<PAGE>
================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                        --------------------------------

                                    FORM 10-Q

(MARK ONE)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934
       FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003

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

                           COMMISSION FILE NO. 0-23311


                                RADIOLOGIX, INC.
             (Exact name of registrant as specified in its charter)


                  DELAWARE                               75-2648089
        (State or other jurisdiction                  (I.R.S. Employer
            of incorporation or                      Identification No.)
               organization)

                                2200 ROSS AVENUE
                           3600 JP MORGAN CHASE TOWER
                            DALLAS, TEXAS 75201-2776
          (Address of principal executive offices, including zip code)

                                 (214) 303-2776
              (Registrant's telephone number, including area code)


         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 by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).

                                 Yes [X] No [ ]

         Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.

<Table>
<Caption>
                     Class                     Outstanding at November 12, 2003
         -------------------------------       --------------------------------
<S>                                            <C>
         COMMON STOCK, $0.0001 PAR VALUE             21,761,819 SHARES
</Table>

================================================================================

<PAGE>


                                RADIOLOGIX, INC.

                                    FORM 10-Q

                                      INDEX

<Table>
<Caption>
FORM 10-Q ITEM                                                                                                 PAGE
--------------                                                                                                 ----
<S>                                                                                                            <C>
PART I.  FINANCIAL INFORMATION

         Item 1.  Financial Statements

                  Consolidated Balance Sheets as of December 31, 2002 (Audited) and
                  September 30, 2003 (Unaudited)..............................................................   1

                  Consolidated Statements of Operations (Unaudited) for the three and nine months
                  ended September 30, 2002 and 2003...........................................................   2

                  Consolidated Statements of Cash Flows (Unaudited) for the nine months
                  ended September 30, 2002 and 2003...........................................................   3

                  Notes to Consolidated Financial Statements (Unaudited)......................................   4

         Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations ......  24

         Item 3.  Quantitative and Qualitative Disclosures About Market Risk .................................  37

         Item 4.  Controls and Procedures.....................................................................  37

PART II. OTHER INFORMATION

         Item 1.  Legal Proceedings...........................................................................  38

         Item 5.  Other Information...........................................................................  38

         Item 6.  Exhibits and Reports on Form 8-K............................................................  39

SIGNATURES....................................................................................................  40

INDEX TO EXHIBITS.............................................................................................  41
</Table>



<PAGE>


                          PART I: FINANCIAL INFORMATION
                          ITEM 1. FINANCIAL STATEMENTS

                        RADIOLOGIX, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

                                     ASSETS
<Table>
<Caption>
                                                                                  DECEMBER 31,     SEPTEMBER 30,
                                                                                      2002             2003
                                                                                  -------------    -------------
CURRENT ASSETS:                                                                                     (unaudited)
<S>                                                                               <C>              <C>
  Cash and cash equivalents ...................................................   $      19,153    $      24,717
  Accounts receivable, net of allowances ......................................          69,377           62,688
  Due from affiliates .........................................................           5,100            5,474
  Assets held for sale ........................................................              --               39
  Other current assets ........................................................           7,225            8,221
                                                                                  -------------    -------------
          Total current assets ................................................         100,855          101,139
PROPERTY AND EQUIPMENT, net ...................................................          62,103           62,896
INVESTMENTS IN JOINT VENTURES .................................................          10,149           10,367
GOODWILL ......................................................................          28,510           21,110
INTANGIBLE ASSETS, net ........................................................          72,151           69,337
DEFERRED FINANCING COSTS, net .................................................           9,719            8,511
OTHER ASSETS ..................................................................          12,604            9,068
                                                                                  -------------    -------------
          Total assets ........................................................   $     296,091    $     282,428
                                                                                  =============    =============
                      LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable and accrued expenses .......................................   $      19,145    $      15,735
  Accrued physician retention .................................................           8,216            9,570
  Accrued salaries and benefits ...............................................           8,268            7,023
  Current portion of long-term debt ...........................................             266              261
  Current portion of capital lease obligations ................................           4,052            2,238
  Other current liabilities ...................................................             458              511
                                                                                  -------------    -------------
          Total current liabilities ...........................................          40,405           35,338
DEFERRED INCOME TAXES .........................................................           4,200            1,900
LONG-TERM DEBT, net of current portion ........................................         160,412          160,209
CONVERTIBLE DEBT ..............................................................          11,980           11,980
CAPITAL LEASE OBLIGATIONS, net of current portion .............................           1,519              313
DEFERRED REVENUE ..............................................................           7,721            7,414
OTHER LIABILITIES .............................................................             147              164
                                                                                  -------------    -------------
          Total liabilities ...................................................         226,384          217,318

COMMITMENTS AND CONTINGENCIES

MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES ...............................           1,340            1,470
STOCKHOLDERS' EQUITY:
  Preferred stock, $.0001 par value; 10,000,000 shares
    authorized; no shares issued and outstanding ..............................              --               --
  Common stock, $.0001 par value; 50,000,000 shares authorized; 21,695,153
    shares issued and outstanding in 2002 and 21,761,819 in 2003 ..............               2                2
  Treasury stock ..............................................................            (180)            (180)
  Additional paid-in capital ..................................................          13,662           13,915
  Retained earnings ...........................................................          54,883           49,903
                                                                                  -------------    -------------
          Total stockholders' equity ..........................................          68,367           63,640
                                                                                  -------------    -------------
          Total liabilities and stockholders' equity ..........................   $     296,091    $     282,428
                                                                                  =============    =============
</Table>

          See accompanying notes to consolidated financial statements.


                                       1
<PAGE>


                        RADIOLOGIX, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<Table>
<Caption>
                                                                      FOR THE THREE MONTHS       FOR THE NINE MONTHS
                                                                       ENDED SEPTEMBER 30,       ENDED SEPTEMBER 30,
                                                                     ----------------------    ----------------------
                                                                        2002         2003        2002         2003
                                                                     ---------    ---------    ---------    ---------
<S>                                                                  <C>          <C>          <C>          <C>
SERVICE FEE REVENUE ..............................................   $  69,624    $  64,365    $ 211,670    $ 193,365
COSTS AND EXPENSES:
  Salaries and benefits ..........................................      21,188       21,145       61,350       63,054
  Field supplies .................................................       4,190        4,455       12,841       13,144
  Field rent and lease expense ...................................       7,495        8,135       22,452       24,245
  Other field expenses ...........................................      11,184       10,572       33,798       31,933
  Bad debt expense ...............................................       6,007        5,578       17,940       16,680
  Severance and other related costs ..............................          --           --           --        1,280
  Corporate general and administrative ...........................       3,712        3,560       11,577       10,576
  Depreciation and amortization ..................................       6,613        6,820       18,935       20,657
  Interest expense, net ..........................................       4,560        4,486       14,167       13,723
                                                                     ---------    ---------    ---------    ---------
      Total costs and expenses ...................................      64,949       64,751      193,060      195,292
                                                                     ---------    ---------    ---------    ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE EQUITY IN
EARNINGS OF INVESTMENTS, MINORITY INTERESTS IN INCOME OF
CONSOLIDATED SUBSIDIARIES, AND INCOME TAXES ......................       4,675         (386)      18,610       (1,927)

Equity In Earnings of Investments ................................       1,212          647        3,419        3,159

Minority Interests In Income of Consolidated Subsidiaries ........        (286)        (200)        (955)        (730)
                                                                     ---------    ---------    ---------    ---------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES ............       5,601           61       21,074          502

Income Tax Expense ...............................................       2,241           25        8,430          201
                                                                     ---------    ---------    ---------    ---------

INCOME FROM CONTINUING OPERATIONS ................................       3,360           36       12,644          301

Discontinued Operations:
  Loss from discontinued operations before income tax benefit ....        (282)      (1,137)        (420)      (8,802)
  Income tax benefit .............................................        (113)        (455)        (168)      (3,521)
                                                                     ---------    ---------    ---------    ---------
      Loss from discontinued operations, net .....................        (169)        (682)        (252)      (5,281)

                                                                     ---------    ---------    ---------    ---------
NET INCOME (LOSS) ................................................   $   3,191    $    (646)   $  12,392    $  (4,980)
                                                                     =========    =========    =========    =========

EARNINGS (LOSS) PER COMMON SHARE:
  Income from continuing operations - basic ......................   $    0.16    $      --    $    0.61    $    0.01
  Loss from discontinued operations - basic ......................       (0.01)       (0.03)       (0.01)       (0.24)
                                                                     ---------    ---------    ---------    ---------
      Net income (loss) - basic ..................................   $    0.15    $   (0.03)   $    0.60    $   (0.23)
                                                                     =========    =========    =========    =========

  Income from continuing operations - diluted ....................   $    0.14    $      --    $    0.55    $    0.01
  Loss from discontinued operations - diluted ....................          --        (0.03)       (0.01)       (0.24)
                                                                     ---------    ---------    ---------    ---------
      Net income (loss) - diluted ................................   $    0.14    $   (0.03)   $    0.54    $   (0.23)
                                                                     =========    =========    =========    =========

WEIGHTED AVERAGE SHARES OUTSTANDING:
  Basic ..........................................................      21,489       21,741       20,747       21,711
  Diluted ........................................................      24,234       22,224       24,158       21,907
</Table>


     See accompanying notes to unaudited consolidated financial statements.


                                       2
<PAGE>

                        RADIOLOGIX, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                                           FOR THE NINE MONTHS
                                                                           ENDED SEPTEMBER 30,
                                                                          --------------------
                                                                            2002         2003
                                                                          --------    --------
<S>                                                                       <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss) ...................................................   $ 12,392    $ (4,980)
  Adjustments to reconcile net income (loss) to net cash provided
    by operating activities including discontinued operations:
     Minority interests in income of consolidated subsidiaries ........        955         730
     Equity in earnings of investments ................................     (3,419)     (3,159)
     Depreciation and amortization ....................................     19,283      20,682
     Write-down of goodwill included in discontinued operations .......         --       7,400
     Deferred revenue .................................................         --        (307)
     Non-cash income from receipt of treasury stock ...................       (180)         --
  Changes in operating assets and liabilities; net of acquisitions
    and dispositions:
       Accounts receivable, net .......................................     (1,827)      6,689
       Other receivables and current assets ...........................        489      (1,655)
       Accounts payable and accrued expenses ..........................      3,058      (3,950)
                                                                          --------    --------
         Net cash provided by operating activities ....................     30,751      21,450
                                                                          --------    --------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment .................................    (17,917)    (17,570)
  Contributions to joint ventures .....................................       (867)       (620)
  Distributions from joint ventures ...................................      1,339       2,941
  Other investments ...................................................     (3,376)      2,286
                                                                          --------    --------
     Net cash used in investing activities ............................    (20,821)    (12,963)
                                                                          --------    --------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Payments on long-term debt ..........................................     (5,213)     (3,176)
  Financing costs .....................................................       (422)         --
  Proceeds from exercise of stock options .............................      1,077         250
  Other items .........................................................         --           3
                                                                          --------    --------
     Net cash used in financing activities ............................     (4,558)     (2,923)
                                                                          --------    --------

NET INCREASE IN CASH AND CASH EQUIVALENTS .............................      5,372       5,564

CASH AND CASH EQUIVALENTS, beginning of year ..........................     10,761      19,153
                                                                          --------    --------

CASH AND CASH EQUIVALENTS, end of period ..............................   $ 16,133    $ 24,717
                                                                          ========    ========
</Table>

     See accompanying notes to unaudited consolidated financial statements.


                                       3
<PAGE>


                        RADIOLOGIX, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2003
                                   (UNAUDITED)

1. DESCRIPTION OF BUSINESS

         Radiologix, Inc. (together with its subsidiaries referred to as
"Radiologix", the "Company," "we" or "us"), a Delaware corporation, is a leading
national provider of diagnostic imaging services through its ownership and
operation of free-standing, outpatient diagnostic imaging centers. Radiologix
utilizes sophisticated technology and technical expertise to perform a broad
range of imaging procedures, such as magnetic resonance imaging (MRI), computed
tomography (CT), positron emission tomography (PET), nuclear medicine,
ultrasound, mammography, bone densitometry (DEXA), general radiography (X-ray)
and fluoroscopy. As of September 30, 2003, Radiologix owned, operated or
maintained an ownership interest in imaging equipment at 110 locations,
including five imaging centers that have been designated for sale or closure
over the next three months that are included in discontinued operations in the
accompanying unaudited consolidated financial statements. In addition, we
provided management services to ten radiology practices. As of September 30,
2003, our imaging centers are located in 16 states, with a concentrated
geographic coverage in markets located in California, Florida, Kansas, Maryland,
New York, Texas and Virginia. Radiologix offers multi-modality imaging services
at 64 of its diagnostic imaging centers, which provide patients and referring
physicians access to advanced diagnostic imaging services in one convenient
location.

         Radiologix also provides administrative, management and information
services to certain radiology practices that provide professional services in
connection with its diagnostic imaging centers and to hospitals and radiology
practices with which the Company operates joint ventures. The Company's services
provide leverage to its existing infrastructure and improvement to the
efficiency and effectiveness of the radiology practice or joint venture
profitability.

         Radiologix has two models by which it contracts with radiology
practices: a comprehensive services model and a technical services model. Under
the comprehensive services model, the Company enters into a long-term agreement
with a radiology practice group (typically 40 years). Under this arrangement, in
addition to obtaining technical fees for the use of Radiologix's diagnostic
imaging equipment and the provision of technical services, we provide management
services and receive a fee based on the practice group's professional revenue,
including revenue derived from outside of our diagnostic imaging centers.

         Under the technical services model, the Company enters into a
shorter-term agreement with a radiology practice group (typically 10 to 15
years) and pays them a fee based on cash collections from reimbursements for
imaging procedures. In both the comprehensive services and technical services
models, the Company owns the diagnostic imaging assets and, therefore, receives
100% of the technical reimbursements associated with imaging procedures.
Additionally, in most instances, both the comprehensive services and the
technical services models contemplate an incentive technical bonus for the
radiology group if the net technical income exceeds specified thresholds. The
service agreements generally cannot be terminated by either party without cause,
consisting primarily of bankruptcy or material default.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

         This quarterly report for Radiologix supplements our annual report to
security holders for the fiscal year


                                       4
<PAGE>


ended December 31, 2002. As permitted by the Securities and Exchange Commission
for interim reporting, we have omitted certain notes and disclosures that
substantially duplicate those in the annual report. In the opinion of
management, all adjustments necessary for a fair presentation have been included
and are of a normal recurring nature, other than those adjustments related to
severance costs and discontinued operations which are discussed separately in
Notes 5 and 6. Interim results are not necessarily indicative of the results
that may be expected for the year. For further information, refer to the audited
consolidated financial statements and notes included in our annual report to
security holders for the year ended December 31, 2002.

         The unaudited consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
and include the accounts of the Company and its wholly owned and majority owned
subsidiaries. All significant intercompany transactions have been eliminated.
Investments in entities that the Company does not control, but in which it has a
substantial ownership interest and can exercise significant influence, are
accounted for using the equity method.

         Certain prior-year balances in the accompanying consolidated financial
statements have been reclassified to conform to the current year's presentation
of financial information. These reclassifications have no impact on total
assets, liabilities, stockholder's equity, net income (loss), or cash flows.

USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS

         The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, results of operations and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.

IMPAIRMENT OF LONG-LIVED ASSETS

         During the three months ended September 30, 2003, an additional imaging
center was included in discontinued operations in the accompanying unaudited
consolidated statements of income. As a result, in accordance with Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS No. 144"), a $500,000 pre-tax charge to
write-down the goodwill was recognized during the three months ended September
30, 2003. As of September 30, 2003, eight imaging centers were included in
discontinued operations in the accompanying unaudited consolidated statements of
income. The nine months ended September 30, 2003 includes a $7.4 million pre-tax
charge to write-down the goodwill related to these imaging centers.

GOODWILL AND INTANGIBLE ASSETS

         The value of intangible assets (consisting primarily of service
agreements and goodwill) is stated at the lower of cost or fair value.

         At September 30, 2003, the Company has $21.1 million of goodwill
related to the acquired intangible assets of our subsidiary, Questar Imaging,
Inc. ("Questar"). During the first quarter of 2003, in accordance with Statement
of Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets" we performed the annual impairment test of our Questar operations. We
engaged an independent third party valuation specialist to determine the fair
value of these operations. Their valuation indicated that the fair value of the
Questar operations exceeded the carrying value after considering the write-down
of goodwill for discontinued operations. Consequently, no impairment was
recorded.

                                       5
<PAGE>


         The intangible asset related to a service agreement is recorded on the
date of acquisition, and represents the difference between the cost of
purchasing the right to manage a radiology practice and the net assets acquired.
Under the initial 40-year term of the agreements, the contracted radiology
practices have agreed to provide medical services to facilities managed by
Radiologix. In the event a contracted radiology practice breaches the service
agreement, or if Radiologix terminates with cause, the contracted radiology
practice is required to purchase all related tangible and intangible assets,
including the unamortized portion of the service agreement intangible asset, at
the then net book value. The Company's service agreements, included in the
consolidated balance sheets as intangible assets, net, are not considered to
have an indefinite useful life and will continue to be amortized over a useful
life of 25 years. In connection with the restructuring of certain service
agreements during 2002, $6.0 million was capitalized as an addition to service
agreements. Accumulated amortization of intangible assets at September 30, 2002
and 2003 amounted to $17.6 and $16.9 million, respectively. Amortization expense
for the three months ended September 30, 2002 and 2003 equated to $848,000 and
$953,000, respectively. Amortization expense for the nine months ended September
30, 2002 and 2003 equated to $2.5 million and $2.9 million, respectively. We
expect amortization expense to approximate $16.2 million in total over the next
five years.

         We regularly evaluate the carrying value of our finite lived intangible
assets in light of any events or circumstances that may indicate that the
carrying amount or amortization period should be adjusted. As of September 30,
2003, we do not believe there are any indicators that the carrying values or the
useful lives of these assets need to be adjusted. Future disposals or
terminations of Questar operations may result in additional goodwill impairment
charges.

STOCK-BASED AWARDS

         In December 2002, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure" ("SFAS No. 148"). SFAS No.
148 provides companies alternative methods of transitioning to Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation"
("SFAS No. 123") fair value of accounting for stock-based employee compensation.
It also requires certain disclosure in both annual and quarterly financial
statements about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. SFAS No. 148 does not
mandate fair value accounting for stock-based employee compensation, but does
require all companies to meet the disclosure requirements. We do not recognize
compensation expense for our stock option grants, which are issued at fair value
at the date of grant. During the three months ended March 31, 2003, 500,000
options were issued which vest based on the Company's common stock exceeding
various stock closing sales prices for 20 consecutive days. During the three
months ended June 30, 2003, 125,000 options were issued that vest based on the
Company's common stock exceeding various stock closing sales prices for 20
consecutive days. None of these options vested during the nine months ended
September 30, 2003. Due to the volatility of the Company's most recent stock
prices, the Company was not able to estimate the fair value of the 500,000
options granted during the three months ended March 31, 2003 or the 125,000
options granted during the three months ended June 30, 2003 that vest at a
determined sales price and therefore, did not recognize compensation expense.
Upon vesting, the Company will recognize compensation expense for these variable
options. The Company has not adopted fair value accounting for its employee
stock options. In addition, 125,000 options were issued as incentive
compensation at the time of employment and were not under the Company's 1996
Stock Option Plan and have similar vesting as options issued under the Company's
1996 Stock Option Plan.

         The Company currently accounts for its employee stock-based
compensation arrangements under the provisions of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees"


                                       6
<PAGE>


("APB No. 25"). The Company accounts for stock-based compensation of
non-employees under the provisions of SFAS No. 123. The Company did not have any
stock-based compensation to non-employees during 2002 and 2003.

         SFAS No. 123 also requires that companies electing to continue to use
the intrinsic value method to make pro forma disclosure of net income (loss) and
net income (loss) per share as if the fair value method of accounting had been
applied. The effects of applying SFAS No. 123 during the nine months ended
September 30, 2002 and 2003 are as follows (in thousands, except per share
amounts):

<Table>
<Caption>
                                                               2002          2003
                                                            ----------    ----------
<S>                                                         <C>           <C>
Income from continuing operations .......................   $   12,644    $      301
Loss from discontinued operations, net of tax
    benefit .............................................         (252)       (5,281)
                                                            ----------    ----------
Net income (loss) .......................................       12,392        (4,980)
Deduct:  Total stock-based compensation expense
    determined under fair value based method for all
    awards, net of related tax effects ..................       (1,348)       (1,290)
                                                            ----------    ----------
Pro forma net income (loss) .............................   $   11,044    $   (6,270)
                                                            ==========    ==========

Earnings (loss) per common share:
  Income from continuing operations - basic .............   $     0.61    $     0.01
  Loss from discontinued operations - basic .............        (0.01)        (0.24)
                                                            ----------    ----------
  Net income (loss) - basic .............................   $     0.60    $    (0.23)
  Proforma net income (loss) - basic ....................   $     0.53    $    (0.29)

  Income from continuing operations - diluted ...........   $     0.55    $     0.01
  Loss from discontinued operations - diluted ...........        (0.01)        (0.24)
                                                            ----------    ----------
  Net income (loss) - diluted ...........................   $     0.54    $    (0.23)
  Proforma net income (loss) - diluted ..................   $     0.48    $    (0.29)
</Table>

         The fair value of each option grant is estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted average
assumptions for grants during the nine months ended September 30, 2002 and 2003,
respectively: risk-free interest rate of 3.87% and 4.27%; expected life of 6.93
and 7.50 years; expected volatility of 83.1%, and 67.5%; and dividend yield of
zero in 2002 and 2003, respectively. The weighted-average grant-date fair value
of new grants during the nine months ended September 30, 2002 and 2003 was
$11.65 per share, and $2.56 per share, respectively.

         The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

REVENUE PRESENTATION

         The Financial Accounting Standards Board's Emerging Issues Task Force
issued its abstract, Issue 97-2, "Application of FASB Statement No. 94 and APB
Opinion No. 16 to Physician Practice Management Entities


                                       7
<PAGE>


and Certain Other Entities with Contractual Arrangements" ("EITF 97-2"). Since
Radiologix has not established a "controlling financial interest" under EITF
97-2, Radiologix does not consolidate the contracted radiology practices.

         The following table sets forth the amounts of revenue for the
contracted radiology practices and diagnostic imaging centers that would have
been presented in the consolidated statements of operations had Radiologix met
the provisions of EITF 97-2 (in thousands):

<Table>
<Caption>
                                                    FOR THE THREE MONTHS ENDED        FOR THE NINE MONTHS ENDED
                                                            SEPTEMBER 30,                     SEPTEMBER 30,
                                                    --------------------------        -------------------------
                                                     2002               2003             2002            2003
                                                    ---------        ---------        ---------       ---------
<S>                                                 <C>              <C>              <C>             <C>
Revenue for contracted radiology practices
  and diagnostic imaging centers, net of
  contractual adjustments ...................       $  96,078        $  90,295        $ 291,224       $ 269,626

Less: amounts retained by contracted
  radiology practices .......................         (26,454)         (25,930)         (79,554)        (76,261)
                                                    ---------        ---------        ---------       ---------
Service fee revenue .........................       $  69,624        $  64,365        $ 211,670       $ 193,365
                                                    =========        =========        =========       =========
</Table>

         Revenue of the contracted radiology practices and diagnostic imaging
centers is recorded when services are rendered by the contracted radiology
practice and diagnostic imaging center based on established charges and reduced
by contractual allowances. In addition, bad debt expense related to established
charges is recognized as costs and expenses rather than a deduction of net
revenue. We use historical collection experience in estimating our contractual
adjustments and bad debt expense. The factors influencing the historical
collection experience include the contracted radiology practices' and diagnostic
imaging centers' patient mix, impact of managed care contract pricing and
contract revenue and the aging of patient accounts receivable balances. As these
factors change, the historical collection experience is revised accordingly in
the period known.

         Service fee revenue represents the contracted radiology practices' and
diagnostic imaging centers' revenue less amounts retained by the contracted
radiology practices. The amounts retained by the contracted radiology practices
represents amounts paid to the physicians pursuant to the service agreements
between Radiologix and the contracted radiology practices. Under the service
agreements, the Company provides each contracted radiology practice with the
facilities and equipment used in its medical practice, assumes responsibility
for the management of the operations of the practice, and employs substantially
all of the non-physician personnel utilized by the contracted radiology
practice.

         The Company's service fee revenue is dependent upon the operating
results of the contracted radiology practices and diagnostic imaging centers.
Where state law allows, service fees due under the service agreements for the
contracted radiology practices are derived from two distinct revenue streams:
(1) a negotiated percentage (up to 30%) of the adjusted professional revenues as
defined in the service agreements; and (2) 100% of the adjusted technical
revenues as defined in the service agreements. In states where the law requires
a flat fee structure, Radiologix has negotiated a base service fee, which is
equal to the estimated fair market value of the services provided under the
service agreements and which is renegotiated each year to equal the fair market
value of the services provided under the service agreements. Adjusted
professional revenues and adjusted technical revenues are determined by
deducting certain contractually agreed-upon expenses (non-physician salaries and
benefits, rent, depreciation, insurance, interest and other physician costs)
from the contracted radiology practices' revenue. Revenues of Questar are
primarily derived from technical revenues generated from those imaging centers.
Service fee revenue consists of the following (in thousands):


                                       8
<PAGE>


<Table>
<Caption>
                                    FOR THE THREE MONTHS ENDED       FOR THE NINE MONTHS ENDED
                                            SEPTEMBER 30,                  SEPTEMBER 30,
                                       2002             2003            2002            2003
                                    ---------        ---------       ---------       ---------
<S>                                 <C>              <C>             <C>             <C>
Professional component ......       $  12,804        $  11,952       $  42,371       $  35,325
Technical component .........          56,820           52,413         169,299         158,040
                                    ---------        ---------       ---------       ---------
     Service fee revenue ....       $  69,624        $  64,365       $ 211,670       $ 193,365
                                    =========        =========       =========       =========
</Table>

SEVERANCE AND OTHER RELATED COSTS

         During the nine months ended September 30, 2003, we recorded severance
costs of $1,280,000. These costs include severance incurred in connection with
changes in the Company's senior management team and a cost reduction program
that resulted in a workforce reduction at the corporate office and among certain
field employees. The following table provides a reconciliation of the beginning
and ending liability balances in connection with severance and other related
costs recorded in the current and prior periods as of September 30, 2003 (in
thousands):

<Table>
<S>                                                    <C>
                  Balance at December 31, 2002 .....   $   773
                  Expense ..........................     1,280
                  Cash payments ....................    (1,982)
                                                       -------
                  Balance at September 30, 2003 ....   $    71
                                                       =======
</Table>

         The above liability balances are included in accounts payable and
accrued expenses in the accompanying consolidated balance sheets.

RECENT ACCOUNTING PRONOUNCEMENTS

         In March 2003, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards Board Interpretation No. 46
"Consolidation of Variable Interest Entities" ("FIN 46"), effective December 15,
2003. FIN 46 requires that a company consolidate or disclose information about a
variable interest entity. FIN 46 applies prospectively to all enterprises with
variable interests in variable interest entities created after January 31, 2003.
The disclosure provisions are effective for financial statements of interim
periods after December 15, 2003. The effect of FIN 46 on the Company has not yet
been determined.

         In May 2003, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 150 "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity" ("FAS 150").
Radiologix consolidates three finite-lived joint ventures that qualify as
mandatorily redeemable non-controlling interests, as defined by SFAS 150. Upon
termination of these joint ventures at a contractually designated future date,
all net assets will be distributed to the joint venture partners, including
Radiologix, in accordance with the partners' ownership percentage, and at
settlement amounts that are comparable to book values. Upon adoption of the
measurement and recognition provisions of SFAS 150 (currently deferred
indefinitely for mandatorily redeemable non-controlling interests), Radiologix
will measure the non-controlling interests in these ventures at settlement value
and recognize the non-controlling interests as liabilities.


                                       9
<PAGE>


3. LONG TERM DEBT

Senior Notes

         The Company's $160 million senior notes due December 15, 2008 bear
interest at an annual rate of 10 1/2% payable semiannually in arrears on June 15
and December 15 of each year, commencing June 15, 2002. The senior notes are
redeemable on or after December 15, 2005 at various redemption prices, plus
accrued and unpaid interest to the date of redemption. The senior notes are
unsecured obligations, which rank senior in right of payment to all of our
subordinate indebtedness and equal in right of payment with all other senior
indebtedness. The senior notes are unconditionally guaranteed on a senior
unsecured basis by certain restricted existing and future subsidiaries.

Credit Facility

         At September 30, 2003, no borrowings were outstanding under our credit
facility of $35 million. Under the credit facility, the interest rate is (i) an
adjusted LIBOR rate, plus an applicable margin which can vary from 3.0% to 3.5%
dependent on certain financial ratios or (ii) the prime rate, plus an applicable
margin which can vary from 1.75% to 2.25%. In each case, the applicable margin
varies based on financial ratios maintained by the Company. The credit facility
includes certain restrictive covenants including prohibitions on the payment of
dividends and the maintenance of certain financial ratios (including minimum
fixed charge coverage ratio and maximum leverage ratio, as defined). At
September 30, 2003, the Company was in compliance with these covenants. At
September 30, 2003, certain financial ratios have restricted the Company's
ability to borrow up to $35 million. As a result of the financial covenant
ratios, at September 30, 2003, the Company has available up to $11.6 million
under the credit facility. Borrowings under the credit facility are secured by
all service agreements that the Company is or becomes a party to, a pledge of
the stock of the Company's subsidiaries and all of the Company's and its
wholly-owned subsidiaries' assets.

Convertible Subordinated Debt

         The Company has a $12.0 million convertible junior subordinated note,
which matures July 31, 2009, and bears interest, payable quarterly in cash or
payment in kind securities, at an annual rate of 8.00%.

4. DEFERRED REVENUE

         In connection with the amendment of a service agreement in July 2002
with one of the contracted radiology practices, we have recorded deferred
revenue of $3.3 million in consideration recognized for the amended agreement,
which will be amortized over a 20-year period, representing the remaining life
of the agreement. In December 2002, we amended a service agreement of another
contracted radiology practice and recorded deferred revenue of $4.8 million in
consideration recognized for the amended agreement. Beginning January 2003, the
deferred revenue is being amortized over approximately a 19-year period,
representing the remaining life of the agreement.


                                       10
<PAGE>

5. COMMITMENTS AND CONTINGENCIES

         As previously disclosed in the Report on Form 10-Q for the quarterly
period ended June 30, 2003, the Company has been subject to a lawsuit and a
demand for arbitration with physicians in San Antonio, Texas. On September 29,
2003, the parties executed a comprehensive agreement to settle by arbitration
all disputes between the parties for all claims arising in the lawsuit and
demand for arbitration. The arbitration was conducted and completed on October
8, 2003 and mutual general releases became effective as of that date. The
management service agreement shall terminate and the parties shall separate
their business dealings commencing on June 30, 2004. The lawsuits have been
dismissed and the matter has now been concluded. The service fee revenue and
income from continuing operations before income taxes of the Central region will
be decreased by approximately 15% and 32%, respectively, as a result of the
portion of the business to be severed June 30, 2004.

         As part of a routine, ongoing compliance and legal review, Radiologix
has found that rents negotiated for the subletting of space from physician
landlords of several Radiologix locations may have exceeded fair market value.
Radiologix sent a letter to the U.S. Department of Health & Human Services'
Office of the Inspector General ("OIG"), informing them of the preliminary
findings and seeking their guidance and assistance to remedy this situation.
Accordingly, in the second quarter of 2003, we recorded $500,000 as an estimate
for potential payments we may incur directly or indirectly. Subsequently,
Radiologix has qualified for the Provider Self-disclosure Protocol of the
Department of Health and Human Services' Office of the Inspector General
("OIG"). The Provider Self-disclosure Protocol is a self-reporting program that
provides for minimizing the cost and disruption associated with on-going
investigations of the OIG. Since the inquiry is in its very early stages, it is
not yet possible for Radiologix to give any assurances that the OIG will not
impose fines in excess of our estimate or that any potential payments or
findings would not have a material adverse effect on its financial position,
cash flow and results of operations.

6. DISCONTINUED OPERATIONS

         As of September 30, 2003, the Company has five imaging centers that
have been designated for sale or closure over the next three months that are
included in discontinued operations in the accompanying unaudited consolidated
statements of income. These imaging centers do not represent centers around
which we can build a market concentration. During the three months ended
September 30, 2003 an additional imaging center was included in discontinued
operations. As a result, in accordance with SFAS No. 144, a $500,000 pre-tax


                                       11
<PAGE>
 charge to write-down the goodwill was recognized during the three months ended
September 30, 2003. This imaging center was subsequently sold effective
September 30, 2003 along with two other imaging centers for the assumption of
certain obligations. A $300,000 pre-tax charge for an equipment lease buy-out
for one of the imaging centers sold was recognized during the three months ended
September 30, 2003. The five imaging centers designated for sale or closure and
three imaging centers sold are reported in discontinued operations in the
accompanying unaudited consolidated statements of income for the three and nine
months ended September 30, 2002 and 2003. The nine months ended September 30,
2003 include a $7.4 million pre-tax charge to write-down the related goodwill of
these imaging centers in accordance with SFAS No. 144. For the three and nine
months ended September 30, 2002, the accompanying unaudited consolidated
statements of income have been restated to reflect the results of operations of
the eight imaging centers as discontinued operations.

         Service fee revenue and loss from discontinued operations were as
follows (in thousands):

<Table>
<Caption>
                                             FOR THE THREE MONTHS ENDED        FOR THE NINE MONTHS ENDED
                                                     SEPTEMBER 30,                   SEPTEMBER 30,
                                             --------------------------        -------------------------
                                                2002              2003           2002             2003
                                             ---------        ---------        ---------       ---------
<S>                                          <C>              <C>              <C>             <C>
Service fee revenue ..................       $   1,650        $   1,535        $   5,685       $   4,423
Loss from discontinued operations
    before income taxes ..............       $    (282)       $  (1,137)       $    (420)      $  (8,802)
Income tax benefit ...................            (113)            (455)            (168)         (3,521)
                                             ---------        ---------        ---------       ---------
Loss from discontinued operations ....       $    (169)       $    (682)       $    (252)      $  (5,281)
                                             =========        =========        =========       =========
</Table>

         Assets and liabilities of discontinued operations as of September 30,
2002 and 2003 were as follows (in thousands):

<Table>
<Caption>
                                                 2002     2003
                                               ------   ------
<S>                                            <C>      <C>
                Assets .....................   $3,556   $1,762
                Liabilities ................    1,833    1,508
                                               ------   ------
                Net assets .................   $1,723   $  254
                                               ======   ======
</Table>

7. EARNINGS PER SHARE

         Basic earnings per share ("EPS") is calculated by dividing income
available to common stockholders by the weighted average number of common shares
outstanding during the period (including shares to be issued). Options,
warrants, and other potentially dilutive securities are excluded from the
calculation of basic EPS. Diluted EPS includes the options, warrants, and other
potentially dilutive securities that are excluded from basic EPS using the
treasury stock method to the extent that these securities are not anti-dilutive.
Diluted EPS also includes the effect of the convertible junior subordinated note
using the "if converted" method to the extent the securities are not
anti-dilutive. For the three months ended September 30, 2003, approximately
$145,000 of tax-effected interest savings and 1,593,098 weighted average shares
related to the convertible junior subordinated note were not included in the
computation of diluted EPS because to do so would be anti-dilutive for the
period. For the three months ended September 30, 2002, approximately $144,000 of
tax-effected interest savings and 1,613,898 weighted average shares related to
the convertible junior subordinated note were included in the computation of
diluted EPS. For the three months ended September 30, 2002 and 2003, 1,131,534
shares and 482,592 shares, respectively, related to stock options were included
in diluted EPS.

         For the nine months ended September 30, 2003, approximately $435,000 of
tax-effected interest savings and 1,593,098 weighted average shares related to
the convertible junior subordinated note were not included in the computation of
diluted EPS because to do so would be anti-dilutive for the period. For the nine
months ended September 30, 2002, approximately $614,000 of tax-effected interest
savings and 2,183,777 weighted average shares related to the convertible junior
subordinated note were included in the computation of diluted




                                       12
<PAGE>

EPS. For the nine months ended September 30, 2002 and 2003, 1,227,184 shares and
196,079 shares, respectively, related to stock options were included in diluted
EPS.

8. SEGMENT REPORTING

         The Company reports the results of its operations through four
designated regions of the United States: Mid-Atlantic, Northeastern, Central and
Western. In addition, the Company reports the results of its operations of the
imaging centers of its subsidiary, Questar. The Company's operations in each of
the four designated regions are comprised of the ownership and operation of
diagnostic imaging centers and the provision of administrative, management and
information services to the contracted radiology practices that provide
professional interpretation and supervision services in connection with its
diagnostic imaging centers and to hospitals and radiology practices with which
the Company operates joint ventures. The Company's services provide leverage to
its existing infrastructure and improvement to the efficiency and effectiveness
of the radiology practice or joint venture profitability. The Company has
divided the operations into the four regions and Questar only for purposes of
the division of internal management responsibilities, but does not focus on each
of these regions as a separate product line or make financial decisions as if
they were separate product lines. The Questar operations are looked at as a
separate group only from the perspective that the imaging centers of Questar do
not have the same type of management service agreement with physicians as we
have with each of the contracted radiology practices in the four designated
regions. In addition, any imaging centers of Questar that are in the same market
as the operations of the contracted radiology practices in the four designated
regions are not included in the service agreements of the contracted radiology
practices.

         The following table summarizes the operating results and assets by the
five reportable segments (dollars in thousands):

<Table>
<Caption>
                                                                 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
                                            --------------------------------------------------------------------------------
                                            Mid-Atlantic    Northeastern    Central      Western
                                              Region (1)     Region (2)    Region (3)   Region (4)   Questar (5)     Total
                                            ------------    ------------   ----------   ----------   -----------    --------
<S>                                         <C>             <C>            <C>          <C>          <C>            <C>
Service fee revenue .....................   $     92,967          48,136       26,444       24,835        19,288    $211,670
Total costs and expenses ................   $     70,958          37,779       19,736       22,803        15,607    $166,883
Income from continuing operations
  before equity in earnings of
  investments and minority interests
  in income of consolidated
subsidiaries, and income taxes ..........   $     22,009          10,357        6,708        2,032         3,681    $ 44,787
Equity in earnings of investments .......   $      2,683              --          736           --            --    $  3,419
Minority interests in income of
  consolidated subsidiaries .............   $       (631)             --         (319)          --            (5)   $   (955)
Income from continuing operations
  before income taxes ...................   $     24,061          10,357        7,125        2,032         3,676    $ 47,251
Loss from discontinued operations .......   $         --              --           --           --          (420)   $   (420)
Income before income taxes ..............   $     24,061          10,357        7,125        2,032         3,256    $ 46,831

Assets ..................................   $     77,847          39,129       27,012       21,476        20,004    $185,468
Purchases of property and equipment .....   $      9,286           2,878        1,991        3,107           412    $ 17,674
</Table>


                                       13
<PAGE>

<Table>
<Caption>
                                                                FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
                                            --------------------------------------------------------------------------------
                                            Mid-Atlantic    Northeastern    Central      Western
                                             Region (1)      Region (2)    Region (3)   Region (4)   Questar (5)     Total
                                            ------------    ------------   ----------   ----------   -----------    --------
<S>                                         <C>             <C>            <C>          <C>          <C>            <C>
Service fee revenue ......................  $     87,083          36,374       25,106        28,160       16,642    $ 193,365
Total costs and expenses..................  $     72,324          36,277       19,383        25,122       15,992    $ 169,098
Income from continuing operations
  before equity in earnings of
  investments and minority interests
  in income of consolidated
  subsidiaries, and income taxes .........  $     14,759              97        5,723         3,038          650    $  24,267
Equity in earnings of investments ........  $      2,819              --          340            --           --    $   3,159
Minority interests in income of
  consolidated subsidiaries ..............  $       (449)             --         (240)           --          (41)   $    (730)
Income from continuing operations
  before income taxes ....................  $     17,129              97        5,823         3,038          609    $  26,696
Loss from discontinued operations ........  $         --              --           --            --       (8,802)   $  (8,802)
Income (loss) before income taxes ........  $     17,129              97        5,823         3,038       (8,193)   $  17,894

Assets ...................................  $     71,176          36,081       24,987        22,219       39,047    $ 193,510
Purchases of property and equipment ......  $      7,399           3,411          764         2,929        2,849    $  17,352
</Table>

     (1)  Includes the Baltimore/Washington, D.C. Metropolitan area.

     (2)  Includes Rochester, New York, Rockland County, New York and the
          surrounding areas.

     (3)  Includes San Antonio, Texas, St. Lucie County, Florida, Topeka,
          Kansas, Northeast Kansas and the surrounding areas.

     (4)  Includes San Francisco/Oakland/San Jose, California and surrounding
          areas.

     (5)  Includes diagnostic imaging centers in Arizona, California, Colorado,
          Delaware, Florida, Georgia, Illinois, Kansas, Minnesota, Missouri,
          Nebraska, Nevada, Ohio and Pennsylvania that were acquired as part of
          the Questar acquisition and that have not been integrated into
          pre-existing Radiologix market areas and discontinued operations (See
          Note 6).

         Corporate assets, including intangible assets, as of September 30, 2002
and 2003 were $110,623 and $88,918, respectively.

         The following is a reconciliation of income (loss) before income taxes
and purchases of property and equipment by the Company's five reportable
segments to the Company's consolidated financial statements for the nine months
ended September 30, 2002 and 2003 (in thousands):

<Table>
<Caption>
                                                        FOR THE NINE MONTHS ENDED
                                                             SEPTEMBER 30,
                                                        -------------------------
                                                           2002           2003
                                                        ----------     ----------
<S>                                                     <C>            <C>
Segment income before income taxes .................    $   46,831     $   17,894
Unallocated amounts:
   Corporate general and administrative ............       (11,577)       (10,576)
   Corporate severance and other related costs .....            --         (1,027)
   Corporate other income ..........................           180             --
   Corporate depreciation and amortization .........        (4,267)        (4,646)
   Corporate interest expense ......................       (10,513)        (9,945)
                                                        ----------     ----------
Consolidated income (loss) including
    discontinued operations before income taxes ....    $   20,654     $   (8,300)
                                                        ==========     ==========
</Table>


                                       14
<PAGE>

<Table>
<Caption>
                                                  FOR THE NINE MONTHS ENDED
                                                         SEPTEMBER 30,
                                                  -------------------------
                                                     2002           2003
                                                  ----------    ----------
<S>                                               <C>           <C>
Purchases of property and equipment
  Segment amounts ............................    $   17,674    $   17,352
  Corporate amount ...........................           243           218
                                                  ----------    ----------
Total purchases of property and equipment ....    $   17,917    $   17,570
                                                  ==========    ==========
</Table>


9. JOINT VENTURE FINANCIAL INFORMATION

         The Company has nine unconsolidated joint ventures with ownership
interests ranging from 22% to 50%. These joint ventures represent partnerships
with hospitals, health systems or radiology practices and were formed for the
purpose of owning and operating diagnostic imaging centers. Professional
services at the joint venture diagnostic imaging centers are performed by the
contracted radiology practices in the market area or a radiology practice that
participates in the joint venture. The following table is a summary of key
financial data for these joint ventures: (in thousands):

<Table>
<Caption>
                               DECEMBER 31,    SEPTEMBER 30,
                                   2002             2003
                               ------------    -------------
<S>                            <C>             <C>
Current assets ............    $     18,873    $      20,330
Noncurrent assets .........    $     14,184    $      14,752
Current liabilities .......    $      6,263    $       5,879
Noncurrent liabilities ....    $        653    $         427
</Table>

<Table>
<Caption>
                          FOR THE THREE MONTHS ENDED  FOR THE NINE MONTHS ENDED
                                 SEPTEMBER 30,              SEPTEMBER 30,
                          --------------------------  -------------------------
                             2002             2003        2002          2003
                          ----------      ----------  ----------     ----------
<S>                       <C>             <C>         <C>            <C>
Minority interest ....    $    1,212      $      647  $    3,419     $    3,159
Net revenue ..........    $   11,983      $    9,866  $   36,961     $   37,271
Net income ...........    $    3,431      $    2,156  $   10,017     $    9,480
</Table>


10. SUPPLEMENTAL GUARANTOR INFORMATION

         In connection with the senior notes, certain of the Company's
subsidiaries ("Subsidiary Guarantors") guaranteed, jointly and severally, the
Company's obligation to pay principal and interest on the senior notes on a full
and unconditional basis.

         The following supplemental condensed consolidating financial
information presents the balance sheets as of December 31, 2002 and September
30, 2003, and the statements of operations and cash flows for the nine months
ended September 30, 2002 and 2003. In the consolidating condensed financial
statements, the Subsidiary Guarantors account for their investment in the
non-guarantor subsidiaries using the equity method.

         The non-guarantor subsidiaries include Advanced PET Imaging of
Maryland, L.P., Lakewood OpenScan MR, LLC, Lexington MR, Ltd., Montgomery
Community Magnetic Imaging Center Limited Partnership, Tower OpenScan MRI, and
MRI at St. Joseph Medical Center LLC. The Subsidiary Guarantors include all
wholly owned subsidiaries of Radiologix, Inc. (the "Parent").


                                       15
<PAGE>


                        RADIOLOGIX, INC. AND SUBSIDIARIES

                      CONDENSED CONSOLIDATING BALANCE SHEET

                                DECEMBER 31, 2002
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                                   SUBSIDIARY    NON-GUARANTOR                      TOTAL
                                                     PARENT        GUARANTORS     SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                                   ---------       ----------    -------------    ------------   ------------
<S>                                                <C>             <C>           <C>              <C>            <C>
ASSETS:

Cash and cash equivalents ...................      $  15,775       $    (381)      $   3,759       $      --       $ 19,153
Accounts receivable, net of allowances ......             --          66,190           3,187              --         69,377
Other current assets ........................             82          13,099            (856)             --         12,325
                                                   ---------       ---------       ---------       ---------       --------
          Total current assets ..............         15,857          78,908           6,090              --        100,855
Property and equipment, net .................          2,314          57,071           2,718              --         62,103
Investment in subsidiaries ..................        140,667              --              --        (140,667)            --
Goodwill ....................................             --          28,510              --              --         28,510
Intangible assets, net ......................             --          70,581           1,570              --         72,151
Other assets ................................         17,120          15,318              34              --         32,472
                                                   ---------       ---------       ---------       ---------       --------
                                                   $ 175,958       $ 250,388       $  10,412       $(140,667)      $296,091
                                                   =========       =========       =========       =========       ========

LIABILITIES AND STOCKHOLDERS' EQUITY:

Accounts payable and accrued expenses .......      $   7,490       $  26,380       $   1,759       $      --       $ 35,629
Current portion of long-term obligations ....             13           3,681             624              --          4,318
Other current liabilities ...................             --             458              --              --            458
                                                   ---------       ---------       ---------       ---------       --------
          Total current liabilities .........          7,503          30,519           2,383              --         40,405
Long-term obligations, net of current
    portion .................................        171,567           1,090           1,254              --        173,911
Other noncurrent liabilities ................        (71,479)         86,638          (3,091)             --         12,068
Minority interests in consolidated
    subsidiaries ............................             --              --           1,340              --          1,340
Stockholders' equity ........................         68,367         132,141           8,526        (140,667)        68,367
                                                   ---------       ---------       ---------       ---------       --------
                                                   $ 175,958       $ 250,388       $  10,412       $(140,667)      $296,091
                                                   =========       =========       =========       =========       ========
</Table>


                                       16
<PAGE>


                        RADIOLOGIX, INC. AND SUBSIDIARIES

                CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)

                               SEPTEMBER 30, 2003
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                                  SUBSIDIARY    NON-GUARANTOR                       TOTAL
                                                     PARENT       GUARANTORS    SUBSIDIARIES     ELIMINATIONS    CONSOLIDATED
                                                   ---------      ----------    -------------    ------------    ------------
<S>                                                <C>             <C>          <C>              <C>             <C>
ASSETS:

Cash and cash equivalents ...................      $  21,232       $   1,542      $   1,943       $      --       $  24,717
Accounts receivable, net of allowances ......             --          59,871          2,817              --          62,688
Other current assets ........................          1,060          13,588           (914)             --          13,734
                                                   ---------       ---------      ---------       ---------       ---------
          Total current assets ..............         22,292          75,001          3,846              --         101,139
Property and equipment, net .................          2,237          58,113          2,546              --          62,896
Investment in subsidiaries ..................        149,891              --             --        (149,891)             --
Goodwill ....................................             --          21,110             --              --          21,110
Intangible assets, net ......................             --          61,397          7,940              --          69,337
Other assets ................................         15,627          12,289             30              --          27,946
                                                   ---------       ---------      ---------       ---------       ---------
                                                   $ 190,047       $ 227,910      $  14,362       $(149,891)      $ 282,428
                                                   =========       =========      =========       =========       =========

LIABILITIES AND STOCKHOLDERS' EQUITY:

Accounts payable and accrued expenses .......      $   7,334       $  17,353      $   7,641       $      --       $  32,328
Current portion of long-term obligations ....             45           1,853            601              --           2,499
Other current liabilities ...................             47             462              2              --             511
                                                   ---------       ---------      ---------       ---------       ---------
          Total current liabilities .........          7,426          19,668          8,244              --          35,338
Long-term obligations, net of current
    portion .................................        171,526             201            775              --         172,502
Other noncurrent liabilities ................        (52,545)         67,852         (5,829)             --           9,478
Minority interests in consolidated
    subsidiaries ............................             --              --          1,470              --           1,470
Stockholders' equity ........................         63,640         140,189          9,702        (149,891)         63,640
                                                   ---------       ---------      ---------       ---------       ---------
                                                   $ 190,047       $ 227,910      $  14,362       $(149,891)      $ 282,428
                                                   =========       =========      =========       =========       =========
</Table>


                                       17
<PAGE>


                        RADIOLOGIX, INC. AND SUBSIDIARIES

           CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)

                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                                    SUBSIDIARY     NON-GUARANTOR                       TOTAL
                                                      PARENT        GUARANTORS      SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                                     ---------      ----------     -------------    ------------   ------------
<S>                                                  <C>            <C>            <C>              <C>            <C>
Service fee revenue ...........................      $      --       $ 194,906       $  16,764       $      --      $ 211,670
Costs and expenses:
    Salaries and benefits .....................             --          59,084           2,266              --         61,350
    Field supplies ............................             --          11,964             877              --         12,841
    Field rent and lease expense ..............             --          20,968           1,484              --         22,452
    Other field expenses ......................           (180)         29,042           4,936              --         33,798
    Bad debt expense ..........................             --          16,774           1,166              --         17,940
    Corporate general and administrative ......         11,577              --              --              --         11,577
    Depreciation and amortization .............          2,076          16,108             751              --         18,935
    Interest expense, net .....................         10,513           3,352             302              --         14,167
                                                     ---------       ---------       ---------       ---------      ---------
         Total costs and expenses .............         23,986         157,292          11,782              --        193,060
                                                     ---------       ---------       ---------       ---------      ---------
Income (loss) from continuing operations
    before equity in earnings of
    investments, minority interests in
    income of consolidated subsidiaries,
    and income taxes ..........................        (23,986)         37,614           4,982              --         18,610
Equity in earnings of investments .............             --           3,419              --              --          3,419
Minority interests in income of
    consolidated subsidiaries .................             --              --            (955)             --           (955)
                                                     ---------       ---------       ---------       ---------      ---------
Income (loss) from continuing operations
    before income .............................        (23,986)         41,033           4,027              --         21,074
    Income tax expense (benefit) ..............         (9,594)         16,413           1,611              --          8,430
                                                     ---------       ---------       ---------       ---------      ---------
Income (loss) from continuing
      operations ..............................        (14,392)         24,620           2,416              --         12,644
                                                     ---------       ---------       ---------       ---------      ---------
Discontinued operations:
    Loss from discontinued operations .........             --            (420)             --              --           (420)
    Income tax benefit ........................             --            (168)             --              --           (168)
                                                     ---------       ---------       ---------       ---------      ---------
Loss from discontinued operations, net ........             --            (252)             --              --           (252)
                                                     ---------       ---------       ---------       ---------      ---------
Net income (loss) .............................      $ (14,392)      $  24,368       $   2,416       $      --      $  12,392
                                                     =========       =========       =========       =========      =========
</Table>


                                       18
<PAGE>

                        RADIOLOGIX, INC. AND SUBSIDIARIES

           CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)

                  FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                                     SUBSIDIARY    NON-GUARANTOR                      TOTAL
                                                      PARENT         GUARANTORS     SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                                     ---------       ----------    -------------   ------------   ------------
<S>                                                  <C>            <C>            <C>              <C>            <C>
Service fee revenue ...........................      $      --       $  64,327       $   5,297       $      --      $  69,624
Costs and expenses:
    Salaries and benefits .....................             --          20,412             776              --         21,188
    Field supplies ............................             --           3,902             288              --          4,190
    Field rent and lease expense ..............             --           7,004             491              --          7,495
    Other field expenses ......................             --           9,644           1,540              --         11,184
    Bad debt expense ..........................             --           5,631             376              --          6,007
    Corporate general and administrative ......          3,712              --              --              --          3,712
    Depreciation and amortization .............            725           5,637             251              --          6,613
    Interest expense, net .....................          3,387           1,012             161              --          4,560
                                                     ---------       ---------       ---------       ---------      ---------
         Total costs and expenses .............          7,824          53,242           3,883              --         64,949
                                                     ---------       ---------       ---------       ---------      ---------
Income (loss) from continuing operations
    before equity in earnings of
    investments, minority interests in
    income of consolidated subsidiaries,
    and income taxes ..........................         (7,824)         11,085           1,414              --          4,675
Equity in earnings of investments .............             --           1,212              --              --          1,212
Minority interests in income of
    consolidated subsidiaries .................             --              --            (286)             --           (286)
                                                     ---------       ---------       ---------       ---------      ---------
Income (loss) from continuing operations
    before income .............................         (7,824)         12,297           1,128              --          5,601
    Income tax expense (benefit) ..............         (3,129)          4,919             451              --          2,241
                                                     ---------       ---------       ---------       ---------      ---------
Income (loss) from continuing
      operations ..............................         (4,695)          7,378             677              --          3,360
                                                     ---------       ---------       ---------       ---------      ---------
Discontinued operations:
    Loss from discontinued operations .........             --            (282)             --              --           (282)
    Income tax benefit ........................             --            (113)             --              --           (113)
                                                     ---------       ---------       ---------       ---------      ---------
Loss from discontinued operations, net ........             --            (169)             --              --           (169)
                                                     ---------       ---------       ---------       ---------      ---------
Net income (loss) .............................      $  (4,695)      $   7,209       $     677       $      --      $   3,191
                                                     =========       =========       =========       =========      =========
</Table>


                                       19
<PAGE>


                        RADIOLOGIX, INC. AND SUBSIDIARIES

           CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)

                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                                    SUBSIDIARY    NON-GUARANTOR                      TOTAL
                                                     PARENT         GUARANTORS     SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                                    ---------       ----------    -------------   ------------   ------------
<S>                                                 <C>            <C>            <C>              <C>            <C>
Service fee revenue ..........................      $      --       $ 179,756       $  13,609       $      --      $ 193,365
Costs and expenses:
    Salaries and benefits ....................             --          60,883           2,171              --         63,054
    Field supplies ...........................             --          12,300             844              --         13,144
    Field rent and lease expense .............             --          22,766           1,479              --         24,245
    Other field expenses .....................             --          27,285           4,648              --         31,933
    Bad debt expense .........................             --          15,686             994              --         16,680
    Severance and other related costs ........          1,027             253              --              --          1,280
    Corporate general and administrative .....         10,576              --              --              --         10,576
    Depreciation and amortization ............          2,129          17,870             658              --         20,657
    Interest expense, net ....................          9,945           3,653             125              --         13,723
                                                    ---------       ---------       ---------       ---------      ---------
         Total costs and expenses ............         23,677         160,696          10,919              --        195,292
                                                    ---------       ---------       ---------       ---------      ---------
Income (loss) from continuing operations
    before equity in earnings of
    investments, minority interests in
    income of consolidated subsidiaries,
    and income taxes .........................        (23,677)         19,060           2,690              --         (1,927)
Equity in earnings of investments ............             --           3,159              --              --          3,159
Minority interests in income of
    consolidated subsidiaries ................             --              --            (730)             --           (730)
                                                    ---------       ---------       ---------       ---------      ---------
Income (loss) from continuing operations
    before income ............................        (23,677)         22,219           1,960              --            502
    Income tax expense (benefit) .............         (9,471)          8,888             784              --            201
                                                    ---------       ---------       ---------       ---------      ---------
Income (loss) from continuing
      operations .............................        (14,206)         13,331           1,176              --            301
                                                    ---------       ---------       ---------       ---------      ---------
Discontinued operations:
    Loss from discontinued operations ........             --          (8,802)             --              --         (8,802)
    Income tax benefit .......................             --          (3,521)             --              --         (3,521)
                                                    ---------       ---------       ---------       ---------      ---------
Loss from discontinued operations, net .......             --          (5,281)             --              --         (5,281)
                                                    ---------       ---------       ---------       ---------      ---------
Net income (loss) ............................      $ (14,206)      $   8,050       $   1,176       $      --      $  (4,980)
                                                    =========       =========       =========       =========      =========
</Table>


                                       20
<PAGE>


                        RADIOLOGIX, INC. AND SUBSIDIARIES

           CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)

                  FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                                    SUBSIDIARY    NON-GUARANTOR                      TOTAL
                                                     PARENT         GUARANTORS     SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                                    ---------       ----------    -------------   ------------   ------------
<S>                                                 <C>            <C>            <C>             <C>             <C>
Service fee revenue ..........................      $      --       $  59,987       $   4,378       $      --      $  64,365
Costs and expenses:
    Salaries and benefits ....................             --          20,450             695              --         21,145
    Field supplies ...........................             --           4,185             270              --          4,455
    Field rent and lease expense .............             --           7,664             471              --          8,135
    Other field expenses .....................             --           8,936           1,636              --         10,572
    Bad debt expense .........................             --           5,253             325              --          5,578
    Severance and other related costs ........             --              --              --              --             --
    Corporate general and administrative .....          3,560              --              --              --          3,560
    Depreciation and amortization ............            642           5,962             216              --          6,820
    Interest expense, net ....................          3,270           1,170              46              --          4,486
                                                    ---------       ---------       ---------       ---------      ---------
         Total costs and expenses ............          7,472          53,620           3,659              --         64,751
                                                    ---------       ---------       ---------       ---------      ---------
Income (loss) from continuing operations
    before equity in earnings of
    investments, minority interests in
    income of consolidated subsidiaries,
    and income taxes .........................         (7,472)          6,367             719              --           (386)
Equity in earnings of investments ............             --             647              --              --            647
Minority interests in income of
    consolidated subsidiaries ................             --              --            (200)             --           (200)
                                                    ---------       ---------       ---------       ---------      ---------
Income (loss) from continuing operations
    before income ............................         (7,472)          7,014             519              --             61
    Income tax expense (benefit) .............         (2,989)          2,806             208              --             25
                                                    ---------       ---------       ---------       ---------      ---------
Income (loss) from continuing
      operations .............................         (4,483)          4,208             311              --             36
                                                    ---------       ---------       ---------       ---------      ---------
Discontinued operations:
    Loss from discontinued operations ........             --          (1,137)             --              --         (1,137)
    Income tax benefit .......................             --            (455)             --              --           (455)
                                                    ---------       ---------       ---------       ---------      ---------
Loss from discontinued operations, net .......             --            (682)             --              --           (682)
                                                    ---------       ---------       ---------       ---------      ---------

Net income (loss) ............................      $  (4,483)      $   3,526       $     311       $      --      $    (646)
                                                    =========       =========       =========       =========      =========
</Table>


                                       21
<PAGE>

                        RADIOLOGIX, INC. AND SUBSIDIARIES

           CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)

                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                                         SUBSIDIARY    NON-GUARANTOR                      TOTAL
                                                          PARENT         GUARANTORS     SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                                         ---------       ----------    -------------   ------------   ------------
<S>                                                      <C>            <C>            <C>              <C>            <C>
NET CASH PROVIDED BY (USED IN)
  OPERATING ACTIVITIES .............................      $  (7,630)      $  37,165       $   1,216       $      --      $  30,751

CASH FLOWS FROM INVESTING
  ACTIVITIES:
  Purchases of property and equipment, net .........         (2,431)        (15,269)           (217)             --        (17,917)
  Joint ventures ...................................             --             472              --              --            472
  Other items ......................................         (2,751)           (697)             72              --         (3,376)
                                                          ---------       ---------       ---------       ---------      ---------
          Net cash used in investing activities ....         (5,182)        (15,494)           (145)             --        (20,821)
                                                          ---------       ---------       ---------       ---------      ---------
CASH FLOWS FROM FINANCING
  ACTIVITIES:
  Proceeds (payments) on long-term debt ............         (4,049)         (1,784)            620              --         (5,213)
  Due to/from parent/subsidiaries ..................         17,586         (17,663)             77              --             --
  Other items ......................................          3,247          (2,608)             16              --            655
                                                          ---------       ---------       ---------       ---------      ---------
          Net cash provided by (used in)
              financing activities .................         16,784         (22,055)            713              --         (4,558)
                                                          ---------       ---------       ---------       ---------      ---------
NET INCREASE (DECREASE) IN CASH
  AND CASH EQUIVALENTS .............................          3,972            (384)          1,784              --          5,372
CASH AND CASH EQUIVALENTS,
  beginning of period ..............................          7,670            (953)          4,044              --         10,761
                                                          ---------       ---------       ---------       ---------      ---------
CASH AND CASH EQUIVALENTS,
  end of period ....................................      $  11,642       $  (1,337)      $   5,828       $      --      $  16,133
                                                          =========       =========       =========       =========      =========
</Table>



                                       22
<PAGE>

                        RADIOLOGIX, INC. AND SUBSIDIARIES

           CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)

                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                                     SUBSIDIARY    NON-GUARANTOR                      TOTAL
                                                      PARENT         GUARANTORS     SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                                     ---------       ----------    -------------   ------------   ------------
<S>                                                  <C>            <C>            <C>              <C>            <C>
NET CASH PROVIDED BY (USED IN)
  OPERATING ACTIVITIES ........................      $ (14,310)      $  26,884       $   8,876       $      --      $  21,450
                                                     ---------       ---------       ---------       ---------      ---------

CASH FLOWS FROM INVESTING
  ACTIVITIES:
  Purchases of property and equipment .........         (2,052)        (15,032)           (486)             --        (17,570)
  Joint ventures ..............................             --           2,321              --              --          2,321
  Other investments ...........................            285           8,967          (6,966)             --          2,286
                                                     ---------       ---------       ---------       ---------      ---------
          Net cash used in investing activities         (1,767)         (3,744)         (7,452)             --        (12,963)
                                                     ---------       ---------       ---------       ---------      ---------
CASH FLOWS FROM FINANCING
  ACTIVITIES:
  Payments on long-term debt ..................             (9)         (2,665)           (502)             --         (3,176)
  Due to/from parent/subsidiaries .............         21,289         (18,536)         (2,753)             --             --
  Other items .................................            254             (16)             15              --            253
                                                     ---------       ---------       ---------       ---------      ---------
          Net cash provided by (used in)
              financing activities ............         21,534         (21,217)         (3,240)             --         (2,923)
                                                     ---------       ---------       ---------       ---------      ---------
NET INCREASE (DECREASE) IN CASH
  AND CASH EQUIVALENTS ........................          5,457           1,923          (1,816)             --          5,564
CASH AND CASH EQUIVALENTS,
  beginning of period .........................         15,775            (381)          3,759              --         19,153
                                                     ---------       ---------       ---------       ---------      ---------
CASH AND CASH EQUIVALENTS,
  end of period ...............................      $  21,232       $   1,542       $   1,943       $      --      $  24,717
                                                     =========       =========       =========       =========      =========
</Table>



                                       23
<PAGE>


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

         The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the Company's
consolidated financial statements and notes thereto included in the Annual
Report on Form 10-K for the year ended December 31, 2002, and with the Company's
consolidated financial statements and notes included in this Form 10-Q.

OVERVIEW

         We are a leading national provider of diagnostic imaging services
through our ownership and operation of free-standing, outpatient diagnostic
imaging centers. We utilize sophisticated technology and technical expertise to
perform a broad range of imaging procedures, such as magnetic resonance imaging
(MRI), computed tomography (CT), positron emission tomography (PET), nuclear
medicine, ultrasound, mammography, bone densitometry (DEXA), general radiography
(X-ray) and fluoroscopy. For the nine months ended September 30, 2003, we
derived 82% of our service fee revenue from the ownership, management and
operation of our radiology and imaging center network and 18% of our service fee
revenue from administrative, management and information services provided to
contracted radiology practices. As of September 30, 2003, we owned, operated or
maintained an ownership interest in imaging equipment at 110 locations,
including five imaging centers that have been designated for sale or closure
over the next three months that are included in discontinued operations in the
accompanying financial statements. In addition, we provided management services
to ten radiology practices. As of September 30, 2003, our imaging centers are
located in 16 states, with concentrated geographic coverage in markets located
in California, Florida, Kansas, Maryland, New York, Texas and Virginia.

         We focus on providing quality patient care and service to ensure
patient and referring physician satisfaction. Our development of comprehensive
radiology networks permits us to invest in technologically advanced imaging
equipment, including MRI, open MRI, spiral CT and PET. Our consolidation of
diagnostic imaging centers into coordinated networks improves response time,
increases overall patient accessibility, permits us to standardize certain
customer relations procedures and permits us to develop "best practices" for our
diagnostic imaging centers. We seek the input and participation of the
contracted radiology practices to which we provide administrative, management
and information services to develop best practices and to improve productivity
and the quality of services. By focusing on further improving and, where
appropriate, standardizing the operations of our diagnostic imaging centers, we
believe that we can increase patient and referring physician satisfaction, which
should lead to increased referrals and increased utilization of our diagnostic
imaging centers.

         We contract with radiology practices to provide professional services,
including the supervision and interpretation of diagnostic imaging procedures
performed in our diagnostic imaging centers. We believe that we do not engage in
the practice of medicine nor do we employ physicians. The radiology practices
maintain full control over the provision of professional radiological services.
The contracted radiology practices generally have outstanding physician and
practice credentials and reputations; strong competitive market positions; a
broad sub-specialty mix of physicians; a history of growth and potential for
continued growth; and a willingness to embrace our strategy for the delivery of
diagnostic imaging services.

         For the nine months ended September 30, 2003, payment for diagnostic
imaging services came primarily from commercial third-party payors (66%),
governmental payors (28%, including Medicare and Medicaid) and private and other
payors (6%). In January 2002, Medicare decreased the payment rates for physician
and outpatient services, including diagnostic imaging services, by approximately
5.4%. This payment rate schedule was effective through February 2003. Effective
March 1, through December 31, 2003, Congress legislated an increase of
approximately 1.6% in the overall reimbursement rates for physician and
outpatient services,


                                       24
<PAGE>


including diagnostic imaging services. The Centers for Medicare and Medicaid
Services ("CMS") proposed in October 2003 a decrease in the payment rates for
physician and outpatient services, including diagnostic imaging services, by
approximately 4.5% beginning January 1, 2004. The Medicare reform package is now
pending before Congress to pass the legislation.

         Our diagnostic imaging centers are principally dependent on our ability
to attract referrals from primary care physicians, specialists and other
healthcare providers. The referral often depends on the existence of a
contractual arrangement with the referred patient's health benefit plan. For the
nine months ended September 30, 2003, approximately 6% of our revenue generated
at our diagnostic imaging centers was generated from capitated arrangements.

         Revenue of the contracted radiology practices and diagnostic imaging
centers is recorded when services are rendered by the contracted radiology
practices and diagnostic imaging centers based on established charges and
reduced by contractual allowances. In addition, bad debt expense related to
established charges is recognized as costs and expenses rather than a deduction
from revenue. We use historical collection experience in estimating contractual
adjustments and bad debt expense. The factors influencing the historical
collection experience include the contracted radiology practices' and diagnostic
imaging centers' patient mix, impact of managed care contract pricing and
contract revenue and the aging of patient accounts receivable balances. As these
factors change, the historical collection experience is revised accordingly in
the period known. Service fee revenue represents the contracted radiology
practices' and diagnostic imaging centers' revenue less amounts retained by the
contracted radiology practices. The amounts retained by the contracted radiology
practices represent amounts paid to the physicians pursuant to the service
agreements between us and the contracted radiology practices. Under the service
agreements, we provide each contracted radiology practice with the facilities
and equipment used in its medical practice, assume responsibility for managing
the operations of the practice, and employ substantially all of the
non-physician personnel utilized by the contracted radiology practice. Although
we assist in negotiating managed care contracts for the contracted radiology
practices, we assume no risk under these arrangements.

         Our service fee revenue is dependent upon the operating results of the
contracted radiology practices and diagnostic imaging centers. Where state law
allows, service fees due under the service agreements for the contracted
radiology practices are derived from two distinct revenue streams: (1) a
negotiated percentage (up to 30%) of the adjusted professional revenues as
defined in the service agreements; and (2) 100% of the adjusted technical
revenues as defined in the service agreements. In states where the law requires
a flat fee structure, we have negotiated a base service fee, which is equal to
the estimated fair market value of the services provided under the service
agreements and which is renegotiated each year to equal the fair market value of
the services provided under the service agreements. Adjusted professional
revenues and adjusted technical revenues are determined by deducting
contractually agreed-upon expenses (non-physician salaries and benefits, rent,
depreciation, insurance, interest and other physician costs) from the contracted
radiology practices' revenue. Revenues of our subsidiary, Questar Imaging, Inc.
("Questar") are primarily derived from technical revenues generated from those
imaging centers.

RESULTS OF OPERATIONS

         We report the results of our operations through four designated regions
of the United States: Mid-Atlantic, Northeastern, Central and Western regions.
In addition, we report separately the results of our operations of the imaging
centers of our subsidiary, Questar. Our operations in each of the four
designated regions are comprised of the ownership and operation of diagnostic
imaging centers and the provision of administrative, management and information
services to the contracted radiology practices that provide professional
interpretation and supervision services in connection with our diagnostic
imaging centers and to hospitals and radiology practices with which we operate
joint ventures. Our services provide leverage to its existing


                                       25
<PAGE>


infrastructure and improvement to the efficiency and effectiveness of the
radiology practice or joint venture profitability. We have divided the
operations into the four regions and Questar only for purposes of the division
of internal management responsibilities, but do not focus on each of these
regions as a separate product line or make financial decisions as if they were
separate product lines. The Questar operations are treated as a separate group
only from the perspective that the imaging centers of Questar do not have the
same type of management service agreement with physicians as we have with each
of the contracted radiology practices in the four designated regions. In
addition, any imaging centers of Questar that are in the same region as the
operations of the contracted radiology practices in the four designated regions
are not included in the service agreements of the contracted radiology
practices.

         Our results of operations during the nine months ended September 30,
2003 were affected by such factors as increased competition, the current
recession, increased payor pre-authorization activity, a shortage of
technologists, harsh weather conditions during January and February and most
recently, a hurricane in the Mid-Atlantic region. Although we continue to be
challenged by these factors, our results of operations are beginning to
stabilize in some of our key markets. Beginning in the second half of 2002, and
continuing into 2003, increased competition resulted in lower volumes of
diagnostic imaging procedures performed. Pre-authorization programs implemented
by many of our larger payors and the recruitment and retention of additional
technologists have impacted our operating margin. An increasing number of payors
with which we do business have instituted during 2003 more comprehensive
pre-authorization programs on certain procedures. Under pre-authorization
programs, the referring physician must justify medical necessity based on the
payor's specific guidelines prior to the services being rendered. The current
recession in the United States' economy has contributed to the decline in our
volumes of diagnostic imaging procedures performed due to the decrease in the
demand for elective procedures within the general population who are no longer
covered by health insurance or have higher deductibles and coinsurance. Also, in
early fiscal 2002 the shortage of qualified technologists resulted in scheduling
backlogs and lost procedure volumes. As many of the open technologist positions
were filled by mid-2002, salaries and benefits increased. These costs continued
to increase or remained stable, while volume began to decline resulting in lower
revenues from contracted radiology practices and diagnostic imaging centers. In
September 2003, many of our imaging centers in the Mid-Atlantic regions were
closed up to three days due to a hurricane in the geographical area. Therefore,
we experienced lower revenues from contracted radiology practices and diagnostic
imaging centers in the Mid-Atlantic region during this period. The combined
effect of increased salaries and benefits and lower revenues from contracted
radiology practices and diagnostic imaging centers decreased our operating
margins during the nine months ended September 30, 2003. We cannot give any
assurance that any of the factors discussed above will not continue to have an
adverse effect on our business, results of operations or financial condition.

         Income before income taxes for each of the regions except the Western
region decreased from the nine months ended September 30, 2002 to the nine
months ended September 30, 2003. For the nine months ended September 30, 2002
and 2003, the Mid-Atlantic region decreased from $24.1 million to $17.1 million,
respectively, the Northeastern region decreased from $10.4 million to $97,000,
respectively, the Central region decreased from $7.1 million to $5.8 million,
respectively, and Questar decreased from $3.3 million to a loss of $8.2 million,
respectively. For the nine months ended September 30, 2002 and 2003 for the
Western region income before income taxes increased from $2.0 million to $3.0
million, respectively. The decline in the income before income taxes for three
of the four regions and Questar was primarily affected by each of the factors
discussed above. Additional factors in specific regions also contributed to the
decrease in income before income taxes. Questar's income (loss) before income
taxes was also affected by the relative fixed salaries and benefits costs. Due
to the relative fixed cost structure of Questar, the decline in volume and
therefore, lower revenue for diagnostic imaging centers resulted in a decline in
the income (loss) before taxes. In addition, we have identified five imaging
centers of Questar that have been designated for sale or closure over the next
three months and have sold three imaging centers of Questar during the nine
months ended September 30, 2003.


                                       26
<PAGE>


These imaging centers do not represent centers around which we can build a
market concentration. During the nine months ended September 30, 2003, a
$500,000 pre-tax charge was recognized to write-down the goodwill related to
these imaging centers in accordance with Financial Accounting Standards Board
Statement 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
("SFAS No.144"). In addition, a $300,000 pre-tax charge for an equipment lease
buy-out for one of the imaging centers sold was recognized in the nine months
ended September 30, 2003. The Western region has experienced growth in volume of
diagnostic imaging procedures performed and increased reimbursement related to a
managed care agreement, resulting in an increase in income before taxes for 2003
compared to 2002.

         We completed no acquisitions in the nine months ended September 30,
2002 and September 30, 2003, respectively.

THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2003

Service Fee Revenue

         The following table sets forth the amounts of revenue from contracted
radiology practices and diagnostic imaging centers and the amounts retained by
the contracted radiology practices (in thousands):

<Table>
<Caption>
                                                                       FOR THE THREE MONTHS ENDED
                                                                                SEPTEMBER 30,
                                                                     ------------------------------
                                                                                            PERCENT
                                                                       2002        2003     CHANGE
                                                                     --------    --------   -------
<S>                                                                  <C>         <C>         <C>
Revenue from contracted radiology practices and
  diagnostic imaging centers, net of contractual allowances ....     $ 96,078    $ 90,295    (6.0%)
Less: amounts retained by contracted radiology practices .......      (26,454)    (25,930)   (2.0%)
                                                                     --------    --------
Service fee revenue ............................................     $ 69,624    $ 64,365    (7.6%)
                                                                     ========    ========
</Table>

         Revenue from contracted radiology practices and diagnostic imaging
centers, net of contractual allowances, decreased $5.8 million, from $96.1
million for the three months ended September 30, 2002 to $90.3 million for the
three months ended September 30, 2003. This decrease was primarily due to
decreased revenues derived from decreased volume at the diagnostic imaging
centers, which decreased our revenue from contracted radiology practices and
diagnostic imaging centers. Amounts retained by contracted radiology practices
decreased from $26.5 million for the three months ended September 30, 2002 to
$25.9 million for the same period in 2003. The decrease in revenue from
contracted radiology practices and diagnostic imaging centers, net of
contractual allowances, offset by the decrease in amounts retained by contracted
radiology practices, resulted in a decrease in service fee revenue of $5.2
million, from $69.6 million for the three months ended September 30, 2002 to
$64.4 million for the three months ended September 30, 2003.

Salaries and Benefits

         Salaries and benefits decreased $100,000, from $21.2 million for the
three months ended September 30, 2002 to $21.1 million for the three months
ended September 30, 2003. As a percentage of service fee revenue, salaries and
benefits were 30.4% and 32.9% for the three months ended September 30, 2002 and
2003, respectively.

Field Supplies

         Field supplies increased $300,000, from $4.2 million for the three
months ended September 30, 2002 to $4.5 million for the three months ended
September 30, 2003. The increase in field supplies is primarily related to the
higher usage of film for certain procedures that have increased in volume for
2003 compared to 2002. As a percentage of service fee revenue, these costs were
6.0% and 6.9% for the three months ended September 30, 2002 and 2003,
respectively.


                                       27
<PAGE>

Field Rent and Lease

         Field rent and lease costs increased $600,000, from $7.5 million for
the three months ended September 30, 2002 to $8.1 million for the three months
ended September 30, 2003. The increase in field rent and lease costs is
primarily related to entering into operating leases for new equipment and higher
facility costs for existing locations as well as new locations. As a percentage
of service fee revenue, these costs were 10.8% and 12.6% for the three months
ended September 30, 2002 and 2003, respectively.

Other Field Costs

         Other field costs decreased $600,000, from $11.2 million for the three
months ended September 30, 2002 to $10.6 million for the three months ended
September 30, 2003. As a percentage of service fee revenue, these costs were
16.1% for the three months ended September 30, 2002 to 16.4% for the same period
in 2003. In connection with the amendment of two service agreements during the
year ended December 31, 2002, certain costs are no longer paid by the Company,
which contributed to the decrease in other field expenses.

Bad Debt

         Bad debt decreased $400,000, from $6.0 million for the three months
ended September 30, 2002 to $5.6 million for the three months ended September
30, 2003. The decrease in bad debt is primarily the result of terminating
services performed at certain hospitals. Generally, bad debt experience with
reimbursement for hospital services is at a higher percentage of revenues than
the experience with reimbursement for imaging center services. As a percentage
of service fee revenue, these costs were 8.6% and 8.7% for the three months
ended September 30, 2002 and 2003, respectively. Since service fee revenue
represents contracted radiology practices' and diagnostic imaging centers'
revenue less amounts retained by contracted radiology practices, these
percentages are inherently at a higher stated value. Therefore, bad debt expense
should be compared for the three months ended September 30, 2002 and 2003 as a
percentage of revenue of the contracted radiology practices and diagnostic
imaging centers, net of contractual allowances, rather than as a percentage of
service fee revenue. As a percentage of revenue of the contracted radiology
practices and diagnostic imaging centers, net of contractual allowances, bad
debt expense was 6.3% for the three months ended September 30, 2002 and 6.2% for
the three months ended September 30, 2003.

Corporate, General and Administrative

         Corporate, general and administrative expenses decreased $100,000, from
$3.7 million for the three months ended September 30, 2002 to $3.6 million for
the three months ended September 30, 2003. As a percentage of service fee
revenue, these costs were 5.3% and 5.5% for the three months ended September 30,
2002 and 2003, respectively. During the first quarter of 2003, we initiated cost
reduction programs at our corporate office and our field offices. We believe
this may result in corporate, general and administrative annual cost savings of
approximately $2.0 million. During 2003, these cost savings have been partially
offset by additional legal costs and consulting services.

Depreciation and Amortization

         Depreciation and amortization expense increased $200,000, from $6.6
million for the three months ended September 30, 2002 to $6.8 million for the
three months ended September 30, 2003. As a percentage of service fee revenue,
these costs were 9.5% and 10.6% for the three months ended September 30, 2002
and 2003, respectively. The increase in depreciation expense is primarily
attributable to the purchases of $26.8 million of property and equipment for
replacement, maintenance, and expansion in 2002 and of $12.4 million during the
six months ended June 30, 2003.


                                       28
<PAGE>

Interest Expense, Net

         Interest expense, net, decreased $100,000, from $4.6 million for the
three months ended September 30, 2002 to $4.5 million for the three months ended
September 30, 2003.

Discontinued Operations

         As of September 30, 2003, the Company has five imaging centers that
have been designated for sale or closure over the next three months that are
included in discontinued operations in the accompanying unaudited consolidated
statements of income. These imaging centers do not represent centers around
which we can build a market concentration. During the three months ended
September 30, 2003 an additional imaging center was included in discontinued
operations. As a result, in accordance with SFAS No. 144, a $500,000 pre-tax
charge was recognized related to a charge to write-down the goodwill during the
three months ended September 30, 2003. This imaging center was subsequently sold
effective September 30, 2003 along with two other imaging centers for the
assumption of certain obligations. A $300,000 pre-tax charge for an equipment
lease buy-out for one of the imaging centers sold was recognized in the three
months ended September 30, 2003. The five imaging centers designated for sale or
closure and three imaging centers sold are included in discontinued operations
in the accompanying unaudited consolidated statements of income for the three
months ended September 30, 2002 and 2003. For the three months ended September
30, 2002, the accompanying unaudited consolidated statements of income have been
restated to reflect the results of operations of the eight imaging centers as
discontinued operations. Loss from discontinued operations for the three months
ended September 30, 2002 was $282,000 ($169,000 net of tax benefit). Loss from
discontinued operations for the three months ended September 30, 2003 was $1.1
million ($682,000 net of tax benefit).

Income Tax Expense (Benefit) on Continuing Operations and Discontinued
Operations

         Income tax expense on continuing operations was $2.2 million and
$25,000 for the three months ended September 30, 2002 and 2003, respectively.
The income tax expense on continuing operations is based on a 40% effective tax
rate. The income tax benefit on the loss from discontinued operations for the
three months ended September 30, 2002 and 2003 was $113,000 and $455,000,
respectively. The income tax benefit on discontinued operations is based on a
40% effective tax rate.

Net Income (Loss)

         Net income decreased from $3.2 million for the three months ended
September 30, 2002 to a loss of $646,000 for the three months ended September
30, 2003. Included in net income for the three months ended September 30, 2002
is a loss from discontinued operations of $169,000. Included in net loss for the
three months ended September 30, 2003 is a loss from discontinued operations of
$682,000.


                                       29
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 2003

Service Fee Revenue

         The following table sets forth the amounts of revenue from the
contracted radiology practices and diagnostic imaging centers and the amounts
retained by contracted radiology practices (in thousands):

<Table>
<Caption>
                                                                       FOR THE NINE MONTHS ENDED
                                                                             SEPTEMBER 30,
                                                                   ----------------------------------
                                                                                             PERCENT
                                                                     2002         2003       CHANGE
                                                                   ---------    ---------    -------
<S>                                                                <C>          <C>          <C>
Revenue from contracted radiology practices and
  diagnostic imaging centers, net of contractual allowances ....   $ 291,224    $ 269,626    (7.4%)
Less: amounts retained by contracted radiology practices .......     (79,554)     (76,261)   (4.1%)
                                                                   ---------    ---------
Service fee revenue, as reported ...............................   $ 211,670    $ 193,365    (8.7%)
                                                                   =========    =========
</Table>


         Revenue from contracted radiology practices and diagnostic imaging
centers, net of contractual allowances, decreased $21.6 million, from $291.2
million for the nine months ended September 30, 2002 to $269.6 million for the
nine months ended September 30, 2003. This decrease was primarily due to
decreased revenues derived from decreased volume at the diagnostic imaging
centers, which decreased our revenue from contracted radiology practices and
diagnostic imaging centers. Amounts retained by contracted radiology practices
decreased from $79.6 million for the nine months ended September 30, 2002 to
$76.3 million for the same period in 2003. The decrease in revenue from
contracted radiology practices and diagnostic imaging centers, net of
contractual allowances and the decrease in amounts retained by contracted
radiology practices, resulted in service fee revenue decreasing $18.3 million,
from $211.7 million for the nine months ended September 30, 2002 to $193.4
million, for the nine months ended September 30, 2003.

Salaries and Benefits

         Salaries and benefits increased $1.7 million, from $61.4 million for
the nine months ended September 30, 2002 to $63.1 million for the nine months
ended September 30, 2003. Salaries and benefits increased due to rising salary
costs of technologists and salary pressure related to hiring and retaining
technologists. As a percentage of service fee revenue, salaries and benefits
were 29.0% and 32.6% for the nine months ended September 30, 2002 and 2003,
respectively.

Field Supplies

         Field supplies increased $300,000, from $12.8 million for the nine
months ended September 30, 2002 to $13.1 million for the nine months ended
September 30, 2003. The increase in field supplies is primarily related to the
higher usage of film for certain procedures that have increased in volume for
2003 compared to 2002. As a percentage of service fee revenue, these costs were
6.1% and 6.8% for the nine months ended September 30, 2002 and 2003,
respectively.

Field Rent and Lease

         Field rent and lease costs increased $1.7 million, from $22.5 million
for the nine months ended September 30, 2002 to $24.2 million for the nine
months ended September 30, 2003. The increase in field rent and lease



                                       30
<PAGE>

costs is primarily related to entering into operating leases for new equipment
and higher facility costs for existing locations as well as new locations. As a
percentage of service fee revenue, these costs were 10.6% and 12.5% for the nine
months ended September 30, 2002 and 2003, respectively.

Other Field Costs

         Other field costs decreased $1.9 million, from $33.8 million for the
nine months ended September 30, 2002 to $31.9 million for the nine months ended
September 30, 2003. As a percentage of service fee revenue, these costs
increased from 16.0% for the nine months ended September 30, 2002 to 16.5% for
the nine months ended September 30, 2003. In connection with the amendment of
two service agreements during the year ended December 31, 2002, certain costs
are no longer paid by the Company, which contributed to the decrease in other
field costs.

         During the nine months ended September 30, 2003, the Company has
incurred approximately $433,000 in costs related to compliance with the Health
Insurance Portability and Accountability Act of 1996 ("HIPAA"). See Health
Insurance Portability and Accountability Act of 1996 under Liquidity and
Capital Resources.

         As part of a routine, ongoing compliance and legal review, Radiologix
has found that rents negotiated for the subletting of space from physician
landlords of several Radiologix locations may have exceeded fair market value.
Radiologix sent a letter to the U.S. Department of Health & Human Services'
Office of the Inspector General ("OIG"), informing them of the preliminary
findings and seeking their guidance and assistance to remedy this situation.
Accordingly, in the second quarter of 2003, we recorded $500,000 as an estimate
for potential payments we may incur directly or indirectly. Subsequently,
Radiologix has qualified for the Provider Self-disclosure Protocol of the OIG.
The Provider Self-disclosure Protocol is a self-reporting program that provides
for minimizing the cost and disruption associated with on-going investigations
of the OIG. Since the inquiry is in its very early stages, it is not yet
possible for Radiologix to give any assurances that the OIG will not impose
fines in excess of our estimate or that any potential payments or findings would
not have a material adverse effect on its financial position, cash flow and
results of operations.

Bad Debt

         Bad debt decreased $1.2 million, from $17.9 million for the nine months
ended September 30, 2002 to $16.7 million for the nine months ended September
30, 2003. The decrease in bad debt expense is primarily the result of
terminating services performed at certain hospitals. Generally, bad debt
experience with reimbursement for hospital services is at a higher percentage of
revenues than the experience with reimbursement for imaging center service. As a
percentage of service fee revenue, these costs were 8.5% and 8.6% in 2002 and
2003, respectively. Since service fee revenue represents contracted radiology
practices' and diagnostic imaging centers' revenue less amounts retained by
contracted radiology practices, these percentages are inherently at a higher
stated value. Therefore, bad debt should be compared for the nine months ended
September 30, 2002 and 2003 as a percentage of revenue of the contracted
radiology practices and diagnostic imaging centers, net of contractual
allowances, rather than as a percentage of service fee revenue. As a percentage
of revenue of the contracted radiology practices and diagnostic imaging centers,
bad debt expense was 6.2% for the nine months ended September 30, 2002 and 2003.

Severance and Other Related Costs

         During the nine months ended September 30, 2003, we recorded $1,280,000
in severance and other related costs. These costs include severance cost
incurred in connection with changes in the Company's senior management team and
the reduction of employees at the corporate office and among certain field
offices. In


                                       31
<PAGE>

February 2003, the former president and chief operating officer resigned from
his positions. In March 2003, we began a cost reduction program to reduce
administrative positions. In May 2003, the former general counsel resigned from
his position, effective July 31, 2003.

Corporate, General and Administrative

         Corporate, general and administrative expenses decreased $1.0 million,
from $11.6 million for the nine months ended September 30, 2002 to $10.6 million
for the nine months ended September 30, 2003. As a percentage of service fee
revenue, these costs were 5.4% and 5.5% for the nine months ended September 30,
2002 and 2003. During the nine months ended September 30, 2003, we initiated
cost reduction programs at our corporate office and our field offices. We
believe this may result in corporate, general and administrative annual cost
savings of approximately $2.0 million. During 2003, these cost savings have been
partially offset by additional legal costs and consulting services. The decrease
in costs is primarily due to lower salaries and benefits at the corporate
office.

Depreciation and Amortization

         Depreciation and amortization expense increased $1.8 million, from
$18.9 million for the nine months ended September 30, 2002 to $20.7 million for
the nine months ended September 30, 2003. As a percentage of service fee
revenue, these costs were 8.9% and 10.7% in 2002 and 2003, respectively. The
increase in depreciation expense is primarily attributable to the purchases of
$26.8 million of property and equipment for replacement, maintenance, and
expansion in 2002 and of $12.4 million during the six months ended June 30,
2003.


Interest Expense, Net

         Interest expense, net, decreased $500,000, from $14.2 million for the
nine months ended September 30, 2002 to $13.7 million for the nine months ended
September 30, 2003 due to the reduction of the convertible debt outstanding in
2002 compared to 2003.

Discontinued Operations

         As of September 30, 2003, the Company has five imaging centers that
have been designated for sale or closure over the next three months that are
included in discontinued operations in the accompanying unaudited consolidated
statements of income. These imaging centers do not represent centers around
which we can build a market concentration. During the nine months ended
September 30, 2003 an additional imaging center was included in discontinued
operations. As a result, in accordance with SFAS No. 144, a $500,000 pre-tax
charge was recognized related to a charge to write-down the goodwill during the
nine months ended September 30, 2003. This imaging center was subsequently sold
effective September 30, 2003 along with two other imaging centers for the
assumption of certain obligations. A $300,000 pre-tax charge for an equipment
lease buy-out for one of the imaging centers sold was recognized in the nine
months ended September 30, 2003. The five imaging centers designated for sale or
closure and three imaging centers sold are included in discontinued operations
in the accompanying unaudited consolidated statements of income for the nine
months ended September 30, 2002 and 2003. The nine months ended September 30,
2003 include a $7.4 million pre-tax charge to write-down the related goodwill of
these imaging centers in accordance with SFAS No. 144. For the nine months ended
September 30, 2002, the accompanying unaudited consolidated statements of income
have been restated to reflect the results of operations for the eight imaging
centers as discontinued operations. Loss from discontinued operations for the
nine months ended September 30, 2002 was $420,000 ($252,000 net of tax benefit).
Loss from discontinued operations for the nine months ended September 30, 2003
was $8.8 million ($5.3 million net of tax benefit).


                                       32
<PAGE>
Income Tax Expense (Benefit) on Continuing Operations and Discontinued
Operations

         Income tax expense on continuing operations was $8.4 million, and
$200,000 for the nine months ended September 30, 2002 and 2003, respectively.
The income tax expense on continuing operations is based on a 40% effective tax
rate. The income tax benefit on the loss from discontinued operations for the
nine months ended September 30, 2002 and 2003 was $168,000 and $3.5 million,
respectively. The income tax benefit on discontinued operations is based on a
40% effective tax rate.

Net Income (Loss)

         Net income decreased from $12.4 million for the nine months ended
September 30, 2002 to a net loss of $5.0 million for the nine months ended
September 30, 2003. Included in net income for the nine months ended September
30, 2002 is a loss from discontinued operations of $252,000. Included in net
loss for the nine months ended September 30, 2003 is a loss from discontinued
operations of $5.3 million. In addition, the nine months ended September 30,
2003 includes $1.3 million ($768,000, net of tax benefit) related to severance
and other related costs.

Future Trends

         As discussed in Note 5 to the Company's unaudited consolidated
financial statements, the Company settled a lawsuit and demand for arbitration
with physicians in San Antonio, Texas. In accordance with the settlement
agreement, the management service agreement shall terminate and the parties
shall separate their business dealings commencing on June 30, 2004. The service
fee revenue and income from continuing operations before income taxes of the
Central region will be decreased by approximately 15% and 32%, respectively, as
a result of the portion of the business to be severed June 30, 2004.

         The Company has received an offer from our joint venture partner in San
Antonio, Texas to acquire the Company's minority interest in five imaging
centers as well as our wholly owned imaging center in San Antonio, Texas. We are
in current negotiations with our joint venture partner to complete the
disposition. Although we would be compensated in the event of this disposition,
our revenues and financial results could be adversely affected by the
disposition unless we receive sufficient capital and can deploy that capital
advantageously. In the event that the Company and its joint venture partner
cannot agree on terms of the disposition, then, in the alternative, our joint
venture partner's offer will be deemed to be notice pursuant to the joint
venture agreements to terminate the joint ventures effective December 31, 2003.
This notice would entitle our joint venture partner to acquire all of the assets
of the joint ventures, without an ongoing agreement not to compete from the
Company. In this case, the joint venture agreements set the purchase price for
the joint venture assets as their fair market value, computed at liquidation
value as determined by an independent appraiser. The Company would continue to
operate its wholly owned imaging center in San Antonio, Texas. The difference
between the purchase price of all of our San Antonio assets and the liquidation
value of our San Antonio joint venture assets could have a material impact on
the financial results of the Company. In the event we continue to operate only a
single wholly owned imaging center in the San Antonio market, we cannot give any
assurance that it will not have an adverse effect on our business, results of
operations or financial condition. As a result of the anticipated disposition of
the Company's assets in San Antonio, Texas we expect the amount of service fee
revenue to be contributed by the Central region to decline in 2004. While we
believe that the decline in service fee revenue in the Central region in 2004
will be material, at this time we cannot determine if the decline in service fee
revenue will be material to our overall service fee revenue in 2004.

LIQUIDITY AND CAPITAL RESOURCES

         Liquidity for the nine months ended September 30, 2003, was derived
from cash and cash equivalents and net cash proceeds from operating activities.
As of September 30, 2003, we had net working capital of $65.8 million, including
cash and cash equivalents of $24.7 million. We had current assets of $101.1
million and current liabilities of $35.3 million, including current maturities
of long-term debt and capital lease obligations of $2.5 million. For the nine
months ended September 30, 2003, we generated $21.5 million in net operating
cash flow, invested $13.0 million and used cash of $2.9 million in financing
activities.

         Net cash from operating activities for the nine months ended September
30, 2003 of $21.5 million decreased from $30.8 million for the same period in
2002. The decrease in the results of operations for the nine months ended
September 30, 2003 and the timing of payments on accounts payable and accrued
expenses as well as severance cost payments, resulted in a decrease in net cash
from operating activities for the nine months ended September 30, 2003. Accounts
receivable days outstanding decreased from 70 days at September 30, 2002 to 68
days at September 30, 2003.

         Net cash used in investing activities for the nine months ended
September 30, 2002 and 2003 was $20.8 million and $13.0 million, respectively.
Purchases of property and equipment during the nine months ended September 30,
2002 and 2003 were $17.9 million and $17.6 million, respectively. For the nine
months ended September 30, 2003, we invested $7.4 million to replace and
maintain property and equipment and $10.2 million in the expansion of property
and equipment.

         Net cash flows used in financing activities for the nine months ended
September 30, 2002 and 2003 were $4.6 million and $2.9 million, respectively.
Borrowings of long-term debt for the nine months ended September 30, 2002 and
2003 were used to purchase equipment and capital improvements, as well as for
working capital needs.

         At September 30, 2003, no borrowings were outstanding under a credit
facility of $35 million. Under the credit facility, the interest rate is (i) an
adjusted LIBOR rate, plus an applicable margin which can vary from 3.0% to 3.5%
dependent on certain financial ratios or (ii) the prime rate, plus an applicable
margin which can vary from 1.75% to 2.25%. In each case, the applicable margin
varies based on financial ratios maintained by the Company. The credit facility
includes certain restrictive covenants including prohibitions on the payment of
dividends and the maintenance of certain financial ratios (including minimum
fixed charge


                                       33
<PAGE>


coverage ratio and maximum leverage ratio, as defined). At September 30, 2003,
the Company was in compliance with these covenants. At September 30, 2003,
certain financial ratios have restricted the Company's ability to borrow up to
$35 million. As a result of the financial covenant ratios, the Company has
available up to $11.6 million under the credit facility. Borrowings under the
credit facility are secured by all service agreements that the Company is or
becomes a party to, a pledge of the stock of the Company's subsidiaries and all
of the Company's and its wholly-owned subsidiaries' assets.

         We operate in a capital intensive, high fixed-cost industry that
requires significant amounts of capital to fund operations, particularly the
initial start-up and development expense of new diagnostic imaging centers and
the acquisition of additional centers and new diagnostic imaging equipment. To
the extent we are unable to generate sufficient cash from our operations, funds
are not available under our credit facility or we are unable to structure or
obtain operating leases, we may be unable to meet our capital expenditure
requirements. Furthermore, we may not be able to raise any necessary additional
funds through bank financing or the issuance of equity or debt securities on
terms acceptable to us, if at all.

Health Insurance Portability and Accountability Act

         The administrative provisions of HIPAA direct the federal government to
adopt national electronic standards for automated transfer of certain healthcare
data between healthcare payors, plans and providers. HIPAA is designed to enable
the entire healthcare industry to communicate electronic data using a single set
of standards, thus eliminating all nonstandard formats currently in use. Our
contracted radiology practices and diagnostic imaging centers are "covered
entities" under HIPAA, and as such, had to comply with the HIPAA electronic data
interchange mandates by the October 16, 2003 deadline. We are able to produce
compliant transactions and we continue to test with our trading partners to
ensure that there are no unexpected claim or payment delays.

         In September 2003, CMS announced that it would implement a contingency
plan to accept noncompliant electronic transactions after the October 16, 2003
compliance deadline to ensure processing of claims from providers who would not
meet the deadline and otherwise would have had their Medicare claims rejected.
CMS will regularly reassess provider readiness and determine how long the
contingency plan will be in effect.

         As discussed in more detail in Risks and Uncertainties section below,
we continue to believe that there may be some cash flow disruption once
CMS and other payor contingency plans are no longer in effect.

RISKS AND UNCERTAINTIES

Forward-Looking Statements

    Throughout this report we make "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking
statements include words such as "may," "will," "would," "could," "likely,"
"estimate," "intend," "plan," "continue," "believe," "expect" or "anticipate"
and other similar words and include all discussions about our acquisition and
development plans. We do not guarantee that the transactions and events
described in this report will happen as described or that any positive trends
noted in this report will continue. The forward-looking statements contained in
this report are generally located in the material set forth under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", but may be found in other locations as well. These forward-looking
statements generally relate to our plans, objectives and expectations for future
operations and are based upon management's reasonable estimates of future
results or trends. Although we believe that our plans and objectives reflected
in or suggested by such forward-looking statements are reasonable, we may not
achieve such plans or objectives


                                       34
<PAGE>
due to various factors, including, but not limited to, the risk factors
discussed in this form 10-Q under the caption "Risks and Uncertainties" and in
our Annual Report on Form 10-K for the year ended December 31, 2002. You are
cautioned not to unduly rely on such forward-looking statements when evaluating
the information presented in this report. You should read this report completely
and with the understanding that actual future results may be materially
different from what we expect. We will not update forward-looking statements
even though our situation may change in the future.

         Specific factors that might cause actual results to differ from our
expectations include, but are not limited to:

         o economic, demographic, business and other conditions in our markets;

         o the highly competitive nature of the healthcare business;

         o a decline in patient referrals;

         o changes in the rates, methods or timing of third-party reimbursement
           for diagnostic imaging services;

         o the termination of our contracts with radiology practices;

         o the availability of additional capital to fund capital expenditure
           requirements;

         o burdensome lawsuits against our contracted radiology practices and
           us;

         o reduced operating margins due to our managed care contracts and
           capitated fee arrangements;

         o any failure by us to comply with state and federal anti-kickback and
           anti-self referral laws or any other applicable healthcare
           regulations;

         o changes in business strategy and development plans;

         o changes in Federal, state or local regulations affecting the
           healthcare industry;

         o our substantial indebtedness, debt service requirements and liquidity
           constraints; and

         o risks related to our notes and healthcare securities generally.

SALE OF OUR SAN ANTONIO, TEXAS ASSETS COULD ADVERSELY EFFECT OUR REVENUES AND
FINANCIAL RESULTS.

         We operate six imaging centers in San Antonio, Texas. One imaging
center is wholly owned by Radiologix and we conduct operations through five
joint ventures with a hospital company. We own a minority interest in each of
these joint venture centers. Our joint venture partner has offered to purchase
all of our assets in San Antonio and we are currently negotiating terms for the
disposition. In the event that Radiologix and its joint venture partner cannot
agree on terms of the disposition, then, in the alternative, our joint venture
partner's offer will be deemed to be notice, pursuant to the joint venture
agreements to terminate the joint ventures effective December 31, 2003. This
notice would entitle our joint venture partner to acquire all of the assets of
Radiologix's San Antonio joint ventures, without an ongoing agreement not to
compete from Radiologix. The joint venture agreements set the purchase price for
the joint venture assets as their fair market value computed at liquidation
value as determined by an independent appraiser. The difference between the
purchase price of all of our San Antonio assets and the liquidation value of our
San Antonio joint venture assets could have a material impact on the financial
results of the Company. In the event we continue to operate only a single wholly
owned imaging center in the San Antonio market, we cannot give any assurance
that it will not have an adverse effect on our business, results of operations
or financial condition. Although we would be compensated in the event of a
buy-out, our revenues and financial results could be negatively affected by a
buy-out unless we receive sufficient capital and can deploy that capital
advantageously.

WE COULD BE HARMED IF WE ARE UNABLE TO TIMELY CONTINUE TO COMPLY WITH HIPAA
STANDARD TRANSACTION AND CODE SET REQUIREMENTS.

         Radiologix has been working diligently to ensure our compliance with
HIPAA standard transaction and code set requirements ("the HIPAA EDI
requirements") by the October 16, 2003, deadline. These efforts have included
contracting with certain third-party vendors and claims clearinghouses to
provide certain products and services to facilitate our compliance plans. While
we are now able to produce compliant transactions, we continue to believe there
may be some cash flow disruption once CMS and other payor contingency plans for
noncompliant transactions are no longer in effect. A failure in Radiologix's
continued ability to comply with HIPAA Standards or the discontinuance of CMS or
payor contingency plans could cause Radiologix to experience a delay in its


                                       35
<PAGE>

claims processing by its payors or lead to a large number of rejected or denied
claims. Either of these results may slow our cash collections and increase our
accounts receivable days sales outstanding.

WE COULD BE HARMED IF WE EXPERIENCE DELAYED PAYMENTS FROM THIRD-PARTY PAYORS
AFTER THE OCTOBER 16, 2003 HIPAA EDI REQUIREMENTS DEADLINE.

         In connection with the HIPAA EDI requirements, our payors are also
expected to comply with the standard transactions and code set requirements by
October 16, 2003. Noncompliance by other providers could cause the healthcare
reimbursement system to be flooded with non-compliant claims that will slow down
claims processing for all companies. Many non-compliant providers may revert to
filing claims in a paper rather than electronic format, thereby causing further
delays in the claims processing system. This could cause all healthcare
companies including Radiologix to experience a delay in its claims processing by
its payors or lead to a large number of rejected or denied claims. Either of
these results may slow our cash collections and increase our accounts receivable
days sales outstanding.

         While Radiologix has taken steps to mitigate this risk by meeting with
our payors to assess their HIPAA EDI readiness and discussing payment
contingency plans, there can be no assurance that we will be able to maintain
sufficient cash on hand and capacity under our existing credit facility to
supplement the expected cash-flow shortfalls. If our cash reserves or credit
lines prove to be insufficient for our cash flow needs, our business and
operations could be adversely affected. This, in turn, may limit our access to
capital for growth.

         A more comprehensive list of Risk Factors is set forth in the Company's
Annual Report on Form 10-K for the year ended December 31, 2002, and our other
filings with the Securities and Exchange Commission.


                                       36
<PAGE>


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Our exposure to market risk for changes in interest rates relates
primarily to the Company's cash equivalents, credit facility, and its
convertible notes. At September 30, 2003, Radiologix had no borrowings
outstanding under its senior credit facility. Radiologix's notes bear interest
at fixed rates.


ITEM 4. CONTROLS AND PROCEDURES

         We have evaluated, with the participation of our Chief Executive
Officer and Chief Financial Officer, the effectiveness of our disclosure
controls and procedures as of September 30, 2003. Based on this evaluation, our
Chief Executive Officer and Chief Financial Officer have each concluded that our
disclosure controls and procedures are effective to ensure that we record,
process, summarize, and report information required to be disclosed by us in our
quarterly reports filed under the Securities Exchange Act within the time
periods specified by the Securities and Exchange Commission's rules and forms.

         During the quarterly period covered by this report, there were no
changes in our internal controls over financial reporting that materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.

         We have investments, not material in amount, in certain unconsolidated
entities. Since we do not control these entities, our disclosure controls and
procedures with respect to these entities are necessarily substantially more
limited than those we maintain with respect to our consolidated subsidiaries.


                                       37
<PAGE>


                           PART II: OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS.

         As previously disclosed in the Report on Form 10-Q for the quarterly
period ended June 30, 2003, the Company has been subject to a lawsuit and a
demand for arbitration with physicians in San Antonio, Texas. On September 29,
2003, the parties executed a comprehensive agreement to settle by arbitration,
all disputes between the parties for all claims arising in the lawsuit and
demand for arbitration. The arbitration was conducted and completed on October
8, 2003 and mutual general releases became effective as of that date. The
management service agreement shall terminate and the parties shall separate
their business dealings commencing on June 30, 2004. The lawsuits have been
dismissed and the matter has now been concluded. The service fee revenue and
income from continuing operations before income taxes of the Central region will
be decreased by approximately 15% and 32%, respectively, as a result of the
portion of the business to be severed June 30, 2004.

ITEM 5. OTHER INFORMATION

         As previously disclosed, as part of a routine, ongoing compliance and
legal review, Radiologix has found that rents negotiated for the subletting of
space from physician landlords of several Radiologix locations may have exceeded
fair market value. Radiologix sent a letter to the U.S. Department of Health &
Human Services' Office of the Inspector General ("OIG"), informing them of the
preliminary findings and seeking their guidance and assistance to remedy this
situation. Accordingly, in the second quarter of 2003, we recorded $500,000 as
an estimate for potential payments we may incur directly or indirectly.
Radiologix has received notification from the OIG that it has qualified for the
Provider Self-disclosure Protocol. The Provider Self-disclosure Protocol is a
self-reporting program that provides for minimizing the cost and disruption
associated with on-going investigations of the OIG. Since the inquiry is in its
very early stages, it is not yet possible for Radiologix to give any assurances
that the OIG will not impose fines in excess of our estimate or that any
potential payments or findings would not have a material adverse effect on its
financial position, cash flow and results of operations.

         On September 12, 2003, the Board of Directors of Radiologix
unanimously approved an amendment to the corporation's bylaws removing the
requirement that a number of Radiologix's directors be licensed physicians
performing services at a business previously acquired by Radiologix. A copy of
this amendment has been filed with this report as Exhibit 3.6.


                                       38
<PAGE>


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits. The list of exhibits filed as part of this report is
          incorporated by reference to the Index to Exhibits at the end of this
          report.

     (b)  Reports on Form 8-K. The registrant filed a current report on Form 8-K
          dated August 7, 2003 announcing the release of its financial results
          for its second quarter of 2003.



                                       39
<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.


                                           RADIOLOGIX, INC.


Date: November 14, 2003                    /s/ STEPHEN D. LINEHAN
                                           -------------------------------------
                                           Stephen D. Linehan
                                           President and Chief Executive Officer
                                           (Principal Executive Officer)

Date: November 14, 2003                    /s/ SAMI S. ABBASI
                                           -------------------------------------
                                           Sami S. Abbasi
                                           Executive Vice President and
                                           Chief Operating Officer and Chief
                                           Financial Officer
                                           (Principal Accounting Officer)


                                       40
<PAGE>


                                INDEX TO EXHIBITS

<Table>
<Caption>
EXHIBIT
NUMBER      DESCRIPTION
--------    -----------
<S>         <C>
  3.6       Amendment to Restated Bylaws. *

 31.1       Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
            and Rule 15d-14(a), promulgated under the Securities Exchange Act of
            1934, as amended. *

 31.2       Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
            and Rule 15d-14(a), promulgated under the Securities Exchange Act of
            1934, as amended. *

 32.1       Certification of Chief Executive Officer pursuant to 18 U.S.C.
            Section 1350, as adopted pursuant to Section 906 of the
            Sarbanes-Oxley Act of 2002. *

 32.2       Certification of Chief Financial Officer pursuant to 18 U.S.C.
            Section 1350, as adopted pursuant to Section 906 of the
            Sarbanes-Oxley Act of 2002. *
</Table>

----------
*        Filed herewith.



                                       41