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 September 30, 1997

[ ] 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 specified in its charter)
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<S>                                                                   <C>    
         DELAWARE                                                                  11-3164389
--------------------------------------------------------------        -----------------------------------
(State or Other Jurisdiction of Incorporation or Organization)        (IRS Employer Identification Number)
</TABLE>

                              777 S. Flagler Drive
                                 Suite 1201 East
                         West Palm Beach, Florida 33401
                    (Address of Principal Executive Offices)

                                 (561) 832-0006
                (Issuer's Telephone Number, Including Area Code)

                                (Not Applicable)
              (Former Name, Former Address and Former Fiscal Year,
                          If Changed Since Last Report)

         Indicate by check mark whether the issuer (1) filed all reports
required to be filed by section 13 or 15 (d) of the Securities Exchange Act of
1934 during the past 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______

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

       CLASS                            OUTSTANDING  AT  NOVEMBER 11, 1997:
       -----                            -----------------------------------


 Common Stock, $ .01 par value                    22,810,498 shares







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                               US DIAGNOSTIC INC.

                               INDEX TO FORM 10-Q

         PART I. FINANCIAL INFORMATION                                                            PAGE
                                                                                                  ----
<S>                                                                                               <C>   
Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996.................................................................................3

Condensed Consolidated Statements of Operations for the Three and Nine Months
ended September 30, 1997 and 1996.....................................................................5

Condensed Consolidated Statements of Cash Flows for the Nine Months
ended September 30, 1997 and 1996.....................................................................6

Condensed Consolidated Statement of Stockholders' Equity for the Nine Months
ended September 30, 1997..............................................................................7

Notes to Condensed Consolidated Financial Statements..................................................8

Item 2. Management's  Discussion and Analysis of Financial Condition and
Results of Operations................................................................................15

PART II. FINANCIAL INFORMATION

Item 1. Legal Proceedings............................................................................20

Item 2. Changes in Securities........................................................................21

Item 3. Defaults upon Senior Securities..............................................................21

Item 4. Submission of Matters to a Vote of Security Holders..........................................21

Item 5. Other Information............................................................................21

Exhibit Index........................................................................................22

Signatures...........................................................................................23


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                                       2
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US DIAGNOSTIC INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------

IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

                                                                                             SEPTEMBER 30,        DECEMBER 31,
                                                                                                 1997                1996
                                                                                                 ----                ----
                                                                                             (UNAUDITED)

   <S>                                                                                        <C>                  <C>   
   ASSETS:
   CURRENT ASSETS:
   Cash and Cash Equivalents                                                                  $30,914              $18,641
   Accounts Receivable, Net of Allowance for Bad Debts of
   $16,546 and $9,670, respectively                                                            54,609               38,266
   Other Receivables, Net of Allowance for Bad Debts of $485 and $923, respectively            10,053               10,298
   Investment in Marketable Equity Securities, ($6,425 at cost)                                    --                7,280
   Prepaid Expenses and Other Current Assets                                                    9,139                5,320
                                                                                              -------               ------

   TOTAL CURRENT ASSETS                                                                       104,715               79,805
                                                                                              -------               ------

   Property and Equipment, Net of Accumulated Depreciation

   of $23,330 and $11,825, respectively                                                        96,431               79,946

   Intangible Assets, Net of Accumulated Amortization of $12,899

   and $4,875, respectively                                                                   176,740              163,675

   Other Assets                                                                                 5,132                5,398

   Investment in Unconsolidated Subsidiaries                                                    6,900               10,199
                                                                                             --------             --------
   TOTAL ASSETS                                                                              $389,918             $339,023
                                                                                             ========             ========
</TABLE>

    See Notes to Condensed Consolidated Financial Statements.

                                       3
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US DIAGNOSTIC INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------

IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
                                                                                             SEPTEMBER 30,      DECEMBER 31,
                                                                                                 1997              1996
                                                                                                 ----              ----
                                                                                            (UNAUDITED)
<S>                                                                                         <C>                 <C>   
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses                                                       $37,932               $21,054
Short-Term Borrowings                                                                            --                   750
Current Portion of Long-Term Debt                                                            18,798                27,336
Obligations Under Capital Leases - Current Portion                                            9,613                10,291
Other Current Liabilities                                                                     2,764                 5,608
Purchase Price Due on Companies Acquired                                                      1,794                 8,338
                                                                                            -------             ---------

TOTAL CURRENT LIABILITIES                                                                    70,901                73,377

Subordinated Convertible Debentures                                                          56,186                56,007
Long-Term Debt - Net of Current Portion                                                     117,818                42,359
Obligations Under Capital Leases - Net of Current Portion                                    13,913                18,704
Deferred Income Taxes                                                                         6,694                 6,684
Other Liabilities                                                                               253                   230
                                                                                          ---------             ---------

TOTAL LIABILITIES                                                                           265,765               197,361
                                                                                          ---------             ---------

MINORITY INTEREST                                                                             2,911                 8,150
                                                                                          ---------             ---------

COMMITMENTS AND CONTINGENCIES (NOTES 1, 6, 7 AND 9)

STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 Par Value;
   5,000,000 Shares Authorized, None Issued                                                      --                    --
Common Stock $.01 Par Value; 50,000,000 Shares
   Authorized, and 22,604,031 Shares and  23,749,217 Shares
   Issued and Outstanding, respectively                                                         226                   237
Additional Paid-in Capital                                                                  146,985               141,941
Unrealized Gain on Marketable Equity Securities, Net of Tax                                      --                   526
Deferred Stock Based Compensation                                                            (2,416)               (5,357)
Accumulated Deficit                                                                         (23,553)               (3,835)
                                                                                            --------             ---------

TOTAL STOCKHOLDERS' EQUITY                                                                   121,242              133,512
                                                                                            --------             --------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                  $389,918             $339,023
                                                                                            ========             ========


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See Notes to Condensed Consolidated Financial Statements.

                                       4
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US DIAGNOSTIC INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
--------------------------------------------------------------------------------------------------------------------------------

IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

                                                    THREE MONTHS ENDED SEPTEMBER 30,             NINE MONTHS ENDED SEPTEMBER 30,
                                                    -------------------------------              ------------------------------
                                                      1997                     1996                  1997              1996
                                                      ----                     ----                  ----              ----
<S>                                                 <C>                     <C>                     <C>              <C>   
REVENUES                                            $ 56,705                $31,368                 $166,674         $59,552

OPERATING EXPENSES:
General and Administrative Expense                    41,455                 18,242                  118,106         33,664
Depreciation and Amortization Expense                  7,486                  2,982                   21,750          6,819
Bad Debt Expense                                       8,879                  1,234                   12,559          2,343
Stock Based Compensation                                 299                  1,037                    1,037          1,604
Compensation to Terminated Consultant                     --                  1,424                       --          2,198
Professional Fees                                      3,397                    778                    8,057          1,617
Asset Impairment Losses                                                                               
Settlement with Former Executive Officer                 333                     --                    4,058             --
Loss on Settlement of Lawsuits                        (1,000)                    --                    1,809             --
Loss on Sale of Stock of Subsidiary                      125                     --                    5,000             --         
                                                          --                    389                       --            389
                                                   ---------               --------                 --------        -------
                                                                                                                       

Total Operating Expenses                              60,974                 26,086                  172,376         48,634
                                                   ---------               --------                 --------        -------

INCOME (LOSS) FROM OPERATIONS                         (4,269)                 5,282                   (5,702)        10,918
                                                   ---------               --------                 --------        -------

OTHER INCOME (EXPENSE):
 Interest Expense                                     (4,777)               (2,933)                  (13,296)        (5,587)
 Interest and Other Income                                74                   872                     1,928          1,417
 Gain on Marketable Equity Securities                     --                    --                       406             --
                                                   ---------            ----------                 ---------       --------

Total Other  Income (Expense)                         (4,703)               (2,061)                  (10,962)        (4,170)
                                                   ---------            ----------                 ---------       --------

INCOME (LOSS) BEFORE TAXES AND
 MINORITY INTEREST                                    (8,972)                3,221                   (16,664)         6,748

MINORITY INTEREST IN INCOME OF SUBSIDIARIES              534                   634                     2,712          1,178

INCOME TAX (PROVISION)                                  (342)               (1,479)                     (342)        (2,999)
                                                   ---------            ----------                 ---------       --------

NET INCOME (LOSS)                                    ($9,848)               $1,108                  ($19,718)        $2,571
                                                   =========            ==========                 =========       ========


NET INCOME (LOSS) PER COMMON SHARE

Primary                                                $(.45)                $.05                      $(.89)          $.18
Fully Diluted                                          $(.45)                $.05                      $(.89)          $.15
WEIGHTED  AVERAGE NUMBER OF COMMON SHARES AND
COMMON SHARE EQUIVALENTS
OUTSTANDING:
 Primary                                              22,126               21,278                     22,124         14,021
                                                      ======             =======                     =======        =======
 Fully Diluted                                        22,126               23,282                     22,124         17,100
                                                      ======             ========                    =======        =======


</TABLE>

See Notes to Condensed Consolidated Financial Statements.

                                       5
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US DIAGNOSTIC INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (UNAUDITED)
--------------------------------------------------------------------------------------------------------------------------------

IN THOUSANDS                                                                                NINE MONTHS ENDED SEPTEMBER 30,
                                                                                            -------------------------------
                                                                                             1 9 9 6               1 9 9 7
                                                                                             -------               -------
                                                                                    

<S>                                                                                          <C>               <C>   
NET CASH - OPERATING ACTIVITIES                                                                 $ 2,772            $1,295
                                                                                             ----------        ----------
INVESTING ACTIVITIES:
Purchase of Property and Equipment                                                              (15,357)           (3,784)
Acquisitions (Net of Cash Acquired)                                                             (21,827)          (61,424)
Sale of Marketable Securities                                                                     7,161                --
Decrease on Purchase Price Due on Companies Acquired                                             (6,544)               --
Investment in and Advances to Unconsolidated Subsidiaries                                        (3,104)           (1,094)
Proceeds from Dispositions                                                                        1,887                --
Sale of Subsidiary                                                                                   --             1,800
                                                                                           ------------       -----------
NET CASH - INVESTING ACTIVITIES                                                                 (37,784)          (64,502)
                                                                                           ------------       -----------
FINANCING ACTIVITIES:
Proceeds from Subordinated Convertible Debentures                                                    --            54,492
Repayments on Debt and Capital Lease Obligations                                               ( 22,867)           (7,107)
Proceeds from Borrowings                                                                         70,069             3,361
Common Stock Issued and Exercise of  Warrants and Options                                            84            89,951
                                                                                            -----------       -----------
NET CASH - FINANCING ACTIVITIES                                                                  47,286           140,697
                                                                                            -----------       -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS                                                        12,274            77,490

CASH AND CASH EQUIVALENTS - BEGINNING OF  PERIOD                                                 18,641             4,373
                                                                                            -----------       -----------

CASH AND CASH EQUIVALENTS - END OF PERIOD                                                       $30,915           $81,863
                                                                                            ===========       ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest                                                                                      $14,308              $4,970
Income Taxes                                                                                  $ 3,179              $3,388
</TABLE>

The fair market value of Common Stock and options issued and received in
connection with acquisitions was $ 3,809,758 and $12,479,604 in 1997 and 1996,
respectively.

The fair market value of Common Stock issued in connection with the settlement
of a claim totaled $439,260 and $125,000 in 1997 and 1996, respectively.

The fair market value of Common Stock issued in connection with the cancellation
of a consulting agreement totaled $0 and $581,250 in 1997 and 1996,
respectively.

The fair market value of detachable warrants issued in connection with the
Convertible Debentures was $0 and $1,672,550 in 1997 and 1996, respectively.

Capital leases were $5,046,800 and $3,311,251 in 1997 and 1996, respectively.

Buyout of minority shareholders of a subsidiary through debt issuance was 
$3,281,000 in 1997.

Warrants issued with debt in 1997 were valued at $703,475.

Stock issued in connection with the conversion of debt $0 and $762,790 in 1997
and 1996, respectively.

See Notes to Condensed Consolidated Financial Statements.

 

                                      6
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US DIAGNOSTIC INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE NINE MONTHS 
ENDED SEPTEMBER 30, 1997 (UNAUDITED)
--------------------------------------------------------------------------------------------------------------------------------


IN THOUSANDS, EXCEPT NUMBER OF SHARES

                                            

                                                                                                             

                                                                                                        
                                           COMMON STOCK   
                                           ------------                                              
                                       NUMBER                ADDITIONAL                     DEFERRED                       TOTAL
                                         OF                   PAID-IN       UNREALIZED    STOCK BASED     ACCUMULATED  STOCKHOLDERS'
                                       SHARES      AMOUNT     CAPITAL         GAIN       COMPENSATION      DEFICIT        EQUITY
                                       ------      ------    ----------     ----------   ------------     -----------  ------------
      <S>                            <C>          <C>       <C>            <C>          <C>               <C>          <C>
      Balance - January 1, 1997      23,749,217     $237     $141,941       $526        ($5,357)          ($3,835)       $133,512

      Release of Escrow Shares
      Related to 1996 Acquisitions           --       --        3,805         --             --                --           3,805
     

      Cancellation of Escrow         (1,163,853)     (11)          11         --             --                --              --
      Shares

      Sale of Marketable Equity
      Securities                             --       --           --       (526)            --                --            (526)

      Stock Options Exercised            14,667       --           64         --             --                --              64

      Bridge Warrants Exercised           4,000       --           20         --             --                --              20

      Restricted Stock Issued                --       --          440         --           (440)               --              --

      Deferred Stock Based
      Compensation Component of
      Settlement with Former                 --       --           --         --          2,344                --           2,344
      Executive Officer

      Amortization of Deferred
      Compensation                           --       --           --         --          1,037                --           1,037

      Warrants issued in
      connection with Financing              --       --          704         --             --                --             704
      Agreement

      Net Loss                               --       --           --         --             --           (19,718)        (19,718)
                                   ------------   ------  -----------     ------      ---------         ---------        --------
                        
      BALANCE - SEPTEMBER 30, 1997   22,604,031     $226     $146,985     $   --       $ (2,416)         $(23,553)       $121,242
                                   ============   ======  ===========     ======      =========         =========        ========
</TABLE>

See Notes to Condensed Consolidated Financial Statements.
 

                                      7

<PAGE>



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

[1]  INTERIM FINANCIAL STATEMENTS

The accompanying condensed consolidated financial statements as of September 30,
1997, include the accounts of US Diagnostic Inc. and its subsidiaries (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 generally accepted accounting principles 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 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-KSB filed with the
SEC for the year ended December 31, 1996.

The accompanying condensed consolidated statements of operations for the three
and nine months ended September 30, 1996, and the condensed consolidated
statement of cash flows for the nine months ended September 30, 1996, have been
restated from those originally filed with the SEC on Form 10-QSB. The restated
financial statements for the quarterly period ended September 30, 1996, were
filed with the SEC on Form 10-QSB/A on May 23, 1997. The restatement was
necessary as a result of accounting adjustments reflected in the Company's
audited financial statements included in the Company's Annual Report on Form
10-KSB as of and for the year ended December 31, 1996, filed with the SEC on
April 11, 1997. These accounting adjustments primarily relate to the Company's
accounting for acquisitions, issuance of equity securities and stock options and
provisions for state and federal income taxes. Weighted average shares
outstanding have been restated to reflect issuances and adjustments to equity
securities and convertible debt.

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

On May 13, 1997, the NASDAQ informed the Company that, following its review of
the Company's Form 10-KSB for the year ended December 31, 1996, the NASDAQ staff
had determined that the Company did not satisfy the NASDAQ's net tangible asset
test for continued listing on the NASDAQ National Market System. As the Company
stated in its Form 10-KSB for the year ended December 31, 1996, the Company's
non-compliance with this listing requirement is a result of accounting
conventions associated with the Company's business combinations in 1996. On July
3, 1997, a NASDAQ Listing Qualifications Panel, following a hearing held on June
26, 1997, determined to grant the Company a waiver of the net tangible assets
requirement, because it found that the Company's failure to satisfy the net
tangible assets test was a reflection of the Company's business strategy and not
an indication of financial weakness. NASDAQ subsequently adopted an alternative
to the net tangible asset test in question for all NASDAQ listed companies, and
the Company believes it is now in compliance with all listing standards.
Therefore, the Company's securities remain listed on the NASDAQ National Market
System.

[2]  INTANGIBLE ASSETS

Intangible assets relate primarily to acquisitions including investments in
unconsolidated subsidiaries accounted for under the equity method. Goodwill
consists of the cost of purchased businesses in excess of the fair value of net
tangible assets acquired. Goodwill is amortized on a straight-line basis for a
period of twenty years. The Company believes that a twenty year amortization
policy for Goodwill is reasonable based upon current and expected operating
results of the businesses acquired. On an ongoing basis, the Company measures
realizability of Goodwill by the ability of the acquired business to generate
current and expected future operating income in excess of annual amortization.
If such realizability is in doubt, an adjustment is made to

                                       8
<PAGE>

reduce the carrying value of the Goodwill. Customer lists and covenants not to
compete are amortized on a straight-line basis for a period of fifteen years and
three to five years, respectively.

Certain acquisitions occurring during the fiscal year ended December 31, 1996
called for payment to the seller of cash or equity or a combination thereof
contingent upon achievement of certain earnings in future periods by the
acquired company. In connection therewith, the Company issued and placed 991,785
shares of the Company's Common Stock in escrow, and recorded the par value of
the stock issued to common stock and goodwill as of the date of the respective
transactions. During the three months ended September 30, 1997, earnings targets
were met pursuant to the terms of certain of the agreements, and the Company
released (or agreed to release in the near term) 517,785 shares of Common Stock
from escrow. The Company recorded an increase in paid in capital of $3,804,580
relating to the released Common Stock and recorded a liability of $1,464,000 for
additional cash to be paid and additional shares to be issued, resulting in an
increase in goodwill of $5,268,580. During the three months ended September 30,
1997, goodwill increased by $2,409,096 in connection with the purchase of the
remaining 20% of a majority owned subsidiary, and goodwill decreased by
$5,534,697 relating to adjustments of the allocation of the purchase of certain
businesses previously acquired as additional information with respect to the
fair value of net assets acquired became available. In connection with such
purchase price allocation adjustments, minority interest was reduced by
$4,500,782.

[3]  EARNINGS PER SHARE

Earnings per common share is computed by dividing the net income (loss) for the
period by the weighted average number of common shares, excluding escrow shares
subject to contingencies and, if dilutive, common stock equivalents outstanding.
All stock options and warrants, if dilutive, have been included as common stock
equivalents in the computation of earnings (loss) per common share on a fully
diluted basis.

[4]  INCOME TAXES

The Company has recorded deferred income tax assets relating to the pre-tax loss
for the nine months ended September 30,1997, offset by a valuation allowance in
the same amount.

In 1996, income taxes have been provided for based upon the Company's estimated
annual effective income tax rate. The effective income tax rate differs from the
statutory income tax rate primarily due to amortization of certain intangible
assets which is not deductible for Federal Income Tax purposes.

[5]   DEBT

In February 1997, the Company entered into a financing agreement with DVI
Business Credit Corporation ("DVIBC") to provide two credit facilities of $25
million each. Borrowings are subject to certain conditions such as the
availability of unencumbered assets to collateralize advances and maintenance of
at least $5 million in cash during all reporting periods. The first $25 million
is a revolving credit loan from DVIBC secured by accounts receivable. The second
$25 million is an acquisition and equipment line of credit from DVI Financial
Services Inc. ("DVIFS"). Advance of funds on the second $25 million line is
based upon a review by DVIFS of the entity acquired and/or a review of the
assets securing the loan. The Company borrowed $25 million under the revolving
credit loan in February 1997, which will become due on February 28, 1999, and
bears interest, payable monthly, at prime plus two percent (10.5% at September
30, 1997). Between March 1997 and September 1997, the Company borrowed a total
of $12.25 million, collateralized by equipment, under the second $25 million
line. Each such advance is repayable through 2002 in sixty monthly installments.

At the time the Company entered into the financing arrangement with DVIBC, a
portion of the Company's accounts receivable did not meet certain of the
lender's eligibility criteria under the line of credit. DVIBC granted the
Company a waiver with respect to such criteria but provided in the loan
agreement that if the Company did not satisfy such criteria to DVIBC's
satisfaction within 90 days of the original funding of the loan, DVIBC had the
right to declare the nonconforming accounts ineligible and exclude them from the
borrowing base, in which case the Company would have been obligated to reduce
its then existing indebtedness to DVIBC to the borrowing base level at such
time. DVIBC has granted the Company additional waivers of such criteria through
December 15, 1997. However, if the Company is not able to satisfy such criteria
on or before December 15, 1997 and does not obtain any further waiver thereof
from DVIBC, the Company may be required to pay down its then outstanding
accounts receivable loans from DVIBC to a level not in excess of the Borrowing
Base on such date. There can be no assurance that the Company will be able to
satisfy such eligibility criteria on or before December 15, 1997, and if is
unable to

                                       9

<PAGE>

do so, it may not have funds on hand sufficient to make the required payment of
the DVIBC indebtedness. If the Company fails to make any such required payment,
it could be declared in default under the DVIBC loan agreement, as well as under
the DVIFS arrangement described below resulting in possible debt acceleration
from both lenders. If the Company is unable to draw upon such credit facilities
or to replace the same without delay, the Company's liquidity would be seriously
impaired.

On September 29, 1997, the Company and its wholly-owned subsidiary, Medical
Diagnostics, Inc. ("MDI"), entered into a series of Loan and Security Agreements
with DVIFS pursuant to which DVIFS agreed to provide term loans to MDI, in the
aggregate not to exceed $15,000,000, the repayment of which is guaranteed by the
Company and secured by all of the outstanding shares of MDI and by liens on
equipment of MDI, principally consisting of MRI machines and computer equipment.
Each advance under the term loan is repayable in 60 equal monthly installments
inclusive of principal and interest at the rate of 10% per annum as to the first
$7,500,000 borrowed and 11% per annum as to any additional amounts borrowed. In
addition, the Company may be required to pay down portions of these outstanding
term loans with the proceeds it receives as a result of reimbursement or
indemnification in connection with the shareholder litigation described under
Part II - Item 1. (Legal Proceedings) in this Quarterly Report on Form 10-Q. As
of November 14, 1997, $15,000,000 had been borrowed under this arrangement. In
addition, in connection with the term loans, the Company (i) increased its
revolving credit loan from $25,000,000 to $35,000,000, (ii) extended the
maturity date of the revolving credit loan from February 28, 1998 to February
28, 1999, and (iii) issued to DVI two warrants to purchase an aggregate of
250,000 shares of Common Stock of the Company at an exercise price of $7.6875
per share, which was the fair market value of a share of such Common Stock on
the date the warrants were issued. One of the warrants to purchase 125,000
shares of Common Stock is exercisable immediately, and the other warrant to
purchase 125,000 shares of Common Stock is exercisable beginning on or after
April 30, 1998 but only if the entire indebtedness to DVIFS or DVIBC has not
been reduced by at least $12,500,000 (exclusive of regularly scheduled
amortization) prior to the date of exercise. Both of the warrants expire on
September 30, 2004.

In April and May 1996, the Company completed a $57.5 million offering of 9%
Subordinated Convertible Debentures due 2003 (the "Debentures"). The investment
banking firm which acted as the agent in connection with the offering was issued
five-year warrants to acquire 319,445 shares of the Company's Common Stock at
$9.00 per share. The estimated fair value of the warrants is $1,672,550. This
amount is being amortized to interest expense over the term of the related
Debentures.

The holders of the Debentures are entitled to convert 100% of the principal
amount into Common Stock of the Company at a conversion price of $9.00 per
share. The conversion price is subject to adjustment under certain circumstances
as described in the Debenture Indenture ("Indenture"). The Company may not
redeem the Debentures, in whole or in part at any time prior to March 31, 1999.
Thereafter, the Debentures are redeemable at certain redemption prices as set
forth in the Indenture. In the event of a "change of control" as defined in the
Indenture, the Company is required to offer to repurchase each holder's
Debenture at a purchase price equal to 100% of the principal amount, plus
accrued interest.

Pursuant to the Indenture, the Company is required to maintain consolidated net
worth of at least $18 million. In the event that the Company's consolidated net
worth at the end of two consecutive fiscal quarters is below $18 million, the
Company is required to offer to repurchase 12.5% of the aggregate principal
amount of Debentures originally issued (or lesser amount outstanding at the time
of the deficiency). Under certain covenants of the Indenture, the Company is
limited in the amount of debt, as defined, it may incur. The Company and its
subsidiaries may generally incur debt, as defined, if the ratio of Debt to
Operating Cash Flow, of the Company and its subsidiaries, after giving pro forma
effect to such debt, is 6.5 to 1 or less. The Company believes it is in
compliance with these covenants.

The Indenture also prohibits the Company from paying any dividends on Common
Stock. In addition, the Indenture requires that the Company and its subsidiaries
engage solely in the acquisition, operation and management of multi-modality
diagnostic imaging centers and other medical service facilities.

On September 16, 1997, HEICO Corporation ("HEICO") sold to Forum Capital Markets
L.P. ("Forum") the $10 million convertible note bearing interest at a rate of 6
1/2% per annum that was originally issued by the Company to HEICO in July, 1996.
C. Keith Hartley, a Director of the Company, is a Managing Director of Forum.
The Note is convertible into shares of the Company's Common Stock at $8.50 per
share or an aggregate of 1,176,472 shares. The Note was originally issued in
July, 1996 to HEICO in an arm's length transaction (and prior to the time Mr.
Mendelson became a director of the


                                       10
<PAGE>

Company), as partial consideration for the Company's acquisition of all of the
outstanding stock of MediTek Health Corporation from HEICO. The Note was
originally convertible into the Company's Common Stock at $9.25 per share or an
aggregate of 1,081,081 shares. The conversion price per share was reduced from
$9.25 per share to $8.50 per share in early September 1997, in consideration of
deleting the demand feature of the Note and extending its maturity. As amended,
the Note matures on June 30, 2001 but may be redeemed by the holders starting
January 1, 1999 if the shares into which the note is convertible have not by
that time been registered under the Securities Act. In November, 1997, the
Company listed the Note for trading on the PORTAL Market; and the Company is
giving holders that qualify as Qualified Institutional Buyers the opportunity to
exchange their notes for an interest in a global note to be held by the
Depository Trust Company in accordance with its book entry system.

[6]  STOCKHOLDERS' EQUITY

The Company has granted contractual rights to certain persons to whom the
Company has issued securities to register such securities under the Securities
Act of 1933, and state securities registration statutes, and in some instances
the Company has agreed to repurchase its Common Stock issued to these persons or
to pay specified liquidated damages to these persons if such registration is not
effected in a timely manner. The Company's failure to timely file a Form 8-K
report in connection with one of its 1996 acquisitions has made it impracticable
for the Company to file registration statements under the Securities Act of 1933
until June 1998. As such, the Company has not registered certain securities in
accordance with provisions of various registration rights agreements. Management
of the Company believes that the failure to register such securities will not
result in a material liability to the Company due to regulations contained in
Federal securities laws that exempt certain sales of unregistered securities
from such registration requirements. There can be no assurance, however, that if
such persons assert their rights to have their securities repurchased or to
liquidated damages or make claims against the Company for damages for breach of
the agreements to register their securities, and if the Company is not able to
negotiate modifications to such agreements, that the Company's financial
condition would not be materially adversely affected.

The Company's financial condition may also be materially adversely affected to
the extent that persons to whom the Company has issued securities successfully
assert claims against the Company based upon the recent events relating to the
Company described in Note 7.

In March 1997, the Company granted options to acquire 100,000 shares of the
Company's common stock to its Chairman of the Board and options to acquire
35,000 shares of the Company's common stock to each of two Directors. The three
Directors comprised the Special Committee appointed by the Company's Board of
Directors to review the Company's prior relationship with Coyote Consulting and
Keith Greenberg (See Note 7). The options vested upon (i) successful completion
by the Special Committee of the Board of Directors of its work and final report
and recommendation to the Board of Directors of its findings and (ii) the
continued involvement of the Special Committee members until the final
resolution of compliance issues with both the SEC and NASDAQ. The exercise price
of the options is $8.625 which was the market value of the Company's common
stock at the date of grant.

On April 23, 1997 the Company granted options to purchase 200,000 shares of the
Company's common stock to its Chief Executive Officer and options to purchase
30,000 shares of the Company's common stock to its former Chief Financial
Officer. The exercise price of the options is $6.25, which was the market value
of the Company's common stock at the date of grant. The Company also granted
options to purchase 50,000 shares of the Company's common stock to its new Chief
Financial Officer. The exercise price is $6.6875, the market value of the
Company's common stock at date of employment, June 18, 1997. All these options
vest in equal annual amounts over a three-year period commencing one year from
date of grant.

[7]  LITIGATION

In January 1997, six separate class action lawsuits were filed against the
Company and certain officers, directors and other parties alleging failure to
make disclosure regarding the background of Keith Greenberg, who had provided
consulting services to the Company through Coyote Consulting and Financial
Services, LLC ("Coyote Consulting"). Two of the lawsuits have been dismissed and
the four remaining suits have been settled in principle in a Memorandum of
Understanding (the "Memorandum") dated July 31, 1997. The Memorandum includes a
denial of any wrongdoing or liability by both the Company and individually named
defendants. In accordance with the terms of the Memorandum, the parties agreed
to settle all pending class action claims against the Company (including
additional claims for alleged misstatements of financial conditions) for
$5,875,000, payable $587,500 within ten days after signing; an additional
$1,468,750 ten days after Court approval of the proposed notice advising the
Class of the settlement; and the remaining $3,818,750 no later than twenty-five
days before a final hearing for approval of 

                                       11

<PAGE>

the settlement. Management believes the second payment will not become due until
the latter part of December 1997 or January 1998 and that the final payment will
not become due before the first quarter of 1998. The first payment was made by
the Company as required on August 11, 1997. The settlement is subject to a court
approval process expected to take several months. The payments, when made, are
to be deposited into an interest-bearing account to be held in escrow by
plaintiffs' counsel, pending court approval. The Company has reached an
agreement in principle with its insurance carrier whereby the insurer will
contribute $1,000,000 toward the Company's settlement obligation in full
satisfaction of its director and officer liability insurance policy obligations.
In addition, the Company has reached an agreement with its former CEO, Jeffrey
Goffman, to contribute $1,000,000 to the settlement, consisting of $850,000 in
cash and $150,000 in forgiven payments under a note owing from the Company to
Goffman. The Company is currently in negotiations in which it is seeking
contribution from other third parties. There can be no assurance that the
Company will be successful in these negotiations. During the second fiscal
quarter ended June 30, 1997, the Company recorded a provision for settlement of
lawsuits in the amount of $4,875,000, comprising the $5,875,000 settlement, net
of the $1,000,000 contributions from the insurance company. During the three
months ended September 30, 1997, a credit of $1,000,000 was recorded in
Settlement with Former Chief Executive Officer to reflect the contribution from
Goffman.

As the Company previously reported, in September, 1992, MDI and its affiliate
Greater Springfield MRI Limited Partnership ("Springfield") (through its general
partner, Western Massachusetts Magnetic Resonance Services, Inc. a subsidiary of
MDI ("WMMRS")), filed suits against Raytel Corporation, Inc. and certain other
parties (collectively, the "Raytel Defendants") seeking a declaration, damages
and equitable relief against the Raytel Defendants. Various counterclaims were
filed against MDI seeking up to $8 million in damages and injunctive relief. The
Company acquired MDI (of which Springfield and WMMRS are direct or indirect
subsidiaries) in February 1997. As part of this acquisition the seller, Advanced
NMR Systems, Inc. ("ANMR"), agreed to indemnify the Company and MDI for losses
incurred in connection with the foregoing litigation. The litigation was settled
at no cost to the Company, in October 1997.

The Company is currently involved in litigation related to its acquisition of
stock in Integrated Health Concepts, Inc. ("IHC") in August 1996. In March 1997,
litigation was commenced to determine the respective stock interests of the
Company, Don Ballard, Dr. Mohammed Athari and a key man trust which, together,
comprise all of IHC's shareholders. In June 1997, the Court issued a ruling
upholding the Company's position that it owns 70% of IHC's stock. Subsequently,
IHC appointed a new Board of Directors which terminated Mr. Ballard's employment
as president of IHC. Mr. Ballard filed additional claims against IHC and the
Company alleging that they had breached fiduciary duties owing to him and that
they were obligated to pay him more than $1 million based upon termination of
his employment, to provide him with $250,000 of USD Common Stock, and to
repurchase his IHC stock (and that of the key man trust) for its fair market
value which Mr. Ballard contended was approximately $8 million. The Company and
IHC are vigorously contesting such claims and have asserted their own claims
against Mr. Ballard aggregating approximately $1.3 million. The matter was tried
during October 1997 and is currently under consideration by the Court. Although
claims were also previously asserted against IHC by Mohammed Athari, they have
been fully settled and resolved without additional payments by the company.

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 which it believes is adequate for its present operations.
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. While it is not feasible to predict or determine the outcome
of these matters, the Company does not anticipate that an adverse outcome in any
of these matters would have a material adverse effect on the Company.

[8]  ACQUISITIONS

In February 1997, the Company acquired Medical Diagnostic Inc. ("MDI") for
approximately $22 million in cash resulting in goodwill of approximately $18.3
million.

The following summarizes the unaudited pro forma effect of the acquisition of
MDI accounted for under the purchase method as if it had been acquired as of
January 1, 1996. This presentation is prepared in accordance with Accounting
Principles Board ("APB") Opinion No. 16 and does not reflect estimates for
potential operating efficiencies and other cost savings.

                                       12


<PAGE>
<TABLE>
<CAPTION>
                                                                                          
                                                                  IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

                                                                      NINE MONTHS ENDED  SEPTEMBER 30,
                                                                      -------------------------------
                                                                      1997                     1996
                                                                      ----                     ----
                                                                                (UNAUDITED)

<S>                                                                   <C>                       <C>    
Revenue as Reported                                                   $166,674                  $59,552
Effect of MDI Acquisition                                                3,316                   16,398
                                                                    ----------                 --------
   Pro Forma Revenue                                                  $169,990                 $ 75,950
                                                                    ==========                 ========

Net Income (Loss) as Reported                                         $(19,718)                  $2,571
Effect of MDI Acquisition                                                 (395)                     192
                                                                    -----------                --------
Pro Forma Net Income (Loss)                                           $(20,113)                  $2,763
                                                                    ===========                ========

Earnings (Loss) Per Share
Primary:
  Historical                                                             $(.89)                    $.18  
  Effect of MDI Acquisition                                               (.02)                     .02
                                                                    ----------                 --------
   Pro Forma Earnings (Loss) Per Share                                   $(.91)                    $.20
                                                                    ==========                 ========
Fully Diluted:
  Historical                                                               N/A                     $.15
  Effect of MDI Acquisition                                                                         .01
                                                                                                =======
   Pro Forma Earnings (Loss) Per Share                                                             $.16
                                                                                                =======
</TABLE>
                                                                                
[9] TERMINATION OF EMPLOYMENT AGREEMENTS

On February 3, 1997, Jeffrey Goffman, at the time the Company's Chairman and
Chief Executive Officer, was voluntarily placed on administrative leave by the
Company's Board of Directors. During this administrative leave, he was relieved
of all corporate duties and did not participate in any meetings of the Company's
Board of Directors. On March 25, 1997, Mr. Goffman declared his election to
treat himself as having been terminated without cause by the Company under his
employment contract, thus, invoking constructive termination provisions of his
employment agreement. This action followed the recommendation of a Special
Committee of the Board of Directors reviewing the Company's former relationship
with Coyote Consulting previously defined and Keith Greenberg. For further
information, see Note 7 - Litigation.

On April 24, 1997, the Company and Mr. Goffman entered into a Letter of Intent
(the "Letter") with respect to the resolution of employment related disputes
between them. Pursuant to the terms of the Letter, Mr. Goffman resigned as an
officer, director and employee of the Company effective as of March 31, 1997,
and received $165,000 upon execution of the Letter. On July 11, 1997, the
Company and Mr. Goffman entered into a Settlement Agreement and General Release
(the "Settlement Agreement"), pursuant to which, among other things, the Company
paid Mr. Goffman an additional $33,334 implementing the terms of the letter and
agreed to pay an additional $266,666 in sixteen equal monthly consecutive
installments of $16,666 beginning in August, 1997. Mr. Goffman also agreed to
transfer or vote, as required by the Company, all proxies or other agreements by
which he exercised the right to vote or exercise legal control over the
Company's stock in which others have a beneficial interest. As part of this
Settlement, it was agreed that all previously vested restricted stock and stock
options granted to Mr. Goffman would be retained by him and all unvested
restricted stock as of March 31, 1997 (220,000 shares) were placed in an escrow
account held by a mutually agreeable escrow agent. In addition, unvested options
for 100,000 shares of Company Common Stock which are exercisable at $5.125 per
share were placed in the escrow account. Notwithstanding Mr. Goffman's
resignation, these options will vest in accordance with the schedule originally
established at the time such options were awarded to Mr. Goffman or, if earlier,
upon the sale of the Company or a change of control on or before March 31, 1999.
All other options which were unvested as of March 31, 1997 (specifically the
100,000 options granted on June 1, 1996 exercisable at $7.125 and the 250,000
options granted on October 9, 1996 exercisable at $12.125) will vest only upon
the sale of the Company or a change in control on or before March 31, 1999.


                                       13
<PAGE>

The $165,000 paid to Mr. Goffman upon execution of the Letter, the $33,334 paid
within two days of the execution of the Settlement Agreement, the $266,666 to be
paid over sixteen months and unamortized deferred compensation relating to Mr.
Goffman in the amount of $2,343,576 were recorded in Settlement with Former
Executive Officer during the second fiscal quarter ended June 30, 1997.

On September 30, 1997 the Company entered into a second settlement with Mr.
Goffman which fully resolved the remaining issues between them. Pursuant to this
settlement, Mr. Goffman has agreed to contribute $1 million to the Settlement of
the class actions in the form of $850,000 cash and the forgiveness of the next
nine monthly payments totalling $150,000 which would otherwise be due to him
from the Company under the earlier settlement. Stock previously placed in the
escrow as part of the earlier settlement may be margined or sold by Mr. Goffman
to assist in raising the $850,000 cash which he is required to contribute. The
Company and Goffman have exchanged full and mutual releases and, upon receipt of
the $850,000 cash payment, all remaining shares of Common Stock held in escrow
will be released to Mr. Goffman. During the three months ended September 30,
1997, a credit of $1,000,000 was recorded in Settlement with Former Chief
Executive Officer to reflect the contribution from Goffman.

Michael D. Karsch, the Company's former Senior Vice President, General Counsel
and Secretary of the Company, and the Company were parties to a five-year
employment agreement dated June 1, 1996. On February 3, 1997, Mr. Karsch was
placed on administrative leave by the Company's Board of Directors. During this
administrative leave, he was relieved of all corporate duties and did not to
participate in any meetings of the Company's Board of Directors. On March 25,
1997, Mr. Karsch declared his election to treat himself as having been
terminated without cause by the Company under his employment contract, thus
invoking constructive termination provisions of his employment agreement. The
Company has treated this election as a resignation. At this point, the Company
has not agreed to any severance arrangements with Mr. Karsch. The Company is
currently exploring, through counsel, the possibility of resolving any claims
with respect to Mr. Karsch's employment contract. This action followed the
recommendation of a Special Committee of the Board of Directors reviewing the
Company's former relationship with Coyote Consulting and Keith Greenberg (See
Note 7 - Litigation). At September 30, 1997, the Company has deferred
compensation totaling $466,969 relating to Mr. Karsch which is included in
Deferred Stock Based Compensation in the accompanying condensed consolidated
balance sheet. For further information regarding Mr. Karsch's employment
agreement, see Item 10 - Executive Compensation - "Employment Agreements" in the
Company's 1996 Annual Report on Form 10-KSB/A.

[10]  RECENT ACCOUNTING PRONOUNCEMENTS

In March 1997, the Financial Accounting Standards Board ("FASB") issued FASB
Statement 128 "Earnings Per Share" ("FAS 128"). FAS 128 is effective for interim
and annual periods ending after December 15, 1997. Earlier application is not
permitted. FAS 128 supersedes APB Opinion 15, "Earnings Per Share". Assuming the
Company adopted FAS 128 as of January 1, 1997, the pro forma "basic" and
"diluted" earnings per share information would have been $(.89) and $(.89),
respectively for the nine months ended September 30, 1997 and $(.45) and $(.45),
respectively for the three months ended September 30, 1997 .

In addition, the FASB, in March 1997, issued FASB 129, "Disclosure of
Information About Capital Structure" ("FAS 129"). FAS 129 is effective for
interim and annual periods ending after December 15, 1997. The Company believes
FAS 129 will have little, if any, effect on the information already disclosed in
the Company's financial statements.

[11]  ASSET IMPAIRMENT LOSSES

As a result of losses incurred by Diversified Therapy Corporation ("DTC"), an
unconsolidated investment in a start-up company accounted for using the equity
method of accounting, the Company recorded a loss of $3.6 million in the second
fiscal quarter ended June 30, 1997, representing the Company's entire recorded
investment in DTC. Such amount is included in the accompanying condensed
consolidated statements of operations for the nine months ended September 30,
1997. Impairment losses excluding DTC relating to the recorded value of certain
assets totaled $333,000 and $500,000 for the three and nine months ended
September 30, 1997, respectively.

                                       14
<PAGE>


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

FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS

Except for historical information contained herein, certain matters discussed
herein are forward-looking statements made pursuant to the safe harbor
provisions of the 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, economic, competitive, regulatory, growth strategies, available financing,
and other factors discussed elsewhere in this report and the 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. In light of these risks and uncertainties, there can be no assurance
that the forward-looking information contained in this report will, in fact,
occur.

OVERVIEW

In connection with the six lawsuits filed against the Company in January, 1997,
as described in Item 1 of Part II, the Company's Board of Directors appointed a
special committee of outside non-employee directors to review the Company's
prior relationship with Coyote Consulting and Keith Greenberg. The special
committee completed its investigation and recommended, and the Company's Board
of Directors approved, certain procedures, including background investigations
of management and consulting candidates, strengthening disclosure reviews, and
the election of two additional independent directors. Having completed its
investigation, the special committee reported its finding to the Board of
Directors.

The Company's operating performance is substantially dependent upon its ability
to integrate the operations of acquired facilities into the Company's
infrastructure and reduce operating expenses of acquired entities, its ability
to deliver equivalent service to clients immediately after an acquisition
without significant interruption or inconvenience and various other risks
associated with the acquisition of businesses, including expenses associated
with the integration of the acquired businesses. The Company will be required to
hire additional management and implement new systems. If the Company is unable
to manage growth effectively, the Company's operating results could be
materially adversely affected.

For the fiscal year ended December 31, 1996, approximately 96% of all the
Company's revenues were derived from third party payors. The Company derived
approximately 81% of its revenues from non-government payors and approximately
15% from government sponsored healthcare programs (principally Medicare and
Medicaid). The Company's revenues and profitability may be materially adversely
affected by the current trend in the healthcare industry toward cost containment
as government and private third party payors seek to impose lower reimbursement
and utilization rates and negotiate reduced payment schedules with service
providers. Continuing budgetary constraints at both the federal and state level
and the rapidly escalating costs of healthcare and reimbursement programs have
led, and may continue to lead, to significant reductions in government and other
third party reimbursements for certain medical charges and to the negotiation of
reduced contract rates or capitated or other financial risk-shifting payment
systems by third party payors with service providers. In addition, rates paid by
private third party payors, including those that provide Medicare supplemental
insurance, are generally higher than Medicare payment rates. Changes in the mix
of the Company's patients among the non-government payors and government
sponsored healthcare programs, and among different types of non-government payor
sources, could have a material adverse effect on the Company. Further reductions
in payments to physicians or other changes in reimbursement for healthcare
services could have a material adverse effect on the Company, unless the Company
is otherwise able to offset such payment reductions through cost reductions,
increased volume, introduction of new procedures or otherwise.

The Company reports revenue at the estimated net realizable amounts from
patients, third-party payors and others for services rendered including
estimated contractual adjustments under reimbursement agreements with
third-party payors. These adjustments are accrued on an estimated basis in the
period the related services are rendered and are adjusted in future periods as
final settlements are determined.

The accompanying condensed consolidated statements of operations for the three
and nine months ended September 30,1996 and the condensed consolidated statement
of cash flows for the nine months ended September 30,1996 have been restated
from those originally filed with the SEC on Form 10-QSB. The restated financial
statements for the quarterly period ended September 30, 1996, were filed with
the SEC on Form 10-QSB/A on May 23, 1997. The restatement was necessary as a
result of accounting adjustments reflected in the Company's audited financial
statements included in the Company's Annual Report on Form 10-KSB as of and for
the year ended December 31, 1996, filed with the SEC on April 11, 1997. These
accounting adjustments primarily 


                                       15
<PAGE>

relate to the Company's accounting for acquisitions, issuance of equity
securities and stock options and provisions for state and federal income taxes.
Weighted average shares outstanding have been restated to reflect issuances and
adjustments to equity securities and convertible debt.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED
WITH THE THREE MONTHS ENDED SEPTEMBER 30, 1996

Revenue for the three months ended September 30, 1997 increased from $31.3
million in 1996, to $56.7 million in 1997. This increase of $25.4 million is
primarily the result of acquisitions.

General and Administrative expense was $41.5 million for the three months ended
September 30, 1997 compared to $18.2 million for the three months ended
September 30, 1996. This increase of $23.3 million is primarily due to an
increase in corporate overhead as the Company consolidated or commenced
consolidation of most administrative functions at its headquarters and increases
in other general expenses due to acquisitions, litigation and regulatory issues.
General and Administrative expenses were 73.1% of revenue in 1997 compared to
58.2% of revenue in 1996.

Depreciation and Amortization increased by $4.5 million from $3.0 million in
1996 to $7.5 million in 1997. The increase in depreciation and amortization is
the result of the increase in intangible assets and property and equipment
primarily as a result of acquisitions.

Bad debt expense increased by $7.7 million from $1.2 million in the three months
ended September 30, 1996 to $8.9 million in the three months ended September 30,
1997. As a percentage of revenues, bad debt expense was 15.7% in the three
months ended September 30, 1997 compared to 3.9% during the three months ended
September 30, 1996.

The Company is in the process of converting all of its centers to one
centralized billing and collection system. This process should be substantially
completed by year end. The conversion process has both highlighted and created a
deterioration in the aging of receivables. Management increased the normal
provision for bad debts during the three months ended September 30, 1997 by $6.8
million to provide for possible collection problems. Additional experienced
personnel have been hired to aggressively address these problems.

Stock Based Compensation decreased by $738,000 from $1.0 million in the three
months ended September 30, 1996 to $299,000 in the three months ended September
30, 1997.

During the three months ended September 30, 1996 the Company recorded
Compensation to Terminated Consultant of $1.4 million. See Note 9 of Notes to
Condensed Consolidated Financial Statements.

Professional Fees increased by $2.6 million from $778,000 in 1996 to $3.4
million in 1997 primarily due to legal and accounting fees associated with
litigation, regulatory matters and the integration of the accounting and billing
system.

During the three months ended September 30, 1997 the Company recorded a credit
of $1,000,000 in Settlement with Former Chief Executive Officer. See Note 7 of
Notes to Condensed Consolidated Financial Statements.

Interest Expense increased $1.9 million from $2.9 million in the three months
ended September 30, 1996 to $4.8 million in the three months ended September 30,
1997. The increase is primarily attributable to debt incurred to finance
acquisitions and the purchase of property and equipment.

Net loss was $9.8 million, or $.45 loss per share on a fully diluted basis,
during the three months ended September 30, 1997, compared to net income of $1.1
million, or $.05 per share on a fully diluted basis, during the three months
ended September 30, 1996. As more fully described above, the net loss of $9.8
million incurred during the three months ended September 30, 1997 includes bad
debt expense of $8.9 million, professional fees of $3.4 million and a credit of
$1.0 million recorded in Settlement with Former Chief Executive Officer.


                                       16
<PAGE>



RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH
THE NINE MONTHS ENDED SEPTEMBER 30, 1996

Revenue for the nine months ended September 30, 1997 increased from $59.6
million in 1996 to $166.7 million in 1997. This increase of $107.1 million is
primarily the result of acquisitions. 

General and Administrative expense was $118.1 million for the nine months ended
September 30, 1997 compared to $33.7 million for the nine months ended September
30, 1996. This increase of $84.4 million is primarily due to an increase in
corporate overhead as the Company consolidated or commenced consolidation of
most administrative functions at its headquarters and increases in other general
expenses due to acquisitions, litigation and regulatory issues. General and
Administrative expenses were 70.9% of revenue in 1997 compared to 56.5% in 1996.

Depreciation and Amortization increased by $15.0 million from $6.8 million in
1996 to $21.8 million in 1997. The increase in depreciation and amortization is
the result of the increase in intangible assets and property and equipment
primarily as a result of acquisitions.

Bad debt expense increased by $10.3 million from $2.3 million in the nine months
ended September 30, 1996 to $12.6 million in the nine months ended September 30,
1997. As a percentage of revenues, bad debt expense was 7.5% in the nine months
ended September 30, 1997 compared to 3.9% during the nine months ended September
30, 1996.

The Company is in the process of converting all of its centers to one
centralized billing and collection system. This process should be substantially
completed by year end. The conversion process has both highlighted and created a
deterioration in the aging of receivables. Management increased the normal
provision for bad debts during the three and nine months ended September 30,
1997 by $6.8 million to provide for possible collection problems. Additional
experienced personnel have been hired to aggressively address these problems.

Stock Based Compensation decreased by $567,000 from $1.6 million in the nine
months ended September 30, 1996 to $1.0 million in the nine months ended
September 30, 1997.

During the nine months ended September 30, 1996 the Company recorded
Compensation to Terminated Consultant of $2.2 million. See Note 9 to Notes to
Condensed Consolidated Financial Statements.

Professional Fees increased by $6.4 million from $1.6 million in 1996 to $8.0
million in 1997 primarily due to legal and accounting fees associated with
litigation, regulatory matters and integration of accounting systems.

During the nine months ended September 30, 1997 the Company recorded Asset
Impairment Losses of $4.1 million consisting primarily of a write-off of the
Company's investment in DTC. See Note 11 of Notes to Condensed Consolidated
Financial Statements.

During the nine months ended September 30, 1997 the Company recorded a charge of
$1.8 million to Settlement with Former Chief Executive Officer. See Note 7 of
Notes to Condensed Consolidated Financial Statements.

During the nine months ended September 30, 1997 the Company recorded a loss of
settlement of lawsuits totaling $5.0 million. See Note 7 of Notes to Condensed
Consolidated Financial Statements.

Interest Expense increased $7.7 million from $5.6 million in the nine months
ended September 30, 1996 to $13.3 million in the nine months ended September 30,
1997 . The increase is primarily attributable to debt incurred to finance
acquisitions and the purchase of property and equipment.

During the fiscal quarter ended March 31, 1997 the Company realized a gain on
marketable securities of $406,000 which is included in other income (expenses)
for the nine months ended September 30, 1997.

Net loss was $19.7 million, or $.89 loss per share on a fully diluted basis,
during the nine months ended September 30, 1997 compared to net income of $2.6
million, or $.15 per share on a fully diluted basis during the nine months ended
September 30, 1996. As more fully described above, the net loss of $19.7 million
incurred during the nine months ended September 30, 1997 

                                       17
<PAGE>

includes bad debt expense of $12.6 million, professional fees of $8.0 million,
asset impairment losses of $4.0 million, and loss on settlement of lawsuits of
$5.0 million.

LIQUIDITY

At September 30, 1997, the Company had Cash and Cash Equivalents of $30.9
million and working capital of $33.8 million. The Company generated cash of $2.8
million from operations during the nine months ended September 30, 1997. The
Company has $28.4 million of debt and other obligations under capital leases
which mature over the next twelve months.

The Company used $37.8 million of cash for investing activities during the nine
months ended September 30, 1997. Such uses included $15.3 million to purchase
property and equipment and $21.8 million to acquire MDI. The Company made
additional investments of $3.1 million in unconsolidated subsidiaries. The
Company also paid $6.5 million on purchase price due on companies previously
acquired. The Company sold assets and marketable securities which generated $7.1
million during the nine months ended September 30, 1997.

Financing activities generated $47.3 million in cash during the nine months
ended September 30, 1997. This included proceeds from borrowings totaling $70.1,
repayments on debt and capital lease obligations totaling $22.9 million and
exercise of options of $100,000.

Cash and Cash Equivalents increased by $12.2 million from December 31, 1996 to
September 30, 1997.

The Company has granted contractual rights to certain persons to whom the
Company has issued securities to register such securities under the Securities
Act of 1933, and state securities registration statutes, and in some instances
the Company has agreed to repurchase its Common Stock issued to these persons or
to pay specified liquidated damages to these persons if such registration is not
effected in a timely manner. The Company's failure to timely file a Form 8-K
report in connection with one of its 1996 acquisitions has made it impracticable
for the Company to file registration statements under the Securities Act of 1933
until June 1998. As such, the Company has not registered certain securities in
accordance with provisions of various registration rights agreements. Management
of the Company believes that the failure to register such securities will not
result in a material liability to the Company due to regulations contained in
Federal securities laws that exempt certain sales of unregistered securities
from such registration requirements. There can be no assurance, however, that if
such persons assert their rights to have their securities repurchased or to
liquidated damages or make claims against the Company for damages for breach of
the agreements to register their securities, and if the Company is not able to
negotiate modifications to such agreements, that the Company's financial
condition would not be materially adversely affected.

Additionally, the payment terms of the Memorandum the Company entered into in
connection with the settlement of shareholder class action claims could have a
material adverse effect on the Company's working capital. Under the terms of the
Memorandum, in August 1997, the Company paid $587,000; and the Company is
required to pay an additional $1,468,750 within 10 days of court approval of the
notice advising the class of the settlement and another $3,818,758 no later than
25 days before the final hearing for approval of the settlement. Management
believes the second payment will not become due until the latter part of
December 1997 or January 1998 and that the final payment will not become due
before the first quarter of 1998. The Company has reached an agreement in
principle with its insurance carrier whereby the insurer will contribute $1
million at the time of the second payment in full satisfaction of its directors
and officers liability insurance policy obligations. The Company has also
reached a separate agreement with its former CEO, Jeffrey Goffman, to contribute
an additional $1 million towards the cost of settling the class action. $850,000
of this amount is expected to be received prior to the time the second payment
of the class action settlement will become due. In addition, the Company is
currently in negotiations with other third parties seeking contribution. There
can be no assurance that the Company will be successful in these negotiations.
(See Note 7 Litigation - to this Form 10-Q).

In February 1997, the Company entered into a financing agreement with DVI
Business Credit Corporation ("DVIBC") to provide two credit facilities of $25
million each. Borrowings are subject to certain conditions such as the
availability of unencumbered assets to collateralize advances and maintenance of
at least $5 million in cash during all reporting periods. The first $25 million
is a revolving credit loan from DVIBC secured by accounts receivable. The second
$25 million is an acquisition and equipment line of credit from DVI Financial
Services Inc. ("DVIFS"). Advance of funds on the second $25 million line is
based upon a review by DVIFS of the entity acquired and/or a review of the
assets securing the loan. The Company borrowed $25 million under the revolving
credit loan in February 1997, which will become due on February 28, 1999, and
bears interest, payable 


                                       18
<PAGE>

monthly, at prime plus two percent (10.5% at September 30, 1997). Between March
1997 and September 1997, the Company borrowed a total of $12.25 million,
collateralized by equipment, under the second $25 million line. Each such
advance is repayable through 2002 in sixty monthly installments.

At the time the Company entered into the financing arrangement with DVIBC, a
portion of the Company's accounts receivable did not meet certain of the
lender's eligibility criteria under the line of credit. DVIBC granted the
Company a waiver with respect to such criteria but provided in the loan
agreement that if the Company did not satisfy such criteria to DVIBC's
satisfaction within 90 days of the original funding of the loan, DVIBC had the
right to declare the nonconforming accounts ineligible and exclude them from the
borrowing base, in which case the Company would have been obligated to reduce
its then existing indebtedness to DVIBC to the borrowing base level at such
time. DVIBC has granted the Company additional waivers of such criteria through
December 15, 1997. However, if the Company is not able to satisfy such criteria
on or before December 15, 1997 and does not obtain any further waiver thereof
from DVIBC, the Company may be required to pay down its then outstanding
accounts receivable loans from DVIBC to a level not in excess of the Borrowing
Base on such date. There can be no assurance that the Company will be able to
satisfy such eligibility criteria on or before December 15, 1997, and if it is
unable to do so, it may not have funds on hand sufficient to make the required
payment of the DVIBC indebtedness. If the Company fails to make any such
required payment, it could be declared in default under the DVIBC loan
agreement, as well as under the DVIFS arrangement described below resulting in
possible debt acceleration from both lenders. If the Company is unable to draw
upon such credit facilities or to replace the same without delay, the Company's
liquidity would be seriously impaired.

On September 29, 1997, the Company and its wholly-owned subsidiary, Medical
Diagnostics, Inc. ("MDI"), entered into a series of Loan and Security Agreements
with DVIFS pursuant to which DVIFS agreed to provide term loans to MDI, in the
aggregate not to exceed $15,000,000, the repayment of which is guaranteed by the
Company and secured by all of the outstanding shares of MDI and by liens on
equipment of MDI, principally consisting of MRI machines and computer equipment.
Each advance under the term loan is repayable in 60 equal monthly installments
inclusive of principal and interest at the rate of 10% per annum as to the first
$7,500,000 borrowed and 11% per annum as to any additional amounts borrowed. In
addition, the Company may be required to pay down portions of these outstanding
term loans with the proceeds it receives as a result of reimbursement or
indemnification in connection with the shareholder litigation described under
Part II - Item 1. (Legal Proceedings) in this Quarterly Report on Form 10-Q. As
of November 14, 1997, $15,000,000 had been borrowed under this arrangement. In
addition, in connection with the term loans, the Company (i) increased its
revolving credit loan from $25,000,000 to $35,000,000, (ii) extended the
maturity date of the revolving credit loan from February 28, 1998 to February
28, 1999, and (iii) issued to DVI two warrants to purchase an aggregate of
250,000 shares of Common Stock of the Company at an exercise price of $7.6875
per share, which was the fair market value of a share of such Common Stock on
the date the warrants were issued. One of the warrants to purchase 125,000
shares of Common Stock is exercisable immediately, and the other warrant to
purchase 125,000 shares of Common Stock is exercisable beginning on or after
April 30, 1998 but only if the entire indebtedness to DVIFS and DVIBC has not
been reduced by at least $12,500,000 (exclusive of regularly scheduled
amortization) prior to the date of exercise. Both of the warrants expire on
September 30, 2004.

In light of the Company's recent losses, there can be no assurance that the
operations of the Company will generate sufficient cash flow or that the Company
will be able to borrow sufficient funds or obtain sufficient capital for the
Company to meet its future cash needs. Those cash needs include, but are not
limited to, interest and principal payments on debt obligations, payments due on
operating and capital lease obligations, and payments that may be required as a
result of litigation and regulatory matters. If DVIBC or DVIFS requires
repayment under the credit facilities or to the extent that Company is unable to
borrow sufficient additional funds from either such lender on terms which are
acceptable to it, the Company would be compelled to seek alternative sources of
financing to satisfy its obligations. Additionally, a payment default or a
non-payment default which results in the acceleration of indebtedness under the
DVIFS and DVIBC facilities would cause defaults under certain of the Company's
other indebtedness, including the Company's $57.5 million 9% Subordinated
Convertible Debentures due 2003. In the event of a default on such other
indebtedness, the Company would be required to seek alternative sources of
financing to satisfy those obligations as well. Finding an alternative source of
financing may involve a significant amount of time, and no assurance can be
given that the terms of alternative financing would be available, if at all, on
the same or similar terms of the existing credit facility or on terms which are
satisfactory to the Company. If the Company were unable to obtain satisfactory
alternative financing, the Company may be required to sell assets in order to
meet its obligations. If the Company disposes of assets, there can be no
assurance that the Company will not realize additional losses on such
dispositions.


                                       19
<PAGE>
PART II     -    OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

In January 1997, six separate class action lawsuits were filed against the
Company and certain officers, directors and other parties alleging failure to
make disclosure regarding the background of Keith Greenberg, who had provided
consulting services to the Company through Coyote Consulting and Financial
Services, LLC ("Coyote Consulting"). Two of the lawsuits have been dismissed and
the four remaining suits have been settled in principle in a Memorandum of
Understanding (the "Memorandum") dated July 31, 1997. The Memorandum includes a
denial of any wrongdoing or liability by both the Company and individually named
defendants. In accordance with the terms of the Memorandum, the parties agreed
to settle all pending class action claims against the Company (including
additional claims for alleged misstatements of financial conditions) for
$5,875,000, payable $587,500 within ten days after signing; an additional
$1,468,750 ten days after Court approval of the proposed notice advising the
Class of the settlement; and the remaining $3,818,750 no later than twenty-five
days before a final hearing for approval of the settlement. The first payment
was made by the Company as required on August 11, 1997. Management believes the
second payment will not become due until the latter part of December 1997 or
January 1998 and that the final payment will not become due before the first
quarter of 1998. The settlement is subject to a court approval process expected
to take several months. The payments, when made, are to be deposited into an
interest-bearing account to be held in escrow by plaintiffs' counsel, pending
court approval. The Company has reached an agreement in principle with its
insurance carrier whereby the insurer will contribute $1,000,000 toward the
Company's settlement obligation in full satisfaction of its director and officer
liability insurance policy obligations. In addition, the Company has reached an
agreement with its former CEO, Jeffrey Goffman, to contribute $1,000,000 to the
settlement, consisting of $850,000 in cash and $150,000 in forgiven payments
under a note owing from the Company to Goffman. The Company is currently in
negotiations in which it is seeking contribution from other third parties. There
can be no assurance that the Company will be successful in these negotiations.
During the second fiscal quarter ended June 30, 1997, the Company recorded a
provision for settlement of lawsuits in the amount of $4,875,000, comprising the
$5,875,000 settlement, net of the $1,000,000 contributions from the insurance
company. During the three months ended September 30, 1997, a credit of
$1,000,000 was recorded in Settlement with Former Chief Executive Officer to
reflect the contribution from Goffman. See Note 7 - Litigation - in this Form
10-Q.

As the Company previously reported, in September, 1992, MDI and its affiliate
Greater Springfield MRI Limited Partnership ("Springfield") (through its general
partner, Western Massachusetts Magnetic Resonance Services, Inc. a subsidiary of
MDI ("WMMRS")), filed suits against Raytel Corporation, Inc. and certain other
parties (collectively, the "Raytel Defendants") seeking a declaration, damages
and equitable relief against the Raytel Defendants. Various counterclaims were
filed against MDI seeking up to $8 million in damages and injunctive relief. The
Company acquired MDI (of which Springfield and WMMRS are direct or indirect
subsidiaries) in February 1997. As part of this acquisition the seller, Advanced
NMR Systems, Inc. ("ANMR"), agreed to indemnify the Company and MDI for losses
incurred in connection with the foregoing litigation. The litigation was settled
at no cost to the Company, in October 1997.

The Company is currently involved in litigation related to its acquisition of
stock in Integrated Health Concepts, Inc. ("IHC") in August 1996. In March 1997,
litigation was commenced to determine the respective stock interests of the
Company, Don Ballard, Dr. Mohammed Athari and a key man trust which, together,
comprise all of IHC's shareholders. In June 1997, the Court issued a ruling
upholding the Company's position that it owns 70% of IHC's stock. Subsequently
IHC appointed a new Board of Directors which terminated Mr. Ballard's employment
as president of IHC. Mr. Ballard filed additional claims against IHC and the
Company alleging that they had breached fiduciary duties owing to him and that
they were obligated to pay him more than $1 million based upon termination of
his employment, to provide him with $250,000 of USD Common Stock, and to
repurchase his IHC stock (and that of the key man trust) for its fair market
value which Mr. Ballard contended was approximately $8 million. The Company and
IHC vigorously contest such claims and have asserted their own claims against
Mr. Ballard aggregating approximately $1.3 million. The matter was tried during
October 1997 and is currently under consideration by the Court. Although claims
were also previously asserted against IHC by Mohammed Athari they have been
fully settled and resolved resolved without additional payments by the Company.

Reference is made to Item 3 - Legal Proceedings - in the Company's 1996 Annual
Report on Form 10-KSB and to Note 17 "Litigation" of the Company's audited
financial statements filed with the SEC on Form 10-KSB for the year ended
December 31, 1996 for further information with respect to the foregoing
litigation.


                                       20
<PAGE>


ITEM 2.  CHANGES IN SECURITIES

None

ITEM 3.  DEFAULTS UPON  SENIOR SECURITIES

None

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

No matters were submitted to a vote of the Company's stockholders in the third
quarter of 1997.

ITEM 5.  OTHER INFORMATION

On September 29, 1997, the Company and its wholly-owned subsidiary, Medical
Diagnostics, Inc. ("MDI"), entered into a series of Loan and Security Agreements
with DVIFS pursuant to which DVIFS agreed to provide term loans to MDI, in the
aggregate not to exceed $15,000,000, the repayment of which is guaranteed by the
Company and secured by all of the outstanding shares of MDI and by liens on
equipment of MDI, principally consisting of MRI machines and computer equipment.
The term loans are repayable in 60 equal monthly installments inclusive of
principal and interest at the rate of 10% per annum as to the first $7,500,000
borrowed and 11% per annum as to any additional amounts borrowed. In addition,
the Company may be required to pay down portions of these outstanding term loans
with the proceeds it receives as a result of reimbursement or indemnification in
connection with the shareholder litigation described under Part II - Item 1.
(Legal Proceedings) in this Quarterly Report on Form 10-Q. As of November 14,
1997, $15,000,000 had been borrowed under this arrangement. In addition, in
connection with the term loans, the Company (i) increased its revolving credit
loan from $25,000,000 to $35,000,000, (ii) extended the maturity date of the
revolving credit loan from February 28, 1998 to February 28, 1999, and (iii)
issued to DVI two warrants to purchase an aggregate of 250,000 shares of Common
Stock of the Company at an exercise price of $7.6875 per share, which was the
fair market value of a share of such Common Stock on the date the warrants were
issued. One of warrants to purchase 125,000 shares of Common Stock is
exercisable immediately, and the other warrant to purchase 125,000 shares of
Common Stock is exercisable beginning on or after April 30, 1998 but only if the
entire indebtedness to DVIFS and DVIBC has not been reduced by at least
$12,500,000 (exclusive of regularly scheduled amortization) prior to the date of
exercise. Both of the warrants expire on September 30, 2004.

Effective October 20, 1997 the Company entered into a written Employment
Agreement to retain Leon F. Maraist as its Executive Vice President and Chief
Operating Officer. The term of the Agreement is three years and Mr. Maraist's
base salary is $200,000 per annum. Mr. Maraist has been granted options to
acquire 80,000 shares of the Company's Common Stock, at $6.50 per share, which
was the fair market value on the date of grant, which vest ratably over the term
of the contract. Mr. Maraist will be responsible for the daily operations of the
Company. Mr. Maraist was most recently Vice President of NMC Diagnostic Services
Inc., a subsidiary of National Medical Care Inc. which is owned by Fresenius
Medical Care. Mr. Maraist was responsible for the creation of the diagnostic
division of Fresenius Medical Care which provides mobile diagnostic imaging
services. Previously, he was Director of Operations for the Dialysis Services
Division of National Medical Care Inc. Mr. Maraist has over 23 years experience
in the health care industry.

The Company held its annual stockholders meeting on November 5, 1997, at which
stockholders of the Company voted upon and elected C. Keith Hartley, Laurans A.
Mendelson, Joseph A. Paul, Gordon C. Rausser and L.E. Richey as Directors,
approved an amendment to the Company's 1995 Long-Term Incentive Plan to increase
the number of authorized shares of the Company's Common Stock available for
grant thereunder from 3,000,000 shares to 4,700,000; and ratified the
appointment of Arthur Andersen LLP as the Company's independent accountants for
the fiscal year 1997. The Company has temporarily reduced the size of its Board
to five members and announced its intention to search for two new outside
directors.


                                       21
<PAGE>
<TABLE>
<CAPTION>


ITEM 6.      EXHIBITS AND REPORTS ON FORM 8-K

       (a)    Exhibits

                                            EXHIBIT INDEX
<S>      <C>      <C>   
 4.1     -        Form of Amended and Restated 6 1/2% Convertible Negotiable Note Due June 30, 2001.
10.1     -        Employment Agreement dated October 20, 1997 between the Company and Leon
                  Maraist.
10.2     -        Settlement Agreement and General Release dated September 30, 1997 between US Diagnostic Inc. and
                  Jeffrey Goffman.
10.3     -        Form of Loan and Security Agreement among Medical Diagnostics Inc., US Diagnostic Inc. and DVI Financial
                  Services Inc. dated September 29, 1997.
10.4     -        Form of Secured Promissory Note due October 1, 2002 by Medical Diagnostics Inc. to DVI Financial Services Inc.
10.5     -        Unconditional Continuing Guaranty dated September 29, 1997 for the benefit of DVI Financial Services Inc. by
                  US Diagnostic Inc.
10.6     -        Stock Pledge Agreement dated September 29, 1997 between US Diagnostic Inc., DVI Financial Services Inc. and
                  DVI Business Credit Corporation.
10.7     -        Common Stock Purchase Warrant dated September 29, 1997 of US Diagnostic Inc. issued to DVI Financial
                  Services Inc.
10.8     -        Common Stock Purchase Warrant dated September 29, 1997 of US Diagnostic Inc. issued to DVI Financial
                  Services Inc.
10.9     -        Letter of Agreement dated September 29, 1997 between US Diagnostic Inc.
                  and DVI Business Credit Corporation confirming amendment of Loan and
                  Security Agreement dated as of February 25, 1997.
11       -        Earnings Per Share Calculation.
27       -        Financial Data Schedule.
</TABLE>


       (b) No reports on Form 8-K were filed during the quarter ended September
30, 1997:










                                       22
<PAGE>



                                   SIGNATURES

      Pursuant to 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:  November 14, 1997           By:    /S/ JOSEPH A. PAUL
                                       -----------------------------------------
                                                  Joseph A. Paul
                                                  President and
                                              Chief Executive Officer



                                    By:    /S/ WAYNE MOOR
                                       -----------------------------------------
                                                     Wayne Moor
                                      Vice President and Chief Financial Officer






















                                       23
<PAGE>


                                INDEX TO EXHIBITS

EXHIBITS
NUMBER                        DESCRIPTION
--------                      -----------


4.1      -        Form of Amended and Restated 6 1/2% Convertible Negotiable
                  Note Due June 30, 2001.

10.1     -        Employment Agreement dated October 20, 1997 between the 
                  Company and Leon Maraist.

10.2     -        Settlement Agreement and General Release dated September 
                  30, 1997 between the Company and Jeffrey Goffman.

10.3     -        Form of Loan and Security Agreement among Medical 
                  Diagnostics Inc., the Company and DVI Financial Services
                  Inc. dated September 29, 1997.

10.4     -        Form of Secured Promissory Note due October 1, 2002 by 
                  Medical Diagnostics Inc. to DVI Financial Services Inc.

10.5     -        Unconditional Continuing Guaranty dated September 29, 1997
                  for the benefit of DVI Financial Services Inc. by U.S. 
                  Diagnostic Inc.

10.6     -        Stock Pledge Agreement dated September 29, 1997 between the
                  Company DVI Financial Services Inc. and DVI Business Credit
                  Corporation.

10.7     -        Common Stock Purchase Warrant dated September 29, 1997 of 
                  the Company issued to DVI Financial Services Inc.

10.8     -        Common Stock Purchase Warrant dated September 29, 1997 of 
                  the Company issued to DVI Financial Services Inc.

10.9     -        Letter of Agreement dated September 29, 1997 between the 
                  Company and DVI Business Credit Corporation confirming
                  amendment of Loan and Security Agreement dated as of
                  February 25, 1997.

11       -        Earnings Per Share Calculation.

27       -        Financial Data Schedule.










                                       24