<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 March 31, 1998

                                          OR

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

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

                            Commission file number 0-28622

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

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

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

                                    (949) 476-0733
                 ---------------------------------------------------
                 (Registrant's telephone number including area code)

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
                         Yes        X       No
                            ---------------    ---------------

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:  2,808,923 shares of Common
Stock as April 30, 1998.

The number of pages in this Form 10-Q is 21.

<PAGE>

                    INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES

                                        INDEX

<TABLE>
<CAPTION>
                                                                     PAGE NUMBER
                                                                     -----------

PART I.    FINANCIAL INFORMATION

<S>                                                                  <C>
   ITEM 1.  FINANCIAL STATEMENTS

            Condensed Consolidated Balance Sheets as of
               March 31, 1998 (unaudited) and June 30, 1997                3-4

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

            Condensed Consolidated Statements of Operations (unaudited)
               for the three months ended March 31, 1998 and 1997            6

            Condensed Consolidated Statements of Cash Flows (unaudited)
               for the nine months ended March 31, 1998 and 1997             7

            Notes to Condensed Consolidated Financial Statements          8-12

   ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
            CONDITION AND RESULTS OF OPERATIONS                          13-19


PART II.   OTHER INFORMATION

   ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS                       19

   ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS             19

   ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K                                19

SIGNATURES                                                                  20
</TABLE>


                                          2
<PAGE>

                           PART I. - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>
                                                                  March 31,       June 30,
                                                                    1998            1997
                                                                 -----------    -----------
                               ASSETS                            (Unaudited)
<S>                                                              <C>            <C>
CURRENT ASSETS:
   Cash and cash equivalents                                      $   9,650      $   7,135
   Trade accounts receivable, net                                    21,674         15,645
   Other receivables, net                                               330            358
   Other current assets                                               2,149          1,554
                                                                  ---------      ---------
      Total current assets                                           33,803         24,692

PROPERTY AND EQUIPMENT, net of accumulated depreciation
   and amortization of $26,989 and $16,203, respectively             46,745         34,488

INVESTMENT IN PARTNERSHIPS                                              495            402
OTHER ASSETS                                                          2,471          5,468
INTANGIBLE ASSETS, net                                               43,273         33,272
                                                                  ---------      ---------
                                                                  $ 126,787      $  98,322
                                                                  ---------      ---------
                                                                  ---------      ---------
</TABLE>


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





                                          3
<PAGE>

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

<TABLE>
<CAPTION>
                                                                       March 31,       June 30,
                                                                         1998           1997
                                                                      -----------    -----------
                                                                      (Unaudited)
            LIABILITIES AND STOCKHOLDER EQUITY
<S>                                                                   <C>            <C>
CURRENT LIABILITIES:
  Current portion of equipment and other notes                         $   5,706      $  15,462
  Accounts payable and other accrued expenses                             14,905         14,970
                                                                       ---------      ---------
     Total current liabilities                                            20,611         30,432
                                                                       ---------      ---------

LONG-TERM LIABILITIES:
  Equipment and other notes, less current portion                         67,781         57,733
  Other long-term liabilities                                                680          1,472
                                                                       ---------      ---------
     Total long-term liabilities                                          68,461         59,205
                                                                       ---------      ---------

MINORITY INTEREST                                                          1,871          2,000
                                                                       ---------      ---------

STOCKHOLDERS' EQUITY:
  Preferred stock, $.001 par value, 3,500,000 shares authorized:
     Convertible Series A preferred stock,
       2,501,760 shares outstanding at June 30, 1997                           -          6,750
     Convertible Series B preferred stock,
       25,000 shares outstanding as March 31, 1998                        23,932              -
     Convertible Series C preferred stock,
       27,953 shares outstanding at March 31, 1998                        13,173              -
  Common stock, $.001 par value, 25,000,000 shares authorized:
     2,799,463 and 2,714,725 shares outstanding at March 31, 1998
     and June 30, 1997, respectively                                           3              3
  Additional paid-in capital                                              23,366         23,100
  Accumulated deficit                                                    (24,621)       (23,168)
                                                                       ---------      ---------
     Total stockholders' equity                                           35,844          6,685
                                                                       ---------      ---------

                                                                       $ 126,787      $  98,322
                                                                       ---------      ---------
                                                                       ---------      ---------
</TABLE>


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


                                          4
<PAGE>

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

<TABLE>
<CAPTION>
                                                                          Nine Months Ended
                                                                              March 31,
                                                                      --------------------------
                                                                         1998           1997
                                                                      -----------    -----------
<S>                                                                   <C>            <C>
REVENUES:
  Contract services                                                    $  39,186      $  35,186
  Patient services                                                        43,855         31,153
  Other                                                                    2,632          1,790
                                                                       ---------      ---------
    Total revenues                                                        85,673         68,129
                                                                       ---------      ---------

COSTS OF OPERATIONS:
  Costs of services                                                       44,513         37,386
  Provision of doubtful accounts                                           1,525          1,116
  Equipment leases                                                        12,983         13,822
  Depreciation and amortization                                           10,670          7,203
                                                                       ---------      ---------
    Total costs of operations                                             69,691         59,527
                                                                       ---------      ---------
GROSS PROFIT                                                              15,982          8,602

CORPORATE OPERATING EXPENSES                                               6,510          5,343
PROVISION FOR SUPPLEMENTAL SERVICE FEE TERMINATION                         6,309              -
                                                                       ---------      ---------
INCOME FROM COMPANY OPERATIONS                                             3,163          3,259

EQUITY IN EARNINGS OF UNCONSOLIDATED PARTNERSHIPS                            480            364
                                                                       ---------      ---------
OPERATING INCOME                                                           3,643          3,623

INTEREST EXPENSE, net                                                      4,665          2,741
                                                                       ---------      ---------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES                           (1,022)           882

PROVISION FOR INCOME TAXES                                                   431            134
                                                                       ---------      ---------
NET INCOME (LOSS)                                                      $  (1,453)     $     748
                                                                       ---------      ---------
                                                                       ---------      ---------

INCOME (LOSS) PER COMMON AND PREFERRED SHARE:
  Basic                                                                $   (0.19)     $    0.14
                                                                       ---------      ---------
                                                                       ---------      ---------
  Diluted                                                              $   (0.19)     $    0.14
                                                                       ---------      ---------
                                                                       ---------      ---------
WEIGHTED AVERAGE NUMBER OF COMMON AND PREFERRED SHARES OUTSTANDING:
  Basic                                                                7,589,549      5,213,882
                                                                       ---------      ---------
                                                                       ---------      ---------
  Diluted                                                              7,589,549      5,444,308
                                                                       ---------      ---------
                                                                       ---------      ---------
</TABLE>


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


                                          5
<PAGE>

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

<TABLE>
<CAPTION>
                                                                          Three Months Ended
                                                                              March 31,
                                                                      --------------------------
                                                                         1998           1997
                                                                      -----------    -----------
<S>                                                                   <C>            <C>
REVENUES:
  Contract services                                                    $  12,846      $  11,596
  Patient services                                                        15,056         10,695
  Other                                                                      657            742
                                                                       ---------      ---------
     Total revenues                                                       28,559         23,033
                                                                       ---------      ---------

COSTS OF OPERATIONS:
  Costs of services                                                       14,745         12,647
  Provision for doubtful accounts                                            480            258
  Equipment leases                                                         3,981          4,732
  Depreciation and amortization                                            3,905          2,471
                                                                       ---------      ---------
     Total costs of operations                                            23,111         20,108
                                                                       ---------      ---------
GROSS PROFIT                                                               5,448          2,925

CORPORATE OPERATING EXPENSES                                               2,254          1,688
                                                                       ---------      ---------
INCOME FROM COMPANY OPERATIONS                                             3,194          1,237

EQUITY IN EARNINGS OF UNCONSOLIDATED PARTNERSHIPS                            156            120
                                                                       ---------      ---------
OPERATING INCOME                                                           3,350          1,357

INTEREST EXPENSE, net                                                      1,420            947
                                                                       ---------      ---------
INCOME BEFORE PROVISION FOR INCOME TAXES                                   1,930            410

PROVISION FOR INCOME TAXES                                                     -             30
                                                                       ---------      ---------
NET INCOME                                                             $   1,930      $     380
                                                                       ---------      ---------
                                                                       ---------      ---------

INCOME (LOSS) PER COMMON AND PREFERRED SHARE:
  Basic                                                                $    0.21      $    0.07
                                                                       ---------      ---------
                                                                       ---------      ---------
  Diluted                                                              $    0.20      $    0.07
                                                                       ---------      ---------
                                                                       ---------      ---------
WEIGHTED AVERAGE NUMBER OF COMMON AND PREFERRED SHARES OUTSTANDING:
  Basic                                                                9,075,693      5,216,485
                                                                       ---------      ---------
                                                                       ---------      ---------
  Diluted                                                              9,493,304      5,438,545
                                                                       ---------      ---------
                                                                       ---------      ---------
</TABLE>


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




                                          6
<PAGE>

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

<TABLE>
<CAPTION>
                                                                          Nine Months Ended
                                                                              March 31,
                                                                      --------------------------
                                                                         1998           1997
                                                                      -----------    -----------
<S>                                                                   <C>            <C>
OPERATING ACTIVITIES:
 Net income (loss)                                                     $  (1,453)     $     748
 Adjustments to reconcile net income (loss) to net cash
   provided by operating activities:
   Total depreciation and amortization                                    10,786          7,360
   Amortization of deferred gain on debt restructure                      (1,355)          (797)
   Provision for supplemental service fee termination                      6,309              -
 Cash provided by (used in) changes in operating working capital:
   Receivables, net                                                       (4,720)          (466)
   Other current assets                                                     (695)          (490)
   Accounts payable and other current liabilities                          1,189            281
                                                                       ---------      ---------
       Net cash provided by operating activities                          10,061          6,636
                                                                       ---------      ---------

INVESTING ACTIVITIES:
 Additions to property and equipment                                     (15,233)        (2,407)
 Acquisitions of imaging centers                                         (12,890)        (2,766)
 Other                                                                      (988)           351
                                                                       ---------      ---------
       Net cash used in investing activities                             (29,111)        (4,822)
                                                                       ---------      ---------

FINANCING ACTIVITIES:
 Proceeds from issuance of preferred stock                                23,346              -
 Stock options and warrants exercised                                        266              -
 Payment of loan fees                                                     (2,210)             -
 Payments on debt and capital lease obligations                          (82,985)        (7,727)
 Proceeds from issuance of debt                                           83,277          5,139
 Other                                                                      (129)           414
                                                                       ---------      ---------
       Net cash provided by (used in) financing activities                21,565         (2,174)
                                                                       ---------      ---------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                           2,515           (360)

CASH AND CASH EQUIVALENTS:
 Beginning of period                                                       7,135          6,864
                                                                       ---------      ---------
 End of period                                                         $   9,650      $   6,504
                                                                       ---------      ---------
                                                                       ---------      ---------

SUPPLEMENTAL INFORMATION:
 Interest paid                                                         $   4,476      $   1,969
                                                                       ---------      ---------
                                                                       ---------      ---------
</TABLE>


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



                                          7
<PAGE>

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



1.  MERGER AND RECAPITALIZATION

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

Concurrent with the consummation of the Merger, AHS and MHC completed a debt 
restructuring with General Electric Company (GE), the primary creditor of MHC 
and AHS.  This restructuring resulted in the reduction of certain debt and 
operating lease obligations and cancellation of certain stock warrants of MHC 
and AHS in exchange for, among other things, the issuance to GE, immediately 
prior to the consummation of the Merger, of Maxum Series B Preferred Stock 
and AHS Series C Preferred Stock.  At the effective time of the Merger, Maxum 
Series B Preferred Stock and AHS Series C Preferred Stock issued to GE was 
converted into the right to receive such number of shares of InSight Series A 
Preferred Stock that was convertible into such number of shares of Common 
Stock representing approximately 48% of Common Stock outstanding at the 
effective time of the Merger (after giving effect to such conversion).  

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

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

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

On October 14, 1997, InSight consummated a recapitalization (Recapitalization)
pursuant to which (a) certain investors affiliated with TC Group, LLC and its
affiliates (collectively, Carlyle), a private merchant bank headquartered in
Washington, D.C., made a cash investment of $25 million in the Company and
received therefor (i) 25,000 shares of newly issued Convertible Preferred Stock,
Series B of the Company, par value $0.001 per share (Series B Preferred Stock),
initially convertible, at the option of the holders thereof, in the aggregate
into 2,985,075 shares of Common Stock, and (ii) warrants (Carlyle Warrants) to
purchase up to 250,000 shares of Common Stock


                                          8
<PAGE>

at an exercise price of $10.00 per share; (b) GE (i) surrendered its rights 
under the amended equipment service agreement to receive supplemental service 
fee payments equal to 14% of pretax income in exchange for (i) the issuance 
of 7,000 shares of newly issued Convertible Preferred Stock, Series C of the 
Company, par value $0.001 per share (Series C Preferred Stock), initially 
convertible, at the option of GE, in the aggregate into 835,821 shares of 
Common Stock, (ii) warrants (GE Warrants) to purchase up to 250,000 shares of 
Common Stock at an exercise price of $10.00 per share, and (iii) exchanged 
all of its InSight 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 million tranche with increasing 
amortization over a five-year period and a $30 million tranche with 
increasing amortization over a seven-year period, principally repayable in 
years 6 and 7, (ii) a $25 million revolving working capital facility with a 
five-year maturity, and (iii) a $50 million acquisition facility.  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 at an initial conversion price of $8.375 per share.

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

Pursuant to the terms of the Recapitalization, the number of directors
comprising the Company's Board of Directors (the Board) is currently fixed at
nine.  Six directors (Common Stock Directors) are to be elected by the common
stockholders, one of whom (Joint Director) is to be proposed by Carlyle and GE
and approved by a majority of the Board in its sole discretion.  Of the three
remaining directors (Preferred Stock Directors), two are to be elected by the
holders of the Series B Preferred Stock and one is to be elected by the holders
of the Series C Preferred Stock, in each case acting by written consent and
without a meeting of the common stockholders.  As long as Carlyle and certain
affiliates thereof own an aggregate of at least 50% of the Series B Preferred
Stock, originally purchased thereby, the holders of the Series B Preferred Stock
will have the right to elect two Preferred Stock Directors and as long as
Carlyle and certain affiliates thereof own an aggregate of at least 25% of such
stock, such holders will have the right to elect one Preferred Stock Director. 
As long as GE and its affiliates own an aggregate of at least 25% of the Series
C Preferred Stock, originally purchased thereby, GE will have the right to elect
one Preferred Stock Director.  If any such ownership percentage falls below the
applicable threshold, the Preferred Stock Director(s) formerly entitled to be
elected by Carlyle or GE, as the case may be, will be initially appointed by the
Board, and 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 of the Company, par value $0.001 per share (Series D
Preferred Stock).  The Series D Preferred Stock allows the number of directors
to be automatically increased to a number which would permit each of Carlyle and
GE, by filling the newly created vacancies, to


                                          9
<PAGE>

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.  

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

2.  INTERIM FINANCIAL STATEMENTS

The unaudited condensed consolidated financial statements of the Company 
included herein have been prepared in accordance with generally accepted 
accounting principles for interim financial statements and do not include all 
of the information and disclosures required by generally accepted accounting 
principles for annual financial statements.  These financial statements 
should be read in conjunction with the consolidated financial statements and 
related footnotes included as part of the Company's Annual Report on Form 
10-K for the period ended June 30, 1997 filed with the Securities and 
Exchange Commission (SEC) on October 14, 1997.  In the opinion of management, 
all adjustments (consisting of normal recurring accruals) necessary for fair 
presentation of results for the period have been included.  The results of 
operations for the nine months ended March 31, 1998, are not necessarily 
indicative of the results to be achieved for the full fiscal year.

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

3.  INVESTMENTS IN PARTNERSHIPS

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

<TABLE>
<CAPTION>
                                   Nine Months Ended       Three Months Ended
                                       March 31,                March 31,
                                ----------------------   -----------------------
                                   1998        1997         1998        1997
                                ----------  ----------   ----------  -----------
                                      (unaudited)             (unaudited)
          <S>                   <C>         <C>          <C>         <C>
          Net revenues          $   3,685   $   3,211    $   1,205   $   1,059
          Expenses                  2,567       2,376          847         784
                                ---------   ---------    ---------   ---------
          Net income            $   1,118   $     835    $     358   $     275
                                ---------   ---------    ---------   ---------
                                ---------   ---------    ---------   ---------

          Equity in earnings
           of partnerships      $     480   $     364    $     156   $     120
                                ---------   ---------    ---------   ---------
                                ---------   ---------    ---------   ---------
</TABLE>








                                          10
<PAGE>

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

<TABLE>
<CAPTION>
                                              March 31,    June 30,
                                                1998        1997
                                             -----------  ----------
                                             (Unaudited)
<S>                                           <C>         <C>
Condensed Combined Balance Sheet Data:
  Current assets                             $  3,197     $  2,596
  Total assets                                  4,494        4,288
  Current liabilities                           1,149          727
  Long-term debt                                  240          424
  Minority interest equity                      1,699        1,702
</TABLE>

<TABLE>
<CAPTION>
                                                 Nine Months Ended             Three Months Ended
                                                      March 31,                    March 31,
                                              ------------------------      ------------------------
                                                1998            1997           1998           1997
                                              ---------      ---------      ---------      ---------
                                                     (unaudited)                  (unaudited)
<S>                                           <C>            <C>            <C>            <C>
Condensed Combined Statement
 of Operations Data:
  Total revenues                              $   4,988      $   5,310      $   1,340      $   1,823
  Costs of operations                             3,614          3,825          1,040          1,269
  Provision for center profit distribution          700            771            158            290
                                              ---------      ---------      ---------      ---------
  Gross profit                                $     674      $     714      $     142      $     264
                                              ---------      ---------      ---------      ---------
                                              ---------      ---------      ---------      ---------
</TABLE>


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


4.   INCOME (LOSS) PER SHARE

In fiscal 1998, the Company adopted Statement of Financial Accounting Standards
No. 128 (SFAS No. 128), Earnings Per Share (EPS).  SFAS No. 128 replaces primary
EPS and fully diluted EPS with basic EPS and diluted EPS.  Basic EPS is computed
by dividing reported earnings by weighted average shares outstanding.  Diluted
EPS is computed in the same way as the previously used fully diluted EPS, except
that the calculation now uses the average share price for the reporting period
to compute dilution from options and warrants under the treasury stock method.  

The number of shares used in computing EPS is equal to the weighted average 
number of common and preferred shares outstanding during the respective 
period. Since the Preferred Stock has no stated dividend rate and 
participates in any cash dividends paid with respect to the Common Stock, the 
convertible amounts are included in the computation of basic EPS. Dilution 
relating to options and warrants are not included for the nine months ended 
March 31, 1998 due to their antidilutive effect.  There were no adjustments 
to net income (loss) (the numerator) for purposes of computing EPS.

                                          11
<PAGE>

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


<TABLE>
<CAPTION>

                                                 Nine Months Ended            Three Months Ended
                                                     March 31,                     March 31,
                                             -------------------------     -------------------------
                                                1998           1997           1998           1997
                                             -----------    -----------    -----------    -----------
                                                    (unaudited)                   (unaudited)
<S>                                          <C>            <C>            <C>            <C>
Average common stock outstanding              2,731,105      2,712,122      2,753,037      2,714,725
Effect of preferred stock                     4,858,444      2,501,760      6,322,656      2,501,760
                                             ----------     ----------     ----------     ----------
Denominator for basic EPS                     7,589,549      5,213,882      9,075,693      5,216,485
Dilutive effect of stock options
   and warrants                                       -        230,426        417,611        222,060
                                             ----------     ----------     ----------     ----------
                                              7,589,549      5,444,308      9,493,304      5,438,545
                                             ----------     ----------     ----------     ----------
                                             ----------     ----------     ----------     ----------
</TABLE>












                                          12
<PAGE>

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

CENTERS IN OPERATION

InSight provides diagnostic imaging, treatment and related management services
in 25 states throughout the United States. As of April 1, 1998, InSight's
services were provided through a network of 36 mobile magnetic resonance imaging
("MRI") facilities ("Mobile Facilities"), 28 fixed-site MRI facilities ("Fixed
Facilities"), 13 multi-modality imaging centers ("Centers"), one Leksell
Stereotactic Gamma Unit treatment center ("Gamma Knife"), and one radiation
oncology center.  An additional radiation oncology center is operated by the
Company as part of one of its Centers.  The Company's operations are located
throughout the United States, with a substantial presence in California, Texas,
New England, the Carolinas and the Midwest (Illinois, Indiana and Ohio). 

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

ACQUISITIONS

InSight believes a consolidation in the diagnostic imaging industry is occurring
and is necessary in order to provide surviving companies the opportunity to
achieve operating and administrative efficiencies.  The business strategy of
InSight is primarily focused on the following components:  (i) expanding its
existing regional networks through geographically disciplined acquisitions; (ii)
pursuing opportunities within its existing regional networks to optimize
utilization and increase overall utilization; (iii) broadening its range of
services to managed care organizations; and (iv) introducing new products,
including development of a network of open MRI systems within its regional
networks and development of a radiology co-source product where InSight will
provide management services for radiology departments within hospitals and
multi-specialty physician groups.  InSight believes that long-term viability is
contingent upon its ability to successfully execute its business strategy.  

In fiscal 1997, InSight 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.

For the nine months ended March 31, 1998, InSight 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.  

On April 15, 1998, InSight signed a definitive agreement to purchase Signal
Medical Services, Inc. ("Signal") through the merger of Signal into a wholly
owned subsidiary of InSight. The transaction is subject to the satisfaction of
certain customary closing conditions, including the expiration of the waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.  The Bank
Financing will be used to finance the purchase price of approximately $46.0
million.

In addition, in fiscal 1998, InSight installed an open MRI Fixed Facility in 
Atlanta, Georgia.  This Fixed Facility was financed through GE.  Effective 
December 31, 1997, InSight 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.

                                          13
<PAGE>

RESULTS OF OPERATIONS

NINE MONTHS ENDED MARCH 31, 1998 COMPARED TO MARCH 31, 1997

REVENUES:  Revenues increased approximately 25.8% from approximately $68.1 
million for the nine months ended March 31, 1997, to approximately $85.7 
million for the nine months ended March 31, 1998.  This increase was due 
primarily to the acquisitions discussed above (approximately $13.0 million) 
and an increase in contract services, patient services and other revenues 
(approximately $4.6 million) at existing facilities.

Contract services revenues increased approximately 11.4% from approximately 
$35.2 million for the nine months ended March 31, 1997, to approximately 
$39.2 million for the nine months ended March 31, 1998.  This increase was 
due primarily to the acquisitions discussed above (approximately $1.4 
million) and an increase at existing facilities (approximately $2.6 million). 
The increase at existing facilities was due to higher utilization 
(approximately 6%) offset by nominal declines in reimbursement from 
customers, primarily hospitals.

Contract services revenues, primarily earned by its Mobile Facilities, 
represented approximately 46% of total revenues for the nine months ended 
March 31, 1998.  Each year approximately one-quarter to one-third of the 
contract services agreements are subject to renewal.  It is expected that 
some high volume customer accounts will elect not to renew their agreements 
and instead will purchase or lease their own diagnostic imaging equipment and 
some customers may choose an alternative services provider.  In the past 
where agreements have not been renewed, the Company has been able to obtain 
replacement customer accounts.  While some replacement accounts have 
initially been smaller than the lost accounts such replacement accounts 
revenues have generally increased over the term of the agreement.  The 
non-renewal of a single customer agreement would not have a material impact 
on InSight's contract services revenues; however, non-renewal of several 
agreements could have a material impact on contract services revenues.  

In addition, the Company's contract services revenues with regard to its Mobile
Facilities in certain markets depend in part on some customer accounts with high
volume.  If the future reimbursement levels of such customers were to decline or
cease or if such customers were to become financially insolvent and if such
agreements were not replaced with new accounts or with the expansion of services
on existing accounts, InSight's contract services revenues would be adversely
affected.   No single source accounts for more than 10% of InSight's revenues.

Patient services revenues increased approximately 40.8% from approximately 
$31.2 million for the nine months ended March 31, 1997, to approximately 
$43.9 million for the nine months ended March 31, 1998.  This increase was 
due primarily to the acquisitions discussed above (approximately $11.5 
million) and an increase in revenues at existing facilities (approximately 
$1.8 million). The increase at existing facilities was due to higher 
utilization (approximately 12%), partially offset by nominal declines in 
reimbursement from third party payors and reduced revenues from the 
termination of a Fixed Center and a Gamma Knife center in fiscal 1998 
(approximately $0.6 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 17.1% from
approximately $59.5 million for the nine months ended March 31, 1997, to
approximately $69.7 million for the nine months ended March 31, 1998.  This
increase was due primarily to an increase in costs due to the acquisitions
discussed above (approximately $8.9 million) and an increase in costs at
existing facilities (approximately $2.7 million), offset by


                                          14
<PAGE>

the elimination of costs at the two terminated facilities discussed above
(approximately $1.4 million).  The increase at existing facilities was due
primarily to increases in costs of services and depreciation and amortization.

Costs of services, including the provision for doubtful accounts, increased 
approximately 19.6% from approximately $38.5 million for the nine months 
ended March 31, 1997, to approximately $46.0 million for the nine months 
ended March 31, 1998.  This increase was due primarily to the acquisitions 
discussed above (approximately $6.7 million) and an increase in costs at 
existing facilities (approximately $1.8 million), offset by the elimination 
of costs at the two terminated facilities discussed above (approximately $1.0 
million).  The increase in costs at existing facilities was due primarily to 
(i) salaries and benefits, (ii) occupancy and (iii) marketing costs, offset 
by reduced costs in service supplies and equipment maintenance.

Equipment leases and depreciation and amortization increased approximately 
12.5% from approximately $21.0 million for the nine months ended March 31, 
1997, to approximately $23.7 million for the nine months ended March 31, 
1998.  This increase was due primarily to the acquisitions discussed above 
(approximately $2.2 million) and an increase in costs at existing facilities 
(approximately $0.8 million), offset by the elimination of costs at the two 
terminated facilities discussed above (approximately $0.3 million).  The 
increase at existing facilities was due primarily to the Company upgrading 
its existing diagnostic imaging equipment.

GROSS PROFIT:  Gross profit increased approximately 85.8% from approximately 
$8.6 million for the nine months ended March 31, 1997, to approximately $16.0 
million for the nine months ended March 31, 1998.  This increase was due to 
the acquisitions discussed above (approximately $4.1 million), an increase at 
existing facilities (approximately $2.5 million) and the elimination of 
losses at the two terminated facilities discussed above (approximately $0.8 
million).

CORPORATE OPERATING EXPENSES:  Corporate operating expenses increased 
approximately 21.8%, from approximately $5.3 million for the nine months 
ended March 31, 1997, to approximately $6.5 million for the nine months ended 
March 31, 1998.  This increase was due primarily to additional consulting, 
legal and travel costs associated with the Company's acquisition activities.

PROVISION FOR SUPPLEMENTAL SERVICE FEE TERMINATION:  As part of the 
Recapitalization and Bank Financing discussed below, the Company issued to GE 
7,000 shares of Series C Preferred Stock to terminate GE's rights to receive 
supplemental service fee payments equal to 14% of InSight's pre-tax income.  
The Series C Preferred Stock was valued at $7.0 million and the Company 
recorded a one-time provision of approximately $6.3 million, net of amounts 
previously accrued, to account for the Preferred Stock issuance.

INTEREST EXPENSE, NET:  Interest expense, net increased approximately 70.2% from
approximately $2.7 million for the nine months ended March 31, 1997, to
approximately $4.7 million for the nine months ended March 31, 1998.  This
increase was due primarily to additional debt related to the acquisitions
discussed above (approximately $2.4 million) and additional debt related to the
Company upgrading its existing diagnostic imaging equipment, offset by reduced
interest as a result of (i) the reduction in interest rate and the
extinguishment of approximately $23.0 million in long-term debt relating to the
Recapitalization and Bank Financing discussed below (approximately $1.2
million) and (ii) amortization of long-term debt. 

PROVISION FOR INCOME TAXES:  For the nine months ended March 31, 1998, the 
Company recorded a provision for income taxes of approximately $0.4 million.  
The provision was due primarily to increased income from the Company's 
operations and reflects the anticipated tax rate for the full fiscal year. 

INCOME (LOSS) PER COMMON SHARE:  On a diluted basis, net (loss) per common share
was ($0.19) for the nine months ended March 31, 1998, compared to net income per
common share of $0.14 for the same period in 1997.  Excluding the one-time
provision for supplemental service fee termination, net income per common share
on a diluted basis would have been $0.62.  The improvement in net income per
common share before provision for supplemental service fee termination is the
result of (i) increased gross profit and (ii) an increase in earnings from
unconsolidated partnerships, offset by (i) increased corporate operating
expenses, (ii) increased interest expense, and (iii) the provision for income
taxes.



                                          15
<PAGE>

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

REVENUES:  Revenues increased approximately 24.0% from approximately $23.0 
million for the three months ended March 31, 1997, to approximately $28.6 
million for the three months ended March 31, 1998. This increase was due 
primarily to the acquisitions discussed above (approximately $5.1 million) 
and an increase in contract services, patient services and other revenues 
(approximately $0.5 million) at existing facilities.

Contract services revenues increased approximately 10.8% from approximately
$11.6 million for the three months ended March 31, 1997, to approximately $12.8
million for the three months ended March 31, 1998.  This increase was due
primarily to the acquisitions discussed above (approximately $0.4 million) and
an increase in revenues at existing facilities (approximately $0.8 million). 
The increase at existing facilities was due to higher utilization (approximately
9%) offset by nominal declines in reimbursement from customers, primarily
hospitals.

Patient services revenues increased approximately 40.8% from approximately 
$10.7 million for the three months ended March 31, 1997, to approximately 
$15.1 million for the three months ended March 31, 1998.  This increase was 
due primarily to the acquisitions discussed above (approximately $4.6 
million) and an increase in revenues at existing facilities (approximately 
$0.7 million), offset by the elimination of revenues at the two terminated 
facilities discussed above (approximately $0.9 million).  The increase at 
existing facilities was due to higher utilization (approximately 12%), 
partially offset by nominal declines in reimbursement from third party payors.

COSTS OF OPERATIONS:  Costs of operations increased approximately 14.9% from 
approximately $20.1 million for the three months ended March 31, 1997, to 
approximately $23.1 million for the three months ended March 31, 1998.  This 
increase was due primarily to an increase in costs due to the acquisitions 
discussed above (approximately $3.7 million), an increase in costs at 
existing facilities (approximately $0.8 million), offset by the elimination 
of costs at the two terminated facilities discussed above (approximately $1.5 
million).  The increase at existing facilities was due primarily to increases 
in costs of services and depreciation expense, primarily related to the 
Company upgrading its existing diagnostic imaging equipment.

Costs of services, including the provision for doubtful accounts, increased 
approximately 18.0% from approximately $12.9 million for the three months 
ended March 31, 1997, to approximately $15.2 million for the three months 
ended March 31, 1998.  This increase was due primarily to the acquisitions 
discussed above (approximately $2.8 million), an increase in costs at 
existing facilities (approximately $0.8 million), offset by the elimination 
of costs at the two terminated facilities discussed above (approximately $1.3 
million).  The increase in costs at existing facilities was due primarily to 
(i) salaries and benefits and (ii) marketing costs, offset by reduced costs 
in service supplies and equipment maintenance.

Equipment leases and depreciation and amortization increased approximately 
9.5% from approximately $7.2 million for the three months ended March 31, 
1997, to approximately $7.9 million for the three months ended March 31, 
1998.  This increase was due primarily to the acquisitions discussed above 
(approximately $0.9 million), offset by the elimination of costs at the two 
terminated facilities discussed above (approximately $0.2 million). 

GROSS PROFIT:  Gross profit increased approximately 86.3% from approximately
$2.9 million for the three months ended March  31, 1997, to approximately $5.4
million for the three months ended March 31, 1998.  The increase was due to the
acquisitions discussed above (approximately $1.4 million), an increase at
existing facilities (approximately $0.4 million) and the elimination of losses
at the two terminated facilities discussed above (approximately $0.7 million).

CORPORATE OPERATING EXPENSES:  Corporate operating expenses increased
approximately 33.5% from approximately $1.7 million for the three months ended
March 31, 1997, to approximately $2.3 million for the three months ended March
31, 1998.  The increase was primarily due to (i) additional consulting and
travel costs associated with the Company's acquisition activities and (ii)
salaries and benefits. 

INTEREST EXPENSE, NET:   Interest expense, net increased approximately 49.9%
from approximately $0.9 million for the three months ended March 31, 1997, to
approximately $1.4 million for the three months ended March 31, 1998. The
increase was due primarily to additional debt related to the acquisitions
discussed above (approximately $0.9 million) and additional debt related to the
Company upgrading its existing diagnostic imaging


                                          16
<PAGE>

equipment, offset by reduced interest as a result of (i) the reduction in
interest rate and the extinguishment of approximately $23.0 million in long-term
debt relating to the Recapitalization and Bank Financing discussed below
(approximately $0.7 million) and (ii) amortization of long-term debt.

PROVISION FOR INCOME TAXES:  During the three months ended March 31, 1998, the
Company did not record a provision for income taxes due to the loss resulting
from the provision for supplemental service fee termination.  The Company's
provision for income taxes reflects the anticipated tax rate for the full fiscal
year.

INCOME PER COMMON SHARE:  On a diluted basis, net income per common share was
$0.20 for the three months ended March 31, 1998, compared to net income per
common share of $0.07 for the same period in 1997.   The improvement in net
income per common share is the result of (i) increased gross profit, (ii) an
increase in earnings from unconsolidated partnerships, and (iii) a reduction in
the provision for income taxes, offset by (i) increased corporate operating
expenses and (ii) increased interest expense.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

InSight operates in a capital intensive, high fixed cost industry that requires
significant amounts of working capital to fund operations, particularly the
initial start-up and development expenses of new operations, and yet is
constantly under external pressure to contain costs and reduce prices.  Revenues
and cash flows have been adversely affected by an increased collection cycle,
competitive pressures and major restructurings within the health care industry. 
This adverse effect on revenues and cash flow is expected to continue,
especially in the mobile diagnostic imaging business.  Management believes that
InSight's long-term success is  based upon its ability to successfully execute
its business strategy.

InSight continues to pursue acquisition opportunities.  InSight believes that
the expansion of its business through acquisitions is a key factor in achieving
and maintaining profitability.  Generally, acquisition opportunities are aimed
at increasing revenues and profits, and maximizing utilization of existing
capacity.  Incremental operating profit resulting from future acquisitions will
vary depending on geographic location, whether facilities are Mobile or Fixed,
the range of services provided and the Company's ability to integrate the
acquired businesses into its existing infrastructure.  Since the Merger, InSight
has completed the seven acquisitions discussed above.

On April 15, 1998, InSight signed a definitive agreement to purchase Signal
through the merger of Signal into a wholly owned subsidiary of InSight.  The
transaction is subject to the satisfaction of certain customary closing
conditions, including the expiration of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976.  The Bank Financing will
be used to finance the purchase price of approximately $46.0 million.

The Company consummated the Recapitalization on October 14, 1997, pursuant to 
which (a) the Company issued to Carlyle 25,000 shares of Series B Preferred 
Stock having a liquidation preference of $1,000 per share and warrants to 
purchase 250,000 shares of Common Stock at an exercise price of $10.00 per 
share, generating net proceeds to the Company (after related transaction 
costs of approximately $2.0 million) of approximately $23.0 million; (b) the 
Company issued to GE 7,000 shares of Series C Preferred Stock, with a 
liquidation preference of $1,000 per share, in consideration of the 
termination of GE's right to receive supplemental service fee payments equal 
to 14% of InSight's pretax income, warrants to purchase 250,000 shares of 
Common Stock at an exercise price of $10.00 per share, 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 a Credit Agreement 
with NationsBank which was consummated on October 22, 1997 and included (i) a 
$50 million term loan facility consisting of a $20 million tranche with 
increasing amortization over a five-year period and a $30 million tranche 
with increasing amortization over a seven-year period principally repayable 
in years 6 and 7, (ii) a $25 million revolving working capital facility with 
a five-year maturity, and (iii) a $50 million acquisition facility.  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 $23 million).  At the initial 
funding of the Bank Financing, all of the term loan facility was drawn down 
to refinance all of the remaining GE indebtedness (approximately $47 million) 
and approximately $10 million of the revolving facility was drawn down for 
working capital purposes.  The terms of the Series B Preferred Stock and the 
Series C Preferred Stock, as well as

                                          17
<PAGE>

the Bank Financing, contain certain restrictions on InSight's ability to act
without first obtaining a waiver or consent from Carlyle, GE and NationsBank.

Working capital increased to approximately $13.2 million at March 31, 1998 from
a deficit of approximately $5.7 million at June 30, 1997.  This increase in
working capital of approximately $18.9 million is primarily due to (i) net
income before depreciation and amortization, (ii) the repayment of approximately
$23.0 million in long-term debt, and (iii) and the reclassification of the
current portion of debt to long-term debt as a result of the Bank Financing,
offset by (i) the current portion of additional debt incurred as a result of the
Company's acquisition activities and (ii) principal payments on long-term debt.
As part of the Bank Financing, the Company has a $25 million working capital
facility, of which approximately $16.8 million was available to the Company as
of March 31, 1998.  As discussed above, InSight has an acquisition facility in
the amount of $65 million, of which, after the amounts utilized to purchase
Signal discussed above, approximately $30.0 million will remain available to the
Company. 

Cash and cash equivalents increased to approximately $9.6 million at March 
31, 1998 from approximately $7.1 million at June 30, 1997.   This increase of 
approximately $2.5 million resulted primarily from the Company's operating 
activities (approximately $10.0 million) and financing activities 
(approximately $21.6 million), offset by a reduction in cash and cash 
equivalents from investing activities (approximately $29.1 million).

Cash provided by operating activities for the nine months ended March 31, 
1998 resulted primarily from net income before depreciation and amortization 
and the provision for supplemental service fee termination (approximately 
$15.6 million), offset by an increase in accounts receivable (approximately 
$4.7 million).  The increase in accounts receivable is due primarily to the 
Company's acquisition activities.

Cash used in investing activities for the nine months ended March 31, 1998 
resulted primarily from the Company's acquisition activities (approximately 
$12.9 million) and the Company purchasing new diagnostic imaging equipment or 
upgrading its existing diagnostic imaging equipment (approximately $15.2 
million).

The Company generated approximately $21.6 million from financing activities 
for the nine months ended March 31, 1998, primarily from the Carlyle 
investment, which was used to refinance a portion of the Company's 
outstanding indebtedness as discussed above.  The decrease in cash from the 
refinancing of debt was offset primarily by increased debt incurred in 
connection with the Company's acquisition activities.

The Company has committed to purchase or lease, at an aggregate cost of 
approximately $11.3 million, six MRI systems for delivery during the six 
months ending September 30, 1998. The Bank Financing is expected to be used 
to finance the purchase of such equipment.  In addition, the Company has 
committed to purchase or lease from GE, at an aggregate cost of approximately 
$24.0 million, including siting costs, 20 open MRI systems for delivery and 
installation over the next two years.  As of March 31, 1998, the Company had 
installed three of the open MRI systems, one at an existing Center, one at an 
existing Fixed Facility and one in a newly opened Fixed Facility, and siting 
improvements were under construction for installation of three other open MRI 
systems. 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 current levels of operations and 
anticipated growth, its cash from operations, together with other available 
sources of liquidity, including borrowings under the Bank Financing, will be 
sufficient over the next several years to fund anticipated capital 
expenditures and make required payments of principal and interest on its 
debt, including its 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. In order to implement the Company's business 
strategy with respect to acquisitions, the Company will require additional 
sources of capital in addition to that currently available to the Company.  
To that end, the Company is currently negotiating an amendment to the Bank 
Financing and intends to raise approximately $100.0 million pursuant to a 
private placement of senior subordinated notes, subject to market and other 
conditions. The Company intends to use the proceeds to pay certain 
outstanding indebtedness under its Bank Financing. Amounts used to pay such 
indebtedness may be reborrowed for general corporate purposes, including 
acquisitions; however, no assurance can be given that the amendment to the 
Bank Financing and the private placement will be completed.

The Company has assessed and continues to assess the impact of the Year 2000
Issue on its reporting systems and operations.  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, date sensitive systems
may recognize the Year 2000 as 1900 or not at all.  This inability to recognize
or properly treat Year 2000 may cause the Company's systems to


                                          18
<PAGE>

process critical financial and operational information incorrectly.  The 
Company has developed a plan to modify existing computer systems and 
applications.  The Company has not determined the final amounts necessary to 
modify existing computer systems and applications but believes such amounts 
will not be material.  If the Company's remediation plan is not successful, 
there could be a significant disruption of the Company's ability to transact 
business with its customers, third party payors and suppliers.

Certain statements contained in this report are forward-looking statements 
that involve a number of risks and uncertainties. The factors that could 
cause actual results to differ materially include the following: availability 
of financing; limitations and delays in reimbursement by third party payors; 
contract renewals and financial stability of customers; technology changes; 
governmental regulation; conditions within the health care environment; 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 listed 
from time to time in InSight's filings with the SEC.

                            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 January 26, 1998, the Company issued to Philip Green and
               Elizabeth Cobbs, pursuant to the exercise of warrants and in
               consideration of a cash payment of $8,528, 1,512 shares of Common
               Stock.

          2.   On March 4, 1998, the Company issued to Roz Kovens, pursuant to
               the exercise of warrants and in consideration of a cash payment
               of $189,758, 33,645 shares of Common Stock.

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

          (a)  On February 17, 1998, the Company held its annual meeting of
               stockholders at which the single matter to be acted upon was the
               election of one director, E. Larry Atkins, as a Class I director
               to serve for a three year term.
          (b)  Inapplicable.
          (c)  2,409,855 shares were cast in favor of the election of Mr. Atkins
               and 17,350 shares were withheld.
          (d)  Inapplicable.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

          (a)  EXHIBITS.

               10.32  Agreement and Plan of Merger dated as of April 15, 1998
                      among the Company, SMSI Acquisition Company, Signal
                      Medical Services, Inc. and its stockholders, filed
                      herewith.

          (b)  REPORTS ON FORM 8-K.

               On February 17, 1998, the Company filed with the SEC a current 
               report on Form 8-K describing the Recapitalization under Item 5.






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<PAGE>

                                      SIGNATURES

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



                                        INSIGHT HEALTH SERVICES CORP.





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





                                        /S/   Thomas V. Croal
                                        ----------------------------------
                                        Thomas V. Croal
                                        Executive Vice President,
                                        Chief Financial Officer and Secretary

                                        Date:  May 13, 1998










                                          20
<PAGE>

                                    EXHIBIT INDEX
                                     TO FORM 10-Q
                                FOR THE QUARTER ENDED
                                    MARCH 31, 1998


     EXHIBIT NO.    DESCRIPTION AND REFERENCE
     -----------    -------------------------

          10.32     Agreement and Plan of Merger dated as of April 15, 1998
                    among the Company, SMSI Acquisition Company, Signal Medical
                    Services, Inc. and its stockholders, filed herewith.













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