<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 fiscal year ended  December 31, 1996
                                            -----------------

                         Commission File No. 0-20440
                                             -------

                           MEDICAL RESOURCES, INC.
            (Exact Name of registrant as specified in its charter)

        Delaware                                     13-3584552
------------------------                        -------------------
(State of Incorporation)                           (IRS Employer
                                                Identification No.)

   155 State Street, Hackensack, NJ                    07601
---------------------------------------             -----------
(Address of principal executive office)             (Zip Code)

Registrant's telephone number, including area code:  (201) 488-6230

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:  Common Stock, par
value $.01 per share



                             Title of Each Class
                             -------------------
                   Common Stock (Par value $.01 per share)

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. [ ]

     At March 26, 1997 19,331,236 shares of the registrant's Common Stock, par
value $.01 per share, were outstanding and the aggregate market value of the
Common Stock (based upon the NASDAQ closing price of these shares on that date)
held by non-affiliates was $185,960,045.

                     DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III of this Form 10-K is incorporated by
reference from the registrant's definitive Proxy Statement to be filed not later
than 120 days after December 31, 1996.
<PAGE>

                                     PART I
                                     ------
Item 1    BUSINESS

   General
   -------

     Medical Resources, Inc. ("Medical Resources" and collectively, with its
subsidiaries, affiliated partnerships and joint ventures, the "Company")
specializes in the operation, management and acquisition of diagnostic imaging
centers.  The Company currently operates 53 diagnostic imaging centers
located in the Northeast (29), Florida (15), California (3) and the
Chicago area (6) and provides network management services to managed care
organizations.  The Company is rapidly growing and has increased the number of
diagnostic imaging centers it operates from 11 at December 31, 1995 to 53
at March 26, 1997.  In addition, through the Per Diem and Travel Nursing
divisions of its wholly owned subsidiary, StarMed Staffing, Inc. ("StarMed"),
the Company provides temporary healthcare staffing to acute and sub-acute care
facilities nationwide.

     The Company's diagnostic imaging centers provide diagnostic imaging
services to patients referred by physicians in a comfortable, service-oriented
outpatient environment.  At each of its centers, the Company provides
management, administrative, marketing and technical services, as well as
equipment and facilities, to physicians who  interpret scans performed on
patients.  Medical services are provided by board certified interpreting
physicians, generally radiologists, with whom the Company enters into contracts.
Fifty-two of the Company's 53 centers provide magnetic resonance
imaging ("MR"), which accounts for a majority of the Company's imaging revenues.
Many of the Company's centers also provide some or all of the following
services:  computerized tomography ("CT"), ultrasound, nuclear medicine, general
radiology, fluoroscopy and mammography.

     The number of outpatient diagnostic imaging centers in the United States
has grown from approximately 700 in 1984 to an estimated 2,200 in
1996.  Ownership of outpatient diagnostic imaging centers is highly
fragmented, with no dominant national provider. The Company believes that the
environment faced by diagnostic imaging center operators is characterized by
rising business complexity, growing control over patient flows by payors and
reimbursement pressures that require center owners to seek operational
efficiencies.  In addition, the Company believes that public and private reforms
in the healthcare industry emphasizing cost containment and accountability will
continue to shift the delivery of imaging services from highly fragmented,
individual or small center operators to companies operating larger multi-
modality networks of centers.

     The Company's goal is to become the leading operator of diagnostic imaging
centers in the country.  The Company now has implemented a strategy for growth
which includes acquisitions as well as internal development of its existing
operations.  The Company intends to capitalize on the fragmented nature of the
diagnostic imaging center industry through the acquisition of additional
centers.  The Company's strategy is to expand the scope and efficiency of its
operations at its existing and acquired facilities by:  (i) leveraging the
geographic concentration of its centers; (ii) expanding the imaging services
offered by its centers by upgrading existing technology and adding new
modalities;  (iii) applying sophisticated operating, financial and information
systems and procedures;  (iv) utilizing targeted local marketing
programs; and (v) developing its network management services to address more
fully the needs of managed care providers.

     The Company has a successful record of acquiring imaging centers and
integrating and improving their operations. Since the beginning of 1996, the
Company has acquired 44 imaging centers through 13 acquisitions, including 18
imaging centers resulting from the Company's acquisition (the "NMR Acquisition")
on August 30, 1996 of NMR of America, Inc. ("NMR"). The Company has also entered
into definition documentation to acquire a company owning interests in and
managing eleven centers in the Northeast and has an option to acquire an
additional center in the Northeast. The Company believes that it will





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be able to continue to be a leader in the consolidation of the diagnostic
imaging services industry because of its:  (i) experience in identifying,
structuring and completing acquisitions;  (ii) ability to integrate effectively
these acquisitions;  (iii) size and financial resources;  and (iv) existing
presence in key geographic areas.

     The Company's temporary staffing business, StarMed, was founded in 1978 and
acquired by the Company in August 1994. StarMed's Per Diem staffing division
provides registered nurses, licensed practical nurses, nursing assistants,
therapists and medical transcriptionists on a daily basis to healthcare
facilities through 21 offices located in 10 states at March 26, 1997. StarMed's
Travel Nursing division is operated from a central office in Clearwater, Florida
and provides registered nurses and operating room technicians for periods
usually ranging from 8 to 26 weeks. StarMed commenced its per diem operations in
March 1995 and, since such time, it has opened 18 offices, acquired three
staffing companies operating five additional offices and consolidated the
operations of two other offices in 10 states. In January 1996,
StarMed acquired a per diem healthcare staffing business in California; in June
1996, StarMed acquired a per diem healthcare staffing business in Florida and in
January 1997 StarMed acquired a per diem healthcare staffing business in
Michigan. The Company's growth strategy for its temporary staffing business
includes offering new services to clients, expanding the number of markets
served by StarMed's Per Diem division and acquiring other companies in the
temporary healthcare staffing industry in selected markets.

     Medical Resources was incorporated in Delaware in August 1990 and has its
principal executive office at 155 State Street, Hackensack, New Jersey  07601,
telephone number (201)488-6230.  Prior to the Company's incorporation, the
Company's operations, which commenced in 1979, were conducted by corporations
which are now among its subsidiaries.

Diagnostic Imaging Services Industry
------------------------------------

Overview

     Imaging centers have played a vital role in the healthcare delivery system
by offering diagnostic services such as MR, CT, ultrasound, nuclear medicine,
mammography and x-ray in an outpatient setting.  Diagnostic imaging procedures
are used to diagnose diseases and physical injuries through the use of various
imaging modalities.  The use of non-invasive diagnostic imaging has grown
rapidly in recent years because it allows physicians to diagnose quickly and
accurately a wide variety of diseases and injuries without exploratory surgery
or other invasive procedures, which are usually more expensive, risky and
potentially dibilitating for patients.  In addition, diagnostic imaging is
increasingly used as a screening tool for preventive care.  While conventional
x-ray continues to be the primary imaging modality based on the number of
procedures performed, the use of MR and CT procedures has increased due to their
more sophisticated diagnostic capabilities.  The Company believes that
utilization will continue to increase because of the growth in demand for
diagnostic imaging services as well as the introduction of new diagnostic
imaging procedures using new or existing modalities.

Equipment and Modalities

     Diagnostic imaging systems are based on the ability of energy waves to
penetrate human tissue and generate images of the body which can be displayed
either on film or on a video monitor.  Imaging systems have evolved from
conventional x-rays to the advanced technologies of MR, CT, ultrasound, nuclear
medicine and mammography.  The principal diagnostic imaging modalities used by
the Company include the following:

     Magnetic Resonance Imaging. MR is a sophisticated diagnostic imaging system
     --------------------------
that utilizes a strong magnetic field in conjunction with low energy
electromagnetic waves which are processed by a computer to produce high
resolution images of body tissue. A principal element of MR imaging is

                                       2
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that the atoms in various kinds of body tissue behave differently in
response to a magnetic field, enabling the differentiation of internal organs
and normal and diseased tissue.  Unlike CT and x-rays, MR does not utilize
ionizing radiation which can cause tissue damage in high doses.  As with other
diagnostic imaging technologies, MR is generally non-invasive.

     Computerized Tomography. CT is used to detect tumors and other conditions
     -----------------------
affecting bones and internal organs. CT provides higher resolution images than
conventional x-rays, but generally not as well defined as those produced by MR.
In a CT, a computer directs the movement of an x-ray tube to produce multi-cross
sectional images of a particular organ or area of the body.

     Ultrasound.  Ultrasound has widespread application, particularly for
     ----------
procedures in obstetrics, gynocology and cardiology.  Ultrasound imaging relies
on the computer-assisted processing of sound waves to develop images of internal
organs and the vascular system.  A computer processes sound waves as they are
reflected by body tissue, providing an image that may be viewed immediately on a
computer screen or recorded continuously or in single images for further
interpretation.

     Nuclear Medicine.  Nuclear medicine is used primarily to study anatomic and
     ----------------
metabolic functions.  During a nuclear medicine procedure, short lived
radioactive isotopes are administered to the patient by ingestion or injection.
The isotopes release small amounts of radioactivity that can be recorded by a
gamma camera and processed by a computer to produce an image of various
anatomical structures.

     General Radiology and Fluoroscopy (X-ray).  The most frequently used type
     -----------------------------------------
of imaging equipment, radiology uses "x-rays" or ionizing radiation to penetrate
the body and record images on film.  Fluoroscopy uses a video viewing system for
real time monitoring of the organs being visualized.

     Mammography.  Mammography is a specialized form of radiology equipment
     -----------
using low dosage x-rays to visualize breast tissue.  It is the primary screening
tool for breast cancer.

Growth Strategy

     The Company's goal is to become the leading operator of diagnostic imaging
centers in the country.  The Company has implemented a strategy for growth which
includes acquisitions as well as internal development of its existing
operations.  The Company intends to capitalize on the fragmented nature of the
diagnostic imaging center industry through the acquisition of additional
centers.  The Company's strategy is to expand the scope and efficiency of its
operations at its existing and acquired facilities by:  (i) leveraging the
geographic concentration of its centers; (ii) expanding the imaging services
offered by its centers by upgrading existing technology and adding new
modalities; (iii) applying sophisticated operating, financial and
information systems and procedures; (iv) utilizing targeted local marketing
programs; and (v) developing its network management services to address more
fully the needs of managed care providers. The Company's growth strategy for its
temporary staffing business includes offering new services to clients, expanding
the number of markets serviced by its Per Diem division and acquiring other
companies in the temporary healthcare staffing industry in selected markets.

Acquisition Strategy

     The Company has a successful record of acquiring imaging centers and
integrating and improving their operations.  Since the beginning of 1996, the
Company has acquired 44 imaging centers through 13 acquisitions.  The Company
believes that it will be able to continue to be a leader in the consolidation of
the diagnostic imaging services industry because of its:  (i) experience in
identifying, structuring and

                                       3
<PAGE>

completing acquisitions;  (ii) ability to integrate effectively these
acquisitions:  (iii) size and financial resources;  and (iv) existing presence
in key geographic areas.

     Through the Company's full time acquisition staff, the Company identifies
suitable acquisition candidates based on various factors, including market
demographics; physician referral patterns; reimbursement profiles; local
competition; location in relation to other Company centers and urban areas;
quality and reputation of interpreting physicians; imaging equipment present;
and ability to improve the center's operations and profitability.

     The Company's acquisitions have included individual centers, multi-center
groups and two imaging management companies.  The Company views each of these
types of acquisitions as attractive due to the operational improvements, cost
savings and strategic synergies which may benefit the Company.  After the
acquisition of a center, the Company applies its operating and financial
expertise and procedures and utilizes its sales and marketing programs to manage
the center effectively and to improve the center's utilization.  In
addition, the Company seeks to reduce the operating expenses of its acquired
centers through various means, including capitalizing upon the Company's
established relationships with vendors and its ability to take advantage of
group purchasing discounts. In certain instances where the Company has
acquired multiple centers from a single seller, it has closed a limited number
of centers upon determining that such acquired centers will not meet its
operating and financial objectives. Of the 44 centers acquired since the
beginning of 1996, the Company has closed three centers through March 31, 1997.

Growth Strategy at Existing and Acquired Centers
------------------------------------------------

     Leveraging Geographic Concentration

     The Company has developed clusters of imaging centers in certain geographic
areas which enable it to improve the utilization of its centers by attracting
business from larger referral sources, such as managed care providers due to the
Company's ability to meet the quality, volume and geographical coverage
requirements of these payers.  The Company intends to increase its center
concentration in existing markets to attract additional referrals of this type
and to expand into new geographic areas, through acquisitions, in order to
attract additional managed care contracts.

   Expanding Imaging Services Offered

     The Company expands the imaging services it offers by upgrading existing
technology and adding new modalities at selected centers.  The Company's imaging
centers utilize state of the art imaging equipment for which new applications
are continually being developed.  New developments and system upgrades
frequently have the ancilliary benefit of reducing imaging time and thus
increasing capacity of the centers' imaging equipment.

     Apply Sophisticated Operating, Financial and Information Systems and
Procedures

     The Company provides management expertise, financial and operating
controls, and capital resources to its centers in order to optimize their
performance.   Generally, each of the centers or groups of centers acquired have
had different operating and financial systems and operating procedures.  The
Company evaluates the effectiveness of each and develops a transition plan to
integrate each center, over time, to the Company's targeted operating and
financial systems environment.  In addition, the Company is able to achieve
economies of scale and provide cost savings in developing managed care contracts
and negotiating group purchasing of goods and services.

   Utilize Targeted Localized Marketing

     The Company develops and coordinates marketing programs which center
managers, sales representatives, and affiliated interpreting physicians utilize
to establish referral  relationships and to maximize facility usage and
reimbursement yield.  The Company's marketing programs emphasize the

                                       4
<PAGE>

capabilities of its imaging equipment, the quality and timeliness of the
imaging results and reports, and the high level of patient and referring
physician service.

     Develop Network Management Services

     The Company plans to develop and expand further its network
management services business.  As a network manager, the Company enters into
contracts with managed care organizations to coordinate the demand for imaging
services and to provide certain administrative functions related to the delivery
of such services.  The Company includes certain of its centers in these networks
and believes that the inclusion of these centers in the networks will increase
their utilization.  In addition, the Company believes that its network
management services enhance its relationships with managed care organizations
and its ability to enter into additional contracts with such entities.

Temporary Healthcare Staffing Industry

     The demand for supplemental per diem staffing services in the healthcare
market is being driven by a variety of factors in the acute and sub-acute care
segments.  The increasing presence of managed care and the rapid evolution of
technology has dramatically reduced the average length of stay in acute care
hospitals.  The dynamics of this reduction in length of stay has made the task
of staffing a facility difficult.  Many hospitals are reducing the number of
full time staff and and managing the peak periods by utilizing per diem nursing
services.  The attractiveness of utilizing per diem services is the ability to
monitor and regulate expenses more closely.  When a hospital adds full time
staff, it makes a committment in salary and benefits which it can avoid with per
diem services.  With the emphasis on outpatient care, the needs of the
hospital's admitted patients have increased which subsequently requires a high
level of critical care nursing skills.  Due to the intense environment of
critical care units, turnover is a significant challenge for a hospital.  The
ability to utilize per diem services to address the needs of these units is
becoming increasingly advantageous to hospitals.  In addition, the number of
nursing home beds continues to increase each year in an attempt to meet the
needs of the country's aging population.  The ability of nursing services to
recruit and place qualified nursing assistants and licensed practical nurses in
these facilities who are available on a day by day or part time basis is a great
benefit to this client base.  Nursing homes, like hospitals, are regulated on a
state by state basis and are required to maintain a specific patient to
caregiver ratio.  Per diem servies provide experienced employees who are
productive on their first assignment, compared to new graduates who may require
extensive orientation.

     The demand for travel nursing is being driven by dynamics similar to that
of the per diem market.  In most cases, the client utilizes travel nurses when
they require additional personnel for an extended period of time.  Examples of
this would be the opening of a new satellite facility, an information system
conversion that might divert existing hospital employees from other duties and,
in many cases, a severe local market shortage for a specific nursing speciality.
Additionally, in areas of the country that have significant population changes
tied to seasonality, such as Florida during the winter months, the utilization
of travel nurses is an economic alternative.

Diagnostic Imaging Business

     The following table sets forth certain information concerning the imaging
centers operated by the Company.  Imaging centers that are not 100% owned by
the Company, through a wholly owned subsidiary, are typically owned by limited
partnership or other business entities in which a subsidiary of the Company is
the sole general partner or manager.  The equity ownership interest shown
includes general and limited partnership interests or other equity interests
owned by the Company.  For the centers not wholly owned by the Company, the
Company is generally paid a management fee based on patient cash collections
and/or patient volume under management agreements with certain of the
partnerships.

                                       5
<PAGE>

<TABLE>
<CAPTION>
                                                                         Operated
Location                     Name                                        Since(1)        Ownership(2)  Modalities(3)
---------------------------  ------------------------------------  --------------------  ------------  --------------------
<S>                          <C>                                   <C>                   <C>           <C>
Northeast Region
  Englewood, NJ............  Englewood Imaging Center              December 1979               100%    MR,CT,US,R,F,M
  Marlton, NJ(5)...........  MRImaging of South Jersey             July 1984                  91.0%    MR
  Union, NJ(5).............  OPEN MRI of Union                     August 1984                79.7%    MR
  Morristown, NJ(5)........  MRImaging of Morristown               December 1984              94.2%    MR
  Philadelphia, PA(5)......  Academy Imaging Center                January 1986               97.7%    MR,CT,US,NM,R,F,M
  Allentown, PA(5).........  MRImaging of Lehigh Valley            May 1986                   95.9%    MR
  Clifton, NJ..............  Clifton Medical Imaging Center        June 1987                   100%    MR,CT,US,NM,R,F,M
  Yonkers, NY..............  Inter-County Imaging                  September 1987             65.0%    MR,CT,US,NM,R,F,M
  West Orange, NJ(4).......  Northfield Imaging                    January 1991                100%    MR,CT,US,NM,R,F,M
  Bel Air, MD(5)...........  Colonnade Imaging Center              November 1991              62.9%    MR,CT,US,NM,R,R,M
  Jersey City, NJ..........  The MR Institute at Midtown           July 1992                   100%    MR
  Brooklyn, NY.............  Advanced MRA Imaging Associates       January 1993               51.0%    MR,CT,US,NM,R,R,M
  Seabrook, MD(5)..........  Seabrook Radiological Center          April 1995                 87.1%    MR,CT
  Hackensack, NJ...........  Hackensack Diagnostic Imaging         June 1995                   100%    MR,CT,US,R,F,M
  Bronx, NY................  Westchester Square Imaging            January 1996                100%    MR,CT
  New York, NY.............  MRI-CT Scanning of Manhattan          January 1996                100%    MR,CT,US,R,M
  Centerreach, NY..........  Open MRI of Centerreach               July 1996                   100%    MR
  Garden City, NY..........  Open MRI at Garden City               November 1996               100%    MR
  East Setauket, NY........  Open MRI at Smith Haven               November 1996               100%    MR
  Newark, NJ...............  Imaging Center of the Ironbound       December 1996               100%    MR
  North Bergen, NJ.........  Advanced Magnetic Imaging             March 1997                  9.0%    MR
  Kearny, NJ...............  West Hudson MRI Associates            March 1997                 25.0%    MR
  Cranford, NJ.............  Cranford Diagnostic Imaging           March 1997                 75.0%    MR,CT,US,M
  Montvale, NJ.............  Montvale Medical Imaging              March 1997                 13.8%    MR,CT,US,M,R,F
  Randolph, NJ.............  Morris-Sussex MRI                     March 1997                 20.0%    MR
  Totowa, NJ...............  Advantage Imaging                     March 1997                 15.0%    MR
  Dedham, MA...............  MRI of Dedham                         March 1997                 35.0%    MR
  Seekonk, MA..............  Rhode Island-Massachusetts MRI        March 1997                  5.0%    MR
  Chelmsford, MA...........  MRI of Chelmsford                     March 1997                 65.0%    MR

Florida
 St. Petersburg, FL........  Magnetic Resonance Associates         July 1984                  80.2%    MR
 Naples, FL................  Gulf Coast MRI                        June 1993                   100%    MR
 Ft. Myers, FL.............  Ft. Myers MRI-Central                 May 1995                    100%    MR,CT
 Ft. Myers, FL.............  Ft. Myers MRI-South                   May 1995                    100%    MR
 Cape Coral, FL(5).........  Cape Coral MRI                        September 1995              100%    MR
 Naples, FL(5).............  Naples MRI                            September 1995              100%    MR
 Titusville, FL(5).........  MRI of North Brevard                  September 1995              100%    MR
 Sarasota, FL(5)...........  Sarasota Outpatient MRI & Diag. Ctr.  September 1995              100%    MR, CT
 Tampa, FL.................  Americare MRI                         May 1996                    100%    MR
 Tampa, FL.................  Americare Imaging                     May 1996                    100%    CT,US,NM,R,M
 Tarpon Springs, FL........  Tarpon Springs MRI                    May 1996                    100%    MR
 Clearwater, FL............  Access Imaging                        May 1996                    100%    MR
 Melbourne, FL.............  South Brevard MRI                     January 1997                100%    MR
 Jacksonville, FL..........  MRI Center of Jacksonville            February 1997               100%    MR
 West Palm, FL.............  The Magnet of Palm Beach              March  1997                 100%    MR,CT,US,R,M

Chicago Area
 Chicago, IL(5)............  MRImaging of Chicago                  April 1987                 87.2%    MR
 Chicago, IL(5)............  OPEN MRI of Chicago                   June 1992                  79.6%    MR
 Oak Lawn, IL(5)...........  Oak Lawn Imaging Center               January 1994                100%    MR,CT,US,R,F,M
 Des Plaines, IL(5)........  Golf MRI & Diagnostic Imaging Ctr.    January 1995               75.0%    MR,CT,US,NM,R,F,M
 Libertyville, IL(5).......  Libertyville Imaging Center           January 1995                100%    MR,R,F
 Chicago, IL(5)............  Central Diveresy, IL                  January 1996                100%    MR

California
 Long Beach, CA............  Long Beach Radiology                  January 1997                100%    MR
 San Clemente, CA..........  Oceanview Diagnostic Imaging          January 1997                100%    MR,CT,US,R,F,M
 Rancho Cucamonga, CA......  Grove Diagnostic Imaging              March 1997                  100%    MR,CT,NM,US,R,F,M

</TABLE>

                                       6
<PAGE>

(1)   Operated by the Company or NMR since such date.
(2)   Represents the Company's interest in, losses and distributions of the
      respective centers.
(3)   Modalities are magnetic resonance imaging (MR), computerized tomography
      (CT), ultrasound (US), nuclear medicine (NM), radiology (R),
      fluoroscopy (F) and mammography (M).
(4)   Includes the operation of the Livingston Breast Care mammography unit
      which is located at the Northfield Imaging Center.
(5)   Acquired from NMR.

  The Company may further increase its ownership of its non-wholly owned
centers.  There can be no assurance that the Company will be successful
in completing such acquisitions.  The Company has also increased its revenues
and by adding new imaging equipment modalities to certain centers and
plans to continue this strategy in those situations where the Company
believes that such additions are economically justified.

  Each center consists of a waiting /reception area and one room per modality,
dressing rooms, billing/administration rooms and radiologist interpreting
rooms. The size of the Company's centers generally range from 1,500 to 11,400
square feet.

Operations of Center and Services Provided by the Company

  General.  The Company's centers provide diagnostic imaging services to
  -------
patients referred by physicians who are either in private practice or affiliated
with managed care providers or other payer groups.  The Company's centers are
operated in a manner which eliminates the admission and other administrative
inconvienence of in-hospital diagnostic imaging services.  The Company's
imaging services are performed in an outpatient setting by trained medical
technologists under the direction of interpreting physicians.  Following the
diagnostic procedures, the images are reviewed by the interpreting physicians
who prepare a report of these tests and their findings.  These reports are
transcribed by Company personnel and then delivered to the referring physician.
The interpreting physicians are board certified specialists in radiology,
nuclear medicine, nuclear cardiology or neuroradiology, as appropriate.  Such
interpreting physicians are independent contractors, located at the center on a
full time basis, and are not employees of the Company.  All medical
aspects of each center are under the direct control and are the sole
responsibility of the interpreting physician.  The Company is not engaged in the
practice of medicine.

  Financial and Operational Programs.  Each center implements a total quality
  ----------------------------------
management program which emphasizes fully upgradable imaging equipment, on site
board certified radiologists, the participation of technical employees in
rigorous ongoing quality assurance programs and patient and physician
satisfaction surveys.  The Company also utilizes group purchasing of certain
goods and services to reduce the operating expenses of its centers. The
compensation of the centers' managers and certain other personnel is tied
directly to the centers' profitability.

  Management Information Systems.  The Company has developed sophisticated
  ------------------------------
management information systems designed to, among other objectives, enhance the
efficiency and productivity of its centers, lower operating costs, facilitate
financial controls, increase reimbursement and assist in the analysis of sales,
marketing and referral data.  The management information systems provide
information and assistance to managers with respect to, among other matters,
billing, patient scheduling, marketing, sales, accounts receivable, referrals
and collections.  These systems, which provide highly detailed or customized
management reports, enable management to coordinate and enhance many aspects of
the centers' operations and allow for the development of working plans for
improving profit margins by reviewing results and trends in center operations.
Generally each of the centers or groups of centers

                                       7
<PAGE>

acquired have had different operating and financial systems and operating
procedures.  The Company evaluates the effectiveness of each and develops a
transition plan to integrate each center, over time, to the Company's targeted
operating and financial systems environment.

Sales and Marketing

  The Company develops and coordinates marketing programs which center managers,
sales representatives, affiliated interpreting physicians and corporate managers
utilize in an effort to establish and maintain profitable referring physician
relationships and to maximize reimbursement yields.  These marketing programs
identify and target selected market segments consisting of area physicians with
certain desirable medical specialities and reimbursement yields.  Corporate and
center managers determine these market segments based upon an analysis of
competition, imaging demand, medical specialty and or payer mix of each referral
from the local market.  The Company also directs marketing efforts at managed
care providers.

  Managed care providers are becoming an increasingly important factor in the
diagnostic imaging industry, and, consequently, the Company places major
emphasis on cultivating and developing relationships with such organizations.
The Company employs industry professionals who have significant experience in
dealing with managed care and other providers.  The Company believes that the
geographic concentration of its centers, the presence of multi-modality centers
in all of its regions, its ability to offer cost efffective services and its
experience in developing relationships with various managed care organizations
will constitute a competitive advantage with managed care providers.

Reimbursement, Billing and Collection

     Each center charges patients a fee per imaging study performed, which is
generally billed on behalf of and in the name of an independent physician group.
The Company's centers maintain a competitive billing strategy based upon
evaluation of available pricing data with respect to each location.

     Third party payers, including Medicare, Medicaid, managed care/HMO
providers and certain commercial payers have taken extensive steps to contain or
reduce the costs of healthcare services.  In certain areas, such payers are
subject to regulations as to payments.  Current discussions within the Federal
government regarding national healthcare reform are emphasizing  the containment
of healthcare costs as well as the expansion of the number of eligible parties.
Although such actions have resulted in the general decline in reimbursement
rates for the types of services provided at the Company's centers, the Company
has sought to offset the decline in reimbursement rates by establishing
contractual relationships with managed care organizations and other commercial
payers in order to increase the utilization of its centers

     In addition, during 1996 and 1995 approximately 19.5% and 21.8%,
respectively, of the Company's net service revenues from imaging centers were
derived through physicians providing imaging services to patients involved in
personal injury claims.  The Company believes that such services are an
attractive revenue source and will continue to seek such business because the
reimbursement rates for services provided to patients involved in personal
injury claims are typically significantly greater than the reimbursement rates
of Medicare, Medicaid and managed care providers.  Nevertheless, personal injury
claims require more extensive documentation than other procedures, in addition,
patients with personal injury claims who do not have insurance coverage tend to
delay payment until legal matters are resolved, which may result in significant
collection delays.

Interpreting Physicians Agreements

     In accordance with terms of management agreements with interpreting
physicians at each center, all medical aspects of the center are under the
general supervision of the interpreting physicians.  Such medical aspects
include supervision of medical technicians, establishment of professional fees,
analysis of

                                       8
<PAGE>

diagnostic information, preparation of reports to referring physicians, care of
patients while at the center and communications with referring physicians.  The
Company's obligations include the administrative, marketing and financial
management of the centers as well as providing necessary medical equipment and
leasehold improvements to the interpreting physicians.  The agreements
generally have terms ranging between one and ten years.  For certain centers
that the Company acquired through its acquisition of NMR, which were developed
by NMR (as opposed to acquired by NMR) agreements have been entered into with
physicians engaging in business as professional associations ("Physicians")
pursuant to which the Company maintains and operates imaging systems in offices
operated by Physicians.  Under the terms of the agreements, Physicians have
agreed to be obligated to contract for radiological services at the centers and
to sublease each facility.  The Company is obligated to make necessary
leasehold improvements, provide furniture and fixtures and perform certain
administrative functions relating to the provision of technical aspects of the
centers operations for which Physicians pays a quarterly fee composed of a
fixed sum based on the cost of the respective imaging system installed,
including related financing costs, a charge per invoice processed and a charge
based upon system usage for each NMR installed imaging system in operation.
These agreements generally have terms of up to six years and are renewable at
the option of the Company.

The Company's Temporary Staffing Business
-----------------------------------------

   Services Provided by StarMed

     Through its Per Diem and Travel Nursing divisions, StarMed provides
temporary staffing to acute and sub-acute care facilities nationwide. StarMed's
Per Diem staffing division provides registered nurses, licensed practical
nurses, nursing assistants, therapists and medical transcriptionists on a daily
basis to healthcare facilities currently through 21 offices located in 10
states. StarMed's Travel Nursing division operates from a central office in
Clearwater, Florida and provides registered nurses and operating room
technicians nationwide for periods ranging from eight to twenty six weeks.
StarMed's travel nursing personnel are relocated from their place of residence
to the hospital location for the period of an assignment. Star Med employs the
travel nursing staff under short-term employment agreements, provides
accommodations, travel reimbursements and other benefits central to employees
and bills the client on an hourly basis.

     In fiscal 1995, the Company expanded its temporary healthcare staffing
segment by opening six per diem staffing offices; four in Florida and one each
in Missouri and Ohio. During 1996 and 1997, StarMed opened twelve per diem
offices in seven states. In addition, StarMed completed the acquisitions of
three per diem healthcare staffing companies operating an aggregate of five
offices in southern California during January 1996, in Florida during June 1996
and in Michigan during January 1997.

Clients and Marketing

     StarMed has entered into agreements with client hospitals nationwide to
provide temporary staffing of healthcare personnel.  These hospitals, which are
both for-profit and not-for-profit, range from small rural hospitals to major
teaching and trauma centers.

     StarMed's Per Diem division markets its services primarily through its own
direct sales force. StarMed's marketing approach targets hospitals in major
metropolitan areas or other areas which are attractive from a patient census
perspective as well as to nurses and other professional medical personnel.
Marketing for the Travel Nursing division is conducted primarily by
telemarketing and also by attendance at national and regional conventions,
seminars and direct solicitations. In certain geographic markets, the Company
has contracted with a health services marketing and per diem placement firm to
market its services.

                                       9
<PAGE>

     Upon receiving an order from a client for  a travel nursing position,
StarMed utilizes a sophisticated software application program to match available
candidates to the client's order. The application program considers a services
number of unique hiring criteria established by the client and also certain
general criteria established by StarMed. Suitable candidates are then presented
to the client for temporary staffing assignments.

Recruitment

     Temporary staff are recruited through advertising in industry publications,
job fairs, referrals and other methods.  All applicants for employment are
screened to ensure they have the required practical current experience and
skills, valid license and positive references. StarMed believes that temporary
assignments are attractive  for nurses and other medical personnel
because they provide competitive compensation, the ability to work in various
clinical environments during the course of the year and flexible work schedules.

Competition

     The outpatient diagnostic imaging industry is highly competitive.
Competition focuses primarily on attracting physician referrals at the local
market level and, increasingly, referrals through relationships with managed
care organizations.  The Company believes that principal competitors in each of
the Company's markets are hospitals, independent or management company-owned
imaging centers, some of which are owned with physician investors and mobile MR
units.   Some of these competitors have greater financial and other resources
than the Company.  Principal competitive factors include quality and timeliness
of test results, ability to develop and maintain relationships with managed care
organizations and referring physicians, type and quality of equipment, facility
location, convenience of scheduling and availability of patient appointment
times.  Competition for referrals can also be affected by the ownership or
affiliation of competing centers or hospitals.  Certain of the Company's
competitors have historically derived a significant portion of their revenues
from referrals by physicians who are also investors and have a financial
interest in, or are otherwise affiliated with, the competing center or hospital.
The Company may benefit to the extent current or future regulations will reduce
self-referrals from physician investors and make their referrals part of the
market for which other centers may more effectively compete.

     The temporary healthcare staffing industy is also highly competitive.
StarMed competes for client's business with other providers of temporary
staffing.  StarMed also competes for the limited number of available qualified
staff.  Within the temporary staffing industry, StarMed competes with several
companies which are larger and may possess greater financial resources than
starMed.  Competition for hospital clients is generally based upon the ability
to provide qualified nurses and medical personnel on a timely basis at
competitive prices.  Location of assignment, nature of clinical
responsibilities, compensation and beneits are generally the principal factors
considered by nurses and medical personnel in deciding whether to accept a
temporary assignment.

Government Regulation
----------------------

     The healthcare industry is highly regulated at the Federal, state and local
levels.  The following factors affect the Company's operation and development
activities:

Certificates of Need, Licensing and Certification

  All states in which the Company currently operates or may operate have
laws that may require a certificate of need ("CON") in certain circumstances to
establish, construct, acquire or expand healthcare facilities and services or
for the purchase, expansion or replacement of major moveable equipment,
including outpatient diagnostic imaging centers utilizing MR or other major
medical equipment.  At the

                                       10
<PAGE>

present time, the CON laws of New Jersey, New York, Illinois, Florida,
Maryland, California  and Pennsylvania pertain to the Company's activities.  In
states with CON programs, regulatory approvals are frequently required for
capital expenditures exceeding certain amounts, if such expenditures relate  to
certain types of medical services or equipment.

   State CON statutes generally provide that prior to construction of new
facilities or the introduction of new services, a state health planning agency
("a Planning Agency") must determine that a need exists for those facilities or
services.  The CON process is intended to promote comprehensive healthcare
planning, assist in providing high quality health care at the lowest possible
cost and avoid unneccessary duplication by ensuring that only those healthcare
facilities that are needed will be built.

   Typically, the provider submits an application to the appropriate Planning
Agency with information concerning the geographic area and population to be
served, the anticipated demand for the facility or service to be provided, the
amount of capital expenditure, the estimated annual operating costs, the
relationship of the proposed facility or service to the overall state health
plan, if applicable, and the cost per patient for the type of care contemplated.
Whether the CON is granted is based upon a finding of need by the
Planning Agency in accordance with criteria set forth in CON statutes,
applicable regulations and applicable state and regional health facilities
plans.  If the proposed facility or service is found to be necessary and the
applicant to be an appropriate provider, the Planning Agency will issue a CON
containing a maximum amount of expenditure and a specific time period for the
holder of the CON to implement the approved project.

   The necessity for these CON approvals serves as a barrier to entry in certain
markets which the Company wishes to service and has the potential to increase
the costs and delay the Company's acquisition or addition of centers.  A CON
program or similar requirement has the potential to curtail the Company's
expansion which could have a material adverse effect on the Company's future
growth.

   The Company may also have to comply with Federal certification requirements.
For example, the Company's centers which provide mammography examinations must
be certified by the Federal government.  Further, additional certification
requirements may affect the Company's centers, but such certification generally
will follow specific standards and requirements that are set forth in readily
available public documents.  Compliance with the requirements often is monitored
by annual on site inspections by representatives of various government agencies.
The Company believes that it currently has obtained all necessary
certifications, but the failure to obtain a necessary certification could have a
material adverse effect on the Company's imaging business.

   In addition to the CON programs and Federal certification described above,
the operations of outpatient imaging centers are subject to Federal and
state regulations relating to licensure, standards of testing, accredation of
certain personnel and compliance with government reimbursement programs.  The
operation of these centers requires a number of Federal and state licenses,
including licenses for personnel and certain equipment.  Although the Company
believes that currently it has obtained or is in the process of obtaining all
such necessary CON approvals and licenses, the failure to obtain a required
approval  could have a material adverse effect on the Company's diagnostic
imaging business.  The Company believes that diagnostic testing will continue to
be subject to intense regulation at the Federal and state levels and cannot
predict the scope and effect of such regulation nor the cost to the Company of
such compliance.

Medicare Anti-Kickback Provisions

     The Anti-Kickback Act prohibits the offering, payment, solicitation or
receipt of any form of remuneration in return for the referral of Medicare or
Medicaid patients or patient care opportunities, or in return for the purchase,
lease or order or provision of any item or service that is covered by Medicare
or Medicaid.  Violation of the Anti-Kickback Act is punishable by substantial
fines, imprisonment for up to five years, or both.  In addition, the Medicare
and Medicaid Patient and Program Protection Act of 1987

                                       11
<PAGE>

(the "Protection Act") provides that persons guilty of violating the Anti-
Kickback Act may be excluded from the Medicare or Medicaid programs.
Investigations leading to prosecutions and/or program exclusion may be conducted
by the Office of Inspector General ("OIG") of the Department of Health and Human
Services ("HHS").

     Under the Anti-Kickback Act law enforcement authorities, HHS and the
Federal courts are increasingly scrutinizing arrangements between health care
providers and referrals sources (such as physicians) in order to ensure that the
arrangements are not designed as a mechanism to exchange remuneration for
patient referrals.  This scrutiny is not limited to financial arrangements that
involve a direct payment for patient referrals, but extends to indirect payment
mechanisms that carry the potential for inducing Medicare and Medicaid
referrals, including situations where physicians hold investment interests in a
healthcare entity to which such physicians refer patients.  The Anti-Kickback
Act would cover, for example, situations in which physicians hold investment
interests in a billing company which profits from Medicare referrals.  The
Company does not believe that it is operating in violation of the Anti-Kickback
Act.

Safe Harbor Regulations

  On July 29, 1991, the OIG published safe harbor regulations that specify
the conditions under which certain kinds of financial arrangements, including
(i) investment interests in public companies, (ii)  investment interests in
small entities, (iii) management and personal services contracts, and (iv)
leases of space and equipment, will be protected from criminal prosecution or
civil sanctions under the Anti-Kickback Act if the standards set forth in the
regulation are strictly followed.  Additional regulations were proposed on July
21, 1994 to amend portions of the original Safe Harbor Regulations and to
reaffirm and clarify the OIG's original intent under the Safe Harbor
Regulations.  However, these regulations are not yet in effect.  Although the
Company believes its operations generally qualify for protection under the
applicable safe harbor regulations, these regulations have thus far been
relatively untested in practice, and there can be no assurance that the Company
would prevail in its position.  The OIG has stated that failure to satisfy the
conditions of an applicable "safe harbor" does not necessarily indicate that the
arrangement in question violates the Anti-Kickback Act, but means that the
arrangements are not among those that the "safe harbor" regulations protect from
criminal or civil sanctions under that law.

   While the Company believes that it is in compliance with the current
requirements of the Anti-Kickback Act under the applicable safe harbor
regulations, these regulations have so far been relatively untested in
practice.  Furthermore, no assurances can be given that a Federal or state
agency charged with enforcement of the Anti-Kickback Act and similar laws might
not assert a contrary position or that new Federal or state laws or new
interpretations of existing laws might not adversely affect relationships
established by the Company with healthcare providers, including physicians, or
result in the imposition of penalties on the Company or certain of its centers.
The assertion of a violation, even if successfully defended by the
Company, could have a material adverse effect upon the Company.

Stark Law Prohibition on Physician Referrals

   The Federal "Stark Law" as amended in 1993 provides that where a physician
has a "financial relationship" with a provider of  "designated health services"
(including, among other activities, the provision of MR and other radiology
services which are services provided by the Company), the physician will be
prohibited from making a referral of Medicaid or Medicare patients to the
healthcare provider, and the provider will be prohibited from billing Medicare
or Medicaid, for the designated health service.  In August 1995, regulations
were issued pursuant to the Stark Law as it existed prior to its amendment
in 1993.  The preamble to these regulations indicates that the Health
Care Financing Administration ("HCFA") intends to rely on the language and
interpretations in the regulations when reviewing compliance under the Stark
Law, as amended.  Submission of a claim that  a provider knows, or should know,
is for

                                       12
<PAGE>

services for which payment is prohibited under the amended Stark Law, could
result in refunds of any amounts billed, civil money penalties of not more than
$15,000 for each service billed, and possible exclusion from the Medicare and
Medicaid programs.

  The Stark Law provides exceptions from its prohibition for referrals
which include certain types of employment, personal services arrangements and
contractual relationships.  The Company continues to review all aspects of its
operations and believes that it complies in all material respects with
applicable provisions of the Stark Law, although because of the broad and
sometimes vague nature of this law and the related regulations, there can be no
assurance that an enforcement action will not be brought against the Company or
that the Company will not be found to be in violation of the Stark Law.

False Claims Act

   A number of Federal laws impose civil and criminal liability for knowingly
presenting or causing to be presented a false or fraudulent claim, or knowingly
makes a false statement to get a false claim paid or approved by the
government.  Under one such law, the False Claims Act, civil damages may include
an amount that is three times the government's loss plus $5,000 to $10,000 per
claim.  Actions to enforce the False Claims Act may be commenced by a private
citizen on behalf of the Federal government, and such private citizens receive
between 15 and 30 percent of the recovery.  Efforts have been made to assert
that any claim resulting from a relationship in violation of the Anti-Kickback
Act or the Stark Law is false and fraudulent under the False Claims Act.  The
Company carefully monitors its submissions to HCFA and all other claims for
reimbursement to assure that they are not false or fraudulent, and as noted
above, believes that it is not in violation of the Anti-Kickback Act or the
Stark Law.

State Laws

  Many states, including the states in which the Company operates, have
adopted statutes and regulations prohibiting payments for patient referrals and
other types of financial arrangements with healthcare providers, which, while
similar in certain respects to the Federal legislation, vary from state to
state.  Some states expressly prohibit referrals by physicians to facilities in
which such physicians have a financial interest.  Sanctions for violating these
state restrictions may include loss of licensure and civil and criminal
penalties assessed against either the referral source or the recipient provider.
Certain states also have begun requiring healthcare practitioners to disclose to
patients any financial relationship with other providers, including advising
patients of the availability of alternative providers.

   The Company continues to review all aspects of its operations and believes
that it complies in all material respects with applicable provisions of the
Anti-Kickback Act, the Stark Law and applicable state laws governing fraud and
abuse as well as licensing and certification, although because of the broad and
sometimes vague nature of these laws and requirements, there can be no
assurance that an enforceable action will not be brought against the Company or
that the Company will not be found to be in violation of  one or more of these
regulatory provisions.  Further, there can be no assurance that new laws or
regulations will not be enacted, or existing laws or regulations interpreted or
applied in the future in such a way as to have a material adverse impact on the
Company, or that Federal or state governments will not impose additional
restrictions upon all or a portion of the Company's activities, which might
adversely affect the Company's business.

Regulations Affecting StarMed

     StarMed has obtained all necessary licenses to conduct business in the
states where required.  Temporary staff are also subject to various occupational
and professional licensing laws that apply to

                                       13
<PAGE>

medical professionals.  Many states have temporary staff laws requiring
training, monitoring and regulating of medical professionals.

  Because the services of StarMed's temporary staff are paid for directly
by the client hospitals, StarMed is not subject to the reimbursement, billing
and collection procedures required by the existence of government and private
third party payers as is the case with respect to the Company's diagnostic
imaging centers.

Insurance Coverage
------------------

     The nature of the services provided by StarMed potentially exposes StarMed
to greater risks of liability than are posed by other non-medical personnel
staffing businesses.  The Company maintains public and professional liability
insurance in amounts which it deems adequate to cover all potential risk.  There
can be no assurance that the amount of such insurance will be adequate to cover
all potential liabilities.

Employees
---------

  As of December 31, 1996, the Company had approximately 460 full time and 163
part time employees, including two executive officers, 356 administrative
personnel, 54 sales and marketing personnel and 211 technical personnel.  These
numbers do not include the healthcare personnel contracted by StarMed for its
Per Diem and Travel Nursing divisions.  The Company is not a party to any
collective bargaining agreements and considers its relationship with its
employees to be good.

Insurance
---------

  The Company carries workmen's compensation insurance, comprehensive and
general liability coverage, fire, allied perils coverage and professional
liability insurance in amounts deemed adequate by management.  There is no
assurance that potential claims will not exceed the coverage amounts, that the
cost of coverage will not substantially increase or require the Company to
insure itself or that certain coverage will not be reduced or become
unavailable.

Item 2    PROPERTIES
------    ----------

  The Company leases its principal and executive office pursuant to an
eight and a half year lease with a term commencing January 1995 and expiring
August 2003, subject to one five year renewal term.  The building also houses
the Company's Hackensack  imaging center.  The Company also leases a 14,000
square foot storage facility located in Passaic, New Jersey with a lease term of
two years.  The Company's imaging centers range in size from approximately 1,500
to 11,400 square feet.  Each center consists of a waiting/reception area and one
room per modality, dressing rooms, billing/administration rooms and radiologist
interpreting rooms.  Center leases expire between December  1996 and October
2002 and, in certain instances, contain options to renew.  StarMed's 21
per diem staffing offices lease approximately 14,000 square feet of office
space in the aggregate under various lease terms expiring through
December 1999.

Item 3    LITIGATION
------    ----------

  From time to time, the Company encounters litigation in the ordinary course of
its business (see Note 9 to the Consolidated Financial Statements). In 1996, an
individual and his spouse brought an action in the Supreme Court of the State of
New York, King's County against MRA Imaging Associates in Brooklyn, New York, a
wholly owned subsidiary of the Company ("MRA Imaging"), for damages aggregating
$12.5 million. The plaintiff alleges negligent operations, improper supervision
and hiring practices and the failure to operate the premises in a safe manner,
as a result of which the individual suffered physical injury. The Company's
general liability and professional negligence insurance carriers have been
notified, and it has been agreed that the general liability insurance will
pursue the defense of this matter, however such insurers have reserved the right
to claim that the scope of the matter falls outside the Company's coverage. The
parties to this matter are engaged in discovery. The Company's legal counsel
believes that it is more probable than not that the plaintiffs will not recover
the damages sought. The Company has made no provision in its financial
statements for this matter. In the event the plaintiffs prevail, this matter may
have a material adverse effect on the Company's financial condition, results of
operations and cash flow.


                                      14
<PAGE>

Item 4    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------    ---------------------------------------------------

  There were no matters submitted to a vote of security holders during the last
quarter for the year ended December 31, 1996.

                                       15
<PAGE>

                                      PART II

Item 5      FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
------      -------------------------------------------------------------

Market Information and Stock Price

     The Company's common stock had been traded on the National Association of
Securities Dealers Automated Quotation System (NASDAQ) National Market, under
the symbol MRII, since November 3, 1995, and on the NASDAQ SmallCap Market prior
thereto.  The following table sets forth for the periods indicated below the
high and low bid prices per share of the Common Stock as reported by NASDAQ:

<TABLE>
<CAPTION>
                                High      Low
                              --------  -------
<S>                           <C>       <C>
  1995
     First Quarter             $ 4       $2 7/8
     Second Quarter            $ 3 3/4   $3 1/8
     Third Quarter             $ 6 1/2   $3 1/2
     Fourth Quarter            $ 8       $4 1/2
  1996
     First Quarter             $ 6 3/8   $4 5/8
     Second Quarter            $10 1/4   $6
     Third Quarter             $ 9 1/4   $6 1/4
     Fourth Quarter            $11 3/4   $7
</TABLE>

     As of the close of business on March 24, 1997, the last reported sales
price per share of the Company's common stock was $11 1/8.

     There were 469 holders of record of the Company's Common Stock at the close
of business on March 24, 1996.  Such number does not include persons, who's
shares are held by a bank, brokerage house or clearing company, but does
include such banks, brokerage houses and clearing companies.

  No cash dividends have been paid on the Company's common stock since
the organization of the Company and the Company does not anticipate paying
dividends in the foreseeable future.  The payment by the Company of cash
dividends is limited by the terms of the agreement related to its Senior Notes.
The Company currently intends to retain earnings for future growth and expansion
opportunities.

  The following is a list of securities sold by the Company during the period
covered by this Report on Form 10-K which, pursuant to the exemption provided
under Section 4(2) of the Securities Act of 1933, as amended (the "Securities
Act"), were not registered under the Securities Act:

     On January 9, 1996, the Company issued to MRI-CT, Inc. 194,113 shares of
the Company's Common Stock as partial consideration for the acquisition of four
diagnostic imaging centers.

     On April 30, 1996, the Company issued to Access Imaging Centers, Inc.
192,063 shares of the Company's Common Stock as partial consideration for the
acquisition of a diagnostic imaging center located in Florida.

  On May 1, 1996, the Company issued to Americare Imaging Centers,
Inc. and MRI Associates of Tarpon Springs, Inc. 228,571 shares of the Company's
Common Stock as partial consideration for the acquisition of four diagnostic
imaging centers located in Florida.

                                       16
<PAGE>

     On November 25, 1996, the Company issued to Belle Meade MRI Imaging Corp.
and related entities 573,175 shares of the Company's Common Stock as partial
consideration for the acquisition of two diagnostic imaging centers located in
New York.

  On December 16, 1996, the Company issued to TME, Inc. 18,868
shares of the Company's Common Stock as partial consideration for the
acquisition of a diagnostic imaging center located in New Jersey.

     In addition, on March 1, 1996, the Company issued to a financial advisory
and brokerage firm, five-year warrants to purchase 75,000 shares of the
Company's Common Stock consisting of 37,500 warrants with an exercise price of
$8.00 per share and 37,500 warrants with an exercise price of $12.00 per share,
for financial advisory services rendered to the Company; on May 20, 1996, the
Company issued to 712 Advisory Services, Inc., a financial advisory firm and
affiliate of the Company's Chairman of the Board, five year warrants to purchase
120,000 shares of the Company's Common Stock at an exercise price of $9.00 per
share, for financial advisory services rendered to the Company in connection
with the NMR Acquisition; and on November 1, 1996, the Company issued to a
finacial consultant, five year warrants to purchase 5,000 shares of the
Company's Common Stock at an exercise price of $9.00 per share, for financial
advisory services rendered to the Company. In all cases, the exercise prices of
the warrants referred to above were no less than, and in some cases exceeded,
the fair market value of the Company's Common Stock on the date of grant.



Item 6    SELECTED FINANCIAL DATA
------    -----------------------

     The following selected consolidated historical financial data of the
Company is derived from the Company's consolidated financial statements for the
periods indicated.  The information in the table and the notes thereto
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's consolidated
financial statements and notes thereto, which are included elsewhere in this
report.

<TABLE>
<CAPTION>
                                                     1996     1995     1994       1993       1992
-------------------------------------------------  -------  -------  ---------  ---------  -------
<S>                                                <C>      <C>      <C>        <C>        <C>
Statement of Operations Data:
-----------------------------
Net service revenues                               $93,785  $51,994  $ 45,178   $ 45,242   $41,143
Operating income                                    14,693    7,507     1,036        287     3,288
Income (loss) from continuing
  operations before extraordinary item:              7,254    4,143   ( 1,093)   ( 2,055)      610

   Income (loss) per share from
     continuing operations before
     extraordinary items:
     Primary                                       $  0.62  $  0.53    ($0.15)    ($0.32)  $  0.11
     Fully diluted                                 $  0.59  $  0.53    ($0.15)    ($0.32)  $  0.11

Supplemental Data:
------------------
Number of consolidating
  imaging centers at end of period                      39       11         8          8         7

Total procedures at consolidated
  imaging centers                                  209,970  124,302   101,460     86,686    63,246


Total Assets                                      $164,514 $ 44,136  $ 40,372   $ 40,881  $ 33,993
 Long term debt and
   capital lease obligations
   (excluding current portion)                    $ 21,012 $ 11,157  $ 13,415   $ 19,034  $ 12,765

Convertible Debentures                            $  6,988 $  4,350






</TABLE>

                                       17
<PAGE>

Item 7    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
------    --------------------------------------------------
          CONDITION AND RESULTS OF OPERATIONS
          -----------------------------------

Year Ended December 31, 1996 Compared to Year Ended December 31, 1995


  For the year ended December 31, 1996, net service revenues amounted to
$93,785,000 versus $51,994,000 for the year ended December 31, 1995, an increase
of $41,791,000 or 80.4%. The increase in revenues is primarily attributable to
an increase of $ 1,942,000 (representing a 5.9% increase) at centers which were
included in revenues for all of 1996 and 1995; a $5,422,000 increase in revenues
(representing a 175.5% increase) at three imaging centers acquired during 1995;
$21,212,000 of revenues contributed by centers acquired during 1996 and a
$12,925,000 increase (representing an 80.3% increase) in revenues generated by
the staffing segment, primarily due to internal growth and acquisitions.

  Operating costs for the year ended December 31, 1996 were $59,064,000 compared
to $31,564,000 for the year ended December 31, 1995, an increase of $27,500,000
or 87.1%. Of this increase, $15,245,000 or 55.43% of the increase is
attributable to costs incurred at imaging centers acquired during 1995 and 1996,
and $5,845,000 or 21.3% of the increase is primarily attributable to staffing
offices opened and acquisitions during the year ended December 31, 1996.
Operating costs for centers opened all of 1996 and 1995 increased $1,564,000 or
9.5%.

  Provision for uncollectible accounts receivable increased $1,405,000 or 41.6%
from $3,378,000 from the year ended December 31, 1995 to $4,783,000 for the year
ended December 31, 1996. This increase is primarily due to the significant
increase in imaging revenues which have higher bad debt experience. The 1996
imaging segment provision for uncollectible accounts consists of $4,704,000 or
7.3% of revenue as compared to $3,374,000 or 9.4% of revenue in 1995.  The
decrease inthe provision for uncollectible account receivable as a percentage of
imaging revenues is due to acquired companies having a more favorable collection
experience due to differences in payor mix.  The Company's staffing report
provision for uncollectibles for both 1996 and 1995 was not material.

  Corporate general and administrative expense increased by $2,775,000
or 55.7% from $4,978,000 for the year ended December 31, 1995 to $7,753,000 for
the current year. This increase is primarily due to the expanded business
development activities and the resulting growth experienced during the year in
the imaging and staffing segments, particularly following the NMR Acquisition.

  Depreciation and amortization expense was $7,465,000 for the year ended
December 31, 1996 compared to $4,567,000 for the year ended December 31, 1995 or
an increase of $2,898,000 (63.5%). The imaging segment accounted for $2,690,000
or 92.8% of this increase in aggregate depreciation and amortization expense due
primarily to depreciation expense relating to acquired assets and increased
goodwill amortization incurred in connection with such acquisitions. Equipment
depreciation and amortization expense increased from $3,844,000 in 1995 to
$5,463,000 in 1996 while goodwill and other amortization increased from
$1,134,000 to $2,002,000 primarily due to the NMR Acquisition.

  Interest expense for the year ended December 31, 1996 was $2,968,000 as
compared to $1,829,000 for the prior year, an increase of $1,139,000 or 62.3%.
This increase is primarily attributable to an increase in interest on
convertible debentures and lines of credit outstanding during 1996 of $646,000
and increases in interest on debt assumed in acquisitions during 1996 totaling
$764,000 offset by decreases in interest expense relating to conversion of
convertible debentures and scheduled reductions in outstanding principal
balances.

                                       18
<PAGE>

  Minority interest amounted to $308,000 for the year ended December 31, 1996 as
compared to ($124,000) for the year ended December 31, 1995. The increase of
$432,000 or 348.5% is attributable to increased profitability at the Company's
St. Petersburg, Florida and Yonkers, New York facilities ($383,000) and the
acquisition of the NMR facilities ($49,000).

  Income taxes increased $2,503,000 or 152.5 % for the year ended December 31,
1996 from $1,659,000 to $4,162,000. This increase is attributable to the
increased profitability of the Company's existing and acquired businesses during
1996 and due to the Company's effective income tax rate which increased. The
Company's provision for income taxes resulted in effective tax rates of 36.6% in
1996 and 28.6% in 1995, respectively. The 1996 provision was higher than the
statutory rate due primarily to state and local income taxes, net of the Federal
tax effect (6.1%), the impact on non-deductible goodwill (2.3%) and meals and
entertainment, offset by other items amounting to (6.6%). In 1995, the effective
tax rate was lower than the statutory rate primarily to a reduction in the
deferred tax asset valuation allowance (26.2%) offset by other items amounting
to 10.7%.

  For the reasons described above, the Company's net income for the year ended
December 31, 1996 increased $ 5,564,000 or 329.2% from $1,690,000 for the period
ended December 31, 1995 to $7,254,000. The year ended December 31, 1995 net
income includes two non-recurring items relating to losses incurred upon the
sale of the Company's maternity apparel subsidiary.

Year Ended December 31, 1995 Compared to Year Ended December 31, 1994


  The Company's net service revenues in 1995 and 1994 were $51,994,000 and
$45,179,000, respectively, representing an increase of $6,815,000, or 15%, in
1995.  This increase was primarily due to an increase in the revenues of the
Company's imaging business of $5,253,000.  The increase in same center revenues
was $2,272,000.  In addition, revenues from the Company's staffing business
increased in 1995 by $1,562,000.

  Operating costs, excluding interest expense, depreciation and amortization in
1995 and 1994 were $31,564,000 and $29,307,000, respectively, representing an
increase of $2,257,000, or 8%, in 1995. This increase is primarily due to an
increase in variable costs associated with the increased operating costs at the
Company's existing centers resulting from increased procedures and the
acquisition of three new centers. Additionally, there was increased operating
costs in the Company's staffing business associated with the increased revenues.

  Provision for uncollectible accounts receivable in 1995 and 1994 was
$3,378,000 and $2,495,000, respectively, representing an increase of $883,000,
or 35%, in 1995. As a percentage of total revenues, provision for uncollectible
accounts receivable increased to 6.5% in 1995, compared to 5.5% in 1994. The
increase is primarily attributable to a change in estimate for receivables
derived from revenues with a higher risk of bad debts (see Note   to the
Consolidated Financial Statements ).

  Corporate general and administrative expenses in 1995 and 1994 were $4,978,000
and $4,438,000, representing an increase of $540,000, or 12%, in 1995.  This
increase is attributable to an increase in corporate staff associated with the
Company's increased business and acquisitions and new business development
activity during 1995.

  Depreciation and amortization, including the amortization of value of venture
contracts, in 1995 and 1994 was $4,567,000 and $4,844,000, respectively,
representing a decrease of $277,000, or 6%, in 1995.  The decrease in
depreciation and amortization was primarily due to the write down of intangible
assets in 1994 of $2,176,000 relating to the value of venture contracts
recognized in connection with the acquisition of the Company in September, 1990
and goodwill associated with the Company's purchase of

                                       19
<PAGE>

the Livingston Breast Care Center in July, 1992.  The decrease in
depreciation and amortization expense was partially offset by the depreciation
and amortization expense related to the three centers acquired by the Company
during fiscal 1995.

  The provision for minority interest in losses of joint venture of $532,000 in
1994 relates to the Company's Brooklyn facility. Executive severance of $328,000
in 1994 is reflective of the separation agreements entered into with two former
senior executives of the Company during that year. write-down of medical
diagnostic equipment of $40,000 arose from an adjustment to the Clifton center's
ultrasound unit to its fair market value in February, 1994. The gain on the
disposal of $17,500 resulted from the sale of a MR unit at the Company's Naples
facility in February, 1994 for $100,000. There were no such charges or gains in
1995.

  As a result of the foregoing, operating income in 1995 and 1994 was $7,507,000
and $1,036,000, respectively, representing an increase of  $6,471,000 in 1995.

  Interest expense in 1995 and 1994 was $1,829,000 and $1,693,000, respectively,
representing an increase of $136,000, or 8%, in 1995.  The increase in interest
expense is primarily due to the interest on the convertible debentures (see Note
   to the Consolidated Financial Statements) which accounted for
$279,000 of interest partially offset by a reduction of notes payable and
renegotiation of some capital leases in the fourth quarter of 1994.

  Minority interest in losses of joint ventures and limited partnerships in 1995
and 1994 was $124,000 and $46,000, respectively, an increase of $78,000.  This
increase was due primarily to the Company's Brooklyn and St. Petersburg
facilities operating at a combined loss in 1994 of $543,000 compared with net
operating income of $268,000 in 1995 before adjustment for minority partner
capital contributions.  The minority interest in losses of joint ventures and
limited partnerships in 1994 was reduced as a result of the Company taking a
charge for the majority of operating losses at the Brooklyn facility in the
amount of $532,000.

  The provision for income taxes in 1995 and 1994 was $1,659,000 and $481,000,
respectively, representing an increase of $1,178,000 in 1995.  The 1995
provision for income taxes represents federal and state income taxes resulting
from separate company state tax filing requirements is net of reductions in the
deferred tax asset valuation allowance of $1,508,000, in recognition of
profitable operations.  The increase is attributable to the increase in current
taxable income during 1995.  StarMed operated as a partnership prior to the
combination with the Company in August, 1994; therefore, StarMed had not
recorded any income tax expense or benefits.  The pro forma income tax expense
(benefit), assuming StarMed was taxed as a C Corporation, was $660,000 for 1994,
excluding the $297,000 income tax effect for the extraordinary item in 1994.

  The extraordinary item, gain on debt restructuring of $762,000 relates to the
restructuring of a note payable in January, 1994.

  Loss from discontinued operations of $2,453,000 in 1995 was $790,000 higher
than losses of $1,663,000.  The increase is due primarily to approximately
$1,376,000 of losses incurred upon the sale of Maternity partially offset by
reduced operating losses in 1995.

  As a result of the foregoing, net income/(loss) in 1995 and 1994 was
$1,690,000 and ($1,994,000), respectively, representing an increase of
$3,684,000 in net income in 1995.

                                       20
<PAGE>

Liquidity and Capital Resources
-------------------------------

  The Company's cash balances at December 31, 1996 and 1995 were $15,346,000
and $3,935,000, respectively, representing an increase of  $11,411,000 or 290%,
in 1996.  The Company's working capital position at December 31, 1996 was
$42,776,000 compared to a December 31, 1995 balance of $10,738,000, an increase
of $32,038,000 or 298% during 1996. The increase in working capital resulted
primarily from (i) the net proceeds of $25,164,000 from the Company's common
stock offering, (ii) the net proceeds of $6,533,000 from the issuance of
convertible subordinated debentures and (iii) the merger with NMR offset by cash
paid as consideration for 1996 acquisitions and the assumption of certain
liabilities of acquired companies. Delays in reimbursements of claims from third
party payers, including Medicare, Medicaid, Managed Care/HMO providers and
certain commercial payers, negatively affect the Company's liquidity.

  Net cash provided by operating activities for the years ended 1996 and
1995 was $1,150,000 and $2,335,000, respectively, representing a decrease of
$885,000 in 1996.  The decrease was primarily due to a large increase in
accounts receivable and certain other assets which relate primarily to the
Company's expansion activities offset by increases in net income, non-cash
charges and other liabilities.

  In 1996, net cash used in investing activities totaled $16,703,000 which
includes (i) $6,412,000 expended for the purchase of diagnostic imaging centers,
offset by $2,157,000 of cash acquired in the NMR Acquisition, (ii) $2,314,000
for the purchase of per diem staffing businesses and (iii) $184,000 for the
purchase of limited partnership interests.  During 1996, the Company purchased
$6,137,000 of investments, $4,500,000 of these investments were subsequently set
aside (restricted) pursuant to the terms of a letter of credit issued in
connection with an acquisition.  An additional $600,000 in cash was set aside
(restricted) pursuant to a letter of credit issued in conjunction with a
consulting agreement to which the Company is a party.  The Company expended
$1,070,000 in 1996 for medical diagnostic and office equipment.

  Financing activities provided $27,110,000 in cash during the year ended
December 31, 1996, which consisted of net proceeds of $25,164,000 received
through a public offering of its Common Stock, $6,533,000, net proceeds from the
issuance of subordinated debentures in May 1996, $1,229,000 proceeds from
borrrowings during the year (used to purchase equipment for the imaging
centers), $2,022,000 realized from the exercise of stock options and warrants,
offset by $7,773,000 utilized for the repayment of debt and capital lease
obligations and $64,000 used to purchase shares of the Company's Common Stock.

  The Company currently has a capital lease equipment line of credit of
$7,000,000 of which none was used at December 31, 1996. Medical equipment
purchases, capital improvements, acquisitions and new center development have
been funded primarily through third party capital lease and debt obligations and
internally generated cash flow. The debt is generally collaterized by the
equipment, and usually other assets, of the center. In addition, the Company has
three $4,000,000 in collaterized working capital lines of credit which are
unused at December 31, 1996. The Company has agreed that in order to draw on
such lines it must pledge adequate collateral.

  As of December 31, 1996, $6,988,000 aggregate principal amount of convertible
subordinated debentures were outstanding. Of such amount, $1,370,000 aggregate
principal amount of such convertible subordinated debentures bear interest at
11%, are due 2000 and are convertible into common stock at anytime by the
debenture holder at $4.00 per share. The debentures automatically convert into
common stock at $4.00 per share when, after June 1, 1997, the market price of
the stock exceeds $6.00 per share for any 15 day period. Additionally,
$4,800,000 aggregate principal amount of the outstanding convertible debentures
bear interest at 10.5%. Subsequent to year end, the Company called for a
redemption of such debentures at the conversion price of $6.00 per share on or
before March 27, 1997. Also, $818,089 aggregate principal amount of the
outstanding convertible debentures bear interest at 8.0%. Subsequent to year
end, the Company called for a redemption of such debentures at the conversion
price of $6.54 per share on or before March 27, 1997.

                                       21
<PAGE>

  Subsequent to year end, in February 1997, the Company raised $52,000,000
through the private placement of senior uncollateralized notes which bear
interest at 7.77% and require sinking fund payments commencing in February 2001
with a final maturity in 2005. The proceeds of the senior notes were used to
retire approximately $14,230,000 of existing debt. The Company expects to
utilize the balance of the proceeds to fund future acquisitions.

  The Company believes that funds available from these capital raising
activities together with the existing cash and cash equivalents, short-term
investments and cash generated from operating activities will be sufficient to
meet the needs of its current operations, any acquisitions of additional limited
partnership interests in the Company's centers, anticipated capital
expenditures and scheduled debt repayments.

  Management believes and continues to believe that there are and will continue
to be opportunities to acquire additional diagnostic imaging centers, as well as
companies which own multiple centers. Management reviews proposals to acquire
additional centers and evaluates these opportunities on the basis of the price
at which it believes the centers can be acquired, relevant demographic
characteristics, competitive centers, physician referral patterns, location and
other factors. The Company is committed to a substantial acquisition strategy
based upon its assessment of strategic markets and opportunities resulting in
the acquisition of twenty six imaging centers, including the acquisition of ATI
Centers, Inc. in seven separate transactions subsequent to December 31, 1996.
Management intends to pursue the acquisition of additional centers if its
analysis of these factors indicate the Company would receive a favorable rate of
return from investing in these centers. Any centers that are acquired can be
expected to involve the payment of the purchase price in either cash, notes or
shares of common stock or a combination thereof. No assurances can be given that
additional centers will be acquired or as to the terms thereof. In the event
that the Company engages in the acquisition of additional centers, it may be
required to raise additional long-term capital through the issuance of debt or
equity securities. No assurance can be given that such capital will be available
on terms acceptable to the Company. The unavailability of capital for this
purpose would adversely affect the Company's ability to acquire additional
centers.

Other
-----

  The Company believes that its business is generally unaffected by seasonality.
However, the Company usually experiences lower revenues during the third quarter
of the fiscal year due to reduced activity during the summer months.

  The impact of inflation and changing prices on the Company has been primarily
limited to salary, medical and film supplies and rent increases and has not been
material to date to the Company's operations.  Management is aware of
inflationary expectations and growing health care costs, and believes that the
Company may not be able to raise the prices for its diagnostic imaging
procedures by an amount sufficient to offset cost inflation.  The Company has
responded to these concerns in the past by increasing the volume of its
business.  In addition, current discussions within the Federal government
regarding

                                       22
<PAGE>

national health care reform are emphasizing containment of health care costs
as well as expansion of the number of eligible parties.  The implementation of
this reform could have a material effect on the financial results of the
Company.

  In the first quarter of 1996, the Company adopted Financial
Accounting Standards ("FAS") 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of ("Statement No. 121"),
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.  Statement No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of.  No adjustments were required
pursuant to adoption of Statement No. 121 by  the Company.

  In February 1997, Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share", was issued which established standards for computing
and presenting earnings per share. SFAS No. 128 is effective for financial
statements issued for periods ending after December 15, 1997, including interim
periods. The Company is currently evaluating the effect of this standard on
earnings per share.

  In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting and Disclosure of Stock-Based Compensation"
("Statement 123") which encourages but does not require companies to recognize
stock awards based on their fair value at the date of grant.  The Company
currently follows, and expects to continue to follow, the provision of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25), and related interpretations in accounting for its employee
stock options.  Under APB 25, because the exercise price of the company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.  Although the Company is
permitted to continue to follow the provisions of APB 25 under Statement 123,
certain pro forma disclosure has been made in the notes as if the Company
had accounted for its stock options under the Statement 123 fair value method.

  Statements contained in this Annual Report on Form 10-K which are not
historical facts are forward-looking statements.  In addition, the Company, from
time to time, makes forward-looking public statements concerning its expected
future operations and performance and other developments.  Such forward-looking
statements are necessarily estimates reflecting the Company's best judgement
based upon current information and involve a number of risks and uncertainties,
and there can be no assurance that other factors will not affect the accuracy of
such forward-looking statements.  While it is impossible to identify all such
factors, factors which could cause actual results to differ materially from
those estimated by the Company include, but are not limited to, risks associated
with the acquisition of existing imaging centers, management of growth,
government regulation, limitations and delays in reimbursement, the Company's
ability to obtain and retain favorable arrangements with third party payers, as
well as operating risks, general conditions in the economy and capital markets,
and other factors which may be identified from time to time in the Company's
Securities and Exchange Commission filings and other public announcements.


Item 8    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
------    -------------------------------------------

  Registrant's response to this item is incorporated herein by reference to the
consolidated financial statements and consolidated financial statement schedules
and the report thereon of independent accountants, listed in Item 14(a)1 and (2)
and appearing after the signature page to this Annual Report on Form 10-K.

                                       23
<PAGE>

Item 9    CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON
------    ---------------------------------------------
          ACCOUNTING AND FINANCIAL DISCLOSURE
          -----------------------------------

  On February 5, 1997, the Company dismissed Ernst & Young LLP and engaged
Coopers & Lybrand L.L.P. as its independent accountant to audit the Company's
consolidated financial statements. The decision to change the Company's
independent accountant was approved by the Board of Directors of the Company at
the recommendation of the Company's audit committee.

  In neither of the past two fiscal years of the Company have the reports of
Ernst & Young LLP on the consolidated financial statements of the Company
contained an adverse opinion or a disclaimer of opinion, or was qualified or
modified as to uncertainty, audit scope or accounting principles. In neither of
the past two fiscal years of the Company nor in the subsequent interim period
preceding the dismissal of Ernst & Young LLP were there any disagreements with
Ernst & Young, LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures which, if not
resolved to the satisfaction of Ernst & Young LLP, would have caused Ernst &
Young LLP to make a reference thereto in their report.

                                     PART III

Item 10      DIRECTORS AND EXECUTIVE OFFICERS
-------      --------------------------------

 The directors, executive officers and certain key employees of the Company are
as follows:

<TABLE>
<CAPTION>
     Name                            Age   Position
<S>                                  <C>   <C>
Gary N. Siegler....................  35    Chairman of the Board
William D. Farrell.................  34    President, Chief Operating Officer and Director
John P. O'Malley III...............  35    Senior Vice-President-Finance and Chief Financial Officer
Gregory Mikkelsen..................  50    President and Chief Operating Officer of StarMed
Gerald H. Allen....................  50    Senior Vice-President-New York and Chicago Operations
Carl Larson........................  43    Senior Vice-President-New Jersey Operations
Daniel F. Bafia....................  38    Senior Vice-President-Southeast Operations
Robert L. Farrell..................  32    Vice-President-Business Development
Michael  J. Drumgoole..............  50    Vice-President-Sales and Marketing
Stephen M. Davis...................  42    Director and Secretary
Gary L. Furhman....................  35    Director
John H. Josephson..................  35    Director
Neil H. Koffler....................  30    Director
</TABLE>

  Gary N. Siegler has served as Chairman of the Board of Directors of the
Company since 1990.  Mr. Siegler is a co-founder and, since January 1989, has
been President of Siegler, Collery & Co. , a New York-based investment firm
("Siegler Collery").  Mr. Siegler is an executive officer of the general partner
of The SC Fundamental Value Fund, L.P. ("Fundamental Value Fund"), a fund
investing in marketable securities, and an executive officer of SC Fundamental
Value BVI, Inc. ("Fundamental Value BVI"), the investment advisor to an off-
shore fund investing in marketable securities.  Mr. Siegler serves as the
Chairman of the Board of Directors of National R.V. Holdings, Inc., a
manufacturer of motorhomes and other recreational vehicles.

                                       24
<PAGE>

  William D. Farrell has been a director of the Company since November 1995
and has been the Company's President since September 1996 and served as Co-
President since August 1994 and Chief Operating Officer from April 1994.  From
May 1986 to April 1994, Mr. Farrell served in various executive capacities with
the Company.  Mr. Farrell is a Certified Public Accountant.

  John P. O'Malley III was appointed Senior Vice President-Finance and
Chief Financial Officer in September 1996.  Prior thereto, Mr. O'Malley was
Executive Vice President-Finance and Chief Financial Officer of NMR since
December 1992 and was initially employed by NMR in May 1992.  From August 1984
to May 1992, Mr. O'Malley was employed by Ernst & Young,LLP, a public
accounting firm, and its predecessors.  Mr. O'Malley is a Certified Public
Accountant.

  Gregory Mikkelsen joined StarMed as President and Chief Operating Officer in
August 1996.  Prior thereto, Mr. Mikkelsen was President and Chief Executive
Officer of Medical Recruiters of America, Inc.  Mr. Mikkelsen has held senior
executive positions with Baxter Health Care and the Norrell Corporation.

  Gerald H. Allen is Senior Vice President-New York and Chicago Area Operations
of the Company and since April 1995 has also held the positions of Executive
Vice President-Regional Operations and Senior Vice President-Development.  Mr.
Allen was also employed by the Company in several executive capacities from 1984
to 1993.  From 1993 through 1995, Mr. Allen was the Executive Vice President and
Chief Financial Officer of Prime Capital Corporation, a merchant banking
company.

  Carl Larson is Senior Vice President-New Jersey Operations of the Company.
Prior to Mr. Larson's employment by the Company, Mr. Larson managed a 13 site
privately operated radiology practice in New York.  Mr. Larson is a licensed
radiological technologist and, in prior positions, spent eight years in
hospital-based radiological administration and five years as a staff member at
the American College of Radiology.

  Daniel F. Bafia is Senior Vice President-Southeast Operations of the Company.
Mr. Bafia joined the Company in 1992 and prior thereto had over 10 years
experience developing and managing radiation therapy and diagnostic imaging
centers for public and private companies and hospitals.

  Robert L. Farrell is Vice President-Business Development of the Company and
over the past decade has held a number of executive positions with the Company,
including Manager of Corporate Accounting, Controller and Director of National
Operations.  Mr. Farrell is the brother of William Farrell.

  Michael J. Drumgoole is Vice President-Sales and Marketing of the Company and
has held such position since 1993.  Mr. Drumgoole has over 20 years in medical
sales and has held various sales, sales training and sales management positions
within the healthcare industry.

  Stephen M. Davis has been a director and Secretary of the Company since 1992
and is a member of the Company's Audit Committee.  For more than the past five
years, Mr. Davis has been a partner of the law firm Werbel & Carnelutti, A
Professional Corporation.  Mr. Davis is a director of National R.V. Holdings,
Inc.

  Gary L. Fuhrman has been a director of the Company since 1992 and is a member
of the Company's Audit Committee.  Mr. Fuhrman has been a director and Senior
Vice President of Arnhold and S. Bleichroeder, Inc., an investment banking firm,
since March 1995 and January 1993, respectively, and a vice president of such
firm for more than five years prior therto.  Mr. Fuhrman is a director of
National R.V. Holdings, Inc.

  John H. Josephson has been a director of the Company since July 1995.
Mr. Josephson is a Vice President and Director of Allen & Company Incorporated,
an investment banking firm, and has been with such firm since 1987.  Mr.
Josephson is also a director of Norwood Promotional Products, Inc.

                                       25
<PAGE>

  Neil H. Koffler has been a director of the Company since November 1995 and
is a member of the Company's Audit Committee.  Mr. Koffler has been employed by
Siegler Collery since 1989.  Mr. Koffler is an executive officer of Fundamental
Value Fund and Fundamental Value BVI.  Mr. Koffler is a director of National
R.V. Holdings, Inc.


Item 11    EXECUTIVE COMPENSATION
-------    ----------------------

  The information required for this Item will be set forth in the Registrant's
definitive Proxy Statement for its 1997 Annual Meeting of Stockholders, which
will be filed with the Securities and Exchange Commission not later than 120
days after December 31, 1996, and which information is incorporated herein by
reference.



Item 12    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
-------    ---------------------------------------------------

           MANAGEMENT
           ----------


   The information required for this Item will be set forth in the Registrant's
definitive Proxy Statement for its 1997 Annual Meeting of Stockholders, which
will be filed with the Securities and Exchange Commission not later than 120
days after December 31, 1996, and which information is incorporated herein by
reference.



Item 13    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------    ----------------------------------------------

   The information required for this Item will be set forth in the Registrant's
definitive Proxy Statement for its 1997 Annual Meeting of Stockholders, which
will be filed with the Securities and Exchange Commission not later than 120
days after December 31, 1996, and which information is incorporated herein by
reference.





                                    PART IV

Item 14    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
-------    ---------------------------------------------------

           ON FORM 8-K
           -----------


(a)  Exhibits and Financial Statements:

1.   Financial Statements:

     The following consolidated financial statements and consolidated financial
statement schedule of Medical Resources, Inc. and the report thereon of
independent certified public accountants are filed as part of this Annual
Report on Form 10-K and are incorporated by reference in Item 8:

     (i)   Reports of Independent Accountants.

     (ii)  Consolidated Balance Sheets as of December 31, 1996 and 1995.

     (iii) Consolidated Statements of Operations for the years ended December
           31, 1996, 1995 and 1994.

     (iv)  Consolidated Statements of Cash Flows for the years ended December
           31, 1996, 1995 and  1994.

                                       26
<PAGE>

     (v)   Consolidated Statements of Changes in Stockholder's Equity for the
           years ended December 31,  1996, 1995 and 1994.

     (vi)  Notes to Consolidated Financial Statements

2.   Financial Statement Schedule

     The following consolidated financial statement schedule of Medical
Resources, Inc. and subsidiaries is submitted herewith in response to Item
14(d)2:

               Schedule II - Valuation and Qualifying Accounts

     All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and, therefore,
have been omitted

3.   Exhibits

     See the accompanying Exhibit Index which precedes the Exhibits filed with
this Annual Report on Form 10-K.

     (b)  Reports on Form 8-K

     On December 6, 1996, the Company filed a current Report on Form 8-K
reporting, under Item 5 hereof, that the Company, through an indirect wholly-
owned subsidiary, consummated the acquisition of the business assets of
two entities, consisting primarily of two diagnostic imaging centers located
in Long Island, New York.

                                       27
<PAGE>

<TABLE>
<CAPTION>
                                 Exhibit Index
<C>    <S>

 2.1   Agreement and Plan of Merger dated May 20, 1996, by and among NMR of America,
       Inc., MRI Sub, Inc. and the Company*
 3.1   Company's Certificate of Incorporation, as amended to date.**
 3.2   Company's By-Laws, as amended.**
 4.1   Common Stock Specimen Certificate.**
 4.2   Shareholder Rights Plan of the Company, dated
       September 15, 1996.*
10.1   Note Purchase Agreement ($52,000,000 7.77% Senior Notes) between the Company and
       the Purchasers listed therein, dated as of February 20, 1997.***
10.2   Form of 1992 Stock Option Plan.**
10.3   1995 Stock Option Plan of the Company.****
10.4   1996 Stock Option Plan of the Company.
10.5   1996 Stock Option Plan B of the Company.
10.6   Employment Agreement, dated September 30, 1994 between Medical Resources, Inc. and
       William D. Farrell.****
10.7   Amendment, dated August 1, 1995, to Employment Agreement between Medical
       Resources, Inc. and William D. Farrell.****
10.8   Amended and restated Employment Agreement, dated January 1, 1997 between the
       Company and William D. Farrell.
10.9   Non-Competition and Consulting Agreement, dated May 20, 1996, between the Company
       and John P. O'Malley III.*****
11     Computation of Earnings per Share
16     Letter re:  Change in Certifying Accountants.******
21.1   List of Subsidiaries.
27.1   Financial Data Schedule
99.1   Important Factors Regarding Forward-Looking Statements.


*      Incorporated herein by reference from the Company's Current Report on Form 8-K dated,
       September 13, 1996
**     Incorporated herein by reference from the Company's Registration Statement on Form S-1
       (Registration No. 33-48848).
***    Incorporated herein by reference from the Company's Current Report on Form 8-K dated,

</TABLE>

                                       28
<PAGE>

<TABLE>
<C>    <S>
       March 4, 1997.
****   Incorporated herein by reference from the Company's Annual Report on Form 10-K for
       the year ended December 31, 1995.
*****  Incorporated herein by reference from the Company's Registration Statement on Form S-4
       (Registration No. 333-09155).
****** Incorporated herein by reference from the Company's Current Report on Form 8-K dated,
       February 5, 1997.
</TABLE>

                                       29
<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.

MEDICAL RESOURCES, INC.

                                    BY:  /s/ William D. Farrell
                                         ----------------------
                                    William D. Farrell
                                    President and Chief Operating Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant in the
capacities and on March 31, 1997.

          Signature         Capacity in
          ---------         Which Signed
                            ------------


/s/ Gary N. Siegler         Chairman of the
-------------------         Board of Directors
Gary N. Siegler


/s/ William D. Farrell      President and
----------------------      Chief Operating
William D. Farrell          Officer (Principal
                            Executive Officer) and Director


/s/ John P. O'Malley, III   Senior Vice-President- Finance and
-------------------------   Chief Financial Officer (Principal
John P. O'Malley, III       Accounting Officer)



/s/ Stephen M. Davis        Director
--------------------
Stephen M. Davis



/s/ Gary L. Fuhrman         Director
-------------------
Gary L. Fuhrman


/s/ John H. Josephson       Director
---------------------
John H. Josephson


/s/ Neil H. Koffler         Director
-------------------
Neil H. Koffler





                                       30
<PAGE>

To the Board of Directors and Stockholders of Medical Resources, Inc.

We have audited the accompanying consolidated balance sheet of Medical
Resources, Inc. and Subsidiaries (the "Company") as of December 31, 1996 and the
related consolidated statement of operations, stockholders' equity, and cash
flows and the financial statement schedule listed in the index at Item 14(a) for
the year ended December 31, 1996. These financial statements and the schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedules based on our
audit.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Medical Resources, Inc. and Subsidiaries at December 31, 1996 and the
consolidated results of their operations and their cash flows for the year ended
December 31, 1996, in conformity with generally accepted accounting principles.
In addition, in our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, presents fairly, in all material respects, the information required to be
included therein.


                                        COOPERS & LYBRAND L.L.P.

Parsippany, New Jersey
March 28, 1997


                                      31
<PAGE>

          Report of Independent Certified Public Accountants

To the Board of Directors
and Stockholders of Medical Resources, Inc.

We have audited the acompanying consolidated balance sheet of Medical Resources,
Inc. (the "Company") as of December 31, 1995 and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
two years then ended. Our audits also included the financial statement schedule
for 1995 listed in the Index at Item 14(a). These consolidated financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits. We did not audit the financial statements of
Maternity Resources, Inc. and its two predecessor partnerships, a wholly-owned
subsidiary, which statements reflect a loss from operations of discontinued
business of $1,633,000 in 1994. Those statements were audited by other auditors
whose reports have been furnished to us, and in our opinion, insofar as it
relates to the data included for Maternity Resources, Inc. and its two
predecessor partnerships, is based solely on the reports of the other auditors.

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

In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Medical Resources,
Inc., at December 31, 1995, and the consolidated results of its operations and
its cash flows for the two years then ended in conformity with generally
accepted accounting principles.  Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.



                            /s/ Ernst & Young LLP


Tampa, Florida
February 29, 1996

                                       32
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS


To the Partners of Maternity
        Retail Partners, L.P.:

We have audited the accompanying consolidated balance sheet of Maternity Retail
Partners, L.P. as of January 29, 1995 and the related consolidated statements of
operations, changes in partners' capital (deficit) and cash flows for the two
years then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

As discussed in Note 1, on February 24, 1995, the partners of the Partnership
sold their partnership interests to an affiliate of the Partnership. On November
14, 1995 the affiliate sold the Partnership to an unaffiliated third party. On
November 22, 1995 the Partnership filed a Voluntary Chapter 11 Bankruptcy
Petition in Federal Court and is currently in liquidation.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Maternity Retail Partners, L.P. as of January 29, 1995 and the
results of its operations and its cash flows for the two years then ended
in conformity with generally accepted accounting principles.



                                      33


<PAGE>

Page 2

The accompanying financial statements for January 29, 1995 have been prepared
assuming that the Partnership would continue as a going concern. The financial
statements do not include any adjustments that might result from the
liquidation of the Partnership.

As discussed in Note 2, effective January 31, 1994, the Partnership changed its
method of accounting for lease acquisition costs.




/s/ Kempisty & Company
    Certified Public Accountants, P.C.

    New York, New York
    February 9, 1996



                                      34
<PAGE>

                         INDEPENDENT AUDITORS' REPORT


To the Partners
Kik Kin, L.P.
New York, New York


We have audited the accompanying consolidated balance sheets of Kik Kin L.P. as
of December 31, and January 1, 1994 and the related statements of operations,
changes in partners' capital and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Kik Kin, L.P. as
of December 31 and January 1, 1994 and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.

February 21, 1995

                                                /s/ Dixon, Odom & Co., LLP


                                      35



<PAGE>

                            MEDICAL RESOURCES, INC.
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                         December 31,          December 31,
 ASSETS                                                      1996                  1995
                                                         -------------         ------------
<S>                                                      <C>                   <C>
Current assets:
  Cash and cash equivalents                               $15,346,254          $ 3,934,677
  Short-term investments                                    1,662,600
  Restricted short-term investments                         4,500,000
  Accounts receivable, net                                 39,878,380           13,837,637
  Other receivables                                         2,290,825              477,062
  Prepaid expenses                                          3,715,092            1,074,459
  Deferred tax assets, net                                  3,354,000            1,871,397
                                                         -------------         ------------
          Total current assets                             70,747,151           21,195,232

Medical diagnostic and office equipment, net               24,397,077           11,530,159
Goodwill, net                                              62,638,656            9,122,663
Other assets                                                3,170,684            1,497,207
Deferred tax assets, net                                    2,351,089              533,301
Restricted cash                                             1,045,000
Value of venture contracts                                    164,155              257,261
                                                         -------------         ------------
          Total assets                                   $164,513,812          $44,135,823
                                                         =============         ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Current portion of notes and mortgage payable          $  6,728,668          $   957,884
  Current portion of obligations under capital leases       5,991,626            3,244,652
  Accounts payable and accrued expenses                    13,070,370            4,602,926
  Other current liabilities                                   116,847            1,405,875
  Income taxes payable                                      2,063,860              245,899
                                                         -------------         ------------
          Total current liabilities                        27,971,371           10,457,236

Notes and mortgage payable                                 12,637,926            4,448,974
Obligations under capital leases                            8,373,681            6,707,650
Convertible debentures                                      6,988,089            4,350,000
Other long-term liabilities                                 2,158,771            1,205,627
                                                         -------------         ------------
          Total liabilities                                58,129,838           27,169,487
                                                         -------------         ------------

Stockholders' equity:
  Common stock, $.01 par value, 50,000,000 shares
    authorized 18,593,900 issued and 18,326,400
    outstanding at December 31, 1996 and  7,697,500
    issued and 7,442,500 outstanding at
    December 31, 1995                                         185,939               76,975
  Common stock to be issued; 600,000 shares of
    common stock                                            1,721,250            1,721,250
  Additional paid-in capital                              102,927,874           20,834,922
  Unrealized appreciation of investments                       25,889
  Retained earnings/(deficit)                               2,955,530           (4,298,678)
Less 267,500 and 255,000 common shares in treasury,
   at cost at December 31, 1996 and  1995                  (1,432,508)          (1,368,133)
                                                         -------------         ------------
          Total stockholders' equity                      106,383,974           16,966,336
                                                         -------------         ------------

          Total liabilities and stockholders' equity     $164,513,812          $44,135,823
                                                         =============         ============
</TABLE>

         See accompanying notes to consolidated financial statements.

                                      F-1
<PAGE>

                            MEDICAL RESOURCES, INC.
                    CONSOLIDATED STATEMENTS  OF OPERATIONS
                        For the year ended December 31,


<TABLE>
<CAPTION>

                                                                       1996                     1995                  1994
                                                                 ---------------           --------------        --------------
<S>                                                               <C>                      <C>                   <C>
Net service revenues                                              $   93,785,117           $   51,993,758        $   45,178,945
                                                                  --------------           --------------        --------------
Operating costs,
  excluding interest, depreciation and amortization                   59,064,156               31,563,796            29,307,450
Provision for uncollectible accounts receivable                        4,783,306                3,377,862             2,495,413
Corporate general and administrative                                   7,779,385                4,978,045             4,438,348
Depreciation and amortization                                          7,465,475                4,567,144             4,844,265
Write-down of value contracts and intangible assets                                                                   2,176,118
Provision for minority interest in losses of joint venture                                                              531,543
Executive severance                                                                                                     327,679
Write-down of medical diagnostic equipment                                                                               40,000
Gain on disposal of medical diagnostic equipment                                                                        (17,500)
                                                                  --------------           --------------        --------------
          Operating income                                            14,692,795                7,506,911             1,035,629
Interest expense                                                       2,968,206                1,829,017             1,692,931
                                                                  --------------           --------------        --------------
Income (loss) from continuing operations before minority
  interest and income taxes and extraordinary items                   11,724,589                5,677,894              (657,302)
Minority interest                                                        308,381                 (124,085)              (46,134)
                                                                  --------------           --------------        --------------
Income (loss) from continuing operations before
  income taxes and extraordinary items                                11,416,208                5,801,979              (611,168)
Income taxes                                                           4,162,000                1,659,111               481,436
                                                                  --------------           --------------        --------------
Income (loss) from continuing operations
  before extraordinary items                                           7,254,208                4,142,868            (1,092,604)
                                                                  --------------           --------------        --------------
Discontinued operations, net of tax:
 Loss from operations of discontinued operations                                              (1,076,644)            (1,663,426)
 Loss on sale of discontinued business                                                        (1,376,000)
                                                                  --------------           --------------        --------------
 Loss from discontinued operations                                    7,254,208               (2,452,644)            (1,663,426)
Income (loss) before extraordinary item                                                        1,690,224             (2,756,030)
Extraordinary item:
 Debt extinguishment                                                                                                    761,683
                                                                  --------------           --------------        --------------
Net income (loss)                                                 $    7,254,208           $    1,690,224        $   (1,994,347)
                                                                  ==============           ==============        ==============

Income (loss) per common share:
  Primary income (loss) per share:
    Income (loss) from continuing operations
      before extraordinary item                                   $         0.62           $         0.53        $        (0.15)
    Discontinued operations                                                                         (0.31)                (0.23)
    Extraordinary item                                                                                                     0.10
                                                                  --------------           --------------        --------------
    Net income (loss) per share                                   $         0.62           $         0.22        $        (0.28)
                                                                  ==============           ==============        ==============

Weighted average number of shares                                     11,670,000                7,785,000             7,097,500
                                                                  ==============           ==============        ==============

  Fully diluted income (loss) per share:
    Income (loss) from continuing operations
      before extraordinary item                                   $         0.59           $         0.53        $        (0.15)
    Discontinued operations                                                                         (0.31)                (0.23)
    Extraordinary item                                                                                                     0.10
                                                                  --------------           --------------        --------------
    Net income (loss) per share                                   $         0.59           $         0.22        $        (0.23)
                                                                  ==============           ==============        ==============

Weighted average number of shares                                     12,903,000                7,785,000             7,097,500
                                                                  ==============           ==============        ==============


Unaudited pro forma data:

Income (loss from continuing operations before income taxes and
  extraordinary items                                                                                                 ($611,168)
Income taxes                                                                                                            660,061
                                                                                                                     ----------
Income (loss) from continuing operations before extraordinary items                                                  (1,271,229)
Discontinued operations, net of taxes                                                                                (1,014,690)
                                                                                                                     ----------
Income (loss) before extraordinary items                                                                             (2,285,919)
Extraordinary items, net of taxes                                                                                       464,627
                                                                                                                     ----------
Net income (loss)                                                                                                   ($1,821,292)
                                                                                                                     ==========
Pro forma earnings (loss) per common share:

Income (loss) from continuing operations before extraordinary items                                                      ($0.18)
Discontinued operations                                                                                                   (0.14)
Extraordinary items                                                                                                        0.07
                                                                                                                     ----------
Net income (loss)                                                                                                        ($0.25)
                                                                                                                     ==========
</TABLE>
                 See accompanying notes to consolidated financial statements.


                                      F-2

<PAGE>

                            MEDICAL RESOURCES, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                        For the year ended December 31,

<TABLE>
<CAPTION>


                                                                 1996               1995              1994
                                                            ----------------   --------------    ---------------
<S>                                                         <C>                <C>               <C>
Cash flows from operating activities:
Net income (loss)                                               $7,254,208        $1,690,224        $(1,994,347)
                                                            ----------------   --------------    ---------------
Adjustments to reconcile net income (loss) to
  net cash provided by operating activities:
  Loss on sale of discontinued business                                            1,376,000
  Deferred income tax provision                                   (841,000)       (2,160,698)          (244,000)
  Extraordinary gain on debt extinguishment                                                            (761,683)
   Depreciation and amortization                                 7,465,475         4,567,144          4,844,265
   Provision for uncollectible accounts receivable               4,783,306         3,377,862          2,495,413
  Write-down of medical diagnostic equipment                                                             40,000
  Write-down of value of venture contracts and
     intangible assets                                                                                2,176,118
  Gain on disposal of medical equipment                             (3,933)                             (17,500)
  Equity in earnings of joint venture                                                                     5,120
   Minority interest in losses of joint venture and limited
     partnerships, net of distributions                             98,475           122,114            (46,134)
  Provision for minority interest in losses of joint venture                                            531,543
 Changes in operating assets and liabilities:
     Accounts receivable                                       (14,386,434)       (6,308,829)        (2,607,927)
     Due from joint ventures and limited partnerships                                 27,426             18,113
     Other receivables                                          (1,813,763)         (170,755)          (698,991)
     Prepaid expenses                                           (1,501,981)         (613,913)           (20,445)
     Other assets                                               (1,494,826)          (27,117)           376,317
     Accounts payable and accrued expenses                       2,081,400             3,818           (115,512)
     Other current liabilities                                  (1,509,758)          567,760            268,195
     Income taxes payable                                        2,185,961          (322,730)           568,629
     Other long-term liabilities                                  (867,575)          206,342            (27,771)
                                                            ----------------   --------------    ---------------
        Total adjustments                                       (5,804,653)          644,424          6,783,750
                                                            ----------------   --------------    ---------------
Net cash provided by operating activities                        1,449,555         2,334,648          4,789,403
                                                            ----------------   --------------    ---------------
Cash flows from investing activities:
   (Purchase) sale of short term investments                                         599,736           (599,736)
   Proceeds from  sale of equipment                                 12,600
   Change in net assets of discontinued business                                   1,396,250          1,663,426
   Purchase of  PCC, Inc.                                                         (1,763,832)
   Purchase of  NurseCare Plus                                  (1,263,991)
   Purchase of  MRI-CT, Inc.                                      (553,245)
   Purchase of  Centereach Resources, Inc.                      (3,100,000)
   Purchase of  Americare Imaging Centers, Inc.                 (1,500,000)
   Purchase of  Access Imaging Center, Inc.                     (1,300,000)
   Purchase of  WeCare - Allied Health Care, Inc.               (1,049,618)
   Purchase of NMR of America, Inc., net of cash acquired        2,157,379
   Purchase of Newark center                                      (215,675)
   Purchase of Long Island centers                              (1,900,000)
   Purchase of  limited partnership interests                     (184,000)
   Purchase of short-term investments                           (1,636,711)
   Purchase of restricted short-term investments                (4,500,000)
   Restricted cash                                                (600,000)
   Proceeds from sale of medical equipment                                                              100,000
   Purchase of medical diagnostic and office equipment          (1,069,870)         (877,018)          (563,074)
                                                            ----------------   --------------    ---------------
        Net cash (used in) provided by investing activities    (16,703,131)         (644,864)           600,616
                                                            ----------------   --------------    ---------------
</TABLE>
        See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>

                            MEDICAL RESOURCES, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                        For the year ended December 31,

<TABLE>
<CAPTION>
                                                                 1996               1995              1994
                                                            ----------------   --------------    ---------------
<S>                                                         <C>                <C>               <C>
Cash flows from financing activities:
  Proceeds from issuance of stock                               25,944,000
  Stock issuance cost                                             (779,800)
  Principal payments under capital lease obligations            (4,805,393)       (3,043,061)       (3,466,647)
  Principal payments on notes payable                           (2,967,903)       (1,118,859)       (1,006,722)
   Capital distributions                                                                               (41,886)
  Proceeds from borrowings                                       1,229,096
  Proceeds from convertible debentures                           6,532,965         4,102,500
  Purchase of treasury stock                                       (64,375)       (1,368,133)
  Purchase of Maternity preferred stock                                             (268,674)
  Proceeds from exercises of options                             2,021,563
                                                            ----------------   --------------    ---------------
        Net cash provided by (used in) financing activities     27,110,153        (1,696,227)       (4,515,255)
                                                            ----------------   --------------    ---------------
Net increase (decrease) in cash and cash equivalents            11,856,577            (6,443)          874,764
Cash and cash equivalents at beginning of year                   3,934,677         3,941,120         3,066,356
Reclassification of prior year restricted cash                    (445,000)
                                                            ----------------   --------------    ---------------
Cash and cash equivalents at end of year                       $15,346,254        $3,934,677        $3,941,120
                                                             ===============    =============     ==============

Cash paid during the year:
  Income taxes                                                 $ 3,440,299        $1,982,000       $   159,000
  Interest                                                     $ 2,638,545        $1,894,000       $ 1,695,000


Supplemental Schedule of Non-cash Activities:
Capital lease obligation incurred for the
  use of equipment                                             $ 2,469,100        $1,159,000       $   892,000
Capital  lease obligations assumed in
  connection with acquisitions                                 $ 6,749,298
Notes payable obligations assumed in
  connection with acquisitions                                 $13,850,341
Notes payable issued in connection
  with acquisitions                                            $ 1,848,202
Conversion of subordinated
  debentures to common stock                                   $ 5,735,000
Reclassification of debt to equity                                                $1,022,000        $  469,000
Refinancing of assets under capital
  lease                                                                                             $1,079,000
Purchase of minority interest in limited
  partnership for common stock                                                        45,000
Issuances of common stock
  in connection with acquisitions                              $48,325,000        $3,443,000
Issuance of Warrants in connection with acquisitions               974,879
</TABLE>
         See accompanying notes to consolidated financial statements.


                                      F-4
<PAGE>

                            MEDICAL RESOURCES, INC.
           CONSOLIDATED STATEMENTS OF CHANGE IN STOCKHOLDERS' EQUITY
                                 December 31,

<TABLE>
<CAPTION>
                                                               Common              Additional    Retained     Treasury
                                                     Common   Stock to  Preferred   Paid-In      Earnings      Shares
                                          Total      Stock    Be Issued   Stock     Capital      (Deficit)     at Cost
                                      -----------------------------------------------------------------------------------
<S>                                   <C>           <C>      <C>        <C>       <C>           <C>          <C>
Balance at December 31, 1993          $ 12,939,234  $ 70,975              $ 25    $ 17,390,888  $(4,522,654)
Distributions                              (41,886)                                                 (41,886)
Capital contributions including debt
 conversions of $469,249                   969,249                                     969,249
Net loss                                (1,994,347)                                              (1,994,347)
                                      -----------------------------------------------------------------------------------
Balance at December 31, 1994            11,872,250    70,975                25      18,360,137   (6,558,887)
Maternity debt forgiveness treated as
  a capital contribution                 1,022,184                                   1,022,184
Maternity short period
  (1/1/95-1/31/95)                         569,985                                                  569,985
Redemption by Maternity
  of its preferred stock                  (268,650)                                   (268,650)
Purchase of Ft. Myers centers in
  exchange for 1,200,000 shares of
  common stock                           3,448,500     6,000  1,721,250              1,721,250
Preferred stock payout                         (24)                        (25)              1
Purchase of treasury shares             (1,368,133)                                                           (1,368,133)
Net income                               1,690,224                                                1,690,224           -
                                      -----------------------------------------------------------------------------------
Balance at December 31, 1995            16,966,336    76,975  1,721,250             20,834,922   (4,298,678)  (1,368,133)
Purchase of New York centers in
  exchange for 194,113 shares of
  common stock                             913,750     1,941                           911,809
Purchase of Tampa centers in
  exchange for 228,571 shares of
  common stock                           1,275,000     2,286                         1,272,714
Purchase of Clearwater center in
  exchange for 192,063 shares of
  common stock                           1,445,000     1,921                         1,443,079
Purchase of NMR of America, Inc.
  centers in exchange for 4,456,500
  shares of common stock                39,604,820    44,565                        39,560,255
Warrants issued in connection with
  NMR Acquisition                          974,879                                     974,879
Purchase of Long Island centers in
  exchange for 573,175 shares of
  common stock                           4,500,000     5,732                         4,494,268
Purchase of Newark center in
  exchange for 18,868 shares of
   unregistered common stock               200,000       189                           199,811
Net proceeds from public offering of
  offering of 3,680,000 shares of
  common stock                          25,944,000    36,800                        25,907,200
Public offering issuance costs            (779,800)                                   (779,800)
Conversion of subordinated
  debentures into common stock           5,735,000    11,899                         5,723,101
Exercise of stock options                2,021,563     3,631                         2,017,932
Tax benefit from exercise of
  stock options                           $367,704                                    $367,704
Unrealized appreciation of investment       25,889
Purchase of treasury shares                (64,375)                                                              (64,375)
Net income                               7,254,208                                                7,254,208
                                      -----------------------------------------------------------------------------------
Balance at December 31, 1996          $106,383,974  $185,939 $1,721,250   $  -    $102,927,874  $ 2,955,530  $(1,432,508)
                                      ===================================================================================

<CAPTION>
                                      Unrealized
                                      Appreciation of
                                      Investments
                                      ---------------
<S>                                    <C>
Balance at December 31, 1993
Distributions
Capital contributions including debt
 conversions of $469,249
Net loss
                                      ---------------
Balance at December 31, 1994
Maternity debt forgiveness treated as
  a capital contribution
Maternity short period
  (1/1/95-1/31/95)
Redemption by Maternity
  of its preferred stock
Purchase of Ft. Myers centers in
  exchange for 1,200,000 shares of
  common stock
Preferred stock payout
Purchase of treasury shares
Net income
                                      ---------------
Balance at December 31, 1995
Purchase of New York centers in
  exchange for 194,113 shares of
  common stock
Purchase of Tampa centers in
  exchange for 228,571 shares of
  common stock
Purchase of Clearwater center in
  exchange for 192,063 shares of
  common stock
Purchase of NMR of America, Inc.
  centers in exchange for 4,456,500
  shares of common stock
Purchase of Long Island centers in
  exchange for 573,175 shares of
  common stock
Purchase of Newark center in
  exchange for 18,868 shares of
   unregistered common stock
Net proceeds from public offering of
  offering of 3,680,000 shares of
  common stock
Public offering issuance costs
Conversion into common stock
  debentures into common stock
Exercise of stock options
Tax benefit from exercise of stock
  options
Unrealized appreciation of investment      25,889
Purchase of treasury shares
Net income
                                      ---------------
Balance at December 31, 1996              $25,889
                                      ===============
</TABLE>
         See accompanying notes to consolidated financial statements.
<PAGE>

1.  The Company and Its Significant Accounting Policies

The Company - Medical Resources, Inc., (herein referred to as "MRI" and
-----------
collectively with its subsidiaries, affiliated partnerships and joint ventures,
referred to herein as the "Company"), is engaged in two segments of the
healthcare industry. The Company operates and manages primarily free standing,
outpatient diagnostic imaging centers (herein referred to as "centers"), and
provides diagnostic imaging network management services to managed care
providers. The Company provides services in a second segment of the healthcare
industry through its wholly owned subsidiary, StarMed Staffing, Inc. (herein
referred to as "StarMed"). StarMed provides temporary staffing of registered
nurses and other professional medical personnel to acute and sub-acute care
facilities nationwide.

Consolidation - The accompanying consolidated financial statements include the
-------------
accounts of MRI, its wholly-owned subsidiaries, majority-owned joint ventures
and limited partnerships in which the Company is a general partner. All material
intercompany balances and transactions have been eliminated. As general partner,
the Company is subject to all the liabilities of a general partner and as of
December 31, 1996, is entitled to share in partnership profits, losses and
distributable cash as follows:

<TABLE>
<CAPTION>

                                                          Company Share of
                                                           Profits, Losses
                                                                 and
            Partnership                                     Distributions
            -----------                                   ----------------
<S>                                                       <C>
NMR Associates I (Union, New Jersey)                             80%
MR Associates I (Philadelphia, Pennsylvania)                     98%
MR Associates of Allentown (Allentown, Pennsylvania)             96%
MR Associates of Morristown (Morristown, New Jersey)             94%
MR Partners of Greenbelt (Seabrook, Maryland)                    87%
MR Associates of Chicago (Chicago, Illinois)                     87%
Garden State Imaging Partners (Marlton, New Jersey)              91%
Harford County Imaging Partners (Bel Air, Maryland)              63%
Accessible MRI (Chicago, Illinois)                               80%
Golf MRI Center (Des Plaines, Illinois)                          75%
Diagnostic Imaging Center (Des Plaines, Illinois)                75%
North Bronx Services Group (Yonkers, New York)                   65%
South Umberton Asset Mgmt Assoc (St. Petersburg, Florida)        84%
</TABLE>

The Company owns a 100% interest in imaging centers located in Englewood,
Clifton, Newark, West Orange, Jersey City, and Hackensack, New Jersey; Brooklyn
Bronx, Centereach, East Setauket, Garden City and New York, New York;
Chicago, Libertyville, and Oak Lawn, Illinois as well as Cape Coral, Clearwater,
Naples (2), Fort Myers (2), Sarasota, Tampa (2), Tarpon Springs and Titusville,
Florida. The Company is also paid a monthly management fee based on patient cash
collections and/or patient volume under management agreements with certain of
the partnerships.

Accumulated losses, from inception, of the Company's Harford County, Maryland
limited partnership fully offset the capital contributed by its limited
partners.  Accordingly, losses incurred in excess of such limited partnership
capital have been charged, in full, to the Company as general partner.  Future
profits, if any, in the Harford County

                                      F-6
<PAGE>

 1.  The Company and Its Significant Accounting Policies (continued)

partnership will be allocated, in full, to the Company as general partner until
such profits equal the Company's excess share of allocable losses.  Thereafter,
future profits and losses will be allocated in accordance with the parties
respective ownership interests.

Reclassification - Certain prior year items have been reclassified to conform to
----------------
the current year presentation.

Use of Estimates - The preparation of the consolidated financial statements in
----------------
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities in the
consolidated financial statements and accompanying notes. The most significant
estimates relate to contractual and other allowances, income taxes,
contingencies and the useful lives of equipment. 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. Actual results could differ from those estimates.

Cash and Cash Equivalents - For financial statement purposes cash equivalents
-------------------------
include short-term investments with an original maturity of ninety days or less.
Restricted cash consists of amounts held pursuant to the terms of letters of
credit and is classified based upon the expiration of the restriction. The
Company has committed $445,000 of cash as collateral for the letters of credit
which serve as collateral on certain of the Company's leases, with terms
consistent with the remaining terms of the leases. The remaining $600,000 of
restricted cash underlies a letter of credit is held pursuant to the terms of a
consulting agreement to which the Company is a party.

Short-term Investments - The Company adopted  Statement of Financial Accounting
----------------------
Standards No. 115, ("SFAS 115") "Accounting for Certain Investments in Debt and
Equity Securities".  Debt securities for which the Company does not have the
intent or the ability to hold to maturity are classified as available-for-sale.
Securities available for sale are carried at fair value with unrealized gains
and losses, net of tax, reported as a separate component of shareholders'
equity.  Any realized gains and losses are determined on the specific
identification method.

At December 31, 1996 the Company's short-term investments, all of which are
classified as available-for-sale as defined by SFAS no. 115, consist of
certificates of deposits and treasury bills with maturities between three and
twelve months.

Restricted short-term investments consist of $4,500,000 of United States
government obligations held pursuant to a letter of credit issued in connection
with one of the Company's acquisitions.  The letter of credit served to reserve
consideration for the acquisition in the event that the shares of the Company's
common stock to be issued to the Seller were not registered within 60 days of
the closing of the sale.  Subsequent to December 31, 1996, the shares were
registered within the specified timeframe of the agreement, and as such, the
restriction of the investment was removed.

                                      F-7
<PAGE>

1.  The Company and Its Significant Accounting Policies (continued)

Investments in Joint Ventures and Limited Partnerships - The minority interests
------------------------------------------------------
in the equity of consolidated joint ventures and limited partnerships, which are
not material, are reflected in the accompanying consolidated financial
statements.  Investments by the Company in joint ventures and limited
partnerships over which the Company can exercise significant influence but does
not control are accounted for using the equity method.

The Company suspends recognition of its share of joint ventures losses in
entities in which it holds a minority interest when its investment is reduced to
zero.  The Company does not provide for additional losses unless, as a partner
or joint venturer, the Company has guaranteed obligations of the joint ventures
or limited partnerships.

Property and Equipment - Property and equipment procured in the normal course of
----------------------
business is stated at cost.  Property and equipment purchased in connection with
an acquisition is stated at its estimated fair value, generally based on an
appraisal.  Property and equipment is being depreciated for financial accounting
purposes using the straight-line method over the shorter of their estimated
useful lives, generally five to seven years, or the term of a capital lease, if
applicable.  Leasehold improvements are being amortized over the shorter of the
useful life or the remaining lease term.  Upon retirement or other disposition
of these assets, the cost and related accumulated depreciation are removed from
the accounts and the resulting gains or losses are reflected in the results of
operations.  Expenditures for maintenance and repairs are charged to operations.
Renewals and betterments are capitalized.

Organizational Costs and Capitalized Lease Costs - The Company recorded
------------------------------------------------
organization costs and lease costs as part of a purchase price allocation. The
organization costs represent a portion of the costs associated with the original
purchase of the acquired company in 1990. The lease costs represent the
estimated value of favorable leases in the acquisition of the acquired company.
The unamortized organization costs and capitalized lease costs were
approximately $101,000 and $82,000 at December 31, 1996, respectively and
approximately $128,000 and $104,000 as of December 31, 1995, respectively. Such
costs are amortized on a straight-line basis over a five to ten year period. At
December 31, 1996 accumulated amortization for organization

                                      F-8
<PAGE>

1.  The Company and Its Significant Accounting Policies (continued)

costs and capitalized lease costs amounted to approximately $168,000 and
$137,000, respectively.

Value of Venture Contracts - Value of venture contracts, which represent the
--------------------------
value associated with management contracts with radiologist groups and the
Company's ownership interest in various joint ventures and

limited partnerships, which was recognized in connection with the acquisition of
the Company in September 1990, is being amortized on a straight line basis over
the shorter of the lives of the facilities or the terms of the management
contracts, as appropriate, generally from five to ten years.  Accumulated
amortization as of December 31, 1996 and 1995 was approximately $328,000 and
$231,000 (after the write down discussed below), respectively.  Amortization of
value of joint venture contracts was approximately $97,000, $122,000 and
$250,000 in 1996, 1995 and 1994, respectively.

The implementation of the Stark II anti-referral legislation, effective January
1, 1995, restricting physicians from making referrals for services to be
rendered to Medicare and Medicaid patients to facilities in which they have an
ownership interest and the lower than expected level of cash flows generated
from the venture contracts, materially impacted the fair value of the value of
venture contracts.  Due to these changes  in the regulatory and economic
environment, during the second quarter of 1994, the Company assessed the
recoverability of the value of venture contracts and determined that its current
estimate of the fair value of the assets was significantly less than the current
unamortized cost of the assets.  As a result, during the second quarter of 1994,
the Company reduced the carrying amount of its value of venture contracts by
approximately $1,950,000.  At December 31, 1996, the remaining unamortized
balance amounted to  approximately $164,000 and represents the estimated value
associated with non-compete agreements with certain radiologists and the Company
believes is recoverable through profitable operations of the related imaging
centers.

Goodwill - The excess of the purchase price over the fair market value of net
--------
assets acquired is being amortized using the straight-line method over periods
ranging from 20 to 25 years.  As of December 31, 1996 and 1995, accumulated
amortization amounted to approximately $3,027,000 and $1,530,000, respectively.
Amortization expense of goodwill was approximately $1,497,000, $386,000 nd
$413,000 in 1996, 1995 and 1994, respectively.

The Company periodically reviews goodwill to assess recoverability based upon
expectations of undiscounted cash flows and operating income of each
consolidated entity having a material goodwill balance.  An impairment would be
recognized in operating results, based upon the difference between each
consolidated entities' respective undiscounted cash flows and the carrying value
of the related costs in excess of net assets acquired, if a permanent diminution
in value were to occur.

                                      F-9
<PAGE>

1.  The Company and Its Significant Accounting Policies (continued)

401(k) Plan - The Company maintains a 401(k) savings plan under which the
-----------
Company matches one-half of employee contributions up to 4% of qualified
earnings and subject to Internal Revenue Service limitations.

From August 31, 1996 to November 30, 1996, the Company elected to continue the
401(k) plan of NMR of America for employees of this acquired company.  Under the
NMR of America plan, the Company matched one-half of employee contributions up
to 6% of qualified earnings and subject to Internal Revenue Service limitations.
On November 30, 1996, the NMR of America 401(k) plan was merged into the
Company's 401(k) plan.

Plan expense, including Company contributions to the NMR of America plan for
1996, amounted to $90,232, $80,000 and $55,000 in 1996, 1995 and 1994,
respectively.

Earnings Per Share - Earnings per share is computed on the basis of the weighted
------------------
average number of common shares outstanding and dilutive common stock
equivalents. Common stock equivalents consist of stock options and warrants and
600,000 shares to be issued over a period of 24 months in accordance with Fort
Myers center Asset Purchase Agreement. 525,000 of such shares were issued in the
first quarter of 1997 and the remaining 75,000 shares will be issued in April
1997. The shares issued by the Company in connection with the purchases of
various centers were considered outstanding from the date of acquisition.

The Company's Convertible Subordinated Debentures are not considered common
stock equivalents until shares are issued and become outstanding upon conversion
and, as such, are not included in the calculation of primary earnings per share.
For purposes of fully diluted earnings per share, the calculation assumes the
conversion of the Company's convertible subordinated debentures for the period
they were outstanding.

The number of common shares used to compute primary and fully diluted net income
per share are as follows:

<TABLE>
<CAPTION>

                    1996       1995       1994
                 ----------  ---------  ---------
<S>              <C>         <C>        <C>
Primary          11,670,000  7,785,000  7,097,500
Fully Diluted    12,903,000  7,785,000  7,097,500
</TABLE>

New Accounting Standards - Statement of Financial Accounting Standards No. 121
------------------------
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" ("SFAS 121") which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets carrying amount.  SFAS 121 also addresses the accounting
for long-lived assets to be disposed of.  The Company adopted SFAS 121 in the
first quarter of 1996.  No adjustments were required.

In February 1997, Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings per Share", was issued which establishes standards for

                                      F-10
<PAGE>

1.  The Company and Its Significant Accounting Policies (continued)

computing and presenting earnings per share.  SFAS No. 128 is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods.  The Company is currently evaluating the impact of
implementing this standard on earnings per share.

Revenue Recognition - For the Company's centers and those centers that
-------------------
the Company acquired through its acquisition (the "NMR Acquisition") of NMR of
America, Inc. ("NMR")(see Note 14) which were previously acquired by NMR (as
opposed to developed, see next paragraph), revenues are recognized on an accrual
basis as earned and consist of patient service revenues adjusted for contractual
adjustments (net patient service revenue) allocated to the Company under the
terms of management agreements. This revenue is derived from charges for patient
services rendered in diagnostic imaging centers under the terms of certain
payment arrangements with various third party payors.

For centers which NMR developed, agreements have been entered into with
physicians engaging in business as professional associations ("Physicians")
pursuant to which the Company maintains and operates imaging systems in offices
operated by the Physicians. The agreements have terms of up to six years and are
renewable at the option of the Company. Under the agreements, Physicians have
agreed to be obligated to contract for radiological services at the centers and
to sublease each facility. The Company is obligated to make necessary leasehold
improvements, provide furniture and fixtures and perform certain administrative
functions relating to the provision of technical aspects of the centers
operations for which Physicians pays a quarterly fee composed of a fixed sum
based on the cost of the respective imaging system installed, including the
related financing costs, a charge per invoice processed and a charge based upon
system usage for each NMR-installed imaging system in operation. These fees, net
of a contractual allowance, based upon Physicians ability to pay, after
Physicians have fulfilled their obligations under facility subleases and
radiological service contracts as set forth above, constitute the Company's
revenue, net for sites developed by NMR.

Certain revenues are subject to audit and retroactive adjustment by third party
payers.  The Company is aware of no pending audits or proposed adjustments and
no provisions for estimated retroactive adjustments have been provided.

The Company also recognizes revenue from temporary nurse staffing. Revenues are
recognized on an accrual basis as earned.

                                      F-11
<PAGE>

2.  Accounts Receivable, Net

Accounts receivable, net is comprised of the following:

<TABLE>
<CAPTION>
                                           December 31,
                                       1996           1995
                                   -------------  -------------
<S>                                <C>            <C>
Due from affiliated physicians     $  8,694,441             --
Patient accounts receivable          41,552,241    $19,669,154
Less:  Allowance for doubtful
       accounts and contractual
       allowances                   (10,368,302)    (5,831,517)
                                   ------------    -----------
                                   $ 39,878,380    $13,837,637
                                   ============    ===========
</TABLE>

A significant financial instrument is accounts receivable, which is concentrated
among third party medical reimbursement organizations, principally insurance
companies. Approximately 19.5% and 21.8% of the Company's 1996 and 1995 imaging
revenue was derived from the delivery of services of which the timing of payment
is substantially contingent upon the timing of settlement of pending litigation
involving the recipient of services and third parties (Letter of Protection or
LOP-type accounts receivable). By its nature, the realization of a substantial
portion of these receivables is expected to extend beyond one year from the date
the service was rendered. The Company anticipates that a material amount of its
accounts receivable will be outstanding for periods in excess of twelve months
in the future. The Company considers the aging of its accounts receivable in
determining the amount of allowance for doubtful accounts. Credit losses
associated with the receivables are provided for in the consolidated financial
statements and have historically been within management's expectations. For LOP-
type receivables, the Company provides for uncollectible accounts at
substantially higher rates than any other revenue source. During 1995, the
Company changed its estimate of the level of bad debts within the LOP balance to
a higher overall factor, based upon continuously updated levels of internal
write off experience. The effect on the consolidated financial statements of
this change in estimate in 1995 was a decrease in income from continuing
operations before extraordinary items of $595,000, net of income taxes of
$239,000, and a decrease in net income per common share of $0.08.

3.  Short-term Investments

The following is a summary of the investments in debt securities classified as
current assets, and which are available for sale:

<TABLE>
<CAPTION>
                                                     Gross
                                                  unrealized      Fair
                                       Cost          gains        Value
                                    -----------   ----------   ----------
<S>                                 <C>           <C>          <C>
December 31, 1996
Available-for-sale:
  US Government obligations         $ 5,360,694     $25,889    $5,386,583
  Certificates of deposit               776,017          --       776,017
                                    -----------     -------    ----------
  Total                               6,136,711      25,889     6,162,600
  Less:  Restricted Investments      (4,500,000)         --    (4,500,000)
                                    -----------     -------    ----------
                                    $ 1,636,711     $25,889    $1,662,600
                                    ===========     =======    ==========
</TABLE>

As of December 31, 1995, there were no short-term investments available-
for-sale.

                                      F-12
<PAGE>

4.  Property and Equipment

Property and equipment stated at cost are set forth below:

<TABLE>
<CAPTION>

                                       December 31,
---------------------------------------------------------
                                    1996         1995
---------------------------------------------------------
<S>                              <C>          <C>
Diagnostic equipment             $33,938,043  $20,184,995
Leasehold improvements             9,351,983    6,449,980
Furniture and fixtures             2,996,673    2,421,621
Land and buildings                   632,240      ---
Construction in progress             270,000      ---
---------------------------------------------------------
                                  47,188,939   29,056,596
Less, accumulated depreciation    22,791,862   17,526,437
---------------------------------------------------------

                                 $24,397,077  $11,530,159
=========================================================
</TABLE>

Depreciation expense amounted to $5,463,078, $3,844,225 and $4,077,669  for the
years ended December 31, 1996, 1995 and 1994, respectively.

5.  Account Payable and Accrued Expenses

Accounts payable and accrued expenses are comprised of the following:

<TABLE>
<CAPTION>
                                      December 31,
                                  1996           1995
                               -----------    ----------
<S>                            <C>            <C>
Trade accounts payable         $10,902,789    $1,936,775
Accrued professional fees                        195,531
Accrued payroll and bonuses        792,038       975,643
Accrued interest                   322,648
Other accrued expenses           1,052,895     1,494,977
                               -----------    ----------
                               $13,070,370    $4,602,926
                               ===========    ==========
</TABLE>

6.  Convertible Subordinated Debentures and Line of Credit

On May 30, 1995 the Company issued at par $4,350,000 aggregate principal amount
of 11% Convertible Subordinated Debentures due 2000 (the "Debentures"). The
Debentures are convertible into Common Stock of the Company at any time by the
holder at a conversion price of $4.00 per share. The Debentures automatically
convert to stock when, after June 1, 1997 the market price of the stock exceeds
$6.00 per share for any 15 consecutive day period. Interest is payable on May 31
and November 30 in each year. Related debt issuance costs of $248,000 are
included as a component of other assets in the accompanying consolidated balance
sheet and are being amortized on a straight line basis over five years. As of
December 31, 1996 $2,980,000, aggregate principal amount of the Debentures were
converted into 745,000 shares of the Company's common stock. No conversions were
made prior to 1996.

On February 7, 1996, the Company issued at par $6,533,000 aggregate principal
amount of 10.5% Convertible Subordinated Debentures due 2001 (the "1996
Debentures").  The 1996 Debentures are convertible into Common Stock of the
Company at a conversion price of $6.00 per share.  Related debt issuance costs
of $435,000 are included as a component of other assets in the accompanying
consolidated balance sheet and are being amortized on a straight line basis over
five years.  Interest is

                                      F-13
<PAGE>

6.   Convertible Subordinated Debentures and Line of Credit (continued)

payable on February 1 and August 1 in each year.  As of December 31, 1996,
$1,733,000 aggregate principal amount of the 1996 Debentures were converted into
288,831 shares of the Company's common stock.  Subsequent to year end, the
Company called for redemption of the 1996 Debentures at the conversion price of
$6.00 per share on or before March 27, 1997.

Under the terms of the merger agreement with NMR, the Company assumed the
obligations of NMR under NMR's 8% Convertible Subordinated Debentures due 2001
including payment of principal and interest (the "NMR Debentures").  At December
31, 1996, $859,000 aggregate principal amount of NMR Debentures were
outstanding.  Interest is payable on January 1 and July 1 in each year.  The NMR
Debentures are redeemable at a declining premium after July 1988, contain a
mandatory sinking fund provision calculated to retire 90% of the NMR Debentures
before maturity at a rate of 10% per year commencing in July 1992, and are
convertible into the MRI's common stock at any time prior to maturity at $6.55
per share.  As of December 31, 1996 $3,141,000 aggregate principal amount of the
NMR Debentures had been converted into the Company's common stock.  Subsequent
to year end, the Company called for redemption of the NMR Debentures at the
conversion price of $6.54 per share on or before March 27, 1997.

The Company has two revolving lines of credit from a third party financing
corporation.  In May 1996, the Company obtained an $8 million line and in
October 1996 a $4 million line.  Both lines bear interest at prime plus 1.5%
(10% at December 31, 1996); and have a two year term.   As of December 31, 1996,
no amounts were outstanding under these lines of credit.

In 1996, the Company obtained a two year $7 million capital lease line of
credit, which bears interest at the 30-day T-bill rate plus 398 basis points.
As of December 31, 1996, no amounts were outstanding under this line of credit.

7.   Notes and Mortgage Payable

Notes and mortgage payable consist of the following:

<TABLE>
<CAPTION>
                                                        December 31,
                                                      1996         1995
--------------------------------------------------------------------------
<S>                                                <C>          <C>
Mortgage payable to bank from NMR
 acquisition (A)                                   $   512,754  $   ---
Notes payable issued in connection with
 acquisitions(B)                                     1,376,919      ---
Notes payable assumed in NMR acquisition (C)        11,858,164      ---
Note payable requiring monthly payments
 beginning January 1995; remaining balance of
 $2,498,216 is due January 2000 (D)                  3,397,589   3,776,417
Other notes payable for equipment, equipment
 upgrades and leasehold improvements (E)             2,221,168   1,630,441
--------------------------------------------------------------------------
Total                                               19,366,594   5,406,858
Less, current installments                           6,728,668     957,884
--------------------------------------------------------------------------
Notes and mortgage payable, less current
 installments                                      $12,637,926  $4,448,974
 =========================================================================
</TABLE>

                                      F-14
<PAGE>

7.   Notes and Mortgage Payable (continued)

(A)  The Company has a thirty-year mortgage collateralized by the Union, New
     Jersey imaging center land and building. The mortgage bears interest at a
     variable rate, adjusted annually based on the one-year Treasury bill rate
     plus 2.75% (8.5% at December 31, 1996) and matures October 2019. The
     current monthly payments are $4,310, including interest. This mortgage was
     assumed in connection with the NMR acquisition.

(B)  In January 1996 as part of the purchase price for the acquisition of the
     business assets of MRI-CT, Inc., the Company issued a $88,000 note payable
     bearing interest at prime (8.25% at December 31, 1996) due January 9, 2001.
     Also in January 1996, as part of the purchase price for the acquisition of
     the common stock of NurseCare Plus,Inc. the Company issued a note payable
     for $1,250,000 bearing interest at prime plus one percent (9.25% at
     December 31, 1996) due January 12, 1999. In June 1996 the Company issued a
     $510,000 note payable as part of the purchase price of WeCare Allied Health
     Care, Inc. The note bears interest at prime plus one percent (9.25% at
     December 31, 1996) and is due August 1998.

(C)  In August 1996, in connection with the NMR Acquisition the Company assumed
     NMR's existing equipment debt obligations, aggregating $13,235,700. These
     notes bear interest at rates ranging from 7.0% to 11.5% and require monthly
     payments ranging from $623 to $86,335, including interest (an aggregate of
     $453,596 per month). The notes are payable over varying terms with the last
     note due in December 2000. One of the notes restricts the Company's ability
     to pay dividends. The foregoing notes are collateralized by the respective
     centers' imaging equipment.

(D)  Effective January 31, 1994, StarMed and the creditor renegotiated the note
     payable. Under the revised terms, the creditor forgave approximately
     $2,500,000 of principal and accrued interest and received a 16% ownership
     interest in the predecessor entity, which was ultimately exchanged for the
     common stock of the Company pursuant to the merger. The levels of
     undiscounted future cash payments under the renegotiated terms resulted in
     the recognition of a gain of $761,683, treated as extraordinary for
     reporting purposes in 1994. At the time of the restructuring, the note
     balance was adjusted to the amount of the projected undiscounted future
     cash payments based upon the prevailing interest rate and, accordingly, no
     interest expense has been recorded subsequent to the effective date of the
     renegotiation other than the amounts attributed to a change in the variable
     rate.

(E)  Represents various notes payable relating to the purchase of equipment,
     equipment upgrades and leasehold improvements. These notes bear interest at
     rates ranging from 3.0% to 11.7% and require monthly payments ranging from
     $4,875 to $16,382, including interest. The notes are payable over varying
     terms of four and five years with the last note due August 2000. The notes
     are primarily collateralized by the related imaging equipment.

                                      F-15
<PAGE>

7.  Notes and Mortgage Payable (continued)

As of December 31, 1996, the Company has $7,880,975 outstanding obligations with
certain financial institutions under agreements which include a material adverse
change in financial condition or other similar subjective acceleration clauses.

Aggregate maturities of the Company's notes and mortgage payable for years 1997
through 2001 and thereafter are as follows: 1997 - $6,728,668; 1998 -$5,039,896;
1999 - $2,380,013; 2000 -$4,736,300; 2001- $19,450; thereafter $462,267.

8.  Shareholders' Equity

Authorized Stock

The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock, par value $.01 per share, and 100,000 shares of Preferred Stock,
par value $.01 par share ("Preferred Stock"). The Company has a Shareholders'
Rights Plan (described below) which may require the issuance of Series C Junior
Participating Preferred Stock, in connection with the exercise of certain stock
purchase rights. At December 31, 1996, there were no shares of preferred stock
issued or outstanding.

Shareholders' Rights Plan

Pursuant to the Shareholders' Rights Plan, holders of the Common Stock received
a distribution of one right (the "Rights") to purchase one ten thousandth of a
share of Series C Junior Participating Preferred Stock for each share of Common
Stock owned. The Rights will generally become exercisable ten days after a
person or group acquires 15% of the Company's outstanding voting securities or
ten business days after a person or group commences or announces an intention to
commence a tender or exchange offer that could result in the acquisition of 15%
of any such securities. Ten days after a person acquires 15% or more of the
Company's outstanding voting securities (unless this time period is extended by
the Board of Directors) each Right would, subject to certain adjustments and
alternatives, entitle the rightholder to purchase Common Stock of the Company or
stock of the acquiring company having a market value of twice the $24.00
exercise price of the Right (except that the acquiring person or group and other
related holders would not be able to purchase common stock of the Company on
these terms). The Rights are nonvoting, expire in 2006 and may be redeemed by
the Company at a price of $.001 per Right at any time prior to the tenth day
after an individual or group acquired 15% of the Company's voting stock, unless
extended. The purpose of the Rights is to encourage potential acquirers to
negotiate with the Company's Board of Directors prior to attempting a takeover
and to give the Board leverage in negotiating on behalf of the shareholder the
terms of any proposed takeover.

                                      F-16
<PAGE>

8.  Shareholders' Equity (continued)

Preferred Stock

The Company's Certificate of Incorporation provides that the Company may,
without further action by the Company's stockholders, issue shares of Preferred
Stock in one or more series. The Board of Directors is authorized to establish
from time to time the number of shares to be included in any such series and to
fix the relative rights and preferences of the shares of any such series,
including without limitation dividend rights, dividend rate, voting rights,
redemption rights and terms, liquidation preferences and sinking fund
provisions. The Board of Directors may authorize and issue Preferred Stock with
voting or conversion rights that could adversely affect the voting power or
other rights of Common Stock. In addition, the issuance of Preferred Stock could
have the effect of delaying or preventing a change in control of the Company.

Stock Options and Employee Stock Grants

Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" ("SFAS 123") was issued in October 1995, establishing a fair
value-based method of accounting for stock-based compensation plans, including
stock options and stock purchase plans. SFAS 123 allows companies to adopt a
fair-value-based method of accounting for stock-based compensation plans or, at
their option, to retain the intrinsic-value based method of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB No. 25"), and supplement it with pro forma disclosures of net earnings and
earnings per share data as if the fair value method had been applied. The
Company has elected to continue to account for stock-based compensation plans
under APB No. 25 and, as such, the adoption of this standard has not impacted
the consolidated results of earnings or financial condition.

The Company's five stock option plans provide for the awarding of incentive and
non qualified stock options to employees, directors and consultants who may
contribute to the success of the Company.  The options granted vest either
immediately or ratably over a period of time from the date of grant, typically
three or four years, at a price determined by the Board of Directors or a
committee of the Board of Directors, generally the fair value of the Company's
common stock at the date of grant.

In addition to these plans, the Company has issued 342,000 non-qualified options
at exercise prices ranging from $4.00 to $9.00 per share to certain directors
and executive officers of the Company.  Such prices were not less than the fair
market value on the dates of the grant.

Under the terms of the merger agreement with NMR, all outstanding NMR employee
stock options (the "NMR Employee Options") were deemed to be exercisable for
that number of shares of the Company's Common Stock the option holder would have
received in the NMR Acquisition, had the holder exercised the NMR Employee
Options prior to the NMR Acquisition. At December 31, 1996, 78,627 stock option,
related to the NMR Acquisition, to purchase the Company's Common Stock at prices
ranging from $3.27 to $6.55 per share

                                      F-17
<PAGE>

8.  Shareholders' Equity (continued)

were outstanding.

Had the fair-value based method of accounting been adopted to recognize
compensation expense for the above plans, the Company's net earnings and
earnings per share would have been reduced to the pro forma amounts for the
years ended December 31, 1996 and 1995 as indicated below:


<TABLE>
<CAPTION>
                                        1996        1995
                                     ----------  ----------
<S>                                  <C>         <C>
Net income:
  As reported                        $7,254,208  $1,690,224
  Pro forma                           6,732,000   1,651,700

Primary earnings per share:
  As reported                               .62         .22
  Pro forma                                 .58         .21

Fully diluted earnings per share:
  As reported                               .59         .22
  Pro forma                                 .52         .21
</TABLE>

The fair value of each option grant under all plans is estimated on the date of
grant using the Black-Scholes option-pricing model based on the following
assumptions:

<TABLE>
<CAPTION>
                          1996    1995
                          ----    ----
<S>                       <C>     <C>
All Plans:
 Dividend yield             0%      0%
 Expected volatility       52%     52%
 Expected life (years)      2       2
</TABLE>
The risk-free interest rates for 1996 and 1995 were based upon a rate with
maturity equal to expected term. U.S. Treasury instruments were utilized. The
weighted average interest rate in 1996 and 1995 amounted to 5.93% and 6.41%,
respectively. The weighted average fair value of options granted during the
years ended December 31, 1996 and 1995 amounted to $2.34 and $1.15,
respectively.

                                      F-18
<PAGE>

8.  Shareholders' Equity (continued)

Stock option share activity and exercise price ranges under these plans and
grants for the years ended December 31, 1996, 1995 and 1994, were as follows:

                                  Number of  Weighted Average
                                   Shares     Exercise Price
                                  ---------  ----------------
Outstanding, December 31, 1993      122,675       $5.00
Granted                             271,000        4.89
Exercised                              --           --
Forfeited                              --           --
                                  ---------
Outstanding, December 31, 1994      393,675        4.92

Granted                             472,500        5.32
Exercised                           (12,916)       4.00
Forfeited                           (63,584)       4.50
                                  ---------
Outstanding, December 31, 1995      789,675        5.21

Granted                           1,073,140        7.94
Granted as transfer of
 NMR Options                        132,687        5.05

Exercised                          (243,197)       5.42
Forfeited                          (120,587)       6.58
                                  ---------
Outstanding, December 31, 1996    1,631,718        6.76
                                  =========
Exercisable at:
      December 31, 1994             122,625       $5.00
      December 31, 1995             301,209       $5.31
      December 31, 1996             909,710       $6.40

The exercise prices for options outstanding as of
December 31, 1996 ranged from $3.27 to $12.00.

                             F-19
<PAGE>

8.  Shareholders' Equity (continued)

Stock Purchase Warrants

As of December 31, 1996, the Company had granted warrants, which are currently
outstanding, to purchase its Common Stock with the following terms:

<TABLE>
<CAPTION>

    Number
      of        Exercise            Expiration
    shares        price                date
   -------      --------        ------------------
 <S>            <C>             <C>
    68,750       $11.64         February 6, 1997
     4,813       $ 7.27         March 30, 1997
    17,188       $ 4.50         February 23, 1999
     2,750       $ 5.70         May 18, 1999
    17,188       $ 7.27         September 30, 1999
    37,500       $ 8.00         February 28, 2001
    37,500       $12.00         February 28, 2001
   110,000       $ 4.73         April 16, 2001
    27,500       $ 3.36         August 31, 2001
    10,313       $ 4.00         August 31, 2001
   110,000       $ 4.18         August 31, 2001
    68,750       $ 4.73         August 31, 2001
    90,000       $ 8.00         August 31, 2001
    34,375       $ 9.27         August 31, 2001
   120,000       $ 9.00         August 31, 2001
     5,000       $ 9.00         November 1, 2001
   130,625       $ 9.27         December 18, 2001
   200,000       $ 9.50         August 31, 2002
    51,563       $ 4.36         November 5, 2003
    20,625       $ 5.70         May 18, 2004
 ---------
 1,164,440
 =========
</TABLE>

In March 1996 a financial consulting firm doing business with the Company was
granted warrants to purchase 75,000 shares of the Company's Common Stock
consisting of 37,500 warrants with an exercise price of $8.00 per share and
37,500 warrants with an exercise price of $12.00 per share.  These warrants have
a term of five years and are exercisable from date of grant.

Under the terms of the merger agreement with NMR, all outstanding NMR warrants
were deemed to be exercisable for that number of shares of the Company's Common
Stock the warrant holder would have received in the NMR Acquisition, had the
holder exercised the NMR warrant prior to the NMR Acquisition.  As such, the
Company now has:

     Warrants issued to purchase 17,188 shares of the Company's Common Stock at
     an exercise price of $7.27 per share to a radiology group providing
     services to one of its centers. These warrants have a term of five years
     and are exercisable from the date of grant.

     Warrants issued to purchase 4,813 shares of the Company's Common Stock at
     an exercise price of $7.27 per share in connection with the execution of a
     ground lease for one of its facilities. The warrants have a term of five
     years and are exercisable from the date of grant.

                                      F-20
<PAGE>

7.  Shareholders' Equity (continued)

    Warrants issued to acquire 68,750 shares of the Company's Common Stock at
    $11.64 per share to a financial consulting firm. The warrants have a term of
    five years and are exercisable from date of grant.

    Warrants granted to non-employee directors of NMR to purchase 13,750 shares
    (an aggregate of 130,625 shares) of the Company's Common Stock at $9.27 per
    share. These warrants have a term of ten years and are exercisable from date
    of the grant.

    Warrants granted to a non-employee director of NMR to purchase 2,750 shares
    of the Company's Common Stock at an exercise price of $5.70 per share. These
    warrants have a term of ten years and are exercisable from the date of
    grant.

    Warrants issued to purchase 17,188 shares of the Company's Common Stock at
    an exercise price of $4.50 per share to a professional corporation providing
    legal services to NMR. These warrants have a term of ten years and are
    exercisable from the date of grant.

    Warrants granted and officer and director of NMR to acquire 51,563 shares of
    the Company's Common Stock at an exercise price of $4.36, and 20,625 share
    of common stock at an exercise price of $5.70. These warrants have a term of
    ten years and are exercisable from the date of grant.

For services rendered by a financial advisory company owned by the Chairman of
the Board of Directors of the Company in connection with the NMR Acquisition,
the Company issued warrants to purchase 120,000 shares of the Company's Common
Stock at an exercise price of $9.00 per share. These warrants have a term of
five years and are exercisable from date of grant.

As required by the merger agreement with NMR, the President of NMR was granted
(i) five year warrants to purchase 40,000 shares of the Company's Common Stock
at an exercise price of $8.00 per share and (ii) six year warrants to purchase
200,000 shares of the Company's Common Stock at an exercise price of $9.50 per
share, and (iii) in exchange for his NMR employee stock options, three separate
five year warrants to purchase 34,375, 68,750 and 34,375 shares of the Company's
Common Stock at exercise prices of $9.27, $4.18 and $4.73, respectively.

As required by the merger agreement with NMR, the Executive Vice President -
Finance of NMR was granted (i) five year warrants to purchase 50,000 shares of
the Company's Common Stock at an exercise price of $8.00 per share and (ii) in
exchange for his NMR employee stock options, four separate five year warrants to
purchase 10,313, 27,500, 41,250 and 34,375 shares of the Company's Common Stock
at exercise prices of $4.00, $3.36, $4.18 and $4.73, respectively.

                                      F-21
<PAGE>

8.  Income Taxes

The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, ("SFAS No. 109") "Accounting for Income Taxes.",
which requires an asset and liability approach.  The asset and liability
approach requires the recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the financial
reporting basis and tax basis of the Company's assets and liabilities.

As of December 31, 1996, the Company for Federal income tax purposes, has net
operating loss carryforwards which begin to expire in the year 1999, of
approximately $8,028,613, all of which represent net operating losses of
acquired companies.  Under Section 382 of the Internal Revenue Code, the
Company's acquired operating losses are subject to an annual utilization
limitation of approximately $2,282,068.  Any unutilized annual limitation may be
carried forward to available future carryforward years.

For Federal income tax purposes, the Company has investment tax credits of
$385,638 all of which represent investment tax credits of an acquired company.
The Company's investment tax credits begin to expire in the year 1999 and are
accounted for under the flow through method.

Significant components, tax effected, of the Company's deferred tax
assets and (liabilities) at December 31, 1996 and 1995 are as follows (in
thousands):

<TABLE>
<CAPTION>


                                  1996      1995
                                --------  --------
<S>                             <C>       <C>
Deferred tax liabilities:
  Fixed assets                  $(  857)   $   52
  Deferred rent                  (   59)   (   89)
  Cash to accrual basis          (  362)       --
                                -------    ------
Deferred tax liabilities         (1,278)   (   37)
                                -------    ------
Deferred tax assets:
  Net operating losses            2,956        --
  Tax credits                       385        --
  Accounts receivable             3,354     1,871
  Capital leases                    135       153
  Intangibles                       220       544
  Capital loss carryforwards        133        74
                                -------    ------
Deferred tax assets               7,183     2,642
Valuation allowance              (  200)   (  200)
                                -------    ------
Net deferred tax asset          $ 5,705    $2,405
                                =======    ======

</TABLE>

                                      F-22
<PAGE>

9.  Income Taxes (continued)

Components of the provision for (benefit from) income taxes are as follows:

<TABLE>
<CAPTION>
                   1996          1995         1994
               ------------  ------------  ----------
<S>            <C>           <C>           <C>
Current:
    Federal     $3,764,000   $ 3,051,000   $ 575,000
    State        1,239,000       769,000     150,000
                ----------   -----------   ---------
                 5,003,000     3,820,000     725,000
                ----------   -----------   ---------

Deferred:
    Federal       (704,000)   (1,789,000)   (244,000)
    State         (137,000)     (372,000)        ---
                ----------   -----------   ---------
                  (841,000)   (2,161,000)   (244,000)
                ----------   -----------   ---------
                $4,162,000   $ 1,659,000   $ 481,000
                ==========   ===========   =========
</TABLE>


A reconciliation of the Federal statutory income tax rate to the Company's
effective tax rate as reported is as follows:


<TABLE>
<CAPTION>

<S>                                            <C>       <C>      <C>
                                                1996     1995      1994
                                               ------   ------    ------
Taxes at Federal statutory rate                 34.0%    34.0%    (34.0%)
Effect of partnership status and amounts
 taxed to parties other than the Company        (1.1%)    2.0%     (1.5%)
State and local income taxes, net                6.1%     4.5%      6.0%
Net operating loss carryforwards                  --       --     (31.4%)
Meals and entertainment                          1.9%     3.6%     19.5
Change in valuation allowance                     --    (26.2%)    93.2%
Goodwill                                         2.3%      --       --
Other                                           (6.6%)   10.7%     27.0%
                                                -----   ------    ------
Effective income tax rate                       36.6%   28.6%     78.8%
                                                =====   ======    ======
</TABLE>

Prior to the merger, the taxable income (loss) of StarMed was included in the
individual income tax returns of the partners. Accordingly, for periods prior to
the merger, no provision for income tax has been recorded in the accompanying
consolidated financial statements. The unaudited pro forma information
accompanying the consolidated statement of operations reflects the income tax
affects as if StarMed had been a taxable entity for all periods presented. The
income taxes are calculated at 39% of income before income taxes, adjusted for
nondeductible amortization of intangibles and other nondeductible items.

The provision for state income taxes for 1994 includes certain adjustments
related to payments of prior year state income taxes. All operating loss
carryforwards have been used at December 31, 1994.

Discontinued operations in 1995 is net of a benefit for federal income taxes of
$750,000 and a benefit for state income taxes of $218,000. These tax benefits
are allocated $312,000 to loss from operations of discontinued business and
$656,000 to loss on sale of discontinued business. In periods before the merger,
the discontinued business operated under the form of partnerships and,
accordingly, no taxes are provided.

10. Commitments and Contingencies

The Company has entered into noncancelable leases for certain medical diagnostic
equipment and furniture and fixtures, and has capitalized the assets relating to
these leases.  In most cases, the leases are collateralized by the related
equipment.  Certain leases included renewal options for additional periods.
Additionally, at certain centers, the Company is liable for additional
rent payments based upon predetermined annual activity levels where the medical
diagnostic equipment is located.  These additional rent payments amounted to
approximately $111,000 and $83,000 for the years ended December 31, 1995 and
1994, respectively.

The following is a summary of assets under capital leases:
<TABLE>
<CAPTION>

                                             December 31,
                                       1996              1995
<S>                                <C>               <C>
Medical diagnostic and office
     equipment                     $ 23,036,069       $ 15,819,882
Less:  Accumulated depreciation     (12,095,671)        (7,745,386)
                                   ------------       ------------
                                   $ 10,940,398       $  8,074,496
                                   ============       ============


</TABLE>

                                      F-23
<PAGE>

10. Commitments and Contingencies (continued)

Amortization expense relating to property and equipment under capital leases at
December 31, 1996, 1995 and 1994 was $3,377,470, $2,045,000 and $3,389,000,
respectively.

The following is a schedule by fiscal year of the minimum future lease payments
under capital leases as of December 31, 1996:

<TABLE>

<S>                                                 <C>
            Year ending December 31,
                    1997                            $ 7,167,189
                    1998                              4,642,623
                    1999                              3,090,601
                    2000                              1,495,485
                    2001                                303,112
                 thereafter                                 ---
--------------------------------------------------  -----------
            Total minimum lease payments             16,699,010
       Less:  amount representing
                 interest (imputed at an average
                 rate of 9.8%)                        2,333,703
--------------------------------------------------  -----------
            Present value of
              minimum lease payments                 14,365,307
            Less current installments                 5,991,626
--------------------------------------------------  -----------
            Obligations under capital leases,
              less current installments             $ 8,373,681
==================================================  ===========
</TABLE>

The Company leases its corporate offices and certain centers for periods
generally ranging from three to ten years.  These leases include rent escalation
clauses generally tied to the consumer price index and contain provisions for
additional terms at the option of the tenant.  The leases generally require the
Company to pay utilities, taxes, insurance and other costs.  Rental expense
under such lease were approximately $2,597,381, $2,238,000 and $2,296,000 for
the years ended December 31, 1996, 1995 and 1994, respectively.  Ten of the
offices are subleased to affiliated Physicians. By reason of the sublease
arrangements, if the respective Physicians should be unable to pay the rental on
the site, the Company would be contingently liable. As of December 31, 1996, the
Company has subleased the operating sites to the Physicians for the base rental
as stipulated in the original lease. For the year ended December 31, 1996 the
related sublease income has been offset by the lease rent expense. The Company
also has operating lease for diagnostic imaging equipment installed in its
Philadelphia, Pennsylvania and Seabrook, Maryland centers. In addition, StarMed
leases temporary housing for its per diem employees under operating leases with
terms of one to three months. Total rent expense for temporary housing amounted
to approximately $1,744,000, $1,757,000 and $1,787,000 for the years ended
December 31, 1996, 1995 and 1994, respectively.

The following summary of non-cancelable obligations includes the sublease
arrangements described above, certain equipment leases and the Company's
corporate rentals.  As of December 31, 1996, the aggregate future minimum lease
payments and sublease rentals are as follows:

                                      F-24
<PAGE>

10. Commitments and Contingencies (continued)


<TABLE>
<CAPTION>

                                         Original
Year ended December 31,      Leases     Subleases       Net
-------------------------  -----------  ----------  -----------
<S>                        <C>          <C>         <C>
     1997                  $ 3,962,224  $  777,391  $ 3,184,833
     1998                    2,926,586     673,875    2,252,711
     1999                    2,417,041     593,738    1,823,303
     2000                    1,799,553     476,635    1,322,918
     2001                    1,236,167     291,274      944,893
  thereafter                   984,783      36,861      947,922
-------------------------  -----------  ----------  -----------
                           $13,326,354  $2,849,774  $10,476,580
                           ===========  ==========  ===========
</TABLE>

In September 1992, an individual brought an action in the Supreme Court of the
State of New York, County of Bronx, against a number of physicians, a hospital
and North Bronx Resources, Inc., a wholly owned subsidiary of the Company
("North Bronx"), for damages in an unspecified amount resulting from an alleged
failure to diagnose a brain tumor at the time the imaging services were
performed for the plaintiff.  The complaint alleges that North Bronx was
negligent in its rendering of medical care and treatment to the patient.  In
December 1992, North Bronx answered, denying the substantive allegations of the
complaint, raising an affirmative defense that the plaintiff's action does not
state a claim against North Bronx for which relief can be granted, and cross
claimed against the defendants in the action.  In 1996, North Bronx settled for
an immaterial amount.

In 1996, an individual and his spouse brought an action in the Supreme Court of
the State of New York, King's County against MRA Imaging Associates in Brooklyn,
New York, a wholly owned subsidiary of the Company ("MRA Imaging") for damages
aggregating $12.5 million.  The plaintiff alleges negligent operations, improper
supervision and hiring practices and the failure to operate the premises in a
safe manner, as a result of which the individual suffered physical injury.  The
Company's general liability and professional negligence insurance carriers have
been notified, and it has been agreed that the general liability insurance will
pursue the defense of this matter, however such insurers have reserved the right
to claim that the scope of the matter falls outside the Company's coverage. The
parties to this matter are engaged in discovery. The Company's legal counsel
believes that it is more probable than not that the plaintiffs will not recover
the damages sought. The Company has made no provision in its financial
statements for this matter. In the event the plaintiffs prevail, this matter may
have a material adverse effect on the Company's financial condition, results of
operations and cash flow.

11. Related Parties

The Company pays an annual financial advisory fee to an affiliate (the
"Affiliate") of the Company's Chairman of the Board and controlling
stockholders. Such fees amounted to $102,084, $225,000 and $225,000 in the years
ended December 31, 1996, 1995 and 1994, respectively. During the year ended
December 31, 1996, the Company also paid transaction related advisory fees and
expenses to the Affiliate of $362,500 and issued to the affiliate warrants to
purchase 120,000 shares of the Company's common stock exercisable at $9.00 per
share for services rendered to the Company, including services in connection
with the NMR acquisition, the public offering of the Company's common stock in
October 1996 and other transactions.

                                      F-25
<PAGE>

11. Related Parties (continued)

The Company believes that such fees were on terms no less favorable to the
Company than what the Company could have otherwise received from an unaffiliated
third party. In order to incentivize officers, directors, employees and
consultants to the Company, the Company from time to time grants options at fair
market value to such individuals. As of December 31, 1996, stock options to
purchase 764,666 shares of the Company's common stock have been issued to board
members, including the Chairman, who are also associated with or affiliated with
the Affiliate, options to purchase 15,000 shares of the Company's common stock
have been granted to an individual employed by an affiliate of the Affiliate for
consulting services rendered to the Company. The exercise prices of such options
and warrants, referred to below, were no less than the fair market value of the
Company's common stock at the date of grant.

In connection with the execution of four acquisitions in 1997 the Company has
issued warrants to purchase 281,000 shares of the Company's Common Stock to the
Affiliate.  In addition, the Company has authorized the issuance of warrants to
purchase 168,000 shares of the Company's Common Stock to the Affiliate in
connection with a probable acquisition in 1997.

North Bronx Resources, Inc., a subsidiary of the Company and General Partner of
North Bronx Services Group, L.P. has entered into a noncancelable operating
lease for the rental of space from an affiliate, Inter-County Resources Company,
Inc. (a limited partner in North Bronx Services, L.P.) The lease provides for
scheduled increases in base rent at varying intervals during the lease term and
adjustments to the base rent based on increases in the consumer price index.
Under the terms of the agreement, the General Partner of North Bronx Services
Group, L.P. is responsible for the lease payments in the event of default by the
Partnership. Rental expense for the Partnership was approximately $262,000,
$306,000 and $418,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.

During the year ended December 31, 1996, the Company, in accordance with the
related partnership agreements, allocated certain corporate overhead costs to
the limited partnerships which resulted in $1,781 of such costs being attributed
to the minority interests.


12.  Segment Information

The Company operates in two industry segments - diagnostic imaging services and
temporary staffing services. The operations of the diagnostic imaging services
segment involves operating and managing 38 free standing imaging centers,
located in six states. The operations of the temporary staffing services segment
involves providing temporary staffing of registered nurses, technicians and
other medical industry personnel to acute and sub-acute care facilities.

                                      F-26
<PAGE>

12.  Segment Information (continued)

The following table shows net revenues, operating income and other financial
information by industry segment for the years ended December 31:
<TABLE>
<CAPTION>

                                      1996         1995          1994
                                  ------------  -----------  ------------
<S>                               <C>           <C>          <C>

Net revenues:
Diagnostic imaging centers        $ 64,762,017  $35,860,798  $30,607,729
Temporary staffing services         29,023,100   16,132,960   14,571,216
                                  ------------  -----------  -----------
    Total                         $ 93,785,117  $51,993,758  $45,178,945
                                  ============  ===========  ===========

Operating income (loss)(a):
Diagnostic imaging centers        $ 13,699,824  $ 7,193,994  $ 1,168,896
Temporary staffing services            992,971      312,917   (  133,267)
                                  ------------  -----------  -----------
     Total                        $ 14,692,795  $ 7,506,911  $ 1,035,629
                                  ============  ===========  ===========

Identifiable assets:
Diagnostic imaging centers        $154,414,650  $36,549,946  $28,131,474
Temporary staffing services         10,099,162    7,585,877    7,778,000
                                  ------------  -----------  -----------
    Total                         $164,513,812  $44,135,823  $35,909,474
                                  ============  ===========  ===========

Depreciation and amortization:
Diagnostic imaging centers        $  6,963,834  $ 4,274,140  $ 4,545,054
Temporary staffing services            501,641      293,004      299,211
                                  ------------  -----------  -----------
    Total                         $  7,465,475  $ 4,567,144  $ 4,844,265
                                  ============  ===========  ===========

Capital expenditures (b):
Diagnostic imaging centers        $    910,099  $   771,090  $   476,648
Temporary staffing services            159,771      105,928       86,426
                                  ------------  -----------  -----------
    Total                         $  1,069,870  $   877,018  $   563,074
                                  ============  ===========  ===========

</TABLE>

(a)  The Company's 1994 charges to operations relating to the write-down of
     value of venture contracts and intangible assets, provision for minority
     interest in losses of joint venture, executive severance, write-down of
     medical diagnostic equipment and the gain on disposal of medical diagnostic
     equipment, were attributable to the operations of the diagnostic imaging
     services segment only.

(b)  Equipment financed under capital leases and notes payable amounted to
     $3,698,196, $1,159,000 and $892,000 in 1996, 1995 and 1994, respectively.

                                      F-27
<PAGE>

13.  Quarterly Consolidated Financial Information (Unaudited)

     The following is a summary of unaudited quarterly consolidated financial
     results for the years ended December 31:

<TABLE>
<CAPTION>

                           (000's omitted, except for per share amounts)
     1996                      1st Qtr   2nd Qtr    3rd Qtr    4th Qtr
                               --------  -------    -------    -------

<S>                             <C>      <C>        <C>        <C>
    Revenue, net                $18,098  $18,678    $24,774    $32,235
    Operating income              2,328    3,027      3,927      5,411
    Net income                    1,298    1,606      1,845      2,505

    Fully diluted income
     (loss) per share               .16      .16        .15        .14

</TABLE>

<TABLE>
<CAPTION>

     1995                      1st Qtr   2nd Qtr    3rd Qtr    4th Qtr
                               --------  -------    -------    -------

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

    Revenue, net                $12,140  $12,759    $13,430    $13,665
    Operating income (loss)       1,631    2,223      2,109      1,544
    Net income (loss)              (232)     997       (256)     1,181

    Fully diluted income
     (loss) per share              (.03)     .13       (.03)       .15


</TABLE>


    (1) Quarterly income per fully diluted common share does not equal the
        annual amount due to changes in the common and equivalent shares
        outstanding.

Quarterly results are generally effected by the timing of acquisitions,
including limited partner interests, and the number of operating days in the
quarter.

                                      F-28
<PAGE>

14.  Fair Value of Financial Instruments

The following estimated fair value amounts have been determined using available
market information and appropriate valuation methodologies.  However,
considerable judgement is necessarily required in interpreting market data to
develop the estimates of fair value.  Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the Company could
realize in a current market exchange.  The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated fair
value amounts.

<TABLE>
<CAPTION>
                                          December 31, 1995
                                      ------------------------
                                        Carrying
                                         Amount    Fair Value
                                      -----------  -----------
 Assets:
   Cash and cash
     equivalents                      $ 3,935,000  $ 3,935,000
   Accounts receivable,
     net                               13,838,000   13,838,000
 Liabilities:
     Notes payable                    $ 5,407,000  $ 5,407,000
     Convertible debentures             4,350,000    4,466,000
<CAPTION>

                                          December 31, 1996
                                      ------------------------
                                        Carrying
                                         Amount    Fair Value
                                      -----------  -----------
<S>                                   <C>          <C>
  Assets:
  Cash and cash equivalents           $15,346,000  $15,346,000
  Short-term investments                6,163,000    6,163,000
  Restricted cash                       1,045,000    1,045,000
  Patient receivables and due from
   affiliated physician
   associations, net                   39,878,000   39,878,000
Liabilities:
  Notes payable                       $19,367,000  $19,093,000
  Capital lease obligations            14,365,000   14,681,060
  Convertible debentures                6,988,000    6,972,000
</TABLE>

The carrying amounts of cash and cash equivalents, short-term investments, long-
term investments and due from affiliated physician associations and patient
receivables, net are a reasonable estimate of their fair value.  The fair value
of the Company's notes payable, capital lease obligations and convertible
debentures are based upon a discounted cash flow calculation utilizing rates
under which similar borrowing arrangements can be entered into by the Company.

15. Acquisitions

On May 26, 1995, the Company consummated the acquisition of the business
operations of New England MRI, Inc. (the "Seller"), a Florida corporation based
in Fort Myers, Florida, which owned and managed two diagnostic imaging centers
(the "Fort Myers Centers"). The acquisition was consummated pursuant to an Asset
Purchase Agreement (the "Agreement") dated as of May 17, 1995 by and among two
of the Company's wholly owned subsidiaries - Fort Myers Resources, Inc. ("FMR")
and Central Fort Myers Resources, Inc. ("CMFR"), and the Seller. Pursuant to the
Agreement, FMR acquired substantially all of the assets of one of the centers
and CMFR acquired all of the assets of the other center through the issuance of
1,200,000 shares of the Company's common stock valued at $3,448,500. Of the
1,200,000 shares, 600,000 shares were issued at closing with the remaining
600,000 shares to be issued within two years of closing (525,000 of such shares
were issued subsequent to December 31, 1996. The excess of the purchase price
over the fair value of net assets acquired amounted to approximately $2,980,000
and is being amortized on a straight


                                      F-29
<PAGE>

15. Acquisitions (continued)

line basis over 20 years.  Subject to the Centers achieving certain earning
objectives within the next three years, an additional 200,000 shares may be
issued to the Seller.  These shares have not been included in the allocated
purchase price in light of the contingent nature of the arrangement.  If the
earning objectives are ultimately achieved, the market value of the shares upon
issuance will be recorded as additional goodwill subject to amortization over
the stated period.  The accompanying consolidated financial statements include
the operations of  FMR and CMFR from the above date of acquisition.  The shares
issued to the Seller as consideration for the purchased assets are subject to
certain registration rights.

On June 19, 1995, the Company consummated the acquisition of the business
operations of PCC Imaging, Inc. ("PCC"), a Delaware corporation based in
Hackensack, New Jersey, which owns and manages a diagnostic imaging center.  The
acquisition was consummated pursuant to an Asset Purchase Agreement (the
"Agreement") dated June 19, 1995 by and among Hackensack Resources, Inc. ("HRI")
and PCC.  Pursuant to the agreement, the Company's wholly owned subsidiary, HRI,
acquired substantially all of the assets of the center for $1,800,000 in cash.
The acquisition was accounted for as a purchase, under which the purchase price
was allocated to the acquired assets and assumed liabilities based upon fair
values at the date of acquisition.  The excess of the purchase price over the
fair value of net assets acquired amounted to $751,000 and is being amortized on
a straight line basis over 20 years.  The accompanying consolidated financial
statements include the operations of PCC from the above date of acquisition.

On January 9, 1996, the Company consummated the acquisition of the business
assets of MRI-CT, Inc., a New York corporation based in New York, New York (the
"MRI-CT") comprised primarily of four diagnostic imaging centers. The
acquisition was consummated pursuant to an Asset Purchase Agreement dated
December 21, 1995 by and among the Company and MRI-CT. Pursuant to the
Agreement, a wholly owned subsidiary of the Company acquired all of the business
assets of MRI-CT for a combination of $553,000 cash, 194,113 shares of the
Company's common stock valued at $914,000 and a $88,000 note payable bearing
interest at prime due January 9, 2001. The acquisition was accounted for as a
purchase, under which the purchase price was allocated to the acquired assets
and assumed liabilities based upon fair values at the date of acquisition. The
excess of the purchase price over the fair value of net assets acquired amounted
to $1,540,000 and is being amortized on a straight line basis over 20 years. The
accompanying consolidated financial statements include the operations of MRI-CT
from the above date of acquisition.

On January 12, 1996, the Company consummated the acquisition of the common stock
of NurseCare Plus, Inc. ("NurseCare") a California corporation based in
Oceanside, California, which provides supplemental healthcare staffing services
for clients including hospitals, clinics and home health agencies in Southern
California.  The NurseCare acquisition was consummated pursuant to a Stock
Purchase Agreement dated as of January 11, 1996 by and among StarMed Staffing,
Inc. the Company's

                                      F-30
<PAGE>

15. Acquisitions (continued)

wholly owned subsidiary ("StarMed") and NurseCare. Pursuant to the NurseCare
Agreement, StarMed acquired from NurseCare all of the common stock of NurseCare
for $2,514,000, payable in $1,264,000 cash and a note payable for $1,250,000
bearing interest at prime plus one percent due January 12, 1999. The acquisition
was accounted for as a purchase, under which the purchase price was allocated to
the acquired assets and assumed liabilities based upon fair values at the date
of acquisition. The excess of the purchase price over the fair value of net
assets acquired amounted to $2,087,000 and is being amortized on a straight line
basis over 20 years. The accompanying consolidated financial statements include
the operations of NurseCare from the above date of acquisition.

On April 19, 1996, the Company entered into an asset purchase agreement with
Americare Imaging Centers, Inc. and MRI Associates of Tarpon Springs, Inc.
("Americare"). Pursuant to the acquisition agreement, the Company acquired
certain of the assets and liabilities of Americare for $1,500,000 cash and
228,751 shares of the Company's common stock valued at $1,275,000. The
acquisition was accounted for as a purchase, under which the purchase price was
allocated to the acquired assets and assumed liabilities based upon fair values
at the date of acquisition. The excess of the purchase price over the fair value
of net assets acquired amounted to $2,862,000 and is being amortized on a
straight line basis over 20 years. The accompanying consolidated financial
statements include the operations of AmeriCare from the above date of
acquisition.

On April 30, 1996, the Company entered into an asset purchase agreement with
Access Imaging center, Inc. ("Access"). Pursuant to the acquisition, the Company
acquired certain of the assets and liabilities of Access for $1,300,000 cash and
192,063 shares of the Company's common stock valued at $1,445,000. The
acquisition was accounted for as a purchase, under which the purchase price was
allocated to the acquired assets and assumed liabilities based upon fair values
at the date of acquisition. The excess of the purchase price over the fair value
of net assets acquired amounted to $1,972,000 and is being amortized on a
straight line basis over 20 years. The accompanying consolidated financial
statements include the operations of Access from the above date of acquisition.

On June 28, 1996, the Company entered into an asset purchase agreement with
WeCare Allied Health Care, Inc. ("WeCare").  Pursuant to the agreement, the
Company acquired certain assets for $1,050,000 cash and a $510,000 note payable
bearing interest at prime plus one percent due July 1998.   The acquisition was
accounted for as a purchase, under which the purchase price was allocated to the
acquired assets and assumed liabilities based upon fair values at the date of
acquisition.  The excess of the purchase price over the fair value of net assets
acquired amounted to $1,769,000 and is being amortized on a straight line basis
over 20 years.  The accompanying consolidated financial statements include the
operations of WeCare from the above date of acquisition.

                                      F-31
<PAGE>

 14. Acquisitions (continued)

On July 8, 1996, the Company acquired a diagnostic imaging center in Centereach,
New York ("Centereach").  Pursuant to the acquisition, the Company acquired
certain of the assets for approximately $3,100,000 in cash.  The acquisition was
accounted for as a purchase, under which the purchase price was allocated to the
acquired assets and assumed liabilities based upon fair values at the date of
acquisition.  The excess of the purchase price over the fair value of net assets
acquired amounted to $2,989,000 and is being amortized on a straight line basis
over 20 years.  The accompanying consolidated financial statements include the
operations of Centereach from the above date of acquisition.

On August 30, 1996, the Company consummated the NMR Acquisition.  NMR is engaged
directly and through limited partnerships in the operation of eighteen
diagnostic imaging centers.  Pursuant to the acquisition agreement, NMR was
merged into a wholly owned subsidiary of the Company and each issued and
outstanding share of NMR common stock was converted into 0.6875 shares of the
Company's common stock resulting in the issuance of 4,456,500 shares of the
Company's common stock valued at $39,350,000.  The transaction was accounted for
as a purchase transaction where the value of the shares issued was allocated to
the net assets acquired based upon their respective fair values.  The operating
results of NMR are consolidated with the Company for the periods following the
acquisition.  Approximately $35,286,000 in goodwill was recognized with this
transaction and is being amortized on a straight line basis over twenty years.

On November 25, 1996 the Company consummated the acquisition of two diagnostic
imaging centers in Garden City and East Setauket, New York.  Pursuant to the
acquisition agreement, the Company acquired certain assets and liabilities for
573,175 shares of the Company's common stock valued at $4,500,000 and $1,900,000
in cash.  The acquisition was accounted for as a purchase, under which the
purchase price was allocated to the acquired assets and assumed liabilities
based upon fair values at the date of acquisition.  The excess of the purchase
price over the fair value of net assets acquired amounted to $6,042,000 and is
being amortized on a straight line basis over 20 years.  The accompanying
consolidated financial statements include the operations of the centers from the
above date of acquisition.

On December 16, 1996, the Company acquired the Imaging Center of the Ironbound
in Newark, New Jersey from TME, Inc. for $216,000 in cash and 18,868 shares of
Company common stock valued at $200,000.  The acquisition was accounted for as a
purchase, under which the purchase price was allocated to the acquired assets
and assumed liabilities based upon fair values at the date of acquisition.  The
excess of the purchase price over the fair value of net assets acquired amounted
to $440,663 and is being amortized on a straight line basis over 20 years.  The
accompanying consolidated financial statements include the operations of the
center from the above date of acquisition.

                                      F-32
<PAGE>

 17. Subsequent Events (Unaudited)

Acquisitions:
------------

On January 17, 1997, the Company acquired a diagnostic imaging center located in
Melbourne, Florida for approximately $1,100,000 in cash. The acquisition will be
accounted for as a purchase, under which the purchase price will be allocated to
the acquired assets and assumed liabilities based upon fair values at the date
of acquisition. The excess of the purchase price over the fair value of net
assets acquired is estimated to be approximately $663,000 and will be amortized
on a straight line basis over 20 years.

On January 29, 1997, the Company acquired two diagnostic imaging centers in
southern California; a multi-modality imaging center in San Clemente, California
and an imaging facility in Oceanside, California for approximately $1,000,000
payable in cash and contingent consideration, payable in the Company's common
stock, based on the centers achieving certain financial objectives. The
acquisition will be accounted for as a purchase, under which the purchase price
will be allocated to the acquired assets and assumed liabilities based upon fair
values at the date of acquisition. The excess of the purchase price over the
fair value of net assets acquired is estimated to be approximately $1,157,000
and will be amortized on a straight line basis over 20 years.

On March 3, 1997, the Company acquired a diagnostic imaging center located in
Jacksonville, Florida for $2,300,000 in the Company's common stock. The
acquisition will be accounted for as a purchase, under which the purchase price
will be allocated to the acquired assets and assumed liabilities based upon fair
values at the date of acquisition. The excess of the purchase price over the
fair value of net assets acquired is estimated to be approximately $1,612,000
and will be amortized on a straight line basis over 20 years.


                                      F-33
<PAGE>

17. Subsequent Events (Unaudited) (continued)

  On March 11, 1997, the Company acquired Advanced Diagnostic Imaging, Inc.
("ADI") for approximately $10,600,000 in cash consideration. ADI owned interests
in and operated nine diagnostic imaging centers throughout the Northeast. As
part of the transaction, the Company has acquired an option to purchase an
additional center located in the Northeast. The acquisition will be accounted
for as a purchase, under which the purchase price will be allocated to the
acquired assets and assumed liabilities based upon fair values at the date of
acquisition. The excess of the purchase price over the fair value of net assets
acquired is estimated to be approximately $17,945,000 and will be amortized on a
straight line basis over 20 years.

On March 12, 1997, the Company acquired a diagnostic imaging center located in
West Palm Beach, Florida for approximately $2,000,000 in cash and approximately
$600,000 in the Company's common stock. The acquisition will be accounted for as
a purchase, under which the purchase price will be allocated to the acquired
assets and assumed liabilities based upon fair values at the date of
acquisition. The excess of the purchase price over the fair value of net assets
acquired is estimated to be approximately $2,236,000 and will be amortized on a
straight line basis over 20 years.

On March 14, 1997, the Company acquired a diagnostic imaging center located in
Rancho Cucamonga, California for approximately $2,500,000 in cash and
approximately 500,000 in the Company's common stock. The acquisition will be
accounted for as a purchase, under which the purchase price will be allocated to
the acquired assets and assumed liabilities based upon fair values at the date
of acquisition. The excess of the purchase price over the fair value of net
assets acquired is estimated to be approximately $3,143,000 and will be
amortized on a straight line basis over 20 years.

Debt Financing:
--------------

On February 20, 1997 the Company completed a $52,000,000 private placement of
Senior Notes to a group of insurance companies led by John Hancock Mutual Life
Insurance Company. Dillon, Reed & Co., Inc. acted as agent in connection with
the placement. The notes bear interest at an annual rate of 7.77%, are subject
to equal annual sinking fund payments commencing in February 2001 and have a
final maturity in February 2005. The Company used a portion of the proceeds from
the private debt placement to retire approximately $14,000,000 of existing
equipment debt. The balance of the net proceeds is being used to fund
acquisitions and for general corporate purposes. In connection with this
placement, the Company paid an advisory fee of $225,000 to the Affiliate of the
Company's Chairman of the Board and its controlling shareholder.

18.   Pro Forma Information (Unaudited)

The Company's consolidated financial statements for the year ended December 31,
1995, do not include the results of operations of MRI-CT, Inc., NurseCare,
Americare, Access, WeCare, Centereach, NMR, Long Island, and Ironbound and
include the results of operations of New England MRI, Inc., and PCC ("Historical
Acquisitions") from the effective date of such transactions.

The Company's consolidated financial statements for the year ended December 31,
1996 include the results of operations of MRI-CT, Inc., NurseCare, Americare,
Access, WeCare, Centereach, NMR, Long Island, and Ironbound from the effective
dates of such transactions. The Company in October 1996, completed a secondary
stock offering resulting in the issuance of 3,680,000 shares. Such offering was
undertaken to fund the purchase of individual or groups of centers. As such, pro
forma earnings per share reflects the dilutive effect of such incremental
shares, as if the secondary offering was effected on January 1, 1996. The
following summarizes the unaudited pro forma results of operations for the years
ended December 31, 1996 and 1995, assuming all of the foregoing acquisitions had
occurred on January 1, 1996 and 1995 and the Company's secondary equity offering
was effected on January 1, 1996 (in thousands, except per share data):


                                      F-34
<PAGE>

18. Pro Forma Information (Unaudited) (continued)

<TABLE>
<CAPTION>
                                       1995           1996
                                    (Unaudited)    (Unaudited)
                                    -----------    -----------
<S>                                 <C>            <C>
Revenue, net                          $ 99,896       $122,692
Operating income                      $ 13,821       $ 20,258
  Income before income taxes          $  9,888       $ 16,835
Fully diluted net income per share    $    .51       $    .59
</TABLE>

The Company's consolidated financial statements for the year ended December 31,
1996, do not reflect the impact of its acquisitions effected subsequent to such
date (See note 17). The following summerizes the unaudited pro forma results of
operations for the year ended December 31, 1996, as if such acquisitions had
occurred on January 1, 1996, as well as the Company's 1996 acquisitions and its
October 1996 secondary offering.

<TABLE>
<CAPTION>
                                                      1996
                                                   (Unaudited)
                                                   -----------
<S>                                                <C>
Revenue, net                                         $163,730
Operating income                                     $ 28,868
  Income before income taxes                         $ 23,201
Fully diluted net income per share                   $    .77
</TABLE>



                                    F-35
<PAGE>

Medical Resources, Inc. and Subsidiaries

Schedule II    Valuation and Qualifying Accounts

<TABLE>
<CAPTION>

                                       Balance at   Additions                 Balance
                                        Beginning   Charged to                 at End
         Description                    of Period    Expense    Deductions    of Period
------------------------------         --------------------------------------------------
<S>                                    <C>         <C>          <C>           <C>
Year ended December 31, 1994

Total Allowance for Doubtful
  Accounts and Contractual
  Adjustments                           $2,549,304  $2,495,413   $2,163,290   $2,881,427
                                       ==================================================

Year ended December 31, 1995

Total Allowance for Doubtful
  Accounts and Contractual
  Adjustments                           $2,881,427  $3,377,862     $427,772   $5,831,517
                                       ==================================================

Year ended December 31, 1996

Total Allowance for Doubtful
  Accounts and Contractual
  Adjustments                           $5,831,517  $4,783,307   $2,079,641   $8,535,183
                                       ==================================================


</TABLE>