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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                    FORM 10-K
         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999       COMMISSION FILE NO. 0-23311


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

<TABLE>


<S>                                         <C>
        DELAWARE                                    75-2648089
(State or other jurisdiction               (I.R.S. Employer of Identification)
incorporation or organization)
</TABLE>


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


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


Securities registered pursuant to Section 12(b) of the Act:

<TABLE>

<S>  <C>                                   <C>    <C>
                                           Name of each exchange
Title of each class                        on which registered
-------------------                        -------------------

     None                                         None
</TABLE>


<TABLE>

<S>                                                            <C>
Securities registered pursuant to Section 12(g) of the Act:    COMMON STOCK, $0.0001 PAR VALUE

</TABLE>

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

               Yes    X                    No
                  ----------                 ------------

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]

     The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant was $102,690,572, based on the closing sales
price of $5.50 of the registrant's Common Stock on the Nasdaq National Market
System on March 24, 2000.

     As of March 24, 2000, 19,430,978 shares of the registrant's Common Stock
were outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the proxy statement for the Annual Meeting of Stockholders of
the registrant to be held during 2000 are incorporated by reference in Part III.

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                                RADIOLOGIX, INC.

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
FORM 10-K ITEM                                                                                                  PAGE
                                                                                                                ----
<S>           <C>                                                                                               <C>
PART I.
         Item 1.  Business ...................................................................................   1
         Item 2.  Properties .................................................................................  24
         Item 3.  Legal Proceedings ..........................................................................  24
         Item 4.  Submission of Matters to a Vote of Security Holders.........................................  24

PART II.
         Item 5   Market for Registrant's Common Stock and Related
                      Stockholder Matters ....................................................................  26
         Item 6.  Selected Consolidated Financial Data .......................................................  27
         Item 7.  Management's Discussion and Analysis of Financial
                      Condition and Results of Operations ....................................................  29
         Item 7A. Quantitative and Qualitative Disclosures About Market Risk..................................  49
         Item 8.  Financial Statements and Supplementary Data................................................. F-1
         Item 9.  Changes in and Disagreements with Accountants on Accounting
                      and Financial Disclosure................................................................  50

PART III.
         Item 10. Directors and Executive Officers of the Registrant..........................................  50
         Item 11. Executive Compensation......................................................................  50
         Item 12. Security Ownership of Certain Beneficial....................................................  50
                      Owners and Management...................................................................  50
         Item 13. Certain Relationships and Related Transactions..............................................  50

PART IV.
         Item 14. Exhibits, Financial Statement Schedules and Reports
                      on Form 8-K.............................................................................  51
</TABLE>



<PAGE>   3
                                     PART I

ITEM 1. BUSINESS.

GENERAL

     Radiologix, Inc. is a leading provider of radiology services in the United
States through (i) its ownership and operation of technologically advanced,
multi-modality diagnostic imaging centers, and (ii) its provision of
administrative, management and other information services to certain radiology
business partners. Radiologix derives approximately 73% of its revenues from the
production and management of diagnostic images that are utilized by radiologists
in preparing written reports. These images and the radiology reports that are
based on the images permit ordering physicians to diagnose and manage diseases
and injuries more accurately and effectively than would be possible without such
clinical information. Ordering physicians rely extensively on this type of
diagnostic information in making health care treatment decisions.

     Radiologix's radiology services primarily consist of utilizing
sophisticated technology and technical expertise to perform diagnostic imaging
procedures. Radiologix performs diagnostic imaging procedures utilizing
technologies such as x-ray, magnetic resonance imaging ("MRI"), computed
tomography ("CT"), mammography, ultrasound, nuclear medicine and positron
emission tomography ("PET"), as well as general radiography and fluoroscopy.

     During 1999, Radiologix performed approximately 1.4 million imaging
procedures for patients at the 113 imaging centers owned or operated by
Radiologix as of December 31, 1999. Radiologix's imaging centers are located in
17 states and the District of Columbia, with concentrated geographic coverage in
markets located in California, Florida, Illinois, Kansas, Maryland, New York,
Pennsylvania, Texas, Virginia and Washington D.C.

     Radiologix also provides administrative, management and information
services to certain business partners, including a component of the physician
practices whose radiologists provide professional services in connection with
Radiologix's radiology services, and hospitals with which Radiologix operates
joint ventures. These administrative services are intended to improve radiology
practice or joint venture profitability, efficiency and effectiveness.
Radiologix's relationships with radiology practices and hospitals enhance
Radiologix's growth and expansion opportunities in its core business.

     Radiologix was incorporated in Delaware in 1996. In November 1997,
Radiologix conducted its initial public offering of common stock. Radiologix's
principal executive offices are located at 3600 Chase Tower, 2200 Ross Avenue,
Dallas, Texas, 75201, and its telephone number is (214) 303-2776.


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RECENT ACQUISITIONS

     In August 1999, Radiologix purchased all the outstanding capital stock of
Questar Imaging, Inc. for $15.7 million in cash and the assumption of
approximately $16.2 million of debt. As of such date, Questar owned or operated
27 imaging centers in 14 states. These imaging centers offered MRI and other
diagnostic imaging modalities.

     When Radiologix acquired Questar, Questar had 17 additional imaging centers
under development. As of December 31, 1999, three of those 17 centers had become
operational. Pursuant to the agreements governing the Questar acquisition,
Radiologix paid an additional $500,000 to Questar's former owners during 1999
relating to the additional imaging centers that became operational after the
acquisition. From January 1, 2000, through March 24, 2000, six additional
imaging centers became operational. Radiologix paid an additional $500,000 for
each such center. There can be no assurance that the remaining eight undeveloped
imaging centers will become operational.

     Radiologix incorporated one of the Questar imaging centers into
Radiologix's pre-existing imaging center networks. Radiologix operates the
remaining Questar imaging centers as a separate market segment. Radiologix has
closed or consolidated two of the Questar imaging centers. Radiologix continues
to integrate the Questar imaging centers into Radiologix's information systems
and management practices.

     In addition to the Questar acquisition, Radiologix acquired seven
additional imaging centers during 1999. These acquisitions included
approximately nine separate transactions for an aggregate purchase price of
approximately $8.3 million. Substantially, all of these non-Questar transactions
were effected through asset purchase transactions.

RADIOLOGY MARKET OVERVIEW

     The Health Care Financing Administration estimates that national health
care spending in 1998 was approximately $1.1 trillion. According to the American
College of Radiology, an estimated 350 million radiological procedures were
performed in the United States during 1995. Total spending on radiology services
including diagnostic imaging, interventional radiology and radiation oncology
was estimated at $56 to $70 billion according to a 1995 report prepared by SMG
Marketing Group. Diagnostic imaging, including interventional radiology
procedures, accounted for approximately 82% of the aggregate amount spent on
radiological services performed in the United States, with radiation oncology
services accounting for approximately 18%.

     Technical facilities are located within hospitals and in approximately
3,150 outpatient centers throughout the United States. Professional radiology
services are provided by radiologists, general practitioners and other
specialists. There are



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approximately 3,200 radiology groups in the United States comprised of
approximately 27,000 practicing radiologists. These groups have a typical size
of six members, but vary in size up to approximately 100 physicians serving a
specific market.

OPERATIONS

Imaging Centers

     As of December 31, 1999, Radiologix owned 94 imaging centers and operated
and managed 19 additional imaging centers through joint venture relationships.
Information related to these 113 imaging centers, and information about 18 other
sites at which Radiologix provides imaging equipment, management services or
employees, is set forth below and is provided as of December 31, 1999:

<TABLE>
<CAPTION>

                                              Imaging Facilities
                                 ------------------------------------------
                                                   Joint
                                  Owned           Venture             Other
Market Areas and Segments        Centers         Centers (1)          Sites
-------------------------        -------         -----------          -----
<S>                              <C>             <C>                  <C>
Mid Atlantic(3) .............       27                10              3 (2)

Finger Lakes(4) .............       10                 0              4 (2)

Bay Area(5) .................       19                 0              0 (2)

South Texas(6) ..............        3                 5              0 (2)

Northeast Kansas(7) .........        1                 1              0 (2)

Hudson Valley(8) ............       12                 0              7 (2)

Treasure Coast(9) ...........        2                 0              0 (2)

Questar(10) .................       20                 3              4(11)
                                    --                --             --
         Totals .............       94                19             18
                                    ==                ==             ==
</TABLE>



(1)  Represents partnerships with hospitals, health systems or radiology
     practices and were formed for the purpose of owning and operating imaging
     centers. Professional services at the joint venture imaging centers are
     performed by the radiology practices in such market area or a radiology
     practice that participates in the joint venture.

(2)  Includes locations where Radiologix owns diagnostic imaging equipment and
     provides professional services to other non-radiology health care
     providers.

(3)  Encompasses the greater Baltimore/Washington, D.C. metropolitan area.

(4)  Encompasses the greater Rochester, New York metropolitan area.



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(5)  Encompasses the greater San Francisco/Oakland/San Jose, California
     metropolitan areas.

(6)  Encompasses the greater San Antonio, Texas metropolitan area.

(7)  Encompasses the Topeka, Kansas and Northeast Kansas area.

(8)  Encompasses Rockland County, New York, and surrounding counties.

(9)  Encompasses St. Lucie County, Florida.

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

(11) Includes imaging centers at which Radiologix does not have an ownership
     interest in the imaging equipment, but provides management services or
     employees.

Joint Venture Relationships

     As of December 31, 1999, Radiologix was a partner or member in 14
partnerships or limited liability companies formed by Radiologix and hospitals,
health systems or radiology practices. These partnerships own and operate 19
imaging centers, a majority of which are located on, or adjacent to, the
participating hospital or health center's campus. As the general partner or
managing member of 12 of these joint ventures, Radiologix operates the imaging
centers.

Other Sites

     As of December 31, 1999, Radiologix had installed Radiologix-owned imaging
equipment at 14 locations that are not freestanding imaging centers owned or
operated by Radiologix or by a partnership or limited liability company of which
Radiologix served as the general partner or managing member. Examples of these
locations include hospital or health care departments where Radiologix had
installed imaging equipment that Radiologix operates pursuant to an agreement
with the hospital or health center. These relationships permit Radiologix to
provide radiology services to hospitals and health centers without directly
competing against a radiology department that is equipped and operated by the
hospital or health center. In addition to those 14 locations, Radiologix
provides management services or employees for four locations at which Radiologix
does not have an ownership interest in the imaging equipment.

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Operation of Facilities

     In conjunction with its operation of imaging centers, Radiologix purchases
imaging equipment, hires and trains employees, schedules patient appointments,
processes data relating to production of images and other technical radiology
services, and obtains and maintains permits, licenses and insurance.

     Radiologix's diagnostic imaging centers offer multiple modalities of
technologically advanced imaging procedures. The number and type of imaging
modalities offered at Radiologix's imaging centers are determined by the demand
for such services within their respective market areas. Presently, the majority
of these imaging centers offer multiple modalities including various
combinations of MRI, CT, mammography, ultrasound, nuclear medicine, fluoroscopy
and traditional radiography. By offering a wide spectrum of imaging modalities,
Radiologix markets itself as a full-service provider of diagnostic imaging
services.

     Offering a wide spectrum of imaging modalities at an imaging center enables
Radiologix to offer "one-stop shopping" to referring physicians and patients.
For example, a physician may refer a patient for an X-ray. If the X-ray, when
interpreted by a radiologist who is providing professional services at the
imaging center, reveals that further imaging (for example, a CT scan) is
necessary, the radiologist can confer with the referring physician and the
patient can immediately undergo the CT scan. Thus, by offering both X-ray and CT
modalities at the imaging center, the referring physician and the patient can
avoid multiple visits to an imaging center or hospital.

     Managed care organizations, insurers and other entities often represent
large groups of patients who are dispersed throughout a wide geographic area.
These entities influence referring physicians' decisions by entering into
provider agreements with, or otherwise selecting or approving, health care
service providers, including radiology service providers. Radiologix's
experience is that entities representing widely-dispersed patients often prefer
to enter into referral relationships with radiology providers who can provide
radiology services in a corresponding geographical area. Radiologix has
developed its radiology services networks, in part, to be qualified to be a
single supplier or a preferred provider for these entities so that they will
select or approve Radiologix more frequently and thus will influence referring
physicians to refer patients to Radiologix's networks.

     To increase the convenience of Radiologix's imaging centers to patients,
Radiologix implements network-wide scheduling systems where practical. Under
these systems, each imaging center in a network can access the patient
appointment calendar of other centers in the network. Each center also can
schedule patient appointments at each other facility within the network. This
system permits Radiologix's networks to better utilize time available at its
network centers and to meet patients' appointment time, date or location
preferences.


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     Radiologix focuses on providing quality patient service to ensure patient
and referring physician satisfaction. Radiologix's development of radiology
networks permits Radiologix to invest in advanced radiology equipment, including
MRI, open MRI, spiral CT and PET, as well as equipment to offer teleradiology
services in certain markets. When appropriate, Radiologix provides capital to
upgrade existing imaging equipment. Radiologix's consolidation of imaging
centers into coordinated networks improves response time, increases overall
patient accessibility, permits Radiologix to standardize certain customer
relations procedures and permits Radiologix to develop "best practices" for its
imaging centers. Radiologix seeks the input and participation of the radiology
practices to which Radiologix provides administrative and management services to
develop best practices and to improve productivity and quality of services. By
focusing on further improving and, where appropriate, standardizing the
operations of its imaging centers, Radiologix believes that it can increase
patient and referring physician satisfaction, which should lead to increased
referrals and increased utilization of Radiologix's imaging centers.

     Radiologix has increased the efficiency of its networks by installing
teleradiology systems in selected markets. Teleradiology permits a physician at
one facility to interpret images from imaging equipment located at other
facilities. These systems also permit Radiologix to leverage the services of
radiology specialists and subspecialists located at one location who can provide
professional services to multiple locations within the network. In 1999,
Radiologix installed two upgrades to existing teleradiology systems, one in its
Northeast Kansas market area and one in its South Texas market area. As a
result, all of Radiologix's markets (excluding the Questar market segment) now
have teleradiology systems. These systems permit the radiology practices to
offer 24-hour professional radiology services to hospitals and other locations
equipped with Radiologix's teleradiology equipment. Prior to the installation of
the teleradiology network, continuous on-site staffing may not have been
appropriate. Teleradiology systems are attractive to referring physicians and
hospitals since they receive timely radiology interpretations from a radiologist
outside of normal business hours or on weekends or holidays. These systems are
attractive to radiologists since they utilize one radiologist to cover multiple
sites and avoid on-site staffing or call coverage at each site during these
periods.

     Radiologix utilizes capital for its radiology and imaging center networks,
as appropriate, for the following purposes:


     o    technological advances, including teleradiology and upgraded
          diagnostic imaging equipment;

     o    imaging equipment for new modalities (such as open MRI, spiral CT and
          PET);

     o    information systems, including Radiologix's financial accounting
          system, which Radiologix implements at each new imaging center as soon
          as reasonably possible after the center is added to Radiologix's
          networks; and

     o    implementation of technologies to link voice, data and image
          transmission capabilities.

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<PAGE>   9


Radiology Practices

     The radiology practices whose radiologists perform professional services
for Radiologix's non-Questar imaging centers consist of ten radiology practices,
comprised of approximately 280 radiologists, located in seven states and
Washington, D.C. All of the practices provide professional services, which
consist of the supervision, performance and interpretation of radiological
procedures in hospitals, imaging centers or other settings. As of December 31,
1999, the practices provided professional radiology services to 58
hospitals. In the aggregate, the practices provide all subspecialty diagnostic
and interventional radiology and radiation oncology services. Substantially all
of the radiologists are board certified. In addition to providing professional
services at Radiologix's imaging facilities and the hospitals, the radiology
practices provide professional services to hospital outpatient facilities,
physicians' offices, mobile imaging units and nursing homes.

     The radiology practices were selected based on a variety of factors,
including: physician and practice credentials and reputation; competitive market
position; subspecialty mix of physicians; historical financial performance and
growth potential; and willingness to embrace Radiologix's strategy for the
market for radiology services.

Affiliation Structure for Radiologix's Radiology Practices

     Radiologix's business model is based on a "partnership" with its radiology
practices in which Radiologix manages the non-medical functions of the radiology
practices in a manner that promotes physician participation and input in areas
such as practice enhancement and operating efficiencies, marketing and long-term
strategy development. Radiologix believes that its partnering approach (i.e.,
shared ownership, economic interest and governance) enables physicians to
provide input in the management and affairs of their practice and aligns the
interests of physicians in the radiology practices with those of Radiologix in
promoting practice growth and



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operating efficiencies. Radiologix believes its model is, and will continue to
be, attractive to radiology groups that need management, administrative and
information services in addition to contracting with Radiologix to provide
physician coverage at Radiologix's imaging centers.

     In connection with the acquisition of imaging centers and affiliations with
radiology practices, Radiologix acquires certain tangible and intangible assets
and assumes certain liabilities of the radiology practices. Radiologix pays the
purchase price for such transactions in cash and shares of its Common Stock.
Simultaneously with the acquisitions, Radiologix enters into a 40-year service
agreement with each radiology practice pursuant to which Radiologix will provide
a wide range of management, administrative, technical and non-medical services.
For providing services under the service agreement, Radiologix receives a fee
which is structured to align the interests of Radiologix and the radiology
practices. Additionally, the service agreements restrict the radiology practices
from competing with Radiologix and other of Radiologix's radiology practices
within a specified geographic area during the term of the service agreements and
also require each radiology practice to obtain and enforce similar restrictive
covenants with the full-time physicians affiliated with their practices.
Radiologix anticipates that some, but not the majority of, future acquisitions
of imaging centers and affiliated radiology practices will be based on the
partnership model Radiologix has established or a variation of such model.

     Radiologix and each radiology practice establish a Joint Planning Board
consisting of three to six members. The Joint Planning Boards have
responsibility for establishing payor contracting guidelines, making
recommendations with respect to operating budgets and capital expenditures and
developing marketing strategies and long-term objectives for the imaging centers
and their respective practices. Radiologix believes the Joint Planning Boards
promote participation by physicians in both the overall management of their
practices and the continued growth of Radiologix's imaging center operations in
that region and serve as a means for Radiologix and its radiology practices to
communicate effectively and exchange information. In addition, Radiologix has a
Physician Advisory Board, the primary focus of which is to enhance the quality
of services provided by Radiologix, its imaging centers and its radiology
practices. The Physician Advisory Board consists of 11 practicing physicians
from the radiology practices. This board serves as a forum in which members
discuss and make recommendations regarding clinical applications, practice
protocols, appropriateness criteria, utilization guidelines, best practices and
managed care issues. Recommendations are communicated to all radiology practice
physicians, however, the adoption of such recommendations will be at the
discretion of the radiology practices.

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Information Management

     Radiologix believes that integrated management information and financial
information systems are essential to the development of integrated health care
delivery capabilities and are fundamental to improving the quality of care,
reducing the cost of care and enhancing Radiologix's attractiveness to payors.
Radiologix has implemented a Financial Accounting System ("FAS"). The FAS is
designed to facilitate consistent, efficient reporting of financial information
throughout Radiologix using one standard chart of accounts with a single set of
accounting practices and financial controls. Radiologix has deployed general
ledger, accounts payable, asset management and payroll systems at each of the
radiology practices. Radiologix is in the process of developing other standard
information systems for clinical and operational data.

Service Agreements

     Radiologix is a party to a service agreement with each related radiology
practice under which Radiologix is the exclusive manager and administrator of
non-medical services relating to the operation of the practice. The following
summary of the service agreement is intended to be a brief description of the
standard form of Radiologix's service agreements with the respective radiology
practices. The service agreements may vary from the description below depending
on the requirements of local regulations and negotiations with the individual
practices. Radiologix expects to enter into agreements with similar provisions
with additional radiology practices in the future.

     The service fees payable to Radiologix by the radiology practices under the
service agreements vary based on fair market value, as determined in arms'
length negotiations, and the nature and extent of services provided. Where state
law allows, service fees due under the service agreements are derived from two
distinct revenue streams:

     o    the radiology practice pays a service fee to Radiologix based on a
          negotiated percentage (Radiology practice service fees range from 20%
          to 30%) of the adjusted professional revenues as defined in the
          service agreement; and

     o    the radiology practice pays a service fee based on 100% of the
          adjusted technical revenues as defined in the service agreement, which
          equals the fair value of the services provided.

In states where the law requires a flat fee structure, Radiologix has negotiated
a base service fee, which is equal to the fair market value of the services
provided under the service agreement and which is renegotiated each year to
equal the fair market value of the services provided under the service
agreement. Adjusted professional revenues

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and adjusted technical revenues are determined by deducting certain
contractually agreed-upon expenses (non-physician salaries and benefits, rent,
depreciation, insurance, interest and other non-physician costs) from physician
groups revenue of the radiology practice. In addition, Radiologix receives
income from joint ventures in which Radiologix holds ownership interests.
Revenues are billed by Radiologix on behalf of the radiology practices. Payments
are received by the radiology practice and transferred to Radiologix on a daily
basis. On a monthly basis Radiologix calculates the amount of service fees due
and remits to the radiology practices an amount equal to the difference between
the net revenues of the radiology practice and the service fees calculated by
Radiologix.

     Pursuant to the service agreements, Radiologix, among other things: (i)
acts as the exclusive manager and administrator of non-physician services
relating to the operation of the radiology practice, subject to matters reserved
to the radiology practice or referred to the Joint Planning Board; (ii) aids in
the billing of hospitals, insurance companies and other third-party payors and
collects on behalf of the radiology practice the fees for professional medical
and other services rendered by the radiology practice; (iii) provides, as
necessary, clerical, accounting, purchasing, payroll, legal, bookkeeping and
computer services and personnel, information management, preparation of certain
tax returns and medical transcribing services; (iv) supervises and maintains
custody of substantially all files and records; (v) provides facilities for the
radiology practice; (vi) prepares, in consultation with the Joint Planning Board
and the radiology practice, all annual operating and capital budgets; (vii)
orders and purchases inventory and supplies as necessary; (viii) implements, in
consultation with the Joint Planning Board and the radiology practice, national
and local public relations or advertising programs; (ix) provides financial and
business assistance in the negotiation, establishment, supervision and
maintenance of contracts and relationships with managed care and other similar
providers and payors; and (x) assists the radiology practice with obtaining
medical malpractice insurance for its physicians and other medical
professionals.

     Under the service agreements, each radiology practice remains responsible
for (i) hiring and compensating its physicians and certain other medical
professionals, (ii) the licensing, credentialing and certification necessary to
conduct its practice, (iii) obtaining and maintaining medical malpractice
insurance for the professional entity and its physician employees, (iv)
providing professional radiological services and (v) complying with federal and
state laws, regulations and other ethical standards applicable to the practice
of radiology. Pursuant to the service agreements, the radiology practices
maintain full control over the provision of professional radiological services.
Radiologix does not engage in the practice of medicine or provide professional
radiological services. In addition, the service agreements with the radiology
practices also contain provisions whereby both Radiologix and each radiology
practice have agreed to certain restrictions on accepting or pursuing radiology
opportunities within a 10-mile radius of any of Radiologix's owned, operated or
managed imaging centers at which the radiology practice provides

                                      -10-
<PAGE>   13

professional radiology services or any hospital at which a radiology practice
provides on-site professional radiology services. Each service agreement also
restricts the applicable radiology practice from competing with Radiologix and
other radiology practices within a specified geographic area during the term of
such service agreement. In addition, the service agreements require the
radiology practices to enter into and enforce agreements with the stockholders
and full-time radiologists at each radiology practice (subject to certain
exceptions) that include covenants not to compete with Radiologix for a period
of two years after termination of employment.

     The service agreements are for an initial term of 40 years, with automatic
extensions of five years unless notice of termination is given. The service
agreements may be terminated by either party if (i) the other party (a) files a
petition in bankruptcy or other similar events occur or (b) defaults in the
performance of a material duty or obligation, which default continues for a
specified period after notice or (ii) an opinion is rendered by a law firm of
nationally-recognized expertise in health care law that a material term of the
service agreement is in violation of applicable law (or a court or regulatory
agency finds as such) and such violation cannot be cured.

     Each service agreement may also be terminated by Radiologix if the
radiology practice or a physician employee engages in conduct, or is formally
accused of conduct, for which the physician employee's license to practice
medicine reasonably would be expected to be subject to revocation or suspension
or is otherwise disciplined by any licensing, regulatory or professional entity
or institution, the result of any of which (in the absence of termination of
such physician or other action to monitor or cure such act or conduct) does or
reasonably would be expected to materially adversely affect the radiology
practice. In addition, Radiologix may terminate each service agreement with any
radiology practice if, during the first five years of the service agreement,
more than 33-1/3% of the total number of physicians employed or retained by such
practice are no longer employed or retained by such practice other than because
of certain events, including death, permanent disability, pre-qualified
retirement or involuntary loss of hospital contracts or privileges.

     Upon termination of a service agreement with a radiology practice,
depending upon the termination event, Radiologix may have the right to require
such radiology practice to purchase and assume, or the radiology practice may
have the right to require Radiologix to sell, assign and transfer to it, the
assets and related liabilities and obligations associated with the professional
and technical radiology services provided by the radiology practice immediately
prior to such termination. The purchase price for such assets, liabilities and
obligations will be the lesser of fair market value thereof or the return of the
consideration received in the acquisition; provided, however, that the purchase
price shall not be less than the net book value of the assets being purchased.

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Radiology Industry

     In general, radiology includes diagnostic imaging, interventional radiology
and radiation oncology. Imaging procedures use energy waves to penetrate human
tissue and generate images of the body, which can be recorded on film or
digitized for display on a video monitor. Diagnostic imaging procedures are used
to diagnose diseases and physical injuries and are performed in hospitals,
physicians' offices, outpatient centers and imaging centers. Interventional
radiology procedures include the use of radiological methods to monitor and
guide catheters, stents, drains and needles to open clogged vessels, relieve
obstructed kidneys, perform biopsies of mass lesions, drain abscess collections
and lower pressure in certain vessels. Generally, these interventional
procedures are more time efficient, more cost-effective and less invasive than
surgical alternatives and have historically been performed in a hospital setting
to enable utilization of hospital support services.

     The principal diagnostic imaging modalities include the following, all of
which are non-invasive:

          General Radiology: X-Ray and Fluoroscopy. X-rays utilize roentgen rays
     to penetrate the body and record images of organs and structures on film.
     Fluoroscopy utilizes ionizing radiation combined with a video viewing
     system for real time monitoring of organs. X-ray and fluoroscopy are the
     most frequently used imaging modalities.

          Computed Tomography. CT utilizes a computer to direct the movement of
     an x-ray tube to produce multiple cross sectional images of a particular
     organ or area of the body. CT is used to detect tumors and other conditions
     affecting bones and internal organs. It is also used to detect the
     occurrence of strokes, hemorrhages and infections. CT provides higher
     resolution images than conventional x-rays, but generally not as well
     defined as those produced by magnetic resonance.

          Magnetic Resonance Imaging. MRI utilizes a strong magnetic field in
     conjunction with low energy electromagnetic waves which are processed by a
     computer to produce high-resolution images of body tissue including the
     brain, spine, abdomen, heart and extremities. Unlike CT and conventional
     x-rays, MRI does not utilize ionizing radiation, which can cause tissue
     damage in high doses.

          Mammography. Mammography is a specialized form of radiology utilizing
     low dosage x-rays to visualize breast tissue and is the primary screening
     tool for breast cancer. Mammography procedures also include the biopsy of
     cells to assist in the diagnosis of breast cancer.

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          Ultrasound. Ultrasound imaging utilizes high-frequency sound waves to
     develop images of internal organs, unborn fetuses and the vascular system.
     Ultrasound has widespread applications, particularly for procedures in
     obstetrics, gynecology and cardiology.

          Nuclear Medicine. Nuclear medicine utilizes short-lived radioactive
     isotopes which release small amounts of radiation that can be recorded by a
     gamma camera and processed by a computer to produce an image of various
     anatomical structures or to assess the function of various organs such as
     the heart, kidneys, thyroid and bones. Nuclear medicine is used primarily
     to study anatomic and metabolic functions.

          Positron Emission Tomography. PET utilizes a scanner to record signals
     emitted by compounds with signal-emitting tracers after such compounds are
     injected into a patient's body. A scanner records the signals as they
     travel through the body and collect in the various organs targeted for
     examination. A computer assembles the signals into actual images. PET has
     proven effective in the detection and tracking of cancer (including lung,
     colorectal, breast and prostate), heart disease and brain disorders,
     including Alzheimer's disease, Parkinson's disease and seizure disorders.
     PET can provide accurate information currently unobtainable through any
     other imaging means and can eliminate the need for multiple tests and
     diagnostic surgical procedures.

     In addition to diagnostic imaging procedures, certain of the radiologist
practices that perform services for Radiologix also provide radiation oncology
services to hospitals. Radiation oncology procedures use a variety of radiation
sources to treat cancer and/or relieve pain caused by certain tumors and are
performed in hospitals and free-standing outpatient centers.

Trends In Radiology

     Technological Advancements. Radiologix believes that advances in
technology, including the development and continued enhancements of CT, MRI,
ultrasound, nuclear medicine, PET and interventional radiology have contributed
to the growth of the diagnostic imaging industry. These technological advances
have resulted in increased professional and technical utilization and have
produced diagnostic procedures that are safer, more accurate and less invasive
than techniques previously utilized. While traditional x-rays continue to be the
primary imaging modality based on the number of procedures performed, the use of
advanced diagnostic imaging modalities such as MRI and CT has increased rapidly
in recent years because these modalities allow physicians to diagnose a wide
variety of diseases and injuries quickly and accurately without exploratory
surgery or other surgical or invasive procedures, which are usually more
expensive, involve greater risk to the patient and result in longer
rehabilitation time. As a result, hospital days are shortened or eliminated and



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<PAGE>   16

time lost from work is significantly reduced. In addition, diagnostic imaging is
increasingly used as a screening tool for preventive care. Radiologix believes
that future technological advances will enhance the ability of radiologists to
diagnose and influence treatment, thereby lowering overall health care costs.

     Recent technological advancements include: magnetic resonance spectroscopy,
which can differentiate malignant from benign lesions; magnetic resonance
angiography, which can produce three-dimensional images of body parts and assess
the status of blood vessels; spiral computed tomography, which permits
three-dimensional images of body parts; monoclonal antibody studies utilizing
nuclear medicine to localize certain cancers that would otherwise be difficult
to detect or treat; and the development of teleradiology, which digitally
transmits radiological images from one location to another for interpretation.
Radiologix believes that the utilization of both the diagnostic and therapeutic
capabilities of radiology will continue to increase because of its
cost-effective, time-efficient and risk/benefit advantages over alternative
procedures (including surgery) and that newer technologies and future
technological advancements will result in further sub-specialization and
increased utilization of professional and technical radiological services.

     Reimbursement Patterns. Payment for radiology services comes primarily from
third-party payors such as private insurers (including traditional indemnity
insurance plans), managed care plans (including HMOs and PPOs) and governmental
payors (including Medicare and Medicaid). Historically, radiologists and other
physicians generally provided medical services on a fee-for-service basis. As
managed care entities and other payors have focused on providing care in a more
cost-effective manner, they have demanded and received significant discounts
from fee-for-service rates charged for radiological procedures. As a result,
physicians have seen a decrease in per procedure reimbursements from managed
care and governmental entities for such procedures. Certain third-party payors
have focused on shifting more of the financial risk for the provision of
cost-effective services to providers through capitation and other risk-sharing
arrangements. Significant changes of this type will require Radiologix to become
more actively involved in assisting its radiology practices in developing
practice guidelines and appropriateness criteria and managing the utilization of
radiological procedures.

     Radiologix believes that the shift in financial risk from payors to
providers decreases the attractiveness of under-utilized imaging equipment
within a general practitioner's or specialist's office or in hospitals and will
accelerate the centralization of resources to high-volume centers. According to
an article published in the American Journal of Radiology in 1993, approximately
64% of all radiological procedures (primarily x-rays and ultrasound) performed
in freestanding imaging centers and physicians' offices were performed by
non-radiologist physicians including internists, family and general
practitioners and orthopedists. Radiologix believes that the general diagnostic
imaging services performed by non-radiologists



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<PAGE>   17

may be directed to radiologists by managed care entities seeking to have
services performed at the lowest overall cost. As a result, Radiologix believes
that managed care entities, provided with utilization reports, will focus on
reducing costs by shifting radiological procedures performed by non-radiologists
to radiologists.

     Consolidation of Imaging Centers. Concurrent with the growth of managed
care and strict controls on Medicare reimbursement for inpatient costs,
diagnostic imaging services began to shift from hospital settings to imaging
centers in the early 1980s. While many of these imaging centers were developed
by physicians and hospitals, a subsequent change in federal law restricted the
referral of patients by a physician to a facility in which the physician
maintained an ownership interest. As a result, many physicians sold their
interests in imaging centers to hospitals, radiologists and companies engaged
exclusively in the ownership, operation and management of imaging centers.
Radiologix believes that many of these entities have and will continue to
consolidate the ownership of imaging centers.

     Referral Sources. Non-radiologists, including specialists and primary care
physicians, direct the utilization of radiology services. Most industry
marketing has been focused on developing relationships with these referring
physicians. As more patients move to managed care plans, Radiologix believes
physicians will have fewer referral options for diagnostic imaging procedures.
In addition, Radiologix believes that certain managed care entities will
increasingly demand that providers of radiology services share in the financial
risks associated with providing services for the lives covered by the managed
care entities. As the choices for radiology referrals decrease, Radiologix
believes that quality of care, subspecialty expertise and patient and referring
physician satisfaction will be important factors in determining referral
patterns.

     Trends in Radiology Organizations. The trends toward managed care, cost
containment and health care consolidation have combined to limit the number of
positions available and the salaries paid to radiologists. In addition, small
independent physician groups and individual practices are typically at a
competitive disadvantage to larger associations or networks of physicians
because they lack the capital necessary to (i) expand the geographic coverage of
the practice and the imaging modalities offered, (ii) develop state-of-the-art
information systems and (iii) purchase costly new imaging technologies, each of
which can improve quality of care and reduce costs. Generally, they also lack
the cost accounting and quality management systems necessary to allow physicians
to price and monitor complex risk-sharing arrangements with third-party payors.
Additionally, small to medium-sized groups and individual practices often do not
have contractual ties with other providers nor do they have the ability to offer
a broad range of subspecialty imaging services. Small practices often have
higher operating costs (since overhead must be spread over a relatively small
revenue base) and minimal vendor purchasing power. In order to remain
competitive in the changing medical service environment, radiologists are
beginning to affiliate with or create larger organizations by adding


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<PAGE>   18

radiologists to their groups, creating or joining a network or an independent
physician association or affiliating with a services provider such as
Radiologix.

Year 2000 Compliance

     Radiologix has not experienced any material adverse impact from the
transition to the year 2000. However, there can be no assurance that
Radiologix's suppliers and customers have not been affected in a manner that is
not yet apparent. Radiologix will continue to monitor its Year 2000 compliance
and the year 2000 compliance of its suppliers and customers. Prior to December
31, 1999, the Company verified that all of its personal computers and software
were Year 2000 compliant. The Company replaced or upgraded all items that were
not Year 2000 compliant. The costs related to these efforts were not material.

GOVERNMENT REGULATION AND SUPERVISION

General

     The health care industry is highly regulated, and there can be no assurance
that the regulatory environment in which Radiologix operates will not change
significantly in the future. The ability of Radiologix to operate profitably
will depend in part upon Radiologix, the radiology practices and their
affiliated physicians obtaining and maintaining all necessary licenses,
certificates of need and other approvals and operating in compliance with
applicable health care regulations. Radiologix believes that health care
regulations will continue to change and, therefore, intends to monitor
developments in health care law and Radiologix expects to modify its operations
from time to time as the business and regulatory environment changes. There can
be no assurance that Radiologix will be able to modify its operations so as to
address changes in the regulatory environment.

Licensing and Certification Laws

     Every state imposes licensing requirements on individual physicians and on
certain facilities operated, or services performed, by physicians and others. In
addition, federal and state laws regulate HMOs and other managed care
organizations with which radiology practices or their affiliated physicians may
have contracts. Many states require regulatory approval, including certificates
of need and/or licensing, before establishing or expanding certain types of
health care facilities, offering certain services or making expenditures in
excess of statutory thresholds for health care equipment, facilities or
programs. In connection with the expansion of existing operations and the entry
into new markets, Radiologix, the Radiology practices or their affiliated
physicians may become subject to additional regulation.


                                  -16-

<PAGE>   19

Fee-Splitting; Corporate Practice of Medicine

     The laws of many states (including each of the states in which the existing
radiology practices are located) prohibit physicians from splitting fees with
non-physicians and prohibit non-physician entities from practicing medicine.
These laws vary from state to state and are enforced by state courts and by
regulatory authorities with broad discretion. Although Radiologix intends to
structure its proposed operating structures and methods as described herein so
as to comply with existing applicable laws, Radiologix's business operations
have not been the subject of judicial or regulatory interpretation. There can be
no assurance that a review of Radiologix's business by courts or regulatory
authorities will not result in determinations that could adversely affect the
operations of Radiologix or that the health care regulatory environment will not
change so as to restrict Radiologix's planned operations and expansion. In
addition, the regulatory framework of certain jurisdictions may limit
Radiologix's expansion into those jurisdictions if Radiologix is unable to
modify its operating structure to conform with such regulatory framework.

Medicare Physician Payment System

     Radiologix believes that regulatory trends in cost containment will
continue to result in a reduction from historical levels in per-procedure
revenue for certain health care providers. The federal government has
implemented, through the Medicare program, a resource-based relative value scale
("RBRVS") payment methodology for physician services. The RBRVS is a fee
schedule that, except for certain geographical and other adjustments, pays
similarly situated physicians the same amount for the same services. The RBRVS
is adjusted each year and is subject to increases or decreases at the discretion
of HCFA and Congress. To date, the implementation of the RBRVS has reduced
payment rates for certain of the procedures historically provided by the
existing Radiology practices. The Balanced Budget Act of 1997 ("BBA 97")
provides for reductions in the rate of growth of payments for physician
services, including services historically provided by the radiology practices,
in the amount of $5.3 billion over a five-year period ending in 2002. In
addition, BBA 97 provides for the implementation of a resource-based methodology
for payment of physician practice expenses under the physician fee schedule over
a four-year period beginning in 1999. Adoption of this methodology is expected
to reduce payments for services historically provided by the radiology
practices. There can be no assurance that any reduced operating margins could be
offset by Radiologix through increased efficiencies, utilization of excess
capacity, alteration of the mix of the radiology practices' services or other
means of increasing Radiologix's revenues. Private third-party payors and
Medicare and Medicaid have increased their use of managed care as a means of
cost containment. Increasingly, private third-party payors negotiate discounts
from established physician and hospital charges or require capitation or other
risk sharing arrangements as a condition of patient referral to physician groups
such as the radiology practices. BBA 97 also includes provisions designed to
increase the enrollment of Medicare and Medicaid participants in managed care
programs.

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<PAGE>   20

The inability of Radiologix to negotiate satisfactory arrangements with managed
care companies would have a material adverse effect on Radiologix's business,
financial condition and results of operation.

     Rates paid by non-governmental insurers, including those that provide
Medicare supplemental insurance, are based on established physician and hospital
charges and are generally higher than Medicare payment rates. A change in the
composition of the patient mix of the medical practices that results in a
decrease in patients covered by private insurance plans could adversely affect
Radiologix's revenue and income.

     Medicare and Medicaid have increased their use of managed care as a means
of cost containment. As with private third-party payors, Medicare and Medicaid
managed care contractors negotiate discounts from established physician and
hospital charges or require capitation or other risk sharing arrangements as a
condition of patient referral to physician groups such as the radiology
practices. BBA 97 includes provisions designed to increase the enrollment of
Medicare and Medicaid participants in managed care programs. The inability of
Radiologix to negotiate satisfactory arrangements with Medicare and Medicaid
managed care contractors could have a material adverse effect on Radiologix's
business, financial condition and results of operation.

Medicare and Medicaid Fraud and Abuse

     Federal law prohibits the offer, payment, solicitation or receipt of any
form of remuneration in return for, or in order to induce, (i) the referral of a
person, (ii) the furnishing or arranging for the furnishing of items or services
reimbursable under the Medicare, Medicaid or other governmental programs or
(iii) the purchase, lease or order or arranging or recommending purchasing,
leasing or ordering of any item or service reimbursable under the Medicare,
Medicaid or other governmental programs. Enforcement of this anti-kickback law
is a high priority for the federal government, which has substantially increased
enforcement resources and is scheduled to continue increasing such resources.
The applicability of the anti-kickback law to many business transactions in the
health care industry has not yet been subject to judicial or regulatory
interpretation. Noncompliance with the federal anti-kickback legislation can
result in exclusion from the Medicare, Medicaid, or other governmental programs
and civil and criminal penalties.

     Radiologix believes that although it receives fees under the service
agreements for management and administrative services, it is not in a position
to make or influence referrals of patients or services reimbursed under the
Medicare, Medicaid or other governmental programs to radiology practices or
their affiliated physicians, or to receive such referrals. Such service fees are
intended by Radiologix to be consistent with fair market value in arms' length
transactions for the nature and amount of management and administrative services
rendered. For these reasons, Radiologix

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<PAGE>   21

does not believe that service fees payable to it should be viewed as
remuneration for referring or influencing referrals of patients or services
covered by such programs as prohibited by statute.

     Significant prohibitions against physician referrals have been enacted by
Congress. These prohibitions are commonly known as the "Stark law." The Stark
law prohibits a physician from referring Medicare or Medicaid patients to an
entity providing "designated health services," including, without limitation,
radiology services, in which the physician has an ownership or investment
interest, or with which the physician has entered into a compensation
arrangement. The penalties for violating the Stark law include a prohibition on
payment by these governmental programs and civil penalties of as much as $15,000
for each violative referral and $100,000 for participation in a "circumvention
scheme." Radiologix believes that, although it receives fees under the service
agreements for management and administrative services, it is not in a position
to make or influence referrals of patients.

     On January 9, 1998, the Health Care Financing Administration, Department of
Health and Human Services ("HCFA") published proposed rules (the "Proposed
Regulations") to implement the Stark law. Under the Stark law, radiology
services and radiation therapy services and supplies are services included in
the designated health services subject to the self-referral prohibition. Under
the Proposed Regulations, such services would include any diagnostic test or
therapeutic procedure using x-rays, ultrasound or other imaging services,
computerized axial tomography, magnetic resonance imaging, radiation, nuclear
medicine and diagnostic mammography services (but not screening mammography
services). The Proposed Regulations, however, would exclude from such definition
of radiology services and radiation therapy services and supplies "invasive" or
"interventional" radiology because the radiology services in these procedures
are merely incidental or secondary to another procedure that the physician has
ordered.

     The Stark law provides that a request by a radiologist for diagnostic
radiology services or a request by a radiation oncologist for radiation therapy,
if such services are furnished by or under the supervision of such radiologist
or radiation oncologist pursuant to a consultation requested by another
physician, does not constitute a "referral" by a "referring physician."
Therefore, if such requirements were met, the Stark law self-referral
prohibition would not apply to such services. The effect of the Stark law on the
radiology practices, therefore, will depend on the precise scope of services
furnished by each such practice's radiologists and whether such services derive
from consultations or are self-generated. Management of Radiologix believes that
all of the services covered by the Stark law provided by the radiology practices
derive from requests for consultation. In light of the complexity of the issues
relating to the Stark law, and the uncertainty regarding the Proposed
Regulations, it is unclear whether the existing relationships between Radiologix
and the radiology practices and the relationships between the radiology
practices and physicians who

                                      -19-
<PAGE>   22

refer patients to them would be deemed to comply with Stark law after the final
regulations are adopted.

     In addition, Radiologix believes that it has structured its acquisitions of
the assets of existing practices and intends to structure its future
acquisitions so as to not violate the anti-kickback and Stark law and
regulations. Specifically, Radiologix believes the consideration paid by
Radiologix to physicians to acquire the tangible and intangible assets
associated with their practices is consistent with fair market value in arms'
length transactions and is not intended to induce the referral of patients.
Should any such practice be deemed to constitute an arrangement designed to
induce the referral of Medicare or Medicaid patients, then Radiologix's
acquisitions could be viewed as possibly violating anti-kickback and
anti-referral laws and regulations. A determination of liability under any such
laws could have a material adverse effect on Radiologix's business, financial
condition and results of operations.

     The federal government recently announced an initiative to audit all
Medicare Carriers, which are the companies that adjust and pay Medicare claims.
These audits are expected to intensify governmental scrutiny of individual
providers. An unsatisfactory audit of any of the Company's imaging centers or
affiliated radiology practices could result in significant repayments
obligations, exclusion from the Medicare, Medicaid, or other governmental
programs and civil and criminal penalties.

     Federal regulatory and law enforcement authorities have recently increased
enforcement activities with respect to Medicare and Medicaid fraud and abuse
regulations and other reimbursement laws and rules, including laws and
regulations that govern Radiologix's contemplated activities and the activities
of the radiology practices. There can be no assurance that Radiologix's or such
radiology practices' contemplated activities will not be investigated, that
claims will not be made against Radiologix or the radiology practices or that
these increased enforcement activities will not directly or indirectly have an
adverse effect on Radiologix's business, financial condition and results of
operations.

State Anti-kickback and Physician Self-referral Laws

     Many states have enacted similar laws and regulations prohibiting the
payment or solicitation of remuneration in exchange for or to induce the
referral of patients or the ordering of items or services, and regulating the
ability of physicians to refer patients to entities in which they have an
ownership interest or compensation arrangement. Radiologix believes that its
operations and those of the radiology practices comply with all such applicable
laws and regulations. There can be no assurance that Radiologix's or such
radiology practices' contemplated activities will not be investigated by the
relevant state authorities, that claims will not be made against Radiologix or
the radiology practices or that such enforcement activities will not directly or
indirectly have an adverse effect on Radiologix's business, financial condition
and results of operations.

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<PAGE>   23

Health Care Reform Initiatives

     In addition to existing government health care regulation, there have been
numerous initiatives on the federal and state levels for comprehensive reforms
affecting the payment for and availability of health care services. Radiologix
believes that such initiatives will continue during the foreseeable future.
Certain aspects of these reforms, as proposed in the past, such as further
reductions in Medicare and Medicaid payments and additional prohibitions on
physician ownership, directly or indirectly, of facilities to which they refer
patients, if adopted, could adversely affect Radiologix.

Health Insurance Portability and Accountability Act of 1996

     In an effort to combat health care fraud, Congress enacted the Health
Insurance Portability and Accountability Act of 1996 ("HIPAA"). HIPAA, among
other things, amends existing crimes and criminal penalties for Medicare fraud
and enacts new federal health care fraud crimes, including actions affecting
non-governmental payors. Under HIPAA, a "health care benefit program" includes
any private plan or contract affecting interstate commerce under which any
medical benefit, item or services is provided. A person or entity that knowingly
and willfully obtains the money or property of any health care benefit program
by means of false or fraudulent representations in connection with the delivery
of health care services is subject to a fine and/or imprisonment. A finding of
liability under HIPAA could have a material adverse effect on Radiologix's
business, financial condition and results of operations.

Compliance Program

     With the assistance of Radiologix's special health care regulatory counsel,
Radiologix implemented a program to monitor compliance with federal and state
laws and regulations applicable to health care entities. Radiologix has
appointed a compliance officer who is charged with implementing and supervising
Radiologix's compliance program, which includes the adoption of (i) "Standards
of Conduct" for its employees and affiliates and (ii) an "Ethics Process" that
will specify how employees, affiliates and others may report regulatory or
ethical concerns to Radiologix's compliance officer. Radiologix believes that
its compliance program meets the relevant standards provided by the Office of
Inspector General of the Department of Health and Human Services. An important
part of Radiologix's compliance program consists of conducting periodic audits
of various aspects of its operations, including the radiology practices.
Radiologix also conducts mandatory educational programs designed to familiarize
its employees with the regulatory requirements and specific elements of
Radiologix's compliance program.

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<PAGE>   24

Insurance Laws and Regulation

     Certain states have enacted statutes or adopted regulations affecting risk
assumption in the health care industry, including statutes and regulations that
subject any physician or physician network engaged in risk-based contracting to
applicable insurance laws and regulations, which may include, among other
things, laws and regulations providing for minimum capital requirements and
other safety and soundness requirements. Radiologix believes that it is, and the
radiology practices are, currently in compliance with such insurance laws and
regulations. However, implementation of additional regulations or compliance
requirements could result in substantial costs to Radiologix and the radiology
practices. The inability to enter into capitated or other risk-sharing
arrangements or the cost of complying with certain applicable laws that would
permit expansion of Radiologix's risk-based contracting activities could have a
material adverse effect on Radiologix's business, financial condition and
results of operations.

COMPETITION

     Radiologix's owned, operated or managed imaging centers and the radiology
practices compete with local radiologists and technical imaging service
providers, including for-profit and non-profit hospitals and health systems, in
each of the markets served by Radiologix. Radiologix believes that changes in
governmental and private reimbursement policies and other factors have resulted
in increased competition among providers for medical services to consumers and
that cost, accessibility, quality and scope of services provided are the
principal factors that affect competition. There can be no assurance that
Radiologix's owned, operated or managed imaging centers or the radiology
practices will be able to compete effectively in the markets that they serve,
which inability to compete could adversely affect Radiologix.

     Radiologix believes that the current trends in the hospital industry have
resulted in increased competition by radiology groups for hospital contracts.
Each of the radiology practices provides radiology services to hospitals. These
relationships can be affected through competition with other radiology groups,
the outsourcing of the radiology and imaging functions within the hospital or
closure of the hospital due to consolidation or financial instability. There can
be no assurance that each of the radiology practices will maintain its current
hospital relationships and be able to renew or extend its current arrangements
under favorable terms or effectively compete for new relationships.

     Radiologix's primary competition for the acquisition and retention of the
assets of, and the provision of management, technical and administrative
services to, additional radiology practices, MSOs and imaging centers within its
current market areas arises from local entrepreneurs. Nationally, Radiologix's
competition for the acquisition of and servicing of such operations is
fragmented with no dominant

                                      -22-
<PAGE>   25

competitor. There are a number of publicly-traded and privately held companies
focused primarily on owning or managing imaging centers. There are also
publicly-traded and privately held companies that have established operating
histories and, in some instances, greater resources than Radiologix that are
pursuing the acquisition of general and specialty physician practices and the
management of such practices. Some hospitals, clinics, health care companies,
HMOs and insurance companies engage in activities similar to those of
Radiologix. There can be no assurance that Radiologix will be able to compete
effectively with such competitors for the acquisition of, or affiliation with,
radiology practices, that additional competitors will not enter the market, that
such competition will not make it more difficult or expensive to acquire the
assets of, and provide management, administrative, technical and non-medical
services to, radiology practices on terms beneficial to Radiologix or that
competitive pressures will not otherwise adversely affect Radiologix.

FACILITIES AND EMPLOYEES

     Radiologix's corporate headquarters are located at 3600 Chase Tower, 2200
Ross Avenue, Dallas, Texas 75201-2776, in approximately 26,000 square feet
occupied under a lease which expires on August 31, 2011. As of December 31,
1999, Radiologix had approximately 1,950 employees, approximately 60 of whom are
employed at Radiologix's headquarters and regional offices and the remainder of
which are employed at Radiologix's imaging centers and at the radiology
practices. Radiologix believes that its relationship with its employees is good.

CORPORATE LIABILITY AND INSURANCE

     The related radiology practices maintain professional liability insurance
coverage primarily on a claims made basis. Such insurance provides coverage for
claims asserted when the policy is in effect regardless of when the events that
caused the claim occurred. As a result of the acquisition of the related
radiology practices, Radiologix in some cases succeeded to certain liabilities
of the related radiology practices. Therefore, claims may be asserted against
Radiologix for events which occurred prior to such acquisitions. Radiologix and
the related radiology practices maintain insurance coverage similar to the
coverage previously maintained by the related radiology practices. On September
1, 1997, a new law became effective in the state of Texas that permits injured
patients to sue health insurance carriers, HMOs and other managed care entities
for medical malpractice. There can be no assurance that this law will not
increase the cost of liability insurance to Radiologix for services provided in
Texas or any other states in which Radiologix does business if similar
legislation is adopted in those states.

     The provision of medical services entails an inherent risk of professional
malpractice and other similar claims. Radiologix's intent is to not influence or
control the practice of medicine by physicians or have responsibility for
compliance with certain regulatory and other requirements directly applicable to
physicians and

                                      -23-
<PAGE>   26
physician groups. As a result of the relationship between Radiologix and the
related radiology practices, however, Radiologix may become subject to medical
malpractice actions under various theories, including successor liability. There
can be no assurance that claims, suits or complaints relating to services
provided by radiology practices will not be asserted against Radiologix in the
future. Radiologix maintains insurance coverage that it believes will be
adequate. Radiologix anticipates that such insurance will extend to professional
liability claims that may be asserted against employees of Radiologix that work
on site at radiology practice locations. In addition, pursuant to the service
agreements, the radiology practices are required (and Radiologix intends to
require any other future related radiology practices) to maintain comprehensive
professional liability insurance. The availability and cost of such insurance is
affected by various factors, many of which are beyond the control of Radiologix
and the practices. The cost of such insurance to Radiologix and the radiology
practices may have an adverse effect on Radiologix's operations. In addition,
successful malpractice or other claims asserted against radiology practices or
Radiologix that exceed applicable policy limits could have a material adverse
effect on Radiologix.

     The shareholders of the related radiology practices have agreed to
indemnify Radiologix for certain claims. There can be no assurance that
Radiologix will be able to receive payments under any such indemnity agreements
or that the failure to fully recover such amounts will not have a material
adverse effect on Radiologix's business, financial condition or results of
operations.

     The related radiology practices are required by the terms of the service
agreements to maintain medical malpractice liability insurance consistent with
minimum limits mandated in their hospital contracts or by applicable state law.
The minimum amounts to be maintained are $1 million per occurrence and $3
million in the aggregate. Radiologix maintains general liability and umbrella
coverage of $5 million per occurrence and $5 million in the aggregate.
Additionally, Radiologix maintains workers' compensation insurance on all
employees. Coverage is placed on a statutory basis and responds to each state's
specific requirements.

ITEM 2. PROPERTIES.

     Radiologix's corporate headquarters are located at 3600 Chase Tower, 2200
Ross Avenue, Dallas, Texas 75201-2776, in approximately 26,000 square feet
occupied under a lease which expires on August 31, 2011.

ITEM 3. LEGAL PROCEEDINGS.

     Radiologix is not currently subject to any material litigation nor, to
Radiologix's knowledge, is any material litigation threatened against Radiologix
other than routine litigation arising in the ordinary course of business, which
litigation is expected to be covered by liability insurance and all of which is
not expected to have a material adverse effect on Radiologix's business,
financial condition or results of operations. There can be no assurance that
Radiologix will not subsequently be named as a defendant in additional lawsuits.

     There can be no assurance that Radiologix will not be named as a defendant
in lawsuits for matters arising out of events that occurred prior to the
acquisition of the

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

     Radiologix did not submit any matters to a vote of security holders during
the fourth quarter of 1999.


                                      -24-
<PAGE>   27

related radiology practices. Each practice has retained responsibility for,
and/or agreed to indemnify Radiologix in full against, the liabilities
associated with these lawsuits. In the event Radiologix is named as a party in
any of these lawsuits, or a monetary judgment is entered against Radiologix and
indemnification is unavailable for any reason, Radiologix's business, financial
condition and results of operations could be materially adversely affected.


                                      -25-
<PAGE>   28

                                     PART II


ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.

Market Information and Stock Price

     The Company's Common Stock has been traded on the National Association of
Securities Dealers Automated Quotation (NASDAQ) National Market System, since
November 20, 1997, and trades under the symbol "RDLX". The following table sets
forth, for the periods indicated below, the high and low bid prices per share of
the Common Stock as reported by NASDAQ:

<TABLE>
<CAPTION>
                                                                          High        Low
                                                                          ----        ---
             1998
<S>                                                                      <C>          <C>
                 Fiscal Quarter Ended March 31,                          11 7/8       9 1/2
                 Fiscal Quarter Ended June 30,                           11 1/2       7
                 Fiscal Quarter Ended September 30,                       9 1/8       6
                 Fiscal Quarter Ended December 31,                        7 1/8       4 1/2
             1999
                 Fiscal Quarter Ended March 31,                           7 7/8       5 3/8
                 Fiscal Quarter Ended June 30,                            9           5
                 Fiscal Quarter Ended September 30,                       8 1/8       5 3/4
                 Fiscal Quarter Ended December 31,                        7 15/16     3 7/16
</TABLE>


     As of the close of business on March 24, 2000, the last reported sales
price per share of the Company's Common Stock was $5.50. There were 258 holders
of record of the Company's Common Stock at the close of business on March 24,
2000. Such number does not include persons whose shares are held by a bank,
brokerage house or clearing company, but does include such banks, brokerage
houses and clearing companies.

      On January 10, 2000, the Company was notified by NASDAQ that the Company's
Common Stock had not maintained a minimum bid price of at least $5.00 per share
during the previous 30 consecutive trading days, a requirement of NASDAQ's
Marketplace Rules. The Company has until April 10, 2000, to regain compliance,
which will be met if the Company's Common Stock attains a bid price of at least
$5.00 for ten consecutive trading days. If compliance is not met, the Company's
Common Stock may be delisted on April 12, 2000. If the NASDAQ National Market
System elects to delist the Company's Common Stock, the Company intends to
appeal the determination by requesting a hearing with the Nasdaq Listing
Qualifications Panel (the "Panel"). The hearing request will stay the Company's
delisting pending the Panel's decision. If the Company is unsuccessful with its
appeal, the Company will apply to be listed on the NASDAQ SmallCap Market or the
American Stock Exchange ("AMEX"). There can be no assurance the Company's Common
Stock will meet the compliance requirements for NASDAQ, or the Company will be
successful in its appeal, or that, if delisted from the NASDAQ National Market
System, listing will be attained on the NASDAQ SmallCap Market or the AMEX.

      No cash dividends have been paid on the Company's Common Stock since the
organization of the Company and the Company does not anticipate paying dividends
in the foreseeable future. The Company currently intends to retain earnings for
future growth and expansion opportunities.


                                       26
<PAGE>   29



ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.

     The following selected consolidated historical financial data of the
Company is derived from the Company's consolidated financial statements for the
periods indicated and, as such, reflects the impact of acquired entities from
the effective dates of such transactions. The information in the table and the
notes thereto should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
consolidated financial statements and notes thereto.

<TABLE>
<CAPTION>
                                                           PERIOD FROM
                                                            INCEPTION
                                                         (APRIL 30, 1996)
                                                                TO
                                                            DECEMBER 31,         YEAR ENDED DECEMBER 31,
                                                               1996          1997          1998        1999
                                                         ----------------  -----------  -----------  --------
                                                              (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                         <C>          <C>          <C>          <C>
SERVICE FEE REVENUE.......................................  $        --  $     9,545  $   149,327  $   199,700

COSTS AND EXPENSES:
   Salaries and benefits..................................           --        2,922       42,227       52,826
   Field supplies.........................................           --        1,036        8,865       11,630
   Field rent and lease expense...........................           --          852       11,532       18,444
   Other field expenses...................................           --        1,557       25,311       32,278
   Bad debt expense.......................................           --          862       13,723       18,838
   Corporate general and administrative...................        1,623        4,910        9,597       11,192
   Depreciation and amortization..........................            3          888       12,178       18,403
   Interest expense, net..................................           23          617        7,541       12,357
                                                            -----------  -----------  -----------  -----------
       Total costs and expenses...........................        1,649       13,644      130,974      175,968
                                                            -----------  -----------  -----------  -----------
INCOME (LOSS) BEFORE TAXES, MINORITY
   INTERESTS IN CONSOLIDATED SUBSIDIARIES
   AND EQUITY IN EARNINGS OF INVESTMENTS..................       (1,649)      (4,099)      18,353       23,732
EQUITY IN EARNINGS OF INVESTMENTS.........................           --          220        4,339        3,581
MINORITY INTERESTS IN CONSOLIDATED
   SUBSIDIARIES...........................................           --          (49)        (710)        (910)
                                                            -----------  -----------  -----------  ------------
INCOME (LOSS) BEFORE TAXES................................       (1,649)      (3,928)      21,982       26,403
INCOME TAX EXPENSE........................................           --           --        8,451       10,346
                                                            -----------  -----------  -----------  -----------
NET INCOME (LOSS).........................................  $    (1,649) $    (3,928) $    13,531  $    16,057
                                                            ===========  ===========  ===========  ===========

NET INCOME (LOSS) PER COMMON SHARE:
       Basic..............................................  $     (0.82) $     (1.13) $      0.72  $      0.83
       Diluted............................................  $     (0.82) $     (1.13) $      0.70  $      0.80
</TABLE>


<TABLE>
<CAPTION>
                                                                             As of December 31,
                                                            --------------------------------------------------
                                                                1996         1997        1998        1999
                                                            -----------  -----------  -----------  -----------
<S>                                                         <C>          <C>          <C>          <C>
Balance Sheet Data:
   Working Capital........................................  $     2,029  $     3,376  $    19,378  $    25,181
   Total Assets...........................................        2,578       62,766      156,639      244,840
   Long-term Debt and Capital Lease Obligations...........           --       55,865      120,211      164,840
   Convertible Notes......................................        3,500           --           --       20,000
   Stockholders' Equity (Deficit).........................       (1,399)     (24,035)       7,046       23,423
</TABLE>


                                       27
<PAGE>   30




Summary of Operations by Quarter

     The following table presents unaudited quarterly operating results for each
of the Company's last eight fiscal quarters. The Company believes that all of
the necessary adjustments have been included in the amounts stated below to
present fairly the quarterly results when read in conjunction with the
consolidated financial statements. Results of operations for any particular
quarter are not necessarily indicative of results of operations for a full year
or predictive of future periods.

<TABLE>
<CAPTION>

                                           1998 Quarter Ended                      1999 Quarter Ended
                                 --------------------------------------   -------------------------------------
                                             (Amounts in thousands, except per share data)

                                 Mar. 31   June 30  Sept. 30  Dec. 31    Mar. 31   June 30  Sept. 30    Dec. 31
                                 -------   -------  --------  -------    -------   -------  --------    -------
<S>                              <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
Statement of Income Data:
  Service fee revenue            $32,720   $36,950   $38,603   $41,054   $43,232   $47,188   $52,169   $57,111
  Income before
     income taxes                  5,122     5,470     5,489     5,901     6,265     6,920     6,355     6,863
  Net income                     $ 3,073   $ 3,391   $ 3,408   $ 3,659   $ 3,884   $ 4,288   $ 3,835   $ 4,050

  Net Income Per Share:
     Basic                       $  0.17   $  0.18   $  0.18   $  0.19   $  0.20   $  0.22   $  0.20   $  0.21
     Diluted                     $  0.16   $  0.17   $  0.18   $  0.19   $  0.20   $  0.22   $  0.19   $  0.19
  Weighted Average Shares:
     Basic                        18,054    18,744    18,908    19,235    19,295    19,297    19,311    19,316
     Diluted                      18,841    19,449    19,356    19,679    19,730    19,738    21,246    22,054
</TABLE>


                                       28
<PAGE>   31


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

OVERVIEW

     The Company is a leading provider of radiology services in the United
States through (i) its ownership and operation of technologically advanced,
multi-modality diagnostic imaging centers, and (ii) its provision of
administrative, management and other information services to certain radiology
business partners. The Company derives the majority of its service fee revenue
from the production and management of the technical component of radiology
services performed at the Company's free-standing imaging facilities and
pursuant to the Company's outsourced hospital relationships. In addition, the
Company also derives service fee revenue from providing administrative,
management and information services to radiology practices pursuant to long-term
service agreements. For the year ended December 31, 1999, the Company derived
73% of its service fee revenue from the ownership, management and operation of
its radiology and imaging center network and 27% of its service fee revenue from
the administrative, management and information services provided to radiology
practices. As of December 31, 1999, Radiologix owned, operated or maintained an
ownership interest in imaging equipment at 113 locations and provided management
services to ten radiology practices consisting of 280 physicians who provide
professional radiology services at the Company's radiology centers and at 58
hospitals. The Company has closed several low-performing or duplicative imaging
centers since its IPO in November 1997. The costs for the closures were not
material and were expensed as incurred. As of December 31, 1999, Radiologix's
imaging centers are located in 17 states, with concentrated geographic coverage
in markets located in California, Florida, Illinois, Kansas, Maryland, New York,
Texas, Virginia and Washington, D.C.

     In accordance with Staff Accounting Bulletin ("SAB") No. 48, "Transfers of
Nonmonetary Assets by Promoters or Shareholders," published by the Securities
and Exchange Commission, the acquisition of the assets and assumption of certain
liabilities for all of the initial radiology practices in 1997 pursuant to the
Reorganizations (as defined) was accounted for by the Company at the
transferors' historical cost basis with shares of Radiologix's Common Stock
issued in those transactions valued at the historical cost of the nonmonetary
assets acquired, net of liabilities assumed.


RESULTS OF OPERATIONS

Year Ended December 31, 1998 Compared To Year Ended December 31, 1999

Service Fee Revenue

     Service fee revenue increased to $199,700,000 in 1999 from $149,327,000 in
1998. Of the increase from 1998 to 1999, $30,909,000 resulted from increased
business within existing facilities (21.7% same store increase), which is
primarily due to increased procedure volume, a shift in the mix to "high-end"
procedures and the addition of new reading contracts and agreements with managed
care organizations. Of the remaining increase from 1998 to 1999, $15,722,000
resulted from facilities acquired and developed in 1998 and 1999, and $3,742,000
resulted from "tuck-in" acquisitions of imaging centers during the period.

Salaries and Benefits

     Salaries and benefits increased to $52,826,000 in 1999 from $42,227,000 in
1998. Of the increase from 1998 to 1999, $4,619,000 resulted from existing
facilities representing an 11.5% same store increase. An increase of $3,998,000
resulted from facilities acquired and developed in 1998 and 1999, and the
remaining $1,982,000 increase resulted from "tuck-in" acquisitions of imaging
centers during the period. As a percentage of service fee revenue, these costs
were 26.5% and 28.3% in 1999 and 1998, respectively.


                                       29
<PAGE>   32

Field Supplies

     Field supplies increased to $11,630,000 in 1999 from $8,865,000 in 1998. Of
the increase from 1998 to 1999, $1,349,000 resulted from existing facilities
representing a 16.3% same store increase. An increase of $825,000 resulted from
facilities acquired and developed in 1998 and 1999, and the remaining $591,000
resulted from "tuck-in" acquisitions of imaging centers during the period. As a
percentage of service fee revenue, these costs were 5.8% and 5.9% in 1999 and
1998, respectively.

Field Rent and Lease Expense

     Field rent and lease expense increased to $18,444,000 in 1999 from
$11,532,000 in 1998. Of the increase from 1998 to 1999, $3,690,000 resulted from
existing facilities representing a 33.5% same store increase. This increase is
attributable to several MRI leases in the Northeast region that are based on a
per scan basis. As 1999 volume increased, equipment lease expense increased due
to per scan payment arrangements associated with these higher-end modalities. An
increase of $2,476,000 resulted from facilities acquired and developed in 1998
and 1999 and the remaining $746,000 resulted from "tuck-in" acquisitions of
imaging centers in 1998 and 1999. As a percentage of service fee revenue, these
costs were 9.2% and 7.7% in 1999 and 1998, respectively.

Other Field Expenses

     Other field expenses increased to $32,278,000 in 1999 from $25,311,000 in
1998. Of the increase from 1998 to 1999, $2,987,000 resulted from existing
facilities representing a 12.8% same store increase. An increase of $3,182,000
resulted from facilities acquired and developed in 1998 and 1999, and $798,000
resulted from "tuck-in" acquisitions of imaging centers in 1998 and 1999. As a
percentage of service fee revenue, these costs were 16.2% and 17.0% in 1999 and
1998, respectively. Other field expenses include repairs and maintenance,
service contracts, utilities and communication costs.

Bad Debt Expense

     Bad debt expense increased to $18,838,000 in 1999 from $13,723,000 in 1998.
This increase was primarily due to the increase in service fee revenue. As a
percentage of service fee revenue, these expenses were 9.4% and 9.2% in 1999 and
1998, respectively.

Corporate General and Administrative

     Corporate general and administrative expenses increased 16.6% to
$11,192,000 in 1999 from $9,597,000 in 1998. This increase was principally due
to the continued development of the Company's infrastructure, the addition of
staff related to the Questar Imaging, Inc. transaction (see Note 3 to the
consolidated financial statements), and to a limited extent, the expenses
associated with system modifications for Year 2000 compliance. As a percentage
of service fee revenue, these costs were 5.6% and 6.4% in 1999 and 1998,
respectively.

Depreciation and Amortization

     Depreciation and amortization expense increased to $18,403,000 in 1999 from
$12,178,000 in 1998. This increase was principally due to amortization of
intangible assets resulting from the Company's acquisition of additional
facilities and practices. In addition, the Company has continued to buy new
equipment to replace older equipment, and this upgrade of equipment resulted in
increased depreciation expense. As a percentage of service fee revenue, these
costs were 9.2% and 8.2% in 1999 and 1998, respectively.

Interest Expense, net

     Interest expense, net increased to $12,357,000 in 1999 from $7,541,000 in
1998. As a percentage of service fee revenue, these costs were 6.2% and 5.1% in
1999 and 1998, respectively. The percentage increase is a result of the
Company's acquisitions throughout 1999, an increase in days sales outstanding in
accounts receivable and the issuance of $20,000,000 of convertible notes (see
Note 5 to consolidated financial statements) to fund the Questar Imaging, Inc.
transaction, all of which resulted in the Company carrying higher debt levels.




                                       30
<PAGE>   33

Income Taxes

     The Company's effective tax rate for 1999 increased to 39.2 %. The increase
in the effective tax rate is primarily attributed to acquisitions in which the
Company has acquired the stock of the target. In a stock purchase, the goodwill
associated with the transaction is not deductible for tax purposes and,
therefore, increases the effective tax rate. The Company has not recognized any
income tax benefit for operating losses incurred in 1997. The Company will
continue to carry the losses with a fully reserved valuation allowance. The
Company will recognize the tax benefit at such time as it is deemed reasonably
certain of realization.

1999 Acquisitions

     The Company completed one material acquisition since the end of 1998. On
August 1, 1999, the Company acquired all the outstanding stock of Questar
Imaging, Inc. of Tampa, Florida ("Questar"), a private operator of primarily MRI
radiology centers. Questar offers magnetic resonance imaging (MRI) and other
diagnostic imaging services at 27 centers in 14 states, and is in the process of
developing 17 additional MRI centers. Of the seventeen centers under
development, three additional centers were acquired as of December 31, 1999. The
total 1999 consideration for the transaction was approximately $18,921,000 in
cash, plus the assumption of $16,763,000 in liabilities. The consideration for
the developmental centers in 2000 will be approximately $7,000,000 plus the
assumption of certain liabilities. This transaction was accounted for using the
purchase method.

     The total consideration for all other 1999 acquisitions was approximately
$6,485,000 in cash, 50,264 shares of the Company's Common Stock ($304,000), plus
the assumption of $3,193,000 in liabilities.

Year Ended December 31, 1997 Compared To Year Ended December 31, 1998

     Radiologix, Inc. was incorporated on April 30, 1996, as American Physician
Partners, Inc., but conducted no significant operations until the initial public
offering (the "IPO") and closing of the acquisitions of the initial radiology
practices (the "Reorganizations") in November 1997.

Service Fee Revenue

     Service fee revenue increased to $149,327,000 in 1998 from $9,545,000 in
1997. Prior to November 26, 1997, the Company had no significant operations and,
therefore, no service fee revenue was generated.

Salaries and Benefits

     Salaries and benefits increased to $42,227,000 in 1998 from $2,922,000 in
1997. As a percentage of service fee revenue, these costs were 28.3% and 30.6%
in 1998 and 1997, respectively. The Company did not incur any salary and benefit
costs for practice-based employees prior to the Reorganizations. The amounts
paid to corporate employees during 1997 were recorded as corporate general and
administrative expenses.

Field Supplies

     Field supplies increased to $8,865,000 in 1998 from $1,036,000 in 1997. As
a percentage of service fee revenue, these costs were 5.9% and 10.9% in 1998 and
1997, respectively. The decrease as a percentage of service fee revenue is
largely due to the Company's ability to negotiate and obtain favorably priced
radiology supplies.

Field Rent and Lease Expense

     Field rent and lease expense increased to $11,532,000 in 1998 from $852,000
in 1997. As a percentage of service fee revenue, these costs were 7.7% and 8.9%
in 1998 and 1997, respectively.


                                       31
<PAGE>   34

Other Field Expenses

     Other field expenses increased to $25,311,000 in 1998 from $1,557,000 in
1997. As a percentage of service fee revenue, these costs were 17.0% and 16.3%
in 1998 and 1997, respectively. Other field expenses in 1998 include repairs and
maintenance, service contracts, utilities and communication costs.

Bad Debt Expense

     Bad debt expense increased to $13,723,000 in 1998 from $862,000 in 1997.
This increase was primarily due to the increase in sales. As a percentage of
service fee revenue, these expenses were 9.2% and 9.0% in 1998 and 1997,
respectively.

Corporate General and Administrative

     Corporate general and administrative expenses increased 95.5% to $9,597,000
in 1998 from $4,910,000 in 1997. As a percentage of service fee revenue, these
costs were 6.4% and 51.4% in 1998 and 1997, respectively. The decrease as a
percentage of service fee revenue is a result of the Company building
infrastructure throughout 1997.

Depreciation and Amortization

     Depreciation and amortization expense increased to $12,178,000 in 1998 from
$888,000 in 1997. As a percentage of service fee revenue, these costs were 8.2%
and 9.3% in 1998 and 1997, respectively. Prior to the IPO, the Company did not
have any material depreciable assets.

Interest Expense, net

     Interest expense, net increased to $7,541,000 in 1998 from $617,000 in
1997. As a percentage of service fee revenue, these costs were 5.1% and 6.5% in
1998 and 1997, respectively.

Income Taxes

     The Company's effective tax rate for 1998 was 38.4%. The Company did not
recognize any income tax benefit for the operating losses incurred prior to the
Reorganizations.

1998 Acquisitions

     The Company completed ten transactions in 1998 with total consideration of
approximately $70,368,000 consisting of approximately $52,866,000 in cash and
$17,502,000 in the Company's common stock. These transactions are discussed in
greater detail in Note 3 to the Consolidated Financial Statements included
herewithin. All the transactions were accounted for using the purchase method
resulting in the creation of approximately $61,095,000 of intangible assets. On
an annual basis, the amortization costs related to the intangible assets created
through these acquisitions will result in a charge of approximately $2,444,000
per year.


LIQUIDITY AND CAPITAL RESOURCES

     At December 31, 1999, the Company had $25,181,000 in working capital, an
increase of $5,803,000 from December 31, 1998. The Company's principal sources
of liquidity consist of (i) cash and cash equivalents aggregating $4,302,000,
(ii) net accounts receivable of $61,762,000, and (iii) approximately $17,500,000
in borrowing capacity under the Company's bank credit facility (the "Credit
Facility").

     For the year ended December 31, 1999, the $1,462,000 used in operations was
primarily comprised of a $21,889,000 increase in accounts receivable and a
$15,102,000 increase in other receivables and other current assets which were
offset primarily by net income of $16,057,000 and depreciation and amortization
expense of $18,403,000. For the year ended December 31, 1998, $9,950,000 was
provided by operations, primarily as a result


                                       32
<PAGE>   35


of $13,531,000 of net income and $12,178,000 of depreciation expense offset by
an increase in accounts receivable of $10,379,000 and a decrease in other
liabilities of $6,388,000. For the year ended December 31, 1997, $5,333,000 was
used in operations.

     Cash of $44,957,000 was used in investing activities in 1999, $31,458,000
of which related to the purchase of property and equipment and $25,406,000 was
related to certain acquisitions. These amounts were offset primarily by
$10,000,000 related to the sale of property and equipment. Cash of $63,501,000
was used in investing activities in 1998, $52,866,000 of which was related to
certain acquisitions, $12,651,000 related to the purchase of property and
equipment and $2,016,000 net was received from joint ventures. In 1997, cash of
$420,000 was used in investing activities, primarily for the purchase of
property and equipment.

     Financing activities in 1999, 1998, and 1997 provided cash of $44,236,000,
$55,464,000, and $7,834,000, respectively, substantially all of which was
provided under the Credit Facility. In 1999, $20,000,000 was provided from
convertible debt.

     On November 26, 1997, the Company entered into the Credit Facility. The
Credit Facility was amended May 19, 1998. The loan agreement provides for
revolving loans of up to $160,000,000 to be used by the Company for acquisitions
and general working capital needs. The Company may borrow, repay and reborrow
amounts during the first three years of the Credit Facility. Amounts outstanding
under the Credit Facility at the end of three years are required to be repaid in
quarterly installments of varying amounts commencing September 30, 2000.

     The Credit Facility expires and all loans thereunder mature on the sixth
anniversary of the closing date of the Credit Facility. Borrowings under the
Credit Facility at any time may not exceed the lesser of $160,000,000 or 3.25
times the consolidated EBITDA of the Company, giving pro forma effect to
acquisitions made with such borrowings. In accordance with the Credit Facility,
the Company's senior debt under all senior credit arrangements could not exceed
$185,900,000 at December 31, 1999. As of December 31, 1999, the Company had
outstanding borrowings of $142,500,000 under the Credit Facility and an
additional $22,340,000. At the Company's option, the interest rate is (i) an
adjusted LIBOR rate, plus an applicable margin which can vary from 1.5% to 2.5%
dependent on certain financial ratios or (ii) the prime rate, plus an applicable
margin which can vary from 0.5% to 1.5%. In each case, the applicable margin
varies based on financial ratios maintained by the Company. The Credit Facility
includes certain restrictive covenants including prohibitions on the payment of
dividends and the maintenance of certain financial ratios (including minimum
debt-service coverage and maximum debt-to-EBITDA coverage, as defined).
Borrowings under the Credit Facility are secured by all service agreements,
which the Company is, or becomes a party to, and a pledge of the stock of the
Company's subsidiaries. At December 31, 1999, the Company is in compliance with
the Credit Facility's restrictive covenants.

     On July 30, 1999, the Company entered into a $20,000,000 convertible junior
subordinated note (the "Note") in connection with the Securities Purchase
Agreement for the Questar acquisition, dated August 1, 1999. The Note matures
July 31, 2009, and bears interest, payable quarterly in cash or payment in kind
securities, at 8.0%. The principal of the Note is convertible into the Company's
Common Stock at the price of $8.625 per share. If by the second anniversary date
of the Note the closing price of the Company's Common Stock has not averaged
$8.625 for 45 of the 60 days of the determination period (the "Market Price
Event"), the base conversion price will be reset at 87.19% of the initial
conversion price. If by the third or fourth anniversary date of the Note, the
Market Price Event has not occurred, the interest rate will be increased to
8.25% and 8.5%, respectively.

     The Securities Purchase Agreement includes certain restrictive covenants
including prohibitions on the payment of dividends, the reservation of unissued
common stock pending conversion or exercise of the convertible Note, and the
maintenance of certain financial ratios (including maximum interest coverage and
leverage ratios, as defined). At December 31, 1999, the Company is in compliance
with the Note's restrictive covenants.

     The Company is currently discussing with its lenders various financing
options, including extending the dates of required quarterly principal
amortization (currently beginning September 30, 2000) and final maturity
(currently November, 2003) to future periods. In addition, the Company is
discussing with its lenders an increase in the total amount available under the
Credit Facility to facilitate its growth strategy for 2000 and beyond. The
Company believes that the extension and/or increase in the Credit Facility will
be completed in the second quarter of 2000. Although there can be no assurance
that these financing options will be finalized or be available on terms


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<PAGE>   36

acceptable to the Company, management believes that additional sources of
liquidity are available in the marketplace to meet its liquidity needs for the
foreseeable future.

YEAR 2000 ISSUE

Impact of Year 2000

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

Prior Cost Estimates

     The Company's costs of assessment, renovation, testing and implementation
of its internal systems total approximately $270,000 as of March 15, 2000, and
is below the prior estimated range of $500,000 to $1,500,000. The major
components of these costs are: consultants, additional personnel costs,
programming, new software and hardware, software upgrades and travel expenses.
While there can be no assurance all Year 2000 issues have been resolved, the
Company believes no additional material costs will be incurred.

Affect on Results of Operations

     As of March 25, 2000, there have been no significant business interruptions
or adverse effects within the Company resulting from Year 2000 issues within the
Company or its suppliers. Due to system conversions related to Year 2000 issues
of certain health maintenance organizations and Medicare, the timeliness of cash
receipts related to the Company's accounts receivable were adversely affected.
The Company anticipates that collection rates will improve in 2000.

     The aforementioned costs were expensed primarily through corporate general
and administrative expenses in 1998 and 1999.

     The Company continues to monitor internal systems and equipment and is in
contact with related third parties regarding Year 2000 issues, including any
issues arising from leap year.

FORWARD-LOOKING STATEMENTS

     This report contains or may contain forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934 including
statements of the Company's and management's expectations, intentions, plans and
beliefs, including those contained in or implied by "Management's Discussion and
Analysis of Financial Condition and Results of Operations." These
forward-looking statements, as defined in Section 21E of the Securities Exchange
Act of 1934, are dependent on certain events, risks and uncertainties that may
be outside of the Company's control. These forward-looking statements may
include statements of management's plans and objectives for the Company's future
operations and statements of future economic performance; the Company's capital
budget and future capital requirements, and the Company meeting its future
capital needs; and the assumptions described in this report underlying such
forward-looking statements. Actual results and developments could differ
materially from those expressed in or implied by such statements due to a number
of factors, including, without limitation, those described in the context of
such forward-looking statements.



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<PAGE>   37

RISK FACTORS

     In addition to the other information included and incorporated by reference
in this Form 10-K, shareholders and prospective investors should consider
carefully the factors listed below in evaluating an investment in Radiologix's
Common Stock. This Form 10-K contains certain forward-looking statements that
include risks and uncertainties, and address, among other things, acquisition
and expansion strategy, use of proceeds, projected capital expenditures,
liquidity, possible third-party payor arrangements, cost reduction strategies,
possible effects of changes in government regulation and managed care and
availability of insurance. Actual events or results may differ materially from
those discussed in forward-looking statements as a result of various factors,
including, without limitation, those discussed in the risk factors set forth
below and matters set forth elsewhere in this Form 10-K.

     For the ease and convenience of prospective investors, Radiologix has
organized this discussion of risks into two categories: First, risks that relate
particularly to Radiologix; and second, risks that relate particularly to the
radiology services industry.

Risks Relating to Radiologix

     Reliance on Referrals

     Radiologix's radiology services networks depend on referrals from third
parties. A substantial portion of these referrals are made by physicians who
have no contractual obligation to refer patients to Radiologix's networks.
Radiologix generates revenue from fees charged for technical services provided
at its owned, operated or managed imaging centers and from service fees that it
receives from the radiology practices. Neither Radiologix nor any of its
radiology practices is dependent on any single referral source for a material
portion of its revenue. However, if a sufficiently large number of physicians
elected at any time to discontinue referring patients to Radiologix's networks,
Radiologix's business, financial condition and results of operations would be
materially adversely affected.

     Further, in an effort to control costs, non-governmental health care payors
have implemented cost containment programs that could limit the ability of
physicians to refer patients to Radiologix's owned, operated or managed imaging
centers. For example, persons enrolled in prepaid health care plans, such as
health maintenance organizations ("HMOs"), often are not free to choose where
they obtain diagnostic imaging, interventional radiology or radiation oncology
services. Rather, the health plan provides these services directly or contracts
with providers and requires its enrollees to obtain such services only from such
providers. Some insurance companies and self-insured employers also limit such
services to contracted providers. Such "closed panel" systems are now common in
the managed care environment. Other systems create an economic disincentive for
referrals to




                                       35
<PAGE>   38

providers outside of the plan's designated panel of providers. Although
Radiologix intends to seek managed care contracts for its radiology services
networks, there can be no assurance that Radiologix will be able to compete
successfully for managed care contracts against larger companies with greater
resources.

Limited Operating History; Reliance on Key Personnel

     Prior to November 26, 1997, Radiologix conducted no significant operations
and had no revenue while incurring corporate overhead expenses associated with
building its management infrastructure. Radiologix's financial statements for
the fiscal year ended December 31, 1997, cover a period of only 35 days of
operating Radiologix's radiology services business. Although Radiologix now has
audited financial statements for the full 12-month periods ended December 31,
1998 and December 31, 1999, Radiologix's limited operating history prior to 1998
may limit Radiologix's ability to prepare accurate projections for future
periods, including projections of revenues and expenses. This brief operating
history also may limit Radiologix's ability to anticipate the effect that
changing economic conditions or other market conditions will have on
Radiologix's operations and finances. Radiologix's limited operating history
also may increase Radiologix's reliance on its senior executive management, some
of whom have extensive experience in managing health care services companies or
in developing Radiologix's current financial and operational strategies. Because
of the difficulty in finding adequate replacements for such personnel, the loss
of the services of any such personnel or Radiologix's inability in the future to
attract and retain management and other key personnel could have a material
adverse effect on Radiologix's business, financial condition and results of
operations. Radiologix does not maintain key man insurance for any of its
executive officers.

Potential Need for Additional Capital

     Radiologix utilizes capital to purchase new imaging equipment and to
upgrade and replace existing equipment. During 1999, Radiologix expended
approximately $31.5 million to purchase, upgrade and replace imaging equipment
and related information systems. Radiologix also utilizes capital to expand
within its existing markets and to enter new markets. During 1999, Radiologix
expended approximately $25.4 million to make acquisitions and to enter into
outsourcing relationships. Radiologix's capital sources have consisted primarily
of income from operations, borrowings under Radiologix's credit facility and the
$20 million convertible junior subordinated promissory note issued to BT Capital
Partners SBIC, L.P. Radiologix's ability to accomplish its goals and to execute
its business strategy depend on Radiologix's continued ability to access capital
on appropriate terms. Radiologix's growth could be limited and its existing
operations impaired unless it is able to obtain additional capital through
subsequent debt or equity financings. There can be no assurance that borrowing
capacity under the credit facility will be available to Radiologix when needed,
that the credit facility will be renewed or that Radiologix


                                       36
<PAGE>   39

will be able to obtain additional financing or that, if available, such
financing will be on terms acceptable to Radiologix. As a result, there can be
no assurance that Radiologix will be able to implement its business strategy
successfully.

Dependence on Radiologists; Risk of Termination of Service Agreements

     Radiologix's radiology services include a professional component that must
be provided by radiologists who are not directly employed or engaged by
Radiologix. Radiologix does not control the radiologists who perform
professional services for Radiologix. These radiologists, instead, are employed
by related radiology practices that have affiliated with Radiologix through
service agreements. The service agreements have terms of 40 years, but may be
terminated by either party under certain conditions. There can be no assurance
that the service agreements will not be terminated. Because Radiologix generates
a portion of its service fee revenue through the service fees it receives
pursuant to the service agreements, the termination of any of the radiology
practices' service agreements could have a material adverse effect on
Radiologix's business, financial condition and results of operations.

     Each radiology practice entered into employment agreements with the key
radiologists associated with each such practice. The employment agreements
generally are for a term of five years. Although Radiologix, in conjunction with
the radiology practices, will endeavor to maintain and renew such contracts, in
the event a significant number of such radiologists terminate their
relationships with Radiologix, Radiologix's business could be adversely
affected. Further, if a significant number of radiologists or other medical
service providers become unable or unwilling to continue in their roles,
Radiologix's business could be adversely affected. Neither Radiologix nor the
radiology practices maintains insurance on the lives of any affiliated physician
for the benefit of Radiologix.

Uncertainty Regarding the Enforceability of Noncompetition Provisions

     Each of the radiology practices entered into agreements with the
stockholders and full-time radiologists at each radiology practice (subject to
certain exceptions) that include covenants not to compete with Radiologix for a
period of two years after termination of employment. In most states, a covenant
not to compete will be enforced only to the extent it is necessary to protect a
legitimate business interest of the party seeking enforcement, does not
unreasonably restrain the party against whom enforcement is sought and is not
contrary to public interest. This determination is made based on all of the
facts and circumstances of the specific case at the time enforcement is sought.
For this reason, it is not possible to predict with certainty whether a court
will enforce such a covenant in a given situation. Radiologix also cannot
predict with certainty whether Radiologix's interest under the service
agreements will be viewed as the type of protectable business interest that
would support enforcement of the covenants not to compete. The inability of


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<PAGE>   40

Radiologix to enforce radiologists' anti-competition covenants could have a
material adverse effect on Radiologix's business, financial condition and
results of operations.

Risks Associated with Acquisitions and Expansion Strategy

     Radiologix intends to expand through acquisitions within its existing
markets, as well as through joint venture and outsourcing relationships.
Radiologix also may expand into new geographic markets by acquiring imaging
centers, entering into joint venture or outsourcing relationships and selective
affiliations with high-quality, profitable radiology practices. There can be no
assurance that Radiologix will be able to expand either within its existing
markets or in new markets. In addition, there can be no assurance that any such
expansion will be beneficial to the successful implementation of Radiologix's
overall strategy or that such expansion will ultimately produce returns that
justify the investment by Radiologix.

     Radiologix's ability to expand is dependent upon factors such as its
ability to (i) identify attractive and willing candidates for acquisition, (ii)
adapt or amend Radiologix's structure to comply with present or future federal
and state legal requirements affecting Radiologix's arrangements with physician
practice groups, including state prohibitions on fee-splitting, corporate
practice of medicine and referrals to facilities in which physicians have a
financial interest, (iii) obtain regulatory approvals and certificates of need,
where necessary, and comply with licensing and certification requirements
applicable to Radiologix, the radiology practices and the physicians associated
with the radiology practices, including their respective facilities, and (iv)
expand Radiologix's infrastructure and management to accommodate expansion.
Acquisitions involve a number of special risks, including possible adverse
effects on Radiologix's operating results, diversion of management's attention
and resources, failure to retain key acquired personnel, amortization or
write-off of acquired intangible assets and risks associated with unanticipated
events or liabilities, some or all of which could have a material adverse effect
on Radiologix's business, financial condition and results of operations.

     Radiologix intends to expand both in areas where Radiologix currently
operates, as well as in new markets. Although Radiologix will continue to
structure its operations in an effort to comply with applicable antitrust laws,
there can be no assurance that federal or state governmental authorities would
not view Radiologix as being dominant in a particular market and, therefore,
cause Radiologix to divest itself of any particular relationship or related
asset. In addition, these laws could prevent acquisitions of practices that
would be integrated into existing radiology practices if such acquisitions
substantially lessen competition or tend to create a monopoly.


                                       38
<PAGE>   41

Year 2000 Compliance

     Radiologix has not experienced any material adverse impact from the
transition to the year 2000. However, there can be no assurance that
Radiologix's suppliers and customers have not been affected in a manner that is
not yet apparent. Radiologix will continue to monitor its Year 2000 compliance
and the year 2000 compliance of its suppliers and customers. Prior to December
31, 1999, the Company verified that all of its personal computers and software
were Year 2000 compliant. The Company replaced or upgraded all items that were
not Year 2000 compliant. The costs related to these efforts were not material.
There can be no assurance that Radiologix will not be materially impacted by
Year 2000 or similar issues which could have a material adverse effect on
Radiologix's business, financial condition or results of operations.

Potential Liability and Insurance; Legal Proceedings

     The provision of medical services entails an inherent risk of professional
malpractice and other similar claims. Although Radiologix intends to structure
its relationships with the radiology practices under the service agreements in a
manner that will not constitute the practice of medicine, there can be no
assurance that claims, suits or complaints relating to services and products
provided by radiology practices will not be asserted against Radiologix in the
future. Additionally, Radiologix owns, operates and manages radiology
facilities, which exposes Radiologix to professional liability claims.
Radiologix maintains insurance policies with coverages that it believes are
appropriate in light of the risks attendant to its business. In addition,
pursuant to the service agreements, the radiology practices are required to
maintain professional liability insurance. Nevertheless, there can be no
assurance that successful malpractice or other claims will not be asserted
against the radiology practices or Radiologix that exceed the scope of coverage
or applicable policy limits or that could otherwise have a material adverse
effect on Radiologix's business, financial condition and results of operations.

     The availability and cost of professional liability insurance has been
affected by various factors, many of which are beyond the control of Radiologix
and the radiology practices. There can be no assurance that adequate liability
insurance will be available to Radiologix and the radiology practices in the
future at acceptable costs or that the future cost of such insurance to
Radiologix and the radiology practices will not have a material adverse effect
on Radiologix's business, financial condition and results of operations.

     In connection with the acquisitions of certain radiology practices,
Radiologix assumed and succeeded to substantially all of the obligations of such
radiology practices. Further, in connection with the acquisition of the assets
of other radiology practices in the future, Radiologix may succeed to some or
all of the liabilities of such radiology practices. Therefore, claims may be
asserted against Radiologix for events


                                       39
<PAGE>   42

that occurred prior to the acquisition of the assets of radiology practices. In
connection with Radiologix's acquisitions, the shareholders of each such
radiology practice have agreed to indemnify Radiologix for certain claims. There
can be no assurance that Radiologix will be able to receive payment under any
such indemnity agreements or that the failure to fully recover such amounts will
not have a material adverse effect on Radiologix's business, financial condition
and results of operations.

     The physicians employed by the radiology practices are from time to time
subject to malpractice claims. Such malpractice claims, if successful, could
result in damages which may exceed applicable insurance coverage for such
malpractice claims. While each related radiology practice and Radiologix
maintains insurance consistent with industry practice, there can be no assurance
that the amount of insurance currently maintained by them will satisfy all
claims made against them or that a radiology practice or Radiologix will be able
to obtain insurance in the future at satisfactory rates or in adequate amounts.
Further, there are certain claims against the related radiology practices that
are not covered by insurance. Radiologix cannot predict the effect that any such
claims, regardless of their outcome, might have on its business or reputation.

     Radiologix is not currently subject to any material litigation nor, to
Radiologix's knowledge, is any material litigation threatened against Radiologix
other than routine litigation arising in the ordinary course of business, which
litigation is expected to be covered by liability insurance and all of which is
not expected to have a material adverse effect on Radiologix's business,
financial condition or results of operations. There can be no assurance that
Radiologix will not subsequently be named as a defendant in additional lawsuits.

Competition

     Radiologix is under competitive pressure to acquire and retain the assets
of, and to provide management and administrative services to, additional
radiology services providers, radiology practices, MSOs and imaging centers.
There are a number of publicly-traded companies focused on owning or managing
imaging centers. Radiologix is aware of at least two privately-held physician
practice management companies focused on professional and technical radiology
services. Several companies, both publicly and privately held, that have
established operating histories and, in some instances, greater resources than
Radiologix are pursuing the acquisition of general and specialty physician
practices. Additionally, some hospitals, clinics, health care companies, HMOs
and insurance companies engage in activities similar to those of Radiologix.
There can be no assurance that Radiologix will be able to compete effectively
for the acquisition of, or affiliation with, radiology practices, that
additional competitors will not enter the market, that such competition will not
make it more difficult or expensive to acquire the assets of, and provide
management and administrative services to, radiology practices on terms
beneficial to Radiologix, or that competitive pressures will not otherwise
adversely affect Radiologix.


                                       40
<PAGE>   43

The radiology practices and Radiologix's owned, operated or managed imaging
centers compete with numerous local radiology and imaging service providers.
Radiologix believes that changes in governmental and private reimbursement
policies and other factors have resulted in increased competition among
providers for the provision of medical services to consumers. There can be no
assurance that the radiology practices and Radiologix's owned, operated or
managed imaging centers will be able to compete effectively in the markets they
serve, which inability to compete could materially and adversely affect
Radiologix's business, financial condition and results of operations.

     Further, the radiology practices will compete with other providers for
managed care contracts. Radiologix believes that trends toward managed care have
resulted, and will continue to result, in increased competition for such
contracts. Other radiology practices and MSOs may have more experience than the
radiology practices and Radiologix in obtaining such contracts. There can be no
assurance that the radiology practices and Radiologix will be able to obtain
future business from managed care entities which will allow Radiologix to
compete effectively in the markets they serve, which inability to compete could
materially and adversely affect Radiologix's business, financial condition and
results of operations.

Anti-Takeover Considerations

     Certain provisions of Radiologix's Restated Certificate of Incorporation,
as amended, Radiologix's Amended and Restated Bylaws and Delaware law could
discourage potential acquisition proposals, delay or prevent a change in control
of Radiologix and, consequently, limit the price that investors might be willing
to pay in the future for shares of the Common Stock. These provisions include
the inability to remove directors except for cause and Radiologix's ability to
issue, without further stockholder approval, shares of preferred stock with
rights and privileges senior to the Common Stock. Radiologix also is subject to
Section 203 of the Delaware General Corporation Law which, subject to certain
exceptions, prohibits a Delaware corporation from engaging in any of a broad
range of business combinations with an "interested stockholder" for a period of
three years following the date that such stockholder became an interested
stockholder.

     Radiologix has entered into employment agreements with three of its
executive officers which contain provisions that require Radiologix to pay
certain amounts to such employees upon their termination following certain
events, including a change of control of Radiologix. Such agreements may delay
or prevent a change of control of Radiologix.


                                       41
<PAGE>   44

Terminations of Lock-ups

     In connection with the transactions pursuant to which Radiologix acquired
the assets of the original related practices, the practices (or their
stockholders) received shares of Company Common Stock. Shares also were issued
to radiologist practices (or their stockholders) that consummated acquisition
transactions with Radiologix after the November 1997 initial public offering.
The holders of these shares were prohibited from transferring the shares until a
specified period of time elapsed after the transaction in which the shares were
issued. In November 1998, 3,161,612 shares were released from these transfer
restrictions. Restrictions expired during 1999 as follows: January, 254,754
shares; April, 108,416 shares; May, 3,161,612 shares; July, 254,754 shares;
September, 89,844 shares; October, 108,416 shares; and November, 6,323,223
shares, for a total of 10,046,265 during 1999. An additional 1,021,004 shares
and 25,132 shares will be released from transfer restrictions during 2000 and
2001, respectively. There can be no assurance that holders of these shares will
continue to hold their shares. Moreover, Radiologix cannot predict the effect
that trades of substantial amounts of shares would have on Radiologix's stock
price from time to time or the effect that an increase in the number of shares
available to the public would have on Radiologix's stock price from time to
time.

RISKS RELATING TO RADIOLOGIX'S INDUSTRY

State and Federal Fraud and Abuse, Anti-Kickback and Anti-Referral Laws

     Various federal and state laws regulate the relationships between providers
of health care services, physicians and other clinicians. These laws include the
fraud and abuse provisions of the Social Security Act, which include the federal
anti-kickback and Stark or anti-referral laws. The anti-kickback laws prohibit
the offering, payment, solicitation or receipt of any direct or indirect
remuneration for the referral of Medicare, Medicaid or other governmental
program patients or for the recommendation, leasing, arranging, purchasing,
ordering or providing of Medicare or Medicaid covered services, items or
equipment. Violations of the anti-kickback laws may result in substantial civil
or criminal penalties for individuals or entities, including large civil
monetary penalties and exclusion from participation in Medicare, Medicaid and
other governmental programs. The Balanced Budget Act of 1997 ("BBA 97") contains
certain reform provisions relating to Medicare, Medicaid and other governmental
programs, that are intended to assist the government in its efforts to enforce
the fraud and abuse anti-kickback laws, including additional resources for
enforcement, adding a civil money penalty and broadening the scope of
circumstances under which mandatory or permissive exclusion from the programs
may apply. Such exclusion and penalties, if applied to Radiologix's owned,
operated or managed imaging centers, the radiology practices or physicians
affiliated with the radiology practices, could result in significant loss of
reimbursement to the affected individuals and entities. A determination of
liability under any such laws could have


                                       42
<PAGE>   45

a material adverse effect on Radiologix's business, financial condition and
results of operations.

     Certain provisions contained in the Omnibus Budget Reconciliation Act of
1989 ("Stark I") and the Omnibus Budget Reconciliation Act of 1993 ("Stark II"),
and subsequent amendments, prohibit physician referrals for certain "designated
health services," including radiology services to entities with which a
physician or an immediate family member has a financial relationship
(collectively, the "Stark Law"). The Stark Law also prohibits entities from
presenting or causing to be presented a claim or bill to any individual,
third-party payor, or other entity for designated health services furnished
under a prohibited referral. A violation of the Stark Law by Radiologix, a
radiology practice or physicians affiliated with the radiology practices, may
result in significant civil penalties, which may include exclusion or suspension
of the physician or entity from future participation in the Medicare and
Medicaid programs and substantial fines. A determination of violation under such
law by any of these persons or entities could have a material adverse effect on
Radiologix's business, financial condition and results of operations.

     Several states have adopted laws similar to the federal anti-kickback and
Stark Law that cover patients in private programs as well as government
programs. All of the states in which the radiology practices are located have
adopted a form of anti-kickback law and almost all of those states have also
adopted a form of anti-referral law. The scope of these laws and the
interpretations thereof vary from state to state and are enforced by state
courts and regulatory authorities, each with broad discretion. A determination
of liability under any such law could have a material adverse effect on
Radiologix's business, financial condition and results of operations.

Federal False Claims Act

     The Federal False Claims Act provides in part that the federal government
may bring a lawsuit against any person whom it believes has knowingly presented,
or caused to be presented, a false or fraudulent request for payment from the
federal government, or who has made a false statement or has used a false record
to get such a claim approved. Claims presented in violation of the anti-kickback
or Stark law may be considered a violation of the Federal False Claims Act.
Penalties include civil penalties of not less than $5,000 and not more than
$10,000, plus three times the amount of damages which the federal government
sustains because of the act of that person and the costs of a civil action
brought to recover any such penalty or damages. Radiologix believes that it is
in compliance with the rules and regulations to which the Federal False Claims
Act apply. However, there can be no assurances that Radiologix will not be found
to have violated certain rules and regulations resulting in sanctions under the
Federal False Claims Act, and if so, whether any sanctions imposed could have a
material adverse effect upon the operations and financial condition of
Radiologix.


                                       43
<PAGE>   46

Corporate Practice of Medicine; Fee Splitting

     The laws of many states, including each of the states in which the
radiology practices are located, also prohibit business corporations, such as
Radiologix, from exercising control over the medical judgments or decisions of
physicians and from engaging in certain financial arrangements, such as
fee-splitting, with physicians. These laws and their interpretations vary from
state to state and are enforced by state courts and regulatory authorities, each
with broad discretion. Radiologix's strategy is to acquire certain assets and
assume certain liabilities of, and to enter into service agreements with
radiology practices. Pursuant to the service agreements, Radiologix will provide
management, administrative, technical and other non-medical services to the
radiology practices in exchange for a service fee. Radiologix intends to
structure its relationships with the radiology practices (including the purchase
of assets and the provision of services under the service agreements) to keep
Radiologix from engaging in the practice of medicine or exercising control over
the medical judgments or decisions of the radiology practices or their
physicians. There can be no assurance that regulatory authorities or other
parties will not assert that Radiologix is engaged in the corporate practice of
medicine in such states or that the payment of service fees to Radiologix by the
radiology practices pursuant to the service agreements constitutes fee-splitting
or the corporate practice of medicine. If such a claim were successfully
asserted, Radiologix could be subject to civil and criminal penalties and could
be required to restructure or terminate its contractual arrangements. Such
results or the inability of Radiologix to successfully restructure its
relationships to comply with such statutes could have a material adverse effect
on Radiologix's business, financial condition and results of operations.

Licensing and Certification Laws

     The ownership, construction, operation, expansion and acquisition of
imaging centers are subject to various federal and state laws, regulations and
approvals concerning the licensing of facilities, personnel, certificates of
need and other required certificates for certain types of health care facilities
and major medical equipment. Although the laws of certain states in which the
radiology practices are located do not subject imaging centers to certificate of
need or separate licensing requirements as stand-alone imaging centers, the laws
of other states in which Radiologix operates limit to some extent Radiologix's
ability to acquire new imaging equipment or expand or replace its equipment at
imaging centers in other states. No assurances can be given that the required
regulatory approvals for any future acquisitions, expansions or replacements
will be granted to Radiologix, and the failure to obtain such approvals could
materially and adversely affect Radiologix's business, financial condition and
results of operations.


                                       44
<PAGE>   47

Compliance

     Although Radiologix intends to conduct its operations so as to comply with
applicable federal and state laws, neither Radiologix's current or anticipated
business operations nor the operations of the radiology practices have been the
subject of judicial or regulatory interpretation. There can be no assurance that
a review of Radiologix's business by courts or regulatory authorities will not
result in determinations that could adversely affect the operations of
Radiologix or that the health care regulatory environment will not change so as
to restrict Radiologix's operations. In addition, the regulatory framework of
certain jurisdictions may limit Radiologix's expansion into or ability to
continue operations within such jurisdictions, unless Radiologix is able to
modify its operational structure to conform with such regulatory framework. Any
limitation on Radiologix's ability to expand could have a material adverse
effect on Radiologix's business, financial condition and results of operations.

Reform Initiatives; Increased Enforcement

     In addition to existing government health care regulations, there have been
numerous initiatives at the federal and state levels for comprehensive reforms
affecting the payment for and availability of health care services. Radiologix
believes that such initiatives will continue for the foreseeable future. Certain
aspects of these reforms as proposed in the past, such as further reductions in
Medicare and Medicaid payments, if adopted, could materially and adversely
affect Radiologix's business, financial condition and results of operations.

     Federal regulatory and law enforcement authorities have recently increased
enforcement activities with respect to Medicare and Medicaid fraud and abuse
regulations and other reimbursement laws and rules, including laws and
regulations that govern Radiologix's activities. There can be no assurance that
Radiologix's activities will not be investigated, that claims will not be made
against Radiologix or that increased enforcement activities will not directly or
indirectly have an adverse effect on Radiologix's business, financial condition
and results of operations or the market price of the Common Stock.

Insurance Laws and Regulations

     Certain states have enacted statutes or adopted regulations affecting risk
assumption in the health care industry, including statutes and regulations that
subject any physician or physician network engaged in risk-based contracting to
applicable insurance laws and regulations, which may include, among other
things, laws and regulations providing for minimum capital requirements and
other safety and soundness requirements. Failure to comply with these statutes
and regulations could have a material adverse effect on Radiologix's business,
financial condition and results of operations. In addition, implementation of
additional regulations or


                                       45
<PAGE>   48

compliance requirements could result in substantial costs to Radiologix and the
radiology practices. The inability to enter into capitated or other risk-sharing
arrangements or the cost of complying with certain applicable laws that would
permit expansion of Radiologix's risk-based contracting activities could have a
material adverse effect on Radiologix's business, financial condition and
results of operations.

Reimbursement Trends and Cost Containment

     Radiologix's revenue will be derived from service fees paid to Radiologix
by the radiology practices pursuant to the service agreements and through its
ownership, operation and management of imaging centers. Substantially all of the
revenue of the radiology practices and Radiologix's imaging centers is currently
derived from government sponsored health care programs (principally, Medicare
and Medicaid) and private third-party payors. During the year ended December 31,
1999, approximately 22% of the service fee revenue was derived from government
approved health care programs and approximately 78% was derived from private
third-party payors. The health care industry is experiencing a trend 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. Radiologix believes that these trends will continue to result
in a reduction from historical levels in per-patient revenue for its radiology
practices and imaging centers and that the results of operations of the
radiology practices are likely to continue to be affected by lower reimbursement
levels. Further reductions in payments of other changes in reimbursement for
health care services could have a material adverse effect on Radiologix's
business, financial condition and results of operations unless Radiologix is
otherwise able to offset such payment reductions.

     Rates paid by private third-party payors are based on established physician
and hospital charges and are generally higher than Medicare reimbursement rates.
Any decrease in the relative number of patients covered by private insurance
could have a material adverse effect on Radiologix's business, financial
condition and results of operations.

     The federal government has implemented, through the Medicare program, a
resource-based relative value scale ("RBRVS") payment methodology for physician
services. The RBRVS is a fee schedule that, except for certain geographical and
other adjustments, pays similarly-situated physicians the same amount for the
same services. The RBRVS is adjusted each year and is subject to increases or
decreases at the discretion of Congress. To date, the implementation of the
RBRVS has reduced payment rates for certain of the procedures historically
provided by the radiology practices. BBA 97 provides for reductions in the rate
of growth of payments for physician services, including services historically
provided by the radiology practices, in the amount of $5.3 billion over a
five-year period ending in 2002. In addition, BBA 97 provides for the
implementation of a resource-based methodology for payment of physician practice
expenses under the physician fee schedule over a four-year period,

                                       46
<PAGE>   49

which began in fiscal year 1999. Adoption of this methodology is expected to
reduce payments for services historically provided by the radiology practices.

     RBRVS-type payment systems also have been adopted by certain private
third-party payors and Radiologix believes that it is likely that other private
third-party payors will adopt this payment methodology in the future.
Wider-spread implementation of such programs could reduce payments by private
third-party payors and could indirectly reduce Radiologix's operating margins to
the extent that the costs of providing management, administrative, technical and
non-medical services related to such procedures could not be proportionately
reduced. There can be no assurance that such cost reduction efforts by
governmental or private third-party payors will not have a material adverse
effect on Radiologix's business, financial condition and results of operations.

     Private third-party payors and Medicare and Medicaid have increased their
use of managed care as a means of cost containment. Increasingly, private
third-party payors negotiate discounts from established physician and hospital
charges or require capitation or other risk sharing arrangements as a condition
of patient referral to physician groups such as the radiology practices. BBA 97
also includes provisions designed to increase the enrollment of Medicare and
Medicaid participants in managed care programs. The inability of Radiologix to
negotiate satisfactory arrangements with managed care companies could have a
material adverse effect on Radiologix's business, financial condition and
results of operations.

Risks Associated with Managed Care Contracts and Capitated Fee Arrangements

     During fiscal year 1999, approximately 92% of the service fee revenue was
derived from payments made on a fee-for-service basis by patients and
third-party payors (including government programs) and approximately 8% was
derived from capitated arrangements. Under capitated or other risk-sharing
arrangements, the health care provider typically is paid a pre-determined amount
per-patient per-month from the payor in exchange for providing all necessary
covered services to patients covered under the arrangement. Such contracts pass
much of the financial risk of providing care, including the risk of
over-utilization, from the payor to the provider. Radiologix believes that its
success will, in part, depend on Radiologix's ability to effectively negotiate,
on behalf of the radiology practices and Radiologix's owned, operated or managed
imaging centers, contracts with HMOs, employer groups and other third-party
payors pursuant to which services will be provided on a risk-sharing or
capitated basis by some or all of such radiology practices or imaging centers.
Risk-sharing arrangements result in greater predictability of revenue but
greater unpredictability of expenses and, consequently, profitability. There can
be no assurance that Radiologix will be able to negotiate, on behalf of its
radiology practices or Radiologix's owned, operated or managed imaging centers,
satisfactory arrangements on a capitated or other risk-sharing basis. In
addition, to the extent that patients or enrollees covered by such contracts
require more frequent or

                                       47
<PAGE>   50

extensive care than is anticipated, Radiologix would incur unanticipated costs
not offset by additional revenue, which would reduce operating margins. In the
worst case, the revenue derived from such contracts may be insufficient to cover
the costs of the services provided. Any such reduction or elimination of
earnings could have a material adverse effect on Radiologix's business,
financial condition and results of operations.

     Furthermore, various quality assurance programs and organizations have been
created to scrutinize managed care organizations and their providers. In
response to such programs, managed care organizations and providers have
developed their own quality assurance programs to address a variety of areas,
including patient access to services, patient satisfaction, outcomes and
performance measures and utilization of services. These quality assurance
measures involve various costs associated with their implementation and
operation and depend, in part, upon the sophistication and compatibility of
existing systems and operations of the radiology practices as well as
Radiologix's ability to integrate those systems and operations. Radiologix's
inability to develop strong quality assurance measures in conjunction with its
radiology practices could place Radiologix and its radiology practices at a
competitive disadvantage and have a material adverse effect on Radiologix's
business, financial condition and results of operations.


                                       48
<PAGE>   51

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's cash equivalents and its Credit Facility.






                                       49

<PAGE>   52


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

<TABLE>
<CAPTION>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                                                PAGE

<S>                                                                                      <C>
Report of Independent Public Accountants...........................................        F-2

Consolidated Balance Sheets as of December 31, 1998 and 1999.......................        F-3

Consolidated Statements of Income for the Years
     Ended December 31, 1997, 1998 and 1999........................................        F-4

Consolidated Statements of Stockholders' Equity for the
     Years Ended December 31, 1997, 1998 and 1999..................................        F-5

Consolidated Statements of Cash Flows for the Years
     Ended December 31, 1997, 1998 and 1999........................................        F-6

Notes to Consolidated Financial Statements.........................................        F-7
</TABLE>






                                      F-1
<PAGE>   53






                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Stockholders of
Radiologix, Inc.:

      We have audited the accompanying consolidated balance sheets of
Radiologix, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1999 and 1998, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

      We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Radiologix, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.




                                              ARTHUR ANDERSEN LLP


Dallas, Texas,
   February 7, 2000


                                      F-2
<PAGE>   54
                        RADIOLOGIX, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT SHARE DATA)

                                     ASSETS

<TABLE>
<CAPTION>

                                                                                   DECEMBER 31,
                                                                            ----------------------
                                                                               1998         1999
                                                                            ---------    ---------

<S>                                                                         <C>          <C>
CURRENT ASSETS:
   Cash and cash equivalents ............................................   $   6,485    $   4,302
   Accounts receivable, net of allowances of $18,372 and $26,976 in
     1998 and 1999, respectively ........................................      36,789       61,762
   Due from affiliates ..................................................       2,683        9,671
   Other current assets .................................................       1,564        9,812
                                                                            ---------    ---------
         Total current assets ...........................................      47,521       85,547
PROPERTY AND EQUIPMENT, net of accumulated depreciation
   of $69,497 and $79,092 in 1998 and 1999, respectively ................      37,002       60,405
INVESTMENTS IN JOINT VENTURES ...........................................       5,424        6,369
INTANGIBLE ASSETS, net ..................................................      61,119       86,443
DEFERRED FINANCING COSTS, net ...........................................       3,408        3,942
OTHER ASSETS ............................................................       2,165        2,134
                                                                            ---------    ---------
         Total assets ...................................................   $ 156,639    $ 244,840
                                                                            =========    =========

                                    LIABILITES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
   Accounts payable and accrued expenses ................................   $  13,884    $  16,902
   Accrued physician retention ..........................................       6,319        8,642
   Accrued salaries and benefits ........................................       3,893        4,985
   Current portion of long-term debt ....................................         840       22,608
   Current portion of capital lease obligations .........................       1,677        5,484
   Deferred income taxes ................................................         636        1,651
   Other current liabilities ............................................         894           94
                                                                            ---------    ---------
         Total current liabilities ......................................      28,143       60,366
DEFERRED INCOME TAXES ...................................................       2,406        2,336
LONG-TERM DEBT, net of current portion ..................................     113,807      141,992
CAPITAL LEASE OBLIGATIONS, net of current portion .......................       3,887       14,756
OTHER LIABILITIES .......................................................         243          717
                                                                            ---------    ---------
         Total liabilities ..............................................     148,486      220,167

COMMITMENTS AND CONTINGENCIES

MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES .........................       1,107        1,250

STOCKHOLDERS' EQUITY:
   Preferred stock, $.0001 par value; 10,000,000 shares authorized;
     no shares issued and outstanding ...................................          --           --
   Common stock, $.0001 par value; 50,000,000 shares authorized;
     19,243,949 and 19,424,053 shares issued and outstanding in
     1998 and 1999, respectively ........................................           2            2
   Additional paid-in capital ...........................................        (910)        (590)
   Retained earnings ....................................................       7,954       24,011
                                                                            ---------    ---------
         Total stockholders' equity .....................................       7,046       23,423
                                                                            ---------    ---------
         Total liabilities and stockholders' equity .....................   $ 156,639    $ 244,840
                                                                            =========    =========
</TABLE>


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



                                      F-3
<PAGE>   55


                        RADIOLOGIX, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME
                        (IN THOUSANDS, EXCEPT SHARE DATA)


<TABLE>
<CAPTION>

                                                           YEAR ENDED DECEMBER 31,
                                                --------------------------------------------
                                                    1997            1998            1999
                                                ------------    ------------    ------------

<S>                                             <C>             <C>             <C>
SERVICE FEE REVENUE .........................   $      9,545    $    149,327    $    199,700

COSTS AND EXPENSES:
   Salaries and benefits ....................          2,922          42,227          52,826
   Field supplies ...........................          1,036           8,865          11,630
   Field rent and lease expense .............            852          11,532          18,444
   Other field expenses .....................          1,557          25,311          32,278
   Bad debt expense .........................            862          13,723          18,838
   Corporate general and administrative .....          4,910           9,597          11,192
   Depreciation and amortization ............            888          12,178          18,403
   Interest expense, net ....................            617           7,541          12,357
                                                ------------    ------------    ------------
       Total costs and expenses .............         13,644         130,974         175,968
                                                ------------    ------------    ------------

INCOME (LOSS) BEFORE TAXES, MINORITY
INTERESTS IN CONSOLIDATED SUBSIDIARIES
AND EQUITY IN EARNINGS OF INVESTMENTS .......         (4,099)         18,353          23,732

EQUITY IN EARNINGS OF INVESTMENTS ...........            220           4,339           3,581

MINORITY INTERESTS IN CONSOLIDATED
SUBSIDIARIES ................................            (49)           (710)           (910)
                                                ------------    ------------    ------------

INCOME (LOSS) BEFORE TAXES ..................         (3,928)         21,982          26,403

INCOME TAX EXPENSE ..........................             --           8,451          10,346
                                                ------------    ------------    ------------

NET INCOME (LOSS) ...........................   $     (3,928)   $     13,531    $     16,057
                                                ============    ============    ============



NET INCOME (LOSS) PER COMMON SHARE:
       Basic ................................   $      (1.13)   $       0.72    $       0.83
       Diluted ..............................   $      (1.13)   $       0.70    $       0.80

WEIGHTED AVERAGE SHARES OUTSTANDING:
       Basic ................................      3,450,948      18,739,106      19,304,771
       Diluted ..............................      3,450,948      19,334,658      20,692,058

</TABLE>





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


                                      F-4
<PAGE>   56



                        RADIOLOGIX, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                        (IN THOUSANDS, EXCEPT SHARE DATA)


<TABLE>
<CAPTION>


                                                  COMMON STOCK          ADDITIONAL
                                           --------------------------     PAID-IN       RETAINED
                                             SHARES         AMOUNT        CAPITAL       EARNINGS        TOTAL
                                           -----------    -----------   -----------    -----------    -----------

<S>                                        <C>            <C>           <C>            <C>            <C>
BALANCE, December 31, 1996 .............     2,000,000    $        --   $       250    $    (1,649)   $    (1,399)
   Cancellation of common stock ........    (1,000,000)            --            --             --             --
   Initial public offering, net ........     3,000,000             --        29,081             --         29,081
   Common stock issued to
     initial radiology practices
     in conjunction with the
     Reorganizations ...................    12,646,446              2          (713)            --           (711)
   Conversion of convertible notes
     payable into common stock .........       510,406             --         3,500             --          3,500
   Payment of cash dividends to
     initial radiology practices .......            --             --       (50,588)            --        (50,588)
   Exercise of stock options ...........        78,000             --            10             --             10
   Net loss ............................            --             --            --         (3,928)        (3,928)
                                           -----------    -----------   -----------    -----------    -----------
BALANCE, December 31, 1997 .............    17,234,852              2       (18,460)        (5,577)       (24,035)
   Common stock issued in
     connection with acquisitions ......     1,812,054             --        17,502             --         17,502
   Exercise of stock options ...........       197,043             --            48             --             48
   Net income ..........................            --             --            --         13,531         13,531
                                           -----------    -----------   -----------    -----------    -----------
BALANCE, December 31, 1998 .............    19,243,949              2          (910)         7,954          7,046
   Common stock issued in
     connection with acquisitions ......        50,264             --           304             --            304
   Exercise of stock options ...........       129,840             --            16             --             16
   Net income ..........................            --             --            --         16,057         16,057
                                           -----------    -----------   -----------    -----------    -----------
BALANCE, December 31,1999 ..............    19,424,053    $         2   $      (590)   $    24,011    $    23,423
                                           ===========    ===========   ===========    ===========    ===========
</TABLE>



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



                                      F-5
<PAGE>   57
                        RADIOLOGIX, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>

                                                                                YEAR ENDED DECEMBER 31,
                                                                         -----------------------------------
                                                                            1997         1998         1999
                                                                         ---------    ---------    ---------

<S>                                                                      <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss) .................................................   $  (3,928)   $  13,531    $  16,057
   Adjustments to reconcile net income (loss) to net cash provided
     by (used in) operating activities--
     Minority interests in consolidated subsidiaries .................          49          710          910
     Depreciation and amortization ...................................         888       12,178       18,403
     Equity in earnings of investments ...............................        (220)      (4,339)      (3,581)
     Gain on sale of assets ..........................................          (6)          --           --
     Changes in assets and liabilities:
       Accounts receivable, net ......................................      (1,787)     (10,379)     (21,889)
       Other receivables and other current assets ....................      (3,908)       2,872      (15,102)
       Other assets ..................................................      (2,412)      (2,118)         399
       Accounts payable and accrued expenses .........................       6,828        1,953        2,305
       Accrued salaries and benefits .................................        (433)       2,380        1,091
       Other current liabilities .....................................         (87)        (450)         (19)
       Other liabilities .............................................        (317)      (6,388)         (36)
                                                                         ---------    ---------    ---------
         Net cash provided by (used in) operating activities .........      (5,333)       9,950       (1,462)
                                                                         ---------    ---------    ---------


CASH FLOWS FROM INVESTING ACTIVITIES:
   Proceeds from the sale of property and equipment ..................           6           --       10,000
   Purchases of property and equipment, net ..........................        (481)     (12,651)     (31,458)
   Cash paid for acquisitions ........................................          --      (52,866)     (25,406)
   Contributions to joint ventures ...................................        (100)        (571)        (115)
   Distributions from joint ventures .................................         155        2,587        2,022
                                                                         ---------    ---------    ---------
         Net cash used in investing activities .......................        (420)     (63,501)     (44,957)
                                                                         ---------    ---------    ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of long-term debt, net .....................      49,600       59,814       47,095
   Payment on debt of initial radiology practices ....................     (23,420)          --           --
   Payment on capital leases .........................................          --       (3,282)      (2,875)
   Cash dividends to initial radiology practices .....................     (50,588)          --           --
   Cash received in the Reorganizations ..............................       3,188           --           --
   Proceeds from the issuance of common stock, net ...................      29,081           --           --
   Proceeds from the exercise of stock options .......................          10           48           16
   Advances to radiology practices and other .........................         (37)      (1,116)          --
                                                                         ---------    ---------    ---------
         Net cash provided by financing activities ...................       7,834       55,464       44,236
                                                                         ---------    ---------    ---------

NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ..........................................................       2,081        1,913       (2,183)

CASH AND CASH EQUIVALENTS, beginning of period .......................       2,491        4,572        6,485
                                                                         ---------    ---------    ---------

CASH AND CASH EQUIVALENTS, end of period .............................   $   4,572    $   6,485    $   4,302
                                                                         =========    =========    =========

NON-CASH TRANSACTIONS DURING THE PERIOD:
   Assets acquired from radiology practices ..........................   $  53,427    $  16,677    $      20
                                                                         ---------    ---------    ---------
   Liabilities and debt assumed from radiology practices .............   $  54,138    $   7,404    $      --
                                                                         ---------    ---------    ---------
   Common stock issued to radiology practices ........................   $ 151,757    $  17,502    $     304
                                                                         ---------    ---------    ---------
   Conversion of convertible notes payable into common stock .........   $   3,500    $      --    $      --
                                                                         ---------    ---------    ---------

</TABLE>

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


                                      F-6
<PAGE>   58


                        RADIOLOGIX, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1997, 1998 and 1999

1. DESCRIPTION OF BUSINESS:

      Radiologix, Inc. (together with its subsidiaries, "Radiologix" or the
"Company"), a Delaware corporation, is a leading provider of radiology services
in the United States through (i) its ownership and operation of technologically
advanced, multi-modality diagnostic imaging centers, and (ii) its provision of
administrative, management and other information services to certain radiology
business partners. The Company was incorporated in 1996, but conducted no
significant operations until a reorganization and initial public offering in
November 1997. On November 26, 1997, the Company consummated an initial public
offering ("IPO") and simultaneously exchanged cash and shares of its common
stock for certain assets of and liabilities associated with seven radiology
practices (the "Reorganizations"). These exchanges were accounted for using the
historical cost basis with the stock being valued at the historical cost of the
net assets received by the Company. Cash consideration given in these exchanges
was treated for accounting purposes as a dividend from the Company.

      As of December 31, 1999, Radiologix owns, operates or maintains an
ownership interest in imaging equipment at 113 locations and provides management
services to ten radiology practices consisting of 280 physicians who provide
professional radiology services at the Company's radiology centers and at 58
hospitals. Radiologix's imaging centers are located in 17 states, with
concentrated geographic coverage in markets located in California, Florida,
Illinois, Kansas, Maryland, New York, Pennsylvania, Texas, Virginia and
Washington, D. C.

      Physician services are provided at all of the Company's imaging centers
associated with its ten radiology practices under the terms of service
agreements, seven of which expire in November 2037, with the other three
expiring in 2038. Under the terms of the service agreements, the Company
provides management, administrative, technical and non-medical services to
radiology practices in return for service fees. The service agreements cannot be
terminated by either party without cause, consisting primarily of bankruptcy or
material default. However, under certain conditions, the Company can terminate
the service agreement if the number of physicians in a practice falls below a
certain percentage.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Presentation

      The consolidated financial statements have been prepared on the accrual
basis of accounting and include the accounts of the Company and its
majority-owned subsidiaries. All intercompany accounts and transactions have
been eliminated in consolidation.

Use of Estimates

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

Reclassification

      Certain prior year amounts have been reclassified to conform to current
year presentation. These reclassifications have no effect on the previously
reported net income (loss), stockholders' equity, or cash flows.



                                      F-7
<PAGE>   59

                        RADIOLOGIX, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1997, 1998 and 1999


Cash and Cash Equivalents

      The Company considers all highly liquid investments with original
maturities of three months or less when purchased to be cash equivalents.

Accounts Receivable

      Accounts receivable principally represent receivables from patients and
other third-party payors for medical services provided by the radiology
practices. Such amounts are recorded net of contractual allowances and estimated
bad debts.

      Under the terms of the service agreements, the Company purchases the
accounts receivable from the radiology practices, net of estimated allowances.
An estimated allowance is provided on the accounts receivable based on
historical collection rates. These allowances are reviewed periodically and
adjusted based on changes in historical collection rates. Any adjustment to the
allowances affects the future operations of the radiology practices and
resulting service fee recorded by the Company.

Other Current Assets

Other current assets consist primarily of other receivables (amounts due from
joint ventures and affiliated physician associations), prepaid expenses, and
other miscellaneous current assets. The following table sets forth the primary
components of other currents assets at December 31, 1998 and 1999:

<TABLE>

                                                1998         1999
                                           ----------   ----------
<S>                                        <C>          <C>
Other receivables ......................   $      125   $    1,143
Other current assets ...................        1,439        8,669
                                           ----------   ----------
Balance, end of period .................   $    1,564   $    9,812
                                           ==========   ==========
</TABLE>


Property and Equipment

      Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Property and equipment are depreciated using the straight-line
method.

Investments in Joint Ventures

      Investments in joint ventures consist primarily of interests in entities
which own and operate diagnostic imaging centers. Such investments are accounted
for under the equity method.

      The names, percentage ownership and 1999 financial information related to
the Company's significant joint ventures is as follows (in thousands):

<TABLE>
<CAPTION>

                                                               Total        Total          Net
           Name                                Ownership      Assets     Liabilities     Income
           ----                                ---------      ------     -----------     --------

<S>                                            <C>          <C>          <C>            <C>
White Square Imaging Center                        50%      $    4,214   $    1,080     $    2,632
Greater Baltimore Medical                          50%           1,836          206            273
Magnetic Imaging of Baltimore                      25%           3,267          369          2,164
</TABLE>

Intangible Assets

      The value of intangible assets (consisting primarily of service agreements
and goodwill) is recorded






                                      F-8
<PAGE>   60

at cost at the date of acquisition. Intangible assets are being amortized on a
straight-line basis over a 25-year period in accordance with Accounting
Principles Board ("APB") No. 17, "Intangible Assets". The Company believes that
the life of the core businesses acquired and the delivery of radiology
management services will exceed 25 years. As of December 31, 1998 and 1999,
accumulated amortization was approximately $2,462,000 and $5,675,000,
respectively.

      The service agreements consist of the costs of purchasing the rights to
manage radiology practices, net of assets acquired. Under the initial 40-year
term of the agreements, the radiology practices have agreed to provide medical
services on an exclusive basis only through facilities managed by the Company.
In the event a radiology practice breaches the service agreement, or if the
Company terminates with cause, the radiology practice is required to purchase
all related tangible and intangible assets, including the unamortized portion of
the service agreement intangible asset, at the then net book value. The Company
amortizes the service agreement costs over a 25-year period consistent with
accounting policies used by other companies in the Company's industry.

Impairment of Long-Lived Assets

      Subsequent to an acquisition, the Company continually evaluates whether
events and circumstances have occurred that indicate that the remaining balance
of the intangible assets and property and equipment may not be recoverable or
that the remaining useful lives may warrant revision. When factors indicate that
intangible assets and property and equipment should be evaluated for possible
impairment, the Company uses an estimate of the related business segment's
undiscounted cash flows over the remaining lives of the intangible assets and
property and equipment and compares it to the business segment's intangible
assets and property and equipment balances to determine whether the intangible
assets and property and equipment are recoverable or if impairment exists, in
which case an adjustment is made to the carrying value of the asset. When an
adjustment is required, the Company evaluates the remaining amortization periods
using the factors outlined in APB No. 17. The Company recorded no impairment
charges during 1998 or 1999.

Accounts Payable and Accrued Expenses

      Accounts payable and accrued expenses at December 31, 1998 and 1999,
consisted of the following (in thousands):

<TABLE>
<CAPTION>

                                                    1998         1999
                                                ----------   ----------
<S>                                             <C>          <C>
      Accounts payable                          $    5,895   $    6,647
      Patient refunds                                3,396        1,320
      Other payables and accrued expenses            4,593        8,935
                                                ----------   ----------
                                                $   13,884   $   16,902
                                                ==========   ==========
</TABLE>

Accrued Physician Retention

      Accrued physician retention represents amounts payable to the radiology
practices under the service agreements. The service agreements require the
Company to remit physician retention to the radiology practices on or before the
fifteenth calendar day of the following month for which services were rendered.

Revenue Presentation

      The Financial Accounting Standards Board's Emerging Issues Task Force
issued its abstract, Issue 97-2, "Application of FASB Statement No. 94 and
Accounting Principles Board ("APB") Opinion No. 16 to Physician Practice
Management Entities and Certain Other Entities with Contractual Arrangements"
("EITF 97-2"). In 1997, the Company displayed physician group revenue in its
consolidated statements of income. Since the Company has not established a
"controlling financial interest" under EITF 97-2, the 1997 display has been
restated to reflect the service fees earned as revenues. This change had no
effect on the Company's financial position, results of operations, or liquidity.



                                      F-9
<PAGE>   61

      The following table sets forth the amounts of physician groups revenue
that would have been presented in the consolidated statements of income had the
Company met the provisions of EITF 97-2 (in thousands):

<TABLE>
<CAPTION>

                                                        1997         1998         1999
                                                     ---------    ---------    ---------

<S>                                                  <C>          <C>          <C>
Physician groups revenue, net of contractual
   allowances and estimated bad debts ............   $  14,571    $ 222,706    $ 286,824
Less: amounts retained by physician groups .......      (5,026)     (73,379)     (87,124)
                                                     ---------    ---------    ---------
Service fee revenue, as reported .................   $   9,545    $ 149,327    $ 199,700
                                                     =========    =========    =========
</TABLE>

Service Fee Revenue

      Service fee revenue represents radiology practices' revenue less amounts
retained by radiology practices. The amounts retained by radiology practices
represents amounts paid to the physicians pursuant to the service agreements
between the Company and the radiology practices. Under the service agreements,
the Company provides each physician group with the facilities and equipment used
in its medical practice, assumes responsibility for the management of the
operations of the practice, and employs substantially all of the non-physician
personnel utilized by the group. Although the Company assists in negotiating
managed care contracts for the radiology practices, it assumes no risk under
these arrangements.

      The Company's service fee revenue is dependent upon the operating results
of the radiology practices. Where state law allows, service fees due under the
service agreements for the radiology practices are derived from two distinct
revenue streams: (1) a negotiated percentage (typically 20% to 30%) of the
adjusted professional revenues as defined in the service agreements; and (2)
100% of the adjusted technical revenues as defined in the service agreements. In
states where the law requires a flat fee structure, the Company has negotiated a
base service fee, which is equal to the fair market value of the services
provided under the service agreements and which is renegotiated each year to
equal the fair market value of the services provided under the service
agreements. The fixed fee structure results in the Company receiving
substantially the same amount of service fee as it would have received under its
negotiated percentage fee structure. Adjusted professional revenues and adjusted
technical revenues are determined by deducting certain contractually agreed-upon
expenses (non-physician salaries and benefits, rent, depreciation, insurance,
interest and other physician costs) from the radiology practices' revenue.
Questar revenues are primarily derived from technical revenues generated from
those imaging centers.

      Service fee revenue consists of the following for the years ended December
31 (in thousands):

<TABLE>
<CAPTION>

                                               1997         1998         1999
                                           ----------   ----------   ----------

<S>                                        <C>          <C>          <C>
Professional component .................   $    2,977   $   39,637   $   53,435
Technical component ....................        6,568      109,690      146,265
                                           ----------   ----------   ----------
                                           $    9,545   $  149,327   $  199,700
                                           ==========   ==========   ==========
</TABLE>


      For the year ended December 31, 1998 and 1999, four of the Company's
radiology practices each contributed 10% or more of the Company's service fee
revenue as follows (in thousands):

<TABLE>
<CAPTION>

                                                 1998 Service  1999 Service
                Practice                         Fee Revenue    Fee Revenue
                --------                        ------------   ------------
<S>                                             <C>            <C>
Advanced Radiology, LLC                         $     48,204   $     55,823
Mid Rockland Imaging Associates, P.C                  21,695         30,522
The Ide Group, P.C                                    21,352         26,330
Community Radiology Associates, Inc.                  16,143         19,538
</TABLE>


The Company also periodically advances funds to the radiology practices at
current interest rates. Such advances are due on demand and are repaid through
reductions in future physician retention payments.



                                      F-10
<PAGE>   62

Income Taxes

      The Company accounts for income taxes under the liability method which
states that deferred taxes are to be determined based on the estimated future
tax effects of differences between the financial statement and tax bases of
assets and liabilities given the provisions of enacted tax laws. Deferred income
tax provisions and benefits are based on the changes to the asset or liability
from period to period. The Company and its subsidiaries file a consolidated
federal tax return.

Net Income Per Share

      The Company adopted the Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share" ("EPS") effective December 31, 1997. SFAS
No. 128 simplifies the computation of EPS by replacing the presentation of
primary EPS with a presentation of basic EPS. Basic EPS is calculated by
dividing income available to common stockholders by the weighted average number
of common shares outstanding during the period (including shares to be issued).
Options, warrants, and other potentially dilutive securities are excluded from
the calculation of basic EPS. Diluted EPS includes the options, warrants, and
other potentially dilutive securities that are excluded from basic EPS using the
treasury stock method to the extent that these securities are not anti-dilutive.
Diluted EPS also included the effect of the convertible note (see Note 5) using
the "if converted" method. For the year ended December 31, 1999, under the "if
converted" method, approximately $399,000 of tax-effected interest savings and
947,483 weighted average shares were included in the calculation of diluted EPS
as an addition to net income and weighted average shares outstanding,
respectively. For the years ended December 31, 1998 and 1999, 595,592 and
439,803 shares, respectively, related to stock options were included in diluted
EPS.

      There is no difference between basic and diluted EPS for the year ended
December 31, 1997 because options and convertible notes payable had an
anti-dilutive effect. For the year ended December 31, 1997, 938,569 shares
related to stock options and convertible notes payable were not included in the
computation of diluted EPS because to do so would be anti-dilutive for the
period.

Fair Value of Financial Instruments

      SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires disclosure about the fair value of certain financial instruments. The
carrying amounts of cash and cash equivalents, accounts receivable, accounts
payable and accrued expenses approximate fair value due to the short maturity of
these instruments. The carrying amounts of the Company's long-term debt and
capital lease obligations also approximate fair value.

Concentration of Credit Risk

      The Company's accounts receivable consist primarily of service fee
revenues due from radiology practices and medical service revenues due from
patients funded through Medicare, Medicaid, commercial insurance and private
payment. The Company estimates that approximately 30% of the physician groups'
revenue in 1999 and 1998 is funded through the Medicare program. The Company and
its practices perform ongoing credit evaluations of their patients and generally
does not require collateral. The Company and its practices maintain allowances
for potential credit losses. Such losses have been within management's
expectation.






                                      F-11
<PAGE>   63

Cash Paid During Year

      The Company paid the following amounts for interest and income taxes (in
thousands):

<TABLE>
<CAPTION>

                                    1997         1998         1999
                                 ----------   ----------   ----------

<S>                              <C>          <C>          <C>
Interest .....................   $      254   $    8,653   $   10,225
Income taxes .................           --       15,423       14,459
</TABLE>

3. ACQUISITIONS AND PRACTICE AFFILIATIONS:

1999 Acquisitions and Affiliations

      On August 1, 1999, the Company acquired all the outstanding stock of
Questar Imaging, Inc. of Tampa, Florida ("Questar"), a private operator of
primarily MRI radiology centers. Questar currently offers magnetic resonance
imaging (MRI) and other diagnostic imaging services at 27 centers in 14 states,
and is in the process of developing 17 additional MRI centers. The total 1999
consideration for the transaction was $18,921,000 in cash, plus the assumption
of $16,763,000 in liabilities. The consideration for the developmental centers
in 2000 will be approximately $7,000,000 plus the assumption of certain
liabilities. This transaction was accounted for using the purchase method. The
amounts recorded for the acquisition are based on preliminary information and
are subject to final adjustment in 2000.


      Pro-forma information is not presented for the Questar acquisition as it
does not materially affect the financial statements for the years presented.

      The total consideration for all other 1999 acquisitions was approximately
$6,485,000 in cash, 50,264 shares of the Company's common stock ($304,000),
plus the assumption of $3,193,000 in liabilities.

1998 Acquisitions and Affiliations

      During 1998, the Company completed the following acquisitions and practice
affiliations. All of the acquisitions were accounted for under the purchase
method. Operating results are included from the date of affiliation. The Company
has no contingent payments, options or commitments relating to these
transactions.

      In January 1998, the Company completed its affiliation with Community
Radiology Associates, a ten-physician radiology practice based in Rockville,
Maryland. The Company also completed the acquisition of Community Radiology
Associates' seven imaging centers and the acquisition of four independent
imaging centers in the Greater Bay Area of Northern California. Total
consideration for these transactions was approximately $41,433,000, consisting
of the issuance of 1,019,018 shares of the Company's common stock valued at
approximately $10,700,000 (509,510 shares were issued in January 1999), cash and
assumed debt.

      In April 1998, the Company completed its affiliation with Radiology
Imaging Associates, a ten-physician radiology practice based in Fort Pierce,
Florida. The Company also completed the acquisition of Radiology Imaging
Associates' imaging center and the acquisition of an independent imaging center
in the Hudson Valley Area of Southern New York. In June 1998, the Company
completed the acquisition of an independent imaging center in the Greater Bay
Area of Northern California. The total consideration for these transactions was
approximately $15,100,000, consisting of the issuance of 433,662 shares of the
Company's common stock valued at approximately $4,400,000, cash and assumed
debt.

      In July 1998, the Company completed its acquisition of two imaging centers
in the Greater Bay Area of Northern California. The total consideration for
these transactions was approximately $6,975,000 cash.



                                      F-12
<PAGE>   64


      In September 1998, the Company completed its affiliation with WB&A
Imaging, P.C. (formerly known as Drs. Wener, Boyle & Associates, P.A.), a
15-physician radiology practice based in the Washington, D.C. Metropolitan Area.
The Company also completed the acquisition of WB&A Imaging, P.C.'s four imaging
centers. The total consideration for the transaction was approximately
$9,067,000, consisting of the issuance of 359,374 shares of the Company's common
stock valued at approximately $2,400,000, cash and assumed debt.

      The Company's 1998 and 1999 acquisitions are summarized as follows (in
thousands):


<TABLE>
<CAPTION>

                                                1998         1999
                                             ----------   ----------
<S>                                          <C>          <C>
Assets acquired:
   Accounts receivable                       $    5,014   $    3,034
   Property and equipment                        11,663       15,911
Liabilities assumed:
   Debt assumed                                   6,172       16,252
   Other liabilities                              1,232        3,703
                                             ----------   ----------
Net assets (liabilities) acquired            $    9,273       (1,010)
Total consideration exchanged
   Cash                                          52,866       25,406
   Common stock                                  17,502          304
                                             ----------   ----------
Value assigned to intangible assets          $   61,095   $   26,720
                                             ==========   ==========
</TABLE>


4. PROPERTY AND EQUIPMENT:

      Property and equipment consists of the following at December 31, 1998 and
1999 (in thousands):

<TABLE>
<CAPTION>

                                                   Useful Life           1998             1999
                                                  -------------      ----------        ----------

<S>                                          <C>                     <C>               <C>
Equipment (primarily medical equipment)             5-7 Years        $   92,067        $  114,663
Leasehold improvements                       Remaining life of lease     12,567            21,286
Buildings                                           15 Years              1,865             3,548
                                                                     ----------        ----------
                                                                        106,499           139,497
Less - Accumulated depreciation
  and amortization                                                      (69,497)          (79,092)
                                                                     ----------        ----------
Property and equipment, net                                          $   37,002        $   60,405
                                                                     ==========        ==========
</TABLE>

5. LONG-TERM DEBT:

      Long-term debt consists of the following at December 31, 1998 and 1999 (in
thousands):

<TABLE>
<CAPTION>

                                                                        1998            1999
                                                                    ------------    ------------
<S>                                                                 <C>             <C>
Note payable to a bank, interest at the Company's option at
  LIBOR plus 2.0% (7.25% at December 31, 1999) or the
  prime rate of a lending partner plus 1.0% (8.75% at
  December 31, 1999), maturing in November 2003                     $    112,500    $    142,500
Convertible note payable to a bank, interest at 8%, maturing
  in July 2009                                                                --          20,000
Note(s) payable to bank(s), various interest rates, unsecured              2,147           2,100
                                                                    ------------    ------------
                                                                         114,647         164,400

Less - Current portion of long-term debt                                    (840)        (22,608)
                                                                    ------------    ------------
Long-term debt, net of current portion                              $    113,807    $    141,992
                                                                    ============    ============

</TABLE>




                                      F-13
<PAGE>   65

      On November 26, 1997, the Company entered into a bank credit facility (the
"Credit Facility"). The Credit Facility was amended on May 19, 1998. The loan
agreement provides for revolving loans of up to $160,000,000 to be used for
acquisitions and general working capital needs. The Company may borrow, repay
and reborrow amounts during the first three years of the Credit Facility.
Amounts outstanding under the Credit Facility at the end of three years are
required to be repaid in quarterly installments of varying amounts commencing
September 30, 2000. The Credit Facility expires and all loans thereunder mature
on the sixth anniversary of the closing date of the Credit Facility. Borrowings
under the Credit Facility at any time may not exceed the lesser of $160,000,000
or 3.00 times the consolidated EBITDA of the Company, giving pro forma effect to
acquisitions made with such borrowings. At December 31, 1999, the Company's debt
could not exceed $160,000,000 under the Credit Facility. The Company had
outstanding borrowings of $142,500,000 under the Credit Facility. At the
Company's option, the interest rate is (i) an adjusted LIBOR rate, plus an
applicable margin which can vary from 1.5% to 2.5% dependent on certain
financial ratios or (ii) the prime rate, plus an applicable margin which can
vary from 0.5% to 1.5%. In each case, the applicable margin varies based on
financial ratios maintained by the Company. The Credit Facility includes certain
restrictive covenants including prohibitions on the payment of dividends and the
maintenance of certain financial ratios (including minimum debt-service coverage
and maximum debt-to-EBITDA coverage, as defined). Borrowings under the Credit
Facility are secured by all service agreements, which the Company is, or becomes
a party to, and a pledge of the stock of the Company's subsidiaries. At December
31, 1999, the Company is in compliance with the Credit Facility's restrictive
covenants.

      On July 30, 1999, the Company entered into a $20,000,000 convertible
junior subordinated note (the "Note") in connection with the Securities Purchase
Agreement for the Questar acquisition, dated August 1, 1999. The Note matures
July 31, 2009, and bears interest, payable quarterly in cash or payment in kind
securities, at an annual rate of 8.0%. The principal of the Note is convertible
into the Company's Common Stock at the price of $8.625 per share. If by the
second anniversary date of the Note, the closing price of the Company's Common
Stock has not averaged $8.625 for 45 of the 60 days of the determination period
(the "Market Price Event"), the base conversion price will be reset at 87.19% of
the initial conversion price. If by the third or fourth anniversary date of the
Note, the Market Price Event has not occurred, the interest rate will be
increased to 8.25% and 8.5%, respectively.

      The Securities Purchase Agreement includes certain restrictive covenants
including prohibitions on the payment of dividends, the reservation of unissued
common stock pending conversion or exercise of the convertible Note, and the
maintenance of certain financial ratios (including maximum interest coverage and
leverage ratios, as defined). At December 31, 1999, the Company is in compliance
with the Note's restrictive covenants.

      The Company is currently discussing with its lenders various financing
options, including extending the dates of required quarterly principal
amortization (currently beginning September 30, 2000) and final maturity
(currently November, 2003) to future periods. In addition, the Company is
discussing with its lenders an increase in the total amount available under the
Credit Facility to facilitate its growth strategy for 2000 and beyond. The
Company believes that the extension and/or increase in the Credit Facility will
be completed in the second quarter of 2000. Although there can be no assurance
that these financing options will be finalized or be available on terms
acceptable to the Company, management believes that additional sources of
liquidity are available in the marketplace to meet its liquidity needs for the
foreseeable future.





                                      F-14
<PAGE>   66




      The maturities of long-term debt at December 31, 1999, are as follows (in
thousands):

<TABLE>

<S>                             <C>
2000                            $           22,608
2001                                        43,221
2002                                        50,040
2003                                        28,665
2004 and thereafter                         20,066
                                ------------------
                                $          164,600
                                ==================
</TABLE>

         As of December 31, 1998 and 1999, accumulated amortization of deferred
financing costs was approximately $661,000 and $1,438,000, respectively. Such
costs are being amortized over a straight-line method which approximates the
effective interest method.

6. STOCKHOLDERS' EQUITY:

Common Stock

      In 1998 and 1999, the Company issued 1,812,054 and 50,264 shares of its
common stock in connection with acquisitions (See Note 3).

      In November 1997, the Company issued 3,000,000 shares of its common stock
at $12.00 per share in an IPO. Proceeds from the offering, net of commissions
and other related expenses of $4,749,000, were $29,081,000. In connection with
the offering, the Company's convertible notes payable of $3,500,000 were
converted into 510,406 shares of common stock.

      Simultaneously with the closing of the IPO and Reorganizations,
stockholders of the initial radiology practices received, in the aggregate,
12,646,446 shares of common stock in exchange for certain assets and liabilities
of the initial radiology practices. These shares have been registered under the
Securities Act of 1933. In addition, the Company distributed cash dividends of
$50,588,000 to the initial radiology practices.

      During 1996, the Company issued 2,000,000 shares of common stock. At the
consummation of the IPO, 1,000,000 shares were cancelled for no consideration.

Stock Option Plan

      During 1996, the Company's Board of Directors approved the 1996 Stock
Option Plan (the "Plan") under which 3,000,000 options to purchase shares of the
Company's common stock may be granted to key directors, employees and other
health care professionals associated with the Company, as defined by the Plan.
The Plan was amended by stockholder vote at the 1999 Annual Stockholder meeting.
The amendment increased the number of options available under the Plan to
4,000,000. Options granted under the Plan may be either incentive stock options
("ISO") or nonqualified stock options ("NQSO"). The option price per share under
the Plan may not be less than 100% of the fair market value at the grant date
for ISO and may not be less than 85% of the fair market value at the grant date
for NQSO. All of the options granted under the Plan through December 31, 1999
were at fair market value. Generally, options vest over a 5-year period and are
exercisable over a ten-year life. As of December 31, 1997, 1998 and 1999,
1,591,000, 2,117,000 and 2,204,525 shares, respectively, were outstanding under
the Plan. Since the Plan's inception, the Board of Directors granted options to
purchase 30,000 shares of common stock outside the Plan. Compensation expense
related to the non-employee portion of these shares is not material. The
following table summarizes the combined activity under the Plan and the options
granted outside the Plan at December 31, 1997, 1998 and 1999:





                                      F-15
<PAGE>   67

<TABLE>
<CAPTION>

                                          1997                     1998                    1999
                                 ----------------------   ---------------------   ---------------------
                                             Wtd. Avg.                Wtd. Avg.               Wtd. Avg.
                                   Shares    Exercise      Shares     Exercise    Shares      Exercise
                                   (000's)    Price        (000's)      Price     (000's)      Price
                                 ---------  -----------   --------   ----------   --------   ----------


<S>                              <C>        <C>           <C>        <C>          <C>        <C>
Outstanding, beginning of year       1,300  $      0.70      1,591   $     5.19      2,117   $     7.14
Granted                                663  $     11.15      1,427   $     9.24        414   $     6.32
Exercised                              (78) $      0.13       (197)  $     0.24       (130)  $     0.13
Cancelled                             (294) $      0.13       (704)  $     8.99       (196)  $     7.11
                                 ---------  -----------   --------   ----------   --------   ----------
Outstanding, end of year             1,591  $      5.19      2,117   $     7.14      2,205   $     7.41
                                 =========  ===========   ========   ==========   ========   ==========
Exercisable, end of year               656  $      4.10        718   $     5.79      1,015   $     7.20
Price Range                           $0.13 to $12.00          $0.13 to $12.00        $0.13 to $12.00

</TABLE>


      The following table reflects the weighted average exercise price and
weighted average contractual life of various exercise price ranges of the
2,204,525 options outstanding as of December 31, 1999.

<TABLE>
<CAPTION>

                                                                    Wtd. Avg.                    Wtd. Avg.
     Exercise Price Range                  Shares                Exercise Price           Contractual Life (yrs)
     --------------------                  ------                --------------           ----------------------

<S>                                      <C>                      <C>                    <C>
      $0.13 -  $6.99                         573,725                  $2.70                        7.74
      $7.00  - $8.49                         453,266                  $7.52                        8.32
      $8.50  - $12.00                      1,177,534                  $9.66                        8.11
</TABLE>

      The Company accounts for its stock-based compensation arrangements under
the provisions of APB No. 25, "Accounting for Stock Issued to Employees". SFAS
No. 123, "Accounting for Stock-Based Compensation", requires that companies
electing to continue to use the intrinsic value method make pro forma disclosure
of net income and net income per share as if the fair value based method of
accounting had been applied. The Company used the Black-Scholes option pricing
model to estimate the fair value of options. The effects of applying SFAS No.
123 during 1997, 1998 and 1999 are as follows (in thousands, except per share
amounts):

<TABLE>
<CAPTION>

                                                   1997                  1998                1999
                                               -------------         -------------      ---------

<S>                                            <C>                   <C>                <C>
Net income (loss):
    As reported                                $      (3,928)        $      13,531      $      16,057
    Pro forma                                         (5,599)               12,117             14,419
Net income (loss) per share (diluted):
    As reported                                $       (1.13)        $        0.70      $        0.80
    Pro forma                                          (2.80)                 0.63               0.70
</TABLE>

      The fair value of each option grant is estimated using the following
weighted-average assumptions for grants in 1997, 1998 and 1999, respectively:
risk-free interest rate of 5.1, 5.6 and 5.8 percent; expected life of 2.58, 2.81
and 2.81 years; expected volatility of 125.0, 67.0 and 69.5 percent; and
dividend yield of zero in 1997, 1998 and 1999. The weighted-average grant-date
fair value of new grants in 1999 was $5.02 per share.





                                      F-16
<PAGE>   68


7. INCOME TAXES:

      Income tax expense in 1997, 1998 and 1999 is composed of the following
amounts (in thousands):

<TABLE>
<CAPTION>

                                                1997        1998        1999
                                              --------    --------    --------

<S>                                           <C>         <C>         <C>
Current income tax expense
   Federal                                    $     --    $  8,418    $  9,655
   State and local                                  --       2,915       2,524
                                              --------    --------    --------
                                                    --      11,333      12,179
Deferred income tax benefit
   Federal                                          --      (2,507)     (1,571)
   State                                            --        (375)       (262)
                                              --------    --------    --------
                                                    --      (2,882)     (1,833)
                                              --------    --------    --------
Income tax expense                            $     --    $  8,451    $ 10,346
                                              ========    ========    ========
</TABLE>



      A reconciliation between reported income tax expense and the amount
computed by applying the statutory federal income tax rate of 35% for 1997, 1998
and 1999 is as follows (in thousands):

<TABLE>
<CAPTION>


                                                1997        1998        1999
                                              --------    --------    --------
<S>                                           <C>         <C>         <C>
      Computed at statutory rate              $ (1,375)   $  7,694    $  9,241
      State income taxes, net of
          federal tax benefit                       --       1,519       1,380
      Change in valuation allowance              1,375          --          --
      Other                                         --        (798)       (311)
      Nondeductible amortization                    --          36          36
                                              --------    --------    --------
      Income tax expense                      $     --    $  8,451    $ 10,346
                                              ========    ========    ========
</TABLE>

      The components of deferred income tax expense (benefit) in 1997, 1998 and
1999 are as follows (in thousands):

<TABLE>
<CAPTION>


                                                1997        1998        1999
                                              --------    --------    --------
<S>                                           <C>         <C>         <C>
      Amortization                            $     --    $    542    $    982
      Depreciation                                  --        (789)        531
      Net operating loss carryforward           (1,375)         --          --
      Change in valuation allowance              1,375          --          --
      Various accrued liabilities and other         --         669         529
      Bad debts                                     --      (1,044)       (224)
      Start-up costs                                --      (1,535)         (6)
      Cash to accrual adjustments                   --        (725)     (3,645)
                                              --------    --------    --------
      Deferred income tax benefit             $     --    $ (2,882)   $ (1,833)
                                              ========    ========    ========
</TABLE>






                                      F-17
<PAGE>   69





      The tax effects of temporary differences that give rise to the deferred
income taxes at December 31, 1998 and 1999, are presented below (in thousands):

<TABLE>
<CAPTION>

                                                           1998           1999
                                                      -----------    -----------

<S>                                                   <C>            <C>
  Deferred tax assets
     Start-up costs                                   $     1,535    $     1,539
     Various accrued liabilities and other                  3,403            100
     Bad debts                                              1,044          1,268
     Net operating loss carryforward                        1,952          1,952
                                                      -----------    -----------
                                                            7,934          4,859
  Valuation allowance                                      (1,952)        (1,952)
                                                      -----------    -----------
                                                            5,982          2,907
  Deferred tax liabilities
     Cash to accrual adjustments                           (7,937)        (4,293)
     Amortization                                            (542)        (1,524)
     Depreciation                                            (545)        (1,077)
                                                      -----------    -----------
                                                           (9,024)        (6,894)
                                                      -----------    -----------
  Total deferred tax liability                        $    (3,042)   $    (3,987)
                                                      ===========    ===========

</TABLE>

      Because of the Company's limited operating history, and possible positions
which could be taken by taxing authorities, the Company has fully reserved its
estimated net operating loss carryforwards.

8. COMMITMENTS AND CONTINGENCIES:

Leases

      The Company leases office space as well as certain equipment under capital
leases and noncancelable operating lease agreements, which expire at various
dates through 2011. At December 31, 1999, minimum annual rental commitments
under capital leases and noncancelable operating leases with terms in excess of
one year are as follows:

<TABLE>
<CAPTION>

Years Ending                                            Capital      Operating
December 31,                                            Leases         Leases
------------                                          -----------    -----------

<S>                                                   <C>            <C>
2000                                                  $     7,201    $    13,983
2001                                                        6,610         12,271
2002                                                        5,315         11,226
2003                                                        3,629          9,266
2004                                                        1,580          6,738
Thereafter                                                     --          7,032
                                                      -----------    -----------
Total minimum lease payments                               24,335    $    60,516
                                                      ===========
Less - Amount representing interest                        (4,095)
                                                      -----------
Present value of minimum capital lease payments            20,240
Less - Current portion of capital lease obligations        (5,484)
                                                      -----------
Capital lease obligations, net of current portion     $    14,756
                                                      ===========
</TABLE>


      Noncancelable lease expense was approximately $585,000, $5,619,000 and
$8,638,000 in 1997, 1998 and 1999, respectively.

      On December 30, 1999, the Company, through its subsidiaries, entered into
a sale-leaseback transaction in which radiology equipment with a net book value
of approximately $9,973,000 was sold for $10,000,000 and leased back for five
years. The operating lease bears interest at 9.96%, and equal monthly payments
begin in July 2000.




                                      F-18
<PAGE>   70

Litigation

      The Company is not currently subject to any material litigation nor, to
the Company's knowledge, is any material litigation threatened against the
Company other than routine litigation arising in the ordinary course of
business, which litigation is expected to be covered by liability insurance and
all of which collectively are not expected to have a material adverse effect on
the Company's business, financial condition or results of operations. There can
be no assurance that the Company will not subsequently be named as a defendant
in additional lawsuits.

      There can be no assurance that the Company will not be named as a
defendant in lawsuits for matters arising out of events that occurred prior to
the acquisition of the related radiology practices. Each practice has retained
responsibility for, and /or agreed to indemnify the Company in full against, the
liabilities associated with these lawsuits. In the event the Company is named as
a party in any of these lawsuits, or a monetary judgment is entered against the
Company and indemnification is unavailable for any reason, the Company's
business, financial condition and results of operations could be materially
adversely affected. The Company does not net litigation accruals with expected
insurance recoveries.

9. SEGMENT REPORTING

      The Company has five reportable segments: Mid-Atlantic Region,
Northeastern Region, Central Region, Western Region and Questar. The Company's
reportable segments are strategic business units defined by management's
division of responsibilities. Each owns and operates imaging centers and (except
for Questar) provides management services to the radiology facilities within
their respective segments.

      The accounting policies of the segments are the same as those described in
the summary of significant accounting policies except that the Company does not
allocate taxes associated with income to any of the regions. They are managed
separately because each segment operates under different contractual
arrangements, providing service to a diverse mix of patients and payors.


                      FOR THE YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>

                                 Mid-Atlantic    Northeastern     Central          Western
                                   Region(1)      Region(2)       Region(3)       Region(4)        Questar(5)       Total
                                 ------------    ------------    ------------    ------------    ------------    ------------

<S>                              <C>             <C>             <C>             <C>             <C>             <C>
Service fee revenue              $     81,993    $     56,852    $     24,499    $     27,072    $      9,284    $    199,700
Total operating expenses               54,072          37,717          16,211          18,843           7,173         134,016
                                 ------------    ------------    ------------    ------------    ------------    ------------
Segment contribution                   27,921          19,135           8,288           8,229           2,111          65,684
Contribution margin                        34%             34%             34%             30%             23%             33%
Depreciation and
    amortization expense                7,043           3,078             956           2,098           1,066          14,241
Interest expense                        1,488             944             247             756             715           4,150
Segment profit                         21,171          15,113           8,010           5,374             295          49,963
Segment assets                         56,664          36,087          19,211          18,117          18,830         148,909
Expenditures for
   segment assets                      14,173           2,858           4,008           5,109             831          26,979
</TABLE>





                                      F-19
<PAGE>   71


                      FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>

                               Mid-Atlantic    Northeastern      Central        Western
                                 Region(1)      Region(2)        Region(3)      Region(4)         Total
                               ------------    ------------    ------------    ------------    ------------

<S>                            <C>             <C>             <C>             <C>             <C>
Service fee revenue            $     66,421    $     43,047    $     18,377    $     21,482    $    149,327
Total operating expenses             45,392          30,543          10,754          14,969         101,658
                               ------------    ------------    ------------    ------------    ------------
Segment contribution                 21,029          12,504           7,623           6,513          47,669
Contribution margin                      32%             29%             41%             30%             32%
Depreciation and
    amortization expense              5,068           2,015             666           2,012           9,761
Interest Expense                        793             748             168             687           2,396
Segment Profit                       16,945           9,741           8,641           3,814          39,141

Segment assets                       44,101          22,470          11,756          12,029          90,356
Expenditures for
   segment assets                     3,457           4,991             284           1,125           9,857
</TABLE>



(1)      Includes the Mid-Atlantic Market.

(2)      Includes the Finger Lakes and Hudson Valley Markets.

(3)      Includes the South Texas, Treasure Coast and Northeast Kansas Markets.

(4)      Includes the Bay Area Market.

(5)      Includes 27 imaging centers purchased effective August 1, 1999.


<TABLE>
<CAPTION>

Reconciliation of Profits for the Years Ended
December 31,
                                                               1998            1999
                                                          ------------    ------------
<S>                                                       <C>             <C>
     Segment profit                                       $     39,141    $     49,963
     Unallocated amounts:
         Corporate general and administrative                   (9,597)        (11,192)
         Corporate depreciation and amortization                (2,417)         (4,162)
         Corporate interest expense                             (5,145)         (8,206)
                                                          ------------    ------------
     Income before taxes                                  $     21,982    $     26,403
                                                          ============    ============
</TABLE>



<TABLE>
<CAPTION>

Reconciliation of Assets and Expenditures
For the Years Ended December 31,                               1998            1999
                                                          ------------    ------------
<S>                                                       <C>             <C>
Assets:
     Segment amounts                                      $     90,356    $    148,909
     Corporate assets (including intangible assets)             66,283          95,931
                                                          ------------    ------------
     Total assets                                         $    156,639    $    244,840
                                                          ============    ============

Expenditures
     Segment amounts                                      $      9,857    $     26,979
     Corporate expenditures                                      2,794           4,479
                                                          ------------    ------------
     Total expenditures                                   $     12,651    $     31,458
                                                          ============    ============

</TABLE>






                                      F-20
<PAGE>   72



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH THE ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

Not applicable.

                                    PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

      The information required by Items 401 and 405 of Regulation S-K is
contained under the caption "Directors and Executive Officers" in the
registrant's proxy statement for the 2000 annual meeting of stockholders and is
incorporated herein by reference to such proxy statement.

ITEM 11.  EXECUTIVE COMPENSATION.

      The information required by Item 402 of Regulation S-K is contained under
the caption "Executive Compensation" in the registrant's proxy statement for the
2000 annual meeting of stockholders and is incorporated herein by reference to
such proxy statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

      The information required by Item 403 of Regulation S-K is contained under
the caption "Security Ownership of Certain Beneficial Owners and Management" in
the registrant's proxy statement for the 2000 annual meeting of stockholders and
is incorporated herein by reference to such proxy statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

      The information required by Item 404 of Regulation S-K is contained herein
under the caption "Certain Transactions" in the registrant's proxy statement for
the 2000 annual meeting of stockholders and is incorporated herein by reference
to such proxy statement.



                                       50
<PAGE>   73




                                     PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.


(a)            Exhibits

   EXHIBIT
    NUMBER                            DESCRIPTION

     2.1       Agreement and Plan of Reorganization and Merger, dated June 27,
               1997 by and among American Physician Partners, Inc., Carroll
               Imaging Associates, P.A., Diagnostic Imaging Associates, P.A.,
               Drs. Copeland, Hyman and Shackman, P.A., Drs. Decarlo, Lyon,
               Hearn & Pazourek, P.A., Drs. Thomas, Wallop, Kim & Lewis, P.A.,
               Harbor Radiologists, P.A., and Perilla, Syndler & Associates,
               P.A. **

     2.2       Agreement and Plan of Reorganization and Merger, dated June 27,
               1997 by and between American Physician Partners, Inc., Radiology
               and Nuclear Medicine, A Professional Association. **

     2.3       Agreement and Plan of Reorganization and Merger, dated June 27,
               1997 by and between American Physician Partners, Inc., and Mid
               Rockland Imaging Associates, P.C.**

     2.4       Agreement and Plan of Reorganization and Merger, dated June 27,
               1997 by and between American Physician Partners, Inc., and
               Rockland Radiological Group, P.C.**

     2.5       Agreement and Plan of Reorganization and Merger, dated June 27,
               1997 by and between American Physician Partners, Inc., and
               Advanced Imaging of Orange County, P.C. **

     2.6       Agreement and Plan of Reorganization and Merger, dated June 27,
               1997 by and between American Physician Partners, Inc., and
               Central Imaging Associates, P.C. **

     2.7       Agreement and Plan of Reorganization and Merger, dated June 27,
               1997 by and between American Physician Partners, Inc., and Nyack
               Magnetic Resonance Imaging, P.C. **

     2.8       Agreement and Plan of Reorganization and Merger, dated June 27,
               1997 by and between American Physician Partners, Inc., and Pelham
               Imaging Associates, P.C. **

     2.9       Agreement and Plan of Reorganization and Merger, dated June 27,
               1997 by and between American Physician Partners, Inc., and
               Women's Imaging Consultants, P.C. **

     2.10      Agreement and Plan of Reorganization and Merger, dated June 27,
               1997 by and between American Physician Partners, Inc., and
               Pacific Imaging Consultants, A Medical Group, Inc. **

     2.11      Agreement and Plan of Reorganization and Merger, dated June 27,
               1997 by and between American Physician Partners, Inc., and Total
               Medical Imaging, Inc.**

     2.12      Agreement and Plan of Reorganization and Merger, dated June 27,
               1997 by and between American Physician Partners, Inc., and Valley
               Radiologists Medical Group, Inc. **

     2.13      Agreement and Plan of Reorganization and Merger, dated June 27,
               1997 by and between American Physician Partners, Inc., and The
               Ide Group, P.C. **

     2.14      Agreement and Plan of Reorganization and Merger, dated June 27,
               1997 by and between American Physician Partners, Inc., and M&S
               X-Ray Associates, P.A. **

     2.15      Agreement and Plan of Reorganization and Merger, dated June 27,
               1997 by and between American Physician Partners, Inc., and South
               Texas MR, Inc. **

     2.16      Agreement and Plan of Exchange, dated June 27, 1997 by and
               between American Physician Partners, Inc., and San Antonio MR,
               Inc. **

     2.17      Agreement and Plan of Exchange, dated June 27, 1997 by and among
               American Physician Partners, Inc., Lexington MR, Ltd. and the
               Sellers. **

     2.18      Agreement and Plan of Exchange, dated June 27, 1997 by and among
               American Physician Partners, Inc., Madison Square Joint Venture
               and the Sellers. **



                                       51
<PAGE>   74



     2.19      Agreement and Plan of Exchange, dated June 27, 1997 by and among
               American Physician Partners, Inc., South Texas No. 1 MRI Limited
               Partnership, a Texas limited partnership, and the Sellers. **

     2.20      Agreement and Plan of Exchange, dated June 27, 1997 by and among
               American Physician Partners, Inc., San Antonio MRI Partnership
               No. 2 Ltd., a Texas limited partnership, and the Sellers**

     2.21      Agreement and Plan of Exchange, dated June 27, 1997 by and
               between American Physician Partners, Inc., and the Sellers **

     2.22      Amendment No. 1 to the Agreement and Plan of Reorganization and
               Merger, dated as of September 30, 1997, by and among American
               Physician Partners, Inc., Carroll Imaging Associates, P.A.,
               Diagnostic Imaging Associates, P.A., Drs. Thomas, Wallop, Kim &
               Lewis, P.A., Drs. Copeland, Hyman & Shackman, P.A., Drs. DeCarlo,
               Lyon, Hearn & Pazourek, P.A., Harbor Radiologists, P.A., and
               Perilla, Sindler & Associates, P.A.**

     2.23      Amendment No. 1 to the Agreement and Plan of Reorganization and
               Merger, dated as of September 30, 1997, by and between American
               Physician Partners, Inc., and Radiology and Nuclear Medicine, A
               Professional Association.**

     2.24      Amendment No. 1 to the Agreement and Plan of Reorganization and
               Merger, dated as of September 30, 1997, by and between American
               Physician Partners, Inc., and Mid Rockland Imaging Associates,
               P.C.**

     2.25      Amendment No. 1 to the Agreement and Plan of Reorganization and
               Merger, dated as of September 30, 1997, by and between American
               Physician Partners, Inc., and Rockland Radiological Group, P.C.**

     2.26      Amendment No. 1 to the Agreement and Plan of Reorganization and
               Merger, dated as of September 30, 1997, by and between American
               Physician Partners, Inc., and Advanced Imaging of Orange County,
               P.C.**

     2.27      Amendment No. 1 to the Agreement and Plan of Reorganization and
               Merger, dated as of September 30, 1997, by and between American
               Physician Partners, Inc., and Central Imaging Associates, P.C.**

     2.28      Amendment No. 1 to the Agreement and Plan of Reorganization and
               Merger, dated as of September 30, 1997, by and between American
               Physician Partners, Inc., and Nyack Magnetic Resonance Imaging,
               P.C.**

     2.29      Amendment No. 1 to the Agreement and Plan of Reorganization and
               Merger, dated as of September 30, 1997, by and between American
               Physician Partners, Inc., and Pelham Imaging Associates, P.C.**

     2.30      Amendment No. 1 to the Agreement and Plan of Reorganization and
               Merger, dated as of September 30, 1997, by and between American
               Physician Partners, Inc., and Women's Imaging Consultants, P.C.**

     2.31      Amendment No. 1 to the Agreement and Plan of Reorganization and
               Merger, dated as of September 30, 1997, by and between American
               Physician Partners, Inc., and Pacific Imaging Consultants, A
               Medical Group, Inc.**

     2.32      Amendment No. 1 to the Agreement and Plan of Reorganization and
               Merger, dated as of September 30, 1997, by and between American
               Physician Partners, Inc., and Total Medical Imaging, Inc.**

     2.33      Amendment No. 1 to the Agreement and Plan of Reorganization and
               Merger, dated as of September 30, 1997, by and between American
               Physician Partners, Inc., and Valley Radiologists Medical Group,
               Inc.**

     2.34      Amendment No. 1 to the Agreement and Plan of Reorganization and
               Merger, dated as of September 30, 1997, by and between American
               Physician Partners, Inc., and The Ide Group, P.C.**

     2.35      Amendment No. 1 to the Agreement and Plan of Reorganization and
               Merger, dated as of September 30, 1997, by and between American
               Physician Partners, Inc., and M & S X-Ray Associates, P.A.**

     2.36      Amendment No. 1 to the Agreement and Plan of Reorganization and
               Merger, dated as of September 30, 1997, by and between American
               Physician Partners, Inc., and South Texas MR, Inc.**



                                       52
<PAGE>   75






     2.37      Amendment No. 1 to the Agreement and Plan of Reorganization and
               Merger, dated as of September 30, 1997, by and between American
               Physician Partners, Inc., and San Antonio MR, Inc.**

     2.38      Amendment No. 1 to the Agreement and Plan of Exchange, dated
               September 30, 1997, by and between American Physician Partners,
               Inc., and Lexington MR, Ltd.**

     2.39      Amendment No. 1 to the Agreement and Plan of Exchange, dated
               September 30, 1997, by and between American Physician Partners,
               Inc., and Madison Square Joint Venture.**

     2.40      Amendment No. 1 to the Agreement and Plan of Exchange, dated
               September 30, 1997, by and between American Physician Partners,
               Inc., and South Texas No. 1 MRI Limited Partnership.**

     2.41      Amendment No. 1 to the Agreement and Plan of Exchange, dated
               September 30, 1997, by and between American Physician Partners,
               Inc., and San Antonio MRI Partnership No. 2, Ltd.**

     2.42      Asset Purchase Agreement, dated as of January 1, 1998, by and
               among American Physician Partners, Inc., Community Radiology
               Associates, Inc., Drs. Korsower and Pion Radiology, P.A., and the
               Principal Stockholders ****

     2.43      Asset Purchase Agreement, dated as of January 12, 1998, by and
               among American Physician Partners, Inc., Valley Imaging Partners,
               Inc., Questar Imaging, Inc. and Questar Imaging VR, Inc. ****

     2.44      Asset Purchase Agreement, dated as of January 23, 1998, by and
               among American Physician Partners, Inc., Valley Imaging Partners,
               Inc., PAL Imaging Corp. and the Principal Stockholders ****

     2.45      Asset Purchase Agreement, dated as of April 1, 1998, by and among
               American Physician Partners, Inc., Treasure Coast Imaging
               Partners, Inc. and Radiology Imaging Associates, Basilico,
               Gallagher and Raffa, M.D., P.A. and Robert F. Basilico, M.D.,
               Edward Gallagher, M.D., R.J. Raffa, M.D., Joseph T. Charles,
               M.D., Alex N. Vennos, M.D., and Robin J. Connolly, M.D.*****

     2.46      Asset Purchase Agreement, dated as of April 1, 1998, by and among
               American Physician Partners, Inc., Treasure Coast Imaging
               Partners, Inc. and St. Lucie Imaging and Breast Center, Inc. and
               Robert F. Basilico, M.D., Edward Gallagher, M.D., R.J. Raffa,
               M.D., Joseph T. Charles, M.D., Alex N. Vennos, M.D., and Robin J.
               Connolly, M.D.*****

     2.47      Asset Purchase Agreement, dated as of April 28, 1998, by and
               among American Physician Partners, Inc., Valley Imaging Partners,
               Inc., LXL, Ltd. and the Partners of LXL, Ltd.*****

     2.48      Asset Purchase Agreement, dated as of June 1, 1998, by and among
               American Physician Partners, Inc., Mid Rockland Imaging Partners,
               Inc., Empire State Imaging Partners, Inc., RF Management Corp.
               and Modern Medical Modalities Corporation*****

     2.49      Asset Purchase Agreement, dated as of June 23, 1998, by and among
               American Physician Partners, Inc., Valley Imaging Partners, Inc.,
               Brewster Imaging Center, Inc. and Each Principal Stockholder*****

     2.50      Asset Purchase Agreement, dated as of June 29, 1998, by and among
               American Physician Partners, Inc., Valley Imaging Partners, Inc.
               and Bryan M. Shieman, M.D., a sole proprietorship d/b/a El Camino
               Center for Osteoporosis and/or ECOO II*****

     2.51      Stock Purchase Agreement, dated September 1, 1998, by and among
               American Physician Partners, Inc., WB&A Imaging Partners, Inc.
               and Vimla Bhooshan, M.D., John B. DeGrazia, M.D., Edwin
               Goldstein, M.D., Paul T. Lubar, M.D., Calvin D. Neithamer, M.D.,
               William P. O'Grady, M.D., Robert A. Olshaker, M.D., Stanley M.
               Perl, M.D., Michael S. Usher, M.D., Alan B. Kronthal, M.D.,
               Steven A. Meyers, M.D., Victor A. Bracey, M.D. and Larry W.
               Busching ******

     2.52      Asset Purchase Agreement, dated September 1, 1998, by and among
               American Physician Partners, Inc., Ormond Imaging Partners, Inc.,
               Magnetic Resonance Imaging Associates Limited Partnership and
               Paul T. Lubar, Stanley M. Perl, Michael S. Usher, John B.
               DeGrazia, Larry W. Busching, Vimla Bhooshan, William P. O'Grady,
               Robert A. Olshaker, and Calvin D. Neithamer ******

                                       53
<PAGE>   76
<TABLE>

<S>            <C>
     2.53      Asset Purchase Agreement, dated September 1, 1998, by and among
               American Physician Partners, Inc., Ormond Imaging Partners, Inc.,
               Duke Associates Limited Partnership and Paul T. Lubar, Stanley M.
               Perl, Michael S. Usher, John B. DeGrazia, Larry W. Busching,
               Vimla Bhooshan, William P. O'Grady, Edwin Goldstein, Robert A.
               Olshaker, Calvin D. Neithamer and Alan J. Kronthal ******

     2.54      Stock Purchase Agreement effective as of August 1, 1999 by and
               among American Physician Partners, Inc., Questar Imaging, Inc.
               and the shareholders of Questar Imaging, Inc.********

     3.1       Restated Certificate of Incorporation of American Physician
               Partners, Inc.***

     3.2       Amended and Restated Bylaws of American Physician Partners,
               Inc.***

     3.3       Amendment to Restated Certificate of Incorporation of American
               Physician Partners, Inc.*********

     3.4       Amendment to Restated Bylaws of American Physician Partners,
               Inc.*********

     4.1       Form of certificate evidencing ownership of Common Stock of
               American Physician Partners, Inc.***

     4.2       Form of Convertible Promissory Note of American Physician
               Partners, Inc.**

     4.3       Securities Purchase Agreement dated as of August 3, 1999 by and
               between American Physician Partners, Inc. and BT Capital Partners
               SBIC, L.P.********

     4.4       Convertible Junior Subordinated Promisory Note dated August 1,
               1999 issued to BT Capital Partners SBIC, L.P.********

     10.1      American Physician Partners, Inc. 1996 Stock Option Plan.**

     10.2      Employment Agreement between American Physician Partners, Inc.
               and Gregory L. Solomon.**

     10.3      Employment Agreement between American Physician Partners, Inc.
               and Mark S. Martin.**

     10.4      Employment Agreement between American Physician Partners, Inc.
               and Sami S. Abbasi.**

     10.5      Employment Agreement between American Physician Partners, Inc.
               and Paul M. Jolas.**

     10.6      Form of Indemnification Agreement for certain Directors and
               Officers.***

     10.7      Form of Registration Rights Agreement.**

     10.8      Service Agreement dated November 26, 1997, by and among American
               Physician Partners, Inc., APPI-Advanced Radiology, Inc. and
               Carroll Imaging Associates, P.A., Diagnostic Imaging Associates,
               P.A., Drs. Thomas, Wallop, Kim & Lewis, P.A., Drs. Copeland,
               Hyman and Shackman, P.A., Drs. Decarlo, Lyon, Hearn & Pazourek,
               P.A., Harbor Radiologists, P.A., Perilla, Sindler & Associates,
               P.A.**

     10.9      Service Agreement dated November 26, 1997, by and among American
               Physician Partners, Inc., Ide Admin Corp. and Ide Imaging Group,
               P.C.**

     10.10     Service Agreement dated November 26, 1997, by and among American
               Physician Partners, Inc., M & S X-Ray Associates, P.A. and M&S
               Imaging Associates, P.A.**

     10.11     Service Agreement dated November 26, 1997, by and among American
               Physician Partners, Inc., Rockland Radiological Group, P.C. and
               The Greater Rockland Radiological Group, P.C.**

     10.12     Service Agreement dated November , by and among American
               Physician Partners, Inc., Advanced Imaging of Orange County, P.C.
               and The Greater Rockland Radiological Group, P.C.**

     10.13     Service Agreement dated November 26, 1997, by and among American
               Physician Partners, Inc., Central Imaging Associates, P.C. and
               The Greater Rockland Radiological Group, P.C.**

     10.14     Service Agreement dated November 26, 1997, by and among American
               Physician Partners, Inc., Nyack Magnetic Resonance Imaging, P.C.
               and The Greater Rockland Radiological Group, P.C.**

     10.15     Service Agreement dated November 26, 1997, by and among American
               Physician Partners, Inc., Pelham Imaging Associates, P.C. and The
               Greater Rockland Radiological Group, P.C.**

     10.16     Service Agreement dated November 26, 1997, by and among American
               Physician Partners, Inc., Women's Imaging Consultants, P.C. and
               The Greater Rockland Radiological Group, P.C.**

     10.17     Service Agreement dated November 26, 1997, by and among American
               Physician Partners, Inc., APPI-Pacific Imaging Inc. and PIC
               Medical Group, Inc.**

     10.18     Service Agreement dated November 26, 1997, by and among American
               Physician Partners, Inc., Radiology and Nuclear Medicine, a
               Professional Association and RNM L.L.C.**

     10.19     Service Agreement dated November 26, 1997, by and among American
               Physician Partners, Inc., APPI-Valley Radiology, Inc. and Valley
               Radiology Medical Associates, Inc.**

     10.20     Consulting Agreement between American Physician Partners, Inc.
               and Michael L. Sherman, M.D.***

     10.21     Office Building Lease Agreement between Dallas Main Center
               Limited Partnership and American Physician Partners, Inc.***

     10.22     First Amendment to Office Building Lease Agreement between Dallas
               Main Center Limited Partnership and American Physician Partners,
               Inc.***
</TABLE>



                                       54
<PAGE>   77
<TABLE>
<S>            <C>
     10.24     Consulting Agreement between American Physician Partners, Inc.
               and Lawrence R. Muroff, M.D.***

     10.25     Side Letter dated November 12, 1997 by and between American
               Physician Partners, Inc. and Lawrence Muroff, M.D.***

     10.26     Side Letter dated November 12, 1997 by and between American
               Physician Partners, Inc. and Mark Martin.***

     10.27     Side Letter dated November 12, 1997 by and between American
               Physician Partners, Inc. and Sami Abbasi.***

     10.28     Side Letter dated November 12, 1997 by and between American
               Physician Partners, Inc. and Gregory L. Solomon.***

     10.29     First Amendment to Consulting Agreement between American
               Physician Partners, Inc. and Lawrence R. Muroff, M.D.***

     10.30     Side Letter dated November 12, 1997 by and between American
               Physician Partners, Inc. and Michael Sherman, M.D.***

     10.31     Side Letter dated November 12, 1997 by and between American
               Physician Partners, Inc. and Paul M. Jolas.***

     10.32     Side Letter dated November 12, 1997 by and between American
               Physician Partners, Inc. and Derace Schaffer, M.D.***

     10.33     Side Letter dated November 12, 1997 by and between American
               Physician Partners, Inc. and John Pappajohn.***

     10.34     Side Letter dated November 12, 1997 by and between American
               Physician Partners, Inc. and Mary Pappajohn.***

     10.35     Side Letter dated November 12, 1997 by and between American
               Physician Partners, Inc. and Thebes Ltd.***

     10.36     Side Letter dated November 12, 1997 by and between American
               Physician Partners, Inc. and Halkis Ltd.***

     10.37     Service Agreement dated January 1, 1998, by and among American
               Physician Partners, Inc., Community Imaging Partners, Inc.,
               Community Radiology Associates, Inc. and Drs. Korsower and Pion
               Radiology, P.A.****

     10.38     Service Agreement dated April 1, 1998, by and among American
               Physician Partners, Inc., Treasure Coast Imaging Partners, Inc.
               and Radiology Imaging Associates - Basilico, Gallagher & Raffa,
               M.D., P.A. *****

     10.39     First Amendment to Credit Agreement and Consent dated May 19,
               1998, by and among American Physician Partners, Inc., General
               Electric Capital Corporation and the other credit parties
               signatory thereto*****

     10.40     Employment Agreement between American Physician Partners, Inc.
               and Mark L. Wagar*****

     10.41     Service Agreement dated September 1, 1998, by and among American
               Physician Partners, Inc., WB&A Imaging Partners, Inc. and WB&A
               Imaging, P.C. ******

     10.42     Office Building Lease Agreement between The Equitable-Nissei
               Dallas Company and Fibreboard Corporation ******

     10.43     Office Building Sublease Agreement by and between Fibreboard
               Corporation and American Physician Partners, Inc. ******

     10.44     First Amendment to Employment Agreement between American
               Physician Partners, Inc. and Mark L. Wagar *******

     10.45     First Amendment to Employment Agreement between American
               Physician Partners, Inc. and Mark S. Martin *******

     10.46     First Amendment to Employment Agreement between American
               Physician Partners, Inc. and Sami S. Abbasi *******

     10.47     First Amendment to Employment Agreement between American
               Physician Partners, Inc. and Paul M. Jolas *******

     10.48     Amendment No. 1 to American Physician Partners, Inc. 1996 Stock
               Option Plan ********

     21.1      Subsidiaries*

     23.1      Consent of Arthur Andersen*

     24.1      Power of Attorney (contained on the signature page of this Form
               10-K)*

     27        Financial Data Schedule *

     99.1      Press Release issued by Radiologix, Inc. on September 24, 1999
               announcing its change of corporate name from American Physician
               Partners, Inc. **********

     99.2      Certificate of Ownership and Merger of Radiologix, Inc. with and
               into American Physician Partners, Inc. **********
</TABLE>

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

*          Filed herewith.

**         Incorporated by reference to the corresponding Exhibit number to
           the registrant's Registration Statement No. 333-31611 on Form
           S-4.

***        Incorporated by reference to the corresponding Exhibit number to
           the registrant's Registration Statement No. 333-30205 on Form
           S-1.


                                       55

<PAGE>   78

****       Incorporated by reference to the corresponding Exhibit number to
           the registrant's Form 10-Q filed on May 15, 1998.

*****      Incorporated by reference to the corresponding Exhibit number to
           the registrant's Form 10-Q filed on August 14, 1998.

******     Incorporated by reference to the corresponding Exhibit number to
           the registrant's Form 10-Q filed on November 13, 1998.

*******    Incorporated by reference to the corresponding Exhibit number to
           the registrant's Form 10-Q filed on May 17, 1999.

********   Incorporated by reference to the corresponding Exhibit number to
           the Registrant's Form 8-K filed on August 3, 1999.

*********  Incorporated by reference to the corresponding Exhibit number to
           the Registrant's Form 10-Q filed on August 16, 1999.

********** Incorporated by reference to the corresponding Exhibit number to
           the Registrant's Form 8-K filed on September 24, 1999.


      (b) Financial Statement Schedules.

      Schedules are omitted because they are not applicable, or the information
is included in the financial statements or the notes thereto.

      (c)  Reports on Form 8-K.



                                       56
<PAGE>   79

                                 SIGNATURE PAGE

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Act of 1934, Radiologix, Inc. has duly caused this Form 10-K to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on March 29, 2000.

                                        RADIOLOGIX, INC.


                                   By:  /s/ Mark L. Wagar
                                        ----------------------------------------
                                        Mark  L. Wagar
                                        Chairman of the Board
                                        and Chief Executive Officer

                               POWER OF ATTORNEY

         Each individual whose signature appears below constitutes and appoints
Mark L. Wagar and Paul M. Jolas, and each of them, such person's true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for such person and in such person's name, place, and stead, in any and all
capacities, to sign any and all amendments to this Form 10-K, and to file the
same with all exhibits thereto, and all documents in connection therewith, with
the Securities and Exchange Commission, granting unto such attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as such person might or could do
in person, hereby ratifying and confirming all that such attorneys-in-fact and
agents, or any of them, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Act of 1934, this Form 10-K has been signed by the following persons in the
capacities and on the dates indicated.


<TABLE>
<CAPTION>

SIGNATURE                                TITLE                                      DATE
---------                                -----                                      ----

<S>                                      <C>                                        <C>
/s/ Mark L. Wagar                        Chairman of the Board of Directors and     March 29, 2000
-------------------------------          Chief Executive Officer (Principal
 Mark L. Wagar                           Executive Officer)


/s/ David W. Young                       Vice President of Finance, Treasurer and   March 29, 2000
-------------------------------          Controller (Principal Accounting Officer)
 David W. Young

/s/ John Pappajohn                       Director                                   March 29, 2000
-------------------------------
 John Pappajohn

/s/ Derace L. Schaffer, M.D.             Director                                   March 29, 2000
-------------------------------
 Derace L. Schaffer, M.D.

/s/ Michael L. Sherman, M.D.             Director                                   March 29, 2000
---------------------------------
 Michael L. Sherman, M.D.


/s/ John W. Colloton                     Director                                   March 29, 2000
--------------------------------------
 John W. Colloton

/s/ Less T. Chafen, M.D.                 Director                                   March 29, 2000
------------------------------------
 Less T. Chafen, M.D
</TABLE>





<PAGE>   80




Schedule II

                                 Radiologix, Inc
                        Valuation and Qualifying Accounts
              For the Years Ended December 31, 1997, 1998 and 1999
                             (dollars in thousands)

<TABLE>
<CAPTION>

                                            Balance at                                          Balance at
                                            Beginning                                             End of
Description                                 of Period     Provision      Other      Writeoffs     Period
-----------                                 ---------     ----------   ----------   ----------   ----------


ALLOWANCES FOR BAD DEBT

<S>                                          <C>          <C>          <C>          <C>          <C>
For the Year Ended December 31, 1997         $       --   $      862   $   15,647   $       69   $   16,440

For the Year Ended December 31, 1998             16,440       13,723          977       12,768       18,372


For the Year Ended December 31, 1999             18,372       18,838          637       10,871       26,976

</TABLE>



Amounts in "Other" category represent
allowance from new affiliations.





<PAGE>   81

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>


   EXHIBIT
    NUMBER                            DESCRIPTION
   -------                            -----------

<S>            <C>
     2.1       Agreement and Plan of Reorganization and Merger, dated June 27,
               1997 by and among American Physician Partners, Inc., Carroll
               Imaging Associates, P.A., Diagnostic Imaging Associates, P.A.,
               Drs. Copeland, Hyman and Shackman, P.A., Drs. Decarlo, Lyon,
               Hearn & Pazourek, P.A., Drs. Thomas, Wallop, Kim & Lewis, P.A.,
               Harbor Radiologists, P.A., and Perilla, Syndler & Associates,
               P.A. **

     2.2       Agreement and Plan of Reorganization and Merger, dated June 27,
               1997 by and between American Physician Partners, Inc., Radiology
               and Nuclear Medicine, A Professional Association. **

     2.3       Agreement and Plan of Reorganization and Merger, dated June 27,
               1997 by and between American Physician Partners, Inc., and Mid
               Rockland Imaging Associates, P.C.**

     2.4       Agreement and Plan of Reorganization and Merger, dated June 27,
               1997 by and between American Physician Partners, Inc., and
               Rockland Radiological Group, P.C.**

     2.5       Agreement and Plan of Reorganization and Merger, dated June 27,
               1997 by and between American Physician Partners, Inc., and
               Advanced Imaging of Orange County, P.C. **

     2.6       Agreement and Plan of Reorganization and Merger, dated June 27,
               1997 by and between American Physician Partners, Inc., and
               Central Imaging Associates, P.C. **

     2.7       Agreement and Plan of Reorganization and Merger, dated June 27,
               1997 by and between American Physician Partners, Inc., and Nyack
               Magnetic Resonance Imaging, P.C. **

     2.8       Agreement and Plan of Reorganization and Merger, dated June 27,
               1997 by and between American Physician Partners, Inc., and Pelham
               Imaging Associates, P.C. **

     2.9       Agreement and Plan of Reorganization and Merger, dated June 27,
               1997 by and between American Physician Partners, Inc., and
               Women's Imaging Consultants, P.C. **

     2.10      Agreement and Plan of Reorganization and Merger, dated June 27,
               1997 by and between American Physician Partners, Inc., and
               Pacific Imaging Consultants, A Medical Group, Inc. **

     2.11      Agreement and Plan of Reorganization and Merger, dated June 27,
               1997 by and between American Physician Partners, Inc., and Total
               Medical Imaging, Inc.**

     2.12      Agreement and Plan of Reorganization and Merger, dated June 27,
               1997 by and between American Physician Partners, Inc., and Valley
               Radiologists Medical Group, Inc. **

     2.13      Agreement and Plan of Reorganization and Merger, dated June 27,
               1997 by and between American Physician Partners, Inc., and The
               Ide Group, P.C. **

     2.14      Agreement and Plan of Reorganization and Merger, dated June 27,
               1997 by and between American Physician Partners, Inc., and M&S
               X-Ray Associates, P.A. **

     2.15      Agreement and Plan of Reorganization and Merger, dated June 27,
               1997 by and between American Physician Partners, Inc., and South
               Texas MR, Inc. **

     2.16      Agreement and Plan of Exchange, dated June 27, 1997 by and
               between American Physician Partners, Inc., and San Antonio MR,
               Inc. **

     2.17      Agreement and Plan of Exchange, dated June 27, 1997 by and among
               American Physician Partners, Inc., Lexington MR, Ltd. and the
               Sellers. **

     2.18      Agreement and Plan of Exchange, dated June 27, 1997 by and among
               American Physician Partners, Inc., Madison Square Joint Venture
               and the Sellers. **
</TABLE>

<PAGE>   82

<TABLE>


<S>            <C>
     2.19      Agreement and Plan of Exchange, dated June 27, 1997 by and among
               American Physician Partners, Inc., South Texas No. 1 MRI Limited
               Partnership, a Texas limited partnership, and the Sellers. **

     2.20      Agreement and Plan of Exchange, dated June 27, 1997 by and among
               American Physician Partners, Inc., San Antonio MRI Partnership
               No. 2 Ltd., a Texas limited partnership, and the Sellers**

     2.21      Agreement and Plan of Exchange, dated June 27, 1997 by and
               between American Physician Partners, Inc., and the Sellers **

     2.22      Amendment No. 1 to the Agreement and Plan of Reorganization and
               Merger, dated as of September 30, 1997, by and among American
               Physician Partners, Inc., Carroll Imaging Associates, P.A.,
               Diagnostic Imaging Associates, P.A., Drs. Thomas, Wallop, Kim &
               Lewis, P.A., Drs. Copeland, Hyman & Shackman, P.A., Drs. DeCarlo,
               Lyon, Hearn & Pazourek, P.A., Harbor Radiologists, P.A., and
               Perilla, Sindler & Associates, P.A.**

     2.23      Amendment No. 1 to the Agreement and Plan of Reorganization and
               Merger, dated as of September 30, 1997, by and between American
               Physician Partners, Inc., and Radiology and Nuclear Medicine, A
               Professional Association.**

     2.24      Amendment No. 1 to the Agreement and Plan of Reorganization and
               Merger, dated as of September 30, 1997, by and between American
               Physician Partners, Inc., and Mid Rockland Imaging Associates,
               P.C.**

     2.25      Amendment No. 1 to the Agreement and Plan of Reorganization and
               Merger, dated as of September 30, 1997, by and between American
               Physician Partners, Inc., and Rockland Radiological Group, P.C.**

     2.26      Amendment No. 1 to the Agreement and Plan of Reorganization and
               Merger, dated as of September 30, 1997, by and between American
               Physician Partners, Inc., and Advanced Imaging of Orange County,
               P.C.**

     2.27      Amendment No. 1 to the Agreement and Plan of Reorganization and
               Merger, dated as of September 30, 1997, by and between American
               Physician Partners, Inc., and Central Imaging Associates, P.C.**

     2.28      Amendment No. 1 to the Agreement and Plan of Reorganization and
               Merger, dated as of September 30, 1997, by and between American
               Physician Partners, Inc., and Nyack Magnetic Resonance Imaging,
               P.C.**

     2.29      Amendment No. 1 to the Agreement and Plan of Reorganization and
               Merger, dated as of September 30, 1997, by and between American
               Physician Partners, Inc., and Pelham Imaging Associates, P.C.**

     2.30      Amendment No. 1 to the Agreement and Plan of Reorganization and
               Merger, dated as of September 30, 1997, by and between American
               Physician Partners, Inc., and Women's Imaging Consultants, P.C.**

     2.31      Amendment No. 1 to the Agreement and Plan of Reorganization and
               Merger, dated as of September 30, 1997, by and between American
               Physician Partners, Inc., and Pacific Imaging Consultants, A
               Medical Group, Inc.**

     2.32      Amendment No. 1 to the Agreement and Plan of Reorganization and
               Merger, dated as of September 30, 1997, by and between American
               Physician Partners, Inc., and Total Medical Imaging, Inc.**

     2.33      Amendment No. 1 to the Agreement and Plan of Reorganization and
               Merger, dated as of September 30, 1997, by and between American
               Physician Partners, Inc., and Valley Radiologists Medical Group,
               Inc.**

     2.34      Amendment No. 1 to the Agreement and Plan of Reorganization and
               Merger, dated as of September 30, 1997, by and between American
               Physician Partners, Inc., and The Ide Group, P.C.**

     2.35      Amendment No. 1 to the Agreement and Plan of Reorganization and
               Merger, dated as of September 30, 1997, by and between American
               Physician Partners, Inc., and M & S X-Ray Associates, P.A.**

     2.36      Amendment No. 1 to the Agreement and Plan of Reorganization and
               Merger, dated as of September 30, 1997, by and between American
               Physician Partners, Inc., and South Texas MR, Inc.**
</TABLE>

<PAGE>   83




<TABLE>


<S>            <C>
     2.37      Amendment No. 1 to the Agreement and Plan of Reorganization and
               Merger, dated as of September 30, 1997, by and between American
               Physician Partners, Inc., and San Antonio MR, Inc.**

     2.38      Amendment No. 1 to the Agreement and Plan of Exchange, dated
               September 30, 1997, by and between American Physician Partners,
               Inc., and Lexington MR, Ltd.**

     2.39      Amendment No. 1 to the Agreement and Plan of Exchange, dated
               September 30, 1997, by and between American Physician Partners,
               Inc., and Madison Square Joint Venture.**

     2.40      Amendment No. 1 to the Agreement and Plan of Exchange, dated
               September 30, 1997, by and between American Physician Partners,
               Inc., and South Texas No. 1 MRI Limited Partnership.**

     2.41      Amendment No. 1 to the Agreement and Plan of Exchange, dated
               September 30, 1997, by and between American Physician Partners,
               Inc., and San Antonio MRI Partnership No. 2, Ltd.**

     2.42      Asset Purchase Agreement, dated as of January 1, 1998, by and
               among American Physician Partners, Inc., Community Radiology
               Associates, Inc., Drs. Korsower and Pion Radiology, P.A., and the
               Principal Stockholders ****

     2.43      Asset Purchase Agreement, dated as of January 12, 1998, by and
               among American Physician Partners, Inc., Valley Imaging Partners,
               Inc., Questar Imaging, Inc. and Questar Imaging VR, Inc. ****

     2.44      Asset Purchase Agreement, dated as of January 23, 1998, by and
               among American Physician Partners, Inc., Valley Imaging Partners,
               Inc., PAL Imaging Corp. and the Principal Stockholders ****

     2.45      Asset Purchase Agreement, dated as of April 1, 1998, by and among
               American Physician Partners, Inc., Treasure Coast Imaging
               Partners, Inc. and Radiology Imaging Associates, Basilico,
               Gallagher and Raffa, M.D., P.A. and Robert F. Basilico, M.D.,
               Edward Gallagher, M.D., R.J. Raffa, M.D., Joseph T. Charles,
               M.D., Alex N. Vennos, M.D., and Robin J. Connolly, M.D.*****

     2.46      Asset Purchase Agreement, dated as of April 1, 1998, by and among
               American Physician Partners, Inc., Treasure Coast Imaging
               Partners, Inc. and St. Lucie Imaging and Breast Center, Inc. and
               Robert F. Basilico, M.D., Edward Gallagher, M.D., R.J. Raffa,
               M.D., Joseph T. Charles, M.D., Alex N. Vennos, M.D., and Robin J.
               Connolly, M.D.*****

     2.47      Asset Purchase Agreement, dated as of April 28, 1998, by and
               among American Physician Partners, Inc., Valley Imaging Partners,
               Inc., LXL, Ltd. and the Partners of LXL, Ltd.*****

     2.48      Asset Purchase Agreement, dated as of June 1, 1998, by and among
               American Physician Partners, Inc., Mid Rockland Imaging Partners,
               Inc., Empire State Imaging Partners, Inc., RF Management Corp.
               and Modern Medical Modalities Corporation*****

     2.49      Asset Purchase Agreement, dated as of June 23, 1998, by and among
               American Physician Partners, Inc., Valley Imaging Partners, Inc.,
               Brewster Imaging Center, Inc. and Each Principal Stockholder*****

     2.50      Asset Purchase Agreement, dated as of June 29, 1998, by and among
               American Physician Partners, Inc., Valley Imaging Partners, Inc.
               and Bryan M. Shieman, M.D., a sole proprietorship d/b/a El Camino
               Center for Osteoporosis and/or ECOO II*****

     2.51      Stock Purchase Agreement, dated September 1, 1998, by and among
               American Physician Partners, Inc., WB&A Imaging Partners, Inc.
               and Vimla Bhooshan, M.D., John B. DeGrazia, M.D., Edwin
               Goldstein, M.D., Paul T. Lubar, M.D., Calvin D. Neithamer, M.D.,
               William P. O'Grady, M.D., Robert A. Olshaker, M.D., Stanley M.
               Perl, M.D., Michael S. Usher, M.D., Alan B. Kronthal, M.D.,
               Steven A. Meyers, M.D., Victor A. Bracey, M.D. and Larry W.
               Busching ******

     2.52      Asset Purchase Agreement, dated September 1, 1998, by and among
               American Physician Partners, Inc., Ormond Imaging Partners, Inc.,
               Magnetic Resonance Imaging Associates Limited Partnership and
               Paul T. Lubar, Stanley M. Perl, Michael S. Usher, John B.
               DeGrazia, Larry W. Busching, Vimla Bhooshan, William P. O'Grady,
               Robert A. Olshaker, and Calvin D. Neithamer ******
</TABLE>

<PAGE>   84
<TABLE>

<S>            <C>
     2.53      Asset Purchase Agreement, dated September 1, 1998, by and among
               American Physician Partners, Inc., Ormond Imaging Partners, Inc.,
               Duke Associates Limited Partnership and Paul T. Lubar, Stanley M.
               Perl, Michael S. Usher, John B. DeGrazia, Larry W. Busching,
               Vimla Bhooshan, William P. O'Grady, Edwin Goldstein, Robert A.
               Olshaker, Calvin D. Neithamer and Alan J. Kronthal ******

     2.54      Stock Purchase Agreement effective as of August 1, 1999 by and
               among American Physician Partners, Inc., Questar Imaging, Inc.
               and the shareholders of Questar Imaging, Inc.********

     3.1       Restated Certificate of Incorporation of American Physician
               Partners, Inc.***

     3.2       Amended and Restated Bylaws of American Physician Partners,
               Inc.***

     3.3       Amendment to Restated Certificate of Incorporation of American
               Physician Partners, Inc.*********

     3.4       Amendment to Restated Bylaws of American Physician Partners,
               Inc.*********

     4.1       Form of certificate evidencing ownership of Common Stock of
               American Physician Partners, Inc.***

     4.2       Form of Convertible Promissory Note of American Physician
               Partners, Inc.**

     4.3       Securities Purchase Agreement dated as of August 3, 1999 by and
               between American Physician Partners, Inc. and BT Capital Partners
               SBIC, L.P.********

     4.4       Convertible Junior Subordinated Promisory Note dated August 1,
               1999 issued to BT Capital Partners SBIC, L.P.********

     10.1      American Physician Partners, Inc. 1996 Stock Option Plan.**

     10.2      Employment Agreement between American Physician Partners, Inc.
               and Gregory L. Solomon.**

     10.3      Employment Agreement between American Physician Partners, Inc.
               and Mark S. Martin.**

     10.4      Employment Agreement between American Physician Partners, Inc.
               and Sami S. Abbasi.**

     10.5      Employment Agreement between American Physician Partners, Inc.
               and Paul M. Jolas.**

     10.6      Form of Indemnification Agreement for certain Directors and
               Officers.***

     10.7      Form of Registration Rights Agreement.**

     10.8      Service Agreement dated November 26, 1997, by and among American
               Physician Partners, Inc., APPI-Advanced Radiology, Inc. and
               Carroll Imaging Associates, P.A., Diagnostic Imaging Associates,
               P.A., Drs. Thomas, Wallop, Kim & Lewis, P.A., Drs. Copeland,
               Hyman and Shackman, P.A., Drs. Decarlo, Lyon, Hearn & Pazourek,
               P.A., Harbor Radiologists, P.A., Perilla, Sindler & Associates,
               P.A.**

     10.9      Service Agreement dated November 26, 1997, by and among American
               Physician Partners, Inc., Ide Admin Corp. and Ide Imaging Group,
               P.C.**

     10.10     Service Agreement dated November 26, 1997, by and among American
               Physician Partners, Inc., M & S X-Ray Associates, P.A. and M&S
               Imaging Associates, P.A.**

     10.11     Service Agreement dated November 26, 1997, by and among American
               Physician Partners, Inc., Rockland Radiological Group, P.C. and
               The Greater Rockland Radiological Group, P.C.**

     10.12     Service Agreement dated November , by and among American
               Physician Partners, Inc., Advanced Imaging of Orange County, P.C.
               and The Greater Rockland Radiological Group, P.C.**

     10.13     Service Agreement dated November 26, 1997, by and among American
               Physician Partners, Inc., Central Imaging Associates, P.C. and
               The Greater Rockland Radiological Group, P.C.**

     10.14     Service Agreement dated November 26, 1997, by and among American
               Physician Partners, Inc., Nyack Magnetic Resonance Imaging, P.C.
               and The Greater Rockland Radiological Group, P.C.**

     10.15     Service Agreement dated November 26, 1997, by and among American
               Physician Partners, Inc., Pelham Imaging Associates, P.C. and The
               Greater Rockland Radiological Group, P.C.**

     10.16     Service Agreement dated November 26, 1997, by and among American
               Physician Partners, Inc., Women's Imaging Consultants, P.C. and
               The Greater Rockland Radiological Group, P.C.**

     10.17     Service Agreement dated November 26, 1997, by and among American
               Physician Partners, Inc., APPI-Pacific Imaging Inc. and PIC
               Medical Group, Inc.**

     10.18     Service Agreement dated November 26, 1997, by and among American
               Physician Partners, Inc., Radiology and Nuclear Medicine, a
               Professional Association and RNM L.L.C.**

     10.19     Service Agreement dated November 26, 1997, by and among American
               Physician Partners, Inc., APPI-Valley Radiology, Inc. and Valley
               Radiology Medical Associates, Inc.**

     10.20     Consulting Agreement between American Physician Partners, Inc.
               and Michael L. Sherman, M.D.***

     10.21     Office Building Lease Agreement between Dallas Main Center
               Limited Partnership and American Physician Partners, Inc.***

     10.22     First Amendment to Office Building Lease Agreement between Dallas
               Main Center Limited Partnership and American Physician Partners,
               Inc.***
</TABLE>


<PAGE>   85
<TABLE>
<S>            <C>
     10.23     Credit Agreement by and among American Physician Partners, Inc.,
               GE Capital Corporation and the other credit parties signatory
               thereto.***

     10.24     Consulting Agreement between American Physician Partners, Inc.
               and Lawrence R. Muroff, M.D.***

     10.25     Side Letter dated November 12, 1997 by and between American
               Physician Partners, Inc. and Lawrence Muroff, M.D.***

     10.26     Side Letter dated November 12, 1997 by and between American
               Physician Partners, Inc. and Mark Martin.***

     10.27     Side Letter dated November 12, 1997 by and between American
               Physician Partners, Inc. and Sami Abbasi.***

     10.28     Side Letter dated November 12, 1997 by and between American
               Physician Partners, Inc. and Gregory L. Solomon.***

     10.29     First Amendment to Consulting Agreement between American
               Physician Partners, Inc. and Lawrence R. Muroff, M.D.***

     10.30     Side Letter dated November 12, 1997 by and between American
               Physician Partners, Inc. and Michael Sherman, M.D.***

     10.31     Side Letter dated November 12, 1997 by and between American
               Physician Partners, Inc. and Paul M. Jolas.***

     10.32     Side Letter dated November 12, 1997 by and between American
               Physician Partners, Inc. and Derace Schaffer, M.D.***

     10.33     Side Letter dated November 12, 1997 by and between American
               Physician Partners, Inc. and John Pappajohn.***

     10.34     Side Letter dated November 12, 1997 by and between American
               Physician Partners, Inc. and Mary Pappajohn.***

     10.35     Side Letter dated November 12, 1997 by and between American
               Physician Partners, Inc. and Thebes Ltd.***

     10.36     Side Letter dated November 12, 1997 by and between American
               Physician Partners, Inc. and Halkis Ltd.***

     10.37     Service Agreement dated January 1, 1998, by and among American
               Physician Partners, Inc., Community Imaging Partners, Inc.,
               Community Radiology Associates, Inc. and Drs. Korsower and Pion
               Radiology, P.A.****

     10.38     Service Agreement dated April 1, 1998, by and among American
               Physician Partners, Inc., Treasure Coast Imaging Partners, Inc.
               and Radiology Imaging Associates - Basilico, Gallagher & Raffa,
               M.D., P.A. *****

     10.39     First Amendment to Credit Agreement and Consent dated May 19,
               1998, by and among American Physician Partners, Inc., General
               Electric Capital Corporation and the other credit parties
               signatory thereto*****

     10.40     Employment Agreement between American Physician Partners, Inc.
               and Mark L. Wagar*****

     10.41     Service Agreement dated September 1, 1998, by and among American
               Physician Partners, Inc., WB&A Imaging Partners, Inc. and WB&A
               Imaging, P.C. ******

     10.42     Office Building Lease Agreement between The Equitable-Nissei
               Dallas Company and Fibreboard Corporation ******

     10.43     Office Building Sublease Agreement by and between Fibreboard
               Corporation and American Physician Partners, Inc. ******

     10.44     First Amendment to Employment Agreement between American
               Physician Partners, Inc. and Mark L. Wagar *******

     10.45     First Amendment to Employment Agreement between American
               Physician Partners, Inc. and Mark S. Martin *******

     10.46     First Amendment to Employment Agreement between American
               Physician Partners, Inc. and Sami S. Abbasi *******

     10.47     First Amendment to Employment Agreement between American
               Physician Partners, Inc. and Paul M. Jolas *******

     10.48     Amendment No. 1 to American Physician Partners, Inc. 1996 Stock
               Option Plan ********

     21.1      Subsidiaries*

     23.1      Consent of Arthur Andersen*

     24.1      Power of Attorney (contained on the signature page of this Form
               10-K)*

     27        Financial Data Schedule *

     99.1      Press Release issued by Radiologix, Inc. on September 24, 1999
               announcing its change of corporate name from American Physician
               Partners, Inc. **********

     99.2      Certificate of Ownership and Merger of Radiologix, Inc. with and
               into American Physician Partners, Inc. **********
</TABLE>

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

*          Filed herewith.

**         Incorporated by reference to the corresponding Exhibit number to
           the registrant's Registration Statement No. 333-31611 on Form
           S-4.

***        Incorporated by reference to the corresponding Exhibit number to
           the registrant's Registration Statement No. 333-30205 on Form
           S-1.
<PAGE>   86

****       Incorporated by reference to the corresponding Exhibit number to
           the registrant's Form 10-Q filed on May 15, 1998.

*****      Incorporated by reference to the corresponding Exhibit number to
           the registrant's Form 10-Q filed on August 14, 1998.

******     Incorporated by reference to the corresponding Exhibit number to
           the registrant's Form 10-Q filed on November 13, 1998.

*******    Incorporated by reference to the corresponding Exhibit number to
           the registrant's Form 10-Q filed on May 17, 1999.

********   Incorporated by reference to the corresponding Exhibit number to
           the Registrant's Form 8-K filed on August 3, 1999.

*********  Incorporated by reference to the corresponding Exhibit number to
           the Registrant's Form 10-Q filed on August 16, 1999.

********** Incorporated by reference to the corresponding Exhibit number to
           the Registrant's Form 8-K filed on September 24, 1999.


      (b) Financial Statement Schedules.

      Schedules are omitted because they are not applicable, or the information
is included in the financial statements or the notes thereto.

      (c)  Reports on Form 8-K.