<PAGE>
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

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

       For the year ended December 31, 2001

                                       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 1-13392

                               US DIAGNOSTIC INC.
                ------------------------------------------------
                (Name of Registrant as Specified in Its Charter)

<TABLE>
<CAPTION>

                     Delaware                                                                     11-3164389
--------------------------------------------------------------                     ---------------------------------------
<S>                                                                                <C>
(State or Other Jurisdiction of Incorporation or Organization)                     (I.R.S. Employer Identification Number)

250 S. Australian Avenue, Suite 900, West Palm Beach, Florida                                      33401
--------------------------------------------------------------                                   ----------
       (Address of principal executive offices)                                                  (Zip Code)

</TABLE>

Registrant's telephone number, including area code:  (561) 832-0006

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:  None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common stock,
$.01 par value

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 registrant's knowledge, in definitive proxy or information 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 and non-voting common equity held by
non-affiliates of the registrant as of March 18, 2002 was approximately $177,840
based on the closing price of the common stock on March 19, 2002.

As of March 18, 2002, 22,317,205 shares of common stock of the registrant were
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
None.


<PAGE>


                                     PART I

                               US DIAGNOSTIC INC.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Except for historical information contained herein, certain matters discussed
herein are forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Any
statements that express, or involve discussions as to, expectations, beliefs,
plans, objectives, assumptions or future events or performance (often, but not
always, through the use of words or phrases such as will likely result, are
expected to, will continue, is anticipated, estimated, projection, outlook) are
not statements of historical facts and may be forward-looking. Forward-looking
statements involve estimates, assumptions and uncertainties that could cause
actual results to differ materially from those expressed in the forward-looking
statements. These forward-looking statements are based largely on the
expectations of US Diagnostic Inc. (the "Company"), and are subject to a number
of risks and uncertainties, including but not limited to, the ability of the
Company to achieve a restructuring of its debt on acceptable terms in a timely
manner, the ability to sell assets at favorable prices and in a timely manner,
economic, competitive, regulatory and legal factors, collections of accounts
receivable, the outcome of the Company's negotiations with its senior and
subordinated lenders, the effect of a potential Chapter 11 bankruptcy filing on
the Company's business, available financing or available refinancing for or
restructuring of existing debt, cash flow and working capital availability, the
ability of the Company to renew or successfully negotiate contracts and/or
partnership relationships given its financial condition, the ability of the
Company to reduce its overhead, the impact of any actions taken by debt holders
as a result of defaults by the Company under its debt instruments, and other
factors discussed elsewhere in this report and in other documents filed by the
Company with the Securities and Exchange Commission ("SEC"). Many of these
factors are beyond the Company's control. Actual results could differ materially
from the forward-looking statements made. In light of these risks and
uncertainties, there can be no assurance that the results anticipated in the
forward-looking information contained in this report will, in fact, occur.

Each forward-looking statement speaks only as of the date on which such
statement is made, and the Company undertakes no obligation to update any
forward-looking statement or statements to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time and it is impossible
for management to predict all of such factors, nor can it assess the impact of
each such factor on the business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.





                                       2
<PAGE>
ITEM 1. BUSINESS

GENERAL

US Diagnostic Inc. is an independent operator of outpatient medical diagnostic
imaging and related facilities ("Facilities") with 22 locations owned at the
date hereof. The majority of services provided by the Company involve the use of
Magnetic Resonance Imaging ("MRI"), Computed Axial Tomography ("CT"),
mammography, x-ray and ultrasound equipment. The use of the type of imaging and
treatment equipment employed by the Company has grown rapidly in recent years
because it allows physicians to quickly and accurately diagnose and treat a wide
variety of diseases and injuries without exploratory surgery or other invasive
procedures, which are usually more expensive, carry more risk and are more
debilitating for patients.

The Company believes that the range of services provided at its Facilities
(which include anatomical and functional imaging) provides cross-referral
opportunities and increases the Company's ability to serve as a "one-stop"
provider of such services to managed care organizations.

The Company was incorporated in Delaware in 1993. The Company's executive office
is located at 250 S. Australian Avenue, Suite 900, West Palm Beach, Florida
33401, its telephone number is (561) 832-0006 / (800)7-USDLAB and its web site
is at WWW.USDL.COM. Unless the context otherwise requires, all references to the
"Company" include US Diagnostic Inc. and its subsidiaries.

FINANCIAL CONDITION AND RECENT DEVELOPMENTS

The Company's financial condition continued to deteriorate during 2001 despite
the Company's efforts, begun in 1997, to improve operating results, cash flows
and capitalization through overhead reductions, dispositions of non-core and
underperforming assets and the sale of 36 medical diagnostic imaging centers
under a plan of restructuring that was adopted in 2000. The plan of
restructuring was suspended during 2001 because the Company determined that it
would not be able to obtain acceptable prices for its remaining Facilities, due
in part to industry and general economic conditions.

The Company remains burdened by a high level of indebtedness to its secured and
unsecured lenders and most of this indebtedness has relatively short maturities
(or may be current as a result of acceleration or rights to accelerate) which
require the Company to devote a significant portion of its cash flows to the
amortization of debt and interest payments. The Company also has ongoing
significant capital expenditure requirements in order to maintain and modernize
its imaging equipment. Furthermore, cost containment by the managed care
industry and governmental payors such as Medicare continues to adversely affect
pricing levels for medical imaging services. The Company also needs to maintain
its corporate infrastructure to operate remaining centers and collect accounts
receivable. As a result, the Company's cash flows from operating activities
continues to be insufficient to meet the Company's operating needs, scheduled
debt repayment obligations and capital expenditure requirements.

The Company's shortfall in cash flows has forced it to default on interest
payments aggregating $2.5 million at December 31, 2001, due in March and
September of 2001, as well as the March 2002 payment, on its $21.9 million
principal amount of 9% Subordinated Convertible Debentures due 2003 (the
"Debentures"), plus interest on the overdue amounts, the repayment at maturity
of its 6 1/2% Convertible Notes that matured in June 2001 (the "Notes")
aggregating $10.0 million in principal amount plus unpaid interest to the
maturity date, as well as defaults on other obligations, judgments and
indebtedness. Moreover, in the absence of a comprehensive debt restructuring,
the Company is unlikely to have



                                       3
<PAGE>

sufficient cash resources to pay additional maturing debt obligations which
could give rise to additional defaults. The Company has also committed various
financial covenant defaults with respect to the Debentures and failed to conduct
an offer to purchase the Debentures as a result of the Company's failure to
maintain a consolidated net worth of at least $18.0 million. These defaults
permit the Debenture holders to accelerate the maturity of the Debentures,
constitute cross defaults under other instruments and limit the Company's
ability to obtain other financing. The Company's continued operation has been
largely dependent on the willingness of its primary senior secured lenders
("Senior Lender"), to reduce their sweeps of the Company's available cash which
in part secures the Company's obligations under its credit facilities with the
Senior Lender. If the Senior Lender were to terminate its forbearances, the
Company would likely be forced to seek immediate protection in bankruptcy.

In light of its financial condition, the Company, assisted by its financial and
legal advisors, commenced negotiations during 2001, with its senior lenders and
an adhoc committee of Debenture holders. These negotiations continue with
respect to the terms of a restructuring plan that would require the Company to
commence a voluntary case under Chapter 11 of the Bankruptcy Code and pursuant
to which an entity affiliated with or supported by the Senior Lender would
acquire substantially all of the Company's operating assets in exchange for a
cash payment that would be used to partially repay creditors. In all likelihood,
there would be little or no value remaining in the Company for its current
stockholders. There can be no assurance that a definitive agreement with respect
to the proposed restructuring will be entered into or whether any such agreement
would receive the required approval of the bankruptcy court, nor can there be
any assurance as to the amount of funds that will be available to pay the
Company's creditors or the particular percentage of each class of creditors'
claims that could be repaid.

INDUSTRY OVERVIEW

Total annual spending on diagnostic imaging services in the United States is
estimated to be between $56 billion and $70 billion. While 70% of this spending
is done in hospital settings, a significant share of the market is commanded by
the nation's approximately 3,300 outpatient testing facilities, especially in
relation to the roughly $10 billion subsector of advanced imaging services,
which includes MRI and CT scans. These approximately 3,300 facilities are mainly
operated individually and represent a fragmented market.

Payment for services comes primarily from third-party payors, such as private
insurers (traditional indemnity and Blue Cross/Blue Shield plans), managed
health plans (HMOs and PPOs), government payors (Medicare and Medicaid), and
state-run workers' compensation programs. Some centers have significant
relationships with attorneys specializing in personal injury litigation.
Typically, large third-party payors, especially managed care programs, Medicare
and Medicaid, demand significant discounts from the list prices paid under
direct-bill circumstances.

The number of non-hospital-affiliated imaging centers has grown due to a number
of factors. First, when Congress reformed Medicare in 1983 by putting strict
controls on inpatient reimbursement, this led to the expansion of all types of
freestanding outpatient services, including outpatient surgery and imaging
centers. Second, the use of MRI, CT and other equipment became more prevalent
due to the quality and quantity of diagnostic information, technological
improvements and increased government and third-party reimbursement. Although
MRI was developed in the late 1970s, it was not approved for Medicare
reimbursement until 1984. Ultrasound and low-dose mammography technology
improved in the late 1980s. New technologies and procedures continue to be
developed, although some, such as Positron



                                       4
<PAGE>

Emission Tomography scanners ("PET") are relatively expensive. Third, the number
of hospital and physician joint ventures increased in the 1980s as hospitals
were eager to minimize their financial exposure for expensive equipment and
physicians were seeking investments at a time when traditional tax-sheltered
investments were being eliminated or were less economic. Thus, between 1984 and
1991, the number of outpatient imaging centers in operation in the United States
increased from roughly 700 to over 2,000.

In 1996, Medicare reimbursement for MRI procedures increased approximately 1%-2%
over 1995 levels, the first increase in at least four years. In January 1998,
Medicare reimbursement for diagnostic procedures increased an additional 1%-2%.
In 1999, the Center for Medicare & Medicaid Services ("CMS" - formerly Health
Care Financing Administration or HCFA) proposed an initiative to impose a 24%
reduction in radiology reimbursement over a four year period beginning January
1999, however the reduction was postponed due to flaws in the CMS's imaging
center cost study. Effective January 2000, CMS increased reimbursement by
approximately 3%-4% depending upon modality of service.

Effective January 1, 2002, the Medicare Physician Fee Schedule ("MPFS")
conversion factor became approximately 5.4% less than the 2001 conversion
factor. This decrease reduces the amount of reimbursement for medical procedures
under the MPFS. In addition, the Relative Value Units ("RVUs") assigned for the
practice expense have also been reduced for 2002. Combined, these reductions
amount to an overall reduction of approximately 10% for Medicare payments. CMS
will continue to evaluate radiology reimbursement; however, it is unclear as to
whether CMS will recommend further reductions or increases in reimbursement. It
is also unclear as to whether managed care will adopt similar reductions in
reimbursement. See "Regulation and Government Reimbursement". Public HMOs, which
have suffered from declining margins, have indicated that their corrective
actions will more likely take the form of more rational premium pricing than of
further pressure on providers' fee-for-service reimbursement levels. The Company
believes that, as managed care becomes more prevalent, further decreases in the
average reimbursement per test will occur as a result of payor mix shifts toward
managed care businesses which generally have lower reimbursement rates than
commercial insurance payors. There is also the potential for a softening pricing
environment as companies become more discerning in negotiating managed care
contracts and as the industry continues to consolidate.

IMAGING OPERATIONS

Diagnostic imaging services are performed on an outpatient basis by experienced
radiological technicians. After the diagnostic procedures are completed, the
images are reviewed by radiologists who have contracted with the Company. The
radiologists prepare reports of the tests and their findings, which are
delivered to the referring physician. Additionally, upon request, a report of
any critical abnormality, or "stat report" is provided by phone as soon as the
test is completed and evaluated.

Each of the Company's Facilities has agreements with radiologists as independent
contractors to provide all radiology services to the Facilities. Radiologists'
compensation ranges primarily between 14%-20% of net collections attributable to
radiology services performed by the radiologist. The interpreting physicians are
board-certified or board-eligible specialists in radiology, orthopedics,
cardiology or neurology, as appropriate. The Company currently operates its
Facilities out of one billing office which bills and collects both for technical
services and professional services of interpreting physicians at a majority of
the Facilities. A few Facilities bill and collect independently on individual
systems. Also, the Company entered into a contract with a third-party in 2001
that provides billing and collection services for four Facilities.



                                       5
<PAGE>

Imaging revenues are dependent to a large extent upon the acceptance of
outpatient diagnostic imaging procedures as covered benefits under various
third-party payor programs. In order to receive reimbursement for these
services, payment must be approved by private insurers or the Medicare and
Medicaid reimbursement programs. Although the Company intends to continue its
participation in such reimbursement programs, there can be no assurance that its
imaging procedures will continue to qualify for reimbursement. See "Industry
Overview".

CLIENTS AND PAYORS

The Company is highly dependent on referrals from physicians who have no
contractual obligation or economic incentive to refer patients to the Company's
Facilities. Most Facilities receive referrals from multiple physician and
physician group practices. If a sufficiently large number of physicians elected
at any time to stop referring patients to the Company's Facilities, it would
have a material adverse effect on the Company's revenues and results of
operations.

In 2001, revenues from conventional indemnity insurance carriers accounted for
approximately 24.2% of the Company's revenues, Medicare and Medicaid accounted
for approximately 21.7% of revenues, managed care accounted for approximately
36.1% of revenues and the remainder was derived directly from patients and
workers' compensation cases.

The Company is a party to over 500 managed care contracts which require it to
provide services on a fixed fee-for-service basis. All Facilities are attempting
to obtain additional managed care contracts.

COMPETITION

The market for diagnostic imaging services is highly competitive. The market is
highly fragmented with over 3,300 outpatient diagnostic imaging centers
nationwide and no dominant national imaging services provider. Competition
varies by market and is generally higher in larger metropolitan areas where
there is likely to be more facilities and more managed care organizations
putting pricing pressure on the market. The Company competes with larger
healthcare providers, such as hospitals, as well as other private clinics and
radiology practices that own diagnostic imaging equipment. Competition often
focuses on physician referrals at the local market level. Successful competition
for referrals is a result of many factors, including participation in healthcare
plans, quality and timeliness of test results, type and quality of equipment,
facility location, convenience of scheduling and availability of patient
appointment times.

REGULATION AND GOVERNMENT REIMBURSEMENT

OVERVIEW. The healthcare industry is highly regulated and is undergoing
significant change as third-party payors, such as Medicare and Medicaid, health
maintenance organizations and other health insurance carriers increase efforts
to control the cost, utilization and delivery of healthcare services.
Legislation has been proposed or enacted at both the federal and state levels to
regulate healthcare delivery in general and radiology services in particular.
Reductions in reimbursement for Medicare and Medicaid services may be
implemented from time to time, which may lead to reductions in the reimbursement
rates of other third-party payors as well. The Company cannot predict the effect
healthcare reforms may have on its business, and there can be no assurance that
such reforms will not have a material adverse effect on the Company's
operations. All of the Company's Facilities are subject to governmental
regulation at the federal, state and local levels.



                                       6
<PAGE>

REIMBURSEMENT FOR RADIOLOGY SERVICES. In general, Medicare reimburses radiology
services under a physician fee schedule which covers services provided not only
in a physician's offices, but also in freestanding facilities, portable x-ray
suppliers, hospitals and other entities. The scheduled amount is based on a
resource-based relative value scale, recognizing three separate components of
the physician's services: professional, technical and malpractice. For radiology
there are separate Medicare scheduled amounts for the professional component of
a service or procedure (i.e. the physician's time) and the technical component
of the service or procedure (i.e. services and supplies necessary to perform the
procedure).

Congress and the U.S. Department of Health and Human Services have taken various
actions over the years to reduce reimbursement rates for radiology services and
proposals to reduce rates further are anticipated. There have been many
proposals discussed within the last few years to further modify reimbursement.
In October 2001, the CMS released the proposed 2002 MPFS which scheduled a 5.4%
payment rate reduction effective January 1, 2002 for radiology services. In
addition to the MPFS rate reduction, specific exams such as PET scans will
experience a drastic decrease in reimbursement. Payment for these exams will be
reduced approximately 41%. At the close of 2001, the healthcare industry was
actively lobbying for an amendment which would shrink the reduction in Medicare
physician fees for 2002 from 5.4% to 0.9%. The Company is unable to predict if
any additional proposals will be adopted. Any reductions in Medicare
reimbursement for radiology services could have a material adverse effect on the
Company.

REGULATION OF OUTPATIENT IMAGING SERVICES. The operation of outpatient imaging
centers requires a number of licenses, including licenses for technical
personnel and certain equipment. Licensure requirements may vary somewhat from
state to state. The Company believes that it is in material compliance with
applicable licensure requirements. The Company further believes that diagnostic
testing will continue to be subject to strict regulation at the federal and
state levels and cannot predict the scope and effect thereof.

Diagnostic imaging centers performing mammography services must meet federal,
and in some jurisdictions, state standards for quality as well as certification
requirements. Under regulations issued by the Federal Food and Drug
Administration ("FDA") pursuant to the Mammography Quality Standards Act of 1992
("MQSA"), all mammography facilities are required to be accredited by an
approved non-profit organization or state agency. Pursuant to the accreditation
process, each facility providing mammography services must: undergo an annual
mammography facility physics survey; be inspected annually and pay an annual
inspection fee; meet qualification standards for interpreting physicians,
mammography technologists, and medical physicists; meet certification
requirements for adequacy and training and experience of personnel; meet quality
standards for equipment and practices; and meet various requirements governing
record keeping of patient files. Compliance with these standards is required to
obtain payment for Medicare services and to avoid various sanctions, including
monetary penalties, or suspension of certification. Although all of the
Company's Facilities which provide mammography services are currently accredited
by the Mammography Accreditation Program of the American College of Radiology
("ACR") and the Company anticipates continuing to meet the requirements for
accreditation, the withdrawal of such accreditation could result in the
revocation of certification. Congress has extended Medicare benefits to include
coverage of screening mammography subject to the prescribed quality standards
described above. The regulations apply to diagnostic mammography and image
quality examination as well as screening mammography.

In December 1998, CMS announced its final implementation date by which all
Independent Physiological Laboratories ("IPL") and other provider types are
required to convert to a status of Independent



                                       7
<PAGE>

Diagnostic Testing Facility ("IDTF") in order to continue to receive
reimbursement from Medicare. An IDTF is independent of a hospital or physician's
office in which diagnostic tests are performed by licensed, certified
non-physician personnel under appropriate physician supervision. The Company
successfully converted all applicable Facilities to the IDTF status within the
allotted time frames. Effective July 1, 2001, CMS released the final regulations
concerning physician supervision requirements for services performed in IDTF's.
All Facilities were notified of the enforcement of these requirements.

REGULATION OF RADIOLOGY OWNERSHIP; FRAUD AND ABUSE. Medicare payment rules
discourage physicians from maintaining an investment interest in radiology
operations. The Omnibus Budget Reconciliation Act of 1989 contains provisions
which prohibit physicians from referring Medicare or Medicaid patients to
clinical laboratories in which the physician has an economic interest.
Congressman Pete Stark (D-CA) first proposed a Federal physician self-referral
law in 1988, and what became known as "Stark I" was enacted by the Congress in
1989. In 1993, Congress extended the physician self-referral prohibition to
entities providing other designated healthcare services, including radiology or
other diagnostic services, including MRI, CT scans, ultrasound services and
radiation therapy services, now referring to the legislation as "Stark II." In
January 1998, the long-awaited regulations addressing the implementation of
Stark II were published. There was strong opposition from the physician
community to many aspects of the rules. In January 2001, CMS published the final
rules for Stark II divided into two phases. Phase I deals extensively with the
key definitions in the law, areas dealing with group practices and the general
exceptions which protect both ownership and compensation relationships. Phase I
regulations went into effect on January 4, 2002. The provisions to be found in
Phase II of the final regulations, which provide additional detail about
exceptions for compensation arrangements, have yet to be issued by CMS.

The Company has structured its compliance to the operations of the business
based on the final Phase I and proposed Phase II of Stark II rules, and will
continue to enforce the direction and policies that have been implemented to be
in full compliance with the final published rules. Violations of these
provisions (collectively known as the "Stark Laws") may result in denial of
payments for the service, an obligation to refund payment for the service,
payment of civil monetary penalties and/or exclusion from the Medicare, Medicaid
and other state healthcare programs.

The Anti-Fraud and Abuse Amendments to the Social Security Act prohibits the
solicitation, payment, receipt or offer, directly or indirectly, of any
remuneration for the referral of Medicare or Medicaid patients or for the
provision of services, items or equipment which may be covered by the Medicare
or other state healthcare programs including Medicaid programs. Violations of
these provisions may result in civil and criminal penalties and exclusion from
participation in the Medicare, Medicaid and other state healthcare programs.

In addition to federal restrictions, which are generally applicable to Medicare,
Medicaid and other state healthcare patients, a number of states in which the
Company operates Facilities have enacted prohibitions against physicians
referring patients to entities with which they have a financial relationship (an
ownership interest or compensation arrangement). Such state laws generally apply
to all patients, not just participants in the Medicare and Medicaid programs.
The Company has structured its acquisitions of physician-owned ventures and
ongoing relationships with physicians in a manner which it believes does not
raise significant issues under federal or state anti-kickback and self-referral
regulations.

CORPORATE PRACTICE OF MEDICINE; FEE SPLITTING. The operation of the Facilities
may be subject to the laws of certain states which prohibit the provision of
certain medical services by non-physicians and/or the splitting of fees between
physicians and non-physicians. The Company believes its operations are conducted
in material compliance with existing applicable laws relating to the corporate
practice of



                                       8
<PAGE>

medicine and fee splitting. In response to such laws, in certain states, the
Company may operate Facilities pursuant to a management agreement with a
physician group rather than operating the Facility directly and contracting with
the physicians for professional medical services.

ACR ACCREDITATION. Aetna U.S. Healthcare ("Aetna") announced in early 1999 that
all of its MRI providers must be accredited by the ACR by January 1, 2000. The
Company began efforts in April 1999 to achieve this goal for all applicable
Facilities. ACR accreditation of MRI units initially was voluntary; however,
with managed care having reimbursed nearly 100,000 MRI procedures in 1998, this
process has now become a requirement of Aetna's in order to ensure future
reimbursements. MRI accreditation is a lengthy and complex process that requires
radiologists, technologists and physicists to meet certain educational and
technical experience in the field of MRI. In addition to the educational
requirements, phantom tests and clinical images must be submitted or evaluated
by a panel of ACR radiologists and physicists. In late 1999, Aetna made the
announcement to delay this requirement by one full year (January 1, 2001),
allowing additional time for all contracted facilities and the ACR to complete
the necessary tasks for accreditation. In 2001, all Facilities providing MRI
services completed the accreditation process. Currently, two Facilities are
seeking re-accreditation. The Company believes other managed care entities will
follow suit in requiring ACR accreditation or similar programs in order to
become or remain participating providers.

HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT (HIPAA). On August 21, 1996,
President Clinton signed into law the Health Insurance Portability and
Accountability Act of 1996 ("HIPAA"). HIPAA is a multifaceted piece of
legislation covering the following three areas: insurance portability, fraud
enforcement and administrative simplification. The first two areas, insurance
portability and fraud enforcement have already been put into effect and, as of
December 2001, two final rules were issued: Transaction and Code Set Standards
and the Privacy Rule. All covered entities are required to comply with
Transaction and Code Set Standards provisions by October 16, 2002 and comply
with the provisions of the Privacy Rule by April 14, 2003. The Company has been
actively working with both its software vendor and third-party billing company
in order to ensure compliance with Transaction and Code Set Standards by the
October 2002 deadline. In addition, the Company's Compliance Committee is
reviewing current operations and will develop new policies and procedures to
ensure compliance with the final Privacy Rule prior to April 2003. The Company
has not yet quantified the costs, if any, of compliance with the two HIPAA
rules.

INFECTIOUS WASTES. The Company is also subject to licensing and regulation under
federal and state laws relating to the handling and disposal of medical
specimens, infectious and hazardous waste and radioactive materials as well as
to the safety and health of laboratory employees. The sanctions for failure to
comply with these regulations may include denial of the right to conduct
business, significant fines and criminal penalties, any of which, if imposed,
could have a material adverse effect on the Company. The Company believes that
it is in substantial compliance with all applicable laws and regulations
relating to these materials.



                                       9
<PAGE>

INSURANCE

The Company could be subject to legal actions arising out of the performance of
its diagnostic imaging services. Damages assessed in connection with, and the
cost of defending, any such actions could be substantial. The Company maintains
liability insurance and other insurance, which it believes is adequate for its
present operations although, even if adequate, contains deductibles for which
the Company would be responsible. There can be no assurance that the Company
will be able to continue or increase such coverage or to do so at an acceptable
cost, or that the Company will have other resources sufficient to satisfy any
liability or litigation expense that may result from any uninsured or
underinsured claims. The Company also requires all of its affiliated physicians
to maintain malpractice and other liability coverage. In the event that a claim
exceeds available coverage, the Company's financial condition and results of
operations could be adversely and materially affected.

EMPLOYEES

As of March 15, 2002, the Company had approximately 310 full-time and 34
part-time employees, none of whom was represented under union contracts or other
collective bargaining arrangements. The Company considers its relations with its
employees to be good.

ITEM 2. PROPERTIES

The Company's executive, corporate administrative, accounting and billing
offices are located in West Palm Beach, Florida where the Company leases an
aggregate of approximately 26,000 square feet at one location under a lease
expiring in 2008. The Company is trying to sublease a portion of such space. The
aggregate lease expense relating to occupancy expense was approximately $788,000
in 2001.

The Company operates imaging centers that range in size from approximately 800
to 23,700 square feet. The aggregate lease occupancy expense for all such
Facilities was approximately $2.7 million in 2001. The imaging centers have
leases expiring between 2002 and 2011.

The Company believes that its owned and leased properties are adequate for its
present needs, and that suitable additional or replacement space can be
accommodated as needed.

ITEM 3. LEGAL PROCEEDINGS

SHELBY RADIOLOGY, P.C. V. US DIAGNOSTIC INC. ET AL. - In June 1997, the
plaintiff, Shelby Radiology, P.C. ("Shelby Radiology"), filed suit against the
Company alleging breach of a contract to provide radiology services and
specifically improper termination of the contract. In January 1998, Shelby
Radiology amended its complaint to include allegations of promissory fraud,
misrepresentation and suppression. Under both its fraud and breach of contract
claims, Shelby Radiology was seeking compensatory damages in the amount of $1.2
million as amounts it would have been paid under the "oral agreement." In
addition, Shelby Radiology sought punitive damages pursuant to its fraud claims.
On May 3, 1999, this matter was tried before a jury in Montgomery County,
Alabama. The trial concluded on May 7, 1999 and the jury returned a verdict
against the defendant in the amount of $1,134,000 as compensatory damages on
plaintiff's fraud claim. The jury did not award any punitive damages. The
Company paid $600,000 to a bonding company which posted a bond to secure payment
of the judgment and appealed the verdict to the Alabama Supreme Court which
ruled against the Company in a split decision. The Company's request for a
rehearing of that decision was rejected. The plaintiff collected the $1.4
million judgment, inclusive of interest, from the bonding company under the
bond. The Company owes



                                       10
<PAGE>

approximately $800,000 to the bonding company. The Company recognized the
settlement expense as of December 31, 2000 as a result of this lawsuit.

MARCONI MEDICAL SYSTEM, INC. VS. US DIAGNOSTIC INC. - The Company is the
Defendant in this action in the Circuit Court of the 15th Judicial Circuit in
and for Palm Beach County, Florida. This lawsuit involves an action for breach
of contract to collect unpaid invoices relating to the Company's former Texas
centers. The invoices were assumed by the purchasers of the centers. However,
the purchasers failed to pay the invoices, and suit was filed against the
Company. The invoices have been outstanding since approximately February 1999.
The amount of the claim is $297,000 exclusive of interest, attorneys' fees and
costs. The Company reached a settlement with the purchasers of the Texas centers
which requires the Company to satisfy this claim. Therefore, this matter has
been accrued for as of December 31, 2001.

CALIFORNIA TAX AUDIT - This matter is regarding Valley Presbyterian MRI Center
and the Company. The State of California determined in an audit that the doctors
providing services at the Company's center were employees rather than
independent contractors. As a result, the State issued a tax assessment of
$251,905 for various unpaid state taxes. The matter is still pending and is not
likely to be resolved until late 2002 or 2003. The Company believes that the
doctors were independent contractors consistent with California practice;
however, the outcome cannot be predicted at this time.

US DIAGNOSTIC INC. VS. METROPOLITAN DIAGNOSTIC IMAGING, PC, GRAMMERCY MRI AND
DIAGNOSTIC RADIOLOGY, PC, QUEENS MEDICAL IMAGING, PC, NARROWS MRI AND DIAGNOSTIC
RADIOLOGY, PC, AND ALAN WINAKOR - The Company is the Plaintiff/Counterdefendant
in an action, in the United States District Court of the Southern District of
New York. This lawsuit involves an action for breach of contract in which the
Company seeks to recover approximately $200,000 in damages for unpaid billing
and collection services. The Defendants have filed an answer, including a
counterclaim for breach of contract, defamation, tortious interference, and
permanent injunction seeking damages of approximately $1 million. The
counterclaims are essentially premised upon business interruption. The Company
believes that it is owed the $200,000 for breach of contract. The counterclaims
were recently filed, but do not appear to be meritorious and based upon a
preliminary review, the damages are believed to be excessive and speculative.
Therefore, the outcome of this matter cannot be determined at this time.

RADNET MANAGEMENT II, INC. VS. US DIAGNOSTIC INC. AND MODESTO IMAGING CENTER,
INC. - The Company is a Defendant in an action, before the American Arbitration
Association, Los Angeles Regional Office. This is an action for breach of
representations and warranties in an asset purchase agreement. The claimant
alleges the Company failed to disclose that a certain lease agreement had been
extended for ten years through the year 2014, rather than terminating in 2004.
The claimant seeks approximately $1 million pursuant to the surviving covenants
and agreements related to such asset purchase agreement. The matter is currently
in discovery and the Company cannot currently determine whether it is liable for
such alleged breach or the appropriate amount of the claim if it is determined
to be liable.

OTHER MATTERS - The Company could be subject to legal actions arising out of the
performance of its diagnostic imaging services. Damages assessed in connection
with, and the cost of defending, any such actions could be substantial. The
Company maintains liability insurance and other insurance, which it believes is
adequate for its present operations although, even if adequate, contains
deductibles for which the Company would be responsible. There can be no
assurance that the Company will be able to continue or increase such coverage or
to do so at an acceptable cost, or that the Company will have other resources
sufficient to satisfy any liability or litigation expense that may result from
any uninsured or underinsured



                                       11
<PAGE>

claims. The Company also requires all of its affiliated physicians to maintain
malpractice and other liability coverage.

The Company is also a party to, and has been threatened with, a number of other
legal proceedings in the ordinary course of business. While it is not feasible
to predict the outcome of these matters, and although there can be no
assurances, the Company does not anticipate that the ultimate disposition of any
such proceedings will have a material adverse effect on the Company.

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

None.



                                       12
<PAGE>

                                     PART II

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

The Company's common stock has traded under the symbol USDL on the OTC Bulletin
Board ("OTCBB") since August 16, 2000. This was the result of the Company's
ineligibility to remain listed on the NASDAQ SmallCap Market due to its
non-compliance with the minimum one-dollar bid price under the NASDAQ SmallCap
Market rules. Previously, the Company was on the NASDAQ SmallCap Market from
September 22, 1998 to August 15, 2000. While there can be no assurance that the
Company's common stock will trade on the OTCBB, the Company believes that market
makers will continue to make a market in its shares of common stock on the
OTCBB.

The following table sets forth the high and low sales prices for the Company's
common stock as reported on OTCBB for the periods including and subsequent to
August 16, 2000. For the periods presented prior to August 16, 2000, the high
and low sales prices are as reported per NASDAQ SmallCap Market. These prices do
not reflect retail mark-ups, mark-downs or commissions and may not represent
actual transactions.
                                                         HIGH           LOW
                                                         ----           ---

         2000
         ----

         January 1 through March 31, 2000........        $1.75         $0.88
         April 1 through June 30, 2000...........         1.09          0.50
         July 1 through August 15, 2000..........         1.00          0.69
         August 16 through September 30, 2000....         0.91          0.38
         October 1 through December 31, 2000.....         1.25          0.72

         2001
         ----

         January 1 through March 31, 2001........        $0.97         $0.30
         April 1 through June 30, 2001...........         0.28          0.03
         July 1 through September 30, 2001.......         0.10          0.07
         October 1 through December 31, 2001.....         0.07          0.01


The number of record holders of the Company's common stock as of March 18, 2002
was 245.

The Company has never paid a cash dividend on its common stock and anticipates
that for the foreseeable future any earnings will be retained for use in its
business and, accordingly, does not anticipate the payment of cash dividends.
The Company has outstanding debt that prohibits the payment of dividends by the
Company without the consent of the lender.




                                       13
<PAGE>
ITEM 6.  SELECTED FINANCIAL DATA

The selected financial data presented below summarize certain historical
financial data and should be read in conjunction with the more detailed
consolidated financial statements of the Company and the notes thereto included
elsewhere herein.

<TABLE>
<CAPTION>

                                                                     Year Ended December 31,
                                           -----------------------------------------------------------------------------------
(In thousands, except per share amounts)      2001               2000             1999             1998                1997
----------------------------------------   ---------           ---------        ---------        ---------           ---------

<S>                                        <C>                 <C>              <C>              <C>                 <C>
STATEMENT OF OPERATIONS DATA
Net revenue                                $  55,930           $ 127,902        $ 155,602        $ 195,735           $ 216,222
Loss before extraordinary gain               (24,524)(1)(2)      (32,567)(1)      (10,793)(1)         (512)(1)(2)     (116,712)(2)
Extraordinary gain, net of income taxes          464 (4)              --            2,598 (3)        5,311 (3)              --
Net income (loss)                            (24,060)            (32,567)          (8,195)           4,799            (116,712)

Basic and diluted earnings (loss) per
   common share
Loss before extraordinary gain                 (1.10)              (1.44)           (0.47)           (0.02)              (5.26)
Extraordinary gain                              0.02                  --             0.11             0.23                  --
                                           ---------           ---------        ---------        ---------           ---------
Net income (loss)                          $   (1.08)          $   (1.44)       $   (0.36)       $    0.21           $   (5.26)
                                           =========           =========        =========        =========           =========

Cash dividends declared per common
   share                                          --                  --               --               --                  --

</TABLE>

(1)      Includes $10.7 million, $14.6 million, $2.3 million and $4.7 million
         gain on sale of subsidiaries in 2001, 2000, 1999 and 1998,
         respectively. See Note 12 of Notes to Consolidated Financial
         Statements.

(2)      Includes asset impairment losses of $18.6 million, $680,000 and $92.9
         million in 2001, 1998 and 1997, respectively. See Note 6 of Notes to
         Consolidated Financial Statements.

(3)      Represents gain on repurchase of Debentures. See Notes 8, 9 and 13 of
         Notes to Consolidated Financial Statements.

(4)      Represents gain on early extinguishment of debt. See Note 13 of Notes
         to Consolidated Financial Statements.


<TABLE>
<CAPTION>

                                                                         As of December 31,
                                                     ------------------------------------------------------------
(In thousands)                                        2001          2000         1999         1998         1997
--------------                                       -------      --------     --------     --------     --------
<S>                                                  <C>          <C>          <C>          <C>          <C>
BALANCE SHEET DATA
Total assets                                         $49,625      $115,848     $217,742     $237,830     $287,999
Current portion of debentures, long-term debt
   and capital leases                                 53,689        30,714       27,705       27,239       27,745
Total long-term obligations                           12,404        63,109      128,640      147,701      191,547

</Table>


                                       14
<PAGE>

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

FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS

Certain matters discussed herein are forward-looking statements made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements are based largely on the Company's
expectations and are subject to a number of risks and uncertainties, including
but not limited to, the ability of the Company to achieve a restructuring of its
debt on acceptable terms in a timely manner, the ability to sell assets at
favorable prices and in a timely manner, economic, competitive, regulatory and
legal factors, collections of accounts receivable, the outcome of the Company's
negotiations with its senior and subordinated lenders, the effect of a potential
Chapter 11 bankruptcy filing on the Company's business, available financing or
available refinancing for or restructuring of existing debt, cash flow and
working capital availability, the ability of the Company to renew or
successfully negotiate contracts and/or partnership relationships given its
financial condition, the ability of the Company to reduce its overhead, the
impact of any actions taken by debt holders as a result of defaults by the
Company under its debt instruments, and other factors discussed elsewhere in
this report and in other documents filed by the Company with the SEC. Many of
these factors are beyond the Company's control. Actual results could differ
materially from the forward-looking statements made. In light of these risks and
uncertainties, there can be no assurance that the results anticipated in the
forward-looking information contained in this report will, in fact, occur.

OVERVIEW AND RECENT DEVELOPMENTS

The Company's financial condition continued to deteriorate during 2001 despite
the Company's efforts, begun in 1997, to improve operating results, cash flows
and capitalization through overhead reductions, dispositions of non-core and
underperforming assets and the sale of 36 medical diagnostic imaging centers
under a plan of restructuring that was adopted in 2000. The plan of
restructuring was suspended during 2001 because the Company determined that it
would not be able to obtain acceptable prices for its remaining imaging centers
due in part to industry and general economic conditions.

The Company remains burdened by a high level of indebtedness to its secured and
unsecured lenders and most of this indebtedness has relatively short maturities
(or may be current as a result of acceleration or rights to accelerate) which
require the Company to devote a significant portion of its cash flows to the
amortization of debt and interest payments. The Company also has ongoing
significant capital expenditure requirements in order to maintain and modernize
its imaging equipment. Furthermore, cost containment by the managed care
industry and governmental payors such as Medicare continues to adversely affect
pricing levels for medical imaging services. The Company also needs to maintain
its corporate infrastructure to operate remaining centers and collect accounts
receivable. As a result, the Company's cash flows from operating activities
continues to be insufficient to meet the Company's operating needs, scheduled
debt repayment obligations and capital expenditure requirements.

The Company's shortfall in cash flows has forced it to default on interest
payments due in March and September of 2001, as well as the March 2002 payment,
on its $21.9 million principal amount of the Debentures aggregating $2.5 million
at December 31, 2001, plus interest on the overdue amounts, the repayment at
maturity of the Notes aggregating $10.0 million in principal amount plus unpaid
interest to the maturity date, as well as defaults on other obligations,
judgments and indebtedness. Moreover, in the absence of a comprehensive debt
restructuring, the Company is unlikely to have sufficient cash resources to pay
additional maturing debt obligations which could give rise to additional
defaults. The Company has also committed various financial covenant defaults
with respect to the Debentures and failed to conduct an offer to purchase the
Debentures as a result of the Company's failure to maintain a



                                       15
<PAGE>

consolidated net worth of at least $18.0 million. These defaults permit the
Debenture holders to accelerate the maturity of the Debentures, constitute cross
defaults under other instruments and limit the Company's ability to obtain other
financing. The Company's continued operation has been largely dependent on the
willingness of the Senior Lender to reduce its sweeps of the Company's available
cash which in part secures the Company's obligations under its credit facilities
with the Senior Lender. If the Senior Lender were to terminate its forbearances,
the Company would likely be forced to seek immediate protection in bankruptcy.

In light of its financial condition, the Company, assisted by its financial and
legal advisors, commenced negotiations during 2001, with its senior lenders and
an adhoc committee of Debenture holders. These negotiations continue with
respect to the terms of a restructuring plan that would require the Company to
commence a voluntary case under Chapter 11 of the Bankruptcy Code and pursuant
to which an entity affiliated with or supported by the Senior Lender would
acquire substantially all of the Company's operating assets in exchange for a
cash payment that would be used to partially repay creditors. In all likelihood,
there would be little or no value remaining in the Company for its current
stockholders. There can be no assurance that a definitive agreement with respect
to the proposed restructuring will be entered into or whether any such agreement
would receive the required approval of the bankruptcy court, nor can there be
any assurance as to the amount of funds that will be available to pay the
Company's creditors or the particular percentage of each class of creditors'
claims that could be repaid. See Note 1 GOING CONCERN and MANAGEMENT'S PLANS
which are incorporated herein by reference.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

USE OF ESTIMATES - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
("generally accepted accounting principles"), requires management to make
estimates and assumptions that affect certain reported amounts of assets,
liabilities, income and expense and disclosures of contingencies. The most
significant of these estimates relate to contractual and bad debt allowances on
accounts receivable and other receivables, useful lives of medical equipment,
the realizability of long-lived and intangible assets and reserves for
litigation contingencies. Future events could alter such estimates in the near
term. In addition, healthcare industry reforms and reimbursement practices will
continue to impact the Company's operations and the determination of contractual
and other allowance estimates.

PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Depreciation
is provided using the straight-line method over the estimated useful lives of
the related assets or the remaining lease term. The equipment used by the
Company is technologically sophisticated and subject to accelerated obsolescence
in the event of significant technological change. Included in property and
equipment are capitalized costs for software and implementation costs paid to
external consultants related to the Company's billing and general ledger
systems.

INTANGIBLE ASSETS - Goodwill consists of the cost of purchased businesses in
excess of the fair value of net assets acquired. Goodwill is amortized on a
straight-line basis for a period of twenty years. Customer lists and covenants
not to compete are amortized on a straight line basis for a period of fifteen
years and five to ten years, respectively.

LONG-LIVED ASSETS - The Company recognizes impairment losses on impaired
long-lived assets (property and equipment and intangible assets) based on the
amount by which the carrying value exceeds the fair value of the long-lived
asset. Fair value is determined by using a current market value modeling
approach or by evaluating the current market value of the acquired business
using fundamental analysis.



                                       16
<PAGE>

NET REVENUE - Revenues are reported at the estimated net realizable amounts from
patients, third-party payors and others for services as rendered including
estimated prospectively determined adjustments under reimbursement agreements
with third-party payors. These adjustments are accrued on an estimated basis in
the period the related services are rendered and adjusted in future periods as
final settlements are determined. The Company also has relatively insignificant
amounts of revenue comprised of fees charged by the Company for management
services for the technical component of procedures performed in certain
corporate practice of medicine states provided at non-Company owned imaging
facilities. This revenue also includes fees for management and billing and
collection.

Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition In Financial
Statements," established the SEC's view in applying generally accepted
accounting principles to revenue recognition in financial statements. The
Company believes its revenue recognition policies conform to SAB No. 101.

DISCONTINUED OPERATIONS SUBSEQUENTLY RETAINED

The Company's Board of Directors approved a restructuring plan which allowed for
the sale of all or substantially all of its imaging centers (the "Plan of
Restructuring"). The Company's sales of its imaging centers pursuant to the Plan
of Restructuring, were not completed within the one year time period following
the approval of the Plan of Restructuring at the annual stockholders' meeting on
July 21, 2000. As a result, effective June 30, 2001, the Company is treating as
continuing operations its remaining operations that had previously been
presented as discontinued operations. The accompanying consolidated financial
statements have been reclassified to reflect this presentation. Consequently,
the Company's operations are no longer differentiated between continuing and
discontinued operations.



                                       17
<PAGE>


The following table sets forth items of income and expense as a percentage of
net revenues:

<TABLE>
<CAPTION>
                                                                     Years Ended December 31,
                                                                -----------------------------------
                                                                 2001          2000           1999
                                                                -----          -----          -----
<S>                                                             <C>            <C>            <C>
NET REVENUE                                                     100.0%         100.0%         100.0%
                                                                -----          -----          -----

OPERATING EXPENSES
     General and administrative                                  85.2           86.0           77.5
     Asset impairment losses                                     33.2             --             --
     Bad debt expense                                            10.7           10.8            3.9
     Depreciation                                                12.2           11.9           11.8
     Amortization                                                 3.8            3.3            3.2
                                                                -----          -----          -----

TOTAL OPERATING EXPENSES                                        145.1          112.0           96.4
                                                                -----          -----          -----

INCOME (LOSS) FROM OPERATIONS                                   (45.1)         (12.0)           3.6
                                                                -----          -----          -----

TOTAL OTHER INCOME (EXPENSE)                                      7.5           (8.4)          (9.5)
                                                                -----          -----          -----

Loss before minority interest, provision (benefit) for
     income taxes and extraordinary gain                        (37.6)         (20.4)          (5.9)
                                                                -----          -----          -----

Minority interest and provision (benefit) for income
     taxes, net                                                   6.2            5.1            1.1
                                                                -----          -----          -----

LOSS BEFORE EXTRAORDINARY GAIN                                  (43.8)         (25.5)          (7.0)

Extraordinary gain, net of income taxes                           0.8             --            1.7
                                                                -----          -----          -----
NET LOSS                                                        (43.0)%        (25.5)%         (5.3)%
                                                                =====          =====           ====

</TABLE>







                                       18
<PAGE>



YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000

Net revenue decreased to $55.9 million in 2001 from $127.9 million in 2000,
primarily as a result of the sale or closing of imaging centers in 2001. Net
revenue relating to centers that were owned and operating at the end of both
December 31, 2001 and 2000 ("open centers") was $48.4 million for 2001 compared
to $46.6 million for 2000. The increase in net revenue of the open centers is
related to a 1.6% increase in scan volume, and a shift to a higher revenue per
scan modalities such as MRI and CT as a percentage of the overall modalities.

General and Administrative ("G&A") expense decreased to $47.7 million in 2001
compared to $110.0 million in 2000 primarily as a result of the sale or closing
of imaging centers in 2001, and also the realization in 2001 of the full benefit
of the sale or closing of the imaging centers during 2000. Expressed as a
percentage of revenue, G&A decreased from 86.0% in 2000 to 85.2% in 2001.
Included in G&A expense in 2001 is a gain resulting from a legal settlement for
$2.4 million in March 2001 which was offset by a loss from another unrelated
legal settlement for $2.1 million. G&A expense relating to the open centers was
$42.4 million for 2001 compared to $41.7 million for 2000. The G&A expense also
includes charges for stock-based compensation of $87,000 and $295,000 in 2001
and 2000, respectively. Furthermore, in 2000, G&A expense includes approximately
$6.2 million of employee retention bonuses, executive severance payments,
executive retention bonuses and payments to non-employee directors that were
paid or accrued in connection with the plan to sell the imaging centers.
Pursuant to the Plan of Restructuring in 2000, certain executives elected to
deem their employment agreements terminated by the Company without cause, due to
change in control as defined by their employment agreements. As a result, they
were entitled to receive lump sum compensation. The total amount paid or accrued
to these executives was $2.4 million as of December 31, 2000.

Furthermore, under the Plan of Restructuring, in order to assure the continued
employment of the executive officers during the imaging center sales process,
the Board of Directors approved a retention bonus program, payable
proportionately as sales of the imaging centers were completed with the unpaid
balance of the retention bonus accrued at December 31, 2000. The total amount
paid or accrued to these executives was $1.1 million as of December 31, 2000.

Under the Plan of Restructuring, the Company also adopted a bonus plan for
non-employee directors whereby they would share equally in .25% of the gross
proceeds from the imaging center sales and would be payable as sales occurred
but no later than December 31, 2000. The total amount paid or accrued as of
December 31, 2000 for the three non-employee directors was $500,000.

The Company also implemented an employee retention bonus plan to ensure that
certain key employees remained with the Company through the period of
liquidation. Eligible employees were entitled to a retention bonus amount equal
to a set number of weeks of their regular salary, ranging from four to fifty-two
weeks. The total retention bonus pool relating to non-executive employees that
was paid or accrued was $2.2 million as of December 31, 2000.

Furthermore, in 2001 the Company implemented another employee retention bonus
plan to ensure that certain key employees remained with the Company through the
period of restructuring. Eligible employees were entitled to a retention bonus
amount equal to a set number of weeks of their regular salary, ranging from six
to twelve weeks. The eligible employees were required to remain with the Company
through December 31, 2001 to earn the entire retention bonus amount. If the
employee's services were no longer needed as deemed by the Company because of
business conditions prior to




                                       19
<PAGE>

December 31, 2001, the employee was entitled to the entire retention bonus
amount. The total retention bonus pool including payroll taxes that were accrued
relating to non-executive employees was $423,000 as of December 31, 2001. The
Company paid 33% or $140,000 of such accrued amounts in January 2002.

The Company has also accrued the retention payable (and applicable payroll
taxes) for two of its executives according to their employment agreements
totaling $188,000 as of December 31, 2001. The Company has not yet paid such
amounts as of April 16, 2002.

In addition, the Company has not been able to reduce its overhead as quickly as
necessary due to the need to retain corporate infrastructure to collect accounts
receivable, maintain the operations of remaining centers and conduct other
corporate functions. This drain on cash flow has also impaired the Company's
ability to pay down its debt.

Asset impairment losses were $18.6 million during 2001, compared to none during
2000. As discussed in Note 6 of Notes to Consolidated Financial Statements, the
Company has recorded impairment losses for those centers for which the fair
value does not cover the carrying value of the long-lived assets.

Bad debt expense decreased to $6.0 million in 2001 compared to $13.8 million in
2000. Bad debt expense relating to the open centers was $4.5 million for 2001
compared to $5.3 million for 2000. The decrease in bad debt expense is primarily
due to the reduction in the number of open centers that generated a lower volume
of accounts receivable in 2001 compared to 2000. In addition, 2000 bad debt
expense reflects higher reserves because of a significant deterioration in
collection results related to the adoption of the Plan of Restructuring,
employee turnover and difficulties resulting from outsourcing billing and
collection to a third-party. These issues affected 2001 collections to a lesser
degree. As a percentage of revenue, bad debt expense decreased from 10.8% in
2000 to 10.7% in 2001.

Depreciation expense was $6.8 million in 2001 compared to $15.3 million in 2000.
The decrease resulted primarily from a reduction in the depreciable asset base
due to the realization in 2001 of the full benefit of the sale of the imaging
centers in 2000, as well as partial year savings from the sale of 2001 imaging
centers. Depreciation expense relating to the open centers was $6.0 million for
2001 compared to $6.6 million for 2000. The decrease in depreciation expense of
the open centers is related to the write off of property and equipment as part
of the asset impairment analysis since the second quarter of 2001. The decrease
was partially offset by an increase in property and equipment in connection with
medical equipment upgrades and ongoing improvements to facilities.

Amortization expense was $2.1 million in 2001 compared to $4.2 million in 2000.
Amortization expense relating to the open centers was $2.1 million for the 2001
compared to $3.6 million for 2000. The decrease in amortization expense of the
open centers is related to the write off of intangibles as part of the asset
impairment analysis since the second quarter of 2001.

During 2001, the Company recognized a net loss of $0.7 million relating to the
closing of two imaging centers that were non-performing and recognized a net
gain of $10.7 million on the sale of 11 imaging centers. During 2000, the
Company recognized a net loss of $10.7 million relating to the closing of 10
imaging centers that were non-performing and recognized a net gain of $14.6
million on the sale of 25 imaging centers. See Note 12 of Notes to Consolidated
Financial Statements.

Interest expense decreased to $7.3 million in 2001 compared to $14.0 million in
2000. This was a result of lower average borrowings outstanding during 2001 in
connection with the sale of imaging centers in



                                       20
<PAGE>

2000 and 2001. Interest expense relating to the open centers was $7.1 million
for 2001 compared to $11.3 million for 2000. The decrease in interest expense of
the open centers is primarily due to debt repayments made with the proceeds from
the sold facilities.

Amortization of lender equity participation fees was none and $0.9 million
during 2001 and 2000, respectively. Such amounts represent the amortization of
an aggregate of $2.8 million of capitalized fees paid to an affiliate of DVI
Financial Services, Inc. ("DVIFS") during the fourth quarter of 1998 and the
first quarter of 1999 in connection with a financing. All such fees were fully
amortized by June 2000.

Minority interest in gain on sale of subsidiaries was $3.3 million in 2001
compared to $5.2 million in 2000 and was attributable to the sale of majority
owned subsidiaries.

During 2001, the Company recorded a $0.5 million gain on early extinguishment of
debt, net of $0.2 million of income taxes. See Note 13 of Notes to Consolidated
Financial Statements.

The Company had a basic and diluted net loss per share of $1.08 in 2001 compared
to basic and diluted net loss per share of $1.44 in 2000.

YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999

Net revenue decreased to $127.9 million in 2000 from $155.6 million in 1999,
primarily as a result of the sale or closing of imaging centers in 2000. Net
revenue relating to open centers was $46.6 million for 2000 compared to $46.1
million for 1999. The increase in net revenue of the open centers is related to
a 6.3% increase in scan volume.

G&A expense decreased to $110.0 million in 2000 compared to $120.6 million in
1999 primarily as a result of sale or closing of imaging centers in 2000.
Expressed as a percentage of revenue, G&A increased from 77.5% in 1999 to 86.0%
in 2000. G&A expense relating to the open centers was $41.7 million for the 2000
compared to $36.5 million for 1999. The increase in G&A expense in 2000 over
1999 is mainly due to $6.2 million of employee retention bonuses, executive
severance payments, executive retention bonuses and payments to non-employee
directors that were paid or accrued in 2000 as described above. The G&A expense
also includes charges for stock-based compensation of $295,000 and $573,000 in
2000 and 1999, respectively.

Bad debt expense increased to $13.8 million in 2000 compared to $6.1 million in
1999. Bad debt expense relating to the open centers was $5.3 million for 2000
compared to $1.4 million for 1999. The Company recorded an $8.0 million charge
in 2000 for additional provisions for bad debt expense on uncollectible accounts
receivable. The 2000 bad debt expense reflects higher reserves because of a
significant deterioration in collection results related to the adoption of the
Plan of Restructuring, employee turnover and difficulties resulting from
outsourcing billing and collection to a third-party. The 1999 bad debt expense
reflects $427,000 recorded for a group of California centers adversely affected
by the bankruptcy of a third-party payor. As a percentage of revenue, bad debt
expense increased from 3.9% in 1999 to 10.8% in 2000.

Depreciation expense was $15.3 million in 2000 compared to $18.3 million in
1999. The decrease resulted primarily from a reduction in the depreciable asset
base due to the realization in 2000 of the full benefit of the sale of the
imaging centers in 1999, as well as partial year savings from the sale of
imaging centers during 2000 which was partially offset by increases in property
and equipment in connection with



                                       21
<PAGE>

medical equipment upgrades and ongoing improvements to facilities. Depreciation
expense relating to the open centers was $6.6 million for 2000 compared to $5.4
million for 1999.

Amortization expense was $4.2 million in 2000 compared to $5.0 million in 1999.
Amortization expense relating to the open centers was $3.6 million for 2000
compared to $4.0 million for 1999.

During 2000, the Company recognized a net loss of $10.7 million relating to the
closing of 10 imaging centers that were non-performing and recognized a net gain
of $14.6 million on the sale of 25 imaging centers. During 1999, the Company
recognized a net gain of $2.3 million on the sale of three imaging centers. See
Note 12 of Notes to Consolidated Financial Statements.

Interest expense decreased to $14.0 million in 2000 compared to $17.4 million in
1999. This was a result of lower average borrowings outstanding during 2000 in
connection with the sale of imaging centers in 2000. Interest expense relating
to the open centers was $11.3 million for 2000 compared to $12.3 million for
1999. The decrease in interest expense of the open centers is primarily due to
debt repayments made with the proceeds from the sold facilities.

Amortization of lender equity participation fees was $0.9 million and $1.9
million during 2000 and 1999, respectively. Such amounts represent the
amortization of an aggregate of $2.8 million of capitalized fees paid to an
affiliate of DVIFS during the fourth quarter of 1998 and the first quarter of
1999 in connection with certain financing. All such fees were fully amortized by
June 2000.

Minority interest in gain on sale of a subsidiary was $5.2 million in 2000
compared to none in 1999 and was attributable to the sale of a majority owned
subsidiary.

During 1999, the Company recorded extraordinary gain net of income taxes of $2.6
million related to the repurchase of approximately $12.5 million aggregate
principal amount of its Debentures for amounts less than the recorded amounts.
See Notes 8, 9 and 13 of Notes to Consolidated Financial Statements.

The Company had a basic and diluted net loss per share of $1.44 in 2000 compared
to basic and diluted net loss per share of $0.36 in 1999.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2001, the Company had a working capital deficiency of $57.0
million, compared to a working capital deficiency of $25.9 million at December
31, 2000. The increase in the working capital deficiency from 2000 to 2001 is
primarily due to an increase in current portion of long-term debt comprised of
$21.9 million of Debentures that are in default and thus subject to acceleration
of maturity. Furthermore, the unpaid interest on the Debentures and the Notes of
$3.0 million is shown as a current liability. The decrease in current assets
from 2000 to 2001 is comparable to the decrease in current liabilities (other
than the current portions of long-term debt and capital lease obligations) for
the same periods as a result of the sale of imaging centers during 2001. The
Company's primary short-term liquidity requirements as of December 31, 2001
include obligations under Debentures, debt and capital leases (including the
amounts of principal and interest in default), rent, salaries, other operating
expenses (such as unpaid portion of the non-executive employee retention bonuses
and payments per executive employment agreements), accounts payable, other
current liabilities and capital expenditures related to the replacement and
enhancement of existing imaging equipment and imaging centers. See Notes 8 and 9
of Notes to Consolidated Financial Statements.




                                       22
<PAGE>

Net cash used in operating activities during 2001 was $2.9 million, compared to
$1.2 million used in operating activities during 2000. The negative cash flow
from operations in 2001 is mainly due to a decrease in revenues and operating
cash flows related to the sale of 11 imaging centers and closing of two imaging
centers in 2001 (in addition to the sale of 25 imaging centers and closing of 10
imaging centers in 2000). In addition, the Company has not been able to reduce
its overhead as quickly as necessary due to the need to retain corporate
infrastructure to collect accounts receivable, maintain the operations of
remaining centers and conduct other corporate functions. This drain on cash flow
has also impaired the Company's ability to pay down its debt. Furthermore, a
$2.4 million gain resulting from a legal settlement was recorded during the
first quarter of 2001 which was offset by a $2.1 million loss from another
unrelated legal settlement recorded during the same period.

Net cash provided by investing activities was $13.3 million during 2001,
compared to net cash provided by investing activities of $11.0 million during
2000. During 2001, the Company received $14.7 million in net cash proceeds from
the sale of imaging centers, compared to $19.0 million during 2000. The net cash
proceeds from the sale of imaging centers in 2001 is net of $4.8 million of sale
proceeds used to repay debt not specifically related to the sale of the imaging
centers. Equipment purchases were $2.0 million during 2001, compared to $7.9
million during 2000.

Net cash used in financing activities was $13.5 million during 2001, compared to
$11.2 million used in financing activities during 2000. Proceeds from new
borrowings totaled $1.6 million during 2001, compared to $19.9 million during
2000. Repayments of notes and capital leases totaled $15.1 million during 2001,
compared to $30.8 million during 2000. The Company repaid an aggregate of $3.3
million and $5.0 under its revolving credit loan with DVI Business Credit
Corporation ("DVIBC") and $1.5 million and $18.1 million under the DVIFS
Repurchase Facility from proceeds received upon the sale of imaging centers for
debt not specifically related to the sold centers during 2001 and 2000,
respectively. See Note 9 of the Notes to Consolidated Financial Statements for
further detail.

As of December 31, 2001, the Company has no purchase commitments for capital
expenditures and no commitments to execute operating leases.

Based on current estimates, unless the Company can successfully sell remaining
imaging centers at favorable prices and terms, obtain additional significant
financial resources (which is unlikely), or restructure its debt, the Company's
current cash and cash from operations will be insufficient to meet its
anticipated cash needs. Furthermore, the Company has defaulted on the March 31,
2001 and September 30, 2001 interest payments and likely will default on the
March 31, 2002 interest payment on its Debentures. Also, the Company has
defaulted on its obligation to repurchase Debentures which is required as a
result of failing to maintain consolidated net worth of at least $18.0 million.
On May 1, 2001, the Company received a default notice from the Trustee under the
Debenture Indenture ("Indenture"). These defaults could give rise to an
acceleration of the maturities of the Debentures. In addition, the Company is
prohibited from borrowing additional amounts without causing additional
non-compliance with certain Indenture covenants and an additional default under
the Indenture. Furthermore, the Company failed to pay the $10.0 million
principal amount (and accrued interest) of its Notes that matured on June 30,
2001. This failure constitutes a default under the Notes and may also constitute
a cross default under other of the Company's debt instruments which could
entitle the holders of such instruments to accelerate the maturity of such debt
instruments.

As noted above, the Company remains burdened by a high level of indebtedness to
its secured and unsecured lenders and most of this indebtedness has relatively
short maturities (or may be current as a result of acceleration or rights to
accelerate) which require the Company to devote a significant portion of



                                       23
<PAGE>

its cash flows to the amortization of debt and interest payments. The Company
also has ongoing significant capital expenditure requirements in order to
maintain and modernize its imaging equipment. Furthermore, cost containment by
the managed care industry and governmental payors such as Medicare continues to
adversely affect pricing levels for medical imaging services. The Company also
needs to maintain its corporate infrastructure to operate remaining centers and
collect accounts receivable. As a result, the Company's cash flows from
operating activities continues to be insufficient to meet the Company's
operating needs, scheduled debt repayment obligations and capital expenditure
requirements.

In light of its financial condition, the Company, assisted by its financial and
legal advisors, commenced negotiations during 2001, with its senior lenders and
an adhoc committee of Debenture holders. These negotiations continue with
respect to the terms of a restructuring plan that would require the Company to
commence a voluntary case under Chapter 11 of the Bankruptcy Code and pursuant
to which an entity affiliated with or supported by the Senior Lender would
acquire substantially all of the Company's operating assets in exchange for a
cash payment that would be used to partially repay creditors. In all likelihood,
there would be little or no value remaining in the Company for its current
stockholders. There can be no assurance that a definitive agreement with respect
to the proposed restructuring will be entered into or whether any such agreement
would receive the required approval of the bankruptcy court, nor can there be
any assurance as to the amount of funds that will be available to pay the
Company's creditors or the particular percentage of each class of creditors'
claims that could be repaid.

If these uncertainties cannot be resolved successfully and in a timely manner,
the Company could be required to seek a reorganization under the federal
bankruptcy laws. These conditions, among others, raise substantial doubt about
the Company's ability to continue as a going concern.

For additional information regarding the Company's debt defaults, restructuring
efforts and cash flow short fall, see Item 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Overview and Recent
Developments which is incorporated herein by reference. For a discussion of the
Company's ability to continue as a going concern and the Company's debt
facilities, see Notes 1 and 9 to the Consolidated Financial Statements,
respectively, which are incorporated herein by reference. For additional
information regarding contingencies and uncertainties related to litigation and
regulatory matters, see Item 1. BUSINESS - Regulation and Government
Reimbursement, Item 3. LEGAL PROCEEDINGS and Note 21 of Notes to Consolidated
Financial Statements each of which is incorporated herein by reference.




                                       24
<PAGE>
ITEM 7A. QUANTITATIVE INFORMATION ABOUT INTEREST RATE RISK

The table below represents in tabular form contractual balances of the Company's
capitalized lease and long-term debt financial instruments at December 31, 2001.
The expected maturity categories take into consideration amortization of
principal as currently classified in the consolidated financial statements and
do not take prepayments into consideration. The weighted-average interest rates
for the various liabilities presented are as of December 31, 2001.

In thousands

<TABLE>
<CAPTION>
                                                  Principal Amount Maturing in:
                         -------------------------------------------------------------------------
                                                                                                       Fair Value
                           2002        2003      2004       2005      2006    Thereafter    Total      At 12/31/01
                         --------    -------   -------    -------   -------   ----------   -------     -----------
<S>                       <C>          <C>       <C>        <C>       <C>        <C>       <C>           <C>
Interest rate
sensitive liabilities:

Long-term debt
adjustable-rate
borrowings                $ 7,574      $  67     $  73      $  79     $  88      $  622    $ 8,503       $ 8,503
Average interest rate       6.77%      9.07%     9.07%      9.07%     9.07%       9.07%      7.02%

Long-term debt
fixed-rate borrowings      44,913      2,609     1,544      1,095       513         520     51,194        51,194
Average interest rate        8.90%      9.09%    10.54%     10.09%     9.88%      10.09%      9.02%

Capitalized lease
obligations
fixed-rate borrowings       1,202      1,083     1,547        524       418         838      5,612         5,612
Average interest rate        9.41%     10.74%    10.67%      9.92%     9.90%       9.92%     10.18%
                         --------    -------   -------    -------   -------     -------    -------       -------

Total                    $ 53,689    $ 3,759   $ 3,164    $ 1,698   $ 1,019     $ 1,980    $65,309       $65,309
                         ========    =======   =======    =======   =======     =======    =======       =======

Weighted-Average
Interest Rates               8.61%      9.57%    10.57%      9.70%     9.82%       9.70%      8.86%
                         ========    =======   =======    =======   =======     =======    =======

</Table>


                                       25
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
<S>                                                                                                  <C>
Independent Auditors' Report ................................................................        27

Consolidated Balance Sheets as of December 31, 2001 and 2000.................................        28

Consolidated Statements of Operations for each of the three years in the
   period ended December 31, 2001............................................................        29

Consolidated Statements of Stockholders' Equity (Deficiency) for each of the three years
   in the period ended December 31, 2001.....................................................        30

Consolidated Statements of Cash Flows for each of the three years in
   the period ended December 31, 2001..........................................................      31

Notes to Consolidated Financial Statements.....................................................      33

</TABLE>



                                       26
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
US Diagnostic Inc.:

We have audited the accompanying consolidated balance sheets of US Diagnostic
Inc. and subsidiaries (the "Company") as of December 31, 2001 and 2000, and the
related consolidated statements of operations, stockholders' equity
(deficiency), and cash flows for each of the three years in the period ended
December 31, 2001. Our audits also included the consolidated financial statement
schedule shown as Schedule II. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2001
and 2000, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, the consolidated financial statement 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 consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's recurring losses from operations, both the
working capital and the stockholders' deficiencies, its inability to remain in
compliance with certain debt covenants, and the resulting difficulty in
generating sufficient cash flows to meet its obligations and sustain operations,
raise substantial doubt about its ability to continue as a going concern.
Management's plans concerning these matters are also described in Note 1. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.


/s/ DELOITTE & TOUCHE LLP

DELOITTE & TOUCHE LLP
Certified Public Accountants

Miami, Florida
March 26, 2002



                                       27
<PAGE>
                      US DIAGNOSTIC INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>

                                                                                          December 31,
                                                                                   -------------------------
In thousands, except share date                                                       2001              2000
-------------------------------                                                    ---------       ---------
<S>                                                                                <C>             <C>
ASSETS

CURRENT ASSETS
     Cash and cash equivalents                                                     $   1,351       $   4,458
     Accounts receivable, net of allowance for bad debts of $16,781 in 2001
       and $14,288 in 2000                                                             8,872          21,853
     Other receivables, net of allowance for bad debts of $483 in 2001 and
       none in 2000                                                                    1,252           3,246
     Prepaid expenses and other current assets                                           955           2,499
                                                                                   ---------       ---------
        TOTAL CURRENT ASSETS                                                          12,430          32,056

PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization
     of $18,366 and $38,548 in 2001 and 2000, respectively                            17,658          41,281
INTANGIBLE ASSETS, net of accumulated amortization of $5,775 and $11,855
     in 2001 and 2000, respectively                                                   16,631          38,438
OTHER ASSETS                                                                             439             948
INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED SUBSIDIARIES                              2,467           3,125
                                                                                   ---------       ---------
    TOTAL ASSETS                                                                   $  49,625       $ 115,848
                                                                                   =========       =========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
     Accounts payable                                                              $   5,081       $   8,521
     Accrued expenses                                                                  9,057          13,906
     Subordinated convertible debentures                                              21,935              --
     Current portion of long-term debt                                                30,552          27,697
     Obligations under capital leases - current portion                                1,202           3,017
     Other current liabilities                                                         1,349           4,520
     Purchase price due on companies acquired                                            269             271
                                                                                   ---------       ---------
        TOTAL CURRENT LIABILITIES                                                     69,445          57,932

Subordinated convertible debentures                                                       --          21,843
Long-term debt, net of current portion                                                 7,210          34,814
Obligations under capital leases, net of current portion                               4,410           5,573
Other liabilities                                                                        784             879
                                                                                   ---------       ---------
    TOTAL LIABILITIES                                                                 81,849         121,041
                                                                                   ---------       ---------
MINORITY INTEREST                                                                        485           3,502

COMMITMENTS AND CONTINGENCIES (Notes 10, 17 and 21)                                       --              --

STOCKHOLDERS' DEFICIENCY
   Preferred stock, $1.00 par value; 5,000,000 shares authorized; none issued             --              --
   Common stock, $.01 par value; 50,000,000 shares authorized; 22,317,205
       and 22,412,405 shares issued and outstanding at December 31, 2001
       and 2000, respectively                                                            223             224
   Additional paid-in capital                                                        147,656         147,696
   Deferred stock-based compensation                                                     (18)           (105)
   Accumulated deficit                                                              (180,570)       (156,510)
                                                                                   ---------       ---------
        TOTAL STOCKHOLDERS' DEFICIENCY                                               (32,709)         (8,695)
                                                                                   ---------       ---------

    TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY                                 $  49,625       $ 115,848
                                                                                   =========       =========

</TABLE>

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



                                       28
<PAGE>
                      US DIAGNOSTIC INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS


In thousands, except per share data

<TABLE>
<CAPTION>
                                                                       Years Ended December 31,
                                                             ---------------------------------------------
                                                                2001              2000             1999
                                                             ---------         ---------         ---------
<S>                                                          <C>               <C>               <C>
NET REVENUES                                                 $  55,930         $ 127,902         $ 155,602
                                                             ---------         ---------         ---------
OPERATING EXPENSES
     General and administrative                                 47,678           109,979           120,580
     Asset impairment losses                                    18,588                --                --
     Bad debt expense                                            5,966            13,769             6,062
     Depreciation                                                6,806            15,271            18,280
     Amortization                                                2,146             4,237             5,000
                                                             ---------         ---------         ---------
       TOTAL OPERATING EXPENSES                                 81,184           143,256           149,922
                                                             ---------         ---------         ---------

INCOME (LOSS) FROM OPERATIONS                                  (25,254)          (15,354)            5,680
                                                             ---------         ---------         ---------
OTHER INCOME (EXPENSE)
     Net gain on disposition of subsidiaries                    10,025             3,896             2,306
     Interest expense                                           (7,344)          (13,984)          (17,369)
     Amortization of lender equity participation fees               --              (926)           (1,853)
     Interest and other income                                   1,530               380             2,105
                                                             ---------         ---------         ---------
       TOTAL OTHER INCOME (EXPENSE)                              4,211           (10,634)          (14,811)
                                                             ---------         ---------         ---------

Loss before minority interest, provision (benefit)
     for income taxes and extraordinary gain                   (21,043)          (25,988)           (9,131)
                                                             ---------         ---------         ---------
MINORITY INTEREST:

    Minority interest in gain on sale of subsidiaries            3,258             5,183                --
    Minority interest in income of subsidiaries                     67             1,811             2,811
                                                             ---------         ---------         ---------
        TOTAL MINORITY INTEREST                                  3,325             6,994             2,811
                                                             ---------         ---------         ---------
Loss before provision (benefit) for income taxes and
    extraordinary gain                                         (24,368)          (32,982)          (11,942)
Provision (benefit) for income taxes                               156              (415)           (1,149)
                                                             ---------         ---------         ---------

     LOSS BEFORE EXTRAORDINARY GAIN                            (24,524)          (32,567)          (10,793)
Extraordinary gain, net of income taxes                            464                --             2,598
                                                             ---------         ---------         ---------
     NET LOSS                                                $ (24,060)        $ (32,567)        $  (8,195)
                                                             =========         =========         =========

BASIC AND DILUTED LOSS PER COMMON SHARE
     Loss before extraordinary gain                          $   (1.10)        $   (1.44)        $   (0.47)
     Extraordinary gain                                           0.02                --              0.11
                                                             ---------         ---------         ---------
     Net loss                                                $   (1.08)        $   (1.44)        $   (0.36)
                                                             =========         =========         =========
     Weighted-average common shares outstanding                 22,346            22,572            22,719
                                                             =========         =========         =========

</TABLE>


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


                                       29

<PAGE>


                      US DIAGNOSTIC INC. AND SUBSIDIARIES

          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)

<TABLE>
<CAPTION>


                                                                                                                       Total
                                                                       Additional                                   Stockholders'
                                           Common         Common         Paid-in       Deferred      Accumulated       Equity
In thousands                               Shares          Stock         Capital     Compensation      Deficit      (Deficiency)
                                          ---------      ---------     ----------    ------------    -----------    ------------
<S>                                          <C>         <C>            <C>            <C>            <C>            <C>
BALANCE - JANUARY 1, 1999                    22,712      $     227      $ 148,047      $    (973)     $(115,748)     $  31,553

Restricted stock issued                          34             --             --             --             --             --

Purchase and retirement of stock               (105)            (1)          (102)            --             --           (103)

Amortization of deferred compensation            --             --             --            573             --            573

Net loss                                         --             --             --             --         (8,195)        (8,195)
                                          ---------      ---------      ---------      ---------      ---------      ---------
BALANCE - DECEMBER 31, 1999                  22,641            226        147,945           (400)      (123,943)        23,828

Restricted stock issued                          69              1             (1)            --             --             --

Common stock redeemed and retired
   upon sale of imaging centers                (298)            (3)          (248)            --             --           (251)

Amortization of deferred compensation            --             --             --            295             --            295

Net loss                                         --             --             --             --        (32,567)       (32,567)
                                          ---------      ---------      ---------      ---------      ---------      ---------
BALANCE - DECEMBER 31, 2000                  22,412            224        147,696           (105)      (156,510)        (8,695)

Restricted stock issued                           5             --             --             --             --             --

Common stock redeemed and retired
   upon sale of imaging centers                (100)            (1)           (40)            --             --            (41)

Amortization of deferred compensation            --             --             --             87             --             87

Net loss                                         --             --             --             --        (24,060)       (24,060)
                                          ---------      ---------      ---------      ---------      ---------      ---------
BALANCE - DECEMBER 31, 2001                  22,317      $     223      $ 147,656      $     (18)     $(180,570)     $ (32,709)
                                          =========      =========      =========      =========      =========      =========


</TABLE>




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



                                       30
<PAGE>
                      US DIAGNOSTIC INC. AND SUBSIDIARIES

               CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)


In thousands, except supplemental schedule of non-cash activities

<TABLE>
<CAPTION>

                                                                                      Years Ended December 31,
                                                                                --------------------------------------
                                                                                  2001           2000           1999
                                                                                --------       --------       --------
<S>                                                                             <C>            <C>            <C>
OPERATING ACTIVITIES
  Net loss                                                                      $(24,060)      $(32,567)      $ (8,195)
                                                                                --------       --------       --------
      Adjustments to reconcile net loss to net cash provided by (used in)
      operating activities:
      Asset impairment losses                                                     18,588             --             --
      Depreciation and amortization                                                8,952         19,508         23,280
      Bad debt expense                                                             5,966         13,769          6,062
      Stock-based compensation expense                                                87            295            573
      Amortization of non-cash financing and other costs                             269            503            965
      Minority interest in income of subsidiaries                                     67          1,811          2,811
      Minority interest in gain on sale of subsidiaries                            3,258          5,183             --
      Loss on sale of fixed assets                                                   687          2,299            419
      Gain on sale of subsidiaries, net                                          (10,734)       (14,609)        (2,306)
      Litigation settlement                                                        2,100             --             --
      Loss on closing of subsidiaries                                                709         10,713             --
      Gain on buy-out of a partnership                                                --           (158)            --
      Extraordinary gain                                                            (703)            --         (3,936)

Changes in assets and liabilities
      (Increase) decrease in, net of sales and acquisitions of businesses:
      Accounts receivable                                                          3,914          1,941        (10,918)
      Other receivables                                                              595             67          5,585
      Prepaid expenses                                                             1,289          4,134         (2,334)
      Other assets                                                                   716          2,405            952

      Increase (decrease) in, net of sales and acquisitions of businesses:
      Accounts payable and accrued expenses                                       (8,591)        (6,952)         5,558
      Minority interest (partnership distributions)                               (5,271)        (5,966)        (2,062)
      Other liabilities                                                             (748)        (3,561)         1,384
                                                                                --------       --------       --------

      Total adjustments                                                           21,150         31,382         26,033
                                                                                --------       --------       --------

      NET CASH - OPERATING ACTIVITIES                                             (2,910)        (1,185)        17,838
                                                                                --------       --------       --------
  INVESTING ACTIVITIES
      Acquisitions, net of cash acquired                                              --             --           (269)
      Equipment purchases                                                         (1,985)        (7,907)       (12,741)
      Payment of purchase price due on companies acquired                             (2)           (22)            (3)
      Proceeds from dispositions of property and equipment                           598             95            488
      Buy-out of partnership interest                                                 --           (391)            --
      Capital contribution by minority partners                                       --            225             --
      Proceeds from the sale of imaging centers, net of cash
      retained by purchasers                                                      14,659         18,992         12,783
                                                                                --------       --------       --------

      NET CASH - INVESTING ACTIVITIES                                             13,270         10,992            258
                                                                                --------       --------       --------


</TABLE>





                                       31
<PAGE>
                      US DIAGNOSTIC INC. AND SUBSIDIARIES

               CONSOLIDATED STATEMENTS OF CASH FLOWS (CONCLUDED)


<TABLE>
<CAPTION>

                                                                            Years Ended December 31,
                                                                  ------------------------------------------
                                                                    2001             2000             1999
                                                                  --------         --------         --------
<S>                                                                  <C>             <C>              <C>
FINANCING ACTIVITIES
      Proceeds from borrowings                                       1,632           19,866           24,351
      Repayments of long-term debt and
           obligations under capital leases                        (15,099)         (30,775)         (37,785)
      Purchase of subordinated convertible debentures                   --               --           (7,925)
      Redemption of common stock upon sale of subsidiaries              --             (251)              --
      Repurchase of common stock                                        --               --             (103)
                                                                  --------         --------         --------

      NET CASH-FINANCING ACTIVITIES                                (13,467)         (11,160)         (21,462)
                                                                  --------         --------         --------

NET DECREASE IN CASH AND CASH EQUIVALENTS                           (3,107)          (1,353)          (3,366)

CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR                        4,458            5,811            9,177
                                                                  --------         --------         --------

CASH AND CASH EQUIVALENTS - END OF YEAR                           $  1,351         $  4,458         $  5,811
                                                                  ========         ========         ========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
      Cash paid during the years for:
           Interest                                               $  3,780         $ 14,538         $ 18,201
                                                                  ========         ========         ========

           Income taxes                                           $    400         $    446         $    547
                                                                  ========         ========         ========

</TABLE>

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

Borrowings under capital leases were $0.6 million, $4.1 million and $9.0 million
in 2001, 2000 and 1999, respectively.

During 2001 and 2000, debt and capital lease obligations decreased by $12.3
million and $54.6 million, respectively, and property and equipment decreased by
$9.7 million and $36.9 million, respectively, as a result of the sale and/or
closing of imaging centers. The Company also wrote-off net intangibles of $8.2
million and $26.5 million in 2001 and 2000, respectively. During 2001 and 2000,
the Company reversed accrued expenses of $127,000 and $114,000, respectively,
relating to the closing of non-performing centers. The Company also retired
100,000 shares in 2001 as part of the sale of a subsidiary. The Company used
$4.8 million and $23.1 million of sale proceeds to repay debt not specifically
related to the sold centers during 2001 and 2000, respectively.

During 2001, the Company wrote-off net property and equipment of $6.7 million
and net intangibles of $11.9 million as a result of asset impairment. There were
no asset impairment losses in 2000 and 1999.

During 2001, the Company wrote-off net property and equipment of $1.7 million
and debt and capital lease obligations of $2.4 million as a result of early debt
extinguishment. There were no early debt extinguishments in 2000 and 1999.

In 1999, long-term debt and capital lease obligations decreased by $3.3 million
from the sale of subsidiaries, and long-term debt and certain long-term assets
increased by $637,000 from the purchase of the operating assets of a center.

In 1999, goodwill decreased by $2.9 million and investment in unconsolidated
subsidiaries increased by a like amount due to the conversion of a partnership
that was previously being consolidated, into an unconsolidated joint venture.

The Company issued 4,800, 69,000 and 33,600 shares of restricted stock in 2001,
2000 and 1999, respectively.

Information with regard to the Company's acquisitions in 1999, all of which are
accounted for under the purchase method of accounting, is as follows: Fair value
of non-cash assets acquired, net of liabilities of $451,000, goodwill of
$720,000 and cash, net of cash acquired of $269,000.

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



                                       32
<PAGE>
                      US DIAGNOSTIC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

[1] DESCRIPTION OF THE COMPANY

The accompanying consolidated financial statements include the accounts of US
Diagnostic Inc., its wholly-owned subsidiaries and non-wholly-owned but
controlled subsidiaries (collectively, the "Company").

The Company was incorporated in Delaware on June 17, 1993, and is a medical
services provider specializing in the operation and management of multi-modality
diagnostic imaging centers and related medical facilities. As of December 31,
2001, the Company owns, operates or manages 22 centers in the United States. The
Company provides a variety of medical diagnostic testing and evaluation service
procedures including Magnetic Resonance Imaging ("MRI"), Computerized Tomography
scanning ("CT"), ultrasound and various radiological services.

GOING CONCERN

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. The Company has experienced significant net losses since 1995 and
as of December 31, 2001 had an accumulated deficit of approximately $180.6
million. Based on current estimates, unless the Company can successfully sell
remaining imaging centers at favorable prices and terms, obtain additional
significant financial resources (which is unlikely), or restructure its debt,
the Company's current cash and cash from operations will be insufficient to meet
its anticipated cash needs. Furthermore, the Company has defaulted on the March
31, 2001 and September 30, 2001 interest payments and likely will default on the
March 31, 2002 interest payment on its 9% Subordinated Convertible Debentures
due 2003 (the "Debentures"). Also, the Company has defaulted on its obligation
to repurchase Debentures which is required as a result of failing to maintain
consolidated net worth of at least $18.0 million. On May 1, 2001, the Company
received a default notice from the Trustee under the Debenture Indenture
("Indenture"). These defaults could give rise to an acceleration of the
maturities of the Debentures. In addition, the Company is prohibited from
borrowing additional amounts without causing additional non-compliance with
certain Indenture covenants and an additional default under the Indenture.
Furthermore, the Company failed to pay the $10.0 million principal amount (and
accrued interest) of its 6 1/2% Convertible Notes that matured on June 30, 2001
(the "Notes"). This failure constitutes a default under the Notes and may also
constitute a cross default under other of the Company's debt instruments which
could entitle the holders of such instruments to accelerate the maturity of such
debt instruments. If these uncertainties cannot be resolved successfully and in
a timely manner, the Company could be required to seek a reorganization under
the federal bankruptcy laws. These conditions, among others, raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans concerning these matters are described below. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

MANAGEMENT'S PLANS

The Company's financial condition continued to deteriorate during 2001 despite
management's efforts, begun in 1997, to improve operating results, cash flows
and capitalization through overhead reductions, dispositions of non-core and
underperforming assets and the sale of 36 medical diagnostic imaging centers
under a plan of restructuring that was adopted in 2000. The plan of
restructuring was suspended




                                       33
<PAGE>
                      US DIAGNOSTIC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


during 2001 because the Company determined that it would not be able to obtain
acceptable prices for its remaining imaging centers due in part to industry and
general economic conditions.

The Company remains burdened by a high level of indebtedness to its secured and
unsecured lenders and most of this indebtedness has relatively short maturities
(or may be current as a result of acceleration or rights to accelerate) which
require the Company to devote a significant portion of its cash flows to the
amortization of debt and interest payments. The Company also has ongoing
significant capital expenditure requirements in order to maintain and modernize
its imaging equipment. Furthermore, cost containment by the managed care
industry and governmental payors such as Medicare continues to adversely affect
pricing levels for medical imaging services. The Company also needs to maintain
its corporate infrastructure to operate remaining centers and collect accounts
receivable. As a result, the Company's cash flows from operating activities
continues to be insufficient to meet the Company's operating needs, scheduled
debt repayment obligations and capital expenditure requirements.

In light of its financial condition, the Company, assisted by its financial and
legal advisors, commenced negotiations during 2001, with its senior lenders and
an adhoc committee of Debenture holders. These negotiations continue with
respect to the terms of a restructuring plan that would require the Company to
commence a voluntary case under Chapter 11 of the Bankruptcy Code and pursuant
to which an entity affiliated with or supported by the Company's primary senior
secured lenders ("Senior Lender"), would acquire substantially all of the
Company's operating assets in exchange for a cash payment that would be used to
partially repay creditors. In all likelihood, there would be little or no value
remaining in the Company for its current stockholders. There can be no assurance
that a definitive agreement with respect to the proposed restructuring will be
entered into or whether any such agreement would receive the required approval
of the bankruptcy court, nor can there be any assurance as to the amount of
funds that will be available to pay the Company's creditors or the particular
percentage of each class of creditors' claims that could be repaid.

Moreover, if these negotiations cannot be resolved successfully, the Company
would be required to pursue other options, which could include voluntarily
seeking a reorganization in bankruptcy, or its creditors could file an
involuntary bankruptcy petition against the Company under the federal bankruptcy
laws.

[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION POLICY - The accompanying consolidated financial statements
include the accounts of US Diagnostic Inc. and its wholly-owned subsidiaries and
non-wholly-owned but controlled subsidiaries. Investments in affiliates which
are not majority owned are reported using the equity method. Income recorded
under the equity method is included in other income. Significant intercompany
transactions and balances have been eliminated in consolidation.

USE OF ESTIMATES - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
("generally accepted accounting principles"), requires management to make
estimates and assumptions that affect certain reported amounts of assets,
liabilities, income and expense and disclosures of contingencies. The most
significant of these estimates relate to contractual and bad debt allowances on
accounts receivable and other receivables, useful lives of medical equipment,
the realizability of long-lived and intangible assets and reserves for
litigation contingencies. Future events could alter such estimates in the near
term. In addition, healthcare industry reforms and




                                       34
<PAGE>

                      US DIAGNOSTIC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


reimbursement practices will continue to impact the Company's operations and the
determination of contractual and other allowance estimates.

CASH AND CASH EQUIVALENTS - Cash and cash equivalents are comprised of cash and
certain highly liquid investments with a maturity of three months or less when
purchased. The carrying amount of cash equivalents approximates fair value due
to their short-term nature.

PREPAID EXPENSES AND OTHER CURRENT ASSETS - Prepaid expenses and other current
assets are comprised of prepaid insurance and other prepaid items.

PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Depreciation
is provided using the straight-line method over the estimated useful lives of
the related assets or the remaining lease term. The equipment used by the
Company is technologically sophisticated and subject to accelerated obsolescence
in the event of significant technological change. Included in property and
equipment are capitalized costs for software and implementation costs paid to
external consultants related to the Company's billing and general ledger
systems.

INTANGIBLE ASSETS - Goodwill consists of the cost of purchased businesses in
excess of the fair value of net assets acquired. Goodwill is amortized on a
straight-line basis for a period of twenty years. Customer lists and covenants
not to compete are amortized on a straight line basis for a period of fifteen
years and five to ten years, respectively.

LONG-LIVED ASSETS - The Company recognizes impairment losses on impaired
long-lived assets (property and equipment and intangible assets) based on the
amount by which the carrying value exceeds the fair value of the long-lived
asset. Fair value is determined by using a current market value modeling
approach or by evaluating the current market value of the acquired business
using fundamental analysis.

NET REVENUE - Revenues are reported at the estimated net realizable amounts from
patients, third-party payors and others for services as rendered including
estimated prospectively determined adjustments under reimbursement agreements
with third-party payors. These adjustments are accrued on an estimated basis in
the period the related services are rendered and adjusted in future periods as
final settlements are determined. The Company also has relatively insignificant
amounts of revenue comprised of fees charged by the Company for management
services for the technical component of procedures performed in certain
corporate practice of medicine states provided at non-Company owned imaging
facilities. This revenue also includes fees for management and billing and
collection.

Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition In Financial
Statements," established the Securities and Exchange Commission's ("SEC") view
in applying generally accepted accounting principles to revenue recognition in
financial statements. The Company believes its revenue recognition policies
conform to SAB No. 101.

INCOME TAXES - Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is




                                       35
<PAGE>
                      US DIAGNOSTIC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


recognized in income in the period that includes the enactment date. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Provision for income taxes is the tax payable or
refundable for the period plus or minus the change during the period in deferred
tax assets and liabilities.

COMPREHENSIVE INCOME (LOSS) - The components of other comprehensive income
(loss) are not significant individually or in the aggregate, and therefore no
separate statement of comprehensive income (loss) has been presented.

EARNINGS (LOSS) PER SHARE - Basic EPS excludes dilution and is computed by
dividing earnings (loss) attributable to common stockholders by the
weighted-average number of common stock outstanding for the period. Diluted EPS
assumes conversion of convertible debt and the issuance of common stock for all
other potentially dilutive shares, unless the effect of issuance would have an
anti-dilutive effect.

STOCK-BASED COMPENSATION PLANS - The Company accounts for stock-based
compensation using the intrinsic value method. Accordingly, compensation cost
for stock options issued is measured as the excess, if any, of the fair value of
the Company's common stock at the date of grant over the exercise price of the
options. The pro forma net loss per common stock amounts as if the fair value
method had been used are presented in Note 15.

FAIR VALUE OF FINANCIAL INSTRUMENTS - Generally accepted accounting principles
requires companies to disclose the fair value of financial instruments.
Management believes that the carrying values of its financial instruments
approximate their fair values and any differences which may exist between the
carrying values and fair values are not significant.

SEGMENT REPORTING - The Company currently has one reporting segment.

DERIVATIVE INSTRUMENTS AND HEDGE ACCOUNTING - Every derivative instrument is
required to be reported at its fair value on the balance sheet and any changes
in the derivatives' fair values for the current period should be recognized in
earnings unless specific hedge accounting criteria are met. The Company
currently does not have any derivative instruments and does not use hedge
accounting.

BUSINESS COMBINATIONS - The Company has not acquired any businesses subsequent
to the effective date, June 30, 2001, of Statement of Financial Accounting
Standards No. 141 ("SFAS 141"), "Business Combinations," which eliminated the
pooling-of-interests method of accounting.

RECENT ACCOUNTING PRONOUNCEMENTS - In July 2001, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards No.
142 ("SFAS 142"), "Goodwill and Other Intangible Assets," which is effective
January 1, 2002. SFAS 142 requires, among other things, the discontinuance of
goodwill amortization. In addition, the standard includes provisions for the
reclassification of certain existing recognized intangibles as goodwill,
reassessment of the useful lives of existing recognized intangibles,
reclassification of certain intangibles out of previously reported goodwill and
the identification of reporting units for purposes of assessing potential future
impairments of goodwill. SFAS 142 also requires the Company to complete a
transitional goodwill impairment test within six months from the date of
adoption. The Company has adopted the pronouncement effective January 1, 2002.
The Company has not yet completed its evaluation of the effect of adopting this
statement.



                                       36
<PAGE>

                      US DIAGNOSTIC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


In June 2001, the FASB issued Statement of Financial Accounting Standards No.
143 ("SFAS 143"), "Accounting for Asset Retirement Obligations," which addresses
financial accounting and reporting for legal obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. SFAS 143 is effective for fiscal years beginning after June 15, 2002,
with early adoption encouraged. The Company has adopted the pronouncement
effective January 1, 2002. The Company does not expect the adoption of SFAS 143
to have a material effect on its financial statements or disclosures.

In August 2001, the FASB issued Statement of Financial Accounting Standards No.
144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived
Assets," which addresses financial accounting and reporting for the impairment
or disposal of long-lived assets. SFAS 144 is effective for fiscal years
beginning after December 15, 2001, and interim periods within those fiscal
years, with early adoption encouraged. The provisions of SFAS 144 generally are
to be applied prospectively. The Company has adopted the pronouncement effective
January 1, 2002. The Company has not yet completed its evaluation of the effect
of adopting this statement.

RECLASSIFICATIONS - Prior year amounts in the consolidated financial statements
have been reclassified to conform with the current year presentation.

[3] DISCONTINUED OPERATIONS SUBSEQUENTLY RETAINED

The Company's Board of Directors approved a restructuring plan which allowed for
the sale of all or substantially all of its imaging centers (the "Plan of
Restructuring"). The Company's sales of its imaging centers pursuant to the Plan
of Restructuring, were not completed within the one year time period following
the approval of the Plan of Restructuring at the annual stockholders' meeting on
July 21, 2000. As a result, effective June 30, 2001, the Company began treating
as continuing operations its remaining operations that had previously been
presented as discontinued operations. The accompanying consolidated financial
statements have been reclassified to reflect this presentation. Consequently,
the Company's operations are no longer differentiated between continuing and
discontinued operations.



                                       37
<PAGE>
                      US DIAGNOSTIC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


[4] PROPERTY AND EQUIPMENT

A summary of property and equipment at December 31, is as follows:

In thousands

<TABLE>
<CAPTION>

                                                                                                     Estimated
                                                                       2001            2000         Useful Life
                                                                     --------         --------      -----------
<S>                                                                  <C>              <C>           <C>
  Land                                                               $  1,125         $  1,844          --
  Buildings                                                             1,528            3,535       32 Years
  Medical equipment                                                    20,996           55,837        7 Years
  Furniture and fixtures                                                1,245            2,291        7 Years
  Office, data processing equipment and software                        7,102            9,403      5-10 Years
  Vehicles                                                                 --              137           --
  Leasehold improvements                                                4,028            6,782      5-10 Years
                                                                     --------         --------

    Total                                                              36,024           79,829

  Less:  accumulated depreciation and amortization                    (18,366)         (38,548)
                                                                     --------         --------

      Property and equipment, net                                    $ 17,658         $ 41,281
                                                                     ========         ========
</TABLE>

Included in property and equipment is equipment under capital leases amounting
to $8.5 million and $15.1 million at December 31, 2001 and 2000, respectively.
Accumulated depreciation for equipment under capital leases was $1.9 million and
$6.1 million as of December 31, 2001 and 2000, respectively.

Depreciation expense amounted to $6.8 million, $15.3 million and $18.3 million
for the years ended December 31, 2001, 2000 and 1999, respectively, of which
$1.5 million, $2.4 million and $4.0 million was attributed to equipment under
capital leases, respectively.

During the years ended December 31, 2001 and 2000, property and equipment (net
of accumulated depreciation) decreased by $9.7 million and $36.9 million in
connection with the disposition of imaging centers, respectively. During the
year ended December 31, 2001, property and equipment (net of accumulated
depreciation) decreased by $6.7 million in connection with asset impairment
losses and $1.7 million in connection with early debt extinguishment.



                                       38
<PAGE>
                      US DIAGNOSTIC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


[5] INTANGIBLE ASSETS

A summary of intangible assets at December 31, is as follows:

In thousands

<TABLE>
<CAPTION>

                                                                                                         Estimated
                                                                        2001                 2000       Useful Life
                                                                      --------             --------     -----------
<S>                                                                   <C>                  <C>            <C>
Goodwill                                                              $ 20,431             $ 45,078       20 Years
Covenants not to compete                                                   775                2,551      5-10 Years
Customer lists                                                           1,193                2,540       15 Years
Other intangibles                                                            7                  124      3-5 Years
                                                                      --------             --------

Total                                                                   22,406               50,293

Less: accumulated amortization                                          (5,775)             (11,855)
                                                                      --------             --------

         Intangible assets, net                                       $ 16,631             $ 38,438
                                                                      ========             ========

</TABLE>

Goodwill consists of the cost of purchased businesses in excess of the fair
value of net tangible assets acquired.

During the years ended December 31, 2001 and 2000, intangible assets (net of
accumulated amortization) decreased by $8.2 million and $26.5 million in
connection with the disposition of imaging centers, respectively. During the
year ended December 31, 2001, intangible assets (net of accumulated
amortization) decreased by $11.9 million in connection with asset impairment
losses.

[6] ASSET IMPAIRMENT LOSSES

Effective June 30, 2001, the Company began treating as continuing operations its
remaining operations that had previously been presented as discontinued
operations. Therefore, all long-lived assets were analyzed on an individual
center basis to determine if expected future cash flows would be sufficient to
cover annual amortization of intangible and long-lived assets. As stated in Note
2, the Company has recorded impairment losses for those centers for which the
sum of the expected future cash flows does not cover the carrying value of the
assets acquired. An impairment loss of $18.6 million was recorded for the year
ended December 31, 2001 which resulted from the write-off of intangible assets
of $11.9 million and property and equipment of $6.7 million. No impairment
losses were recorded in 2000 or 1999.

[7] INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED SUBSIDIARIES

The following is a combined financial summary of all unconsolidated subsidiaries
that are accounted for under the equity method. In May 2000, one of the
partnerships stopped conducting business as an imaging center, and instead
rented its facility to one of the partnership's limited partners. Effective
February 2002, this partnership will no longer receive any rental income. In
July 2000, one of the partnerships was terminated and subsequently only conducts
business necessary to wind down the partnership's affairs. The Company's
combined investment in and advances to these entities were $2.5 million and $3.1
million as of December 31, 2001 and 2000, respectively.



                                       39
<PAGE>
                      US DIAGNOSTIC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


In thousands, as of December 31:

<TABLE>
<CAPTION>

                                                                  2001              2000
                                                                 -------          -------
<S>                                                              <C>              <C>
Current Assets                                                   $ 1,772          $ 2,516
Non-Current Assets                                                   857            1,315
                                                                 -------          -------
     Total Assets                                                $ 2,629          $ 3,831
                                                                 =======          =======


Current Liabilities                                              $   739          $   966
Non-Current Liabilities                                              482              696
Partnership Capital                                                1,408            2,169
                                                                 -------          -------
     Total Liabilities and Capital                               $ 2,629          $ 3,831
                                                                 =======          =======
</TABLE>

<TABLE>
<CAPTION>


                                                                   2001             2000           1999
                                                                 -------          -------        -------
<S>                                                              <C>              <C>            <C>
Results of Operations
     Net Revenue                                                 $ 8,281          $12,020        $ 12,798
     Expenses                                                      6,231            7,307           6,771
                                                                 -------          -------        --------
Net Income                                                       $ 2,050          $ 4,713        $  6,027
                                                                 =======          =======        ========

</TABLE>

In July 1999, the Company contributed certain assets of a wholly-owned
subsidiary to a 50% owned joint venture, Jefferson Magnetic Resonance Imaging,
LLC. The goodwill related to these assets is included in investment in
unconsolidated subsidiaries in the accompanying consolidated balance sheets and
was subjected to an asset impairment analysis at December 31, 2001. Equity in
the net income of the subsidiary, which has been reduced by the amortization of
goodwill, is included in other income in the accompanying consolidated
statements of operations. Goodwill is being amortized using the straight-line
method over seven years, the term of the joint venture agreement. Amortization
expense of $419,000, $419,000 and $192,000 was recorded in 2001, 2000 and 1999,
respectively.

The reconciliation of the investment in and advances to unconsolidated
subsidiaries at December 31, in thousands, is as follows:

<TABLE>
<CAPTION>

                                                                   2001             2000
                                                                 -------          -------
<S>                                                              <C>              <C>
Equity Interest at Respective Ownership Percentages              $   515          $   673
Advances to Unconsolidated Subsidiaries                               49              130
Unamortized Goodwill                                               1,903            2,322
                                                                 -------          -------
      Carrying Value                                             $ 2,467          $ 3,125
                                                                 =======          =======

</TABLE>

[8] SUBORDINATED CONVERTIBLE DEBENTURES

In 1996, the Company consummated a $57.5 million offering of 9% Debentures due
in 2003. Interest is payable semi-annually in March and September. Holders of
the Debentures are entitled to convert 100% of the principal amount into common
stock of the Company at a conversion price of $9.00 per share. The conversion
price is subject to adjustment under certain circumstances as described in the
Indenture. The Company was not permitted to redeem the Debentures, in whole or
in part, at any time prior to March 31, 1999. Thereafter, the Debentures are
redeemable at certain redemption prices as set forth in the Indenture. In the
event of a "change of control" as defined in the Indenture, the Company must
offer to repurchase each holder's Debenture at a purchase price equal to 100% of
the principal amount, plus accrued interest.



                                       40
<PAGE>
                      US DIAGNOSTIC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

In January 1999, the Company purchased and retired Debentures aggregating $12.5
million, financed from borrowings under a $25.0 million loan agreement entered
into with DVI Financial Services, Inc. ("DVIFS") in December 1998 (the
"Repurchase Facility"), see Note 9. The Debentures were purchased at a total
price of $9.1 million, consisting of $7.9 million paid directly to the Debenture
holders, $238,000 paid to DVIFS representing a 3% loan origination fee on
amounts borrowed under the loan agreement, and $922,000 paid to DVI Private
Capital ("DVIPC"), an affiliate of DVIFS, as equity participation for services
rendered by DVIPC in lieu of normal and customary investment banking fees. Such
equity participation amounted to 20% of the difference between the face amount
of the Debentures repurchased and the amount paid to the Debenture holders. The
difference between the aggregate carrying value of the Debentures (as well as
pro rata portions of unamortized capitalized financing costs and unamortized
fair value of certain warrants issued to the underwriter when the Debentures
were originally issued), and the amounts paid to the Debenture holders, was
recorded as an extraordinary gain of $2.6 million (net of related costs and
income taxes) - see Note 13. At December 31, 2001 and 2000, the balances
outstanding under the Debentures were $21.9 million and $21.8 million,
respectively.

Warrants to acquire 319,445 shares of the Company's common stock at $9.00 per
share were issued in 1996 to the underwriter of the offering of the Debentures.
The estimated fair value of the warrants at the date of the offering was $1.7
million. This amount is being amortized to interest expense over the term of the
related Debentures. In January 1999, $214,000 of the proportionate share of the
unamortized balances, was written off as an offset to extraordinary gain in
connection with the Company's open market purchase and cancellation of a portion
of its Debentures (see Note 13). The unamortized balance at December 31, 2001
and 2000 is $108,000 and $200,000, respectively, and is offset against current
debt in the accompanying consolidated balance sheets.

Debenture issuance costs of $3.5 million are being amortized as interest expense
over the term of the related Debentures. In January 1999, $455,000 of the
proportionate share of the unamortized balances, was written off as an offset to
extraordinary gain in connection with the Company's open market purchase and
cancellation of a portion of its Debentures (see Note 13). The unamortized
balance at December 31, 2001 and 2000 is $192,000 and $392,000, respectively,
and is included in other assets in the accompanying consolidated balance sheets.

Pursuant to the Indenture, the Company is required to maintain consolidated net
worth of at least $18.0 million. In the event that the Company's consolidated
net worth at the end of two consecutive fiscal quarters is below $18.0 million,
the Company must offer to repurchase 12.5% of the aggregate principal amount of
Debentures originally issued, or such lesser amount as may be outstanding at the
time of the deficiency (a "Deficiency Offer"). Under certain covenants of the
Indenture, the Company is limited in the amount of debt, as defined, it may
incur. The Company may generally incur debt if the ratio of debt to operating
cash flow, as defined, of the Company after giving pro forma effect to such debt
is 6.5 to 1 or less and if the consolidated net worth level is maintained.

The Company did not make the interest payments on the Debentures that were due
March 31, 2001 and September 30, 2001, and does not intend to make the payment
due March 31, 2002, failure of which constitutes an event of default under the
Indenture and could give rise to an acceleration of the maturity of the
Debentures (see Note 23). A default on the Debentures could also allow other
debt holders to accelerate the maturity of their debt instruments. The amount of
past due interest on the Debentures as of December 31,




                                       41
<PAGE>

                      US DIAGNOSTIC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


2001 is approximately $2.5 million. Since the September 30, 2000 quarter and all
the subsequent quarters, the Company has not been in compliance with the
consolidated net worth covenant under the Indenture; as a result, the Company
was obligated to conduct a Deficiency Offer. Given the Company's cash resources
and pending its efforts to restructure its debt, the Company did not make a
Deficiency Offer. On May 1, 2001, the Company received a default notice from the
Trustee for the Indenture regarding certain technical defaults and the failure
to make a Deficiency Offer. Such default could permit the acceleration of
maturity of the Debentures. Such an event could also give rise to the
acceleration of other debt issued by the Company. In addition, the Company's
debt to operating cash flow ratio is insufficient under the debt incurrence test
thereby limiting its ability to incur additional debt. Due to the defaults and
cross defaults, the Debentures have been classified as a current liability since
June 30, 2001 for financial statement purposes. See MANAGEMENT'S PLANS under
Note 1 for further details.

The Indenture also prohibits the Company from paying any dividends on common
stock. In addition, the Indenture requires that the Company and its subsidiaries
engage solely in the acquisition, operation and management of multi-modality
diagnostic imaging centers and other medical service facilities. Finally, the
Indenture contains several covenants which might give the Debenture holders the
rights to assert a default as a result of the Plan of Restructuring.




                                       42
<PAGE>
                      US DIAGNOSTIC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


[9] LONG-TERM DEBT

Long-term debt at December 31 consists of the following (also, see Note 8):

In thousands


<Table>
<Caption>
                                                                                        2001              2000
                                                                                       --------         --------
<S>                                                                                    <C>              <C>
Revolving credit loan, up to $35.0 million maximum, interest at prime plus 2%
   (6.75% at December 31, 2001), due June 2002
   Collateralized by accounts receivable.                                              $  7,513         $ 11,132


Acquisition and equipment line of credit, up to $25.0 million maximum, interest
   from 10% to 11%, due in monthly installments
   through May 2002. Collateralized by equipment.                                         1,455            3,098

10% to 11% term loans to lending institution, up to $15.0 million
   maximum, due through October 2002.  Collateralized by equipment.                       3,697            6,197

Repurchase Facility - secured loan, up to $25.0 million maximum, interest
   at 10.75%, due May 2002. Collateralized by deferred portion of the
   purchase price for assets of a sold subsidiary and certain assets
   owned by another subsidiary.                                                           2,985            4,476

6 1/2% convertible notes, discounted to yield 9%, were due June 2001.                    10,000            9,906

9% to 12% notes payable to lending institutions, due in monthly installments
   through April 2012. Collateralized by property and medical equipment.                 11,487           24,965

4.5% note payable related to an acquisition, due in monthly installments
  through January 2004. Collateralized by substantially all of the assets of
  the company acquired.                                                                     625            2,737
                                                                                       --------         --------

Total                                                                                    37,762           62,511

Less: current portion                                                                   (30,552)         (27,697)
                                                                                       --------         --------

Long-term debt                                                                         $  7,210         $ 34,814
                                                                                       ========         ========

</Table>


                                       43
<PAGE>
                      US DIAGNOSTIC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


At December 31, 2001, aggregate maturities of long-term debt, not including the
Debentures (see Note 8), were as follows:

In thousands

2002                                                          $30,552
2003                                                            2,675
2004                                                            1,617
2005                                                            1,175
2006                                                              601
Thereafter                                                      1,142
                                                              -------
Total                                                         $37,762
                                                              =======

The Company has a financing agreement with DVI Business Credit Corporation
("DVIBC") and DVIFS that provides two credit facilities aggregating $60.0
million. Borrowings are subject to certain conditions such as the availability
of unencumbered assets to collateralize advances and maintenance of cash level
equal to the outstanding borrowings directly related to this financing
agreement. The first facility, which has a limit of $35.0 million, is a
revolving credit loan from DVIBC secured by accounts receivable and is due on
June 1, 2002, and bears interest, payable monthly, at prime plus two percent
(6.75% at December 31, 2001). The second facility of $25.0 million is an
acquisition and equipment line of credit from DVIFS and is collateralized by
equipment. Advance of funds under the acquisition and equipment line of credit
is based upon a review by DVIFS of the entity acquired and/or a review of the
assets securing the loan. Each advance under the acquisition and equipment line
of credit is repayable in 60 monthly installments with interest from 10% to 11%
per annum.

The Company's financing agreement with DVIFS is subject to certain conditions
including maintenance of at least $5.0 million of cash during all reporting
periods. The Company was not in compliance with this covenant as of March 31,
2001. On May 21, 2001, DVIFS waived this requirement and amended the cash
maintenance level to a lower amount, equal to the outstanding borrowings
directly related to this financing agreement. The Company is in compliance with
such amendment as of December 31, 2001.

In addition, under its credit facilities with DVIFS and DVIBC, (collectively
"DVI"), DVI has the right to sweep specified amounts of the Company's cash
deposits and apply such amounts to the payment of interest and principal
outstanding under those facilities. On August 30, 2001, the Company and DVI
entered into a Forbearance Agreement (the "Forbearance Agreement") pursuant to
which DVI agreed to extend certain financial accommodations to the Company and
forbear from exercising its rights and remedies against the Company with respect
to the existing defaults for a period ended on September 30, 2001 (the
"Forbearance Period"). Under the Forbearance Agreement, the Company granted DVI
additional collateral in all accounts receivable and a pledge of the Company's
equity interests in certain subsidiaries in addition to the collateral already
granted for various DVI loans. Unless a further restructuring is completed, the
Company will be required to pay DVIFS an amount equal to the difference between
the payments actually made and the regular monthly payments that should have
been made had the Forbearance Agreement not been entered into (the "Forbearance
Amount"). The Forbearance Amount is




                                       44
<PAGE>
                      US DIAGNOSTIC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


estimated to be approximately $3.1 million as of December 31, 2001. Since the
expiration of the Forbearance Period, DVI has agreed to accept, and has
indicated it will continue to accept, reduced payments at a level comparable to
that set in the expired Forbearance Agreement (or less than such level) in order
to permit the Company to meet its current cash demands. Unless and until the
Company can negotiate a comprehensive restructuring of its indebtedness, it will
continue to be substantially dependent on DVI's willingness to provide
additional financial accommodations, as to which there can be no assurance.

The Company has outstanding borrowings under term loans, with each advance being
repayable in 60 equal monthly installments inclusive of principal and interest
at the rate of 10% per annum as to the first $7.5 million borrowed and 11% per
annum as to any additional amounts borrowed, in the aggregate not to exceed
$15.0 million. The borrowings were $3.7 million and $6.2 million at December
31, 2001 and 2000, respectively.

In connection with the credit facilities described above, the Company issued to
DVIFS two warrants to purchase an aggregate of 250,000 shares of common stock of
the Company at an exercise price of $7.6875 per share, which was the fair market
value of a share of such common stock on the date the warrants were issued. The
estimated fair value of the warrants was $1.4 million as of the date of
issuance. This amount was amortized to interest expense over the term of the
related indebtedness and was fully amortized in 2000. As discussed below, in
December 1998, both of the warrants were canceled and a new warrant was issued
to DVIFS in connection with additional financing from DVIFS.

The Company had an unsecured loan agreement with DVIFS that was used to finance
the purchase of the Company's Debentures on the open market (see Note 8), with
interest payable monthly at 10.75% and currently maturing on May 1, 2002 (the
"Repurchase Facility"). Borrowings outstanding were $3.0 million and $4.5
million at December 31, 2001 and 2000, respectively. In consideration of DVIFS'
release of liens on the assets of an imaging center and its consent to the sale
of those assets in May 2001, the Company agreed to secure its obligations to
DVIFS under the previously unsecured Repurchase Facility. The collateral
consists of the deferred portion of the purchase price for such assets and
certain assets owned by a subsidiary, the stock of which was previously pledged
to DVIFS. The Company paid DVIFS an origination fee of 3% on amounts borrowed,
as well as an equity participation fee to DVIPC, equal to a percentage of the
profit realized by the Company from the purchase of the Debentures as more fully
described in Note 8. Such fees were fully amortized in 2000. In connection with
the Repurchase Facility, the Company canceled two warrants issued to DVIFS to
purchase an aggregate of 250,000 shares of common stock of the Company (see
discussion of such warrants above) and issued a new warrant to purchase an
aggregate of 250,000 shares of common stock of the Company at an exercise price
of $0.938 per share, which was the fair market value of a share of such common
stock on the date the warrant was issued. The new warrant expires on September
30, 2005. The estimated fair value of the new warrant was $184,000 as of the
date of issuance, and was amortized to interest expense over the original life
of the related indebtedness. This amount was fully amortized in 2000.

The 6 1/2% Convertible Notes (the "Notes") matured on June 30, 2001, and were
convertible into the Company's common stock at $8.50 per share for an aggregate
of 1,176,472 shares. The Company failed to pay the $10.0 million principal
amount (and accrued interest) of the Notes at maturity. The amount of past due
interest on the Notes as of December 31, 2001 is approximately $0.5 million.
This failure constitutes a default under the Notes and may also constitute a
cross default under other of the



                                       45
<PAGE>

                      US DIAGNOSTIC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


Company's debt instruments which could entitle the holders of such instruments
to accelerate the maturity. The Company is seeking a restructuring of certain of
its debt obligations and covenants including the Notes. See Note 1, MANAGEMENT'S
PLANS for further details.

The 9% to 12% notes payable to lending institutions represent several different
notes payable, and are collateralized by property and medical equipment.

The 4.5% note payable relates to an earlier acquisition and is collateralized by
substantially all of the assets of the company acquired.

In October 2001, one secured creditor agreed to modify the Company's payment
obligations to extend the repayment terms of $3.7 million principal amount of
debt and capital lease obligations with remaining terms to maturity of 15 to 50
months as of July 2001 to 84 months. Also, the creditor agreed to waive any late
charges or possible defaults. For financial statement purposes, the Company
adjusted the current and long-term portions of debt and capital lease
obligations to reflect this modification effective September 30, 2001.

The Company borrowed $12.3 million from DVIFS and DVIBC from February 2000 to
July 2000 in order to meet the Company's normal expenses. Approximately $7.8
million of such borrowings were collateralized by existing medical equipment
(these borrowings are included in the 9% to 12% notes payable to lending
institutions category above), and the balance was borrowed on the DVIBC
revolving credit loan (this borrowing is included in the $35.0 million revolving
credit loan above). During 2000, the Company repaid $3.5 million of the
collateralized portion. The Company repaid $8.1 million of the revolving credit
loan including $5.0 million from the proceeds of the disposition of imaging
centers in 2000. The Company also repaid $18.1 million on the Repurchase
Facility from the proceeds of the disposition of imaging centers in 2000. During
2001, the Company repaid $4.2 million of the revolving credit loan with DVIBC
including $3.3 million from the proceeds of the sold imaging centers. The
Company has also repaid $1.5 million on the Repurchase Facility from the
proceeds of the sold imaging centers during 2001.

During the years ended December 31, 2001 and 2000, debt decreased by $10.7
million and $46.0 million, respectively, in connection with the disposition of
imaging centers. During the year ended December 31, 2001, debt decreased by $2.4
million in connection with early debt extinguishment.



                                       46
<PAGE>
                      US DIAGNOSTIC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


[10] OBLIGATIONS UNDER CAPITAL LEASES

Obligations under capital leases are stated on the accompanying consolidated
balance sheets at the present value of future minimum lease payments. Interest
rates on capital leases ranged primarily between 8.1% and 12.8%.

Future minimum lease payments under capital leases, together with the present
value of minimum lease payments subsequent to December 31, 2001, are as follows:

In thousands

            Date                                             Amount
            ----                                             -------

            2002                                             $ 1,706
            2003                                               1,479
            2004                                               1,832
            2005                                                 670
            2006                                                 524
            Thereafter                                           838
                                                             -------
            Total                                              7,049

            Less:  amount representing interest               (1,437)
                                                             -------
            Total                                              5,612

            Less:  current portion                            (1,202)
                                                             -------

            Long-term portion                                $ 4,410
                                                             =======


During the years ended December 31, 2001 and 2000, obligations under capital
leases decreased by $1.6 million and $8.6 million, respectively, in connection
with the disposition of imaging centers. During the year ended December 31,
2001, obligations under capital leases decreased by $16,000 in connection with
early debt extinguishment.

[11] INCOME TAXES

The provision (benefit) for income taxes shown in the consolidated statements of
operations consists of the following:

In thousands        2001             2000            1999
                   -------         --------        -------
Current
    Federal        $  (176)        $    --         $(1,332)
    State              332            (415)            183
                   -------         -------         -------
Total              $   156         $  (415)        $(1,149)
                   =======         =======         =======

There are no deferred income taxes for any of the years presented in the
consolidated statements of operations.



                                       47
<PAGE>
                      US DIAGNOSTIC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


FEDERAL TAX RATE RECONCILIATION

The difference between the effective income tax rate and the federal income tax
rate is summarized as follows:

<TABLE>
<CAPTION>

                                                                  2001          2000           1999
                                                                  ----          ----           ----
<S>                                                               <C>           <C>            <C>
Federal tax rate                                                  (34)%         (34)%          (34)%
Non-deductible amortization of intangible assets                     2             3             7
Increase in valuation allowance                                     18             1            64
State taxes, net of federal benefit                                  1           (1)             1
Sale of subsidiaries                                                 1            29           (51)
Asset impairment                                                    10            --            --
Other                                                                3            --             3
                                                                  ----         ----           ----
Effective tax rate                                                  1%          (2)%          (10)%
                                                                  ====         ====           ====
</TABLE>

For the years ended December 31, 2001 and 1999, the extraordinary gains of $0.7
million and $3.9 million are shown net of $0.2 million and $1.3 million in
income taxes, respectively.

Significant components of the Company's deferred tax assets and liabilities at
December 31, 2001 and 2000 are as follows:

In thousands                                        2001             2000
                                                  --------         --------

CURRENT
Deferred tax assets:
    Allowance for bad debts                       $  3,907         $  4,775
    Other allowances and reserves                      158              787

Valuation allowance                                 (4,065)          (5,562)
                                                  --------         --------
Net current deferred tax assets                         --               --
                                                  --------         --------

NON-CURRENT

Deferred tax assets:
    Net operating losses                            28,095           20,438
    Basis differences of intangible assets           6,635            6,009
    Other                                            3,424            2,461

Deferred tax liabilities:
    Equipment basis differences                     (1,055)          (4,212)
    Other                                               (8)             (20)

Valuation allowance                                (37,091)         (24,676)
                                                  --------         --------

Net non-current deferred tax liability            $     --         $     --
                                                  --------         --------

Net deferred income tax asset                     $     --         $     --
                                                  ========         ========


                                       48
<PAGE>
                      US DIAGNOSTIC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


The Company accounts for income taxes under the asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's consolidated financial statements or tax returns. Management provided
a valuation allowance for the net deferred tax asset for which it is more likely
than not that a tax benefit will not be realized. During 2001, the valuation
allowance increased $10.5 million primarily due to an increase in net operating
loss carry forwards of $2.6 million and asset impairment losses of $3.3 million.

The Company has tax operating loss carryforwards of approximately $82.0 million
expiring through the year 2021. Approximately $23.0 million of the operating
loss carryforwards relate to acquired entities. The utilization of the acquired
loss carryforwards is limited to approximately $2.2 million per year.

[12] SOLD/CLOSED IMAGING CENTERS

Pursuant to the Plan of Restructuring, the Company sold 11 and 25 imaging
centers during 2001 and 2000, respectively. In addition, the Company closed two
and 10 imaging centers that were non-performing during 2001 and 2000,
respectively. No imaging centers were sold or closed during the last quarter of
2001. In May 2001, the Company sold an imaging center for $1.0 million deferred
consideration subject to certain conditions and targets being met (see Note 9).
Upon further evaluation as of December 31, 2001, the Company allowed for an
estimated additional $0.4 million reserve relating to this sale since the
projected net collections from this sold imaging center had fallen below the
stipulated amount per the terms of the sale.

During 1999, the Company had sold several centers that were either considered
non-core assets to the Company's business or were in unattractive markets.

The following is a summary of the gains and/or losses recognized on such sales
for the periods ending December 31, as well as the losses on the closing of
non-performing imaging centers:

         In thousands
<TABLE>
<CAPTION>

                                                                2001             2000             1999
                                                              --------         --------         --------
         <S>                                                  <C>              <C>              <C>
         Net gains on sold imaging centers                    $ 10,734         $ 14,609         $  2,306
         Losses on closed imaging centers                         (709)         (10,713)              --
                                                              --------         --------         --------
            Net gain on disposition of imaging centers        $ 10,025         $  3,896         $  2,306
                                                              ========         ========         ========
</TABLE>


[13] EXTRAORDINARY GAIN

Effective May 2001, the Company assigned and transferred its rights and
interests in equipment and the corresponding obligations of a center that was
closed in February 2000, to DVIFS which in turn assigned it to a third-party.
The Company has recorded a $0.5 million gain on early extinguishment of debt,
net of $0.2 million of income taxes in 2001.




                                       49
<PAGE>

                      US DIAGNOSTIC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


The Company repurchased approximately $12.5 million, aggregate principal amount
of its Debentures in the open market during 1999 for amounts less than the
recorded amounts (see Note 8). The transaction resulted in an extraordinary
gain, after taxes, of approximately $2.6 million in 1999.

[14] CAPITAL TRANSACTIONS

In August 1999, the Board of Directors approved the repurchase of up to 10% of
the Company's outstanding common stock from time to time on the open market. In
October 1999, 105,000 shares were purchased and retired by the Company. No
further shares have been repurchased as of the date herein.

On August 14, 2000, the Company sold the assets of four of its imaging centers
to a company controlled by Alan A. Winakor, a former executive vice president of
the Company who resigned as part of this transaction. The sales price was $6.9
million, consisting of $2.4 million cash and the assumption by the purchaser of
debt and other obligations amounting to $4.3 million. Mr. Winakor surrendered
297,628 shares of the Company's common stock as part of this transaction.

On January 19, 2001, the Company entered into an agreement concerning the sale
of its 80% interest in two imaging centers in Louisiana, with an effective date
of January 1, 2001. The consideration was approximately $2.3 million. The
conditions of the agreement were fully satisfied on March 20, 2001. The buyer
surrendered 100,000 shares of the Company's common stock as part of this
transaction.

See Note 15 regarding activity under the Company's stock option plans and
warrants issued by the Company.

At December 31, 2001, the Company had 22,317,205 shares of common stock issued
and outstanding.

A summary of shares of common stock reserved for potential future issuance as of
December 31, 2001, is as follows (in thousands of shares):

Subordinated convertible debentures                                  2,449
Stock option plans                                                     530
Underwriter options and warrants                                       320
$10.0 million convertible note                                       1,176
Warrants issued to lender                                              250
1996 restricted stock grants not yet issued                             92
                                                                     -----

Total                                                                4,817
                                                                     =====

[15] STOCK OPTION PLANS AND WARRANTS

At December 31, 2001, the Company has two stock-based compensation plans. The
Company has accounted for all stock-based compensation grants issued to
non-employees subsequent to December 15, 1995 in accordance with SFAS No. 123
"Accounting for Stock-Based Compensation" ("SFAS No. 123"). The Company has
elected to continue to account for its stock-based compensation grants to
employees and directors in accordance with the provisions of APB Opinion No. 25
"Accounting for Stock Issued to Employees". However, in accordance with SFAS No.
123, the pro forma effect of the issuance of such options is set forth below.
The fair value of each option granted subsequent to December 15, 1995 to
non-employees and employees has been estimated as of the date of grant using the
Black-Scholes




                                       50
<PAGE>
                      US DIAGNOSTIC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


option-pricing model with the following weighted-average assumptions: risk-free
interest rates 5.9% for 1999, none for 2000 and 2001 (no options were granted in
2000 or 2001); dividend yield of zero percent for all years; expected lives
ranging 1 to 5 years for 1999, 1 to 4 years for 2000 and 1 to 3 years for 2001;
and volatility of 90% for 1999, 99% for 2000 and 131% for 2001. Compensation
cost charged to operations in connection with the Company's stock-based
compensation plans totaled $573,000 in 1999, $295,000 in 2000 and $87,000 in
2001, respectively.

The following represents the pro forma effect had the Company valued all of its
stock-based compensation in accordance with SFAS No. 123 using the option
pricing model assumptions described above.

In thousands, except per share data

                                          2001         2000          1999
                                        --------     --------      -------
Net loss
         As reported                    $(24,060)    $(32,567)     $(8,195)
         Pro forma                      $(24,599)    $(32,753)     $(8,305)

Basic and diluted loss per share
         As reported                    $  (1.08)    $  (1.44)     $ (0.36)
         Pro forma                      $  (1.10)    $  (1.45)     $ (0.36)

The Company's 1993 Stock Option Plan (the "1993 Plan") provides for the issuance
of incentive stock options and non-qualified stock options. Under the terms of
the 1993 Plan, a maximum of 200,000 shares of the Company's common stock may be
issued upon the exercise of stock options granted thereunder. The 1993 Plan
provides for administration by the Company's Board of Directors (or a committee
of the Board of Directors) which, subject to the terms of the 1993 Plan,
determines to whom grants are made and the vesting, timing, amounts and other
terms of such grants. Incentive stock options may be granted only to employees
of the Company, while non-qualified stock options may be granted to the
Company's employees, officers, directors, consultants and advisors. The exercise
price of incentive stock options may not be less than the fair market value of
the Company's common stock on the date of grant and the term of these options
may not exceed 10 years; however, with respect to incentive stock options
granted to holders of more than 10% of the Company's common stock, the exercise
price may not be less than 110% of the fair market value of the Company's common
stock on the date of grant and the term of these options may not exceed five
years. The 1993 Plan has had no options available for new grants since December
31, 1998.

The Company's 1995 Long-Term Incentive Plan (the "1995 LTIP") provides for the
issuance of incentive stock options and non-qualified stock options. The 1995
LTIP also provides for awards of restricted stock. Under the terms of the 1995
LTIP, as amended, a maximum of 4,000,000 shares of the Company's common stock
may be issued upon the exercise of stock options granted thereunder and a
maximum of 700,000 shares of common stock are available for restricted stock
awards. The 1995 LTIP provides for administration by the Company's Board of
Directors (or a committee of the Board of Directors) which, subject to the terms
of the 1995 LTIP, determines to whom grants are made and the vesting, timing,
amounts and other terms of such grants. The 1995 LTIP provides that the total
number of shares of common stock that may be subject to stock options or
restricted stock awards granted to any person in any calendar year may not
exceed 25% of the maximum number of shares that may be issued and sold under the
1995 LTIP. The Company has a policy pursuant to which non-employee directors
shall receive




                                       51
<PAGE>

                      US DIAGNOSTIC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


an option to purchase shares of common stock under the 1995 LTIP on the date
that such director first becomes a director. In August 1999, the Board of
Directors approved a new non-employee director compensation plan which included
a grant to each of then non-employee directors of 100,000 options to purchase
the Company's common stock. The options granted to then current non-employee
directors were granted at a price equal to $0.906 per share, the closing price
of the Company's stock on August 27, 1999. The options vested immediately and
have a five year term.

A summary of the status of the Company's two stock option plans at December 31,
2001, 2000 and 1999, and changes during the years ended on those dates is
presented below:

<TABLE>
<CAPTION>

                                                      2001                   2000                   1999
                                              --------------------   --------------------   -------------------
                                                         Weighted-              Weighted-             Weighted-
                                                          Average                Average               Average
                                              Shares     Exercise    Shares     Exercise    Shares    Exercise
                                               (000)       Price      (000)       Price      (000)      Price
                                              ------     --------    ------     ---------   ------    ---------
<S>                                            <C>        <C>          <C>        <C>         <C>        <C>
Outstanding at beginning of year               1,520      $ 2.52       2,274      $2.61       3,556      $ 4.42

Granted                                           --          --          --         --         400         .91
Exercised                                         --          --          --         --          --          --
Forfeited                                       (990)       2.71        (754)      2.80      (1,682)       6.00
                                               -----      ------      ------      -----      ------      ------

Outstanding at end of year                       530      $ 2.14       1,520      $2.51       2,274      $ 2.61
                                               =====      ======      ======      =====      ======      ======

Options exercisable at end of year               521                   1,317                  1,691

Weighted-average fair value of options
   granted during the year                                  N/A                    N/A                   $  .91

</Table>
The following table summarizes information about stock options outstanding at
December 31, 2001.

(Shares in thousands)

<TABLE>
<CAPTION>

                                        Options Outstanding                           Options Exercisable
                       ---------------------------------------------------     ------------------------------
                         Shares          Weighted-            Weighted-          Shares          Weighted-
     Range of          Outstanding        Average              Average         Exercisable        Average
  Exercise Price       at 12/31/01     Remaining Life       Exercise Price     at 12/31/01     Exercise Price
  ---------------      -----------     --------------       --------------     -----------     --------------
<S>                        <C>              <C>                 <C>                 <C>           <C>
  $ 0.91 - $ 0.91          200              2.65                $ 0.91              200           $ 0.91
  $ 0.94 - $ 0.94          243              1.95                  0.94              238             0.94
  $ 3.50 - $ 3.50            8              1.52                  3.50                8             3.50
  $ 4.00 - $ 4.00           10              1.38                  4.00               10             4.00
  $ 4.13 - $ 4.13           15              1.04                  4.13               15             4.13
  $ 9.00 - $ 9.00           30              0.89                  9.00               30             9.00
  $13.63 - $13.63           24              1.43                 13.63               20            13.63
                           ---              ----                ------              ---           ------

  $ 0.91 - $13.63          530              2.09                $ 2.14              521           $ 2.07
                           ===              ====                ======              ===           ======

</TABLE>





                                       52
<PAGE>
                      US DIAGNOSTIC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


A total of 225,000 unissued warrants, that were issued during 1995 to
individuals to purchase common stock pursuant to the plans discussed above,
either expired or were canceled during 2000. As a result, there are no such
outstanding warrants since December 31, 2000.

In connection with the Company's 1994 and 1995 public stock offerings, the
Company issued unit purchase options to the underwriters. The 1994 options
allowed the holder to acquire 170,000 shares of common stock at $7.25 per share,
170,000 warrants convertible into common stock at $6.25 per share and 340,000
warrants convertible into shares of common stock at $8.00 per share. These
options and related warrants expired in October 1999. The 1995 options allowed
the holder to acquire 161,500 shares of common stock at $7.82 per share, 161,500
warrants convertible into shares of common stock at $6.25 per share and 323,000
warrants convertible into shares of common stock at $8.00 per share. These
options and related warrants expired in November 2000.

In connection with the 1996 issuance of the Company's Debentures, warrants to
acquire 319,445 shares of the Company's common stock at $9.00 per share were
issued to the underwriter, such warrants expire March 31, 2003. All of these
warrants are outstanding at December 31, 2001.

The Company granted 94,000 and 51,000 shares of restricted common stock to
certain other officers and directors of the Company in 1996 and 1997,
respectively, under the 1995 LTIP. These restricted stock grants had vesting
periods ranging from two to five years. Related deferred charges in 1996 and
1997 amounted to $1.2 million and $440,000, respectively, which were amortized
to compensation expense over the vesting periods of the restricted stock. The
unamortized deferred compensation balance as of December 31, 2001 and 2000 is $0
and $45,500, respectively.

In March 1997, the Company granted options to acquire 100,000 shares of the
Company's common stock to its then Chairman of the Board and options to acquire
35,000 shares of the Company's common stock to each of its two directors, all
under the 1995 LTIP. The three Directors comprised the Special Committee
appointed by the Company's Board of Directors to review the Company's prior
relationship with Coyote Consulting and Keith Greenberg (see Note 20). The
options vested on September 30, 1997. The exercise price of the options was
$8.625 which was the market value of the Company's common stock at the date of
grant. As of December 31, 1999, all of these options were canceled.

During 1997, the Company issued to one of its lenders two warrants to purchase
an aggregate of 250,000 shares of common stock of the Company at an exercise
price of $7.6875 per share. In connection with additional financing in December
1998 by the same lender, the two warrants were canceled and a new warrant was
issued to purchase 250,000 shares of common stock of the Company at an exercise
price of $0.938 per share. See Notes 8 and 9.

On July 13, 1998, the Board of Directors of the Company elected Dr. L.E. Richey,
M.D., then a Co-Chairman of the Board of the Company, to the position of sole
Chairman of the Board. Concurrently, the Company granted Dr. Richey options to
purchase 350,000 shares of the Company's common stock under the 1995 LTIP in
recognition of the extensive amount of time he devoted to the Company and in
anticipation of his future contributions as Chairman. The options were
exercisable at a price of $3.50, which represented the closing price of the
Company's common stock on the day immediately preceding the date of grant, and
fully vested one year from the date of grant. As of December 31, 1999, Dr.
Richey



                                       53
<PAGE>

                      US DIAGNOSTIC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


was no longer on the Company's Board of Directors, and all of his granted
options were canceled in 1999.

On December 11, 1998, options to purchase 1,966,000 shares of the Company's
common stock under its 1995 LTIP were canceled. These canceled options were
granted at various times in the past and under various terms and conditions (at
exercise prices ranging from $3.69 to $13.50), with 1,215,000 of such total
having been issued to then current directors and executive officers of the
Company and 751,000 having been issued to other employees. Concurrent with the
cancellation of these options, new options (hereinafter defined as "new
options") to purchase 1,165,001 shares of the Company's common stock under the
1995 LTIP were granted to then current directors and executive officers, and new
options to purchase 530,000 shares of common stock were granted to certain other
employees. The new options were issued in order to provide an appropriate
incentive to the grantees, especially those whose previous options were granted
with exercise prices substantially above the current market price of the
Company's common stock. All such new options are exercisable at a price of
$0.937, which represents the closing price of the Company's common stock on the
day immediately preceding the date of grant. New options issued to non-employee
directors fully vested on the first anniversary of the date of grant and have a
term of five years. All other new options granted vested 25% at date of grant
and will vest 25% on each anniversary date thereafter, and have a term of five
years. During 2001, 563,000 of these options were canceled, of which 405,000
were granted to previous executive officers and directors and 158,000 were
granted to other employees. During 2000, 325,000 of these options were canceled,
of which 135,000 were granted to previous executive officers and directors and
190,000 were granted to other employees. As of December 31, 2001, 247,000 of
these options remain outstanding.

As a result of the Plan of Restructuring in July 2000, all unvested options
(187,500) and restricted stock awards (10,000) granted to Mr. Joseph A. Paul
vested. In addition, the unvested portions of options of Messrs. Leon F. Maraist
(37,500), P. Andrew Shaw (30,000), Len V. Platt (30,000) and Arthur E. Quillo
(25,000) automatically vested in 2000. These executives did not exercise their
vested options in 2000 and all such options (except for Messrs. Maraist and
Shaw's options who are still with the Company) expired in 2001.

[16] EARNINGS PER SHARE

The Company had a loss before extraordinary gain in each of the three years in
the period ended December 31, 2001, and all potentially dilutive securities were
excluded from basic and diluted earnings per share in each year since the effect
would be anti-dilutive. Such potentially dilutive securities consist of the
following: (i) unexercised stock options and warrants to purchase 1.1 million,
2.1 million and 3.7 million shares of the Company's common stock as of December
31, 2001, 2000 and 1999, respectively; (ii) 3.6 million shares of the Company's
common stock issuable upon conversion of convertible debt as of December 31,
2001, 2000 and 1999; and (iii) unissued restricted stock amounting to 91,800,
96,600 and 165,600 shares of the Company's common stock as of December 31, 2001,
2000 and 1999, respectively.



                                       54
<PAGE>
                      US DIAGNOSTIC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


[17] COMMITMENTS

The Company has non-cancelable operating leases for use of their facilities and
various equipment. These leases may require payment of various expenses as
additional rent. Certain leases contain renewal options and escalation clauses.

Minimum future rental payments, for each of the next five years and thereafter
under non-cancelable operating leases having remaining terms in excess of one
year as of December 31, 2001 are as follows:

                In thousands

                Date                                Amount
                ----                                ------

                2002                               $ 4,792
                2003                                 3,795
                2004                                 3,483
                2005                                 2,636
                2006                                 2,174
                Thereafter                           2,766
                                                   -------
                Total                              $19,646
                                                   =======

Rent expense for the years ended December 31, 2001, 2000 and 1999, under various
operating leases, amounted to $8.5 million, $18.8 million and $22.8 million,
respectively.

The Company has an equipment maintenance policy for its MRI, CT and other
medical diagnostic equipment that is financed by an insurance company for one
year. In addition, the Company has comprehensive maintenance contracts with its
equipment vendors for other equipment. The terms of these contracts are between
one and four years, but may be canceled by the Company under certain
circumstances. Such non-cancelable service contracts are included in the minimum
future rental payments schedule above. As of December 31, 2001, the Company has
no purchase commitments for capital expenditures and no commitments to execute
operating leases.

The Company has entered into employment agreements with certain officers with
original terms of one year. All of the agreements provide for a specific amount
of annual base salary and performance bonuses based on certain objectives being
met prior to December 31, 2002. In addition, these employment agreements provide
that in the event that the agreements are renewed for an additional term, and if
the Company terminates the officers without cause during the additional term, or
in the event that the officers resign for good reason during the additional
term, the Company shall pay them amounts equal to their annual salaries. In
addition, the Company has an "at will" agreement with another employee which
provides for an incentive bonus as well as a change of control termination
payment prior to October 1, 2002. The aggregate amount of compensation under all
existing employment agreements, based upon the base salaries in effect at
December 31, 2001, for the remaining terms of the respective employment
agreements, was approximately $423,000 at December 31, 2001. In addition, the
amount of compensation in the event of certain changes in control of the Company
was approximately $125,000 at December 31, 2001.



                                       55
<PAGE>
                      US DIAGNOSTIC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


Each of the Company's imaging centers has agreements with radiologists as
independent contractors to provide all radiology services to the imaging
centers. Radiologist compensation ranges primarily between 14% and 20% of net
collections attributable to radiology services performed by the radiologist.

[18] CONCENTRATION OF CREDIT RISKS

The Company's imaging centers grant credit without collateral to its patients,
most of whom are residents of the areas where the centers are located and are
insured under third-party payor agreements.

The mix of receivables from third-party payors and patients at December 31, is
as follows:

                                                     2001             2000
                                                     ----             ----
        Medicare and Medicaid                         17%              17%
        Workers' Compensation and Self Pay            11               10
        Commercial                                    23               19
        Managed Care                                  35               36
        Other                                         14               18
                                                     ---              ---
        Total                                        100%             100%
                                                     ===              ===


[19] 401(k) PROFIT SHARING PLAN

The 401(k) Profit Sharing Plan (the "401(k) Plan") is offered to employees who
have completed six months of service. Eligible employees may make elective
deferrals in any amount up to 15% of their compensation. The Company contributes
100% of the amount withheld from each payroll period of the participant's
compensation (up to a maximum of 3%) and may make additional discretionary
contributions.

Employer contributions to the 401(k) Plan totaled approximately $198,000,
$460,000 and $464,000 in fiscal 2001, 2000 and 1999, respectively.

[20] TERMINATION OF EMPLOYMENT AND CONSULTING AGREEMENTS

On September 30, 1997, the Company entered into a settlement with Mr. Jeffrey
Goffman, a previous Chairman and Chief Executive Officer of the Company.
Pursuant to this settlement, Mr. Goffman agreed to contribute $1.0 million to
the Company's settlement of the class actions in the form of $850,000 cash and
the forgiveness of the remaining nine monthly payments totaling $150,000 which
would otherwise have been due to him from the Company under an earlier
settlement. Mr. Goffman delivered the $850,000 to the Company on March 17, 1998.
The Company thereafter released its claim to the remainder of the securities
covered by the Escrow and Settlement Agreement. All of Mr. Goffman's options
were canceled as of December 31, 1999.

Coyote Consulting ("Coyote") and Keith Greenberg (an employee of Coyote) sued
the Company alleging that they were entitled to receive additional cash, stock
and/or options in an unspecified amount in connection with the Company's
December 1996 termination of its consulting relationship with Coyote.




                                       56
<PAGE>

                      US DIAGNOSTIC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


The complaint was dismissed in 1999. In addition, in December 1996, the SEC
commenced an investigation into the Company's former relationship with Coyote
and Keith Greenberg to determine whether the Company's disclosure concerning
that relationship was in compliance with the federal securities laws. The
Company reached a final agreement with the SEC dated December 20, 2000. Pursuant
to SEC's order, the Company agreed to cease and desist from committing any
violation and any future violation of Section 17(a)(2)and (a)(3) of the
Securities Act, Sections 13(a) and 14(a) of the Exchange Act, and Rules 12b-20,
13a-1, 13a-13 and 14a-9 thereunder.

[21] LITIGATION

SHELBY RADIOLOGY, P.C. V. US DIAGNOSTIC INC. ET AL. - In June 1997, the
plaintiff, Shelby Radiology, P.C. ("Shelby Radiology"), filed suit against the
Company alleging breach of a contract to provide radiology services and
specifically improper termination of the contract. In January 1998, Shelby
Radiology amended its complaint to include allegations of promissory fraud,
misrepresentation and suppression. Under both its fraud and breach of contract
claims, Shelby Radiology was seeking compensatory damages in the amount of $1.2
million as amounts it would have been paid under the "oral agreement." In
addition, Shelby Radiology sought punitive damages pursuant to its fraud claims.
On May 3, 1999, this matter was tried before a jury in Montgomery County,
Alabama. The trial concluded on May 7, 1999 and the jury returned a verdict
against the defendant in the amount of $1,134,000 as compensatory damages on
plaintiff's fraud claim. The jury did not award any punitive damages. The
Company paid $600,000 to a bonding company which posted a bond to secure payment
of the judgment and appealed the verdict to the Alabama Supreme Court which
ruled against the Company in a split decision. The Company's request for a
rehearing of that decision was rejected. The plaintiff collected the $1.4
million judgment, inclusive of interest, from the bonding company under the
bond. The Company owes approximately $800,000 to the bonding company. The
Company recognized the settlement expense as of December 31, 2000 as a result of
this lawsuit.

MARCONI MEDICAL SYSTEM, INC. VS. US DIAGNOSTIC INC. - The Company is the
Defendant in this action in the Circuit Court of the 15th Judicial Circuit in
and for Palm Beach County, Florida. This lawsuit involves an action for breach
of contract to collect unpaid invoices relating to the Company's former Texas
centers. The invoices were assumed by the purchasers of the centers. However,
the purchasers failed to pay the invoices, and suit was filed against the
Company. The invoices have been outstanding since approximately February 1999.
The amount of the claim is $297,000 exclusive of interest, attorneys' fees and
costs. The Company reached a settlement with the purchasers of the Texas centers
which requires the Company to satisfy this claim. Therefore, this matter has
been accrued for as of December 31, 2001.

CALIFORNIA TAX AUDIT - This matter is regarding Valley Presbyterian MRI Center
and the Company. The State of California determined in an audit that the doctors
providing services at the Company's center were employees rather than
independent contractors. As a result, the State issued a tax assessment of
$251,905 for various unpaid state taxes. The matter is still pending and is not
likely to be resolved until late 2002 or 2003. The Company believes that the
doctors were independent contractors consistent with California practice;
however, the outcome cannot be predicted at this time.



                                       57
<PAGE>
                      US DIAGNOSTIC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


US DIAGNOSTIC INC. VS. METROPOLITAN DIAGNOSTIC IMAGING, PC, GRAMMERCY MRI AND
DIAGNOSTIC RADIOLOGY, PC, QUEENS MEDICAL IMAGING, PC, NARROWS MRI AND
DIAGNOSTIC RADIOLOGY, PC, AND ALAN WINAKOR - The Company is the
Plaintiff/Counterdefendant in an action, in the United States District Court of
the Southern District of New York. This lawsuit involves an action for breach
of contract in which the Company seeks to recover approximately $200,000 in
damages for unpaid billing and collection services. The Defendants have filed
an answer, including a counterclaim for breach of contract, defamation,
tortious interference, and permanent injunction seeking damages of
approximately $1 million. The counterclaims are essentially premised upon
business interruption. The Company believes that it is owed the $200,000 for
breach of contract. The counterclaims were recently filed, but do not appear to
be meritorious and based upon a preliminary review, the damages are believed to
be excessive and speculative. Therefore, the outcome of this matter cannot be
determined at this time.

RADNET MANAGEMENT II, INC. VS. US DIAGNOSTIC INC. AND MODESTO IMAGING CENTER,
INC. - The Company is a Defendant in an action, before the American Arbitration
Association, Los Angeles Regional Office. This is an action for breach of
representations and warranties in an asset purchase agreement. The claimant
alleges the Company failed to disclose that a certain lease agreement had been
extended for ten years through the year 2014, rather than terminating in 2004.
The claimant seeks approximately $1 million pursuant to the surviving covenants
and agreements related to such asset purchase agreement. The matter is
currently in discovery and the Company cannot currently determine whether it is
liable for such alleged breach or the appropriate amount of the claim if it is
determined to be liable.

OTHER MATTERS - The Company could be subject to legal actions arising out of the
performance of its diagnostic imaging services. Damages assessed in connection
with, and the cost of defending, any such actions could be substantial. The
Company maintains liability insurance and other insurance, which it believes is
adequate for its present operations although, even if adequate, contains
deductibles for which the Company would be responsible. There can be no
assurance that the Company will be able to continue or increase such coverage or
to do so at an acceptable cost, or that the Company will have other resources
sufficient to satisfy any liability or litigation expense that may result from
any uninsured or underinsured claims. The Company also requires all of its
affiliated physicians to maintain malpractice and other liability coverage.

The Company is also a party to, and has been threatened with, a number of other
legal proceedings in the ordinary course of business. While it is not feasible
to predict the outcome of these matters, and although there can be no
assurances, the Company does not anticipate that the ultimate disposition of any
such proceedings will have a material adverse effect on the Company.

[22] RELATED PARTY TRANSACTIONS

As of January 1, 1995, and amended effective September 1995, the Company entered
into a consulting agreement with Gordon Rausser, a member of the Company's Board
of Directors until June 10, 1999, to retain his services as an economic
consultant to the Company. The compensation under this agreement was (a) $25,000
cash for each quarter commencing January 1, 1995, through December 31, 1999, for
which he offered or agreed to serve on the Company's Board of Directors and
provided other consulting services to the Company; and (b) warrants to acquire
400,000 shares of the Company's common stock immediately exercisable at $5.00
per share through December 31, 1999. The warrants expired unexercised at
December 31, 1999.



                                       58
<PAGE>

                      US DIAGNOSTIC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


A prior member of the Company's Board of Directors, Keith Hartley, was the
managing partner of Forum Capital Markets L.P. ("Forum") until May 2000. Forum
was the underwriter of the Company's $57.5 million Debenture Offering
consummated in 1996 (see Note 8), and was paid an underwriting fee of $2.9
million. In addition, the Company sold to Forum, for nominal consideration,
warrants which entitled Forum to purchase 319,445 shares of common stock of the
Company at an exercise price of $9.00 per share. First Union Corporation bought
Forum in May 2000 and the 319,445 warrants that were originally held by Forum
were transferred to Founders Financial Group ("Founders") upon sale of Forum.
Mr. Hartley is a partner of Founders. Founders is now the holder of record of
warrants to purchase 319,445 shares of Common Stock. The warrants are
outstanding as of December 31, 2001. Mr. Hartley was elected to the Board of
Directors of the Company on September 19, 1996, subsequent to the Debenture
Offering and resigned on April 20, 2001.

In 1997, the Company entered into an Installation Agreement and a Network
Support Agreement with CIERRA Solutions, Inc. ("CSI"). A brother of Todd Smith,
who was a Vice President and the Chief Information Officer of the Company
through October 1998, was a substantial minority shareholder of CSI. Payments
made to CSI in 1999 totaled $347,000, including reimbursement for expenses and
equipment purchases of $117,000. No payments have been made to CSI since 1999.

The Company has a policy pursuant to which non-employee directors shall receive
an option under the Company's 1995 LTIP to purchase shares of common stock on
the date that such director first becomes a director. In August 1999, the Board
of Directors approved a new non-employee director compensation plan which
included a grant to each of then non-employee directors of 100,000 options to
purchase the Company's common stock (see Note 15).

On January 20, 1998, Michael O'Hanlon, the President and Chief Executive Officer
of DVI, Inc., an affiliate of DVIBC and DVIFS, was elected to the Board of
Directors of the Company. DVIFS and DVIBC are lenders to the Company. As of
December 31, 2001 and 2000, DVI had loans with aggregate principal amounts
outstanding with the Company of approximately $25.0 million and $45.2 million,
respectively. Portions of such loans are collateralized as described in Note 9.
In 2001 and 2000, the Company paid an aggregate of approximately $12.9 million
and $25.5 million in principal and interest to DVI and its affiliates on these
loans, respectively. In addition, during 2001 and 2000, the Company paid an
additional $8.0 million and $39.0 million, which included payments for
principal, interest, prepayment penalties and additional fees, towards the
payoff of the debt relating to the sale of the imaging centers. In 2002, the
Company is scheduled to pay an aggregate of approximately $18.9 million in
principal and interest to DVI and its affiliates on these loans. Such payments
in 2002 are dependent on the pending debt restructuring. In addition, in
December 1998 and January 1999, the Company paid DVIFS loan fees totaling
$647,000 and paid DVIPC an equity participation fee totaling $2.8 million, each
in connection with certain new financing. The Company had also issued DVI a
warrant to purchase an aggregate of 250,000 shares of common stock of the
Company at an exercise price of $0.938 per share. In February 2000, the Company
paid DVIFS $150,000 in connection with a $3.2 million borrowing. See Notes 8 and
9 for further detail. In 2001, the Company also paid $0.3 million relating to
operating leases from DVI. Mr. O'Hanlon resigned effective September 13, 2001.

In August 1998, the Company purchased a condominium from J. Wayne Moor, the
Company's former Chief Financial Officer, for $200,000 to facilitate Mr. Moor's
relocation to Palm Beach County, Florida. In February 1999, the Company sold the
condominium for $187,000. Mr. Moor resigned as the Chief Financial Officer in
January 2000.




                                       59
<PAGE>

                      US DIAGNOSTIC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


From May 2000 through February 2001, David McIntosh (a current Director) was
engaged to direct the review of potential opportunities to re-deploy the sale
proceeds in other ventures, at $15,000 per month plus out-of-pocket expenses.
The Company paid Mr. McIntosh $30,000 and $120,000 in consulting fees in 2001
and 2000, respectively. Furthermore, Mr. McIntosh was paid a fee of $60,000 in
2001 for leading the Company's terminated merger discussions with International
Radiology Group, LLC ("IRG").

On August 14, 2000, the Company sold the assets of four of its imaging centers
to a company controlled by Alan A. Winakor, a former executive vice president of
the Company who resigned as part of this transaction. The sales price was $6.9
million, consisting of $2.4 million cash and the assumption by the purchaser of
debt and other obligations amounting to $4.3 million. Mr. Winakor surrendered
297,628 shares of the Company's common stock as part of this transaction.

On October 27, 2000, Joseph A. Paul, then President, Chief Executive Officer and
Director of the Company submitted his resignation effective January 5, 2001.
Simultaneously, an entity controlled by Mr. Paul acquired three of the Company's
imaging centers for a sales price of $8.9 million, consisting of $7.2 million
cash and the assumption by the purchaser of debt and other obligations amounting
to $1.7 million. The transaction was subject to the receipt of a fairness
opinion and a business valuation. In addition, the Company provided billing and
collection services for these three imaging centers from the sale date through
December 31, 2000. The Company charged the centers a collection fee of 5% of the
net collections per month. Upon resignation and until May 5, 2001, Mr. Paul was
engaged to perform consulting services, primarily related to the Company's
disposition of imaging centers, at $15,000 per month plus out-of-pocket
expenses. On March 1, 2001, the Company elected to terminate this consulting
agreement effective May 5, 2001. The Company paid Mr. Paul $60,000 in consulting
fees in 2001.

Pursuant to the Plan of Restructuring, the Company adopted a bonus plan for
non-employee directors whereby they would share equally in .25% of the gross
proceeds from the imaging center sales and would be payable as sales occurred
but no later than December 31, 2000. The total amount paid or accrued as of
December 31, 2000 for the three non-employee directors, Messrs. Hartley,
McIntosh and O'Hanlon, was $500,000. Messrs. Hartley and O'Hanlon resigned in
April and September 2001, respectively.

Furthermore, under the Plan of Restructuring, in order to assure the continued
employment of the executive officers during the imaging center sales process,
the Board of Directors approved a retention bonus program for executives Messrs.
Leon F. Maraist, P. Andrew Shaw, Joseph A. Paul and Len V. Platt, payable
proportionately as sales of the imaging centers were completed with the unpaid
balance of the retention bonus accrued at December 31, 2000. The total amount
paid or accrued to these executives was $1.1 million as of December 31, 2000.
Both Mr. Paul and Mr. Platt resigned effective January 5, 2001.

Messrs. Paul, Maraist, Shaw, Platt and Arthur E. Quillo elected to deem their
then existing employment agreements terminated by the Company without cause as a
result of adoption of the Plan of Restructuring due to change in control as
defined by their employment agreements. As a result, they were entitled to
receive lump sum compensation. The total amount paid or accrued to these
executives was $2.4 million as of December 31, 2000. Messrs. Maraist and Shaw
have entered into new employment agreements with the Company since then.

Also, as a result of adoption of the Plan of Restructuring, all unvested stock
options of Messrs. Paul (187,500), Maraist (37,500), Shaw (30,000), Platt
(30,000) and Quillo (25,000) became fully vested




                                       60
<PAGE>

                      US DIAGNOSTIC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


immediately in July 2000. In addition, Mr. Paul's unvested restricted stock
awards of 10,000 became fully vested in July 2000. These executives did not
exercise their vested options in 2000 and all such options (except for Messrs.
Maraist and Shaw's options who are still with the Company) expired in 2001.

On March 27, 2001, the Board elected Mr. Glen M. Kassan as the Chairman of the
Board. The Company paid and/or accrued $135,000 during 2001 for his services as
Chairman.

On September 17, 2001, the Company sold its interest in an underperforming
imaging center (excluding accounts receivable and accounts payable) to Lutz
Radiology Corp. ("Lutz Corp"). Lutz Corp is a corporation controlled by Thomas
G. Winter, a former vice president of the Company who resigned as part of this
transaction. The sales price consisted of assumption of debt by the purchaser
amounting to $1.1 million.

[23] SUBSEQUENT EVENTS

On March 1, 2002, DVIBC extended the expiration date of the revolving credit
loan of $35.0 million from April 1 to June 1, 2002.

The Company did not make the interest payment on the Debentures that was due
March 31, 2002, failure of which constitutes an event of default under the
Indenture and could give rise to an acceleration of the maturity of the
Debentures. A default on the Debentures could also allow other debt holders to
accelerate the maturity of their debt instruments. See Note 8 for further
detail.

Mr. Warren Lichtenstein resigned from the Board of Directors of the Company
effective April 15, 2002.


                                       61
<PAGE>
                      US DIAGNOSTIC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


[24] SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following tables contain selected unaudited quarterly information for each
quarter for the years ended December 31, 2001 and 2000. The Company believes
that the following information reflects all adjustments necessary for a fair
presentation of the information for the periods presented.

<TABLE>
<CAPTION>

                                                                                              2001 (a)
                                                                     -----------------------------------------------------------
(In thousands, except per share data)                                   Q1               Q2               Q3              Q4
                                                                     --------         --------         --------         --------
<S>                                                                  <C>              <C>              <C>              <C>
Net revenue:
    As previously reported                                           $     --         $ 15,402         $ 12,282         $ 11,226
    Adjustment related to reversal of discontinued operations
      presentation                                                     17,020               --               --               --
                                                                     --------         --------         --------         --------
    As adjusted                                                      $ 17,020         $ 15,402         $ 12,282         $ 11,226
                                                                     ========         ========         ========         ========

Loss before extraordinary gain (b)                                     (1,175)         (12,737)          (2,285)          (8,327)
Net loss (b)                                                           (1,175)         (12,273)          (2,285)          (8,327)

Loss before extraordinary gain per common
  share - basic and diluted (b)                                         (0.05)           (0.57)           (0.10)           (0.38)

Net loss per common share - basic and diluted (b)                       (0.05)           (0.55)           (0.10)           (0.38)

</TABLE>

<TABLE>
<CAPTION>


                                                                                               2000 (a)
                                                                     ------------------------------------------------------------
(In thousands, except per share data)                                   Q1                Q2               Q3               Q4
                                                                     --------           --------        --------         --------
<S>                                                                  <C>              <C>               <C>              <C>
Net revenue:
    As previously reported                                           $     --           $     --        $     --         $     --
    Adjustment related to reversal of discontinued operations
      presentation                                                     38,511             39,151          30,123           20,117
                                                                     --------           --------        --------         --------
    As adjusted                                                      $ 38,511           $ 39,151        $ 30,123         $ 20,117
                                                                     ========           ========        ========         ========

Income (loss) before extraordinary gain (b)                            (4,733)               264 (c)      (9,581)         (18,517)
Net income (loss) (b)                                                  (4,733)               264 (c)      (9,581)         (18,517)

Income (loss) before extraordinary gain per common
  share - basic and diluted (b)                                         (0.21)              0.01           (0.43)           (0.81)
Net income (loss) per common share - basic and diluted (b)              (0.21)              0.01           (0.43)           (0.81)

</TABLE>

(a)      Certain amounts have been reclassified to be consistent with the
         reversal of discontinued operations presentation of the financial
         statements for the years ended December 31, 2001 and 2000. Net income
         (loss) during these periods was not affected by these
         reclassifications.
(b)      No adjustment related to reversal of discontinued operations
         presentation was necessary.
(c)      During the second quarter of 2000, the Company sold three centers
         generating $14.4 million in net gains, and closed four centers that
         generated $4.3 million in net losses. In addition, $5.2 million of
         minority interest in gain on sale of a subsidiary was recorded. As a
         result, this quarter had a net income compared to the other quarters
         in 2000.



                                       62
<PAGE>


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

       None.








                                       63
<PAGE>

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

BOARD OF DIRECTORS

The names and ages of the five individuals serving on the Company's Board of
Directors, their respective principal occupations, or positions and offices with
the Company, and the period during which each has served as a director of the
Company are set forth below.

JACK L. HOWARD -- age 40 -- has been a member of the Board of Directors of the
Company since February 2001. Mr. Howard has served as a director of WebFinanical
Corporation ("WEFN"), a provider of niche banking markets, since 1996 and as
Vice President, Secretary and Treasurer of WEFN since December 1997. Mr. Howard
has been a principal of Mutual Securities, Inc., a registered broker-dealer,
since prior to 1993. Mr. Howard is also the Vice-President of Gateway
Industries, Inc. Mr. Howard is a director of the following publicly held
companies: Gateway Industries, Inc., a provider of database development and
website design and development services; Pubco Corporation, a manufacturer and
distributor of printing supplies and construction equipment; and Castelle, a
maker and marketer of application server devices. Mr. Howard is serving on the
Company's Board of Directors at the request of Steel Partners II, LP, a
significant stockholder of the Company.

FRANCIS D. HUSSEY, JR., M.D. -- age 62 -- has been a member of the Board of
Directors of the Company since February 2001. Dr. Hussey is Co-Director of
Naples Pain Center, Chairman and Chief Executive Officer of Magnetic Scans, Inc.
and President and Chief Executive Officer of The MRI Centers of New England. He
is also the President of Chelsea MRI, Inc., Cranston MRI, Inc., Forest Park MRI,
Inc. and HHH Investments, L.P. Dr. Hussey is a member of American Academy of
Neurology, American Neurological Association, Florida Medical Association and
numerous other professional groups. Dr. Hussey is on the Board of the American
Society of Neuroimaging.

GLEN M. KASSAN -- age 58 -- has been a member of the Board of Directors of the
Company since February 2001. Mr. Kassan became Chairman of the Board of
Directors effective March 27, 2001. Mr. Kassan has been an Executive Vice
President of CPX Corp., a management and advisory company, since March 2002. CPX
Corp. has provided management services to Steel Partners II, LP ("Steel
Partners") and other affiliates of Steel Partners since March 2002. Mr. Kassan
served as Executive Vice President of Steel Partners Services, Ltd., a
management and advisory company, from June 2001 through March 2002 and Vice
President from October 1999 through May 2001. Steel Partners Services, Ltd.
provided management services to Steel Partners and other affiliates of Steel
Partners until March 2002, when CPX Corp. acquired the rights to provide certain
management services from Steel Partners Services, Ltd. Mr. Kassan has served as
Vice President, Chief Financial Officer and Secretary of Gateway Industries,
Inc., a provider of database development and Web site design and development
services, from June 2000 to April 2002. He has also served as Vice President,
Chief Financial Officer and Secretary of WEFN, since June 2000. Mr. Kassan has
served as Vice Chairman of the Board of Directors of Caribbean Fertilizer Group
Ltd., a private company engaged in the production of agricultural products in
Puerto Rico and Jamaica, since June 2000. Mr. Kassan is a director and has
served as President of SL Industries, Inc., a manufacturer and marketer of Power
and Data Quality systems and equipment for industrial, medical, aerospace and
consumer applications, since January 2002 and February 2002, respectively. From
1997 to 1998, Mr. Kassan served as Chairman and Chief Executive Officer of Long
Term Care Services, Inc., a privately owned healthcare services company which
Mr. Kassan co-founded in 1994 and initially served as Vice Chairman and Chief
Financial Officer. Mr. Kassan is currently a director of Tandycrafts, Inc., a




                                       64
<PAGE>

manufacturer of picture frames and framed art and Puroflow Incorporated, a
designer and manufacturer of precision filtration devices. Mr. Kassan is serving
on the Company's Board of Directors at the request of Steel Partners II, LP, a
significant stockholder of the Company.

DAVID MCINTOSH -- age 55 -- has been a member of the Board of Directors of the
Company since October 1998. From June 1998 to 1999, Mr. McIntosh was the Chief
Executive Officer of Barricade International, Inc., a developer and distributor
of a fire-blocking gel. Since 1999, Mr. McIntosh has been the Chairman of
MitBank USA, Inc., an environmental asset management company. From 1984 through
1998, Mr. McIntosh was the Chief Executive Officer of Gunster, Yoakley &
Stewart, P.A., a prominent Florida-based international law firm. Prior to 1984,
Mr. McIntosh was a partner with Coopers & Lybrand, a public accounting firm. He
is a director, officer and active member of numerous local, state and national
foundations, committees, task forces, associations and charitable organizations.
Mr. McIntosh also is a director, Chairman of the audit committee and a member of
the compensation committee of Florida Banks, Inc., which operates a community
banking system in Florida through its wholly-owned banking subsidiary, Florida
Bank, N.A.

LEON F. MARAIST -- age 59 -- has been a member of the Board of Directors of the
Company since October 2000 and President and Chief Executive Officer since
January 2001. Prior to that time, he served as Executive Vice President and
Chief Operating Officer of the Company since November 1997. From 1993 to 1997,
Mr. Maraist served as Vice President of NMC Diagnostic Services, Inc. ("NMC"),
which provides mobile imaging diagnostics in physicians' offices and diagnostics
in fixed sites. His responsibilities with NMC included marketing, sales, finance
and operations. From 1992 to 1994, Mr. Maraist directed operations of the $1
billion nationwide dialysis division of NMC.

Mr. Warren Lichtenstein was a member of the Board of Directors of the Company
since April 2001 and resigned effective April 15, 2002.

EXECUTIVE OFFICERS

The following sets forth certain information with respect to the executive
officers of the Company (other than such information regarding Mr. Maraist which
was disclosed under Board of Directors above):

JERRY E. ARON -- age 50 -- joined the Company in June 2000 and became Executive
Vice President, General Counsel and Secretary in August 2000. Prior to joining
the Company, Mr. Aron served as a senior partner at Gunster,Yoakley & Stewart,
P.A., one of Florida's largest commercial law firms. He joined Gunster, Yoakley
& Stewart in 1978.



                                       65
<PAGE>

P. ANDREW SHAW -- age 45 -- has been Executive Vice President of the Company
since July 1996 and was appointed Chief Financial Officer in January 2000,
having previously served as Chief Financial Officer of the Company from July
1996 until June 1997. Previously, he served as Controller of MediTek Health
Corporation from February 1992 until June 1996 when MediTek was acquired by the
Company and was Controller of ExpoSystems for more than seven years until
February 1992. He is a Certified Public Accountant with six years of public
accounting experience with KPMG Peat Marwick and is a member of the Florida
Institute of Certified Public Accountants and the Financial Executives
Institute.

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Dr. Hussey became a director on February 21, 2001 and his Form 3 which was due
on March 5, 2001, was inadvertently not filed on time. He has not yet filed Form
5 as of April 16, 2002.



                                       66
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth, for the years ended December 31, 2001, 2000 and
1999, the compensation paid or accrued by the Company to its Chief Executive
Officer and its other executive officers as of December 31, 2001, (collectively,
the "Named Executive Officers"):

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>

                                                                                         Long Term
                                                 Annual Compensation                   Compensation
                                    ------------------------------------------    ----------------------
                                                                                  Restricted  Securities
                                                                  Other Annual      Stock     Underlying    All Other
      Name and                                                    Compensation      Award(s)    Options    Compensation
 Principal Position                 Year   Salary($)     Bonus($)    ($)(1)           ($)         (#)          ($)
 ------------------                 ----   ---------     -------- ------------    ----------  ----------   ------------
<S>                                 <C>     <C>         <C>             <C>        <C>           <C>         <C>
 Leon F. Maraist(3)                 2001    200,770          --         9,035          --          --        103,289(3)
   Chief Executive Officer,         2000    200,000          --         9,000          --          --        755,783(3)
   President and Director           1999    200,000      33,333         9,000          --          --          4,800(2)

 P. Andrew Shaw (4)                 2001    161,019          --         9,035          --          --         77,491(4)
   Executive Vice President and     2000    159,808      20,000         9,035          --          --        591,952(4)
   Chief Financial Officer          1999    125,000      20,000         9,000          --          --          4,620(2)

 Jerry E. Aron (5)                  2001    215,317(5)       --        12,046          --          --         13,312(5)
   Executive Vice President,        2000    180,646(5)       --         7,015          --          --          2,847(5)
   General Counsel and Corporate    1999        n/a         n/a           n/a         n/a         n/a            n/a
   Secretary

 Joseph A. Paul (6)                 2001      5,232          --           231          --          --             --
   Former Chief Executive           2000    316,828          --        12,000          --          --      1,744,204(6)
   Officer, President               1999    281,918     100,000        12,000          --          --          4,800(2)
   and Director

</TABLE>

(1)      Represents car allowance.
(2)      Represents Company contributions to the 401(k) Plan.
(3)      The Company has accrued $100,000 as of December 31, 2001 as a retention
         payment under Mr. Maraist's employment agreement and the Company's
         contributions to the 401(k) Plan on his behalf totaled $3,289 in 2001.
         Such retention payment has not been paid as of April 16, 2002. During
         2000, Mr. Maraist was paid $497,232 as a change of control payment
         under his employment agreement, $248,616 as a retention bonus, and the
         Company's contributions to the 401(k) Plan on his behalf totaled
         $9,935. Portions of amounts paid as a change of control payment or
         retention bonus above were accrued at December 31, 2000. Mr. Maraist
         assumed the office of President effective January 5, 2001 upon Mr.
         Joseph A. Paul's resignation.
(4)      The Company has accrued $75,000 as of December 31, 2001 as a retention
         payment under Mr. Shaw's employment agreement and the Company's
         contributions to the 401(k) Plan on his behalf totaled $2,491 in 2001.
         Such retention payment has not been paid as of April 16, 2002. During
         2000, Mr. Shaw was paid $387,948 as a change of control payment under
         his employment agreement, $193,974 as a retention bonus, and the
         Company's contributions to the 401(k) Plan on his behalf totaled
         $10,030. Portions of amounts paid as a change of control payment or
         retention bonus above were accrued at December 31, 2000.
(5)      During 2001 and 2000, Mr. Aron was paid $8,013 and $2,847 as
         reimbursement for health insurance, respectively. The Company's
         contributions to the 401(k) Plan on his behalf totaled $5,299 during
         2001. Also, as additional compensation, the Company paid Mr. Aron an
         amount equal to the 401(k) Plan matching payment that otherwise would
         have been made had he been able to join the Company's 401(k) Plan when
         his employment began. Such compensation amounted to $1,004 and $5,262
         which is included in his salary figure in 2001 and 2000, respectively.
         Mr. Aron's employment with the Company began in June 2000.




                                       67
<PAGE>

(6)      During 2000, Mr. Paul was paid $1,156,543 as a change of control
         payment under his employment agreement, $578,271 as a retention bonus,
         $4,634 in club dues, and the Company's contributions to the 401(k) Plan
         on his behalf totaled $4,756. Portions of amounts paid as a change of
         control payment or retention bonus above were accrued at December 31,
         2000. Mr. Paul resigned effective January 5, 2001.

STOCK OPTIONS

The following table sets forth year-end option values for the Named Executive
Officers who held unexercised options at December 31, 2001:

       AGGREGATED OPTION EXERCISES IN LAST YEAR AND YEAR END OPTION VALUES

<TABLE>
<CAPTION>

                                                                      Number of Securities         Value of Unexercised
                                                                          Underlying                  In-the-money
                                           Shares                    Unexercised Options at            Options at
                                         Acquired On      Value        Fiscal Year End (#)          Fiscal Year End ($)
                Name                      Exercise      Realized    Exercisable/Unexercisable    Exercisable/Unexercisable(1)
                ----                     -----------    --------    -------------------------    ----------------------------
                <S>                        <C>           <C>            <C>                            <C>
                Leon F. Maraist (2)           0             0                75,000 / 0                     0 / 0
                P. Andrew Shaw (2)            0             0                60,000 / 0                     0 / 0
                Jerry E. Aron               n/a            n/a                 n/a                           n/a
                Joseph A. Paul (3)           0              0                 0 / 0                         0 / 0
</TABLE>

----------

(1)      On December 31, 2001, the last reported sales price of the common stock
         in the over the counter market was $0.01.
(2)      As of December 31, 2001, Messrs. Maraist and Shaw had 75,000 and 60,000
         options, respectively, to purchase shares of common stock at an
         exercise price of $0.9370. All such options were exercisable at year
         end.
(3)      Mr. Paul resigned on January 5, 2001 and all his vested options expired
         in 2001.

DIRECTOR COMPENSATION:

During 2001, directors who were not officers or employees of the Company
received (a) $1,000 for each board meeting attended and (b) $500 for each board
committee meeting attended. Effective August 1999, the Company is obligated to
pay an annual cash retainer of $10,000 in advance to non-employee directors. The
amount due August 2001 has not been paid yet but is accrued for. Board members
are also reimbursed for their reasonable expenses incurred in serving as a
director of the Company.

Mr. David McIntosh provided consulting services to the Company between May 2000
and February 2001 in order to assist with the sale of imaging centers. See
"Compensation Committee Interlocks and Insider Participation" for more detail.

On March 27, 2001, the Board elected Mr. Glen M. Kassan as the Chairman of the
Board. The Company paid and/or accrued $135,000 during 2001 for his services as
Chairman.



                                       68
<PAGE>
EMPLOYMENT AGREEMENTS

Effective October 14, 2001, Mr. Maraist and the Company entered into an
employment agreement through December 31, 2002. The agreement provides for a
base salary of $200,000 through December 31, 2001, and a base salary of $225,000
through December 31, 2002. Mr. Maraist can elect to defer any portion of his
annual base salary under the terms of any deferred compensation or savings plan
maintained by the Company. The agreement also provides for performance bonuses
of up to $175,000 for 2002 if certain objectives such as earnings and sale of
centers are achieved after December 31, 2001 but prior to December 31, 2002. The
agreement automatically renews for an additional one year term unless a notice
electing not to renew is received by either party prior to December 1, 2002 but
not before November 1, 2002. In the event the agreement is renewed for the
additional term and the Company terminates Mr. Maraist's employment without
cause, or he resigns for good reason during the additional term, then the
Company will be obligated to pay him a severance of $225,000.

Pursuant to Mr. Maraist's employment agreement with the Company, effective as of
January 5, 2001, Mr. Maraist earned a retention payment of $100,000. Such
retention payment was accrued by the Company as of December 31, 2001 and has not
been paid as of April 16, 2002. Mr. Maraist notified the Company of this default
and that he intends to preserve his rights with respect to such payment.

Effective October 14, 2001, Mr. Shaw and the Company entered into an employment
agreement through December 31, 2002. The agreement provides for a base salary of
$165,000 effective July 1 through December 31, 2001, and a base salary of
$180,000 effective January 1 through December 31, 2002. Mr. Shaw can elect to
defer any portion of his annual base salary under the terms of any deferred
compensation or savings plan maintained by the Company. The agreement provides
for performance bonuses of up to $175,000 for 2002 if certain objectives such as
earnings and sale of centers are achieved after December 31, 2001 but prior to
December 31, 2002. The agreement automatically renews for an additional one year
term unless a notice electing not to renew is received by either party prior to
December 1, 2002 but not before November 1, 2002. In the event that the
agreement is renewed for the additional term and the Company terminates Mr.
Shaw's employment without cause, or he resigns for good reason during the
additional term, then the Company shall pay him severance of $180,000.

Mr. Shaw and the Company entered into an employment agreement effective on
January 27, 2000 pursuant to which Mr. Shaw earned a retention payment of
$75,000. Such retention payment was accrued by the Company as of December 31,
2001 and has not been paid as of April 16, 2002. Mr. Shaw notified the Company
of this default and that he intends to preserve his rights with respect to such
payment.

Mr. Aron and the Company entered into a one-year employment agreement effective
June 1, 2000 through May 31, 2001 pursuant to which Mr. Aron served as Executive
Vice President and General Counsel of the Company at an annual base salary of
$300,000. Mr. Aron is currently employed by the Company on a part-time basis at
a base salary of approximately $132,000. If the Company requires more than
part-time employment, Mr. Aron receives additional compensation. Either party
may terminate the employment relationship upon three weeks advance notice.

Mr. Paul served as President and Chief Executive Officer of the Company under an
employment agreement dated June 18, 1996 until his resignation effective January
5, 2001.

In addition, each of the Named Executive Officers is entitled during the term of
his employment with the Company to customary employee benefits, such as paid
vacation, health insurance and car allowance.



                                       69
<PAGE>

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

David McIntosh, Jack L. Howard and C. Keith Hartley served on the Company's
Compensation Committee during 2001; and Mr. Hartley resigned on April 20, 2001.
None is or has been an officer or employee of the Company or any of its
subsidiaries. In addition, none of the Committee members has, or has had, any
relationship with the Company which is required to be disclosed under Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, except that effective May 2000
through February 2001, Mr. McIntosh was engaged by the Company to direct the
review of potential opportunities to re-deploy the proceeds received from sales
of imaging centers. Mr. McIntosh was paid $15,000 per month plus out-of-pocket
expenses. The Company paid Mr. McIntosh $30,000 in consulting fees in 2001. Mr.
McIntosh was also paid a fee of $60,000 in 2001 for leading the Company's
terminated merger discussions with IRG. Mr. McIntosh also serves on the
compensation committee of Florida Banks, Inc. No Company executive officer
currently serves on the compensation committee or any similar committee of
another public company.



                                       70
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table and the notes thereto set forth, as of March 18, 2002, the
beneficial ownership of the Company's Common Stock ("Common Stock") by (i) each
person known by the Company to be the beneficial owner of more than 5% of the
Common Stock in reliance upon information set forth in any statements filed with
the Securities and Exchange Commission ("SEC") under Section 13(d) or 13(g) of
the Exchange Act, (ii) each director and Named Executive Officer of the Company
and (iii) all directors and executive officers of the Company as a group.

<TABLE>
<CAPTION>

                                                                                 Beneficial Ownership (1)
                                                                              -------------------------------
Name                                                                          Common Stock            Percent
----                                                                          ------------            -------
<S>                                                                             <C>                     <C>
Steel Partners II, L.P.                                                         3,321,400(2)(9)         14.9%
   150 East 52nd Street
   21st Floor
   New York, New York 10022
The Robert C. Fanch Revocable Trust                                             1,755,300(9)             7.9
   1873 South Bellaire Street, Suite 1550
   Denver, CO 80222
Lighthouse Capital Insurance Company                                            1,687,750                7.6
   Anderson Square
   3rd Floor
   P.O. Box 112356T
   Grand Cayman, BVI
Jack L. Howard                                                                     42,000(2)(7)           *
Francis D. Hussey, Jr.                                                          1,138,100(6)(9)          5.1
Glen M. Kassan                                                                         --(2)              --
Warren G. Lichtenstein                                                          3,321,400(2)(9)         14.9
David McIntosh                                                                    120,000(3)              *
Leon F. Maraist                                                                    89,458(4)              *
P. Andrew Shaw                                                                     67,265(5)              *
Jerry E. Aron                                                                          --                 --
Joseph A. Paul                                                                         --                 --
All directors and executive officers as a group (9 persons)                     4,778,223(8)            21.2
</TABLE>

----------

* Less than 1%.

(1)      Unless otherwise indicated, the Company believes that all persons
         named in the table have sole voting and investment power with respect
         to all shares of Common Stock beneficially owned by them. Each
         beneficial owner's percentage ownership is determined by assuming that
         convertible securities, options or warrants that are held by such
         person (but not those held by any other person) and which are
         exercisable within 60 days after March 18, 2002 have been exercised.
         Calculation of percentage ownership was based on 22,317,205 shares of
         Common Stock outstanding as of March 18, 2002.
(2)      Mr. Lichtenstein is Chairman of the Board, Secretary and Managing
         Member of Steel Partners, L.L.C., the general partner of Steel Partners
         II, L.P., and claims sole beneficial ownership of the shares held by
         such limited partnership. Mr. Lichtenstein was elected to the Company's
         Board of Directors in April 2001 at Steel Partners, L.L.C.'s, request,
         and has resigned effective April 15, 2002. His address is the same as
         such limited partnership. Messrs. Kassan and Howard were elected to the
         Company's Board of




                                       71
<PAGE>

         Directors in February 2001 at Steel Partners, L.L.C.'s, request. They
         disclaim beneficial ownership of the shares held by such limited
         partnership.
(3)      Includes 10,000 shares of Common Stock and fully vested options to
         purchase 10,000 shares of Common Stock at $0.9370 exercise price and
         100,000 shares of Common Stock at $0.9060 exercise price.
(4)      Includes 14,458 shares of Common Stock (of which 4,294 are held in a
         401(k) Plan) and fully vested options to purchase 75,000 shares of
         Common Stock at $0.9370 exercise price.
(5)      Includes 7,265 share of Common Stock all of which are held in a 401(k)
         Plan and fully vested options to purchase 60,000 shares of Common Stock
         at $0.9370 exercise price.
(6)      Includes 1,138,100 shares of Common Stock. Dr. Hussey has shared voting
         power over 80,300 shares.
(7)      Includes 42,000 shares of Common Stock which is held indirectly.
(8)      Includes all shares and options described in footnotes 3-7 above.
(9)      Information obtained from Schedules 13(d) filed with the SEC by the
         beneficial owners.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In January 2000, the Company entered into an agreement with Steel Partners II,
L.P., ("Steel Partners"), currently a 15% shareholder, which allows, for a
period of three years, Steel Partners to acquire up to 45% of the outstanding
voting stock of the Company without prior board approval. Further, Steel
Partners has agreed that for a period of three years after it becomes an
Interested Stockholder, as defined by the Delaware Business Combination Statute
(the "Delaware Statute"), any transaction proposed by Steel Partners to the
shareholders must be one in which all shareholders are treated alike. In
addition, in order to enhance the Company's strategic flexibility, the board of
directors voted to make the restrictive provisions of the Delaware Statute
inapplicable to Steel Partners.

Michael O'Hanlon, who was a director of the Company from January 20, 1998 until
September 13, 2001, is the President and Chief Executive Officer of DVI, Inc.,
an affiliate of DVIBC and DVIFS. DVIFS and DVIBC are lenders to the Company. As
of December 31, 2001 and 2000, DVI had loans with aggregate principal amounts
outstanding with the Company of approximately $25.0 million and $45.2 million,
respectively. In 2001 and 2000, the Company paid an aggregate of approximately
$12.9 million and $25.5 million in principal and interest to DVI and its
affiliates on these loans, respectively. In addition, during 2001 and 2000, the
Company paid an additional $8.0 million and $39.0 million, which included
payments for principal, interest, prepayment penalties and additional fees, in
repayment of the debt relating to the sale of the imaging centers. In 2002, the
Company is scheduled to pay an aggregate of approximately $18.9 million in
principal and interest to DVI and its affiliates on these loans. Such payments
in 2002 are dependent on the pending debt restructuring. In February 2000, the
Company paid DVIFS $150,000 in connection with a $3.2 million borrowing. See
Notes 8 and 9 of Notes to Consolidated Financial Statements which are
incorporated herein by reference. In 2001, the Company also paid $0.3 million
relating to operating leases from DVI.

Mr. David McIntosh provided consulting services to the Company between May 2000
and February 2001 in order to assist with the sale of imaging centers. See
"Compensation Committee Interlocks and Insider Participation" for more detail.

On October 27, 2000, Joseph A. Paul, then President, Chief Executive Officer and
Director of the Company submitted his resignation effective January 5, 2001.
Simultaneously, an entity controlled by Mr. Paul acquired three of the Company's
imaging centers for a sales price of $8.9 million, consisting of $7.2 million
cash and the assumption by the purchaser of debt and other obligations amounting
to $1.7




                                       72
<PAGE>

million. The Company obtained a fairness opinion and a business valuation in
connection with the transaction. In addition, the Company provided billing and
collection services for these three imaging centers from the sale date through
December 31, 2000. The Company charged the centers a collection fee of 5% of the
net collections per month. Upon resignation and until May 5, 2001, Mr. Paul was
engaged to perform consulting services, primarily related to the Company's
disposition of imaging centers, at $15,000 per month plus out-of-pocket
expenses. On March 1, 2001, the Company elected to terminate this consulting
agreement effective May 5, 2001. The Company paid Mr. Paul $60,000 in consulting
fees in 2001.

On March 27, 2001, the Board elected Mr. Glen M. Kassan as the Chairman of the
Board. The Company paid and/or accrued $135,000 during 2001 for his services as
Chairman.

On September 17, 2001, the Company sold its interest in an underperforming
imaging center (excluding accounts receivable and accounts payable) to Lutz
Corp. Lutz Corp is a corporation controlled by Thomas G. Winter, a former vice
president of the Company who resigned as part of this transaction. The sales
price consisted of assumption of debt by the purchaser amounting to $1.1
million.



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<PAGE>
                                     PART IV

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

(a)      Documents Filed as Part of this Report

         (1)      Consolidated Balance Sheets as of December 31, 2001 and 2000

                  Consolidated Statements of Operations for each of the three
                  years in the period ended December 31, 2001

                  Consolidated Statements of Stockholders' Equity (Deficiency)
                  for each of the three years in the period ended December 31,
                  2001

                  Consolidated Statements of Cash Flows for each of the three
                  years in the period ended December 31, 2001

                  Notes to Consolidated Financial Statements

         (2)      Schedule II, Valuation and Qualifying Accounts, for each of
                  the three years ended December 31, 2001 is submitted herewith.

(b)      Reports on Form 8-K

                  No report on Form 8-K was filed during the quarter ended
                  December 31, 2001.

(c)      Exhibits -- (See Exhibit Index included elsewhere herein.)





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<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.

                                       US DIAGNOSTIC INC.



Date: April 16, 2002                   By: /s/ Leon F. Maraist
                                           -------------------------------------
                                               Leon F. Maraist
                                               Chief Executive Officer,
                                               President and Director

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>


Name                                Title                                               Date
----                                -----                                               ----

<S>                             <C>                                                     <C>
/s/ Leon F. Maraist             Chief Executive Officer, President and Director         April 16, 2002
-----------------------------   (Principal Executive Officer)
Leon F. Maraist



/s/ P. Andrew Shaw              Executive Vice President and Chief Financial            April 16, 2002
-----------------------------   Officer (Principal Financial Officer and
P. Andrew Shaw                  Principal Accounting Officer)



/s/ Glen M. Kassan              Chairman of the Board and Director                      April 16, 2002
----------------------------
Glen M. Kassan



/s/ Jack L. Howard              Director                                                April 16, 2002
----------------------------
Jack L. Howard



/s/ Francis D. Hussey, Jr.      Director                                                April 16, 2002
----------------------------
Francis D. Hussey, Jr.




/s/ David Mcintosh              Director                                                April 16, 2002
---------------------------
David McIntosh


</TABLE>


                                       75
<PAGE>


                               US DIAGNOSTIC INC.
                                   SCHEDULE II
                        VALUATION AND QUALIFYING ACCOUNTS
                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

In thousands

<TABLE>
<CAPTION>

                                                         Column A       Column B      Column C      Column D        Column E

                                                                              Additions

                                                        Balance at     Charged to    Charged to                      Balance at
                                                       Beginning of     Costs and      Other        Deductions         End of
Description                                               Period         Expenses     Accounts      (describe)         Period
-----------                                            ------------    ----------    -----------    ----------       ----------
<S>                                                       <C>            <C>            <C>          <C>               <C>
Year Ended Dec. 31, 2001

Reserves deducted from assets to which they apply:
  Allowance for loss on accounts
     receivable                                           $14,288        $ 5,483        $  --        $ 2,990(a)        $16,781
  Allowance for loss on other
     receivables                                          $    --        $   483        $  --        $    --           $   483

Year Ended Dec. 31, 2000

Reserves deducted from assets to which they apply:
  Allowance for loss on accounts
     receivable                                           $ 7,110        $13,769        $  --        $ 6,591(a)        $14,288
  Allowance for loss on other
     receivables                                          $    --        $    --        $  --        $    --           $    --

Year Ended Dec. 31, 1999

Reserves deducted from assets to which they apply:
  Allowance for loss on accounts
     receivable                                           $ 8,300        $ 6,062        $  --        $ 7,252(a)        $ 7,110

  Allowance for loss on other
     receivables                                          $    --        $    --        $  --        $    --           $    --

</TABLE>

(a)      Accounts written off.




                                       76
<PAGE>
                                  EXHIBIT INDEX

3.1      Certificate of Incorporation of the Registrant.(1)
3.2      Amended and restated Bylaws as amended March 27, 2001 of the
         Registrant.(14)
4.1      Form of Unit Purchase Option.(1)
4.2      Form of Warrant Agreement.(1)
4.3      Indenture relating to 9% Subordinated Convertible Debentures by the
         Company to American Stock Transfer & Trust Company, as Trustee, dated
         as of March 29, 1996.(4)
4.4      Form of Amended and Restated 6 1/2% Convertible Negotiable Note Due
         June 30, 2001. (5)
4.5      First Supplemental Indenture to Indenture relating to 9% Subordinated
         Convertible Debentures dated as of March 24, 1998. (5)
10.1     1993 Stock Option Plan.(1)
10.2     1995 Long Term Incentive Plan.(2)
10.3     Loan and Security Agreement and Secured Promissory Note among US
         Diagnostic Inc. and DVI Credit Corporation dated as of February 25,
         1997.(3)
10.4     Amended and Restated Note dated December 21, 1998 between US Diagnostic
         Inc. and DVI Financial Services, Inc. (7)
10.5     Amended and Restated Common Stock Purchase Warrant Agreement between US
         Diagnostic Inc., and DVI Financial Services, Inc. (7)
10.6     Letter of Agreement dated September 29, 1997 between the Company and
         DVI Business Credit Corporation confirming amendment of Loan and
         Security Agreement dated as of February 25, 1997. (6)
10.7     Amendment No. 2 dated March 31, 1999 to the Loan and Security Agreement
         by DVI Business Credit Corporation of the Thirty-Five Million Dollar
         Note dated February 25, 1997.(9)
10.8     Letter of Agreement dated July 19, 1999 between the Company and DVI
         Financial Services, Inc. confirming amendment of the Twenty-Five
         Million Dollar Note dated December 21, 1998.(9)
10.9     Nondiscrimination Agreement between US Diagnostic, Inc. and Steel
         Partners II, L.P. dated January 6, 2000 .(8)
10.10    Amendment No. 4 dated November 8, 1999 to the Loan and Security
         Agreement by DVI Business Credit Corporation of the Thirty-Five Million
         Dollar Note dated February 25, 1997.(9)
10.11    Secured Promissory Note A dated November 8, 1999, relating to Amendment
         No. 4.(9)
10.12    Secured Promissory Note B dated November 8, 1999, relating to Amendment
         No. 4.(9)
10.13    Amendment to Security Agreements (Loan A Guarantors) dated November 8,
         1999, relating to Amendment No. 4.(9)
10.14    Amendment to Security Agreements (Loan B Guarantors) dated November 8,
         1999, relating to Amendment No. 4.(9)
10.15    Security Agreement (Springing Lien A) dated November 8, 1999, relating
         to Amendment No. 4.(9)
10.16    Security Agreement (Springing Lien B) dated November 8, 1999, relating
         to Amendment No. 4.(9)
10.17    Acknowledgement and Confirmation of Guaranties dated November 8, 1999,
         relating to Amendment No. 4.(9)
10.18    Amendment No. 6 dated January 18, 2000 to the Loan and Security
         Agreement by DVI Business Credit Corporation of the Thirty-Five Million
         Dollar Note dated February 25, 1997.(9)
10.19    Consulting Agreement with David McIntosh dated April 27, 2000.(10)
10.20    Second Amended and Restated Note between the Company and DVI Financial
         Services Inc. dated June 21, 2000 to the Amended and Restated Note
         dated December 21, 1998.(11)
10.21    Plan of Restructuring of US Diagnostic Inc. Incorporated by reference
         to Appendix A to the Company's Proxy Statement filed with the SEC June
         22, 2000.(11)



                                       77
<PAGE>

10.22    Asset Purchase Agreement, dated July 25, 2000, by and among
         Comprehensive Diagnostic Imaging, Inc., Comprehensive Medical Imaging,
         Inc. and US Diagnostic Inc. and each seller named in Exhibit A of the
         Asset Purchase Agreement.(12)
10.23    First Amendment to Asset Purchase Agreement dated August 31, 2000.(12)
10.24    Second Amendment to Asset Purchase Agreement dated September 15,
         2000.(12)
10.25    Third Amendment to Asset Purchase Agreement dated September 20,
         2000.(12)
10.26    Exhibit A of Asset Purchase Agreement.(12)
10.27    Purchase Agreement dated September 20, 2000 By and Among Columbus
         Acquisition Corp., a Florida Corporation, Montclair Acquisition LLC, a
         Florida Limited Liability Company, Greystone Acquisition Corp., a
         Florida Corporation, US Diagnostic Inc., a Delaware Corporation, USD
         Montclair, Inc., a Delaware Corporation and Meditek Industries Corp., a
         Florida Corporation.(13)
10.28    Consulting Agreement between the Company and Joseph A. Paul dated
         October 27, 2000.(13)
10.29    Consulting Agreement between the Company and David McIntosh dated
         November 6, 2000 for September and October 2000.(13)
10.30    Consulting Agreement between the Company and David McIntosh dated
         November 6, 2000 for November 2000 through February 2001.(13)
10.31    Employment letter dated May 31, 2000 between the Company and Jerry E.
         Aron.(14)
10.32    Employment letter dated November 21, 2000 between the Company and Leon
         F. Maraist.(14)
10.33    Employment letter dated December 1, 2000 between the Company and P.
         Andrew Shaw.(14)
10.34    Amendment dated January 10, 2001 to employment letter dated May 31,
         2000 between the Company and Jerry E. Aron.(14)
10.35    Consulting Agreement between the Company and David McIntosh dated
         January 24, 2001.(14)
10.36    Forbearance Agreement dated August 30, 2001 by and between US
         Diagnostic Inc. and its subsidiaries and DVI Financial Services Inc.
         and DVI Business Credit Corporation.(15)
10.37    Employment agreement dated October 14, 2001 between the Company and
         Leon F. Maraist.
10.38    Employment agreement dated October 14, 2001 between the Company and P.
         Andrew Shaw.
10.39    Letter of Agreement dated March 1, 2002 between the Company and DVI
         Business Credit Corporation, amending the Loan and Security Agreement
         dated February 27, 1997 for the Thirty-Five Million Dollar Note.
21       Subsidiaries.
23       Consent of Deloitte & Touche LLP dated April 15, 2002.

--------------------------------------------------------------------------------
(1)      Incorporated by reference to the Company's Registration Statement on
         Form SB-2 (file no. 33-73414).
(2)      Incorporated by reference to the Company's Registration Statement on
         Form SB-2 (file no. 33-93536).
(3)      Incorporated by reference to the Company's Annual Report on Form
         10-KSB/A for the year ended December 31, 1996.
(4)      Incorporated by reference to the Company's Report on Form 8-K dated
         July 31, 1997.
(5)      Incorporated by reference to the Company's Form 10-Q for the quarterly
         period ended June 30, 1997.
(6)      Incorporated by reference to the Company's Form 10-Q for the quarterly
         period ended September 30, 1997.
(7)      Incorporated by reference to the Company's Report on Form 10-K for the
         year ended December 31, 1998.
(8)      Incorporated by reference to the Company's Report on Form 8-K dated
         January 7, 2000.
(9)      Incorporated by reference to the Company's Report on Form 10-K for the
         year ended December 31, 1999.





                                       78
<PAGE>

(10)     Incorporated by reference to the Company's Form 10-Q for the quarterly
         period ended March 31, 2000.
(11)     Incorporated by reference to the Company's Form 10-Q for the quarterly
         period ended June 30, 2000.
(12)     Incorporated by reference to the Company's Report on Form 8-K dated
         September 20, 2000.
(13)     Incorporated by reference to the Company's Form 10-Q for the quarterly
         period ended September 30, 2000.
(14)     Incorporated by reference to the Company's Report on Form 10-K for the
         year ended December 31, 2000.
(15)     Incorporated by reference to the Company's Form 10-Q for the quarterly
         period ended September 30, 2001.








                                       79