<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                            ----------------------

                                  FORM 10-Q

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

     For the quarterly period ended September 30, 1997

                                      OR

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

     For the transition period from                  to                 .
                                   ------------------   -----------------

                        Commission file number 0-28622

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

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

           4400 MacArthur Blvd., Suite 800, Newport Beach, CA 92660
           --------------------------------------------------------
             (Address of principal executive offices)   (Zip Code)

                                (714) 476-0733
                                --------------
             (Registrant's telephone number including area code)

                                       N/A
                                       ---
     (Former name, former address and former fiscal year, if changed since 
        last report)

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 the number of shares outstanding of each of the registrant's classes 
of common stock, as of the latest practicable date: 2,714,725 shares of Common 
Stock as of November 10, 1997.

                The number of pages in this Form 10-Q is 18.


<PAGE>

                    INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
                                           
                                        INDEX
                                           
                                           
                                                                    PAGE NUMBER
                                                                    -----------
PART I.    FINANCIAL INFORMATION

    ITEM 1.   FINANCIAL STATEMENTS                                             
              --------------------
              Condensed Consolidated Balance Sheets as of
                September 30, 1997 (unaudited) and June 30, 1997        3-4

              Condensed Consolidated Statements of Income
                (unaudited) for the three months ended
                September 30, 1997 and 1996                               5
         
              Condensed Consolidated Statements of Cash Flows
                (unaudited) for the three months ended 
                September 30, 1997 and 1996                               6

              Notes to Condensed Consolidated Financial Statements      7-11

    ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL           
              -------------------------------------------------
              CONDITION AND RESULTS OF OPERATION                       12-16
              -----------------------------------

PART II.   OTHER INFORMATION

    ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K                           17
              --------------------------------

SIGNATURES                                                               18


                                       2

<PAGE>

                        PART I - FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS
           --------------------

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

                                              SEPTEMBER 30,       JUNE 30,
                                                  1997              1997
                                              ------------        --------
                    ASSETS                    (UNAUDITED)

CURRENT ASSETS:

    Cash and cash equivalents                   $  8,604          $  7,135 
    Trade accounts receivable, net                18,136            15,645 
    Other receivables, net                           556               358 
    Other current assets                           2,729             1,554 
                                                --------          --------
         Total current assets                     30,025            24,692 

PROPERTY AND EQUIPMENT, net of accumulated
 depreciation and amortization of $17,062 and
 $16,203, respectively                            39,198            34,488 

INVESTMENT IN PARTNERSHIPS                           425               402 
OTHER ASSETS                                          96             5,468 
INTANGIBLE ASSETS, net                            38,199            33,272 
                                                --------          --------
                                                $107,943          $ 98,322 
                                                --------          --------
                                                --------          --------



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


                                       3

<PAGE>

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

                                                SEPTEMBER 30,       JUNE 30,
                                                    1997              1997
                                                ------------        --------
                                                (UNAUDITED)
         LIABILITIES AND STOCKHOLDERS' EQUITY 

CURRENT LIABILITIES:

  Current portion of equipment and other notes    $  4,826          $ 15,462 
  Accounts payable and other accrued expenses       17,148            14,225 
  Current portion of deferred gain on debt
   restructure                                         674               745 
                                                  --------          --------
     Total current liabilities                      22,648            30,432 
                                                  --------          --------

LONG-TERM LIABILITIES:

  Equipment and other notes, less current portion   74,080            57,733 
  Deferred gain on debt restructure, less current
   portion                                             586               728 
  Other long-term liabilities                          723               744 
                                                  --------          --------
       Total long-term liabilities                  75,389            59,205 
                                                  --------          --------

MINORITY INTEREST                                    2,117             2,000 
                                                  --------          --------

STOCKHOLDERS' EQUITY:

  Convertible Series A preferred stock, $.001 
   par value, 3,500,000 shares authorized; 
   2,501,760 outstanding at September 30, 1997 
   and June 30, 1997, respectively, stated at        6,750             6,750 
  Common stock, $.001 par value, 25,000,000 
   shares authorized, 2,714,725 shares 
   outstanding at September 30, 1997 and 
   June 30, 1997, respectively                           3                 3 
  Additional paid-in capital                        23,100            23,100 
  Accumulated deficit                              (22,064)          (23,168)
                                                  --------          --------
       Total stockholders' equity                    7,789             6,685 
                                                  --------          --------
                                                  $107,943          $ 98,322 
                                                  --------          --------
                                                  --------          --------


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


                                       4
<PAGE>

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

                                                     THREE MONTHS ENDED 
                                                        SEPTEMBER 30, 
                                                  ------------------------
                                                     1997          1996
                                                  ----------    ----------
REVENUES:
 
    Contract services                             $  13,412     $  11,723 
    Patient services                                 13,812         9,993 
    Other                                               612           400 
                                                  ----------    ----------
         Total revenues                              27,836        22,116 
                                                  ----------    ----------

COSTS OF OPERATIONS:

    Costs of services                                14,191        12,183 
    Provision for doubtful accounts                     502           442 
    Equipment leases                                  4,512         4,519 
    Depreciation and amortization                     3,206         2,343 
                                                  ----------    ----------
         Total costs of operations                   22,411        19,487 
                                                  ----------    ----------

GROSS PROFIT                                          5,425         2,629 

CORPORATE OPERATING EXPENSES                          2,358         1,770 
                                                  ----------    ----------

INCOME FROM COMPANY OPERATIONS                        3,067           859 

EQUITY IN EARNINGS OF UNCONSOLIDATED PARTNERSHIPS       154           107 
                                                  ----------    ----------

OPERATING INCOME                                      3,221           966 

INTEREST EXPENSE, Net                                 1,686           860 
                                                  ----------    ----------

INCOME BEFORE INCOME TAXES                            1,535           106 

PROVISION FOR INCOME TAXES                              431             - 
                                                  ----------    ----------

NET INCOME                                         $  1,104        $  106 
                                                  ----------    ----------
                                                  ----------    ----------

INCOME PER COMMON SHARE                             $  0.20       $  0.02 
                                                  ----------    ----------
                                                  ----------    ----------

WEIGHTED AVERAGE NUMBER OF COMMON SHARES
    OUTSTANDING                                   5,448,736     5,432,545 
                                                  ----------    ----------
                                                  ----------    ----------


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

                                       5

<PAGE>

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


                                                           THREE MONTHS ENDED
                                                             SEPTEMBER 30,
                                                        -----------------------
                                                          1997           1996
                                                        ----------    ---------
OPERATING ACTIVITIES:

  Net income                                            $  1,104      $    106 
  Adjustments to reconcile net income to net cash
   provided by operating activities:
    Depreciation and amortization                          3,242         2,397 
    Amortization of deferred gain on debt restructure       (213)         (290)
  Cash provided by (used in) changes in operating
   working capital:
    Receivables, net                                      (2,689)           57 
    Other current assets                                  (1,275)         (851)
    Accounts payable and other current liabilities         2,902           173 
                                                        --------      -------- 
      Net cash provided by operating activities            3,071         1,592 
                                                        --------      -------- 

INVESTING ACTIVITIES:

  Additions to property and equipment                     (7,339)         (885)
  Acquisition of imaging center                              -          (2,766)
  Other                                                      (91)          337 
                                                        --------      -------- 
      Net cash used in investing activities               (7,430)       (3,314)
                                                        --------      -------- 

FINANCING ACTIVITIES:

  Payments on debt and capital lease obligations          (3,334)       (2,542)
  Proceeds from issuance of debt                           9,045         3,340 
  Other                                                      117           - 
                                                        --------      -------- 
      Net cash provided by financing activities            5,828           798 
                                                        --------      -------- 

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS           1,469          (924)

CASH AND CASH EQUIVALENTS:

  Beginning of period                                      7,135         6,864 
                                                        --------      -------- 
  End of period                                         $  8,604      $  5,940 
                                                        --------      -------- 
                                                        --------      -------- 

SUPPLEMENTAL INFORMATION:

  Interest paid                                         $  1,854      $  1,173 
                                                        --------      -------- 
                                                        --------      -------- 


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


                                       6

<PAGE>

                INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)    
                                           
1.  MERGER
    ------

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

Concurrent with the consummation of the Merger, AHS and MHC completed a debt 
restructuring with General Electric Company (GE), the primary creditor of MHC 
and AHS.  This restructuring resulted in the reduction of certain debt and 
operating lease obligations and cancellation of certain stock warrants of MHC 
and AHS in exchange for, among other things, the issuance to GE, immediately 
prior to the consummation of the Merger, of Maxum Series B Preferred Stock 
and AHS Series C Preferred Stock.

At the effective time of the Merger, Maxum Series B Preferred Stock and AHS 
Series C Preferred Stock issued to GE was converted into the right to receive 
such number of shares of InSight Series A Preferred Stock that is convertible 
into such number of shares of InSight Common Stock representing approximately 
48% of InSight Common Stock outstanding at the effective time of the Merger 
(after giving effect to such conversion).  

Under an amended equipment maintenance service agreement, GE was also 
entitled to receive for ten years an annual supplemental service fee equal to 
14% of the Company's pretax income, subject to certain adjustments.  In 
connection with the Company's recapitalization, GE surrendered its rights 
under the amended equipment service agreement to receive the supplemental 
service fee (see Note 5).

The Merger was accounted for using the purchase method of accounting in 
accordance with generally accepted accounting principles.  MHC was treated as 
the acquiror for accounting purposes. 

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


                                       7

<PAGE>

2.  INTERIM FINANCIAL STATEMENTS
    ----------------------------

The unaudited condensed consolidated financial statements of the Company 
included herein have been prepared in accordance with generally accepted 
accounting principles for interim financial statements and do not include all 
of the information and disclosures required by generally accepted accounting 
principles for annual financial statements.  These financial statements 
should be read in conjunction with the consolidated financial statements and 
related footnotes included as part of  the Company's Annual Report on Form 
10-K for the period ended June 30, 1997 filed with the Securities and 
Exchange Commission on October 14, 1997.  In the opinion of management, all 
adjustments (consisting of normal recurring accruals) necessary for fair 
presentation of results for the period have been included.  The results of 
operations for the three months ended September 30, 1997, are not necessarily 
indicative of the results to be achieved for the full fiscal year.

Certain reclassifications have been made to conform prior year amounts to the 
current year presentation.

3.  INVESTMENTS IN PARTNERSHIPS
    ---------------------------

Set forth below is the summarized income statement data of the Company's 
unconsolidated partnerships (amounts in thousands):

                                                      THREE MONTHS ENDED
                                                        SEPTEMBER 30,
                                                   -----------------------
                                                     1997           1996
                                                   ---------     ---------
                                                         (unaudited)

    Net revenues                                   $  1,292      $  1,025 
    Expenses                                            895           780 
                                                   ---------     ---------
    Net income                                     $    397      $    245 
                                                   ---------     ---------
                                                   ---------     ---------

    Equity in earnings
     of partnerships                               $    154      $    107 
                                                   ---------     ---------
                                                   ---------     ---------

Set forth below is the summarized combined financial data of the Company's 
three 50% or less owned and controlled entities which are consolidated 
(amounts in thousands):

                                                 SEPTEMBER 30,    JUNE 30,
                                                     1997           1997
                                                 ------------   ----------
                                                  (unaudited)
    Condensed Combined
      Balance Sheet Data:
       Current assets                             $  3,129      $  2,596 
       Total assets                                  4,752         4,288 
       Current liabilities                           1,041           727 
       Long-term debt                                  380           424 
       Minority interest equity                      1,806         1,702 



                                       8


<PAGE>

                                                        THREE MONTHS ENDED
                                                           SEPTEMBER 30,
                                                     ----------------------
                                                       1997          1996
                                                     --------      --------
                                                           (unaudited)
    Condensed Combined Statement
     of Operations Data:
      Net revenues                                   $  1,828      $  1,751 
      Expenses                                          1,234         1,261 
      Provision for center profit distribution            304           250 
                                                     --------      --------

      Net income                                     $    290      $    240 
                                                     --------      --------
                                                     --------      --------

The provision for center profit distribution shown above represents the 
minority interest in the income of these combined entities.
    
4.  INCOME PER COMMON SHARE
    -----------------------

The number of shares used in computing income per common share is equal to 
the weighted average number of common and common equivalent shares 
outstanding during the respective period.

5.  SUBSEQUENT EVENT
    ----------------

On October 14, 1997, InSight consummated a recapitalization 
(Recapitalization) pursuant to which (a) certain investors affiliated with TC 
Group, LLC and its affiliates (collectively, Carlyle), a private merchant 
bank headquartered in Washington, D.C., made a cash investment of $25 million 
in the Company and received therefor (i) 25,000 shares of newly issued 
Convertible Preferred Stock, Series B of the Company, par value $0.001 per 
share (Series B Preferred Stock), initially convertible, at the option of the 
holders thereof, in the aggregate into 2,985,075 shares of Common Stock, and 
(ii) warrants (Carlyle Warrants) to purchase up to 250,000 shares of Common 
Stock at the current exercise price of $10.00 per share; (b) GE (i) 
surrendered its rights under the amended equipment service agreement to 
receive supplemental service fee payments equal to 14% of pretax income (see 
Note 1, above) in exchange for (i) the issuance of 7,000 shares of newly 
issued Convertible Preferred Stock, Series C of the Company, par value $0.001 
per share (Series C Preferred Stock) initially convertible, at the option of 
GE, in the aggregate into 835,821 shares of Common Stock, (ii) warrants (GE 
Warrants) to purchase up to 250,000 shares of Common Stock at the current 
exercise price of $10.00 per share, (for which the Company will record a 
non-recurring expense of approximately $6.0 million in the second quarter of 
fiscal 1998), and (iii) agreed to exchange all of its InSight Series A 
Preferred Stock, on the business day (Second Closing) after all waiting 
periods with respect to GE's filing under the Hart-Scott-Rodino Antitrust 
Improvements Act of 1976, as amended,  had expired or been terminated, for an 
additional 20,953 shares of Series C Preferred Stock, initially convertible, 
at the option of the holders thereof, in the aggregate into 2,501,760 shares 
of Common Stock; and (c) the Company executed a Credit Agreement with 
NationsBank, N.A. pursuant to which NationsBank, as agent and lender, 
provided a total of $125 million in senior secured credit (Bank Financing), 
including (i) a $50 million term loan facility consisting of a $20 million 
tranche with increasing amortization over a five-year period and a $30 
million tranche with increasing amortization over a seven-year period, 
principally repayable in years 6 and 7, (ii) a $25 million revolving working 
capital facility with a five-year maturity, and (iii) a $50 million 
acquisition facility, which may be increased by up to an additional $25 
million upon the satisfaction of certain conditions, including commitments 
from participating lenders. 

The terms of the Series B Preferred Stock and the Series C Preferred Stock 
(collectively, Preferred Stock) are substantially the same.  The Preferred 
Stock has a liquidation preference of $1,000 per share.  It will participate 
in any dividends paid with respect to the Common Stock.  There is no 
mandatory or optional redemption provision for the Preferred Stock.  The 
Preferred Stock is convertible at an initial conversion price of $8.375 per 
share.


                                       9

<PAGE>

For so long as Carlyle and its affiliates own at least 33% of the Series B 
Preferred Stock or GE and its affiliates own at least 33% of the Series C 
Preferred Stock, respectively, the approval of at least 67% of the holders of 
such series of Preferred Stock is required before the Company may take 
certain actions including, but not limited to, amending its certificate of 
incorporation or bylaws, changing the number of directors or the manner in 
which directors are selected, incurring indebtedness in excess of $15 million 
in any fiscal year, issuing certain equity securities below the then current 
market price or the then applicable conversion price, acquiring equity 
interests or assets of entities for consideration equal to or greater than 
$15 million, and engaging in mergers for consideration equal to or greater 
than $15 million.  The Preferred Stock will vote with the common stock on an 
as-if-converted basis on all matters except the election of directors, 
subject to an aggregate maximum Preferred Stock percentage of 37% of all 
votes entitled to be cast on such matters. Assuming the conversion of all of 
the Series B Preferred Stock into common stock and the exercise of all of the 
Carlyle Warrants, Carlyle would own approximately 31% of the common stock of 
the Company, on a fully diluted basis.  Assuming the conversion of all of the 
Series C Preferred Stock after the Second Closing and the exercise of the GE 
Warrants, GE would own approximately 34% of the common stock of the Company, 
on a fully diluted basis.

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

At any time after October 22, 1998 all of the Series B Preferred Stock and 
the Series C Preferred Stock may be converted into a newly created 
Convertible Preferred Stock, Series D of the Company, par value $0.001 per 
share (Series D Preferred Stock).  The Series D Preferred Stock allows the 
number of directors to be automatically increased to a number which would 
permit each of Carlyle and GE, by filling the newly created vacancies, to 
achieve representation on the Board proportionate to their respective common 
stock ownership percentages on an as-if-converted basis but would limit such 
representation to less than two thirds of the Board of Directors for a 
certain period of time.  The Series D Preferred Stock has a liquidation 
preference of $0.001 per share but no mandatory or optional redemption 
provision.  It will participate in any dividends paid with respect to the 
Common Stock and is convertible into 6,322,660 shares of Common Stock.  The 
Board will consist of eight directors, five of whom are Common Stock 
Directors and three of whom are Preferred Stock Directors.  The vacancy 
created for the Joint Director has not yet been filled.

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


                                       10

<PAGE>

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

                                                          PRO FORMA
                                                ----------------------------
                                 AS REPORTED      ADJUSTMENTS       TOTAL
                                 -----------    --------------  ------------
                                                         (unaudited)

    Current assets                $   30,025       $      -      $   30,025 
    Property and equipment, net       39,198              -          39,198 
    Investment in partnerships           425              -             425 
    Other assets                          96          3,100           3,196 
    Intangible assets                 38,199              -          38,199 
                                 -----------     -------------  -------------
                                  $  107,943       $  3,100      $  111,043 
                                 -----------     -------------  -------------
                                 -----------     -------------  -------------

    Current liabilities           $   22,648       $ (1,230)     $   21,418 
    Long-term liabilities             75,389        (19,822)         55,567 
    Minority interest                  2,117              -           2,117 
    Stockholders' equity               7,789         24,152          31,941 
                                 -----------     -------------  -------------
                                  $  107,943       $  3,100      $  111,043 
                                 -----------     -------------  -------------
                                 -----------     -------------  -------------


The unaudited pro forma condensed consolidated balance sheet as of September 
30, 1997 gives effect to the issuance of $25 million of Series B Preferred 
Stock, the draw down of the $50 million term loan and the draw down of 
approximately $5 million under the working capital loan, which collectively 
was used to repay approximately  $75 million in outstanding notes payable and 
to pay approximately $5 million in transaction costs related to the 
Recapitilization and Bank Financing.


                                       11



<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS


CENTERS IN OPERATION 

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

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

ACQUISITIONS

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

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

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

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

In July 1997, InSight completed the acquisition of a Center in Columbus, 
Ohio. As part of this transaction, InSight also acquired a majority ownership 
interest in the development of a new Center in Dublin, Ohio.  The 
transactions included the purchase of certain assets, primarily diagnostic 
equipment, and the assumption of certain equipment 


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<PAGE>

related liabilities.  The purchase price of approximately $5.5 million and 
approximately $0.5 million for the Center under development were financed by 
GE.

In November 1997, InSight completed the acquisition of a Center in 
Murfreesboro, Tennessee. The Bank Financing discussed below was used to 
finance the purchase price of approximately $2.7 million.

As discussed below, InSight has an acquisition facility in the amount of $50 
million, which may be increased, under certain circumstances to $75 million. 
InSight believes this facility will enhance its ability to participate in the 
industry consolidation.

RESULTS OF OPERATIONS 

THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO SEPTEMBER 30, 1996

REVENUES:  Revenues increased approximately $5.7 million, or approximately 
25.9%, for the three months ended September 30, 1997, compared to the same 
period in 1996. The increase in revenues was due primarily to the 
acquisitions discussed above (approximately $3.5 million) and an increase in 
contract services, patient services and other revenues at existing facilities 
(approximately $2.2 million).

Contract services revenues increased approximately $1.7 million, or 
approximately 14.4%, for the three months ended September 30, 1997, compared 
to the same period in 1996.  This increase was due primarily to an increase 
in revenues due to the acquisitions discussed above (approximately $0.5 
million) and an increase in revenues at existing facilities (approximately 
$1.2 million).  The increase at existing facilities was due to higher 
utilization (approximately 32%) offset by reductions in reimbursement 
(approximately 4%) from customers, primarily hospitals.

InSight's contract services revenues, primarily earned by its Mobile 
Facilities, represent approximately 48% of total revenues.  Each year 
approximately one-quarter to one-third of the contract services agreements 
are subject to renewal. It is expected that some high volume customer 
accounts will elect not to renew their agreements and instead will purchase 
or lease their own diagnostic imaging equipment and some customers may choose 
an alternative services provider.  In the past where agreements have not been 
renewed, the Company has been able to obtain replacement customer accounts; 
however, it is not always possible to obtain replacement accounts and some 
replacement accounts have been smaller than the lost account.  The 
non-renewal of a single customer agreement would not have a material impact 
on InSight's contract services revenues; however, non-renewal of several 
agreements could have a material impact on contract services revenues.  

In addition, the Company's contract services revenues with regard to its 
Mobile Facilities in certain markets depend in part on some customer accounts 
with high volume.  If the future reimbursement levels of such customers were 
to decline or cease or if such customers were to become financially insolvent 
and if such agreements were not replaced with new accounts or with the 
expansion of services on existing accounts, InSight's contract services 
revenues would be adversely affected.

Patient services revenues increased approximately $3.8 million, or 
approximately 38.2%, for the three months ended September 30, 1997, compared 
to the same period in 1996.  The increase in revenues was due primarily to 
increased revenues due to the acquisitions discussed above (approximately 
$3.0 million), and an increase in revenues at existing facilities 
(approximately $0.8 million).  The increase at existing facilities was due to 
higher utilization (approximately 15%) partially offset by continued declines 
in reimbursement from third party payors.

Management believes that any future increases in revenues at existing 
facilities can only be achieved by higher utilization and not by increases in 
procedure prices since reimbursement is declining; however, excess capacity 
of diagnostic imaging equipment, increased competition, and the expansion of 
managed care may impact utilization and make it difficult for the Company to 
achieve revenue increases in the future, absent the execution of provider 


                                       13

<PAGE>

agreements with managed care companies and other payors, and the execution of 
the Company's strategic initiatives.  No single source accounts for more than 
10% of InSight's revenues.

COSTS OF OPERATIONS:  Costs of operations increased approximately $2.9 
million, or approximately 15%, for the three months ended September 30, 1997, 
compared to the same period in 1996.  This increase was due primarily to an 
increase in costs due to the acquisitions discussed above (approximately $2.1 
million), and an increase in costs at existing facilities (approximately $0.8 
million).  The increase at existing facilities was due primarily to increases 
in costs of services and depreciation and amortization.

Costs of services, including the provision for doubtful accounts, increased 
approximately $2.1 million, or approximately 16.4%, for the three months 
ended September 30, 1997, compared to the same period in 1996.  The increase 
in costs was due primarily to an increase in costs due to the acquisitions 
discussed above (approximately $1.5 million) and an increase in costs at 
existing facilities (approximately $0.6 million).  The increase in costs at 
existing facilities was due primarily to (i) salary and benefits and (ii) an 
increase in sales tax and property taxes, offset by reduced costs in service 
supplies and equipment maintenance.

Equipment leases and depreciation and amortization increased approximately 
$0.9 million, or approximately 12.5%, for the three months ended September 
30, 1997, compared to the same period in 1996.  The increase was due 
primarily to the acquisitions discussed above (approximately $0.5 million) 
and an increase in costs at existing facilities (approximately $0.4 million). 
The increase at existing facilities was primarily due to the Company 
upgrading its existing medical equipment.

Under the terms of the amended equipment maintenance service agreement with 
GE, GE was entitled to receive a supplemental service fee equal to 14% of 
pretax income, subject to certain adjustments.  During the three months ended 
September 30, 1997, the Company recorded a provision of approximately $0.4 
million in connection with this agreement.  The Company's future obligations 
under this agreement were terminated as part of the Recapitalization.  As 
discussed below, the Company will record a non-recurring expense of 
approximately $6.0 million in the second quarter of fiscal 1998 in connection 
with the termination of this agreement.

GROSS PROFIT:  Gross profit increased approximately $2.8 million during the 
three months ended September 30, 1997, compared to the same period in 1996.  
The increase was due to the acquisitions discussed above (approximately $1.4 
million), and an increase at existing facilities (approximately $1.4 million).

CORPORATE OPERATING EXPENSES:  Corporate operating expenses increased 
approximately $0.6 million for the three months ended September 30, 1997, 
compared to the same period in 1996.  The increase was primarily due to 
additional consulting and legal costs associated with the Company's 
acquisition activities. 

INTEREST EXPENSE, NET:   Interest expense, net increased approximately $0.8 
million for the three months ended September 30, 1997, compared to the same 
period in 1996.  The increase was due primarily to additional debt related to 
the acquisitions discussed above (approximately $0.4 million) and additional 
debt related to the Company upgrading its existing medical equipment, offset 
by reduced interest as a result of amortization of long-term debt.  The 
Company anticipates that interest expense, net will decrease in future 
periods due to (i) the reduction in interest rate and (ii) the extinguishment 
of approximately $23 million in long-term debt as a result of the 
Recapitalization and Bank Financing discussed below, offset by additional 
borrowings as a result of the Company's acquisition activities. 

PROVISION FOR INCOME TAXES:  During the three months ended September 30, 
1997, the Company recorded a provision for income taxes of approximately 
$431,000. The provision was due primarily as a result of increased income 
from the Company's operations.  The Company's effective tax rate at September 
30, 1997 was approximately 28% due to the utilization of certain operating 
loss carry forwards.  The Company did not record a provision for income taxes 
during the three months ended September 30, 1996.

INCOME PER COMMON SHARE:  On a diluted basis, net income per common share was 
$0.20 for the three months ended September 30, 1997, compared to net income 
per common share of $0.02 for the three months ended

                                       14

<PAGE>

September 30, 1996.  The improvement in net income per common share is the 
result of (i) increased gross profit, and (ii) an increase in earnings from 
unconsolidated partnerships, offset by (i) increased corporate operating 
expenses, (ii) increased interest expense, and (iii) the provision for income 
taxes.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

InSight operates in a capital intensive, high fixed cost industry that 
requires significant amounts of working capital to fund operations, 
particularly the initial start-up and development expenses of new operations 
and yet is constantly under external pressure to contain costs and reduce 
prices.  Revenues and cash flows have been adversely affected by an increased 
collection cycle, competitive pressures and major restructurings within the 
health care industry. This adverse effect on revenues and cash flow is 
expected to continue, especially in the mobile diagnostic imaging business.  
Management believes that InSight's long-term success is  based upon its 
ability to successfully execute its five interrelated strategic initiatives.
       
InSight continues to pursue acquisition opportunities.  InSight believes that 
the expansion of its business through acquisitions is a key factor in 
achieving and maintaining profitability.  Generally, acquisition 
opportunities are aimed at increasing revenues and profits, and maximizing 
utilization of existing capacity.  Incremental operating profit resulting 
from future acquisitions will vary depending on geographic location, whether 
facilities are Mobile or Fixed, the range of services provided and the 
Company's ability to integrate the acquired businesses into its existing 
infrastructure.  Since the Merger, InSight has completed five acquisitions, 
as discussed above.

The Company consummated the Recapitalization on October 14, 1997 pursuant to 
which (a) the Company issued to Carlyle 25,000 shares of Series B Preferred 
Stock having a liquidation preference of $1,000 per share and warrants to 
purchase 250,000 shares of InSight Common Stock at the current exercise price 
of $10.00 per share, generating net proceeds to the Company (after related 
transaction costs of approximately $2.0 million) of approximately $23.0 
million; (b) the Company issued to GE 7,000 shares of Series C Preferred 
Stock, with a liquidation preference of $1,000 per share, in consideration of 
the termination of GE's right to receive supplemental service fee payments 
equal to 14% of InSight's pre-tax income, (for which the Company will record 
a non-recurring expense of approximately $6.0 million in the second quarter 
of fiscal 1998), and agreed to issue to GE an additional 20,953 shares of 
Series C Preferred Stock at the Second Closing in exchange for all of GE's 
shares of  Series A Preferred Stock; and (c) the Company executed a Credit 
Agreement with NationsBank which, was consummated October 22, 1997 and 
included, (i) a $50 million term loan facility consisting of a $20 million 
tranche with increasing amortization over a five-year period and a $30 
million tranche with increasing amortization over a seven-year period 
principally repayable in years 6 and 7, (ii) a $25 million revolving working 
capital facility with a five-year  maturity, and (iii) a $50 million 
acquisition facility, which may be increased by up to an additional $25 
million upon the satisfaction of certain conditions, including commitments 
from participating lenders.  The net proceeds from the Carlyle investment 
were  used to refinance a portion of the outstanding GE indebtedness 
(approximately $23 million).  At the initial funding of the Bank Financing, 
all of the term loan facility was drawn down to refinance all of the 
remaining GE indebtedness (approximately $47 million) and approximately $10 
million of the revolving facility was drawn down for working capital purposes 
       
InSight's operations are principally dependent on its ability (either 
directly or indirectly through its hospital customers) to attract referrals 
from physicians and other health care providers representing a variety of 
specialties.  The Company's eligibility to provide service in response to a 
referral is often dependent on the existence of a contractual arrangement 
with the referred patient's insurance carrier (primarily if the insurance is 
provided by a managed care organization).  Managed care contracting has 
become very competitive and reimbursement schedules are nearing Medicare 
reimbursement levels. 

In connection with the Merger, certain financial accommodations with GE 
became effective in June 1996.  The GE indebtedness was repaid in full from 
the proceeds of the Carlyle investment and the Bank Financing.  The terms of 
the Series B Preferred Stock and the Series C Preferred Stock, as well as the 
Bank Financing, contain certain restrictions on InSight's ability to act 
without first obtaining a waiver or consent from Carlyle, GE and NationsBank.


                                       15

<PAGE>

Working capital increased to approximately $7.4 million at September 30, 1997 
from a deficit of approximately $5.7 million at June 30, 1997.  This increase 
in working capital of approximately $13.1  million is primarily due to net 
income before depreciation and amortization and the reclassification of the 
current portion of debt to long-term debt as a result of the Bank Financing, 
offset by the current portion of additional debt incurred as a result of the 
Company's acquisition strategy discussed above and principal payments on 
long-term debt.  As part of the Bank Financing, the Company has a $25 million 
working capital facility.

Cash and cash equivalents increased to approximately $8.6 million at 
September 30, 1997 from approximately $7.1 million at June 30, 1997.  This 
increase of approximately $1.5 million resulted primarily from (i) cash 
provided by operating activities of (approximately $3.0 million) and (ii) 
long-term borrowings of (approximately $9.0 million), offset by (i) purchases 
of property and equipment (approximately $7.3 million), and (ii) payments on 
debt and capital lease obligations (approximately $3.3 million).
 
The Company has committed to purchase, at an aggregate cost of approximately 
$4.0 million, three MRI systems for delivery during the quarter ending 
December 31, 1998.  The Company has obtained commitments to finance the 
purchase or lease of such equipment; however, the Bank Financing may be used 
to finance the purchase of such equipment.  In addition, the Company has 
committed to purchase or lease from GE, at an aggregate cost of approximately 
$20.0 million, including siting costs, 20 open MRI systems for delivery and 
installation over the next two years.  The Company may purchase, lease or 
upgrade other MRI systems as opportunities arise to place new equipment into 
service when new contract services agreements are signed, existing agreements 
are renewed, acquisitions are completed, or new imaging centers are developed 
in accordance with the Company's strategic initiatives.

On November 3, 1997, the Company agreed to purchase certain assets, of a 
multi-modality imaging center in Las Vegas, Nevada, from the trustee in 
bankruptcy. The Company delivered an earnest money deposit of $700,000 to the 
trustee, which will be forfeited if the Company fails to complete the 
transaction by November 18, 1997.  The Company expects to finance the 
purchase price of approximately $11 million from the Bank Financing. 

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


                                       16

<PAGE>

                        PART II  -  OTHER INFORMATION

    
ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K
    
         (a)  EXHIBITS.  

              There are none.
    
         (b)  REPORTS ON FORM 8-K.

              A current report on Form 8-K was filed with the Securities and
              Exchange Commission by the Company on July 14, 1997, relating to 
              the acquisition of certain assets of Desmond L. Fischer, M.D. 
              (d/b/a/ Chattanooga Outpatient Center).





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<PAGE>

                                   SIGNATURES
                                           
Pursuant to the requirements of the Securities Exchange Act of 1934, the 
registrant has duly caused this report to be signed on its behalf by the 
undersigned thereunto duly authorized.

                                     INSIGHT HEALTH SERVICES CORP.


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



                                     /s/   THOMAS V. CROAL
                                     --------------------------------------
                                     Thomas V. Croal
                                     Executive Vice President,
                                     Chief Financial Officer and Secretary

                                     November 14, 1997




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