<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, 1999

                                        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: 
2,864,121 shares of Common Stock as of  May 1, 1999.

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

<PAGE>



                  INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES

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

     ITEM 1.    FINANCIAL STATEMENTS

                Condensed Consolidated Balance Sheets as of March 31, 1999
                    (unaudited) and June 30, 1998                                             3

                Condensed Consolidated Statements of Operations (unaudited) for
                    the nine months ended March 31, 1999 and 1998                             4

                Condensed Consolidated Statements of Operations (unaudited) 
                     for the three months ended March 31, 1999 and 1998                       5

                Condensed Consolidated Statements of Cash Flows (unaudited) for
                    the nine months ended March 31, 1999 and 1998                             6

                Notes to Condensed Consolidated Financial Statements                       7-18

     ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                CONDITION AND RESULTS OF OPERATIONS                                       19-27

     ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   27

PART II.   OTHER INFORMATION

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

SIGNATURES                                                                                   29

</TABLE>


                                       2

<PAGE>

ITEM 1.  FINANCIAL STATEMENTS

                 INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                             (AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                            March 31,             June 30,
                                                                                              1999                  1998
                                                                                         ----------------     ----------------
                                         ASSETS                                            (Unaudited)
<S>                                                                                      <C>                  <C>
CURRENT ASSETS:
     Cash and cash equivalents                                                                $   17,435            $   44,740
     Trade accounts receivable, net                                                               31,914                25,663
     Other current assets                                                                          4,358                 3,050
                                                                                         ----------------     ----------------
       Total current assets                                                                       53,707                73,453

PROPERTY AND EQUIPMENT, net of accumulated depreciation
     and amortization of $38,699 and $26,116, respectively                                        89,585                71,814

INVESTMENTS IN PARTNERSHIPS                                                                        1,636                 1,523
OTHER ASSETS                                                                                       7,107                 6,639
INTANGIBLE ASSETS, net                                                                            75,065                74,831
                                                                                         ----------------     ----------------
                                                                                              $  227,100            $  228,260
                                                                                         ----------------     ----------------
                                                                                         ----------------     ----------------

                         LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
     Current portion of equipment, capital leases and other notes                             $   10,296            $   10,140
     Accounts payable and other accrued expenses                                                  19,679                26,410
                                                                                         ----------------     ----------------
       Total current liabilities                                                                  29,975                36,550
                                                                                         ----------------     ----------------

LONG-TERM LIABILITIES:
     Equipment, capital leases and other notes, less current portion                             153,897               152,120
     Other long-term liabilities                                                                     920                   984
                                                                                         ----------------     ----------------
       Total long-term liabilities                                                               154,817               153,104
                                                                                         ----------------     ----------------

MINORITY INTEREST                                                                                    231                   748
                                                                                         ----------------     ----------------

STOCKHOLDERS' EQUITY:
     Preferred stock, $.001 par value, 3,500,000 shares authorized:
       Convertible Series B preferred stock, 25,000 shares outstanding at
          March 31, 1999 and June 30, 1998, respectively, with a liquidation                      23,923                23,923
          preference of  $25,000
       Convertible Series C preferred stock, 27,953 shares outstanding at
          March 31, 1999 and June 30, 1998, respectively, with a liquidation                      13,173                13,173
          preference of  $27,953
     Common stock, $.001 par value, 25,000,000 shares authorized, 2,828,241 and
       2,824,090 shares outstanding at March 31, 1999
       and June 30, 1998, respectively                                                                 3                     3
     Additional paid-in capital                                                                   23,447                23,415
     Accumulated deficit                                                                         (18,469)              (22,656)
                                                                                         ----------------     ----------------
       Total stockholders' equity                                                                 42,077                37,858
                                                                                         ----------------     ----------------
                                                                                              $  227,100            $  228,260
                                                                                         ----------------     ----------------
                                                                                         ----------------     ----------------
</TABLE>

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


                                       3

<PAGE>

                 INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
          CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
            (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
                                                                                                     Nine Months Ended
                                                                                                          March 31,
                                                                                           -------------------------------------
                                                                                                 1999                 1998
                                                                                           -----------------     ---------------
<S>                                                                                        <C>                   <C>
REVENUES:
     Contract services                                                                           $   61,901           $   40,114
     Patient services                                                                                53,585               43,350
     Other                                                                                            2,139                1,704
                                                                                           -----------------     ---------------
       Total revenues                                                                               117,625               85,168
                                                                                           -----------------     ---------------

COSTS OF OPERATIONS:
     Costs of services                                                                               61,634               44,141
     Provision for doubtful accounts                                                                  1,868                1,511
     Equipment leases                                                                                13,600               12,983
     Depreciation and amortization                                                                   18,053               10,570
                                                                                           -----------------     ---------------
       Total costs of operations                                                                     95,155               69,205
                                                                                           -----------------     ---------------

       Gross profit                                                                                  22,470               15,963

CORPORATE OPERATING EXPENSES                                                                          7,647                6,510

PROVISION FOR SUPPLEMENTAL SERVICE FEE TERMINATION                                                       --                6,309
                                                                                           -----------------     ---------------

       Income from company operations                                                                14,823                3,144

EQUITY IN EARNINGS OF UNCONSOLIDATED PARTNERSHIPS                                                       398                  510
                                                                                           -----------------     ---------------

       Operating income                                                                              15,221                3,654

INTEREST EXPENSE, net                                                                                10,704                4,676
                                                                                           -----------------     ---------------

       Income (loss) before income taxes                                                              4,517               (1,022)

PROVISION FOR INCOME TAXES                                                                              330                  431
                                                                                           -----------------     ---------------

       Net income (loss)                                                                          $   4,187           $   (1,453)
                                                                                           -----------------     ---------------
                                                                                           -----------------     ---------------

INCOME (LOSS) PER COMMON AND CONVERTED PREFERRED SHARE:
       Basic                                                                                      $    0.46           $    (0.19)
                                                                                           -----------------     ---------------
                                                                                           -----------------     ---------------
       Diluted                                                                                    $    0.45           $    (0.19)
                                                                                           -----------------     ---------------
                                                                                           -----------------     ---------------

WEIGHTED AVERAGE NUMBER OF COMMON AND
     CONVERTED PREFERRED SHARES OUTSTANDING:
       Basic                                                                                      9,148,127            7,589,549
                                                                                           -----------------     ---------------
                                                                                           -----------------     ---------------
       Diluted                                                                                                   
                                                                                                  9,405,764            7,589,549
                                                                                           -----------------     ---------------
                                                                                           -----------------     ---------------
</TABLE>

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


                                       4
<PAGE>

               INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
          (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
                                                                                                     Three Months Ended
                                                                                                          March 31,
                                                                                           --------------------------------------
                                                                                                 1999                 1998
                                                                                           -----------------     ----------------
<S>                                                                                        <C>                   <C>
REVENUES:
     Contract services                                                                           $   21,816           $   12,981
     Patient services                                                                                18,442               14,862
     Other                                                                                              561                  522
                                                                                           -----------------     ----------------
       Total revenues                                                                                40,819               28,365
                                                                                           -----------------     ----------------

COSTS OF OPERATIONS:
     Costs of services                                                                               22,171               14,604
     Provision for doubtful accounts                                                                    613                  473
     Equipment leases                                                                                 4,913                3,981
     Depreciation and amortization                                                                    6,116                3,871
                                                                                           -----------------     ----------------
       Total costs of operations                                                                     33,813               22,929
                                                                                           -----------------     ----------------

       Gross profit                                                                                   7,006                5,436

CORPORATE OPERATING EXPENSES                                                                          2,892                2,254
                                                                                           -----------------     ----------------

       Income from company operations                                                                 4,114                3,182

EQUITY IN EARNINGS OF UNCONSOLIDATED PARTNERSHIPS                                                       140                  174
                                                                                           -----------------     ----------------

       Operating income                                                                               4,254                3,356

INTEREST EXPENSE, net                                                                                 3,671                1,426
                                                                                           -----------------     ----------------

       Income before income taxes                                                                       583                1,930

PROVISION FOR INCOME TAXES                                                                               58                   --
                                                                                           -----------------     ----------------

       Net income                                                                                  $    525            $   1,930
                                                                                           -----------------     ----------------
                                                                                           -----------------     ----------------

INCOME PER COMMON AND CONVERTED PREFERRED SHARE:
       Basic                                                                                      $    0.06            $    0.21
                                                                                           -----------------     ----------------
                                                                                           -----------------     ----------------
       Diluted                                                                                    $    0.06            $    0.20
                                                                                           -----------------     ----------------
                                                                                           -----------------     ----------------

WEIGHTED AVERAGE NUMBER OF COMMON AND
     CONVERTED PREFERRED SHARES OUTSTANDING:
       Basic                                                                                      9,150,897            9,075,693
                                                                                           -----------------     ----------------
                                                                                           -----------------     ----------------
       Diluted                                                                                    9,388,690            9,493,304
                                                                                           -----------------     ----------------
                                                                                           -----------------     ----------------
</TABLE>

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


                                       5

<PAGE>

                INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
         CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                             (AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                                      Nine Months Ended
                                                                                                           March 31,
                                                                                             -----------------------------------
                                                                                                  1999                1998
                                                                                             ----------------    ---------------
<S>                                                                                          <C>                 <C>
OPERATING ACTIVITIES:
  Net income (loss)                                                                                $   4,187         $   (1,453)
  Adjustments to reconcile net income (loss) to net cash
      provided by operating activities:
    Total depreciation and amortization                                                               18,335              10,686
    Amortization of deferred gain on debt restructure                                                    (62)             (1,355)
    Provision for supplemental service fee termination                                                    --               6,309
  Cash provided by (used in) changes in operating assets and liabilities:
    Trade accounts receivable, net                                                                    (6,251)             (4,752)
    Other current assets                                                                              (1,241)               (741)
    Accounts payable and other accrued expenses                                                       (6,733)              1,012
                                                                                             ----------------    ---------------
             Net cash provided by operating activities                                                 8,235               9,706
                                                                                             ----------------    ---------------

INVESTING ACTIVITIES:
  Additions to property and equipment                                                                (24,247)            (15,172)
  Acquisitions of imaging centers                                                                    (11,745)            (12,890)
  Other                                                                                                 (996)             (1,016)
                                                                                             ----------------    ---------------
             Net cash used in investing activities                                                   (36,988)            (29,078)
                                                                                             ----------------    ---------------

FINANCING ACTIVITIES:
  Proceeds from issuance of preferred stock                                                               --              23,346
  Proceeds from issuance of common stock                                                                  21                  --
  Proceeds from stock options and warrants exercised                                                      11                 266
  Payment of loan financing costs                                                                         --              (2,210)
  Principal payments of equipment, capital leases and other notes                                    (11,132)            (82,985)
  Proceeds from issuance of equipment, capital leases and other notes                                 13,065              83,277
  Other                                                                                                 (517)               (183)
                                                                                             ----------------    ---------------
             Net cash provided by financing activities                                                 1,448              21,511
                                                                                             ----------------    ---------------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                                     (27,305)              2,139

CASH AND CASH EQUIVALENTS:
  Beginning of period                                                                                 44,740               6,884
                                                                                             ----------------    ---------------
  End of period                                                                                   $   17,435           $   9,023
                                                                                             ----------------    ---------------
                                                                                             ----------------    ---------------

SUPPLEMENTAL INFORMATION:
  Interest paid                                                                                    $   8,007           $   4,476
                                                                                             ----------------    ---------------
                                                                                             ----------------    ---------------
</TABLE>

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


                                       6

<PAGE>

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

1.  NATURE OF BUSINESS

InSight Health Services Corp. (the Company) provides diagnostic imaging, 
treatment and related management services in 29 states throughout the United 
States. The Company's services are provided through a network of 68 mobile 
magnetic resonance imaging (MRI) facilities (Mobile Facilities), 36 
fixed-site MRI facilities (Fixed Facilities), 19 multi-modality imaging 
centers (Centers), 5 mobile lithotripsy facilities, one Leksell Stereotactic 
Gamma Knife treatment center and one radiation oncology center. An additional 
radiation oncology center is operated by the Company as part of one of its 
Centers. The Company's operations are located throughout the United States, 
with a substantial presence in California, Texas, New England, the Carolinas 
and the Midwest (Illinois, Indiana and Ohio).

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

2.  INTERIM FINANCIAL STATEMENTS

The unaudited condensed consolidated financial statements of the Company 
included herein have been prepared in accordance with generally accepted 
accounting principles for interim financial statements and do not include all 
of the information and disclosures required by generally accepted accounting 
principles for annual financial statements. These financial statements should 
be read in conjunction with the consolidated financial statements and related 
footnotes included as part of the Company's Annual Report on Form 10-K for 
the period ended June 30, 1998 filed with the Securities and Exchange 
Commission (SEC) 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 nine months ended March 31, 1999, are not necessarily 
indicative of the results to be achieved for the full fiscal year.

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

3.  RECAPITALIZATION AND FINANCING

On October 14, 1997, the Company consummated a recapitalization 
(Recapitalization) pursuant to which (a) certain investors affiliated with TC 
Group, LLC and its affiliates (collectively, Carlyle), a private merchant 
bank headquartered in Washington, D.C., made a cash investment of $25 million 
in the Company and received therefor (i) 25,000 shares of newly issued 
convertible preferred stock, Series B of the Company, par value $0.001 per 
share (Series B Preferred Stock), initially convertible, at the option of the 
holders thereof, in the aggregate into 2,985,075 shares of common stock, and 
(ii) warrants (Carlyle Warrants) to purchase up to 250,000 shares of common 
stock at an exercise price of $10.00 per share; (b) General Electric Company 
(GE) (i) surrendered its rights under the amended equipment service agreement 
to receive supplemental service fee payments equal to 14% of pretax income in 
exchange for the issuance of 7,000 shares of newly issued convertible 
preferred stock, Series C of the Company, par value $0.001 per share (Series 
C Preferred Stock), initially convertible, at the option of GE, in the 
aggregate into 835,821 shares of common stock, for which the Company recorded 
a non-recurring expense of approximately $6.3 million during the second 
quarter of fiscal 1998, (ii) received warrants (GE Warrants) to purchase up 
to 250,000 shares of common stock at an exercise price of $10.00 per share 
and (iii) exchanged all of its Series A Preferred Stock, for an additional 
20,953 shares of Series C Preferred Stock, initially convertible, at the 
option of GE, in the aggregate into 2,501,760 shares of common stock; and (c) 
the Company executed a Credit Agreement with NationsBank, N.A. pursuant to 
which NationsBank, as agent and lender, provided a total of $125 million in 
senior secured credit financing (Bank Financing), including (i) a $50 million 
term loan facility consisting of a $20 


                                       7

<PAGE>

million tranche with increasing amortization over a five-year period and a 
$30 million tranche with increasing amortization over a seven-year period, 
principally repayable in years six and seven, (ii) a $25 million revolving 
working capital facility with a five-year maturity and (iii) a $50 million 
acquisition facility. Initial funding under the Bank Financing occurred on 
October 22, 1997 and, on December 19, 1997, the Bank Financing was increased 
to a total of $150 million by converting $10 million of outstanding debt 
under the acquisition facility to the seven-year tranche (which was thereby 
increased to $40 million) and increasing the acquisition facility to $65 
million.

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

For so long as Carlyle and its affiliates own at least 33% of the Series B 
Preferred Stock or GE and its affiliates own at least 33% of the Series C 
Preferred Stock, respectively, the approval of at least 67% of the holders of 
such series of Preferred Stock is required before the Company may take 
certain actions including, but not limited to, amending its certificate of 
incorporation or bylaws, changing the number of directors or the manner in 
which directors are selected, incurring indebtedness in excess of $15 million 
in any fiscal year, issuing certain equity securities below the then current 
market price or the then applicable conversion price, acquiring equity 
interests or assets of entities for consideration equal to or greater than 
$15 million, and engaging in mergers for consideration equal to or greater 
than $15 million. The Preferred Stock vote with the common stock on an 
as-if-converted basis on all matters except the election of directors, 
subject to an aggregate maximum Preferred Stock percentage of 37% of all 
votes entitled to be cast on such matters. Assuming the conversion of all of 
the Series B Preferred Stock into common stock and the exercise of all of the 
Carlyle Warrants, Carlyle would own approximately 32% of the common stock of 
the Company, on a fully diluted basis. Assuming the conversion of all of the 
Series C Preferred Stock and the exercise of the GE Warrants, GE would own 
approximately 35% of the common stock of the Company, on a fully diluted 
basis.

Pursuant to the terms of the Recapitalization, the number of directors 
comprising the Company's Board of Directors (the Board) is currently fixed at 
nine. Six directors (Common Stock Directors) are to be elected by the common 
stockholders, one of whom (Joint Director) is to be proposed by Carlyle and 
GE and approved by a majority of the Board in its sole discretion. Of the 
three remaining directors (Preferred Stock Directors), two are to be elected 
by the holders of the Series B Preferred Stock and one is to be elected by 
the holders of the Series C Preferred Stock, in each case acting by written 
consent and without a meeting of the common stockholders. As long as Carlyle 
and certain affiliates thereof own an aggregate of at least 50% of the Series 
B Preferred Stock, originally purchased thereby, the holders of the Series B 
Preferred Stock will have the right to elect two Preferred Stock Directors 
and as long as Carlyle and certain affiliates thereof own an aggregate of at 
least 25% of such stock, such holders will have the right to elect one 
Preferred Stock Director. As long as GE and its affiliates own an aggregate 
of at least 25% of the Series C Preferred Stock, originally purchased 
thereby, GE will have the right to elect one Preferred Stock Director. If any 
such ownership percentage falls below the applicable threshold, the Preferred 
Stock Director(s) formerly entitled to be elected by Carlyle or GE, as the 
case may be, will thereafter be elected by the common stockholders. The Board 
currently consists of eight directors, five of whom are Common Stock 
Directors and three of whom are Preferred Stock Directors. The vacancy 
created for the Joint Director has not yet been filled.

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


                                       8

<PAGE>

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

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

4.  INVESTMENTS IN PARTNERSHIPS

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

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

<TABLE>
<CAPTION>
                                                   March 31,            June 30,
                                                     1999                 1998
                                                ----------------     ----------------
                                                  (unaudited)
<S>                                             <C>                  <C>
Condensed Combined
  Balance Sheet Data:
    Current assets                                    $   1,460            $   1,825
    Total assets                                          1,587                1,896
    Current liabilities                                     636                  644
    Minority interest equity                                492                  642
</TABLE>

<TABLE>
<CAPTION>
                                                         Nine Months Ended                     Three Months Ended
                                                              March 31,                             March 31,
                                                  ---------------------------------     ---------------------------------
                                                      1999               1998               1999               1998
                                                  --------------     --------------     --------------     --------------
                                                             (unaudited)                           (unaudited)
<S>                                               <C>                <C>                <C>                <C>
Condensed Combined Statement
    of Operations Data:
      Net revenues                                     $  4,194           $  4,483           $  1,319           $  1,147
      Expenses                                            3,002              3,191              1,011                895
      Provision for center profit distribution              596                646                154                126
                                                  --------------     --------------     --------------     --------------
      Net income                                       $    596           $    646           $    154           $    126
                                                  --------------     --------------     --------------     --------------
                                                  --------------     --------------     --------------     --------------
</TABLE>

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


                                       9

<PAGE>

5.   INCOME PER COMMON AND PREFERRED SHARE

The Company has adopted Statement of Financial Accounting Standards No. 128, 
which replaces primary EPS and fully diluted EPS with basic EPS and diluted 
EPS. The number of shares used in computing EPS is equal to the weighted 
average number of common and converted preferred shares outstanding during 
the respective period. Since the Preferred Stock has no stated dividend rate 
and participates in any dividends paid with respect to the common stock, the 
as-if-converted amounts are included in the computation of basic EPS. Common 
stock equivalents relating to options, warrants and convertible Preferred 
Stock are not included for the nine months ended March 31, 1998 due to their 
antidilutive effect. There were no adjustments to net income (the numerator) 
for purposes of computing EPS.

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

<TABLE>
<CAPTION>
                                                               Nine Months Ended                     Three Months Ended
                                                                    March 31,                              March 31,
                                                        --------------------------------       -------------------------------
                                                             1999             1998                 1999              1998
                                                        ---------------   --------------       --------------    -------------
<S>                                                     <C>               <C>                  <C>               <C>
Average common stock outstanding                             2,825,471        2,731,105            2,828,241         2,753,037
Effect of preferred stock                                    6,322,656        4,858,444            6,322,656         6,322,656
                                                        ---------------   --------------       --------------    -------------
Denominator for basic EPS                                    9,148,127        7,589,549            9,150,897         9,075,693
Dilutive effect of stock options and warrants                  257,637               --              237,793           417,611
                                                        ---------------   --------------       --------------    -------------
                                                             9,405,764        7,589,549            9,388,690         9,493,304
                                                        ---------------   --------------       --------------    -------------
                                                        ---------------   --------------       --------------    -------------
</TABLE>

6.   SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL INFORMATION

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


                                      10

<PAGE>

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

               SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
                                MARCH 31, 1999
                                 (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                            $   --       $   16,244        $     1,191         $     --     $    17,435
    Trade accounts receivable, net                           --           28,070              3,844               --          31,914
    Other current assets                                     --            4,088                270               --           4,358
    Intercompany accounts receivable                    214,998           11,049                 --         (226,047)             --
                                                    -----------  ---------------  -----------------  ---------------  --------------
      Total current assets                              214,998           59,451              5,305         (226,047)         53,707
 Property and equipment, net                                 --           81,102              8,483               --          89,585
 Investments in partnerships                                 --            1,636                 --               --           1,636
 Investments in consolidated subsidiaries               (20,345)           1,877                 --           18,468              --
 Other assets                                                --            7,107                 --               --           7,107
 Intangible assets, net                                      --           74,989                 76               --          75,065
                                                    -----------  ---------------  -----------------  ---------------  --------------
                                                      $ 194,653       $  226,162       $     13,864      $  (207,579)   $    227,100
                                                    -----------  ---------------  -----------------  ---------------  --------------
                                                    -----------  ---------------  -----------------  ---------------  --------------

 LIABILITIES AND STOCKHOLDERS' EQUITY
 Current liabilities:
    Current portion of equipment, capital leases 
      and other notes                                  $  7,500       $    2,672         $      124         $     --     $    10,296
    Accounts payable and other accrued expenses              --           19,126                553               --          19,679
    Intercompany accounts payable                            --          214,998             11,049         (226,047)             --
                                                    -----------  ---------------  -----------------  ---------------  --------------
     Total current liabilities                            7,500          236,796             11,726         (226,047)         29,975
 Equipment, capital leases and other notes, less 
  current portion                                       145,076            8,791                 30               --         153,897
 Other long-term liabilities                                 --              920                 --               --             920
 Minority interest                                           --               --                231               --             231
 Stockholders' equity (deficit)                          42,077          (20,345)             1,877           18,468          42,077
                                                    -----------  ---------------  -----------------  ---------------  --------------
                                                      $ 194,653       $  226,162       $     13,864      $  (207,579)   $    227,100
                                                    -----------  ---------------  -----------------  ---------------  --------------
                                                    -----------  ---------------  -----------------  ---------------  --------------
</TABLE>


                                       11

<PAGE>

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

                SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
                                JUNE 30, 1998

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

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


                                      12

<PAGE>

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

            SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                     FOR THE NINE MONTHS ENDED MARCH 31, 1999
                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                       PARENT
                                                       COMPANY      GUARANTOR       NON-GUARANTOR
                                                        ONLY      SUBSIDIARIES       SUBSIDIARIES     ELIMINATIONS     CONSOLIDATED
                                                    -----------  ---------------  -----------------  ---------------  --------------
 <S>                                                <C>          <C>              <C>                <C>              <C>
 (Amounts in thousands)
 Revenues                                                $   --       $  103,669        $    13,956         $     --     $   117,625
 Costs of operations                                         --           83,221             11,934               --          95,155
                                                    -----------  ---------------  -----------------  ---------------  --------------
     Gross profit                                            --           20,448              2,022               --          22,470

 Corporate operating expenses                                --            7,647                 --               --           7,647
                                                    -----------  ---------------  -----------------  ---------------  --------------
     Income from company operations                          --           12,801              2,022               --          14,823

 Equity in earnings of unconsolidated partnerships           --              398                 --               --             398
                                                    -----------  ---------------  -----------------  ---------------  --------------
     Operating income                                        --           13,199              2,022               --          15,221

 Interest expense, net                                       --            9,913                791               --          10,704
                                                    -----------  ---------------  -----------------  ---------------  --------------
     Income before income taxes                              --            3,286              1,231               --           4,517

 Provision for income taxes                                  --              330                 --               --             330
                                                    -----------  ---------------  -----------------  ---------------  --------------
     Income before equity in income of
        consolidated subsidiaries                            --            2,956              1,231               --           4,187

 Equity in income of consolidated subsidiaries            4,187            1,231                 --           (5,418)             --
                                                    -----------  ---------------  -----------------  ---------------  --------------

     Net income                                         $ 4,187       $    4,187        $     1,231       $   (5,418)     $    4,187
                                                    -----------  ---------------  -----------------  ---------------  --------------
                                                    -----------  ---------------  -----------------  ---------------  --------------
</TABLE>


                                       13

<PAGE>

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

          SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                     FOR THE NINE MONTHS ENDED MARCH 31, 1998
                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                      PARENT
                                                      COMPANY      GUARANTOR       NON-GUARANTOR
                                                       ONLY      SUBSIDIARIES       SUBSIDIARIES     ELIMINATIONS     CONSOLIDATED
                                                   -----------  ---------------  -----------------  ---------------  --------------
<S>                                                <C>          <C>              <C>                <C>              <C>
(Amounts in thousands)
Revenues                                              $     --       $   74,511        $    10,657         $     --      $   85,168
Costs of operations                                         --           59,706              9,499               --          69,205
                                                   -----------  ---------------  -----------------  ---------------  --------------
    Gross profit                                            --           14,805              1,158               --          15,963

Corporate operating expenses                                --            6,510                 --               --           6,510
Provision for supplemental service
  fee termination                                           --            6,309                 --               --           6,309
                                                   -----------  ---------------  -----------------  ---------------  --------------
    Income from company operations                          --            1,986              1,158               --           3,144

Equity in earnings of unconsolidated 
  partnerships                                              --              510                 --               --             510
                                                   -----------  ---------------  -----------------  ---------------  --------------
    Operating income                                        --            2,496              1,158               --           3,654

Interest expense, net                                       --            4,449                227               --           4,676
                                                   -----------  ---------------  -----------------  ---------------  --------------
    Income (loss) before income taxes                       --           (1,953)               931               --          (1,022)

Provision for income taxes                                  --              431                 --               --             431
                                                   -----------  ---------------  -----------------  ---------------  --------------
    Income (loss) before equity in income of
       consolidated subsidiaries                            --           (2,384)               931               --          (1,453)

Equity in income (loss) of consolidated                                                                                 
  subsidiaries                                          (1,453)             931                 --              522              --
                                                   -----------  ---------------  -----------------  ---------------  --------------

    Net income (loss)                                  $(1,453)      $   (1,453)        $      931         $    522     $    (1,453)
                                                   -----------  ---------------  -----------------  ---------------  --------------
                                                   -----------  ---------------  -----------------  ---------------  --------------
</TABLE>


                                       14

<PAGE>

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

           SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                  FOR THE THREE MONTHS ENDED MARCH 31, 1999
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                       PARENT
                                                       COMPANY      GUARANTOR       NON-GUARANTOR
                                                        ONLY      SUBSIDIARIES       SUBSIDIARIES     ELIMINATIONS     CONSOLIDATED
                                                    -----------  ---------------  -----------------  ---------------  --------------
 <S>                                                <C>          <C>              <C>                <C>              <C>
 (Amounts in thousands)
 Revenues                                              $     --       $   36,174        $     4,645         $     --     $    40,819
 Costs of operations                                         --           29,732              4,081               --          33,813
                                                    -----------  ---------------  -----------------  ---------------  --------------
     Gross profit                                            --            6,442                564               --           7,006

 Corporate operating expenses                                --            2,892                 --               --           2,892
                                                    -----------  ---------------  -----------------  ---------------  --------------
     Income from company operations                          --            3,550                564               --           4,114

 Equity in earnings of unconsolidated             
   partnerships                                              --              140                 --               --             140
                                                    -----------  ---------------  -----------------  ---------------  --------------
     Operating income                                        --            3,690                564               --           4,254

 Interest expense, net                                       --            3,414                257               --           3,671
                                                    -----------  ---------------  -----------------  ---------------  --------------
     Income before income taxes                              --              276                307               --             583

 Provision for income taxes                                  --               58                 --               --              58
                                                    -----------  ---------------  -----------------  ---------------  --------------
     Income before equity in income of
        consolidated subsidiaries                            --              218                307               --             525

 Equity in income of consolidated subsidiaries              525              307                 --             (832)             --
                                                    -----------  ---------------  -----------------  ---------------  --------------

     Net income                                          $  525        $     525         $      307        $    (832)      $     525
                                                    -----------  ---------------  -----------------  ---------------  --------------
                                                    -----------  ---------------  -----------------  ---------------  --------------
</TABLE>


                                       15

<PAGE>

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

          SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                    FOR THE NINE MONTHS ENDED MARCH 31, 1999
                                    (UNAUDITED)

<TABLE>
<CAPTION>
                                                       PARENT
                                                       COMPANY      GUARANTOR       NON-GUARANTOR
                                                        ONLY      SUBSIDIARIES       SUBSIDIARIES     ELIMINATIONS     CONSOLIDATED
                                                    -----------  ---------------  -----------------  ---------------  --------------
 <S>                                                <C>          <C>              <C>                <C>              <C>
 (Amounts in thousands)
 Revenues                                             $      --       $   25,171        $     3,194          $    --      $   28,365
 Costs of operations                                         --           19,736              3,193               --          22,929
                                                    -----------  ---------------  -----------------  ---------------  --------------
     Gross profit                                            --            5,435                  1               --           5,436

 Corporate operating expenses                                --            2,254                 --               --           2,254
                                                    -----------  ---------------  -----------------  ---------------  --------------
     Income from company operations                          --            3,181                  1               --           3,182

 Equity in earnings of unconsolidated            
   partnerships                                              --              174                 --               --             174
                                                    -----------  ---------------  -----------------  ---------------  --------------
     Operating income                                        --            3,355                  1               --           3,356

 Interest expense, net                                       --            1,374                 52               --           1,426
                                                    -----------  ---------------  -----------------  ---------------  --------------
     Income (loss) before income taxes                       --            1,981                (51)              --           1,930

 Provision for income taxes                                  --               --                 --               --              --
                                                    -----------  ---------------  -----------------  ---------------  --------------
     Income (loss) before equity in income of
        consolidated subsidiaries                            --            1,981                (51)              --           1,930

 Equity in income (loss) of consolidated 
   subsidiaries                                           1,930              (51)                --           (1,879)             --
                                                    -----------  ---------------  -----------------  ---------------  --------------

     Net income (loss)                                  $ 1,930       $    1,930         $      (51)      $   (1,879)     $    1,930
                                                    -----------  ---------------  -----------------  ---------------  --------------
                                                    -----------  ---------------  -----------------  ---------------  --------------
</TABLE>


                                       16

<PAGE>


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

           SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                    FOR THE NINE MONTHS ENDED MARCH 31, 1999
                                   (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                                           $ 4,187         $  4,187         $    1,231        $  (5,418)     $    4,187
  Adjustments to reconcile net income to net cash
   provided by (used in) operating activities:
   Total depreciation and amortization                      --           16,144              2,191               --          18,335
   Amortization of deferred gain on debt restructure        --              (62)                --               --             (62)
   Equity in income (loss) of consolidated 
     subsidiaries                                       (4,187)          (1,231)                --            5,418              --
  Cash provided by (used in) changes in operating 
    assets and liabilities:
   Trade accounts receivable, net                           --           (5,161)            (1,090)              --          (6,251)
   Intercompany receivables, net                        (2,608)          (2,702)             5,310               --              --
   Other current assets                                     --           (1,270)                29               --          (1,241)
   Accounts payable and other  accrued expenses             --           (6,617)              (116)              --          (6,733)
                                                   -----------  ---------------  -----------------  ---------------  --------------
      Net cash provided by (used in) 
        operating activities                            (2,608)           3,288              7,555               --           8,235
                                                   -----------  ---------------  -----------------  ---------------  --------------

INVESTING ACTIVITIES:
  Additions to property and equipment                       --          (17,217)            (7,030)              --         (27,472)
  Acquisitions of imaging centers                           --          (11,745)                --               --         (11,745)
  Other                                                     --             (847)              (149)              --            (996)
                                                   -----------  ---------------  -----------------  ---------------  --------------
   Net cash used in investing activities                    --          (29,809)            (7,179)              --         (40,213)
                                                   -----------  ---------------  -----------------  ---------------  --------------

FINANCING ACTIVITIES:
  Proceeds from stock options and 
    warrants exercised                                      11               --                 --               --              11
  Proceeds from issuance of common stock                    21               --                 --               --              21
  Principal payments of equipment, capital 
    leases and other notes                              (5,624)          (5,350)              (158)              --         (11,132)
  Proceeds from issuance of equipment, 
    capital leases and other notes                       8,200            4,865                 --               --          13,065
  Other                                                     --               --               (517)              --            (517)
                                                   -----------  ---------------  -----------------  ---------------  --------------
   Net cash provided by (used in) 
     financing activities                                2,608             (485)              (675)              --           1,448
                                                   -----------  ---------------  -----------------  ---------------  --------------

DECREASE IN CASH AND CASH EQUIVALENTS                       --          (27,006)              (299)              --         (30,530)

CASH AND CASH EQUIVALENTS:
  Cash, beginning of period                                 --           43,250              1,490               --          44,740
                                                   -----------  ---------------  -----------------  ---------------  --------------
  Cash, end of period                                   $   --        $  16,244         $    1,191         $     --     $    14,210
                                                   -----------  ---------------  -----------------  ---------------  --------------
                                                   -----------  ---------------  -----------------  ---------------  --------------
</TABLE>


                                       17

<PAGE>

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

         SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                  FOR THE NINE MONTHS ENDED MARCH 31, 1998
                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                       PARENT
                                                       COMPANY      GUARANTOR       NON-GUARANTOR
                                                        ONLY      SUBSIDIARIES       SUBSIDIARIES     ELIMINATIONS     CONSOLIDATED
                                                    -----------  ---------------  -----------------  ---------------  --------------
 <S>                                                <C>          <C>              <C>                <C>              <C>
 (Amounts in thousands)
 OPERATING ACTIVITIES:
   Net income (loss)                                   $ (1,453)       $  (1,453)         $     931         $    522    $    (1,453)
   Adjustments to reconcile net income (loss) 
     to net cash provided by (used in) operating 
     activities:
    Total depreciation and amortization                      --           10,437                249               --         10,686
    Amortization of deferred gain on debt 
      restructure                                            --           (1,355)                --               --         (1,355)
    Provision for supplemental service fee 
      termination                                            --            6,309                 --               --          6,309
    Equity in income (loss) of consolidated 
      subsidiaries                                        1,453             (931)                --             (522)            --
   Cash provided by (used in) changes in operating
     assets and liabilities:
    Trade accounts receivable, net                           --           (4,874)               122               --         (4,752)
    Intercompany receivables, net                       (93,812)          91,149              2,663               --             --
    Other current assets                                     --             (745)                 4               --           (741)
    Accounts payable and other accrued expenses              --            1,035                (23)              --          1,012
                                                    -----------  ---------------  -----------------  ---------------  --------------
       Net cash provided by (used in) operating                                                             
         activities                                     (93,812)          99,572              3,946               --          9,706
                                                    -----------  ---------------  -----------------  ---------------  --------------

INVESTING ACTIVITIES:
   Additions to property and equipment                       --          (13,421)            (1,751)              --        (15,172)
   Acquisitions of imaging centers                           --          (12,890)                --               --        (12,890)
   Other                                                     --             (890)              (126)              --         (1,016)
                                                    -----------  ---------------  -----------------  ---------------  --------------
    Net cash used in investing activities                    --          (27,201)            (1,877)              --        (29,078)
                                                    -----------  ---------------  -----------------  ---------------  --------------

FINANCING ACTIVITIES:
   Proceeds from issuance of preferred stock             23,346               --                 --               --         23,346
   Proceeds from stock options and warrants 
     exercised                                              266               --                 --               --            266
   Payment of loan financing costs                           --           (2,210)                --               --         (2,210)
   Principal payments of equipment, capital leases 
     and other notes                                     (2,700)         (79,337)              (948)              --        (82,985)
   Proceeds from issuance of equipment, capital 
     leases and other notes                              72,900           10,241                136               --         83,277
   Other                                                     --               --               (183)              --           (183)
                                                    -----------  ---------------  -----------------  ---------------  --------------
    Net cash provided by (used in) financing 
      activities                                         93,812          (71,306)              (995)              --         21,511
                                                    -----------  ---------------  -----------------  ---------------  --------------

INCREASE IN CASH AND CASH EQUIVALENTS                        --            1,065              1,074               --          2,139

CASH AND CASH EQUIVALENTS:
   Cash, beginning of period                                 --            5,845              1,039               --          6,884
                                                    -----------  ---------------  -----------------  ---------------  --------------
   Cash, end of period                                   $   --         $  6,910         $    2,113         $     --    $     9,023
                                                    -----------  ---------------  -----------------  ---------------  --------------
                                                    -----------  ---------------  -----------------  ---------------  --------------
</TABLE>


                                       18

<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 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 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.

In addition, in fiscal 1998, the Company installed 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 


                                       19

<PAGE>

operate a Gamma Knife Center and entered into an agreement to dissolve a 
partnership related to a Fixed Facility in Seattle, Washington.

On March 1, 1999, the Company completed the acquisition of a majority 
interest in five Centers in the Buffalo, New York area. The transaction 
included the purchase of assets and assumption of certain equipment related 
liabilities. The purchase price for this transaction was approximately $5.0 
million.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

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

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

On October 14, 1997, the Company consummated the Recapitalization pursuant to 
which (a) the Company issued to Carlyle 25,000 shares of Series B Preferred 
Stock having a liquidation preference of $1,000 per share and the Carlyle 
Warrants, generating net proceeds to the Company (after related transaction 
costs of approximately $2.0 million) of approximately $23.0 million; (b) the 
Company issued to GE 7,000 shares of Series C Preferred Stock, with a 
liquidation preference of $1,000 per share, in consideration of the 
termination of GE's right to receive supplemental service fee payments equal 
to 14% of InSight's pretax income, the GE Warrants and an additional 20,953 
shares of Series C Preferred Stock in exchange for all of GE's shares of 
Series A Preferred Stock; and (c) the Company executed the Bank Financing. 
Initial funding under the Bank Financing occurred on October 22, 1997 and, on 
December 19, 1997, the Bank Financing was increased to a total of $150 
million by converting $10 million of outstanding debt under the acquisition 
facility to the seven-year tranche (which was thereby increased to $40 
million) and increasing the acquisition facility to $65 million. The net 
proceeds from the Carlyle investment were used to refinance a portion of the 
outstanding GE indebtedness (approximately $20 million). At the initial 
funding of the Bank Financing, all of the term loan facility was drawn down 
to refinance all of the remaining GE indebtedness (approximately $50 million) 
and approximately $8 million of the revolving facility was drawn down for 
working capital purposes. The terms of the Series B Preferred Stock and the 
Series C Preferred Stock, as well as the Bank Financing, contain certain 
restrictions on the Company's ability to act without first obtaining a waiver 
or consent from Carlyle, GE and NationsBank.

On June 12, 1998, the Company completed a refinancing of substantially all of 
the Company's debt through the issuance of the Notes. The Notes bear interest 
at 9.625%, with interest payable semi-annually and mature in June 2008. The 
Notes are redeemable at the option of the Company, in whole or in part, on or 
after June 15, 2003. The Notes are unsecured senior subordinated obligations 
of the Company and are subordinated in right of payment to all existing and 
future senior indebtedness, as defined in the indenture, of the Company, 
including borrowings under the Bank Financing. The terms of the notes contain 
certain restrictions on the Company's ability to act without first obtaining 
consent of the noteholders.

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


                                       20

<PAGE>

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

As part of the amendment to the Bank Financing, the Company has available a 
$25 million working capital facility with a five-year maturity and a $75 
million acquisition facility with a six-year maturity. Borrowings under both 
credit facilities bear interest at LIBOR plus 1.75%. The Company is required 
to pay an annual unused facility fee of between 0.375% and 0.5% on unborrowed 
amounts under both facilities, of which the Company has paid approximately 
$0.3 million through March 31, 1999. At March 31, 1999, there was 
approximately $8.2 million in borrowings under the acquisition facility and 
no borrowings under the working capital facility.

Net cash provided by operating activities was approximately $8.2 million for 
the nine months ended March 31, 1999. Cash provided by operating activities 
resulted primarily from net income before depreciation and amortization 
(approximately $22.5 million), offset by an increase in accounts receivable 
(approximately $6.3 million) primarily due to the Company's acquisitions and 
new Fixed Facilities and Centers discussed above (approximately $3.8 million), 
and a decrease in accounts payable and other accrued expenses (approximately 
$6.7 million).

Net cash used in investing activities was approximately $37.0 million for the 
nine months ended March 31, 1999. Cash used in investing activities resulted 
primarily from the purchase of new diagnostic imaging equipment or upgrading 
its existing diagnostic imaging equipment (approximately $24.2 million), 
offset by the sale of a building in which a Center is located in Las Vegas, 
Nevada (approximately $3.6 million) and cash used in the Company's 
acquisitions as discussed above (approximately $11.7 million), which included 
the purchase of two buildings in which a Center is located in Chattanooga, 
Tennessee (approximately $3.2 million).

Net cash provided by financing activities was approximately $1.4 million for 
the nine months ended March 31, 1999, resulting primarily from borrowings of 
debt and capital lease obligations (approximately $13.1 million), offset by 
principal payments of debt and capital lease obligations (approximately $11.1 
million).

The Company has committed to purchase or lease, at an aggregate cost of 
approximately $36.0 million, 21 MRI systems for delivery through December 31, 
1999. As of May 1, 1999, none have been delivered. The Company expects to use 
internal funds to finance the purchase of such equipment. In addition, the 
Company has committed to purchase or lease from GE, at an aggregate cost of 
approximately $29.0 million, including siting costs, 24 Open MRI systems for 
delivery and installation. As of May 1, 1999, the Company had installed 16 of 
such Open MRI systems: six at existing Centers, four in newly opened Fixed 
Facilities and six in Mobile Facilities which operate in existing networks 
serviced by conventional Mobile Facilities. The Company may purchase, lease 
or upgrade other MRI systems as opportunities arise to place new equipment 
into service when new contract services agreements are signed, existing 
agreements are renewed, acquisitions are completed, or new imaging centers 
are developed in accordance with the Company's business strategy.

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


                                       21

<PAGE>

YEAR 2000 ISSUE

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

STATE OF READINESS: The Company started to formulate a plan to address the 
Year 2000 Issue in late 1995. To date, the Company's primary focus has been 
on its own internal information technology systems, including all types of 
systems in use by the Company in its operations, marketing, finance and human 
resources departments, and to deal with the most critical systems first. The 
Company has developed 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 involves 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 90% of its internal 
information technology systems. As a result of delays in obtaining 
information, the Company now estimates that it will complete the assessment 
of its remaining internal information technology systems by June 30, 1999 and 
will then establish a timetable for the renovation phase of the remaining 
technology systems. The Company has already completed the renovation of 
approximately 60% of its information technology systems, including modifying 
and upgrading software and developing and purchasing new software, and 
continues to renovate the portions of such systems for which assessment is 
complete. The Company has not begun or established a timetable for the 
testing and implementation phases. The Company's goal is to complete such 
phases by June 30, 1999, although complications arising from unanticipated 
acquisitions might cause some delay.

The Company is assessing the potential for Year 2000 problems with the 
information systems of its customers and vendors. The Company has determined 
that direct contact with its vendors, customers, business partners, landlords 
and other third parties with which the Company has a material relationship 
will yield better results than submitting questionnaires, which historically 
have not been responded to adequately, if at all. The Company intends to send 
to its vendors, customers, business partners, landlords and other third 
parties, follow-up questionnaires and letters to confirm verbal assurances 
received. The Company has extended the date to complete such assessment to 
June 30, 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 finalize its 
discussions with most of such parties by June 30, 1999 in an attempt to 
determine the extent to which the Company is vulnerable to those parties' 
possible failure to become Year 2000 ready.

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 ready, (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. While progress has been slow, the Company has received 
some information from such other vendors with respect to their 


                                       22
<PAGE>

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

In September 1998, the Company began an assessment of the potential for Year 
2000 problems with the embedded microprocessors in its other equipment, 
facilities and corporate and regional offices, including telecommunications 
systems, utilities, dictation systems, security systems and HVACS. The 
Company has experienced delays in responses, which have caused the Company to 
extend the completion of the assessment to June 30, 1999. The Company intends 
to engage consultants to independently evaluate the Company's progress with 
its Year 2000 Plan, to assist in the testing (i.e. the verification and 
validation) of the Company's internal information technology systems, the 
information systems of its vendors, customers, business partners, landlords 
and other third parties and its diagnostic imaging equipment.

COSTS TO ADDRESS YEAR 2000 ISSUE: The Company estimates on a preliminary 
basis that the cost of assessment, renovation, testing and implementation of 
its internal information technology systems and diagnostic imaging equipment 
will range from approximately $500,000 to $1,500,000, of which approximately 
$50,000 has been incurred. The major components of these costs are: 
consultants, additional personnel costs, programming, new software and 
hardware, software upgrades, travel expenses and diagnostic imaging equipment 
replacement. The Company expects that such costs will be funded through 
operating cash flows. This estimate, based on currently available 
information, will be updated as the Company continues its assessment and 
proceeds with renovation, testing and implementation and may be adjusted upon 
receipt of more information from the Company's vendors, customers and other 
third parties and upon the design and implementation of the Company's 
contingency plan. In addition, the availability and cost of consultants and 
other personnel trained in this area and unanticipated acquisitions might 
materially affect the estimated costs.

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

CONTINGENCY PLAN: The Company is in the process of developing a contingency 
plan to address unavoided or unavoidable Year 2000 risks with internal 
information technology systems and with customers, vendors and other third 
parties, which will be submitted to the Company's senior management for 
review by June 30, 1999.


                                       23

<PAGE>

RESULTS OF OPERATIONS

NINE MONTHS ENDED MARCH 31, 1999 COMPARED TO MARCH 31, 1998

REVENUES: Revenues increased approximately 38.0% from approximately $85.2 
million for the nine months ended March 31, 1998, to approximately $117.6 
million for the nine months ended March 31, 1999. This increase was due 
primarily to the acquisitions discussed above (approximately $25.2 million), 
an increase in contract services and patient services revenues (approximately 
$9.2 million) at existing facilities and an increase in other revenues 
(approximately $0.2 million) which included a one-time settlement payment in 
connection with an earn-out from the sale of the Company's lithotripsy 
partnerships in 1995 (approximately $0.4 million), partially offset by the 
termination of a Fixed Facility and a Gamma Knife Center in 1998 
(approximately $2.2 million). Contract services and patient services revenues 
were negatively impacted in January and early February 1999 due to unusually 
severe weather conditions in the Midwest and New England, where the Company 
has a significant number of Mobile Facilities, Fixed Facilities and Centers.

Contract services revenues increased approximately 54.4% from approximately 
$40.1 million for the nine months ended March 31, 1998, to approximately 
$61.9 million for the nine months ended March 31, 1999. This increase was due 
primarily to the acquisitions discussed above (approximately $17.4 million) 
and an increase at existing facilities (approximately $4.4 million). The 
increase at existing facilities was due to higher utilization (approximately 
13%), offset by a decline in reimbursement from customers, primarily 
hospitals (approximately 4%), as a result of increased price competition.

Contract services revenues, primarily earned by the Company's Mobile 
Facilities, represented approximately 53% of total revenues for the nine 
months ended March 31, 1999. Each year approximately one-quarter to one-third 
of the contract services agreements are subject to renewal. It is expected 
that some high volume customer accounts will elect not to renew their 
agreements and instead will purchase or lease their own diagnostic imaging 
equipment and some customers may choose an alternative services provider. In 
the past where agreements have not been renewed, the Company has been able to 
obtain replacement customer accounts. While some replacement accounts have 
initially been smaller than the lost accounts, such replacement accounts 
revenues have generally increased over the term of the agreement. The 
non-renewal of a single customer agreement would not have a material impact 
on InSight's contract services revenues; however, non-renewal of several 
agreements could have a material impact on contract services revenues.

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

Patient services revenues increased approximately 23.5% from approximately 
$43.4 million for the nine months ended March 31, 1998, to approximately 
$53.6 million for the nine months ended March 31, 1999. This increase was due 
primarily to the acquisitions discussed above (approximately $7.6 million) 
and an increase in revenues at existing facilities (approximately $4.8 
million). The increase at existing facilities was due to higher utilization 
(approximately 9%), partially offset by declines in reimbursement from third 
party payors (approximately 1%) and reduced revenues from the termination of 
a Fixed Facility and a Gamma Knife Center in 1998 (approximately $2.2 
million).

Management believes that any future increases in revenues at existing 
facilities can only be achieved by higher utilization and not by increases in 
procedure prices; however, slower start-ups of new operations, excess 
capacity of diagnostic imaging equipment, increased competition, and the 
expansion of managed care may impact utilization and make it difficult for 
the Company to achieve revenue increases in the future, absent the execution 
of provider agreements with managed care companies and other payors, and the 
execution of the Company's business strategy, particularly acquisitions. 
InSight's operations are principally dependent on its ability (either 
directly or indirectly through its hospital customers) to attract referrals 
from physicians and other healthcare providers representing a variety of 
specialties. In addition, unusually severe weather conditions during the 
winter in the Midwest and New England, where the Company has a significant 
number of Mobile Facilities (as a result of the acquisitions of Mobile 
Imaging Consortium and Signal), Fixed Facilities and Centers, could have a 
negative impact on the Company's contract services and patient services 
revenues.

                                      24

<PAGE>

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 37.6% from 
approximately $69.2 million for the nine months ended March 31, 1998, to 
approximately $95.2 million for the nine months ended March 31, 1999. This 
increase was due primarily to an increase in costs due to the acquisitions 
discussed above (approximately $20.1 million) and an increase in costs at 
existing facilities (approximately $6.8 million), offset by the elimination 
of costs at the two terminated facilities discussed above (approximately $0.9 
million).

Costs of operations, as a percent of total revenues, decreased from 
approximately 81.3% for the nine months ended March 31, 1998, to 
approximately 80.9% for the nine months ended March 31, 1999. The decrease 
was due primarily to reduced costs in diagnostic imaging equipment 
maintenance, equipment lease and medical supply costs, offset by (i) higher 
amortization costs associated with the Company's acquisition activities and 
(ii) higher salaries and benefits, occupancy and depreciation costs.

CORPORATE OPERATING EXPENSES: Corporate operating expenses increased 
approximately 16.9% from approximately $6.5 million for the nine months 
ended March 31, 1998, to approximately $7.6 million for the nine months ended 
March 31, 1999. This increase was due primarily to (i) increased salaries, 
benefits and travel costs associated with the Company's acquisition 
activities, (ii) increased occupancy and communication costs, and (iii) 
additional information systems costs, offset by reduced legal costs. 
Corporate operating expenses, as a percent of total revenues, decreased from 
approximately 7.6% for the nine months ended March 31, 1998, to approximately 
6.5% for the nine months ended March 31, 1999.

PROVISION FOR SUPPLEMENTAL SERVICE FEE TERMINATION: In October 1997, as part 
of the Recapitalization and Bank Financing discussed above, the Company 
issued to GE 7,000 shares of Series C Preferred Stock to terminate GE's right 
to receive supplemental service fee payments equal to 14% of the Company's 
pre-tax income. The Series C Preferred Stock was valued at $7.0 million, and, 
during the nine months ended March 31, 1998, the Company recorded a one-time 
provision of approximately $6.3 million, net of amounts previously accrued, 
for the Preferred Stock issuance.

INTEREST EXPENSE, NET: Interest expense, net increased approximately 127.7% 
from approximately $4.7 million for the nine months ended March 31, 1998, to 
approximately $10.7 million for the nine months ended March 31, 1999. This 
increase was due primarily to additional debt related to (i) the issuance of 
Notes discussed above, which increased the Company's effective interest rate, 
(ii) the acquisitions discussed above, and (iii) the Company upgrading its 
existing diagnostic imaging equipment, offset by reduced interest as a result 
of amortization of long-term debt.

PROVISION FOR INCOME TAXES: Provision for income taxes decreased from 
approximately $0.4 million for the nine months ended March 31, 1998, to 
approximately $0.3 million for the nine months ended March 31, 1999. The 
decrease in provision is due to anticipated benefits from the utilization of 
certain operating loss carryforwards in 1999.

INCOME (LOSS) PER COMMON AND CONVERTED PREFERRED SHARE: On a diluted basis, 
net loss per common and converted preferred share was ($0.19) for the nine 
months ended March 31, 1998, compared to net income per common and converted 
preferred share of $0.45 for the same period in 1999. Excluding the one-time 
provision for supplemental service fee termination, net income for the nine 
months ended March 31, 1998 would have been approximately $4.8 million, 
compared to approximately $4.2 million for the nine months ended March 31, 
1999 and net income per common and converted preferred share on a diluted 
basis for the nine months ended March 31, 1998 would have been $0.64. The 
decrease in net income per common and converted preferred share was the 
result of (i) the additional shares outstanding as a result of the 
Recapitalization discussed above, (ii) increased interest expense, (iii) 
increased corporate operating expenses, and (iv) a decrease in earnings from 


                                       25

<PAGE>

unconsolidated partnerships as a result of the installation of new diagnostic 
imaging equipment, offset by increased gross profit.

THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO MARCH 31, 1998

REVENUES: Revenues increased approximately 43.7% from approximately $28.4 
million for the three months ended March 31, 1998, to approximately $40.8 
million for the three months ended March 31, 1999. This increase was due 
primarily to the acquisitions discussed above (approximately $8.1 million) 
and an increase in contract services, patient services and other revenues 
(approximately $4.3 million) at existing facilities. Contract services and 
patient services revenues were negatively impacted in the first half of the 
three months ended March 31, 1999 due to unusually severe weather conditions 
in the Midwest and New England, where the Company has a significant number of 
Mobile Facilities, Fixed Facilities and Centers.

Contract services revenues increased approximately 67.7% from approximately 
$13.0 million for the three months ended March 31, 1998, to approximately 
$21.8 million for the three months ended March 31, 1999. This increase was 
due primarily to the acquisitions discussed above (approximately $6.4 
million) and an increase at existing facilities (approximately $2.4 million). 
The increase at existing facilities was due to higher utilization 
(approximately 15%), offset by a decline in reimbursement from customers, 
primarily hospitals (approximately 5%), as a result of increased price 
competition.

Patient services revenues increased approximately 23.5% from approximately 
$14.9 million for the three months ended March 31, 1998, to approximately 
$18.4 million for the three months ended March 31, 1999. This increase was 
due primarily to the acquisitions discussed above (approximately $1.8 
million) and an increase in revenues at existing facilities (approximately 
$1.7 million). The increase at existing facilities was due to higher 
utilization (approximately 12%).

COSTS OF OPERATIONS: Costs of operations increased approximately 47.6% from 
approximately $22.9 million for the three months ended March 31, 1998, to 
approximately $33.8 million for the three months ended March 31, 1999. This 
increase was due primarily to an increase in costs due to the acquisitions 
discussed above (approximately $6.6 million), (ii) an increase in costs at 
existing facilities (approximately $3.6 million) and (iii) the elimination of 
a gain recognized in 1998 due to the termination of the Gamma Knife Center 
discussed above (approximately $0.7 million).

Costs of operations, as a percent of total revenues, increased from 
approximately 80.8% for the three months ended March 31, 1998, to 
approximately 82.8% for the three months ended March 31, 1999. The increase 
was due to (i) higher amortization costs associated with the Company's 
acquisition activities and (ii) higher salaries and benefits, occupancy and 
depreciation costs, offset by reduced diagnostic equipment maintenance and 
equipment lease costs.

CORPORATE OPERATING EXPENSES: Corporate operating expenses increased 
approximately 26.1% from approximately $2.3 million for the three months 
ended March 31, 1998, to approximately $2.9 million for the three months 
ended March 31, 1999. This increase was due primarily to (i) increased 
salaries, benefits and travel costs associated with the Company's acquisition 
activities, (ii) higher occupancy and communications costs, and (iii) 
additional information systems costs. Corporate operating costs, as a percent 
of total revenues, decreased from approximately 7.9% for the three months 
ended March 31, 1998, to approximately 7.1% for the three months ended March 
31, 1999.

INTEREST EXPENSE, NET: Interest expense, net increased approximately 164.3% 
from approximately $1.4 million for the three months ended March 31, 1998, to 
approximately $3.7 million for the three months ended March 31, 1999. This 
increase was due primarily to additional debt related to (i) the issuance of 
Notes discussed above, which increased the Company's effective interest rate, 
(ii) the acquisitions discussed above, and (iii) the Company upgrading its 
existing diagnostic imaging equipment, offset by reduced interest as a result 
of amortization of long-term debt.

PROVISION FOR INCOME TAXES: During the three months ended March 31, 1999, the 
Company recorded a provision for income taxes of approximately $0.1 million, 
compared to no provision recorded in the same period in 1998. The increase in 
provision in 1999 is due to anticipated tax rates for a full fiscal year, 
partially offset by anticipated benefits from the utilization of certain 
operating loss carryforwards.


                                       26

<PAGE>

INCOME PER COMMON AND CONVERTED PREFERRED SHARE: On a diluted basis, net 
income per common and converted preferred share was $0.20 for the three 
months ended March 31, 1998, compared to net income per common and converted 
preferred share of $0.06 for the same period in 1999. The decrease in net 
income per common and converted preferred share is the result of (i) 
increased interest expense, (ii) increased corporate operating expenses and 
(iii) a decrease in earnings from unconsolidated partnerships as a result of 
the installation of new diagnostic imaging equipment, offset by increased 
gross profit.

NEW PRONOUNCEMENTS

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

In fiscal 2001, the Company will be required to adopt Statement of Financial 
Accounting Standards No. 133, "Accounting for Derivatives, Instruments and 
Hedging Activities" and Statement of Position 98-5, "Reporting on the Costs 
of Start-up Activities". The Company believes the 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 March 31, 1999, InSight had outstanding an interest rate swap, converting 
the majority of its $46.3 million term loan floating rate debt to fixed rate 
debt. Since the majority of the Company's debt has historically been 
fixed-rate debt, the impact of the interest rate swap has not been material 
on the Company's weighted average interest rate.


                                       27

<PAGE>

                          PART II - OTHER INFORMATION

       ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

                  (a)      Exhibits.

                           There are none.

                  (b)      Reports on Form 8-K

                           No current reports on Form 8-K were filed by the
                           Company for the quarter ended March 31, 1999.



                                       28

<PAGE>

                                   SIGNATURES

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

                                       INSIGHT HEALTH SERVICES CORP.



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



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


                                       May 17, 1999



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