<PAGE>



                                    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, 1997
                                           
                                          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 jurisdiction              (I.R.S. Employer
          of incorporation or                      Identification
            organization)                              No.)

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

                                    (714) 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 September 30, 1997 (based on the closing price on the NASDAQ
Small Cap Market on that date) was $14,452,668.
The number of shares outstanding of the Registrant's Common Stock as of
September 30, 1997 was 2,714,725. 

                         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.

                                          1
<PAGE>
                                        PART I

ITEM 1.     BUSINESS

MERGER 

InSight Health Services Corp. ("InSight" or the "Company") is a Delaware
corporation formed on February 23, 1996 in connection with the Agreement and
Plan of Merger, dated as of February 26, 1996 (the "Merger Agreement"), among
American Health Services Corp., a Delaware corporation ("AHS"), Maxum Health
Corp., a Delaware corporation ("MHC" or "Maxum"), InSight and two wholly owned
subsidiaries of InSight, AHSC Acquisition Company, a Delaware corporation ("AHSC
Acquisition"), and MXHC Acquisition Company, a Delaware corporation ("MXHC
Acquisition").  Each of AHS and MHC were publicly held providers of diagnostic
imaging, treatment and related management services. Pursuant to the terms of the
Merger Agreement, (i) AHSC Acquisition merged with and into AHS and MXHC
Acquisition merged with and into Maxum (collectively, the "Merger"), (ii) each
outstanding share of common stock, par value $.03 per share, of AHS ("AHS Common
Stock") was converted into the right to receive one-tenth of a share of common
stock, par value $.001 per share, of InSight ("InSight Common Stock"), (iii)
each outstanding share of Series B Senior Convertible Preferred Stock, par value
$.03 per share, of AHS ("AHS Series B Preferred Stock") which was convertible
into 100 shares of AHS Common Stock was converted into the right to receive 10
shares of InSight Common Stock, (iv) each outstanding share of Series C
Preferred Stock, par value $.03 per share, of AHS (the "AHS Series C Preferred
Stock"), which was issued immediately prior to the consummation of the Merger,
was converted into the right to receive 1.25088 shares of Series A Preferred
Stock, par value $.001 per share, of InSight (the "InSight Series A Preferred
Stock"), (v) each outstanding share of common stock, par value $.01 per share,
of Maxum ("Maxum Common Stock") was converted into the right to receive .598 of
a share of InSight Common Stock, (vi) each outstanding share of Series B
Preferred Stock, par value $.01 per share, of Maxum (the "Maxum Series B
Preferred Stock"), which was issued immediately prior to the consummation of the
Merger, was converted into the right to receive 83.392 shares of InSight Series
A Preferred Stock, and (vii) each outstanding option, warrant or other right to
purchase AHS Common Stock and Maxum Common Stock was converted into the right to
acquire, on the same terms and conditions, shares of InSight Common Stock, with
the number of shares and exercise price applicable to such option, warrant or
other right adjusted based on the applicable exchange ratio for the underlying
AHS Common Stock or Maxum Common Stock. 

On June 25, 1996, the stockholders of both MHC and AHS approved the Merger. On
June 26, 1996, MHC and AHS became wholly owned subsidiaries of InSight, and the
stockholders of MHC and AHS became stockholders of InSight. MHC and AHS were
organized in 1989 and 1982, respectively. 

On September 13, 1996, AHS changed its name to InSight Health Corp. ("IHC").

The principal executive offices of InSight are located at 4400 MacArthur Blvd.,
Suite 800, Newport Beach, California 92660, and its telephone number is (714)
476-0733. 

RECAPITALIZATION

On October 14, 1997, InSight 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 InSight Convertible Preferred Stock, Series B, 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 InSight Common 
Stock, and (ii) warrants (the "Carlyle Warrants") to purchase up to 250,000 
shares of InSight Common Stock at the current exercise price of $10.00 per 
share; (b) General Electric Company ("GE") (i) surrendered its rights with 
respect to its supplemental service fee (see Item 7.  "Management's 
Discussion and Analysis of Financial Condition and Results of Operations," 
below) in exchange for (A) the issuance of 7,000 shares of newly issued 
InSight Convertible Preferred Stock, Series C, par value $0.001 per share 
("Series C Preferred Stock"), initially convertible, at the option of the 
holders thereof, in the aggregate into 835,821 shares of InSight Common 
Stock, and (B) warrants (the "GE Warrants") to purchase up to 250,000 shares 
of InSight Common Stock at the current exercise price of $10.00 per share, 
and (ii) agreed to exchange all of its InSight Convertible Preferred Stock, 
Series A, on the business day (the "Second Closing") after all waiting 
periods with respect to GE's filing under the Hart-Scott-Rodino Antitrust 
Improvements Act of 1976, as amended, have expired or been terminated, for an 
additional 20,953 shares of Series C Preferred Stock, initially convertible, 
at the option of the holders thereof, in the aggregate into 2,501,760 shares 
of InSight Common Stock; and (c) the Company executed a Credit Agreement with 
NationsBank, 

                                          2
<PAGE>
N.A. pursuant to which NationsBank, as agent, committed to provide a total of
$125 million in senior secured credit, including a $50 million acquisition
facility, upon the satisfaction of certain customary conditions (the "Bank
Financing").

Pursuant to the terms of the Recapitalization, the number of directors 
comprising the Company's Board of Directors (the "Board") is currently fixed 
at nine.  Six directors (the "Common Stock Directors") are to be elected by 
the common stockholders, one of whom (the "Joint Director") is to be proposed 
by Carlyle and GE and approved by a majority of the Board in its sole 
discretion.  Of the three remaining directors, two are to be elected by the 
holders of the Series B Preferred Stock and one is to be elected by the 
holders of the Series C Preferred Stock, subject to increase and decrease in 
certain circumstances.  Presently, the Board of Directors of the Company 
consists of seven directors, five of whom are Common Stock Directors and two 
of whom are Preferred Stock Directors elected by Carlyle.  GE has informed 
the Company of its intention to wait until the Second Closing to elect its 
Preferred Stock Director.  The vacancy created for the Joint Director has not 
been filled.

CENTERS IN OPERATION 

InSight provides diagnostic imaging, treatment and related management services
in 26 states throughout the United States. InSight's services are provided
through a network of 35 mobile magnetic resonance imaging ("MRI") facilities
("Mobile Facilities"), 28 fixed-site MRI facilities ("Fixed Facilities"), ten
multi-modality imaging centers ("Centers"), two Leksell Stereotactic Gamma Unit
treatment centers ("Gamma Knife"), 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, primarily Los Angeles county,
and northern Texas, primarily the Dallas-Ft. Worth metroplex. 

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

DIAGNOSTIC IMAGING  AND TREATMENT TECHNOLOGY 

During approximately the last 20 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 conventional x-ray, CT
scanners, digital ultrasound systems, computer-based nuclear gamma cameras,
radiography/fluoroscopy systems and MRI 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. 

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. 

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. 

MRI TECHNOLOGY  InSight believes that the introduction of MRI technology into 
the health care marketplace marked a significant advance in diagnostic 
medicine. 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" 

                                          3
<PAGE>
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 30 to 90 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 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, InSight 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. 

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. These systems
use permanent electromagnetic technology rather than superconductivity magnets,
substantially lowering both siting and service costs. The open design allows for
studies not normally possible in conventional MRI systems, including
claustrophobic patients, extremely large patients (from 300 to 400 pounds) and
for musculoskeletal exams which require the patient to move or flex, such as
kinematic knee studies. Manufacturers are marketing these open MRI systems at
costs below most state Certificate of Need ("CON") requirements. The reduced
equipment costs, combined with lower siting and service expense, may make MRI
technology feasible at some rural hospitals and other new market locations where
patient volume and reimbursement do not financially justify the expense of a
conventional MRI system.  Open MRI systems are priced in the range of $0.6
million to $1 million.

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 minutes 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 $1.5 million depending upon the specific
performance characteristics of the systems. Based on the fact that CT systems
have been commercially marketed for approximately 20 years, InSight believes
that CT is a relatively mature technology and, therefore, not subject to
significant risk of obsolescence. 

                                          4
<PAGE>
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. 

GAMMA KNIFE    The Leksell Stereotactic Gamma Unit is a state-of-the-art
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 Cobalt 60 sources positioned about a hemispherical, precision machined
cavity. Each individual beam is 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 mechanical precision of the Gamma Knife at the target site is 1/10 of
one millimeter (0.1 mm), making the Gamma Knife an ideal treatment device for
treating small or medium-sized lesions in critical locations within the brain.
However, based upon the type, size and/or location of such lesions, not all
patients are candidates for radiosurgery. The mechanical precision of the Gamma
Knife is coupled with an extremely sharp fall-off in the radiation intensity
surrounding the target, resulting in a highly localized treatment effect,
sparing surrounding tissue. 

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
("isocenter"). A key feature of the Gamma Knife is its ability to perform
treatments that require multiple isocenters. In addition, other applications for
the Gamma Knife are currently being developed. Investigative work is being
conducted to treat patients for chronic pain and motion disorders such as
Parkinson's disease, epilepsy and trigeminal neuralgia. These new applications
represent a significant new market for the Gamma Knife upon clinical acceptance.
The current selling price of a Gamma Knife system is approximately $3 million. 

STRATEGY AND MARKETING 

InSight 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.
InSight's primary objective is to provide diagnostic imaging, treatment and
related management services to hospitals, physicians and their patients. The
Company does not engage in the practice of medicine.  The strategy of InSight is
focused on five interrelated initiatives:  (i) the consolidation of the highly
fragmented, diagnostic imaging industry through the acquisition of organizations
which either strategically fit into its regional networking strategy or provide
significant cost savings through the consolidation of duplicative
infrastructures, (ii) development of a radiology co-source product where InSight
will provide management services for radiology departments within hospitals,
(iii) development of regional networks of radiology providers and physicians
designed to provide the highest quality and most cost-effective unit of
diagnostic information to the broadest population in a given market, (iv)
development of a network of open MRI systems to protect InSight's existing high
field MRI market and to expand in markets in which InSight does not have a
presence and (v) new business initiatives focused on broadening its range of
services to managed care organizations, hospitals and physician management
companies to include radiology management services; information management
services; billing and collections; technologist services and training
applications; marketing; equipment rental and continued evaluation of
opportunities with emerging technologies. InSight believes that long-term
viability is contingent upon its ability to successfully participate in this
industry consolidation. 

In fiscal 1997, InSight completed three acquisitions of Centers and Mobile
Facilities and in the first quarter of fiscal 1998, InSight completed one
acquisition of a Center and entered into a definitive agreement for the purchase
of another Center, subject to the satisfaction of certain conditions.  Also, in
fiscal 1997, an open MRI system was installed and became operational at one of
the Company's Fixed Facilities and a second open MRI system was installed at one
of the Company's Centers, subject to the issuance of a CON.  The CON has been
received and InSight expects the open MRI system to become operational in the
second quarter of 1998.  In addition, in the first quarter of 1998, InSight 
entered into two joint venture arrangements for the development of two open MRI
Centers.

                                          5 <PAGE>

The foregoing acquisitions and developments have been financed by GE.  Upon 
the effectiveness of the Bank Financing, the Company believes it will be well 
positioned to pursue additional acquisition and development opportunities.

Certain statements contained in this report are forward-looking statements 
that involve a number of risks and uncertainties. The factors that could 
cause actual results to differ materially include the following: availability 
of financing; limitations and delays in reimbursement by third-party payors; 
contract renewals and financial stability of customers; technology changes; 
governmental regulation; conditions within the health care environment; 
adverse utilization trends for certain diagnostic imaging procedures; 
aggressive competition; general economic factors; InSight's inability to 
carry out its business strategy due to rising purchase prices of imaging 
centers and companies; and the risk factors listed from time to time in 
InSight's filings with the Securities and Exchange Commission. 

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 
InSight, 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 InSight currently operates regulate 
various aspects of the Company's business. Failure to comply with these laws 
could adversely affect InSight's ability to receive reimbursement for its 
services and subject the Company and its officers to penalties. 

Some states require hospitals and certain other health care facilities to 
obtain a CON prior to the acquisition of major medical equipment such as an 
MRI or Gamma Knife system. InSight believes that it will not be required to 
obtain CONs in most of the states in which it intends to operate, since most 
states no longer require non-hospital providers to obtain CONs and those 
states that do offer exemptions for which the Company may qualify; however, 
in those states where a CON is required, InSight has complied or will comply 
with such requirements. 

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 others considered 
disabled. Providers of service are paid by the federal government in 
accordance with regulations promulgated by the United States Department of 
Health and Human Services and 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 overall fee which hospitals 
may charge for inpatient treatment services based upon the diagnosis of the 
patient. Because InSight mainly provides services to patients on an 
outpatient basis, the prospective payment regulations do not materially 
affect the Company's business. Although outpatient services are presently 
exempt from prospective payment reimbursement, Congress has instructed the 
Prospective Payment Assessment Commission to study alternative methods for 
reimbursing hospitals for outpatient services, including prospective payment 
methods, and the Medicare program has adopted fee scales for some diagnostic 
services. Such congressional activity reflects industry-wide cost containment 
pressures which InSight believes will affect all health care providers for 
the foreseeable future. 

Private health insurance programs generally have authorized the payment for 
diagnostic imaging and Gamma Knife procedures on satisfactory terms and the 
Health Care Financing Administration ("HCFA") has authorized reimbursement 
under the federal Medicare program for all diagnostic imaging and Gamma Knife 
services currently being provided by the Company.  However, if Medicare 
reimbursement is reduced, InSight believes that private health insurance 
programs will also reduce reimbursement in response to reductions in 
government reimbursement which could have an adverse impact on the Company's 
business. 

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.  InSight is subject to state and federal laws 
prohibiting payments for patient referrals and regulating reimbursement 
procedures and practices under Medicare, Medicaid and other governmental 
health care programs. The Medicare and Medicaid Patient and Program 
Protection Act of 1987 ("1987 Act") prohibits financial arrangements designed 
to induce patient referrals to providers of services which are paid for by 
Medicare or Medicaid. Courts have, to date, interpreted these laws to apply 
to a broad range of financial relationships. Several states also have 
statutes prohibiting arrangements with health care providers which, while 
similar in many respects to the 1987 Act, vary from state to state, are often 
vague and have infrequently been interpreted by courts or regulatory 
agencies. Due to the potentially broad proscriptions

                                       6

<PAGE>

contained in these federal and state laws, there can be no assurance that all 
of InSight's business practices would be construed to comply with these laws 
in all respects. However, in the situations where InSight contracts with 
health care providers who may be in a position to refer patients to the 
Company's operations, the Company exercises care in an effort to structure 
its activities and arrangements to comply with applicable federal and state 
laws. InSight maintains an internal regulatory compliance review program and 
retains special counsel, as necessary, to monitor compliance with such laws 
and regulations. 

Under current Medicare policy, imaging centers may generally participate in 
the Medicare program as either medical groups or, subject to the discretion 
of individual Medicare carriers, Independent Physiological Laboratories 
("IPLs").  The IPL is a loosely defined Medicare provider category that is 
not specifically authorized to provide imaging services. Accordingly, certain 
carriers permit IPLs to provide imaging services and others do not.  In the 
past, InSight has preferred, to the extent possible, to operate its imaging 
centers for Medicare purposes as IPLs.  InSight believes that the designation 
of its imaging centers as IPLs gives it greater operational control than it 
would have if its imaging centers were operated under the medical group 
model, where InSight would function as a "manager".

On June 18, 1997, in response to the lack of designation for imaging 
services, HCFA published proposed regulations which, among other things, 
would establish a new category of Medicare provider referred to as an 
Independent Diagnostic Treatment Facility ("IDTF").  The proposed IDTF 
regulations contemplate an effective date of January 1, 1998, although 
InSight's management believes that the effective date could be July 1, 1998.  
If these regulations are implemented, it appears that imaging centers will 
have the option to participate  in the Medicare program as either (i) IDTFs 
or (ii) medical groups.

InSight has evaluated the proposed IDTF regulations for the purpose of 
assessing their potential impact on InSight's operations.  Although InSight 
believes that the impact of the IDTF regulations is likely to be positive 
overall, InSight had a number of concerns and submitted comments to HCFA 
regarding those concerns.  InSight currently anticipates converting its 
imaging centers to IDTFs once that category is available; however, if some of 
the IDTF qualifications and obligations, outlined in the proposed IDTF 
regulations are unmodified, InSight believes that IDTFs may be at a 
substantial competitive disadvantage with those imaging centers operated as 
medical groups.  Accordingly, InSight may consider converting some or all of 
its existing centers into the medical group model, with InSight functioning 
as a "manager" of the radiology group.  This conversion will require the 
cooperation of the radiology groups associated with InSight's imaging centers.

The U.S. Food and Drug Administration ("FDA") has issued the requisite 
premarket approval for all of the MRI, CT and Gamma Knife systems utilized by 
InSight.  The Company does not believe that any further FDA approval is 
required in connection with equipment currently in operation or proposed to 
be operated. 

The radiologists with whom InSight 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. InSight 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 InSight's operations. 

MANAGED CARE 

Health Maintenance Organizations ("HMOs") and Preferred Provider 
Organizations ("PPOs") attempt to control the cost of health care services. 
InSight believes that the development and expansion of HMOs, PPOs and other 
managed care organizations will have a negative impact on utilization of 
InSight services in certain markets and/or affect the revenue per procedure 
which the Company can collect, since they will exert greater control over 
patients' access to diagnostic imaging services, the selection of the 
provider of such services and the reimbursement thereof. InSight 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 InSight may obtain and 
the payment to the Company for such services may also be negatively impacted. 
InSight nonetheless believes that as long as it is able to negotiate provider 
agreements with the managed care companies and other payors to provide 
productive and cost-efficient services with measurable outcomes, InSight's 
business as a whole should not be negatively impacted. See "Customers and 
Fees". 


                                       7

<PAGE>

LIABILITY INSURANCE 

InSight does not provide medical services, although it has obtained 
professional liability insurance as well as general liability insurance. 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. InSight believes that its insurance is adequate for 
its business of providing diagnostic imaging, treatment and related 
management services.

COMPETITION 

The health care industry in general, and the market for diagnostic imaging 
services in particular, are highly competitive. InSight'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. InSight will continue to 
encounter substantial competition from hospitals and independent 
organizations. 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. In the past, 
however, the reluctance of hospitals to purchase imaging and treatment 
equipment encouraged the entry of start-up ventures and more established 
business operations into the diagnostic and treatment 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.  Many of these competitors have substantially greater 
resources than InSight; however, the Company competes principally on the 
basis of its reputation for productive and cost-effective quality services. 

CUSTOMERS AND FEES 

InSight'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. Patient services revenues are services billed directly to 
patients or third party payors (generally managed care organizations and 
commercial insurance carriers), and are primarily earned through Centers and 
certain Fixed Facilities. 

InSight'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 nearing Medicare 
reimbursement levels. A decline in referrals and/or reimbursement rates would 
adversely affect InSight's revenues and profits. See "Managed Care". 

InSight's contract services revenues, primarily earned by its Mobile 
Facilities, represent approximately 51% of total revenues. 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 able to obtain replacement customer accounts; 
however, it is not always possible to obtain replacement accounts and some 
replacement accounts have been smaller than the lost account.  The 
non-renewal of a single customer agreement would not have a material impact 
on InSight'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, InSight's contract services 
revenues would be adversely affected.


                                       8

<PAGE>

No single source accounts for more than 10% of InSight's revenues. The 
Company has six individual contracts with the county of Los Angeles (the 
"County") covering six separate sites. In the aggregate, these sites earn 
revenues which represent approximately 10% of InSight's annual revenues. From 
time to time, the County has experienced financial difficulties. If such 
difficulties caused the County to curtail or terminate the Company's 
services, the Company's business would be adversely affected. 

SUPPLY OF DIAGNOSTIC IMAGING AND GAMMA KNIFE SYSTEMS 

InSight 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 InSight'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 GE 
Medical Systems, Hitachi Medical Systems, Picker International, Philips Medical
Systems, Siemens Medical Systems, Inc. and Toshiba Medical Systems. InSight 
maintains good working relationships with many of the major manufacturers to 
better ensure an adequacy of supply as well as access to those types of 
diagnostic imaging systems which appear most appropriate for the specific 
diagnostic or treatment center to be established. Currently only one company, 
Elekta Instruments, Inc., a subsidiary of AB Elekta headquartered in 
Stockholm, Sweden ("Elekta"), is engaged in the business of manufacturing the 
Gamma Knife. 

EMPLOYEES 

As of September 15, 1997, InSight had approximately 544 full-time and 80 
part-time employees.  None of the Company's employees are covered by a 
collective bargaining agreement. Management believes its employee relations 
to be satisfactory.

ITEM 2.   PROPERTIES 

The following table includes the primary properties utilized by InSight as of 
September 15, 1997: 

<TABLE>
<CAPTION>
                                         APPROXIMATE  
NAME OF FACILITY                         SQUARE FEET  LOCATION
----------------                         -----------  --------
<S>                                      <C>          <C>
OWNED:
Berwyn Magnetic Resonance Center            3,800     Berwyn, Illinois
Northern Indiana Oncology Center            3,500     Valparaiso, Indiana
Garfield Imaging Center                     4,500     Monterey Park, California
LAC/USC Imaging Sciences Center             8,500     Los Angeles, California
Diagnostic Outpatient Center               13,800     Hobart, Indiana
Harbor/UCLA Diagnostic Imaging Center      15,000     Torrance, California

LEASED:
InSight Corporate Headquarters             12,300     Newport Beach, California
Maxum Diagnostic Center - Forest Lane      14,100     Dallas, Texas
Maxum Diagnostic Center - Eighth Avenue    10,000     Ft. Worth, Texas
Maxum Diagnostic Center - Preston Road      5,800     Dallas/Plano, Texas
Ocean Medical Imaging Center                8,700     Tom's River, New Jersey
Northwest Magnetic Imaging Center           2,400     Seattle, Washington
Northwest Gamma Knife Center                3,400     Seattle, Washington
Washington Magnetic Resonance Center        4,100     Whittier, California
Open MRI of Hayward                         6,400     Hayward, California
Central Maine Imaging Center                7,250     Lewiston, Maine
Training/Applications/Fleet Services       20,000     Winston-Salem, North Carolina
Chattanooga Outpatient Center              14,700     Chattanooga, Tennessee
Broad Street Imaging Center                12,700     Columbus, Ohio
</TABLE>

                                       9

<PAGE>

ITEM 3.   LEGAL PROCEEDINGS

InSight 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. InSight believes that the outcome of any such lawsuits will 
not have a material adverse impact on the Company's business. 

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

No matters were submitted to a vote of the Company's stockholders during the 
fourth quarter of fiscal 1997.

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

InSight's Common Stock began trading on the national over-the-counter market 
and quoted on the NASDAQ Small Cap Market under the symbol "IHSC" on July 17, 
1996. 

The following table sets forth the high and low prices as reported by NASDAQ 
for InSight Common Stock for the quarters indicated: 

          QUARTER ENDED                    LOW                  HIGH
          ------------------              -----                -----
          September 30, 1996              4 3/4                7 5/8
          December 31, 1996               4 3/4                7
          March 31, 1997                  4 1/4                6
          June 30, 1997                   4                    4 3/4 

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. 

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 loan agreements 
with its primary lender contain restrictions on its ability to pay dividends 
on its Common Stock. 

As of September 30, 1997, the Company's records indicate that there were in 
excess of 2,500 beneficial holders of the Common Stock and approximately 
535 stockholders of record. 

The following is a list of securities 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 (the "Securities 
Act"), were not registered under the Securities Act:

On August 10, 1996, the Company issued to the former holders of IHC Series B 
Preferred Stock, in consideration for certain agreements in connection with 
the Merger, warrants to purchase an aggregate of 50,000 shares of InSight 
Common Stock at an exercise price of $5.64 per share.  The warrants are fully 
vested and exercisable at any time up to August 9, 2001.

On August 14, 1996, the Company issued to Shattuck Hammond Partners, Inc. 
("SHP"), an investment banking firm in which a director of the Company, Grant 
R. Chamberlain, is a vice president, a warrant to purchase 35,000 shares of 
InSight Common Stock at an exercise price of $5.50 per share.  The warrant 
was issued as partial consideration  for SHP's agreement to provide general 
strategic advisory and investment banking services during the 18-month period 
commencing July 1, 1996 and ending December 31, 1997.  The warrant vests 
cumulatively on a monthly basis over the term of such agreement.


                                       10

<PAGE>

On March 11, 1997, the Company issued to Anthony J. LeVecchio, a former 
director of Maxum, a warrant to purchase 15,000 shares of InSight Common 
Stock at an exercise price of $5.50 per share.  The warrant was issued in 
partial consideration for Mr. LeVecchio's agreement to provide general 
strategic and business development activities commencing April 1, 1997, for a 
one year period. The warrant vests cumulatively at the rate of 5,000 shares 
on the first, second and third anniversary dates of such agreement.

ITEM 6.     SELECTED FINANCIAL DATA 

On June 26, 1996, pursuant to the Merger Agreement each of MHC and IHC became 
a wholly owned subsidiary of InSight.  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 year ended 
June 30, 1997, the six months ended June 30, 1996 and 1995 (unaudited), and 
for the years ended December 31, 1995, 1994, 1993 and 1992 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 year ended June 30, 1997, the six months ended June 
30, 1996 and for the years ended December 31, 1995 and 1994 and "Management's 
Discussion and Analysis of Financial Condition and Results of Operations," 
included elsewhere in this report.  

             (Amounts in thousands, except shares and per share data)

<TABLE>
<CAPTION>
                                                         SIX MONTHS ENDED
                                          YEAR ENDED  -----------------------              YEARS ENDED DECEMBER 31,
                                           JUNE 30,    JUNE 30,    JUNE 30,     ----------------------------------------------
                                             1997      1996(1)    1995(1) (4)    1995 (1)    1994 (1)    1993 (1)    1992 (1)
                                          ----------  ----------  -----------   ----------  ----------  ----------  ----------
<S>                                       <C>         <C>         <C>           <C>         <C>         <C>         <C>
STATEMENT OF OPERATIONS DATA:
Revenues                                  $  93,063   $   26,460  $   24,434    $   50,609  $   45,868  $   45,075  $   45,135
Costs of operations (2)                      80,337       27,420      22,986        48,778      45,439      47,456      45,329
                                          ----------  ----------  -----------   ----------  ----------  ----------  ----------
Gross profit (loss)                          12,726         (960)      1,448         1,831         429      (2,381)       (194)
Corporate operating expenses                  7,431        2,127       1,915         3,372       4,040       4,344       6,747
                                          ----------  ----------  -----------   ----------  ----------  ----------  ----------
Income (loss) from company operations         5,295       (3,087)       (467)       (1,541)     (3,611)     (6,725)     (6,941)
Equity in earnings from unconsolidated
  partnerships                                  468          138         136           348         834         685       1,020
                                          ----------  ----------  -----------   ----------  ----------  ----------  ----------
Operating income (loss)                       5,763       (2,949)       (331)       (1,193)     (2,777)     (6,040)     (5,921)
Interest expense, net                        (4,055 )     (1,144)       (648)       (1,626)     (1,206)     (1,773)     (2,391)
Provision for securities litigation
  settlement                                      -            -           -        (1,500)          -           -           -
Gain on sale of partnership interests             -            -           -             -       4,957           -           -
Provision for income taxes                     (427 )        (65)          -             -        (160)          -           -
                                          ----------  ----------  -----------   ----------  ----------  ----------  ----------
Income (loss) before extraordinary item       1,281       (4,158)       (979)       (4,319)        814      (7,813)     (8,312)
Extraordinary item                                -        3,179           -             -       3,342       1,036           -
                                          ----------  ----------  -----------   ----------  ----------  ----------  ----------
Net income (loss)                         $   1,281   $     (979) $     (979)   $   (4,319) $    4,156  $   (6,777) $   (8,312)
                                          ----------  ----------  -----------   ----------  ----------  ----------  ----------
                                          ----------  ----------  -----------   ----------  ----------  ----------  ----------
INCOME (LOSS) PER COMMON SHARE:
Income (loss) before extraordinary 
item  (3)                                 $    0.24   $    (2.99) $    (0.73)   $    (3.21) $     0.58  $    (4.49) $    (4.89)
                                          ----------  ----------  -----------   ----------  ----------  ----------  ----------
                                          ----------  ----------  -----------   ----------  ----------  ----------  ----------
Net income (loss) (3)                     $    0.24   $    (0.70) $    (0.73)   $    (3.21) $     2.96  $    (3.89) $    (4.89)
                                          ----------  ----------  -----------   ----------  ----------  ----------  ----------
                                          ----------  ----------  -----------   ----------  ----------  ----------  ----------
Weighted average number of common shares
  outstanding (3)                         5,440,315    1,389,271   1,333,169     1,344,832   1,402,435   1,741,846   1,698,602
 
<CAPTION>
 
                                               AT JUNE 30,                                     AT DECEMBER 31,
                                          ----------------------                ----------------------------------------------
                                             1997        1996                    1995 (1)    1994 (1)    1993 (1)    1992 (1)
                                          ----------  ----------                ----------  ----------  ----------  ----------
<S>                                       <C>         <C>         <C>           <C>         <C>         <C>         <C>
BALANCE SHEET DATA:
Working capital (deficit)                   $(5,740 )    $(1,167)                  $(2,228)     $1,587     $(8,594)   $(14,607)
Property and equipment, net                  34,488       29,852                    12,386       5,272       9,791      18,772
Intangible assets                            33,272       16,965                     4,047       1,194       1,263       2,513
Total assets                                 98,322       70,386                    28,306      22,592      23,566      38,043
Total long-term liabilities                  59,205       39,839                    19,723       9,575       7,967       8,368
Stockholders' equity (deficit)                6,685        5,404                    (4,005)        300      (3,857)      2,502
</TABLE>

     (1)  The selected consolidated financial data represents historical data of
          MHC only.
     (2)  Includes a (net credit) provision for prior restructuring costs of
          $(0.5) million and $7.5 million in 1993 and 1992, respectively. 
     (3)  Amounts are computed on a pro forma basis as if the reset of par value
          of Maxum Common Stock and related conversion into InSight Common Stock
          had occurred on January 1, 1992.  
     (4)  Unaudited.


                                       11

<PAGE>

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

The following discussion and analysis is provided to increase understanding 
of, and should be read in conjunction with Item 1. "Business", and Item 8. 
"Financial Statements and Supplementary Data", included elsewhere in this 
report.

ACQUISITIONS 

InSight 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 strategy of InSight will be focused on five interrelated 
initiatives:  (i) consolidation of the highly fragmented diagnostic imaging 
industry through acquisition of organizations which either strategically fit 
into its regional networking strategy or provide significant cost savings; 
(ii) development of a radiology co-source product where InSight will provide 
management services for radiology departments within hospitals, (iii) 
development of regional networks of radiology providers and physicians 
designed to provide the highest quality and most cost-effective unit of 
diagnostic information to the broadest population in a given market, (iv) 
development of a network of open MRI systems and (v) new business initiatives 
focused on broadening its range of services to managed care organizations, 
hospitals and physician management companies to include radiology management 
services; information management services; unbundling of current core 
services such as billing and collections, technician training and staffing, 
and asset management and continued evaluation of opportunities with emerging 
technologies. InSight believes that long-term viability is contingent upon 
its ability to successfully participate in this industry consolidation. 
InSight views the Merger of MHC and IHC as reflective of this consolidation. 
As part of its consolidation strategy, InSight completed three acquisitions 
during fiscal 1997 and one in the first quarter of fiscal 1998 as follows:

In September 1996, InSight completed the acquisition of a Fixed Facility in 
Hayward, California.  The transaction included the purchase of certain 
assets, primarily diagnostic equipment.  The purchase price of approximately 
$2.8 million was financed by GE.

In May 1997, InSight acquired certain assets, primarily Mobile Facilities, in 
Maine and New Hampshire, and assumed certain equipment related liabilities.  
The purchase price of approximately $6.8 million and an additional $0.4 
million for working capital requirements were financed by GE.

In June 1997, InSight completed the acquisition of a Center in Chattanooga, 
Tennessee.  The transaction included the purchase of certain assets, 
primarily diagnostic equipment, and the assumption of certain equipment 
related liabilities.  The purchase price of approximately $9.0 million was 
financed by GE. 

In July 1997, InSight completed the acquisition of a Center in Columbus, 
Ohio. As part of this transaction, InSight also has a majority ownership in 
the development of a new Center in Dublin, Ohio.  The transactions included 
the purchase of certain assets, primarily diagnostic equipment, and the 
assumption of certain equipment related liabilities.  The purchase price of 
approximately $5.5 million and approximately $0.5 million for the Center 
under development were financed by GE.

In July 1997, InSight entered into a definitive agreement to acquire a Center 
in Murfreesboro, Tennessee, subject to the satisfaction of certain 
conditions.  GE has agreed to finance the purchase price of 
approximately $2.7 million; however, the Bank Financing may be used to finance
the purchase price.

Upon the consummation of the Bank Financing, which InSight expects to occur 
by early November 1997, InSight will have at its disposal an acquisition 
facility in the amount of $50 million, which may be increased under certain 
circumstances to $75 million.  InSight believes this facility will enhance 
its ability to participate in the industry consolidation.


                                       12

<PAGE>

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES 

InSight 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, especially in the mobile diagnostic imaging  business.  
Management believes that InSight's long-term viability and success is 
contingent upon its ability to successfully execute its five interrelated 
strategic initiatives.
    
InSight continues to pursue acquisition opportunities.  InSight believes that 
the expansion of its business through acquisitions is a key factor in 
achieving and maintaining profitability.  Generally, acquisition 
opportunities are aimed at increasing revenues and profits, and maximizing 
utilization of existing capacity.  Incremental operating profit resulting 
from future acquisitions will vary depending on geographic location, whether 
facilities are Mobile versus Fixed, the range of services provided and the 
Company's ability to integrate the acquired businesses into its existing 
infrastructure.  Since the Merger, InSight has completed four acquisitions 
and entered into a definitive agreement with respect to an additional 
acquisition, as discussed above.

As noted above (see Item 1. "Business-Recapitalization"), the Company 
consummated the Recapitalization on October 14, 1997 pursuant to which (a) 
the Company issued to Carlyle 25,000 shares of Series B Preferred Stock 
having a liquidation preference of $1,000 per share and warrants to purchase 
250,000 shares of InSight Common Stock at the current exercise price of 
$10.00 per share, generating net proceeds to the Company (after related 
transaction costs of approximately $2.0 million) of approximately $23.0 
million; (b) the Company issued to GE 7,000 shares of Series C Preferred 
Stock, with a liquidation preference of $1,000 per share, in consideration of 
the termination of GE's right to receive supplemental service fee payments 
equal to 14% of InSight's pre-tax income, (for which the Company will record 
a non-recurring expense of approximately $6.7 million in the second quarter 
of fiscal 1998), and agreed to issue to GE an additional 20,953 shares of 
Series C Preferred Stock at the Second Closing in exchange for all of GE's 
shares of Series A Preferred Stock; and (c) the Company executed a Credit 
Agreement with NationsBank which, subject to the satisfaction of certain 
customary conditions, is expected to be consummated by early November and 
includes (i) a $50 million term loan facility consisting of a $20 million 
tranche with increasing amortization over a five year period and a $30 
million tranche principally repayable in years 6 and 7, (ii) a $25 million 
revolving working capital facility with a five-year maturity, and (iii) a $50 
million acquisition facility, which may be increased by up to an additional 
$25 million upon the satisfaction of certain conditions, including 
commitments from participating lenders.  The net proceeds from the Carlyle 
investment will be used to refinance a portion of the outstanding GE 
indebtedness (approximately $23 million).  At the initial funding of the Bank 
Financing, all of the term loan facility is expected to be drawn down to 
refinance all of the remaining GE indebtedness (approximately $47 million) 
and approximately $10 million of the revolving facility is expected to be 
drawn down for working capital purposes. If the Bank Financing is not 
consummated for any reason, the Company would be required to seek alternate 
financing.  In such event, there can be no assurance that such financing 
would be available on acceptable terms.   

InSight'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 nearing Medicare 
reimbursement levels.  A decline in referrals and/or reimbursement rates 
would adversely affect the Company's revenues and profits.

In connection with the Merger, certain financial accommodations with MHC's 
and IHC's primary creditor, GE, became effective in June 1996.  The financial 
accommodations with GE have restricted InSight's ability to raise capital, 
incur additional debt, enter into additional leases for equipment, complete 
acquisitions, or enter into other corporate transactions without first 
obtaining a waiver or consent from GE.  The GE indebtedness is expected to be 
repaid in full from the proceeds of the Carlyle investment and the Bank 
Financing.  The terms of the Series B Preferred Stock and the Series C 
Preferred Stock, as well as the Bank Financing, contain similar restrictions 
on InSight's ability to act without first obtaining a waiver or consent from 
Carlyle, GE and NationsBank.

                                       13

<PAGE>

Working capital decreased to a deficit of approximately $5.7 million at June 
30, 1997 from a deficit of approximately $1.2 million at June 30, 1996.  This 
increase in deficit of approximately $4.5  million is primarily due to the 
current portion of additional debt incurred as a result of the Company's 
acquisition strategy discussed above and principal payments on long-term 
debt, offset by net income before depreciation and amortization.  GE loaned 
the Company approximately $25.0 million to complete the acquisitions and has 
agreed to loan the Company approximately $2.7 million to complete the 
acquisition in Murfreesboro, Tennessee discussed above.  Notwithstanding the 
above, the Company believes that its current cash balances and cash flows 
from operations, will be sufficient to finance its current operations through 
June 30, 1998.

Cash and cash equivalents increased to approximately $7.1 million at June 30, 
1997 from approximately $6.8 million at June 30, 1996.  This increase of 
approximately $0.3 million resulted primarily from (i) cash provided by 
operating activities of approximately $7.3 million and (ii) long-term 
borrowings of approximately $33.7 million, offset by (i) the acquisition of 
Centers and Mobile Facilities (approximately $18.6 million), (ii) purchases 
of property and equipment (approximately $7.1 million), and (iii) payments on 
debt and capital lease obligations (approximately $11.0 million).

The Company has committed to purchase, at an aggregate cost of approximately 
$4.0 million, three MRI systems  for delivery during the quarter ending 
December 31, 1998.  The Company has obtained commitments to finance the 
purchase or lease of such equipment; however, the Bank Financing may be used 
to finance the purchase of such equipment.  In addition, the Company has 
committed to purchase or lease from GE, at an aggregate cost of 
approximately $20 million, including siting costs, 20 open MRI systems for 
delivery and installation over the next two years.  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 strategic initiatives.

In February 1996, MHC and the other parties in a class action securities 
lawsuit reached a settlement.  On July 29, 1996, following final court 
approval, MHC and the other parties collectively paid to the plaintiffs in 
the class action the balance of the agreed upon settlement amount.  In 
anticipation of this settlement, MHC recorded a charge of $1.5 million in 
1995 and as part of the Merger borrowed approximately $1.9 million from GE 
to finance the settlement.

RESULTS OF OPERATIONS 

BECAUSE THE MERGER WAS ACCOUNTED FOR USING THE PURCHASE METHOD OF ACCOUNTING 
AND MHC WAS TREATED AS THE ACQUIROR, THE FOLLOWING DISCUSSION AND ANALYSIS 
CONTAINS THE HISTORICAL FINANCIAL DATA OF THE COMPANY (REFLECTING THE 
COMBINED OPERATIONS OF IHC AND MHC) FOR THE YEAR ENDED JUNE 30, 1997 AND THE 
HISTORICAL FINANCIAL DATA OF MHC ONLY FOR THE SIX MONTHS ENDED JUNE 30, 1996 
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994.

YEAR ENDED JUNE 30, 1997 AND SIX MONTHS ENDED JUNE 30, 1996  

REVENUES:  Revenues increased approximately $66.6 million for the year ended 
June 30, 1997, compared to the six months ended June 30, 1996. The increase 
in revenues was due primarily to additional IHC revenues as a result of the 
Merger (approximately $38.7 million), increases in revenues due to the 
acquisitions discussed above (approximately $2.0 million) and an increase in 
contract services, patient services and other revenues at MHC (approximately 
$25.9 million).  The increase of $25.9 million in MHC revenues was primarily 
due to a year of results for 1997 compared to the six month period in 1996.  
Compared to 1996 on an annualized basis, MHC revenues decreased by 
approximately $0.5 million, or approximately 1%.  

Contract services revenues increased approximately $27.8 million for the year 
ended June 30, 1997, compared to the six months ended June 30, 1996.  This 
increase was due primarily to additional IHC revenues as a result of the 
Merger (approximately $7.8 million), an increase in revenues due to the 
acquisitions discussed above (approximately $0.2 million) and an increase in 
MHC revenues of approximately $19.8 million.  The increase of $19.8 million 
was primarily due to a year of results for 1997 compared to a six month 
period in 1996.  Compared to 1996 on an annualized basis, MHC revenues 
decreased approximately $0.2 million, or 0.5%.  This decrease was due to 
reductions in reimbursement (approximately 6%) from customers, primarily 
hospitals, offset by increased utilization (approximately 30%).


                                       14

<PAGE>

InSight's contract services revenues, primarily earned by its Mobile 
Facilities, represent approximately 51% of total revenues.  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 able to obtain replacement customer accounts; 
however, it is not always possible to obtain replacement accounts and some 
replacement accounts have been smaller than the lost account.  The 
non-renewal of a single customer agreement would not have a material impact 
on InSight'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, InSight's contract services 
revenues would be adversely affected.

Patient services revenues increased approximately $36.9 million for the year 
ended June 30, 1997, compared to the six months ended June 30, 1996.  The 
increase in revenues was due primarily to additional IHC revenues as a result 
of the Merger (approximately $30.5 million), increased revenues due to the 
acquisitions discussed above (approximately $1.8 million), and an increase in 
MHC revenues of approximately $4.6 million.  The increase in MHC revenues of 
$4.6 million was primarily due to a year of results for 1997 compared to a 
six month period in 1996.  Compared to 1996 on an annualized basis, MHC 
revenues decreased approximately $1.3 million, or 11%.  This decrease was due 
to continued declines in reimbursement (approximately 5%) from third party 
payors and the closure of a Fixed Facility in June 1996, offset by increased 
utilization (approximately 20%).

No single source accounts for more than 10% of InSight's revenues.  The 
Company has six individual contracts with the county of Los Angeles 
("County") covering six separate sites.  In the aggregate, these sites earn 
revenues which represent approximately 10% of the Company's annual revenues.  
From time to time, the County has experienced financial difficulties.  If 
such difficulties caused the County to curtail or terminate the Company's 
services, the Company's business would be adversely affected.

Management believes that any future increases in revenues can only be 
achieved by higher utilization and not by increases in procedure prices since 
reimbursement is declining; however, excess capacity of diagnostic imaging 
equipment, increased 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 
strategic initiatives.

COSTS OF OPERATIONS:  Costs of operations increased approximately $52.9 
million for the year ended June 30, 1997, compared to the six months ended 
June 30, 1996.  This increase was due primarily to additional IHC costs as a 
result of the Merger (approximately $29.8 million), an increase in costs due 
to the acquisitions discussed above (approximately $1.5 million), and an 
increase in costs at MHC of approximately $21.6 million.  The increase of 
$21.6 million at MHC was primarily due to a year of results for 1997 compared 
to a six month period in 1996.  Compared to 1996 on an annualized basis, MHC 
costs decreased approximately $5.8 million, or 11%.  This decrease was due to 
a reduction in costs of services, provision for doubtful accounts, and 
equipment leases and depreciation and amortization.

Costs of services, including the provision for doubtful accounts, increased 
approximately $35.6 million for the year ended June 30, 1997, compared to the 
six months ended June 30, 1996.  The increase in costs was due primarily to 
additional IHC costs as a result of the Merger  (approximately $20.8 
million), an increase in costs due to the acquisitions discussed above 
(approximately $1.2 million) and an increase in costs at MHC (approximately 
$13.6 million).  The increase in costs at MHC was due primarily to a year of 
results for 1997 compared to a six month period in 1996.  Compared to 1996 on 
an annualized basis, MHC costs decreased approximately $2.9 million.  This 
decrease was due to (i) reduced costs in service supplies and equipment 
maintenance and (ii) one time charges in 1996 related to the closure of two 
Centers and the early return of four Mobile Facilities.


                                       15

<PAGE>

Equipment leases and depreciation and amortization increased approximately 
$17.4 million for the year ended June 30, 1997, compared to the six months 
ended June 30, 1996.  The increase was due primarily to additional IHC costs 
as a result of the Merger (approximately $9.2 million), increased costs due 
to the acquisitions discussed above (approximately $0.3 million) and an 
increase in costs at MHC (approximately $7.9 million).  The increase at MHC 
of $7.9 million was primarily due to a year of results for 1997 compared to a 
six month period in 1996. Compared to 1996 on an annualized basis, MHC costs 
decreased approximately $0.8 million.  This decrease was due to a write down 
of approximately $1.5 million of intangibles in 1996 which did not occur in 
1997. 

Under the terms of the amended equipment maintenance service agreement with 
GE, GE was entitled to receive a supplemental service fee 
equal to 14% of pretax income, subject to certain adjustments.  During the 
year ended June 30, 1997, the Company recorded a provision of approximately 
$0.3 million in connection with this agreement.  The Company's future 
obligations under this agreement were terminated as part of the 
Recapitalization.  As mentioned above, the Company will record a 
non-recurring expense of  $6.7 million in the second quarter of fiscal 1998 
in connection with the termination of this agreement.

GROSS PROFIT:  Gross profit increased approximately $13.7 million during the 
year ended June 30, 1997, compared to the six months ended June 30, 1996.  
The increase was due primarily to additional gross profit from IHC as a 
result of the Merger (approximately $8.9 million), an increase due to the 
acquisitions discussed above (approximately $0.5 million), and an increase at 
MHC (approximately $4.3 million).

CORPORATE OPERATING EXPENSES:  Corporate operating expenses increased 
approximately $5.3 million for the year ended June 30, 1997, compared to the 
six months ended June 30, 1996.  The increase was partially related to 
maintaining duplicate staffing during the transition phase of the Merger and 
to additional consulting and legal costs associated with the Company's 
acquisition activities.  The Company has achieved annualized cost savings 
(approximately $1.0 million) compared to the historical combined costs of MHC 
and IHC, primarily as a result of elimination of duplicate facilities 
including corporate headquarters, and synergies in staff and functional areas.

INTEREST EXPENSE, NET:   Interest expense, net increased approximately $2.9 
million for the year ended June 30, 1997, compared to the six months ended 
June 30, 1996.  The increase was due primarily to (i) additional debt assumed 
as a result of the Merger (approximately $3.3 million) and (ii) additional 
debt related to the acquisitions discussed above (approximately $0.3 
million), offset by reduced interest as a result of (i) amortization of the 
deferred gain on the debt restructure with GE (approximately $1.0 
million) and (ii) amortization of long-term debt.

EXTRAORDINARY GAIN ON DEBT EXTINGUISHMENT:  In connection with the Merger, 
MHC recorded an extraordinary gain on debt extinguishment of approximately 
$3.2 million in 1996.  There was no similar gain in 1997.
 
INCOME (LOSS) PER COMMON SHARE:  Net income per common share was $0.24 for 
the year ended June 30, 1997, compared to a net loss per common share before 
extraordinary item of $(2.99) for the six months ended June 30, 1996.  The 
improvement in income per common share is the result of (i) increased gross 
profit, and (ii) an increase in earnings from unconsolidated partnerships, 
offset by (i) increased corporate operating expenses, and (ii) increased 
interest expense.

SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED) 

REVENUES:  Revenues increased $2.0 million, or approximately 8 percent, 
during the six months ended June 30, 1996, compared with the same period in 
1995. The increase in revenues was due primarily to the acquisition of 
certain customer contracts in April 1995, the acquisition of certain Centers 
in October 1995 and increases in volumes on certain contracts serviced by 
Mobile and Fixed Facilities.  These increases were offset by decreases in 
reimbursement rates from third party payors. 

COSTS OF OPERATIONS:  Costs of operations increased $4.4 million, or 
approximately 19 percent, during the six months ended June 30, 1996, compared 
with the same period in 1995.  This increase was primarily due to (i) the 
write down of approximately $1.5 million of goodwill and other intangibles 
related to two of MHC's Centers; (ii) an increase in cost of services of $2.3 
million and (iii) an increase in depreciation of $0.7 million offset by a 
decrease in the provision for doubtful accounts of $0.4 million. 


                                       16
<PAGE>

Costs of services increased $2.3 million during the six months ended June 30, 
1996, compared with the same period in 1995.  The increase was due primarily 
to  (i) certain one-time charges relating to operating strategies associated 
with the Merger which include provisions for the closure of two Centers, the 
write down of a Mobile Facility and the estimated costs and termination fees 
for the early return of four Mobile Facilities; (ii) increased costs 
associated with the acquisitions discussed above; and (iii) higher costs 
associated with the increase in patient services revenues which include 
personnel costs, facility costs, service supplies and professional fees. 

The provision for doubtful accounts decreased $0.4 million during the six 
months ended June 30, 1996, compared with the same period in 1995.  This 
decrease is primarily attributable to a $0.3 million charge recorded in June 
1995.  A similar charge was not recorded in 1996. 

Depreciation increased $0.7 million during the six months ended June 30, 
1996, compared with the same period in 1995.  This increase was due primarily 
to capital leases entered into, acquisitions completed, and leasehold 
improvements incurred at several of MHC's Fixed Facilities subsequent to June 
30, 1995. 

GROSS PROFIT:  Gross profit decreased $2.4 million during the six months 
ended June 30, 1996, compared with the same period in 1995.  This decrease 
was primarily attributable to the increase in costs of services discussed 
above. 

CORPORATE OPERATING EXPENSES:  Corporate operating expenses increased $0.2 
million during the six months ended June 30, 1996, compared with the same 
period in 1995.  This increase was due primarily to a provision in June 1996 
of $0.6 million for termination benefits and facility costs in connection 
with the reduction in the duplicative administrative infrastructure as a 
result of the Merger. 

INTEREST EXPENSE, NET:  Interest expense, net increased $0.5 million during 
the six months ended June 30, 1996, compared with the same period in 1995.  
This increase was due primarily to debt financed in 1995 in connection with 
acquisitions and the financing of certain operating expenses. 

EXTRAORDINARY GAIN ON DEBT EXTINGUISHMENT:  In connection with the Merger, 
MHC recorded an extinguishment of $9.0 million of long-term obligations owed 
to GE in June 1996.  The extraordinary gain represents the excess of 
the carrying value of the debt obligations settled over the sum of the fair 
value of the Maxum Series B Preferred Stock issued in exchange for such debt 
extinguishment and the sum of future interest payable on all remaining 
obligations owed to GE.

In accordance with the provisions of troubled debt accounting, a portion of 
the extraordinary gain, equal to the sum of the current and long-term 
portions of future interest payable on all remaining GE debt was 
deferred and will be reduced by future interest payments over the terms of 
the respective debt instruments. 

YEARS ENDED DECEMBER 31, 1995 AND 1994 

REVENUES:  Revenues increased $4.7 million, or approximately 10%, in 1995 
compared to 1994.  The increase in revenues was related primarily to 
acquisitions.  This increase was partially offset by the continued decline in 
reimbursement rates and a decrease in other revenues in 1995 compared to 
1994. 

An increase in fee-for-service revenues of $5.0 million in 1995 compared to 
1994 was attributable to:  (i) the award of an exclusive capitated managed 
care contract in December 1994, under which MHC's fees were paid directly by 
the managed care organization and were earned on a per-member-per-month 
basis; and (ii) the acquisition of certain customer contracts in the first 
half of 1995. Other fee-for-service revenues and equipment rental revenues 
(derived primarily from Mobile Facilities) decreased $1.8 million, compared 
to 1994, due to expiration of hospital service contracts and third party 
equipment leases. Management fees decreased $0.6 million in 1995, compared to 
1994, due primarily to the sale or termination of certain partnerships in 
late 1994. 

Approximately 58% of the $2.4 million increase in patient services revenues 
was due to increased patient services revenues associated with acquisitions 
during 1995. Approximately 25% of the increase is attributable to a contract 
awarded in the third quarter of 1994 to provide radiology and management 
services at an outpatient Fixed Facility for a hospital customer. The 
remainder of the increase was due primarily to increases in procedure volumes 
at MHC's other Centers, offset by continued declines in reimbursement rates. 


                                       17

<PAGE>

Other revenues decreased during 1995 compared to 1994, due primarily to the 
sale of MHC's technical services division in June 1994. 

COSTS OF OPERATIONS:   Costs of operations increased $3.3 million, or 
approximately 7%, in 1995 compared to 1994. Costs of services in 1995 was 
reduced by $0.8 million related to sales/use tax refunds. These refunds 
represent taxes paid in prior years attributable to certain mobile diagnostic 
imaging equipment, and were received due to a determination by the taxing 
authority having reached a determination that the mobile equipment was 
subject to motor vehicle tax rather than sales/use tax. 

Occupancy expense (which includes operating costs of facilities leased or 
subcontracted by MHC) increased $0.8 million, or approximately 88%, in 1995 
compared to 1994. This increase was due primarily to subcontracting costs 
incurred related to the capitated managed care contract that was awarded in 
December 1994. 

Professional fees increased $0.7 million, or approximately 41%, in 1995 
compared to 1994, due primarily to the increase in patient services revenues 
and to costs incurred related to the capitated managed care contract 
discussed above. 

In addition to the net impact of the sales/use tax refund, occupancy expense 
and professional fees discussed above, all other components of costs of 
services experienced a net increase of $2.2 million in 1995 compared to 1994, 
due primarily to the variable costs associated with the increase in revenues 
resulting primarily from acquisitions in 1995 discussed above. 

The provision for doubtful accounts increased $0.5 million, or approximately 
48%, in 1995 compared to 1994, due primarily to the increase in patient 
services revenues and a shift in the payor mix in MHC's Centers related to 
the penetration of managed care. This change in payor mix had an unfavorable 
impact on reimbursement rates realized by the Centers and resulted in an 
increase in bad debt expense in 1995 associated with unreimbursed amounts 
which were not subsequently collectible from patients.

Depreciation decreased $0.2 million, or approximately 6%, in 1995 compared to 
1994. This decrease was due primarily to a purchase and sale- leaseback 
transaction (in connection with MHC's settlement with a significant creditor 
in June 1994) which resulted in reductions in net book values of certain 
Mobile Facilities. 

GROSS PROFIT:   Gross profit increased $1.4 million in 1995 compared to 1994. 
The increase was primarily attributable to higher profit margins from the 
absorption of excess capacity associated with acquisitions completed in 1995 
and the capitated managed care contract awarded in December 1994. 

CORPORATE OPERATING EXPENSES:   Corporate operating expenses decreased 
approximately $0.7 million, or approximately 17%, in 1995 compared to 1994. 
This decrease was due primarily to reductions in legal costs and insurance 
premiums. 

EQUITY IN EARNINGS OF UNCONSOLIDATED PARTNERSHIPS:   Equity in earnings of 
unconsolidated partnerships decreased $0.5 million, or approximately 58%, in 
1995 compared to 1994, due to the sale of certain partnerships in late 1994 
discussed below. 

INTEREST EXPENSE, NET:   Interest expense, net increased $0.4 million, or 
approximately 35%, in 1995 compared to 1994. This increase was due primarily 
to (i) the addition of several capital leases of diagnostic imaging 
equipment; (ii) debt obligations incurred as a result of the acquisitions 
during 1995; and (iii) interest on operating expenses financed during late 
1994 and in 1995. 

PROVISION FOR SECURITIES LITIGATION SETTLEMENT:    In anticipation of the MHC 
settlement of two class-action lawsuits originally filed in 1993, MHC 
recorded a charge of $1.5 million in the fourth quarter of 1995. 

GAIN ON SALE OF PARTNERSHIP INTERESTS:   In December 1994, MHC sold its 
interests in three lithotripsy partnerships for approximately $5.0 million in 
cash which resulted in a pretax gain of approximately $5.0 million. 

EXTRAORDINARY GAIN ON DEBT EXTINGUISHMENTS:  During 1994, MHC settled its 
outstanding debt and lease obligations owed to a significant creditor and two 
smaller creditors which resulted in a net extraordinary gain of approximately 
$3.3 million. 


                                       18
<PAGE>

INFLATION 

Inflation in recent years has not had a significant impact on MHC's or IHC's 
business, and is not expected to adversely affect the Company in the near 
future. 

NEW PRONOUNCEMENTS 

In fiscal 1997, the Company adopted Statement of Financial Accounting 
Standards ("SFAS") No. 123 "Accounting for Stock Based Compensation".  As 
permitted under the standard, the Company continued to account for employee 
stock options in accordance with APB Opinion No. 25 and made necessary pro 
forma disclosures mandated by SFAS No. 123.  The adoption of this standard 
had no impact on the Company's results of operations.

In fiscal 1998, the Company will be required to adopt SFAS No. 129, 
"Disclosure of Information about Capital Structure", which continues the 
existing requirements to disclose the pertinent rights and privileges of all 
securities other than ordinary common stock but expands the number of 
companies subject to portions of its requirements.  The adoption of this 
standard will have no effect on the Company's results of operations.

The Financial Accounting Standards Board ("FASB") has issued SFAS No. 128, 
"Earnings per Share ("EPS")".  This standard is effective for both interim 
and annual reporting periods ending after December 15, 1997.  SFAS No. 128 
replaces primary EPS with basic EPS and fully diluted EPS with diluted EPS.  
Basic EPS is computed by dividing reported earnings by weighted average 
shares outstanding.  Diluted EPS is computed in the same way as fully diluted 
EPS, except that the calculation now uses the average share price for the 
reporting period to compute dilution from options under the treasury stock 
method.  Management believes that adoption of this standard will not  have a 
significant impact on earnings per share.

In June 1997, the FASB issued SFAS Nos. 130 and 131, "Reporting Comprehensive 
Income" and "Disclosures about Segments of an Enterprise and Related 
Information."  FASB Nos. 130 and 131 are effective for fiscal years beginning 
after December 15, 1997, with earlier adoption permitted.  The Company 
believes that adoption of these standards will not have a material impact on 
the Company.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

          None.  


                                      19

<PAGE>

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 

                INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
                  Index to Consolidated Financial Statements
                    for the Year Ended June 30, 1997, for
                the Six Months Ended June 30,1996 and for the
                   Years Ended December 31, 1995 and 1994

                                                                  PAGE NUMBER
                                                                  -----------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                                21

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                                22

CONSOLIDATED BALANCE SHEETS                                          23-24

CONSOLIDATED STATEMENTS OF OPERATIONS                                   25

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY                         26

CONSOLIDATED STATEMENTS OF CASH FLOWS                                   27

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                           28-42

SCHEDULE IX - VALUATION AND QUALIFYING ACCOUNTS                         49


                                       20

<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, 1997 and 1996, and the related consolidated statements of operations, 
stockholders' equity and cash flows for the year ended June 30, 1997 and for 
the six months ended June 30, 1996. These financial statements are the 
responsibility of the Company's management. Our responsibility is to express 
an opinion on these financial statements based on our audits. 

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

In our opinion, the financial statements referred to above present fairly, in 
all material respects, the financial position of InSight Health Services 
Corp. and subsidiaries as of June 30, 1997 and 1996, and results of their 
operations and their cash flows for the year ended June 30, 1997 and for the 
six months ended June 30, 1996, in conformity with generally accepted 
accounting principles. 

                                       ARTHUR ANDERSEN LLP



Orange County, California
October 14, 1997


                                              21

<PAGE>

                                           
                                           
                       REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                                           
To Maxum Health Corp.: 

We have audited the accompanying consolidated statements of operations,
stockholders' equity (deficit) and cash flows of Maxum Health Corp. and
Subsidiaries (MHC) for each of the two years in the period ended December 31,
1995.  Our audits also included the related financial statement schedule of
valuation and qualifying accounts.  These financial statements and schedule are
the responsibility of MHC's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits. 

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of MHC's operations and its cash flows for each
of the two years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.  Also, in our opinion, such financial
statements schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein. 

The accompanying financial statements have been prepared assuming that MHC will
continue as a going concern.  As discussed in Note 3 to the financial
statements, MHC is experiencing difficulty in generating sufficient cash flow to
meet its obligations and sustain its operations.  These factors raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are described in Notes 1 and 3. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty. 

DELOITTE & TOUCHE LLP

Dallas, Texas
March 1, 1996


                                          22

<PAGE>

                    INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
                             CONSOLIDATED BALANCE SHEETS
                                (Amounts in thousands)

<TABLE>
<CAPTION>


                                                          June 30,       June 30,
                                                            1997          1996
                                                       ------------  -------------
<S>                                                    <C>           <C>
ASSETS
-------
CURRENT ASSETS:
    Cash and cash equivalents                           $  7,135      $  6,864 
    Trade accounts receivable, net                        15,645        12,916 
    Other receivables, net                                   358           973 
    Other current assets                                   1,554         1,708 
                                                       ---------     ----------
       Total current assets                               24,692        22,461 
                                                       ---------     ----------
PROPERTY AND EQUIPMENT:
    Vehicles                                                 968           978 
    Land, building and leasehold improvements              9,589         8,602 
    Computer and office equipment                          3,855         3,638 
    Diagnostic and related equipment                      28,193        18,113 
    Equipment and vehicles under capital leases            8,086        10,479 
                                                       ---------     ----------
                                                          50,691        41,810 
       Less: Accumulated depreciation and amortization    16,203        11,958 
                                                       ---------     ----------
       Property and equipment, net                        34,488        29,852 
                                                       ---------     ----------
INVESTMENT IN PARTNERSHIPS                                   402           359 
                                                       ---------     ----------
OTHER ASSETS                                               5,468           749 
                                                       ---------     ----------
INTANGIBLE ASSETS, net                                    33,272        16,965 
                                                       ---------     ----------
                                                       $  98,322     $  70,386 
                                                       ---------     ----------
                                                       ---------     ----------


</TABLE>

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


                                          23

<PAGE>

                    INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
                             CONSOLIDATED BALANCE SHEETS
               (Amounts in thousands, except share and per share data)

<TABLE>
<CAPTION>


                                                                                    June 30,       June 30,
                                                                                     1997           1996
                                                                                 ----------     -----------
         LIABILITIES AND STOCKHOLDERS' EQUITY 
<S>                                                                              <C>            <C>
CURRENT LIABILITIES:
  Current portion of equipment and other notes                                  $  11,901       $  6,585
  Current portion of capital lease obligations                                      3,561          2,638
  Accrued equipment related costs                                                   2,882          3,249
  Accounts payable and other accrued expenses                                       8,822          8,328
  Accrued payroll and related costs                                                 2,521          1,775
  Current portion of deferred gain on debt restructure                                745          1,053
                                                                               ----------     ----------
    Total current liabilities                                                      30,432         23,628
                                                                               ----------     ----------

LONG-TERM LIABILITIES:
  Equipment and other notes, less current portion                                  54,421         31,653
  Capital lease obligations, less current portion                                   3,312          3,988
  Accrued securities litigation settlement                                              -          1,900
  Deferred gain on debt restructure, less current portion                             728          1,467
  Other long-term liabilities                                                         744            831
                                                                               ----------     ----------
    Total long-term liabilities                                                    59,205         39,839
                                                                               ----------     ----------

COMMITMENTS (Note 8)

MINORITY INTEREST                                                                   2,000          1,515
                                                                               ----------     ----------

STOCKHOLDERS' EQUITY:
  Convertible Series A preferred stock, $.001 par value, 3,500,000 shares
    authorized; 2,501,760 outstanding at June 30, 1997 and 1996,
    respectively, stated at                                                         6,750          6,750
  Common stock, $.001 par value, 25,000,000 shares authorized, 
    2,714,725 and 2,710,240 shares outstanding at June 30, 1997 and 1996,
    respectively                                                                        3              3
  Additional paid-in capital                                                       23,100         23,100
  Accumulated deficit                                                             (23,168)       (24,449)
                                                                               ----------     ----------
    Total stockholders' equity                                                      6,685          5,404
                                                                               ----------     ----------
                                                                                $  98,322      $  70,386
                                                                               ----------     ----------
                                                                               ----------     ----------


</TABLE>

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

                                          24

<PAGE>

                    INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF OPERATIONS
               (Amounts in thousands, except share and per share data)

<TABLE>
<CAPTION>


                                                                   Six 
                                                  Year Ended    Months Ended    Year Ended         Year Ended
                                                   June 30,       June 30,      December 31,      December 31,
                                                     1997           1996           1995               1994
                                                ------------   --------------  -------------     --------------
<S>                                             <C>            <C>             <C>               <C>
REVENUES: 
  Contract services                             $    47,827    $    20,045     $   38,976          $  36,393
  Patient services                                   42,706          5,853         10,605               8,228
  Other                                               2,530            562          1,028               1,247
                                                -----------    -----------     ----------          ----------
    Total revenues                                   93,063         26,460         50,609              45,868
                                                -----------    -----------     ----------          ----------

COSTS OF OPERATIONS:
  Costs of services                                  50,564         15,899         28,772              26,067
  Provision for doubtful accounts                     1,506            617          1,669               1,124
  Equipment leases                                   18,396          6,957         14,464              14,581
  Depreciation and amortization                       9,871          3,947          3,873               3,667
                                                -----------    -----------     ----------          ----------
    Total costs of operations                        80,337         27,420         48,778              45,439
                                                -----------    -----------     ----------          ----------

GROSS PROFIT (LOSS)                                  12,726           (960)         1,831                 429

CORPORATE OPERATING EXPENSES                          7,431          2,127          3,372               4,040
                                                -----------    -----------     ----------          ----------

INCOME (LOSS) FROM COMPANY OPERATIONS                 5,295         (3,087)        (1,541)             (3,611)

EQUITY IN EARNINGS OF UNCONSOLIDATED PARTNERSHIP        468            138            348                 834
                                                -----------    -----------     ----------          ----------

OPERATING INCOME  (LOSS)                              5,763         (2,949)        (1,193)             (2,777)

OTHER INCOME (EXPENSE):
  Interest expense, net                              (4,055)        (1,144)        (1,626)             (1,206)
  Provision for securities litigation settlement          -              -         (1,500)                  -
  Gain on sale of partnership interests                   -              -              -               4,957
                                                -----------    -----------     ----------          ----------
                                                     (4,055)        (1,144)        (3,126)              3,751
                                                -----------    -----------     ----------          ----------

INCOME (LOSS) BEFORE INCOME TAXES                     1,708         (4,093)        (4,319)                974

PROVISION FOR INCOME TAXES                              427             65              -                 160
                                                -----------    -----------     ----------          ----------

INCOME (LOSS) BEFORE EXTRAORDINARY ITEM               1,281         (4,158)        (4,319)                814

EXTRAORDINARY ITEM - Net gain on
  debt extinguishment                                     -          3,179              -               3,342
                                                -----------    -----------     ----------          ----------

NET INCOME (LOSS)                                  $  1,281        $  (979)     $  (4,319)           $  4,156
                                                -----------    -----------     ----------          ----------

INCOME (LOSS) PER COMMON SHARE:
  Income (loss) before extraordinary item           $  0.24       $  (2.99)      $  (3.21)            $  0.58
                                                -----------    -----------     ----------          ----------

  Net income (loss)                                 $  0.24       $  (0.70)      $  (3.21)            $  2.96
                                                -----------    -----------     ----------          ----------
                                                -----------    -----------     ----------          ----------

  Weighted average number of common shares
  outstanding                                     5,440,315      1,389,271      1,344,832           1,402,435
                                                -----------    -----------     ----------          ----------
                                                -----------    -----------     ----------          ----------


</TABLE>

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


                                          25

<PAGE>

                    INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES   
                   CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY   
                      (Amounts in thousands, except share data) 

<TABLE>
<CAPTION>


                                       Preferred Stock                     Common Stock
                                     --------------------      ---------------------------------------
                                     Shares    Amount       Shares             Amount       Warrant
                                    --------  --------    -----------       ----------     ---------
<S>                           <C>            <C>          <C>               <C>            <C>
BALANCE AT DECEMBER 31, 1993          -       $      -      2,949,488       $     29       $     7 
Stock issued under employee            
  purchase plan                       -              -          3,927              -             - 
Surrender of 132,750 shares            
  of treasury stock in                 
  settlement of stockholder            
  note receivable                     -              -              -              -             - 
Net income                            -              -              -              -             - 
                              ---------      ---------       --------        -------       --------
BALANCE AT DECEMBER 31, 1994          -              -      2,953,415             29             7 
Stock issued under employee            
  purchase plan                       -              -         51,640              1             - 
Net loss                              -              -              -              -             - 
                              ---------      ---------       --------        -------       --------
BALANCE AT DECEMBER 31, 1995          -              -      3,005,055             30             7 
Issuance of Series A                   
  Preferred Stock and                  
  cancellation of common               
  stock warrant               1,250,880          3,375              -              -             (7)
Acquisition of IHC            1,250,880          3,375      1,349,908              1             - 
Retirement of MHC's                    
  treasury stock                      -              -              -              -             - 
Reset the par value of                 
  InSight common stock                 
  issued in exchange for               
  MHC'S common stock                  -              -     (1,644,723)           (28)            - 
Net loss                              -              -              -              -             - 
                              ---------      ---------     ----------        -------       --------
BALANCE AT JUNE 30, 1996      2,501,760          6,750      2,710,240              3             - 
Stock options exercised               -              -          4,485              -             - 
Net income                            -              -              -              -             - 
                              ---------      ---------    -- --------        -------       --------
BALANCE AT JUNE 30, 1997      2,501,760       $  6,750      2,714,725        $     3       $  -
                              ---------      ---------       --------        -------       --------
                              ---------      ---------       --------        -------       --------

<CAPTION>

                                 Additional                   Stockholder
                                  Paid-In      Accumulated        Note          Treasury
                                  Capital        Deficit       Receivable        Stock      Total
                               -----------  ----------------  ------------   -----------  ----------
<S>                            <C>          <C>              <C>            <C>           <C>
BALANCE AT DECEMBER 31, 1993  $  19,679     $  (23,307)      $  (110)       $  (155)       $(3,857)
Stock issued under employee
  purchase plan                       1              -              -              -             1
Surrender of 132,750 shares
  of treasury stock in
  settlement of stockholder
  note receivable                     -              -            110           (110)           - 
Net income                            -          4,156              -              -        4,156 
                              ---------      ---------       --------        -------       --------
BALANCE AT DECEMBER 31, 1994     19,680        (19,151)             -           (265)          300 
Stock issued under employee
  purchase plan                      13              -              -              -            14 
Net loss                              -         (4,319)             -              -        (4,319)
                              ---------      ---------       --------        -------       --------
BALANCE AT DECEMBER 31, 1995     19,693        (23,470)             -           (265)       (4,005)
Issuance of Series A
  Preferred Stock and
  cancellation of common
  stock warrant                       -              -              -              -         3,368 
Acquisition of IHC                3,644              -              -              -         7,020 
Retirement of MHC's
  treasury stock                   (265)             -              -            265             - 
Reset the par value of
  InSight common stock
  issued in exchange for
  MHC'S common stock                 28              -              -              -             - 
Net loss                              -           (979)             -              -          (979)
                              ---------      ---------       --------        -------       --------
BALANCE AT JUNE 30, 1996         23,100        (24,449)             -              -         5,404 
Stock options exercised               -              -              -              -             - 
Net income                            -          1,281              -              -         1,281 
                              ---------      ---------       --------        -------       --------
BALANCE AT JUNE 30, 1997      $  23,100     $  (23,168)      $      -       $  -           $  6,685 
                              ---------      ---------       --------       --------       --------
                              ---------      ---------       --------       --------       --------

</TABLE>

                                          26


<PAGE>

                                           
                                           
                                           
                    INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (Amounts in thousands)

<TABLE>
<CAPTION>

                                                                                     Six
                                                             Year Ended          Months Ended   Year Ended        Year Ended
                                                               June 30,            June 30,     December 31,      December 31,
                                                                 1997               1996           1995               1994
                                                            ------------       --------------  -------------      -------------
<S>                                                         <C>                <C>            <C>                 <C>
OPERATING ACTIVITIES:
  Net income (loss)                                          $  1,281             $  (979)     $  (4,319)          $  4,156 
  Adjustments to reconcile net income (loss)
    to net cash provided by operating activities:
    Depreciation and amortization                               9,871               4,022          4,060              3,913 
    Amortization of deferred gain on debt restructure          (1,047)                  -              -                  -
    Gain on disposal of assets                                   (113)               (133)           (35)              (112)
    Provision for securities litigation settlement                  -                   -          1,500                  -
    Gain on sale of partnership interests                           -                   -              -             (4,957)
    Operating expenses financed by issuance of debt                 -               1,015          2,330              2,672 
    Extraordinary gain on debt extinguishments                      -              (3,179)             -             (3,342)
  Cash provided by (used in) changes in
    operating assets and liabilities:
    Payments for restructure costs                                  -                   -              -               (700)
    Receivables                                                (1,664)               (174)          (524)               (38)
    Other current assets                                          157                (851)          (110)               782 
    Accounts payable and other current liabilities             (1,143)                975         (1,089)             1,088 
                                                            ---------           ---------     ----------          ----------
    Net cash provided by operating  activities                  7,342                 696          1,813              3,462 
                                                            ---------           ---------     ----------          ----------

INVESTING ACTIVITIES:
  Cash acquired in acquisition of IHC                               -               5,489              -                  -
  Acquisition of Centers and Mobile Facilities                (18,566)                  -         (1,855)              (510)
  Acquisition of customer contracts and intangibles                 -                   -         (2,108)                 -
  Proceeds from sales of assets                                   347                 369            745              1,358 
  Proceeds from sale of partnership interests                       -                   -              -              5,007 
  Additions to property and equipment                          (7,102)               (960)          (548)              (349)
   (Increase) decrease in other assets                         (4,937)                195            190                582 
                                                            ---------           ---------     ----------          ----------
    Net cash provided by (used in) investing activities       (30,258)              5,093         (3,576)             6,088 
                                                            ---------           ---------     ----------          ----------

FINANCING ACTIVITIES:
  Principal payments of debt and capital lease obligations    (11,026)             (2,302)        (6,020)            (4,752)
  Proceeds from issuance of debt                               33,728               1,507          2,689                268 
  Net repayments on revolving note payable                          -                   -              -               (250)
  Other                                                           485                   -             14                  1 
                                                            ---------           ---------     ----------          ----------
    Net cash provided by (used in) financing activities        23,187                (795)        (3,317)            (4,733)
                                                            ---------           ---------     ----------          ----------

INCREASE (DECREASE) IN CASH AND 
CASH EQUIVALENTS:                                                 271               4,994         (5,080)             4,817 
  Cash, beginning of period                                     6,864               1,870          6,950              2,133 
                                                            ---------           ---------     ----------          ----------
  Cash, end of period                                        $  7,135            $  6,864       $  1,870           $  6,950 
                                                            ---------           ---------     ----------          ----------
                                                            ---------           ---------     ----------          ----------

SUPPLEMENTAL INFORMATION (Note 13)


</TABLE>


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

                                          27

<PAGE>
                                           
                    INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                           
1.  MERGER 

InSight Health Services Corp. (InSight or the Company) is a Delaware 
corporation formed on February 23, 1996 in connection with the Agreement and 
Plan of Merger, dated as of February 26, 1996 (Merger Agreement), among 
American Health Services Corp., a Delaware corporation (AHS), Maxum Health 
Corp., a Delaware corporation (MHC or Maxum), InSight and two wholly owned 
subsidiaries of InSight, AHSC Acquisition Company, a Delaware corporation 
(AHSC Acquisition), and MXHC Acquisition Company, a Delaware corporation 
(MXHC Acquisition).  Pursuant to the terms of the Merger Agreement, (i) AHSC 
Acquisition merged with and into AHS and MXHC Acquisition merged with and 
into Maxum (collectively, the Merger), (ii) each outstanding share of common 
stock, par value $.03 per share, of AHS (AHS Common Stock) was converted into 
the right to receive one-tenth of a share of common stock, par value $.001 
per share, of InSight (InSight Common Stock), (iii) each outstanding share of 
Series B Senior Convertible Preferred Stock, par value $.03 per share, of AHS 
(AHS Series B Preferred Stock) which was convertible into 100 shares of AHS 
Common Stock was converted into the right to receive 10 shares of InSight 
Common Stock, (iv) each outstanding share of Series C Preferred Stock, par 
value $.03 per share, of AHS (AHS Series C Preferred Stock), which was issued 
immediately prior to the consummation of the Merger, was converted into the 
right to receive 1.25088 shares of Series A Preferred Stock, par value $.001 
per share, of InSight (InSight Series A Preferred Stock), (v) each 
outstanding share of common stock, par value $.01 per share, of Maxum (Maxum 
Common Stock) was converted into the right to receive .598 of a share of 
InSight Common Stock, (vi) each outstanding share of Series B Preferred 
Stock, par value $.01 per share, of Maxum (Maxum Series B Preferred Stock), 
which was issued immediately prior to the consummation of the Merger, was 
converted into the right to receive 83.392 shares of InSight Series A 
Preferred Stock, and (vii) each outstanding option, warrant or other right to 
purchase AHS Common Stock and Maxum Common Stock was converted into the right 
to acquire, on the same terms and conditions, shares of InSight Common Stock, 
with the number of shares and exercise price applicable to such option, 
warrant or other right adjusted based on the applicable exchange ratio for 
the underlying AHS Common Stock or Maxum Common Stock. 

Concurrent with the consummation of the Merger, AHS and MHC completed a debt 
restructuring with General Electric Company (GE), the primary creditor of MHC 
and AHS.  This restructuring resulted in the reduction of certain debt and 
operating lease obligations and cancellation of certain stock warrants of MHC 
and AHS in exchange for, among other things, the issuance to GE, immediately 
prior to the consummation of the Merger, of Maxum Series B Preferred Stock 
and AHS Series C Preferred Stock.  In connection with this restructuring, MHC 
recorded the extinguishment of $9.0 million of long-term debt obligations and 
an extraordinary gain representing the difference in the carrying value ($9.0 
million) of the debt obligations settled over the fair value ($3.4 million) 
of the Maxum Series B Preferred Stock issued to GE.  In accordance with the 
provisions of troubled debt accounting, a portion of the extraordinary gain, 
equal to the sum of the current and long-term portions of future interest 
payable on all remaining GE debt and capital lease obligations of $1.0 
million and $1.5 million, respectively, was deferred and will be reduced by 
future interest payments over the terms of the respective debt instruments. 

At the effective time of the Merger, MHC Series B Preferred Stock and AHS 
Series C Preferred Stock issued to GE was converted into the right to receive 
such number of shares of InSight Series A Preferred Stock that is convertible 
into such number of shares of InSight Common Stock representing approximately 
48% of InSight Common Stock outstanding at the effective time of the Merger 
(after giving effect to such conversion). Under an amended equipment 
maintenance service agreement, GE will also be entitled to receive certain 
supplemental service fee payments based on future pretax income of InSight. 

On September 13, 1996, AHS changed its name to InSight Health Corp. (IHC).

The Merger was accounted for using the purchase method of accounting in
accordance with generally accepted accounting principles. MHC is treated as the
acquiror for accounting purposes, based upon the relative revenues, book values
and other factors. The Consolidated Financial Statements presented herein for
the six months ended June 30, 1996 and for the years ended December 31, 1995 and
1994, respectively, represent the operating results of MHC only.


                                          28

<PAGE>

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 

    a.   NATURE OF BUSINESS 

    The Company provides diagnostic imaging, treatment and related services to
    hospitals, physicians and their patients through its imaging network in 26
    states throughout the United States, with a substantial presence in
    California, primarily Los Angeles County, and northern Texas, primarily the
    Dallas/Ft. Worth metroplex. The Company's services are provided through a
    network of 35 mobile magnetic resonance imaging (MRI) facilities (Mobile
    Facilities), 28 fixed-site MRI facilities (Fixed Facilities), 10
    multi-modality imaging centers (Centers), two Leksell Stereotactic Gamma
    Unit treatment centers (Gamma Knife), and one radiation oncology center. An
    additional radiation oncology center is operated by the Company as a part
    of one of its Centers. 

    b.   CONSOLIDATED FINANCIAL STATEMENTS 

    The consolidated financial statements include the accounts of InSight and
    its wholly owned subsidiaries, MHC and IHC (Note 1).  The Company's
    investment interests in partnerships (the 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 consolidated financial
    statements include two Partnerships which have been accounted for under the
    equity method (Note 12). 

    At June 30, 1997 and 1996, respectively, the Company has consolidated two
    50 percent owned Partnerships and one less than 50 percent owned limited
    liability company.  Since the Company controls the operations of these 50
    percent or less owned entities and is primarily responsible for the
    associated long-term debt, management believes that consolidation of these
    entities is the most meaningful financial statement presentation (Note 12). 

    Significant intercompany balances have been eliminated. 

    c.   USE OF ESTIMATES 

    The preparation of financial statements in conformity with generally
    accepted accounting principles 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 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 highly liquid investments with
    original maturities of three months or less, such as certificates of
    deposit and commercial paper. 

    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 19 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


                                          29

<PAGE>

    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 assesses the 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. 

    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 (See Note
    6): 

              Goodwill                           6 to 20 years
              Non-compete agreements             5 to 7 years
              Certificates of need               6 years

    h.   INCOME TAXES 

    The Company accounts for income taxes using the liability method in
    accordance with the Statement of Financial Accounting Standards No. 109,
    "Accounting for Income Taxes", which requires the asset and liability
    method of accounting for income taxes.

    i.   INCOME (LOSS) PER COMMON SHARE 

    The number of shares used in computing income (loss) per common share is
    equal to the weighted average number of common and common equivalent shares
    outstanding during the respective period, adjusted retroactively for the
    conversion of Maxum Common Stock into InSight Common Stock as a result of
    the Merger. Common stock equivalents relating to options, warrants and
    convertible preferred stock are excluded for all periods prior to June 30,
    1997 because they are antidilutive.

    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. 

    k.   NEW PRONOUNCEMENTS

    In fiscal 1997, the Company adopted Statement of Financial Accounting
    Standards (SFAS) No. 123 "Accounting for Stock Based Compensation".  As
    permitted under the standard, the Company continued to account for employee
    stock options in accordance with APB Opinion No. 25 and made necessary pro
    forma disclosures mandated by SFAS No. 123.  The adoption of this standard
    had no impact on the Company's results of operations.

    In fiscal 1998, the Company will be required to adopt SFAS No. 129,
    "Disclosure of Information about Capital Structure", which continues the
    existing requirements to disclose the pertinent rights and privileges of
    all securities other than ordinary common stock but expands the number of
    companies subject to portions of its requirements.  The adoption of this
    standard will have no effect on the Company's results of operations.

    The Financial Accounting Standards Board (FASB) has issued SFAS No. 128,
    "Earnings per Share (EPS)".  This standard is effective for both interim
    and annual reporting periods ending after December 15, 1997.  SFAS No. 128
    replaces primary EPS with basic EPS and fully diluted EPS with diluted EPS. 
    Basic EPS is 


                                          30

<PAGE>

    computed by dividing reported earnings by weighted average shares
    outstanding.  Diluted EPS is computed in the same way as fully diluted EPS,
    except that the calculation now uses the average share price for the
    reporting period to compute dilution from options under the treasury stock
    method.  Management believes that adoption of this standard will not have a
    significant impact on earnings per share.

    In June 1997, the FASB issued SFAS Nos. 130 and 131, "Reporting
    Comprehensive Income" and "Disclosures about Segments of an Enterprise and
    Related Information."  FASB Nos. 130 and 131 are effective for fiscal years
    beginning after December 15, 1997, with earlier adoption permitted.  The
    Company believes that adoption of these standards will not have a material
    impact on the Company.
    
    l.   RECLASSIFICATIONS 

    Reclassifications have been made to certain 1996, 1995 and 1994 amounts to
    conform to the 1997 presentation. 

3.  PRIOR RESTRUCTURE OF MHC'S OPERATIONS AND FINANCIAL OBLIGATIONS 

As of December 31, 1995, MHC did not have the resources to support its 
existing debt service and lease requirements and an obligation to settle 
pending securities litigation. The accompanying 1995 and 1994 financial 
statements were prepared on a going concern basis, and accordingly did not 
include any adjustments relating to the recoverability and classification of 
recorded asset amounts or the amounts and classification of liabilities had 
MHC been unable to continue as a going concern. In June 1996, the financial 
accommodation transactions with GE were closed and the Merger was consummated 
(Note 1). 

4.  ACQUISITIONS 

In June 1996, InSight, MHC and IHC completed the Merger (Note 1).  The Merger
was accounted for under the purchase method with MHC being treated as the
acquiror for accounting purposes. 

In September 1996, InSight purchased certain assets of a Fixed Facility in
California for approximately $2.8 million in cash. 

In May 1997, InSight purchased certain assets, primarily Mobile Facilities in
Maine and New Hampshire.  InSight paid approximately $6.8 million in cash and
assumed certain equipment related liabilities of approximately $1.9 million.

In June 1997, InSight purchased certain assets of a Center in Tennessee. 
InSight paid approximately $9.0 million in cash and assumed certain equipment
related liabilities of approximately $1.9 million.

In May 1997, the Company entered into a definitive agreement to purchase certain
assets of a Center in Ohio.  As part of the definitive agreement, the Company
deposited approximately $5.5 million into an escrow account.  At June 30, 1997
this deposit is included in other assets.


                                          31

<PAGE>

These acquisitions were accounted for under the purchase method. Accordingly, 
the results of related operations have been included in the consolidated 
financial statements since the applicable acquisition dates. The pro forma 
effects of these acquisitions, as if they had occurred as of January 1, 1996, 
are summarized as follows (amounts in thousands): 

                                                                   Six Months
                                                     Year Ended       Ended
                                                   June 30, 1997  June 30, 1996
                                                   -------------  -------------
                                                           (Unaudited)
Revenues                                              $104,370      $50,092
Expenses                                               102,285       54,286
                                                      --------      -------
Income (loss) before extraordinary item                  2,085       (4,194)
Extraordinary item                                           -        3,179
                                                      --------      -------
Net income (loss)                                     $  2,085      $(1,015)
                                                      --------      -------
                                                      --------      -------

Income (loss) per share before extraordinary item     $   0.38      $ (1.55)
                                                      --------      -------
                                                      --------      -------
Net income (loss) per share                           $   0.38      $ (0.37)
                                                      --------      -------
                                                      --------      -------

The pro forma results for 1997 and 1996 include $0.8 million and $0.7 million of
amortization of intangibles, respectively, and $1.7 million and $0.8 million of
interest expense, respectively, related to these acquisitions.  The pro forma
results in 1996 do not include the interest and lease savings resulting from the
Merger. 

5.  TRADE RECEIVABLES 

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

                                                               June 30,
                                                           ------------------
                                                             1997      1996
                                                           -------    -------
Trade receivables                                          $26,271    $23,004
Less:  Allowances for doubtful accounts and
         contractual adjustments                             7,491      7,808
       Allowances for professional fees                      3,135      2,280
                                                           -------    -------
    Net trade receivables                                  $15,645    $12,916
                                                           -------    -------
                                                           -------    -------
Net trade receivables arise from revenue generated by: 
Patient services                                           $ 9,199    $ 7,362
Contract services                                            5,431      4,693
Other                                                        1,015        861
                                                           -------    -------
    Net trade receivables                                  $15,645    $12,916
                                                           -------    -------
                                                           -------    -------

Receivables related to patient services revenues are due primarily from 
managed care organizations, patients' private insurance companies and 
government payors. Receivables arising from contract service revenues are due 
primarily from hospitals. 

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 as yet unidentified accounts included in 
accounts receivable. 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, 1997.


                                       32

<PAGE>
The Company reserves a contractually agreed upon percentage at several of its 
Centers, averaging 20 percent of the accounts receivable 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. 

6.  INTANGIBLE ASSETS 

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

                                                      June 30,
                                                  ------------------
                                                   1997        1996
                                                  -------    -------
            Intangible assets                     $35,290    $17,861
            Less:  Accumulated amortization         2,018        896
                                                  -------    -------
                                                  $33,272    $16,965
                                                  -------    -------
                                                  -------    -------

            Goodwill                              $32,804    $16,382
            Non-compete agreements                    175        245
            Customer service contracts                  -        113
            Certificates of need                      125        158
            Other                                     168         67
                                                  -------    -------
                                                  $33,272    $16,965
                                                  -------    -------
                                                  -------    -------

In connection with the Company's acquisitions in 1997 and the Merger in 1996 
(Note 1), the Company recorded $17.6 million and $13.6 million of intangible 
assets, respectively.  Projected future cash flows for two of MHC's Centers 
at June 30, 1996 indicated that the unamortized goodwill of $1.4 million and 
the unamortized deferred organizational costs of $0.1 million related to 
these two Centers were not recoverable.  Therefore, in accordance with the 
Company's policy, the intangible assets related to these Centers were written 
down during the six months ended June 30, 1996.  Amortization of intangible 
assets was $1.4 million, $1.9 million (including the $1.5 million discussed 
above), $0.6 million and $0.2 million for the year ended June 30, 1997, for 
the six months ended June 30, 1996 and for the years ended December 31, 1995, 
and 1994, respectively.


                                       33

<PAGE>

7.  EQUIPMENT AND OTHER NOTES PAYABLE 

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

                                                                June 30,
                                                           ------------------
                                                            1997       1996
                                                           -------    -------
Notes payable to GE, bearing interest at rates
       which range from 9.16 percent to 12.5 
       percent, maturing at various dates through 
       August 2004. The notes are secured by 
       substantially all of the Company's assets.           $62,329    $36,072

Notes payable to banks and third parties bearing 
  interest rates which range from 8.13 percent to 
  11 percent, maturing at various dates through 
  September 2000.  The notes are primarily secured by
  certain buildings and diagnostic equipment.                3,993      2,166
                                                           -------    -------
Total equipment and other notes payable                     66,322     38,238
Less:  Current portion                                      11,901      6,585
                                                           -------    -------
Long-term equipment and other notes payable                $54,421    $31,653
                                                           -------    -------
                                                           -------    -------

Scheduled maturities of equipment and other notes payable at June 30, 1997, 
are as follows (amounts in thousands):

                                      1998             $11,901
                                      1999              13,574
                                      2000              12,472
                                      2001               8,095
                                      2002               6,840
                                      Thereafter        13,440
                                                       -------
                                                       $66,322
                                                       -------
                                                       -------

The terms of the notes payable to GE include certain restrictive 
covenants which, among others, limit capital expenditures and restrict 
payment of dividends.  As of June 30, 1997, the Company was in compliance 
with these covenants. 

Interest paid, including amounts deferred as part of the debt restructuring, 
on debt related to GE for the year ended June 30, 1997, for the six 
months ended June 30, 1996 and the years ended December 31, 1995 and 1994, 
was $4.0 million, $0.8 million, $1.0 million and $0.6 million, respectively. 

8.  LEASE OBLIGATIONS AND COMMITMENTS 

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, 1997, are as follows (amounts in thousands): 

                                                  Capital   Operating
                                                  -------   ---------
               1998                               $4,107     $16,148
               1999                                2,258      11,282
               2000                                1,256       5,831
               2001                                   98       3,346
               2002                                    -       1,230
               Thereafter                              -       2,062
                                                  -------   ---------
Total minimum lease payments                       7,719     $39,899
                                                            ---------
                                                            ---------
Less:  Amounts representing interest                 846
                                                 -------
Present value of capital lease 
obligations                                        6,873
Less:  Current portion                             3,561
                                                 -------
Long term capital lease obligations               $3,312
                                                 -------
                                                 -------

As of June 30, 1997, a substantial amount of equipment leased by the Company 
is subject to contingent rental adjustments dependent on certain operational 
factors through 1999.  The Company's future operating and capital lease 
obligations to GE were approximately $24.8 million and $2.6 million, 
respectively.

                                       34

<PAGE>

Rental expense for diagnostic equipment and other equipment for the year 
ended June 30, 1997, for the six months ended June 30, 1996 and for the years 
ended December 31, 1995 and 1994, was $18.3 million, $7.0 million, $14.5 
million and $14.6 million, respectively.  These amounts include contingent 
rental expense of $0.3 million, $0.2 million, $0.5 million and $0.8 million 
for the year ended June 30, 1997, for the six months ended June 30, 1996 and 
for the years ended December 31, 1995 and 1994, respectively. 

The Company occupies office facilities under lease agreements expiring 
through June 2007.  Rental expense for these facilities for the year ended 
June 30, 1997, for the six months ended June 30, 1996 and for the years ended 
December 31, 1995 and 1994, was $1.9 million, $0.3 million, $0.6 million and 
$0.6 million, respectively. 

Under the terms of the amended equipment service agreement with GE (Note 1), 
GE is entitled to receive a supplemental service fee equal to 14% of pretax 
income, subject to certain adjustments.  During the year ended June 30, 1997 
the Company recorded a provision of approximately $0.3 million in connection 
with this agreement.

InSight 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. InSight believes that the outcome of any such lawsuits will 
not have a material adverse impact on InSight's business.

9.  CAPITAL STOCK 

WARRANTS - During 1997, InSight issued warrants to purchase 50,000 shares of 
its common stock at an exercise price of $5.64 per share to the previous 
preferred stockholders of IHC.  InSight also issued a warrant to purchase 
35,000 shares of its common stock at an exercise price of $5.50 per share to 
an investment banking firm.  InSight also issued a warrant to purchase 15,000 
shares of its common stock at an exercise price of $5.50 per share to a 
consultant.  In connection with the Merger, InSight assumed a warrant to 
purchase 20,000 shares of its common stock at an exercise price of $2.50 per 
share issued to the estate of Cal Kovens, a former director of IHC. 

STOCK OPTIONS - The Company has two stock option plans which provide for the 
granting of incentive and nonstatutory stock options to key employees, 
independent contractors 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 four years from the grant date, are exercisable in whole or in 
installments, and expire five or ten years from the grant date.  In addition, 
MHC has a stock option plan and IHC has two stock option plans which provided 
for the granting of incentive or nonstatutory stock options to key employees, 
non-employee directors and independent contractors. Pursuant to the Merger, 
the Company assumed all of MHC's and IHC's outstanding options at June 26, 
1996.  No shares are available for future grants under the MHC and IHC plans.

The Company accounts for these plans under APB Opinion No. 25, under which no 
compensation cost has been recognized.  SFAS No. 123 was issued in 1995 and, 
if fully adopted, changes the methods for recognition of cost on plans 
similar to those of the Company.  Adoption of SFAS No. 123 is optional, 
however pro forma disclosures as if the Company had adopted the cost 
recognition method are required.  Had compensation cost for stock options 
awarded under this plan been determined consistent with SFAS No. 123, the 
Company's net income and earnings per share would have reflected the 
following pro forma amounts:

                                                  June 30,
                                         -------------------------
                                            1997           1996
                                         ----------   ------------
     Net Income (Loss):   As Reported    $1,281,000   $  (979,000)
                          Pro Forma         966,000    (1,055,000)
     Primary EPS:         As Reported          0.24         (0.70)
                          Pro Forma            0.18         (0.76)


                                       35

<PAGE>

The Company may grant options for up to 446,433 shares under one plan and 
158,000 shares under the second plan. A summary of the status of the 
Company's two stock option plans at June 30, 1997 and 1996 and changes during 
the periods then ended is presented below:

<TABLE>
<CAPTION>
                                           Year Ended                 Six Months Ended
                                          June 30, 1997                 June 30, 1996
                                      -------------------------   --------------------------
                                               Weighted Average            Weighted Average
                                      Shares    Exercise Price    Shares    Exercise Price
                                      ------   ----------------   ------   -----------------
<S>                                   <C>      <C>                <C>      <C>
Outstanding at beginning of period    369,918      $ 2.37         204,068       $3.04
Granted                               233,000        6.19         195,850       S3.23
Exercised                               4,485        2.50          30,000        0.25
Forfeited                                   -           -               -           -
Expired                                25,000       13.85               -           -
                                      -------      ------         -------        -----
Outstanding at end of period          573,433      $ 3.98         369,918        $3.15
                                      -------      ------         -------        -----
                                      -------      ------         -------        -----
Exercisable at end of period          296,416      $ 2.12         263,378        $4.25
                                      -------      ------         -------        -----
                                      -------      ------         -------        -----
Weighted average fair value of
  options granted                                  $ 5.04                        $2.61
</TABLE>


272,230 of the options outstanding at June 30, 1997 have exercise prices of 
$0.10 to $2.50, a weighted average exercise price of $0.86 and a weighted 
average remaining contractual life of 6.35 years.  255,430 of these options 
are exercisable.  58,000 of the options outstanding at June 30, 1997 have 
exercise prices of $3.75 to $5.50, a weighted average exercise price of $5.25 
and a weighted average remaining contractual life of 8.98 years.  16,200 of 
these options are exercisable.  223,000 of the options outstanding at June 
30, 1997 have exercise prices of $6.25 to $7.00, a weighted average exercise 
price of $6.30 and a weighted average remaining contractual life of 9.25 
years.  4,583 of these options are exercisable.  20,203 of the options 
outstanding at June 30, 1997 have exercise prices of $15.64 to $16.20, a 
weighted average exercise price of $15.80 and a weighted average remaining 
contractual life of 4.19 years. 20,203 of these options are exercisable.

The fair value of each option grant is estimated on the date of grant using 
the Black Scholles pricing model with the following assumptions used for the 
grants in fiscal periods 1997 and 1996; weighted average risk-free interest 
rate of 7.02 percent and 6.75 percent; expected dividend yields of 0.00 
percent; and a weighted average contractual life of 8.08 and 9.29 years, 
respectively.

10. INCOME TAXES 

The provision for income taxes for the year ended June 30, 1997 was computed 
using effective tax rates calculated as follows:

     Federal statutory tax rate                                    34.0%
     State income taxes, net of federal benefit                     1.2
     Permanent items, including goodwill, non-deductible 
       merger costs                                                41.8
     Utilization of deferred tax assets                           (52.0)
                                                                  -----
     Net effective tax rate                                        25.0%
                                                                  -----
                                                                  -----


                                       36

<PAGE>


The provision 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 for income taxes for the
year ended June 30, 1997 consisted of the following (amounts in thousands):

    Current provision
         Federal                                             $  1,268
         State                                                     47
                                                             --------
                                                                1,315
                                                             --------
    Deferred taxes arising from temporary differences: 
         State income taxes                                       (31)
         Accrued expenses                                        (629)
         Deferred gain on debt restructure                       (368)
         Reserves                                                  31
         Other                                                    109
                                                             --------
                                                                 (888)
                                                             --------
    Total provision                                          $    427
                                                             --------
                                                             --------


The components of the Company's deferred tax asset as of June 30, 1997 and 1996,
respectively, which arise due to timing differences between financial and tax
reporting and net operating loss (NOL) carryforwards are as follows:

                                                   June 30,
                                         -----------------------
                                             1997          1996
                                         ----------   ----------
    Reserves                             $  1,714     $    1,683
    Accrued expenses
     (not currently deductible)               604          1,233
    Deferred gain on debt restructure         519            887
    Depreciation and amortization            (139)            77
    Other                                     550            157
    NOL carryforwards                      15,748         15,601
    Valuation allowances                  (18,996)       (19,638)
                                         ---------    ----------
                                         $      -     $       -
                                         ---------    ----------
                                         ---------    ----------

As of June 30, 1997, the Company had NOL carryforwards of approximately $38.5
million, expiring in 2004 through 2010.  As a result of the Merger, there will
be a substantial limitation on the use of these NOL carryforwards.

A valuation allowance is provided against the deferred tax asset when it is more
likely than not that the deferred tax asset will not be realized.  The Company
has established a valuation allowance for the deferred tax allowance for the
deferred tax asset as, in management's best estimate, it is not likely to be
realized in the near term.

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 matches a percentage of
employee contributions to the Company Plan.  Company contributions of $335,000
were made for the year ended June 30, 1997.

The Company, through MHC, had a 401(k) profit sharing plan (MHC Plan) for all
MHC employees, pursuant to which MHC matched a percentage of employee
contributions to the Plan and made additional contributions on behalf of the
employees at the discretion of its Board of Directors.  Contributions of
$50,000, $100,000 and $62,000 were made during the six months ended June 30,
1996 and the years ended December 31, 1995 and 1994, respectively.  MHC
contributions of $12,000 in 1994 were funded with forfeitures.

The Company, through IHC, had a 401(k) profit sharing plan (IHC Plan) for all
IHC employees, pursuant to which IHC matched a percentage of employee
contributions to the IHC Plan.   In 1997, the Company combined the MHC Plan and
the IHC Plan into the Company Plan.


                                          37

<PAGE>

12.  INVESTMENTS IN AND TRANSACTIONS WITH PARTNERSHIPS

The Company, through MHC, has direct ownership in two Partnerships at June 30,
1997, both of which operate  Centers.  In June 1996, the MHC closed one of the
Centers and is currently in the process of dissolving the Partnership.  MHC owns
43.75% and 50% of these Partnerships, serves as the managing general partner and
provides certain management services under agreements expiring in 2007. 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  Partnership's long-term debt.  Set
forth below is certain financial data of these Partnerships (amounts in
thousands):


                                                      June 30,
                                          ----------------------------
                                             1997                1996
                                          ----------        ----------
Combined Financial Position:
Current assets:
    Cash                                  $      444        $      549
    Trade receivables, less allowances           729               721
    Other                                         21                31
Property and equipment, net                      143               442
                                          ----------        ----------
Total assets                                   1,337             1,743
Current liabilities                             (141)             (358)
Due to MHC                                       (49)             (269)
Long-term liabilities                            (40)             (226)
                                          ----------        ----------
Net assets                                $    1,107        $      890
                                          ----------        ----------
                                          ----------        ----------

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>

                                                           Six
                                         Year Ended    Months Ended          Years Ended
                                           June 30,      June 30,            December 31,
                                                                       ------------------------
                                            1997          1996            1995          1994
                                         ----------    ------------    ----------    ----------
<S>                                      <C>            <C>             <C>           <C>
Operating Results:
Net revenues                            $   4,353        $   2,346       $  4,455      $  13,456
Expenses                                    3,284            2,002          3,636          9,217
                                        ---------        ---------       --------      ---------
Net income                              $   1,069        $     344       $    819      $   4,239
                                        ---------        ---------       --------      ---------
                                        ---------        ---------       --------      ---------

Equity in Earnings:
Share of net income of
    Partnerships                        $     468        $     138       $    348      $     876
Minority interest                               -                -              -            (42)
                                        ---------        ---------       --------      ---------
Equity in earnings of Partnerships      $     468        $     138       $    348      $     834
                                        ---------        ---------       --------      ---------
                                        ---------        ---------       --------      ---------
</TABLE>


REVENUES OF THE PARTNERSHIPS are recognized when services are provided to
patients at established billing rates or at the amount realizable under
agreements with third party payors, with the provision for contractual
adjustments deducted to report net patient services revenues.  The Partnerships'
patient receivables are generally reimbursed by managed care organizations,
and/or patient's private insurance companies, with the remainder of the patient
receivables reimbursed by health care plans and government payors.


                                          38

<PAGE>

LEASE COMMITMENTS OF THE PARTNERSHIPS exist under various operating leases for
equipment and office space.  Future minimum lease payments for the Partnerships'
noncancelable leases as of  June 30, 1997, are as follows (amounts in
thousands):

                                  OPERATING
                                  ---------
                      1998         $  570
                      1999            142
                                   ------
                                   $  712
                                   ------
                                   ------

The Company, through IHC, has direct ownership in two Partnerships and one
limited liability company, all of which operate Centers. IHC owns 50% of each of
the Partnerships and 35% of the limited liability company. Since the Company
controls the operations and is primarily responsible for the associated
long-term debt, the Centers have been included in the Company's consolidated
balance sheet at June 30, 1997 and 1996. Set forth below is the summarized
combined financial data of the Company's 50% or less owned and controlled
entities which are consolidated (amounts in thousands):

                                                    Year Ended
                                                     June 30,
                                                       1997
                                                    ----------
Condensed Combined Statement
    of Operations Data:
    Net revenues                                   $  7,106
    Expenses                                          5,151
    Provision for center profit distribution          1,019
                                                   --------
    Net income                                     $    936
                                                   --------
                                                   --------

                                                       June 30,
                                               -----------------------
                                                  1997          1996
                                               -----------  ----------
Condensed Combined Balance Sheet Data:
    Current assets                             $  2,596     $   2,327
    Total assets                                  4,288         3,955
    Current liabilities                             727         1,019
    Long-term debt                                  424           416
    Minority interest equity                      1,702         1,391


In December 1994, MHC sold the common stock of three wholly owned subsidiaries,
whose primary operations were equity interests of approximately 20% in each of
three Partnerships that provided lithotripsy services, for approximately $5.0
million in cash.  MHC's investment in and share of earnings of these
Partnerships had been reported in MHC's financial statements using the equity
method of accounting.  This transaction resulted in a pretax gain of
approximately $5.0 million in 1994.  In addition, two other Partnerships which
provided services through mobile MRI and CT facilities were terminated in 1994.

MHC leased equipment to certain Partnerships under direct financing leases and
operating leases, and arranged for equipment maintenance services.  In
connection with providing these and other services, MHC received management fees
related to certain Partnerships.  Revenues related to these Partnership
activities included in MHC's financial statements for the year ended December
31, 1994 were $1.3 million. Substantially all of these revenues relate to
Partnerships that were sold or terminated in 1994.

At June 30, 1996, the Company had a receivable of $0.3 million related to
certain lease and operating expenses of the two existing Partnerships that are
accounted for under the equity method of accounting.


                                          39

<PAGE>

13.  SUPPLEMENTAL CASH FLOW INFORMATION

The following is provided as supplemental information to the consolidated
statements of cash flows (amounts in thousands):


<TABLE>
<CAPTION>

                                                                               Six                   Years Ended
                                                             Year Ended     Months Ended             December 31,
                                                               June 30,       June 30,        ------------------------
                                                                1997           1996              1995          1994
                                                             ----------    --------------     ----------    ----------
<C>                                                          <C>           <C>                <C>           <C>
Interest paid                                                $    5,114    $        1,011     $    1,411    $      879
Equipment additions under capital leases                          1,779               238          8,117         2,779
Prepaid insurance premiums financed                                   -               208            555           430
Debt and accrued interest extinguished with issuance of
    preferred stock                                                   -            (9,066)             -             -
Deferred and accrued interest gain on debt restructure                -             2,519              -             -
Preferred stock issued                                                -             3,375              -             -
Cancellation of common stock warrant                                  -                (7)             -             -
</TABLE>


14.  SUBSEQUENT EVENT

On October 14, 1997, InSight 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, 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 the current exercise price of $10.00 per share; (b) General Electric 
Company (GE) (i) surrendered its rights under the amended equipment service 
agreement to receive supplemental service fee payments equal to 14% of pretax 
income (see Note 8, above) in exchange for (i) the issuance of 7,000 shares 
of newly issued Convertible Preferred Stock, Series C, par value $0.001 per 
share (Series C Preferred Stock) initially convertible, at the option of the 
holders thereof, in the aggregate into 835,821 shares of common stock, and 
(ii) warrants (the GE Warrants) to purchase up to 250,000 shares of common 
stock at the current exercise price of $10.00 per share, (for which the 
Company will record a non-recurring expense of approximately $6.7 million in 
the second quarter of fiscal 1998), and (ii) agreed to exchange all of its 
InSight Series A Preferred Stock, on the business day (Second Closing) after 
all waiting periods with respect to GE's filing under the Hart-Scott-Rodino 
Antitrust Improvements Act of 1976, as amended, have expired or been 
terminated, for an additional 20,953 shares of Series C Preferred Stock, 
initially convertible, at the option of the holders thereof, in the aggregate 
into 2,501,760 shares of common stock; and (c) the Company executed a Credit 
Agreement with NationsBank, N.A. pursuant to which NationsBank, as agent, 
committed to provide, subject to the satisfaction of customary conditions, a 
total of $125 million in senior secured credit, including (i) a $50 million 
term loan facility consisting of a $20 million tranche with increasing 
amortization over a five year period and a $30 million tranche principally 
repayable in years 6 and 7, (ii) a $25 million revolving working capital 
facility with a five-year maturity, and (iii) a $50 million acquisition 
facility, which may be increased by up to an additional $25 million upon the 
satisfaction of certain conditions, including commitments from participating 
lenders (Bank Financing).

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 
Series B Preferred Stock is initially convertible, at the option of the 
holders thereof, into 2,985,075 shares of common stock, and the Series C 
Preferred Stock will, as of the Second Closing, be initially convertible, at 
the option of the holders thereof, into 3,337,581 shares of common stock, in 
each case at an initial conversion price of $8.375 per share.

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

                                          40

<PAGE>

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 after the Second Closing and
the exercise of the GE Warrants, GE would own approximately 34% of the common
stock of the Company, on a fully diluted basis.

Pursuant to the terms of the Recapitalization, the number of directors 
comprising the Company's Board of Directors (the Board) is currently fixed at 
nine.  Six directors (Common Stock Directors) are to be elected by the common 
stockholders, one of whom (Joint Director) is to be proposed by Carlyle and 
GE and approved by a majority of the Board in its sole discretion.  Of the 
three remaining directors (Preferred Stock Directors), two are to be elected 
by the holders of the Series B Preferred Stock and one is to be elected by 
the holders of the Series C Preferred Stock, in each case acting by written 
consent and without a meeting of the common stockholders.  As long as Carlyle 
and certain affiliates thereof own an aggregate of at least 50% of the Series 
B Preferred Stock, the holders of the Series B Preferred Stock will have the 
right to elect two Preferred Stock Directors and as long as Carlyle and 
certain affiliates thereof own an aggregate of at least 25% of such stock, 
such holders will have the right to elect one Preferred Stock Director.  As 
long as GE and its affiliates own an aggregate of at least 25% of the Series 
C Preferred Stock it will have the right to elect one Preferred Stock 
Director.  If any such ownership percentage falls below 
the applicable threshold, the Preferred Stock Director(s) formerly entitled 
to be elected by Carlyle or GE, as the case may be, will thereafter be 
elected by the common stockholders.

At any time after the first anniversary of the initial funding of the Bank 
Financing, 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, 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 will be convertible into 
6,322,660 shares of common stock.  Presently, the Board consists of seven 
directors, five of whom are Common Stock Directors and two of whom are 
Preferred Stock Directors.  GE intends to wait until the Second Closing to 
elect its Preferred Stock Director.  The vacancy created for the Joint 
Director has not yet been filled.

Holders of the Preferred Stock also have a right of first offer with respect 
to future sales 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. 

                         41
<PAGE>

Set forth below is an unaudited pro forma condensed consolidated balance 
sheet as of June 30, 1997, as if the transaction described above had occurred 
on June 30, 1997 (amounts in thousands):

                                                           Pro Forma
                                                 -----------------------------
                                   As Reported    Adjustments        Total
                                  ------------   -------------   -------------
                                                           (unaudited)
Current assets                      $  24,692     $     1,477      $   26,169
Property and equipment, net            34,488               -          34,488
Investment in partnerships                402               -             402
Other assets                            5,468           3,100           8,568
Intangible assets                      33,272               -          33,272
                                    ---------     -----------      ----------
                                    $  98,322     $     4,577      $  102,899
                                    ---------     -----------      ----------
                                    ---------     -----------      ----------


Current liabilities                 $  30,432     $   (10,054)     $   20,378
Long-term liabilities                  59,205          (9,276)         49,929
Minority interest                       2,000               -           2,000
Stockholders' equity                    6,685          23,907          30,592
                                    ---------     -----------      ----------
                                    $  98,322     $     4,577      $  102,899
                                    ---------     -----------      ----------
                                    ---------     -----------      ----------


The unaudited pro forma condensed consolidated balance sheet as of June 30, 
1997 gives effect to the issuance of $25 million of Series B Preferred Stock 
and the draw down of the $50 million term loan Bank Financing, which was used 
to repay approximately $70 million in outstanding notes payable and to pay 
approximately $5 million in transaction costs.

                                      42

<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 Securities and Exchange
Commission 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 Securities and Exchange
Commission 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 Securities and 
Exchange Commission 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 Securities and 
Exchange Commission 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
         Report of Independent  Public Accountants 
         Consolidated Balance Sheets 
         Consolidated Statements of  Operations 
         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. 

ITEM 14 (a) (3).  EXHIBITS 

EXHIBIT NUMBER     DESCRIPTION AND REFERENCES

*2.1          Agreement and Plan of Merger dated as of February 26, 1996, by 
              and among InSight, AHS, AHSC Acquisition Company, MHC and MXHC 
              Acquisition Company, 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.

*2.2          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.

*2.3          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.


                                          43

<PAGE>

*2.4          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.

*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, filed 
              herewith.

  3.3         Certificate of Designation, Preferences and Rights of 
              Convertible Preferred Stock, Series C, of InSight, filed 
              herewith.

  3.4         Certificate of Designation, Preferences and Rights of 
              Convertible Preferred Stock, Series D, of InSight, filed 
              herewith.

  3.5         Amended and Restated Bylaws of InSight, filed herewith.

*10.1         Master Debt Restructuring Agreement by and among General 
              Electric Company acting through GE Medical Systems, General 
              Electric Capital Corporation, InSight, AHS and MHC (without 
              schedules and exhibits) 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.

*10.2         Registration Rights Agreement by and between General Electric 
              Company acting through GE Medical Systems and 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.

*10.3         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.

*10.4         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.

*10.5         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.

*10.6         Form of Indemnification Agreement between InSight and each of 
              its directors and executive officers, previously filed and 
              incorporated herein by reference from the Company's 
              Registration Statement on Form S-4 (Registration Statement No. 
              333-02935), filed April 29, 1996.

*10.8         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.

*10.9         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.


                                          44

<PAGE>

*10.10        AHS 1989 Stock Incentive Plan, previously filed and 
              incorporated herein by reference from AHS's Annual Report on 
              Form 10-K for the fiscal year ended December 31, 1990, filed 
              April 15, 1991.

*10.11        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.

*10.12        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.

*10.13        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.

*10.14        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.

*10.15        Executive Employment Agreement between InSight and Glenn P. 
              Cato dated as of May 1, 1996, previously filed and incorporated 
              herein by reference from the Company's Amendment No. 1 to the 
              Registration Statement on Form S-4 (Registration No. 333- 
              02935), filed May 9, 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. S-1 dated August 14, 1996 in the name 
              of Shattuck Hammond Partners, Inc., filed herewith.

  10.20       Warrant Certificate No. L-1 dated March 11, 1997 in the name of 
              Anthony J. LeVecchio, filed herewith.
              
  10.21       Form of Stock Option Agreement between InSight and non-employee 
              directors of InSight relating to InSight's 1996 Directors' Stock
              Option Plan, filed herewith.

  10.22       Form of Stock Option Agreement between InSight and employees of 
              InSight relating to InSight's 1996 Employee Stock Option Plan,
              filed herewith.

  21          Subsidiaries of InSight, filed herewith.


*  Previously filed. 

                                          45

<PAGE>

ITEM 14(b).      REPORTS ON FORM 8-K.  The Company filed a Current Report on 
              Form 8-K with the Securities and Exchange Commission on June 19,
              1997, under Item 2 thereof, reporting the acquisition of Maine
              Imaging Consortium.

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.


                                          46

<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/ E. LARRY ATKINS
                                  ------------------------------
                                  E. Larry Atkins, President and
                                     Chief Executive Officer

                             Date:     October 14, 1997


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/ E. LARRY ATKINS          Director, President and                 October 14, 1997
--------------------------     Chief Executive Officer
E. Larry Atkins              (Principal Executive Officer)

/s/ THOMAS V. CROAL          Executive Vice President and            October 14, 1997
--------------------------     Chief Financial Officer
Thomas V. Croal              (Principal Accounting Officer)

/s/ GRANT R. CHAMBERLAIN     Director                                October 14, 1997
--------------------------   
Grant R. Chamberlain

/s/ DAVID W. DUPREE          Director                                October 14, 1997
--------------------------
David W. Dupree

/s/ FRANK E. EGGER           Director                                October 14, 1997
--------------------------
Frank E. Egger

/s/ LEONARD H. HABAS         Director                                October 14, 1997
--------------------------
Leonard H. Habas

/s/ RONALD G. PANTELLO       Director                                October 14, 1997
--------------------------
Ronald G. Pantello

/s/ GLENN A. YOUNGKIN        Director                                October 14, 1997
--------------------------
Glenn A. Youngkin


</TABLE>


                                          47

<PAGE>


                       REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                                           
To InSight Health Services Corp.: 

We have audited, in accordance with generally accepted auditing standards, 
the financial statements for INSIGHT HEALTH SERVICES CORP. included in this 
Form 10-K and have issued our report thereon dated October 14, 1997. Our 
audit was made for the purpose of forming an opinion on the basic financial 
statements taken as a whole. The schedule listed in the index to consolidated 
financial statements 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. 

                                 ARTHUR ANDERSEN LLP

Orange County, California
October 14, 1997


                                          48

<PAGE>

                                     SCHEDULE IX

                          VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND
                    FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
                                (amounts in thousands)

<TABLE>
<CAPTION>


                                        Balance at     Charges to                        Balance at
                                       Beginning of     Cost and                           End of 
                                         Period         Expenses        Other              Period
                                       ------------    -----------  ---------------    -------------
<S>                                    <C>             <C>        <C>                  <C>
December 31, 1994:
  Allowance for doubtful accounts        $  1,664       $  1,124  $  (1,233)(A)           $  1,555 
  Allowance for contractual adjustments     1,030          2,692     (2,384)(A)              1,338 
  Inventory reserve                           830              -       (830)(B)                  - 
                                       ----------      ---------  ----------            -----------
  Total                                  $  3,524       $  3,816  $  (4,447)              $  2,893 
                                       ----------      ---------  ----------            -----------
                                       ----------      ---------  ----------            -----------
December 31, 1995:
  Allowance for doubtful accounts        $  1,555       $  1,669  $  (1,489)(A)           $  1,735 
  Allowance for contractual adjustments     1,338          4,512     (4,302)(A)              1,548 
                                       ----------      ---------  ----------            -----------
  Total                                  $  2,893       $  6,181  $  (5,791)              $  3,283 
                                       ----------      ---------  ----------            -----------
                                       ----------      ---------  ----------            -----------
June 30, 1996:
  Allowance for doubtful accounts        $  1,735         $  617  $     (63)(A)(C)        $  2,289 
  Allowance for contractual adjustments     1,548          3,440        531 (A)(C)           5,519 
                                       ----------      ---------  ----------            -----------
  Total                                  $  3,283       $  4,057     $  468               $  7,808 
                                       ----------      ---------  ----------            -----------
                                       ----------      ---------  ----------            -----------
June 30, 1997:
  Allowance for doubtful accounts        $  2,289       $  1,506  $  (1,453)(A)           $  2,342 
  Allowance for contractual adjustments     5,519         17,483    (17,853)(A)              5,149 
                                       ----------      ---------  ----------            -----------
  Total                                  $  7,808        $18,989   $(19,306)              $  7,491 
                                       ----------      ---------  ----------            -----------
                                       ----------      ---------  ----------            -----------


</TABLE>

     (A) Write offs of uncollectable accounts.  
     (B) MHC sold all inventory on hand in 1994. 
     (C) In connection with the Merger, MHC acquired the valuation and
         qualifying accounts related to IHC. 

                                          49