<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 December 31, 1998

                                      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)

                                  (949) 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:
2,828,241  shares of Common Stock as of February 12, 1999.

                  The number of pages in this Form 10-Q is 29.


<PAGE>

                 INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES

                                        INDEX
<TABLE>
<CAPTION>
                                                                                  PAGE NUMBER
                                                                                  -----------
<S>                                                                               <C>
PART I. FINANCIAL INFORMATION

    ITEM 1.  FINANCIAL STATEMENTS

             Condensed Consolidated Balance Sheets as of December 31, 1998
                (unaudited) and June 30, 1998                                           3

             Condensed Consolidated Statements of Operations (unaudited)
                for the six months ended December 31, 1998 and 1997                     4

             Condensed Consolidated Statements of Operations (unaudited)
                for the three months ended December 31, 1998 and 1997                   5

             Condensed Consolidated Statements of Cash Flows (unaudited)
                 for the six months ended December 31, 1998 and 1997                    6

             Notes to Condensed Consolidated Financial Statements                       7-18

    ITEM 2.  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
             CONDITION AND RESULTS OF OPERATIONS                                        19-27

    ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                 27

PART II. OTHER INFORMATION

    ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                        28

    ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K                                           28

SIGNATURES                                                                              29
</TABLE>

                                       2

<PAGE>

ITEM 1. FINANCIAL STATEMENT

                INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                 December 31,         June 30,
                                                                                    1998               1998
                                                                               ---------------      ----------
<S>                                                                            <C>                  <C>
                                    ASSETS                                       (Unaudited)

CURRENT ASSETS:
   Cash and cash equivalents                                                    $     14,000         $   44,740
   Trade accounts receivable, net                                                     30,140             25,663
   Other current assets                                                                4,182              3,050
                                                                                ------------         ----------
         Total current assets                                                         48,322             73,453

PROPERTY AND EQUIPMENT, net of accumulated depreciation
   and amortization of $34,754 and $26,116, respectively                              88,860             71,814

INVESTMENT IN PARTNERSHIPS                                                             1,627              1,523
OTHER ASSETS                                                                           6,864              6,639
INTANGIBLE ASSETS, net                                                                73,511             74,831
                                                                                ------------         ----------
                                                                                $    219,184         $  228,260
                                                                                ------------         ----------
                                                                                ------------         ----------

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
   Current portion of equipment, capital leases and other notes                 $     10,344         $   10,140
   Accounts payable and other accrued expenses                                        18,037             26,410
                                                                                ------------         ----------
      Total current liabilities                                                       28,381             36,550
                                                                                ------------         ----------

LONG-TERM LIABILITIES:
   Equipment, capital leases and other notes, less current portion                   147,828            152,120
   Other long-term liabilities                                                           941                984
                                                                                ------------         ----------
      Total long-term liabilities                                                    148,769            153,104
                                                                                ------------         ----------
MINORITY INTEREST                                                                        482                748
                                                                                ------------         ----------

STOCKHOLDERS' EQUITY:
   Preferred stock, $.001 par value, 3,500,000 shares authorized:
      Convertible Series B preferred stock, 25,000 shares outstanding at
         December 31, 1998 and June 30, 1998, respectively, with a
         liquidation preference of $25,000                                            23,923             23,923
      Convertible Series C preferred stock, 27,953 shares outstanding at
         December 31, 1998 and June 30, 1998, respectively, with a
         liquidation preference of $27,953                                            13,173             13,173
   Common stock, $.001 par value, 25,000,000 shares authorized, 2,828,241 and
      2,824,090 shares outstanding at December 31, 1998
      and June 30, 1998, respectively                                                      3                  3
   Additional paid-in capital                                                         23,447             23,415
   Accumulated deficit                                                               (18,994)           (22,656)
                                                                                ------------         ----------
      Total stockholders' equity                                                      41,552             37,858
                                                                                ------------         ----------
                                                                                $    219,184       $    228,260
                                                                                ------------         ----------
                                                                                ------------         ----------
</TABLE>

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

                                       3
<PAGE>

                INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
            (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                         Six Months Ended
                                                                                           December 31,
                                                                                  -------------------------------
                                                                                      1998                1997
                                                                                  ------------       ------------
<S>                                                                               <C>                <C>
REVENUES:
   Contract services                                                              $     40,085       $     27,133
   Patient services                                                                     35,144             28,488
   Other                                                                                 1,577              1,182
                                                                                  ------------       ------------
     Total revenues                                                                     76,806             56,803
                                                                                  ------------       ------------

COSTS OF OPERATIONS:
   Costs of services                                                                    39,463             29,537
   Provision for doubtful accounts                                                       1,255              1,038
   Equipment leases                                                                      8,687              9,002
   Depreciation and amortization                                                        11,937              6,699
                                                                                  ------------       ------------
     Total costs of operations                                                          61,342             46,276
                                                                                  ------------       ------------
     Gross profit                                                                       15,464             10,527

CORPORATE OPERATING EXPENSES                                                             4,755              4,256

PROVISION FOR SUPPLEMENTAL SERVICE FEE TERMINATION                                           -              6,309
                                                                                  ------------       ------------
     Income (loss) from company operations                                              10,709                (38)

EQUITY IN EARNINGS OF UNCONSOLIDATED PARTNERSHIPS                                          258                336
                                                                                  ------------       ------------
     Operating income                                                                   10,967                298

INTEREST EXPENSE, net                                                                    7,033              3,250
                                                                                  ------------       ------------
     Income (loss) before income taxes                                                   3,934             (2,952)

PROVISION FOR INCOME TAXES                                                                 272                431
                                                                                  ------------       ------------
     Net income (loss)                                                            $      3,662       $     (3,383)
                                                                                  ------------       ------------
                                                                                  ------------       ------------

INCOME (LOSS) PER COMMON AND CONVERTED PREFERRED SHARE:
     Basic                                                                        $       0.40       $      (0.49)
                                                                                  ------------       ------------
                                                                                  ------------       ------------
     Diluted                                                                      $       0.39       $      (0.49)
                                                                                  ------------       ------------
                                                                                  ------------       ------------

WEIGHTED AVERAGE NUMBER OF COMMON AND
   CONVERTED PREFERRED SHARES OUTSTANDING:
     Basic                                                                           9,146,773          6,862,631
                                                                                  ------------       ------------
                                                                                  ------------       ------------
     Diluted                                                                         9,405,288          6,862,631
                                                                                  ------------       ------------
                                                                                  ------------       ------------
</TABLE>

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

                                       4

<PAGE>

                 INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
          CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                         Three Months Ended
                                                                                            December 31,
                                                                                  -------------------------------
                                                                                      1998               1997
                                                                                  ------------       ------------
<S>                                                                               <C>                <C>
REVENUES:
   Contract services                                                              $     19,865       $     13,489
   Patient services                                                                     17,945             14,857
   Other                                                                                 1,063                803
                                                                                  ------------       ------------
     Total revenues                                                                     38,873             29,149
                                                                                  ------------       ------------

COSTS OF OPERATIONS:
   Costs of services                                                                    19,515             15,477
   Provision for doubtful accounts                                                         632                540
   Equipment leases                                                                      4,350              4,490
   Depreciation and amortization                                                         6,043              3,526
                                                                                  ------------       ------------
     Total costs of operations                                                          30,540             24,033
                                                                                  ------------       ------------
     Gross profit                                                                        8,333              5,116

CORPORATE OPERATING EXPENSES                                                             2,631              1,898

PROVISION FOR SUPPLEMENTAL SERVICE FEE TERMINATION                                           -              6,309
                                                                                  ------------       ------------
     Income (loss) from company operations                                               5,702             (3,091)

EQUITY IN EARNINGS OF UNCONSOLIDATED PARTNERSHIPS                                           84                166
                                                                                  ------------       ------------
     Operating income (loss)                                                             5,786             (2,925)

INTEREST EXPENSE, net                                                                    3,574              1,562
                                                                                  ------------       ------------
     Income (loss) before income taxes                                                   2,212             (4,487)

PROVISION FOR INCOME TAXES                                                                 212                  -
                                                                                  ------------       ------------
     Net income (loss)                                                            $      2,000       $     (4,487)
                                                                                  ------------       ------------
                                                                                  ------------       ------------
INCOME (LOSS) PER COMMON AND CONVERTED PREFERRED SHARE:
     Basic                                                                        $       0.22       $      (0.53)
                                                                                  ------------       ------------
                                                                                  ------------       ------------
     Diluted                                                                      $       0.21       $      (0.53)
                                                                                  ------------       ------------
                                                                                  ------------       ------------

WEIGHTED AVERAGE NUMBER OF COMMON AND
   CONVERTED PREFERRED SHARES OUTSTANDING:
     Basic                                                                           9,150,897          8,508,776
                                                                                  ------------       ------------
                                                                                  ------------       ------------
     Diluted                                                                         9,378,578          8,508,776
                                                                                  ------------       ------------
                                                                                  ------------       ------------
</TABLE>

    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)

<TABLE>
<CAPTION>
                                                                                          Six Months Ended
                                                                                            December 31,
                                                                                   ------------------------------
                                                                                       1998              1997
                                                                                   -------------     ------------
<S>                                                                                <C>               <C>
OPERATING ACTIVITIES:
  Net income (loss)                                                                $       3,662     $     (3,383)
  Adjustments to reconcile net income (loss) to net cash
    provided by operating activities:
  Total depreciation and amortization                                                     12,093            6,773
  Amortization of deferred gain on debt restructure                                          (45)          (1,319)
  Provision for supplemental service fee termination                                           -            6,309
Cash provided by (used in) changes in operating assets and liabilities:
  Trade accounts receivable, net                                                          (4,477)          (3,907)
  Other current assets                                                                    (1,132)          (1,181)
  Accounts payable and other accrued expenses                                             (8,371)           2,559
                                                                                   -------------     ------------
       Net cash provided by operating activities                                           1,730            5,851
                                                                                   -------------     ------------
INVESTING ACTIVITIES:
  Additions to property and equipment                                                    (26,865)         (13,448)
  Acquisitions of imaging centers                                                                         (12,890)
  Other                                                                                   (1,283)            (951)
                                                                                   -------------     ------------
      Net cash used in investing activities                                              (28,148)         (27,289)
                                                                                   -------------     ------------
FINANCING ACTIVITIES:
  Proceeds from issuance of preferred stock                                                    -           23,346
  Issuance of common stock                                                                    21                -
  Stock options and warrants exercised                                                        11               50
  Payment of loan financing costs                                                              -           (2,210)
  Principal payments of debt and capital lease obligations                                (8,594)         (78,455)
  Proceeds from issuance of debt and capital lease obligations                             4,506           83,159
  Other                                                                                     (266)              (7)
                                                                                   -------------     ------------
       Net cash provided by (used in) financing activities                                (4,322)          25,883
                                                                                   -------------     ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                         (30,740)           4,445

CASH AND CASH EQUIVALENTS:
  Beginning of period                                                                     44,740            6,884
                                                                                   -------------     ------------
  End of period                                                                    $      14,000     $     11,329
                                                                                   -------------     ------------
                                                                                   -------------     ------------

SUPPLEMENTAL INFORMATION:
  Interest paid                                                                    $       6,979     $      3,300
                                                                                   -------------     ------------
                                                                                   -------------     ------------
</TABLE>

     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. NATURE OF BUSINESS

InSight Health Services Corp. (the Company) provides diagnostic imaging,
treatment and related management services in 29 states throughout the United
States. The Company's services are provided through a network of 66 mobile
magnetic resonance imaging (MRI) facilities (Mobile Facilities), 34 fixed-site
MRI facilities (Fixed Facilities), 16 multi-modality imaging centers (Centers),
5 mobile lithotripsy facilities, one Leksell Stereotactic Gamma Knife treatment
center, and one radiation oncology center. An additional radiation oncology
center is operated by the Company as part of one of its Centers. The Company's
operations are located throughout the United States, with a substantial presence
in California, Texas, New England, the Carolinas and the Midwest (Illinois,
Indiana and Ohio).

At its Centers, the Company offers other services in addition to MRI, including
Open MRI, computed tomography (CT), diagnostic and fluoroscopic x-ray,
mammography, diagnostic ultrasound, nuclear medicine, nuclear cardiology, 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.

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, 1998 filed with the Securities and Exchange Commission on
September 28, 1998. 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 six months ended
December 31, 1998, 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. RECAPITALIZATION AND FINANCING

On October 14, 1997, the Company consummated a recapitalization 
(Recapitalization) pursuant to which (a) certain investors affiliated with TC 
Group, LLC and its affiliates (collectively, Carlyle), a private merchant 
bank headquartered in Washington, D.C., made a cash investment of $25 million 
in the Company and received therefor (i) 25,000 shares of newly issued 
convertible preferred stock, Series B of the Company, par value $0.001 per 
share (Series B Preferred Stock), initially convertible, at the option of the 
holders thereof, in the aggregate into 2,985,075 shares of common stock, and 
(ii) warrants (Carlyle Warrants) to purchase up to 250,000 shares of common 
stock at an exercise price of $10.00 per share; (b) General Electric Company 
(GE) (i) surrendered its rights under the amended equipment service agreement 
to receive supplemental service fee payments equal to 14% of pretax income in 
exchange for the issuance of 7,000 shares of newly issued convertible 
preferred stock, Series C of the Company, par value $0.001 per share (Series 
C Preferred Stock), initially convertible, at the option of GE, in the 
aggregate into 835,821 shares of common stock, for which the Company recorded 
a non-recurring expense of approximately $6.3 million during the second 
quarter of fiscal 1998, (ii) received warrants (GE Warrants) to purchase up 
to 250,000 shares of common stock at an exercise price of $10.00 per share 
and (iii) exchanged all of its Series A Preferred Stock, for an additional 
20,953 shares of Series C Preferred Stock, initially convertible, at the 
option of GE, in the aggregate into 2,501,760 shares of common stock; 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 financing (Bank Financing), including (i) a $50 million 
term loan facility consisting of a $20 

                                       7

<PAGE>

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 six and seven, (ii) a $25 million revolving 
working capital facility with a five-year maturity, and (iii) a $50 million 
acquisition facility. Initial funding under the Bank Financing occurred on 
October 22, 1997 and, on December 19, 1997, the Bank Financing was increased 
to a total of $150 million by converting $10 million of outstanding debt 
under the acquisition facility to the seven-year tranche (which was thereby 
increased to $40 million) and increasing the acquisition facility to $65 
million.

The terms of the Series B Preferred Stock and the Series C Preferred Stock 
(collectively, Preferred Stock) are substantially the same. The Preferred 
Stock has a liquidation preference of $1,000 per share. It will participate 
in any dividends paid with respect to the common stock. There is no mandatory 
or optional redemption provision for the Preferred Stock. The Preferred Stock 
is convertible into an aggregate of 6,322,656 shares of common stock.

For so long as Carlyle and its affiliates own at least 33% of the Series B 
Preferred Stock or GE and its affiliates own at least 33% of the Series C 
Preferred Stock, respectively, the approval of at least 67% of the holders of 
such series of Preferred Stock is required before the Company may take 
certain actions including, but not limited to, amending its certificate of 
incorporation or bylaws, changing the number of directors or the manner in 
which directors are selected, incurring indebtedness in excess of $15 million 
in any fiscal year, issuing certain equity securities below the then current 
market price or the then applicable conversion price, acquiring equity 
interests or assets of entities for consideration equal to or greater than 
$15 million, and engaging in mergers for consideration equal to or greater 
than $15 million. The Preferred Stock 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 32% of the common stock of 
the Company, on a fully diluted basis. Assuming the conversion of all of the 
Series C Preferred Stock and the exercise of the GE Warrants, GE would own 
approximately 35% 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 thereafter be elected by the common stockholders. The Board 
currently consists 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.

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

                                       8
<PAGE>

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

On June 12, 1998, the Company completed a refinancing of substantially all of 
the Company's long-term debt through the issuance of $100 million of 9 5/8% 
senior subordinated notes due 2008 (Notes). Concurrent with the issuance of 
the Notes, the Company entered into an amendment to and restatement of the 
Bank Financing, pursuant to which the Company refinanced and consolidated its 
prior $20 million tranche and $40 million tranche into a $50 million term 
loan facility with a six-year amortization, (ii) a $25 million revolving 
working capital facility with a five-year maturity and (iii) a $75 million 
acquisition facility with a six-year maturity.

4. INVESTMENTS IN PARTNERSHIPS

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

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

<TABLE>
<CAPTION>
                                            December 31,        June 30,
                                                1998              1998
                                            ------------       -----------
<S>                                         <C>                <C>
                                            (unaudited)
Condensed Combined
 Balance Sheet Data:
   Current assets                            $    2,172        $     1,825
   Total assets                                   2,258              1,896
   Current liabilities                            1,010                644
   Minority interest equity                         641                642
</TABLE>

<TABLE>
<CAPTION>
                                                          Six Months Ended                Three Months Ended
                                                             December 31,                      December 31,
                                                     ----------------------------     -----------------------------
                                                         1998             1997             1998             1997
                                                     -----------      -----------     ------------      -----------
<S>                                                  <C>              <C>             <C>               <C>
                                                              (unaudited)                       (unaudited)
Condensed Combined Statement
   of Operations Data:
     Net revenues                                    $     2,875      $     3,336      $     1,436      $     1,690
     Expenses                                              1,991            2,296              998            1,196
     Provision for center profit distribution                442              520              219              247
                                                     -----------      -----------      -----------      -----------
     Net income                                      $       442      $       520      $       219      $       247
                                                     -----------      -----------      -----------      -----------
                                                     -----------      -----------      -----------      -----------
</TABLE>

The provision for center profit distribution shown above represents the 
minority interest in the income of these combined entities.

                                       9

<PAGE>

5. INCOME PER COMMON SHARE

The Company has adopted Statement of Financial Accounting Standards No. 128,
which replaces primary EPS and fully diluted EPS with basic EPS and diluted EPS.
The number of shares used in computing EPS is equal to the weighted average
number of common and converted preferred shares outstanding during the
respective period. Since the Preferred Stock has no stated dividend rate and
participates in any dividends paid with respect to the common stock, the
as-if-converted amounts are included in the computation of basic EPS. Common
stock equivalents relating to options, warrants and convertible Preferred Stock
are not included for the periods ended December 31, 1997 due to their
antidilutive effect. There were no adjustments to net income (the numerator) for
purposes of computing EPS.

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

<TABLE>
<CAPTION>
                                                        Six Months Ended                  Three Months Ended
                                                          December 31,                        December 31,
                                                    -------------------------         -------------------------
                                                       1998           1997               1998            1997
                                                    ---------       ---------         ---------       ---------
<S>                                                 <C>             <C>               <C>             <C>
Average common stock outstanding                    2,824,117       2,720,377         2,828,241       2,726,029
Effect of preferred stock                           6,322,656       4,142,254         6,322,656       5,782,747
                                                    ---------       ---------         ---------       ---------
Denominator for basic EPS                           9,146,773       6,862,631         9,150,897       8,508,776
Dilutive effect of stock options and warrants         258,515               -           227,681               -
                                                    ---------       ---------         ---------       ---------
                                                    9,405,288       6,862,631         9,378,578       8,508,776
                                                    ---------       ---------         ---------       ---------
                                                    ---------       ---------         ---------       ---------
</TABLE>

6. SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL INFORMATION

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

                                       10

<PAGE>

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

                SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
                                  DECEMBER 31, 1998
                                     (UNAUDITED)

<TABLE>
<CAPTION>
                                                  PARENT
                                                  COMPANY     GUARANTOR    NON-GUARANTOR
                                                   ONLY      SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS  CONSOLIDATED
                                                 ----------  ------------  --------------  ------------  ------------
<S>                                              <C>         <C>           <C>             <C>           <C>
(Amounts in thousands)
ASSETS
Current assets:
  Cash and cash equivalents                      $       -      $  11,237       $  2,763     $       -    $   14,000
  Trade accounts receivable, net                         -         26,594          3,546             -        30,140
  Other current assets                                   -          3,992            190             -         4,182
  Intercompany accounts receivable                 208,966         11,683             -       (220,649)            -
                                                 ---------      ---------       --------     ---------     ---------
    Total current assets                           208,966         53,506          6,499      (220,649)       48,322
Property and equipment, net                              -         80,431          8,429             -        88,860
Investments in partnerships                              -          1,627              -             -         1,627
Investments in consolidated subsidiaries           (21,164)         2,170              -        18,994             -
Other assets                                             -          6,864              -             -         6,864
Intangible assets, net                                   -         73,371            140             -        73,511
                                                 ---------      ---------       --------     ---------     ---------
                                                 $ 187,802      $ 217,969       $ 15,068     $(201,655)    $ 219,184
                                                 ---------      ---------       --------     ---------     ---------
                                                 ---------      ---------       --------     ---------     ---------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current portion of equipment, capital leases 
    and other notes                              $   7,500      $   2,719       $    125     $       -     $  10,344
  Accounts payable and other accrued expenses            -         17,473            564             -        18,037
  Intercompany accounts payable                          -        208,966         11,683      (220,649)            -
                                                 ---------      ---------       --------     ---------     ---------
    Total current liabilities                        7,500        229,158         12,372      (220,649)       28,381
                                                                                              
Equipment capital leases and other notes, 
  less current portion                             138,750          9,034             44             -       147,828
Other long-term liabilities                              -            941              -             -           941
Minority interest                                        -              -            482             -           482
Stockholders' equity (deficit)                      41,552        (21,164)         2,170        18,994        41,552
                                                 ---------      ---------       --------     ---------     ---------
                                                 $ 187,802      $ 217,969       $ 15,068     $(201,655)    $ 219,184
                                                 ---------      ---------       --------     ---------     ---------
                                                 ---------      ---------       --------     ---------     ---------
</TABLE>

                                       11

<PAGE>


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

                 SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
                                 JUNE 30, 1998

<TABLE>
<CAPTION>
                                                  PARENT
                                                  COMPANY     GUARANTOR    NON-GUARANTOR
                                                   ONLY      SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS  CONSOLIDATED
                                                 ----------  ------------  --------------  ------------  ------------
<S>                                              <C>         <C>           <C>             <C>           <C>
(Amounts in thousands)
ASSETS
Current assets:

  Cash and cash equivalents                      $       -      $  43,250       $  1,490     $       -     $  44,740
  Trade accounts receivable, net                         -         22,909          2,754             -        25,663
  Other current assets                                   -          2,751            299             -         3,050
  Intercompany accounts receivable                 211,995          4,903              -      (216,898)            -
                                                 ---------      ---------       --------     ---------     ---------
    Total current assets                           211,995         73,813          4,543      (216,898)       73,453
Property and equipment, net                              -         68,363          3,451             -        71,814
Investments in partnerships                              -          1,523              -             -         1,523
Investments in consolidated subsidiaries           (24,137)         1,482              -        22,655             -
Other assets                                             -          6,639              -             -         6,639
Intangible assets, net                                   -         74,711            120             -        74,831
                                                 ---------      ---------       --------     ---------     ---------
                                                 $ 187,858      $ 226,531       $  8,114     $(194,243)    $ 228,260
                                                 ---------      ---------       --------     ---------     ---------
                                                 ---------      ---------       --------     ---------     ---------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current portion of equipment, capital leases 
   and other notes                               $   7,500      $   2,497       $    143     $       -     $  10,140
  Accounts payable and other accrued expenses            -         25,741            669             -        26,410
  Intercompany accounts payable                          -        211,995          4,903      (216,898)            -
                                                 ---------      ---------       --------     ---------     ---------
    Total current liabilities                        7,500        240,233          5,715      (216,898)       36,550
Equipment, capital leases and other notes, 
  less current portion                             142,500          9,451            169             -       152,120
Other long-term liabilities                              -            984              -             -           984
Minority interest                                        -              -            748             -           748
Stockholders' equity (deficit)                      37,858        (24,137)         1,482        22,655        37,858
                                                 ---------      ---------       --------     ---------     ---------
                                                 $ 187,858      $ 226,531       $  8,114     $(194,243)    $ 228,260
                                                 ---------      ---------       --------     ---------     ---------
                                                 ---------      ---------       --------     ---------     ---------
</TABLE>

                                       12

<PAGE>

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

              SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                        FOR THE SIX MONTHS ENDED DECEMBER 31, 1998
                                      (UNAUDITED)

<TABLE>
<CAPTION>
                                                  PARENT
                                                  COMPANY     GUARANTOR    NON-GUARANTOR
                                                   ONLY      SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS  CONSOLIDATED
                                                 ----------  ------------  --------------  ------------  ------------
<S>                                              <C>         <C>           <C>             <C>           <C>
(Amounts in thousands)
Revenues                                         $       -      $  67,495       $  9,311     $       -     $  76,806
Costs of operations                                      -         53,489          7,853             -        61,342
                                                 ---------      ---------       --------     ---------     ---------
  Gross profit                                           -         14,006          1,458             -        15,464

Corporate operating expenses                             -          4,755              -             -         4,755
                                                 ---------      ---------       --------     ---------     ---------
  Income from company operations                         -          9,251          1,458             -        10,709

Equity in earnings of unconsolidated 
  partnerships                                           -            258              -             -           258
                                                 ---------      ---------       --------     ---------     ---------
  Operating income                                       -          9,509          1,458             -        10,967

Interest expense, net                                    -          6,499            534             -         7,033
                                                 ---------      ---------       --------     ---------     ---------
  Income before income taxes                             -          3,010            924             -         3,934

Provision for income taxes                               -            272              -             -           272
                                                 ---------      ---------       --------     ---------     ---------
  Income before equity in income of
    consolidated subsidiaries                            -          2,738            924             -         3,662

Equity in income of consolidated subsidiaries        3,662            924              -        (4,586)            -
                                                 ---------      ---------       --------     ---------     ---------
  Net income                                     $   3,662      $   3,662       $    924     $  (4,586)    $   3,662
                                                 ---------      ---------       --------     ---------     ---------
                                                 ---------      ---------       --------     ---------     ---------
</TABLE>

                                       13
<PAGE>

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

            SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                        FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
                                    (UNAUDITED)

<TABLE>
<CAPTION>
                                                  PARENT
                                                  COMPANY     GUARANTOR    NON-GUARANTOR
                                                   ONLY      SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS  CONSOLIDATED
                                                 ----------  ------------  --------------  ------------  ------------
<S>                                              <C>         <C>           <C>             <C>           <C>
(Amounts in thousands)
Revenues                                         $        -  $     49,340  $        7,463  $          -  $     56,803
Costs of operations                                       -        39,970           6,306             -        46,276
                                                 ----------  ------------  --------------  ------------  ------------
  Gross profit                                            -         9,370           1,157             -        10,527

Corporate operating expenses                              -         4,256               -             -         4,256
Provision for supplemental service
  fee termination                                         -         6,309               -             -         6,309
                                                 ----------  ------------  --------------  ------------  ------------
  Income (loss) from company operations                   -        (1,195)          1,157             -           (38)

Equity in earnings of unconsolidated 
  partnerships                                            -           336               -             -           336
                                                 ----------  ------------  --------------  ------------  ------------
  Operating income (loss)                                 -          (859)          1,157             -           298

Interest expense, net                                     -         3,075             175             -         3,250
                                                 ----------  ------------  --------------  ------------  ------------
  Income (loss) before income taxes                       -        (3,934)            982             -        (2,952)

Provision for income taxes                                -           431               -             -           431
                                                 ----------  ------------  --------------  ------------  ------------
  Income (loss) before equity in income of
    consolidated subsidiaries                             -        (4,365)            982             -        (3,383)
Equity in income (loss) of consolidated 
   subsidiaries                                      (3,383)          982               -         2,401             -
                                                 ----------  ------------  --------------  ------------  ------------
  Net income (loss)                              $   (3,383) $     (3,383) $          982  $      2,401  $     (3,383)
                                                 ----------  ------------  --------------  ------------  ------------
                                                 ----------  ------------  --------------  ------------  ------------

</TABLE>

                                      14


<PAGE>

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

              SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                       FOR THE THREE MONTHS ENDED DECEMBER 31, 1998
                                        (UNAUDITED)

<TABLE>
<CAPTION>
                                                  PARENT
                                                  COMPANY     GUARANTOR    NON-GUARANTOR
                                                   ONLY      SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS  CONSOLIDATED
                                                 ----------  ------------  --------------  ------------  ------------
<S>                                              <C>         <C>           <C>             <C>           <C>
(Amounts in thousands)
Revenues                                         $        -  $     34,122  $        4,751  $          -  $     38,873
Costs of operations                                       -        26,589           3,951             -        30,540
                                                 ----------  ------------  --------------  ------------  ------------
  Gross profit                                            -         7,533             800             -         8,333

Corporate operating expenses                              -         2,631               -             -         2,631
                                                 ----------  ------------  --------------  ------------  ------------
  Income from company operations                          -         4,902             800             -         5,702

Equity in earnings of unconsolidated 
   partnerships                                           -            84               -             -            84
                                                 ----------  ------------  --------------  ------------  ------------
  Operating income                                        -         4,986             800             -         5,786

Interest expense, net                                     -         3,296             278             -         3,574
                                                 ----------  ------------  --------------  ------------  ------------
  Income before income taxes                              -         1,690             522             -         2,212

Provision for income taxes                                -           212               -             -           212
                                                 ----------  ------------  --------------  ------------  ------------
  Income before equity in income of
    consolidated subsidiaries                             -         1,478             522             -         2,000

Equity in income of consolidated 
  subsidiaries                                        2,000           522               -        (2,522)            -
                                                 ----------  ------------  --------------  ------------  ------------

Net income                                       $    2,000  $      2,000   $         522   $    (2,522) $      2,000
                                                 ----------  ------------  --------------  ------------  ------------
                                                 ----------  ------------  --------------  ------------  ------------
</TABLE>

                                      15


<PAGE>

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

              SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                       FOR THE THREE MONTHS ENDED DECEMBER 31, 1997
                                       (UNAUDITED)

<TABLE>
<CAPTION>
                                                  PARENT
                                                  COMPANY     GUARANTOR    NON-GUARANTOR
                                                   ONLY      SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS  CONSOLIDATED
                                                 ----------  ------------  --------------  ------------  ------------
<S>                                              <C>         <C>           <C>             <C>           <C>
(Amounts in thousands)
Revenues                                         $        -        25,458  $        3,691  $          -  $     29,149
Costs of operations                                       -        20,752           3,281             -        24,033
                                                 ----------  ------------  --------------  ------------  ------------
  Gross profit                                            -         4,706             410             -         5,116

Corporate operating expenses                              -         1,898               -             -         1,898
Provision for supplemental service
  fee termination                                         -         6,309               -             -         6,309
                                                 ----------  ------------  --------------  ------------  ------------
  Income (loss) from company operations                   -        (3,501)            410             -        (3,091)

Equity in earnings of unconsolidated 
  partnerships                                            -           166               -             -           166
                                                 ----------  ------------  --------------  ------------  ------------
  Operating income (loss)                                 -        (3,335)            410             -        (2,925)

Interest expense, net                                     -         1,470              92             -         1,562
                                                 ----------  ------------  --------------  ------------  ------------
  Income (loss) before income taxes                       -        (4,805)            318             -        (4,487)

Provision for income taxes                                -             -               -             -             -
                                                 ----------  ------------  --------------  ------------  ------------
  Income (loss) before equity in income of
    consolidated subsidiaries                             -        (4,805)            318             -        (4,487)

Equity in income (loss) of consolidated 
  subsidiaries                                       (4,487)          318               -         4,169             -
                                                 ----------  ------------  --------------  ------------  ------------
  Net income (loss)                              $   (4,487) $     (4,487) $          318  $      4,169  $     (4,487)
                                                 ----------  ------------  --------------  ------------  ------------
                                                 ----------  ------------  --------------  ------------  ------------
</TABLE>

                                       16

<PAGE>

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

          SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                  FOR THE SIX MONTHS ENDED DECEMBER 31, 1998
                               (UNAUDITED)

<TABLE>
<CAPTION>
                                                         PARENT
                                                         COMPANY     GUARANTOR    NON-GUARANTOR
                                                           ONLY      SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS  CONSOLIDATED
                                                         ----------  ------------  --------------  ------------  ------------
<S>                                                      <C>         <C>           <C>             <C>           <C>
(Amounts in thousands)
OPERATING ACTIVITIES:
  Net income                                             $    3,662  $      3,662  $          924  $     (4,586) $      3,662
  Adjustments to reconcile net income to net cash
   provided by (used in) operating activities:
   Total depreciation and amortization                            -        10,621           1,472             -        12,093
   Amortization of deferred gain on debt restructure              -           (45)              -             -           (45)
   Equity in income (loss) of consolidated subsidiaries      (3,662)         (924)              -         4,586             -
  Cash provided by (used in) changes in operating 
   assets and liabilities:
  Trade accounts receivable, net                                  -        (3,685)           (792)            -        (4,477)
  Intercompany receivables, net                               3,718       (10,262)          6,544             -             -
  Other current assets                                            -        (1,241)            109             -        (1,132)
  Accounts payable and other accrued expenses                     -        (8,266)           (105)            -        (8,371)
                                                         ----------  ------------  --------------  ------------  ------------
   Net cash provided by (used in) operating activities        3,718       (10,140)          8,152             -         1,730
                                                         ----------  ------------  --------------  ------------  ------------

INVESTING ACTIVITIES:
  Additions to property and equipment                             -       (20,543)         (6,322)            -       (26,865)
  Other                                                           -        (1,135)           (148)            -        (1,283)
                                                         ----------  ------------  --------------  ------------  ------------
   Net cash used in investing activities                          -       (21,678)         (6,470)            -       (28,148)
                                                         ----------  ------------  --------------  ------------  ------------

FINANCING ACTIVITIES:
  Stock options and warrants exercised                           11             -               -             -            11
  Issuance of common stock                                       21             -               -             -            21
  Principal payments of debt and capital lease 
   obligations                                               (3,750)       (4,701)           (143)            -        (8,594)
  Proceeds from issuance of debt and capital 
   lease obligations                                              -         4,506               -             -         4,506
  Other                                                           -             -            (266)            -          (266)
                                                         ----------  ------------  --------------  ------------  ------------
   Net cash used in financing activities                     (3,718)         (195)           (409)            -        (4,322)
                                                         ----------  ------------  --------------  ------------  ------------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                  -       (32,013)          1,273             -       (30,740)

CASH AND CASH EQUIVALENTS:
  Cash, beginning of period                                       -        43,250           1,490             -        44,740
                                                         ----------  ------------  --------------  ------------  ------------
  Cash, end of period                                    $        -  $     11,237  $        2,763  $          -  $     14,000
                                                         ----------  ------------  --------------  ------------  ------------
                                                         ----------  ------------  --------------  ------------  ------------
</TABLE>

                                     17

<PAGE>


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

            SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                        FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
                                     (UNAUDITED)

<TABLE>
<CAPTION>
                                                         PARENT
                                                         COMPANY     GUARANTOR    NON-GUARANTOR
                                                           ONLY      SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS  CONSOLIDATED
                                                         ----------  ------------  --------------  ------------  ------------
<S>                                                      <C>         <C>           <C>             <C>           <C>
(Amounts in thousands)
OPERATING ACTIVITIES:
  Net income (loss)                                      $   (3,383) $     (3,383) $          982  $      2,401  $     (3,383)
  Adjustments to reconcile net income (loss) to net 
   cash provided by (used in) operating activities:
   Total depreciation and amortization                            -         6,189             584             -         6,773
   Amortization of deferred gain on debt restructure              -        (1,319)              -             -        (1,319)
   Provision for supplemental service fee termination             -         6,309               -             -         6,309
   Equity in income (loss) of consolidated subsidiaries       3,383          (982)              -        (2,401)            -
  Cash provided by (used in) changes in operating 
   assets and liabilities:
  Trade accounts receivable, net                                  -        (3,907)              -             -        (3,907)
  Intercompany receivables, net                             (97,296)       97,457            (161)                          -
  Other current assets                                            -        (1,232)             51             -        (1,181)
  Accounts payable and other accrued expenses                     -         2,740            (181)            -         2,559
                                                         ----------  ------------  --------------  ------------  ------------
   Net cash provided by (used in) operating activities      (97,296)      101,872           1,275             -         5,851
                                                         ----------  ------------  --------------  ------------  ------------
INVESTING ACTIVITIES:
  Additions to property and equipment                             -       (13,213)           (235)            -       (13,448)
  Acquisitions of imaging centers                                 -       (12,890)              -             -       (12,890)
  Other                                                           -          (951)              -             -          (951)
                                                         ----------  ------------  --------------  ------------  ------------
   Net cash used in investing activities                          -       (27,054)           (235)            -       (27,289)
                                                         ----------  ------------  --------------  ------------  ------------

FINANCING ACTIVITIES:
  Proceeds from issuance of preferred stock                  23,346             -               -             -        23,346
  Stock options and warrants exercised                           50             -               -             -            50
  Payment of loan financing costs                                 -        (2,210)              -             -        (2,210)
  Principal payments of debt and capital lease 
    obligations                                                   -       (78,136)           (319)            -       (78,455)
  Proceeds from issuance of debt and capital lease 
    obligations                                              73,900         9,259               -             -        83,159
  Other                                                           -             -              (7)            -            (7)
                                                         ----------  ------------  --------------  ------------  ------------
   Net cash provided by (used in) financing activities       97,296       (71,087)           (326)            -        25,883
                                                         ----------  ------------  --------------  ------------  ------------

INCREASE IN CASH AND CASH EQUIVALENTS                             -         3,731             714             -         4,445

CASH AND CASH EQUIVALENTS:
  Cash, beginning of period                                       -         5,845           1,039             -         6,884
                                                         ----------  ------------  --------------  ------------  ------------
  Cash, end of period                                    $        -  $      9,576  $        1,753  $          -  $     11,329
                                                         ----------  ------------  --------------  ------------  ------------
                                                         ----------  ------------  --------------  ------------  ------------
</TABLE>

                                      18

<PAGE>

ITEM 2.  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
         RESULTS OF OPERATIONS

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

ACQUISITIONS

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

In fiscal 1997, the Company completed three acquisitions as follows: a Fixed 
Facility in Hayward, California; Mobile Facilities in Maine and New 
Hampshire; and a Center in Chattanooga, Tennessee. All three transactions 
included the purchase of assets and assumption of certain equipment related 
liabilities. The cumulative purchase price for these acquisitions was 
approximately $18.6 million.

In fiscal 1998, the Company completed four acquisitions as follows: a Center 
in Columbus, Ohio; a Center in Murfreesboro, Tennessee; a Fixed Facility in 
Redwood City, California; and a Center in Las Vegas, Nevada. In connection 
with the purchase of the Center in Columbus, Ohio, InSight also acquired a 
majority ownership interest in a new Center in Dublin, Ohio. All transactions 
included the purchase of assets and assumption of certain equipment related 
liabilities. The cumulative purchase price for these acquisitions was 
approximately $18.4 million.

In fiscal 1998, the Company also acquired all of the capital stock of Signal 
Medical Services, Inc. (Signal).  The purchase price was approximately  
$45.7 million.  The Signal assets primarily consisted of Mobile Facilities in 
the Northeastern and Southeastern United States.

                                     19

<PAGE>

In addition, in fiscal 1998, the Company installed three Open MRI Fixed 
Facilities in Atlanta, Georgia; Scarborough, Maine; and Santa Ana, 
California; and opened its first radiology co-source outpatient Center in 
Oxnard, California, all of which were financed through GE. Effective December 
31, 1997, the Company terminated its agreement to operate a Gamma Knife 
Center and entered into an agreement to dissolve a partnership related to a 
Fixed Facility in Seattle, Washington.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

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

The Company continues to pursue acquisition opportunities. The Company 
believes that the expansion of its business through acquisitions is a key 
factor in maintaining profitability. Generally, acquisition opportunities are 
aimed at increasing revenues and profits, and maximizing utilization of 
existing capacity; however, the Company has incurred and will continue to 
incur costs for the salaries, benefits and travel of its business development 
team. Incremental operating profit resulting from future acquisitions will 
vary depending on geographic location, whether facilities are Centers, Mobile 
Facilities or Fixed Facilities, the range of services provided and the 
Company's ability to integrate the acquired businesses into its existing 
infrastructure.

On October 14, 1997, the Company consummated the Recapitalization 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 the Carlyle 
Warrants, 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 pretax income, the GE Warrants and an additional 20,953 
shares of Series C Preferred Stock in exchange for all of GE's shares of 
Series A Preferred Stock; and (c) the Company executed the Bank Financing. 
Initial funding under the Bank Financing occurred on October 22, 1997 and, on 
December 19, 1997, the Bank Financing was increased to a total of $150 
million by converting $10 million of outstanding debt under the acquisition 
facility to the seven-year tranche (which was thereby increased to $40 
million) and increasing the acquisition facility to $65 million. The net 
proceeds from the Carlyle investment were used to refinance a portion of the 
outstanding GE indebtedness (approximately $20 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 $50 million) 
and approximately $8 million of the revolving facility was drawn down for 
working capital purposes. The terms of the Series B Preferred Stock and the 
Series C Preferred Stock, as well as the Bank Financing, contain certain 
restrictions on the Company's ability to act without first obtaining a waiver 
or consent from Carlyle, GE and NationsBank.

On June 12, 1998, the Company completed a refinancing of substantially all of 
the Company's debt through the issuance of the Notes. The Notes bear interest 
at 9.625%, with interest payable semi-annually and mature in June 2008. The 
Notes are redeemable at the option of the Company, in whole or in part, on or 
after June 15, 2003. The Notes are unsecured senior subordinated obligations 
of the Company and are subordinated in right of payment to all existing and 
future senior indebtedness, as defined in the indenture, of the Company, 
including borrowings under the Bank Financing.

Concurrently with the issuance of the Notes, the Company entered into an 
amendment to, and restatement of the Bank Financing, pursuant to which, among 
other things, the Company refinanced and consolidated its prior $20 million 
tranche term loan and $40 million tranche term loan into a $50 million term 
loan, with a six-year amortization. Borrowings under the $50 million term 
loan bear interest at LIBOR plus 1.75%. The Company

                                     20

<PAGE>

utilized a portion of the net proceeds from the Notes, together with the net 
proceeds of the borrowing under the term loan portion of the Bank Financing 
to repay outstanding indebtedness under the Bank Financing. The remaining net 
proceeds of approximately $28.8 million were added to working capital and are 
being used for general corporate purposes.

As part of the amendment to the Bank Financing, the Company has available a 
$25 million working capital facility with a five-year maturity and a $75 
million acquisition facility with a six-year maturity. Borrowings under both 
credit facilities bear interest at LIBOR plus 1.75%. The Company is required 
to pay an unused facility fee of between 0.375% and 0.5% on unborrowed 
amounts under both facilities, of which the Company has paid approximately 
$0.2 million through December 31, 1998. There were no borrowings under either 
facility at December 31, 1998.

Net cash provided by operating activities was approximately $1.7 million for 
the six months ended December 31, 1998. Cash provided by operating 
activities resulted primarily from net income before depreciation and 
amortization (approximately $15.8 million), offset by an increase in accounts 
receivable (approximately $4.5 million) and a decrease in accounts payable 
and other accrued expenses (approximately $8.4 million).

Net cash used in investing activities was approximately $28.1 million for the 
six months ended December 31, 1998. Cash used in investing activities 
resulted primarily from the Company purchasing new diagnostic imaging 
equipment or upgrading its existing diagnostic imaging equipment 
(approximately $26.9 million).

Net cash used in financing activities was approximately $4.3 million for the 
six months ended December 31, 1998, resulting primarily from net principal 
payments of debt and capital lease obligations (approximately $4.1 million).

The Company has committed to purchase or lease, at an aggregate cost of 
approximately $8.9 million, five MRI systems for delivery through September 
30, 1999. The Company expects to use internal funds 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 $29 million, including 
siting costs, 24 Open MRI systems for delivery and installation. As of 
January 31, 1999, the Company had installed 14 of such Open MRI systems: five 
at existing Centers, three in newly opened Fixed Facilities, and six in 
Mobile Facilities which operate in existing networks serviced by conventional 
Mobile Facilities. The Company may purchase, lease or upgrade other MRI 
systems as opportunities arise to place new equipment into service when new 
contract services agreements are signed, existing agreements are renewed, 
acquisitions are completed, or new imaging centers are developed in 
accordance with the Company's business strategy.

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

                                      21

<PAGE>

YEAR 2000 ISSUE

IMPACT OF YEAR 2000: The Year 2000 Issue exists because many computer systems 
and applications currently use two-digit date fields to designate a year. As 
the century date occurs, computer programs, computers and embedded 
microprocessors controlling equipment with date-sensitive systems may 
recognize Year 2000 as 1900 or not at all. This inability to recognize or 
properly treat Year 2000 may result in computer system failures or 
miscalculations of critical financial and operational information as well as 
failures of equipment controlling date-sensitive microprocessors. In addition, 
there are two other related issues which could also lead to miscalculations 
or failures: (i) some older systems' programming assigns special meaning to 
certain dates, such as 9/9/99 and (ii) the Year 2000 is a leap year.

STATE OF READINESS: The Company started to formulate a plan to address the 
Year 2000 Issue in late 1995. To date, the Company's primary focus has been 
on its own internal information technology systems, including all types of 
systems in use by the Company in its operations, marketing, finance and human 
resources departments, and to deal with the most critical systems first. The 
Company is in the process of developing a Year 2000 Plan to address all of 
its Year 2000 Issues. The Company has given its Vice President-Information 
Technology specific responsibility for managing its Year 2000 Plan and a Year 
2000 Committee has been established to assist in developing and implementing 
the Year 2000 Plan. The Year 2000 Plan being developed will involve generally 
the following phases: awareness, assessment, renovation, testing and 
implementation.

Although the Company's assessment of the Year 2000 Issue is incomplete, the 
Company has completed an assessment of approximately 85% of its internal 
information technology systems. As a result of delays in obtaining 
information, the Company now estimates that it will complete the assessment 
of its remaining internal information technology systems by March 31, 1999 
and will then establish a timetable for the renovation phase of the remaining 
technology systems. The Company has already completed the renovation of 
approximately 60% of its information technology systems, including modifying 
and upgrading software and developing and purchasing new software, and 
continues to renovate the portions of such systems for which assessment is 
complete. The Company has not begun or established a timetable for the 
testing and implementation phases. The Company's goal is to complete such 
phases by June 30, 1999, although complications arising from unanticipated 
acquisitions might cause some delay.

The Company is assessing the potential for Year 2000 problems with the 
information systems of its customers and vendors. The Company has determined 
that direct contact with its vendors, customers, business partners, landlords 
and other third parties with which the Company has a material relationship 
will yield better results than submitting questionnaires, which historically 
have not been responded to adequately, if at all. The Company intends to send 
to its vendors, customers, business partners, landlords and other third 
parties, follow-up questionnaires and letters to confirm verbal assurances 
received. The Company expects to complete such assessment by March 31, 1999. 
The Company does not have sufficient information to provide an estimated 
timetable for completion of renovation and testing that such parties with 
which the Company has a material relationship may undertake. The Company is 
unable to estimate the costs that it may incur to remedy the Year 2000 Issues 
relating to such parties.

The Company has received some preliminary information concerning the Year 
2000 readiness of some of its customers, vendors and other third parties with 
which the Company has a material relationship and expects to engage in 
discussions with most of such parties through March 31, 1999 in an attempt to 
determine the extent to which the Company is vulnerable to those parties' 
possible failure to become Year 2000 compliant.

All of the Company's diagnostic imaging equipment used to provide imaging 
services have computer systems and applications, and in some cases embedded 
microprocessors, that could be affected by Year 2000 Issues. The Company has 
begun to assess the impact on its diagnostic imaging equipment by contacting 
the vendors of such equipment. The vendor with respect to the majority of the 
MRI and CT equipment used by the Company has informed the Company (i) that 
certain identified MRI and CT equipment is Year 2000 compliant, (ii) it has 
developed software for functional work arounds to ensure Year 2000 compliance 
with respect to the balance of its noncompliant MRI and CT equipment and 
(iii) remediation will be made during future regular maintenance visits. The 
Company is in the process of contacting the other vendors of its diagnostic 
imaging equipment. While progress has been slow, the Company expects to 
receive information from such other vendors by March 31, 1999 with 

                                    22
<PAGE>

respect to their assessment of the impact on the equipment that they provided 
to the Company and the nature and timetable of the remediation that such 
vendors may propose. In addition, the Company is utilizing other resources at 
its disposal, e.g. equipment vendor web sites, to assist in its assessment. 
The Company expects to complete its assessment by March 31, 1999, subject to 
equipment vendor response, and that renovation will be completed by June 30, 
1999. The Company expects that its equipment vendors will propose timely 
remediation and will bear the cost of modifying or otherwise renovating the 
Company's diagnostic imaging equipment.

In September 1998, the Company began an assessment of the potential for Year 
2000 problems with the embedded microprocessors in its other equipment, 
facilities and corporate and regional offices, including telecommunications 
systems, utilities, dictation systems, security systems and HVACS. The 
Company has experienced delays in responses which have caused the Company to 
extend the completion of the assessment to March 31, 1999. The Company 
intends to engage consultants to independently evaluate the Company's 
progress with its Year 2000 Plan, to assist in the testing (i.e. verification 
and validation) of the Company's internal information technology systems, the 
information systems of its vendors, customers, business partners, landlords 
and other third parties and its diagnostic imaging equipment.

COSTS TO ADDRESS YEAR 2000 ISSUE: The Company estimates on a preliminary 
basis that the cost of assessment, renovation, testing and implementation of 
its internal information technology systems and diagnostic imaging equipment 
will range from approximately $500,000 to $1,500,000, of which approximately 
$37,000 has been incurred. The major components of these costs are: 
consultants, additional personnel costs, programming, new software and 
hardware, software upgrades, travel expenses and diagnostic imaging equipment 
replacement. The Company expects that such costs will be funded through 
operating cash flows. This estimate, based on currently available 
information, will be updated as the Company continues its assessment and 
proceeds with renovation, testing and implementation and may be adjusted upon 
receipt of more information from the Company's vendors, customers and other 
third parties and upon the design and implementation of the Company's 
contingency plan. In addition, the availability and cost of consultants and 
other personnel trained in this area and unanticipated acquisitions might 
materially affect the estimated costs.

RISKS TO THE COMPANY:  The Company's Year 2000 Issue  involves  significant  
risks.  There can be no assurance that the  Company  will  succeed in  
implementing  the Year 2000 Plan it is  developing.  The  following  
describes  the Company's most reasonably likely worst-case scenario, given 
current uncertainties. If the Company's renovated or replaced internal 
information technology systems fail the testing phase, or any software 
application or embedded microprocessors central to the Company's operations 
are overlooked in the assessment or implementation phases, significant 
problems including delays may be incurred in billing the Company's major 
customers (Medicare, HMOs or private insurance carriers) for services 
performed. If its major customers' systems do not become Year 2000 compliant 
on a timely basis, the Company will have problems and incur delays in 
receiving and processing correct reimbursement. If the computer systems of 
third parties with which the Company's systems exchange data do not become 
Year 2000 compliant both on a timely basis and in a manner compatible with 
continued data exchange with the Company's information technology systems, 
significant problems may be incurred in billing and reimbursement. If the 
systems on the diagnostic imaging equipment utilized by the Company are not 
Year 2000 compliant, the Company may not be able to provide imaging services 
to patients. If the Company's vendors or suppliers of the Company's necessary 
power, telecommunications, transportation and financial services fail to 
provide the Company with equipment and services, the Company will be unable 
to provide services to its customers. If any of these uncertainties were to 
occur, the Company's business, financial condition and results of operations 
would be adversely affected. The Company is unable to assess the likelihood 
of such events occurring or the extent of the effect on the Company.

CONTINGENCY PLAN. The Company has not yet established a contingency plan to 
address unavoided or unavoidable Year 2000 risks with internal information 
technology systems and with customers, vendors and other third parties, but 
it expects to create such a plan by March 31, 1999. The Company intends to 
engage a consultant to assist in the development of its contingency plan.

                                      23

<PAGE>

RESULTS OF OPERATIONS

SIX MONTHS ENDED DECEMBER 31,1998 COMPARED TO DECEMBER 31,1997

REVENUES: Revenues increased approximately 35.2% from approximately $56.8 
million for the six months ended December 31, 1997, to approximately $76.8 
million for the six months ended December 31, 1998. This increase was due 
primarily to the acquisitions discussed above (approximately $17.0 million), 
an increase in contract services and patient services revenues (approximately 
$4.8 million) at existing facilities and an increase in other revenues due to 
a one-time settlement payment in connection with an earn-out from the sale of 
the Company's lithotripsy partnerships in 1995 (approximately $0.4 million), 
partially offset by the termination of a Fixed Facility and a Gamma Knife 
Center in 1997 (approximately $2.2 million).

Contract services revenues increased approximately 48.0% from approximately 
$27.1 million for the six months ended December 31, 1997, to approximately 
$40.1 million for the six months ended December 31, 1998. This increase was 
due primarily to the acquisitions discussed above (approximately $11.1 
million) and an increase at existing facilities (approximately $1.9 million). 
The increase at existing facilities was due to higher utilization 
(approximately 10%) offset by a decline in reimbursement from customers, 
primarily hospitals (approximately 3%), as a result of increased price 
competition.

Contract services revenues, primarily earned by the Company's Mobile 
Facilities, represented approximately 52% of total revenues for the six 
months ended December 31, 1998. 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. While some replacement 
accounts have initially been smaller than the lost accounts, such replacement 
accounts revenues have generally increased over the term of the agreement. 
The non-renewal of a single customer agreement would not have a material 
impact on 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 23.2% from approximately 
$28.5 million for the six months ended December 31, 1997, to approximately 
$35.1 million for the six months ended December 31, 1998. This increase was 
due primarily to the acquisitions discussed above (approximately $5.8 
million) and an increase in revenues at existing facilities (approximately 
$3.0 million). The increase at existing facilities was due to higher 
utilization (approximately 11%), partially offset by declines in 
reimbursement from third party payors (approximately 2%) and reduced revenues 
from the termination of a Fixed Facility and a Gamma Knife Center in 1997 
(approximately $2.2 million).

Management believes that any future increases in revenues at existing 
facilities can only be achieved by higher utilization and not by increases in 
procedure prices; however, slower start-up of new operations, excess capacity 
of diagnostic imaging equipment, increased competition, and the expansion of 
managed care may impact utilization and make it difficult for the Company to 
achieve revenue increases in the future, absent the execution of provider 
agreements with managed care companies and other payors, and the execution of 
the Company's business strategy, particularly acquisitions. InSight's 
operations are principally dependent on its ability (either directly or 
indirectly through its hospital customers) to attract referrals from 
physicians and other healthcare 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

                                     24

<PAGE>

contractual arrangement with the referred patient's insurance carrier 
(primarily if the insurance is provided by a managed care organization). 
Managed care contracting has become very competitive and reimbursement 
schedules are at or below Medicare reimbursement levels, and a significant 
decline in referrals could have a material impact on the Company's revenues.

COSTS OF OPERATIONS: Costs of operations increased approximately 32.4% from 
approximately $46.3 million for the six months ended December 31, 1997, to 
approximately $61.3 million for the six months ended December 31, 1998. This 
increase was due primarily to an increase in costs due to the acquisitions 
discussed above (approximately $13.5 million) and an increase in costs at 
existing facilities (approximately $3.2 million), offset by the elimination 
of costs at the two terminated facilities discussed above (approximately $1.7 
million).

Costs of operations, as a percent of total revenues, decreased from 
approximately 81.5% for the six months ended December 31, 1997, to 
approximately 79.9% for the six months ended December 31, 1998. The decrease 
was due primarily to reduced costs in diagnostic imaging equipment 
maintenance, equipment lease and medical supply costs, offset by (i) higher 
amortization costs associated with the Company's acquisition activities and 
(ii) higher salaries and benefits, occupancy and depreciation costs.

CORPORATE OPERATING EXPENSES: Corporate operating expenses increased 
approximately 11.6%, from approximately $4.3 million for the six months 
ended December 31, 1997, to approximately $4.8 million for the six months 
ended December 31, 1998. This increase was due primarily to (i) increased 
salaries, benefits and travel costs associated with the Company's acquisition 
activities, and (ii) increased occupancy and communication costs, offset by 
reduced legal costs.

PROVISION FOR SUPPLEMENTAL SERVICE FEE TERMINATION: In October 1997, as part 
of the Recapitalization and Bank Financing discussed above, the Company 
issued to GE 7,000 shares of Series C Preferred Stock to terminate GE's right 
to receive supplemental service fee payments equal to 14% of the Company's 
pre-tax income. The Series C Preferred Stock was valued at $7.0 million, and, 
during the six months ended December 31, 1997, the Company recorded a 
one-time provision of approximately $6.3 million, net of amounts previously 
accrued, for the Preferred Stock issuance.

INTEREST EXPENSE, NET: Interest expense, net increased approximately 112.1% 
from approximately $3.3 million for the six months ended December 31, 1997, 
to approximately $7.0 million for the six months ended December 31, 1998. 
This increase was due primarily to additional debt related to (i) the 
issuance of Notes discussed above, (ii) the acquisitions discussed above, and 
(iii) the Company upgrading its existing diagnostic imaging equipment, offset 
by reduced interest as a result of amortization of long-term debt.

PROVISION FOR INCOME TAXES: Provision for income taxes decreased from 
approximately $0.4 million for the six months ended December 31, 1997, to 
approximately $0.3 million for the six months ended December 31, 1998. The 
decrease in provision is due to anticipated benefits from the utilization of 
certain operating loss carryforwards in 1998.

INCOME (LOSS) PER COMMON AND CONVERTED PREFERRED SHARE: On a diluted basis, 
net loss per common and converted preferred share was ($0.49) for the six 
months ended December 31, 1997, compared to net income per common and 
converted preferred share of $0.39 for the same period in 1998. Excluding the 
one-time provision for supplemental service fee termination, net income for 
the six months ended December 31, 1997 would have been approximately $2.9 
million, compared to approximately $3.7 million for the six months ended 
December 31, 1998 and net income per common and converted preferred share on 
a diluted basis for the six months ended December 31, 1997 would have been 
$0.42. The decrease in net income per common and converted preferred share 
was the result of (i) the additional shares outstanding as a result of the 
Recapitalization discussed above, (ii) increased interest expense, (iii) 
increased corporate operating expenses, and (iv) a decrease in earnings from 
unconsolidated partnerships, offset by increased gross profit.

                                     25

<PAGE>

THREE MONTHS ENDED DECEMBER 31,1998 COMPARED TO DECEMBER 31, 1997

REVENUES: Revenues increased approximately 33.7% from approximately $29.1 
million for the three months ended December 31, 1997, to approximately $38.9
million for the three months ended December 31, 1998. This increase was due 
primarily to the acquisitions discussed above (approximately $8.6 million), 
an increase in contract services and patient services revenues (approximately 
$1.8 million) at existing facilities and an increase in other revenues due to 
a one-time settlement payment in connection with an earn-out from the sale of 
the Company's lithotripsy partnerships in 1995 (approximately $0.4 million), 
partially offset by the termination of a Fixed Facility and a Gamma Knife 
Center in 1997 (approximately $1.0 million).

Contract services revenues increased approximately 47.4% from approximately 
$13.5 million for the three months ended December 31, 1997, to approximately 
$19.9 million for the three months ended December 31, 1998. This increase was 
due primarily to the acquisitions discussed above (approximately $5.8
million) and an increase at existing facilities (approximately $0.6 million). 
The increase at existing facilities was due to higher utilization 
(approximately 11%), offset by a decline in reimbursement from customers, 
primarily hospitals (approximately 3%), as a result of increased price 
competition.

Patient services revenues increased approximately 20.1% from approximately 
$14.9 million for the three months ended December 31, 1997, to approximately 
$17.9 million for the three months ended December 31, 1998. This increase was 
due primarily to the acquisitions discussed above (approximately $2.6 
million) and an increase in revenues at existing facilities (approximately 
$1.4 million). The increase at existing facilities was due to higher 
utilization (approximately 12%), partially offset by declines in 
reimbursement from third party payors (approximately 2%) and reduced revenues 
from the termination of a Fixed Facility and a Gamma Knife Center in 1997 
(approximately $1.0 million).

COSTS OF OPERATIONS: Costs of operations increased approximately 27.1% from 
approximately $24.0 million for the three months ended December 31, 1997, to 
approximately $30.5 million for the three months ended December 31, 1998. 
This increase was due primarily to an increase in costs due to the 
acquisitions discussed above (approximately $6.5 million) and an increase in 
costs at existing facilities (approximately $0.7 million), offset by the 
elimination of costs at the two terminated facilities discussed above 
(approximately $0.7 million).

Costs of operations, as a percent of total revenues, decreased from 
approximately 82.5% for the three months ended December 31, 1997, to 
approximately 78.6% for the three months ended December 31, 1998. The 
decrease was due primarily to reduced costs in diagnostic imaging equipment 
maintenance, equipment lease and medical supply costs, offset by (i) higher 
amortization costs associated with the Company's acquisition activities and 
(ii) higher salaries and benefits, occupancy, and depreciation costs.

CORPORATE OPERATING EXPENSES: Corporate operating expenses increased 
approximately 36.8%, from approximately $1.9 million for the three months 
ended December 31, 1997, to approximately $2.6 million for the three months 
ended December 31, 1998. This increase was due primarily to (i) increased 
salaries, benefits and travel costs associated with the Company's acquisition 
activities and (ii) higher occupancy and communications costs.

PROVISION FOR SUPPLEMENTAL SERVICE FEE TERMINATION: In October 1997, as part 
of the Recapitalization and Bank Financing discussed above, the Company 
issued to GE 7,000 shares of Series C Preferred Stock to terminate GE's right 
to receive supplemental service fee payments equal to 14% of the Company's 
pre-tax income. The Series C Preferred Stock was valued at $7.0 million, and, 
during the three months ended December 31, 1997, the Company recorded a 
one-time provision of approximately $6.3 million, net of amounts previously 
accrued, for the Preferred Stock issuance.

INTEREST EXPENSE, NET: Interest expense, net increased approximately 125.0% 
from approximately $1.6 million for the three months ended December 31, 1997, 
to approximately $3.6 million for the three months ended December 31, 1998. 
This increase was due primarily to additional debt related to (i) the 
issuance of Notes discussed above, (ii) the acquisitions discussed

                                    26

<PAGE>

above, and (iii) the Company upgrading its existing diagnostic imaging 
equipment, offset by reduced interest as a result of amortization of 
long-term debt.

PROVISION FOR INCOME TAXES: During the three months ended December 31, 1998, 
the Company recorded a provision for income taxes of approximately $0.2 
million, compared to no provision recorded in the same period in 1997. The 
increase in provision is due to higher pre-tax income in 1998, partially 
offset by anticipated benefits from the utilization of certain operating loss 
carryforwards in 1998.

INCOME (LOSS) PER COMMON AND CONVERTED PREFERRED SHARE: On a diluted basis, 
net loss per common and converted preferred share was ($0.53) for the three 
months ended December 31, 1997, compared to net income per common and 
converted preferred share of $0.21 for the same period in 1998. Excluding the 
one-time provision for supplemental service fee termination, net income for 
the three months ended December 31, 1997 would have been approximately $1.8 
million, compared to approximately $2.0 million for the three months ended 
December 31, 1998 and net income per common and converted preferred share on 
a diluted basis for the three months ended December 31, 1997 would have been 
$0.21. The change in net income per common and converted preferred share is 
the result of (i) the additional shares outstanding as a result of the 
Recapitalization discussed above, (ii) increased interest expense, (iii) 
increased corporate operating expenses, (iv) a decrease in earnings from 
unconsolidated partnerships, offset by increased gross profit.

NEW PRONOUNCEMENTS

As of June 30, 1999, the Company will be required to adopt Statement of 
Financial Accounting Standards Nos. 130 and 131, "Reporting Comprehensive 
Income" and "Disclosures about Segments of an Enterprise and Related 
Information." The Company believes that adoption of these standards will not 
have a material impact on the Company.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

At December 31, 1998, InSight's had outstanding an interest rate swap, 
converting the majority of its $46.3 million term loan floating rate debt to 
fixed rate debt. Since the majority of the Company's debt has historically 
been fixed-rate debt, the impact of the interest rate swap has not been 
material on the Company's weighted average interest rate.

                                     27

<PAGE>

                      PART II - OTHER INFORMATION

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

           (a)      On December 15, 1998, the Company held its annual meeting 
                    of stockholders at which the single matter to be acted 
                    upon was the election of two directors, Grant R. 
                    Chamberlain and Ronald G. Pantello as Class II Directors, 
                    to serve for a three year term.

           (b)      Inapplicable.

           (c)      2,294,957 shares were cast in favor of Messrs. 
                    Chamberlain and Pantello, and 3,935 shares were withheld.

           (d)      Inapplicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

           (a)      EXHIBITS.

                    There are none.

           (b)      REPORTS ON FORM 8-K

                    No current reports on Form 8-K were filed by the Company 
                    for the quarter ended December 31, 1998.


                                   28

<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
                           Senior Executive Vice President,
                           Chief Operating Officer and Chief Financial Officer

                           February 16, 1999


                                    29