<PAGE>   1
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997          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)


                             2301 NATIONSBANK PLAZA
                                 901 MAIN STREET
                               DALLAS, TEXAS 75202
          (Address of principal executive offices, including zip code)

                                 (214) 761-3100
              (Registrant's telephone number, including area code)


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

<TABLE>
<CAPTION>
                                                     Name of each exchange
  Title of each class                                 on which registered
  -------------------                                 -------------------

<S>                                                    <C>
         None                                             None
</TABLE>


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

         Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes  [X]      No [ ]

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

         The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant was $158,312,870, based on the closing sales
price of $10.00 of the Registrant's Common Stock on the Nasdaq National Market
on March 25, 1998.

         As of March 25, 1998, 17,539,606 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 1998 are incorporated by reference in Part
III.

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<PAGE>   2




                        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 ......................................................................................   19
   Item 3.  Legal Proceedings ...............................................................................   19
   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 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.......................................   35
   Item 8.  Financial Statements and Supplementary Data...................................................... F-1
   Item 9.  Changes in and Disagreements with Accountants on Accounting
                     and Financial Disclosure................................................................ F-16
PART III.
   Item 10. Directors and Executive Officers of the Registrant............................................... F-17
   Item 11. Executive Compensation........................................................................... F-17
   Item 12. Security Ownership of Certain Beneficial
                     Owners and Management................................................................... F-17
   Item 13. Certain Relationships and Related Transactions................................................... F-17

PART IV.
   Item 14. Exhibits, Financial Statement Schedules and Reports
                     on Form 8-K............................................................................. F-18

</TABLE>


<PAGE>   3


                                     PART I


ITEM 1.  BUSINESS.

GENERAL

         American Physician Partners, Inc. ("APPM" or the "Company") is a
leading provider of physician practice management services to radiology
practices. The Company's focus is on the development, consolidation and
management of integrated radiology and imaging center networks. As of March 31,
1998, APPM provided management services to eight Affiliated Practices (defined
below) consisting of 233 physicians practicing at 44 hospitals and 71 owned,
operated or managed diagnostic imaging centers ("ICs") in California, Kansas,
Maryland, New York and Texas. The Company derives its revenue from service fees
in exchange for the provision of management, administrative, technical and other
non-medical services to radiology practices, ICs and other related businesses
with which the Company has affiliated ("Affiliated Practices") pursuant to
Service Agreements (defined below).

         The typical relationship with an Affiliated Practice involves the
acquisition by the Company of all of the non-medical assets (tangible and
intangible) of the Affiliated Practice and entry into a long-term Service
Agreement with the Affiliated Practice at the time of acquisition pursuant to
which the Company provides a wide range of management, administrative, technical
and non-medical services in exchange for a service fee ("Service Agreement"). If
the Affiliated Practice owns and operates an IC, the Company typically acquires
all of the IC-related assets (e.g., x-ray, magnetic resonance imaging ("MRI")
and computed tomography ("CT") equipment and related assets). As a result, the
Affiliated Practice relies on the Company to provide all necessary non-medical
business and administrative services and the Affiliated Practice employs all of
the professional personnel (i.e., the radiologists) who continue to provide
professional medical services for and on behalf of the Affiliated Practice.

         The Affiliated Practices provide a wide range of diagnostic and
therapeutic services, including x-ray and fluoroscopy, MRI, CT, mammography,
ultrasound, nuclear medicine, radiation oncology and interventional radiology.
The existing Affiliated 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; willingness to embrace the Company's vision and philosophy
regarding the provision of radiology services; and general economic and
demographic criteria. The Company provides Affiliated Practices with capital
resources and expertise to invest in new technologies, complete consolidating
acquisitions, implement sophisticated management information systems, promote
efficient practice patterns, develop coordinated marketing efforts and realize
purchasing economies of scale.

         The Company's objective is to develop integrated networks of radiology
groups and ICs that can provide wide geographic coverage and subspecialty
expertise. The Company provides the networks with sophisticated management,
state-of-the-art information systems and appropriate capital for expansion. The
Company's strategy is to (i) emphasize quality service, (ii) expand within its
selected markets, (iii) improve operating efficiencies within the Affiliated
Practices and (iv) expand into new regional markets through acquisitions of, or
affiliations with, additional radiology practices and ICs.

         The Company was incorporated in Delaware in April 1996 and, prior to
its initial public offering in November 1997 ("IPO"), had not conducted any
significant operations. Pursuant to the Service Agreements with the Affiliated
Practices, the Company provides management, administrative, technical and
non-medical business services to the Affiliated Practices in exchange for a
service fee. The Service Agreements have a 40-year term, subject to earlier
termination under certain circumstances. See -- "Service Agreements."



                                       1
<PAGE>   4



INDUSTRY BACKGROUND

Market Overview


         The Health Care Financing Administration estimates that national health
care spending in 1995 was approximately $1 trillion, including approximately
$200 billion for physician services and an additional $600 billion for health
care expenditures under the control or influence of physicians. 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 the 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%.

         Fees charged for diagnostic imaging, interventional radiology and
radiation oncology procedures consist generally of a technical component
relating to facilities, equipment and non-physician personnel and a professional
component consisting of fees paid to physicians for the interpretation of
diagnostic images, the performance of interventional radiology procedures and
the treatment of radiation oncology patients. Technical facilities are located
within hospitals, private physician offices and in approximately 2,200
outpatient centers throughout the United States. Professional radiology services
are provided by board certified 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.

Radiology

         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 ICs. 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, cost-effective and less invasive than
surgical alternatives and have historically been performed in a hospital setting
to enable utilization of hospital support services. 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.

         The principal diagnostic imaging modalities include the following:

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

                  Computed Tomography ("CT"). 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 imaging.


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<PAGE>   5

                  Magnetic Resonance Imaging ("MRI"). 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, in high doses, can cause tissue damage.

                  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 specialized 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.

Trends In Radiology

         Technological Advancements. Advances in technology, including the
development and continued enhancements of MRI, CT, nuclear medicine, ultrasound
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. Surgical procedures are typically 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 believes
that future technological advances will enhance the ability of radiologists to
diagnose and direct 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. The fee-for-service model provides few incentives for the
efficient utilization of resources and has contributed to increases in health
care costs at rates significantly higher than inflation. 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

                                       3
<PAGE>   6

procedures. More recently, 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
Affiliated 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 non-radiologist'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 ICs 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 will focus on reducing costs by
shifting radiological procedures performed by non-radiologists to radiologists.

         Consolidation of ICs. 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 ICs in the early
1980s. While many of these ICs 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 ICs to hospitals,
radiologists and companies engaged exclusively in the ownership, operation and
management of ICs. The Company believes that many of these entities have and
will continue to consolidate the ownership of ICs.

         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 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, geographic coverage, subspecialty expertise and patient
and referring physician satisfaction will be important factors in determining
referral patterns.

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



                                       4
<PAGE>   7



BUSINESS STRATEGY

         The Company's objective is to develop integrated networks of radiology
groups and ICs that can provide wide geographic coverage and subspecialty
expertise in a cost-effective manner. The Company provides the networks with
sophisticated management, state-of-the-art information systems and appropriate
capital for expansion. The Company's strategy is to (i) emphasize quality
service, (ii) expand within its selected markets, (iii) improve operating
efficiencies within the Affiliated Practices and (iv) expand into new regional
markets through acquisitions of or affiliations with additional radiology
practices and ICs.

Emphasize Quality Service

         Patient service and referring physician satisfaction are key elements
of the Company's strategy. The Company forms regional service networks and
invests in advanced teleradiology technologies to provide greater geographic
coverage, improve response time and increase overall patient accessibility. The
Company offers, through its Affiliated Practices, subspecialty expertise such as
interventional radiology and radiation oncology to address the full range of
radiology service needs of patients, referring physicians, hospitals and payors.
The Company provides capital to the Affiliated Practices to upgrade existing
imaging equipment and purchase equipment capable of performing advanced imaging
applications. In addition, the Company implements information systems that will
provide the Company's payors and referral sources with outcomes data, cost
analyses, utilization management data and other analyses, in each case with the
objective of maximizing patient, referring physician, hospital and payor
satisfaction.

Expand Within Existing Regional Markets

         A key element of the Company's strategy is to expand and leverage the
resources and capabilities of its Affiliated Practices to offer high-quality,
comprehensive and competitively priced diagnostic, interventional and
therapeutic radiology programs within selected markets. The Company believes
that cost-conscious payors, particularly those interested in utilizing or
implementing risk-sharing or global capitation arrangements, prefer to contract
with a single provider for a full range of radiology services within select
geographic markets. The Company plans to acquire and affiliate with additional
complementary radiology practices and, when feasible, acquire, operate and
manage ICs to broaden the range of, and increase the capacity to deliver,
services within its markets. The Company intends to market the resulting
comprehensive service offerings and geographic coverage to obtain payor
contracts.


Improve Operating Efficiencies

         The Company's strategy includes utilizing its management infrastructure
and the collective knowledge of and information generated by its Affiliated
Practices to identify and promote practice operating efficiencies that benefit
all Affiliated Practices. The Company believes that information technology is
critical to such efforts and is in the process of implementing sophisticated
management and financial information systems to obtain and disseminate
information relating to practice patterns, equipment utilization, facilities and
personnel and operating profitability. The Company believes such information
will enable Affiliated Practices to enhance quality of care, increase revenue,
improve cash management and more effectively control costs. The Company believes
that the establishment of systems that promote "best practices" and operating
efficiencies can provide the Company and its Affiliated Practices with a
competitive advantage in negotiating and obtaining managed care contracts. In
addition, the Company believes that it can capitalize on the size and
purchasing power of the combined Affiliated Practices to take advantage of
economies of scale and to reduce the cost of administering and operating such
practices.

Expand into New Markets

         The Company plans to expand into new geographic markets by acquiring
and affiliating with profitable radiology practices that have strong reputations
and competitive positions in their local markets. The Company

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anticipates that it will continue to focus on markets where there are
significant prospects for physician networking and practice consolidation, high
patient-provider ratios and favorable overall economic conditions. The Company
intends to focus on acquiring and affiliating with platform practices allowing
the Company to pursue the expansion strategy discussed above. The Company
believes that it will be attractive to potential Affiliated Practices because of
its (i) exclusive focus on radiology, (ii) governance structure which promotes
physician input, (iii) service fee structure which aligns the Company's revenue
growth incentives with those of the Affiliated Practices and (iv) transaction
structure which permits physicians to become stockholders of the Company and
thereby further aligning the interests of the Company and the Affiliated
Practices. The Company expects that its Affiliated Practices will be
instrumental in identifying potential acquisitions and affiliations with future
Affiliated Practices or ICs.

AFFILIATION STRUCTURE

         APPM provides physician practice management and administrative services
to radiology practices and owns, operates and manages ICs. The Company's
business model is based on a "partnership" with its Affiliated Practices in
which the Company manages the non-medical functions of the Affiliated 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 Affiliated 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. For a discussion of the contractual arrangements between the Company
and its Affiliated Practices, see "Business -- Service Agreements."

         The Company affiliates with radiology practices through the acquisition
of certain tangible and intangible assets and the assumption of certain
liabilities of the Affiliated Practices. The Company pays the purchase price for
such transactions in shares of its Common Stock and cash. Simultaneously with
the acquisitions, the Company typically enters into a 40-year Service Agreement
with each practice pursuant to which the Company provides a wide range of
management, administrative, technical and non-medical services. For providing
services under the Service Agreement, the Company receives a fee structured to
align the interests of the Company and the Affiliated Practices. Additionally,
the Service Agreements restrict the Affiliated Practices from competing with the
Company within a specified geographic area during the term of the Service
Agreements and also require each Affiliated Practice to obtain and enforce
similar restrictive covenants with the full-time physicians affiliated with
their practices. As part of its growth strategy, the Company intends to acquire
the assets of and enter into similar long-term Service Agreements with
additional radiology practices based on the partnership model it has established
with the Affiliated Practices.

         Additionally, the Company owns interests in certain joint venture
arrangements. The joint venture arrangements represent partnerships with various
hospitals or health systems serviced by certain of the existing Affiliated
Practices and were formed for the purpose of owning and operating ICs.
Professional services at the joint venture ICs are performed by certain of the
existing Affiliated Practices. The Company owns a 50% interest in five joint
ventures, a controlling interest in two joint ventures and a minority interest
in four joint ventures.

         The Company believes a shared governance approach is critical to the
long-term success of a physician practice management company. While the Company
has the primary responsibility for managing the non-medical functions of its
Affiliated Practices, it operates within a governance structure which promotes
physician involvement in the direction and management of the Affiliated
Practices and the Company. This is accomplished by the Company and each
Affiliated Practice establishing a Joint Planning Board consisting of three to
six members. The Joint Planning Boards have responsibility for (i) establishing
payor contracting guidelines, (ii) making recommendations with respect to
operating budgets and capital expenditures and (iii) developing marketing
strategies and long-term objectives for their respective practices. The Company
believes the Joint Planning Boards promote participation by physicians in the
overall management of their practices and serve as a means for the Company and
its Affiliated Practices to communicate effectively and exchange information. In
addition, the Company has a Physician Advisory Board, the primary focus of

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<PAGE>   9

which is to enhance the quality of services provided by the Company and its
Affiliated Practices. The Physician Advisory Board consists of 9 practicing
physicians from the Affiliated Practices and is chaired by the Company's Senior
Vice President of Physician Affairs. 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
Affiliated Practice physicians, however, the adoption of such recommendations is
at the discretion of the Affiliated Practices.

OPERATIONS AND DEVELOPMENT

General

         The existing Affiliated Practices consist of eight radiology practices,
comprised of 233 radiologists, located in five states. All of the existing
Affiliated Practices provide professional services, which consist of the
supervision, performance and interpretation of radiological procedures in
hospitals, ICs or other settings. The Company owns and operates 60 ICs and
operates and manages 11 additional ICs through joint venture relationships. In
addition, the existing Affiliated Practices currently provide professional
radiology services to 44 hospitals. In the aggregate, the existing Affiliated
Practices provide all subspecialty diagnostic and interventional radiology and
radiation oncology services. Substantially all of the 233 radiologists are board
certified.

         The number and type of modalities offered at the Company's owned,
operated or managed ICs are determined by the demand for such services within
their respective market areas. Presently, 53 of these ICs 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. In addition to the ICs, the existing
Affiliated Practices provide professional services to hospitals, hospital
outpatient facilities, physicians' offices, mobile imaging units and nursing
homes.

         The Company intends to expand its operations into new markets
principally through the acquisition of platform practices. Prior to entering a
new market, the Company will consider various factors including the population,
demographics, market potential, competitive environment, degree of managed care
penetration, supply of radiologists, existing imaging services and general
economic conditions within the market. The Company will seek to identify and
affiliate with group practices that have a significant market presence or that
the Company believes can achieve such a presence in the near term. The Company
identifies potential acquisition candidates through a variety of means,
including targeted contacts of radiologists by the Company, participation in
professional conferences, referrals from Affiliated Practices and direct
inquiries by radiologists.



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         Set forth below are the locations and certain other information with
respect to the existing Affiliated Practices as of March 31, 1998:

<TABLE>
<CAPTION>
                                                             IMAGING CENTERS
                                                          -----------------------
                                                                          OWNED AND                 TOTAL
      PRACTICE                                               HOSPITAL     OPERATED     JOINT     NON-PHYSICIAN
      LOCATION                               PHYSICIANS   AFFILIATIONS(1)  SITES     VENTURES(2)   PERSONNEL
      --------                               ----------   ---------------  -----     -----------   ---------

<S>                                             <C>            <C>         <C>           <C>        <C>
Baltimore, MD ..........................           87           10           20            6          518
Rochester, NY ..........................           30            5            8            0          127
Oakland, CA ............................           24            5            7            0           60
San Jose, CA ...........................           24            4            8            0           72
San Antonio, TX ........................           20            5            3            4          107
Topeka, KS .............................           24           12            2            1           49
New City, NY ...........................           14            2            5            0          147
Rockville, MD ..........................           10            1            7            0          120
                                                -----        -----        -----        -----        -----
     Totals ............................          233           44           60           11        1,200
                                                =====        =====        =====        =====        =====
</TABLE>


(1)      Hospital affiliations represent contractual or other relationships with
         hospitals where the existing Affiliated Practices provide diagnostic
         and interventional radiology or radiation oncology services.

(2)      Joint ventures represent partnerships with various hospitals or health
         systems serviced by certain of the existing Affiliated Practices and
         were formed for the purpose of owning and operating ICs. Professional
         services at the joint venture ICs are performed by certain of the
         existing Affiliated Practices.

         The existing Affiliated 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; willingness to embrace the Company's
vision and philosophy regarding the provision of radiology services; and general
economic and demographic criteria.




                                       8
<PAGE>   11



Services

         The Company provides its Affiliated Practices with management expertise
and capital to compete in a managed care environment. Specifically, the Company
supports the Affiliated Practices with management expertise in the following
areas:


<TABLE>
<CAPTION>
                  AREA OF MANAGEMENT EXPERTISE                                      APPLICATION
                 -------------------------------------------------------------------------------------
<S>                                                        <C>
                 Strategic Management                       Provision of strategic advice and guidance through the proactive
                                                            management of practice operations and pursuit of new market
                                                            opportunities.

                 Reimbursement Operations                   Implementation of billing, collection, reporting and negotiation
                                                            processes, procedures and performance standards in order to maximize
                                                            practice revenue and create new or improved contracting opportunities.

                 Information Technology                     Use of advanced technology, networking, communications, systems
                                                            integration and data base development/management tools and skills to
                                                            increase physician and practice productivity and effectiveness.

                 Practice Management                        Identification of operational savings opportunities and implementation
                                                            of programs to enhance practice revenue and operating performance.

                 Practice Marketing                         Implementation of radiology marketing techniques and concepts to focus
                                                            on increasing imaging revenue and customer satisfaction.

                 Technical Operations                       Implementation of systems, procedures, management techniques and
                                                            standards to increase the effectiveness, efficiency, productivity and
                                                            profitability of a practice's technical operations and to improve
                                                            relationships with patients, physicians and payors.

                 Materials Management/Purchasing            Development and implementation of national group purchasing arrangements
                                                            to provide cost savings associated with equipment purchases, leasing and
                                                            service agreements and the general purchase of medical and office
                                                            supplies.
</TABLE>




                                        9
<PAGE>   12



         The Company provides its Affiliated Practices with capital for (i)
technological advances, including teleradiology and upgraded diagnostic imaging
equipment, (ii) information systems and (iii) additional ICs and imaging
equipment. Set forth below are specific areas in which the Company provides
capital resources to its Affiliated Practices:


<TABLE>
<CAPTION>
              AREA OF EXPENDITURE                           OBJECTIVE
           --------------------------------------------------------------------------

<S>                                                        <C>
               Advanced Imaging Equipment                   Provision of high-quality imaging services and image management,
                                                            including teleradiology, to maximize facility and equipment utilization
                                                            and improve quality and service to patients, referring physicians,
                                                            hospitals and payors.

               Financial and Information Systems            Integration of disparate clinical and financial systems into one common
                                                            data repository and coordination of centralized scheduling,
                                                            transcription, utilization and patient flow functions.
               Network/Communications
                 Infrastructure                             Implementation of technologies to link voice, data and image
                                                            transmission capabilities.

               ICs                                          Investment in equipment and facilities, including the construction of
                                                            new facilities, the acquisition of existing facilities or the relocation
                                                            or consolidation of existing ICs and related equipment to achieve the
                                                            most efficient use of resources.
</TABLE>


Information Management

         The Company believes that integrated radiology networks require
extensive information management systems to effectively manage operations,
compete for managed care contracts and achieve standardization and economies of
scale. The Company is currently creating a network infrastructure, including a
Financial Accounting System ("FAS") and Executive Information System ("EIS"),
which will utilize certain components of the Affiliated Practices' existing
information systems. The Company is also evaluating the feasibility of deploying
other standard information systems, including a managed care system and a
radiology information system.

         The Company has begun implementation of the network communications
infrastructure and the FAS and intends to complete the implementation of the
infrastructure before July 31, 1998 at the existing Affiliated Practices. The
network communications infrastructure will provide access to the FAS and EIS,
facilitate the gathering of key operational data and increase internal
communications capabilities through the enterprise-wide deployment of standard
office automation applications. The Company expects that the network
infrastructure will provide the foundation for the sharing and utilization of
certain information among the Affiliated Practices and the Company. The network
has been designed with standard components to be managed centrally in order to
minimize the need for local information systems personnel.



                                       10
<PAGE>   13

         The Company intends to deploy the FAS to facilitate timely and accurate
financial reporting throughout the Company. Specifically, the Company intends to
deploy general ledger, accounts payable, asset management, payroll and materials
management systems at each of the Affiliated Practices. The FAS has been
designed to facilitate the consistent, efficient reporting of financial
information across all practices using one standard chart of accounts with a
single set of accounting practices and financial controls. The Company expects
that the deployment of the FAS will streamline and simplify the financial
reporting process and will provide a tool for managing practice efficiency
benchmarks.

         Following the implementation of the network communications
infrastructure and the FAS, the Company expects to focus on assimilating and
analyzing data from its Affiliated Practices' disparate information systems. In
this phase, the Company intends to deploy an EIS that will facilitate the
management reporting of key operational data. The Company anticipates that the
EIS will provide a repository to store pertinent encounter data and initially
will use the Affiliated Practices' practice management systems, radiology
information systems and the FAS as primary data sources. It is anticipated that
the EIS will provide variance, utilization, reimbursement efficiency and trend
analysis reporting capabilities. The Company believes that the EIS will enable
the Affiliated Practices to enhance the quality of information, increase
revenue, improve operating efficiencies and more effectively control costs.
There can be no assurance that the Company will be able to implement the FAS or
EIS on a timely basis, if at all, or that these systems will produce the
expected benefits.

SERVICE AGREEMENTS

         The Company is a party to a Service Agreement with each existing
Affiliated Practice under which the Company is the exclusive manager and
administrator of non-medical services relating to the operation of each such
Affiliated Practice. The following summary of the Service Agreement is intended
to be a brief description of the standard form of the Service Agreement that the
Company is a party to with each existing Affiliated Practice. The Service
Agreements may vary from the description below depending on the requirements of
local regulations and negotiations with the individual Affiliated Practices. The
Company expects to enter into service agreements with similar provisions with
each additional Affiliated Practice.

         The service fees payable to the Company by the Affiliated 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: (i) the Affiliated Practice pays a service fee
based on a negotiated percentage (existing Affiliated Practice service fees
range from 20% to 30%) of the adjusted professional revenues as defined in the
Service Agreement; and (ii) the Affiliated 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, net of the Affiliated Practices. 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 Affiliated
Practices. Payments are received by the Affiliated 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 Affiliated Practices an amount
equal to the difference between the net revenues of the Affiliated Practices and
the service fees calculated by the Company.



                                       11
<PAGE>   14



         Set forth below is a sample calculation of the service fees under the
two fee structures described above and the respective income statements of a
hypothetical Affiliated Practice and the Company related to such service fee
calculation. The following examples are for illustrative purposes only and do
not represent the actual or potential service fee that would be payable by any
Affiliated Practice, the operating results of any Affiliated Practice or the
relationship of revenues and expenses.

SAMPLE SERVICE FEE CALCULATION

<TABLE>
<CAPTION>
                                                   NEGOTIATED PERCENTAGE STRUCTURE                        BASE FEE STRUCTURE
                                              ----------------------------------------       -------------------------------------
                                              PROFESSIONAL     TECHNICAL         TOTAL       PROFESSIONAL    TECHNICAL        TOTAL
                                              ------------     ---------         -----       ------------    ---------        -----
<S>                                             <C>             <C>             <C>            <C>            <C>            <C>
Physician groups revenue, net ..........        $ 1,200         $   800         $ 2,000        $ 1,200        $   800        $ 2,000
Agreed-upon expenses(1) ................            170             594             764            170            594            764
                                                -------         -------         -------        -------        -------        -------
Adjusted Professional/Technical
    Revenues ...........................        $ 1,030         $   206         $ 1,236        $ 1,030        $   206        $ 1,236
                                                -------         -------         -------        -------        -------        -------

Negotiated service fee % ...............             20%            100%                            NA             NA             NA
Service fee ............................        $   206         $   206         $   412                                           --
                                                =======         =======

Base service fee .......................                                             --                                      $   412
Reimbursement of expenses ..............                                            764                                          764
                                                                                --------                                     -------

Service fee revenue ....................                                        $ 1,176                                      $ 1,176
                                                                                =======                                      =======
</TABLE>



SAMPLE INCOME STATEMENT

<TABLE>
<CAPTION>
                                                                               AFFILIATED
                                                                                PRACTICE              APPM SUBSIDIARY
                                                                                ----------            ---------------

<S>                                                                             <C>                      <C>
Physician groups revenue, net ...................................               $    2,000               $    2,000
Less: amounts retained by physician group .......................                       --                     (824)
                                                                                ----------               ----------
Service fee revenue .............................................                    2,000                    1,176
                                                                                ----------               ----------
Cost of physician services ......................................                      824                       --
Operating expense (1) ...........................................                      764                      764
APPM service fee ................................................                      412                       --
                                                                                ----------               ----------
Total costs and expenses ........................................                    2,000                      764
                                                                                ----------               ----------
Income before taxes .............................................               $       --               $      412
                                                                                ==========               ==========
</TABLE>

(1)   Expenses include non-physician salaries and benefits, rent, depreciation,
      insurance, interest and other non-physician costs.

      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 each Affiliated Practice, subject to matters
reserved to each Affiliated Practice or referred to the Joint Planning Board;
(ii) aids in the billing of patients, insurance companies and other third-party
payors and collects on behalf of each Affiliated Practice the fees for
professional and technical medical and other services rendered by the Affiliated
Practice; (iii) provides, as necessary, clerical, accounting, purchasing,
payroll, legal, bookkeeping and computer services and personnel, information
management and medical transcribing services; (iv) supervises and maintains
custody of substantially all files and records; (v) provides facilities for the
Affiliated Practice; (vi) prepares, in consultation with the Joint Planning
Board and the Affiliated Practice, all annual operating and capital budgets;
(vii) orders and purchases inventory and supplies; (viii) implements, in
consultation with the Joint Planning Board and the Affiliated 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 Affiliated Practice with obtaining
medical malpractice insurance for its physicians and other medical
professionals.

      The Service Agreements require the Company and each existing Affiliated
Practice to establish and maintain a Joint Planning Board consisting of not less
than three nor more than six members; two designees of the Company (each with
one vote) and no less than one or more than four designee(s) of the Affiliated
Practice (representing two votes in the aggregate). Each Joint Planning Board
has responsibilities that include developing long-term strategic objectives
relating to practice expansion and payor contracting, promoting practice
efficiencies, recommending capital

                                       12
<PAGE>   15

expenditures and generally serving as a means by which the Company and
each of the Affiliated Practices will communicate and exchange information. The
Company intends to continue to establish Joint Planning Boards in the future,
some of which may be on a regional level.

      Under the Service Agreements, each existing Affiliated Practice remains
responsible for (i) hiring and compensating its physicians and certain other
medical professionals, (ii) the licensing, credentialing and certifications
necessary to conduct its practice, (iii) obtaining and maintaining medical
malpractice insurance for the professional entity and its physician employees,
(iv) providing professional radiological services and (v) complying with federal
and state laws, regulations and other ethical standards applicable to the
practice of radiology. Pursuant to the Service Agreements, the existing
Affiliated 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 Founding Affiliated Practices also contain provisions
whereby both the Company and each such Founding Affiliated Practice have agreed
to certain restrictions on accepting or pursuing radiology opportunities within
a 15-mile radius (decreasing to 10 miles upon the expiration of 12 months) of
any of the Company's owned, operated or managed ICs at which the Founding
Affiliated Practice provides professional radiology services or any hospital at
which a Founding Affiliated Practice provides on-site professional radiology
services. Each existing Service Agreement also restricts the applicable
Affiliated Practice from competing with the Company and other Affiliated
Practices within a specified geographic area during the term of such Service
Agreement. In addition, the existing Service Agreements require the Affiliated
Practices to enter into and enforce agreements with the stockholders and
full-time radiologists at each Affiliated 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 existing Service Agreements are for an initial term of 40 years, with
automatic extensions of five years unless notice of termination is given. The
existing 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 existing Service Agreement may also be terminated by the Company if
the Affiliated 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
Affiliated Practice. In addition, the Company may terminate each existing
Service Agreement with any Affiliated 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 Affiliated Practice,
depending upon the termination event, the Company may have the right to require
such Affiliated Practice to purchase and assume, or the Affiliated 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 Affiliated 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.



                                       13
<PAGE>   16



PRACTICE MARKETING

      The Company intends to continue to focus its marketing efforts on
referring physicians, hospitals, managed care organizations and employers.
Historically, the Affiliated Practices' marketing efforts were based primarily
upon the professional reputations and individual efforts of such practices and
its radiologists. The Company believes there is an opportunity to capitalize on
the professional reputations of the existing Affiliated Practices by applying
professional sales and marketing techniques to increase the Affiliated
Practices' volume of business and expand the potential geographic market for
each Affiliated Practice beyond its local physician community.

      In addition, the Company will seek to secure new contracts and expand
existing contracts with hospitals, managed care organizations and employers for
the provision of radiology services. The Company is prepared to negotiate
flexible arrangements with managed care organizations on behalf of the
Affiliated Practices.

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 Affiliated 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 Affiliated 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 Affiliated 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 Affiliated 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.


                                       14
<PAGE>   17

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 Affiliated 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 Affiliated 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 Affiliated 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 Affiliated 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 Affiliated 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 Affiliated
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 Affiliated 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 arms' length


                                       15
<PAGE>   18

transactions for the nature and amount of management and administrative services
rendered. For these reasons, the Company does not believe that 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. If,
however, the Company is deemed to be in a position to make, influence or receive
referrals from or to physicians, or the Company is deemed to be a provider under
the Medicare or Medicaid programs, the operations of the Company could be
subject to scrutiny under federal and state anti-kickback and anti-referral laws
and the Company's operations could be materially and adversely affected.

      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.

      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 are met, the Stark II self-referral prohibition would not apply to
such services. The effect of Stark II on the Affiliated Practices, therefore,
will depend on the precise scope of services furnished by each such Affiliated
Practice's radiologists and whether such services derive from consultations or
are self-generated. Management of the Company believes that substantially all of
the services provided by the Affiliated 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 Affiliated
Practices and the relationships between the Affiliated 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 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 this 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.


                                       16
<PAGE>   19

      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. There can be no
assurance that the Company's contemplated activities will not be investigated,
that claims will not be made against the Company 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.

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.

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 intends to appoint a compliance officer who will be 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. As part of the Ethics Process, the Company intends to
introduce various methods designed to facilitate the reporting of any regulatory
and ethical issues to the compliance officer for investigation or appropriate
corrective action. In addition, the Company intends to conduct, or have its
special health care regulatory counsel conduct, periodic audits of various
aspects of its operations, including the Affiliated 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 Affiliated 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 Affiliated
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 Affiliated Practices and the Company's owned, operated or managed ICs
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

                                       17
<PAGE>   20

can be no assurance that the Affiliated Practices and the Company's owned,
operated or managed ICs will be able to compete effectively in the markets they
serve, which inability to compete could adversely affect the Company.

      The Company believes that current trends in the hospital industry have
resulted in increased competition by radiology groups for hospital contracts.
Each of the existing Affiliated Practices provides radiology services to
hospitals. These relationships can be affected through competition with other
radiology groups, the outsourcing of the radiology and imaging functions within
the hospital or closure of the hospital due to consolidation or financial
instability. There can be no assurance that each of the existing Affiliated
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 is under competitive pressures for the acquisition and
retention of the assets of, and the provision of management, administrative,
technical and non-medical services to, additional radiology practices,
management service organizations and ICs. There are a number of publicly-traded
companies focused on owning or managing ICs, including U.S. Diagnostic, Inc.,
Medical Resources, Inc. and HEALTHSOUTH Corporation. The Company is aware of a
number of 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 (including radiology) and the
management of such 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 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.

EMPLOYEES

      As of March 31, 1998 the Company had approximately 1,230 employees,
approximately 30 of which were employed at the Company's headquarters and
regional offices and the remainder of which were employed at the existing
Affiliated Practices. The Company believes that its relationship with its
employees is good.

CORPORATE LIABILITY AND INSURANCE

      The existing Affiliated 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
Founding Affiliated Practices, the Company in some cases succeeded to certain
liabilities of the Founding Affiliated Practices. Therefore, claims may be
asserted against the Company for events which occurred prior to such
acquisitions. The Company and the Affiliated Practices maintain insurance
coverage similar to the coverage previously maintained by the Affiliated
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.




                                       18
<PAGE>   21


      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 Affiliated 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 Affiliated Practices will not be asserted against the
Company in the future. The Company maintains insurance coverage that it believes
is adequate. Such insurance extends to professional liability claims that may be
asserted against employees of the Company that work on site at Affiliated
Practice locations. In addition, pursuant to the related Service Agreements, the
existing Affiliated Practices are required (and the Company intends to require
any other Affiliated Practices) to maintain comprehensive professional liability
insurance. The availability and cost of such insurance is affected by various
factors, many of which are beyond the control of the Company and Affiliated
Practices. The cost of such insurance to the Company and the Affiliated
Practices may have an adverse effect on the Company's operations. In addition,
successful malpractice or other claims asserted against Affiliated Practices or
the Company that exceed applicable policy limits could have a material adverse
effect on the Company.

      The shareholders of the existing Affiliated 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 existing Affiliated Practices are required by the terms of the related
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.

ITEM 2.  PROPERTIES.

      The Company's corporate headquarters are located at 2301 NationsBank
Plaza, 901 Main Street, Dallas, Texas 75202, in approximately 13,349 square feet
occupied under a lease which expires on September 30, 2001.

ITEM 3.  LEGAL PROCEEDINGS.

      The Company is a party to one suit relating to services provided by a
Founding Affiliated Practice. There can be no assurances that additional claims
will not be asserted against the Company in the future. The Company became
subject to certain pending claims as the result of successor liability in
connection with the acquisition of the Founding Affiliated Practices; however,
the Company believes that the ultimate resolution of such claims will not have a
material adverse effect on the business, financial condition or results of
operations of the Company.

      There can be no assurance that the Company will not subsequently be named
as a defendant in additional lawsuits. Each existing Affiliated Practice has
retained responsibility for, and agreed to indemnify the Company in full
against, the liabilities associated with these lawsuits. In the event the
Company is subsequently added 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
subsequent to the IPO.



                                       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
               1997

<S>                                                                      <C>         <C>
                   Fourth Quarter (from November 20, 1997)               12 1/4      8 3/4
</TABLE>

      As of the close of business on March 25th, 1998, the last reported sales
price per share of the Company's Common Stock was $10.00. There were 228 holders
of record of the Company's Common Stock at the close of business on March 25,
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 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
                                                                             TO                 YEAR ENDED
                                                                         DECEMBER 31,         DECEMBER 31,
                                                                             1996                  1997
                                                                           --------                --------
<S>                                                                        <C>                     <C>
REVENUES:
  Physician groups revenue, net ............................               $     --                $ 13,709
  Less: amounts retained by physician groups................                     --                  (5,026)
                                                                           --------                --------
           Service fee revenue .............................                     --                   8,683
COSTS AND EXPENSES:
  Salaries and benefits ....................................                     --                   2,922
  Practice supplies ........................................                     --                   1,036
  Practice rent and lease expense ..........................                     --                     852
  Other practice expenses ..................................                     --                   1,557
  Corporate general and administrative .....................                  1,623                   4,910
  Depreciation and amortization ............................                      3                     888
  Interest expense, net ....................................                     23                     617
                                                                           --------                --------
          Total costs and expenses .........................                  1,649                  12,782
                                                                           --------                --------
LOSS BEFORE TAXES, MINORITY INTERESTS IN
   CONSOLIDATED SUBSIDIARIES AND EQUITY
   IN EARNINGS OF INVESTMENTS ..............................                 (1,649)                 (4,099)
EQUITY IN EARNINGS OF INVESTMENTS ..........................                     --                     220
MINORITY INTERESTS IN INCOME OF
   CONSOLIDATED SUBSIDIARIES ...............................                     --                     (49)
                                                                           --------                --------
LOSS BEFORE TAXES ..........................................                 (1,649)                 (3,928)
INCOME TAX EXPENSE .........................................                     --                      --
                                                                           --------                --------
NET LOSS ...................................................               $ (1,649)                 (3,928)
                                                                           ========                ========
Earning per share (basic and diluted) ......................               $  (0.82)               $  (1.13)
</TABLE>


<TABLE>
<CAPTION>
                                                                      As of December 31,
                                                                 ---------------------------
                                                                  1996                 1997
                                                                 ------               ------
          Balance Sheet Data:
<S>                                                              <C>                   <C>
Working Capital                                                  $2,029                3,676
Total Assets                                                      2,578               62,766
Long-term Debt and Capital Leases                                    --               55,865
Convertible Notes                                                 3,500                   --
Stockholders' Deficit                                             1,399               24,035
</TABLE>




                                       21
<PAGE>   24




Summary of Operations by Quarter

         The following table presents unaudited quarterly operating results for
each of the Company's last seven 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>
                                            1996 Quarter Ended                     1997 Quarter Ended
                                       -----------------------------    ----------------------------------------
                                                 (amounts in thousands, except per share data)

                                       June 30   Sept. 30    Dec. 31    Mar. 31    June 30   Sept. 30    Dec. 31
                                       -------   --------    -------    -------    -------   --------    -------
Statement of Income Data:
<S>                                   <C>        <C>       <C>         <C>        <C>       <C>         <C>
     Total revenues                   $    --    $    --   $     --    $    --    $    --   $     --    $ 8,684
     Loss before income taxes            (120)      (402)    (1,127)      (880)      (820)    (1,443)      (785)
     Net Loss                         $  (120)   $  (402)  $ (1,127)   $  (880)   $  (820)  $ (1,443)   $  (785)

Net Loss Per Share (1)                $ (0.06)   $ (0.20)  $  (0.56)   $ (0.44)   $ (0.41)  $  (0.72)   $ (0.10)
Weighted Average Shares                 2,000      2,000      2,000      2,000      2,000      2,000      7,804
</TABLE>

(1) 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.


                                       22
<PAGE>   25

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

OVERVIEW

      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 Founding Affiliated Practices (the "Reorganizations") in
November 1997. Through the Service Agreements, the Company provides management,
administrative, technical and non-medical services to the Affiliated Practices
in return for service fees. The service fees represent the physician groups
revenue, net less amounts retained by physician groups. Physician groups
revenue, net consists of the revenue of Affiliated Practices reported at the
estimated realizable amounts from patients, third-party payors and others for
services rendered, net of contractual and other adjustments. The service fees
payable to the Company by the Affiliated Practices under the Service Agreements
vary based on the fair market value, as determined in arms'-length negotiations,
and the nature and extent of services provided. Where state law allows, the
service fees due under the Service Agreements are derived from two distinct
revenue streams: (i) a negotiated percentage (Affiliated Practice service fees
range from 20% to 30%) of the adjusted professional revenues as defined in the
Service Agreement and (ii) 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. The fixed fee structure is intended to result in the Company
receiving substantially the same amount of service fee as it would have received
under its negotiated percentage fee structure. The service fees received by the
Company under either fee structure provide the Company with a net profits or
equivalent interest in the Affiliated Practices and, as a result, the Company
displays the revenues, net of amounts retained by physicians, and expenses of
the Affiliated Practices. The 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 revenues of the
Affiliated Practices. In addition, the Company receives income from joint
ventures in which the Company has an ownership interest. The Affiliated
Practices compensate physicians pursuant to negotiated employment arrangements
with them. The Company does not participate in the negotiation of physician
employment arrangements.

      The Company expects that the expenses incurred by the Company associated
with its obligations under the Service Agreements generally will be the same as
the operating costs and expenses that would have otherwise been incurred by the
Affiliated Practices, including: the salaries, wages and benefits of
non-physician personal; medical supply expenses involved in administering the
technical aspects of the practices; the office (general and administrative)
expenses of the practices; depreciation and amortization of assets acquired from
the Affiliated Practices; and certain other items. The Company intends to
continue to implement measures designed to reduce these operating costs and
expenses through purchase discounts, economies of scale, benchmarking programs
and more effective equipment utilization. In addition to the operating costs and
expenses discussed above, the Company will be incurring additional personnel and
administrative expenses in connection with establishing and maintaining
corporate and regional offices, which will provide management, administrative,
marketing and acquisition services.

      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 Founding Affiliated Practices pursuant to the
Reorganizations was accounted for by the Company at the transferors' historical
cost basis with shares of Common Stock issued in those transactions valued at
the historical cost of the non-monetary assets acquired net of liabilities
assumed.

      An integral part of the Company's business strategy is to grow through
acquisitions and to expand the Affiliated Practices. Although the Company is
currently engaged in discussions with several such potential acquisition
candidates, the Company has not entered into any letters of intent or definitive
purchase agreements with respect to any such acquisitions. No assurance can be
provided that any such acquisitions will be consummated.


                                       23
<PAGE>   26



RESULTS OF OPERATIONS

Year Ended December 31, 1997

      The Company conducted no significant operations before its IPO in November
1997 when the Company acquired the tangible and intangible non-medical assets
and certain liabilities, and entered into Service Agreements with, the Founding
Affiliated Practices.

Service Fee Revenue

      The Company generated service fee revenue of $8.7 million for the year
ended December 31, 1997, which included 35 days of operations during the year
ended December 31, 1997. There were no service fee revenues generated during the
period ended December 31, 1996.

Costs and Expenses

      The Company incurred costs and expenses of $12.8 million for the year
ended December 31, 1997. The Company's costs and expenses consisted primarily of
start-up costs, salaries and benefits, radiological supplies, rent and lease
expense, general and administrative, depreciation and amortization and interest
expense. Costs and expenses of $1.7 million for the period ended December 31,
1996 represented corporate office expenses for the period from inception (April
30, 1996) through December 31, 1996.

Interest Expense

      Interest expense of $0.6 million for the year ended December 31, 1997,
reflected the cost of borrowings under the Company's $115 million credit
facility (the "Credit Facility") entered into on November 26, 1997, certain
indebtedness and capital lease obligations of the Founding Affiliated Practices
that were assumed by the Company in connection with the Reorganizations and the
interest on $3.5 million in aggregate principal amount of the Company's
Convertible Promissory Notes, that were converted to Common Stock in December
1997.

Operating Loss

      The Company generated an operating loss of $3.9 million for the year ended
December 31, 1997. As stated above, these results reflect the impact of the
Company's Service Agreements only for the period from November 26, 1997 through
December 31, 1997 for the Founding Affiliated Practices. General and
administrative expenses were incurred during the entire 1997 fiscal year.

Income Taxes

      The Company did not recognize any income tax benefit for the operating
losses incurred during the periods presented. The Company will recognize the
income tax benefit of such operating losses in the period that the Company
recognizes net income.

Net Loss

     As a result of the foregoing factors, the Company generated a net loss of
$3.9 million for the year ended December 31, 1997, or a loss per share of $1.13.


                                       24
<PAGE>   27


Year Ended December 31, 1996

      The Company conducted no significant operations during 1996. The Company's
retained deficit at December 31, 1996 was primarily attributable to compensation
and consulting charges totaling $1.6 million related to start-up costs.

Liquidity and Capital Resources

      The Company completed an IPO of 3,000,000 shares of Common Stock on
November 26, 1997, which resulted in proceeds to the Company, net of
underwriting discounts and offering expenses, of $29.1 million. Proceeds from
the IPO were used to pay a portion of the cash consideration in connection with
the Reorganizations.

      On November 26, 1997, the Credit Facility became effective. Under the
terms of the Credit Facility, 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 $115.0 million and 2.75 times the
consolidated EBITDA of the Company giving pro forma effect to acquisitions made
with such borrowings. At March 30, 1998, the Company was eligible to borrow up
to $115.0 million under the Credit Facility, and the Company had outstanding
borrowings of $80.4 million under the Credit Facility. At the Company's option,
the interest rate is (i) an adjusted LIBOR rate plus an applicable margin which
can vary from 1.0% to 1.75% dependent on certain financial ratios or (ii) the
prime rate plus an applicable margin which can vary from 0% to 0.75%. 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 senior
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. Approximately $21.5
million of borrowings under the Credit Facility were used to pay a portion of
the cash portion due pursuant to the Reorganizations.

      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 at least through
the end of 1998. Expansion of the Company's business through acquisitions may
require additional funds, which, to the extent not provided by
internally-generated sources, cash, and the Credit Facility, would require the
Company to seek additional debt or equity financing.

      In January 1998, the Company completed several acquisitions with total
consideration of approximately $41,133,000 consisting of the issuance of (or
future obligation to issue) 1,019,018 shares of Common Stock, cash and assumed
debt. The cash portion of the aforementioned acquisitions was funded through
additional borrowings under the Credit Facility.

      In connection with the IPO, the Company converted its outstanding $3.5
million of Convertible Promissory Notes into Common Stock of the Company in
accordance with the terms of the note agreements.

Year 2000 Compliance

      The Company is dependent upon its computer systems to bill patients for
services rendered by the Affiliated Practices and to accumulate and report the
related revenues and expenses of Affiliated Practices. The Company's various
patient accounting systems are not currently capable of processing year 2000
transactions; however, the vendors are currently addressing the modifications
that are required to make the systems operational for the year 2000. In
addition, the Company is currently installing a new general ledger, asset
management and accounts payable system that is year 2000 compatible. This new
financial system is expected to be fully installed and operational by the end of
July 31, 1998. The Company does not believe the costs to make their patient
accounting systems and other ancillary computer systems operational for the year
2000 will be material and such costs will be funded through operations or
working capital advances under the Credit Facility.


                                       25
<PAGE>   28


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's 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.

RISK FACTORS

      This document contains certain forward-looking statements that include
risks and uncertainties, and address, among other things, acquisition and
expansion strategy, projected capital expenditures, liquidity, possible
third-party payor arrangements, cost reduction strategies, integration of
Affiliated Practices, 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 document.

LIMITED OPERATING HISTORY AND INTEGRATION OF OPERATIONS

      Prior to APPM's acquisition of the Founding Affiliated Practices in
November 1997, APPM conducted no significant operations. Since its formation,
APPM has grown principally through the acquisition of the Affiliated Practices
and IC acquisitions and is pursuing an aggressive growth strategy. If APPM is to
realize the anticipated benefits of affiliations and acquisitions, including the
affiliation with, and acquisition of the assets of, the Affiliated Practices,
the acquisition of the ICs and subsequent affiliations and acquisitions, the
operations of these entities must be integrated and combined effectively. The
process of integrating management services, administrative organizations,
facilities, management information systems and other aspects of operations,
while managing a larger and geographically expanded entity, presents a
significant challenge to the management of APPM. There can be no assurance that
the integration process will be successful or that the anticipated benefits of
its business combinations will be realized. The dedication of management
resources to such integration may detract attention from day-to-day operations
of APPM. The difficulties of integration may be increased by the necessity of
coordinating geographically separated organizations, integrating personnel with
disparate business backgrounds, and combining different organizational
structures. There can be no assurance that there will not be substantial
unanticipated costs associated with such activities or that there will not be
other adverse effects resulting from these integration efforts. Such effects
could have a material adverse effect on the Company's business, financial
position and results of operations.

DEPENDENCE ON AFFILIATED RADIOLOGISTS; RISK OF TERMINATION OF SERVICE AGREEMENTS

      The Company's operations are entirely dependent on its continued
affiliation through Service Agreements with the existing Affiliated Practices
and any other practices with which it may affiliate in the future. There can be
no assurance that the Affiliated Practices will operate profitably or that the
related Service Agreements will not be terminated. The Company expects that
during 1998 two of the existing Affiliated Practices (Advanced Radiology, P.A.
and The Ide Group, P.C.) will contribute, in the aggregate, approximately 50% of
the service fees to be paid to the Company by the existing Affiliated
Practices, based on the existing Affiliated Practices' historical net patient
revenues and expenses. The Service Agreements with the existing Affiliated
Practices have terms of 40 years, but 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

                                       26
<PAGE>   29
 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.
The Company anticipates that, to the extent that it enters into management
relationships with additional practices, the Service Agreements entered into
with such Affiliated Practices will have provisions providing for the terms,
termination and repurchase of assets similar to those contained in the Service
Agreements with the existing Affiliated Practices. The Company generates its
revenue through the service fees it receives pursuant to the Service Agreements.
Any termination of the Service Agreements with the Affiliated Practices could
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company has granted a security interest in the
Service Agreements to the lenders under the Company's Credit Facility to secure
the Company's payment and performance obligations under the Credit Facility.
Termination of the Service Agreement between the Company and an Affiliated
Practice could result in an event of default under the terms of the Credit
Facility if the Affiliated Practice is a "Material Managed Practice" (i.e., an
Affiliated Practice that generates 10% or more of the Company's consolidated
EBITDA, as defined in the Credit Facility.

      Each existing Affiliated Practice has 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 Affiliated 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, financial
condition and results of operations could be adversely affected. The Company
anticipates that, to the extent it enters into Service Agreements with
additional Affiliated Practices in the future, similar employment agreements
will be entered into between such Affiliated Practices and the key radiologists
associated with their respective practices; as such, the Company will face
similar risks if a significant number of such radiologists terminate their
relationships with the Affiliated Practices. 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, financial condition and results
of operations could be adversely affected. Neither the Company nor the
Affiliated Practices maintains insurance on the lives of any affiliated
physician for the benefit of the Company.

UNCERTAINTY REGARDING THE ENFORCEABILITY OF NONCOMPETITION PROVISIONS

      Each of the existing Affiliated Practices has entered into agreements with
the stockholders and full-time employed radiologists at each such Affiliated
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
Company anticipates that Service Agreements that may be entered into with
additional Affiliated Practices in the future will contain similar covenants
requiring such Affiliated Practices to restrict the ability of the stockholders
and full-time radiologists at such Affiliated Practices to compete with the
Company. 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. Furthermore, the application of these standards
varies from state to state. For these reasons, it is not possible to predict
with certainty whether a court will enforce such a covenant in a given
situation. In addition, the Company is not aware of any judicial precedents that
have addressed whether a management company's interest under a management
agreement will be viewed as the type of protectable business interest that would
permit it to enforce such a covenant. The inability of the Company to enforce
such anti-competition covenants could have a material adverse effect on the
Company's business, financial condition and results of operations.

RELIANCE ON REFERRALS

      The Company is dependent on referrals from third parties to its owned,
operated or managed ICs and to other ICs or hospitals at which the Affiliated
Practices provide professional services. A substantial portion of these
referrals are made by physicians who have no contractual obligation or economic
incentive to refer patients to those ICs or hospitals (i.e., they are not part
of a "closed panel," as described below). The Company's owned, operated or
managed ICs and the Affiliated Practices compete with local radiologists and
technical imaging service providers, including non-profit and for profit
hospitals and health systems. Although neither the Company nor any existing
Affiliated Practice is dependent on any single referral source for a material
portion of its revenue, if a sufficiently large number of physicians elected at
any time to discontinue referring patients to the ICs affiliated with the
Company, the Company's business,

                                       27
<PAGE>   30

financial condition and results of operations would be materially adversely
affected. In addition, there is potential for disruption of relationships in
connection with the acquisition or assumption of control of a particular IC by
the Company, and there can be no assurance that the Company will retain all of
the business conducted by that IC at the time of acquisition or assumption of
control by the Company.

      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 ICs.
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 seeks managed care contracts for its owned, operated or
managed ICs and assists the Affiliated Practices in obtaining contracts to
provide professional and technical radiology services, there can be no assurance
that the Company will be able to compete successfully for managed care contracts
against larger companies with greater resources.

RISKS ASSOCIATED WITH ACQUISITIONS AND EXPANSION STRATEGY

General

      The Company's business strategy includes growth through the acquisition of
radiology practice assets, management service organizations ("MSOs"), ICs and
related businesses and entry into and maintenance of Service Agreements to
provide management and administrative services to radiology practices, including
services designed to improve operating efficiencies. There can be no assurance
that the Company will be able to acquire and retain the assets of, or provide
management and administrative services to, additional radiology practices, MSOs
or ICs, profitably provide such services or successfully integrate such
additional relationships, or successfully improve operating efficiencies of the
Affiliated Practices. In addition, there can be no assurance that the assets of
radiology practices acquired in the future, or the relationships entered into in
the future, will be beneficial to the successful implementation of the Company's
overall strategy or that such assets and relationships will ultimately produce
returns that justify their related investment or implementation by the Company.
Affiliated Practices that enter into relationships with the Company in the
future may have disparate cultures, operating and information systems and
organizational structures. Failure of the Company to affiliate with additional
practices and to successfully integrate and profitably manage or improve the
operating efficiencies of the Affiliated Practices could have a material adverse
effect on the Company's business, financial condition and results of operations.

      The Company's ability to expand its operations is dependent upon factors
such as its ability to (i) identify attractive and willing candidates for
acquisition or affiliation; (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 (see "-- Government
Regulation"); (iii) obtain regulatory approvals and certificates of need, where
necessary, and comply with licensing requirements applicable to the Company, the
Affiliated Practices and the physicians associated with the Affiliated
Practices, including their respective facilities (see "-- Government
Regulation"); and (iv) expand the Company's infrastructure and management to
accommodate expansion. There can be no assurance that the Company will be able
to achieve these objectives or its planned growth, that the assets of radiology
practices, MSOs or ICs will continue to be available for acquisition by the
Company or that the addition of

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<PAGE>   31

such assets or management relationships will be profitable. Further,
acquisitions and new management relationships 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.

Potential Need for Additional Capital

      The Company intends to finance future acquisitions by using shares of the
Common Stock for a portion of the consideration to be paid. In the event that
the Common Stock does not maintain a sufficient valuation, or potential
acquisition candidates are otherwise unwilling to accept Common Stock as part of
the consideration for the sale of the assets of their businesses, the Company
will be required to utilize more of its cash resources in order to pursue its
acquisition program. The Company expects to incur indebtedness pursuant to the
Credit Facility or otherwise to fund the cash portion, if any, of the purchase
price of any future acquisitions. 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 acquisition strategy successfully.

Risks Relating to Antitrust Laws

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

GOVERNMENT REGULATION

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

      Various federal and state laws regulate the relationships between
providers of health care services, physicians and other clinicians. These laws
include the fraud and abuse provisions of the Social Security Act, which include
the federal "anti-kickback" and Stark or anti-referral laws. The "anti-kickback"
laws prohibit the offering, payment, solicitation or receipt of any direct or
indirect remuneration for the referral of Medicare, Medicaid or other
governmental program patients or for the recommendation, leasing, arranging,
purchasing, ordering or providing of Medicare or Medicaid covered services,
items or equipment. Violations of the "anti-kickback" laws may result in
substantial civil or criminal penalties for individuals or entities, including
large civil monetary penalties and exclusion from participation in Medicare,
Medicaid and other governmental programs. The Balanced Budget Act of 1997 ("BBA
97") contains certain reform provisions relating to Medicare, Medicaid and other
governmental programs that are intended to assist the government in its efforts
to enforce the "anti-kickback" laws, including 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 ICs, the Affiliated Practices or
physicians affiliated with the Affiliated 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, without limitation, 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

                                       29
<PAGE>   32

for designated health services furnished under a prohibited referral. A
violation of the Stark Law by the Company, an Affiliated Practice or physicians
affiliated with the Affiliated 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.

      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 therapy, 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.

      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 are met, the Stark II self-referral prohibition would not apply to
such services. The effect of Stark II on the Affiliated Practices, therefore,
will depend on the precise scope of services furnished by each such Affiliated
Practice's radiologists and whether such services derive from consultations or
are self-generated. Management of the Company believes that substantially all of
the services provided by the Affiliated 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 Affiliated
Practices and the relationships between the Affiliated Practices and physicians
who refer patients to them would be deemed to comply with Stark II after the
final regulations are adopted.

      Several states have adopted laws similar to the federal "anti-kickback"
and Stark Law that cover patients in private programs as well as governmental
programs. All of the states in which the existing Affiliated Practices are
located have adopted a form of "anti-kickback" law and almost all of those
states (California, Kansas, Maryland and New York) 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.

Corporate Practice of Medicine; Fee Splitting

      The laws of many states, including each of the states in which the
existing Affiliated 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, Affiliated Practices. Pursuant to the Service Agreements, the
Company provides management, administrative, technical and other non-medical
services to the Affiliated Practices in exchange for a service fee. The Company
structures its relationships with the Affiliated 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 Affiliated 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 Affiliated 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


                                       30
<PAGE>   33

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.

Licensing and Certification Laws

      The ownership, construction, operation, expansion and acquisition of ICs
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 the five states in which the
existing Affiliated Practices are located do not subject ICs to certificate of
need or separate licensing requirements as stand-alone ICs, the laws of other
states could limit the Company's ability to acquire new imaging equipment or
expand or replace equipment at ICs 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.

Compliance

      Although the Company structures and conducts its operations to comply with
applicable federal and state laws, neither the Company's current or anticipated
business operations nor the operations of the existing Affiliated 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 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 Affiliated 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.


                                       31
<PAGE>   34

REIMBURSEMENT TRENDS AND COST CONTAINMENT

      The Company's revenues are derived from service fees paid to the Company
by the Affiliated Practices pursuant to the Service Agreements and through the
Company's ownership, operation and management of ICs. Substantially all of the
revenues of the Affiliated Practices and such ICs are currently derived from
government sponsored health care programs (principally, Medicare and Medicaid)
and private third-party payors. The Company believes that during the year ended
December 31, 1997, approximately 21% of the combined medical service revenues,
net of the Founding Affiliated Practices was derived from government approved
health care programs and approximately 79% of the combined medical service
revenues, net of the Founding Affiliated Practices 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
Affiliated Practices and ICs and that the results of operations of the
Affiliated 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 through increased
efficiencies, utilization of excess capacity, alteration of the mix of the
Affiliated Practices' services or other means of increasing the Company's
revenues.

      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 existing Affiliated Practices. BBA 97 provides for reductions in
the rate of growth of payments for physician services, including services
historically provided by the existing Affiliated 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 fiscal year 1999. Adoption of this methodology is expected
to reduce payments for services historically provided by the existing Affiliated
Practices. While the Company cannot predict the ultimate effect of such
reductions, the effect may be offset by additional volume or changes in
procedure mix. Failure to achieve an offset in the expected reduction in payment
for services could have a material adverse effect on the Company's business,
financial condition and results of operations.

      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.

      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 Affiliated 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.


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<PAGE>   35


RISKS ASSOCIATED WITH MANAGED CARE CONTRACTS AND CAPITATED FEE ARRANGEMENTS

      The Company believes that during the fiscal year 1997, approximately 94%
of the combined medical service revenues, net of the Founding Affiliated
Practices was derived from payments made on a fee-for-service basis by patients
and third-party payors (including governmental programs) and approximately 6% of
the combined medical service revenues, net of the Founding Affiliated Practices
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 depend, in part, on the Company's ability to negotiate, on behalf
of the Affiliated Practices and the Company's owned, operated or managed ICs,
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 Affiliated Practices or ICs. 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 Affiliated Practices or the Company's owned,
operated or managed ICs, 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 Affiliated 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
Affiliated Practices could place the Company and its Affiliated Practices at a
competitive disadvantage and have a material adverse effect on the Company's
business, financial condition and results of operations.

COMPETITION

      The Company is under competitive pressure to acquire and retain the assets
of, and to provide management and administrative services to, additional
radiology practices, MSOs and ICs. There are a number of publicly-traded
companies focused on owning or managing ICs, including U.S. Diagnostic, Inc.,
Medical Resources, Inc. and HEALTHSOUTH Corporation. The Company is aware of a
number of 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 (including radiology) and the
management of such 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.

      The Affiliated Practices and the Company's owned, operated or managed ICs
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
Affiliated Practices and the Company's owned,

                                       33
<PAGE>   36

operated or managed ICs 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 by decreasing
fees payable to the Company under the Service Agreements.

      Further, the Affiliated Practices 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
Affiliated Practices and the Company in obtaining such contracts. There can be
no assurance that the Affiliated Practices and the Company will be able to
obtain future business from managed care entities that will allow the Company to
compete effectively in the markets served by the Affiliated Practices and the
Company, which inability to compete could materially and adversely affect the
Company's business, financial condition and results of operations.

POTENTIAL LIABILITY AND INSURANCE; LEGAL PROCEEDINGS

      The provision of medical services entails an inherent risk of professional
malpractice and other similar claims. Although the Company seeks to structure
its relationships with the Affiliated 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 Affiliated Practices will not be asserted against the Company in the
future. Additionally, the Company owns, operates and manages ICs, which exposes
the Company to professional liability claims. The Company maintains insurance
policies against risks arising out of its operations, with coverages the Company
believes are appropriate in light of the risks attendant to its business. In
addition, pursuant to the Service Agreements, the existing Affiliated 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 Affiliated Practices or the Company that exceed the scope
of coverage or applicable policy limits or that otherwise could 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 Affiliated Practices. There can be no assurance that adequate liability
insurance will be available to the Company and the Affiliated Practices in the
future at acceptable costs or that the future cost of such insurance to the
Company and the Affiliated 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 Founding Affiliated Practices,
the Company assumed and succeeded to substantially all of the obligations of
each such Founding Affiliated Practice. In connection with the acquisition of
the assets of other Affiliated Practices, the Company may succeed to some or all
of the liabilities of such Affiliated Practices. Therefore, claims may be
asserted against the Company for events that occurred prior to the acquisition
of the assets of certain Affiliated Practices. There can be no assurance that
any such claims, regardless of their outcome, will not have a material adverse
effect on the Company's business, financial condition and results of operations.

      The Company has been named in one lawsuit against a Founding Affiliated
Practice. There can be no assurance that the Company will not subsequently be
named as a defendant in additional lawsuits.

      The physicians employed by the Affiliated Practices are from time to time
subject to malpractice claims. Such malpractice claims, if successful, could
result in damages that may exceed applicable insurance coverage for such
malpractice claims. While each Affiliated Practice and the Company maintains
insurance believed by the Company to be adequate and consistent with industry
practice, there can be no assurance that the amount of insurance currently
maintained will satisfy all claims made against them or that an Affiliated
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 Founding Affiliated 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.


                                       34
<PAGE>   37
      In connection with the acquisitions of the existing Affiliated Practices,
the shareholders of the existing Affiliated Practices and the Affiliated
Practices have agreed to indemnify the Company for certain claims. In the event
the Company is subsequently added as a party in any of these claims or lawsuits,
or a monetary judgment is entered against the Company, and an Affiliated
Practice or its shareholders are not required or are unable to satisfy their
indemnification obligations to the Company, the Company's business, results of
operations and financial condition could be materially adversely affected.

      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.

DEPENDENCE ON INFORMATION SYSTEMS

      The information systems of the existing Affiliated Practices consist of
disparate, non-integrated accounting, practice management and ancillary
information systems. In order to facilitate the extensive information management
requirements necessary to effectively manage operations, compete for managed
care contracts and achieve standardization and economies of scale, the Company
is currently installing a network infrastructure and two company-wide
information systems, a financial accounting system and an executive information
system. The implementation of the various components of these systems and the
integration within the Affiliated Practices will require expending approximately
$3.0 million in 1998, of which approximately $0.5 million has already been
expended, and involves significant management resources. The Company intends to
complete the implementation of the financial accounting system on or before the
end of July, 1998. The Company anticipates that the executive information system
will be completed in 1999. In each case, however, the Company may experience
unanticipated delays, complications and expenses in implementing, integrating
and operating such systems. Furthermore, such systems may require modifications,
improvements or replacements as the Company expands or if new technologies
become available. Such modifications, improvements or replacements may require
substantial expenditures and may require interruptions in operations during
periods of implementation. There can be no assurance that the Company will be
able to implement and operate these information systems effectively or that
these systems will produce the expected benefits. The failure to successfully
implement and maintain operational and financial information systems could
prevent the Company from efficiently accumulating data from disparate systems
maintained by the Affiliated Practices and generating operational data necessary
to more effectively manage the Affiliated Practices which could have a material
adverse effect on the Company's business, financial condition and results of
operations.

DEPENDENCE ON KEY PERSONNEL

         The Company depends on the ability and experience of its executive
officers and key personnel for the management of the Company and the
implementation of its business strategy. The Company currently has employment
contracts with four of its executive officers and a consulting agreement with
one other executive officer. Because of the difficulty in finding adequate
replacements 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.

ITEM 7A.  QUANITATIVE 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.


                                       35
<PAGE>   38




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, 1996 and 1997                              F-3

Consolidated Statements of Income for the Period from Inception (April 30, 1996)
   through December 31, 1996 and for the Year Ended December 31, 1997                     F-4

Consolidated Statements of Stockholders' Deficit for the Period from Inception
   (April 30, 1996) through December 31, 1996 and for the Year Ended December
   31, 1997                                                                               F-5

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

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





                                      F-1
<PAGE>   39






                    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, 1996 and 1997, and the related consolidated statements of income,
stockholders' deficit, and cash flows for the period from inception (April 30,
1996) to December 31, 1996, and for the year ended December 31, 1997. 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, 1996 and 1997, 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 year ended December 31, 1997, in conformity
with generally accepted accounting principles.




                                                             ARTHUR ANDERSEN LLP


Dallas, Texas,
March 9, 1998



                                      F-2
<PAGE>   40



                        AMERICAN PHYSICIAN PARTNERS, INC.

                           CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT SHARE DATA)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                                              DECEMBER 31,
                                                                                        -------------------------
                                                                                          1996              1997
                                                                                        --------         --------
<S>                                                                                     <C>              <C>
CURRENT ASSETS:
  Cash and cash equivalents ....................................................        $  2,491         $  4,572
  Accounts receivable, net of allowances of $55,188 at December 31, 1997 .......            --             21,398
  Due from affiliated practices ................................................            --              3,651
  Other current assets .........................................................              15            2,651
                                                                                        --------         --------
          Total current assets .................................................           2,506           32,272
PROPERTY AND EQUIPMENT, net of accumulated depreciation
  of $3 and $60,721 at December 31, 1996 and 1997, respectively ................              58           22,395
INVESTMENT IN JOINT VENTURES ...................................................            --              3,725
DEFERRED FINANCING COSTS .......................................................            --              2,395
OTHER ASSETS ...................................................................              14            1,979
                                                                                        --------         --------
          Total assets .........................................................        $  2,578         $ 62,766
                                                                                        ========         ========

                              LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
  Accounts payable and accrued expenses ........................................        $    477         $ 12,689
  Accrued physician retention ..................................................            --              4,330
  Accrued salaries and benefits ................................................            --              1,514
  Due to joint ventures ........................................................            --                639
  Current portion of long-term debt ............................................            --                858
  Current portion of capital lease obligations .................................            --              1,791
  Deferred income taxes ........................................................            --              6,124
  Other current liabilities ....................................................            --                651
                                                                                        --------         --------
          Total current liabilities ............................................             477           28,596
DEFERRED INCOME TAXES ..........................................................            --              3,872
LONG-TERM DEBT, net of current portion .........................................           3,500           51,734
CAPITAL LEASE OBLIGATIONS, net of current portion ..............................            --              1,482
OTHER LIABILITIES ..............................................................            --                297
                                                                                        --------         --------
          Total liabilities ....................................................           3,977           85,981

MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES .................................            --                820

STOCKHOLDERS' DEFICIT:
  Preferred stock, $.0001 par value; 10,000,000 shares authorized;
     no shares outstanding .....................................................            --               --
  Common Stock, $.0001 par value; 50,000,000 shares authorized;
    2,000,000 and 17,234,852 shares issued and outstanding at December 31,
   1996 and 1997, respectively .................................................            --                  2
  Additional paid-in capital ...................................................             250          (18,460)
  Accumulated deficit ..........................................................          (1,649)          (5,577)
                                                                                        --------         --------
          Total stockholders' deficit ..........................................          (1,399)         (24,035)
                                                                                        --------         --------
          Total liabilities and stockholders' deficit ..........................        $  2,578         $ 62,766
                                                                                        ========         ========
</TABLE>


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



                                      F-3
<PAGE>   41



                        AMERICAN PHYSICIAN PARTNERS, INC.

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

<TABLE>
<CAPTION>
                                                        PERIOD FROM
                                                         INCEPTION
                                                      (APRIL 30, 1996)
                                                             TO               YEAR ENDED
                                                         DECEMBER 31,         DECEMBER 31,
                                                             1996                 1997
                                                          -----------         -----------
<S>                                                       <C>                 <C>
REVENUES:
  Physician groups revenue, net ..................        $      --           $    13,709
  Less: amounts retained by physician groups......               --                (5,026)
                                                          -----------         -----------
           Service fee revenue ...................               --                 8,683

COSTS AND EXPENSES:
  Salaries and benefits ..........................               --                 2,922
  Practice supplies ..............................               --                 1,036
  Practice rent and lease expense ................               --                   852
  Other practice expenses ........................               --                 1,557
  Corporate general and administrative ...........              1,623               4,910
  Depreciation and amortization ..................                  3                 888
  Interest expense, net ..........................                 23                 617
                                                          -----------         -----------
          Total costs and expenses ...............              1,649              12,782
                                                          -----------         -----------
LOSS BEFORE TAXES, MINORITY INTERESTS IN
CONSOLIDATED SUBSIDIARIES AND EQUITY IN
EARNINGS OF INVESTMENTS ..........................             (1,649)             (4,099)

EQUITY IN EARNINGS OF INVESTMENTS ................               --                   220

MINORITY INTERESTS IN INCOME OF
CONSOLIDATED SUBSIDIARIES ........................               --                   (49)
                                                          -----------         -----------
LOSS BEFORE TAXES ................................             (1,649)             (3,928)

INCOME TAX EXPENSE ...............................               --                  --
                                                          -----------         -----------
NET LOSS .........................................        $    (1,649)        $    (3,928)
                                                          ===========         ===========

NET LOSS PER COMMON SHARE
   Basic and diluted .............................        $     (0.82)        $     (1.13)
WEIGHTED AVERAGE SHARES OUTSTANDING
   Basic and diluted .............................              2,000               3,451
</TABLE>


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



                                      F-4
<PAGE>   42



                        AMERICAN PHYSICIAN PARTNERS, INC.

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

<TABLE>
<CAPTION>

                                                 COMMON STOCK           ADDITIONAL
                                           --------------------------     PAID-IN       ACCUMULATED
                                             SHARES          AMOUNT       CAPITAL        DEFICIT         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 Founding
    Affiliated Practices
    in conjunction with
    Reorganization .....................    12,646,446              2          (713)          --             (711)
  Conversion of notes payable into
   Common Stock ........................       510,406           --           3,500           --            3,500
  Payment of cash dividends to
   Founding Affiliated 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)
                                           ===========    ===========   ===========    ===========    ===========
</TABLE>




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



                                      F-5
<PAGE>   43



                        AMERICAN PHYSICIAN PARTNERS, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                      PERIOD FROM
                                                                       INCEPTION
                                                                    (APRIL 30, 1996)
                                                                             TO       YEAR ENDED
                                                                        DECEMBER 31,  DECEMBER 31,
                                                                            1996         1997
                                                                         ---------    ---------
<S>                                                                      <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss ...........................................................   $  (1,649)   $  (3,928)
  Adjustments to reconcile net loss to net cash
       used in operating activities --
       Minority interest .............................................        --             49
       Depreciation and amortization .................................           3          888
       Equity in earnings of investments .............................        --           (220)
       Gain on sale of assets ........................................        --             (6)
       Changes in assets and liabilities:
           Accounts receivable, net ..................................        --         (1,787)
           Other receivables and other current assets ................         (15)      (3,908)
           Other noncurrent assets ...................................         (14)      (2,412)
           Accounts payable and accrued expenses .....................         476        6,828
           Accrued salaries and benefits .............................        --           (433)
           Due to joint ventures .....................................        --            (87)
           Other liabilities..........................................        --           (317)
                                                                         ---------    ---------

              Net cash used in operating activities ..................      (1,199)      (5,333)
                                                                         ---------    ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from the sale of property and equipment ...................        --              6
  Purchases of property and equipment ................................         (60)        (481)
  Contributions to joint ventures ....................................        --           (100)
  Distributions from joint ventures...................................        --            155
                                                                         ---------    ---------
          Net cash used in investing activities ......................         (60)        (420)
                                                                         ---------    ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuance of notes payable ............................         400         --
  Payments on notes payable ..........................................        (400)        --
  Proceeds from issuance of convertible notes payable ................       3,500         --
  Proceeds from issuance of long-term debt ...........................        --         49,600
  Payments on debt of Founding Affiliated Practices ..................        --        (23,420)
  Cash dividends to Founding Affiliated Practices ....................        --        (50,588)
  Cash received in Reorganization ....................................        --          3,188
  Proceeds from the issuance of Common Stock, net ....................         250       29,081
  Other ..............................................................        --            (27)
                                                                         ---------    ---------
          Net cash provided by financing activities ..................       3,750        7,834
                                                                         ---------    ---------

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

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

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

NONCASH TRANSACTIONS DURING THE PERIOD:
     Assets acquired from Founding Affiliated Practices ..............   $    --      $  53,427
                                                                         ---------    ---------
     Liabilities and debt assumed from Founding Affiliated Practices..   $    --      $  54,138
                                                                         ---------    ---------
     Common Stock issued to Founding Affiliated Practices.............   $    --      $ 151,757
                                                                         ---------    ---------
     Conversion of convertible notes payable into
     Common Stock.....................................................   $    --      $   3,500
                                                                         ---------    ---------

CASH PAID FOR INTEREST ...............................................   $       7    $     254
                                                                         ---------    ---------
</TABLE>

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


                                      F-6
<PAGE>   44



                        AMERICAN PHYSICIAN PARTNERS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1997


1. DESCRIPTION OF BUSINESS:

      American Physician Partners, Inc. (the "Company"), a Delaware corporation,
is a radiology practice management entity. 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 and simultaneously exchanged cash and shares of its
Common Stock for certain assets of and liabilities (the "Reorganization")
associated with seven radiology practices (the "Founding Affiliated Practices")
in California, Kansas, Maryland, New York, and Texas. The exchange was 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.

      Concurrently with these transactions, the physicians associated with the
Founding Affiliated Practices created new medical professional corporations
(collectively the "Affiliated Practices") which entered into 40-year service
agreements with the Company. Under the terms of the service agreements, the
Company provides management, administrative, technical and non-medical services
to the Affiliated Practices in return for service fees. The service agreements
cannot be terminated by either party without cause, consisting primarily of
bankruptcy or material default.

2. 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 wholly-owned
subsidiaries. All intercompany accounts and transactions have been eliminated in
consolidation.

      The Company does not consolidate the operating results and accounts of the
Affiliated Practices. For display purposes, the Company has presented physician
groups revenue and amounts retained by physician groups in the accompanying
consolidated statements of income to arrive at the Company's service fee
revenue. (See further discussion below.)

Cash and Cash Equivalents

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

Accounts Receivable

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

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 over the following useful lives:

<TABLE>
<CAPTION>
                                                                      Years
                                                                      -----
<S>                                                       <C>
    Equipment (primarily medical equipment)                            5-7
    Leasehold improvements                                  Remaining life of lease
    Building                                                           15
</TABLE>


                                      F-7
<PAGE>   45
                        AMERICAN PHYSICIAN PARTNERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 1997


Investment in Joint Ventures

      Investment 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.

Physician Groups Revenue, Net

      Physician groups revenue represents the revenue of the Affiliated
Practices reported at the estimated realizable amounts from patients,
third-party payors, and others for services rendered, net of contractual and
other adjustments.

      Revenue under certain third-party payor agreements is subject to audit and
retroactive adjustments. Provisions for third-party payor settlements and
adjustments are estimated in the period the related services are rendered and
adjusted in future periods as final settlements are determined. There are no
material claims, disputes, or other unsettled matters that exist to management's
knowledge concerning third-party reimbursements. In addition, management
believes there are no retroactive adjustments that would be material to the
Company's consolidated financial statements. During 1997, the Company estimates
that approximately 21% of Affiliated Practice revenue, was received under
government-sponsored healthcare programs (principally, the Medicare and Medicaid
programs). The Affiliated Practices have numerous agreements with managed care
organizations and other payors to provide physician services based on negotiated
fee schedules. No individual managed care organization or other payor is
material to the Company.

Service Fee Revenue

      Service fee revenue represents physician groups revenue less amounts
retained by physician groups. The amounts retained by physician groups
represents amounts paid to the physicians pursuant to the service agreements
between the Company and the Affiliated 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.

      The Company's service fee revenues are dependent upon the operating
results of the Affiliated 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 agreement. 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 is intended to result in the Company receiving substantially the same
amount of service fee as it would have received under its negotiated percentage
fee structure. The service fees received by the Company under either fee
structure provide the Company with a net profits or equivalent interest in the
Affiliated Practices and, as a result, the Company displays the revenues, net of
amounts retained by physicians, and expenses of the Affiliated Practices.
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 physician groups revenue.



                                      F-8
<PAGE>   46

                        AMERICAN PHYSICIAN PARTNERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 1997



      Service fee revenue in 1997 consists of the following (in thousands):




<TABLE>
<S>                                                         <C>
Professional component                                      $2,632
Technical component                                          6,051
                                                             -----
                                                            $8,683
                                                            ======
</TABLE>

      For the year ended December 31, 1997, three of the Company's Affiliated
Practices each contributed 10% or more of the Company's service fee revenue.
Advanced Radiology, LLC contributed approximately 41%.

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 Loss 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. 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.

      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 approximates fair values due to the short maturity
of these instruments. The carrying amounts of the Company's long-term debt and
capital leases also approximates fair value.




                                      F-9
<PAGE>   47

                        AMERICAN PHYSICIAN PARTNERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 1997



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.

Concentration of Credit Risk

      The Company's accounts receivable consist primarily of service fee
revenues due from Affiliated 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, and such losses have
been within management's expectation.

New Accounting Pronouncements

      During 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 130 establishes
accounting standards for reporting comprehensive income. SFAS No. 130 requires
all for-profit entities presenting a complete set of financial statements to
include detailed disclosure of comprehensive income. SFAS No. 130 is effective
for financial statements issued for fiscal years beginning after December 15,
1997. The Company intends to adopt SFAS No. 130 effective for the year ending
December 31, 1998. Management does not believe the adoption of this statement
will have a material impact on the financial position or results of operations
of the Company.

      SFAS No. 131 establishes accounting standards for operating segments,
replacing the current requirements for segment disclosures in SFAS No.14,
"Financial Reporting for Segments of an Enterprise." The Company is currently
not subject to the reporting requirements outlined in SFAS No. 131; therefore,
adoption is not necessary.

      The Financial Accounting Standards Board's Emerging Issues Task Force has
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 individual's stock-based compensation.




                                      F-10
<PAGE>   48
                        AMERICAN PHYSICIAN PARTNERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 1997



      The primary effect of this pronouncement on the Company will be the
presentation of revenues. The Company currently presents physician groups
revenue in its consolidated statements of income. The Company expects to adopt
this pronouncement in the fourth quarter of 1998 and, with such, will no longer
present physician groups revenue in its consolidated statement of income. The
Company may also from time to time issue stock options to its affiliated
physicians. Under EITF 97-2, this could result in a charge to earnings in an
amount equal to the fair value of the grant.

3. PROPERTY AND EQUIPMENT:

      Property and equipment consists of the following at December 31, 1996 and
1997 (in thousands):


<TABLE>
<CAPTION>
                                             1996        1997
                                           --------    --------
<S>                                        <C>         <C>
Equipment                                  $     61    $ 70,738
Leasehold improvements                         --         9,744
Building                                       --         2,634
                                           --------    --------
                                                 61      83,116
Less - Accumulated depreciation
  and amortization                               (3)    (60,721)
                                           --------    --------
Property and equipment, net                $     58    $ 22,395
                                           ========    ========
</TABLE>

4. LONG-TERM DEBT:

      Long-term debt consists of the following at December 31, 1996 and 1997,
(in thousands):

<TABLE>
<CAPTION>
                                                                                  1996             1997
                                                                                  ----             ----
<S>                                                                          <C>                  <C>

         Note payable to a bank, bearing interest at LIBOR plus
           1.375% (7.58% at December 31, 1997), maturing in
           September, 2003
                                                                               $      --           $49,600
         Note payable to a bank, bearing interest at 7.92%, maturing
           March, 2001, unsecured                                                     --             2,992
         Convertible notes payable, bearing interest at 6% maturing
           January, 1998                                                                                --
                                                                                   3,500
                                                                                   -----          --------
                                                                                   3,500            52,592
         Less - Current maturities                                                    --              (858)
                                                                                 -------           -------
         Long-term debt, net                                                     $ 3,500           $51,734
                                                                                 =======           =======
</TABLE>


      On November 26, 1997, the Company entered into a bank credit facility (the
"Credit Facility"). The loan agreement provides for revolving loans of up to
$115.0 million to be used by the Company for acquisitions and general working
capital needs. As of December 31, 1997, $65.4 million was available under the
terms of the agreement. Loans under the agreement are secured by the capital
stock of the Company's subsidiaries and by all of the service agreements with
the Affiliated Practices. Under the terms of the Credit Facility, the Company
may borrow, repay and reborrow amounts through September 30, 2000. Amounts then
outstanding are required to be repaid in quarterly installments of varying
amounts beginning on September 30, 2000. Loans under the loan agreement are
denominated at the Company's option as either Eurodollar Tranches (loans bearing
interest at the a rate of 1.375% above a Eurodollar rate quoted by the (lender))
or Base Rate Tranches (loans bearing interest at the lender's prime rate for
U.S. commercial loans or the Federal Funds Rate, whichever is greater).



                                      F-11
<PAGE>   49

                        AMERICAN PHYSICIAN PARTNERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 1997


In connection with the Credit Facility, the Company paid a commitment fee of
$1.9 million. This fee is being amortized over the life of the Credit Facility.
In addition, an annual fee of .25% exists on the unused portion of the
commitment. The loan agreement prohibits the payment of dividends or other
distributions on the Company's Common Stock and requires the Company to
maintain certain financial ratios (including minimum debt-service coverage and
maximum senior debt-to-EBITDA  coverage, as defined).

      During 1996, the Company issued $3,500,000 in convertible promissory notes
(the "Notes"). At December 31, 1996, $40,000 and $357,000 of the Notes were held
by employees and stockholders, respectively. In December 1997, the Company
converted the Notes into Company Common Stock in accordance with the terms of
the note agreements.


The maturities of long-term debt at December 31, 1997 are as follows (in
thousands):

<TABLE>
<S>                   <C>                                <C>
                      1998                               $   858
                      1999                                   932
                      2000                                 9,278
                      2001                                16,723
                      2002                                16,533
                      Thereafter                           8,268
                                                         -------
                                                         $52,592
                                                         =======
</TABLE>


5. COMMON STOCK AND STOCK OPTION PLAN:

Common Stock

      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 Notes were converted into 510,406 shares of Common Stock.

      Simultaneously with the closing of the IPO and Reorganization,
stockholders of the Founding Affiliated Practices received, in the aggregate,
12,646,446 shares of Common Stock in exchange for certain assets and liabilities
of the Founding Affiliated 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 Founding Affiliated Practices.

      During 1996, the Company issued 2,000,000 shares of Common Stock. At the
consummation of the IPO, 1,000,000 shares were canceled for no consideration.

Stock Option Plan

      During 1996, the Company's Board of Directors approved a 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.
Generally, options vest over a 5-year period. As of December 31, 1996 and 1997,
1,270,000 and 1,560,500 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. The following table summarizes
the combined activity under the Plan and the options granted outside the Plan at
December 31, 1996 and 1997:



                                      F-12
<PAGE>   50

                        AMERICAN PHYSICIAN PARTNERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 1997





<TABLE>
<CAPTION>
                                                        1996                                   1997
                                                        ----                                   ----
                                              Shares            Wtd. Avg.           Shares            Wtd. Avg.
                                              (000's)        Exercise Price         (000's)         Exercise Price
                                              -------        --------------         -------         --------------

<S>                                            <C>                 <C>                  <C>            <C>
Outstanding, beginning of year                    --               $0.00               1,300             $ 0.70

Granted                                        1,300               $0.70                 663             $11.15

Exercised                                         --               $0.00                 (78)            $ 0.13

Canceled                                          --               $0.00                (294)            $ 0.13
                                              ------                                 -------

Outstanding at end of year                     1,300               $0.70               1,591             $ 5.19
                                               =====                                   =====

Exercisable at end of year                        96               $0.20                 656             $ 4.10

Price Range                                         $0.13 to $8.00                        $0.13 to $12.00
</TABLE>

      The following table reflects the weighted average exercise price and
weighted average contractual life of various exercise price ranges of the
1,590,500 options outstanding as of December 31, 1997.

<TABLE>
<CAPTION>
                                                                   Wtd. Avg.                    Wtd. Avg.
    Exercise Price Range                  Shares                Exercise Price           Contractual Life (yrs)
    --------------------                  ------                --------------           ----------------------

<S>          <C>                           <C>                       <C>                          <C>
             $0.13                         833,000                   $0.13                        8.47
             $8.00                         235,000                   $8.00                        9.11
            $12.00                         522,500                  $12.00                        9.19
</TABLE>

      The Company accounts for its stock-based compensation arrangements under
the provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB No. 25). In 1995, Financial Accounting Standards Board Statement No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123), 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 negligible. The effects of applying SFAS No. 123 during 1997 are as follows:



                                      F-13


<PAGE>   51

                        AMERICAN PHYSICIAN PARTNERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 1997




<TABLE>
<CAPTION>
<S>                                                 <C>
1997 net loss:
   As reported                                      $   3,928
   Pro forma                                           11,043
Net loss per share:
   As reported                                         $1.13
   Pro forma                                           $3.20
</TABLE>

      The fair value of each option grant is estimated using the following
weighted-average assumptions for grants in 1997: risk-free interest rate of 5.1
percent and expected life of 2.58 years; expected volatility of 125 percent.

6. INCOME TAXES:

      The Company has incurred losses since inception. At December 31, 1997, the
Company has a net operating loss carryforward for financial reporting purposes
of approximately $5,577,000 available to reduce future amounts of taxable
income. If not utilized to offset future taxable income, the net operating loss
carryforward will begin to expire in 2011.

      The deferred tax benefits of approximately $1,300,000 and $600,000
generated during 1997 and 1996, respectively, have been fully offset by a
valuation allowance. The Company has recorded a full valuation allowance against
its deferred tax asset because of the Company's current financial condition, its
limited operating history, and its operating losses recorded to date. If the
Company achieves profitability in the future, the valuation allowance will be
reduced by a credit to income.

      The contribution of certain assets and liabilities of the Founding
Affiliated Practices in exchange for Common Stock was structured as a tax-free
reorganization. The Company recorded deferred income taxes to recognize
differences between the historical cost and tax basis of the net assets
contributed. These differences relate primarily to accounts receivable, property
and equipment, and accounts payable and accrued expenses.

7. COMMITMENTS AND CONTINGENCIES:

Leases

      Lease expense of $585,457 and $57,017 in 1997 and 1996, respectively
consists of corporate office space, corporate equipment and equipment and office
space at the Affiliated Practices.

      The Affiliated Practices lease office space as well as certain equipment
under capital leases and noncancelable operating lease agreements, which expire
at various dates. At December 31, 1997, minimum annual rental commitments under
capital leases and noncancelable operating leases with the terms in excess of
one year are as follows:



                                      F-14
<PAGE>   52

                        AMERICAN PHYSICIAN PARTNERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 1997


<TABLE>
<CAPTION>

Year Ending                                      Capital          Operating
December 31,                                      Leases            Leases
------------                                      ------            ------
<S>                                               <C>               <C>
1998                                              $1,992            $3,071
1999                                                 658             2,460
2000                                                 457             1,924
2001                                                 331             1,590
2002                                                 249             1,239
Thereafter                                           --              7,134
                                                  ------           -------
Total minimum lease payments                      $3,687           $17,418
                                                                   =======



Less- Amount representing interest                  (414)

Present value of minimum capital                  ------
  lease payments                                   3,273
Less- Current portion of capital lease
  obligation                                      (1,791)
                                                  ------
Long-term capital lease obligation                $1,482
                                                  ======
</TABLE>


Litigation

      The Company and the physician groups are insured with respect to medical
malpractice risks on a claims-made basis. The Company is a party to one suit
relating to services provided by a Founding Affiliated Practice. There can be no
assurances that additional claims will not be asserted against the Company in
the future. The Company became subject to certain pending claims as the result
of successor liability in connection with the acquisition of the Founding
Affiliated Practices; however, the Company believes that the ultimate resolution
of such claims will not have a material adverse effect on the business,
financial condition or results of operations of the Company.

8. SUBSEQUENT EVENTS:

      In January 1998, the Company announced its affiliation with Community
Radiology Associates, Inc., a ten-physician radiology practice based in
Rockville, Maryland. The Company, also announced 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. The
total consideration for these transactions was approximately $41,133,000
consisting of issuance of (or the obligation to issue) 1,019,018 shares of
Common Stock, cash and assumed debt. These transactions will be accounted for
under the purchase method.






                                      F-15


<PAGE>   53

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

Not applicable.



                                      F-16
<PAGE>   54
                        AMERICAN PHYSICIAN PARTNERS, INC.


                                    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 in the Registrant's proxy statement for the 1998 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 in the
Registrant's proxy statement for the 1998 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 in
the Registrant's proxy statement for the 1998 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 in
the Registrant's proxy statement for the 1998 annual meeting of stockholders and
is incorporated herein by reference to such proxy statement.




                                      F-17
<PAGE>   55
                                     PART IV

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

     (a)  The following documents are filed as part of this report:

          (1)  Financial Statements included in Item 8 herein:

               Report of Independent Public Accountants

               Consolidated Balance Sheets as of December 31, 1996 and 1997

               Consolidated Statements of Income for the Period from Inception
               (April 30, 1996) through December 31, 1996 and for the Year Ended
               December 31, 1997

               Consolidated Statements of Stockholders' Deficit for the Period
               from Inception (April 30, 1996) through December 31, 1996 and for
               the Year Ended December 31, 1997

               Consolidated Statements of Cash Flows for the Period from
               Inception (April 30, 1996) through December 31, 1996 and for the
               Year Ended December 31, 1997

               Notes to Consolidated Financial Statements

          (2)  Financial Statement Schedules included in Item 8 herein: All
               schedules for which provision is made in the applicable
               accounting regulations of the Securities and Exchange Commission
               are not required under the related instructions or are
               inapplicable and, therefore, have been omitted.

          (3)  Exhibits: The information required by this Item 14(a)(3) is set
               forth in the Index to Exhibits accompanying this Annual Report on
               Form 10-K.

     (b)  No current reports on Form 8-K were filed during the quarter ended
          December 31, 1997.

<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 Reorganization and Merger, 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>

                                      F-18
<PAGE>   56

<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 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.**
          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.**
</TABLE>



                                      F-19
<PAGE>   57
<TABLE>

       <S>     <C>
          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.**
           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 26, 1997, 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.***
         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.***
</TABLE>


                                      F-20
<PAGE>   58
<TABLE>

       <S>     <C>
         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.***
          21.1 Subsidiaries.*
          24.1 Power of Attorney (contained on the signature page of this
               Form 10-K).
            27 Financial Data Schedule*
</TABLE>

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

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

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



                                      F-21
<PAGE>   59

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 March 31, 1998.

                                       AMERICAN PHYSICIAN PARTNERS, INC.


                                       By: /s/  GREGORY L. SOLOMON
                                           ----------------------------------
                                           Gregory L. Solomon
                                           President and Chief Executive Officer



                                POWER OF ATTORNEY

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

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


<TABLE>
<CAPTION>

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

<S>                                     <C>                                        <C>
/s/ GREGORY L. SOLOMON                   President, Chief Executive Officer, and    March 31, 1998
-------------------------------          Director (Principal Executive Officer)
 Gregory L. Solomon

/s/ LAWRENCE R. MUROFF, M.D.             Chairman of the Board of Directors and     March 31, 1998
-------------------------------          Senior Vice President of Physician
 Lawrence R. Muroff, M.D.                Affairs


/s/ SAMI S. ABBASI                       Senior Vice President and Chief Financial  March 31, 1998
-------------------------------          Officer (Principal Financial Officer)
 Sami S. Abbasi

/s/ DAVID W. YOUNG                       Controller (Principal Accounting Officer)  March 31, 1998
-------------------------------
 David W. Young

/s/ JOHN PAPPAJOHN                       Director                                   March 31, 1998
-------------------------------
 John Pappajohn

/s/ DERACE L. SCHAFFER, M.D.             Director                                   March 31, 1998
-------------------------------
 Derace L. Schaffer, M.D.

/s/ MICHAEL L. SHERMAN, M.D.             Director                                   March 31, 1998
-------------------------------
 Michael L. Sherman, M.D.

/s/ JOHN W. COLLOTON                     Director                                   March 31, 1998
-------------------------------
 John W. Colloton

/s/ LESS T. CHAFEN, M.D.                 Director                                   March 31, 1998
-------------------------------
 Less T. Chafen, M.D

</TABLE>



<PAGE>   60
                               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 Reorganization and Merger, 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>   61

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



<PAGE>   62
<TABLE>

       <S>     <C>
          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.**
           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 26, 1997, 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.***
         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.***
</TABLE>


<PAGE>   63
<TABLE>

       <S>     <C>
         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.***
          21.1 Subsidiaries.*
          24.1 Power of Attorney (contained on the signature page of this
               Form 10-K).
            27 Financial Data Schedule*
</TABLE>

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

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

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