<PAGE>
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

                                   -----------

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

For the quarter ended June 30, 2002

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

For the transition period from __________________  to ________________________


                           Commission File No. 1-13392

                               US DIAGNOSTIC INC.
             (Exact name of registrant as specified in its charter)

              DELAWARE                                     11-3164389
---------------------------------                  ----------------------------
  (State or other jurisdiction                              (I.R.S.
of incorporation or organization)                  Employer Identification No.)

                            250 S. Australian Avenue
                                    Suite 900
                         West Palm Beach, Florida 33401
                    (Address of principal executive offices)

                                 (561) 832-0006
              (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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

             Class                              Outstanding at August 12, 2002:
  ----------------------------                  -------------------------------
  Common stock, $.01 par value                           22,317,205 shares




<PAGE>


                               US DIAGNOSTIC INC.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Except for historical information contained herein, certain matters discussed
herein are forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Any
statements that express, or involve discussions as to, expectations, beliefs,
plans, objectives, assumptions or future events or performance (often, but not
always, through the use of words or phrases such as will likely result, are
expected to, will continue, is anticipated, estimated, projection, outlook) are
not statements of historical facts and may be forward-looking. Forward-looking
statements involve estimates, assumptions and uncertainties that could cause
actual results to differ materially from those expressed in the forward-looking
statements. These forward-looking statements are based largely on the
expectations of US Diagnostic Inc. (the "Company"), and are subject to a number
of risks and uncertainties, including but not limited to, the economic,
competitive, regulatory and legal factors, collections of accounts receivable,
the outcome of the Company's negotiations with its senior and subordinated
lenders as more fully discussed below, the effect of a potential Chapter 11
bankruptcy filing in the near future on the Company's business, available
financing or available refinancing for or restructuring of existing debt, cash
flow and working capital availability, the ability of the Company to renew or
successfully negotiate contracts and/or partnership relationships given its
financial condition, the ability of the Company to reduce its overhead, the
impact of any actions taken by debt holders as a result of defaults by the
Company under its debt instruments, and other factors discussed elsewhere in
this report and in other documents filed by the Company with the Securities and
Exchange Commission ("SEC"). Many of these factors are beyond the Company's
control. Actual results could differ materially from the forward-looking
statements made. In light of these risks and uncertainties, there can be no
assurance that the results anticipated in the forward-looking information
contained in this report will, in fact, occur.

In particular, the Company is currently in negotiations with respect to a sale
of substantially all of its operating assets to its senior lender or a designee
thereof that would require a filing of a voluntary case under Chapter 11 of the
Federal Bankruptcy Code in connection with the transaction. Although the Company
currently expects that a definitive agreement will be entered into shortly,
there can be no assurance that a definitive agreement will be entered into or,
if entered into, whether the transaction contemplated thereby will receive
necessary approvals, including those of the bankruptcy court; furthermore, at
this time, the Company cannot predict with assurance the ultimate amount of net
proceeds from the potential transaction nor the amount that any class of
creditors would receive therefrom. If this potential transaction is consummated
in accordance with terms currently under discussion, the Company believes that
there is little likelihood that the Company's equity holders will receive any
distribution in respect of their equity interests in the Company. Moreover, if
the Company and its senior lender are unable to finalize the contemplated
definitive agreement, it is likely that the Company will be required to seek
protection under the Federal Bankruptcy Code.

Each forward-looking statement speaks only as of the date on which such
statement is made, and the Company undertakes no obligation to update any
forward-looking statement or statements to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time and it is impossible
for management to predict all of such factors, nor can it assess the impact of
each such factor on the business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.




                                       2
<PAGE>
Part I  -  Financial Information
Item 1.  Financial Statements
US DIAGNOSTIC INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
--------------------------------------------------------------------------------


   In thousands, except share data

<TABLE>
<CAPTION>
                                                                                       June 30,         December 31,
                                                                                         2002                2001
                                                                                       ---------        ------------
<S>                                                                                    <C>               <C>
  ASSETS
  CURRENT ASSETS
      Cash and cash equivalents                                                        $   1,520         $   1,351
      Accounts receivable, net of allowance for bad debts of $14,643 in 2002
        and $16,781 in 2001                                                                8,160             8,872
      Other receivables, net of allowance for bad debts of $660 in 2002 and
        $483 in 2001                                                                         266             1,252
      Prepaid expenses and other current assets                                            1,076               955
                                                                                       ---------         ---------

       TOTAL CURRENT ASSETS                                                               11,022            12,430
  PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization
     of $20,999 in 2002 and $18,366 in 2001                                               17,272            17,658

  INTANGIBLE ASSETS, net of accumulated amortization of $1,145 in 2002 and
     $961 in 2001                                                                          1,080             1,014

  GOODWILL, net of accumulated amortization of $4,814 in both 2002 and 2001               15,617            15,617

  OTHER ASSETS                                                                               308               439

  INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED SUBSIDIARIES                                2,444             2,467
                                                                                       ---------         ---------

      TOTAL ASSETS                                                                     $  47,743         $  49,625
                                                                                       =========         =========

  LIABILITIES AND STOCKHOLDERS' DEFICIENCY
  CURRENT LIABILITIES
       Accounts payable                                                                $   5,114         $   5,081
       Accrued expenses                                                                   10,203             9,057
       Subordinated convertible debentures                                                21,981            21,935
       Current portion of long-term debt                                                  30,161            30,552
       Obligations under capital leases - current portion                                  1,779             1,202
       Other current liabilities                                                           1,048             1,618
                                                                                       ---------         ---------

           TOTAL CURRENT LIABILITIES                                                      70,286            69,445

  Long-term debt, net of current portion                                                   6,142             7,210
  Obligations under capital leases, net of current portion                                 5,448             4,410
  Other liabilities                                                                          258               784
                                                                                       ---------         ---------
           TOTAL LIABILITIES                                                              82,134            81,849
                                                                                       ---------         ---------

  MINORITY INTEREST                                                                          473               485
                                                                                       ---------         ---------

  COMMITMENTS AND CONTINGENCIES (Note 11)

  STOCKHOLDERS' DEFICIENCY
     Preferred stock, $1.00 par value; 5,000,000 shares authorized; none issued               --                --
     Common stock, $.01 par value; 50,000,000 shares authorized; 22,317,205
         shares issued and outstanding at both June 30, 2002 and December 31,
         2001                                                                                223               223
     Additional paid-in capital                                                          147,656           147,656
     Deferred stock-based compensation                                                        --               (18)
     Accumulated deficit                                                                (182,743)         (180,570)
                                                                                       ---------         ---------
          TOTAL STOCKHOLDERS' DEFICIENCY                                                 (34,864)          (32,709)
                                                                                       ---------         ---------

      TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY                                   $  47,743         $  49,625
                                                                                       =========         =========
</TABLE>


See Notes to Condensed Consolidated Financial Statements.



                                       3
<PAGE>

US DIAGNOSTIC INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------


    In thousands, except per share data

<TABLE>
<CAPTION>
                                                          Three Months Ended June 30,        Six Months Ended June 30,
                                                          ---------------------------        -------------------------
                                                             2002             2001             2002             2001
                                                           --------         --------         --------         --------
<S>                                                        <C>              <C>              <C>              <C>
NET REVENUES                                               $ 11,142         $ 15,402         $ 22,467         $ 32,422
                                                           --------         --------         --------         --------

OPERATING EXPENSES
     General and administrative                               9,106           12,333           18,430           25,982
     Asset impairment losses                                     --           15,519               --           15,519
     Bad debt expense                                           495              542              942            1,337
     Depreciation                                             1,471            1,985            2,642            4,122
     Amortization - amortizable intangible assets               149               54              184              120
     Amortization - goodwill                                     --              505               --            1,186
                                                           --------         --------         --------         --------
       TOTAL OPERATING EXPENSES                              11,221           30,938           22,198           48,266
                                                           --------         --------         --------         --------

INCOME (LOSS) FROM OPERATIONS                                   (79)         (15,536)             269          (15,844)
                                                           --------         --------         --------         --------

OTHER INCOME (EXPENSE)
     Net gain (loss) on disposition of subsidiaries             (24)           4,599              (24)           8,962
     Interest expense                                        (1,450)          (1,959)          (2,847)          (4,165)
     Interest and other income                                  369              285              721              573
                                                           --------         --------         --------         --------
       TOTAL OTHER INCOME (EXPENSE)                          (1,105)           2,925           (2,150)           5,370
                                                           --------         --------         --------         --------

Loss before minority interest, provision (benefit)
  for income taxes and extraordinary gain                    (1,184)         (12,611)          (1,881)         (10,474)
                                                           --------         --------         --------         --------


MINORITY INTEREST:
    Minority interest in gain on sale of subsidiaries            --               --               --            3,258
    Minority interest in income (loss) of subsidiaries           59              142              133              (48)
                                                           --------         --------         --------         --------
        TOTAL MINORITY INTEREST                                  59              142              133            3,210
                                                           --------         --------         --------         --------

Loss before provision (benefit) for income taxes
    and extraordinary gain                                   (1,243)         (12,753)          (2,014)         (13,684)

Provision (benefit) for income taxes                             79              (16)             159              227
                                                           --------         --------         --------         --------

Loss before extraordinary gain                               (1,322)         (12,737)          (2,173)         (13,911)

EXTRAORDINARY GAIN, NET OF TAXES                                 --              464               --              464
                                                           --------         --------         --------         --------

NET LOSS                                                   $ (1,322)        $(12,273)        $ (2,173)        $(13,447)
                                                           ========         ========         ========         ========


</TABLE>



                                       4
<PAGE>

US DIAGNOSTIC INC. AND SUBSIDIARIES
-------------------------------------------------------------------------------

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  (UNAUDITED) (CONCLUDED)
-------------------------------------------------------------------------------

    In thousands, except per share data

<TABLE>
<CAPTION>
                                                          Three Months Ended June 30,        Six Months Ended June 30,
                                                          ---------------------------        -------------------------
                                                             2002             2001             2002             2001
                                                           --------         --------         --------         --------
<S>                                                        <C>              <C>              <C>              <C>
BASIC AND DILUTED LOSS PER COMMON SHARE
Loss before extraordinary gain                             $  (0.06)        $  (0.57)        $  (0.10)        $  (0.62)
Extraordinary gain                                               --             0.02               --             0.02
                                                           --------         --------         --------         --------
Net loss                                                   $  (0.06)        $  (0.55)        $  (0.10)        $  (0.60)
                                                           ========         ========         ========         ========


Weighted-average common shares outstanding                   22,329           22,322           22,329           22,369
                                                           ========         ========         ========         ========



</TABLE>






See Notes to Condensed Consolidated Financial Statements.



                                       5
<PAGE>



US DIAGNOSTIC INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY FOR THE SIX
MONTHS ENDED JUNE 30, 2002 (UNAUDITED)
--------------------------------------------------------------------------------


In thousands

<TABLE>
<CAPTION>
                                                                        Additional                                       Total
                                            Common         Common         Paid-in       Deferred       Accumulated    Stockholders'
                                            Shares          Stock         Capital     Compensation       Deficit       Deficiency
                                           ---------      ---------     ----------    ------------     -----------    -------------
<S>                                           <C>         <C>            <C>            <C>             <C>             <C>
BALANCE - JANUARY 1, 2002                     22,317      $     223      $ 147,656      $     (18)      $(180,570)      $ (32,709)

Amortization of deferred compensation             --             --             --             18              --              18

Net loss                                          --             --             --             --          (2,173)         (2,173)
                                           ---------      ---------      ---------      ---------       ---------       ---------

BALANCE - JUNE 30, 2002                       22,317      $     223      $ 147,656      $      --       $(182,743)      $ (34,864)
                                           =========      =========      =========      =========       =========       =========

</TABLE>





See Notes to Condensed Consolidated Financial Statements.


                                       6
<PAGE>

US DIAGNOSTIC INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------

In thousands, except supplemental schedule of non-cash activities

<TABLE>
<CAPTION>

                                                                                 Six Months Ended June 30,
                                                                                ---------------------------
                                                                                 2002                2001
                                                                                --------           --------
<S>                                                                             <C>                <C>
OPERATING ACTIVITIES
      NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                       $  2,187           $ (7,429)
                                                                                --------           --------

INVESTING ACTIVITIES
      Purchases of equipment                                                         (60)              (172)
      Proceeds from the sale of imaging centers, net of
          cash retained by purchasers                                                 --             14,661
      Proceeds from dispositions of property and equipment                           164                310
                                                                                --------           --------

      NET CASH - PROVIDED BY INVESTING ACTIVITIES                                    104             14,799
                                                                                --------           --------

FINANCING ACTIVITIES
      Proceeds from borrowings                                                       558                 --
      Repayments of notes payable and obligations under capital leases            (2,680)            (9,363)
                                                                                --------           --------

      NET CASH - USED IN FINANCING ACTIVITIES                                     (2,122)            (9,363)
                                                                                --------           --------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                 169             (1,993)

CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD                                    1,351              4,458
                                                                                --------           --------

CASH AND CASH EQUIVALENTS - END OF PERIOD                                       $  1,520           $  2,465
                                                                                ========           ========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
      Cash paid during the period for:

      Interest                                                                  $    896           $  2,642
                                                                                ========           ========
      Income taxes                                                              $    329           $    343
                                                                                ========           ========

</TABLE>

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

Borrowings under capitalized leases were $2.5 million during the six months
ended June 30, 2002. There were no borrowings under capitalized leases during
the six months ended June 30, 2001.

There were no center sales during the six months ended June 30, 2002, although
the Company recognized a $56,000 gain from an imaging center that was sold in
2001. During the six months ended June 30, 2001, debt and capital lease
obligations decreased by $11.2 million and net property and equipment decreased
by $9.0 million as a result of the sale of imaging centers. The Company also
wrote-off net intangibles of $7.9 million as a result of the sale of imaging
centers during the six months ended June 30, 2001, and retired 100,000 shares as
part of the sale of a subsidiary during the six months ended June 30, 2001. The
Company used $4.8 million of sales proceeds to repay debt not specifically
related to the sold centers during the six months ended June 30, 2001.

During the six months ended June 30, 2002, the Company accrued $80,000 for
potential expenses due to the closing of a non-performing imaging center. During
the six months ended June 30, 2001, the Company wrote-off net intangibles of
$0.3 million and net property and equipment of $0.7 million as a result of the
closing of non-performing imaging centers.



                                       7
<PAGE>
US DIAGNOSTIC INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (UNAUDITED) (CONCLUDED)
--------------------------------------------------------------------------------

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
(CONTINUED):

During the six months ended June 30, 2002, the Company reclassified $250,000
from land to use rights, an amortizable intangible asset. The Company determined
that $250,000 that had been previously recorded as land was in fact a right to
use land associated with a partnership at an existing center.

During the six months ended June 30, 2002, the Company received a $0.3 million
credit towards the financing of a new capital lease related to the settlement of
a class action lawsuit in which the Company was a plaintiff.

During the six months ended June 30, 2002, the Company wrote-off $0.2 million of
net property and equipment pursuant to the adjustment of a capital lease.

During the six months ended 2001, the Company wrote-off net property and
equipment of $4.8 million and net intangibles of $10.7 million as a result of
asset impairments.

During the six months ended 2001, the Company wrote-off net property and
equipment of $1.7 million and debt and capital lease obligations of $2.4 million
as a result of early debt extinguishment.

The Company issued 4,800 shares of restricted stock during the six months ended
June 30, 2001.






See Notes to Condensed Consolidated Financial Statements.



                                       8
<PAGE>

US DIAGNOSTIC INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------

[1] BASIS OF PRESENTATION

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The accompanying condensed consolidated financial statements as of June 30,
2002, include the accounts of US Diagnostic Inc., its wholly-owned subsidiaries
and non-wholly-owned but controlled subsidiaries (collectively, the "Company"),
and have been prepared by the Company pursuant to the rules and regulations of
the Securities and Exchange Commission (the "SEC"). All significant intercompany
accounts and transactions have been eliminated. Certain information related to
the Company's organization, significant accounting policies and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been condensed or omitted. These condensed consolidated financial
statements reflect, in the opinion of management, all material adjustments
(consisting only of normal and recurring adjustments) necessary to fairly state
the financial position and the results of operations for the periods presented
and the disclosures herein are adequate to make the information presented not
misleading. Operating results for interim periods are not necessarily indicative
of the results that can be expected for a full year.

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

The condensed consolidated financial statements included herein should be read
in conjunction with the audited consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K filed with the SEC
for the year ended December 31, 2001. Capitalized terms not defined in this
report have the respective meanings set forth in the Company's Form 10-K for the
year ended December 31, 2001.

In order to maintain consistency and comparability between the periods
presented, certain amounts have been reclassified from the previously issued
financial statements in order to conform with the financial statement
presentation of the current period.

GOING CONCERN

The accompanying condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern which contemplates
the realization of assets and the satisfaction of liabilities in the normal
course of business. The Company has experienced significant net losses since
1995 and as of June 30, 2002 had an accumulated deficit of approximately $182.7
million. Based on current estimates, the Company's current cash and cash from
operations will be insufficient to meet its anticipated cash needs. Furthermore,
the Company has defaulted on the March 31, 2001, September 30, 2001 and March
31, 2002 interest payments on its 9% Subordinated Convertible Debentures due
2003 (the "Debentures"). Also, the Company has defaulted on its obligation to
repurchase Debentures which is required as a result of failing to maintain
consolidated net worth of at least $18.0 million. On May 1, 2001, the Company
received a default notice from the Trustee under the Debenture Indenture
("Indenture"). These defaults could give rise to an acceleration of the
maturities of the Debentures. In addition, the Company is prohibited from
borrowing additional amounts without causing additional non-compliance with
certain Indenture covenants and an additional default under the Indenture.
Furthermore,




                                       9
<PAGE>

the Company failed to pay the $10.0 million principal amount (and accrued
interest) of its 6 1/2% Convertible Notes that matured on June 30, 2001 (the
"Notes"). This failure constitutes a default under the Notes and may also
constitute a cross default under other of the Company's debt instruments which
could entitle the holders of such instruments to accelerate the maturity of such
debt instruments. These conditions, among others, raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans
concerning these matters are described in "Management's Plans" below. The
condensed consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.

MANAGEMENT'S PLANS

The Company's financial condition continued to deteriorate during 2002 despite
the Company's efforts, begun in 1997, to improve operating results, cash flows
and capitalization through overhead reductions; dispositions of non-core and
underperforming assets; and the sale of 36 medical diagnostic imaging centers
under a plan of restructuring that was adopted in 2000. The plan of
restructuring was suspended during 2001 because the Company determined that it
would not be able to obtain acceptable prices for its remaining imaging centers
due in part to industry and general economic conditions.

The Company remains burdened by a high level of indebtedness to its secured and
unsecured lenders and most of this indebtedness has relatively short maturities
(or may be current as a result of acceleration or rights to accelerate) which
require the Company to devote a significant portion of its cash flows to the
amortization of debt and interest payments. The Company also has ongoing
significant capital expenditure requirements in order to maintain and modernize
its imaging equipment. Furthermore, cost containment by the managed care
industry and governmental payors such as Medicare continues to adversely affect
pricing levels for medical imaging services. The Company also needs to maintain
its corporate infrastructure to operate remaining centers and collect accounts
receivable. As a result, the Company's cash flows from operating activities
continue to be insufficient to meet the Company's operating needs, scheduled
debt repayment obligations and capital expenditure requirements.

The Company is currently in negotiations with respect to a sale of substantially
all of its operating assets to its senior lender or a designee thereof that
would require the filing of a voluntary case under Chapter 11 of the Federal
Bankruptcy Code in connection with the transaction. Although the Company expects
that a definitive agreement will be entered into shortly, there can be no
assurance that a definitive agreement will be entered into or, if entered into,
whether the transaction contemplated thereby will receive necessary approvals,
including those of the bankruptcy court; furthermore, at this time, the Company
cannot predict with assurance the ultimate amount of net proceeds from the
potential transaction nor the amount that any class of creditors would receive
therefrom. If the potential transaction is consummated in accordance with the
terms currently under discussion, the Company believes that there is little
likelihood that the Company's current equity holders will receive any
distribution in respect of their equity interests in the Company.


Moreover, if these negotiations cannot be resolved successfully, the Company
would be required to pursue other options, which could include voluntarily
seeking a reorganization or liquidation in bankruptcy, or its creditors could
file an involuntary bankruptcy petition against the Company under the federal
bankruptcy laws.

RECENT ACCOUNTING PRONOUNCEMENTS - The Company has adopted Statement of
Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other
Intangible Assets," effective January 1, 2002. SFAS 142 requires, among other
things, the discontinuance of goodwill amortization. In addition, the standard
includes provisions for the reclassification of certain existing recognized
intangibles as goodwill, reassessment of the useful lives of existing recognized
intangibles, reclassification of certain intangibles out of previously reported
goodwill and the identification of reporting units for purposes of assessing




                                      10
<PAGE>

potential future impairments of goodwill. SFAS 142 also requires the Company to
complete a transitional goodwill impairment test within six months from the date
of adoption. The Company completed its evaluation of SFAS 142 during the second
quarter of 2002. The adoption of SFAS 142 did not have any effect on the
Company's financial statements. See Note 4 for a reconciliation of net loss and
net loss per share as adjusted for the provisions of SFAS 142.

In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 145 ("SFAS 145"), "Rescission of
the FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." SFAS 145 eliminates the requirement to classify gains
and losses from the extinguishment of indebtedness as extraordinary, requires
certain lease modifications to be treated the same as a sale-leaseback
transaction, and makes other non-substantive technical corrections to existing
pronouncements. SFAS 145 is effective for fiscal years beginning after May 15,
2002, with earlier adoption encouraged. The Company has not yet completed its
evaluation of the effect of adopting this statement.

In July 2002, the FASB issued Statement of Financial Accounting Standards No.
146 ("SFAS 146"), "Accounting for Costs Associated with Exit or Disposal
Activities." SFAS 146 requires companies to recognize costs associated with exit
or disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. Examples of costs covered by this
standard include lease termination costs and certain employee severance costs
that are associated with a restructuring, discontinued operations, plant
closing, or other exit or disposal activities. SFAS 146 is effective
prospectively for exit or disposal activities initiated after December 31, 2002,
with earlier adoption encouraged. The Company has not yet completed its
evaluation of the effect of adopting this statement.

[2] PROPERTY AND EQUIPMENT

A summary of the property and equipment is as follows:

                                                       June 30,     December 31,
In thousands                                            2002           2001
                                                      --------      -----------

Land                                                  $    750       $  1,125
Buildings                                                1,528          1,528
Medical equipment                                       23,613         20,996
Furniture and fixtures                                   1,242          1,245
Office, data processing equipment and software           7,091          7,102
Leasehold improvements                                   4,047          4,028
                                                      --------       --------
  Total                                                 38,271         36,024

Less:  accumulated depreciation and amortization       (20,999)       (18,366)
                                                      --------       --------

    Property and equipment, net                       $ 17,272       $ 17,658
                                                      ========       ========

Included in property and equipment is equipment under capital leases amounting
to $11.0 million and $8.5 million at June 30, 2002 and December 31, 2001,
respectively. Accumulated depreciation for equipment under capital leases was
$2.1 million and $1.9 million as of June 30, 2002 and December 31, 2001,
respectively.

Depreciation expense amounted to $1.5 million and $2.6 million during the three
and six months ended June 30, 2002, respectively, of which $0.2 million and $0.4
million, respectively, was attributed to equipment under capital leases.
Depreciation expense amounted to $2.0 million and $4.1 million during



                                       11
<PAGE>

the three and six months ended June 30, 2001, respectively, of which $0.6
million and $1.1 million, respectively, was attributed to equipment under
capital leases.

[3] INTANGIBLE ASSETS

A summary of amortizable intangible assets is as follows:

  In thousands

<TABLE>
<CAPTION>
                                            As of June 30, 2002             As of December 31, 2001
                                     -------------------------------    ------------------------------
                                     Gross Carrying    Accumulated      Gross Carrying    Accumulated
                                         Amount        Amortization         Amount       Amortization
                                     --------------    ------------     --------------   ------------
<S>                                     <C>              <C>               <C>              <C>
Amortizable intangible assets:

Covenants not to compete                $   775          $  (575)          $   775          $  (550)
Customer lists                            1,193             (563)            1,193             (404)
Use rights                                  250               --                --               --
Other intangibles                             7               (7)                7               (7)
                                        -------          -------           -------          -------

Total                                   $ 2,225          $(1,145)          $ 1,975          $  (961)
                                        =======          =======           =======          =======
</TABLE>


Aggregate amortization expense related to amortizable intangible assets was
$149,000 and $54,000 for the three months ended June 30, 2002 and 2001,
respectively. Aggregate amortization expense related to amortizable intangible
assets was $184,000 and $120,000 for the six months ended June 30, 2002 and
2001, respectively. The 2002 figures include $111,000 relating to the write-off
of the remaining balance of a customer list at one center.

Estimated amortization expense of amortizable intangible assets for each of the
five succeeding fiscal years is as follows:

                In thousands

                Estimated Amortization Expense
                ------------------------------
                For the year ended 6/30/2003                          $  236
                For the year ended 6/30/2004                             236
                For the year ended 6/30/2005                             236
                For the year ended 6/30/2006                             236
                For the year ended 6/30/2007                              92
                                                                     -------

                Total                                                $ 1,036
                                                                     =======

All of the Company's intangible assets are subject to amortization.

During the quarter ended June 30, 2002, the Company determined that $250,000
that had been previously recorded as land was in fact a right to use land
associated with a partnership at an existing center. Therefore, it has been
reflected as an intangible asset which will be amortized over the remaining term
of the partnership.




                                       12
<PAGE>
[4] GOODWILL

Goodwill consists of the cost of purchased businesses in excess of the fair
value of net assets acquired. Under SFAS 142, goodwill is no longer amortized
but reviewed for impairment annually, or more frequently if certain indicators
arise. The Company completed the initial step of the transitional impairment
test in the second quarter of 2002 as required by SFAS 142 and determined that
there was no impairment relating to the goodwill of the Company's imaging
centers. There have been no changes in the carrying amounts of goodwill for the
three months and six months ended June 30, 2002.

Had the Company been accounting for its goodwill according to SFAS 142 for all
periods presented, the Company's adjusted net loss and loss per share would have
been as follows:

    In thousands, except per share data

<TABLE>
<CAPTION>
                                           Three Months Ended June 30,             Six Months Ended June 30,
                                           ---------------------------           -----------------------------
                                              2002              2001                2002                2001
                                           --------           --------           ----------           --------
<S>                                        <C>                <C>                <C>                  <C>
REPORTED NET LOSS                          $ (1,322)          $(12,273)          $   (2,173)          $(13,447)
Add back: Goodwill amortization                  --                400                   --                977
Add back: Equity-method goodwill
   amortization                                  --                105                   --                209
                                           --------           --------           ----------           --------

ADJUSTED NET LOSS                          $ (1,322)          $(11,768)          $   (2,173)          $(12,261)
                                           ========           ========           ==========           ========

BASIC AND DILUTED LOSS PER COMMON
   SHARE
Reported loss per share                    $  (0.06)          $  (0.55)          $    (0.10)         $   (0.60)
Add back: Goodwill amortization                  --               0.02                   --               0.04
Add back: Equity-method goodwill
   amortization                                  --                 --                   --               0.01
                                           --------           --------           ----------           --------

Adjusted loss per share                    $  (0.06)          $  (0.53)          $    (0.10)          $  (0.55)
                                           ========           ========           ==========           ========

Weighted-average common shares
   outstanding                               22,329             22,322               22,329             22,369
                                           ========           ========           ==========           ========
</TABLE>

Goodwill amortization had no effect on the Company's provision for income taxes
for the three months and six months ended June 30, 2001.

[5] ASSET IMPAIRMENT LOSSES

An impairment of $15.5 million was recorded in the quarter ended June 30, 2001
which resulted from the write-off of net intangible assets of $10.7 million and
net property and equipment of $4.8 million.

[6] INCOME TAXES

Income taxes have been provided based upon the Company's anticipated annual
effective income tax rate at both the Federal and State levels. Tax benefits
relating to the Company's loss are recognized only to the extent that, in the
opinion of management, it is more likely than not, that the tax benefits are
realizable.

[7] DEBT

The Company did not make the interest payments on the Debentures that were due
March 31, 2001, September 30, 2001 and March 31, 2002; each of which failures
constitutes an event of default under the Indenture and could give rise to an
acceleration of the maturity of the Debentures. A default on the



                                       13
<PAGE>

Debentures could also allow other debt holders to accelerate the maturity of
their debt instruments. The amount of past due interest on the Debentures as of
June 30, 2002 is approximately $3.5 million. Since the September 30, 2000
quarter and all the subsequent quarters, the Company has not been in compliance
with the consolidated net worth covenant under the Indenture; as a result, the
Company was obligated to conduct a Deficiency Offer. Given the Company's cash
resources and pending its efforts to restructure its debt, the Company did not
make a Deficiency Offer. On May 1, 2001, the Company received a default notice
from the Trustee for the Indenture regarding certain technical defaults and the
failure to make a Deficiency Offer. Such default could permit the acceleration
of maturity of the Debentures. Such an event could also give rise to the
acceleration of other debt issued by the Company. In addition, the Company's
debt to operating cash flow ratio is insufficient under the debt incurrence test
thereby limiting its ability to incur additional debt. Due to the defaults and
cross defaults, the Debentures have been classified as a current liability for
financial statement purposes. See Note 1, MANAGEMENT'S PLANS for further
details.

The Company failed to pay the $10.0 million principal amount (and accrued
interest) of the Notes that matured on June 30, 2001. The amount of past due
interest on the Notes as of June 30, 2002 is approximately $0.8 million. This
failure constitutes a default under the Notes and may also constitute a cross
default under other of the Company's debt instruments which could entitle the
holders of such instruments to accelerate the maturity. See Note 1, MANAGEMENT'S
PLANS for further details.

In addition, under its credit facilities with DVI Financial Services, Inc.
("DVIFS") and DVI Business Credit Corporation ("DVIBC"), (collectively, "DVI"),
DVI has the right to sweep specified amounts of the Company's cash deposits and
apply such amounts to the payment of interest and principal outstanding under
those facilities. On August 30, 2001, the Company and DVI entered into a
Forbearance Agreement (the "Forbearance Agreement") pursuant to which DVI agreed
to extend certain financial accommodations to the Company and forbear from
exercising its rights and remedies against the Company with respect to the
existing defaults for a period ended on September 30, 2001 (the "Forbearance
Period"). Under the Forbearance Agreement, the Company granted DVI additional
collateral in all accounts receivable and a pledge of the Company's equity
interests in certain subsidiaries in addition to the collateral already granted
for various DVI loans. Unless a further restructuring is completed, the Company
will be required to pay DVIFS an amount equal to the difference between the
payments actually made and the regular monthly payments that should have been
made had the Forbearance Agreement not been entered into (the "Forbearance
Amount"). The Forbearance Amount is estimated to be approximately $6.6 million
as of June 30, 2002. Since the expiration of the Forbearance Period, DVI has
agreed to accept, and has indicated it will continue to accept, reduced payments
at a level comparable to that set in the expired Forbearance Agreement (or less
than such level) in order to permit the Company to meet its current cash
demands. Unless and until the Company can complete the sale of its assets
contemplated by Note 1 MANAGEMENT'S PLANS, or some other financial restructuring
through a bankruptcy filing or otherwise, the Company expects that it will
continue to be substantially dependent on DVI's willingness to provide
additional financial accommodations, as to which there can be no assurance.


During the second quarter of 2002, DVIFS applied $460,000 as payment against
certain of its notes through additional borrowings under the DVIBC line of
credit.

On May 31, 2002, DVIBC extended the expiration date of the revolving credit loan
of $35.0 million from June 1 to August 30, 2002.

[8] EARNINGS PER SHARE

The Company had a loss before extraordinary gain for the three months ended June
30, 2002 and June 30, 2001, and for the six months ended June 30, 2002 and June
30, 2001, and all potentially dilutive securities were excluded from the
computations of basic and diluted earnings per share during such periods because




                                       14
<PAGE>

the effect would be anti-dilutive. Such potentially dilutive securities consist
of the following: (i) unexercised stock options and warrants to purchase 1.1
million and 1.8 million shares of the Company's common stock as of June 30, 2002
and June 30, 2001, respectively; (ii) 3.6 million shares of the Company's common
stock issuable upon conversion of convertible debt as of both June 30, 2002 and
June 30, 2001; and (iii) unissued restricted stock amounting to 91,800 shares of
the Company's common stock as of both June 30, 2002 and June 30, 2001.

[9] SOLD/CLOSED IMAGING CENTERS

There were no imaging center sales during the second quarter of 2002 but the
Company closed one underperforming imaging center during that period.

On May 9, 2001, the Company sold the assets of an imaging center for $8.0
million, consisting of $6.4 million cash, $1.0 million of contingent
consideration subject to certain conditions and targets being met, and the
assumption by the purchaser of debt and other obligations amounting to $0.6
million. As a result of the sale, the Company also repaid $1.8 million on a
revolving credit loan with DVIBC and $1.0 million on the DVIFS Repurchase
Facility. DVIFS was granted a security interest in the contingent consideration.
As of December 31, 2001, the Company had earned approximately $0.6 million
because the projected net collections from this sold imaging center had fallen
below the stipulated amount per the terms of the sale. In June 2002, the Company
increased the gain on sale by $56,000 to reflect actual net collections at the
end of the target period. Also, the Company recognized $656,000 of legal
settlement expense in connection with an unresolved claim in litigation. See
Note 11 for further details.

On May 31, 2001, the Company sold the assets of an imaging center for $1.2
million cash. The Company also repaid $0.3 million on a revolving credit loan
with DVIBC, $0.5 million on the DVIFS Repurchase Facility and $0.4 million on a
DVIFS secured loan from the proceeds of this sale.

On June 15, 2001, the Company sold the assets of an imaging center for $1.0
million, consisting of the assumption by the purchaser of debt and other
obligations.

Also, in May 2001, the Company closed one imaging center that was
underperforming.

The following is a summary of the gains/losses recognized on the above described
sales for the three and six months ended June 30, 2002 and 2001 as well as the
losses on the closing of non-performing imaging centers.

    In thousands

<TABLE>
<CAPTION>
                                                          Three Months Ended June 30           Six Months Ended June 30
                                                           -------------------------           -------------------------
                                                             2002             2001              2002              2001
                                                           -------           -------           -------           -------
<S>                                                           <C>              <C>                <C>            <C>
Net gains on sold imaging centers                          $    56           $ 5,172           $    56           $ 9,671
Net losses on closed imaging centers                           (80)             (573)              (80)             (709)
                                                           -------           -------           -------           -------

   Net gain (loss) on disposition of subsidiaries          $   (24)          $ 4,599           $   (24)          $ 8,962
                                                           =======           =======           =======           =======

</TABLE>

[10] EXTRAORDINARY GAIN

In May 2001, the Company assigned and transferred its rights and interests in
equipment of a center that was closed since February 2000, to a third-party
which in turn assumed the corresponding obligations. The Company recorded a $0.5
million gain on early extinguishment of debt, net of $0.2 million of income
taxes during the three and six months ended June 30, 2001.



                                       15
<PAGE>
[11]  LITIGATION

RADNET MANAGEMENT II, INC. VS. US DIAGNOSTIC INC. AND MODESTO IMAGING CENTER,
INC. - The Company is a Defendant in an action for breach of representations and
warranties in an asset purchase agreement. The claimant alleges the Company
failed to disclose that a certain lease agreement had been extended for ten
years through the year 2014, rather than terminating in 2004. The claimant seeks
approximately $1 million pursuant to the surviving covenants and agreements
related to such asset purchase agreement. The matter is currently in discovery
and the Company cannot currently determine whether it is liable for such alleged
breach or the appropriate amount of the claim if it is determined to be liable.
The parties attempted settlement unsuccessfully during a nonbinding mediation in
May 2002. See Note 9 for further details.

OTHER MATTERS - The Company could be subject to legal actions arising out of the
performance of its diagnostic imaging services. Damages assessed in connection
with, and the cost of defending, any such actions could be substantial. The
Company maintains liability insurance and other insurance, which it believes is
adequate for its present operations although, even if adequate, contains
deductibles for which the Company would be responsible. There can be no
assurance that the Company will be able to continue or increase such coverage or
to do so at an acceptable cost, or that the Company will have other resources
sufficient to satisfy any liability or litigation expense that may result from
any uninsured or underinsured claims. The Company also requires all of its
affiliated physicians to maintain malpractice and other liability coverage.

The Company is also a party to, and has been threatened with, a number of other
legal proceedings in the ordinary course of business. While it is not feasible
to predict the outcome of these matters, and although there can be no
assurances, the Company does not anticipate that the ultimate disposition of any
such proceedings will have a material adverse effect on the Company.

[12] SUBSEQUENT EVENT

In July 2002, DVIFS applied $0.9 million as payment against certain of its
notes through additional borrowings under the DVIBC line of credit.


                                       16
<PAGE>

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

FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS

Certain matters discussed herein are forward-looking statements made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements are based largely on the Company's
expectations and are subject to a number of risks and uncertainties, including
but not limited to, the economic, competitive, regulatory and legal factors,
collections of accounts receivable, the outcome of the Company's negotiations
with its senior and subordinated lenders as more fully discussed below, the
effect of a potential Chapter 11 bankruptcy filing in the near future on the
Company's business, available financing or available refinancing for or
restructuring of existing debt, cash flow and working capital availability, the
ability of the Company to renew or successfully negotiate contracts and/or
partnership relationships given its financial condition, the ability of the
Company to reduce its overhead, the impact of any actions taken by debt holders
as a result of defaults by the Company under its debt instruments, and other
factors discussed elsewhere in this report and in other documents filed by the
Company with the SEC. Many of these factors are beyond the Company's control.
Actual results could differ materially from the forward-looking statements made.
In light of these risks and uncertainties, there can be no assurance that the
results anticipated in the forward-looking information contained in this report
will, in fact, occur.

In particular, the Company is currently in negotiations with respect to a sale
of substantially all of its operating assets to its senior lender or a designee
thereof that would require a filing of a voluntary case under Chapter 11 of the
Federal Bankruptcy Code in connection with the transaction. Although the Company
currently expects that a definitive agreement will be entered into shortly,
there can be no assurance that a definitive agreement will be entered into or,
if entered into, whether the transaction contemplated thereby will receive
necessary approvals, including those of the bankruptcy court; furthermore, at
this time, the Company cannot predict with assurance the ultimate amount of net
proceeds from the potential transaction nor the amount that any class of
creditors would receive therefrom. If this potential transaction is consummated
in accordance with terms currently under discussion, the Company believes that
there is little likelihood that the Company's equity holders will receive any
distribution in respect of their equity interests in the Company. Moreover, if
the Company and its senior lender are unable to finalize the contemplated
definitive agreement, it is likely that the Company will be required to seek
protection under the Federal Bankruptcy Code.


OVERVIEW AND RECENT DEVELOPMENTS

The following discussion should be read in conjunction with the Company's
unaudited Condensed Consolidated Financial Statements, including the notes
thereto, which are included elsewhere herein and the Company's audited
Consolidated Financial Statements and notes thereto for the year ended December
31, 2001 and Management's Discussion and Analysis of Financial Condition and
Results of Operations appearing in the Company's Annual Report on Form 10-K for
the year ended December 31, 2001. The results of operations for an interim
period may not give a true indication of results for the year. Capitalized terms
used but not defined herein have the respective meanings set forth in the
Company's 2001 Form 10-K.

The Company's financial condition continued to deteriorate during 2002 despite
the Company's efforts, begun in 1997, to improve operating results, cash flows
and capitalization through overhead reductions; dispositions of non-core and
underperforming assets; and the sale of 36 medical diagnostic imaging centers
under a plan of restructuring that was adopted in 2000. The plan of
restructuring was suspended during 2001 because the Company determined that it
would not be able to obtain acceptable prices for its remaining imaging centers
due in part to industry and general economic conditions.



                                       17
<PAGE>

The Company remains burdened by a high level of indebtedness to its secured and
unsecured lenders and most of this indebtedness has relatively short maturities
(or may be current as a result of acceleration or rights to accelerate) which
require the Company to devote a significant portion of its cash flows to the
amortization of debt and interest payments. The Company also has ongoing
significant capital expenditure requirements in order to maintain and modernize
its imaging equipment. Furthermore, cost containment by the managed care
industry and governmental payors such as Medicare continues to adversely affect
pricing levels for medical imaging services. The Company also needs to maintain
its corporate infrastructure to operate remaining centers and collect accounts
receivable. As a result, the Company's cash flows from operating activities
continue to be insufficient to meet the Company's operating needs, scheduled
debt repayment obligations and capital expenditure requirements.

The Company's shortfall in cash flows has forced it to default on interest
payments due in March and September of 2001, as well as the March 2002 payment,
on its $22.0 million principal amount of the Debentures aggregating $3.5 million
at June 30, 2002, plus interest on the overdue amounts, the repayment at
maturity of the Notes aggregating $10.0 million in principal amount plus unpaid
interest to the maturity date, as well as defaults on other obligations,
judgments and indebtedness. Based on current projections, the Company is
unlikely to have sufficient cash resources to pay additional maturing debt
obligations which could give rise to additional defaults. The Company has also
committed various financial covenant defaults with respect to the Debentures and
failed to conduct an offer to purchase the Debentures as a result of the
Company's failure to maintain a consolidated net worth of at least $18.0
million. These defaults permit the Debenture holders to accelerate the maturity
of the Debentures, constitute cross defaults under other instruments and limit
the Company's ability to obtain other financing. The Company's continued
operation has been largely dependent on the willingness of its primary senior
secured lender to reduce its sweeps of the Company's available cash which in
part secures the Company's obligations under its credit facilities with the
senior lender. If the senior lender were to terminate its forbearances, the
Company would likely be forced to seek immediate protection in bankruptcy.

In light of its financial condition, the Company, assisted by its financial and
legal advisors, commenced negotiations during 2001 with its senior lenders and
an adhoc committee of Debenture holders regarding restructuring its debt. The
Company is currently in negotiations with respect to a sale of substantially all
of its operating assets to its senior lender or a designee thereof that would
require the filing of a voluntary case under Chapter 11 of the Federal
Bankruptcy Code in connection with the transaction. Although the Company expects
that a definitive agreement will be entered into shortly, there can be no
assurance that a definitive agreement will be entered into or, if entered into,
whether the transaction contemplated thereby will receive necessary approvals,
including those of the bankruptcy court; furthermore, at this time, the Company
cannot predict with assurance the ultimate amount of net proceeds from the
potential transaction nor the amount that any class of creditors would receive
therefrom. If the potential transaction is consummated in accordance with the
terms currently under discussion, the Company believes that there is little
likelihood that the Company's current equity holders will receive any
distribution in respect of their equity interests in the Company. Moreover, if
the Company and its senior lender are unable to finalize the contemplated
definitive agreement, it is likely that the Company will be required to seek
protection under the Federal Bankruptcy Code. See Note 1 GOING CONCERN and
MANAGEMENT'S PLANS which are incorporated herein by reference.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company's financial statements and accompanying notes are prepared in
accordance with accounting principles generally accepted in the United States of
America. Preparing financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities, revenue
and expenses. The most significant of these estimates relate to contractual and
bad debt allowances on accounts receivable and other receivables, useful lives
of medical equipment, the



                                       18
<PAGE>

realizability of long-lived and intangible assets and reserves for litigation
contingencies. These estimates and assumptions are affected by management's
application of accounting policies.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2002 COMPARED WITH THE
THREE MONTHS ENDED JUNE 30, 2001.

Net revenue for the three months ended June 30, 2002 (the "2002 three month
period") decreased to $11.1 million, from $15.4 million for the three months
ended June 30, 2001 (the "2001 three month period"). The decrease resulted
primarily from the sale of imaging centers that were still owned or operated by
the Company during the 2001 three month period or a portion thereof. Net revenue
relating to those centers that were still in operation as of June 30, 2002 (the
"open centers") was $11.1 million for the 2002 three month period compared to
$12.6 million for 2001 three month period. The decrease in net revenue of the
open centers is related to a 4.9% decrease in scan volume and a loss of $250,000
of other revenue associated with providing management services.

General and Administrative ("G&A") expense decreased to $9.1 million during the
2002 three month period, compared to G&A expense of $12.3 million during the
2001 three month period. The decrease from 2001 to 2002 resulted primarily from
the sale of imaging centers that were still owned or operated by the Company
during the 2001 three month period or a portion thereof. In addition, the
Company recognized $656,000 of legal settlement expense in connection with an
unresolved claim in litigation (see Note 9 to Condensed Consolidated Financial
Statements which is incorporated herein by reference). G&A expense relating to
the open centers was $8.3 million for the 2002 three month period compared to
$10.9 million for the 2001 three month period. The decrease in G&A expense of
open centers is related in part to a $1.4 million decrease in salaries and
benefits due to a reduction in the number of employees as well as a decrease in
the use of temporary labor and outsourced services from 2001 to 2002.
Furthermore, legal and consulting fees decreased by $0.3 million from 2001 to
2002.

Asset impairment losses were $15.5 million during the 2001 three month period.
The Company recorded impairment losses for those centers for which the sum of
the expected future cash flows did not cover the carrying value of the
long-lived assets. There were no asset impairment losses during the 2002 three
month period. Asset impairment losses relating to the open centers were $14.0
million for the 2001 three month period.

Bad debt expense was $0.5 million for both the 2002 and 2001 three month
periods. Bad debt expense decreased from 2001 to 2002 resulting primarily from
the sale of imaging centers that were still owned or operated by the Company
during the 2001 three month period or a portion thereof, but was partially
offset by increase in bad debt expense of the open centers. Bad debt expense
relating to the open centers was $0.7 million for the 2002 three month period
compared to $0.4 million for the 2001 three month period. Management increased
bad debt reserves because of a concern that collection efforts may be more
difficult if the Company's financial condition deteriorates further or if it
enters bankruptcy.

Depreciation expense was $1.5 million during the 2002 three month period,
compared to $2.0 million during the 2001 three month period. Depreciation
expense decreased from 2001 to 2002 resulting primarily from the sale of imaging
centers that were still owned or operated by the Company during the 2001 three
month period or a portion thereof. Depreciation expense relating to the open
centers was $1.5 million for the 2002 three month period and $1.6 million for
the 2001 three month period. The decrease in depreciation expense of the open
centers is related to the asset impairment write-off of property and equipment
in 2001 as part of the Company's asset impairment analysis. Furthermore, this
decrease in depreciation expense of open centers in 2002 was offset in part by
an increase in depreciation expense due to a reduction of the estimated useful
lives of some assets associated with capital leases.



                                       19
<PAGE>

Amortization expense was $149,000 during the 2002 three month period, compared
to approximately $559,000 (for both intangible assets and goodwill) during the
2001 three month period. Amortization expense decreased from 2001 to 2002
resulting primarily from the sale of imaging centers that were still owned or
operated by the Company during the 2001 three month period or a portion thereof,
the write off of intangibles as part of the Company's asset impairment analysis
in 2001 as well as the adoption of SFAS 142 effective January 1, 2002 which
discontinued amortization of goodwill. Amortization expense relating to the open
centers was $149,000 for the 2002 three month period compared to approximately
$551,000 for 2001 three month period. The decrease in amortization expense of
the open centers is related to the write off of intangibles as part of the
Company's asset impairment analysis in 2001 and the adoption of SFAS 142
effective January 1, 2002.

Interest expense decreased to $1.5 million, during the 2002 three month period,
compared to $2.0 million during the 2001 three month period, resulting primarily
from reduced debt in connection with the sale of imaging centers that were still
owned or operated by the Company during the 2001 three month period or portion
thereof. Interest expense relating to the open centers was $1.5 million for the
2002 three month period compared to $1.9 million for the 2001 three month
period. The decrease in interest expense of the open centers is primarily due to
reduced debt in connection with the sale of the imaging centers.

During the 2002 three month period, the Company recognized a net gain of $56,000
on a previously sold imaging center (see Note 9 to Condensed Consolidated
Financial Statements which is incorporated herein by reference) and recognized a
net loss of approximately $80,000 relating to the closing of one imaging center
that was non-performing. During the 2001 three month period, the Company
recognized a net gain of $5.2 million on the sale of three imaging centers and
recognized a net loss of $0.6 million relating to the closing of one imaging
center that was non-performing.

The Company recorded an extraordinary gain net of taxes of $0.5 million during
the 2001 three month period for gain on early extinguishment of debt. See Note
10 to Condensed Consolidated Financial Statements which is incorporated herein
by reference.

The Company had a basic and diluted loss per share of $0.06 during the 2002
three month period compared to basic and diluted loss per share of $0.55 during
the 2001 three month period.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2002 COMPARED WITH THE
SIX MONTHS ENDED JUNE 30, 2001.

Net revenue for the six months ended June 30, 2002 (the "2002 six month period")
decreased to $22.5 million, from $32.4 million for the six months ended June 30,
2001 (the "2001 six month period"). The decrease resulted primarily from the
sale of imaging centers that were still owned or operated by the Company during
the 2001 six month period or a portion thereof. Net revenue relating to those
centers that were still in operation as of June 30, 2002 (the "open centers")
was $22.4 million for the 2002 six month period compared to $24.7 million for
2001 six month period. The decrease in net revenue of the open centers is
related to a 5.3% decrease in scan volume and a loss of $1.3 million of other
revenue associated with providing management services.

G&A expense decreased to $18.4 million during the 2002 six month period,
compared to G&A expense of $26.0 million during the 2001 six month period. The
decrease from 2001 to 2002 resulted primarily from the sale of imaging centers
that were still owned or operated by the Company during the 2001 six month
period or a portion thereof. In addition, the Company recognized $656,000 of
legal settlement expense in connection with an unresolved claim in litigation
(see Note 9 to Condensed Consolidated Financial Statements which is incorporated
herein by reference). G&A expense relating to the open centers was $17.5 million
for the 2002 six month period compared to $21.0 million for the 2001 six month
period. The decrease in G&A expense of open centers is related in part to a $2.2
million decrease in salaries and benefits due to a reduction in the number of
employees as well as a decrease in the use of




                                       20
<PAGE>

temporary labor and outsourced services from 2001 to 2002. Furthermore, legal
and consulting fees decreased by $0.6 million from 2001 to 2002.

Asset impairment losses were $15.5 million during the 2001 six month period. The
Company recorded impairment losses for those centers for which the sum of the
expected future cash flows did not cover the carrying value of the long-lived
assets. There were no asset impairment losses during the 2002 six month period.
Asset impairment losses relating to the open centers were $14.0 million for the
2001 six month period.

Bad debt expense was $0.9 million during the 2002 six month period compared to
$1.3 million during the 2001 six month period. Bad debt expense decreased from
2001 to 2002 resulting primarily from the sale of imaging centers that were
still owned or operated by the Company during the 2001 six month period or a
portion thereof, but was partially offset by increase in bad debt expense on the
open centers. Bad debt expense relating to the open centers was $1.6 million for
the 2002 six month period compared to $0.9 million for the 2001 six month
period. Management increased bad debt reserves because of a concern that
collection efforts may be more difficult if the Company's financial condition
deteriorates further or if it enters bankruptcy.

Depreciation expense was $2.6 million during the 2002 six month period, compared
to $4.1 million during the 2001 six month period. Depreciation expense decreased
from 2001 to 2002 resulting primarily from the sale of imaging centers that were
still owned or operated by the Company during the 2001 six month period or a
portion thereof. Depreciation expense relating to the open centers was $2.6
million for the 2002 six month period and $3.3 million for the 2001 six month
period. The decrease in depreciation expense of the open centers is related to
the asset impairment write-off of property and equipment in 2001 as part of the
Company's asset impairment analysis. Furthermore, this decrease in depreciation
expense of open centers in 2002 was offset in part by an increase in
depreciation expense due to a reduction of the estimated useful lives of some
assets associated with capital leases.

Amortization expense was $184,000 during the 2002 six month period, compared to
$1.3 million (for both intangible assets and goodwill) during the 2001 six month
period. Amortization expense decreased from 2001 to 2002 resulting primarily
from the sale of imaging centers that were still owned or operated by the
Company during the 2001 six month period or a portion thereof, the write off of
intangibles as part of the Company's asset impairment analysis in 2001 as well
as the adoption of SFAS 142 effective January 1, 2002 which discontinued
amortization of goodwill. Amortization expense relating to the open centers was
$184,000 for the 2002 six month period compared to $1.3 million for 2001 six
month period. The decrease in amortization expense of the open centers is
related to the write off of intangibles as part of the Company's asset
impairment analysis in 2001 and the adoption of SFAS 142 effective January 1,
2002.

Interest expense decreased to $2.8 million, during the 2002 six month period,
compared to $4.2 million during the 2001 six month period, resulting primarily
from reduced debt in connection with the sale of imaging centers that were still
owned or operated by the Company during the 2001 six month period or a portion
thereof. Interest expense relating to the open centers was $2.8 million for the
2002 six month period compared to $4.0 million for the 2001 six month period.
The decrease in interest expense of the open centers is primarily due to reduced
debt in connection with the sale of the imaging centers.

During the 2002 six month period, the Company recognized a net gain of $56,000
on a previously sold imaging center (see Note 9 to Condensed Consolidated
Financial Statements which is incorporated herein by reference) and recognized a
net loss of approximately $80,000 relating to the closing of one imaging center
that was non-performing. During the 2001 six month period, the Company
recognized a net gain of $9.7 million on the sale of 10 imaging centers and
recognized a net loss of $0.7 million relating to the closing of two imaging
centers that were non-performing.




                                       21
<PAGE>

Minority interest in gain on sale of subsidiaries of $3.3 million in the 2001
six month period was attributable to the sale of majority owned subsidiaries.
There were no imaging center sales during the 2002 six month period.

The Company recorded an extraordinary gain net of taxes of $0.5 million during
the 2001 six month period for gain on early extinguishment of debt. See Note 10
to the Condensed Consolidated Financial Statements which is incorporated herein
by reference.

The Company had a basic and diluted loss per share of $0.10 during the 2002 six
month period compared to basic and diluted loss per share of $0.60 during the
2001 six month period.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2002, the Company had a working capital deficiency of $59.3 million,
compared to a working capital deficiency of $57.0 million at December 31, 2001.
The increase in the working capital deficiency from 2001 to 2002 is primarily
due to an increase in the unpaid interest on the Debentures and the Notes from
$3.0 million at December 31, 2001 to $4.3 million at June 30, 2002, which is
shown as a current liability. The Company's primary short-term liquidity
requirements as of June 30, 2002 include obligations under the Debentures, the
Notes, secured debt and capital leases (including the amounts of principal and
interest in default), rent, salaries, other operating expenses (such as legal
fees), accounts payable, other current liabilities and capital expenditures
related to the replacement and enhancement of existing imaging equipment and
imaging centers. See Note 7 of Notes to Condensed Consolidated Financial
Statements which are incorporated herein by reference.

Net cash provided by operating activities during the 2002 six month period was
$2.2 million, compared to $7.4 million used in operating activities during the
2001 six month period. The positive cash flow from operations in 2002 in part is
due to minimal minority interest (partnership distributions) in the 2002 six
month period compared to significant partnership distributions in the 2001 six
month period. In the 2001 six month period, the partnership distributions
included a $4.8 million distribution relating to three imaging centers that were
sold during the first quarter of 2001 in addition to the regular distributions
of operating income of $275,000 during such period. In the 2002 six month
period, the regular distributions of operating income were $145,000. Also,
accounts payable and accrued expenses from December 31, 2001 to June 30, 2002
have increased by $1.1 million while they decreased from December 31, 2000 to
June 30, 2001 by $8.6 million as a result of imaging center sales. In addition,
the net gain on sold imaging centers was $9.7 million in the 2001 six month
period compared to a net gain on sold imaging centers of $56,000 in the 2002 six
month period. Furthermore, a $2.4 million gain resulting from a legal settlement
was recorded during the first quarter of 2001 which was offset by a $2.1 million
loss from another unrelated legal settlement recorded during the same period.

Net cash provided by investing activities was $104,000 during the 2002 six month
period, compared to net cash provided by investing activities of $14.8 million
during the 2001 six month period. During the 2001 six month period, the Company
received $14.7 million in net cash proceeds from the sale of imaging centers.
The net cash proceeds from the sale of imaging centers in 2001 is net of $4.8
million of sale proceeds used to repay debt not specifically related to the sale
of the imaging centers. Equipment purchases were $60,000 during the 2002 six
month period, compared to $172,000 during the 2001 six month period. The
proceeds from dispositions of property and equipment were $0.2 million during
the 2002 six month period compared to $0.3 million during the 2001 six month
period.

Net cash used in financing activities was $2.1 million during the 2002 six month
period, compared to $9.4 million used in financing activities during the 2001
six month period. Proceeds from new borrowings were $0.6 million during the 2002
six month period, compared to $0 during the 2001 six month period.



                                       22
<PAGE>

Repayments of notes and capital leases totaled $2.7 million during the 2002 six
month period, compared to $9.4 million during the 2001 six month period. The
Company repaid an aggregate of $3.3 million under its revolving credit loan with
DVIBC and $1.5 million under the DVIFS Repurchase Facility from proceeds
received upon the sale of imaging centers for debt not specifically related to
the sold centers during the 2001 six month period.

As of June 30, 2002, the Company has no purchase commitments for capital
expenditures.

Based on current estimates, the Company's current cash and cash from operations
will be insufficient to meet its anticipated cash needs. Furthermore, the
Company has defaulted on the March 31, 2001, September 30, 2001 and March 31,
2002 interest payments on its Debentures. Also, the Company has defaulted on its
obligation to repurchase Debentures which is required as a result of failing to
maintain consolidated net worth of at least $18.0 million. On May 1, 2001, the
Company received a default notice from the Trustee under the Indenture. These
defaults could give rise to an acceleration of the maturities of the Debentures.
In addition, the Company is prohibited from borrowing additional amounts without
causing additional non-compliance with certain Indenture covenants and an
additional default under the Indenture. Furthermore, the Company failed to pay
the $10.0 million principal amount (and accrued interest) of its Notes that
matured on June 30, 2001. This failure constitutes a default under the Notes and
may also constitute a cross default under other of the Company's debt
instruments which could entitle the holders of such instruments to accelerate
the maturity of such debt instruments. See GOING CONCERN and MANAGEMENT'S PLANS
under Note 1 of Notes to Condensed Consolidated Financial Statements which are
incorporated herein by reference.

As noted above, the Company remains burdened by a high level of indebtedness to
its secured and unsecured lenders and most of this indebtedness has relatively
short maturities (or may be current as a result of acceleration or rights to
accelerate) which require the Company to devote a significant portion of its
cash flows to the amortization of debt and interest payments. The Company also
has ongoing significant capital expenditure requirements in order to maintain
and modernize its imaging equipment. Furthermore, cost containment by the
managed care industry and governmental payors such as Medicare continues to
adversely affect pricing levels for medical imaging services. The Company also
needs to maintain its corporate infrastructure to operate remaining centers and
collect accounts receivable. As a result, the Company's cash flows from
operating activities continue to be insufficient to meet the Company's operating
needs, scheduled debt repayment obligations and capital expenditure
requirements.

The Company is currently in negotiations with respect to a sale of substantially
all of its operating assets to its senior lender or a designee thereof that
would require the filing of a voluntary case under Chapter 11 of the Federal
Bankruptcy Code in connection with the transaction. Although the Company expects
that a definitive agreement will be entered into shortly, there can be no
assurance that a definitive agreement will be entered into or, if entered into,
whether the transaction contemplated thereby will receive necessary approvals,
including those of the bankruptcy court; furthermore, at this time, the Company
cannot predict with assurance the ultimate amount of net proceeds from the
potential transaction nor the amount that any class of creditors would receive
therefrom. If the potential transaction is consummated in accordance with the
terms currently under discussion, the Company believes that there is little
likelihood that the Company's current equity holders will receive any
distribution in respect of their equity interests in the Company. Moreover, if
the Company and its senior lender are unable to finalize the contemplated
definitive agreement, it is likely that the Company will be required to seek
protection under the Federal Bankruptcy Code.

For additional information regarding contingencies and uncertainties related to
litigation and regulatory matters, see Note 11 of Notes to Condensed
Consolidated Financial Statements which is incorporated herein by reference.



                                       23
<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The table below presents in tabular form contractual balances of the Company's
capitalized lease and long-term debt financial instruments at June 30, 2002. The
expected maturity categories take into consideration amortization of principal
as currently classified in the condensed consolidated financial statements and
do not take prepayments into consideration. The weighted-average interest rates
for the various liabilities presented are as of June 30, 2002.


   In thousands
<TABLE>
<CAPTION>

                                                 Principal Amount Maturing in:
                       --------------------------------------------------------------------------------                   Fair Value
                          2003          2004           2005         2006          2007       Thereafter       Total       At 6/30/02
                       ----------     ---------     ---------     ---------     ---------    ----------     ----------    ----------
<S>                    <C>            <C>           <C>           <C>           <C>           <C>           <C>            <C>
Interest rate
sensitive
liabilities:

Long-term debt
adjustable-rate
borrowings                  8,003            70            76            84            92           574          8,899         8,899
Average interest rate        6.77%         9.07%         9.07%         9.07%         9.07%         9.07%          7.00%

Long-term debt
fixed-rate
borrowings                 44,139         2,380         1,345           718           528           275         49,385        49,385
Average interest rate        8.87%         8.96%        10.51%        10.17%         9.88%        10.25%          8.96%

Capitalized lease
obligations
fixed-rate
borrowings                  1,779         1,601         1,324           919           946           658          7,227         7,227
Average interest rate       10.02%        10.48%        10.29%        10.10%        10.05%         9.94%         10.18%
                       ----------     ---------     ---------     ---------     ---------     ---------     ----------     ---------

Total                  $   53,921     $   4,051     $   2,745     $   1,721     $   1,566     $   1,507     $   65,511     $  65,511
                       ==========     =========     =========     =========     =========     =========     ==========     =========

Weighted-Average
Interest Rates               8.60%         9.56%        10.37%        10.08%         9.94%         9.67%          8.83%
                       ==========     =========     =========     =========     =========     =========     ==========

</TABLE>





                                       24
<PAGE>


PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 11 of Notes to Condensed Consolidated Financial Statements which is
incorporated herein by reference. Reference is also made to Item 3 - Legal
Proceedings of the Company's 2001 Form 10-K for additional information regarding
legal proceedings.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

The Company did not pay the $10.0 million principal amount (and accrued
interest) of the Notes that matured on June 30, 2001. The amount of past due
interest on the Notes as of June 30, 2002 is approximately $0.8 million. This
failure constitutes a default under the Notes and may also constitute a cross
default under other of the Company's debt instruments which could entitle the
holders of such instruments to accelerate their maturity.

Also, the Company has not made the interest payments on the Debentures that were
due March 31, 2001, September 30, 2001 and March 31, 2002. Because these
defaults have remained uncured for 30 days, they could give rise to an
acceleration of the maturity of the Debentures. A default on the Debentures
would also allow other debt holders to accelerate their debt instruments. The
amount of past due interest on the Debentures as of June 30, 2002 is
approximately $3.5 million. See GOING CONCERN and MANAGEMENT'S PLANS under Note
1 and Note 7 of Notes to Condensed Consolidated Financial Statements which are
incorporated herein by reference.

ITEM 5. OTHER INFORMATION

Mr. Warren Lichtenstein resigned from the Board of Directors of the Company
effective April 15, 2002.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

       Exhibit Number     Description
       --------------     -----------

           99.1           Certification Pursuant to 18 U.S.C. Section 1350, as
                          Adopted Pursuant to Section 906 of the Sarbanes-Oxley
                          Act of 2002.

(b) Reports on Form 8-K

None.

Items 2 and 4 are not applicable and have been omitted.



                                       25
<PAGE>
                                   SIGNATURES

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

                                       US DIAGNOSTIC INC.



Dated: August 19, 2002                 By:  /s/ Leon F. Maraist
                                           -------------------------------------
                                           Leon F. Maraist
                                           President and Chief Executive Officer


                                       By: /s/ P. Andrew Shaw
                                           -------------------------------------
                                           P. Andrew Shaw
                                           Executive Vice President and Chief
                                           Financial Officer





                                       26