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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998         COMMISSION FILE NO. 0-23311


                        AMERICAN PHYSICIAN PARTNERS, INC.
             (Exact name of registrant as specified in its charter)


            DELAWARE                                  75-2648089
         (State or other                           (I.R.S. Employer
         jurisdiction of                            Identification)
        incorporation or
          organization)


                                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:

                                                Name of each exchange 
           Title of each class                  on which registered
           -------------------                  --------------------

                  None                                 None


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

         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 $135,080,491, based on the closing sales
price of $7.00 of the registrant's Common Stock on the Nasdaq National Market on
February 18, 1999.

         As of February 18, 1999, 19,297,213 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 1999 are incorporated by reference in Part
III.


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                        AMERICAN PHYSICIAN PARTNERS, INC.

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
FORM 10-K ITEM                                                                                                 PAGE
--------------                                                                                                 ----
<S>      <C>                                                                                                   <C>
PART I.
         Item 1.  Business ...................................................................................   1
         Item 2.  Properties .................................................................................  18
         Item 3.  Legal Proceedings ..........................................................................  18
         Item 4.  Submission of Matters to a Vote of Security Holders.........................................  19

PART II.
         Item 5   Market for Registrant's Common Equity and Related
                      Stockholder Matters ....................................................................  20
         Item 6.  Selected Consolidated Financial Data .......................................................  21
         Item 7.  Management's Discussion and Analysis of Financial
                      Condition and Results of Operations ....................................................  23
         Item 7A. Quantitative and Qualitative Disclosures About Market Risk..................................  37
         Item 8.  Financial Statements and Supplementary Data................................................. F-1
         Item 9.  Changes in and Disagreements with Accountants on Accounting
                      and Financial Disclosure................................................................  38

PART III.
         Item 10. Directors and Executive Officers of the Registrant..........................................  38
         Item 11. Executive Compensation......................................................................  38
         Item 12. Security Ownership of Certain Beneficial
                      Owners and Management...................................................................  38
         Item 13. Certain Relationships and Related Transactions..............................................  38

PART IV.
         Item 14. Exhibits, Financial Statement Schedules and Reports
                      on Form 8-K.............................................................................  39
</TABLE>



<PAGE>   3


                                     PART I


ITEM 1.  BUSINESS.

GENERAL

         American Physician Partners, Inc. develops, consolidates and manages
radiology service networks. These networks consist primarily of free-standing
diagnostic imaging centers and locations at which the Company provides radiology
services that have been outsourced by hospitals. At December 31, 1998, the
Company owned, operated or maintained an ownership interest in imaging equipment
at 87 locations. The Company also provides management services to ten radiology
practices whose physicians provide professional radiology services at the
Company's imaging centers and at 50 hospitals. During 1998, the Company's
networks performed services for approximately 3.1 million imaging procedures.

         The Company's radiology networks are concentrated in geographic markets
located in California, Florida, Kansas, Maryland, New York, Texas, Virginia and
Washington, D.C. The Company focuses on markets in which the Company can provide
both extensive geographic coverage and a full spectrum of technical and
professional radiology services. These services can include general radiology,
magnetic resonance imaging ("MRI"), computed tomography ("CT"), mammography,
ultrasound, nuclear medicine, interventional radiology, positron emission
tomography ("PET") and radiation oncology.

         The Company derives the majority of its service fee revenue from
providing the technical component of radiology services performed at the
Company's free-standing imaging facilities and pursuant to the Company's
outsourced hospital relationships. The technical component of such services
primarily consists of producing images through the use of imaging equipment and
services performed by personnel other than radiologists. In conjunction with its
operation of imaging centers, the Company purchases imaging equipment, hires and
trains employees, schedules patient appointments, processes data relating to
fees for producing images and for other technical radiology services, and
obtains and maintains permits, licenses and insurance.

         The Company also derives service fee revenue from providing management
services to ten radiology practices pursuant to long-term service agreements.
The Company furnishes to these practices information management, billing and
collection services, purchasing services and other non-medical services. These
practices provide professional radiology services, including interpreting images
produced at the Company's imaging facilities. The radiology practices earn fees
from patients or third-party payors for the professional radiology services they
provide at the Company's facilities and other locations.

BUSINESS STRATEGY

         The Company's objective is to develop and operate networks of radiology
facilities to provide a full spectrum of radiology services and extensive
geographic coverage in existing market areas and in selected new markets. The
Company believes that it can leverage its substantial base of fixed assets to
earn greater technical revenues by increasing the number of procedures performed
at its imaging facilities. The Company's strategy for increasing the number of
procedures and the amount of its service fee revenue includes the following:

         o        increasing referrals to the Company's imaging center networks
                  by strengthening existing and establishing new relationships
                  with referring physicians, health systems and insurers;

         o        optimizing the locations of imaging centers within a market
                  area and the mix of services offered at each imaging facility;

         o        utilizing the Company's relationships with radiologists to
                  emphasize quality service and to seek operating efficiencies
                  at the Company's imaging facilities;


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         o        making selected acquisitions of imaging centers and entering
                  into joint venture and outsourcing relationships with
                  hospitals or health systems within existing markets; and

         o        expanding into selected new markets in which the Company
                  believes that it can develop extensive radiology services
                  networks.

Increasing Referrals by Strengthening Existing and Establishing New
Relationships with Referring Physicians, Health Systems and Insurers

         Referrals for diagnostic radiology services are not controlled by
diagnostic radiologists. These referrals, instead, are controlled by individual
referring physicians such as internists and surgeons, and increasingly are
influenced by health systems, managed care organizations, insurers and other
entities representing large groups of patients. The Company intends to increase
physician referrals to the Company's networks which, in the Company's
experience, are based on several factors:

         o        whether referring physicians are satisfied with the quality
                  and timeliness of the technical and professional services
                  provided by the imaging center or hospital and by the
                  radiologists who perform professional services for the
                  technical services provider;

         o        whether the radiology services provider offers a full spectrum
                  of technical radiology services (such as MRI and CT) and
                  professional services, including subspecialty expertise (such
                  as neuroradiology), so that referring physicians do not need
                  to determine for each patient referral whether the required
                  technical imaging services and professional services are
                  offered by the chosen radiology services provider;

         o        whether the radiology services provider is a participant in
                  the health system, managed care organization or insurer that
                  insures the patient; and

         o        whether referring physicians' patients are satisfied with the
                  services provided by the radiology services provider. The
                  Company's experience is that patient satisfaction depends
                  primarily on customer service issues such as convenience of
                  imaging center location, availability of appointment times,
                  responsiveness of staff members to questions and the special
                  needs of the patient and efficiency of the imaging center's
                  operations (for example, whether the patient received services
                  at the scheduled time).

         The Company organizes its radiology services networks to facilitate
physician referrals for radiology services by:

         o        maintaining and improving pre-existing relationships between
                  referring physicians and the radiologists who perform
                  professional services for the Company;

         o        offering a full spectrum of technical services and affiliating
                  with radiologists who offer comprehensive professional
                  services of recognized quality, including subspecialty
                  expertise;

         o        participating as an eligible radiology services provider for
                  managed care organizations, insurers and similar entities in
                  the Company's market areas; and

         o        offering convenient appointment times at locations that are
                  convenient to referring physicians' patients.

         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
services providers, including radiology services providers. The Company's
experience is that entities representing widely-dispersed patients 


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often prefer to enter into referral relationships with radiology providers who
can provide radiology services in a corresponding geographical area. The Company
has developed its radiology services networks, in part, to provide an
opportunity for "one-stop shopping" for these entities so that they will select
or approve the Company more frequently and thus will influence referring
physicians to refer patients to the Company's networks.

         To increase the convenience of the Company's imaging centers to
patients, the Company 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 the Company's networks to better utilize time available at
its network centers and to meet patients' appointment time, date or location
preferences.

Optimizing the Location and Mix of Imaging Center Services

         Prior to their acquisition by the Company, the radiology facilities
that comprise the Company's network in each market were operated as parts of
smaller networks or as stand-alone facilities. Accordingly, decisions as to the
services to be offered at a facility often were based on different
decision-making criteria than those now utilized by the Company. For example,
two imaging centers within close proximity to each other that were owned by
separate owners previously may have offered similar services because they
competed for referrals. Similarly, an operator of an imaging center may not have
offered certain imaging services at a facility due to a lack of available
capital resources for equipment purchases or a lack of expertise by the imaging
center's personnel or radiologists.

         As the Company consolidates radiology facilities in an area into a
network, the Company and its affiliated physicians often can take actions to
make the combined network more efficient. In 1998, the Company closed or
consolidated certain acquired imaging centers that were unprofitable or
overlapped other imaging centers in the Company's networks. The remaining
facilities now offer a wider variety of services and operate at higher
utilization levels than those experienced prior to the closings. In 1998, the
Company increased the number of modalities offered at certain of its imaging
centers. For example, by adding MRI services to an imaging center that
previously offered CT, the Company can receive referrals from referring
physicians who wish to use only one radiology services provider for their
patients and who refer patients for both CT and MRI. The Company also can
capitalize on the staff expertise of an imaging center to assist another imaging
center in adding new services.

         The Company also can increase the efficiency of its networks by
installing diagnostic-quality 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 the
Company 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 1998, the Company installed two
diagnostic-quality teleradiology systems, one in its Finger Lakes (Rochester,
New York) market area and one in its Northeast Kansas market area, bringing the
number of the Company's markets with diagnostic-quality teleradiology systems to
three. In these markets, the Company's radiology practices are able to offer
24-hour professional radiology services to hospitals and other locations
equipped with the Company's teleradiology equipment. Prior to the installation
of the teleradiology network, continuous on-site staffing may not have been
appropriate. These 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.

Emphasize Quality Service

         The Company focuses on providing quality patient service to ensure
patient and referring physician satisfaction. The Company's development of
radiology networks permits the Company to invest in advanced radiology
equipment, including MRI, open MRI, spiral CT and PET, as well as equipment to
offer diagnostic-quality teleradiology services in certain markets. When
appropriate, the Company provides capital to upgrade existing imaging equipment.
The Company's consolidation of imaging centers into coordinated networks
improves response time, increases overall patient accessibility, permits the
Company to standardize certain customer relations procedures and permits the
Company to develop "best practices" for its imaging centers. The Company seeks
the 

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input and participation of the Company's radiology practices 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, the Company believes that it can increase patient and referring
physician satisfaction, which should lead to increased referrals and increased
utilization of the Company's imaging centers.

Expansion in Existing Markets

         The Company intends to expand through acquisitions within its existing
markets, as well as through joint venture and outsourcing relationships. The
Company may enter into an acquisition, joint venture or outsourcing relationship
to complete or expand the geographic coverage of, or to increase the services
offered by, one of its radiology services networks. The Company may undertake
such a transaction to increase the Company's share of radiology services within
a market.

         Outsourcing radiology services to the Company permits hospitals and
other health services providers (including physician groups such as
obstetricians and orthopedic specialists) to focus on their core business
without losing the ability to offer imaging services to their patients. The
outsourcing sponsor benefits by utilizing the Company's capital, favorable
purchasing arrangements, operating expertise and radiologist affiliations.
Outsourcing relationships permit the Company to receive additional technical
revenues, to benefit from economies of scale within a network, to fill in gaps
in coverage within a network, to operate an imaging service without incurring
certain costs related to the operation of a free-standing imaging center (such
as the cost of renovating a location for use as an imaging center) and to secure
a long-term relationship between the Company and the outsourcing sponsor.

         In addition, the Company may enter into service agreements with
additional radiology practices. These arrangements most often will include
imaging centers that will be added to the Company's existing radiology networks.
The Company believes that, through additional radiology practice relationships,
the Company can increase referrals to the Company's networks by accessing new
referral sources and new referring physician relationships, by enlarging or
completing the geographic coverage of the Company's networks, by expanding the
scope of professional services offered through the Company's networks and by
increasing the Company's market share within a market area.

         The Company has acquired imaging operations and has affiliated with
radiology practices that have had successful and profitable operating histories.
The Company expects that most of its future acquisitions and affiliations will
involve imaging centers and radiology practices with successful operating
histories. In selected instances, the Company may acquire low-performing imaging
centers that the Company believes can be operated more efficiently and
profitably as part of the existing network.

Selective Expansion into New Markets

         The Company also may expand into new geographic markets by acquiring
imaging centers, entering into joint venture or outsourcing relationships and
affiliating with high-quality, profitable radiology practices that have strong
reputations and competitive positions in their local markets. The Company
identifies potential acquisition candidates through a variety of means,
including targeted contacts of imaging center owners and radiologists by the
Company, participation in professional conferences, referrals from radiology
practices and direct inquiries from radiologists. Prior to entering a new
market, the Company will consider various factors including the following:

         o        likelihood the Company will achieve a return on capital that
                  exceeds the Company's weighted-average cost of capital;

         o        potential for extensive geographic coverage of the target
                  market by the Company;

         o        supply of existing radiology services within the target
                  market;

         o        target market population and demographics; and

         o        competitive environment within the target market.


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RADIOLOGY MARKET OVERVIEW

         The Health Care Financing Administration estimates that national health
care spending in 1997 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
2,600 outpatient centers throughout the United States. Professional radiology
services are provided by radiologists, general practitioners and other
specialists. There are 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 AND DEVELOPMENT

Imaging Centers

         The Company owns 61 imaging centers and operates and manages 16
additional imaging centers through joint venture relationships. The number and
type of modalities offered at the Company's owned, operated or managed 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, the Company markets itself as a full-service
provider of diagnostic imaging services.

         Set forth below are the locations and certain other information with
respect to the Company's operations as of December 31, 1998:


<TABLE>
<CAPTION>
                                                  IMAGING FACILITIES                  HOSPITAL RELATIONSHIPS
                                       ---------------------------------------    -----------------------------------
                                                            JOINT                                       OUTSOURCED
                                             OWNED         VENTURE    OTHER                             TECHNICAL
             MARKET AREAS                   CENTERS      CENTERS (1) SITES (2)    AFFILIATIONS (3)     SERVICES (4)
                                       --------------- ------------  ---------    ----------------    ---------------
<S>                                    <C>             <C>           <C>          <C>                 <C>
Mid Atlantic (5)....................                25           10          1                  14                  4
Finger Lakes (6)....................                 6           --          4                   5                  5
Bay Area (7)........................                17           --         --                   9                  1
South Texas (8).....................                 3            5         --                   5                  4
Northeast Kansas (9)................                 2            1         --                  11                  2
Hudson Valley (10)..................                 7           --          5                   3                  1
Treasure Coast (11).................                 1           --         --                   3                 --
                                       --------------- ------------  ---------      --------------    ---------------
         Totals.....................                61           16         10                  50                 17
</TABLE>


(1)      Represents partnerships with hospitals or health systems 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.

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

(3)      Represents contractual or other relationships with hospitals where the
         radiology practices provide diagnostic and interventional radiology or
         radiation oncology services. The radiology practices provide


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         substantially all of the diagnostic and interventional radiology
         services provided by radiologists at substantially all of such
         hospitals.

(4)      Represents hospital relationships in which the Company receives
         technical service fee revenue derived from in-patient procedures
         performed with diagnostic imaging equipment owned by the Company.

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

(6)      Encompasses the greater Rochester, New York metropolitan area. The
         figures do not include the affiliation with a radiology group in the
         Rochester, New York, market area, effective February 6, 1999.

(7)      Encompasses the greater San Francisco/Oakland/San Jose, California
         metropolitan area. (8) Encompasses the greater San Antonio, Texas
         metropolitan area.

(9)      Encompasses the Topeka, Kansas and Northeast Kansas area. The figures
         do not include the affiliation with a radiology group in the Northeast
         Kansas market area, effective January 1, 1999.

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

(11)     Encompasses Fort Pierce, Florida, and surrounding communities.

         The Company 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 the Company's financial
                  accounting system, which the Company implements at each new
                  imaging center as soon as reasonably possible after the center
                  is added to the Company's networks; and

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

Radiology Practices

         The radiology practices whose radiologists perform professional
services for the Company consist of ten radiology practices, comprised of 254
radiologists, located in seven states and the District of Columbia. 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. The practices currently provide professional
radiology services to 50 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 the Company'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 the Company's strategy for the
market for radiology services.

Affiliation Structure for the Company's Radiology Practices

         The Company's business model is based on a "partnership" with its
radiology practices in which the Company 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. The Company 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 the Company in promoting practice growth and operating efficiencies.
The Company believes its model is, and will continue to be, attractive to
potential practice acquisition candidates.


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         In connection with the acquisition of imaging centers and affiliations
with radiology practices, the Company acquires certain tangible and intangible
assets and assumes certain liabilities of the radiology practices. The Company
pays the purchase price for such transactions in cash and shares of its Common
Stock, or cash and subordinated promissory notes convertible into shares of
Common Stock. Simultaneously with the acquisitions, the Company enters into a
40-year service agreement with each radiology practice pursuant to which the
Company will provide a wide range of management, administrative, technical and
non-medical services. For providing services under the service agreement, the
Company receives a fee which is structured to align the interests of the Company
and the radiology practices. Additionally, the service agreements restrict the
radiology practices from competing with the Company and other of the Company'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. The Company anticipates that future acquisitions of
imaging centers and affiliated radiology practices will be based on the
partnership model the Company has established or a variation of such model.

         The Company believes a shared governance approach is critical to the
long-term success of a healthcare enterprise that is dependent on physician
services and referrals. The Company operates within a governance structure which
promotes physician involvement in the direction and management of the radiology
practices and the Company. As required by the service agreements, this is
accomplished by the Company and each radiology practice establishing Joint
Planning Boards 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 their respective
practices. The Company believes the Joint Planning Boards promote participation
by physicians in both the overall management of their practices and the
continued growth of the Company's imaging center operations in that region and
serve as a means for the Company and its radiology practices to communicate
effectively and exchange information. In addition, the Company has a Physician
Advisory Board, the primary focus of which is to enhance the quality of services
provided by the Company, 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.

Information Management

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

         The Company has initiated communications with primary payors from which
it receives reimbursement. There is no assurance that the systems of such payors
or of other companies with which the Company has significant relationships will
be made year 2000 compliant in a timely manner or that a failure by any such
payor or other company to make its systems year 2000 compliant will not have a
material adverse impact on the Company. See "Risk Factors -- Year 2000
Compliance" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Year 2000 Issue."

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<PAGE>   10

Service Agreements

         The Company is a party to a service agreement with each related
radiology practice under which the Company 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 the Company'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. The Company expects to enter into
agreements with similar provisions with additional radiology practices in the
future.

         The service fees payable to the Company 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 the
                           Company 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, the Company 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 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, the Company receives income from joint ventures in which
the Company holds ownership interests. Revenues are billed by the Company on
behalf of the radiology practices. Payments are received by the radiology
practice and transferred to the Company on a daily basis. On a monthly basis the
Company 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 the Company.

         Pursuant to the service agreements, the Company, 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 


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<PAGE>   11

agreements, the radiology practices maintain full control over the provision of
professional radiological services. The Company 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 the Company and each radiology practice have agreed to certain restrictions
on accepting or pursuing radiology opportunities within a 10-mile radius of any
of the Company's owned, operated or managed imaging centers at which the
radiology practice provides 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 the Company 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 the Company 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 the Company 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, the Company 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 an radiology practice,
depending upon the termination event, the Company may have the right to require
such radiology practice to purchase and assume, or the radiology practice may
have the right to require the Company 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.

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 

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<PAGE>   12


         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.

                  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 the Company 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. The Company 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
time lost from work is significantly reduced. In addition, diagnostic imaging is
increasingly used as a screening tool for preventive care. The Company 


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<PAGE>   13

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. The Company 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
the Company to become more actively involved in assisting its radiology
practices in developing practice guidelines and appropriateness criteria and
managing the utilization of radiological procedures.

         The Company believes that the shift in financial risk from payors to
providers decreases the attractiveness of under-utilized imaging equipment
within a general practitioner's office 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. The
Company believes that the general diagnostic imaging services performed by
non-radiologists may be directed to radiologists by managed care entities
seeking to have services performed at the lowest overall cost. As a result, the
Company 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. The
Company 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, the Company believes
physicians will have fewer referral options for diagnostic imaging procedures.
In addition, the Company 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, the Company
believes that quality of care, subspecialty expertise and patient and referring
physician satisfaction will be important factors in determining referral
patterns.


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<PAGE>   14


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

GOVERNMENT REGULATION AND SUPERVISION

General

         The health care industry is highly regulated, and there can be no
assurance that the regulatory environment in which the Company operates will not
change significantly in the future. The ability of the Company to operate
profitably will depend in part upon the Company, 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. The Company believes that health care
regulations will continue to change and, therefore, intends to monitor
developments in health care law and the Company expects to modify its operations
from time to time as the business and regulatory environment changes. There can
be no assurance that the Company 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 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, the Company, the Radiology practices or their affiliated
physicians may become subject to additional regulation.

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 the courts and
by regulatory authorities with broad discretion. Although the Company intends to
structure its proposed operating structures and methods as described herein so
as to comply with existing applicable laws, the Company's business operations
have not been the subject of judicial or regulatory interpretation. There can be
no assurance that a review of the Company's business by courts or regulatory
authorities will not result in determinations that could adversely affect the
operations of the Company or that the health care regulatory environment will
not change so as to restrict the Company's planned operations and expansion. In
addition, the regulatory framework of certain jurisdictions may limit the
Company's expansion into such jurisdictions if the Company is unable to modify
its operating structure to conform with such regulatory framework.


                                       12

<PAGE>   15

Medicare Physician Payment System

         The Company believes that regulatory trends in cost containment will
continue to result in a reduction from historical levels in per-procedure
revenue for medical practices. 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 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 the Company through increased
efficiencies, utilization of excess capacity, alteration of the mix of the
radiology practices' services or other means of increasing the Company'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. The inability of the Company to
negotiate satisfactory arrangements with managed care companies would have a
material adverse effect on the Company'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
the Company'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
the Company to negotiate satisfactory arrangements with Medicare and Medicaid
managed care contractors could have a material adverse effect on the Company'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. Pursuant to this
anti-kickback law, the federal government has recently announced a policy of
increased scrutiny of joint ventures and other transactions among health care
providers in an effort to reduce potential fraud and abuse relating to Medicare
costs. The applicability of these provisions to many business transactions in
the health care industry has not yet been subject to judicial and 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.

         The Company 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 the Company to be consistent with fair market value in 


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<PAGE>   16

arms' length transactions for the nature and amount of management and
administrative services rendered. For these reasons, the Company 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, commonly known as "Stark II," amended prior
physician self-referral legislation known as "Stark I" by dramatically enlarging
the field of physician-owned or physician-interested entities to which the
referral prohibitions apply. Stark II 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 Stark
II 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." The Company 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 Stark II. Under Stark II, 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.



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<PAGE>   17


         Stark II 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 II self-referral prohibition
would not apply to such services. The effect of Stark II 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 the Company believes that all
of the services provided by the radiology practices derive from requests for
consultation. The Proposed Regulations, however, significantly depart from the
Medicare coverage definition of radiology to include not only the technical
component but also the professional component of radiology services. HCFA has
expressly requested comments from the public regarding this aspect of the
Proposed Regulations. In light of the complexity of the issues relating to Stark
II, and the uncertainty regarding the Proposed Regulations, it is unclear
whether the existing relationships between the Company and the radiology
practices and the relationships between the radiology practices and physicians
who refer patients to them would be deemed to comply with Stark II after the
final regulations are adopted.

         In addition, the Company 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 II laws and
regulations. Specifically, the Company believes the consideration paid by the
Company to physicians to acquire the tangible and intangible assets associated
with their practices is consistent with fair market value in arms' length
transactions and 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 the Company'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 the Company'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 the Company's contemplated activities and the activities
of the radiology practices. There can be no assurance that the Company's or such
radiology practices' contemplated activities will not be investigated, that
claims will not be made against the Company or the radiology practices or that
these increased enforcement activities will not directly or indirectly have an
adverse effect on the Company'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. The Company believes that its
operations and those of the radiology practices comply with all such applicable
laws and regulations. There can be no assurance that the Company's or such
radiology practices' contemplated activities will not be investigated by the
relevant state authorities, that claims will not be made against the Company or
the radiology practices or that such enforcement activities will not directly or
indirectly have an adverse effect on the Company's business, financial condition
and results of operations.

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. The
Company 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 the Company.


                                       15

<PAGE>   18

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 the Company's
business, financial condition and results of operations.

Compliance Program

         With the assistance of the Company's special health care regulatory
counsel, the Company intends to implement a program to monitor compliance with
federal and state laws and regulations applicable to health care entities. The
Company has appointed a compliance officer who is charged with implementing and
supervising the Company's compliance program, which will involve 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 the Company's compliance officer. The Company
intends for its compliance program to follow guidance provided by the Office of
Inspector General of the Department of Health and Human Services. An important
part of the Company's compliance program will be conducting periodic audits of
various aspects of its operations, including the radiology practices. The
Company also intends to initiate a training program designed to familiarize its
employees with the regulatory requirements and specific elements of the
Company's compliance program.

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. The Company 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 the
Company 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 the Company's risk-based contracting
activities could have a material adverse effect on the Company's business,
financial condition and results of operations.

COMPETITION

         The Company'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 the Company. The Company 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 the Company'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 the Company.

         The Company 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 


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<PAGE>   19

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.

         The Company'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, the Company's
competition for the acquisition of and servicing of such operations is
fragmented with no dominant 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
the Company 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 the Company. There can be no assurance that the Company 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 the Company
or that competitive pressures will not otherwise adversely affect the Company.

FACILITIES AND EMPLOYEES

         The Company'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,
1998, the Company had approximately 1,600 employees, approximately 40 of whom
are employed at the Company's headquarters and regional offices and the
remainder of which are employed at the Company's imaging centers and at the
radiology practices. The Company 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, the Company in some cases succeeded to certain
liabilities of the related radiology practices. Therefore, claims may be
asserted against the Company for events which occurred prior to such
acquisitions. The Company 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 the Company
for services provided in Texas or any other states in which the Company 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. The Company'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 physician groups. As a result of the
relationship between the Company and the related radiology practices, however,
the Company 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 the Company in the future. The Company maintains
insurance coverage that it believes will be adequate. The Company anticipates
that such insurance will extend to professional liability claims that may be
asserted against employees of the Company that work on site at radiology
practice locations. In addition, pursuant to the service agreements, the
radiology practices are required (and the Company intends to require any other
future related radiology practices) to maintain comprehensive professional
liability insurance. The 


                                       17

<PAGE>   20

availability and cost of such insurance is affected by various factors, many of
which are beyond the control of the Company and the practices. The cost of such
insurance to the Company and the radiology practices may have an adverse effect
on the Company's operations. In addition, successful malpractice or other claims
asserted against radiology practices or the Company that exceed applicable
policy limits could have a material adverse effect on the Company.

         The shareholders of the related radiology practices have agreed to
indemnify the Company for certain claims. There can be no assurance that the
Company 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 the Company'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. The Company maintains general
liability and umbrella coverage of $5 million per occurrence and $5 million in
the aggregate. Additionally, the Company maintains workers' compensation
insurance on all employees. Coverage is placed on a statutory basis and responds
to each state's specific requirements.

LEGAL PROCEEDINGS

         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 is 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.

INCORPORATION

         The Company was incorporated in Delaware in 1996. Prior to the November
1997 initial public offering (the "IPO") of the Company's common stock, the
Company had not conducted any significant operations. The radiology practices,
the imaging centers the Company acquired from such practices and the imaging
centers acquired in post-IPO transactions, however, were in operation prior to
the IPO.

ITEM 2.  PROPERTIES.

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

ITEM 3.  LEGAL PROCEEDINGS.

         The Company is not currently subject to any material litigation or, 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 is 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.


                                       18

<PAGE>   21

         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.

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

         The Company did not submit any matters to a vote of security holders
during the fourth quarter of 1998.





                                       19

<PAGE>   22



                                     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 System (NASDAQ) National Market, under
the symbol "APPM", since November 20, 1997. The following table sets forth, for
the period indicated below, the high and low bid prices per share of the Common
Stock as reported by NASDAQ:

<TABLE>
<CAPTION>
                                                             High        Low
                                                             ----        ---
<S>                                                         <C>         <C>
        1997
            Fiscal Quarter Ended December 31, (from
            November 20, 1997)                              12 1/4      8 3/4
        1998
            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
</TABLE>

         As of the close of business on February 18, 1999, the last reported
sales price per share of the Company's Common Stock was $7.00. There were 272
holders of record of the Company's Common Stock at the close of business on
February 18, 1998. 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.

         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.



                                       20

<PAGE>   23



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
                                                            ------------      ------------      ------------
<S>                                                         <C>               <C>               <C>         
SERVICE FEE REVENUE ...................................     $         --      $      8,683      $    135,604

COSTS AND EXPENSES:
   Salaries and benefits ..............................               --             2,922            42,227
   Practice supplies ..................................               --             1,036             8,865
   Practice rent and lease expense ....................               --               852            11,532
   Other practice expenses ............................               --             1,557            25,311
   Corporate general and administrative ...............            1,623             4,910             9,597
   Depreciation and amortization ......................                3               888            12,178
   Interest expense, net ..............................               23               617             7,541
                                                            ------------      ------------      ------------
       Total costs and expenses .......................            1,649            12,782           117,251
                                                            ------------      ------------      ------------
INCOME (LOSS) BEFORE TAXES, MINORITY
   INTERESTS IN CONSOLIDATED SUBSIDIARIES
   AND EQUITY IN EARNINGS OF INVESTMENTS ..............           (1,649)           (4,099)           18,353
EQUITY IN EARNINGS OF INVESTMENTS .....................               --               220             4,339
MINORITY INTERESTS IN CONSOLIDATED
   SUBSIDIARIES .......................................               --               (49)             (710)
                                                            ------------      ------------      ------------
INCOME (LOSS) BEFORE TAXES ............................           (1,649)           (3,928)           21,982
INCOME TAX EXPENSE ....................................               --                --             8,451
                                                            ------------      ------------      ------------
NET INCOME (LOSS) .....................................     $     (1,649)     $     (3,928)     $     13,531
                                                            ============      ============      ============

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


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


                                       21

<PAGE>   24


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>
                                            1997 Quarter Ended                      1998 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            $     --  $     --  $     --  $ 8,683   $ 29,716  $ 33,556  $35,055   $ 37,277
  Income (loss) before
     income taxes                    (880)     (820)   (1,443)    (785)     5,122     5,470    5,489      5,901
  Net income (loss)              $   (880) $   (820) $ (1,443) $  (785)  $  3,073  $  3,391  $ 3,408   $  3,659

  Net Income (Loss) Per Share:
     Basic                       $  (0.44) $  (0.41) $  (0.72) $ (0.10)  $   0.17  $   0.18  $  0.18   $   0.19
     Diluted                     $  (0.44) $  (0.41) $  (0.72) $ (0.10)  $   0.16  $   0.17  $  0.18   $   0.19
  Weighted Average Shares:
     Basic                          2,000     2,000     2,000    7,804     18,054    18,744   18,908     19,235
     Diluted                        2,000     2,000     2,000    7,804     18,841    19,449   19,356     19,679
</TABLE>



                                       22

<PAGE>   25

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

OVERVIEW

         The Company develops, consolidates and manages radiology service
networks. These networks consist primarily of free-standing diagnostic imaging
centers and locations at which the Company provides radiology services that have
been outsourced by hospitals. The Company derives the majority of its service
fee revenue from providing 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 management services to radiology
practices pursuant to long-term service agreements. For the year ended December
31, 1998, the Company derived 74% of its service fee revenue from the ownership,
management and operation of its radiology and imaging center network and 26% of
its service fee revenue from the management services provided to radiology
practices. As of December 31, 1998, APPM (i) owned operated and managed 61
imaging centers; (ii) operated, managed or owned an interest in 16 additional
imaging centers; and (iii) provided management services to ten radiology
practices consisting of 254 physicians. The Company has closed five
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. The
Company's radiology and imaging center networks are concentrated in California,
Florida, 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 pursuant to the
Reorganizations (as defined) was accounted for by the Company at the
transferors' historical cost basis with shares of the registrant's Common Stock
issued in those transactions valued at the historical cost of the nonmonetary
assets acquired, net of liabilities assumed.

RESULTS OF OPERATIONS

         APPM was incorporated on April 30, 1996, 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 $135,604,000 in 1998 from $8,683,000
in 1997. Prior to November 26, 1997, the Company had no significant operations
and, therefore, no service fee revenue was generated during the period ended
December 31, 1996.

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 31.1% and
33.7% in 1998 and 1997, respectively. The Company did not incur any salary and
benefit costs for practice-based employees in 1996. The amounts paid to
corporate employees during 1996 were recorded as corporate general and
administrative expenses.

Practice Supplies

         Practice supplies increased to $8,865,000 in 1998 from $1,036,000 in
1997. As a percentage of service fee revenue, these costs were 6.5% and 11.9% 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.

                                       23

<PAGE>   26

Practice Rent and Lease Expense

      Practice 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 8.5%
and 9.8% in 1998 and 1997, respectively.

Other Practice Expenses

      Other practice expenses increased to $25,311,000 in 1998 from $1,557,000
in 1997. As a percentage of service fee revenue, these costs were 18.7% and
17.9% in 1998 and 1997, respectively. Other practice expenses in 1998 include
repairs and maintenance, service contracts, utilities and communication costs.

Corporate General and Administrative

         Corporate general and administrative increased 95.5% to $9,597,000 in
1998 from $4,910,000 in 1997. Corporate general and administrative in 1997
increased 202.5% from $1,623,000 in 1996. As a percentage of service fee
revenue, these costs were 7.1% and 56.5% in 1998 and 1997, respectively. The
decrease as a percentage of service fee revenue is a result of the Company
building infrastructure throughout 1996 and 1997.

Depreciation and Amortization

         Depreciation and amortization expense increased to $12,178,000 in 1998
from $888,000 in 1997. Depreciation and amortization increased $885,000 from
$3,000 in 1996. As a percentage of service fee revenue, these costs were 9.0%
and 10.2% 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 5.6% and 7.1% 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 during
1997 and 1996. The Company plans to reflect the income tax benefit for those
years as a reduction in its effective tax rate in future years.

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.

1999 Acquisitions

         The Company completed two acquisitions since the end of 1998. The
acquisitions, which are discussed in greater detail in Note 10 to the
Consolidated Financial Statements included herewithin, were accounted for using
the purchase method. The total consideration for the transactions was
$3,590,000, which was funded with cash and Company common stock.


                                       24

<PAGE>   27

LIQUIDITY AND CAPITAL RESOURCES

         At December 31, 1998, the Company had $19,378,000 in working capital,
an increase of $16,002,000 from December 31, 1997. The Company's principal
sources of liquidity consist of (i) cash and cash equivalents aggregating
$6,485,000, (ii) net accounts receivable of $36,789,000, and (iii) approximately
$14,800,000 in borrowing capacity under the Company's bank credit facility (the
"Credit Facility").

         For the year ended December 31, 1998, $9,950,000 was provided by
operations. 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. Cash of $55,464,000 was provided by financing activities in
1998, substantially all of which was provided under the Credit Facility. For the
year ended December 31, 1997, $5,333,000 was used in operations. Cash of
$420,000 was used in investing activities, primarily for the purchase of
property and equipment. Cash of $7,834,000 was provided by financing activities,
primarily through borrowings under the Company's Credit Facility. For the year
ended December 31, 1996, $1,199,000 was used in operations. Cash of $3,750,000
was provided by financing activities, primarily as a result of the issuance of
$3,500,000 of convertible notes payable.

         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 3.0 times the
consolidated EBITDA of the Company, giving pro forma effect to acquisitions made
with such borrowings. At December 31, 1998, the Company's debt could not exceed
$135,000,000 under the Credit Facility. The Company had outstanding borrowings
of $112,500,000 under the Credit Facility and an additional $7,700,000
outstanding under other credit arrangements. 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.

         The Company anticipates sourcing other debt or equity financing to
facilitate its growth strategy in 1999. In the event the Company is unsuccessful
in obtaining additional financing, the Company anticipates that funds generated
from operations, cash and cash equivalents, and funds available under the Credit
Facility will be sufficient to meet the Company's working capital requirements
and debt obligations and to finance any necessary capital expenditures through
the end of 1999.

YEAR 2000 ISSUE

Impact of Year 2000

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


                                       25

<PAGE>   28

State of Readiness

         The Company started to formulate a plan to address the Year 2000 Issue
in the third quarter of 1998. To date, the Company's primary focus has been on
its own internal information technology systems, including all types of systems
in use by the Company in its operations, finance and human resources
departments, and to deal with the most critical systems first. The Company is in
the process of developing a Year 2000 Plan to address all of its Year 2000
Issues. The Year 2000 Plan being developed will involve generally the following
phases: awareness, assessment, renovation, testing and implementation. Although
the Company's assessment of the Year 2000 Issue is incomplete, the Company has
completed an assessment of approximately 75% of its internal information
technology systems. The Company estimates that it will complete the assessment
of its remaining internal information technology systems by April 30,1999 and
will establish a timetable for the renovation phase of the remaining technology
systems. The Company has already completed the renovation of approximately 60%
of its information technology systems, including modifying and upgrading
software and developing and purchasing new software, and continues to renovate
the portions of such systems for which assessment is complete. The Company has
not begun or established a timetable for the testing and implementation phases.
The Company's goal is to complete such phases by September 30, 1999, although
complications arising from unanticipated acquisitions might cause some delay.

         The Company has recently begun to assess the potential for Year 2000
problems with the information systems of its customers, payors and vendors. The
Company prepared and sent questionnaires to its customers, vendors and other
third parties with which the Company has a material relationship. The Company
expects to complete the assessment with respect to such parties by April 30,
1999. The Company does not have sufficient information to provide an estimated
timetable for completion of renovation and testing that such parties with which
the Company has a material relationship may undertake. The Company is unable to
estimate the costs that it may incur to remedy the Year 2000 issues relating to
such parties. The Company has received preliminary information concerning the
Year 2000 readiness of many of its customers, vendors and other third parties
with which the Company has a material relationship and expects to engage in
discussions with the remaining parties through April 30, 1999 in an attempt to
determine the extent to which the Company is vulnerable to those parties'
possible failure to become Year 2000 compliant. Most of the Company's diagnostic
imaging equipment used to provide imaging services have computer systems and
applications, and in some cases embedded microprocessors, that could be affected
by Year 2000 issues. The Company is assessing the impact on its diagnostic
imaging equipment by contacting the vendors of such equipment. The vendors with
respect to the majority of the MRI and CT equipment used by the Company have
informed the Company that (i) certain identified MRI and CT equipment is Year
2000 compliant, (ii) it has developed software for functional work arounds to
ensure Year 2000 compliance with respect to the balance of its noncompliant MRI
and CT equipment and (iii) remediation will be made during future regular
maintenance visits. The Company has contacted all ultrasound equipment vendors
with a list of systems now in use and requested their assessment of the impact
on the equipment and that they provided to the Company and the nature and
timetable of the remediation that such vendors may propose. The Company expects
to complete its assessment by April 30, 1999 and that renovation will be
completed by September 30, 1999. The Company is in the process of contacting the
other vendors of its diagnostic imaging equipment. The Company expects that its
equipment vendors will propose timely remediation and will bear the cost of
modifying or otherwise renovating the Company's diagnostic imaging equipment.
The Company has recently begun an assessment of the potential for Year 2000
problems with the embedded microprocessors in its other equipment, facilities
and corporate and regional offices, including telecommunications systems,
utilities, dictation systems, security systems and HVACS, and expects to
complete the assessment by April 30,1999.

Costs to Address Year 2000 Issue

         The Company estimates, on a preliminary basis, that the cost of
assessment, renovation, testing and implementation of its internal systems will
range from approximately $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. The Company expects that
such costs will be funded through operating cash flows. This estimate, based on
currently available information, will be updated as the Company continues its
assessment and proceeds with renovation, testing and implementation, and may be
adjusted upon receipt of more information from the Company's vendors, customers
and other third parties and upon the design and implementation of the Company's
contingency plan. In addition, the availability and cost of consultants and
other personnel trained in this area and unanticipated acquisitions might
materially affect the estimated costs. The effects of the aforementioned costs
have had no material impact on the Company's progress as it relates to other
information system projects and implementation.


                                       26

<PAGE>   29

Risks to the Company

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

Most Reasonably Likely Worst Case Scenario

         Management believes that the most significant risk to the Company of
Year 2000 issues is the effect such issues may have on third-party payors, such
as Medicare. With respect to Medicare payments, neither the Health Care
Financing Administration nor its fiscal intermediaries have any contingency plan
in place. However, the Health Care Financing Administration has mandated that
its fiscal intermediaries submit a draft of their contingency plans to it and
that they be prepared to ensure that no interruption of Medicare payments
results from Year 2000 related failures of their systems. There can be no
assurance that Year 2000 issues of third party payors will not have a material
adverse effect on the Company's business, results of operations and financial
condition.

Contingency Plan

         The Company has not yet established a contingency plan to address
unavoided or unavoidable Year 2000 risks with internal information technology
systems and with customers, vendors and other third parties, but expects to
create such a plan by June 30, 1999.

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.


                                       27

<PAGE>   30

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 the
Company'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, the Company has
organized this discussion of risks into two categories: First, risks that relate
particularly to the Company; and second, risks that relate particularly to the
radiology services industry.

RISKS RELATING TO THE COMPANY

Reliance on Referrals

         The Company'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 the Company's networks.
The Company 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 the Company 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 the Company's networks,
the Company'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 the Company'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 providers outside of the plan's designated panel
of providers. Although the Company intends to seek managed care contracts for
its radiology services networks, there can be no assurance that the Company 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, the Company conducted no significant
operations and had no revenue while incurring corporate overhead expenses
associated with building its management infrastructure. The Company's financial
statements for the fiscal year ended December 31, 1997, cover a period of only
35 days of operating the Company's radiology services business. Although the
Company now has audited financial statements for the full 12-month period ended
December 31, 1998, the Company's limited operating history prior to 1998 may
limit the Company's ability to prepare accurate projections for future periods,
including projections of revenues and expenses. This brief operating history
also may limit the Company's ability to anticipate the effect that changing
economic conditions or other market conditions will have on the Company's
operations and finances. The Company's limited operating history also may
increase the Company's reliance on its senior executive management, some of whom
have extensive experience in managing health care services companies or in
developing the Company's current financial and operational strategies. Because
of the difficulty in finding adequate replacements 


                                       28

<PAGE>   31

for such personnel, the loss of the services of any such personnel or the
Company's inability in the future to attract and retain management and other key
personnel could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company does not maintain key
man insurance for any of its executive officers. See "Management -- Employment
Agreements; Covenants-Not-to-Compete" and "Certain Transactions."

Potential Need for Additional Capital

         The Company utilizes capital to purchase new imaging equipment and to
upgrade and replace existing equipment. During 1998, the Company expended
approximately $12.7 million to purchase, upgrade and replace imaging equipment.
The Company also utilizes capital to expand within its existing markets and to
enter new markets. During 1998, the Company expended approximately $52.9 million
to make acquisitions and to enter into outsourcing relationships. The Company's
capital sources have consisted primarily of income from operations and
borrowings under the Company's credit facility. The Company's ability to
accomplish its goals and to execute its business strategy depend on the
Company's continued ability to access capital on appropriate terms. The
Company'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 the Company when needed or that the Company will
be able to obtain additional financing or that, if available, such financing
will be on terms acceptable to the Company. As a result, there can be no
assurance that the Company will be able to implement its business strategy
successfully. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."

Dependence on Radiologists; Risk of Termination of Service Agreements

         The Company's radiology services include a professional component that
must be provided by radiologists who are not directly employed or engaged by the
Company. The Company does not control the radiologists who perform professional
services for the Company. These radiologists, instead, are employed by related
radiology practices that have affiliated with the Company 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 the Company 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 the Company's
business, financial condition and results of operations. See "Business --
Service Agreements."

         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 the Company, 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 the Company, the Company'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, the
Company's business could be adversely affected. Neither the Company nor the
radiology practices maintains insurance on the lives of any affiliated physician
for the benefit of the Company. See "Business -- Affiliation Structure."

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 the Company for a
period of two years after termination of employment. See "Business -- Service
Agreements." 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. The
Company also cannot predict with certainty whether the 


                                       29

<PAGE>   32

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

Risks Associated with Acquisitions and Expansion Strategy

         The Company intends to expand through acquisitions within its existing
markets, as well as through joint venture and outsourcing relationships. The
Company also may expand into new geographic markets by acquiring imaging
centers, entering into joint venture or outsourcing relationships and
affiliating with high-quality, profitable radiology practices. There can be no
assurance that the Company 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 the Company's
overall strategy or that such expansion will ultimately produce returns that
justify the investment by the Company.

         The Company'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 the Company's structure to comply with present or future federal
and state legal requirements affecting the Company'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 the Company, the radiology practices and the physicians associated
with the radiology practices, including their respective facilities, and (iv)
expand the Company's infrastructure and management to accommodate expansion.
Acquisitions involve a number of special risks, including possible adverse
effects on the Company'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 the Company's business, financial condition and results of operations.

         The Company intends to expand both in areas where the radiology
practices currently operate as well as in new markets. Although the Company 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 the Company as being dominant in a particular market
and, therefore, cause the Company 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.

Year 2000 Compliance

         The Year 2000 Issue exists because many computer systems and
applications currently use two-digit date fields to designate a year. As the
century date occurs, computer programs, computers and embedded microprocessors
controlling equipment with date-sensitive systems may recognize Year 2000 as
1900 or not at all. This inability to recognize or properly treat Year 2000 may
result in computer system failures or miscalculations of critical financial and
operational information as well as failures of equipment controlling
date-sensitive microprocessors. In addition, there are two other related issues,
which could also lead to miscalculations or failures: (i) some older systems'
programming assigns special meaning to certain dates, such as 9/9/99 and (ii)
the Year 2000 is a leap year. The Company is at risk for both its own Year 2000
compliance and for the Year 2000 compliance of those with whom it does business,
particularly third-party payors. The Company has determined that a majority of
its own software and hardware information technology systems and those of its
radiology practices are Year 2000 compliant and that the remainder of such
software and equipment will be Year 2000 compliant before the end of 1999. The
Company is working with vendors and suppliers to assess the Company's exposure
with regard to embedded technology in non-information technology systems. The
Company anticipates that the total amount it will expend on Year 2000 issues is
between $500,000 and $1,500,000.


                                       30

<PAGE>   33

         Management believes that the most significant risk to the Company of
Year 2000 issues is the effect such issues may have on third-party payors, such
as Medicare. With respect to Medicare payments, neither the Health Care
Financing Administration nor its fiscal intermediaries have any contingency plan
in place. However, the Health Care Financing Administration has mandated that
its fiscal intermediaries submit a draft of their contingency plans to it and
that they be prepared to ensure that no interruption of Medicare payments
results from Year 2000 related failures of their systems. There can be no
assurance that Year 2000 issues will not have a material adverse effect on the
Company's business, results of operations and financial condition.

Potential Liability and Insurance; Legal Proceedings

         The provision of medical services entails an inherent risk of
professional malpractice and other similar claims. Although the Company 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 the
Company in the future. Additionally, the Company owns, operates and manages
radiology facilities, which exposes the Company to professional liability
claims. The Company 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 the Company that exceed the scope of coverage
or applicable policy limits or that could otherwise have a material adverse
effect on the Company'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 the Company
and the radiology practices. There can be no assurance that adequate liability
insurance will be available to the Company and the radiology practices in the
future at acceptable costs or that the future cost of such insurance to the
Company and the radiology practices will not have a material adverse effect on
the Company's business, financial condition and results of operations.

         In connection with the acquisitions of the certain radiology practices,
the Company 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, the Company may succeed to
some or all of the liabilities of such radiology practices. Therefore, claims
may be asserted against the Company for events that occurred prior to the
acquisition of the assets of radiology practices. In connection with the
Company's acquisitions, the shareholders of each such radiology practice have
agreed to indemnify the Company for certain claims. There can be no assurance
that the Company 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 the Company'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 the Company
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 the Company 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. The Company cannot predict the
effect that any such claims, regardless of their outcome, might have on its
business or reputation.

         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 is 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.



                                       31

<PAGE>   34

Competition

         The Company 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. The Company 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
the Company 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 the Company.
There can be no assurance that the Company 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 the Company, or that competitive pressures will not otherwise
adversely affect the Company.
See "Business -- Competition."

         The radiology practices and the Company's owned, operated or managed
imaging centers compete with numerous local radiology and imaging service
providers. The Company 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 the Company'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 the
Company's business, financial condition and results of operations.

         Further, the radiology practices will compete with other providers for
managed care contracts. The Company 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 the Company in obtaining such contracts. There can be no
assurance that the radiology practices and the Company will be able to obtain
future business from managed care entities which will allow the Company to
compete effectively in the markets they serve, which inability to compete could
materially and adversely affect the Company's business, financial condition and
results of operations.

Anti-Takeover Considerations

         Certain provisions of the Company's Restated Certificate of
Incorporation, the Company's Amended and Restated Bylaws and Delaware law could
discourage potential acquisition proposals, delay or prevent a change in control
of the Company 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 the Company's
ability to issue, without further stockholder approval, shares of preferred
stock with rights and privileges senior to the Common Stock. The Company 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. See "Description of Capital Stock."

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

Terminations of Lock-ups

         In connection with the transactions pursuant to which the Company
acquired the assets of the original related practices, the practices (or their
stockholders) received shares of Company Common Stock. Shares also 


                                       32
<PAGE>   35

were issued to radiologist practices (or their stockholders) that consummated
acquisition transactions with the Company 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 and 254,754 shares were released in January 1999.
Restrictions will expire during the remainder of 1999 as follows: 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. During 2000, an additional 1,021,004 shares will be
released from transfer restrictions. There can be no assurance that holders of
these shares will continue to hold their shares. Moreover, the Company cannot
predict the effect that trades of substantial amounts of shares would have on
the Company'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 the Company's stock
price from time to time.

RISKS RELATING TO THE COMPANY'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. See
"Business -- Government Regulation and Supervision." 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 "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 the Company'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 a material adverse effect on the
Company'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 the Company, 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
the Company'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. These laws and the interpretations thereof
vary from state to state and are enforced by the courts and regulatory
authorities, each with broad discretion. A determination of liability under any
such laws could have a material adverse effect on the Company's business,
financial condition and results of operations.



                                       33

<PAGE>   36


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
the Company, 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 both the courts and regulatory authorities,
each with broad discretion. The Company'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, the Company will
provide management, administrative, technical and other non-medical services to
the radiology practices in exchange for a service fee. The Company 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
the Company 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 the Company is engaged in the corporate practice of
medicine in such states or that the payment of service fees to the Company by
the radiology practices pursuant to the service agreements constitutes
fee-splitting or the corporate practice of medicine. If such a claim was
successfully asserted, the Company 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 the Company to successfully
restructure its relationships to comply with such statutes could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Service Agreements."

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 five of the 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 the Company operates limit to some
extent the Company'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 the Company, and the failure to
obtain such approvals could materially and adversely affect the Company's
business, financial condition and results of operations. See "Business --
Government Regulation and Supervision."

Compliance

         Although the Company intends to structure and conduct its proposed
operation so as to comply with applicable federal and state laws, neither the
Company'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 the Company's
business by courts or regulatory authorities will not result in determinations
that could adversely affect the operations of the Company or that the health
care regulatory environment will not change so as to restrict the Company's
operations. In addition, the regulatory framework of certain jurisdictions may
limit the Company's expansion into or ability to continue operations within such
jurisdictions, unless the Company is able to modify its operational structure to
conform with such regulatory framework. Any limitation on the Company's ability
to expand could have a material adverse effect on the Company'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. The
Company believes that such initiatives will continue for the foreseeable future.
Certain aspects of these reforms 


                                       34

<PAGE>   37

as proposed in the past, such as further reductions in Medicare and Medicaid
payments, if adopted, could materially and adversely affect the Company'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 the Company's activities. There can be no assurance that
the Company's activities will not be investigated, that claims will not be made
against the Company or that increased enforcement activities will not directly
or indirectly have an adverse effect on the Company'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 the
Company's business, financial condition and results of operations. In addition,
implementation of additional regulations or compliance requirements could result
in substantial costs to the Company 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 the
Company's risk-based contracting activities could have a material adverse effect
on the Company's business, financial condition and results of operations.

Reimbursement Trends and Cost Containment

         The Company's revenue will be derived from service fees paid to the
Company 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 such 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, 1998, approximately 28% of the service fee revenue was
derived from government approved health care programs and approximately 72% 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. The Company 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 or
other changes in reimbursement for health care services could have a material
adverse effect on the Company's business, financial condition and results of
operations unless the Company 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 the Company'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 


                                       35

<PAGE>   38

methodology for payment of physician practice expenses under the physician fee
schedule over a four-year period beginning 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 the Company 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 the Company'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 the Company's business, financial condition and results of operations.
See "Business -- Government Regulation and Supervision."

         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 the Company to
negotiate satisfactory arrangements with managed care companies could have a
material adverse effect on the Company's business, financial condition and
results of operations.

Risks Associated with Managed Care Contracts and Capitated Fee Arrangements

         During the fiscal year 1998, approximately 95% 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 5% 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. The Company believes that its
success will, in part, depend on the Company's ability to negotiate, on behalf
of the radiology practices and the Company'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 the Company will be able to negotiate, on behalf of its radiology
practices or the Company'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 extensive care than is anticipated, the Company 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 the
Company'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 the
Company's ability to integrate those systems and operations. The Company's
inability to develop strong quality assurance measures in conjunction with its
radiology practices could place the Company and its radiology practices at a
competitive disadvantage and have a material adverse effect on the Company's
business, financial condition and results of operations.


                                       36

<PAGE>   39

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.






                                       37


<PAGE>   40


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, 1997 and 1998.......................        F-3

Consolidated Statements of Income for the Period from Inception (April 30, 1996)
     to December 31,1996 and for the Years
     Ended December 31, 1997 and 1998..............................................        F-4

Consolidated Statements of Stockholders' Equity for the Period from Inception
     (April 30, 1996) to December 31, 1996 and for the
     Years Ended December 31, 1997 and 1998........................................        F-5

Consolidated Statements of Cash Flows for the Period from Inception (April 30,
     1996) to December 31, 1996 and for the Years
     Ended December 31, 1997 and 1998..............................................        F-6

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






<PAGE>   41


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Stockholders of
American Physician Partners, Inc.:

         We have audited the accompanying consolidated balance sheets of
American Physician Partners, Inc. (a Delaware corporation) and subsidiaries as
of December 31, 1997 and 1998, and the related consolidated statements of
income, stockholders' equity and cash flows for the period from inception (April
30, 1996) to December 31, 1996, and for the years ended December 31, 1997 and
1998. 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 American Physician
Partners, Inc. and subsidiaries as of December 31, 1997 and 1998, and the
results of their operations and their cash flows for the period from inception
(April 30, 1996) to December 31, 1996, and for the years ended December 31, 1997
and 1998, in conformity with generally accepted accounting principles.




                                                ARTHUR ANDERSEN LLP


Dallas, Texas,
   January 27, 1999



                                      F-2


<PAGE>   42


               AMERICAN PHYSICIAN PARTNERS, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                     ASSETS
                                                                                       DECEMBER 31,
                                                                                --------------------------
                                                                                   1997            1998
                                                                                ----------      ----------
<S>                                                                             <C>             <C>
CURRENT ASSETS:
   Cash and cash equivalents ..............................................     $    4,572      $    6,485
   Accounts receivable, net of allowances of $55,200 and $86,900 in
     1997 and 1998, respectively ..........................................         21,398          36,789
   Due from affiliated practices ..........................................          3,651           1,412
   Other current assets ...................................................          2,351           2,835
                                                                                ----------      ----------
         Total current assets .............................................         31,972          47,521
PROPERTY AND EQUIPMENT, net of accumulated depreciation
   of $60,721 and $69,497 in 1997 and 1998, respectively ..................         22,837          37,002
INVESTMENTS IN JOINT VENTURES .............................................          3,725           5,424
INTANGIBLE ASSETS, net ....................................................          1,790          61,119
DEFERRED FINANCING COSTS, net .............................................          2,395           3,408
OTHER ASSETS ..............................................................             47           2,165
                                                                                ----------      ----------
         Total assets .....................................................     $   62,766      $  156,639
                                                                                ==========      ==========

                       LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
   Accounts payable and accrued expenses ..................................     $   12,689      $   13,884
   Accrued physician retention ............................................          4,330           6,319
   Accrued salaries and benefits ..........................................          1,514           3,893
   Current portion of long-term debt ......................................            858             840
   Current portion of capital lease obligations ...........................          1,791           1,677
Deferred income taxes .....................................................          6,124             636
   Other current liabilities ..............................................          1,290             894
                                                                                ----------      ----------
         Total current liabilities ........................................         28,596          28,143
DEFERRED INCOME TAXES .....................................................          3,872           2,406
LONG-TERM DEBT, net of current portion ....................................         51,734         113,807
CAPITAL LEASE OBLIGATIONS, net of current portion .........................          1,482           3,887
OTHER LIABILITIES .........................................................            297             243
                                                                                ----------      ----------
         Total liabilities ................................................         85,981         148,486

COMMITMENTS AND CONTINGENCIES

MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES ...........................            820           1,107

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;
     17,234,852 and 19,243,949 shares issued and outstanding in
     1997 and 1998, respectively ..........................................              2               2
Additional paid-in capital ................................................        (18,460)           (910)
Retained earnings .........................................................         (5,577)          7,954
                                                                                ----------      ----------
         Total stockholders' equity .......................................        (24,035)          7,046
                                                                                ----------      ----------
         Total liabilities and stockholders' equity .......................     $   62,766      $  156,639
                                                                                ==========      ==========
</TABLE>

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



                                      F-3

<PAGE>   43


               AMERICAN PHYSICIAN PARTNERS, INC. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
                                                 PERIOD FROM
                                                  INCEPTION
                                               (APRIL 30, 1996)
                                                      TO
                                                  DECEMBER 31,          YEAR ENDED DECEMBER 31,
                                                      1996              1997              1998
                                                  ------------      ------------      ------------
<S>                                               <C>               <C>               <C>         
SERVICE FEE REVENUE .........................     $         --      $      8,683      $    135,604

COSTS AND EXPENSES:
   Salaries and benefits ....................               --             2,922            42,227
   Practice supplies ........................               --             1,036             8,865
   Practice rent and lease expense ..........               --               852            11,532
   Other practice expenses ..................               --             1,557            25,311
   Corporate general and administrative .....            1,623             4,910             9,597
   Depreciation and amortization ............                3               888            12,178
   Interest expense, net ....................               23               617             7,541
                                                  ------------      ------------      ------------
       Total costs and expenses .............            1,649            12,782           117,251
                                                  ------------      ------------      ------------

INCOME (LOSS) BEFORE TAXES, MINORITY
INTERESTS IN CONSOLIDATED SUBSIDIARIES
AND EQUITY IN EARNINGS OF INVESTMENTS .......           (1,649)           (4,099)           18,353

EQUITY IN EARNINGS OF INVESTMENTS ...........               --               220             4,339

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

INCOME (LOSS) BEFORE TAXES ..................           (1,649)           (3,928)           21,982

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

NET INCOME (LOSS) ...........................     $     (1,649)     $     (3,928)     $     13,531
                                                  ============      ============      ============



NET INCOME (LOSS) PER COMMON SHARE:
       Basic ................................     $      (0.82)     $      (1.13)     $       0.72
       Diluted ..............................     $      (0.82)     $      (1.13)     $       0.70

WEIGHTED AVERAGE SHARES OUTSTANDING:
       Basic ................................        2,000,000         3,450,948        18,739,106
       Diluted ..............................        2,000,000         3,450,948        19,334,658
</TABLE>


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



                                      F-4


<PAGE>   44


               AMERICAN PHYSICIAN PARTNERS, INC. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
                                                                                   ADDITIONAL
                                                           COMMON STOCK              PAID-IN          RETAINED
                                                     SHARES           AMOUNT         CAPITAL          EARNINGS          TOTAL  
                                                  -----------      -----------     -----------      -----------      -----------
<S>                                              <C>             <C>             <C>              <C>              <C>        
BALANCE, inception (April 30,
     1996) ..................................              --      $        --     $        --      $        --      $        --
   Issuance of common stock .................       2,000,000               --             250               --              250
   Net loss .................................              --               --              --           (1,649)          (1,649)
                                                  -----------      -----------     -----------      -----------      -----------
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
                                                  ===========      ===========     ===========      ===========      ===========
</TABLE>



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


                                      F-5

<PAGE>   45



               AMERICAN PHYSICIAN PARTNERS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                          PERIOD FROM
                                                                           INCEPTION
                                                                        (APRIL 30, 1996)
                                                                               TO            YEAR ENDED DECEMBER 31,
                                                                           DECEMBER 31,    --------------------------
                                                                              1996            1997            1998     
                                                                           ----------      ----------      ----------
<S>                                                                        <C>             <C>             <C>       
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss) .................................................     $   (1,649)     $   (3,928)     $   13,531
   Adjustments to reconcile net income (loss) to net cash provided
     by (used in) operating activities --
     Minority interests in consolidated subsidiaries .................             --              49             710
     Depreciation and amortization ...................................              3             888          12,178
     Equity in earnings of investments ...............................             --            (220)         (4,339)
     Gain on sale of assets ..........................................             --              (6)             --
     Changes in assets and liabilities:
       Accounts receivable, net ......................................             --          (1,787)        (10,379)
       Other receivables and other current assets ....................            (15)         (3,908)          2,872
       Other assets ..................................................            (14)         (2,412)         (2,118)
       Accounts payable and accrued expenses .........................            476           6,828           1,953
       Accrued salaries and benefits .................................             --            (433)          2,380
       Other current liabilities .....................................             --             (87)           (450)
       Other liabilities .............................................             --            (317)         (6,388)
                                                                           ----------      ----------      ----------
         Net cash provided by (used in) operating activities .........         (1,199)         (5,333)          9,950
                                                                           ----------      ----------      ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Proceeds from the sale of property and equipment ..................             --               6              --
   Purchases of property and equipment, net ..........................            (60)           (481)        (12,651)
   Cash paid for acquisitions ........................................             --              --         (52,866)
   Contributions to joint ventures ...................................             --            (100)           (571)
   Distributions from joint ventures .................................             --             155           2,587
                                                                           ----------      ----------      ----------
         Net cash used in investing activities .......................            (60)           (420)        (63,501)
                                                                           ----------      ----------      ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of notes payable ...........................            400              --              --
   Payment on notes payable ..........................................           (400)             --              --
   Proceeds from issuance of convertible notes payable ...............          3,500              --              --
   Proceeds from issuance of long-term debt, net .....................             --          49,600          59,814
   Payment on debt of initial radiology practices ....................             --         (23,420)             --
   Payment on capital leases .........................................             --              --          (3,282)
   Cash dividends to initial radiology practices .....................             --         (50,588)             --
   Cash received in the Reorganizations ..............................             --           3,188              --
   Proceeds from the issuance of common stock, net ...................            250          29,081              --
   Proceeds from the exercise of stock options .......................             --              10              48
   Advances to radiology practices and other .........................             --             (37)         (1,116)
                                                                           ----------      ----------      ----------
         Net cash provided by financing activities ...................          3,750           7,834          55,464
                                                                           ----------      ----------      ----------

NET INCREASE IN CASH AND CASH EQUIVALENTS ............................          2,491           2,081           1,913

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

CASH AND CASH EQUIVALENTS, end of period .............................     $    2,491      $    4,572      $    6,485
                                                                           ==========      ==========      ==========

NON-CASH TRANSACTIONS DURING THE PERIOD:
   Assets acquired from radiology practices ..........................     $       --      $   53,427      $   16,677
                                                                           ----------      ----------      ----------
   Liabilities and debt assumed from radiology practices .............     $       --      $   54,138      $    7,404
                                                                           ----------      ----------      ----------
   Common stock issued to radiology practices ........................     $       --      $  151,757      $   17,502
                                                                           ----------      ----------      ----------
   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>   46


               AMERICAN PHYSICIAN PARTNERS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31,1997 and 1998

1. DESCRIPTION OF BUSINESS:

         American Physician Partners, Inc. (together with its subsidiaries,
"APPM" or the "Company"), a Delaware corporation, develops, consolidates and
manages radiology and imaging networks. 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, 1998, the Company owned 61 imaging centers. The
Company also operates, manages or owns an interest in 16 additional imaging
centers through joint venture and outsourcing relationships with hospitals or
health systems. The Company is the managing partner in 14 of such imaging center
joint ventures. The Company's radiology facilities are concentrated in
California, Florida, Kansas, Maryland, New York, Texas, Virginia and Washington
D.C. Physician services are provided at all of APPM's 77 imaging centers under
the terms of service agreements with ten radiology practices, 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 loss, stockholders' equity, or cash flows.

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.



                                      F-7

<PAGE>   47


               AMERICAN PHYSICIAN PARTNERS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31,1997 and 1998

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.

         The following table sets forth changes in the accounts receivable
allowances for 1997 and 1998 (in thousands):

<TABLE>
<CAPTION>
                                                          1997             1998     
                                                     -------------     -------------
<S>                                                  <C>               <C>          
      Balance, beginning of period..............     $          --     $      55,200
        Allowance from initial radiology
         or from new affiliations...............            51,865            16,031
        Provision...............................            14,809           225,245
        Writeoffs and adjustments...............           (11,474)         (209,576)
                                                     -------------     -------------
      Balance, end of period....................     $      55,200     $      86,900
                                                     =============     =============
</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 1998 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>      
      Advanced Imaging of Carroll County              50%        $   586     $       73   $   2,347
      White Square Imaging Center                     50%          2,729            678       2,346
      MRI of Kansas                                   22%          3,315            674       2,557
      Northeast Baptist Imaging Center                49%          1,490              8         608
</TABLE>

Intangible Assets

      The value of intangible assets (consisting primarily of service
agreements) is recorded 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, 1997 and
1998, accumulated amortization was approximately $562,000 and $2,462,000,
respectively.


                                      F-8

<PAGE>   48


               AMERICAN PHYSICIAN PARTNERS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31,1997 and 1998


         The service agreements consist of the costs of purchasing the rights to
manage radiology practices. 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
later 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 1997 or 1998.

Accounts Payable and Accrued Expenses

         Accounts payable and accrued expenses at December 31, 1997 and 1998
consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                  1997             1998     
                                             -------------     -------------
<S>                                          <C>               <C>          
      Accounts payable                       $       6,154     $       5,895
      Patient refunds                                1,656             3,396
      Other payables and accrued expenses            4,879             4,593
                                             -------------     -------------
                                             $      12,689     $      13,884
                                             =============     =============
</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.

New Accounting Standard - 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"). EITF 97-2 addresses issues relating to (1) whether a "controlling
financial interest" can be established through a contractual management
agreement under FASB Statement No. 94, (2) whether a transaction between a
physician practice management entity ("PPM") and a physician practice in which
the PPM enters into a management agreement with the physician practice should be
considered a business combination and thus accounted for under APB No. 16, (3)
whether the pooling-of interests method of accounting may be followed in certain
circumstances, (4) what are common types of intangibles that should be
considered in performing the purchase price allocation, and (5) whether an
employee of the physician practice should be considered an employee of the PPM
for purposes of accounting for that stock-based compensation.


                                      F-9

<PAGE>   49


               AMERICAN PHYSICIAN PARTNERS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31,1997 and 1998


         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.

         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     
                                                              -------------     -------------
<S>                                                           <C>               <C>          
      Physician groups revenue, net of contractual
         allowances and estimated bad debts............       $      13,709     $     208,983
      Less: amounts retained by physician groups.......              (5,026)          (73,379)
                                                              -------------     -------------
      Service fee revenue, as reported                        $       8,683     $     135,604
                                                              =============     =============
</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 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 agreement; 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 agreement and which is renegotiated each year to equal the fair market
value of the services provided under the service agreement. 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.

      Service fee revenue consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                   1997             1998     
                                                              -------------     -------------
<S>                                                           <C>               <C>          
      Professional component...........................       $       2,632     $      34,694
      Technical component..............................               6,051           100,910
                                                              -------------     -------------
                                                              $       8,683     $     135,604
                                                              =============     =============
</TABLE>

      For the year ended December 31, 1998, 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
                Practice                                                        Fee Revenue
                --------                                                        -----------
<S>                                                                             <C>    
      Advanced Radiology, LLC                                                     $43,774
      Mid Rockland Imaging Associates, P.C.                                        19,701
      The Ide Group, P.C.                                                          19,390
      Community Radiology Associates, Inc.                                         14,659
</TABLE>


                                      F-10

<PAGE>   50


               AMERICAN PHYSICIAN PARTNERS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31,1997 and 1998


         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.

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 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.
For the year ended December 31, 1998, 595,552 shares related to stock options
were included in diluted EPS.

         There is no difference between basic and diluted EPS for the years
ended December 31, 1996 and 1997 because options and convertible notes payable
have 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 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.

Cash Paid During Year

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


<TABLE>
<CAPTION>
                            1996           1997           1998 
                         ----------     ----------     ----------
<S>                      <C>            <C>            <C>       
Interest ...........     $        7     $      254     $    8,653
Income taxes .......             --             --         15,423
</TABLE>



                                      F-11

<PAGE>   51


               AMERICAN PHYSICIAN PARTNERS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31,1997 and 1998


3. ACQUISITIONS AND PRACTICE 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 will be 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.

         In August 1998, the Company completed its acquisition of an imaging
center in San Antonio, Texas. The total consideration for this transaction was
approximately $2,800,000 cash.

         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 acquisitions are summarized as follows (in
thousands):

<TABLE>
<S>                                                           <C>
      Assets acquired:
         Accounts receivable                                  $       5,014
         Property and equipment                                      11,663
      Liabilities assumed:
         Debt assumed                                                 6,172
         Other liabilities                                            1,232
                                                              -------------
      Net assets acquired                                             9,273
      Total consideration exchanged
         Cash                                                        52,866
         Common stock                                                17,502
                                                              -------------
      Value assigned to service agreements                    $      61,095
                                                              =============
</TABLE>


                                      F-12

<PAGE>   52


               AMERICAN PHYSICIAN PARTNERS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31,1997 and 1998


 4. PROPERTY AND EQUIPMENT:

         Property and equipment consists of the following at December 31, 1997
and 1998 (in thousands):


<TABLE>
<CAPTION>
                                                           Useful Life           1997             1998   
                                                          -------------      ----------        ----------
<S>                                                      <C>                 <C>               <C>       
        Equipment (primarily medical equipment)             5-7 Years        $   71,180        $   92,067
        Leasehold improvements                       Remaining life of lease      9,744            12,567
        Building                                            15 Years              2,634             1,865
                                                                             ----------        ----------
                                                                                 83,558           106,499
        Less - Accumulated depreciation
          and amortization                                                      (60,721)          (69,497)
                                                                             ----------        ----------
        Property and equipment, net                                          $   22,837        $   37,002
                                                                             ==========        ==========
</TABLE>



                                      F-13


<PAGE>   53


               AMERICAN PHYSICIAN PARTNERS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31,1997 and 1998


5. LONG-TERM DEBT:

      Long-term debt consists of the following at December 31, 1997 and 1998 (in
thousands):

<TABLE>
<CAPTION>
                                                                                 1997             1998   
                                                                             ----------        ----------
<S>                                                                         <C>               <C>       
        Note payable to a bank, interest at the Company's option at 
          LIBOR plus 2.0% (7.25% at December 31, 1998) or the 
          prime rate of a bank plus 1.0% (8.75% at December 31,
          1998), maturing in November 2003                                   $   49,600        $  112,500
        Note payable to a bank, interest at 7.92%, maturing
          March 2001, unsecured                                                   2,992             2,147
                                                                             ----------        ----------
                                                                                 52,592           114,647

        Less - Current portion of long-term debt                                   (858)             (840)
                                                                             ----------        ----------
        Long-term debt, net of current portion                               $   51,734        $  113,807
                                                                             ==========        ==========
</TABLE>


         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, 1998, the Company's debt
could not exceed $135,000,000 under the Credit Facility. The Company had
outstanding borrowings of $112,500,000 under the Credit Facility and an
additional approximately $7.7 million outstanding under other credit
arrangements (consisting of $5.6 million of capital lease obligations and $2.1
million in a note payable to a bank). 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 of
which the Company is or becomes a party and a pledge of the stock of the
Company's subsidiaries.

         The maturities of long-term debt at December 31, 1998 are as follows
(in thousands):

<TABLE>
<S>                 <C>                  <C>         
                     1999                 $        840
                     2000                       19,796
                     2001                       37,761
                     2002                       37,500
                     2003                       18,750
                                          ------------
                                          $    114,647
                                          ============
</TABLE>


         As of December 31, 1997 and 1998, accumulated amortization of deferred
financing costs was approximately $33,000 and $661,000, respectively. Such costs
are being amortized over a straight-line method which approximates the effective
interest method.


                                      F-14

<PAGE>   54


               AMERICAN PHYSICIAN PARTNERS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31,1997 and 1998


6. STOCKHOLDERS' EQUITY:

Common Stock

         In 1998, the Company issued 1,812,054 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.
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, 1998 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, 1996, 1997 and 1998, 1,300,000,
1,591,000 and 2,117,000 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, 1996, 1997 and 1998:

<TABLE>
<CAPTION>
                                          1996                     1997                    1998
                                 ----------------------   ---------------------   ---------------------
                                             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          --  $      0.00      1,300   $     0.70      1,591   $     5.19
Granted                              1,300  $      0.70        663   $    11.15      1,427   $     9.24
Exercised                               --  $      0.00        (78)  $     0.13       (197)  $     0.24
Cancelled                               --  $      0.00       (294)  $     0.13       (704)  $     8.99
                                 ---------  -----------   --------   ----------   --------   ----------
Outstanding, end of year             1,300  $      0.70      1,591   $     5.19      2,117   $     7.14
                                 =========  ===========   ========   ==========   ========   ==========
Exercisable, end of year                96  $      0.20        656   $     4.10        718   $     5.79
Price Range                          $0.13 to $8.00           $0.13 to $12.00        $0.13 to $12.00
</TABLE>



                                      F-15

<PAGE>   55


               AMERICAN PHYSICIAN PARTNERS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31,1997 and 1998



         The following table reflects the weighted average exercise price and
weighted average contractual life of various exercise price ranges of the
2,116,998 options outstanding as of December 31, 1998.

<TABLE>
<CAPTION>
                                                                    Wtd. Avg.                    Wtd. Avg.
     Exercise Price Range                  Shares                Exercise Price           Contractual Life (yrs)
     --------------------                  ------                --------------           ----------------------
<S>                                       <C>                      <C>                          <C>
      $0.13 -  $7.49                         536,765                  $0.85                        7.76
      $7.50  - $9.00                       1,230,233                  $8.52                        9.19
      $9.50  - $12.00                        350,000                 $11.98                        8.38
</TABLE>

         The Company accounts for its stock-based compensation arrangements
under the provisions of APB No. 25, "Accounting for Stock Issued to Employees".
In 1995, SFAS No. 123, "Accounting for Stock-Based Compensation" was issued,
whereby companies may elect to account for stock-based compensation using a fair
value based method or continue measuring compensation expense using the
intrinsic value method prescribed in APB No. 25. SFAS No. 123 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 pro forma effects of adopting SFAS No. 123's fair
value based method for the period ended December 31, 1996 were not materially
different from the corresponding APB No. 25 intrinsic value methodology because
the weighted average grant-date fair value of options granted during the period
was immaterial. The effects of applying SFAS No. 123 during 1997 and 1998 are as
follows (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                      1997              1998 
                                                  ------------      ------------
<S>                                               <C>               <C>         
Net income (loss):
     As reported                                  $     (3,928)     $     13,531
     Pro forma                                          (5,599)           12,117
Net income (loss) per share (diluted):
     As reported                                  $      (1.13)     $       0.70
     Pro forma                                           (1.62)             0.63
</TABLE>


         The fair value of each option grant is estimated using the following
weighted-average assumptions for grants in 1997 and 1998, respectively:
risk-free interest rate of 5.1 and 5.6 percent; expected life of 2.58 and 2.81
years; expected volatility of 125.0 and 67.0 percent; and dividend yield of zero
in 1997 and 1998. The weighted-average grant-date fair value of new grants in
1998 was $6.80 per share.

7. INCOME TAXES:

         Income tax expense in 1996, 1997 and 1998 is composed of the following
amounts (in thousands):

<TABLE>
<CAPTION>
                                             1996                1997                 1998 
                                        ---------------     ---------------      ---------------
<S>                                     <C>                 <C>                  <C>            
Current income tax expense
   Federal ........................     $            --     $            --      $         8,418
   State and local ................                  --                  --                2,915
                                        ---------------     ---------------      ---------------
                                                     --                  --               11,333
Deferred income tax benefit
   Federal ........................                  --                  --               (2,507)
   State ..........................                  --                  --                 (375)
                                        ---------------     ---------------      ---------------
                                                     --                  --               (2,882)
Income tax expense ................     $            --     $            --      $         8,451
                                        ===============     ===============      ===============
</TABLE>



                                      F-16

<PAGE>   56


               AMERICAN PHYSICIAN PARTNERS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31,1997 and 1998


         A reconciliation between reported income tax expense and the amount
computed by applying the statutory federal income tax rate of 35% for 1996, 1997
and 1998 is as follows (in thousands):

<TABLE>
<CAPTION>
                                                     1996              1997             1998     
                                                 -------------    --------------    -------------
<S>                                              <C>              <C>               <C>          
      Computed at statutory rate                 $        (577)   $       (1,375)   $       7,694
      State income taxes, net of
          federal tax benefit                               --                --            1,519
      Change in valuation allowance                        577             1,375               --
      Prior year tax return/accrual difference              --                --             (798)
      Nondeductible amortization                            --                --               36
                                                 -------------    --------------    -------------
      Income tax expense                         $          --    $           --    $       8,451
                                                 =============    ==============    =============
</TABLE>

         The components of deferred income tax expense (benefit) in 1996, 1997
and 1998 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                     1996              1997             1998     
                                                 -------------    --------------    -------------
<S>                                              <C>              <C>               <C>          
      Amortization                               $          --    $           --    $         542
      Depreciation                                          --                --             (789)
      Net operating loss carryforward                     (577)           (1,375)              --
      Change in valuation allowance                        577             1,375               --
      Various accrued liabilities and other                 --                --              669
      Bad debts                                             --                --           (1,044)
      Start-up costs                                        --                --           (1,535)
      Cash to accrual adjustments                           --                --             (725)
                                                 -------------    --------------    --------------
      Deferred income tax benefit                $          --    $           --    $      (2,882)
                                                 =============    ==============    =============
</TABLE>

      The tax effects of temporary differences that give rise to the deferred
income taxes at December 31, 1997 and 1998, are presented below (in thousands):

<TABLE>
<CAPTION>
                                                                       1997             1998     
                                                                  --------------    -------------
<S>                                                               <C>               <C>          
      Deferred tax assets
         Start-up costs                                           $           --    $       1,535
         Various accrued liabilities and other                                --            3,403
         Bad debts                                                            --            1,044
         Net operating loss carryforward                                   1,952            1,952
                                                                  --------------    -------------
                                                                           1,952            7,934
      Valuation allowance                                                 (1,952)          (1,952)
                                                                               --            5,982
      Deferred tax liabilities
         Cash to accrual adjustments                                      (8,662)          (7,937)
         Amortization                                                         --             (542)
         Depreciation                                                     (1,334)            (545)
                                                                  --------------    -------------
                                                                          (9,996)          (9,024)
                                                                  --------------    -------------
                                                                  $       (9,996)   $      (3,042)
                                                                  ==============    =============
</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.




                                      F-17

<PAGE>   57


               AMERICAN PHYSICIAN PARTNERS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31,1997 and 1998

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, 1998, 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>      
    1999                                                          $   2,244           $   5,271
    2000                                                              1,977               4,011
    2001                                                              1,413               2,738
    2002                                                                876               2,315
    2003                                                                144               2,025
    Thereafter                                                           --              11,439
                                                                  ---------           ---------
    Total minimum lease payments                                  $   6,654           $  27,799
                                                                                      =========
    Less - Amount representing interest                              (1,090)
                                                                  ---------
    Present value of minimum capital lease payments                   5,564
    Less - Current portion of capital lease obligations              (1,677)
                                                                  ---------
    Capital lease obligations, net of current portion             $   3,887
                                                                  =========
</TABLE>

         Lease expense was approximately $57,000, $585,000 and $5,619,000 in
1996, 1997 and 1998, respectively.

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 four reportable segments: Mid-Atlantic Region,
Northeastern Region, Central Region, and Western Region. The Company's
reportable segments are strategic business units defined by geography. Each owns
and operates imaging centers and provides management services to the radiology
practices within their respective regions.



                                      F-18

<PAGE>   58


               AMERICAN PHYSICIAN PARTNERS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31,1997 and 1998


         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 region operates under different contractual
arrangements, providing service to a diverse mix of patients and payors.


                      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           $    60,317  $    39,091  $    16,688   $    19,508  $   135,604
Total operating expenses           39,288       26,587        9,065        12,995       87,935
                              -----------  -----------  -----------   -----------  -----------
Segment contribution               21,029       12,504        7,623         6,513       47,669
Contribution margin                    35%          32%          46%           33%          35%
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.


                      FOR THE YEAR ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
                              Mid-Atlantic Northeastern   Central       Western
                                 Region       Region       Region       Region        Total   
                              -----------  -----------  -----------   -----------  -----------
<S>                           <C>          <C>          <C>           <C>          <C>        
Service fee revenue           $     3,533  $     3,105  $       880   $     1,165  $     8,683
Total operating expenses            2,766        2,147          586           868        6,367
                              -----------  -----------  -----------   -----------  -----------
Segment contribution                  767          958          294           297        2,316
Contribution margin                    22%          31%          33%           25%          27%
Depreciation and
    amortization expense              351          166           39           103          659
Interest Expense                       94           70            8            30          202
Segment Profit                        434          722          306           164        1,626

Segment assets                     28,268       14,565        7,747         5,832       56,412
Expenditures for
   segment assets                      --           --           --            --           --
</TABLE>

<TABLE>
<CAPTION>
Reconciliation of Profits                                   1997                      1998
                                                     ------------------         -----------------
<S>                                                  <C>                        <C>              
     Segment profit                                  $            1,626         $          39,141
     Unallocated amounts:
         Corporate general and administrative                    (4,910)                   (9,597)
         Corporate depreciation and amortization                   (229)                   (2,417)
         Corporate interest expense                                (415)                   (5,145)
                                                     ------------------         -----------------
     Income (loss) before taxes                      $           (3,928)        $          21,982
                                                     ===================        =================
</TABLE>


                                      F-19

<PAGE>   59


               AMERICAN PHYSICIAN PARTNERS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31,1997 and 1998

<TABLE>
<CAPTION>
Reconciliation of Assets and Expenditures                   1997                      1998       
                                                     ------------------         -----------------
<S>                                                  <C>                        <C>
Assets:
     Segment amounts                                 $           56,412         $          90,356
     Corporate assets (including intangible assets)               6,354                    66,283
                                                     ------------------         -----------------
     Total assets                                    $           62,766         $         156,639
                                                     ==================         =================

Expenditures
     Segment amounts                                 $               --         $           9,857
     Corporate expenditures                                         481                     2,794
                                                     ------------------         -----------------
     Total expenditures                              $              481         $          12,651
                                                     ==================         =================
</TABLE>

10. SUBSEQUENT EVENTS:

         On January 4, 1999, the Company acquired all of the outstanding stock
of Emporia Radiology, P.C. ("Emporia"), a radiology practice located in Emporia,
Kansas. In connection with the acquisition, Emporia's physicians joined
Radiology and Nuclear Medicine, L.L.C. ("RNM"), and became subject to the
service agreement between RNM and the Company. The total purchase price was
$1,190,000, consisting of the issuance of 50,264 shares of the Company's common
stock valued at approximately $304,000, and cash. This acquisition will be
accounted for using the purchase method.

On February 6, 1999, the Company acquired all of the outstanding stock of Steven
P. Braff, M.D., P.C. ("Braff"), a radiology practice located in Rochester, New
York. In connection with the acquisition, the professional services will be
provided by Ide Imaging Group, P.C. ("Ide"), subject to the service agreement
between Ide and the Company. The total purchase price was $2,400,000 cash. This
acquisition will be accounted for using the purchase method.



                                      F-20

<PAGE>   60


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 1999 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 1999 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 1999 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 1999 annual meeting of stockholders and is incorporated herein by reference
to such proxy statement.


                                       38

<PAGE>   61

                                     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. **



                                       39

<PAGE>   62


         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.**



                                       40

<PAGE>   63


         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 ******



                                       41

<PAGE>   64


         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 ******

         3.1      Restated Certificate of Incorporation of American Physician
                  Partners, Inc.*** 3.2 Amended and 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.**

         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.***


                                       42

<PAGE>   65


         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. ******

         21.1     Subsidiaries *******

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

         27       Financial Data Schedule *******


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

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


                                       43

<PAGE>   66


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

****     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-K filed on February 22, 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.



                                       44

<PAGE>   67


                                 SIGNATURE PAGE

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Act of 1934, American Physician Partners, 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 May 12, 1999.

                                      AMERICAN PHYSICIAN PARTNERS, INC.


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


         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,        May 12, 1999
-------------------------------          President, and Chief Executive Officer
 Mark L. Wagar                           (Principal Executive Officer)


/s/ Sami S. Abbasi                       Senior Vice President and Chief Financial  May 12, 1999
-------------------------------          Officer (Principal Financial Officer)
 Sami S. Abbasi


/s/ David W. Young*                      Treasurer and Controller (Principal        May 12, 1999
-------------------------------          Accounting Officer)
 David W. Young


/s/ John Pappajohn*                      Director                                   May 12, 1999
-------------------------------
 John Pappajohn


/s/ Derace L. Schaffer, M.D.*            Director                                   May 12, 1999
-------------------------------
 Derace L. Schaffer, M.D.


/s/ Michael L. Sherman, M.D.*            Director                                   May 12, 1999
-------------------------------
 Michael L. Sherman, M.D.


/s/ John W. Colloton*                    Director                                   May 12, 1999
-------------------------------
 John W. Colloton


/s/ Less T. Chafen, M.D.*                Director                                   May 12, 1999
-------------------------------
 Less T. Chafen, M.D


By: /s/ Mark L. Wagar *
   ----------------------------
     Mark L. Wagar,
     As Attorney in Fact
</TABLE>



<PAGE>   68



                                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>   69

<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>   70

<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>   71

<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 ******

         3.1      Restated Certificate of Incorporation of American Physician
                  Partners, Inc.*** 3.2 Amended and 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.**

         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>   72

<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. ******

         21.1     Subsidiaries *******

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

         27       Financial Data Schedule *******
</TABLE>


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



<PAGE>   73

**       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.

****     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-K filed on February 22, 1999.