<PAGE>

                         SECURITIES AND EXCHANGE COMMISSION
                               Washington, D.C. 20549
                             _________________________
                                          
                                     FORM 10-Q
(Mark One)
[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934
     
     For the quarterly period ended September 30, 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: 2,825,856 shares of 
Common Stock as of November 6, 1998.

                    The number of pages in this Form 10-Q is 24.
                                          
<PAGE>
                                          
                                          
                   INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
                   ----------------------------------------------
                                          
                                       INDEX
                                       -----

<TABLE>
<CAPTION>

                                          
                                                                                   PAGE  NUMBER
                                                                                   ------------
PART I.    FINANCIAL INFORMATION

    ITEM 1.   FINANCIAL STATEMENTS                                                
              <S>                                                                       <C>
              Condensed Consolidated Balance Sheets as of September 30, 1998
                (unaudited) and June 30, 1998                                           3

              Condensed Consolidated Statements of Income (unaudited)
                for the three months ended September 30, 1998 and 1997                  4
          
              Condensed Consolidated Statements of Cash Flows (unaudited)
                for the three months ended September 30, 1998 and 1997                  5

              Notes to Condensed Consolidated Financial Statements                      6-15 

    ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL              
              CONDITION AND RESULTS OF OPERATIONS                                       16-22

    ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                22

PART II.   OTHER INFORMATION
     
    ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS                                 23

    ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K                                          23 
      
SIGNATURES                                                                              24

</TABLE>

<PAGE>


ITEM 1.  FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>


                                                                               September 30,           June 30,
                                                                                    1998                 1998
                                                                               -------------           --------
                                   ASSETS                                       (Unaudited)
CURRENT ASSETS:
  <S>                                                                            <C>                  <C>
  Cash and cash equivalents                                                      $  29,834            $  44,740 
  Trade accounts receivable, net                                                    27,451               25,663 
  Other current assets                                                               3,402                3,050 
                                                                                 ---------            ---------
       Total current assets                                                         60,687               73,453 

PROPERTY AND EQUIPMENT, net of accumulated depreciation
  and amortization of $30,400 and $26,116, respectively                             81,895               71,814 

INVESTMENT IN PARTNERSHIPS                                                           1,610                1,523 
OTHER ASSETS                                                                         6,841                6,639 
INTANGIBLE ASSETS, net                                                              74,303               74,831 
                                                                                 ---------            ---------
                                                                                 $ 225,336            $ 228,260 
                                                                                 ---------            ---------
                                                                                 ---------            ---------

                   LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Current portion of equipment, capital leases  and other notes                  $  10,822            $  10,140 
  Accounts payable and other accrued expenses                                       21,732               26,410 
                                                                                 ---------            ---------
     Total current liabilities                                                      32,554               36,550 
                                                                                 ---------            ---------

LONG-TERM LIABILITIES:
  Equipment, capital leases and other notes, less current portion                  151,781              152,120 
  Other long-term liabilities                                                          963                  984 
                                                                                 ---------            ---------
     Total long-term liabilities                                                   152,744              153,104 
                                                                                 ---------            ---------
MINORITY INTEREST                                                                      518                  748 
                                                                                 ---------            ---------
STOCKHOLDERS' EQUITY:
  Preferred stock, $.001 per value, 3,500,000 shares authorized:
     Convertible Series B preferred stock, 25,000 shares outstanding at 
       September 30, 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 
       September 30, 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, 
     2,825,856 and 2,824,090 shares outstanding at September 30, 1998 
     and June 30, 1998, respectively                                                     3                    3 
  Additional paid-in capital                                                        23,415               23,415 
  Accumulated deficit                                                              (20,994)             (22,656)
                                                                                 ---------            ---------
     Total stockholders' equity                                                     39,520               37,858 
                                                                                 ---------            ---------
                                                                                 $ 225,336            $ 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 INCOME (UNAUDITED)
              (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                             Three Months Ended      
                                                                                September 30,       
                                                                       ----------------------------
                                                                          1998                1997
                                                                       ---------          ---------
REVENUES: 
  <S>                                                                  <C>                <C>
  Contract services                                                    $  20,220          $  13,412 
  Patient services                                                        17,199             13,630 
  Other                                                                      514                612 
                                                                       ---------          ---------
     Total revenues                                                       37,933             27,654 
                                                                       ---------          ---------

COSTS OF OPERATIONS:
  Costs of services                                                       19,948             14,060 
  Provision for doubtful accounts                                            623                498 
  Equipment leases                                                         4,337              4,512 
  Depreciation and amortization                                            5,894              3,173 
                                                                       ---------          ---------
     Total costs of operations                                            30,802             22,243 
                                                                       ---------          ---------
     Gross profit                                                          7,131              5,411 

CORPORATE OPERATING EXPENSES                                               2,124              2,358 
                                                                       ---------          ---------
     Income from company operations                                        5,007              3,053 

EQUITY IN EARNINGS OF UNCONSOLIDATED PARTNERSHIPS                            174                170 
                                                                       ---------          ---------
     Operating income                                                      5,181              3,223 

INTEREST EXPENSE, Net                                                      3,459              1,688 
                                                                       ---------          ---------

     Income before income taxes                                            1,722              1,535 

PROVISION FOR INCOME TAXES                                                    60                431 
                                                                       ---------          ---------
     Net income                                                        $   1,662          $   1,104 
                                                                       ---------          ---------
                                                                       ---------          ---------

INCOME PER COMMON AND CONVERTED PREFERRED SHARE:
     Basic                                                             $    0.18          $    0.21 
                                                                       ---------          ---------
                                                                       ---------          ---------
     Diluted                                                           $    0.18          $    0.20 
                                                                       ---------          ---------
                                                                       ---------          ---------
WEIGHTED AVERAGE NUMBER OF COMMON AND 
  CONVERTED PREFERRED SHARES OUTSTANDING:
     Basic                                                             9,142,077          5,216,485 
                                                                       ---------          ---------
                                                                       ---------          ---------
     Diluted                                                           9,410,127          5,460,581 
                                                                       ---------          ---------
                                                                       ---------          ---------
</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 CASH FLOWS (UNAUDITED)
                               (AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                                Three Months Ended     
                                                                                   September 30,  
                                                                          ------------------------------
                                                                             1998                1997
                                                                          --------             ---------
OPERATING ACTIVITIES:
  <S>                                                                     <C>                  <C>
  Net income                                                              $   1,662            $  1,104
  Adjustments to reconcile net income to net cash
      provided by operating activities:
    Total depreciation and amortization                                       5,967               3,209
    Amortization of deferred gain on debt restructure                           (25)               (213)
  Cash provided by (used in) changes in operating working capital:
    Trade accounts receivable, net                                           (1,788)             (2,492)
    Other current assets                                                       (352)             (1,474)
    Accounts payable and other current liabilities                           (4,674)              2,906
                                                                          ---------            --------
             Net cash provided by operating activities                          790               3,040
                                                                          ---------            --------

INVESTING ACTIVITIES:
  Additions to property and equipment                                       (14,936)             (7,339)
  Other                                                                        (873)               (106)
                                                                          ---------            --------
             Net cash used in investing activities                          (15,809)             (7,445)
                                                                          ---------            --------

FINANCING ACTIVITIES:
  Payments on debt and capital lease obligations                             (2,654)             (3,334)
  Proceeds from issuance of debt                                              2,997               9,045
  Other                                                                        (230)                 86
                                                                          ---------            --------
             Net cash provided by financing activities                          113               5,797
                                                                          ---------            --------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                            (14,906)              1,392

CASH AND CASH EQUIVALENTS:
  Beginning of period                                                        44,740               6,884
                                                                          ---------            --------
  End of period                                                           $  29,834            $  8,276
                                                                          ---------            --------

SUPPLEMENTAL INFORMATION:
  Interest paid                                                           $   1,029            $  1,854
                                                                          ---------            --------
                                                                          ---------            --------

</TABLE>

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

                                       5

<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 30 states throughout the United 
States. The Company's services are provided through a network of 60 mobile 
magnetic resonance imaging (MRI) facilities (Mobile Facilities), 35 
fixed-site MRI facilities (Fixed Facilities), 16 multi-modality imaging 
centers (Centers), 4 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, lithotripsy, 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 three months ended September 30, 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 

                                       6

<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 will vote with the common stock on an 
as-if-converted basis on all matters except the election of directors, 
subject to an aggregate maximum Preferred Stock percentage of 37% of all 
votes entitled to be cast on such matters. Assuming the conversion of all of 
the Series B Preferred Stock into common stock and the exercise of all of the 
Carlyle Warrants, Carlyle would own approximately 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 36% 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.

At any time after October 22, 1998, all of the Series B Preferred Stock and 
the Series C Preferred Stock may be converted into a newly created 
Convertible Preferred Stock, Series D, 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.  


                                       7

<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 summarized combined financial data of the Company's 
two 50% owned and controlled entities which are consolidated (amounts in 
thousands):

<TABLE>
<CAPTION>
                                                        September 30,      June 30,
                                                            1998             1998
                                                        -------------      --------
                                                          (unaudited)
<S>                                                         <C>            <C>
Condensed Combined            
  Balance Sheet Data:              
    Current assets                                          $2,040         $1,825 
    Total assets                                             2,134          1,896 
    Current liabilities                                        866            644 
    Minority interest equity                                   651            642   
</TABLE>

<TABLE>
<CAPTION>
                                                             Three Months Ended
                                                                 September 30,
                                                             ------------------
                                                             1998          1997
                                                             ----          ----
                                                                 (unaudited)
<S>                                                         <C>            <C>
Condensed Combined Statement of Income Data:               
  Net revenues                                              $1,439         $1,646 
  Expenses                                                     993          1,100 
  Provision for center profit distribution                     223            273 
                                                            ------         ------
  Net income                                                $  223         $  273 
                                                            ------         ------
                                                            ------         ------
</TABLE>
                                             
The provision for center profit distribution shown above represents the 
minority interest in the income of these combined entities.
                   
                                       8

<PAGE>
                   
5.   INCOME PER COMMON SHARE
                   
The Company has adopted SFAS 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. 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>                   
                                                       Three Months Ended
                                                         September 30,
                                                    ------------------------
                                                    1998                1997
                                                    ----                ----
<S>                                               <C>                 <C>
Average common stock outstanding                  2,819,421           2,714,725
Effect of preferred stock                         6,322,656           2,501,760
                                                  ---------           ---------
Denominator for basic EPS                         9,142,077           5,216,485
Dilutive effect of stock options and warrants       268,050             244,096
                                                  ---------           ---------
                                                  9,410,127           5,460,581
                                                  ---------           ---------
</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 (the 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 income, and statements 
of cash flows information for the Company (Parent Company Only), for the 
Guarantor Subsidiaries and for the Company's other subsidiaries (the 
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.

                                       9

<PAGE>

               INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES 
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               
              SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET  
                              SEPTEMBER 30, 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                              $      -      $  27,646      $   2,188      $      -      $ 29,834 
  Trade accounts receivable, net                                          24,055          3,396             -        27,451 
  Other current assets                                          -          3,160            242             -         3,402 
  Intercompany accounts receivable                        210,965         11,171              -      (222,136)            - 
                                                         --------      ---------      ---------     ---------      --------
    Total current assets                                  210,965         66,032          5,826      (222,136)       60,687 
 Property and equipment, net                                    -         73,128          8,767             -        81,895 
 Investments in partnerships                                    -          1,610              -             -         1,610 
 Investments in consolidated subsidiaries                 (23,320)         2,327              -        20,993             - 
 Other assets                                                   -          6,841              -             -         6,841 
 Intangible assets, net                                         -         74,098            205             -        74,303 
                                                         --------      ---------      ---------     ---------      --------
                                                         $187,645      $ 224,036      $  14,798     $(201,143)     $225,336 
                                                         --------      ---------      ---------     ---------      --------
                                                         --------      ---------      ---------     ---------      --------
 LIABILITIES AND STOCKHOLDERS' EQUITY
 Current liabilities:
  Current portion of equipment, capital leases 
   and other notes                                       $  7,500      $   3,198       $    124      $      -      $ 10,822 
  Accounts payable and other accrued expenses                   -         21,200            532             -        21,732 
  Intercompany accounts payable                                 -        210,965         11,171      (222,136)            - 
                                                         --------      ---------      ---------     ---------      --------
    Total current liabilities                               7,500        235,363         11,827      (222,136)       32,554 
 Equipment, capital leases and other notes, 
  less current portion                                    140,625         11,030            126             -       151,781 
 Other long-term liabilities                                    -            963              -             -           963 
 Minority interest                                              -              -            518             -           518 
 Stockholders' equity (deficit)                            39,520        (23,320)         2,327        20,993        39,520 
                                                         --------      ---------      ---------     ---------      --------
                                                         $187,645      $ 224,036      $  14,798     $(201,143)     $225,336 
                                                         --------      ---------      ---------     ---------      --------
                                                         --------      ---------      ---------     ---------      --------
</TABLE>

                                      10

<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>

                                      11

<PAGE>

                   INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                          
              SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME
                    FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
                                    (UNAUDITED)

<TABLE>
<CAPTION>
                                                          PARENT
                                                         COMPANY       GUARANTOR   NON-GUARANTOR 
                                                           ONLY      SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS  CONSOLIDATED
                                                         -------     ------------  -------------   ------------  ------------
<S>                                                      <C>         <C>           <C>             <C>           <C>
 (Amounts in thousands)
 Revenues                                                 $   -         $33,373        $4,560       $    -         $37,933 
 Costs of operations                                          -          26,900         3,902            -          30,802 
                                                         ------          ------        ------      -------         ------- 
  Gross profit                                                -           6,473           658            -           7,131 
 Corporate operating expenses                                 -           2,124             -            -           2,124 
                                                         ------          ------        ------      -------         ------- 
  Income from company operations                              -           4,349           658            -           5,007 
 Equity in earnings of unconsolidated partnerships            -             174             -            -             174 
                                                         ------          ------        ------      -------         ------- 
  Operating income                                            -           4,523           658            -           5,181 
 Interest expense, net                                        -           3,203           256            -           3,459 
                                                         ------          ------        ------      -------         ------- 
  Income before income taxes                                  -           1,320           402            -           1,722 
 Provision for income taxes                                   -              60             -            -              60 
                                                         ------          ------        ------      -------         ------- 
  Income before equity in income of 
   consolidated subsidiaries                                  -           1,260           402            -           1,662 
                                                         ------          ------        ------      -------         ------- 
 Equity in income of consolidated subsidiaries            1,662             402             -       (2,064)              - 
                                                         ------          ------        ------      -------         ------- 
  Net income                                             $1,662          $1,662        $  402      $(2,064)        $ 1,662 
                                                         ------          ------        ------      -------         ------- 
                                                         ------          ------        ------      -------         ------- 
</TABLE>

                                      12

<PAGE>

                   INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                          
              SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME
                    FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
                                     (UNAUDITED)

<TABLE>
<CAPTION>
                                                          PARENT
                                                         COMPANY       GUARANTOR   NON-GUARANTOR 
                                                           ONLY      SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS  CONSOLIDATED
                                                         -------     ------------  -------------   ------------  ------------
<S>                                                      <C>         <C>           <C>             <C>           <C>
 (Amounts in thousands)
 Revenues                                                $    -         $23,882       $3,772         $     -        $27,654 
 Costs of operations                                          -          19,218        3,025               -         22,243 
                                                         ------          ------        ------        -------        ------- 
  Gross profit                                                -           4,664          747               -          5,411 
 Corporate operating expenses                                 -           2,358            -               -          2,358 
                                                         ------          ------        ------        -------        ------- 
  Income from company operations                              -           2,306          747               -          3,053 
 Equity in earnings of unconsolidated partnerships            -             170            -               -            170 
                                                         ------          ------        ------        -------        ------- 
  Operating income                                            -           2,476          747               -          3,223 
 Interest expense, net                                        -           1,605           83               -          1,688 
                                                         ------          ------        ------        -------        ------- 
  Income before income taxes                                  -             871          664               -          1,535 
 Provision for income taxes                                   -             431            -               -            431 
                                                         ------          ------        ------        -------        ------- 
  Income before equity in income of 
   consolidated subsidiaries                                  -             440          664               -          1,104 
 Equity in income of consolidated subsidiaries            1,104             664            -          (1,768)             - 
                                                         ------          ------        ------        -------        ------- 
  Net income                                             $1,104          $1,104        $ 664         $(1,768)       $ 1,104 
                                                         ------          ------        ------        -------        ------- 
                                                         ------          ------        ------        -------        ------- 
</TABLE>
                                      13


<PAGE>

      
                   INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                          
            SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                    FOR THE THREE MONTHS ENDED SEPTEMBER 30, 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                                             $1,662         $ 1,662        $  402         $(2,064)     $1,662 
  Adjustments to reconcile net income to net 
   cash provided by operating activities:
  Total depreciation and amortization                        -            5,232           735               -       5,967 
  Amortization of deferred gain on debt 
   restructure                                               -              (25)            -               -         (25)
  Equity in income of consolidated 
   subsidiaries                                         (1,662)            (402)            -           2,064           - 
  Cash provided by (used in) changes in 
   operating assets and liabilities:
  Trade accounts receivable, net                             -           (1,146)         (642)              -      (1,788)
  Intercompany receivables, net                          1,875           (8,586)        6,711               -           - 
  Other current assets                                       -             (409)           57               -        (352)
  Accounts payable and other current 
   liabilities                                               -           (4,537)         (137)              -      (4,674)
                                                       -------         --------       -------         -------     -------
    Net cash provided by (used in) operating 
     activities                                          1,875           (8,211)        7,126               -         790 
                                                       -------         --------       -------         -------     -------

INVESTING ACTIVITIES:
  Additions to property and equipment                        -           (8,949)       (5,987)              -     (14,936)
  Other                                                      -             (724)         (149)              -        (873)
                                                       -------         --------       -------         -------     -------
    Net cash used in investing activities                    -           (9,673)       (6,136)              -     (15,809)
                                                       -------         --------       -------         -------     -------
FINANCING ACTIVITIES:
  Payments of debt and capital lease 
   obligations                                          (1,875)            (717)          (62)              -      (2,654)
  Proceeds from issuance of debt                             -            2,997             -               -       2,997 
  Other                                                      -                -          (230)              -        (230)
                                                       -------         --------       -------         -------     -------
    Net cash provided by (used in) financing 
     activities                                         (1,875)           2,280          (292)              -         113 
                                                       -------         --------       -------         -------     -------

INCREASE IN CASH AND CASH EQUIVALENTS                        -          (15,604)          698               -     (14,906)

CASH AND CASH EQUIVALENTS:
  Cash, beginning of period                                  -           43,250         1,490               -      44,740 
                                                       -------         --------       -------         -------     -------
  Cash, end of period                                  $     -         $ 27,646       $ 2,188         $     -     $29,834 
                                                       -------         --------       -------         -------     -------
                                                       -------         --------       -------         -------     -------
</TABLE>


                                      14

<PAGE>

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

        SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                 FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
                                 (Unaudited)

<TABLE>
<CAPTION>
                                                             PARENT 
                                                             COMPANY     GUARANTOR     NON-GUARANTOR 
                                                              ONLY      SUBSIDIARIES    SUBSIDIARIES    ELIMINATIONS  CONSOLIDATED
                                                            -------     ------------   -------------    ------------  ------------
(Amounts in thousands)
OPERATING ACTIVITIES:
  <S>                                                       <C>           <C>               <C>           <C>            <C>    
  Net income                                                $ 1,104       $ 1,104           $ 664         $ (1,768)      $ 1,104
  Adjustments to reconcile net income to net cash
    provided by operating activities:
    Total depreciation and amortization                           -         2,924             285                -         3,209
    Amortization of deferred gain on debt restructure             -          (213)              -                -          (213)
    Equity in income of consolidated subsidiaries            (1,104)         (664)              -            1,768             -
  Cash provided by (used in) changes in operating assets 
   and liabilities:
  Trade accounts receivables, net                                 -        (2,366)           (126)               -        (2,492)
  Intercompany receivables, net                                   -          (323)            323                -             -
  Other current assets                                            -        (1,471)             (3)               -        (1,474)
  Accounts payable and other current liabilities                  -         3,033            (127)               -         2,906
                                                            -------      --------         -------           ------       -------
    Net cash provided by operating activities                     -         2,024           1,016                -         3,040
                                                            -------      --------         -------           ------       -------

INVESTING ACTIVITIES:
  Additions to property and equipment                             -        (7,095)           (244)               -        (7,339)
  Other                                                           -          (106)              -                -          (106)
                                                            -------      --------         -------           ------       -------
    Net cash used in investing activities                         -        (7,201)           (244)               -        (7,445)
                                                            -------      --------         -------           ------       -------

FINANCING ACTIVITIES:
  Payments of debt and capital lease obligations                  -        (3,276)            (58)               -        (3,334)
  Proceeds from issuance of debt                                  -         9,045               -                -         9,045
  Other                                                           -             -              86                -            86
                                                            -------      --------         -------           ------       -------
    Net cash provided by (used in) financing activities           -         5,769              28                -         5,797
                                                            -------      --------         -------           ------       -------

INCREASE  IN CASH AND CASH EQUIVALENTS                            -           592             800                -         1,392

CASH AND CASH EQUIVALENTS:
  Cash, beginning of period                                       -         5,845           1,039                -         6,884
                                                            -------      --------         -------           ------       -------
  Cash, end of period                                       $     -      $  6,437         $ 1,839           $    -       $ 8,276
                                                            -------      --------         -------           ------       -------
                                                            -------      --------         -------           ------       -------
</TABLE>

                                       15

<PAGE>

ITEM 2.  MANAGEMENT'S 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.

                                       16

<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 and major restructurings within the 
health care industry. This adverse effect on revenues and cash flow is 
expected to continue, especially in the mobile diagnostic imaging business.  
    
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.  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 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

                                       17

<PAGE>


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.  There were no borrowings under either 
facility at September 30, 1998.

Net cash provided by operating activities was approximately $0.8 million for 
the three months ended September 30, 1998. Cash provided by operating 
activities resulted primarily from net income before depreciation and 
amortization (approximately $7.6 million), offset by an increase in accounts 
receivable (approximately $1.8 million) and a decrease in accounts payable 
and other accrued expenses (approximately $4.7 million). 

Net cash used in investing activities was approximately $15.8 million for the 
three months ended September 30, 1998. Cash used in investing activities 
resulted primarily from the Company purchasing new diagnostic imaging 
equipment or upgrading its existing diagnostic imaging equipment 
(approximately $14.9 million).

The Company generated approximately $0.1 million from financing activities, 
primarily from additional long-term debt incurred in purchasing new 
diagnostic imaging equipment, offset by amortization of long-term debt.

The Company has committed to purchase or lease, at an aggregate cost of 
approximately $10 million, five MRI systems for delivery during the year 
ending June 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 $24 million, 
including siting costs, 20 Open MRI systems for delivery and installation. As 
of September 30, 1998, the Company had installed nine of such Open MRI 
systems: two at existing Centers, three in newly opened Fixed Facilities, and 
four 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.

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.

                                       18

<PAGE>


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 75% of its internal 
information technology systems. The Company estimates that it will complete 
the assessment of its remaining internal information technology systems by 
December 31, 1998 and will establish a timetable for the renovation phase of 
the remaining technology systems.   The Company has already completed the 
renovation of approximately 50% 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 has recently begun to assess the potential for Year 2000 problems 
with the information systems of its customers and vendors.  The Company is 
preparing questionnaires that it expects to send to its customers, vendors 
and other third parties with which the Company has a material relationship by 
December 31, 1998.  The Company expects to complete the assessment with 
respect to such parties by March 31, 1999 subject to their ability to provide 
requested information by February 28, 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 during the balance of 1998 and 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 workarounds 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. The Company expects to receive 
information from such other vendors by December 31, 1998 with 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.  The Company expects to complete its assessment by March 31, 1999 
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 and expects 
to complete the assessment by December 31, 1998. 

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<PAGE>


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 will range from approximately 
$500,000 to $1,500,000, of which $30,000 has been incurred. The major 
components of these costs are:  consultants, additional personnel costs, 
programming, new software and hardware, software upgrades and travel 
expenses.   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.

RESULTS OF OPERATIONS 

THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO SEPTEMBER 30, 1997

REVENUES:  Revenues increased approximately 36.8% from approximately $27.7 
million for the three months ended September 30, 1997, to approximately $37.9 
million for the three months ended September 30, 1998.  This increase was due 
primarily to the acquisitions discussed above (approximately $8.5 million) 
and an increase in contract services and patient services (approximately $2.8 
million) at existing facilities, partially offset by the termination of a 
Fixed Facility and a Gamma Knife Center in 1997 (approximately $1.1 million).

Contract services revenues increased approximately 50.7% from approximately 
$13.4 million for the three months ended September 30, 1997, to approximately 
$20.2 million for the three months ended September 30, 1998.  This increase 
was due primarily to the acquisitions discussed above (approximately $5.2 
million) and an increase at existing facilities (approximately $1.6 million). 
The increase at existing facilities was due to higher utilization 
(approximately 17%) offset by a decline in reimbursement from customers, 
primarily hospitals (approximately 4%), as a result of increased price 
competition.

                                       20

<PAGE>


Contract services revenues, primarily earned by the Company's Mobile 
Facilities, represented approximately 53% of total revenues for the three 
months ended September 30, 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 26.5% from approximately 
$13.6 million for the three months ended September 30, 1997, to approximately 
$17.2 million for the three months ended September 30, 1998.  This increase 
was due primarily to the acquisitions discussed above (approximately $3.2 
million) and an increase in revenues at existing facilities (approximately 
$1.5 million). The increase at existing facilities was due to higher 
utilization (approximately 11%), partially offset by declines in 
reimbursement from third party payors (approximately 4%) and reduced revenues 
from the termination of a Fixed Facility and a Gamma Knife Center in 1997 
(approximately $1.1 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, 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 health 
care providers representing a variety of specialties.  The Company's 
eligibility to provide service in response to a referral is often dependent 
on the existence of a contractual arrangement with the referred patient's 
insurance carrier (primarily if the insurance is provided by a managed care 
organization).  Managed care contracting has become very competitive and 
reimbursement schedules are 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 38.7% from 
approximately $22.2 million for the three months ended September 30, 1997, to 
approximately $30.8 million for the three months ended September 30, 1998.  
This increase was due primarily to an increase in costs due to the 
acquisitions discussed above (approximately $6.9 million) and an increase in 
costs at existing facilities (approximately $2.5 million), offset by the 
elimination of costs at the two terminated facilities discussed above 
(approximately $0.8 million). 

Costs of operations, as a percent of total revenues, increased from 
approximately 80.4% for the three months ended September 30, 1997, to 
approximately 81.2% for the three months ended September 30, 1998.  The 
increase in percent is due primarily to higher salaries and benefits, 
occupancy and higher amortization costs associated with the Company's 
acquisition activities, offset by reduced costs in equipment maintenance, 
equipment lease and depreciation costs.

CORPORATE OPERATING EXPENSES:  Corporate operating expenses decreased 
approximately 12.5%, from approximately $2.4 million for the three months 
ended September 30, 1997, to approximately $2.1 million for the three months 
ended September 30, 1998.  This decrease was due primarily to reduced 
consulting, legal and travel costs associated with the Company's acquisition 
activities.  As noted above, the Company anticipates incurring 

                                       21

<PAGE>

approximately $500,000 to $1,500,000 in connection with its Year 2000 Issue, 
approximately $30,000 of which was incurred through September 30, 1998.

INTEREST EXPENSE, NET:  Interest expense, net increased approximately 105.9% 
from approximately $1.7 million for the three months ended September 30, 
1997, to approximately $3.5 million for the three months ended September 30, 
1998. This increase was due primarily to additional debt related to (i) the 
acquisitions discussed above, (ii) additional debt related to the issuance of 
Notes discussed above, and (iii) additional debt related to 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 three months ended September 30, 1997, to 
approximately $0.06 million for the three months ended September 30, 1998.  
The decrease in provision is due to anticipated benefits from the utilization 
of certain operating loss carryforwards in 1998.

INCOME PER COMMON SHARE:  On a diluted basis, net income per common share was 
$0.18 for the three months ended September 30, 1998, compared to net income 
per common share of $0.20 for the same period in 1997. The decrease in net 
income per common share is the result of (i) increased interest expense, and 
(ii) the additional shares outstanding as a result of the Recapitalization 
discussed above, offset by (i) increased gross profit, (ii) an increase in 
earnings from unconsolidated partnerships, and (iii) decreased corporate 
operating expenses. 

NEW PRONOUNCEMENTS

In fiscal 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 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 September 30, 1998, InSight had outstanding an interest rate swap, 
converting the majority of its $50 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.

                                       22

<PAGE>


                           PART II  -  OTHER INFORMATION
    
ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS
    
          (c)  The following is a list of securities sold by the Company 
               during the period covered by this report on Form 10-Q which, 
               pursuant to the exemption provided under Section 4(2) of the 
               Securities Act of 1933, as amended ("Securities Act"), were 
               not registered under the Securities Act:

               1.  On September 8, 1998, the Company issued to Joseph Bean 
                   Associates, ("Purchaser") pursuant to a Restricted Stock 
                   Purchase Agreement dated September 8, 1998 and in 
                   consideration of the termination of a Sublease Agreement 
                   between the Company and Purchaser, 2,385 shares of the 
                   Company's common stock.
             
    
    
ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K
    
          (a)  EXHIBITS.  
              
               There are none.
    
          (b)  REPORTS ON FORM 8-K.

               The Company filed a Current Report on Form 8-K with the SEC on 
               July 2, 1998, under Item 5 thereof, reporting the completion 
               of the issuance of the Notes; an Amendment No. 1 to Current 
               Report on Form 8-K with the SEC on July 21, 1998, under Item 7 
               thereof, filing the financial statements for Signal Medical 
               Services, Inc. for the years ended December 31, 1997 and 1996, 
               and the three months ended March 31, 1998 and 1997; and an 
               Amendment No. 2 to Current Report on Form 8-K with the SEC on 
               August 12, 1998, under Item 7 thereof, filing the financial 
               statements for Mobile Imaging Consortium for the three months 
               ended March 31, 1997 and 1996.











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<PAGE>






                                   SIGNATURES

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

                                       INSIGHT HEALTH SERVICES CORP.
                                  


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


                                       /s/ Thomas V. Croal         
                                       --------------------------------------
                                       Thomas V. Croal
                                       Senior Executive Vice President,
                                       Chief Operating Officer and 
                                       Chief Financial Officer


                                       November 13, 1998







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