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


                                  F O R M 10-K

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

                     For the fiscal year ended June 30, 1997

                                       OR

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

                   For the Transition period from     to    .

                         Commission file Number 0-16271

                                    DVI, INC
               (Exact name of registrant as specified in charter)

                  Delaware                                       22-2722773
(State or other jurisdiction of incorporation                 (I.R.S. Employer
              or organization)                               Identification No.)

              500 Hyde Park
        Doylestown, Pennsylvania                                     18901
(Address of principal executive offices)                          (Zip Code)

Registrant's telephone number, including area code (215) 345-6600

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

                                                           Name of each Exchange
Title of Each Class                                         on which Registered
Common Stock
par value $.005 per share                          New York Stock Exchange, Inc.

9 7/8% Senior Notes due 2004                       New York Stock Exchange, Inc.

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

Warrants to Purchase
    Common Stock
  (Title of Class)

      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.  Yes  X   No
                ---      ---

      The aggregate market value of the Registrant's Common Stock (its only
voting stock) held by nonaffiliates of the Registrant as of August 29, 1997 was
approximately $91,892,419 based upon the last reported sale price of the Common
Stock on the New York Stock Exchange on that date. (Reference is made to Page
10 herein for a statement of the assumptions upon which this calculation is
based.)

      As of August 29, 1997, the Registrant had 10,545,848 shares of Common
Stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

      Part III incorporates information by reference from the Registrant's
definitive Proxy Statement to be filed with the Commission within 120 days after
the close of the Registrant's fiscal year.
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                                     PART I


ITEM 1.     BUSINESS

OVERVIEW

    DVI, Inc. is an independent specialty finance company that conducts a
medical equipment finance business and a related medical receivables finance
business. As of June 30, 1997, the Company's total assets and shareholder's
equity were $634.1 million and $95.8 million, respectively.

    Medical Equipment Finance. The Company finances the acquisition of
diagnostic imaging and other types of sophisticated medical equipment used by
outpatient healthcare providers, medical imaging centers, groups of physicians,
integrated healthcare delivery networks and hospitals. The Company's equipment
finance business operates by (i) providing financing directly to end users of
equipment; (ii) purchasing medical equipment loans and leases originated by
Originators through the Wholesale Program; and (iii) more recently, providing
finance programs for vendors of diagnostic and patient treatment devices. The
Company's typical equipment loan has an initial principal balance ranging from
$300,000 to $2.0 million. Virtually all of the Company's equipment loans are
structured on a fixed interest rate basis such that the full cost of the
equipment and all financing costs are repaid during the financing term, which
typically is five years. Because most of the Company's equipment loans are
structured as notes primarily secured by equipment or direct financing leases 
with a bargain purchase option for the equipment user, the amount carried by the
Company on its balance sheet for total residual interest in equipment is quite
small ($8.3 million as of June 30, 1997). Total equipment financing loans
originated in the Company's fiscal year ended June 30, 1997 were $401.7 million.
Of this amount, approximately $303.2 million was provided by the Company
directly to end users; $85.0 million was generated through the Wholesale
Program; and $13.5 million was generated through various vendor finance
programs.

    The Company has traditionally focused its financing activities on the
outpatient diagnostic and treatment services sector of the healthcare industry,
typically consisting of radiologists and other diagnostic service providers
which were among the first in the healthcare industry to move away from the
hospital setting toward outpatient treatment centers. The Company expects the
range of services provided in an outpatient setting to expand, and intends as
part of its business strategy to focus on the equipment used and medical
receivables generated as a result of that expansion.

    Relatively high cost MRI and CT equipment have been the principal equipment
types acquired by the Company's customers and financed by the Company, and the
Company expects it will continue to finance substantial amounts of these types
of equipment as a result of its experience and expertise in the industry and
because that market has been relatively underserved by traditional financing
sources. More recently, the Company has targeted the growing, and substantially
more competitive, lower cost diagnostic and patient treatment device market,
where it is seeking to leverage its reputation for expertise in medical
equipment financing and its ability to provide financing to a wide range of
healthcare providers.

    Medical Receivables Finance. The Company provides lines of credit to a wide
variety of healthcare providers, many of which are also equipment finance
customers. Substantially all of the lines of credit are collateralized by third
party medical receivables due from Medicare, Medicaid, HMOs, PPOs and commercial
insurance companies. The Company's medical receivables loans are structured as
floating rate revolving lines of credit secured by all medical receivables
generated by the borrowers, as well as other collateral. These lines of credit
typically range in size from $300,000 to $5.0 million. While the Company's
medical receivables finance business is newer and substantially smaller than its
medical equipment finance business, the Company expects this business unit to
grow as a result of its recent success in accessing the securitization markets
and other sources of permanent funding. New commitments of credit for the
medical receivables business for the year ended June 30, 1997 were $101.1
million, and medical receivables funded as of June 30, 1997 were $87.4 million.

    Medical receivables financing is readily available for many hospitals and
for physicians seeking relatively small amounts of funding. However, for
outpatient healthcare providers seeking funding in excess of approximately
$500,000, the principal sources of financing generally are limited to specialty
finance companies or factoring companies that purchase receivables at a
discount. The Company believes the principal reasons for the lack of financing
in these areas historically have been the uncertainty of the value of the
receivables, the lack of permanent funding vehicles and the potential for fraud
due to the difficulty of verifying the performance of healthcare services. More
recently, interest in providing financing for this sector has increased as a
result of improved understanding of the expected reimbursement levels for
healthcare services and the availability of historical performance data on which
to base credit decisions. The Company's strategy in medical receivables
financing is to differentiate itself from many of its competitors by offering
loans secured by medical receivables


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rather than factoring those receivables at a discount. The Company believes that
loans secured by medical receivables are often more attractive to borrowers that
generate high-quality medical receivables because those borrowers find the
Company's financing has a lower cost than the cost to those borrowers of
factoring their receivables. The Company makes loans in an amount approximately
equal to 70% to 80% of the aggregate amount of the eligible receivables pledged
by the borrower.

    Credit Underwriting. The Company believes the credit underwriting process
that it uses when originating loans is effective in managing its risk. The
process follows detailed procedures, and benefits from the significant
experience of the Company in evaluating the creditworthiness of potential
borrowers. The Company also has been successful in restructuring those credits
which do become delinquent. The Company's net charge-offs, as a percentage of
average net financed assets, were 0.08%, 0.35% and 0.15%, for the years ended
June 30, 1997, 1996, and 1995, respectively, and total delinquencies, as a
percentage of managed net financed assets, for the same periods were 4.30%,
4.82% and 4.51%, respectively. The Company's historical levels of net
charge-offs and delinquencies are not necessarily predictive of future results.
Various factors, including changes in the way the Company's customers are paid
for their services, other developments in the healthcare industry, and new
technological developments affecting the resale value of equipment financed by
the Company, could cause the Company's future net charge-offs and delinquency
rates to be higher than those experienced historically.

    Capital Requirements. The Company's strong growth in loan origination and
net financed receivables has required substantial amounts of external funding.
The Company, through its operating subsidiaries, finances its equipment and
medical receivables loans on an interim basis with secured credit facilities
provided by banks and other financial institutions. These interim "warehouse"
facilities are refinanced using asset securitizations, whole loan sales, and
other structured finance techniques that permanently fund most of the Company's
equipment loans and medical receivables loans. These permanent financings
require additional capital to be invested by the Company to fund reserve
accounts or to meet the overcollateralization required in the securitizations
and sales of the Company's loans.

    Recent Growth. In recent years, the Company has grown substantially. Total
equipment financing loans originated by the Company grew from $46.4 million in
the year ended June 30, 1992 to $401.7 million in the year ended June 30, 1997.
The Company's managed net financed receivables grew from $92.4 million as of
June 30, 1992 to $925.8 million as of June 30, 1997. In the Company's medical
receivables financing business, which was established in 1993, new commitments
of credit in the year ended June 30, 1997 were $101.1 million compared with
$40.0 million in the year ended June 30, 1996. Medical receivables funded at
June 30, 1997 totaled $87.4 million, an increase of $48.8 million over the prior
fiscal year end.

BUSINESS STRATEGY

    The Company is seeking to continue its growth by expanding its existing
share of the medical equipment financing markets (which historically have been
and continue to be its largest, most important business segment) and by
generating financing opportunities in other areas of the health care industry.
The principal components of this strategy are as follows:

- Generate additional business through existing customers and relationships with
  equipment manufacturers. The Company will continue to target the market for
  high cost medical equipment, where it enjoys relationships with a large number
  of users of sophisticated medical equipment. The Company also has a close
  working relationship with some of the largest manufacturers of diagnostic
  imaging equipment, which it maintains by meeting those manufacturers' needs to
  arrange financing for the higher-cost equipment they sell to healthcare
  providers. The Company believes these relationships, together with its
  extensive expertise in the medical industry, can result in a continuing source
  of financing opportunities.

- Expand medical receivables financing business. The Company intends to
  penetrate further the medical receivables financing market by generating
  financing opportunities among its existing equipment finance customer base,
  particularly those customers that are expanding to provide additional
  healthcare services. The Company's strategy in medical receivables financing
  is to differentiate itself from many of its competitors by offering loans
  secured by medical receivables rather than factoring those receivables at a
  discount.

- Establish equipment financing relationships with manufacturers of lower cost
  diagnostic and patient treatment devices. The Company is seeking to use its
  reputation as a medical equipment financing specialist and its ability to
  finance a wide range of healthcare providers, to establish a presence in the
  relatively more competitive market for financing lower-cost medical equipment.
  The Company intends to finance increased amounts of diagnostic and patient
  treatment devices such as ultrasound, nuclear medicine and X-ray equipment.
  For the year ended June 30, 1997, the Company's loan origination for that
  market were $13.5 million.


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- Originate medical equipment loans on a wholesale basis. The Company intends to
  continue its wholesale program, in which it originates medical equipment loans
  by purchasing them from originators. The Company uses its expertise both in
  analyzing healthcare credits and utilizing securitization to service
  originators that often need access to sources of permanent financing for the
  equipment loans they originate. During the year ended June 30, 1997, the
  Company purchased $85.0 million in medical equipment loans through the
  wholesale program.

- Capitalize on international medical equipment financing needs. During the year
  ended June 30, 1997 the Company continued establishing international
  operations in order to capitalize on growing overseas markets for sales of
  medical equipment and devices. The Company has a joint venture based in
  Singapore with a major manufacturer of medical equipment and a financial
  institution to service the medical equipment market in the Asia-Pacific region
  and steps have been taken to form a joint venture in Latin America. DVI Europe
  is the Company's branch established in the United Kingdom to service the
  medical equipment industry in Europe. While the Company believes these
  international operations have significant potential, it expects that potential
  will be realized, if at all, over a period of several years rather than in the
  near term.

    DVI, Inc. conducts its business through two operating subsidiaries, DVI
Financial Services and DVI Business Credit. The Company conducts securitizations
through special-purpose, indirect, wholly-owned subsidiaries. The Company also
conducts other structured financings through limited-purpose subsidiaries or
through its operating subsidiaries. The borrowers under the Company's various
warehouse credit facilities are DVI Financial Services or DVI Business Credit.

SALES AND MARKETING

    The Company generates most of its financing opportunities from two sources:
(i) healthcare providers with whom the Company's sales organization has
relationships; and (ii) medical equipment manufacturers that use third parties
to finance the sale of their products. Generally, medical equipment
manufacturers refer customers to the Company for financing because they believe
the Company has the ability to understand and measure the creditworthiness of
the customer's business and provide the financing necessary for the completion
of the equipment sale.

    The Company has established a close working relationship with major
manufacturers of diagnostic imaging and radiation care equipment by meeting
their needs to arrange financing for the higher cost equipment they sell to
healthcare providers. These manufacturers include Hitachi Medical Systems
America, Philips Medical Systems and Elekta AB among others. The Company
believes these relationships afford it a competitive advantage over other
providers of medical equipment financing.

    The Company is seeking to expand its equipment finance business into the
relatively more competitive patient diagnostic and treatment device market. The
Company believes its experience and expertise in financing a wide range of
healthcare providers and meeting the equipment financing needs of major
manufacturers of diagnostic imaging and radiation care equipment will help it
build relationships with patient treatment device manufacturers. To establish
relationships with patient treatment device manufacturers, the Company expects
to train the manufacturers' sales personnel in the use of equipment financing as
a sales tool and to provide equipment financing programs that make these device
manufacturers more competitive. The Company believes the patient treatment
device market is more diverse than the diagnostic imaging market because of the
larger number of manufacturers and types of products, and the greater price
range of those products. The patient treatment device manufacturers targeted by
the Company produce products with an average cost of between $75,000 and
$300,000. For the year ended June 30, 1997, the loan origination for this
business unit was $13.5 million.

    The Company also has a business unit dedicated to the wholesale program. The
Company purchases equipment loans from originators that generally do not have
access to cost effective permanent funding for their loans. The Company
initiated the wholesale program in June 1994 and during the years ended June 30,
1997 and 1996, the Company purchased an aggregate of $85.0 and $95.3 million of
equipment loans from 12 originators, respectively. The Company expects to
continue this business at approximately current levels.

    In the medical receivables finance business, the lines of credit originated
by the Company are secured by pledges of (i) specific receivables due the
provider, (ii) the overall receivables portfolio of the healthcare provider, and
(iii) other forms of credit enhancement such as cash collateral, letters of
credit and guarantees. The Company's medical receivables loan marketing
specialists assist the Company's equipment loan sales force in originating
medical receivables loans. While the growth and cross selling of the medical
receivables financing business to the Company's existing client base has been


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restricted because of the lack of access to permanent funding, the Company has
established two credit facilities totaling $65.0 million for medical
receivables. The medical receivables loan business entails significant risks and
capital requirements.

    The Company's sales and marketing organization consists of 26 healthcare
finance specialists located in various parts of the United States. These
individuals generally have a credit industry and/or medical equipment
background. The Company generally locates sales personnel in geographic areas
where they have knowledge of the local market. The Company believes that sales
personnel who understand local economic and political trends are a valuable
component of its credit underwriting process.

CAPITAL RESOURCES AND TRANSACTION FUNDING

    The Company obtains initial funding for most of its equipment loans through
"warehouse" facilities provided by banks and other financial institutions. Loans
made under these facilities are repaid when the Company permanently funds its
equipment loans through securitization, or other limited-recourse permanent
funding programs, including loan sales. Typically, equipment loans are held for
30 to 180 days before they are permanently funded.

    The Company's need for capital in addition to the funding provided under its
warehouse and permanent funding facilities is affected by two primary factors:
(i) the level of credit enhancement required under its various warehouse and
permanent funding facilities and (ii) the amount of loans held at any time by
the Company that do not qualify as eligible collateral under those facilities.
Because of the manner in which the Company accounts for its business operations
it may require substantial amounts of capital even in periods when it reports
positive earnings. This arises principally because there are timing differences
between the Company's recognition for accounting purposes of various items of
expense and income and its actual receipt of cash that cause the Company's cash
flow at times of strong growth in loan origination to be lower than its reported
earnings. The two most significant of these differences are (x) the deferral of
the Company's costs to originate each loan which are amortized for accounting
purposes over the life of the loan, even though the costs are paid in cash at
the time of the loan origination, and (y) the recognition of gain on the sale of
a loan for accounting purposes at the time the sale is deemed to have occurred,
even though in many transactions treated as sales of loans for accounting
purposes, the cash is received over the same time period as the original
amortization schedule of the loan. While these factors tend to reduce the
Company's liquidity at times of strong growth in loan origination, conversely,
if the Company's loan growth were to decline, these same factors would have the
effect of improving the Company's cash flow from operations in the short term.

    Continuing Need for Capital. Each of the Company's warehouse facilities and
permanent funding vehicles require the Company to provide equity or a form of
recourse credit enhancement to the respective lenders or investors and generally
do not permit the Company to fund general corporate requirements. Therefore, the
actual liquidity, or funds available to the Company to finance its growth, are
limited to the cash generated from net financed receivables and the available
proceeds of equity or debt securities issued by DVI, Inc. At times of strong
origination growth the Company's cash flows from operations are insufficient to
fund these requirements. As a result, the Company's need to fund its high growth
rates in loan origination necessitates substantial external funding to provide
the equity or capital required as recourse credit enhancement with which to
leverage borrowings. The Company has no binding commitments for the capital it
expects it will continue to require, and its ability to obtain that capital in
the future will be dependent on a number of factors including the condition of
the capital markets and economic conditions generally.

    Warehouse Facilities. As of June 30, 1997, the Company had an aggregate
maximum of $398.0 million potentially available for equipment loan financing
under various warehouse facilities of which it had borrowed an aggregate of
$44.6 million. These facilities are provided by a syndicate of banks that
participate in a revolving credit arrangement and by investment banking firms
that the Company uses for securitizations. The loans made under the bank
warehouse facility (i) bear interest at floating rates; (ii) are full recourse
obligations of the Company; and (iii) typically advance an amount equal to
approximately 95.0% of the cost of the equipment subject to the loans being made
thereunder. Loans made under the bank warehouse facility typically are repaid
with the proceeds of advances made under securitization warehouse facilities.
Those advances in turn are typically repaid with proceeds from permanent
fundings. Loans funded under securitization warehouse facilities cease to be
eligible collateral if they are not funded within a specified period of time.
The amount advanced under the securitization warehouse facilities generally is
90.0% of the discounted value of the pledged receivables. If the Company were
unable to arrange continued access to acceptable warehouse financing, the
Company would have to curtail its loan origination, which in turn would have a
material adverse effect on the Company's financial condition and operations.

    Permanent Funding Program. Since 1991, the most important source of
permanent funding for the Company for equipment loan financing has been
securitization and other forms of structured finance. Securitization is a
process in which a pool of equipment loans (in the Company's case, typically 100
to 150) is transferred to a special-purpose financing vehicle


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which issues notes to investors. Principal and interest on the notes issued to
investors by the securitization subsidiary are paid from the cash flows produced
by the loan pool, and the notes are secured by a pledge of the assets in the
loan pool as well as by other collateral. In the securitizations sponsored by
the Company, equipment loans funded through the securitizations must be credit
enhanced to receive an investment grade credit rating. Credit enhancement can be
provided in a number of ways, including cash collateral, letters of credit, a
subordinated tranche of each individual transaction or an insurance policy.
Typically, securitizations sponsored by the Company are enhanced through a
combination of some or all of these methods. In the securitizations sponsored to
date by the Company, the Company effectively has been required to furnish credit
enhancement equal to the difference between (i) the aggregate principal amount
of the equipment loans originated by the Company and transferred to the
Company's special purpose finance subsidiary and the related costs of
consummating the securitization and (ii) the net proceeds received by the
Company in such securitizations. The requirement to provide this credit
enhancement reduces the Company's liquidity and requires it periodically to
obtain additional capital. There can be no assurance that the Company will be
able to obtain additional capital.

    For accounting purposes, the Company's securitizations are treated as either
financings (on balance sheet transactions) or sales (off balance sheet
transactions). An on-balance sheet transaction is one in which the loans being
securitized remain on the Company's balance sheet as an asset for their
originally contracted term as a result of the consolidation of the assets and
liabilities of the special purpose vehicle with the Company's for financial
accounting purposes. An off balance sheet transaction removes the loans from the
Company's balance sheet and results in the Company recognizing a gain on the
sale of the underlying loans upon completion of the securitization.

    The Company continually seeks to improve the efficiency of its permanent
funding techniques by reducing up-front costs and minimizing the cash
requirements of the Company. The Company may consider alternative structures,
including senior/subordinated tranches, and alternative forms of credit
enhancement, such as letters of credit and surety bonds. The transaction
expenses of each securitization and other forms of structured financing will
depend on market conditions, costs of securitization and the availability of
credit enhancement options to the Company. The Company expects to continue to
use securitization and other forms of structured financing, on both a public and
private basis, as its principal source of permanent funding for the foreseeable
future.

    To be cost efficient, a securitization must cover a relatively large and
diverse portfolio of equipment loans. One of the basic requirements of the
credit rating agencies that rate the notes issued in securitizations relates to
borrower concentration and requires that no single credit (borrower) may
constitute a significant portion of the pool of equipment loans being
securitized (in the Company's case, the limit is generally about 3%). Because of
these concentration requirements the Company generally must accumulate in excess
of $60 million in loans for each securitization. The credit rating agencies also
have other concentration guidelines such as equipment type and the geographic
location of the obligors. These requirements mean that not all of the equipment
loans held in the Company's warehouse facilities at any point in time can be
placed in one securitization.

    If for any reason the Company were to become unable to access the
securitization market to permanently fund its equipment loans, the consequences
for the Company would be materially adverse. The Company's ability to complete
securitizations and other structured finance transactions depends upon a number
of factors, including general conditions in the credit markets, the size and
liquidity of the market for the types of receivable-backed securities issued or
placed in securitizations sponsored by the Company and the overall financial
performance of the Company's loan portfolio. The Company does not have binding
commitments from financial institutions or investment banks to provide permanent
funding for its equipment or medical receivables loans.

   Senior Notes. On January 30, 1997, the Company completed a public offering of
$100.0 million principal amount of 9 7/8% Senior Notes due 2004 ("Senior
Notes"). The agreement with respect to the Senior Notes contains, among other
things, limitations on the Company's ability to pay dividends and to make
certain other kinds of payments. That agreement also prohibits the Company from
incurring additional indebtedness unless certain financial ratio tests are met.
Interest is payable semi-annually on February 1 and August 1 of each year,
commencing on August 1, 1997. The Notes will be redeemable at the option of the
Company in whole or in part at any time on or after February 1, 2002 at
specified redemption prices. The proceeds from the sale are being used (i) to
fund the Company's growth, including increasing the amount of equipment and
medical receivables loans the Company can fund, (ii) to develop the Company's
new international operations, including the purchase of receivables originated
outside the United States and investment in joint ventures, (iii) for other
working capital needs and (iv) for general corporate purposes.




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    Hedging Strategy. The Company's equipment loans are virtually all structured
on a fixed interest rate basis. When the Company originates equipment loans, it
bases its pricing in part on the "spread" it expects to achieve between the
interest rate it charges its equipment loan customers and the effective interest
cost it will pay when it permanently funds those loans. Increases in interest
rates between the time the loans are originated and the time they are
permanently funded could narrow, eliminate or even reverse the spread between
the interest rate the Company realizes on its equipment loans and the interest
rate that the Company pays under its warehouse facilities or under a permanent
funding program. In an attempt to protect itself against that risk, the Company
uses a hedging strategy. The Company uses derivative financial instruments, such
as forward rate agreements, Treasury locks, and interest rate swaps, caps and
collars, to manage its interest rate risk. The derivatives are used to manage
three components of this interest rate risk: interest sensitivity adjustments,
pricing of anticipated loan securitizations and sales, and interest rate spread
protection. The Company seeks to manage the credit risk of possible counterparty
default in these derivative transactions by dealing exclusively with
counterparties with investment grade ratings.

    Forward rate agreements are for interest sensitivity adjustments in
conjunction with cash market activities and are used to extend the repricing
period of short-term floating rate warehouse facilities. Treasury locks and
collars are used to hedge the interest rate risk on anticipated loan
securitizations and sales. Treasury lock and collar transactions lock in
specific rates and a narrow range of rates, respectively, of Treasury notes
having maturities comparable to the average life of the anticipated
securitizations and sales. Interest rate swaps and caps are used for interest
rate spread protection to protect from rising interest rates in certain loan
sale facilities where the cash flows from the loans sold are fixed rate but the
borrowing costs are variable rate.

    There can be no assurance that the Company's hedging strategy or techniques
will be effective, that the profitability of the Company will not be adversely
affected during any period of changes in interest rates, or that the costs of
hedging will not exceed the benefits. A substantial and sustained increase in
interest rates could adversely affect the Company's ability to originate loans.
In certain circumstances, the Company for a variety of reasons may retain for an
indefinite period certain of the equipment loans it originates. In such cases,
the Company's interest rate exposure may continue for a longer period of time
than the Company otherwise considers desirable.

    Medical Receivable Financing. The Company funds its medical receivable
financing business through various sources. The Company's principal bank
revolving credit agreement permits up to $18 million to be used to warehouse
medical receivables loans. Warehouse facilities totaling $65 million are
available through a bank and an investment bank.

    While the medical receivable financing business shares certain
characteristics, including an overlapping customer base, with the Company's
medical equipment financing business, there are many differences, including
unique risks. Healthcare providers could overstate the quality and
characteristics of their medical receivables, which the Company analyzes in
determining the amount of the line of credit to be secured by such receivables.
After the Company has established or funded a line of credit, the healthcare
providers could change their billing and collection systems, accounting systems
or patient records in a way that could adversely affect the Company's ability to
monitor the quality and/or performance of the related medical receivables. In
addition, there are substantial technical legal issues associated with creating
and maintaining perfected security interests in medical receivables. Payors may
attempt to offset their payments to the Company against debts owed to the payors
by the healthcare providers. The Company may have a conflict of interest when
the Company acts as servicer for an equipment-based securitization and
originates medical receivables loans to borrowers whose previous equipment loans
have been securitized. The Company's efforts to develop suitable sources of
funding for its medical receivables financing business through securitization or
other structured finance transactions may be constrained or hindered due to the
fact that the use of structured finance transactions to fund medical receivables
is a relatively new process.

    Credit Risk. Loans to outpatient healthcare providers, which constitute a
substantial portion of the Company's customers, often require a high degree of
credit analysis. Although the Company seeks to mitigate its risk of default and
credit losses through its underwriting practices and loan servicing procedures
and through the use of various forms of non-recourse or limited recourse
financing (in which the financing sources that permanently fund the Company's
equipment and other loans assume some or all of the risk of default by the
Company's customers), the Company remains exposed to potential losses resulting
from a default by an obligor. Obligors' defaults could cause the Company to make
payments to the extent the Company is obligated to do so and in the case of its
permanent equipment and other funding arrangements to the extent of the
Company's remaining credit enhancement position; could result in the loss of the
cash or other collateral pledged as credit enhancement under its permanent
equipment and other funding arrangements; or could require the Company to
forfeit any residual interest it may have retained in the underlying equipment.
During the period after the Company initially funds a loan and prior to the time
it funds the loan on a permanent basis, the Company is exposed to full


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recourse liability in the event of default by the obligor. In addition, under
the terms of securitizations and other types of structured finance transactions,
the Company generally is required to replace or repurchase equipment and other
loans in the event they fail to conform to the representations and warranties
made by the Company, even in transactions otherwise designated as nonrecourse or
limited recourse.

    Defaults by the Company's customers also could adversely affect the
Company's ability to obtain additional financing in the future, including its
ability to use securitization or other forms of structured finance. The sources
of such permanent funding take into account the credit performance of the
equipment and other loans previously financed by the Company in deciding whether
and on what terms to make new loans. In addition, the credit rating agencies and
insurers that are often involved in securitizations consider prior credit
performance in determining the rating to be given to the securities issued in
securitizations sponsored by the Company and whether and on what terms to insure
such securities. To date, all of the Company's medical receivable loans (as
opposed to its equipment loans) have been funded on a full recourse basis
whereby the Company is fully liable for any losses that are incurred.

    Under the Company's wholesale program, the Company purchases equipment loans
from originators that generally do not have direct access to the securitization
market as a source of permanent funding for their loans. The Company does not
work directly with the borrowers at the origination of these equipment loans and
therefore is not directly involved in structuring the credits, however the
Company independently verifies credit information supplied by the originator.
Accordingly, the Company faces a somewhat higher degree of risk when it acquires
loans under the wholesale program. During the years ended June 30, 1997 and 
1996, loans purchased under the wholesale program constituted 21.2% and 30.1%,
respectively, of the total loans originated during the period. There can be no
assurance that the Company will be able to grow this business successfully or
avoid the credit risks related to wholesale loan origination.

COMPETITION

    The financing of sophisticated medical equipment is highly competitive. The
Company competes with equipment manufacturers that sell and finance their own
products, leasing subsidiaries of national and regional commercial banks and
other leasing and financing companies. Many of the Company's competitors have
significantly greater financial and marketing resources than the Company. In
addition, the levels of competition in the lower-cost diagnostic and patient
treatment device market and medical receivable financing market are greater than
the levels of competition historically experienced by the Company in the higher
cost medical equipment market. There can be no assurance that the Company will
be able to compete successfully in any or all of its targeted markets.

GOVERNMENT REGULATION

    Although most states do not regulate the equipment financing business,
certain states do require licensing of lenders and financiers, limitations on
interest rates and other charges, adequate disclosure of certain contract terms
and limitations on certain collection practices and creditor remedies. In
addition, the operation of certain types of diagnostic imaging and patient
treatment equipment is regulated by federal, state and/or local authorities. For
example, a shared service provider or healthcare provider using equipment
financed by the Company may be required to obtain and maintain approvals from
governmental authorities in order to service other healthcare providers with
whom it has entered into service agreements. Failure by the Company's customers
to comply with these requirements could adversely affect their ability to meet
their obligations to the Company. The ability of the Company's equipment
financing customers to satisfy their obligations to the Company also could be
adversely affected by changes in regulations which limit or prohibit the
referral of patients by physicians who have invested in healthcare facilities
financed by the Company.

EMPLOYEES

      As of July 3, 1997, the Company had 137 full-time employees consisting of
8 executive officers, 26 sales and sales management personnel, and 107
administrative, accounting and technical personnel. None of the Company's
employees are covered by a collective bargaining agreement, and management
believes that its relationship with its employees is good.




                                       8
<PAGE>   9
ITEM 2.     PROPERTIES

      The Company owns no real property and leases all of its offices. The
Company's principal executive offices are located in Doylestown, Pennsylvania.
In total, the Company leases an aggregate of approximately 40,000 square feet of
office space in various states. The Company believes that the present facilities
are adequate to meet its foreseeable needs.

ITEM 3.     LEGAL PROCEEDINGS

      The Company is not a party to any pending litigation or legal proceedings,
or to the best of its knowledge any threatened litigation or legal proceedings,
which, in the opinion of management, individually or in the aggregate, would
have a material adverse effect on its results of operations or financial
condition.

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

There were no matters submitted to a vote of security holders during the three
months ended June 30, 1997.

EXECUTIVE OFFICERS OF THE REGISTRANT

As of June 30, 1997, the executive officers of DVI, Inc. were:

<TABLE>
<CAPTION>
      NAME                    AGE   POSITION
      ----                    ---   --------
<S>                           <C>   <C>
      Michael A. O'Hanlon     50    Director, President and Chief Executive Officer
      Steven R. Garfinkel     54    Executive Vice President and Chief Financial Officer
      Richard E. Miller       45    Executive Vice President
      Anthony J. Turek        54    Executive Vice President and Chief Credit Officer
      John P. Boyle           48    Vice President and Chief Accounting Officer
      Melvin C. Breaux        56    Vice President, Secretary and General Counsel
      Cynthia J. Cohn         38    Vice President
      Alan J. Velotta         50    Vice President
</TABLE>

      MICHAEL A. O'HANLON is the Company's president and chief executive officer
      and has served as such since November 1995. Mr. O'Hanlon was president and
      chief operating officer from September 1994 to November 1995. Previously,
      Mr. O'Hanlon served as executive vice president of DVI since joining the
      Company in March 1993. Mr. O'Hanlon also serves on the executive committee
      of DVI. Prior to joining the Company, Mr. O'Hanlon served as president and
      chief executive officer of Concord Leasing, Inc. ("Concord Leasing") for
      nine years. Concord Leasing provides medical, aircraft, shipping, and
      industrial equipment financing. U.S. Concord, Inc., a subsidiary, provides
      equipment financing for the medical imaging industry. Previously, Mr.
      O'Hanlon was a senior executive with Pitney Bowes Credit Corporation. Mr.
      O'Hanlon received his Master of Science degree from the University of
      Connecticut, and his Bachelor of Business Administration from the
      Philadelphia College of Textiles and Science. Mr. O'Hanlon became a
      director of DVI in November 1993.

      STEVEN R. GARFINKEL is an executive vice president of the Company and its
      chief financial officer. Mr. Garfinkel also serves on the executive
      committee of DVI. Mr. Garfinkel joined the Company in September 1995. His
      responsibilities include corporate finance, loan funding, balance sheet
      management, accounting and financial reporting, internal control and
      financial planning. Mr. Garfinkel has extensive experience in developing
      and managing corporate finance relationships, money market funding,
      derivative hedging, financial planning and management information systems.
      Before joining DVI, Mr. Garfinkel spent his twenty-nine year career with
      two large bank holding companies: CoreStates Financial Corp. and First
      Pennsylvania Corporation. For twenty years he was either controller or
      treasurer of those organizations. Mr. Garfinkel received his Master of
      Business Administration degree from Drexel University, and his Bachelor of
      Arts degree from Temple University.

      RICHARD E. MILLER is an executive vice president of the Company. Mr.
      Miller joined the Company in April 1994. Mr. Miller is president of DVI
      Financial Services Inc. and also serves on the executive committee of DVI.
      His primary responsibility is to manage the Company's equipment financing
      business in the United States. Before joining the Company, he served for
      six years as vice president sales for Toshiba America Medical Systems, a
      major


                                       9
<PAGE>   10
      distributor of medical imaging equipment. Previously, Mr. Miller was
      national sales manager for Thomsen CGR, a French manufacturer of medical
      imaging equipment, which was acquired by General Electric Medical Systems.
      He also previously served in sales management with General Electric
      Medical Systems. Mr. Miller has a Bachelor of Arts degree from Eastern
      College.

      ANTHONY J. TUREK is an executive vice president and the chief credit
      officer of DVI. Mr. Turek has served in that capacity since March 1988.
      Mr. Turek also serves on the executive committee of DVI. Prior to joining
      the Company, Mr. Turek was vice president, Commercial Banking at
      Continental Illinois National Bank ("CINB") in Chicago from 1968 to 1988.
      For the five years prior to joining DVI, Mr. Turek managed the equipment
      leasing and transportation divisions of CINB. Prior responsibilities
      included management positions in the special industries, metropolitan and
      national divisions of CINB. Before his employment with CINB, Mr. Turek was
      a trust officer with Bank of America. Mr. Turek received his Bachelor of
      Science degree from Iowa State University and his Master of Science degree
      from the University of Missouri.

      JOHN P. BOYLE is a vice president and chief accounting officer of the
      Company. Mr. Boyle joined the Company in January 1995. His primary
      responsibility is managing the Company's accounting, tax and financial
      reporting functions. Before joining the Company, Mr. Boyle spent seventeen
      years of his professional career in senior finance and accounting
      positions with financial services organizations. He spent the initial five
      years of his career with Peat Marwick Mitchell & Co. in Philadelphia. Mr.
      Boyle is a General Securities Principal and a CPA with almost twenty years
      of experience in the financial services industry. Beyond his accounting
      background, he has extensive experience in credit and corporate finance
      matters. Mr. Boyle holds a Bachelor of Arts degree from Temple University.

      MELVIN C. BREAUX is general counsel, secretary and a vice president of the
      Company and is general counsel and a vice president of DVI Financial
      Services. Prior to joining the Company in July 1995, Mr. Breaux was a
      partner in the Philadelphia, PA law firm of Drinker Biddle & Reath. As a
      member of that firm's banking and finance department, he specialized in
      secured and unsecured commercial lending transactions, a wide variety of
      other financing transactions, and the general practice of business law.
      Mr. Breaux received a Bachelor of Arts degree from Temple University and a
      Juris Doctor degree from the University of Pennsylvania School of Law.

      CYNTHIA J. COHN has been a vice president of DVI since October 1988 and
      executive vice president of DVI Business Credit since January 1994. She is
      responsible for all sales and marketing functions of DVI Business Credit.
      Ms. Cohn has been employed by the Company in a sales and management
      capacity since July 1986. Ms. Cohn also handles certain shareholder
      relation functions for the Company. She served as an assistant vice
      president from July 1987 to October 1988. Prior to joining the Company,
      Ms. Cohn served as research coordinator for Cantor, Fitzgerald Co., Inc.,
      a stock brokerage firm, from February 1983 to July 1986, where she was
      responsible for development and coordination of that firm's research
      product for both institutional and retail clientele. She holds a Bachelor
      of Arts degree from Ithaca College. Ms. Cohn is the daughter of Gerald L.
      Cohn, a director of the Company.

      ALAN J. VELOTTA is a vice president of the Company. He was appointed
      President of DVI Business Credit in April 1997. Mr. Velotta joined the
      Company in April 1994 as a group managing director of DVI Capital, the
      Company's wholesale group. His primary responsibility is to apply to
      Business Credit the same finance, leadership and technical skills he used
      to develop DVI Capital. Prior to joining DVI, he served as vice
      president-operations for Picker Financial Group, the captive leasing
      company of Picker International. Previously, Mr. Velotta was vice
      president/central division manager for Chrysler Capital Corporation.

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

      For the purposes of calculating the aggregate market value of the shares
      of Common Stock of the Registrant held by nonaffiliates, as shown on the
      cover page of this report, it has been assumed that all the outstanding
      shares were held by nonaffiliates except for the shares owned by directors
      and executive officers of the Company, by CIBC Trust Company (Bahamas) and
      by Ronald Baron. However, this should not be deemed to constitute an
      admission that all such persons or entities are, in fact, affiliates of
      the Registrant, or that there are not other persons who may be deemed to
      be affiliates of the Registrant. Further information concerning
      shareholdings of officers, directors and principal shareholders is
      included in the Company's definitive proxy statement relating to its
      scheduled December 1997 Annual Meeting of Shareholders to be filed with
      the Securities and Exchange Commission.



                                       10
<PAGE>   11
                                     PART II

ITEM 5.     MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
            STOCKHOLDER MATTERS

Price Range of  Common Stock

The following table sets forth high and low last reported sales prices per share
of Common Stock on the New York Stock Exchange, Inc. for the periods indicated:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, 1997                     HIGH                   LOW
-------------------------------                     ----                   ---
<S>                                                <C>                   <C>
First Quarter ......................               $17 3/8               $12 1/4
Second Quarter .....................                14 7/8                12 1/2
Third Quarter ......................                13 3/8                11
Fourth Quarter .....................                14 5/8                11 1/4
</TABLE>



<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, 1996                     HIGH                   LOW
-------------------------------                     ----                   ---
<S>                                                <C>                   <C>
First Quarter ..................................   $13 3/4               $11 1/8
Second Quarter..................................    14 1/2                12 5/8
Third Quarter ..................................    14 3/8                12 1/4
Fourth Quarter .................................    15 7/8                13
</TABLE>


DIVIDEND POLICY

The Company has not declared or paid any cash dividends since its inception, and
the Company anticipates that any future earnings will be retained for investment
in corporate operations. Any declaration of dividends in the future will be
determined in light of the conditions affecting the Company at that time,
including, among other things, its earnings, financial condition, capital
requirements, level of debt and the terms of any contractual limitations on
dividends. The Company's principal warehouse facility prohibits DVI Financial
Services, the Company's principal operating subsidiary, from paying cash
dividends. In addition, the agreement with respect to the Company's Senior Notes
and 9-1/8% Convertible Subordinated Notes due 2002 (the "Convertible
Subordinated Notes") places limitations on the payment of dividends by the
Company and its subsidiaries.

As of August 29, 1997, there were approximately 5,035 beneficial holders of the
Company's Common Stock.




                                       11
<PAGE>   12
ITEM 6.     SUMMARY CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
            (IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
                                                                                  YEARS ENDED JUNE 30,
                                                                   ---------------------------------------------------

                                                                     1997       1996       1995       1994       1993
                                                                   -------    -------    -------    -------    -------
STATEMENT OF OPERATIONS DATA:
<S>                                                                <C>        <C>        <C>        <C>        <C>
Finance and other income ......................................    $55,971    $49,013    $35,985    $20,609    $14,095
Interest expense ..............................................     38,395     30,489     22,860      8,833      5,005
Net interest and other income .................................     17,576     18,524     13,125     11,776      9,090
Selling, general and administrative expenses ..................     13,382      9,898      7,891      6,049      5,487
Provision for losses on receivables ...........................      2,386      2,325      1,261      1,716        248
Earnings from continuing operations before provision for
 income taxes, equity in net earnings (losses) of investees
 and discontinued operations ..................................     15,847     14,333      7,015      4,313      4,459
Net earnings from continuing operations .......................      8,941      8,175      4,069      2,260      2,580
Net primary earnings per share from continuing operations .....    $  0.81    $  0.81    $  0.61    $  0.34    $  0.39
Weighted average number of shares outstanding .................     11,098     10,118      6,652      6,717      6,601
</TABLE>




<TABLE>
<CAPTION>
                                                                       JUNE 30,
                                               --------------------------------------------------------

                                                 1997        1996        1995        1994        1993
                                               --------    --------    --------    --------    --------
BALANCE SHEET DATA:
<S>                                            <C>         <C>         <C>         <C>         <C>
Cash and cash equivalents .................    $  8,935    $  2,376    $  1,963    $  1,714    $  2,199
Cash and cash equivalents, restricted .....      26,425      32,522      12,241      13,065       6,825
Total assets ..............................     634,119     560,894     432,876     265,949     147,161
Borrowings under warehouse facilities .....      44,586     168,108     155,172      34,586      45,221
Long-term debt, net .......................     435,238     267,568     219,130     162,964      51,827
Shareholders' equity ......................      95,755      85,263      40,250      33,993      34,664
</TABLE>


The Company has not declared or paid any cash dividends since its inception.
(See Dividend Policy.) See Item 7 for management's discussion of discontinued
operations.




                                       12
<PAGE>   13
ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
            CONDITION AND RESULTS OF OPERATIONS

GENERAL

The Company is an independent specialty finance company that conducts a medical
equipment finance business and a related medical receivables finance business.
The Company finances diagnostic imaging and other types of sophisticated medical
equipment used by outpatient healthcare providers, medical imaging centers,
groups of physicians, integrated healthcare delivery networks and hospitals. The
Company also provides lines of credit to a wide variety of healthcare providers,
substantially all of which are collateralized by third party medical receivables
due from Medicare, Medicaid, HMO's, PPO's and commercial insurance companies.

CERTAIN ACCOUNTING CONSIDERATIONS

    Equipment financing. For accounting purposes, the Company classifies
equipment contracts it originates as notes secured by equipment, direct
financing leases or operating leases. Notes secured by equipment and direct
financing leases are generally those transactions in which the obligor has
substantially all of the benefits and risks of ownership of the equipment.
Operating leases are generally those which only provide for the rental of the
asset. The different classifications can result in accounting treatments that
provide substantially different income and costs during the transaction term.
Direct financing leases and notes secured by equipment are reflected on the
Company's balance sheet as "investment in direct financing leases and notes
secured by equipment or medical receivables." For statements of operations
purposes, those transactions result in amortization of finance income over the
transaction term in the amounts computed using the interest method.

The Company enters into two types of direct financing lease transactions, which
are referred to as "conditional sales agreements" and "fair market value
transactions." Conditional sales agreements and notes secured by equipment
represent those transactions in which no residual interest in the underlying
equipment is retained by the Company. Fair market value transactions are those
transactions in which the Company retains a residual interest in the equipment.
This residual interest is recorded on the Company's books as an estimate of the
projected value of the financed equipment at the end of the transaction term. At
the inception of notes secured by equipment and direct financing lease
transactions, "unearned income" represents the amount by which the gross
transaction receivables and the estimated residual value (on fair market value
transactions) exceed equipment cost.

Beginning in 1993, the Company significantly reduced its emphasis on entering
into fair market value transactions and adopted a strategy to reduce the
percentage of residual interests on its balance sheet, and accordingly, the
percentage of the Company's equipment financing transactions structured as loans
and conditional sales agreements has increased significantly. During the
Company's fiscal year ended June 30, 1997 ("fiscal 1997") the amount of residual
interest has increased, but as a percentage of net financed assets it remained
consistent with the Company's fiscal year ended June 30, 1996 ("fiscal 1996")
percentage of 1.0%. As of June 30, 1997, residual valuation increased to $8.3
million from $6.2 million at June 30, 1993, and from 5.3% of net financed
receivables as of June 30, 1993 to 1.4% at June 30, 1997. The Company believes
that loans and conditional sales agreements will constitute a high percentage of
its equipment financing transactions in the future.

Leases and contracts for the rental of equipment which do not meet the criteria
of direct financing leases are accounted for as operating leases. Equipment
under an operating lease or a rental contract is recorded on the balance sheet
at the Company's cost under the caption of "equipment on operating leases" and
depreciated on a straight-line basis over the estimated useful life of the
equipment.

Notes secured by equipment and direct financing lease transactions are all "net"
transactions under which the obligor must make all scheduled payments, maintain
the equipment, insure the equipment against casualty loss and pay all
equipment-related taxes. In fair market value transactions, at the end of the
initial financing term, the obligor has the option either to purchase the
equipment for its fair market value, extend the financing term under
renegotiated payments or return the equipment to the Company. If the equipment
is returned to the Company, the Company must sell or lease the equipment to
another user.

In transactions classified as notes secured by equipment and direct financing
leases that the Company permanently funds through securitization or other
structured finance transactions which the Company treats as debt, income is


                                       13
<PAGE>   14
deferred and recognized using the interest method over the respective term of
the transactions. If an obligor under a transaction defaults, the Company may
not receive all or a portion of the unamortized income associated with the
transaction.

MEDICAL RECEIVABLES FINANCING

In addition to its core equipment finance business, the Company provides lines
of credit under which the Company makes full recourse loans to healthcare
providers that are secured by medical receivables and other collateral. The
interest and fee income generated from these loans are recognized over the terms
of the lines of credit, which are typically one to three years, and are recorded
as amortization of finance income.

DISCONTINUED OPERATIONS

In June 1993, the Company adopted a formal plan to discontinue its healthcare
services segment. At the end of fiscal 1993, the Company established a reserve
for the divestiture of the operations and recorded a loss on discontinued
operations and disposal of discontinued operations. As of June 30, 1994, the
Company had disposed of or entered into definitive agreements to sell the
outpatient facilities, had written off the investment and assets of the
remainder, and recorded an additional $3.1 million after-tax charge in excess of
the amounts of estimated losses reported as of June 30, 1993 for the disposition
of this segment of the Company's business.

RESULTS OF OPERATIONS

The Company has classified income under the categories of "amortization of
finance income," "other income" and "net gain on sale of financing
transactions." Amortization of finance income consists of the interest component
of scheduled payments on notes secured by equipment (or medical receivables) and
direct financing leases, and is calculated using the interest method whereby the
income is reported over the term of the transactions. Other income consists
primarily of fees and late charges, dividends on investment in investee's
preferred stock, servicing fees, income from asset disposals and income from
receivable purchases and billing/collecting activities which the Company has
curtailed. Net gain on sale of financing transactions consists of gains
recognized when the Company permanently funds transactions through whole loan
sales.

IMPACT OF FINANCING STRATEGIES ON RESULTS OF OPERATIONS

The Company's financing strategy is to obtain permanent funding for its
equipment and medical receivable loans through securitization and to sell the
remainder to reduce borrower concentration and to manage the Company's leverage.
When funding loans through securitization, the issuer generally can structure
the securitization so that the funding is treated for accounting purposes either
as long-term debt secured by equipment loans owned by the Company, or as a sale.
The accounting method to report finance income differs significantly depending
on which of the two structures the issuer uses. When the Company sponsors a
securitization it treats the proceeds as long-term debt on its financial
statements and reports the finance income over the term of the equipment loans
that are funded. When the Company sells loans, it recognizes the unamortized
finance income at the time the funding takes place; however, even in a funding
treated as a sale, the Company may recognize servicing and/or interest income on
its subordinated interest over the remaining term of the equipment loans sold.

Over the past few years the Company has focused its strategy on increasing its
market share. There can be no assurance that the Company's historical growth
rate or current profitability can be sustained in the future. Additionally, the
Company's expense levels are based in part on its expectations as to future
financing volumes, and the Company may be unable to adjust spending in a timely
manner to compensate for a decrease in demand for financing of medical equipment
and receivables. Accordingly, operating results may be adversely impacted by
future fluctuations in such demand. The Company believes that general economic
conditions have not had a material adverse effect on the Company's recent
operating results. There can be no assurances, however, that general economic
conditions will not have a material adverse effect on the Company in the future.




                                       14
<PAGE>   15
YEAR ENDED JUNE 30, 1997 COMPARED TO YEAR ENDED JUNE 30, 1996

Total equipment financing loans originated were $401.7 million in fiscal 1997
compared with $316.8 million in fiscal 1996, an increase of 26.8%. Net financed
assets totaled $580.6 million at June 30, 1997, an increase of $126.2 million or
27.8% over the prior year. Not included in net financed assets were the loans
sold but still serviced by the Company, which increased to $389.6 million as of
June 30, 1997 compared to $218.6 million as of June 30,1996, an increase of
78.2%. Managed net financed assets, the aggregate of those appearing on the
Company's balance sheet and those which have been sold and are still serviced by
the Company, totaled $925.8 million as of June 30, 1997, representing a 44.6%
increase over the total as of June 30, 1996.

In the Company's medical receivable financing business, new commitments of
credit in fiscal 1997 were $101.1 million compared with $40.0 million in fiscal
1996, an increase of 152.8%. Medical receivables funded at June 30, 1997 totaled
$87.4 million, an increase of $48.8 million or 126.4% over the prior year.

Total finance and other income increased 14.2% to $56.0 million for the year
ended June 30, 1997 from $49.0 million the prior year. A component of total
finance and other income, amortization of finance income, increased 11.3% to
$49.5 million for the year ended June 30, 1997 from $44.5 million for the year
ended June 30, 1996. The increase was primarily a result of the overall increase
in the size of the Company's loan portfolio. The remaining component of total
finance and other income, other income (which consists primarily of contracts,
servicing, origination fees and dividends on investment in investee's preferred
stock) increased 42.9% to $6.4 million in fiscal 1997 as compared to $4.5
million in fiscal 1996. The increase is due mainly to fees earned on larger
portfolios and servicing income.

For the year ended June 30, 1997, interest expense increased 25.9% to $38.4
million from $30.5 million in the prior year. The increase in interest expense
is primarily a result of the growth of the Company's loan portfolio and issuance
of senior notes. As a percentage of total finance and other income, interest
expense was 68.6% in the year ended June 30, 1997 compared to 62.2% in the same
period a year earlier.

The net gain on sale of financing transactions increased 74.8% to $14.0 million
for the year ended June 30, 1997 compared with a gain of $8.0 million for the
same period in the prior year. Loans sold during the year ended June 30, 1997
were $233.0 million compared to $175.1 million during the prior fiscal year.

Selling, general and administrative expenses (SG&A) increased 35.2% to $13.4
million for the year ended June 30, 1997 from $9.9 million for the year ended
June 30, 1996. The increase over the prior fiscal year is primarily related to
the development of its medical receivables, vendor finance and international
businesses and the 44.6% growth in managed net financed assets. To support this
growth, the Company increased its personnel to 137 employees from 129 one year
earlier.

The provision for losses on receivables was $2.4 million for the year ended June
30, 1997 as compared to $2.3 million for the previous year. On a quarterly
basis, the Company evaluates the collectibility of its receivables and records a
provision for amounts deemed uncollectible. In the opinion of management, the
provisions are adequate based on current trends in the Company's delinquencies
and losses. The Company's charge-offs for the quarters ended September 30, 1996,
December 31, 1996, March 31, 1997, and June 30, 1997 were $10,000, $5,000,
$255,000 and $166,000, respectively, which represents 0.23%, 0.10%, 5.24% and
2.78% respectively, of the quarter-end allowance for losses.

Earnings before provision for income taxes and equity in net losses of investees
increased 10.6% to $15.8 million for the year ended June 30, 1997 compared to
$14.3 million a year earlier. Net earnings were $8.9 million or $0.81 per share
for the year ended June 30, 1997 as compared to net earnings of $8.2 million or
$0.81 per share in the prior year.

The Company's cash and cash equivalents at June 30, 1997 and June 30, 1996 were
$8.9 million and $2.4 million, respectively. The following describes the changes
from June 30, 1996 to June 30, 1997 in the items which had the most significant
impact on the Company's cash flow during the year ended June 30, 1997.

The Company's net cash provided by operating activities was $70.1 million for
the year ended June 30, 1997 compared to $71.2 million net cash used in
operations for the year ended June 30, 1996. The increase in cash


                                       15
<PAGE>   16
provided during the year ended June 30, 1997 is mainly attributed to the amount
due from the portfolio sale at June 30, 1996 being received.

The Company's net cash used in investing activities increased to $105.9 million
for the year ended June 30, 1997, as compared to $25.4 million for the year
ended June 30, 1996. This increase is primarily attributed to cash used to
acquire equipment and to finance notes secured by medical receivables of $477.8
million during the year ended June 30, 1997 compared to $304.3 million for the
year ended June 30, 1996. These uses of cash were offset by $373.0 million and
$280.5 million of portfolio receipts net of amounts included in income and
proceeds from the sale of financing transactions for the same periods.

The Company's net cash provided by financing activities was $42.3 million for
the year ended June 30, 1997 down from $97.1 million for the year ended June 30,
1996. This results from a net increase in the Company's borrowings over
repayments of $41.2 million for the year ended June 30, 1997, as compared to a
$59.2 million net increase in borrowings over repayments for the year ended June
30, 1996. In fiscal 1997 the Company completed a public offering of $100.0
million of Senior Notes. In addition, in 1996 $29.0 million was provided through
the equity offering.

YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30, 1995

Total equipment financing loans originated were $316.8 million in fiscal 1996
compared with $238.0 million in the Company's fiscal year ended June 30, 1995
("fiscal 1995"), excluding the Concord Leasing portfolio purchase ($76.1 million
purchased in fiscal 1995), an increase of 33.1%. Net financed assets for this
business totaled $454.4 million at June 30, 1996, an increase of $53.8 million
or 13.4% over the prior year. In the Company's medical receivable financing
business, new commitments of credit in fiscal 1996 were $40.0 million compared
with $23.9 million in fiscal 1995, an increase of 67.4%. Medical receivables
funded at June 30, 1996 totaled $38.6 million, an increase of $16.1 million or
71.6% over the prior year.

Amortization of finance income increased 31.2% to $44.5 million for the year
ended June 30, 1996 from $33.9 million for the year ended June 30, 1995. The
increase was primarily a result of the overall increase in the size of the
Company's net financed receivables.

Other income, which consists primarily of fees and late charges, dividends on
investment in investee's preferred stock, servicing fees, income from
receivables purchases and income from billing/collecting activities which the
Company has curtailed, increased 119.7% to $4.5 million in fiscal 1996 as
compared to $2.1 million in fiscal 1995. The increase is due to the growth in
the medical receivables business fees and the servicing of a larger loan
portfolio.

For the year ended June 30, 1996, interest expense increased 33.4% to $30.5
million from $22.9 million in the prior year. For the year ended June 30, 1996,
the Company's average indebtedness (calculated based on period beginning and
period ending balances) increased 41.6% to $405.0 million from $285.9 million in
the prior year. The increase in interest expense and average indebtedness is
primarily a result of the growth of the Company's loan portfolio. As a
percentage of total finance and other income, interest expense was 62.2% in the
year ended June 30, 1996 compared to 63.5% in the same period a year earlier.

The net gain on sale of financing transactions increased 164.0% to $8.0
million for the year ended June 30, 1996 compared with a gain of $3.0 million
for the same period in the prior year. Loans sold during the year ended June 30,
1996 were $175.1 million compared to $115.8 million during the prior fiscal
year. The increase reflects the Company's attempt to partially offset the near
term costs of its newer business units and international initiatives.

Net finance income was $26.6 million for the year ended June 30, 1996, as
compared to $16.2 million for the year ended June 30, 1995, an increase of
64.3%. The increase was primarily a result of the overall increase in the size
of the Company's loan portfolio. The Company's net interest margins on its
portfolio for the years ended June 30, 1996 and 1995 were 4.07% and 4.10%,
respectively, which reflects increased competition, more aggressive pricing for
market share growth and the sale of higher margin contracts.

Selling, general and administrative expenses (SG&A) increased 25.4% to $9.9
million for the year ended June 30, 1996 from $7.9 million for the year ended
June 30, 1995. Included in the fiscal year 1996 expense is $519,000 of


                                       16
<PAGE>   17
non-recurring expenses incurred in the third quarter ended March 31, 1996 for
the defense and settlement of lawsuits primarily relating to employee matters.
Excluding the impact of these legal costs, total selling, general and
administrative expenses increased 18.9% over the prior fiscal year, mainly as a
result of the 36.2% growth in loan originations and the 44.0% growth in average
net financed assets. The majority of the 18.9% increase is due to
employee-related costs resulting from the increase in employees during the year.

The provision for possible losses on receivables was $2.3 million for the year
ended June 30, 1996 as compared to $1.3 million for the previous year. On a
quarterly basis, the Company evaluates the collectibility of its receivables and
records a provision for amounts deemed uncollectible. In the opinion of
management, the provisions are adequate based on current trends in the Company's
delinquencies and losses. The Company's charge-offs for the quarters ended
September 30, 1995, December 31, 1995, March 31, 1996, and June 30, 1996 were
$38,000, $528,000, $270,000 and $745,000, respectively, which represents 1.01%,
13.54%, 6.59% and 18.50% respectively, of the quarter-end allowance for losses.

The Company's net earnings were $8.2 million or $0.81 per share for the year
ended June 30, 1996 as compared to net earnings of $4.1 million or $0.61 per
share in the prior year.

LIQUIDITY AND CAPITAL RESOURCES
GENERAL

The Company's equipment financing business requires substantial amounts of
capital and borrowings. The Company obtains warehouse funding from commercial
and investment banks. The Company's warehouse borrowings are full recourse
obligations, while the Company's permanent funding is obtained principally on a
limited recourse basis. In the case of limited recourse funding, the Company
retains some risk of loss because it shares in any losses incurred and/or it may
forfeit the residual interest (if any) the Company has in the underlying
financed assets should defaults occur.

A substantial portion of the Company's debt represents permanent funding of
equipment loans obtained on a limited recourse basis and is structured so that
the cash flow from the underlying loans services the debt. Most of the Company's
warehouse borrowings are used to temporarily fund the equipment loans and are
repaid with the proceeds obtained from the permanent funding and cash flow from
the underlying transactions.

As a result of the rapid growth of the Company's equipment financing business,
the amount of warehouse and permanent funding it requires has significantly
increased. To meet its requirements for increased warehouse funding, the Company
has expanded its warehouse facilities with banks and has obtained warehouse
facilities with investment banking firms the Company uses for its
securitizations. To meet its requirements for increased permanent funding, the
Company has enhanced its ability to fund equipment loans by both securitization
and whole loan sales. If suitable sources of both warehouse and permanent
funding are not available in the future, the Company's growth will be
constrained and it may be forced to use less attractive funding sources in order
to ensure its liquidity.

In addition to the interim and permanent funding referred to above, the
Company's continued growth in loan origination and net financed assets requires
substantial amounts of external funding, primarily to fund the reserve account
or overcollateralization requirements that are applied in connection with
securitization and sales of the Company's loans. These funds essentially provide
the credit enhancement for the Company's leveraged investments in its loan
portfolios, and typically are obtained through sales of debt or equity
securities by the Company.

As a result of these external funding requirements, in June 1994, the Company
completed a $15.0 million private placement of Convertible Subordinated Notes.
The agreement with respect to the Convertible Subordinated Notes contains, among
other things, limitations on the Company's ability to pay dividends and to make
certain other kinds of payments. That agreement also prohibits the Company from
incurring additional indebtedness unless certain financial ratio tests are met.
In August 1995, the Company completed a public offering of 2,875,000 shares of
its common stock for which it received net proceeds of $29.0 million. In January
1996, holders of 615,605 of the Company's warrants and units, issued in February
1991, redeemed their warrants and units for shares of the Company's Common Stock
at $12.00 or $12.60 per share by the final exercise date of January 26, 1996. As
a result of the redemption, the Company received cash proceeds of $7.4 million.


                                       17
<PAGE>   18
On January 30, 1997, the Company completed a public offering of $100.0 million
principal amount of 9 7/8% Senior Notes due 2004. The agreement with respect to
the Senior Notes contains, among other things, limitations on the Company's
ability to pay dividends and to make certain other kinds of payments. That
agreement also prohibits the Company from incurring additional indebtedness
unless certain financial ratio tests are met. Interest is payable semi-annually
on February 1 and August 1 of each year, commencing on August 1, 1997. The
Senior Notes will be redeemable at the option of the Company in whole or in part
at any time on or after February 1, 2002 at specified redemption prices. The
proceeds from the sale are being used (i) to fund the Company's growth,
including increasing the amount of equipment and medical receivables loans the
Company can fund, (ii) to develop the Company's new international operations,
including the purchase of receivables originated outside the United States and
investment in joint ventures, (iii) for other working capital needs and (iv) for
general corporate purposes.

Although the Company believes that cash available from operations, investing and
financing activities will be sufficient to fund the Company's current needs for
its equipment financing and its related medical receivable businesses, there can
be no assurance in this regard and the Company may encounter liquidity problems
which could effect its ability to meet such needs while attempting to withstand
competitive pressures or adverse economic conditions.

    Warehouse Facilities. At June 30, 1997, the Company had available an
aggregate of $398.0 million under various warehouse facilities for equipment
loan financing. The Company's primary credit facility, pursuant to a revolving
credit agreement with a syndicate of banks ("Agreement"), provides for the
borrowing of up to $128.0 million. Borrowings under this facility bear interest
at the Company's option of (1) from prime to prime plus 0.125% or (2) from 1.20%
up to 1.65% over the 30, 60 or 90-day LIBOR rate based on the Company's leverage
ratio as defined in the Agreement. Included in the Agreement is an $18.0 million
sub-limit for borrowings secured by medical receivables loans originated by the
Company. The Agreement is renewable annually at the bank syndicate's discretion.
The Agreement prohibits the Company from paying dividends other than dividends
payable solely in shares of the Company's stock and limits borrowings to
specified levels determined by ratios based on the Company's tangible net worth.
As of June 30, 1997, the Company was in compliance with the financial covenants
of the Agreement.

The Company has two $100.0 million interim equipment loan funding facilities
with investment banks. These facilities are available to fund certain equipment
loans which are to be securitized. Loans made under this facility bear interest
at a rate of 0.85% over the 30-day LIBOR rate. Borrowings under the facility are
secured by certain equipment loans and the equipment financed thereunder.

The Company has a $5.0 million facility with a bank for the funding of loans
ineligible for securitization.

The Company has two credit facilities for its medical receivables financing
business. The first facility is for $15.0 million with an interest rate of prime
plus 2.00% and matures in June 1998. The second facility is for $50.0 million
with an interest rate of 30-day LIBOR plus 1.90% and matures in September 1997.

The Company's use of securitization significantly affects its needs for
warehouse facilities. When using securitization, the Company is required to hold
loans in warehouse facilities until a sufficient quantity is accumulated to meet
the various requirements of the credit rating agencies and others involved, and
to make a securitization cost effective. Generally, loans totaling $50 to $200
million will be placed in each securitization pool.

    Permanent Funding Methods. The Company has completed sixteen securitizations
or other structured finance transactions for medical equipment financings
totaling $1.15 billion, including two public debt issues of $75.7 million and
$90.0 million and fourteen private placements of debt and whole loan sales
totaling $987.0 million. In January 1994, the Company filed a registration
statement (Registration No. 33-74446) with the Securities and Exchange
Commission (SEC) to provide for the future issuance of securitized debt in a
series of transactions pursuant to the SEC's "shelf" registration rule up to an
aggregate of $350.0 million. The registration statement was declared effective
by the SEC on June 23, 1994. The $75.7 million and $90.0 million public debt
issues were the two initial fundings under the $350.0 million shelf
registration. In January 1996, the Company completed a $25.0 million private
placement securitization of medical receivables loans with a domestic insurance
company to fund its medical receivables financing business. The Company expects
to continue to use securitization, on both a public and private basis, as its
principal means to permanently fund its loans for the foreseeable future. If for
any reason


                                       18
<PAGE>   19
the Company were to become unable to access the securitization market to
permanently fund its equipment loans, the consequences for the Company would be
materially adverse.

The Company's use of securitization significantly affects its liquidity and
capital requirements due to the amount of time required to assemble a portfolio
of loans to be securitized. When using securitization, the Company is required
to hold loans until a sufficient quantity is accumulated so as to attract
investor interest and allow for a cost effective placement. This increases the
Company's exposure to changes in interest rates and temporarily reduces its
warehouse facility liquidity.

Generally, the Company does not have binding commitments for permanent funding,
either through securitization or whole loan sales. The Company has non-binding
agreements with investment banking entities to fund future equipment loans
through securitization. While the Company expects to be able to continue to
obtain the permanent funding it requires for its equipment financing business,
there can be no assurance that it will be able to do so. If, for any reason, any
of these types of funding were unavailable in the amounts and on terms deemed
reasonable by the Company, the Company's equipment financing activities would be
adversely affected. The Company believes cash flows generated from operations
and its warehouse facilities are sufficient to meet its near-term obligations.

    Hedging Strategy. When the Company borrows funds through warehouse
facilities, it is exposed to a certain degree of risk caused by interest rate
fluctuations. Although the Company's equipment loans are structured and
permanently funded on a fixed interest rate basis, it uses warehouse facilities
until permanent funding is obtained. Because funds borrowed through warehouse
facilities are obtained on a floating interest rate basis, the Company uses
hedging techniques to protect its interest rate margins during the period that
warehouse facilities are used and securitization and sales are anticipated. The
Company uses derivative financial instruments, such as forward rate agreements,
Treasury locks, and interest rate swaps, caps and collars to manage its interest
rate risk. The derivatives are used to manage three components of this risk:
interest sensitivity adjustments, hedging anticipated loan securitizations and
sales, and interest rate spread protection. The Company's hedging techniques may
not necessarily protect it from interest rate risks in all interest rate
environments. See "Business - Capital Resources and Transaction Funding -
Hedging Strategy."

INCOME TAX ISSUES

Historically, the Company has deferred a portion of its federal and state income
tax liability because of its ability to obtain depreciation deductions from
transactions structured as fair market value leases. In addition, the Company
structured its sale of financing transactions in the quarter ended June 30, 1997
as a borrowing for tax purposes versus a sale for book (GAAP) purposes. Future
sales of financing transactions may also be structured in this manner. Lastly,
the Company disposed of a portion of its equipment residual portfolio in fiscal
1994 and may continue to do so in future periods.

INFLATION

The Company does not believe that inflation has had a material affect on its
operating results during the past three years. There can be no assurance that
the Company's business will not be affected by inflation in the future.

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

Any statements contained in this Form 10-K which are not historical facts are
forward-looking statements; and, therefore, many important factors could cause
actual results to differ materially from those in the forward-looking
statements. Such factors include, but are not limited to, changes (legislative
and otherwise) in the healthcare industry, those relating to demand for DVI's
services, pricing, market acceptance, the effect of economic conditions,
litigation, competitive products and services, the results of financing efforts,
the ability to complete transactions, and other risks identified in the
Company's Securities and Exchange Commission filings.

ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following consolidated financial statements of the Company and its
subsidiaries are filed on the pages listed below , as part of Part II, Item 8.



                                       19
<PAGE>   20
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS




<TABLE>
<CAPTION>
                                                                               Page
                                                                             Number
                                                                             ------
<S>                                                                          <C>
Independent Auditors' Report ..........................................          21

Consolidated Balance Sheets as of June 30, 1997 and 1996 ..............       22-23

Consolidated Statements of Operations for the years ended
   June 30, 1997, 1996 and 1995 .......................................          24

Consolidated Statements of Shareholders' Equity for the years ended
   June 30, 1997, 1996 and 1995 .......................................          25

Consolidated Statements of Cash Flows for the years ended
   June 30, 1997, 1996 and 1995 .......................................       26-27

Notes to Consolidated Financial Statements ............................       28-41
</TABLE>




                                       20
<PAGE>   21
INDEPENDENT AUDITORS' REPORT



Board of Directors and Shareholders
DVI, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of DVI, Inc. and
its subsidiaries (the "Company") as of June 30, 1997 and 1996, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended June 30, 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, such consolidated financial statements present fairly, in all
material respects, the financial position of DVI, Inc. and its subsidiaries as
of June 30, 1997 and 1996, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended June 30, 1997
in conformity with generally accepted accounting principles.


DELOITTE & TOUCHE LLP

Philadelphia, Pennsylvania
July 31, 1997




                                       21
<PAGE>   22
CONSOLIDATED BALANCE SHEETS



ASSETS

<TABLE>
<CAPTION>
                                                                                         June 30,
                                                                                 ------------------------
(in thousands of dollars except share data)                                         1997          1996
---------------------------------------------------------------------------------------------------------
<S>                                                                              <C>           <C>
Cash and cash equivalents ...................................................    $   8,935     $   2,376

Cash and cash equivalents, restricted .......................................       26,425        32,522

Amounts due from portfolio sale .............................................           --        54,797

Receivables:
  Investment in direct financing leases and notes secured by equipment or
   medical receivables:
   Receivables in installments ..............................................      496,861       424,858
   Receivables and notes - related parties ..................................        9,453        16,999
   Recourse credit enhancements .............................................       46,095        35,734
   Notes collateralized by medical receivables ..............................       85,649        34,338
   Residual valuation .......................................................        8,276         4,347
   Unearned income ..........................................................      (69,739)      (65,722)
                                                                                 ---------     ---------
   Net investment in direct financing leases and notes secured
     by equipment or medical receivables ....................................      576,595       450,554

   Less: Allowance for losses on receivables ................................       (5,976)       (4,026)
                                                                                 ---------     ---------

Net receivables .............................................................      570,619       446,528

Equipment on operating leases
  (net of accumulated depreciation of $2,301 (1997) and $2,152 (1996)) ......        4,041         3,845

Furniture and fixtures
  (net of accumulated depreciation of $1,702 (1997) and $1,052 (1996)) ......        2,389         2,046

Investments in investees ....................................................        6,609         7,019

Goodwill, net ...............................................................        3,953         4,259

Other assets ................................................................       11,148         7,502
                                                                                 ---------     ---------

Total assets ................................................................    $ 634,119     $ 560,894
                                                                                 =========     =========
</TABLE>


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




                                       22
<PAGE>   23
LIABILITIES AND SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                         June 30,
                                                                                  ----------------------
(in thousands of dollars except share data)                                            1997         1996
--------------------------------------------------------------------------------------------------------
<S>                                                                               <C>           <C>
Accounts payable .............................................................    $  30,722     $ 23,560

Accrued expenses and other liabilities .......................................       19,208       11,650

Borrowings under warehouse facilities ........................................       44,586      168,108

Deferred income taxes ........................................................        8,610        4,745

Long-term debt, net:
   Notes payable to financial institutions ...................................        6,168           --
   Discounted receivables (primarily limited recourse) .......................      317,863      253,759
   9 7/8% Senior notes due 2004 ..............................................       95,883           --
   Subordinated debt .........................................................        2,000           --
   Convertible subordinated notes ............................................       13,324       13,809
                                                                                  ---------     --------
Total long-term debt, net ....................................................      435,238      267,568
                                                                                  ---------     --------

Total liabilities ............................................................      538,364      475,631

Commitments and contingencies (Note 11)

Shareholders' equity:
   Preferred stock, $10.00 par value; authorized 100,000 shares; no shares
   issued Common stock, $.005 par value; authorized 25,000,000 shares;
      outstanding 10,506,848 shares (1997) and 10,409,370 shares (1996) ......           53           52
   Additional capital ........................................................       68,828       67,162
   Retained earnings .........................................................       26,990       18,049
   Cumulative translation adjustments ........................................         (116)          --
                                                                                  ---------     --------

Total shareholders' equity ...................................................       95,755       85,263
                                                                                  ---------     --------

Total liabilities and shareholders' equity ...................................    $ 634,119     $560,894
                                                                                  =========     ========
</TABLE>


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




                                       23
<PAGE>   24
CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                                Year Ended June 30,
                                                                     ----------------------------------------
(in thousands of dollars except per share data)                             1997           1996          1995
-------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>            <C>            <C>
Finance and other income:
   Amortization of finance income ...............................    $    49,535    $    44,509    $   33,935
   Other income .................................................          6,436          4,504         2,050
                                                                     -----------    -----------    ----------

Total finance and other income ..................................         55,971         49,013        35,985
Interest expense ................................................         38,395         30,489        22,860
                                                                     -----------    -----------    ----------

Net interest and other income ...................................         17,576         18,524        13,125
   Net gain on sale of financing transactions ...................         14,039          8,032         3,042
                                                                     -----------    -----------    ----------

Net finance income ..............................................         31,615         26,556        16,167

   Selling, general and administrative expenses .................         13,382          9,898         7,891
   Provision for losses on receivables ..........................          2,386          2,325         1,261
                                                                     -----------    -----------    ----------

Earnings before provision for income taxes and
   equity in net loss of investees ..............................         15,847         14,333         7,015
Provision for income taxes ......................................          6,625          6,092         2,946
                                                                     -----------    -----------    ----------

Earnings before equity in net loss of investees .................          9,222          8,241         4,069
Equity in net loss of investees .................................            281             66            --
                                                                     -----------    -----------    ----------

Net earnings ....................................................    $     8,941    $     8,175    $    4,069
                                                                     ===========    ===========    ==========

Net earnings per share:
   Primary ......................................................    $      0.81    $      0.81    $     0.61
                                                                     ===========    ===========    ==========

   Fully diluted ................................................    $      0.78    $      0.77    $     0.60
                                                                     ===========    ===========    ==========


Weighted average number of shares outstanding - primary .........     11,098,000     10,118,000     6,652,000

Weighted average number of shares outstanding - fully diluted ...     12,457,000     11,564,000     8,310,000
</TABLE>



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




                                       24
<PAGE>   25
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                     Unrealized
                                                    Common Stock                       Gain on
                                                  $.005 Par Value                     Available-                          Total
                                              ----------------------    Additional     for-Sale    Retained            Shareholders'
(in thousands of dollars)                       Shares        Amount     Capital     Investments   Earnings    CTA        Equity
------------------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>              <C>      <C>          <C>           <C>        <C>      <C>
Balances at July 1, 1994 ...................   6,567,295        $33      $28,155      $    --      $ 5,805    $  --      $33,993
   Issuance of common stock upon
     exercise of stock options .............      97,216          1          626                                             627
   Conversion of subordinated notes ........      47,169                     500                                             500
   Unrealized gain on available-for-sale
     investments, net of deferred
     taxes of $769 .........................                                            1,061                              1,061
   Net earnings ............................                                                         4,069                 4,069
                                              ----------        ---      -------      -------      -------    -----      -------
Balances at June 30, 1995 ..................   6,711,680         34       29,281        1,061        9,874       --       40,250
   Issuance of common stock upon
     exercise of stock options
     and warrants ..........................     822,690          4        8,934                                           8,938
   Net proceeds from issuance of
     common stock ..........................   2,875,000         14       28,947                                          28,961
   Sale of available-for-sale
     investments, net of deferred
     tax benefit of $769 ...................                                           (1,061)                            (1,061)
   Net earnings ............................                                                         8,175                 8,175
                                              ----------        ---      -------      -------      -------    -----      -------
Balances at June 30, 1996 ..................  10,409,370         52       67,162           --       18,049       --       85,263
   Issuance of common stock
     upon exercise of stock
     options and warrants ..................      40,875          1        1,066                                           1,067
   Conversion of subordinated notes ........      56,603                     600                                             600
   Currency translation adjustment .........                                                                   (116)        (116)
   Net earnings ............................                                                         8,941       --        8,941
                                              ----------        ---      -------      -------      -------    -----      -------
Balances at June 30, 1997 ..................  10,506,848        $53      $68,828      $    --      $26,990    $(116)     $95,755
                                              ==========        ===      =======      =======      =======    =====      =======
</TABLE>


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




                                       25
<PAGE>   26
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                          Year Ended June 30,
                                                                            ----------------------------------------------
(in thousands of dollars)                                                      1997              1996              1995
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>               <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net earnings ....................................................        $   8,941         $   8,175         $   4,069
                                                                            ---------         ---------         ---------
   Adjustments to reconcile net earnings to net
     cash provided by (used in) operating activities:
     Equity in net loss of investees ...............................              281                66                --
     Depreciation and amortization .................................           10,283             7,982             7,237
     Additions to allowance accounts ...............................            2,386             2,325             1,261
     Net gain on sale of financing transactions ....................          (14,039)           (8,032)           (3,042)
     Cumulative translation adjustments ............................               37                --                --
     Changes in assets and liabilities:
     (Increases) decreases in:
       Cash and cash equivalents, restricted .......................            6,097           (20,281)              824
       Amounts due from portfolio sale .............................           54,797           (54,797)               --
       Receivables .................................................          (14,086)          (29,505)            3,285
       Other assets ................................................           (3,155)            3,081             1,622
     Increases (decreases) in:
       Accounts payable ............................................            7,162            17,592           (17,839)
       Accrued expenses and other liabilities ......................            7,558             1,361              (576)
       Deferred income taxes .......................................            3,865               797             1,619
                                                                            ---------         ---------         ---------
     Total adjustments .............................................           61,186           (79,411)           (5,609)
                                                                            ---------         ---------         ---------
Net cash provided by (used in) operating activities ................           70,127           (71,236)           (1,540)
                                                                            ---------         ---------         ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Cost of equipment acquired ....................................         (429,515)         (292,618)         (319,011)
     Portfolio receipts net of amounts included in income and
       proceeds from sale of financing transactions ................          372,973           280,541           161,448
     Net increase in notes collateralized by medical receivables ...          (48,293)          (11,667)          (16,855)
     Furniture and fixtures additions ..............................             (996)             (985)           (1,026)
     Investments in investees ......................................              (24)           (2,059)               --
     Cash received from sale of investments in investees ...........               --             1,341               828
                                                                            ---------         ---------         ---------
     Net cash used in investing activities .........................         (105,855)          (25,447)         (174,616)
                                                                            ---------         ---------         ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Exercise of stock options and warrants ........................            1,067             8,938               626
     Equity offering ...............................................               --            28,961                --
     Borrowings under:
       Warehouse facilities ........................................          498,201           485,585           534,633
       Long-term debt ..............................................          283,825           120,705           107,510
     Repayments on:
       Warehouse facilities ........................................         (621,862)         (472,649)         (414,046)
       Long-term debt ..............................................         (118,944)          (74,434)          (52,328)
                                                                            ---------         ---------         ---------
     Net cash provided by financing activities .....................           42,287            97,106           176,395
                                                                            ---------         ---------         ---------
</TABLE>


                                                                       continued

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




                                       26
<PAGE>   27
<TABLE>
<CAPTION>
                                                                           Year Ended June 30,
                                                                  -------------------------------------
(in thousands of dollars)                                           1997           1996           1995
-------------------------------------------------------------------------------------------------------
<S>                                                               <C>            <C>            <C>
Net increase (decrease) in cash and cash equivalents .....        $ 6,559        $   423        $   239
Cash and cash equivalents, beginning of year .............          2,376          1,953          1,714
                                                                  -------        -------        -------
Cash and cash equivalents, end of year ...................        $ 8,935        $ 2,376        $ 1,953
                                                                  =======        =======        =======

CASH PAID DURING THE YEAR FOR:
 Interest ................................................        $34,892        $29,984        $22,400
                                                                  =======        =======        =======
 Income taxes ............................................        $ 4,777        $ 3,507        $ 1,650
                                                                  =======        =======        =======
</TABLE>

SUPPLEMENTAL DISCLOSURES OF NONCASH TRANSACTIONS:

During the year ended June 30, 1997, the Company transferred the net book value
of equipment on operating leases in the amount of $491,000 to inventory which is
classified with other assets.

At June 30, 1997, in accordance with Technical Bulletin 86-2, the Company has
recorded in receivables in installments and accrued expenses an amount of $1.9
million representing the present value of future obligations the Company has
guaranteed.

During the year ended June 30, 1996, the Company converted a $541,000 note
receivable into shares of common stock of a domestic entity.

During the year ended June 30, 1997 and 1995, $600,000 and $500,000,
respectively, of convertible subordinated notes were converted into common
stock.




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




                                       27
<PAGE>   28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.  NATURE OF OPERATIONS

DVI, Inc. (the Company or DVI) is engaged in the business of providing equipment
and receivable financing for domestic and foreign users of diagnostic imaging,
radiation therapy and other medical technologies. The Company's customer base
consists principally of outpatient healthcare providers, physician groups and
hospitals. By the terms of the underlying financing contracts, the Company's
customers are generally considered in default if payment on a contract has not
been received. Equipment under direct financing leases and notes secured by
equipment, along with obligor guarantees and vendor recourse, serve as
collateral for unpaid contract payments. Receivables under medical receivables
financing transactions serve as collateral for unpaid contract payments.

ABILITY TO ACCESS THE SECURITIZATION MARKET - The Company's ability to complete
securitizations and other structured finance transactions depends upon a number
of factors, including general conditions in the credit markets, the size and
liquidity of the market for the types of receivable-backed securities issued or
placed in securitizations sponsored by the Company and the overall financial
performance of the Company and its loan portfolio. Additionally, the Company's
ability to securitize assets is dependent upon its ability to provide credit
enhancement, which reduces the Company's liquidity and periodically requires it
to obtain additional capital to enable the Company to expand its operations.

CREDIT RISK - Many of the Company's customers are outpatient healthcare
providers that have complex credit characteristics. Providing financing for
these customers involves considerable credit analysis.

CONTINUING NEED FOR CAPITAL - The Company's ability to maintain and build its
financing business is dependent on its ability to obtain substantial amounts of
warehouse and long-term debt financing.

REGULATION AND CONSOLIDATION - Additional regulatory attention has been directed
towards physician-owned healthcare facilities and other arrangements whereby
physicians are compensated, directly or indirectly, for referring patients to
such healthcare facilities. Furthermore, the market is subject to consolidation
among outpatient facilities, physician groups and hospitals. The Company's
source of customers is subject to the effects of the regulatory actions and
market consolidation.

INVESTMENTS IN FOREIGN AND INITIAL OPERATIONS - In an effort to mitigate the
impact of regulation and consolidation and to expand the Company's market, the
Company has initiated operations internationally and has made investments in
certain emerging markets. The Company established a joint venture based in
Singapore to service the medical equipment market in the Asia-Pacific region and
steps have been taken to form a joint venture in Latin America. DVI Europe is
the Company's branch established in the United Kingdom to service the medical
equipment industry in Europe. The success and ultimate recovery of these
investments is dependent upon many factors including foreign regulation,
customs, currency exchange, the achievement of management's planned projections
for these markets and the Company's ability to manage these operations.


NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION POLICY - The consolidated financial statements include the
accounts of DVI and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated.

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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.

TRANSLATION ADJUSTMENTS - All assets and liabilities denominated in foreign
currencies are translated at the exchange rate on the balance sheet date.
Revenues, costs and expenses are translated at average rates of exchange
prevailing during the period. Translation adjustments are accumulated as a
separate component of shareholders' equity. Gains and losses resulting from
foreign currency transactions are included in the consolidated statements of
operations.


                                       28
<PAGE>   29
CASH EQUIVALENTS - Cash equivalents include highly-liquid securities with
original maturities of 90 days or less.

CASH AND CASH EQUIVALENTS, RESTRICTED - Cash and cash equivalents, restricted
consist of cash, certificates of deposit and U.S. Treasury obligations
maintained by the Company which are pledged as collateral for certain limited
recourse borrowings related to direct financing leases, notes secured by
equipment and operating leases. The estimated fair value and the amortized cost
of U.S. Treasury obligations as of June 30, 1997 and 1996, are $12.5 million and
$14.2 million, respectively. There were no sales of U.S. Treasury obligations
during the year ended June 30, 1997 and 1996. The Company accounts for
investments in debt and equity securities in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. SFAS No. 115 requires the
classification of investments in debt and equity securities into three
categories: held to maturity, trading and available-for-sale. At June 30, 1997
and 1996, the Company has only available-for-sale securities with maturities
less than 90 days, which are included in restricted cash. Equity securities
classified as available-for-sale securities are reported at estimated fair
value, with unrealized gains and losses excluded from earnings and reported as a
separate component of shareholders' equity, net of deferred taxes.

INVESTMENT IN DIRECT FINANCING LEASES AND NOTES SECURED BY EQUIPMENT - At
contract commencement, the Company records the gross contract receivable,
initial direct costs, estimated residual value of the financed equipment, if
any, and unearned income. Included in this category are loans to officers for
investment purposes which are not directly related to the Company's operations,
and for the purpose of financing a personal residence. At June 30, 1997 and
1996, unamortized initial direct costs amounted to $7.0 million and $7.5
million, respectively. Initial direct costs are deferred and amortized over the
life of the contract using the interest method which reflects a constant
effective yield. The Company follows the accounting treatment outlined in FASB
Technical Bulletin 86-2, which requires the present value of the future
obligation be recorded as an asset and corresponding liability at the date the
guarantee is assumed.

RECOURSE CREDIT ENHANCEMENTS - The most important source of permanent funding
for the Company for equipment loan financing has been securitization and other
forms of structured finance. Securitization is a process in which a pool of
equipment loans (in the Company's case, typically 100 to 150) is transferred to
a special-purpose financing vehicle which issues notes to investors. Principal
and interest on the notes issued to investors by the securitization subsidiary
are paid from the cash flows produced by the loan pool, and the notes are
secured by a pledge of the assets in the loan pool as well as by other
collateral. In the securitizations sponsored by the Company, equipment loans
funded through the securitizations must be credit enhanced to receive an
investment grade credit rating. Credit enhancement can be provided in a number
of ways, including cash collateral, letters of credit, a subordinated tranche of
each individual transaction or an insurance policy. Typically, securitizations
sponsored by the Company are enhanced through a combination of some or all of
these methods. In the securitizations sponsored to date by the Company, the
Company effectively has been required to furnish credit enhancement equal to the
difference between (i) the aggregate principal amount of the equipment loans
originated by the Company and transferred to the Company's special-purpose
finance subsidiary and the related costs of consummating the securitization and
(ii) the net proceeds received by the Company in such securitizations. The
requirement to provide this credit enhancement reduces the Company's liquidity
and requires it periodically to obtain additional capital. There can be no
assurance that the Company will be able to obtain additional capital.

NOTES COLLATERALIZED BY MEDICAL RECEIVABLES - Notes collateralized by medical
receivables consist of note receivables resulting from working capital and other
loans made to entities in the healthcare industry and receivables purchased from
unrelated entities. The purchased receivables are stated at the lower of the
Company's cost or the estimated collectible value.

RESIDUAL VALUATION - Residual values, representing the estimated value of the
equipment at the end of the lease term, are recorded in the financial statements
at the inception of each fair market value lease as amounts estimated by
management based upon its experience and judgment. The residual values for
operating leases are included in the leased equipment's net book value. The
Company evaluates residual value on an ongoing basis and records any required
changes in valuation. In accordance with generally accepted accounting
principles, no upward revisions are recorded after the inception of the lease.

LOAN IMPAIRMENT - The Company accounts for impairment of a loan in accordance
with SFAS No.114, Accounting by Creditors for Impairment of a Loan, as amended
by SFAS No. 118, Accounting by Creditors for


                                       29
<PAGE>   30
Impairment of a Loan - Income Recognition and Disclosures. Impaired loans are
measured based on the present value of the expected cash flows discounted at the
loan's effective interest rate or the fair value of the collateral. A loan is
considered impaired when it becomes probable the Company will be unable to
collect all amounts due according to the contract terms.

EQUIPMENT ON OPERATING LEASES - Leases which do not meet the criteria for direct
financing leases are accounted for as operating leases. Equipment on operating
leases are recorded at cost and depreciated on a straight-line basis over the
estimated useful life of the equipment. Rental income is recorded monthly on a
straight-line basis. Initial direct costs associated with operating leases are
deferred and amortized over the lease term on a straight-line basis which
reflects a constant effective yield.

FURNITURE AND FIXTURES - Furniture and fixtures are stated at cost less
accumulated depreciation and are depreciated using the straight-line method over
their estimated useful lives (generally five years).

INVESTMENTS IN INVESTEES - The investments in investees consist of common and
nonvoting preferred equity interests in unrelated entities. The Company accounts
for its investments in the common stock of these entities using either the cost
or equity method of accounting, depending upon its ownership interests and its
ability to influence policies and operations of the investee. The investment in
the preferred stock of the investee is recorded at the lower of cost or
estimated realizable value.

GOODWILL - Goodwill represents the excess purchase price over the net tangible
assets stemming from the acquisition of Medical Equipment Finance Corporation
(MEF Corp.). Goodwill relating to the acquisition of MEF Corp. is being
amortized over a fifteen year period. The Company evaluates the recoverability
of its goodwill separately for each applicable business acquisition at each
balance sheet date. The recoverability of goodwill is determined by comparing
the carrying value of the goodwill to the estimated operating income of the
related entity on an undiscounted cash flow basis. Should the carrying value of
the goodwill exceed the estimated operating income for the expected period of
benefit, an impairment for the excess is recorded at that time.

OTHER ASSETS - Other assets consist of prepaid financing costs, advances related
to the Company's serviced portfolio, equipment held for sale or lease which is
stated at the lower of cost or its net realizable value, and miscellaneous
accounts receivable.

DEBT ISSUANCE COSTS - Debt issuance costs related to the Company's warehouse
facilities, securitizations, senior notes and convertible subordinated notes are
offset against the related debt and are being amortized over the life of the
notes using the interest method.

AMORTIZATION OF FINANCE INCOME - Amortization of finance income primarily
consists of the interest component of scheduled payments on notes secured by
equipment (or medical receivables) and direct financing leases and is calculated
using the interest method so as to approximate a level rate of return on the net
investment.

NET GAIN ON SALE OF FINANCING TRANSACTIONS - Gains arising from the sale of
direct financing leases and investments in notes secured by equipment occur when
the Company obtains permanent funding through the whole loan sale of a
transaction to a third party. Subsequent to a sale, the Company has no or
limited remaining interest in the transaction or equipment and no obligation to
indemnify the purchaser in the event of a default on the transaction by the
obligor, except when the sale agreement provides for participation in defined
excess interest spreads or limited recourse in which the Company guarantees
reimbursement under the agreement up to a specific maximum. Consequently, in the
event of default by the obligor, the lender would exercise its rights under the
lien with limited or no further recourse against the Company, notwithstanding
any facts or circumstances that might promulgate the lender's assertion under
representations and warranties made by the Company.

OTHER INCOME - Other income consists primarily of contract fees and late
charges, dividends on investments in investee's preferred stock, servicing fees
and gains and losses from asset disposals.

TAXES ON INCOME - The Company accounts for taxes under SFAS No. 109, Accounting
for Income Taxes. Deferred taxes on income result from temporary differences
between the reporting of income for financial statement and tax reporting
purposes. Such differences arise principally from recording hedging gains and
losses and from lease transactions in which the operating lease method of
accounting is used for tax purposes and the financing lease


                                       30
<PAGE>   31
method is used for financial statement purposes. Under the operating lease
method, leased equipment is recorded at cost and depreciated over the useful
life of the equipment and lease payments are recorded as revenue when earned.

NET EARNINGS PER SHARE - Net earnings per share is calculated using the modified
treasury stock method, except when the results of this method are anti-dilutive.

DERIVATIVE INTEREST RATE CONTRACTS - The Company uses various interest rate
contracts such as forward rate agreements, treasury locks, interest rate swaps,
caps and collars to manage its interest rate risk from its floating rate
liabilities and anticipated securitization and sale transactions. No contracts
are held for trading purposes. Gains or losses from forward rate agreements used
to hedge floating rate exposure within warehouse funding facilities are deferred
and amortized to interest expense over the hedged period. When hedge
transactions are matched to anticipated securitizations, gains or losses from
the hedge transactions are deferred and amortized to interest expense over the
term of the securitized transaction. When hedge transactions are matched to
anticipated whole loan sales, gains or losses from the hedge transactions are
recognized as part of the gain or loss on the sale.

RECENT ACCOUNTING DEVELOPMENTS - The Company adopted SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-lived Assets to be Disposed
of, as of July 1, 1996. This Statement requires that management evaluate the
asset for recoverability based on estimated future cash flows expected to result
from the use of the asset and its eventual disposition. The adoption of SFAS No.
121 did not have a material impact on the Company's financial position and the
results of operations.

The Company has adopted SFAS No. 123, Accounting for Stock-Based Compensation,
and will continue to account for stock-based compensation using the intrinsic
value method under which the Company has not recognized compensation expense.

In June 1996, the FASB issued SFAS No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. This Statement
is effective for transfers and servicing of financial assets and extinguishments
of liabilities occurring after December 31, 1996. This Statement provides an
accounting and reporting standard for transfers and servicing of financial
assets, and extinguishment of liabilities. After a transfer of financial assets,
an entity recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished. This Statement
provides standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. The adoption of SFAS No. 125
did not have a material impact on the Company's financial position and the
results of operations.

In February 1997, the FASB issued SFAS No. 128, Earnings Per Share. This
statement is effective for fiscal years beginning after December 15, 1997 and is
to be applied retroactively. Earlier application is not permitted. Management
has not completed an analysis of the impact of applying this new statement;
however, the Company intends to begin applying the standard effective July 1,
1998.

In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income and
No. 131, Disclosures about Segments of an Enterprise and Related Information.
These statements are effective for fiscal years beginning after December 15,
1997 and early adoption is permitted. Management has not completed an analysis
of the impact of applying the new statements; however the Company intends to
adopt both standards effective July 1, 1998.

RECLASSIFICATIONS - Certain amounts as previously reported have been
reclassified to conform to the year ended June 30, 1997 presentation.

NOTE 3. INVESTMENT IN DIRECT FINANCING LEASES AND NOTES SECURED BY EQUIPMENT OR
MEDICAL RECEIVABLES AND EQUIPMENT ON OPERATING LEASES

Receivables in installments are due in varying amounts and are collateralized by
the underlying equipment, along with obligor guarantees and vendor recourse.
Notes collateralized by medical receivables consist of notes receivable
resulting from working capital loans and are due at maturity. Scheduled rents on
operating leases relate to noncancelable operating leases and are due in
installments of varying amounts. Information regarding scheduled collections for
direct financing leases, notes secured by equipment or medical receivables and
operating leases are as follows:

                                       31
<PAGE>   32
<TABLE>
<CAPTION>
                                                           Direct Financing
                                                           Leases and Notes       Scheduled
                                                              Secured by          Rents on
                                                             Equipment or         Operating
Year Ended June 30,                                       Medical Receivables      Leases
-------------------------------------------------------------------------------------------
<S>                                                       <C>                    <C>
1998 ..............................................          $232,046,000        $  926,000
1999 ..............................................           176,445,000           909,000
2000 ..............................................           119,969,000           144,000
2001 ..............................................            67,065,000                --
2002 ..............................................            32,767,000                --
Thereafter ........................................             9,766,000                --
                                                             ------------        ----------
                                                              638,058,000         1,979,000
Residual valuation.................................             8,276,000                --
                                                             ------------        ----------
   Total ..........................................          $646,334,000        $1,979,000
                                                             ============        ==========
</TABLE>


The total receivable balance of $646.3 million is comprised of direct financing
leases (30%), notes secured by equipment (56%), and medical receivables (14%).
The Company is exposed to credit risk on these receivables. At June 30, 1997, of
the 1,195 debtors, the top ten obligors represented 15.45% of the portfolio.
Geographic concentration for the top five states was New York (20.74%),
California (17.46%), Texas (8.02%), New Jersey (6.80%) and Pennsylvania (6.26%).
International loans, those outside the 50 United States, represented 5.44% of
the portfolio.

Residual valuation represents the estimated amount to be received at contract
termination from the disposition of equipment financed under fair market value
leases. Amounts to be realized at contract termination depend on the fair market
value of the related equipment and may vary from the recorded estimate. Residual
values are reviewed on an annual basis to determine if the equipment's fair
market value is below its recorded value.

During the years ended June 30, 1997 and 1996, the Company sold receivables to
third parties realizing gains of $14.0 million and $8.0 million, respectively.
In connection with certain of these transactions, the Company retained
subordinated interests in the receivables totaling $46.1 million and $35.7
million at June 30, 1997 and 1996, respectively. In accordance with provisions
of SFAS No. 115, the Company classifies subordinated interests as trading
securities which are recorded at fair value with any unrealized gains or losses
recorded in the results of operations in the period of the change in fair value.
Valuations at origination and at each reporting period are based on discounted
cash flow analyses. There can be a wide range in market assumptions which are
used by participants in the market to value such assets. Accordingly, the
Company's estimate of fair value is subjective. Under the sale agreement, the
Company is required to fund any losses on the receivables up to its subordinated
interests. Once repurchased or substituted such leases are included within the
Company's portfolio and are evaluated within the allowance for possible losses
on receivables.

At June 30, 1997, receivables amounting to $348.4 million were assigned as
collateral for long-term debt.

The following is an analysis of the allowance for losses on receivables as of
June 30:

<TABLE>
<CAPTION>
                                                           1997                1996                1995
------------------------------------------------------------------------------------------------------------
<S>                                                     <C>                 <C>                 <C>
Balance, beginning of year .....................        $ 4,026,000         $ 3,282,000         $ 2,498,000

Provision for possible losses on receivables ...          2,386,000           2,325,000           1,261,000

Write-offs, net ................................           (436,000)         (1,581,000)           (477,000)
                                                        -----------         -----------         -----------

Balance, end of year ...........................        $ 5,976,000         $ 4,026,000         $ 3,282,000
                                                        ===========         ===========         ===========
</TABLE>




                                       32
<PAGE>   33
The net investment of non-performing loans on which income recognition was
suspended was $17.4 million and $12.9 million at June 30, 1997 and 1996,
respectively. Cash collected on all nonaccruing loans is applied to the net
investment.

NOTE 4.  INVESTMENTS IN INVESTEES

At June 30, 1995, the Company held available-for-sale securities with a market
value of $3.2 million, which it accounted for at market with the unrealized gain
of $1.8 million recorded as a component of shareholders' equity. During the year
ended June 30, 1996, the Company sold its investments in common stock of
Healthcare Imaging Services, Inc. (HIS) and Diagnostic Imaging Services, Inc.
(DIS). The Company did not record a gain or loss on these transactions.

At June 30, 1997 and 1996, the Company holds Series F and Series G preferred
stock of DIS valued at $2.5 million (2,482,000 shares) and $2.0 million
(2,000,000 shares), respectively. The Series F and G preferred stock have
liquidation preferences at $1.00 per share, are redeemable at the option of DIS
at $1.00 per share plus accrued dividends, are convertible, under certain
conditions, into common stock of DIS at $2.482 per share for Series F and $2.00
per share for Series G, and are entitled to annual cumulative dividends ranging
from $0.05 per share to $0.10 per share. In addition, the majority shareholder
of DIS has the right to repurchase the Series F and G preferred stock for $4.5
million plus accrued dividends through September 2001.

In November 1995, the Company entered into a joint venture with two other
partners to establish Medical Equipment Credit Pte Ltd (MEC). MEC pursues
opportunities in the Asia-Pacific diagnostic imaging marketplace. Initial
capitalization of MEC is 7,000,000 shares of common stock ($5.0 million), and
ownership is based on the percentage of the initial capitalization invested by
each of the three joint venture partners. The Company's ownership is 40% based
on a $2.0 million investment. The Company accounts for its investment in MEC
under the equity method of accounting. At June 30, 1997 and 1996, the Company
recognized losses of approximately $231,000 and $41,000, respectively, on this
investment.

In the year ended June 30, 1996, the Company converted a note receivable
totaling $541,000 into shares of the outstanding stock of EQ Computer Products &
Services (CP&S), whose business is in the distribution of parts and components
used in the repair and maintenance of microcomputer and associated peripherals.
CP&S sells to computer maintenance firms, independent computer service
organizations and original equipment manufacturers, throughout the United
States, engaged in the maintenance and repair of their own computer equipment
and equipment manufactured by others. During the year ended June 30, 1997, CP&S
issued additional shares and had a reverse stock split. As of June 30, 1997, the
Company had 273,773 shares or 14.25% of the outstanding stock of CP&S. The
Company accounts for this investment in this entity under the cost method of
accounting as it does not exert significant influence over the entity.

NOTE 5.  INTEREST BEARING DEBT

WAREHOUSE FACILITIES - The Company's primary credit facility, pursuant to a
revolving credit agreement with a syndicate of banks (the Agreement), provides
for the borrowing of up to $128.0 million. Borrowings under this facility bear
interest at the Company's option of (1) from prime to prime plus 0.125% or (2)
from 1.20% to 1.65% over the 30, 60 or 90-day LIBOR rate based on the Company's
leverage ratio as defined in the Agreement. Included in the Agreement is an
$18.0 million sub-limit for borrowings secured by medical receivables loans
originated by the Company. The Agreement is renewable annually at the bank
syndicate's discretion. The Agreement prohibits the Company from paying
dividends other than dividends payable solely in shares of the Company's stock
and limits borrowings to specified levels determined by ratios based on the
Company's tangible net worth. As of June 30, 1997, the Company was in compliance
with the financial covenants of the Agreement.

The Company has two $100.0 million interim funding facilities available for
certain equipment loan financing transactions which are to be securitized. These
facilities bear interest at a rate of 0.85% over the 30-day LIBOR rate.
Borrowings under the facilities are secured by certain equipment contracts and
the equipment financed thereunder.

The Company has a $5.0 million facility with a bank for the funding of loans
ineligible for securitization.


                                       33
<PAGE>   34
The Company has two credit facilities for its medical receivables financing
business. The first facility is for $15.0 million with an interest rate of prime
plus 2.00% and matures in June 1998. The second facility is for $50.0 million
with an interest rate of 30-day LIBOR plus 1.90% and matures in September 1997.

LONG-TERM DEBT - The discounted receivables are direct financing lease
obligations, notes secured by equipment and medical receivables which were
securitized and sold to investors primarily on a limited or nonrecourse basis.
They are collateralized by the underlying equipment and medical receivables.

Future annual maturities of discounted receivables, net of capitalized issuance
costs of $7.7 million are as follows:

<TABLE>
<CAPTION>
Year Ending June 30,
--------------------------------------------------------------------------------
<S>                                                                 <C>
1998..................................................              $ 96,202,000
1999..................................................                87,278,000
2000..................................................                85,016,000
2001..................................................                31,429,000
2002..................................................                14,516,000
Thereafter............................................                 3,422,000
                                                                    ------------

   Total .............................................              $317,863,000
                                                                    ============
</TABLE>


All of the discounted receivables have been permanently funded through seven
asset securitizations which were initiated during fiscal years 1993 through
1997. Debt under these securitizations are limited recourse and bear interest at
fixed rates ranging between 5.48% to 12.85% and floating interest rates of 2.25%
over 30-day LIBOR. All of the receivables are serviced by the Company and the
related securitization agreements require that the Company comply with certain
servicing requirements, require limited cash collateral or residual interests
and contain various recourse provisions.

Included above is $23.2 million from the Company's securitization of some of its
retained subordinated positions in its securitizations and whole loan sales.
This transaction was completed on July 31, 1996.

The Company has convertible subordinated notes outstanding of $13.3 million and
$13.8 million at June 30, 1997 and 1996, respectively. The notes are convertible
into common shares at $10.60 per share at the discretion of the noteholders,
bear interest at a rate of 9 1/8% payable in quarterly installments of interest
only and mature in June 2002. During the year ended June 30, 1997, $600,000 of
these notes were converted into 56,603 shares of common stock of the Company.
There were no conversions in fiscal year 1996. Cumulatively, $1.1 million of
these notes have been converted into 103,772 shares of common stock of the
Company.

On January 30, 1997, the Company completed a public offering of $100.0 million
principal amount of 9 7/8% Senior Notes due 2004. Interest is payable
semiannually on February 1 and August 1 of each year, commencing on August 1,
1997. The Notes will be redeemable at the option of the Company in whole or in
part at any time on or after February 1, 2002 at specified redemption prices.
The proceeds from the sale are being used (i) to fund the Company's growth,
including increasing the amount of equipment and medical receivables loans the
Company can fund, (ii) to develop the Company's new international operations,
including the purchase of receivables originated outside the United States and
investment in joint ventures, (iii) for other working capital needs and (iv) for
general corporate purposes.

On April 1, 1997, the Company entered into a $2.0 million Subordinated loan
agreement. Principal and all accrued interest are due five years from date of
funding.

In addition, the Company has a $6.2 million facility with a foreign bank to fund
a portfolio of equipment loans in Turkey.

The following chart summarizes interest-bearing credit facilities as of June 30,
1997 and 1996:




                                       34
<PAGE>   35
In thousands, except percentages.

<TABLE>
<CAPTION>
                                                                AS OF JUNE 30, 1997           AS OF JUNE 30, 1996
                                                             -------------------------     -------------------------
                                                                     PERIOD END                   PERIOD END
                               AMOUNT         MATURITY       -------------------------     -------------------------
   CREDIT FACILITY            AVAILABLE         DATE         BALANCE             RATE      BALANCE             RATE
   ---------------            ---------         ----         -------             ----      -------             ----
<S>                           <C>              <C>           <C>                <C>        <C>                <C>
SHORT-TERM DEBT
Warehouse Facilities          $398,000         Various       $ 44,586            7.10%     $168,108            7.38%

LONG-TERM DEBT
N/P Financial Inst            $     --           2001        $  6,168            8.37%     $     --
Discounted Receivables        $     --         Various       $317,863            8.60%     $253,759            8.64%
9 7/8 Senior Notes            $     --           2004        $ 95,883           10.96%     $     --
Subordinated Debt             $     --           2002        $  2,000            5.00%     $     --
Convertible Sub. Debt         $     --           2002        $ 13,324           10.38%     $ 13,809           10.42%
</TABLE>

NOTE 6.  SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

The following represents a summary of the major components of selling, general
and administrative expenses for the three years ended June 30:

<TABLE>
<CAPTION>
                                               1997          1996          1995
                                             -------        ------        ------
<S>                                          <C>            <C>           <C>
Salaries and benefits                        $ 5,249        $3,241        $3,300
Professional fees                              2,811         2,563         1,273
Travel and Entertainment                         799           503           462
Occupancy                                        779           655           497
Other                                          3,744         2,936         2,359
                                             -------        ------        ------
 Total SGA                                   $13,382        $9,898        $7,891
                                             =======        ======        ======
</TABLE>

NOTE 7.  INCOME TAXES

The provision for income taxes is comprised of the following:

<TABLE>
<CAPTION>
Year Ended June 30,                  1997              1996              1995
--------------------------------------------------------------------------------
<S>                               <C>              <C>                <C>
Current payable ...........       $2,760,000       $ 6,120,000        $  466,000
Deferred ..................        3,865,000           (28,000)        2,480,000
                                  ----------       -----------        ----------
      Total ...............       $6,625,000       $ 6,092,000        $2,946,000
                                  ==========       ===========        ==========
</TABLE>

A reconciliation of the provision for income taxes to the amount of income tax
expense that would result from applying the federal statutory rate (35%) to
earnings from continuing operations is as follows:

<TABLE>
<CAPTION>
Year Ended June 30,                              1997                      1996                     1995
----------------------------------------------------------------------------------------------------------------
<S>                                      <C>             <C>      <C>             <C>      <C>             <C>
Provision for income taxes at the
federal statutory rate ..............    $5,448,000      35.0%    $4,993,000      35.0%    $2,455,000      35.0%
State income taxes,
net of federal tax benefit ..........       844,000       5.4%     1,045,000       7.3%       452,000       6.4%
Other ...............................       333,000       2.1%        54,000       0.4%        39,000       0.6%
                                         ----------      ----     ----------      ----     ----------      ----
      Total .........................    $6,625,000      42.5%    $6,092,000      42.7%    $2,946,000      42.0%
                                         ==========      ====     ==========      ====     ==========      ====
</TABLE>

The major components of the Company's net deferred tax liabilities of $8.6
million and $4.7 million at June 30, 1997 and 1996, respectively, are as
follows:




                                       35
<PAGE>   36
<TABLE>
<CAPTION>
                                                      1997             1996
--------------------------------------------------------------------------------
<S>                                               <C>              <C>
Accumulated depreciation .....................    $ 23,511,000     $ 24,138,000
Deferred recognition of lease income .........     (14,740,000)     (17,080,000)
Alternative minimum tax credits carryforwards               --         (137,000)
Deferred gain on financing transactions ......       1,977,000               --
Loss on hedging activities ...................       1,258,000        1,342,000
Allowances for uncollectible receivables .....      (2,322,000)      (1,786,000)
State income taxes ...........................        (454,000)        (867,000)
Other ........................................        (620,000)        (865,000)
                                                  ------------     ------------
      Total ..................................    $  8,610,000     $  4,745,000
                                                  ============     ============
</TABLE>

NOTE 8.  SHAREHOLDERS' EQUITY

In August 1995, the Company completed a public offering of 2,875,000 shares of
its common stock for which it received net proceeds of $29.0 million. The net
proceeds were utilized to reduce short-term indebtedness and for general
corporate purposes.

In June 1997, the Company granted options to purchase 100,000 shares of the
Company's common stock at an exercise price of $13.50 per share. The options
will vest on a pro-rata basis over a twenty-four month period or, 4,167 shares
per month. The options are exercisable for a period of five years from the date
of grant. The options were granted to a financial advisory firm as compensation.

In January 1996, holders of 615,605 of the Company's warrants and units issued
in February 1991 redeemed their warrants and units for 50,625 and 50,625 shares
of the Company's common stock at $12.00 and $12.60, respectively, per share by
the final exercise date of January 26, 1996. As a result of the redemption, the
Company received cash proceeds of $7.4 million. In addition, the Company issued
warrants to purchase 35,000 common shares at $8.50 per share to an unrelated
party. Such shares were exercised during the year ended June 30, 1996.

Prior to June 30, 1994, the Company issued warrants to purchase a total of
80,000 common shares at prices between $7.625 and $8.375 per share to all
non-employee Directors of the Company. 10,000 shares at $7.625 and 10,000 shares
at $8.375 were exercised during the year ended June 30, 1996. The warrants
vested at various dates through November 1996 and expire at various dates
through 2003.

In fiscal 1992, the Company issued warrants to purchase up to 200,000 shares of
the Company's common stock at $18.00 per share to an underwriter as compensation
for investment banking services. No compensation expense was recognized as a
result of this transaction. The warrants expired April 27, 1997.

In June 1994, the Company issued convertible subordinated notes to related and
unrelated parties which are convertible at the option of the holder into
1,415,094 shares of common stock at $10.60 per share. During the year ended June
30, 1997, $600,000 of these notes were converted into 56,603 shares of common
stock. As of June 30, 1997, cumulative conversions of these notes were $1.1
million into 103,772 shares of common stock.

NOTE 9.  STOCK OPTION PLAN AND INCENTIVE AGREEMENT

The Company has a stock option plan which currently provides for the granting of
options to employees to purchase up to 1,250,000 shares of the Company's common
stock at the fair market value at the date of grant. Options granted under the
plan generally vest over three to five years from the date of grant and expire
ten years after the date of the grant. Any unexercised options are canceled 90
days subsequent to the termination of the employee and are returned to the plan.

The following table summarizes the activity under the plan for the periods
indicated:




                                       36
<PAGE>   37
<TABLE>
<CAPTION>
                                                                                  Weighted Average
                                            Options         Exercise Price         Exercise Price
                                          Outstanding          Per Share             Per Share
--------------------------------------------------------------------------------------------------
<S>                                       <C>               <C>                   <C>
Outstanding at July 1, 1994 ....            809,862         $ 1.44  -  $13.50          $ 7.86
Granted ........................             48,500         $ 9.13  -  $12.63          $11.78
Exercised ......................            (97,216)        $ 2.68  -  $12.88          $ 6.37
Canceled .......................            (80,852)
                                           --------

Outstanding at June 30, 1995 ...            680,294         $ 1.44  -  $13.50          $ 8.16
Granted ........................            130,500         $11.63  -  $13.13          $12.96
Exercised ......................           (152,085)        $ 1.44  -  $13.50          $ 8.38
Canceled .......................            (37,000)
                                           --------

Outstanding at June 30, 1996 ...            621,709         $ 1.75  -  $13.13          $ 9.14
Granted ........................            186,500         $12.75  -  $14.63          $14.36
Exercised ......................            (40,875)        $ 5.00  -  $10.38          $ 7.56
Canceled .......................             (8,534)
                                           --------

Outstanding at June 30, 1997 ...            758,800         $ 1.75  -  $14.63          $10.47
                                           ========
</TABLE>


The following table summarizes stock options outstanding at June 30, 1997:

<TABLE>
<CAPTION>
                            Number of Options          Weighted Average        Weighted Average
Range of Exercise Price        Outstanding        Remaining Contractual Life    Exercise Price
-----------------------        -----------        --------------------------    --------------
<S>                         <C>                   <C>                          <C>
   $ 1.75  -  $ 4.00              20,000                       1                    $ 1.75
   $ 4.01  -  $ 6.00              64,100                       4                    $ 5.09
   $ 6.01  -  $ 9.00             173,650                       6                    $ 7.99
   $ 9.01  -  $14.00             359,550                       7                    $11.48
   $14.01  -  $14.63             141,500                       9                    $14.61
                                 -------
                                 758,800                       7                    $10.47
                                 =======
</TABLE>

As of June 30, 1997, options to purchase 430,662 shares were exercisable.

The Company accounts for compensation costs associated with stock-based
compensation using the intrinsic value method, under which the Company has
recognized no expense. Had compensation cost for the Company's stock option plan
been determined based on the fair value at the date of awards consistent with
the fair value method described in SFAS No. 123, the Company's net income,
primary earnings per share, and fully diluted earnings per share would be
reduced to the proforma amounts at June 30, 1997 of $8.7 million, $0.78 and
$0.70 and at June 30, 1996 of $8.1 million, $0.80 and $0.70, respectively.
Significant assumptions used to calculate the fair value of the awards for June
30, 1997 and 1996, respectively, are as follows: weighted average risk free rate
of return of 6.3% and 5.9%; expected option life of 60 months; expected
volatility of 32% and 24%; and no expected dividends in either year.

The Company has an employee incentive agreement (Agreement). Under the
Agreement, the Company has agreed, subject to the discretion of its Compensation
Committee, to issue from time to time an aggregate of not more than 200,000
shares of common stock of the Company (Incentive Shares) to certain of its
employees if the last sale price of the Company's common stock is $16.00 per
share or higher for 30 consecutive calendar days at any time before December 31,
2001, provided that any such employee must be employed by the Company during the
above-described 30-day period in order to receive any Incentive Shares under
this agreement. The Company has agreed that, if there is an event or series of
events that constitutes a sale of the Company at any time prior to December 31,
1998 and the consideration to be received for each share of common stock of the
Company in such sale of the Company is $13.00 or higher, the Company will issue
the Incentive Shares to the employees. If the criteria for the issuance of the
Company's common stock are met, the Company will record compensation expense
equal to the fair value of the common shares issued at the date upon which the
rights to receive such shares are awarded by the Compensation Committee.

                                       37
<PAGE>   38
NOTE 10.  RELATED PARTY TRANSACTIONS

The Company's principal executive offices located in Doylestown, Pennsylvania
are leased from a party related to a shareholder/director of the Company. The
lease commenced in December 1994 and the Company recorded rent expense under
this lease of $242,510 and $222,750 for the years ended June 30, 1997 and 1996,
respectively.

At June 30, 1997 and 1996, receivables in installments from investees totaled
$9.5 million and $17.0 million, respectively.

In June 1995, the Company and former shareholders of MEF Corp., some of whom are
also officers of the Company, entered into an agreement to set the purchase
price of MEF Corp. which was approved by the shareholders of the Company in
December 1995.

As of June 30, 1997 and 1996, the Company had loan receivables from Company
officers totaling $505,000 and $400,000, respectively.

During the year ended June 30, 1996, the Company sold its investments in common
stock of Healthcare Imaging Services, Inc. (HIS) and Diagnostic Imaging
Services, Inc. (DIS). As of June 30, 1997 and 1996, the Company had investments
in preferred stock and dividends of DIS totaling $5.1 million and $4.9 million,
respectively.

As of June 30, 1997 and 1996, the Company had convertible subordinated notes at
an unamortized cost totaling $9.6 million to related parties.

NOTE 11.  COMMITMENTS AND CONTINGENCIES

FACILITY LEASES - The Company leases its facilities under noncancelable
operating leases with terms in excess of one year. The lease for the Company's
principal facility expires in August 2007. Rent expense for the years ended June
30, 1997, 1996 and 1995 amounted to $661,000, $654,000 and $498,000,
respectively. Future minimum lease payments under these leases are as follows:

<TABLE>
<CAPTION>
                                                               Future Minimum
Year Ending June 30,                                           Lease Payments
-----------------------------------------------------------------------------
<S>                                                            <C>
1998 .......................................................     $  670,000
1999 .......................................................        685,000
2000 .......................................................        663,000
2001 .......................................................        461,000
2002 .......................................................        485,000
Thereafter .................................................      2,626,000
   Total ...................................................     $5,590,000
</TABLE>


CONTINGENCIES - Under certain limited recourse agreements, the Company may be
required to provide for losses incurred on uncollected lease and medical
receivables previously securitized. At June 30, 1997, the maximum contingent
liability under the limited recourse agreements amounted to $46.1 million. This
contingent liability, however, could be offset by any proceeds received from the
resale or remarketing of available equipment financed under the agreements or
outstanding medical receivables collected.

The Company has credit lines of $3.6 million available from four foreign banks,
of which $2.7 million was used as of June 30, 1997 to provide for the future
payment of guarantees made by DVI Europe, a branch office of DVI Financial
Services. The Company follows the accounting treatment outlined in FASB
Technical Bulletin 86-2, which requires the present value of the future
obligation be recorded as an asset and corresponding liability at the date the
guarantee is assumed. At June 30, 1997 the present value recorded for these
guarantees was $1.9 million, while the future obligation was $3.1 million.



                                       38
<PAGE>   39
The Company has receivables from and investments in DIS aggregating $13.8
million and $21.0 million at June 30, 1997 and 1996, respectively. DIS received
a qualified going concern opinion from its auditors on its December 31, 1996 and
1995 financial statements. Additionally, the Company has net receivables from
Latin American Trade Finance, Ltd. (LATF) in the amount of $886,000 and $845,000
at June 30, 1997 and 1996. LATF is a San Francisco-based investment company
which specializes in financing throughout Latin America. LATF has identified
some significant transactions, which to date, have not closed. LATF has been
unable to make scheduled payments to the Company. Management has performed an
analysis of its recoverability of such amounts and believes that based upon the
best information available, it will recover all amounts without any significant
loss.

LITIGATION - The Company is involved in litigation both as a plaintiff and
defendant in matters arising out of the Company's normal business activities.
Management does not expect the outcome of these lawsuits to have a material
adverse effect on the consolidated financial statements of the Company.

As of June 30, 1997 the Company had loan commitments of $106.9 million not
funded.

NOTE 12.  BENEFIT PLANS

The Company maintains and administers an Employee Savings (Plan) pursuant to
Internal Revenue Code Section 401(k). The Plan provides for discretionary
contributions as determined by the Company's Board of Directors. The Company
contributed $60,000, $45,000 and $39,000 to the Plan during the years ending
June 30, 1997, 1996 and 1995, respectively.

NOTE 13.  ACQUISITIONS

In January 1993, the Company acquired the outstanding shares of Medical
Equipment Finance Corporation (MEF Corp.). In December 1995, the Company's
shareholders approved the issuance of 400,000 shares of the Company's common
stock, as set forth in the purchase agreement as amended, valued at $4.65
million. The Company recorded goodwill of $4.65 million related to the
acquisition. As of June 30, 1997, the 400,000 common shares were unissued but
included in the earnings per share calculation.

NOTE 14.  ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

In accordance with Statement of Financial Accounting Standards No. 107 (SFAS
107), Disclosures About Fair Value of Financial Instruments, a summary of the
estimated fair value of the Company's consolidated financial instruments at June
30, 1997 and 1996 is presented below. The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies. However, considerable judgment is necessary to
interpret market data to develop the estimated fair values. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts the
Company could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.

<TABLE>
<CAPTION>
                                                              Carrying      Estimated Fair
June 30, 1997                                                  Amount            Value
------------------------------------------------------------------------------------------
<S>                                                          <C>            <C>
Assets:
  Receivable in installments
  (excluding investment in direct financing leases).......   $236,843,000    $236,532,000
Liabilities:
  Discounted receivables..................................   $317,863,000    $294,729,000
</TABLE>


<TABLE>
<CAPTION>
                                                               Carrying     Estimated Fair
June 30, 1996                                                   Amount           Value
------------------------------------------------------------------------------------------
<S>                                                          <C>            <C>
Assets:
  Receivable in installments
  (excluding investment in direct financing leases).......   $216,473,000    $218,301,000
Liabilities:
  Discounted receivables..................................   $253,759,000    $253,287,000
</TABLE>

                                       39
<PAGE>   40
The carrying values of cash and cash equivalents, restricted cash and cash
equivalents, amounts due from portfolio sales, notes collateralized by medical
receivables, accounts payable, accrued expenses, and other liabilities
borrowings under warehouse facilities, notes payable to financial institutions,
subordinated debt and convertible subordinated notes approximate fair values at
June 30, 1997 and 1996.

The methods and assumptions used to estimate the fair values of other financial
instruments are summarized as follows:

RECEIVABLE IN INSTALLMENTS: The fair value of the financing contracts was
estimated by discounting expected cash flows using the current rates at which
loans of similar credit quality, size and remaining maturity would be made as of
June 30, 1997 and 1996. The Company believes that the risk factor embedded in
the entry-value interest rates applicable to performing loans for which there
are no known credit concerns results in a fair valuation of such loans on an
entry-value basis. In accordance with SFAS 107, the Company has excluded
receivables from lease contracts of approximately $252.9 million and $197.7
million as of June 30, 1997 and 1996, respectively, from the receivable in
installments fair value calculation.

DISCOUNTED RECEIVABLES: The fair value of discounted receivables, related to the
securitization of leases and notes, was estimated by discounting future cash
flows using rates currently available for debt with similar terms and remaining
maturities.

The fair value estimates presented herein were based on information available as
of June 30, 1997 and 1996. Although the Company is not aware of any factors that
would significantly affect the estimated fair values, such values have not been
updated since June 30, 1997; therefore, current estimates of fair value may
differ significantly from the amounts presented herein. All instruments held by
the Company are classified as other than trading.

DERIVATIVE ACTIVITY:

<TABLE>
<CAPTION>
                                                   June 30, 1997                                    June 30, 1996
                                  -----------------------------------------------  ----------------------------------------------

                                    Notional             Fair         Deferred        Notional          Fair          Deferred
                                     Amount              Value     Gains/(Losses)      Amount           Value      Gains/(Losses)
---------------------------------------------------------------------------------------------------------------------------------
<S>                               <C>                 <C>          <C>             <C>                <C>          <C>
Swaps .......................     $23.4 million         $115,000         --        $ 99.4 million     $ 236,000            --
Options .....................     $25.0 million         $(49,000)        --        $ 26.5 million            --            --
Forwards: ...................
  Treasury locks ............     $70.0 million         $ 75,000         --        $ 90.0 million     $(227,000)     $129,000
  Forward rate agreements ...        --                       --         --        $200.0 million     $ (17,900)           --
</TABLE>

The Company uses off balance sheet derivative financial instruments to hedge
interest rate risk. The Company's interest rate risk is associated with variable
rate funding of the fixed rate loans and the timing difference between temporary
funding through the warehouse and permanent funding through either
securitization or sale. The derivatives are used to manage three components of
this risk: interest sensitivity adjustments, pricing of anticipated loan
securitizations and sales, and interest rate spread protection. Credit risk
exists for these derivative instruments in the form of the failure of the
counterparty to make required payments in favor of the Company. The risk is
minimized through the use of counterparties with investment grade ratings. The
fair value of the derivative instruments is derived from dealer quotes.

SWAPS:

Swaps are used to hedge the interest rate spreads for various loan sale
facilities where cash flows from loans are fixed rate but the borrowing costs
are variable. The interest rate swaps pay fixed rates of 5.38% to 5.8% and
receive a floating rate of the H-15 composite commercial paper rate. The swaps
mature in September 2000. There were no interest rate caps outstanding on June
30, 1997.




                                       40
<PAGE>   41
FORWARDS AND OPTIONS:

Treasury lock agreements, which are forward contracts, and option collars are
used to hedge the interest rate risk associated with anticipated securitizations
and/or sales. These instruments lock in a specific rate, or a narrow range of
rates, of Treasury notes identified to have a comparable maturity to the average
life of the anticipated transaction in order to fix the rate either over the
life of the securitization or to fix the sale price as applicable. The open
positions at June 30, 1997 are for securitizations and sales expected to occur
in the first and second quarters of fiscal 1998. In 1997, the Company deferred
$1.60 million in losses associated with transactions securitized compared with
$211,000 in deferred losses in 1996. In 1997, the Company recognized losses of
$132,000 for loan sales compared with recognized losses of $27,000 in 1996 and
no recognized gains or losses in 1995. Gains and losses for securitizations are
deferred and amortized over the life of the securitization. Gains and losses for
sales are recognized at the time of sale.

NOTE 15.  QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is a summary of the quarterly results of operations for the fiscal
years ended June 30, 1997 and 1996:

<TABLE>
<CAPTION>
                                                                 Three Months Ended
                                               -------------------------------------------------------
(in thousands, except per share data)          September 30    December 31      March 31       June 30
------------------------------------------------------------------------------------------------------
<S>                                            <C>             <C>              <C>            <C>
FISCAL 1997
Finance and other income                          $12,616        $13,513        $15,019        $14,823
Net finance income                                  6,647          7,455          7,680          9,833
Earnings before provision for income taxes
   and equity in net loss of investees              3,525          3,741          3,919          4,662
Net earnings                                        2,005          2,192          2,171          2,573
Net earnings per common and common
   equivalent share - primary                     $  0.18        $  0.20        $  0.20        $  0.23
                                                  =======        =======        =======        =======
Net earnings per common and common
   equivalent share - fully diluted               $  0.18        $  0.19        $  0.19        $  0.22
                                                  =======        =======        =======        =======
</TABLE>



<TABLE>
<CAPTION>
                                                                 Three Months Ended
                                               -------------------------------------------------------
(in thousands, except per share data)          September 30    December 31      March 31       June 30
------------------------------------------------------------------------------------------------------
<S>                                            <C>             <C>              <C>            <C>
FISCAL 1996
Finance and other income                          $11,301        $12,061        $13,152        $12,499
Net finance income                                  5,772          6,435          6,898          7,451
Earnings before provision for income taxes
   and equity in net loss of investees              3,191          3,510          3,690          3,942
Net earnings                                        1,775          2,078          2,126          2,196
Net earnings per common and common
   equivalent share - primary                     $  0.20        $  0.21        $  0.20        $  0.20
                                                  =======        =======        =======        =======
Net earnings per common and common
   equivalent share - fully diluted               $  0.19        $  0.20        $  0.19        $  0.19
                                                  =======        =======        =======        =======
</TABLE>




                                       41
<PAGE>   42
ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
            FINANCIAL DISCLOSURE

Not Applicable.

                                    PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information regarding the Company's directors is incorporated herein by
reference to the Company's definitive proxy statement filed not later than
October 28, 1997, with the Securities and Exchange Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended.
Information regarding the Company's Executive Officers is set forth in Part I of
this Form 10-K.

ITEM 11.    EXECUTIVE COMPENSATION

The information required by Item 402 of Regulation S-K is incorporated herein by
reference to the Company's definitive proxy statement filed not later than
October 28, 1997 with the Securities sand Exchange Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by Item 403 of Regulation S-K is incorporated herein by
reference to the Company's definitive proxy statement filed not later than
October 28, 1997, with the Securities and Exchange Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 404 of Regulation S-K is incorporated herein by
reference to the Company's definitive proxy statement filed not later than
October 28, 1997, with the Securities and Exchange Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended.

                                     PART IV

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

(a)   LIST OF DOCUMENTS FILED AS PART OF THIS REPORT:

   (1) Financial Statements:

       See Index to Consolidated Financial Statements included as part of this
       Form 10-K at Page 20.

   (2) Financial Statement Schedules:


<TABLE>
<CAPTION>
     SCHEDULE                                                              PAGE
      NUMBER            DESCRIPTION                                       NUMBER
      ------            -----------                                       ------
<S>                     <C>                                               <C>
        II.             Amounts Receivable from Related Parties ....        44
</TABLE>

       All other schedules are omitted because of the absence of conditions
       under which they are required or because all material information
       required to be reported is included in the consolidated financial
       statements and notes thereto.

   (3) Exhibits:

       See Index to Exhibits of this Form 10-K on Pages 45-46.

(b)   REPORTS ON FORM 8-K:

   There were no reports on Form 8-K filed during the fourth quarter of the
fiscal year ended June 30, 1997.

                                       42
<PAGE>   43
                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                          DVI, INC.
                                          ------------------------------------
                                          (Registrant)



Date:  September 29, 1997                by /s/ MICHAEL A. O'HANLON
                                             -----------------------
                                                 Michael A. O'Hanlon
                                                 President and Chief Executive
                                                 Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature                          Title                             Date
---------                          -----                             ----
<S>                                <C>                               <C>
Principal Financial Officer:

/s/ STEVEN R. GARFINKEL
-----------------------
    Steven R.  Garfinkel           Executive Vice President and
                                   Chief Financial Officer           September 29, 1997


Principal Accounting Officer:

/s/ JOHN P. BOYLE
-----------------------
    John P. Boyle                  Vice President and
                                   Chief Accounting Officer          September 29, 1997
</TABLE>



<TABLE>
<CAPTION>
Directors                                                          Date
---------                                                          ----
<S>                                                         <C>
/s/ GERALD L. COHN                                          September 29, 1997
-----------------------
    Gerald L. Cohn


/s/ WILLIAM S. GOLDBERG                                     September 23, 1997
-----------------------
    William S. Goldberg


/s/ JOHN E. MCHUGH                                          September 29, 1997
-----------------------
    John E. McHugh


/s/ MICHAEL A. O'HANLON                                     September 29, 1997
-----------------------
    Michael A. O'Hanlon


/s/ HARRY T. J. ROBERTS                                     September 29, 1997
-----------------------
    Harry T. J. Roberts


/s/ NATHANIEL SHAPIRO                                       September 29, 1997
-----------------------
    Nathaniel Shapiro
</TABLE>




                                       43
<PAGE>   44
                           DVI, INC. AND SUBSIDIARIES

              SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES


<TABLE>
<CAPTION>
                                  BALANCE AT
                                  BEGINNING                                       BALANCE AT
NAME OF DEBTOR                     OF YEAR        ADDITIONS       DEDUCTIONS      END OF YEAR
--------------                     -------        ---------       ----------      -----------
<S>                               <C>             <C>             <C>             <C>
Year ended June 30, 1997 -

Michael A. O'Hanlon .......       $344,000        $     --        $  59,000        $285,000
Mark H. Idzerda ...........             --         220,000               --         220,000
                                  --------        --------        ---------        --------
Total .....................       $344,000        $220,000        $  59,000        $505,000
                                  ========        ========        =========        ========

Year ended June 30, 1996 -

    Michael A. O'Hanlon ...       $ 59,000        $285,000        $      --        $344,000
                                  ========        ========        =========        ========


Year ended June 30, 1995 -

    Michael A. O'Hanlon ...       $ 20,000        $ 39,000        $      --        $ 59,000
                                  ========        ========        =========        ========


Year ended June 30, 1994 -

    Michael A. O'Hanlon ...       $     --        $ 20,000        $      --        $ 20,000
                                  ========        ========        =========        ========
</TABLE>




                                       44
<PAGE>   45
                                   EXHIBIT INDEX


<TABLE>
<CAPTION>
EXHIBIT NO.                              DESCRIPTION
-----------                              -----------
<S>           <C>
   1.1        Underwriting Agreement between the Underwriters and the Company
              with respect to the Company's Common Stock.(1)

   1.2        Underwriting Agreement dated January 27, 1997 by and between the
              Underwriters and the Company with respect to the Senior Notes. (2)

   3.1        Certificate of Incorporation of the Company.(3)

   3.2        By-Laws of the Company and Amendment to By-Laws of the Company
              dated April 17, 1996. (8)

   4.1        Form of Common Stock Certificate.(3)

   4.2        Form of Global Note representing the Senior Notes.(2)

   4.3        Indenture dated January 27, 1997 between the Company and the
              Trustee.(2)

   4.4        First Supplemental Indenture dated January 30, 1997 with respect
              to the Senior Notes between the Company and the Trustee.(2)

   10.1       DVI Financial Services Inc. Employee Savings Plan.(4)

   10.2       Amended 1986 Incentive Stock Option Plan.(4)

   10.3       Purchase Agreement dated as of October 22, 1991, by and among DMR
              Associates, L.P., HIS Acquisition, Inc. And DVI Financial Services
              Inc.(5)

   10.4       Direct Stock Option Agreements, dated as of October 16, 1990,
              between the Company and each of the Company's directors other than
              Mr. Higgins.(5)

   10.5       Amended and Restated Letter Agreement dated December 15, 1991,
              between the Company and W.I.G. Securities Limited Partnership
              regarding investment banking services.(5)

   10.6       Warrant dated April 27, 1992, executed by the registrant on behalf
              of W.I.G. Securities Limited Partnership.(5)

   10.7       Note Purchase Agreement among the Registrant and the Purchasers
              listed therein, dated as of June 21, 1994.(7)

   10.8       Amendment No. 1 to Note Purchase Agreement among the Registrant
              and the Purchasers listed therein, dated as of November 1994.(1)

   10.9       Amendment No. 1 to the MEFC Agreement dated as of June, 1995. (1)

   10.10      Joint Venture Agreement dated November 10, 1995, among Philips
              Medical Systems International B.V., DVI, Inc. and Philadelphia
              International Equities, Inc.(8)
              
   10.11      Interim Loan and Security Agreement, dated as of February 20,
              1997, between Prudential Securities Credit Corporation and DVI
              Financial Services Inc.(9)

   10.12      Second Amended and Restated Loan Agreement dated February 28, 1997
              by and among DVI Financial Services, Inc., the banks signatory
              thereto, Fleet Bank, N.A. and Corestates Bank, N.A., as
              Pre-Funding Lenders and Fleet Bank, N.A., as agent.(9)

   10.13      Loan and Security Agreement, dated as of January 29, 1997, between
              Prime Bank and the Company.(9)

   10.14      Secured Credit Line Agreement, dated as of August 22, 1996,
              between DVI Business Credit Receivables Corp. II, DVI Business
              Credit Corporation and CS First Boston Mortgage Capital Corp.(10)

   10.15      Loan and Security Agreement, dated as of September 6, 1996,
              between DVI Financial Services Inc. and Lehman Commercial Paper
              Inc.(10)

   10.16      Amendment, dated as of June 30, 1997, to Interim Loan and Security
              Agreement between Prudential Securities Credit Corporation and DVI
              Financial Services Inc.(10)

   10.17      Second Amendment, dated as of July 31, 1997, to Interim Loan and
              Security Agreement between Prudential Securities Credit
              Corporation and DVI Financial Services Inc.(10)

   21         Subsidiaries of the Registrant.

   24         Power of Attorney.(4)
</TABLE>

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

(1)  Filed previously as an Exhibit to the Company's Registration Statement on
     Form S-1 (Registration No. 33-60547) and by this reference is incorporated
     herein.

(2)  Filed previously as an Exhibit to the Company's Current Report on Form 8-K
     dated January 27, 1997 and by this reference incorporated herein.

                                       45
<PAGE>   46
(3)  Filed as an Exhibit to the Company's Registration Statement on Form S-3
     (Registration No. 33-84604) and by this reference incorporated herein.

(4)  Filed previously as an Exhibit to the Company's Registration Statement on
     Form S-18 (Registration No. 33-8758) and by this reference incorporated
     herein.

(5)  Filed previously as an Exhibit to the Company's Form 10-K (File No.
     0-16271) for the year ended June 30, 1990 and by this reference
     incorporated herein.

(6)  Filed previously as an Exhibit to the Company's Registration Statement on
     Form S-2 (Registration No. 33-46664) and by this reference is incorporated
     herein.

(7)  Filed previously as an Appendix to the Company's Consent Statement dated as
     of December 29, 1994 and by this reference is incorporated herein.

(8)  Filed previously as an Exhibit to the Company's Form 10-K (File No.
     0-16271) for the year ended June 30, 1996 and by this reference is
     incorporated herein.

(9)  Filed previously as an Exhibit to the Company's Form 10-Q for the quarter
     ended March 31, 1997 and by this reference is incorporated herein.

(10) Filed herewith.




                                       46