that the excess capacity of
equipment in the United States may negatively impact operations because of
the competition among health care providers for contracts with all types of
managed care organizations. As a result of such competition, the length of
term of any contracts, which the Company may obtain, and the payment to the
Company for such services may also be negatively affected. See "Customers and
Fees".

PRIVATE INSURANCE: Private health insurance programs generally have
authorized the payment for the Company's services on satisfactory terms and
HCFA has authorized reimbursement under the federal Medicare program for all
diagnostic imaging and treatment services currently being provided by the
Company. However, if Medicare reimbursement is reduced, the Company believes
that private health insurance programs will also reduce


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reimbursement in response to reductions in government reimbursement, which
could have an adverse impact on the Company's business, financial condition
and results of operations.

SALES AND MARKETING

The Company selectively invests in marketing and sales resources and
activities for the purpose of obtaining new sources of revenues for the
Company, expanding business relationships, growing revenues at its existing
facilities and maintaining present business alliances and contractual
agreements. Marketing activities include efforts to contact physicians,
education programs on new applications and uses of technology, customer
service programs and contracting with insurance payors for volume discounts.
Sales activities principally focus on hospital customers who purchase Mobile
Facility services from the Company or enter into other more extensive
relationships for Fixed Facility partnerships or radiology department
management services.

COMPETITION

The health care industry in general, and the market for diagnostic imaging
services in particular, are highly competitive. The Company competes
principally on the basis of its reputation for productive and cost-effective
quality services. The Company's operations must compete with groups of
radiologists, established hospitals and certain other independent
organizations, including equipment manufacturers and leasing companies, that
own and operate imaging equipment. The Company will continue to encounter
substantial competition from hospitals and independent organizations,
including with respect to its Mobile Facilities, Alliance Imaging, Inc. and
its affiliates. Some of the Company's direct competitors that provide
contract diagnostic imaging services may have access to greater financial
resources than the Company.

Certain hospitals, particularly the larger hospitals, may be expected to
directly acquire and operate imaging and treatment equipment on-site as part
of their overall inpatient servicing capability, subject only to their
decision to acquire a diagnostic imaging system, assume the associated
financial risk, employ the necessary technologists and satisfy applicable CON
and licensure requirements, if any. Historically, smaller hospitals have been
reluctant to purchase imaging and treatment equipment. This reluctance,
however, has encouraged the entry of start-up ventures and more established
business operations into the diagnostic services business. As a result, there
is significant excess capacity in the diagnostic imaging business in the
United States, which negatively affects utilization and reimbursement.

CUSTOMERS AND FEES

The Company's revenues are primarily generated from contract services and
patient services. Contract services revenues are generally earned from
services billed to a hospital or other health care provider which include:
(i) fee-for-service arrangements in which revenues are based upon a
contractual rate per procedure, (ii) equipment rental in which revenues are
generally based upon a fixed monthly rental, and (iii) management fees.
Contract services revenues are primarily earned through Mobile Facilities and
certain Fixed Facilities and are generally paid pursuant to hospital
contracts with a life span of up to five years for Mobile Facilities and up
to ten years for Fixed Facilities.

As a result of the implementation of the new OPPS, the Company believes that
its hospital customers may seek reductions in contractual rates per procedure
to the extent the hospital believes it will pay more to the Company than it
will receive from Medicare and other third party payors. The reduction of
contractual rates for a single customer or loss of a single customer to a
competitor prepared to reduce contractual rates would not have a material
adverse impact on the Company's contract services revenues; however, the
reduction in contractual rates for several customers or loss of several
contracts could have a material impact on the Company's business, financial
condition and results of operations.

On the other hand, the Company believes that the impact of the new OPPS on
hospital payments for diagnostic imaging services -- especially for MRI and
CT services -- may cause hospitals to consider restructuring their diagnostic
outpatient imaging services as freestanding centers which are unaffected by
the new OPPS. This may provide the Company with additional opportunities for
its radiology co-source product which involves the joint ownership and
management of single and multi-modality imaging centers with hospitals. Given
the infancy and complexity of the new OPPS it is difficult to determine
whether hospitals will be receiving less from Medicare (after they take
advantage of the additional payments that may be available under the BBA) and
to what extent they will attempt to renegotiate existing contractual
arrangements.

Patient services revenues are services billed directly to patients or third
party payors (generally managed care organizations, Medicare, Medicaid,
commercial insurance carriers and worker's compensation funds), on a
fee-for-service basis and are primarily earned through Centers and certain
Fixed and Mobile Facilities. The Company believes its patient services
revenues received from Medicare will not be materially impacted because it
primarily operates freestanding imaging centers, which will be unaffected by
the new OPPS. See "Reimbursement of Health Care Costs".

The Company's Fixed Facility operations are principally dependent on the
Company's ability (either directly or indirectly through its hospital
customers) to attract referrals from physicians and other health care
providers representing a variety of specialties. The Company's eligibility to
provide service in response to a referral is often dependent on the existence
of a contractual arrangement with the referred patient's insurance carrier
(primarily if the insurance is provided by a managed care organization). The
Company currently has in excess of 400 contracts with managed care
organizations for diagnostic imaging services provided at the Company's Fixed
Facilities primarily on a discounted fee-for-service basis. Managed care
contracting has become very competitive and reimbursement schedules are at or
below Medicare reimbursement levels. A significant decline in referrals
and/or reimbursement rates would adversely affect the Company's business,
financial condition and results of operations. See "Managed Care".


                                       9
<PAGE>

The Company's contract services revenues represent approximately 53% of total
revenues. Each year approximately one-quarter to one-third of the contract
services agreements for Mobile Facilities are subject to renewal. It is
expected that some high volume customer accounts will elect not to renew
their agreements and instead will purchase or lease their own diagnostic
imaging equipment and some customers may choose an alternative services
provider.

In the past, when such agreements have not been renewed, the Company has been
able to obtain replacement contracts. While some replacement accounts have
initially been smaller than the lost accounts, such replacement accounts'
revenues have generally increased over the term of the contract; however, new
and renewal contracts may not offset revenues from customers electing not to
renew their contracts with the Company. Although the nonrenewal of a single
customer contract would not have a material impact on the Company's contract
services revenues, non-renewal of several contracts could have a material
impact on contract services revenues.

In addition, the Company's contract services revenues with regard to its
Mobile Facilities in certain markets depend in part on some hospital accounts
with high volume. If the future reimbursement levels of such hospitals were
to decline or cease or if such hospitals were to become financially insolvent
and if such agreements were not replaced with new accounts or with the
expansion of services on existing accounts, the Company's contract services
revenues would be adversely affected. No single source accounts for more than
10% of the Company's total revenues. See "Reimbursement of Health Care Costs".

DIAGNOSTIC IMAGING AND OTHER EQUIPMENT

The Company estimates that it has invested approximately $89 million since
June 1996, to replace and upgrade diagnostic imaging systems and to purchase
new systems. As a result, the Company has technologically advanced,
state-of-the-art diagnostic imaging equipment. The Company owns or leases 179
diagnostic imaging and treatment systems, of which 122 are conventional MRI
systems, 28 are Open MRI systems, 21 are CT systems, four are lithotripters,
two are radiation oncology systems, one is a PET system and one is a Gamma
Knife. The Company owns 149 of its imaging and treatment systems and has
operating leases for the remaining 30 systems. Of the Company's 122
conventional MRI systems, 61% have a magnet strength of 1.5 Tesla and 32%
have a magnet strength of 1.0 Tesla. Currently, the industry standard magnet
strength for fixed and mobile MRI systems is 1.5 Tesla. The Company is in the
process of upgrading or replacing its remaining conventional MRI systems from
magnet strengths of less than 1.0 Tesla to magnet strengths of at least 1.0
Tesla.

The Company's master lease agreement with GE Medical Systems ("GEMS")
includes a variable lease arrangement for 8 of the Company's 30 leased
imaging systems, which can significantly reduce the Company's downside cash
flow risk. Under the Company's standard operating lease agreement with GEMS,
the Company pays approximately $29,000 per month to lease each system. Under
the variable rate election, the Company may choose to pay a monthly rental
fee averaging $18,000 per system, plus 40% of the operating profits generated
by such system, or to store idle systems at a fixed location for a monthly
payment to GEMS of $1,500 per system, representing approximately half of the
monthly maintenance costs for an idle system. The Company's variable lease
arrangement with GEMS covers most of the Company's older systems, which the
Company either has upgraded or expects to replace within the next 18 to 24
months. As of August 1, 2000, the Company had elected the variable lease
option with respect to one of the eight systems in the variable rate pool.
The option to elect the variable lease structure in the future with respect
to additional systems provides the Company with downside cash flow protection
in the event that any particular MRI system experiences low utilization.

The Company continues to evaluate the mix of its MRI equipment in response to
changes in technology and to the surplus capacity in the marketplace. The
overall technological competitiveness of the Company's equipment continues to
improve through upgrades, disposal and/or trade-in of older equipment and the
purchase or execution of leases for new equipment.

Several substantial companies are presently engaged in the manufacture of MRI
(including Open MRI), CT and other diagnostic imaging equipment, including
GEMS, Hitachi Medical Systems, Phillips Medical Systems North America
Company, Picker International, Inc., and Siemens Medical Systems, Inc. The
Company maintains good working relationships with many of the major
manufacturers to better ensure an adequacy of supply as well as access

                                      10
<PAGE>

to those types of diagnostic imaging systems which appear most appropriate
for the specific diagnostic or treatment center to be established.

EMPLOYEES

As of August 1, 2000, the Company had approximately 1,100 full-time, 70
part-time and 340 per diem employees. None of the Company's employees are
covered by a collective bargaining agreement. Management believes its
employee relations to be satisfactory.

COMPANY HISTORY

The Company was incorporated in Delaware in February 1996. The Company's
predecessors, InSight Health Corp. (formerly American Health Services Corp.
("AHS")) ("IHC"), and Maxum Health Corp. ("MHC"), became wholly owned
subsidiaries of the Company on June 26, 1996, pursuant to an Agreement and
Plan of Merger among the Company, IHC and MHC (the "Merger").

On October 14, 1997, the Company consummated a recapitalization
("Recapitalization") pursuant to which (a) certain investors affiliated with
TC Group, LLC and its affiliates (collectively, "Carlyle"), a private
merchant bank headquartered in Washington, D.C., made a cash investment of
$25 million in the Company and received therefor (i) 25,000 shares of newly
issued convertible preferred stock, Series B of the Company, par value $0.001
per share ("Series B Preferred Stock"), initially convertible, at the option
of the holders thereof, in the aggregate into 2,985,075 shares of common
stock, and (ii) warrants ("Carlyle Warrants") to purchase up to 250,000
shares of common stock at an exercise price of $10.00 per share; and (b) GE
(i) surrendered its rights under the amended equipment service agreement to
receive supplemental service fee payments equal to 14% of pretax income in
exchange for (A) the issuance of 7,000 shares of newly issued convertible
preferred stock, Series C of the Company, par value $0.001 per share ("Series
C Preferred Stock") initially convertible, at the option of GE, in the
aggregate into 835,821 shares of common stock, for which the Company recorded
a non-recurring expense of approximately $6.3 million, and (B) warrants ("GE
Warrants") to purchase up to 250,000 shares of common stock at an exercise
price of $10.00 per share and (ii) exchanged all of its convertible preferred
stock, Series A of the Company, for an additional 20,953 shares of Series C
Preferred Stock, initially convertible, at the option of GE, in the aggregate
into 2,501,760 shares of common stock.

FORWARD-LOOKING STATEMENTS DISCLOSURE

Except for the historical information contained in this report, certain
statements contained herein are "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995, which involve a number of
risks and uncertainties, including, but not limited to, availability of
financing; limitations and delays in reimbursement by third-party payors;
contract renewals and financial stability of customers; technology changes;
governmental regulations; conditions within the health care environment;
adverse utilization trends for certain diagnostic imaging procedures;
aggressive competition; general economic factors; the Company's inability to
carry out its business strategy due to rising purchase prices of imaging
centers and companies; successful integration of acquisitions; and the risk
factors listed from time to time in the Company's filings with the Securities
and Exchange Commission (the "SEC").

ITEM 2.       PROPERTIES

The Company leases approximately 20,000 square feet of office space for its
executive offices in Newport Beach, California, under a lease expiring in
2001; approximately 11,800 square feet of office space for its eastern
regional offices in Farmington, Connecticut, under a lease expiring in 2002;
approximately 4,400 square feet of office space for a billing office in
Merrillville, Indiana, under a lease expiring in 2003 and approximately 5,400
square feet of office space for a billing office in Santa Ana, California,
under a lease expiring in 2008. The Company believes its


                                      11

<PAGE>

facilities are adequate for its reasonably foreseeable needs. In addition,
the following table sets forth the other principal properties used as imaging
or treatment facilities by the Company as of June 30, 2000:

<TABLE>
<CAPTION>

                                                      APPROXIMATE
NAME OF FACILITY                                      SQUARE FEET             LOCATION
----------------                                      -----------             ---------
<S>                                                   <C>                     <C>
OWNED:
Granada Hills Open MRI Center (1)                          2,200              Granada Hills, California
Northern Indiana Oncology Center                           3,500              Valparaiso, Indiana
Berwyn Magnetic Resonance Center (1)                       3,800              Berwyn, Illinois
Garfield Imaging Center (1)                                4,500              Monterey Park, California
LAC/USC Imaging Sciences Center (1)                        8,500              Los Angeles, California
Maxum Diagnostic Center-Eighth Avenue                     10,000              Ft. Worth, Texas
Chattanooga Outpatient Center                             14,700              Chattanooga, Tennessee
Harbor/UCLA Diagnostic Imaging Center (1)                 15,000              Torrance, California
Diagnostic Outpatient Center (1)                          17,800              Hobart, Indiana

LEASED:
Lockport MRI - Maple Road                                    500              Williamsville, New York
Buckhead Imaging  (2)                                      1,500              Atlanta, Georgia
InSight Diagnostic Imaging Center - N. 18th Place          1,800              Phoenix, Arizona
Open MRI of Indianapolis                                   1,900              Indianapolis, Indiana
Lockport MRI                                               2,200              N. Tonawanda, New York
Lockport MRI                                               2,400              Lockport, New York
Open MRI of Southern Regional                              2,400              Clarksville, Indiana
Redwood City MRI                                           2,900              Redwood City, California
InSight Diagnostic Imaging Center                          3,100              Tempe, Arizona
Lockport MRI - Youngs Road                                 3,800              Tonawanda, New York
Dublin Imaging                                             3,900              Dublin, Ohio
Lockport MRI                                               4,000              Williamsville, New York
Open MRI of Orange County                                  4,000              Santa Ana, California
Washington Magnetic Resonance Center                       4,100              Whittier, California
Open MRI of Pleasanton                                     4,400              Pleasanton, California
InSight Diagnostic Imaging Center - 15th Avenue            4,700              Phoenix, Arizona
Imaging Center at Murfreesboro                             5,000              Murfreesboro, Tennessee
Marshwood Imaging                                          5,000              Scarborough, Maine
Lockport MRI                                               5,200              East Amherst, New York
InSight Diagnostic Imaging Center                          5,800              Peoria, Arizona
Maxum Diagnostic Center - Preston Road                     5,800              Dallas/Plano, Texas
Open MRI of Hayward                                        6,400              Hayward, California
Central Maine Imaging Center                               7,300              Lewiston, Maine
St. John's Regional Imaging Center                         7,700              Oxnard, California
Wilkes-Barre Imaging Center                                8,200              Wilkes Barre, Pennsylvania
Ocean Medical Imaging Center                               8,700              Tom's River, New Jersey
InSight Diagnostic Imaging Center - E. Thomas Road        10,600              Phoenix, Arizona
Broad Street Imaging Center                               12,700              Columbus, Ohio
Parkway Imaging Center                                    17,500              Henderson, Nevada
Maxum Diagnostic Center - Forest Lane                     18,500              Dallas, Texas
InSight Mountain Diagnostics                              19,100              Las Vegas, Nevada
</TABLE>

(1) The Company owns the building and holds the related land under a long-term
    lease.

(2) In connection with the closure of the Open MRI Fixed Facility in Atlanta,
    Georgia, the Company has a lease expiring in 2002, which it intends to
    sub-lease or terminate.


                                      12

<PAGE>

In fiscal 1998, the Company completed the purchase of 77,690 square feet of
land in Ft. Worth, Texas, upon which the Company intended to build a Center
to which certain existing operations in Ft. Worth would be relocated;
however, the Company is currently evaluating its options.

ITEM 3.       LEGAL PROCEEDINGS

The Company is engaged from time to time in the defense of lawsuits arising
out of the ordinary course and conduct of its business and has insurance
policies covering such potential insurable losses where such coverage is
cost-effective. The Company believes that the outcome of any such lawsuits
will not have a material adverse impact on the Company's business, financial
condition and results of operations.

On June 15, 1999, InfoTech Software Corporation ("InfoTech") filed a
complaint against IHC, Shawn P. Railey, Jason P. Gardner and Alchemy Software
Corporation ("Alchemy") in the District Court of Dallas County, Texas. The
plaintiff alleged that, among other things, in March 1994, MHC entered into
an agreement with InfoTech to design and implement a custom information
system for MHC and that MHC received only a license to use the software and
did not have the right to sublicense or otherwise provide third parties
access to InfoTech's software or to modify it. InfoTech further alleged that
defendants Railey and Gardner, former InfoTech employees, resigned from
InfoTech and formed Alchemy, conspired to and did steal the IHC project from
InfoTech and were providing services to IHC. The plaintiff's complaint
included claims of unfair competition, breach of contract, collusion,
business disparagement and tortious interference with contractual relations.
The complaint requested a judgment for actual and exemplary damages in
unspecified amounts, attorney's fees, pre-judgment and post judgment
interest, costs and disbursements. On January 26, 2000, the parties entered
into a settlement agreement pursuant to which IHC paid the plaintiff an
immaterial monetary settlement for all of the plaintiff's claims and the
plaintiff and defendants mutually released each other from any other claims.
As part of the settlement agreement, InfoTech, Alchemy and Messrs. Railey and
Gardner assigned to IHC all rights to all source codes for software developed
by them.

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

None.


                                      13

<PAGE>

                                    PART II

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

The Company's common stock is traded on the national over-the-counter market and
quoted on the NASDAQ Small Cap Market under the symbol "IHSC". The following
table sets forth the high and low prices as reported by NASDAQ for the Company's
common stock for the quarters indicated. The prices (rounded to the nearest 1/8
or nearest 1/32 where applicable) represent quotations between dealers without
adjustment for mark-up, markdown or commission, and may not necessarily
represent actual transactions.

<TABLE>
<CAPTION>
QUARTER ENDED                               LOW              HIGH
-------------                               ---              ----
<S>                                         <C>              <C>
September 30, 1999                           5                6 15/16
December 31, 1999                            4 5/8            6 1/2
March 31, 2000                               5 11/16         11 1/2
June 30, 2000                                5 3/4            8 3/8

September 30, 1998                           6               12
December 31, 1998                            4 1/2            9
March 31, 1999                               5                8
June 30, 1999                                4 15/16          9
</TABLE>

The Company has never paid a cash dividend on its common stock and does not
expect to do so in the foreseeable future. The Company's credit agreement with
its primary lender and the indenture governing publicly-issued debt securities
of the Company contain restrictions on its ability to pay dividends on its
common stock.

As of August 15, 2000, the Company's records indicate that there were in excess
of 1,900 beneficial holders of common stock and approximately 440 stockholders
of record.

The following securities were sold by the Company during the period covered by
this report on Form 10-K which, pursuant to the exemption provided under Section
4(2) of the Securities Act of 1933, as amended ("Securities Act"), were not
registered under the Securities Act: On June 21, 2000, the Company issued to SHP
Capital Markets Inc., pursuant to the cashless exercise of 35,000 warrants,
7,252 shares of the Company's common stock.


                                      14

<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

The Merger was accounted for using the purchase method of accounting in
accordance with generally accepted accounting principles. MHC has been treated
as the acquirer for accounting purposes, based upon relative revenues, book
values and other factors. The selected consolidated financial data presented as
of and for the years ended June 30, 2000, 1999, 1998 and 1997, the six months
ended June 30, 1996 and 1995 (unaudited), and for the year ended December 31,
1995 has been derived from the Company's audited consolidated financial
statements and should be read in conjunction with such consolidated financial
statements and related notes as of and for the years ended June 30, 2000, 1999
and 1998, and Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations," included elsewhere in this report.

<TABLE>
<CAPTION>
                                        (Amounts in thousands, except shares and per share data)

                                                                                                 SIX MONTHS ENDED
                                                            YEARS ENDED JUNE 30,               ---------------------  YEAR ENDED
                                                 --------------------------------------------  JUNE 30,   JUNE 30,   DECEMBER 31,
                                                   2000        1999        1998       1997     1996 (1)  1995(1)(8)     1995(1)
                                                 ----------  ----------  ---------  ---------  --------- ---------- ---------------
<S>                                              <C>         <C>         <C>        <C>        <C>       <C>        <C>
STATEMENT OF OPERATIONS DATA:
Revenues                                         $ 188,574   $ 161,992   $ 119,018  $ 92,273   $ 26,460   $ 24,434      $ 50,609
Operating income (loss) (2) (3)                     27,016      17,422       7,770     5,774     (2,949)      (331)       (1,193)
Interest expense, net                               18,696      14,500       6,827     4,066      1,144        648         1,626
Net income (loss) (4) (5) (6)                        7,189       6,112         512     1,281       (979)      (979)       (4,319)

Income (loss) per common and converted
preferred share (7):
    Basic                                        $   0.78    $   0.67     $   0.06  $  0.25    $  (0.70)  $  (0.73)     $  (3.21)
                                                 ========    ========     ========  =======    ========   ========      ========
    Diluted                                      $   0.76    $   0.65     $   0.06  $  0.24    $  (0.70)  $  (0.73)     $  (3.21)
                                                 ========    ========     ========  =======    ========   ========      ========

<CAPTION>
                                                                        JUNE 30,
                                                 -------------------------------------------------------               DECEMBER 31,
BALANCE SHEET DATA:                                2000        1999        1998       1997       1996                     1995 (1)
                                                 ----------  ----------  ---------  ---------  ---------              -------------
<S>                                              <C>         <C>         <C>        <C>        <C>                    <C>
Working capital (deficit)                         $ 20,814    $ 24,651   $ 36,109   $ (6,162)  $ (1,441)                $ (2,228)
Property and equipment, net                        148,469      90,671     75,146     34,060     29,349                   12,386
Intangible assets                                   93,930      80,327     74,831     32,579     16,216                    4,047
Total assets                                       328,872     238,304    231,592     97,271     69,313                   28,306
Total long-term liabilities                        221,307     161,266    155,642     59,205     39,839                   19,723
Stockholders' equity (deficit)                      51,487      44,106     37,858      6,685      5,404                   (4,005)
</TABLE>

(1) The selected consolidated financial data represents historical data of
    MHC only.

(2) Includes a provision for supplemental service  fee termination of $6.3
    million in 1998.

(3) Includes a provision for reorganization and other costs of $3.3 million
    in 1999.

(4) Includes a provision for securities litigation settlement of $1.5 million
    in 1995.

(5) Includes an extraordinary gain on debt extinguishment of $3.2 million in
    1996.

(6) Includes an income tax benefit of $3.5 million in 1999.

(7) Amounts are computed on a pro forma basis as if the reset of par value of
    MHC common stock and related conversion into the Company's common stock had
    occurred on January 1, 1995.

(8) Unaudited.

(9) No cash dividends have been paid on the Company's common stock for the
    periods indicated above.


                                      15

<PAGE>

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

The statements contained in this report that are not purely historical or which
might be considered an opinion or projection concerning the Company or its
business, whether express or implied, are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements may include statements regarding the Company's expectations,
intentions, plans or strategies regarding the future, including statements
related to the Year 2000 Issue. All forward-looking statements included in this
report are based upon information available to the Company on the date hereof,
and the Company assumes no obligation to update any such forward-looking
statements. It is important to note that the Company's actual results could
differ materially from those described or implied in such forward-looking
statements because of certain factors which could affect the Company. Such
forward-looking statements should be evaluated in light of the following
factors: availability of financing; limitations and delays in reimbursement by
third party payors; contract renewals and financial stability of customers;
technology changes; governmental regulations; conditions within the health care
environment; Year 2000 issues; adverse utilization trends for certain diagnostic
imaging procedures; aggressive competition; general economic factors; successful
integration of acquisitions; and the risk factors described in the Company's
periodic filings with the SEC on Forms 10-K, 10-Q and 8-K (if any) and the
factors described under "Risk Factors" in the Company's Registration Statement
on Form S-4, filed with the SEC on August 4, 1998, and any amendments thereto.

ACQUISITIONS

The Company believes a consolidation in the diagnostic imaging industry is
occurring and is necessary in order to provide surviving companies the
opportunity to achieve operating and administrative efficiencies through
consolidation. The Company's strategy is to further develop and expand regional
diagnostic imaging networks that emphasize quality of care, produce
cost-effective diagnostic information and provide superior service and
convenience to its customers. The strategy of the Company is focused on the
following components: (i) to further participate in the consolidation occurring
in the diagnostic imaging industry by continuing to build its market presence in
its existing regional diagnostic imaging networks through geographically
disciplined acquisitions; (ii) to develop or acquire additional regional
networks in strategic locations where the Company can offer a broad range of
services to its customers and realize increased economies of scale; (iii) to
continue to market current diagnostic imaging applications through its existing
facilities to optimize and increase overall procedure volume; (iv) to strengthen
the regional diagnostic imaging networks by focusing on managed care customers;
and (v) to implement a variety of new products and services designed to further
leverage its core business strengths, including: Open MRI systems and the
radiology co-source product which involves the joint ownership and management of
the physical and technical operations of a single or multi-modality facility on
a hospital campus. The Company believes that long-term viability is contingent
upon its ability to successfully execute its business strategy.

In fiscal 1999, the Company completed two acquisitions as follows: a 70%
interest in a partnership which owns four Centers and two Fixed Facilities in
Buffalo, New York; and a 100% interest in three Centers and two Fixed Facilities
in Phoenix, Arizona. The aggregate purchase price for these two acquisitions was
approximately $16.9 million, subject to certain earn-out provisions relating
to the Buffalo, New York acquisition.

In fiscal 2000, the Company completed two acquisitions as follows: two Fixed
Facilities in Indianapolis and Clarksville, Indiana, respectively; and a 90%
interest in a partnership which owns a Center in Wilkes-Barre, Pennsylvania. The
aggregate purchase price for these two acquisitions was approximately $24.5
million.

In fiscal 2000, the Company opened the following: its second radiology co-source
outpatient Fixed Facility in Granada Hills, California; its third radiology
co-source outpatient Center in Henderson, Nevada; and an Open MRI Fixed Facility
in Pleasanton, California. These were financed through both capital leases with
GE and internally generated funds. In fiscal 2000, the Company closed an Open
MRI Fixed Facility in Atlanta, Georgia.

In the first quarter of fiscal 2001, the Company opened its fourth radiology
co-source Fixed Facility in Marina del Rey, California, which was financed with
a capital lease from GE and a PET Fixed Facility in Louisville, Kentucky, which
was financed with outside financing.


                                      16

<PAGE>

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

The Company operates in a capital intensive, high fixed cost industry that
requires significant amounts of working capital to fund operations, particularly
the initial start-up and development expenses of new operations and yet is
constantly under external pressure to contain costs and reduce prices. Revenues
and cash flows have been adversely affected by an increased collection cycle,
competitive pressures and major restructurings within the health care industry.
This adverse effect on revenues and cash flow is expected to continue.

The Company continues to pursue acquisition opportunities. The Company
believes that the expansion of its business through acquisitions is a key
factor in improving profitability. Generally, acquisition opportunities are
aimed at increasing revenues and operating income, and maximizing utilization
of existing capacity. Incremental operating income resulting from future
acquisitions will vary depending on geographic location, whether facilities
are Mobile or Fixed, the range of services provided and the Company's ability
to integrate the acquired businesses into its existing infrastructure. Since
1996, the Company has completed twelve acquisitions. No assurance can be
given, however, that the Company will be able to identify suitable
acquisition candidates and thereafter complete such acquisitions on terms
acceptable to the Company. In addition, the Company's acquisition facility
has expired, and until alternate financing sources can be arranged, the
Company will have to utilize its own internally generated funds to complete
future acquisitions, as discussed below.

The Company has outstanding $100 million of 9 5/8% senior subordinated notes
(Notes). The Notes mature in June 2008, with interest payable semi-annually and
are redeemable at the option of the Company, in whole or in part, on or after
June 15, 2003. The Notes are unsecured senior subordinated obligations of the
Company and are subordinated in right of payment to all existing and future
indebtedness, as defined in the indenture, of the Company, including borrowings
under the bank financing described below. The terms of the Notes contain certain
restrictions on the Company's ability to take certain actions without first
obtaining consent of the noteholders.

The Company also has the following credit facilities with Bank of America,
N.A.: (i) a $50 million term loan which matures in June 2004, (ii) a $25
million working capital facility which expires in June 2003, and (iii) a $75
million acquisition facility which matures in June 2004, the availability of
which expired on June 12, 2000 (Bank Financing). Borrowings under the Bank
Financing bear interest at LIBOR plus 1.75%. The Company is required to pay
an annual unused facility fee of 0.375%, payable quarterly, on unborrowed
amounts under the working capital facility. The Company paid approximately
$0.3 million during the year ended June 30, 2000 for unused facility fees on
unborrowed amounts under the working capital and acquisition facilities. At
June 30, 2000, there was approximately $35.0 million and $54.1 million in
borrowings under the term loan and the acquisition facilities, respectively;
however, there were no borrowings under the working capital facility. The
Company did not completely utilize the acquisition facility prior to its
expiration and until alternate financing sources can be arranged, the Company
will have to utilize its own internally generated funds to complete future
acquisitions. As of June 30, 2000, the Company had cash on hand of
approximately $27.1 million, which it may utilize to consummate such
acquisitions. As of August 15, 2000, the Company had borrowing availability
of approximately $25 million under the working capital facility.

Net cash provided by operating activities was approximately $40.5 million for
the year ended June 30, 2000. Cash provided by operating activities resulted
primarily from net income before depreciation and amortization (approximately
$40.8 million) and an increase in accounts payable and other accrued expenses
(approximately $6.1 million). The increase in accounts payable and other accrued
expenses is due primarily to approximately $5.5 million in equipment costs for
the delivery of three Mobile Facilities in June 2000. The increase was offset by
an increase in trade accounts receivables (approximately $4.6 million) and an
increase in other current assets (approximately $1.8 million). The increase in
trade accounts receivables is due primarily to the Company's acquisition and
development activities.

Net cash used in investing activities was approximately $49.0 million for the
year ended June 30, 2000. Cash used in investing activities resulted primarily
from the (i) Company purchasing or upgrading diagnostic imaging equipment at its
existing facilities (approximately $23.1 million), (ii) the acquisitions
described above (approximately $23.9 million), and (iii) purchasing or upgrading
diagnostic imaging equipment at the facilities acquired in fiscal 2000 and 1999
described above (approximately $1.4 million).


                                      17

<PAGE>

Net cash provided by financing activities was approximately $21.4 million for
the year ended June 30, 2000, resulting primarily from net borrowings under the
working capital and acquisition facilities (approximately $34.8 million), offset
by principal payments of debt and capital lease obligations (approximately $15.0
million).

The Company has committed to purchase or lease in connection with the
development of new Mobile Facilities and replacement of diagnostic imaging
equipment at Centers, Fixed and Mobile Facilities, at an aggregate cost of
approximately $12.4 million, 10 MRI systems for delivery through December 31,
2000. The Company expects to use either internally generated funds or leases
from GE to finance the purchase of such equipment. In addition, the Company
previously committed to purchase or lease from GE 24 Open MRI systems. As of
June 30, 2000, the Company had not taken delivery of two such MRI systems, which
are included in the commitments discussed above. The Company may purchase, lease
or upgrade other MRI systems as opportunities arise to place new equipment into
service when new contract services agreements are signed, existing agreements
are renewed, acquisitions are completed, or new imaging centers are developed in
accordance with the Company's business strategy.

Effective December 1, 1999, the Company purchased 38 pieces of diagnostic
imaging equipment from GE by converting operating leases to capital leases.
The capital leases bear interest at 9% per annum, have 48 to 72 month terms
and contain a $1.00 buyout at the end of each lease. The total purchase price
was approximately $45 million. For the seven months ended June 30, 2000,
equipment lease expense was reduced by approximately $7.0 million, and
depreciation and interest combined was increased by approximately the same
amount. The Company believes, on an annualized basis, equipment lease expense
will be reduced by approximately $12 million, and depreciation and interest
will be increased by approximately the same amount. The Company also
purchased four pieces of diagnostic imaging equipment which were also
financed through capital leases with GE. The total purchase price was
approximately $7.0 million.

The Company believes that, based on current levels of operations and
anticipated growth, its cash from operations, together with other available
sources of liquidity, including borrowings available under the Bank
Financing, will be sufficient through June 30, 2001 to fund anticipated
capital expenditures and make required payments of principal and interest on
its debt, including payments due on the Notes and obligations under the Bank
Financing. In addition, the Company continually evaluates potential
acquisitions and expects to fund such acquisitions from its available sources
of liquidity, as discussed above. The Company's acquisition strategy may
require sources of capital in addition to that currently available to the
Company. The Company expects, subject to market conditions, to obtain
additional acquisition financing in the third quarter of fiscal 2001. No
assurance can be given that the Company will be able to raise any such
necessary additional funds on terms acceptable to the Company or at all.

RESULTS OF OPERATIONS

YEARS ENDED JUNE 30, 2000 AND 1999

REVENUES: Revenues increased approximately 16.4% from approximately $162.0
million for the year ended June 30, 1999, to approximately $188.6 million for
the year ended June 30, 2000. This increase was due primarily to the
acquisitions and opened Fixed Facilities discussed above (approximately $15.2
million) and an increase in contract services and patient services revenues
(approximately $12.7 million) at existing facilities, offset by a decrease in
other revenues (approximately $1.3 million), primarily due to a one-time
settlement payment in connection with an earn-out from the sale of the Company's
lithotripsy partnerships which was recorded in fiscal 1999 (approximately $0.4
million).

Contract services revenues increased approximately 17.1% from approximately
$85.5 million for the year ended June 30, 1999, to approximately $100.1 million
for the year ended June 30, 2000. This increase was due primarily to the
acquisitions discussed above (approximately $4.0 million) and an increase in the
Company's existing business (approximately $10.6 million). The increase in
existing business was due to (i) the addition of six Mobile Facilities and (ii)
higher utilization (approximately 14%) at the Company's existing mobile customer
base, offset by a decline in reimbursement from customers, primarily hospitals
(approximately 3%).

Contract services revenues, primarily earned by its Mobile Facilities,
represented approximately 53% of total revenues for the year ended June 30,
2000. Each year approximately one-quarter to one-third of the contract services
agreements are subject to renewal. It is expected that some high volume customer
accounts will elect not to renew their agreements and instead will purchase or
lease their own diagnostic imaging equipment and some customers may choose an
alternative services provider. In the past where agreements have not been
renewed, the Company has been


                                      18

<PAGE>

able to obtain replacement customer accounts. While some replacement accounts
have initially been smaller than the lost accounts, such replacement accounts
revenues have generally increased over the term of the agreement. The
non-renewal of a single customer agreement would not have a material impact
on the Company's contract services revenues; however, non-renewal of several
agreements could have a material impact on contract services revenues.

In addition, the Company's contract services revenues with regard to its
Mobile Facilities in certain markets depend in part on some customer accounts
with high volume. If the future reimbursement levels of such customers were
to decline or cease or if such customers were to become financially insolvent
and if such agreements were not replaced with new accounts or with the
expansion of services on existing accounts, the Company's contract services
revenues would be adversely affected. As a result of the implementation of
the new OPPS for outpatient services, the Company's contract services revenues
could be adversely affected. See "Reimbursement of Health Care Costs" and
"Customers and Fees".

Patient services revenues increased approximately 17.9% from approximately $73.6
million for the year ended June 30, 1999, to approximately $86.8 million for the
year ended June 30, 2000. This increase was due primarily to the acquisitions
and opened Fixed Facilities discussed above (approximately $11.1 million) and an
increase in revenues at existing facilities (approximately $2.3 million), offset
by reduced revenues from the closure of the Open MRI Fixed Facility discussed
above (approximately $0.2 million). The increase at existing facilities was due
to higher utilization (approximately 9%), partially offset by a decline in
reimbursement from third party payors (approximately 3%).

Management believes that any future increases in revenues at existing
facilities can only be achieved by higher utilization and not by increases in
procedure prices; however, slower start-ups of new operations, excess
capacity of diagnostic imaging equipment, competition, and the expansion of
managed care may impact utilization and make it difficult for the Company to
achieve revenue increases in the future, absent the execution of provider
agreements with managed care companies and other payors, and the execution of
the Company's business strategy, particularly acquisitions. The Company's
operations are principally dependent on its ability (either directly or
indirectly through its hospital customers) to attract referrals from
physicians and other health care providers representing a variety of
specialties. The Company's eligibility to provide service in response to a
referral is often dependent on the existence of a contractual arrangement
with the referred patient's insurance carrier (primarily if the insurance is
provided by a managed care organization). Managed care contracting has become
very competitive and reimbursement schedules are at or below Medicare
reimbursement levels, and a significant decline in referrals could have a
material impact on the Company's revenues.

COSTS OF OPERATIONS: Costs of operations increased approximately 15.3% from
approximately $131.3 million for the year ended June 30, 1999, to approximately
$151.4 million for the year ended June 30, 2000. This increase was due primarily
to additional costs related to the acquisitions and opened Fixed Facilities
discussed above (approximately $14.5 million) and at existing facilities
(approximately $5.9 million), offset by reduced expenses for the closed Open MRI
Fixed Facility discussed above (approximately $0.3 million).

Costs of operations, as a percentage of total revenues, decreased to
approximately 80.3% for the year ended June 30, 2000 from approximately 81.1%
for the year ended June 30, 1999. The percentage decrease is primarily due to
reduced costs in equipment leases and depreciation, equipment maintenance and
occupancy, offset by higher salary and benefit costs. The Company is continuing
its effort to improve operating efficiencies through cost reduction initiatives.
The cost reduction initiatives are focused primarily on costs for diagnostic
imaging equipment, including lease, depreciation and maintenance, occupancy,
marketing and salary and benefits.

CORPORATE OPERATING EXPENSES: Corporate operating expenses increased
approximately 3.8% from approximately $10.5 million for the year ended June 30,
1999, to approximately $10.9 million for the year ended June 30, 2000. This
increase was due primarily to additional information systems costs, offset by a
decrease in travel, legal and consulting costs. Corporate operating expenses, as
a percentage of total revenues, decreased from approximately 6.5% for the year
ended June 30, 1999, to approximately 5.8% for the year ended June 30, 2000.

INTEREST EXPENSE, NET: Interest expense, net increased approximately 29.0% from
approximately $14.5 million for the year ended June 30, 1999, to approximately
$18.7 million for the year ended June 30, 2000. This increase was due primarily
to additional debt related to (i) the acquisitions discussed above, (ii) the
buy-out of operating leases discussed above, (iii) higher interest rates on the
Company's floating rate debt and (iv) the Company


                                      19

<PAGE>

upgrading its existing diagnostic imaging equipment, offset by reduced
interest as a result of amortization of long-term debt.

PROVISION FOR INCOME TAXES: Provision for income taxes increased from a benefit
of approximately $3.2 million for the year ended June 30, 1999, to approximately
$1.1 million for the year ended June 30, 2000. The increase is due to the
Company recording a reduction to the valuation allowance of approximately $3.5
million to recognize anticipated benefits from the utilization of certain net
operating loss carryforwards in 1999. The effective tax rate increased to
approximately 14% in 2000 from approximately 11% in 1999 primarily as a result
of the effects of benefits from the Company's net operating loss carryforwards.
At the beginning of each fiscal year, the Company estimates its effective tax
rate for the fiscal year. In addition, the Company periodically reviews the
effective tax rate in light of certain factors, including actual operating
income, acquisitions completed and new business development and the effects of
benefits from the Company's net operating loss carryforwards. This review may
result in an increase or decrease in the effective tax rate during the fiscal
year.

INCOME PER COMMON AND CONVERTED PREFERRED SHARE: On a diluted basis, net income
per common and converted preferred share was $0.76 for the year ended June 30,
2000, compared to net income per common and converted preferred share of $0.65
for the year ended June 30, 1999. Excluding the one-time provision for
reorganization and other costs and the benefit for income taxes, net income per
common and converted preferred share on a diluted basis for the year ended June
30, 1999 would have been $0.63. The increase in net income per common and
converted preferred share is the result of (i) increased income from company
operations and (ii) an increase in earnings from unconsolidated partnerships, as
a result of new diagnostic imaging equipment installed in 1999, offset by (i)
increased interest expense and (ii) an increase in provision for income taxes.

YEARS ENDED JUNE 30, 1999 AND 1998

REVENUES: Revenues increased approximately 36.1% from approximately $119.0
million for the year ended June 30, 1998, to approximately $162.0 million for
the year ended June 30, 1999. This increase was due primarily to the
acquisitions and opened facilities discussed above (approximately $31.2 million)
and an increase in contract services, patient services and other revenues
(approximately $14.0 million) at existing facilities, partially offset by the
termination of a Fixed Facility and a Gamma Knife Center in 1998 (approximately
$2.2 million).

Contract services revenues increased approximately 53.5% from approximately
$55.7 million for the year ended June 30, 1998, to approximately $85.5 million
for the year ended June 30, 1999. This increase was due primarily to the
acquisitions discussed above (approximately $18.1 million) and an increase at
existing facilities (approximately $11.7 million). The increase at existing
facilities was due to higher utilization (approximately 10%) offset by a decline
in reimbursement from customers, primarily hospitals (approximately 3%).

Patient services revenues increased approximately 23.3% from approximately
$59.7 million for the year ended June 30, 1998, to approximately $73.6
million for the year ended June 30, 1999. This increase was due primarily to
the acquisitions and opened facilities discussed above (approximately $11.7
million) and an increase in revenues at existing facilities (approximately
$4.4 million). The increase at existing facilities was due to higher
utilization (approximately 9%), partially offset by declines in reimbursement
from third party payors (approximately 1%) and reduced revenues from the
termination of a Fixed Facility and a Gamma Knife Center in fiscal 1998
(approximately $2.2 million).

COSTS OF OPERATIONS: Costs of operations increased approximately 35.5% from
approximately $96.9 million for the year ended June 30, 1998, to approximately
$131.3 million for the year ended June 30, 1999. This increase was due primarily
to an increase in costs due to the acquisitions and opened facilities discussed
above (approximately $25.4 million) and an increase in costs at existing
facilities (approximately $10.1 million), offset by the elimination of costs at
the two terminated facilities discussed above (approximately $1.1 million).

Costs of operations, as a percent of total revenues, decreased from
approximately 81.4% for the year ended June 30, 1998, to approximately 81.1% for
the year ended June 30, 1999. The percentage decrease was due primarily to
reduced costs in service supplies, equipment maintenance, and equipment lease
and depreciation costs as a result of the Company negotiating favorable supply
contracts and upgrading its existing diagnostic imaging equipment.
The decrease was offset by higher salaries and benefits and marketing costs.


                                      20

<PAGE>

PROVISION FOR SUPPLEMENTAL SERVICE FEE TERMINATION: As part of the
Recapitalization discussed above, the Company issued to GE 7,000 shares of
Series C Preferred Stock to terminate GE's rights to receive supplemental
service fee payments equal to 14% of the Company's pretax income. The Series C
Preferred Stock was valued at $7.0 million and, during the year ended June 30,
1998, the Company recorded a one-time provision of approximately $6.3 million,
net of amounts previously accrued, for the Preferred Stock issuance.

PROVISION FOR REORGANIZATION AND OTHER COSTS: In the fourth quarter of fiscal
1999, the Company recorded a one-time provision for reorganization and other
costs of $3.3 million, consisting of the following: The Company realigned its
corporate and regional organization to improve financial performance and
operating efficiencies and recorded a provision with respect to the related
employee severances and office closing costs of approximately $1.8 million.
Additionally, in connection with its business strategy, the Company evaluated a
number of potential acquisitions in the last six months of fiscal 1999, which it
did not complete. The Company has recorded a provision of approximately $0.7
million for legal, accounting and consulting costs associated with certain
potential acquisitions that the Company determined were no longer consistent
with its strategic objectives. Finally, the Company reevaluated its information
systems in light of organizational changes and developed a new strategic plan to
modify and reimplement its proprietary radiology information system.
Accordingly, the Company recorded a provision with respect to related software
and other capitalized costs of approximately $0.8 million.

CORPORATE OPERATING EXPENSES: Corporate operating expenses increased
approximately 19.3% from approximately $8.8 million for the year ended June 30,
1998, to approximately $10.5 million for the year ended June 30, 1998. This
increase was due primarily to (i) increased salaries, benefits and travel costs
associated with the Company's acquisition and development activities, (ii)
increased occupancy and communication costs, and (iii) additional information
systems costs, offset by reduced legal costs. Corporate operating expenses, as a
percentage of total revenues, decreased from approximately 7.4% for the year
ended June 30, 1998, to approximately 6.5% for the year ended June 30, 1999.

INTEREST EXPENSE, NET: Interest expense, net increased approximately 113.2% from
approximately $6.8 million for the year ended June 30, 1998, to approximately
$14.5 million for the year ended June 30, 1999. This increase was due primarily
to additional debt related to (i) the issuance of Notes discussed above, which
increased the Company's effective interest rate, (ii) the acquisitions discussed
above, and (iii) the Company upgrading its existing diagnostic imaging
equipment, offset by reduced interest as a result of amortization of long-term
debt.

PROVISION FOR INCOME TAXES: Provision for income taxes decreased from
approximately $0.4 million for the year ended June 30, 1998, to a benefit of
approximately $3.2 million for the year ended June 30, 1999. The decrease in
provision was due to the Company recording a reduction to the valuation
allowance of approximately $3.5 million to recognize anticipated benefits from
the utilization of certain net operating loss carryforwards available for use in
fiscal 2000.

INCOME PER COMMON AND CONVERTED PREFERRED SHARE: On a diluted basis, net income
per common and converted preferred share was $0.65 for the year ended June 30,
1999, compared to net income per common and converted preferred share of $0.06
for the same period in 1998. Excluding the one-time provision for reorganization
and other costs and the benefit for income taxes discussed above, net income per
common and converted preferred share on a diluted basis for the year ended June
30, 1999 would have been $0.63. Excluding the one-time provision for
supplemental service fee termination discussed above, net income per common and
converted preferred share on a diluted basis for the year ended June 30, 1998
would have been $0.83. The decrease in net income per common and converted
preferred share before such provisions and benefit was the result of (i) the
additional shares outstanding as a result of the Recapitalization discussed
above, (ii) increased interest expense, and (iii) a decrease in earnings from
unconsolidated partnerships as a result of the installation of new diagnostic
imaging equipment, offset by increased income from company operations.

NEW PRONOUNCEMENTS

In fiscal 2001, the Company will be required to adopt Statement of Financial
Accounting Standards No. 133, "Accounting for Derivatives, Instruments and
Hedging Activities", as deferred and amended by SFAS No. 137. The Company
believes the adoption of this standard will not have a material impact on the
Company's financial condition or results of operations.


                                      21

<PAGE>

YEAR 2000 ISSUE

IMPACT OF YEAR 2000: The Year 2000 Issue exists because many computer systems
and applications currently use two-digit date fields to designate a year. As the
century date occurred, computer programs, computers and embedded microprocessors
controlling equipment with date-sensitive systems might have recognized Year
2000 as 1900 or not at all. This inability to recognize or properly treat Year
2000 might have resulted in computer system failures or miscalculations of
critical financial and operational information as well as failures of equipment
controlling date-sensitive microprocessors. In addition, miscalculations or
failures could have been caused by the fact that the Year 2000 is a leap year.

STATE OF READINESS: The Company started to formulate a plan to address the Year
2000 Issue in late 1995. The Company's primary focus was on its own internal
information technology systems, including all types of systems in use by the
Company in its operations, marketing, finance and human resources departments,
and to deal with the most critical systems first. The Company developed a Year
2000 Plan to address all of its Year 2000 Issues. The Company gave its Executive
Vice President and Chief Information Officer specific responsibility for
managing its Year 2000 Plan and a Year 2000 Committee was established to assist
in developing and implementing the Year 2000 Plan. As of August 15, 2000, the
Company had not experienced and does not expect to experience any material
disruptions to its operations due to Year 2000 Issues; however, no assurance can
be given that the Company has assessed, identified or corrected all Year 2000
Issues that may arise in the coming months.

The Company completed, prior to December 31, 1999, assessment, renovation,
testing and implementation of all of its internal information technology
systems, embedded microprocessors in its other equipment, facilities and
corporate and regional offices, and its diagnostic imaging equipment.

The Company also completed, prior to December 31, 1999, its assessment of the
potential Year 2000 problems with the information systems of its payors,
customers, business partners, landlords and vendors. As part of the Company's
Year 2000 Plan, it requested readiness statements from any third parties whose
non-compliance could materially adversely affect the Company. As of August 15,
2000, the Company had not experienced any Year 2000 Issues with its payors,
customers, business partners, landlords, vendors and third parties.

PRIOR COST ESTIMATES TO ADDRESS YEAR 2000 ISSUES: The Company originally
estimated the cost of assessment, renovation, testing and implementation
would range from approximately $500,000 to $800,000, primarily related to
capital expenditures for the replacement of diagnostic imaging equipment. As
of August 15, 2000, the Company had incurred less than $650,000 in costs
relating to consultants, additional personnel, programming, new software and
hardware, software upgrades, travel expenses and the replacement of a piece
of non-compliant diagnostic imaging equipment at a Center (approximately
$470,000), which was scheduled for replacement in fiscal 2001. The Company's
costs may increase if additional Year 2000 Issues arise in the future.

RISKS TO THE COMPANY: Although the Company has completed the implementation of
its Year 2000 Plan and has not encountered any material Year 2000 Issues, there
are risks if its efforts did not address all uncertainties or that all
uncertainties have been properly identified. A failure by the Company in
remedying a Year 2000 Issue, or its failure to be, or the failure of its payors,
customers, business partners, landlords, vendors and other third parties to be,
Year 2000 compliant, could, in the worst-case scenario, cause a business
interruption which may materially adversely affect the Company's business,
financial condition and results of operations depending upon the extent and
duration of the business interruption.

CONTINGENCY PLANS: The Company implemented a contingency plan to address
unavoided or unavoidable Year 2000 risks with internal information technology
systems and with customers, vendors and other third parties but no assurance can
be given that such plan will address all risks that may actually arise.


                                      22
<PAGE>

ITEM 7A.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's market risk exposure relates primarily to interest rates, where
the Company will periodically use interest rate swaps to hedge interest rates on
long-term debt under its Bank Financing. The Company does not engage in
activities using complex or highly leveraged instruments.

At June 30, 2000, the Company had long-term debt of approximately $89.1 million
which has floating rate terms. The Company also had outstanding an interest rate
swap, converting $37.5 million of its floating rate debt to fixed rate debt.
Since the majority of the Company's debt has historically been fixed-rate debt,
the impact of the interest rate swap has not been material on the Company's
weighted average interest rate.












                                      23
<PAGE>

ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                 INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
                   Index to Consolidated Financial Statements
                for the Years Ended June 30, 2000, 1999 and 1998

<TABLE>
<CAPTION>
                                                                                 PAGE NUMBER
                                                                                 -----------
<S>                                                                              <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                                              25

CONSOLIDATED BALANCE SHEETS                                                           26

CONSOLIDATED STATEMENTS OF INCOME                                                     27

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY                                       28

CONSOLIDATED STATEMENTS OF CASH FLOWS                                                 29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                         30-50

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                                              58

SCHEDULE IX - VALUATION AND QUALIFYING ACCOUNTS                                       59
</TABLE>










                                      24
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To InSight Health Services Corp.:

We have audited the accompanying consolidated balance sheets of InSight Health
Services Corp. (a Delaware corporation) and subsidiaries as of June 30, 2000 and
1999, and the related consolidated statements of income, stockholders' equity
and cash flows for the years ended June 30, 2000, 1999, and 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 InSight
Health Services Corp. and subsidiaries as of June 30, 2000 and 1999, and the
results of their operations and their cash flows for the years ended June 30,
2000, 1999, and 1998, in conformity with accounting principles generally
accepted in the United States.


/s/ ARTHUR ANDERSEN LLP


Orange County, California
September 1, 2000


                                      25
<PAGE>

                 INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
                         CONSOLIDATED BALANCE SHEETS
                        AS OF JUNE 30, 2000 AND 1999
            (Amounts in thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                                             2000              1999
                                                                                         -----------       -----------
<S>                                                                                      <C>               <C>
                                       ASSETS
CURRENT ASSETS:
     Cash and cash equivalents                                                           $   27,133        $   14,294
     Trade accounts receivables, net                                                         40,598            35,987
     Other current assets                                                                     5,811             3,952
     Deferred income taxes                                                                    3,350             3,350
                                                                                         ----------        ----------
       Total current assets                                                                  76,892            57,583
                                                                                         ----------        ----------

PROPERTY AND EQUIPMENT, net                                                                 148,469            90,671
INVESTMENTS IN PARTNERSHIPS                                                                   1,782             1,415
OTHER ASSETS                                                                                  7,799             8,308
INTANGIBLE ASSETS, net                                                                       93,930            80,327
                                                                                         ----------        ----------
                                                                                         $  328,872        $  238,304
                                                                                         ==========        ==========
                        LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
     Current portion of equipment and other notes                                        $   18,813        $   10,580
     Current portion of capital lease obligations                                            10,652             1,863
     Accounts payable and other accrued expenses                                             26,613            20,489
                                                                                         ----------        ----------
       Total current liabilities                                                             56,078            32,932
                                                                                         ----------        ----------

LONG-TERM LIABILITIES:
     Equipment and other notes, less current portion                                        172,379           153,986
     Capital lease obligations, less current portion                                         46,388             6,201
     Other long-term liabilities                                                              2,540             1,079
                                                                                         ----------        ----------
       Total long-term liabilities                                                          221,307           161,266
                                                                                         ----------        ----------

COMMITMENTS AND CONTINGENCIES (Note 7)

STOCKHOLDERS' EQUITY:
     Preferred stock, $.001 par value, 3,500,000 shares authorized:
       Convertible Series B preferred stock, 25,000 shares outstanding at
          June 30, 2000 and 1999, with a liquidation preference
          of $25,000 as of June 30, 2000                                                     23,923            23,923
       Convertible Series C preferred stock, 27,953 shares outstanding at
          June 30, 2000 and 1999, with a liquidation preference
          of $27,953 as of June 30, 2000                                                     13,173            13,173
     Common stock, $.001 par value, 25,000,000 shares authorized,
          2,979,293 and 2,879,071 shares outstanding at June 30, 2000 and 1999,
          respectively                                                                            3                 3
     Additional paid-in capital                                                              23,743            23,551
     Accumulated deficit                                                                     (9,355)          (16,544)
                                                                                         ----------        ----------
       Total stockholders' equity                                                            51,487            44,106
                                                                                         ----------        ----------
                                                                                         $  328,872        $  238,304
                                                                                         ==========        ==========
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.


                                      26

<PAGE>

                INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF INCOME
               FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998
           (Amounts in thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                         2000              1999              1998
                                                                      ------------     ------------      -----------
<S>                                                                   <C>              <C>               <C>
REVENUES:
     Contract services                                                 $  100,135       $   85,491        $   55,661
     Patient services                                                      86,838           73,565            59,669
     Other                                                                  1,601            2,936             3,688
                                                                       ----------       ----------        ----------
       Total revenues                                                     188,574          161,992           119,018
                                                                       ----------       ----------        ----------

COSTS OF OPERATIONS:
     Costs of services                                                    101,323           85,317            62,378
     Provision for doubtful accounts                                        2,907            2,618             1,871
     Equipment leases                                                      13,569           18,522            17,023
     Depreciation and amortization                                         33,630           24,886            15,615
                                                                       ----------       ----------        ----------
       Total costs of operations                                          151,429          131,343            96,887
                                                                       ----------       ----------        ----------

       Gross profit                                                        37,145           30,649            22,131

CORPORATE OPERATING EXPENSES                                               10,946           10,475             8,759

PROVISION FOR SUPPLEMENTAL SERVICE FEE TERMINATION                              -                -             6,309

PROVISION FOR REORGANIZATION AND OTHER COSTS                                    -            3,300                 -
                                                                       ----------       ----------        ----------

       Income from company operations                                      26,199           16,874             7,063

EQUITY IN EARNINGS OF UNCONSOLIDATED PARTNERSHIPS                             817              548               707
                                                                       ----------       ----------        ----------

       Operating income                                                    27,016           17,422             7,770

INTEREST EXPENSE, net                                                      18,696           14,500             6,827
                                                                       ----------       ----------        ----------

       Income before income taxes                                           8,320            2,922               943

PROVISION (BENEFIT) FOR INCOME TAXES                                        1,131           (3,190)              431
                                                                       ----------       ----------        ----------

       Net income                                                      $    7,189       $    6,112        $      512
                                                                       ==========       ==========        ==========
INCOME PER COMMON AND CONVERTED PREFERRED SHARE:

       Basic                                                           $     0.78       $     0.67        $     0.06
                                                                       ==========       ==========        ==========
       Diluted                                                         $     0.76       $     0.65        $     0.06
                                                                       ==========       ==========        ==========

WEIGHTED AVERAGE NUMBER OF COMMON AND CONVERTED
     PREFERRED SHARES OUTSTANDING:

       Basic                                                            9,257,658        9,158,041         7,964,238
                                                                       ==========       ==========        ==========
       Diluted                                                          9,397,908        9,375,531         8,271,298
                                                                       ==========       ==========        ==========
</TABLE>

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


                                      27
<PAGE>

                        INSIGHT HEALTH SERVICES CORP.
               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
               FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998
                 (Amounts in thousands, except share data)

<TABLE>
<CAPTION>
                                                                              Preferred Stock
                                             -------------------------------------------------------------------------------
                                                        Series A                  Series B                  Series C
                                             ---------------------------   ------------------------   ----------------------
                                                Shares          Amount       Shares       Amount       Shares       Amount
                                             -------------    ----------   ----------    ----------   ---------   ----------
<S>                                          <C>              <C>          <C>           <C>          <C>         <C>
BALANCE AT JUNE 30, 1997                        2,501,760      $  6,750            -      $      -           -     $      -

Stock options and  warrants exercised                   -             -            -             -           -            -

Sale of Series B preferred stock                        -             -       25,000        23,923           -            -

Exchange of Series A for Series C
  preferred stock                              (2,501,760)       (6,750)           -             -      20,953        6,173

Supplemental service fee termination                    -             -            -             -       7,000        7,000

Adjustment for fractional shares
  on MHC and IHC exchange                               -             -            -             -      (1,007)         -

Net income                                              -             -            -             -           -            -
                                             ------------     ---------    ---------     ---------    --------    ---------
BALANCE AT JUNE 30, 1998                                -             -       25,000        23,923      27,953       13,173

Stock options exercised                                 -             -            -             -           -            -

Common stock issued                                     -             -            -             -           -            -

Net income                                              -             -            -             -           -            -
                                             ------------     ---------    ---------     ---------    --------    ---------
BALANCE AT JUNE 30, 1999                                -             -       25,000        23,923      27,953       13,173

Stock options and  warrants exercised                   -             -            -             -           -            -

Net income                                              -             -            -             -           -            -
                                             ------------     ---------    ---------     ---------    --------    ---------
BALANCE AT JUNE 30, 2000                                -      $      -       25,000      $ 23,923      27,953     $ 13,173
                                             ============     =========    =========     =========    ========    =========

<CAPTION>
                                                             Common Stock           Additional
                                                    ---------------------------      Paid-In        Accumulated
                                                       Shares           Amount       Capital          Deficit          Total
                                                    -------------     ---------    ------------     -----------     -----------
<S>                                                 <C>               <C>          <C>              <C>             <C>
BALANCE AT JUNE 30, 1997                               2,714,725       $     3      $   23,100       $ (23,168)      $   6,685

Stock options and  warrants exercised                    110,372             -             315               -             315

Sale of Series B preferred stock                               -             -               -               -          23,923

Exchange of Series A for Series C
  preferred stock                                              -             -               -               -            (577)

Supplemental service fee termination                           -             -               -               -           7,000

Adjustment for fractional shares
  on MHC and IHC exchange                                      -             -               -               -               -

Net income                                                     -             -               -             512             512
                                                    ------------      --------     -----------      ----------      ----------
BALANCE AT JUNE 30, 1998                               2,824,090             3          23,415         (22,656)         37,858

Stock options exercised                                   52,596             -             115               -             115

Common stock issued                                        2,385             -              21               -              21

Net income                                                     -             -               -           6,112           6,112
                                                    ------------      --------     -----------      ----------      ----------
BALANCE AT JUNE 30, 1999                               2,879,071             3          23,551         (16,544)         44,106

Stock options and  warrants exercised                    100,222             -             192               -             192

Net income                                                     -             -               -           7,189           7,189
                                                    ------------      --------     -----------      ----------      ----------
BALANCE AT JUNE 30, 2000                               2,979,293       $     3      $   23,743       $  (9,355)      $  51,487
                                                    ============      ========     ===========      ==========      ==========
</TABLE>


       The accompanying notes are an integral part of these consolidated
                            financial statements


                                      28

<PAGE>

                 INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998
                             (Amounts in thousands)

<TABLE>
<CAPTION>

                                                                                       2000          1999           1998
                                                                                   ----------     ----------     ----------
<S>                                                                                <C>            <C>            <C>
OPERATING ACTIVITIES:
         Net income                                                                 $   7,189      $   6,112      $     512
         Adjustments to reconcile net income to net cash provided
           by operating activities:
           Depreciation and amortization                                               33,630         24,887         15,749
           Amortization of deferred gain on debt restructure                               --            (75)        (1,384)
           Provision for supplemental service fee termination                              --             --          6,309
         Cash provided by (used in) changes in operating assets and liabilites:
           Trade accounts receivables                                                  (4,611)        (8,324)        (5,853)
           Other current assets                                                        (1,803)        (4,106)          (316)
           Accounts payable and other accrued expenses                                  6,119         (7,602)         3,199
                                                                                    ---------      ---------      ---------
              Net cash provided by operating  activities                               40,524         10,892         18,216
                                                                                    ---------      ---------      ---------

    INVESTING ACTIVITIES:
         Cash acquired in acquisitions                                                     --            850          4,174
         Acquisition of Centers, Fixed and Mobile Facilities                          (25,346)       (28,046)       (56,720)
         Additions to property and equipment                                          (23,170)       (18,440)       (23,644)
         Other                                                                           (554)        (1,565)        (1,978)
                                                                                    ---------      ---------      ---------
              Net cash used in investing activities                                   (49,070)       (47,201)       (78,168)
                                                                                    ---------      ---------      ---------

    FINANCING ACTIVITIES:
         Proceeds from issuance of preferred stock                                         --             --         23,346
         Proceeds from stock options and warrants exercised                               192            115            315
         Proceeds from issuance of common stock                                            --             21             --
         Payment of loan financing costs                                                   --             --         (6,483)
         Principal payments of debt and capital lease obligations                     (25,468)       (17,495)      (150,928)
         Proceeds from issuance of debt                                                45,200         23,820        231,480
         Other                                                                          1,461           (598)            78
                                                                                    ---------      ---------      ---------
              Net cash provided by financing activities                                21,385          5,863         97,808
                                                                                    ---------      ---------      ---------

    INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:                                  12,839        (30,446)        37,856
         Cash, beginning of year                                                       14,294         44,740          6,884
                                                                                    ---------      ---------      ---------
         Cash, end of year                                                          $  27,133      $  14,294      $  44,740
                                                                                    =========      =========      =========

    SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
         Interest paid                                                              $  18,086      $  14,923      $   7,048
         Income taxes paid                                                                452             71            170
         Equipment additions under capital leases                                      55,290          1,507          7,517
</TABLE>

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


                                      29

<PAGE>

                 INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2000


1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      a.  NATURE OF BUSINESS

      The Company was incorporated in Delaware in February 1996. The
      Company's predecessors, InSight Health Corp. (formerly American Health
      Services Corp.) (IHC), and Maxum Health Corp. (MHC), became wholly owned
      subsidiaries of the Company on June 26, 1996, pursuant to an Agreement
      and Plan of Merger among the Company, IHC and MHC (the Merger).

      The Company provides diagnostic imaging, treatment and related
      management services in 30 states throughout the United States.
      InSight's services are provided through a network of 77 mobile magnetic
      resonance imaging (MRI) facilities (Mobile Facilities), 42 fixed-site
      MRI facilities (Fixed Facilities), 26 multi-modality imaging centers
      (Centers), four mobile lithotripsy facilities, one Leksell Stereotactic
      Gamma Knife treatment center, one positron emission therapy (PET) Fixed
      Facility, and one radiation oncology center. An additional radiation
      oncology center is operated by the Company as part of one of its
      Centers. The Company's operations are located throughout the United
      States, with a substantial presence in California, Texas, New England,
      the Carolinas and the Midwest (Illinois, Indiana and Ohio).

      At its Centers, the Company offers other services in addition to MRI
      including computed tomography (CT), diagnostic and fluoroscopic x-ray,
      mammography, diagnostic ultrasound, nuclear medicine, bone
      densitometry, nuclear cardiology, and cardiovascular services. The
      Company offers additional services through a variety of arrangements
      including equipment rental, technologist services, marketing, radiology
      management services, and billing and collection services.

      b.  CONSOLIDATED FINANCIAL STATEMENTS

      The consolidated financial statements include the accounts of the Company
      and its wholly owned subsidiaries. The Company's investment interests in
      partnerships or limited liability companies (Partnerships) are accounted
      for under the equity method of accounting for ownership of 50 percent or
      less when the Company does not exercise significant control over the
      operations of the Partnership and does not have primary responsibility for
      the Partnership's long-term debt. The Company's investment interests in
      Partnerships are consolidated for ownership of 50 percent or greater owned
      entities when the Company exercises significant control over the
      operations and is primarily responsible for the associated long-term debt
      (Note 12).

      Significant intercompany balances have been eliminated.

      c.  USE OF ESTIMATES

      The preparation of financial statements in conformity with accounting
      principles generally accepted in the United States requires management to
      make certain estimates and assumptions that affect the reported amounts of
      assets and liabilities at the date of the financial statements and the
      reported amounts of revenue and expenses during the reporting period.
      Actual results could differ from those estimates.

      d.  REVENUE RECOGNITION

      Revenues from contract services (primarily Mobile Facilities) and from
      patient services (primarily Fixed Facilities and Centers) are recognized
      when services are provided. Patient services revenues are presented net of
      related contractual adjustments. Equipment rental revenues, management
      fees and other revenues are recognized over the applicable contract
      period. Revenues collected in advance are recorded as unearned revenue.

      e.  CASH EQUIVALENTS

      Cash equivalents are generally composed of liquid investments with
      original maturities of three months or less, such as certificates of
      deposit and commercial paper.


                                      30

<PAGE>


      f.  PROPERTY AND EQUIPMENT

      Property and equipment are depreciated and amortized on the straight-line
      method using the following estimated useful lives:

          Vehicles                                       3 to 8 years
          Buildings                                      7 to 20 years
          Leasehold improvements                         Term of lease
          Computer and office equipment                  3 to 5 years
          Diagnostic and related equipment               5 to 8 years
          Equipment and vehicles under capital leases    Term of lease

      The Company capitalizes expenditures for improvements and major renewals.
      Maintenance, repairs and minor replacements are charged to operations as
      incurred. When assets are sold or otherwise disposed of, the cost and
      related reserves are removed from the accounts and any resulting gain or
      loss is included in the results of operations.

      g.  INTANGIBLE ASSETS

      The Company has classified as goodwill the cost in excess of fair value of
      the net assets acquired in purchase transactions. Intangible assets are
      amortized on the straight-line basis over the following periods:

                Goodwill                               5 to 20 years
                Other                                  3 to 7 years

      The Company assesses the ongoing recoverability of its intangible assets
      (including goodwill) by determining whether the intangible asset balance
      can be recovered over the remaining amortization period through projected
      nondiscounted future cash flows. If projected future cash flows indicate
      that the unamortized intangible asset balances will not be recovered, an
      adjustment is made to reduce the net intangible asset to an amount
      consistent with projected future cash flows discounted at the Company's
      incremental borrowing rate. Cash flow projections, although subject to a
      degree of uncertainty, are based on trends of historical performance and
      management's estimate of future performance, giving consideration to
      existing and anticipated competitive and economic conditions.

      h.  INCOME TAXES

      The Company accounts for income taxes using the asset and liability
      method. A valuation allowance is provided against a deferred tax asset
      when it is more likely than not that the deferred tax asset will not be
      realized.

      i.  INCOME PER COMMON AND CONVERTED PREFERRED SHARE

      The Company reports basic and diluted earnings per share (EPS) for common
      and converted preferred stock. Basic EPS is computed by dividing reported
      earnings by weighted average shares outstanding. Diluted EPS is computed
      by adding to the weighted average shares the dilutive effect if stock
      options and warrants were exercised into common stock.

      j.  FAIR VALUE OF FINANCIAL INSTRUMENTS

      Fair value of financial instruments are estimated using available market
      information and other valuation methodologies. The fair value of the
      Company's financial instruments is estimated to approximate the related
      book value, unless otherwise indicated.


                                      31

<PAGE>


      k.  NEW PRONOUNCEMENTS

      The Company adopted Statement of Financial Accounting Standards (SFAS) No.
      131, "Disclosures about Segments of an Enterprise and Related
      Information," in 1999. This standard requires disclosure of reportable
      segments based on such factors as products and services, geography, legal
      structure, management structure or any manner by which a company's
      management distinguishes major operating units. Management believes that
      there are no differences between the Company's reported financial
      statements and segment information, as defined, for the periods presented.

      The Company adopted SFAS No. 130, "Reporting Comprehensive Income," in
      1999. This standard requires that all items that meet the definition of
      components of comprehensive income be reported in a separate financial
      statement for the period in which they are recognized. Components of
      comprehensive income include revenues, expenses, gains and losses that
      under generally accepted accounting principles are included in
      comprehensive income, but excluded from net income. There are no
      differences between the Company's net income, as reported, and
      comprehensive income, as defined, for the periods presented.

      In fiscal 2001, the Company will be required to adopt SFAS No. 133,
      "Accounting for Derivatives, Instruments and Hedging Activities," as
      deferred and amended by SFAS No. 137. The Company believes the adoption of
      this standard will not have a material impact on the Company's financial
      condition or results of operations.

      l.  RECLASSIFICATIONS

      Reclassifications have been made to certain 1999 and 1998 amounts to
      conform to the 2000 presentation.


2.   TRADE ACCOUNTS RECEIVABLES

Trade accounts receivables, net are comprised of the following (amounts in
thousands):

<TABLE>
<CAPTION>
                                                                                              June 30,
                                                                                   ------------------------------
                                                                                       2000              1999
                                                                                   ------------      ------------
<S>                                                                                <C>               <C>
Trade accounts receivables                                                          $   70,907        $   60,785
Less:  Allowances for doubtful accounts and contractual adjustments                     22,291            17,822
       Allowances for professional fees                                                  8,018             6,976
                                                                                    ----------        ----------
Trade accounts receivables, net                                                     $   40,598        $   35,987
                                                                                    ==========        ==========
</TABLE>

The allowance for doubtful accounts and contractual adjustments include
management's estimate of the amounts expected to be written off on specific
accounts and for write-offs on other unidentified accounts included in accounts
receivables. In estimating the write-offs and adjustments on specific accounts,
management relies on a combination of in-house analysis and a review of
contractual payment rates from private health insurance programs or under the
federal Medicare program. In estimating the allowance for unidentified
write-offs and adjustments, management relies on historical experience. The
amounts the Company will ultimately realize could differ materially in the near
term from the amounts assumed in arriving at the allowance for doubtful accounts
and contractual adjustments in the financial statements at June 30, 2000.

The Company reserves a contractually agreed upon percentage at several of its
Centers and Fixed Facilities, averaging 20 percent of the accounts receivables
balance from patients, for payments to radiologists for interpreting the results
of the diagnostic imaging procedures. Payments to radiologists are only due when
amounts are received. At that time, the balance is transferred from the
allowance account to a professional fees payable account.


                                      32

<PAGE>

3.   PROPERTY AND EQUIPMENT

Property and equipment, net are stated at cost and are comprised of the
following (amounts in thousands):

<TABLE>
<CAPTION>
                                                                                            June 30,
                                                                                ------------------------------
                                                                                   2000             1999
                                                                                ------------       -----------
<S>                                                                             <C>                <C>
Vehicles                                                                          $    2,426        $   2,015
Land, building and leasehold improvements                                             24,265           18,003
Computer and office equipment                                                         19,192           16,496
Diagnostic and related equipment                                                     107,639           91,743
Equipment and vehicles under capital leases                                           57,752            6,025
                                                                                  ----------        ---------
                                                                                     211,274          134,282
Less: Accumulated depreciation and amortization                                       62,805           43,611
                                                                                  ----------        ---------
Property and equipment, net                                                       $  148,469        $  90,671
                                                                                  ==========        =========
</TABLE>

4.   INTANGIBLE ASSETS

Intangible assets consist of the following (amounts in thousands):

<TABLE>
<CAPTION>
                                                                                            June 30,
                                                                                ------------------------------
                                                                                    2000              1999
                                                                                ------------       -----------
<S>                                                                             <C>                <C>
Intangible assets                                                                 $  108,014        $  89,714
Less:  Accumulated amortization                                                       14,084            9,387
                                                                                  ----------        ---------
                                                                                  $   93,930        $  80,327
                                                                                  ==========        =========

Net intangible assets:
Goodwill                                                                          $   92,980        $  79,163
Other                                                                                    950            1,164
                                                                                  ----------        ---------
                                                                                    $ 93,930        $  80,327
                                                                                  ==========        =========
</TABLE>

Amortization of intangible assets was approximately $5.3 million, $4.7 million,
and $2.8 million for the years ended June 30, 2000, 1999 and 1998, respectively.

In 1998, the Company completed four acquisitions as follows: a Center in
Columbus, Ohio; a Center in Murfreesboro, Tennessee; a Fixed Facility in
Redwood City, California; and a Center in Las Vegas, Nevada. In connection
with the purchase of the Center in Columbus, Ohio, the Company also acquired
a majority ownership interest in a new Center in Dublin, Ohio. All
transactions included the purchase of assets and assumption of certain
equipment related liabilities. The aggregate purchase price for these
acquisitions was approximately $18.4 million. Additionally, in 1998, the
Company acquired all of the capital stock of Signal Medical Services, Inc.
(Signal), through the merger of Signal into a wholly owned subsidiary of the
Company. The purchase price was approximately $45.7 million. The Signal
assets primarily consisted of Mobile Facilities in the Northeastern and
Southeastern United States.

In 1999, the Company completed two acquisitions as follows: a 70% interest in
a partnership which owns four Centers and two Fixed Facilities in Buffalo,
New York; and a 100% interest in three Centers and two Fixed Facilities in
Phoenix, Arizona. The aggregate purchase price for these two acquisitions was
approximately $16.9 million, subject to certain earn-out provisions relating
to the Buffalo, New York acquisition.

In 2000, the Company completed two acquisitions as follows: two Fixed Facilities
in Indianapolis and Clarksville, Indiana, respectively; and a 90% interest in a
partnership which owns a Center in Wilkes-Barre, Pennsylvania. The aggregate
purchase price for these two acquisitions was approximately $24.5 million.


                                      33

<PAGE>

A summary of the allocation of the purchase price for the Company's
acquisitions in 2000 is comprised of the following (amounts in thousands):

<TABLE>
<S>                                                                      <C>
Total purchase price                                                     $   24,497
Estimated fair market value of net assets acquired                            6,263
                                                                         ----------
Goodwill                                                                 $   18,234
                                                                         ==========
</TABLE>

5.   ACCOUNTS PAYABLE AND OTHER ACCRUED EXPENSES

Accounts payable and other accrued expenses are comprised of the following
(amounts in thousands):

<TABLE>
<CAPTION>
                                                                                        June 30,
                                                                                 -----------------------
                                                                                    2000        1999
                                                                                 ----------- -----------
<S>                                                                              <C>         <C>
    Accounts payable                                                              $     133   $   3,711
    Accrued equipment related costs                                                   8,526       1,748
    Accrued payroll and related costs                                                 4,519       6,048
    Other accrued expenses                                                           13,435       8,982
                                                                                  ---------   ---------
                                                                                  $  26,613   $  20,489
                                                                                  =========   =========
</TABLE>

6.   EQUIPMENT AND OTHER NOTES PAYABLE

Equipment and other notes payable are comprised of the following (amounts in
thousands):

<TABLE>
<CAPTION>
                                                                                                    June 30,
                                                                                          ---------------------------
                                                                                               2000           1999
                                                                                          ------------   ------------
<S>                                                                                       <C>            <C>
Unsecured senior subordinated notes payable (Notes), bearing interest at 9.625 percent,
     interest payable semi-annually, principal due in June 2008                            $  100,000     $  100,000

Notes payable to bank (Bank Financing), bearing interest at LIBOR plus 1.75
     percent (6.78 percent at June 30, 2000), principal and interest payable
     quarterly, maturing in June 2004. The notes are secured by substantially
     all of the Company's assets                                                               89,055         61,800

Notes payable to General Electric Company (GE), bearing interest at rates which
     range from 8.60 percent to 8.75 percent, maturing at various dates through
     May 2005. The notes are primarily secured by certain buildings and
     diagnostic equipment                                                                       1,587          1,934

Notes payable to banks and third parties bearing interest rates which range from
     8.13 percent to 10.13 percent, maturing at various dates through June 2002
     The notes are primarily secured by certain buildings and diagnostic
     equipment                                                                                    550            832
                                                                                           ----------     ----------
Total equipment and other notes payable                                                       191,192        164,566
Less: Current portion                                                                          18,813         10,580
                                                                                           ----------     ----------
Long-term equipment and other notes payable                                                $  172,379     $  153,986
                                                                                           ==========     ==========
</TABLE>

Scheduled maturities of equipment and other notes payable at June 30, 2000, are
as follows (amounts in thousands):

<TABLE>
                         <S>                               <C>
                         2001                              $   18,813
                         2002                                  21,253
                         2003                                  24,132
                         2004                                  26,379
                         2005                                     185
                         Thereafter                           100,430
                                                           ----------
                                                           $  191,192
                                                           ===========
</TABLE>


                                      34

<PAGE>

As part of the Bank Financing, the Company has a $25 million revolving working
capital facility, which expires in June 2003. Additionally, the Company had a
$75 million acquisition facility, the availability of which expired on June 12,
2000. The Company is also required to pay an unused facility fee of 0.375% on
unborrowed amounts under the working capital facility. There were no borrowings
under the working capital facility as of June 30, 2000.

The credit agreement related to the Bank Financing and the indenture related to
the Notes contain limitations on additional borrowings, capital expenditures,
dividend payments and certain financial covenants. As of June 30, 2000, the
Company was in compliance with these covenants.

During 1998, the Company entered into an interest rate swap agreement with a
bank to hedge against the effects of increases in the interest rates
associated with the Company's floating rate debt. The swap agreement
initially had a notional amount of $40.0 million and expires in 2001, or 2004
at the option of the bank. The fair value of the interest rate swap is the
estimated amount that the Company would receive or pay to terminate the
agreement at the reporting date, taking into account current interest rates
at the reporting date, and the current creditworthiness of the swap
counter-parties.

At June 30, 2000, the estimated fair market value of the interest rate swap, and
the effective fixed interest rate due on the remaining notional amount is as
follows (amounts in thousands):

<TABLE>
<CAPTION>
                                Effective
                                 Maximum
       Notional                 Interest                 Fair Market
        Amount                    Rate                      Value
        ------                    ----                      -----
      <S>                       <C>                      <C>
      $  37,500                   7.47%                   $    318
</TABLE>

7.   LEASE OBLIGATIONS, COMMITMENTS AND CONTINGENCIES

The Company is leasing diagnostic equipment, certain other equipment and its
office facilities under various capital and operating leases. Future minimum
scheduled rental payments required under these noncancelable leases at June 30,
2000 are as follows (amounts in thousands):

<TABLE>
<CAPTION>
                                                                Capital          Operating
                                                              ------------      ------------
<S>                                                           <C>               <C>
     2001                                                      $   15,376        $   10,966
     2002                                                          14,823             8,762
     2003                                                          14,533             6,429
     2004                                                          12,913             4,041
     2005                                                           9,137             3,194
     Thereafter                                                     3,913             7,465
                                                               ----------        ----------
Total minimum lease payments                                       70,695        $   40,857
                                                                                 ==========
Less:  Amounts representing interest                               13,655
                                                               ----------
Present value of capital lease obligations                         57,040
Less:  Current portion                                             10,652
                                                               ----------
Long-term capital lease obligations                            $   46,388
                                                               ==========
</TABLE>

As of June 30, 2000, certain equipment leased by the Company is subject to
contingent rental adjustments dependent on certain operational factors. The
Company's future operating and capital lease obligations to GE were
approximately $21.3 million and $57.0 million, respectively.

Rental expense for diagnostic equipment and other equipment for the years ended
June 30, 2000, 1999, and 1998 was $13.6 million, $18.5 million, and $17.0
million, respectively. These amounts include contingent rental expense of $0.1
million for the year ended June 30, 1998. No contingent rental expense was paid
for the years ended June 30, 2000 and 1999, respectively.


                                      35

<PAGE>

The Company occupies facilities under lease agreements expiring through April
2014. Rental expense for these facilities for the years ended June 30, 2000,
1999, and 1998 was $5.1 million, $3.7 million, $2.8 million, respectively.

The Company is engaged from time to time in the defense of lawsuits arising out
of the ordinary course and conduct of its business and has insurance policies
covering such potential insurable losses where such coverage is cost-effective.
Management believes that the outcome of any such lawsuits will not have a
material adverse impact on the Company's business, financial condition and
results of operations.

8.   CAPITAL STOCK

PREFERRED STOCK: On October 14, 1997, the Company consummated a
recapitalization (Recapitalization) pursuant to which (a) certain investors
affiliated with TC Group, LLC and its affiliates (collectively, Carlyle), a
private merchant bank headquartered in Washington, D.C., made a cash
investment of $25 million in the Company and received therefor (i) 25,000
shares of newly issued convertible preferred stock, Series B of the Company,
par value $0.001 per share (Series B Preferred Stock), initially convertible,
at the option of the holders thereof, in the aggregate into 2,985,075 shares
of common stock, and (ii) warrants (Carlyle Warrants) to purchase up to
250,000 shares of common stock at an exercise price of $10.00 per share; and
(b) GE (i) surrendered its rights under the amended equipment service
agreement to receive supplemental service fee payments equal to 14% of pretax
income in exchange for (A) the issuance of 7,000 shares of newly issued
convertible preferred stock, Series C of the Company, par value $0.001 per
share (Series C Preferred Stock) initially convertible, at the option of GE,
in the aggregate into 835,821 shares of common stock, for which the Company
recorded a non-recurring expense of approximately $6.3 million, and (B)
warrants (GE Warrants) to purchase up to 250,000 shares of common stock at an
exercise price of $10.00 per share and (ii) exchanged all of its convertible
preferred stock, Series A of the Company, for an additional 20,953 shares of
Series C Preferred Stock, initially convertible, at the option of GE, in the
aggregate into 2,501,760 shares of common stock.

The terms of the Series B Preferred Stock and the Series C Preferred Stock
(collectively, Preferred Stock) are substantially the same. The Preferred Stock
has a liquidation preference of $1,000 per share. It will participate in any
dividends paid with respect to the common stock. There is no mandatory or
optional redemption provision for the Preferred Stock. The Preferred Stock is
convertible into an aggregate of 6,322,656 shares of common stock. For so long
as Carlyle and its affiliates own at least 33% of the Series B Preferred Stock
or GE and its affiliates own at least 33% of the Series C Preferred Stock,
respectively, the approval of at least 67% of the holders of such series of
Preferred Stock is required before the Company may take certain actions
including, but not limited to, amending its certificate of incorporation or
bylaws, changing the number of directors or the manner in which directors are
selected, incurring indebtedness in excess of $15 million in any fiscal year,
issuing certain equity securities below the then current market price or the
then applicable conversion price, acquiring equity interests or assets of
entities for consideration equal to or greater than $15 million, and engaging in
mergers for consideration equal to or greater than $15 million. The Preferred
Stock will vote with the common stock on an as-if-converted basis on all matters
except the election of directors, subject to an aggregate maximum Preferred
Stock percentage of 37% of all votes entitled to be cast on such matters.
Assuming the conversion of all of the Series B Preferred Stock into common stock
and the exercise of all of the Carlyle Warrants, Carlyle would own approximately
31% of the common stock of the Company, on a fully diluted basis. Assuming the
conversion of all of the Series C Preferred Stock and the exercise of the GE
Warrants, GE would own approximately 34% of the common stock of the Company, on
a fully diluted basis.

All of the Series B Preferred Stock and the Series C Preferred Stock may be
converted into a newly created convertible preferred stock, Series D of the
Company, par value $0.001 per share (Series D Preferred Stock). The Series D
Preferred Stock allows the number of directors to be automatically increased to
a number which would permit each of Carlyle and GE, by filling the newly created
vacancies, to achieve representation on the Board proportionate to their
respective common stock ownership percentages on an as-if-converted basis but
would limit such representation to less than two thirds of the Board of
Directors for a certain period of time. The Series D Preferred Stock has a
liquidation preference of $0.001 per share but no mandatory or optional
redemption provision. It will participate in any dividends paid with respect to
the common stock and is convertible into 6,322,660 shares of common stock.


                                      36

<PAGE>

Holders of the Preferred Stock also have a right of first offer with respect to
future sales of common stock in certain transactions or proposed transactions
not involving a public offering by the Company of its common stock or securities
convertible into common stock. Holders of the Preferred Stock are also entitled
to certain demand and "piggyback" registration rights.

WARRANTS: The Company does not have a formal warrant plan. The Board authorizes
the issuance of warrants at its discretion. The Board has generally granted
warrants in connection with financing transactions. The number of warrants
issued and related terms are determined by the Board. All warrants have been
issued with an exercise price of at least fair market value of its common stock
on the issuance date. There were no warrants granted or exercised for the year
ended June 30, 1999. A summary of the status of the Company's warrants at June
30, 2000, 1999 and 1998 and changes during the years is presented below:

<TABLE>
<CAPTION>
                                                                                            Weighted
                                                                                             Average
                                                                             Shares       Exercise Price
                                                                         ---------------  ---------------
<S>                                                                      <C>              <C>
Outstanding, June 30, 1997                                                      120,000        $    5.06
     Granted                                                                    605,000             9.32
     Exercised                                                                  (62,817)            4.64
                                                                         ---------------  ---------------
Outstanding, June 30, 1998 and 1999                                             662,183             9.00
     Granted                                                                     15,000             6.00
     Exercised                                                                  (35,000)            5.50
                                                                         ---------------  ---------------
Outstanding, June 30, 2000                                                      642,183        $    9.12
                                                                         ===============  ===============
</TABLE>

Of the 642,183 warrants outstanding at June 30, 2000, the characteristics are as
follows:

<TABLE>
<CAPTION>
      Exercise Price        Weighted Average           Warrants      Total Warrants         Remaining Contractual
          Range              Exercise Price          Exercisable       Outstanding                  Life
     -----------------    ----------------------    ---------------  ----------------      ------------------------
     <S>                  <C>                       <C>              <C>                   <C>
     $4.56 - $6.00                $5.01                  93,433            97,183                    4.83 years
     $7.25 - $10.00               $9.85                 539,583           545,000                    4.81 years
                                                        --------          -------
                                                        633,016           642,183
                                                        ========          =======
</TABLE>

STOCK OPTIONS: The Company has five stock option plans, which provide for the
granting of incentive and nonstatutory stock options to key employees and
non-employee directors. Incentive stock options must have an exercise price of
at least the fair market value of its common stock on the grant date. Options
become vested cumulatively over various periods up to seven years from the grant
date, are exercisable in whole or in installments, and expire five or ten years
from the grant date. In addition, two wholly owned subsidiaries of the Company
have four stock option plans, which provided for the granting of incentive or
nonstatutory stock options to key employees and non-employee directors. No
shares are available for future grants under these plans.


                                      37

<PAGE>

As of June 30, 2000, the Company has 636,058 shares available for issuance under
its plans. A summary of the status of the Company's stock option plans at June
30, 2000, 1999, 1998 and changes during the years is presented below:

<TABLE>
<CAPTION>
                                                                           Weighted
                                                                           Average
                                                           Shares       Exercise Price
                                                       ---------------  ---------------
<S>                                                    <C>              <C>
Outstanding, June 30, 1997                                    573,433        $    3.98
     Granted                                                  975,000             8.59
     Exercised                                                (47,555)            0.48
     Forfeited                                                (17,500)            4.67
                                                       ---------------  ---------------
Outstanding, June 30, 1998                                  1,483,378             7.15
     Granted                                                  265,000             8.46
     Exercised                                                (59,800)            1.92
     Forfeited                                               (136,500)            7.28
                                                       ---------------  ---------------
Outstanding, June 30, 1999                                  1,552,078             7.56
     Granted                                                  190,000             8.15
     Exercised                                                (92,970)            2.07
     Forfeited                                               (340,368)            8.08
                                                       ---------------  ---------------
Outstanding, June 30, 2000                                  1,308,740        $    7.90
                                                       ===============  ===============
</TABLE>

Exercisable at:
<TABLE>
<S>                                                    <C>              <C>
     June 30, 1998                                            336,805        $    3.65
     June 30, 1999                                            558,838        $    6.12
     June 30, 2000                                            751,887        $    7.61
</TABLE>


Of the 1,308,740 options outstanding at June 30, 2000, the characteristics are
as follows:

<TABLE>
<CAPTION>
      Exercise Price        Weighted Average              Options        Total Options        Remaining Contractual
          Range              Exercise Price             Exercisable       Outstanding                  Life
     -----------------    ----------------------       ---------------  ----------------     -------------------------
     <S>                  <C>                          <C>              <C>                  <C>
     $0.10 - $1.25                $0.59                    98,670            98,670                 3.98 years
     $3.75 - $7.00                $5.56                   271,083           354,750v                6.93 years
     $8.37 - $12.57               $9.53                   357,446           830,632                 6.83 years
    $15.64 - $16.20              $15.78                    24,688            24,688                 1.65 years
                                                       ---------------  ----------------
                                                          751,887         1,308,740
                                                       ===============  ================
</TABLE>


                                      38

<PAGE>

As permitted under SFAS No. 123, "Accounting for Stock Based Compensation" the
Company accounts for the options and warrants issued in accordance with APB
Opinion No. 25, and no compensation cost has been recognized in the financial
statements. SFAS No. 123 requires that the Company presents pro forma
disclosures of net income as if the Company had recognized compensation expense
equal to the fair value of options granted, as determined at the date of grant,
The Company's net income and earnings per share would have reflected the
following pro forma amounts (amounts in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                                        Years Ended June 30,
                                                                          --------------------------------------------------
                                                                               2000              1999             1998
                                                                          ---------------   ---------------  ---------------
<S>                               <C>                                     <C>               <C>              <C>
Net income (loss):                As Reported                                $ 7,189           $ 6,112            $ 512
                                  Pro Forma                                    5,469             4,446             (506)
Diluted EPS:                      As Reported                                   0.76              0.65             0.06
                                  Pro Forma                                     0.58              0.47            (0.06)
</TABLE>

The fair value of each option grant and warrant issued is estimated on the date
of grant using the Black-Scholes pricing model with the following assumptions
used for the grants and issuances in the fiscal years ended June 30, 2000, 1999
and 1998, respectively:

<TABLE>
<CAPTION>
                                                                                         Years Ended June 30,
                                                                          ---------------------------------------------------
                                Assumptions                                    2000              1999              1998
     ------------------------------------------------------------------   ---------------   ---------------   ---------------
<S>                                                                       <C>               <C>               <C>
     Risk-free interest rate                                                  6.22%             5.08%             5.93%
     Volatility                                                              71.23%            64.90%            79.46%
     Expected dividend yield                                                  0.00%             0.00%             0.00%
     Estimated contractual life                                               9.38 years        9.35 years        6.51 years
</TABLE>

9.   PROVISION FOR REORGANIZATION AND OTHER COSTS

In fiscal 1999, the Company recorded a one-time provision for reorganization
and other costs of $3.3 million, consisting of the following: The Company
realigned its corporate and regional organization to improve financial
performance and operating efficiencies and recorded a provision with respect
to the related employee severances and office closing costs of approximately
$1.8 million. Additionally, in connection with its business strategy, the
Company evaluated a number of potential acquisitions in the last six months
of fiscal 1999 which it did not complete. The Company recorded a provision of
approximately $0.7 million for legal, accounting and consulting costs
associated with certain potential acquisitions that the Company determined
were no longer consistent with its strategic objectives. Finally, the Company
reevaluated its information systems in light of organizational changes and
developed a new strategic plan to modify and reimplement its proprietary
radiology information system. Accordingly, the Company recorded a provision
with respect to related software and other capitalized costs of approximately
$0.8 million.

10.  INCOME TAXES

The provision (benefit) for income taxes for the years ended June 30, 2000,
1999 and 1998 was computed using effective tax rates calculated as follows:

<TABLE>
<CAPTION>
                                                                                           Years Ended June 30,
                                                                           -----------------------------------------------------
                                                                              2000               1999              1998
                                                                           ------------      -------------      ------------
<S>                                                                        <C>               <C>                <C>
Federal statutory tax rate                                                     34.0 %             34.0 %            34.0 %
State income taxes, net of
     federal benefit                                                            6.0                6.0               1.2
Permanent items, including goodwill,
     non-deductible merger costs                                                3.7               12.3              79.4
Change in valuation allowance
                                                                              (30.1)            (161.5)            (68.9)
                                                                           ------------      -------------      ------------
Net effective tax rate                                                         13.6 %           (109.2)%            45.7 %
                                                                           ============      =============      ============
</TABLE>


                                      39

<PAGE>


The provision (benefit) for income taxes includes income taxes currently payable
and those deferred because of temporary differences between the financial
statements and tax bases of assets and liabilities. The provision (benefit) for
income taxes for the years ended June 30, 2000, 1999, and 1998 consisted of the
following (amounts in thousands):

<TABLE>
<CAPTION>
                                                                                         Years Ended June 30,
                                                                           --------------------------------------------------
                                                                                2000             1999              1998
                                                                           ---------------  ---------------   ---------------
<S>                                                                        <C>              <C>               <C>
Current provision:
     Federal                                                                   $     548         $     60         $   1,044
     State                                                                           283              100                36
                                                                           ---------------  ---------------   ---------------
                                                                                     831              160             1,080
                                                                           ---------------  ---------------   ---------------
Deferred taxes arising from temporary differences:
     State income taxes                                                             (186)            (144)              (23)
     Accrued expenses                                                                769             (706)              448
     Deferred gain on debt restructure                                                 -                -              (519)
     Reserves                                                                     (1,110)            (958)              182
     Depreciation and amortization                                                 1,004            1,383              (802)
     Utilization of net operating losses                                              75              346                 -
     Net operating losses reduced due to prior ownership changes                   5,111                -                 -
     Change in valuation allowance reducing goodwill                                 400            1,300                 -
     Change in valuation allowance                                                (5,795)          (4,691)                -
     Other                                                                            32              120                65
                                                                           ---------------  ---------------   ---------------
                                                                                     300           (3,350)             (649)
                                                                           ---------------  ---------------   ---------------
Total provision (benefit)                                                      $   1,131         $ (3,190)        $     431
                                                                           ===============  ===============   ===============
</TABLE>

The components of the Company's net deferred tax asset as of June 30, 2000
and 1999, respectively, which arise due to timing differences between
financial and tax reporting and net operating loss (NOL) carryforwards are as
follows (amounts in thousands):

<TABLE>
<CAPTION>
                                                                                                      June 30,
                                                                                           --------------------------------
                                                                                                2000             1999
                                                                                           ---------------  ---------------
<S>                                                                                        <C>              <C>
Reserves                                                                                        $   3,964        $   2,854
Accrued expenses (not currently deductible)                                                         1,016            1,785
Depreciation and amortization                                                                      (3,328)          (2,324)
Other                                                                                                (545)            (699)
NOL carryforwards                                                                                  10,620           15,806
Valuation allowances                                                                               (7,727)         (13,522)
                                                                                           ---------------  ---------------
                                                                                                $   4,000        $   3,900
                                                                                           ===============  ===============
</TABLE>

As of June 30, 2000, the Company had NOL carryforwards of approximately $31.0
million, expiring in 2004 through 2018. The NOLs and related deferred tax
components have been reduced to reflect limitations from prior changes in
ownership. A valuation allowance is provided against the net deferred tax
asset when it is more likely than not that the net deferred tax asset will
not be realized. The Company has established a valuation allowance against a
component of the deferred tax asset, as, in management's best estimate, it is
not likely to be realized in the near term. Approximately $0.4 million and
$1.3 million in 2000 and 1999, respectviely, of the change in valuation
allowance relates to the Merger and has been recorded as a reduction to
goodwill.

11.  RETIREMENT SAVINGS PLANS

The Company has a 401(k) profit sharing plan (Company Plan), which is available
to all eligible employees, pursuant to which the Company may match a percentage
of employee contributions to the Company Plan. Company contributions of
approximately $0.7 million, $0.6 million, and $0.4 million were made for the
years ended June 30, 2000, 1999, and 1998, respectively.


                                      40

<PAGE>

12.  INVESTMENTS IN AND TRANSACTIONS WITH PARTNERSHIPS

The Company has direct ownership in four Partnerships at June 30, 2000, two
of which operate Fixed Facilities and two of which operate Centers. The
Company owns between 25 percent and 44 percent of these Partnerships, serves
as the managing general partner and provides certain management services
under agreements expiring in 2010. These Partnerships are accounted for under
the equity method since the Company does not exercise significant control
over the operations of these Partnerships or does not have primary
responsibility for the Partnerships' long-term debt. Set forth below is
certain financial data of these Partnerships (amounts in thousands):

<TABLE>
<CAPTION>
                                                                                   June 30,
                                                                       ---------------------------------
                                                                            2000              1999
                                                                       ----------------  ---------------
<S>                                                                    <C>               <C>
Combined Financial Position:
Current assets:
     Cash                                                                    $   1,098        $     685
     Trade accounts receivables, less allowances                                 1,840            1,508
     Other                                                                         107               95
Property and equipment, net                                                      6,957            2,989
Intangible assets, net                                                             613              583
                                                                       ----------------  ---------------
Total assets                                                                    10,615            5,860
Current liabilities                                                             (1,455)            (917)
Due to the Company                                                              (1,194)            (131)
Long-term liabilities                                                           (3,877)          (1,751)
                                                                       ----------------  ---------------
Net assets                                                                   $   4,089        $   3,061
                                                                       ================  ===============
</TABLE>

Set forth below are the combined operating results of the Partnerships and the
Company's equity in earnings of the Partnerships (amounts in thousands):

<TABLE>
<CAPTION>
                                                                                      Years Ended June 30,
                                                                       ---------------------------------------------------
                                                                            2000              1999              1998
                                                                       ----------------  ---------------   ---------------
<S>                                                                    <C>               <C>               <C>
Operating Results:
Net revenues                                                                 $   7,493        $   5,673         $   5,723
Expenses                                                                         5,717            4,334             4,058
                                                                       ----------------  ---------------   ---------------
Net income                                                                   $   1,776        $   1,339         $   1,665
                                                                       ================  ===============   ===============

Equity in earnings of partnerships                                           $     817        $     548         $     707
                                                                       ================  ===============   ===============
</TABLE>


                                      41

<PAGE>

The Company has direct ownership in 50 percent of an additional Partnership
which operates a Center. Since the Company controls the operations and is
primarily responsible for the associated long-term debt, the Partnership has
been included in the Company's consolidated financial statements. Set forth
below is the summarized combined financial data of the Company's 50 percent
controlled entity which is consolidated (amounts in thousands):

<TABLE>
<CAPTION>
                                                                                   June 30,
                                                                       ---------------------------------
                                                                            2000              1999
                                                                       ----------------  ---------------
<S>                                                                    <C>               <C>
Condensed Combined Balance Sheet Data:
     Current assets                                                          $   1,490        $   1,494
     Total assets                                                                1,706            1,637
     Current liabilities                                                           623              640
     Minority interest equity                                                      441              515
</TABLE>


<TABLE>
<CAPTION>
                                                                                      Years Ended June 30,
                                                                       ---------------------------------------------------
                                                                            2000              1999              1998
                                                                       ----------------  ---------------   ---------------
<S>                                                                    <C>               <C>               <C>
Condensed Combined Statement of Income Data:
     Net revenues                                                            $   5,484        $   5,551         $   5,875
     Expenses                                                                    3,702            3,973             4,147
     Provision for center profit distribution                                      891              789               864
                                                                       ----------------  ---------------   ---------------
     Net income                                                              $     891        $     789         $     864
                                                                       ================  ===============   ===============
</TABLE>

13.  INCOME PER COMMON AND CONVERTED PREFERRED SHARE

The number of shares used in computing EPS is equal to the weighted average
number of common and converted preferred shares outstanding during the
respective period. Since the preferred stock has no stated dividend rate and
participates in any dividends paid with respect to the common stock, the
as-if-converted amounts are included in the computation of basic EPS. There
were no adjustments to net income (the numerator) for purposes of computing
EPS.

A reconciliation of basic and diluted share computations is as follows:

<TABLE>
<CAPTION>
                                                                                      Years Ended June 30,
                                                                       ---------------------------------------------------
                                                                            2000              1999              1998
                                                                       ---------------   ---------------   ---------------
<S>                                                                    <C>               <C>               <C>
Average common stock outstanding                                           2,935,002         2,835,385         2,751,212
Effect of preferred stock                                                  6,322,656         6,322,656         5,213,026
                                                                       ---------------   ---------------   ---------------
Denominator for basic EPS                                                  9,257,658         9,158,041         7,964,238
Dilutive effect of stock options and warrants                                140,250           217,490           307,060
                                                                       ---------------   ---------------   ---------------
                                                                           9,397,908         9,375,531         8,271,298
                                                                       ===============   ===============   ===============
</TABLE>

14.  SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The Company's payment obligations under the senior subordinated Notes (Note 6)
are guaranteed by certain of the Company's wholly owned subsidiaries (the
Guarantor Subsidiaries). Such guarantees are full, unconditional and joint and
several. Separate financial statements of the Guarantor Subsidiaries are not
presented because the Company's management has determined that they would not be
material to investors. The following supplemental financial information sets
forth, on an unconsolidated basis, balance sheets, statements of income, and
statements of cash flows information for the Company (Parent Company Only), for
the Guarantor Subsidiaries and for the Company's other subsidiaries (the
Non-Guarantor Subsidiaries). The supplemental financial information reflects the
investments of the Company and the Guarantor Subsidiaries in the Guarantor and
Non-Guarantor Subsidiaries using the equity method of accounting.


                                      42

<PAGE>


                 INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
                                  JUNE 30, 2000


<TABLE>
<CAPTION>
                                                      PARENT
                                                      COMPANY        GUARANTOR      NON-GUARANTOR
                                                       ONLY        SUBSIDIARIES     SUBSIDIARIES     ELIMINATIONS     CONSOLIDATED
                                                      -------      ------------     -------------    ------------     ------------
 <S>                                                  <C>          <C>              <C>              <C>              <C>
 (Amounts in thousands)
 ASSETS
 Current assets:
    Cash and cash equivalents                        $       -       $   25,497      $      1,636     $         -       $    27,133
    Trade accounts receivables, net                          -           36,071             4,527               -            40,598
    Other current assets                                     -            9,093                68               -             9,161
    Intercompany accounts receivables                  252,571           10,390                 -        (262,961)                -
                                                     ---------       ----------      ------------     ------------      -----------
      Total current assets                             252,571           81,051             6,231        (262,961)           76,892
 Property and equipment, net                                 -          141,242             7,227               -           148,469
 Investments in partnerships                                 -            1,782                 -               -             1,782
 Investments in consolidated subsidiaries              (12,029)           2,674                 -           9,355                 -
 Other assets                                                -            7,799                 -               -             7,799
 Intangible assets, net                                      -           93,466               464               -            93,930
                                                     ---------       ----------      ------------     ------------      -----------
                                                     $ 240,542       $  328,014      $     13,922     $  (253,606)      $   328,872
                                                     =========       ==========      ============     ============      ===========

 LIABILITIES AND STOCKHOLDERS' EQUITY
 Current liabilities:
    Current portion of equipment, capital leases
     and other notes                                 $  18,393       $   10,929      $        143     $         -       $    29,465
    Accounts payable and other accrued expenses              -           26,108               505               -            26,613
    Intercompany accounts payable                            -          252,571            10,390        (262,961)                -
                                                     ---------       ----------      ------------     ------------      -----------
     Total current liabilities                          18,393          289,608            11,038        (262,961)           56,078
 Equipment, capital leases and other notes, less
  current portion                                      170,662           47,709               396               -           218,767
 Other long-term liabilities                                 -            2,726              (186)              -             2,540
 Stockholders' equity (deficit)                         51,487          (12,029)            2,674           9,355            51,487
                                                     ---------       ----------      ------------     ------------      -----------
                                                     $ 240,542       $  328,014      $     13,922     $  (253,606)      $   328,872
                                                     =========       ==========      ============     ============      ===========
</TABLE>


                                      43

<PAGE>

                 INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
                                  JUNE 30, 1999


<TABLE>
<CAPTION>
                                                      PARENT
                                                      COMPANY       GUARANTOR      NON-GUARANTOR
                                                       ONLY       SUBSIDIARIES     SUBSIDIARIES     ELIMINATIONS      CONSOLIDATED
                                                   ------------- --------------- ----------------- ---------------  --------------
<S>                                                <C>           <C>             <C>               <C>              <C>
 (Amounts in thousands)
 ASSETS
 Current assets:
    Cash and cash equivalents                        $        -       $  12,709      $      1,585      $        -        $   14,294
    Trade accounts receivables, net                           -          32,164             3,823               -            35,987
    Other current assets                                      -           7,188               114               -             7,302
    Intercompany accounts receivables                   225,140          11,027                 -        (236,167)                -
                                                     ----------       ---------      ------------      ----------        ----------
      Total current assets                              225,140          63,088             5,522        (236,167)           57,583
 Property and equipment, net                                  -          82,544             8,127               -            90,671
 Investments in partnerships                                  -           1,415                 -               -             1,415
 Investments in consolidated subsidiaries               (19,234)          2,691                 -          16,543                 -
 Other assets                                                 -           8,308                 -               -             8,308
 Intangible assets, net                                       -          79,606               721               -            80,327
                                                     ----------       ---------      ------------      ----------        ----------
                                                     $  205,906       $ 237,652      $     14,370      $ (219,624)       $  238,304
                                                     ==========       =========      ============      ==========        ==========
 LIABILITIES AND STOCKHOLDERS' EQUITY
 Current liabilities:
    Current portion of equipment, capital leases     $    9,945       $   2,374             $ 124      $        -            12,443
       and other notes
    Accounts payable and other accrued expenses               -          20,128               361               -            20,489
    Intercompany accounts payable                             -         225,140            11,027        (236,167)                -
                                                     ----------       ---------      ------------      ----------        ----------
     Total current liabilities                            9,945         247,642            11,512        (236,167)           32,932
 Equipment, capital leases and other notes, less
     current portions                                   151,855           8,315                17               -           160,187
 Other long-term liabilities                                  -             929               150               -             1,079
 Stockholders' equity (deficit)                          44,106         (19,234)            2,691          16,543            44,106
                                                     ----------       ---------      ------------      ----------        ----------
                                                     $  205,906       $ 237,652      $     14,370      $ (219,624)       $  238,304
                                                     ==========       =========      ============      ==========        ==========
</TABLE>


                                      44

<PAGE>

                  INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

             SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME
                         FOR THE YEAR ENDED JUNE 30, 2000


<TABLE>
<CAPTION>
                                                 PARENT
                                                 COMPANY      GUARANTOR       NON-GUARANTOR
                                                  ONLY        SUBSIDIARIES    SUBSIDIARIES      ELIMINATION      CONSOLIDATED
                                               -----------   -------------  ----------------   --------------   ---------------
<S>                                            <C>           <C>            <C>                <C>              <C>
 (Amounts in thousands)
 Revenues                                       $      -       $ 168,884        $   19,690       $       -        $  188,574
 Costs of operations                                   -         134,784            16,645               -           151,429
                                                ----------    ----------      --------------    -------------    -----------
     Gross profit                                      -          34,100             3,045               -            37,145

 Corporate operating expenses                          -          10,946                 -               -            10,946
                                                ----------    ----------      --------------    -------------    -----------
     Income from company operations                    -          23,154             3,045               -            26,199

 Equity in earnings of unconsolidated
    partnerships                                       -             817                 -               -               817
                                                ----------    ----------      --------------    -------------    -----------
     Operating income                                  -          23,971             3,045               -            27,016

 Interest expense, net                                 -          17,730               966               -            18,696
                                                ----------    ----------      --------------    -------------    -----------
     Income before income taxes                        -           6,241             2,079               -             8,320

 Provision  for income taxes                           -           1,131                 -               -             1,131
                                                ----------    ----------      --------------    -------------    ------------
     Income before equity in income of
     consolidated subsidiaries                         -           5,110             2,079               -             7,189

 Equity in income of consolidated subsidiaries     7,189           2,079                 -          (9,268)                -
                                                ----------    ----------      --------------    -------------    -----------

     Net income                                 $  7,189       $   7,189        $    2,079       $  (9,268)       $    7,189
                                                ==========    ==========      =============     ============     ===========
</TABLE>


                                      45

<PAGE>

                INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

           SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME
                       FOR THE YEAR ENDED JUNE 30, 1999

<TABLE>
<CAPTION>
                                                 PARENT
                                                 COMPANY      GUARANTOR      NON-GUARANTOR
                                                  ONLY       SUBSIDIARIES    SUBSIDIARIES      ELIMINATION     CONSOLIDATED
                                               -----------  -------------  -----------------  --------------  ---------------
<S>                                            <C>          <C>            <C>                <C>             <C>
 (Amounts in thousands)
 Revenues                                       $      -      $ 143,205          $  18,787       $       -       $  161,992
 Costs of operations                                   -        115,230             16,113               -          131,343
                                                --------     ----------         ----------       ---------      -----------
     Gross profit                                      -         27,975              2,674               -           30,649

 Provision for reorganization and other costs          -          3,300                  -               -            3,300

 Corporate operating expenses                          -         10,475                  -               -           10,475
                                                --------     ----------         ----------       ---------      -----------
     Income from company operations                    -         14,200              2,674               -           16,874

 Equity in earnings of
     unconsolidated partnerships                       -            548                  -               -              548
                                                --------     ----------         ----------       ---------      -----------
     Operating income                                  -         14,748              2,674               -           17,422

 Interest expense, net                                 -         13,453              1,047               -           14,500
                                                --------     ----------         ----------       ---------      -----------
     Income before income taxes                        -          1,295              1,627               -            2,922

 Provision (benefit) for income taxes                  -         (3,190)                 -               -           (3,190)
                                                --------     ----------         ----------       ---------      -----------
     Income before equity in income of
     consolidated subsidiaries                         -          4,485              1,627               -            6,112

 Equity in income of consolidated subsidiaries     6,112          1,627                  -          (7,739)               -
                                                --------     ----------         ----------       ---------      -----------
     Net income                                 $  6,112      $   6,112          $   1,627       $  (7,739)      $    6,112
                                                ========     ==========         ==========       =========      ============
</TABLE>


                                      46

<PAGE>

                 INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME
                        FOR THE YEAR ENDED JUNE 30, 1998

<TABLE>
<CAPTION>
                                                 PARENT
                                                 COMPANY     GUARANTOR       NON-GUARANTOR
                                                  ONLY       SUBSIDIARIES    SUBSIDIARIES      ELIMINATION     CONSOLIDATED
                                               -----------  -------------  -----------------  --------------  ---------------
<S>                                            <C>          <C>            <C>                <C>             <C>
(Amounts in thousands)
 Revenues                                       $    -         $104,707          $  14,311        $      -         $119,018
 Costs of operations                                 -           84,195             12,692               -           96,887
                                               ----------     ---------         ----------       ----------       ----------
     Gross profit                                    -           20,512              1,619               -           22,131

 Provision for supplemental service
     fee termination                                 -            6,309                  -               -            6,309

 Corporate operating expenses                        -            8,759                  -               -            8,759
                                               ----------     ---------         ----------       ----------       ----------
     Income from company operations                  -            5,444              1,619               -            7,063

 Equity in earnings of
    unconsolidated partnerships                      -              707                  -               -              707
                                               ----------     ---------         ----------       ----------       ----------
     Operating income                                -            6,151              1,619               -            7,770

 Interest expense, net                               -            6,442                385               -            6,827
                                               ----------     ---------         ----------       ----------       ----------
     Income (loss) before income taxes               -             (291)             1,234               -              943

 Provision for income taxes                          -              431                  -               -              431
                                               ----------     ---------         ----------       ----------       ----------
     Income (loss)  before equity in income of
     consolidated subsidiaries                       -             (722)             1,234               -              512

 Equity in income of consolidated subsidiaries     512            1,234                  -          (1,746)               -
                                               ----------     ---------         ----------       ----------       ----------
     Net income                                 $  512         $    512          $   1,234        $ (1,746)        $    512
                                               =========      =========         ==========       ==========       ==========
</TABLE>


                                      47

<PAGE>

                 INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

           SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                        FOR THE YEAR ENDED JUNE 30, 2000


<TABLE>
<CAPTION>
                                                           PARENT
                                                           COMPANY      GUARANTOR     NON-GUARANTOR
                                                            ONLY      SUBSIDIARIES     SUBSIDIARIES      ELIMINATION    CONSOLIDATED
                                                         ----------- --------------  -----------------  --------------  ------------
<S>                                                      <C>         <C>             <C>                <C>             <C>
(Amounts in thousands)
OPERATING ACTIVITIES:
   Net income                                             $   7,189     $    7,189          $   2,079       $ (9,268)     $  7,189
   Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
    Depreciation and amortization                                 -         31,343              2,287              -        33,630
    Equity in income of consolidated subsidiaries            (7,189)        (2,079)                 -          9,268             -
Cash provided by (used in) changes in operating
  assets and liabilities:
   Trade accounts receivables                                     -         (3,907)              (704)             -        (4,611)
   Intercompany receivables, net                            (27,447)        30,180             (2,733)             -             -
   Other current assets                                           -         (1,849)                46              -        (1,803)
   Accounts payable and other accrued expenses                    -          5,975                144              -         6,119
                                                         -----------    ----------         ----------       ---------     ---------
    Net cash provided by (used in) operating activities     (27,447)        66,852              1,119              -        40,524
                                                         -----------    ----------         ----------       ---------     ---------
INVESTING ACTIVITIES:
   Acquisitions of Centers, Fixed and Mobile Facilities           -        (25,346)                 -              -       (25,346)
   Additions to property and equipment                            -        (22,635)              (535)             -       (23,170)
   Other                                                          -           (554)                 -              -          (554)
                                                         -----------    ----------         ----------       ---------     ---------
     Net cash used in investing activities                        -        (48,535)              (535)             -       (49,070)
                                                         -----------    ----------         ----------       ---------     ---------

FINANCING ACTIVITIES:
   Proceeds from stock options and warrants exercised           192              -                  -              -           192
   Principal payments of debt and capital lease
       obligations                                          (17,945)        (7,326)              (197)             -       (25,468)
   Proceeds from issuance of debt                            45,200              -                  -              -        45,200
   Other                                                          -          1,797               (336)             -         1,461
                                                         -----------    ----------         ----------       ---------     ---------
    Net cash provided by (used in) financing activities      27,447         (5,529)              (533)             -        21,385
                                                         -----------    ----------         ----------       ---------     ---------

INCREASE IN CASH AND CASH EQUIVALENTS                             -         12,788                 51              -        12,839

CASH AND CASH EQUIVALENTS:
   Cash, beginning of year                                        -         12,709              1,585              -        14,294
                                                         -----------    ----------         ----------       ---------     ---------
   Cash, end of year                                      $       -     $   25,497          $   1,636       $      -      $ 27,133
                                                         ===========    ==========         ==========       =========     =========
</TABLE>


                                      48

<PAGE>

                         INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
                           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                                FOR THE YEAR ENDED JUNE 30, 1999


<TABLE>
<CAPTION>
                                                           PARENT
                                                           COMPANY     GUARANTOR     NON-GUARANTOR
                                                            ONLY      SUBSIDIARIES    SUBSIDIARIES     ELIMINATION   CONSOLIDATED
                                                         ----------- -------------- ----------------- -------------- -------------
<S>                                                      <C>         <C>            <C>               <C>            <C>
 (Amounts in thousands)
OPERATING ACTIVITIES:
   Net income                                              $  6,112     $   6,112        $    1,627      $  (7,739)      $  6,112
   Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
    Depreciation and amortization                                 -        21,977             2,910              -         24,887
    Amortization of deferred gain on debt restructure             -           (75)                -              -            (75)
    Equity in income of consolidated subsidiaries            (6,112)       (1,627)                -          7,739              -
Cash provided by (used in) changes in operating
   assets and liabilities:
   Trade accounts receivables                                     -        (7,255)           (1,069)             -         (8,324)
   Intercompany receivables, net                            (11,936)        6,230             5,706              -              -
   Other current assets                                           -        (4,291)              185              -         (4,106)
   Accounts payable and other accrued expenses                    -        (7,294)             (308)             -         (7,602)
                                                          ---------    -----------      ------------    -----------     ---------
    Net cash provided by (used in) operating activities     (11,936)       13,777             9,051              -         10,892
                                                          ---------    -----------      ------------    -----------     ---------

INVESTING ACTIVITIES:
   Cash acquired in acquisitions                                  -           850                 -              -            850
   Acquisitions of Centers, Fixed and Mobile Facilities           -       (28,046)                -              -        (28,046)
   Additions to property and equipment                            -       (11,112)           (7,328)             -        (18,440)
   Other                                                          -          (706)             (859)             -         (1,565)
                                                          ---------    -----------      ------------    -----------     ---------
     Net cash used in investing activities                        -       (39,014)           (8,187)             -        (47,201)
                                                          ---------    -----------      ------------    -----------     ---------
FINANCING ACTIVITIES:
   Proceeds from stock options and warrants exercised           115             -                 -              -            115
   Proceeds from issuance of common stock                        21             -                 -              -             21
   Principal payments of debt and capital lease
    obligations                                             (11,200)       (6,124)             (171)             -        (17,495)
   Proceeds from issuance of debt                            23,000           820                 -              -         23,820
   Other                                                          -             -              (598)             -           (598)
                                                          ---------    -----------      ------------    -----------     ---------
    Net cash provided by (used in) financing activities      11,936        (5,304)             (769)             -          5,863
                                                          ---------    -----------      ------------    -----------     ---------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                  -       (30,541)               95              -        (30,446)

CASH AND CASH EQUIVALENTS:
   Cash, beginning of year                                        -        43,250             1,490              -         44,740
                                                          ---------    -----------      ------------    -----------     ---------
   Cash, end of year                                       $      -     $  12,709        $    1,585      $       -       $ 14,294
                                                          =========    ==========       ============    ===========     ==========
</TABLE>


                                      49

<PAGE>


                INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                       FOR THE YEAR ENDED JUNE 30, 1998

<TABLE>
<CAPTION>

                                                          PARENT
                                                          COMPANY     GUARANTOR      NON-GUARANTOR
                                                           ONLY      SUBSIDIARIES     SUBSIDIARIES      ELIMINATION   CONSOLIDATED
                                                        ----------- -------------- ------------------  -------------- ------------
<S>                                                     <C>         <C>            <C>                 <C>            <C>
 (Amounts in thousands)
OPERATING ACTIVITIES:
   Net income                                            $     512       $    512            $ 1,234        $ (1,746)    $   512
   Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
    Depreciation and amortization                                -         14,686              1,063               -      15,749
    Amortization of deferred gain on debt restructure            -         (1,384)                 -               -      (1,384)
    Provision for supplemental service fee termination           -          6,309                  -               -       6,309
    Equity in income of consolidated subsidiaries             (512)        (1,234)                 -           1,746           -
Cash provided by (used in) changes in operating assets
   and liabilities:
   Trade accounts receivables                                    -         (5,726)              (127)              -      (5,853)
   Intercompany receivables, net                          (173,661)       171,307              2,354               -           -
   Other current assets                                          -           (289)               (27)              -        (316)
   Accounts payable and other accrued expenses                   -          3,458               (259)              -       3,199
                                                         ---------      ---------          ---------        --------    --------
    Net cash provided by (used in) operating activities   (173,661)       187,639              4,238               -      18,216
                                                         ---------      ---------          ---------        --------    --------

INVESTING ACTIVITIES:
   Cash acquired in acquisitions                                 -          4,174                  -               -       4,174
   Acquisitions of Centers, Fixed and Mobile Facilities          -        (56,720)                 -               -     (56,720)
   Additions to property and equipment                           -        (20,848)            (2,796)              -     (23,644)
   Other                                                         -         (1,817)              (161)              -      (1,978)
                                                         ---------      ---------          ---------        --------    --------
     Net cash used in investing activities                       -        (75,211)            (2,957)              -     (78,168)
                                                         ---------      ---------          ---------        --------    --------

FINANCING ACTIVITIES:
   Proceeds from issuance of preferred stock                23,346              -                  -               -      23,346
   Proceeds from stock options and warrants exercised          315              -                  -               -         315
   Payment of loan financing costs                               -         (6,483)                 -               -      (6,483)
   Principal payments of debt and capital
   lease obligations                                       (70,900)       (79,198)              (830)              -    (150,928)
   Proceeds from issuance of debt                          220,900         10,580                  -               -     231,480
   Other                                                         -             78                  -               -          78
                                                         ---------      ---------          ---------        --------    --------
    Net cash provided by (used in) financing activities    173,661        (75,023)              (830)              -      97,808
                                                         ---------      ---------          ---------        --------    --------

INCREASE IN CASH AND CASH EQUIVALENTS                            -         37,405                451               -      37,856

CASH AND CASH EQUIVALENTS:
   Cash, beginning of year                                       -          5,845              1,039               -       6,884
                                                         ---------      ---------          ---------        --------    --------
   Cash, end of year                                     $       -      $  43,250          $   1,490        $      -    $ 44,740
                                                         =========      =========          =========        ========    ========
</TABLE>


                                      50
<PAGE>

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

NONE.

                                   PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this Item will be included in the Company's
definitive proxy statement, which will be filed with the SEC in connection with
the Company's next Annual Meeting of Stockholders, and is incorporated herein by
reference.

ITEM 11.  EXECUTIVE COMPENSATION

The information required by this Item will be included in the Company's
definitive proxy statement, which will be filed with the SEC in connection with
the Company's next Annual Meeting of Stockholders, and is incorporated herein by
reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item will be included in the Company's
definitive proxy statement, which will be filed with the SEC in connection with
the Company's next Annual Meeting of Stockholders, and is incorporated herein by
reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item will be included in the Company's
definitive proxy statement, which will be filed with the SEC in connection with
the Company's next Annual Meeting of Stockholders, and is incorporated herein by
reference.

                                  PART IV

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

ITEM 14(a)(1).  FINANCIAL STATEMENTS

Included in Part II of this report:

             Report of Independent Public Accountants
             Consolidated Balance Sheets
             Consolidated Statements of Income
             Consolidated Statements of Stockholders' Equity
             Consolidated Statements of Cash Flows
             Notes to Consolidated Financial Statements

ITEM 14(a)(2).  FINANCIAL STATEMENT SCHEDULES

             Report of Independent Public Accountants
             Schedule IX - Valuation and Qualifying Accounts

All other schedules have been omitted because they are either not required or
not applicable, or the information is presented in the consolidated financial
statements or notes thereto.


                                      51

<PAGE>

ITEM 14(a)(3).  EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT NUMBER      DESCRIPTION AND REFERENCES
--------------      --------------------------
<S>                 <C>
*2.1                Asset Purchase and Liabilities Assumption Agreement dated as of January 3,
                    1997, by and among InSight Health Corp., Mobile Imaging Consortium, Limited
                    Partnership and Mobile Imaging Consortium-New Hampshire, previously filed and
                    incorporated herein by reference from the Company's Current Report on Form
                    8-K, filed June 16, 1997.

*2.2                Amendment No. 1 to Asset Purchase and Liabilities Assumption Agreement dated
                    as of May 30, 1997, by and among InSight Health Corp., Mobile Imaging
                    Consortium, Limited Partnership and Mobile Imaging Consortium-New Hampshire,
                    previously filed and incorporated herein by reference from the Company's
                    Current Report on Form 8-K, filed June 16, 1997.

*2.3                Asset Purchase and Liabilities Assumption Agreement dated as of June 20,
                    1997, by and between InSight Health Corp. and Desmond L. Fischer, M.D. (d/b/a
                    Chattanooga Outpatient Center), previously filed and incorporated herein by
                    reference from the Company's Current Report on Form 8-K, filed July 14, 1997.

*2.4                Agreement and Plan of Merger dated as of April 15, 1998, by and among
                    InSight, SMSI Acquisition Company, Signal Medical Services, Inc., SMSI
                    Holdings, Inc., Brian P. Stone, Thomas W. Crucitti and Todd Stowell,
                    previously filed and incorporated herein by reference from the Company's
                    Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, filed May
                    13, 1998.

*2.5                First Amendment to Agreement and Plan of Merger dated as of May 15, 1998, by
                    and among InSight, SMSI Acquisition Company, Signal Medical Services, Inc.,
                    SMSI Holdings, Inc., Brian P. Stone, Thomas W. Crucitti and Todd Stowell,
                    previously filed and incorporated herein by reference from the Company's
                    Current Report on Form 8-K, filed June 2, 1998.

*2.6                Second Amendment to Agreement and Plan of Merger dated as of May 18, 1998, by
                    and among InSight, SMSI Acquisition Company, Signal Medical Services, Inc.,
                    SMSI Holdings, Inc., Brian P. Stone, Thomas W. Crucitti and Todd Stowell,
                    previously filed and incorporated herein by reference from the Company's
                    Current Report on Form 8-K, filed June 2, 1998.

*2.7                Asset Purchase Agreement dated May 2, 2000, by and among InSight Health Corp.,
                    Roy Assael, Wilkes-Barre Imaging and US Diagnostic Inc., previously filed and
                    incorporated herein by reference from the Company's Current Report on Form
                    8-K, filed June 14, 2000.

*2.8                Amendment to Asset Purchase Agreement dated May 31, 2000, by and among InSight
                    Health Corp., Roy Assael, Wilkes-Barre Imaging and US Diagnostic Inc.,
                    previously filed and incorporated herein by reference from the Company's
                    Current Report on Form 8-K, filed June 14, 2000.

*3.1                Certificate of Incorporation of InSight, previously filed and incorporated
                    herein by reference from the Company's Registration Statement on Form S-4
                    (Registration No. 333-02935), filed April 29, 1996.

*3.2                Certificate of Designation, Preferences and Rights of Convertible Preferred
                    Stock, Series B, of InSight, previously filed and incorporated herein by
                    reference from the Company's Annual Report on Form 10-K, filed October 14,
                    1997.
</TABLE>


                                      52

<PAGE>

<TABLE>
<S>                 <C>
*3.3                Certificate of Designation, Preferences and Rights of Convertible Preferred
                    Stock, Series C, of InSight, previously filed and incorporated herein by
                    reference from the Company's Annual Report on Form 10-K, filed October 14,
                    1997.

*3.4                Certificate of Designation, Preferences and Rights of Convertible Preferred
                    Stock, Series D, of InSight, previously filed and incorporated herein by
                    reference from the Company's Annual Report on Form 10-K, filed October 14,
                    1997.

*3.5                Amended and Restated Bylaws of InSight, previously filed and incorporated
                    herein by reference from the Company's Annual Report on Form 10-K, filed
                    October 14, 1997.

*4.1                Indenture dated as of June 1, 1998, by and among the Company, the Subsidiary
                    Guarantors (as defined therein) and State Street Bank and Trust Company, N.A.
                    as Trustee (includes forms of the Outstanding Notes and Exchange Notes (as
                    defined therein)), previously filed and incorporated herein by reference from
                    the Company's Registration Statement on Form S-4 (Registration No.
                    333-60573), filed August 4, 1998.

*4.2                Purchase Agreement dated as of June 9, 1998, by and among the Company, the
                    Subsidiary Guarantors (as defined therein) and the Initial Purchasers (as
                    defined therein), previously filed and incorporated herein by reference from
                    the Company's Registration Statement on Form S-4 (Registration No.
                    333-60573), filed August 4, 1998.

*10.1               Credit Agreement dated as of October 14, 1997, as amended  November 17, 1997,
                    December 19, 1997, March 23, 1998 and amended and restated as of June 12,
                    1998, among the Company, the Subsidiary Guarantors (as defined therein), Bank
                    of America, N.A. (formerly NationsBank, N.A.) as Agent and the Lenders (as
                    defined therein), previously filed and incorporated herein by reference from
                    the Company's Registration Statement on Form S-4 (Registration No.
                    333-60573), filed August 4, 1998.

*10.2               Master Service Agreement Addendum by and among General Electric Company
                    acting through GE Medical Systems, InSight, AHS and MHC, previously filed and
                    incorporated herein by reference from the Company's Registration Statement on
                    Form S-4 (Registration No. 333-02935), filed April 29, 1996.

*10.3               InSight's 1996 Directors' Stock Option Plan, previously filed and
                    incorporated herein by reference from the Company's Registration Statement on
                    Form S-4 (Registration No. 333-02935), filed April 29, 1996.

*10.4               InSight's 1996 Employee Stock Option Plan, previously filed and incorporated
                    herein by reference from the Company's Registration Statement on Form S-4
                    (Registration No. 333-02935), filed April 29, 1996.

*10.5               Agreements and form of warrants with holders of Series B Preferred Stock of
                    AHS, previously filed and incorporated herein by reference from the Company's
                    Registration Statement on Form S-4 (Registration No. 333-02935), filed April
                    29, 1996.

*10.6               AHS 1987 Stock Option Plan, previously filed and incorporated herein by
                    reference from Post-Effective  Amendment No. 4 on Form S-1 to AHS's
                    Registration Statement (Registration No. 33-00088), filed September 5, 1985.

*10.7               AHS 1989 Stock Incentive Plan, previously filed and incorporated herein by
                    reference from AHS's Annual Report on Form 10-K, filed April 15, 1991.
</TABLE>


                                      53

<PAGE>

<TABLE>
<S>                 <C>
*10.8               AHS 1992 Option and Incentive Plan, previously filed and incorporated herein
                    by reference from AHS's Registration Statement on Form S-8 (Registration No.
                    33-51532), filed September 1, 1992.

*10. 9              MHC 1989 Stock Option Plan, Amended and Restated as of October 28, 1993,
                    previously filed and incorporated herein by reference from MHC's Annual
                    Report on Form 10-K for the fiscal year ended December 31, 1993.

*10.10              InSight's 1998 Employee Stock Option Plan, previously filed and incorporated
                    herein by reference from the Company's Registration Statement on Form S-4
                    (Registration No. 333-60573), filed August 4, 1998.

*10.11              Form of Stock Option Agreement between InSight and former officers of Signal
                    Medical Services, Inc. relative to InSight's 1998 Employee Stock Option Plan,
                    previously filed and incorporated by reference from the Company's Annual
                    Report on Form 10-K, filed September 28, 1998.

*10.12              InSight's 1997 Management Stock Option Plan, previously filed and
                    incorporated herein by reference from the Company's Registration Statement on
                    Form S-4 (Registration No. 333-60573), filed August 4, 1998.

*10.13              Form of Stock Option Agreement between InSight and certain senior officers of
                    InSight relative to InSight's 1997 Management Stock Option Plan, previously
                    filed and incorporated by reference from the Company's Annual Report on Form
                    10-K, filed September 28, 1998.

*10.14              Letter Agreement for Consulting Services between InSight and Frank E. Egger
                    dated March 28, 1996, previously filed and incorporated herein by reference
                    from the Company's Registration Statement on Form S-4 (Registration No.
                    333-02935), filed April 29, 1996.

*10. 15             Executive Employment Agreement between InSight and E. Larry Atkins dated as
                    of February 25, 1996, previously filed and incorporated herein by reference
                    from the Company's Registration Statement on Form S-4 (Registration No.
                    333-02935), filed April 29, 1996.

*10.16              Form of Executive Employment Agreement between InSight and various officers
                    of InSight, previously filed and incorporated herein by reference from the
                    Company's Registration Statement on Form S-4 (Registration No. 333-02935),
                    filed April 29, 1996.

*10. 17             Nonqualified Stock Option Agreement dated August 17, 1994, between MHC and
                    Leonard H. Habas, previously filed and incorporated herein by reference from
                    the Company's Annual Report on Form 10-K for the six months ended June 30,
                    1996.

*10.18              Nonqualified Stock Option Agreement dated August 17, 1994, between MHC and
                    Ronald G. Pantello, previously filed and incorporated herein by reference
                    from the Company's Annual Report on Form 10-K for the six months ended June
                    30, 1996.

*10.19              Warrant Certificate No. L-1 dated March 11, 1997 in the name of Anthony J.
                    LeVecchio, previously filed and incorporated herein by reference from the
                    Company's Annual Report on Form 10-K, filed October 14, 1997.
</TABLE>


                                      54

<PAGE>

<TABLE>
<S>                 <C>
*10.20              Form of Stock Option Agreement between InSight and non-employee directors of
                    InSight relative to InSight's 1996 Directors' Stock Option Plan, previously
                    filed and incorporated herein by reference from the Company's Annual Report
                    on Form 10-K, filed October 14, 1997.

*10.21              Form of Stock Option Agreement between InSight and employees of InSight
                    relating to InSight's 1996 Employee Stock Option Plan, previously filed and
                    incorporated herein by reference from the Company's Annual Report on Form
                    10-K, filed October 14, 1997.

*10.22              Executive Employment Agreement between InSight and Brian P. Stone dated as of
                    May 18, 1998, previously filed and incorporated herein by reference from the
                    Company's Annual Report on Form 10-K, filed September 28, 1998.

*10.23              Form of Warrant Certificate relative to the grants of warrants to InSight's
                    non-employee directors, previously filed and incorporated herein by reference
                    from the Company's Annual Report on Form 10-K, filed September 28, 1998.

*10.24              Form of Warrant Certificate relative to the grants of warrants to Carlyle and
                    GE in lieu of director stock options, previously filed and incorporated
                    herein by reference from the Company's Annual Report on Form 10-K, filed
                    September 28, 1998.

*10.25              Letter Agreement for Consulting Services between InSight and Frank E. Egger
                    dated July 7, 1999, previously filed and incorporated herein by reference from
                    the Company's Annual Report on Form 10-K, filed September 28, 1999.

*10.26              Warrant Certificate No. E-I dated July 7, 1999 in the name of Frank E. Egger,
                    previously filed and incorporated herein by reference from the Company's
                    Annual Report on Form 10-K, filed September 28, 1999.

*10.27              Separation Agreement between InSight and E. Larry Atkins dated as of July 19,
                    1999, previously filed and incorporated herein by reference from the Company's
                    Annual Report on Form 10-K, filed September 28, 1999.

*10.28              InSight's 1999 Stock Option Plan, previously filed and incorporated herein by
                    reference from the Company's Registration Statement on Form S-8 (Registration
                    No. 333-318218), filed March 6, 2000.

10.29               Form of Stock Option Agreement between InSight and employees of InSight
                    relative to InSight's 1999 Stock Option Plan, filed herewith.

10.30               Executive  Employment  Agreement between InSight and Steven  T. Plochocki
                    dated as of November 17, 1999, filed herewith.

10.31               Fifth Amendment to Credit Agreement dated as of December 15, 1999, among the
                    Company, the Subsidiary Guarantors (as defined therein), Bank of America,
                    N.A., as Agent, and the Lenders (as defined therein), filed herewith.
</TABLE>


                                      55

<PAGE>

<TABLE>
<S>                 <C>
10.32               Sixth Amendment to Credit Agreement and Waiver dated as of May 31, 2000,
                    among the Company, the Subsidiary Guarantors (as defined therein), Bank of
                    America, N.A., as Agent, and the Lenders (as defined therein), filed herewith.

99                  Charter of the Audit Committee of the Board of Directors of InSight, filed
                    herewith.

21                  Subsidiaries of InSight, filed herewith.

23                  Consent of Independent Public Accountants, filed herewith.
</TABLE>

*   Previously filed.

ITEM 14(b).         REPORTS ON FORM 8-K.  The Company filed a Current Report
                    on Form 8-K with the SEC on June 14, 2000, under Item 2
                    thereof,  reporting the Company's acquisition of
                    substantially all of the assets of Wilkes-Barre Imaging,
                    a New York general partnership.

ITEM 14(c).         The Exhibits described above in Item 14 (a) (3) are
                    attached hereto or incorporated by reference herein, as
                    noted.

ITEM 14(d).         Not applicable.


                                      56

<PAGE>


                                  SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                  INSIGHT HEALTH SERVICES CORP.

                                  By       /s/ Steven T. Plochocki
                                      ---------------------------------------
                                        Steven T. Plochocki, President and
                                              Chief Executive Officer

                                  Date:  September 7, 2000

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature                                        Title                               Date
<S>                                    <C>                                    <C>
/s/ Steven T. Plochocki                 Director, President and               September 7, 2000
-----------------------                 Chief Executive Officer
Steven T. Plochocki                    (Principal Executive Officer)



/s/ Thomas V. Croal                     Executive Vice President              September 7, 2000
-------------------                     and Chief Financial Officer
Thomas V. Croal                        (Principal Accounting Officer)



/s/ Grant R. Chamberlain                        Director                      September 7, 2000
------------------------
Grant R. Chamberlain


/s/ W. Robert Dahl                              Director                      September 7, 2000
------------------
W. Robert Dahl


                                                Director
------------------
Frank E. Egger


/s/Leonard H. Habas                             Director                      September 7, 2000
-------------------
Leonard H. Habas


                                                Director
--------------------
Jerome C. Marcus


/s/ Ronald G. Pantello                          Director                      September 7, 2000
----------------------
Ronald G. Pantello


/s/ Glenn A. Youngkin                           Director                      September 7, 2000
----------------------
Glenn A. Youngkin
</TABLE>


                                      57

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To InSight Health Services Corp.:

We have audited in accordance with auditing standards generally accepted in the
United States the consolidated financial statements of InSight Health Services
Corp. and subsidiaries included in this Form 10-K and have issued our report
thereon dated September 1, 2000. Our audit was made for the purpose of forming
an opinion on the basic consolidated financial statements taken as a whole. The
schedule listed in the index to consolidated financial statements is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. The schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.


/s/ ARTHUR ANDERSEN LLP


Orange County, California
September 1, 2000


                                      58

<PAGE>


                                  SCHEDULE IX
                INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
                      VALUATION AND QUALIFYING ACCOUNTS
               FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998
                            (amounts in thousands)

<TABLE>
<CAPTION>
                                                   Balance at       Charges to                           Balance at
                                                  Beginning of       Cost and                              End of
                                                      Year           Expenses          Other (A)            Year
                                                 ---------------  ---------------   ---------------   ---------------
<S>                                              <C>              <C>               <C>               <C>
June 30, 1998:
     Allowance for doubtful accounts                $  2,322         $  1,871          $    (711)         $  3,482
     Allowance for contractual adjustments             5,048           29,447            (26,578)            7,917
                                                    --------         --------          ---------          --------
     Total                                          $  7,370         $ 31,318          $ (27,289)         $ 11,399
                                                    ========         ========          =========          ========

June 30, 1999:
     Allowance for doubtful accounts                $  3,482         $  2,618          $  (2,349)         $  3,751
     Allowance for contractual adjustments             7,917           41,293            (35,139)           14,071
                                                    --------         --------          ---------          --------
     Total                                          $ 11,399         $ 43,911          $ (37,488)         $ 17,822
                                                    ========         ========          =========          ========

June 30, 2000:
     Allowance for doubtful accounts                $  3,751         $  2,907          $  (1,736)         $  4,922
     Allowance for contractual adjustments            14,071           57,715            (54,417)           17,369
                                                    --------         --------          ---------          --------
     Total                                          $ 17,822         $ 60,622          $ (56,153)         $ 22,291
                                                    ========         ========          =========          ========
</TABLE>



     (A) Write-offs of uncollectible accounts.


                                      59

<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NUMBER      DESCRIPTION AND REFERENCES
--------------      --------------------------
<S>                 <C>
*2.1                Asset Purchase and Liabilities Assumption Agreement dated as of January 3,
                    1997, by and among InSight Health Corp., Mobile Imaging Consortium, Limited
                    Partnership and Mobile Imaging Consortium-New Hampshire, previously filed and
                    incorporated herein by reference from the Company's Current Report on Form
                    8-K, filed June 16, 1997.

*2.2                Amendment No. 1 to Asset Purchase and Liabilities Assumption Agreement dated
                    as of May 30, 1997, by and among InSight Health Corp., Mobile Imaging
                    Consortium, Limited Partnership and Mobile Imaging Consortium-New Hampshire,
                    previously filed and incorporated herein by reference from the Company's
                    Current Report on Form 8-K, filed June 16, 1997.

*2.3                Asset Purchase and Liabilities Assumption Agreement dated as of June 20,
                    1997, by and between InSight Health Corp. and Desmond L. Fischer, M.D. (d/b/a
                    Chattanooga Outpatient Center), previously filed and incorporated herein by
                    reference from the Company's Current Report on Form 8-K, filed July 14, 1997.

*2.4                Agreement and Plan of Merger dated as of April 15, 1998, by and among
                    InSight, SMSI Acquisition Company, Signal Medical Services, Inc., SMSI
                    Holdings, Inc., Brian P. Stone, Thomas W. Crucitti and Todd Stowell,
                    previously filed and incorporated herein by reference from the Company's
                    Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, filed May
                    13, 1998.

*2.5                First Amendment to Agreement and Plan of Merger dated as of May 15, 1998, by
                    and among InSight, SMSI Acquisition Company, Signal Medical Services, Inc.,
                    SMSI Holdings, Inc., Brian P. Stone, Thomas W. Crucitti and Todd Stowell,
                    previously filed and incorporated herein by reference from the Company's
                    Current Report on Form 8-K, filed June 2, 1998.

*2.6                Second Amendment to Agreement and Plan of Merger dated as of May 18, 1998, by
                    and among InSight, SMSI Acquisition Company, Signal Medical Services, Inc.,
                    SMSI Holdings, Inc., Brian P. Stone, Thomas W. Crucitti and Todd Stowell,
                    previously filed and incorporated herein by reference from the Company's
                    Current Report on Form 8-K, filed June 2, 1998.

*2.7                Asset Purchase Agreement dated May 2, 2000, by and among InSight Health Corp.,
                    Roy Assael, Wilkes-Barre Imaging and US Diagnostic Inc., previously filed and
                    incorporated herein by reference from the Company's Current Report on Form
                    8-K, filed June 14, 2000.

*2.8                Amendment to Asset Purchase Agreement dated May 31, 2000, by and among InSight
                    Health Corp., Roy Assael, Wilkes-Barre Imaging and US Diagnostic Inc.,
                    previously filed and incorporated herein by reference from the Company's
                    Current Report on Form 8-K, filed June 14, 2000.

*3.1                Certificate of Incorporation of InSight, previously filed and incorporated
                    herein by reference from the Company's Registration Statement on Form S-4
                    (Registration No. 333-02935), filed April 29, 1996.

*3.2                Certificate of Designation, Preferences and Rights of Convertible Preferred
                    Stock, Series B, of InSight, previously filed and incorporated herein by
                    reference from the Company's Annual Report on Form 10-K, filed October 14,
                    1997.
</TABLE>


                                      60

<PAGE>

<TABLE>
<S>                 <C>
*3.3                Certificate of Designation, Preferences and Rights of Convertible Preferred
                    Stock, Series C, of InSight, previously filed and incorporated herein by
                    reference from the Company's Annual Report on Form 10-K, filed October 14,
                    1997.

*3.4                Certificate of Designation, Preferences and Rights of Convertible Preferred
                    Stock, Series D, of InSight, previously filed and incorporated herein by
                    reference from the Company's Annual Report on Form 10-K, filed October 14,
                    1997.

*3.5                Amended and Restated Bylaws of InSight, previously filed and incorporated
                    herein by reference from the Company's Annual Report on Form 10-K, filed
                    October 14, 1997.

*4.1                Indenture dated as of June 1, 1998, by and among the Company, the Subsidiary
                    Guarantors (as defined therein) and State Street Bank and Trust Company, N.A.
                    as Trustee (includes forms of the Outstanding Notes and Exchange Notes (as
                    defined therein)), previously filed and incorporated herein by reference from
                    the Company's Registration Statement on Form S-4 (Registration No.
                    333-60573), filed August 4, 1998.

*4.2                Purchase Agreement dated as of June 9, 1998, by and among the Company, the
                    Subsidiary Guarantors (as defined therein) and the Initial Purchasers (as
                    defined therein), previously filed and incorporated herein by reference from
                    the Company's Registration Statement on Form S-4 (Registration No.
                    333-60573), filed August 4, 1998.

*10.1               Credit Agreement dated as of October 14, 1997, as amended  November 17, 1997,
                    December 19, 1997, March 23, 1998 and amended and restated as of June 12,
                    1998, among the Company, the Subsidiary Guarantors (as defined therein), Bank
                    of America, N.A. (formerly NationsBank, N.A.) as Agent and the Lenders (as
                    defined therein), previously filed and incorporated herein by reference from
                    the Company's Registration Statement on Form S-4 (Registration No.
                    333-60573), filed August 4, 1998.

*10.2               Master Service Agreement Addendum by and among General Electric Company
                    acting through GE Medical Systems, InSight, AHS and MHC, previously filed and
                    incorporated herein by reference from the Company's Registration Statement on
                    Form S-4 (Registration No. 333-02935), filed April 29, 1996.

*10.3               InSight's 1996 Directors' Stock Option Plan, previously filed and
                    incorporated herein by reference from the Company's Registration Statement on
                    Form S-4 (Registration No. 333-02935), filed April 29, 1996.

*10.4               InSight's 1996 Employee Stock Option Plan, previously filed and incorporated
                    herein by reference from the Company's Registration Statement on Form S-4
                    (Registration No. 333-02935), filed April 29, 1996.

*10.5               Agreements and form of warrants with holders of Series B Preferred Stock of
                    AHS, previously filed and incorporated herein by reference from the Company's
                    Registration Statement on Form S-4 (Registration No. 333-02935), filed April
                    29, 1996.

*10.6               AHS 1987 Stock Option Plan, previously filed and incorporated herein by
                    reference from Post-Effective  Amendment No. 4 on Form S-1 to AHS's
                    Registration Statement (Registration No. 33-00088), filed September 5, 1985.

*10.7               AHS 1989 Stock Incentive Plan, previously filed and incorporated herein by
                    reference from AHS's Annual Report on Form 10-K, filed April 15, 1991.
</TABLE>


                                      61

<PAGE>

<TABLE>
<S>                 <C>
*10.8               AHS 1992 Option and Incentive Plan, previously filed and incorporated herein
                    by reference from AHS's Registration Statement on Form S-8 (Registration No.
                    33-51532), filed September 1, 1992.

*10. 9              MHC 1989 Stock Option Plan, Amended and Restated as of October 28, 1993,
                    previously filed and incorporated herein by reference from MHC's Annual
                    Report on Form 10-K for the fiscal year ended December 31, 1993.

*10.10              InSight's 1998 Employee Stock Option Plan, previously filed and incorporated
                    herein by reference from the Company's Registration Statement on Form S-4
                    (Registration No. 333-60573), filed August 4, 1998.

*10.11              Form of Stock Option Agreement between InSight and former officers of Signal
                    Medical Services, Inc. relative to InSight's 1998 Employee Stock Option Plan,
                    previously filed and incorporated by reference from the Company's Annual
                    Report on Form 10-K, filed September 28, 1998.

*10.12              InSight's 1997 Management Stock Option Plan, previously filed and
                    incorporated herein by reference from the Company's Registration Statement on
                    Form S-4 (Registration No. 333-60573), filed August 4, 1998.

*10.13              Form of Stock Option Agreement between InSight and certain senior officers of
                    InSight relative to InSight's 1997 Management Stock Option Plan, previously
                    filed and incorporated by reference from the Company's Annual Report on Form
                    10-K, filed September 28, 1998.

*10.14              Letter Agreement for Consulting Services between InSight and Frank E. Egger
                    dated March 28, 1996, previously filed and incorporated herein by reference
                    from the Company's Registration Statement on Form S-4 (Registration No.
                    333-02935), filed April 29, 1996.

*10. 15             Executive Employment Agreement between InSight and E. Larry Atkins dated as
                    of February 25, 1996, previously filed and incorporated herein by reference
                    from the Company's Registration Statement on Form S-4 (Registration No.
                    333-02935), filed April 29, 1996.

*10.16              Form of Executive Employment Agreement between InSight and various officers
                    of InSight, previously filed and incorporated herein by reference from the
                    Company's Registration Statement on Form S-4 (Registration No. 333-02935),
                    filed April 29, 1996.

*10. 17             Nonqualified Stock Option Agreement dated August 17, 1994, between MHC and
                    Leonard H. Habas, previously filed and incorporated herein by reference from
                    the Company's Annual Report on Form 10-K for the six months ended June 30,
                    1996.

*10.18              Nonqualified Stock Option Agreement dated August 17, 1994, between MHC and
                    Ronald G. Pantello, previously filed and incorporated herein by reference
                    from the Company's Annual Report on Form 10-K for the six months ended June
                    30, 1996.

*10.19              Warrant Certificate No. L-1 dated March 11, 1997 in the name of Anthony J.
                    LeVecchio, previously filed and incorporated herein by reference from the
                    Company's Annual Report on Form 10-K, filed October 14, 1997.
</TABLE>


                                      62

<PAGE>

<TABLE>
<S>                 <C>
*10.20              Form of Stock Option Agreement between InSight and non-employee directors of
                    InSight relative to InSight's 1996 Directors' Stock Option Plan, previously
                    filed and incorporated herein by reference from the Company's Annual Report
                    on Form 10-K, filed October 14, 1997.

*10.21              Form of Stock Option Agreement between InSight and employees of InSight
                    relating to InSight's 1996 Employee Stock Option Plan, previously filed and
                    incorporated herein by reference from the Company's Annual Report on Form
                    10-K, filed October 14, 1997.

*10.22              Executive Employment Agreement between InSight and Brian P. Stone dated as of
                    May 18, 1998, previously filed and incorporated herein by reference from the
                    Company's Annual Report on Form 10-K, filed September 28, 1998.

*10.23              Form of Warrant Certificate relative to the grants of warrants to InSight's
                    non-employee directors, previously filed and incorporated herein by reference
                    from the Company's Annual Report on Form 10-K, filed September 28, 1998.

*10.24              Form of Warrant Certificate relative to the grants of warrants to Carlyle and
                    GE in lieu of director stock options, previously filed and incorporated
                    herein by reference from the Company's Annual Report on Form 10-K, filed
                    September 28, 1998.

*10.25              Letter Agreement for Consulting Services between InSight and Frank E. Egger
                    dated July 7, 1999, previously filed and incorporated herein by reference from
                    the Company's Annual Report on Form 10-K, filed September 28, 1999.

*10.26              Warrant Certificate No. E-I dated July 7, 1999 in the name of Frank E. Egger,
                    previously filed and incorporated herein by reference from the Company's
                    Annual Report on Form 10-K, filed September 28, 1999.

*10.27              Separation Agreement between InSight and E. Larry Atkins dated as of July 19,
                    1999, previously filed and incorporated herein by reference from the Company's
                    Annual Report on Form 10-K, filed September 28, 1999.

*10.28              InSight's 1999 Stock Option Plan, previously filed and incorporated herein by
                    reference from the Company's Registration Statement on Form S-8 (Registration
                    No. 333-318218), filed March 6, 2000.

10.29               Form of Stock Option Agreement between InSight and employees of InSight
                    relative to InSight's 1999 Stock Option Plan, filed herewith.

10.30               Executive  Employment  Agreement between InSight and Steven  T. Plochocki
                    dated as of November 17, 1999, filed herewith.

10.31               Fifth Amendment to Credit Agreement dated as of December 15, 1999, among the
                    Company, the Subsidiary Guarantors (as defined therein), Bank of America,
                    N.A., as Agent, and the Lenders (as defined therein), filed herewith.
</TABLE>


                                      63

<PAGE>

<TABLE>
<S>                 <C>
10.32               Sixth Amendment to Credit Agreement and Waiver dated as of May 31, 2000,
                    among the Company, the Subsidiary Guarantors (as defined therein), Bank of
                    America, N.A., as Agent, and the Lenders (as defined therein), filed herewith.

99                  Charter of the Audit Committee of the Board of Directors of InSight, filed
                    herewith.

21                  Subsidiaries of InSight, filed herewith.

23                  Consent of Independent Public Accountants, filed herewith.
</TABLE>

*   Previously filed.




                                      64