AMERICAN PHYSICIAN PARTNERS INC, S-1, 1997-06-27

AMERICAN PHYSICIAN PARTNERS INC
S-1, 1997-06-27

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 27, 1997

REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
AMERICAN PHYSICIAN PARTNERS, INC.
(Exact name of registrant as specified in charter)

<TABLE>
<C> <C> <C>
DELAWARE 8099 75-2648089
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>

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AMERICAN PHYSICIAN PARTNERS, INC.
2301 NATIONSBANK PLAZA
901 MAIN STREET
DALLAS, TX 75202-3721
(214) 761-3100
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------

PAUL M. JOLAS, ESQ.
GENERAL COUNSEL AND SENIOR VICE PRESIDENT
AMERICAN PHYSICIAN PARTNERS, INC.
2301 NATIONSBANK PLAZA
901 MAIN STREET
DALLAS, TX 75202-3721
(214) 761-3100
(Name and address, including zip code, and telephone number, including area
code, of agent for service)
---------------------
Copies to:

<TABLE>
<C> <C>
RICHARD A. FINK, ESQ. FREDERICK W. KANNER, ESQ.
RICHARD J. BABCOCK, ESQ. DEWEY BALLANTINE
BROBECK, PHLEGER & HARRISON LLP 1301 AVENUE OF THE AMERICAS
4675 MACARTHUR COURT, SUITE 1000 NEW YORK, NY 10019-6092
NEWPORT BEACH, CA 92660 (212) 259-8000
(714) 752-7535
</TABLE>

---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
---------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
======================================================================================================================
PROPOSED PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM OFFERING AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER SHARE(2) PRICE(1)(2) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, Par Value $.0001 Per
Share............................... 5,750,000 Shares $16.00 $92,000,000 $27,879
======================================================================================================================
</TABLE>

(1) Includes 750,000 shares subject to an over-allotment option granted to the
Underwriters.

(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 (a) under the Securities Act.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
================================================================================
<PAGE> 2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED JUNE 27, 1997

PROSPECTUS
5,000,000 SHARES

[AMERICAN PHYSICIAN PARTNERS, INC. LOGO]

COMMON STOCK
------------------
All of the shares of Common Stock offered hereby are being sold by American
Physician Partners, Inc. ("APPI" or the "Company").

Prior to this offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price will be
between $14.00 and $16.00 per share. See "Underwriting" for information relating
to the factors to be considered in determining the initial public offering
price. Application has been made to have the Common Stock approved for quotation
on the Nasdaq Stock Market's National Market (the "Nasdaq National Market")
under the symbol "APPM."

SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE COMMON STOCK OFFERED
HEREBY.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
=============================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- -------------------------------------------------------------------------------------------------------------
Total(3) $ $ $
=============================================================================================================
</TABLE>

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."

(2) Before deducting offering expenses estimated at $ payable by the
Company.

(3) The Company has granted the Underwriters a 30-day option to purchase up to
750,000 additional shares of Common Stock on the same terms as set forth
above solely to cover over-allotments, if any. If such option is exercised
in full, the total Price to Public, Underwriting Discounts and Commissions
and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
------------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1997 at the offices of Smith Barney Inc., 333 West 34th Street,
New York, New York 10001.
------------------
SMITH BARNEY INC.

COWEN & COMPANY

PIPER JAFFRAY INC.

ROBERTSON, STEPHENS & COMPANY

, 1997
<PAGE> 3

AMERICAN PHYSICIAN PARTNERS, INC.
SEVEN PRACTICES IN FIVE STATES

[MAP -- SHOWING LOCATIONS OF THE FOUNDING AFFILIATED PRACTICES AND THE COMPANY'S
CORPORATE HEADQUARTERS.]

COMPANY HEADQUARTERS
DALLAS, TEXAS

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS OR
IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."

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<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Simultaneously with the closing of this offering,
American Physician Partners, Inc. ("APPI") will acquire certain tangible and
intangible assets, and assume certain liabilities, of seven radiology practices
located in California, Kansas, Maryland, New York and Texas (each radiology
practice, a "Founding Affiliated Practice" and, collectively, the "Founding
Affiliated Practices") in exchange for cash and shares of its Common Stock (each
a "Reorganization" and, collectively, the "Reorganizations"). As used herein,
"Affiliated Practices" refers to the Founding Affiliated Practices and such
additional radiology practices, management service organizations, diagnostic
imaging centers and other related businesses that the Company may acquire in the
future. Unless otherwise indicated, all references to "APPI" mean American
Physician Partners, Inc. prior to the consummation of the Reorganizations and
references herein to the "Company" include APPI, its subsidiaries and the
Founding Affiliated Practices.

THE COMPANY

The Company is a radiology practice management company focused on the
development, consolidation and management of integrated radiology and imaging
center networks. Upon completion of this offering, the Company will provide
practice management services to seven radiology practices consisting of 218
physicians practicing at 42 hospitals and 65 diagnostic imaging centers ("ICs")
in California, Kansas, Maryland, New York and Texas. The Company will derive its
revenue from the provision of management, administrative, technical and other
non-medical services to physicians of Affiliated Practices.

Radiology services in the United States are delivered through a fragmented
system of local providers, including small to medium-sized groups of diagnostic
and interventional radiologists and radiation oncologists. According to a 1995
report prepared by SMG Marketing Group, total spending on diagnostic imaging
services is estimated at $56 to $70 billion annually. According to the American
College of Radiology, approximately 27,000 radiologists were actively involved
in patient care in the United States in 1996, practicing in more than 3,200
groups with a typical size of six radiologists per group.

Cost-containment pressures on health care providers have placed small to
medium-sized physician groups at a competitive disadvantage, since their
practices typically have high operating costs and often lack the capital,
information systems and management expertise necessary to provide both
high-quality and cost-effective medical care. To remain competitive, physician
practices are seeking to affiliate with larger organizations that manage the
non-medical aspects of their practices and provide access to greater capital
resources, more efficient cost structures and more favorable relationships with
payors. The Company believes that an integrated network of radiologists and
facilities offering a comprehensive array of radiology services can provide
significant advantages to patients, physicians, hospitals and payors.

The Founding Affiliated Practices provide a wide range of diagnostic and
therapeutic services, including x-ray and fluoroscopy, magnetic resonance
imaging, computed tomography, mammography, ultrasound, nuclear medicine,
radiation oncology and interventional radiology. The Founding Affiliated
Practices were selected based on a variety of factors, including: physician and
practice credentials and reputation; competitive market position; subspecialty
mix of physicians; historical financial performance and growth potential; and
willingness to embrace the Company's vision and philosophy regarding the
provision of radiology services. The Company intends to provide Affiliated
Practices with the necessary capital resources and expertise to invest in new
technologies, complete consolidating acquisitions, implement sophisticated
management information systems, promote efficient practice patterns, develop
coordinated marketing efforts and realize purchasing economies of scale.

The Company's objective is to develop integrated networks of radiology
groups and ICs that can provide wide geographic coverage and subspecialty
expertise. The Company intends to provide the networks with sophisticated
management, state-of-the-art information systems and appropriate capital for
expansion. The Company's strategy is to (i) emphasize quality service, (ii)
expand within its selected markets, (iii) improve
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<PAGE> 5

operating efficiencies within the Affiliated Practices and (iv) expand into new
regional markets through acquisitions of or affiliations with additional
radiology practices and ICs.

The Company was incorporated in Delaware in April 1996, and prior to this
offering has not conducted any significant operations. In connection with the
Reorganizations, APPI will acquire certain assets and liabilities of, and enter
into long-term service agreements with, the Founding Affiliated Practices (the
"Service Agreements"). Pursuant to the Service Agreements, the Company will
provide management, administrative, technical and non-medical business services
to the Founding Affiliated Practices in exchange for a service fee. The Service
Agreements have a 40-year term, subject to earlier termination under certain
circumstances. See "Certain Transactions -- Reorganizations." The Company's
principal offices are located at 2301 NationsBank Plaza, 901 Main Street,
Dallas, Texas 75202, and its telephone number at that address is (214) 761-3100.

THE OFFERING

<TABLE>
<S> <C>
Common Stock being offered................... 5,000,000 shares(1)
Common Stock outstanding after the 18,151,625 shares(1)(2)
offering...................................
Use of proceeds.............................. For acquisition of the Founding Affiliated
Practices and to repay certain indebtedness
Proposed Nasdaq National Market symbol....... APPM
</TABLE>

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

(1) Excludes up to 750,000 shares that may be sold by the Company pursuant to
the Underwriters' over-allotment option. See "Underwriting."

(2) Based on the number of shares of Common Stock outstanding as of June 15,
1997. Includes 10,714,125 shares of Common Stock to be issued in connection
with the Reorganizations and 437,500 shares of Common Stock issuable upon
conversion of the outstanding $3,500,000 principal balance of Convertible
Promissory Notes bearing interest at 6% per annum (the "Convertible Notes").
Excludes 1,445,000 shares of Common Stock issuable upon exercise of stock
options outstanding as of June 15, 1997 having a weighted average exercise
price of $1.43 per share. The number of shares to be outstanding on
completion of this offering will increase if the initial public offering
price is lower than $14.00 per share. See "Description of Capital Stock,"
"Shares Eligible for Future Sale," "Management -- Stock Option Plan" and
Note 4 of Notes to Financial Statements of APPI.

RISK FACTORS

The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."
---------------

Unless otherwise indicated, all information contained in this Prospectus:
(i) assumes no exercise of the Underwriters' option to purchase from the Company
up to 750,000 additional shares of Common Stock to cover over-allotments, if
any; (ii) has been adjusted to give effect to the conversion of the Convertible
Notes into Common Stock upon consummation of this offering; (iii) has been
adjusted to give effect to the Reorganizations; and (iv) assumes no exercise of
outstanding options to purchase shares of Common Stock. The number of shares of
Common Stock to be issued in each Reorganization and upon conversion of the
Convertible Notes will depend on the initial public offering price of the Common
Stock. The disclosures herein relating to the shares of Common Stock to be
issued in connection with the Reorganizations and upon conversion of the
Convertible Notes are estimated, assuming an initial public offering price of
$15.00 per share. The Convertible Notes may be redeemed on or after the
effective date of this offering. The Company intends to call the Convertible
Notes for redemption as soon as practicable after the date of this Prospectus.
There can be no assurance that holders of the Convertible Notes will elect to
convert the Convertible Notes into Common Stock in connection with the
redemption.
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<PAGE> 6

SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OTHER STATISTICAL DATA)

Upon the completion of this offering and pursuant to the Reorganizations,
the Company will acquire certain assets and liabilities of, and enter into the
Service Agreements with, the Founding Affiliated Practices. The following pro
forma financial data gives effect to the Reorganizations, the conversion of the
Convertible Notes, the completion of this offering (assuming a public offering
price of $15.00 per share) and the application of the estimated net proceeds
therefrom as if they had occurred as of January 1, 1996 in the case of the
statement of operations data and March 31, 1997 in the case of the balance sheet
data. However, APPI and the Founding Affiliated Practices were not under common
control or management during any of such periods. As a result, this data is not
necessarily indicative of the results the Company would have achieved had these
events actually occurred on the dates indicated nor are they necessarily an
indication of the Company's future results. The following pro forma financial
data should be read in conjunction with the information set forth under "Use of
Proceeds," "American Physician Partners, Inc. Unaudited Pro Forma Combined
Financial Data," and "Selected Financial Data" and in the historical financial
statements of APPI and the Founding Affiliated Practices included elsewhere
herein.

<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED
-----------------------------------
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- --------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Physician groups revenue, net............................... $ 144,794 $ 40,109
Less: amounts retained by physician groups.................. (55,218) (15,301)
---------- ----------
Service fee revenue......................................... 89,576 24,808
---------- ----------
Costs and expenses:
Practice salaries, wages and benefits..................... 26,668 7,501
Depreciation and amortization............................. 7,409 1,940
Other practice expenses................................... 33,656 8,823
Corporate general and administrative expenses............. 1,624 844
---------- ----------
Total costs and expenses.......................... 69,357 19,108
---------- ----------
Equity in earnings of investments........................... 2,117 568
Minority interests in income of consolidated subsidiaries... (265) (69)
Income tax expense.......................................... 8,827 2,480
---------- ----------
Net income.................................................. $ 13,244 $ 3,719
========== ==========
Pro forma earnings per share................................ $ .68 $ .19
========== ==========
Pro forma weighted average number of common shares
outstanding............................................... 19,458,583 19,458,583
========== ==========
OTHER DATA (AT MARCH 31, 1997):
Affiliated physicians....................................... 218
Affiliated physician groups................................. 7
Number of hospital affiliations............................. 42
Number of ICs owned or managed.............................. 65
Number of states............................................ 5
</TABLE>

<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED
MARCH 31, 1997
--------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 5,594
Working capital............................................. 8,727
Total assets................................................ 75,763
Long-term debt and capital leases, net of current portion... 3,132
Stockholders' equity........................................ 38,475
</TABLE>

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<PAGE> 7

RISK FACTORS

In addition to the other information contained in this Prospectus,
prospective investors should consider carefully the factors listed below in
evaluating an investment in the shares of Common Stock offered hereby. This
Prospectus contains forward-looking statements that include risks and
uncertainties, and address, among other things, acquisition and expansion
strategy, use of proceeds, projected capital expenditures, liquidity, possible
third-party payor arrangements, cost reduction strategies, integration of the
Affiliated Practices, possible effects of changes in government regulation and
managed care and availability of insurance. These statements may be found under
"Prospectus Summary," "Risk Factors," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business" and elsewhere in this Prospectus. Actual events or results may differ
materially from those discussed in forward-looking statements as a result of
various factors, including, without limitation, the risk factors set forth below
and matters set forth elsewhere in this Prospectus.

ABSENCE OF COMBINED OPERATING HISTORY; NO PRIOR OPERATING EXPERIENCE

APPI was incorporated in April 1996, has generated no revenue to date and
has conducted no significant operations other than in connection with this
offering and the pending Reorganizations. The Company will derive a substantial
portion of its revenue from service fees it receives from the Affiliated
Practices for managing certain non-medical aspects of their operations. The
service fees paid to the Company generally will be based on the revenue of the
Affiliated Practices. The Company's success will depend in large part on its
ability to apply its management experience and implement practices, systems and
marketing plans to enhance the revenue and profitability of the Affiliated
Practices. To date, the Founding Affiliated Practices have been operated as
independent entities without common management. Moreover, the Company has no
preexisting relationship with any of the Founding Affiliated Practices and has
not managed any physician groups in the past. Due to this lack of prior
operating experience, there can be no assurance that the Company will be able to
integrate successfully the assets and personnel of the Founding Affiliated
Practices or to successfully implement its operating strategies with and
profitably provide management and administrative services to the Founding
Affiliated Practices or any other Affiliated Practices. Although the pro forma
financial results of the Company for the year ended December 31, 1996 and the
three-months ended March 31, 1997 indicate that the Company generated revenue
and income on a pro forma basis, such pro forma financial results cover periods
when the Founding Affiliated Practices and APPI were not under common control or
management and, therefore, may not be indicative of the Company's future
financial or operating results. There can be no assurance that the Company will
be profitable on a quarterly or annual basis in the future.

DEPENDENCE ON AFFILIATED RADIOLOGISTS; RISK OF TERMINATION OF SERVICE AGREEMENTS

The Company's operations are entirely dependent on its continued
affiliation through Service Agreements with the Founding Affiliated Practices
and any other practices with which it may affiliate in the future. There can be
no assurance that the Founding Affiliated Practices or any such Affiliated
Practices will operate profitably or that the Service Agreements will not be
terminated. Two of the Founding Affiliated Practices are expected to contribute
in the aggregate approximately 50% of the service fees to be paid to the Company
by the Founding Affiliated Practices, based on their historical net patient
revenue and expenses. While the Service Agreements with the Founding Affiliated
Practices will have terms of 40 years and may be terminated by the Founding
Affiliated Practices only for cause, the termination of any of the Founding
Affiliated Practices' Service Agreements would have a material adverse effect on
the Company. In addition, following a termination of a Service Agreement, under
certain circumstances, a Founding Affiliated Practice will have the right to
repurchase from the Company the assets used by, and assume the liabilities
associated with, such Founding Affiliated Practice in the conduct of its
radiology practice. The Company anticipates that, to the extent that it enters
into management relationships with additional practices, the Service Agreements
entered into with such Affiliated Practices will have provisions providing for
the terms, termination and repurchase of assets similar to those contained in
the Service Agreements with the Founding Affiliated Practices. Any termination
of the Service Agreements with such Affiliated Practices could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Service Agreements."

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<PAGE> 8

Each Founding Affiliated Practice will enter into employment agreements
with the key radiologists associated with each such Founding Affiliated
Practice. The employment agreements generally will be for a term of five years.
Although the Company, in conjunction with the Founding Affiliated Practices,
will endeavor to extend such contracts, in the event a significant number of
such radiologists terminate their relationships with the Company, the Company's
business could be adversely affected. The Company anticipates that, to the
extent it enters into Service Agreements with other Affiliated Practices,
similar employment agreements will be entered into between such Affiliated
Practices and the key radiologists associated with their respective practices;
as such, the Company will face similar risks if a significant number of such
radiologists terminate their relationships with the Affiliated Practices.
Further, if a significant number of radiologists or other medical service
providers become unable or unwilling to continue in their roles, the Company's
business could be adversely affected. Neither the Company nor the Founding
Affiliated Practices maintains insurance on the lives of any affiliated
physician for the benefit of the Company. See "Business -- Affiliation
Structure."

The Service Agreements require the Founding Affiliated Practices to enter
into and enforce agreements with the stockholders and full-time radiologists at
each Founding Affiliated Practice (subject to certain exceptions) that include
covenants not to compete with the Company for a period of two years after
termination of employment. See "Business -- Service Agreements." The Company
anticipates that Service Agreements that may be entered into with Affiliated
Practices in the future will also contain similar covenants requiring such
Affiliated Practices to restrict the ability of the stockholders and full-time
radiologists at such Affiliated Practices to compete with the Company. In most
states, a covenant not to compete will be enforced only to the extent it is
necessary to protect a legitimate business interest of the party seeking
enforcement, does not unreasonably restrain the party against whom enforcement
is sought and is not contrary to public interest. This determination is made
based on all of the facts and circumstances of the specific case at the time
enforcement is sought. For this reason, it is not possible to predict with
certainty whether a court will enforce such a covenant in a given situation. In
addition, the Company is not aware of any judicial precedents which have
addressed whether a management company's interest under a management agreement
will be viewed as the type of protectable business interest that would permit it
to enforce such a covenant. The inability of the Company to enforce such
anti-competition covenants could have a material adverse effect on the Company's
business, financial condition and results of operations.

RELIANCE ON REFERRALS

The Company is dependent on referrals from third parties to its owned,
operated or managed ICs and to other ICs or hospitals to which the Affiliated
Practices provide professional services. A substantial portion of these
referrals are made by physicians who have no contractual obligation or economic
incentive to refer patients to those ICs or hospitals. The Company generates
revenue from fees charged for technical services provided at its owned, operated
or managed ICs and from service fees that it receives from the Affiliated
Practices. If a sufficiently large number of physicians elected at any time to
discontinue referring patients to the ICs affiliated with the Company, it would
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, there is potential for disruption of
relationships in connection with the acquisition or assumption of control of a
particular IC by the Company, and there can be no assurance that the Company
will retain all of the business conducted by that IC at the time of acquisition
or assumption of control by the Company.

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

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<PAGE> 9

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

RISKS ASSOCIATED WITH ACQUISITIONS

The Company's business strategy includes growth through the acquisition of
radiology practice assets, management service organizations ("MSOs"), ICs and
related businesses and entry into and maintenance of agreements to provide
management and administrative services to radiology practices. There can be no
assurance that the Company will be able to acquire and retain the assets of, or
provide management and administrative services to, additional radiology
practices, MSOs or ICs, profitably provide such services or successfully
integrate such additional relationships. In addition, there can be no assurance
that the assets of radiology practices acquired in the future, or the
relationships entered into in the future, will be beneficial to the successful
implementation of the Company's overall strategy or that such assets and
relationships will ultimately produce returns that justify their related
investment or implementation by the Company. See "Business -- Business
Strategy."

The Company's ability to expand its operations is dependent upon factors
such as its ability to (i) identify attractive and willing candidates for
acquisition, (ii) adapt or amend the Company's structure to comply with present
or future federal and state legal requirements affecting the Company's
arrangements with physician practice groups, including state prohibitions on
fee-splitting, corporate practice of medicine and referrals to facilities in
which physicians have a financial interest (see "-- Government Regulation"),
(iii) obtain regulatory approvals and certificates of need, where necessary, and
comply with licensing requirements applicable to the Company, the Affiliated
Practices and the physicians associated with the Affiliated Practices, including
their respective facilities (see "-- Government Regulation"), and (iv) expand
the Company's infrastructure and management to accommodate expansion. There can
be no assurance that the Company will be able to achieve these objectives or its
planned growth, that the assets of radiology practices, MSOs or ICs will
continue to be available for acquisition by the Company or that the addition of
such assets or management relationships will be profitable. Further,
acquisitions involve a number of special risks, including possible adverse
effects on the Company's operating results, diversion of management's attention
and resources, failure to retain key acquired personnel, amortization of
acquired intangible assets and risks associated with unanticipated events or
liabilities, some or all of which could have a material adverse effect on the
Company's business, financial condition and results of operations.

The Company intends to finance future acquisitions by using shares of the
Common Stock for all or a portion of the consideration to be paid. In the event
that the Common Stock does not maintain a sufficient valuation, or potential
acquisition candidates are otherwise unwilling to accept Common Stock as part of
the consideration for the sale of the assets of their businesses, the Company
may be required to utilize more of its cash resources in order to pursue its
acquisition program. The Company may also incur indebtedness to fund future
acquisitions. The Company has obtained a commitment letter for a $100,000,000
credit facility from GE Capital Corporation, subject to the negotiation of
definitive documentation, due diligence and certain other conditions. The
Company anticipates that such credit facility will be effective concurrently
with the closing of this offering, although there can be no assurance to that
effect. The Company's growth could be limited and its existing operations
impaired unless it is able to obtain additional capital through subsequent debt
or equity financings. There can be no assurance that the Company will be able to
obtain such additional financing or that, if available, such financing will be
on terms acceptable to the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- APPI -- Liquidity and Capital
Resources." As a result, there can be no assurance that the Company will be able
to implement its acquisition strategy successfully.

The Company intends to expand both in areas where the Founding Affiliated
Practices currently operate as well as in new markets. Although the Company
believes that it is in compliance with applicable anti-trust laws, there can be
no assurance that federal or state governmental authorities would not view the
Company as being dominant in a particular market and, therefore, cause the
Company to divest itself of any particular

8
<PAGE> 10

Affiliated Practice or related assets. In addition, these laws could prevent
acquisitions of practices that would be integrated into existing Affiliated
Practices if such acquisitions substantially lessen competition or tend to
create a monopoly.

GOVERNMENT REGULATION

Various federal and state laws regulate the relationships between providers
of health care services, physicians and other clinicians. See
"Business -- Government Regulation and Supervision." These laws include the
fraud and abuse provisions of the Social Security Act, which include the
"anti-kickback" and "anti-referral" laws. The "anti-kickback" laws prohibit the
offering, payment, solicitation or receipt of any direct or indirect
remuneration for the referral of Medicare or Medicaid patients or for the
recommendation, leasing, arranging, purchasing, ordering or providing of
Medicare or Medicaid covered services, items or equipment. The "anti-referral"
laws impose restrictions on physicians' referrals for designated health services
to entities with which they have financial relationships. Violations of the
"anti-kickback" or "anti-referral" laws may result in substantial civil or
criminal penalties for individuals or entities, including large civil monetary
penalties and exclusion from participation in the Medicare and Medicaid
programs. Such exclusion, if applied to the Company's owned, operated or managed
ICs, the Affiliated Practices or physicians affiliated with the Affiliated
Practices, could result in significant loss of reimbursement. A determination of
liability under any such laws could have a material adverse effect on the
Company's business, financial condition and results of operations.

Several states, including states in which some of the Founding Affiliated
Practices are located, have adopted laws similar to the "anti-kickback" and
"anti-referral" laws that cover patients in private programs as well as
government programs. These laws and their interpretations vary from state to
state and are enforced by the courts and regulatory authorities, each with broad
discretion. A determination of liability under any such laws could have a
material adverse effect on the Company's business, financial condition and
results of operations.

The laws of many states, including the states in which the Founding
Affiliated Practices are located, also prohibit business corporations, such as
the Company, from exercising control over the medical judgments or decisions of
physicians and from engaging in certain financial arrangements, such as
fee-splitting, with physicians. These laws and their interpretations vary from
state to state and are enforced by both the courts and regulatory authorities,
each with broad discretion. The Company's strategy is to acquire certain assets
and assume certain liabilities of, and to enter into Service Agreements with,
Affiliated Practices. Pursuant to the Service Agreements, the Company will
provide management, administrative, technical and non-medical services to the
Affiliated Practices in exchange for a service fee. The Company's intent is to
neither practice medicine nor exercise control over the medical judgments or
decisions of the Affiliated Practices or their physicians. Although the Company
believes that it is in compliance with applicable state laws and regulations
relating to the corporate practice of medicine, there can be no assurance that
regulatory authorities or other parties will not assert that the Company is
engaged in the corporate practice of medicine in such states or that the service
fees paid to the Company by the Affiliated Practices pursuant to the Service
Agreements constitute fee-splitting or the corporate practice of medicine. If
such a claim was successfully asserted, the Company could be subject to civil
and criminal penalties and could be required to restructure or terminate its
contractual arrangements. Such results or the inability of the Company to
successfully restructure its relationships to comply with such statutes could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Service Agreements."

Although the Company believes that its operations are in compliance with
applicable federal and state laws, neither the Company's current or anticipated
business operations nor the operations of the Founding Affiliated Practices have
been the subject of judicial or regulatory interpretation. There can be no
assurance that a review of the Company's business by courts or regulatory
authorities will not result in determinations that could adversely affect the
operations of the Company or that the health care regulatory environment will
not change so as to restrict the Company's operations. In addition, the
regulatory framework of certain jurisdictions may limit the Company's expansion
into, or ability to continue operations within, such jurisdictions if the
Company is unable to modify its operational structure to conform with such
regulatory

9
<PAGE> 11

framework. Any limitation on the Company's ability to expand could have a
material adverse effect on the Company's business, financial condition and
results of operations.

The ownership, construction, operation, expansion and acquisition of ICs
are subject to various federal and state laws, regulations and approvals
concerning the licensing of facilities, personnel, certificates of need and
other required certificates for certain types of health care facilities and
major medical equipment. These laws could limit the Company's ability to acquire
new imaging equipment or expand or replace its equipment at existing ICs. No
assurances can be given that the required regulatory approvals for any future
acquisitions, expansions or replacements will be granted to the Company, and the
failure to obtain such approvals could materially and adversely affect the
Company's business, financial condition and results of operations. See
"Business -- Government Regulation and Supervision."

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

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

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

REIMBURSEMENT TRENDS AND COST CONTAINMENT

The Company's revenue will be derived from service fees paid to the Company
by the Affiliated Practices pursuant to the Service Agreements and through its
ownership, operation and management of ICs. Substantially all of the revenue of
the Affiliated Practices and such ICs is currently derived from government
sponsored health care programs (principally, Medicare and Medicaid) and private
third-party payors. During the three month period ended March 31, 1997,
approximately 21% of the pro forma combined revenue of the Founding Affiliated
Practices was derived from government approved health care programs and
approximately 79% of the pro forma combined revenue of the Founding Affiliated
Practices was derived from private third-party payors. The health care industry
is experiencing a trend toward cost containment as government and private
third-party payors seek to impose lower reimbursement and utilization rates and
negotiate reduced payment schedules with service providers. The Company believes
that these trends will continue to result in a reduction from historical levels
in per-patient revenue for its Affiliated Practices and ICs and that the results
of operations of the Affiliated Practices are likely to continue to be affected
by lower reimbursement levels. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Further reductions in payments
or other changes in reimbursement for health care services could have a material
adverse effect on the Company's business, financial condition and results of
operations unless the Company is otherwise able to offset such payment
reductions.

10
<PAGE> 12

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

The federal government has implemented, through the Medicare program, a
resource-based relative value scale ("RBRVS") payment methodology for physician
services. The RBRVS is a fee schedule that, except for certain geographical and
other adjustments, pays similarly situated physicians the same amount for the
same services. The RBRVS is adjusted each year and is subject to increases or
decreases at the discretion of Congress. To date, the implementation of the
RBRVS has reduced payment rates for certain of the procedures historically
provided by the Affiliated Practices. RBRVS-type payment systems have also been
adopted by certain private third-party payors and the Company believes that it
is likely that other private third-party payors will adopt this payment
methodology in the future. Wider-spread implementation of such programs could
reduce payments by private third-party payors and could indirectly reduce the
Company's operating margins to the extent that the costs of providing
management, administrative, technical and non-medical services related to such
procedures could not be proportionately reduced. There can be no assurance that
such cost reduction efforts by governmental or private third-party payors will
not have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Government Regulation and
Supervision."

RISKS ASSOCIATED WITH MANAGED CARE CONTRACTS AND CAPITATED FEE ARRANGEMENTS

During the three month period ended March 31, 1997, approximately 96% of
the pro forma combined revenue of the Founding Affiliated Practices was derived
from payments made on a fee-for-service basis by patients and third-party payors
(including government programs) and approximately 4% of the pro forma combined
revenue of the Founding Affiliated Practices was derived from capitated
arrangements. Under capitated or other risk-sharing arrangements, the health
care provider typically is paid a pre-determined amount per-patient per-month
from the payor in exchange for providing all necessary covered services to
patients covered under the arrangement. Such contracts pass much of the
financial risk of providing care, including the risk of over-utilization, from
the payor to the provider. The Company believes that its success will, in part,
be dependent upon the Company's ability to negotiate, on behalf of the
Affiliated Practices and the Company's owned, operated or managed ICs, contracts
with HMOs, employer groups and other third-party payors pursuant to which
services will be provided on a risk-sharing or capitated basis by some or all of
such Affiliated Practices or ICs. Entering into additional risk-sharing
arrangements could result in greater predictability of revenue, but greater
unpredictability of expenses and, consequently, profitability. There can be no
assurance that the Company will be able to negotiate, on behalf of its
Affiliated Practices or the Company's owned, operated or managed ICs,
satisfactory arrangements on a capitated or other risk-sharing basis. In
addition, to the extent that patients or enrollees covered by such contracts
require more frequent or extensive care than is anticipated, the Company would
incur unanticipated costs not offset by additional revenue, which would reduce
operating margins. In the worst case, the revenue derived from such contracts
may be insufficient to cover the costs of the services provided. Any such
reduction or elimination of earnings could have a material adverse effect on the
Company's business, financial condition and results of operations.

COMPETITION

The Company is under competitive pressures for the acquisition and
retention of the assets of, and the provision of management and administrative
services to, additional radiology practices, MSOs and ICs. There are a number of
publicly-traded companies focused on owning or managing ICs. The Company is
aware of at least two privately-held physician practice management companies
focused on professional and technical radiology services. Several companies,
both publicly and privately held, that have established operating histories and,
in some instances, greater resources than the Company are pursuing the
acquisition of general and specialty physician practices and the management of
such practices. Additionally, some hospitals, clinics, health care companies,
HMOs and insurance companies engage in activities similar to those of the
Company. There can be no assurance that the Company will be able to compete
effectively for the acquisition of, or

11
<PAGE> 13

affiliation with, radiology practices, that additional competitors will not
enter the market, that such competition will not make it more difficult or
expensive to acquire the assets of, and provide management and administrative
services to, radiology practices on terms beneficial to the Company or that
competitive pressures will not otherwise adversely affect the Company. See
"Business -- Competition."

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

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

POTENTIAL LIABILITY AND INSURANCE; LEGAL PROCEEDINGS

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

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

In connection with the Reorganizations, the Company will assume and succeed
to substantially all of the obligations of each Founding Affiliated Practice.
Further, in connection with the acquisition of the assets of other Affiliated
Practices in the future, the Company anticipates that it will typically succeed
to some or all of the liabilities of such Affiliated Practices. Therefore,
claims may be asserted against the Company for events that occurred prior to the
acquisition of the assets of certain of the Affiliated Practices.

On May 22, 1997, the state of Texas adopted legislation that permits
injured patients to sue health insurance carriers, health maintenance
organizations and other managed care entities for medical malpractice. The
statute becomes effective September 1, 1997. There can be no assurance that this
legislation will not increase the cost of liability insurance to the Company for
services provided in Texas or any other states in which the Company does
business if similar legislation is adopted in those states.

12
<PAGE> 14

In connection with the Reorganizations, the shareholders of the Founding
Affiliated Practices have agreed to indemnify the Company for certain claims.
There can be no assurance that the Company will be able to receive payment under
any such indemnity agreements or that the failure to fully recover such amounts
will not have a material adverse effect on the Company's business, financial
condition or results of operations.

DEPENDENCE ON INFORMATION SYSTEMS

The current information systems of the Founding Affiliated Practices
consist of disparate, non-integrated accounting, practice management and other
information systems. In order to facilitate the extensive information management
requirements necessary to effectively manage operations, compete for managed
care contracts and achieve standardization and efficiencies of scale, the
Company intends to create a network infrastructure and deploy two company-wide
information systems. The design or selection and implementation of the various
components of these systems and the integration throughout the Company and the
Affiliated Practices and subsequent administration will entail a significant
commitment in capital and management resources. The Company may experience
unanticipated delays, complications and expenses in implementing, integrating
and operating such systems. Furthermore, such systems may require modifications,
improvements or replacements as the Company expands or if new technologies
become available. Such modifications, improvements or replacements may require
substantial expenditures and may require interruptions in operations during
periods of implementation. There can be no assurance that the Company will be
able to implement and operate these information systems effectively or that
these systems will produce the expected benefits. The failure to successfully
implement and maintain operational and financial information systems could have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Operations and
Development -- Information Management."

DEPENDENCE ON KEY PERSONNEL

The Company is dependent upon the ability and experience of its executive
officers and key personnel for the management of the Company and the
implementation of its business strategy. The Company currently has employment
contracts with four of its executive officers and a consulting agreement with
one other executive officer. Because of the difficulty in finding adequate
replacements for such personnel, the loss of the services of any such personnel
or the Company's inability in the future to attract and retain management and
other key personnel could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company does not
maintain key man insurance for any of its executive officers. See
"Management -- Employment Agreements; Covenants Not to Compete" and "Certain
Transactions."

SHARES ELIGIBLE FOR FUTURE SALE

The market price of the Common Stock could be adversely affected by the
sale of substantial amounts of Common Stock in the public market following this
offering. Upon the completion of the Reorganizations, the conversion of the
Convertible Notes and completion of this offering, the Company will have
outstanding 18,151,625 shares of Common Stock, assuming an initial public
offering price of $15.00 per share. The 5,000,000 shares of Common Stock to be
sold in this offering will be freely tradable without restriction under the
Securities Act of 1993, as amended (the "Securities Act"), unless acquired by
"affiliates" of the Company, as that term is defined under the Securities Act or
contractually restricted.

13
<PAGE> 15

shares upon expiration of such 12-month period following this offering; up to an
additional 25% of such shares upon expiration of the 18-month period following
this offering, and the remaining 50% of such shares upon expiration of a
24-month period following this offering. Further, each of the holders of the
Convertible Notes have entered into agreements with the Company pursuant to
which each holder has agreed not to sell any portion of the Convertible Notes or
any shares of the Common Stock issued or issuable upon conversion thereof for a
period of the 24 months following the date the Convertible Notes were issued to
such holder (which Notes were issued between September 30, 1996 and December 31,
1996). The Company has agreed with the Underwriters not to waive the restrictive
provisions of those agreements for 180 days after the date of this Prospectus
without the prior written consent of Smith Barney Inc. Upon expiration of these
agreements, the registered shares of Common Stock will be eligible for resale in
the public market and the unregistered shares of Common Stock, the Convertible
Notes and the shares of Common Stock issued or issuable upon conversion of the
Convertible Notes will become eligible for sale in the public market, subject to
the provisions of Rule 144 of the Securities Act. See "Shares Eligible for
Future Sale."

In addition, the Company, its officers and directors and all other holders
of Common Stock and securities convertible into or exercisable or exchangeable
for Common Stock have agreed that for a period of 180 days after the date of
this Prospectus they will not, without the prior written consent of Smith Barney
Inc., offer, sell, contract to sell or otherwise dispose of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock
except, in the case of the Company, in certain limited circumstances. See
"Shares Eligible for Future Sale."

CONTROL BY EXISTING STOCKHOLDERS

Following the completion of the Reorganizations, the conversion of the
Convertible Notes and completion of this offering, members of the Board of
Directors and the executive officers of the Company will own approximately
13.8%, and the security holders of the Founding Affiliated Practices will own
approximately 59.0%, of the outstanding shares of Common Stock. The Company's
Amended and Restated Bylaws do not provide for cumulative voting. The Company's
Amended and Restated Bylaws provide that, following the consummation of this
offering, the Board of Directors must nominate two physicians licensed to
practice medicine from the Affiliated Practices for election to the Board of
Directors at each annual meeting of the Company's stockholders (three licensed
physicians if the size of the Board of Directors increases to nine). Although to
the knowledge of the Company such directors and other persons do not have any
arrangements or understandings among themselves with respect to the voting of
the shares of Common Stock beneficially owned by such persons, following the
completion of this offering, such persons will be able to control the affairs of
the Company. See "Principal Stockholders."

ANTI-TAKEOVER CONSIDERATIONS

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

The Company has entered into employment agreements with four of its
executive officers which contain provisions that require the Company to pay
certain amounts to such employees upon their termination following certain
events including a change of control of the Company. Such agreements may delay
or prevent a change of control of the Company. See "Management -- Employment
Agreements; Covenants-Not-to-Compete."

14
<PAGE> 16

NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active public market for the Common
Stock will develop or continue after this offering. The initial public offering
price has been determined by negotiations among the Company and the several
Underwriters named herein, and may not be indicative of the market price for the
Common Stock after this offering. See "Underwriting" for factors considered in
determining the initial public offering price. There can be no assurance that
the market price for the Common Stock will not decline below the initial market
price. From time to time after this offering, there may be significant
volatility in the market price for the Common Stock. The trading price of the
Common Stock could be subject to significant fluctuations in response to
variations in the Company's quarterly operating results, general trends in the
Company's industry, regulatory and reimbursement developments, changes in
earnings estimates by securities analysts and other factors affecting the
Company's industry or the securities market as a whole. Any such fluctuations
may adversely affect the market price of the Common Stock.

IMMEDIATE AND SUBSTANTIAL DILUTION

The purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value of their
shares of Common Stock in the amount of $12.92 per share (based on an assumed
public offering price of $15.00 per share and after giving effect to the
Reorganizations and conversion of the Convertible Notes). See "Dilution." In the
event the Company issues additional Common Stock in the future, including shares
that may be issued in connection with future acquisitions, or upon the exercise
of options, purchasers of Common Stock in this offering may experience further
dilution in the net tangible book value per share of Common Stock.

15
<PAGE> 17

USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby, based upon an assumed initial public offering price of $15.00
per share and after deducting the estimated offering expenses payable by the
Company and the underwriting discounts and commissions ("Net Proceeds"), are
estimated to be approximately $68.4 million ($78.9 million if the Underwriters'
over-allotment option is exercised in full). Of this amount, approximately $53.6
million will be used to pay the cash portion of the consideration for the assets
of the Founding Affiliated Practices and approximately $14.8 million will be
used to repay certain indebtedness previously incurred by the Founding
Affiliated Practices. The indebtedness to be repaid from the Net Proceeds bears
interest at annual rates ranging from 5.35% to 10.36% with a weighted average
interest rate of 8.20% and would otherwise mature at various dates through the
year 2001. The indebtedness incurred by the Founding Affiliated Practices within
the last year that is to be repaid with portions of the Net Proceeds was
incurred for capital expenditures, acquisitions and working capital.

DIVIDEND POLICY

APPI has not paid any cash dividends since its inception, except in
connection with the Reorganizations. The Company currently intends to retain all
future earnings for the operation and expansion of its business and,
accordingly, the Company does not anticipate that any cash dividends will be
declared or paid on its Common Stock in the foreseeable future. Any payment of
such dividends in the future will be at the discretion of the Board of Directors
and will depend upon the earnings and financial position of the Company, its
results of operations, its capital needs, plans for expansion, contractual
restrictions to which the Company may be subject and such other factors as the
Board of Directors may deem appropriate. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- APPI -- Liquidity
and Capital Resources."

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<PAGE> 18

CAPITALIZATION

The following table sets forth the capitalization of the Company (i) as of
March 31, 1997, and (ii) on a pro forma basis giving effect to the
Reorganizations as adjusted to give effect to (a) the sale of the 5,000,000
shares of Common Stock offered hereby (assuming an initial public offering price
of $15.00 per share and after deducting underwriting discounts and commissions
and estimated offering expenses) and the application of the estimated Net
Proceeds therefrom as described under "Use of Proceeds" and (b) the conversion
of the Convertible Notes. This table should be read in conjunction with
"American Physician Partners, Inc. Unaudited Pro Forma Combined Financial Data,"
"Selected Financial Data," and the financial statements of APPI and the Founding
Affiliated Practices included elsewhere herein.

The Reorganizations include (a) the issuance of 10,714,125 shares of Common
Stock to the Founding Affiliated Practices, (b) the payment of $53.6 million,
all of which is to be paid in cash at closing, and (c) the receipt of assets
used by the Founding Affiliated Practices, and the assumption of related debt,
with a net book value of $21.8 million at March 31, 1997.

<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------
PRO FORMA
ACTUAL AS ADJUSTED
---------- -----------
<S> <C> <C>
Current portion of notes payable and capital leases......... $ -- $ 8,630
========== ===========
6% Convertible Promissory Notes............................. $3,500,000 $ --
Other long-term debt and capital leases, net of current
portion................................................... -- 3,131,875
Stockholders' equity (deficit):
Preferred Stock, $.0001 par value; 10,000,000 shares
authorized; no shares outstanding...................... -- --
Common Stock, $.0001 par value, 50,000,000 shares
authorized; 2,000,000 shares issued and outstanding,
actual; and 18,151,625 shares issued and outstanding,
pro forma as adjusted(1)............................... 200 1,815
Additional paid-in capital................................ 249,800 44,970,041
Accumulated deficit....................................... (2,529,425) (6,497,066)
---------- -----------
Total stockholders' equity (deficit).............. (2,279,425) 38,474,790
========== ===========
Total capitalization.............................. $1,220,575 $41,606,665
========== ===========
</TABLE>

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

(1) Excludes 1,445,000 shares issuable upon exercise of options outstanding as
of June 15, 1997, at a weighted average exercise price of $1.43 per share.
The number of shares issuable in connection with the Reorganizations and
upon conversion of the Convertible Notes will increase if the initial public
offering price is lower than $14.00 per share. See "Certain
Transactions -- Reorganizations," "Shares Eligible for Future Sale,"
"Description of Capital Stock" and Note 4 of Notes to Financial Statements
of APPI.

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<PAGE> 19

DILUTION

The net tangible book value of the Company at March 31, 1997 was
approximately $(2.3 million) or $(1.14) per share. Giving effect to the
Reorganizations and the conversion of the Convertible Notes (but not this
offering), the pro forma net tangible book value of the Company at March 31,
1997 would have been approximately $23.0 million or $1.75 per share. Therefore,
the increase in pro forma net tangible book value per share due to the
Reorganizations is $2.89 per share. After giving effect to the sale of the
shares of Common Stock offered hereby (assuming a public offering price of
$15.00 per share and after deducting underwriting discounts and commissions and
estimated offering expenses), the adjusted pro forma net tangible book value of
the Company at March 31, 1997 would have been approximately $37.8 million or
$2.08 per share, representing an immediate increase in net tangible book value
of $0.33 per share to existing stockholders and an immediate dilution of $12.92
per share to the investors purchasing shares in this offering ("New Investors").
The following table illustrates this per share dilution to New Investors:

<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $ 15.00
Historical net tangible book value........................ $(1.14)
Increase due to the Reorganizations and conversion of the
Convertible Notes...................................... 2.89
Increase attributable to New Investors.................... .33
------
Pro forma adjusted net tangible book value after this
offering.................................................. 2.08
--------
Dilution to New Investors................................... $ 12.92
========
</TABLE>

The following table sets forth at the date of this Prospectus the number of
shares of Common Stock purchased from the Company, the total consideration to
the Company and the average price per share paid by existing stockholders (after
giving effect to the Reorganizations and conversion of the Convertible Notes)
and by the New Investors (assuming a public offering price of $15.00 per share
and before deducting underwriting discounts and commissions and estimated
offering expenses):

<TABLE>
<CAPTION>
SHARES ACQUIRED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing
stockholders(1)......... 13,151,625 72.5% $(29,888,000) (66.3)% $(2.27)
New Investors............. 5,000,000 27.5 75,000,000 166.3 15.00
---------- ----- ------------ -----
Total........... 18,151,625 100.0% $ 45,112,000 100.0%
========== ===== ============ =====
</TABLE>

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

(1) Consists of management, the holders of the Convertible Notes, John
Pappajohn, Derace L. Schaffer, M.D., and persons receiving stock in
connection with the Reorganizations. Total consideration for existing
stockholders represents the combined stockholders' equity before this
offering adjusted to reflect the payment of approximately $53.6 million in
cash by the Company in connection with the Reorganizations and the
conversion of the Convertible Notes. The tangible assets received in
exchange for this consideration includes the net book value of the Founding
Affiliated Practices of approximately $21.8 million. See "Capitalization."

As of June 15, 1997, there were 1,445,000 shares issuable upon the exercise
of stock options having a weighted average exercise price of $1.43 per
share. To the extent these options are exercised, there will be further
dilution to New Investors.

18
<PAGE> 20

AMERICAN PHYSICIAN PARTNERS, INC.

UNAUDITED PRO FORMA COMBINED FINANCIAL DATA

The following unaudited pro forma combined financial statements give effect
to the Reorganizations as a combination of promoter interests, at historical
costs, and are based upon the historical financial statements of APPI and each
of the Founding Affiliated Practices. In addition, the unaudited pro forma
combined financial statements give effect to the offering (assuming a public
offering price of $15.00 per share) and the conversion of the Convertible Notes.
The unaudited pro forma combined statements of operations gives effect to the
completion of such transactions as if they had occurred on January 1, 1996, and
the unaudited pro forma combined balance sheet gives effect to the completion of
such transactions as if they had occurred on March 31, 1997. The unaudited pro
forma combined financial statements for the year ended December 31, 1996 have
been prepared using financial information for the 1996 fiscal years of each of
the Founding Affiliated Practices (which are calendar years except for Rockand
Radiological Group, which has a September 30 fiscal year) other than The Ide
Group, P.C., which has a June 30 fiscal year and for which information for the
twelve month period ended December 31, 1996 has been used in preparing the
unaudited pro forma combined financial statements. The unaudited pro forma
combined financial statements and notes thereto should be read in connection
with the other financial information, including the audited financial statements
of APPI and each of the Founding Affiliated Practices and notes thereto,
included elsewhere in this Prospectus.

The pro forma combined financial statements are presented for illustrative
purposes only and are not necessarily indicative of the operating results or
financial position that would have been achieved if the Reorganizations, the
conversion of the Convertible Notes and the offering had been consummated at the
beginning of the periods presented, nor are they necessarily indicative of
future operating results of the Company. The pro forma combined financial
information does not give effect to any cost savings or integration that may
result from the Reorganizations.

19
<PAGE> 21

AMERICAN PHYSICIAN PARTNERS, INC.

PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PACIFIC RADIOLOGY ROCKLAND
ADVANCED THE IDE M&S X-RAY IMAGING AND NUCLEAR RADIOLOGICAL
APPI RADIOLOGY GROUP PRACTICES CONSULTANTS MEDICINE GROUP
------- --------- ------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 1,657 $ 134 $2,051 $ 361 $ -- $ 583 $ 322
Accounts receivable, net................. -- 14,078 4,567 3,377 1,865 2,204 3,241
Other receivables........................ -- 1,160 -- 25 -- -- --
Other current assets..................... 599 1,090 233 74 2,222 218 530
------- ------- ------ ------ ------ ------ -------
Total current assets............... 2,256 16,462 6,851 3,837 4,087 3,005 4,093
Property and equipment, net............... 144 14,041 861 699 2,068 570 5,625
Investments in joint ventures............. -- 899 -- 1,607 -- 1,366 --
Deferred income taxes..................... -- -- -- -- -- -- 1,029
Notes receivable.......................... -- -- -- -- -- -- --
Intangible assets, net.................... -- -- -- 566 133 -- --
Other assets, net......................... 17 1,941 368 48 192 88 2,064
------- ------- ------ ------ ------ ------ -------
Total assets....................... $ 2,417 $33,343 $8,080 $6,757 $6,480 $5,029 $12,811
======= ======= ====== ====== ====== ====== =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings.................... $ -- $ 2,400 $ -- $ -- $ -- $1,400 $ --
Accounts payable and accrued expenses.... 1,197 2,407 1,600 222 1,247 190 187
Accrued salaries and benefits............ -- 1,046 343 145 288 456 541
Due to joint ventures.................... -- 686 -- -- -- -- --
Deferred income taxes.................... -- -- -- -- 886 799 428
Current portion of deferred
compensation........................... -- -- -- 83 -- -- --
Current portion of long-term debt........ -- 4,160 380 224 844 176 1,675
Current portion of capital lease
obligations............................ -- -- -- 13 -- -- 546
Other current liabilities................ -- 183 -- -- -- -- --
------- ------- ------ ------ ------ ------ -------
Total current liabilities.......... 1,197 10,882 2,323 687 3,265 3,021 3,377
Deferred income taxes..................... -- -- 1,711 -- 11 -- --
Deferred compensation, net of current
portion.................................. -- -- -- 1,346 -- -- 3,168
Long-term debt, net of current portion.... 3,500 5,631 1,248 158 2,946 -- 6,620
Capital lease obligations, net of current
portion.................................. -- -- -- 37 -- -- 538
Other liabilities......................... -- 359 -- -- -- -- --
------- ------- ------ ------ ------ ------ -------
Total liabilities.................. 4,697 16,872 5,282 2,228 6,222 3,021 13,703
------- ------- ------ ------ ------ ------ -------
Minority interests in consolidated
subsidiaries............................. -- 361 -- 423 -- -- --
Stockholders' equity:
Common stock............................. -- -- -- -- -- -- --
Additional paid-in capital............... 250 -- -- -- -- -- --
Accumulated earnings (deficit)........... (2,530) 16,110 2,798 4,106 258 2,008 (892)
------- ------- ------ ------ ------ ------ -------
Total stockholders' equity......... (2,280) 16,110 2,798 4,106 258 2,008 (892)
------- ------- ------ ------ ------ ------ -------
Total liabilities and stockholders'
equity........................... $ 2,417 $33,343 $8,080 $6,757 $6,480 $5,029 $12,811
======= ======= ====== ====== ====== ====== =======

<CAPTION>
VALLEY
RADIOLOGY UNADJUSTED PRO FORMA PRO FORMA OFFERING PRO FORMA
GROUP TOTAL ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED
--------- ---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................ $ 486 $ 5,594 $ -- $ 5,594 $ -- $ 5,594
Accounts receivable, net................. 1,841 31,173 -- 31,173 -- 31,173
Other receivables........................ -- 1,185 (219)(a) 966 -- 966
Other current assets..................... 25 4,991 (2,182)(a) 2,809 -- 2,809
------ ------- ------- ------- ------- -------
Total current assets............... 2,352 42,943 (2,401) 40,542 -- 40,542
Property and equipment, net............... 1,288 25,296 (110)(a) 25,186 -- 25,186
Investments in joint ventures............. 102 3,974 110 (a) 4,084 -- 4,084
Deferred income taxes..................... -- 1,029 (937)(b) 92 -- 92
Notes receivable.......................... 405 405 -- 405 -- 405
Intangible assets, net.................... -- 699 -- 699 -- 699
Other assets, net......................... 37 4,755 -- 4,755 -- 4,755
------ ------- ------- ------- ------- -------
Total assets....................... $4,184 $79,101 $(3,338) $75,763 $ -- $75,763
====== ======= ======= ======= ======= =======
Current liabilities:
Short-term borrowings.................... $ -- $ 3,800 $ -- $ 3,800 $ -- $ 3,800
Accounts payable and accrued expenses.... 92 7,142 -- 7,142 -- 7,142
Accrued salaries and benefits............ 240 3,059 (1,496)(a) 1,563 -- 1,563
Due to joint ventures.................... -- 686 -- 686 -- 686
Deferred income taxes.................... 312 2,425 7,386 (b) 9,811 -- 9,811
Current portion of deferred
compensation........................... -- 83 (83)(a) -- -- --
Current portion of long-term debt........ 612 8,071 -- 8,071 -- 8,071
Current portion of capital lease
obligations............................ -- 559 -- 559 -- 559
Other current liabilities................ -- 183 -- 183 -- 183
------ ------- ------- ------- ------- -------
Total current liabilities.......... 1,256 26,008 5,807 31,815 -- 31,815
Deferred income taxes..................... 37 1,759 (561)(b) 1,198 -- 1,198
Deferred compensation, net of current
portion.................................. -- 4,514 (4,514)(a) -- -- --
Long-term debt, net of current portion.... 852 20,955 (106)(a) 20,849 (18,292)(e)(f) 2,557
Capital lease obligations, net of current
portion.................................. -- 575 -- 575 -- 575
Other liabilities......................... -- 359 -- 359 -- 359
------ ------- ------- ------- ------- -------
Total liabilities.................. 2,145 54,170 626 54,796 (18,292) 36,504
Minority interests in consolidated
subsidiaries............................. -- 784 -- 784 -- 784
Stockholders' equity:
Common stock............................. -- -- 1 (c) 1 1 (e)(f) 2
Additional paid-in capital............... -- 250 26,429 (c)(d) 26,679 18,291 (e)(f) 44,970
Accumulated earnings (deficit)........... 2,039 23,897 (30,394)(a)(b)(c) (6,497) -- (6,497)
------ ------- ------- ------- ------- -------
Total stockholders' equity......... 2,039 24,147 (3,964) 20,183 18,292 38,475
------ ------- ------- ------- ------- -------
Total liabilities and stockholders'
equity........................... $4,184 $79,101 $(3,338) $75,763 $ -- $75,763
====== ======= ======= ======= ======= =======
</TABLE>

20
<PAGE> 22

AMERICAN PHYSICIAN PARTNERS, INC.

PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PACIFIC RADIOLOGY ROCKLAND VALLEY
ADVANCED THE IDE M&S X-RAY IMAGING AND NUCLEAR RADIOLOGICAL RADIOLOGY
APPI RADIOLOGY GROUP PRACTICES CONSULTANTS MEDICINE GROUP GROUP
------- --------- --------- --------- ----------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Physician groups revenue,
net......................... $ -- $52,882 $25,740 $15,198 $13,295 $13,572 $17,333 $11,174
Less: amounts retained by
physician groups............ -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Service fee revenue.......... -- 52,882 25,740 15,198 13,295 13,572 17,333 11,174
------- ------- ------- ------- ------- ------- ------- -------
Costs and expenses:
Costs of affiliated
physician services........ -- 2,293 12,957 8,703 7,215 10,265 6,051 5,384
Practice salaries, wages and
benefits.................. -- 12,318 3,090 1,338 1,840 1,744 4,252 2,593
Practice supplies........... -- 3,206 1,377 583 568 293 1,147 356
Practice rent and lease
expense................... -- 2,302 3,664 272 385 273 111 420
Depreciation and
amortization.............. 3 3,450 668 670 981 201 1,350 223
Other practice expenses..... -- 6,272 3,348 1,542 1,940 823 3,577 1,337
Interest expense............ 23 751 163 70 311 71 582 73
Corporate general and
administrative expense.... 1,624 -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total costs and
expenses............ 1,650 30,592 25,267 13,178 13,240 13,670 17,070 10,386
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before taxes,
minority interests in income
of consolidated
subsidiaries, and equity in
earnings (loss) of
investments................. (1,650) 22,290 473 2,020 55 (98) 263 788
Equity in earnings (loss) of
investments................. -- 1,207 -- 605 -- 292 -- (19)
Minority interests in income
of consolidated
subsidiaries................ -- (18) -- (249) -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before taxes... (1,650) 23,479 473 2,376 55 194 263 769
Income tax expense
(benefit)................... -- -- 527 -- 715 57 (71) 133
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)............ $(1,650) $23,479 $ (54) $ 2,376 $ (660) $ 137 $ 334 $ 636
======= ======= ======= ======= ======= ======= ======= =======
Pro forma earnings per
share.......................
Pro forma weighted average
number of common shares
outstanding.................

UNADJUSTED PRO FORMA PRO FORMA OFFERING PRO FORMA
TOTAL ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED
---------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Physician groups revenue,
net......................... $149,194 $ (4,400)(g)(h)(i) $144,794 -- $ 144,794
Less: amounts retained by
physician groups............ -- (55,218)(j) (55,218) -- (55,218)
-------- -------- -------- ------- -----------
Service fee revenue.......... 149,194 (59,618) 89,576 -- 89,576
-------- -------- -------- ------- -----------
Costs and expenses:
Costs of affiliated
physician services........ 52,868 (52,868)(k) -- -- --
Practice salaries, wages and
benefits.................. 27,175 (507)(g) 26,668 -- 26,668
Practice supplies........... 7,530 (418)(g) 7,112 -- 7,112
Practice rent and lease
expense................... 7,427 (145)(g) 7,282 -- 7,282
Depreciation and
amortization.............. 7,546 (137)(g) 7,409 -- 7,409
Other practice expenses..... 18,839 (328)(g)(h) 18,511 -- 18,511
Interest expense............ 2,044 (57)(g)(h) 1,987 (1,236)(m)(n) 751
Corporate general and
administrative expense.... 1,624 -- 1,624 -- 1,624
-------- -------- -------- ------- -----------
Total costs and
expenses............ 125,053 (54,460) 70,593 (1,236) 69,357
-------- -------- -------- ------- -----------
Income (loss) before taxes,
minority interests in income
of consolidated
subsidiaries, and equity in
earnings (loss) of
investments................. 24,141 (5,158) 18,983 1,236 20,219
Equity in earnings (loss) of
investments................. 2,085 32 (g) 2,117 -- 2,117
Minority interests in income
of consolidated
subsidiaries................ (267) 2 (g) (265) -- (265)
-------- -------- -------- ------- -----------
Income (loss) before taxes... 25,959 (5,124) 20,835 1,236 22,071
Income tax expense
(benefit)................... 1,361 6,972 (l) 8,333 494 (l) 8,827
-------- -------- -------- ------- -----------
Net income (loss)............ $ 24,598 $(12,096) $ 12,502 $ 742 $ 13,244
======== ======== ======== ======= ===========
Pro forma earnings per
share....................... $ 0.68
===========
Pro forma weighted average
number of common shares
outstanding................. 19,458,583
===========
</TABLE>

21
<PAGE> 23

AMERICAN PHYSICIAN PARTNERS, INC.

PRO FORMA COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PACIFIC RADIOLOGY ROCKLAND
ADVANCED THE IDE M&S X-RAY IMAGING AND NUCLEAR RADIOLOGICAL
APPI RADIOLOGY GROUP PRACTICES CONSULTANTS MEDICINE GROUP
----- --------- --------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Physician groups revenue, net.......... $ -- $16,073 $6,955 $3,494 $3,622 $3,644 $4,526
Less: amounts retained by physician
groups............................... -- -- -- -- -- -- --
----- ------- ------ ------ ------ ------ ------
Service fee revenue.................... -- 16,073 6,955 3,494 3,622 3,644 4,526
----- ------- ------ ------ ------ ------ ------
Costs and expenses:
Costs of affiliated physician
services........................... -- 1,069 2,352 1,818 2,110 2,105 1,448
Practice salaries, wages and
benefits........................... -- 3,865 724 522 451 367 1,185
Practice supplies.................... -- 831 337 142 104 67 314
Practice rent and lease expense...... -- 811 991 74 110 65 21
Depreciation and amortization........ 5 971 240 83 239 50 307
Other practice expenses.............. -- 1,737 833 303 481 218 823
Interest expense..................... 31 197 38 9 77 34 177
Corporate general and administrative
expense............................ 844 -- -- -- -- -- --
----- ------- ------ ------ ------ ------ ------
Total costs and expenses....... 880 9,481 5,515 2,951 3,572 2,906 4,275
----- ------- ------ ------ ------ ------ ------
Income (loss) before taxes, minority
interests in income of consolidated
subsidiaries, and equity in earnings
of investments....................... (880) 6,592 1,440 543 50 738 251
Equity in earnings of investments...... -- 273 -- 178 -- 96 --
Minority interests in income of
consolidated subsidiaries............ -- 7 -- (77) -- -- --
----- ------- ------ ------ ------ ------ ------
Income (loss) before taxes............. (880) 6,872 1,440 644 50 834 251
Income tax expense..................... -- -- 527 -- 18 265 68
----- ------- ------ ------ ------ ------ ------
Net income (loss)...................... $(880) $ 6,872 $ 913 $ 644 $ 32 $ 569 $ 183
===== ======= ====== ====== ====== ====== ======
Pro forma earnings per share...........
Pro forma weighted average number of
common shares outstanding............

<CAPTION>
VALLEY
RADIOLOGY UNADJUSTED PRO FORMA PRO FORMA OFFERING PRO FORMA
GROUP TOTAL ADJUSTMENTS COMBINED ADJUSTMENT AS ADJUSTED
--------- ---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Physician groups revenue, net.......... $2,891 $41,205 $ (1,096)(g)(h) $ 40,109 $ -- $ 40,109
Less: amounts retained by physician
groups............................... -- -- (15,301)(j) (15,301) -- (15,301)
------ ------- -------- -------- ---- ----------
Service fee revenue.................... 2,891 41,205 (16,397) 24,808 -- 24,808
------ ------- -------- -------- ---- ----------
Costs and expenses:
Costs of affiliated physician
services........................... 1,396 12,298 (12,298)(k) -- -- --
Practice salaries, wages and
benefits........................... 550 7,664 (163)(g) 7,501 -- 7,501
Practice supplies.................... 75 1,870 (95)(g) 1,775 -- 1,775
Practice rent and lease expense...... 116 2,188 (37)(g) 2,151 -- 2,151
Depreciation and amortization........ 72 1,967 (27)(g) 1,940 -- 1,940
Other practice expenses.............. 348 4,743 (91)(g)(h) 4,652 -- 4,652
Interest expense..................... 28 591 (12)(g)(h) 579 (334)(m)(n) 245
Corporate general and administrative
expense............................ -- 844 -- 844 -- 844
------ ------- -------- -------- ---- ----------
Total costs and expenses....... 2,585 32,165 (12,723) 19,442 (334) 19,108
------ ------- -------- -------- ---- ----------
Income (loss) before taxes, minority
interests in income of consolidated
subsidiaries, and equity in earnings
of investments....................... 306 9,040 (3,674) 5,366 334 5,700
Equity in earnings of investments...... -- 547 21 (g) 568 -- 568
Minority interests in income of
consolidated subsidiaries............ -- (70) 1 (g) (69) -- (69)
------ ------- -------- -------- ---- ----------
Income (loss) before taxes............. 306 9,517 (3,652) 5,865 334 6,199
Income tax expense..................... 52 930 1,416 (l) 2,346 134 (l) 2,480
------ ------- -------- -------- ---- ----------
Net income (loss)...................... $ 254 $ 8,587 $ (5,068) $ 3,519 $200 $ 3,719
====== ======= ======== ======== ==== ==========
Pro forma earnings per share........... $ 0.19
Pro forma weighted average number of
common shares outstanding............ 19,458,583
==========
</TABLE>

22
<PAGE> 24

AMERICAN PHYSICIAN PARTNERS, INC.

NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION

APPI was incorporated in April 1996 and has conducted no significant
operations and generated no revenue to date other than in connection with this
offering and the Reorganizations. The following is a summary of the adjustments
reflected in the Unaudited Pro Forma Consolidated Financial Statements assuming
the Reorganizations, the offering and conversion of the Convertible Notes. The
Reorganizations will be accounted for as a combination of promoter interests, at
historical costs, under generally accepted accounting principles. APPI will not
be acquiring equity interests in the Founding Affiliated Practices, but will be
acquiring substantially all of the assets of the Founding Affiliated Practices.

Upon completion of the Reorganizations, the Company will not consolidate
the financial position or results of operations of the Founding Affiliated
Practices. The Company presents physician groups revenue, net and amounts
retained by physician groups from which service fee revenues are derived and
earned by the Company for display purposes only.

PHYSICIAN GROUPS REVENUE, NET

Physician groups revenue, net represents the revenue of the affiliated
physician groups reported at the estimated realizable amounts from patients,
third-party payors and others for services rendered, net of contractual and
other adjustments. Physician groups revenue, net is accounted for and provisions
for estimated third-party payor adjustments are estimated and recorded in the
period in which the services are provided. Any adjustment to the amounts is
recorded in the period in which the revised amount is determined.

SERVICE FEE REVENUE

Service fee revenue represents physician groups revenue, net less amounts
retained by physician groups. The service fees payable to the Company by the
Affiliated Practices under the Service Agreements vary based on the fair market
value, as determined in arms' length negotiations, of the nature and amount of
services provided. Such fees are payable monthly and consist of various
combinations of the following: (i) a fixed percentage of the practice's revenue
from physician and certain other medical services; (ii) all or a substantial
portion of the revenue derived from facility and non-physician fees generated by
ICs owned, operated or managed by the Company; (iii) operating and non-operating
expenses of the Founding Affiliated Practices paid by the Company; and (iv)
certain negotiated performance and other adjustments. The service fees for two
practices are subject to state law requiring flat fees that are subject to
renegotiation on an annual basis.

PRO FORMA CONSOLIDATED BALANCE SHEET

The adjustments reflected in the unaudited pro forma consolidated balance
sheet are as follows:

(a) To eliminate assets not acquired and liabilities not assumed by the
Company.

(b) To record the establishment of deferred income taxes for the
Company after the Reorganizations.

(d) To record the reclassification of the Founding Affiliated
Practices's earnings (deficit) accumulated prior to the offering to
additional paid-in capital.

(e) To reflect the conversion of all $3,500,000 of Convertible Notes
issued by the Company into 437,500 shares of Common Stock at the
time of the offering.

(f) To reflect the effects of the offering, including the use of
estimated net cash proceeds from the issuance of Common Stock to
reduce debt.

PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS

The adjustments reflected in the unaudited pro forma consolidated
statements of operations for the three months ended March 31, 1997 and year
ended December 31, 1996 are as follows:

(g) As part of the Reorganizations, the Company will own minority
interests in entities that were wholly-owned by the Founding
Affiliated Practices or their shareholders.

23
<PAGE> 25

(h) To eliminate the revenue and related expenses associated with a
division which will no longer be a part of an Affiliated Practice
subsequent to the Reorganizations.

(i) To eliminate a non-recurring gain generated through the receipt of
proceeds from a cash value life insurance policy by one of the
founding Affiliated Practices.

(j) To record amounts retained by physician groups as specified in the
Service Agreements entered into with each of the Founding
Affiliated Practices.

(k) To eliminate the historical costs of affiliated physician services
for each of the Founding Affiliated Practices. The amounts retained
by physician groups will be used to pay physicians' compensation
and benefits pursuant to employment agreements between the practice
and each individual physician.

(l) To record federal and state income taxes at an estimated effective
rate of 40%, which consists of a 34% federal statutory tax rate
and an average state statutory tax rate of 6%. Prior to the
Reorganizations, certain of the Founding Affiliated Practices were
S corporations or general partnerships with such entities owing no
federal or state taxes and the shareholders or partners of each
such entity being responsible for payment of these obligations.

(m) To eliminate interest expense on the $3,500,000 of Convertible
Notes issued by the Company due to their conversion into 437,500
shares of Common Stock at the time of the offering.

(n) To eliminate interest expense on the debt reduced through the use
of estimated net cash proceeds from the issuance of Common Stock at
the time of the offering.

24
<PAGE> 26

SELECTED FINANCIAL DATA
(IN THOUSANDS)

The following information for APPI and each of the Founding Affiliated
Practices (Advanced Radiology, LLC and Subsidiary; The Ide Group, P.C.; M&S
X-Ray Practices; Pacific Imaging Consultants; Radiology and Nuclear Medicine,
P.A.; Rockland Radiological Group; and Valley Radiology Group) has been derived
from the financial statements of the respective entities. The information for
the year ended December 31, 1994 for M&S X-Ray Practices; Pacific Imaging
Consultants; Radiology and Nuclear Medicine, P.A.; and Valley Radiology Group
has been derived from the unaudited financial statements which, in the opinion
of management, includes all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the information included
therein. APPI was incorporated in April 1996 and has conducted no significant
operations and generated no revenue to date other than in connection with this
offering and the pending Reorganizations. Results for interim periods are not
necessarily indicative of those to be expected for a full fiscal year. The
selected financial information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited financial statements of APPI and each of the Founding Affiliated
Practices and notes thereto included elsewhere in this Prospectus. The selected
financial data of each of the entities other than APPI are presented below
because each of the entities will contribute their assets to APPI in connection
with their respective Reorganization and each entity will enter into a Service
Agreement with the Company.

AMERICAN PHYSICIAN PARTNERS, INC.

<TABLE>
<CAPTION>
FROM INCEPTION
(APRIL 30, 1996) THREE MONTHS
THROUGH ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- --------------
(UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue............................................... $ -- $ --
Expenses:
Salaries, wages and benefits.............................. 546 410
Depreciation and amortization............................. 3 5
Other expenses............................................ 1,101 465
------- -------
Total expenses.............................................. 1,650 880
------- -------
Net loss.................................................... $(1,650) $ (880)
======= =======
</TABLE>

<TABLE>
<CAPTION>
AS OF
MARCH 31, 1997
--------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets............................................................... $ 2,417
Total debt................................................................. 3,500
Stockholders' deficit...................................................... (2,279)
</TABLE>

25
<PAGE> 27

ADVANCED RADIOLOGY, LLC AND SUBSIDIARY

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- -------------------
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue................................. $22,451 $38,833 $52,882 $12,203 $16,073
Expenses:
Costs of affiliated physician services...... 8,756 812 2,293 149 1,069
Practice salaries, wages and benefits....... 6,325 10,051 12,318 2,512 3,865
Depreciation and amortization............... 1,879 3,023 3,450 886 971
Other practice expenses..................... 5,757 9,998 12,531 2,617 3,575
------- ------- ------- ------- -------
Total expenses................................ 22,717 23,884 30,592 6,164 9,480
------- ------- ------- ------- -------
Equity in earnings of investments............. 762 635 1,207 395 273
Minority interests in income of consolidated
subsidiaries................................ -- -- (18) 6 6
------- ------- ------- ------- -------
Income before income taxes.................... $ 496 $15,584 $23,479 $ 6,440 $ 6,872
======= ======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
AS OF
MARCH 31, 1997
--------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets.............................................................. $33,342
Total debt................................................................ 12,190
Stockholders' equity...................................................... 16,110
</TABLE>

THE IDE GROUP, P.C.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue................................. $24,304 $25,534 $26,020 $19,742 $19,851
Expenses:
Costs of affiliated physician services...... 10,322 10,936 11,483 7,887 9,419
Practice salaries, wages and benefits....... 2,964 3,141 3,081 2,390 2,351
Depreciation and amortization............... 726 839 835 616 490
Other practice expenses..................... 7,789 8,598 8,716 6,478 6,305
------- ------- ------- ------- -------
Total expenses................................ 21,801 23,514 24,115 17,371 18,565
------- ------- ------- ------- -------
Equity in earnings of investments............. -- -- -- -- --
Minority interests in income of consolidated
subsidiaries................................ -- -- -- -- --
------- ------- ------- ------- -------
Income before income taxes.................... $ 2,503 $ 2,020 $ 1,905 $ 2,371 $ 1,285
======= ======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
AS OF
MARCH 31, 1997
--------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets................................................ $8,079
Total debt.................................................. 1,628
Stockholders' equity........................................ 2,798
</TABLE>

26
<PAGE> 28

M&S X-RAY PRACTICES

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------- ---------------
1994 1995 1996 1996 1997
----------- ------- ------- ------ ------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue................................ $17,341 $15,068 $15,198 $3,783 $3,494
Expenses:
Costs of affiliated physician services..... 9,240 8,866 8,703 1,605 1,818
Practice salaries, wages and benefits...... 2,001 1,228 1,338 240 522
Depreciation and amortization.............. 883 963 671 192 83
Other practice expenses.................... 2,921 2,777 2,466 1,065 528
------- ------- ------- ------ ------
Total expenses............................... 15,045 13,834 13,178 3,102 2,951
------- ------- ------- ------ ------
Equity in earnings of investments............ 98 213 605 156 178
Minority interests in income of consolidated
subsidiaries............................... (220) (216) (249) (56) (77)
------- ------- ------- ------ ------
Income before income taxes................... $ 2,174 $ 1,231 $ 2,376 $ 781 $ 644
======= ======= ======= ====== ======
</TABLE>

<TABLE>
<CAPTION>
AS OF
MARCH 31, 1997
--------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets.............................................................. $6,757
Total debt................................................................ 432
Stockholders' equity...................................................... 4,107
</TABLE>

PACIFIC IMAGING CONSULTANTS

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------- ---------------
1994 1995 1996 1996 1997
----------- ------- ------- ------ ------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue................................ $8,806 $11,448 $13,295 $2,809 $3,622
Expenses:
Costs of affiliated physician services..... 2,992 5,897 7,215 1,351 2,110
Practice salaries, wages and benefits...... 1,004 1,604 1,840 391 451
Depreciation and amortization.............. 1,082 996 981 244 239
Other practice expenses.................... 4,269 3,055 3,204 660 772
------ ------- ------- ------ ------
Total expenses............................... 9,347 11,552 13,240 2,646 3,572
------ ------- ------- ------ ------
Equity in earnings of investments............ -- -- -- -- --
Minority interests in income of consolidated
subsidiaries............................... -- -- -- -- --
------ ------- ------- ------ ------
Income (loss) before income taxes............ $ (541) $ (104) $ 55 $ 163 $ 50
====== ======= ======= ====== ======
</TABLE>

<TABLE>
<CAPTION>
AS OF
MARCH 31, 1997
--------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets.............................................................. $6,480
Total debt................................................................ 3,790
Stockholders' equity...................................................... 259
</TABLE>

27
<PAGE> 29

RADIOLOGY AND NUCLEAR MEDICINE, P.A.

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------ ---------------
1994 1995 1996 1996 1997
----------- ------- ------ ------ ------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue.................................. $13,379 $13,849 $13,572 $3,101 $3,644
Expenses:
Costs of affiliated physician services....... 9,662 10,700 10,265 2,034 2,105
Practice salaries, wages and benefits........ 1,718 1,807 1,744 352 367
Depreciation and amortization................ 133 188 202 52 50
Other practice expenses...................... 1,921 1,530 1,459 346 383
------- ------- ------ ------ ------
Total expenses................................. 13,434 14,225 13,670 2,784 2,905
------- ------- ------ ------ ------
Equity in earnings of investments.............. 273 311 292 96 96
Minority interests in income of consolidated
subsidiaries................................. -- -- -- -- --
------- ------- ------ ------ ------
Income (loss) before income taxes.............. $ 218 $ (65) $ 194 $ 413 $ 835
======= ======= ====== ====== ======
</TABLE>

<TABLE>
<CAPTION>
AS OF
MARCH 31, 1997
--------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets.............................................................. $5,029
Total debt................................................................ 1,576
Stockholders' equity...................................................... 2,008
</TABLE>

ROCKLAND RADIOLOGICAL GROUP

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue.................................. $15,080 $17,824 $17,333 $7,801 $8,897
Expenses:
Costs of affiliated physician services....... 3,674 7,074 6,051 2,397 2,728
Practice salaries, wages and benefits........ 3,917 4,118 4,252 1,935 2,180
Depreciation and amortization................ 1,605 1,628 1,350 704 614
Other practice expenses...................... 5,439 6,050 5,417 2,291 2,519
------- ------- ------- ------ ------
Total expenses................................. 14,635 18,870 17,070 7,327 8,041
------- ------- ------- ------ ------
Equity in earnings of investments.............. -- -- -- -- --
Minority interests in income of consolidated
subsidiaries................................. -- -- -- -- --
------- ------- ------- ------ ------
Income (loss) before income taxes.............. $ 445 $(1,046) $ 263 $ 474 $ 856
======= ======= ======= ====== ======
</TABLE>

<TABLE>
<CAPTION>
AS OF
MARCH 31, 1997
------------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets.............................................................. 12,811
Total debt................................................................ 9,378
Stockholders' deficit..................................................... (892)
</TABLE>

<PAGE> 30

VALLEY RADIOLOGY GROUP

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------- ---------------
1994 1995 1996 1996 1997
----------- ------- ------- ------ ------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue................................ $13,557 $10,507 $11,174 $2,633 $2,891
Expenses:
Costs of affiliated physician services..... 6,012 5,511 5,384 1,270 1,396
Practice salaries, wages and benefits...... 3,172 2,269 2,593 525 550
Depreciation and amortization.............. 220 169 223 37 72
Other practice expenses.................... 3,765 2,100 2,149 549 567
------- ------- ------- ------ ------
Total expenses............................... 13,169 10,049 10,349 2,381 2,585
------- ------- ------- ------ ------
Equity (loss) in earnings of investments..... 84 14 (19) -- --
Minority interests in income of consolidated
subsidiaries............................... -- -- -- -- --
------- ------- ------- ------ ------
Income before income taxes................... $ 472 $ 472 $ 806 $ 252 $ 306
======= ======= ======= ====== ======
</TABLE>

<TABLE>
<CAPTION>
AS OF
MARCH 31, 1997
--------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets.............................................................. $4,184
Total debt................................................................ 1,464
Stockholders' equity...................................................... 2,039
</TABLE>

29
<PAGE> 31

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion has been divided into two sections, the first
relating to the historical and pro forma combined operations of APPI, the entity
whose Common Stock is being issued in connection with the Reorganizations and
this offering, and the second relating to the historical operations of each of
the Founding Affiliated Practices (Advanced Radiology, LLC and Subsidiary; The
Ide Group, P.C.; M&S X-Ray Practices; Pacific Imaging Consultants; Radiology and
Nuclear Medicine, P.A.; Rockland Radiological Group, P.C.; and Valley Radiology
Group). The following discussion of the pro forma combined results of operations
and financial position of the Company and of the results of operations of each
of the Founding Affiliated Practices should be read in conjunction with the
financial statements of APPI, the Company's unaudited pro forma combined
financial statements and notes thereto, and the audited financial statements of
each of the Founding Affiliated Practices and the notes thereto appearing
elsewhere in this Prospectus. For purposes of the following discussion of
results of operations of the Founding Affiliated Practices, medical service
revenue, net represents the estimated realizable amount to be received from
patients, third party payors and others for the provision of medical services.
The pro forma financial results of the Company included herein cover periods
when the Founding Affiliated Practices and APPI were not under common control or
management and, therefore, may not be indicative of the Company's future
financial or operating results. There can be no assurance that the Company will
be profitable on a quarterly or annual basis in the future.

APPI

Overview

APPI has conducted no significant operations to date but will be acquiring,
in connection with the Reorganizations and this offering, tangible and
intangible assets and liabilities of, and entering into Service Agreements with,
the Founding Affiliated Practices. Through the Service Agreements, the Company
will be providing management, administrative, technical and non-medical services
to the Affiliated Practices in return for service fees. The service fees
represent the physician groups revenue, net less amounts retained by physician
groups. Physician groups revenue, net consists of the revenue of the Affiliated
Practices reported at the estimated realizable amounts from patients,
third-party payors and others for services rendered, net of contractual and
other adjustments. The service fees payable to the Company by the Affiliated
Practices under the Service Agreements vary based on the fair market value, as
determined in arms' length negotiations, and the nature and extent of services
provided. Such fees are payable monthly and consist of the following: (i) a
percentage of the revenue relating to physician services and certain other
medical services; (ii) all or a substantial portion of the revenue derived from
facility and non-physician fees generated by ICs owned, operated or managed by
the Company; (iii) operating and non-operating expenses of the Founding
Affiliated Practices paid by the Company pursuant to the Service Agreements; and
(iv) certain negotiated performance and other adjustments. The service fees for
two practices are subject to state law requiring flat fees that are subject to
renegotiation on an annual basis. In addition, the Company receives income from
joint ventures in which the Affiliated Practices hold minority interests. The
joint ventures are accounted for under the equity method of accounting.

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

30
<PAGE> 32

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

Results of Operations

APPI has conducted no significant operations to date and will not conduct
significant operations until the Reorganizations and this offering are
completed. APPI has incurred and continues to incur various legal, accounting,
travel and marketing costs in connection with the Reorganizations and this
offering. As of March 31, 1997, such expenses had been funded primarily by the
proceeds received from the issuance of $3.5 million in Convertible Notes. In
addition, during 1996, APPI borrowed $0.4 million in the form of notes from its
stockholders. As of March 31, 1997, these notes had been fully paid.

APPI has recorded a full valuation allowance against its deferred tax
assets because of its current financial condition, its limited operating history
and its operating losses recorded to date. If the Company does achieve
profitability in the future, the valuation allowance will be reduced by a credit
to income.

Pro Forma

As discussed in the notes to the unaudited pro forma combined statement of
operations, the revenue of the Company will consist primarily of fees under the
Service Agreements. The revenue included in the pro forma financial statements
are those that would have been earned based on the operating results of the
Founding Affiliated Practices in 1996 and for the three months ended March 31,
1997 assuming that the Reorganizations and this offering had been completed as
of January 1, 1996. The pro forma service fee revenue of $89.6 million for the
year ended December 31, 1996 and $24.8 for the three months ended March 31, 1997
is based on the service fees that would have been payable had the Service
Agreements been in effect for such periods.

The total pro forma operating expenses for the year ended December 31, 1996
and for the three months ended March 31, 1997 do not reflect cost reductions
which the Company intends to seek or the addition of corporate costs associated
with the Company's anticipated expanded infrastructure.

Pro forma income taxes assume that the Company had operated as a taxpaying
entity for the year ended December 31, 1996 and for the three months ended March
31, 1997, subject to an effective combined federal and state income tax rate of
40%.

Liquidity and Capital Resources

If the Reorganizations and this offering had occurred on March 31, 1997,
the Company would have had pro forma working capital of $10.4 million (assuming
an initial offering price of $15.00 per share and after giving effect to the use
of proceeds from the offering in the manner set forth in "Use of Proceeds.").

The Company anticipates making capital expenditures during the remainder of
1997 of approximately $7.0 million, primarily for the purchase of imaging and
teleradiology equipment. In addition to these capital expenditures, the Company
is working to establish relationships with third-party vendors regarding the
potential purchase and implementation of management information systems that
could involve additional expenditures of approximately $2.4 million during the
remainder of 1997 and thereafter. The net cash proceeds of this offering,
combined with cash flow from operations, are expected by the Company to be
sufficient to fund anticipated capital expenditures and ongoing operations of
the Company through the end of 1997. The Company also expects to make
acquisitions of the assets of practices during 1997 that will involve the use of
cash and Common Stock. The Company has obtained a commitment letter for a $100.0
million credit facility from GE Capital Corporation, subject to the negotiation
of definitive documentation, due diligence and certain other conditions. The
Company anticipates that such credit facility will be effective

31
<PAGE> 33

concurrently with the closing of this offering and, when combined with the
Company's cash from operations, will be utilized for capital expenditures and
other general corporate purposes, including future acquisitions.

On or after the effective date of this offering, the Company intends to
call the Convertible Notes for redemption. The Company plans to call the
Convertible Notes for redemption at the earliest practicable date. Upon the
call, the Convertible Notes may, at the election of the noteholders of at least
50% of the outstanding principal amount, be converted into shares of Common
Stock at a conversion price of $8.00 per share.

FOUNDING AFFILIATED PRACTICES

ADVANCED RADIOLOGY, LLC AND SUBSIDIARY

Three Months Ended March 31, 1997 as Compared to Three Months Ended March 31,
1996

Medical service revenue, net increased by $3.7 million or 31% to $15.7
million for the three month period ended March 31, 1997 from $12.0 million for
the three month period ended March 31, 1996. This increase was attributable to
the addition of two new radiology groups in April 1996 and January 1997, new
hospital management contracts and an increase in procedures and/or covered lives
at existing facilities.

Costs of affiliated physician services of $1.1 million (7% of medical
service revenue, net) and $0.1 million (1% of medical service revenue, net) for
the three months ended March 31, 1997 and 1996, respectively, included all
compensation to non-owner physicians, as well as certain benefits, educational
and travel costs paid to non-owner and owner physicians. The increase was due to
additional non-owner physician salaries paid in relation to hospital management
contracts. Physician owners' compensation was recorded as a distribution of the
company's equity. Such amounts were determined based on cash earnings available
for distribution, including cash to be realized from the collection of accounts
receivable.

Practice salaries, wages and benefits increased by $1.4 million or 54% to
$3.9 million for the three months ended March 31, 1997 from $2.5 million for the
three months ended March 31, 1996. This change resulted from increases in the
number of employees required to support the additional radiology practices and
new hospital management contracts. The percentage of practice salaries, wages
and benefits to medical service revenue, net was 25% and 21% for the three
months ended March 31, 1997 and 1996, respectively.

Practice supplies of $0.8 million and $0.6 million for the three months
ended March 31, 1997 and 1996, respectively, remained consistent at 5% of
medical service revenue, net. Practice rent and lease expense of $0.8 million
and $0.6 million for the three months ended March 31, 1997 and 1996,
respectively, remained consistent at 5% of medical service revenue, net.
Depreciation and amortization expense of $1.0 million and $0.9 million for the
three months ended March 31, 1997 and 1996, respectively, reflects no material
changes in the composition of fixed assets or depreciation methods. Other
practice expenses of $1.7 million and $1.3 million for the three months ended
March 31, 1997 and 1996, respectively, remained consistent at 11% of medical
service revenue, net. Interest expense increased by $0.1 million or 152% to $0.2
million for the three months ended March 31, 1997 from $0.1 million for the
three months ended March 31, 1996 due to an increase in debt attributable to the
addition of a radiology group in April 1996 and teleradiology equipment
purchased in 1996.

Year Ended December 31, 1996 as Compared to Year Ended December 31, 1995

Medical service revenue, net increased by $14.3 million or 38% to $51.7
million for the year ended December 31, 1996 from $37.4 million for the year
ended December 31, 1995. This increase was attributable to the addition of a
radiology group in April 1996, new hospital management contracts and an increase
in procedures and/or covered lives at existing facilities.

Costs of affiliated physician services of $2.3 million (4% of medical
service revenue, net) and $0.8 million (2% of medical service revenue, net) for
the years ended December 31, 1996 and 1995, respectively, included all
compensation to non-owner physicians, as well as certain benefits, educational
and travel costs paid to non-owner and owner physicians. The increase was due to
additional non-owner physician salaries paid in relation

32
<PAGE> 34

to hospital management contracts. In addition, during 1996, the company acquired
a radiology practice whose physicians were paid a salary during a portion of the
year. Physician owners' compensation was recorded as a distribution of the
company's equity. Such amounts were determined based on cash earnings available
for distribution, including cash to be realized from the collection of accounts
receivable.

Practice salaries, wages and benefits increased by $2.3 million or 23% to
$12.3 million for the year ended December 31, 1996 from $10.1 million for the
year ended December 31, 1995. This increase resulted from the increase of
employees related to the addition of a radiology practice and the addition of
employees required to support new hospital management contracts. The percentage
of practice salaries, wages and benefits to medical service revenue, net was 24%
for the year ended December 31, 1996 and 27% for the year ended December 31,
1995.

Practice supplies of $3.2 million and $2.6 million for the years ended
December 31, 1996 and 1995, respectively, were 6% and 7%, respectively, of
medical service revenue, net. Practice rent and lease expense of $2.3 million
and $2.2 million for the years ended December 31, 1996 and 1995, respectively,
were 4% and 6%, respectively, of medical service revenue, net. Depreciation and
amortization expense of $3.4 million and $3.0 million for the years ended
December 31, 1996 and 1995, respectively, reflects no material changes in the
composition of fixed assets or depreciation methods. Other practice expenses of
$6.3 million and $4.2 million for the years ended December 31, 1996 and 1995,
respectively, were 12% and 11%, respectively, of medical service revenue, net.
Interest expense decreased by $0.3 million or 25% to $0.8 million for the year
ended December 31, 1996 from $1.0 million for the year ended December 31, 1995
due to a decrease in the average cost of funds to the company.

Year Ended December 31, 1995 as Compared to Year Ended December 31, 1994

The company was formed through the merger of five existing radiology
practices and began operations on January 1, 1995. Each practice contributed
certain assets (primarily fixed assets and investments in joint ventures) and
the debt related to those assets in exchange for ownership interests in the
company. The initial formation was accounted for using purchase accounting under
the provisions of APB No. 16. Based on the asset sizes of the individual
contributed radiology practices, one practice was identified as the acquirer,
and, accordingly, all balances prior to January 1, 1995, represent the
activities of this practice on a stand-alone basis. All significant changes in
operations for the year ended December 31, 1995 as compared to the year ended
December 31, 1994, other than as discussed below are the result of this
organizational change.

Costs of affiliated physician services decreased $7.9 million or 91% to
$0.8 million for the year ended December 31, 1995 from $8.8 million for the year
ended December 31, 1994. As a result of the merger discussed above, the company
changed its methodology of paying physician owners. In 1994, compensation and
benefits paid or payable to owner and non-owner physicians was recorded as an
expense. In 1995, physician owners' compensation was recorded as a distribution
of the company's equity.

THE IDE GROUP, P.C.

Nine Months Ended March 31, 1997 as Compared to Nine Months Ended March 31,
1996

Revenues remained consistent at $19.7 million for each of the nine months
ended March 31, 1997 and 1996.

Costs of affiliated physician services of $9.4 million and $7.8 million for
the nine months ended March 31, 1997 and 1996, respectively, included
compensation and benefits paid or payable to owner and non-owner physicians
during the period. The physician owners determined such payments based on cash
earnings available for distribution. Such amounts were 48% and 40%,
respectively, of medical service revenue, net for the nine months ended March
31, 1997 and 1996.

Practice salaries, wages and benefits of $2.4 million for each of the nine
months ended March 31, 1997 and 1996 remained consistent at 12% of medical
service revenue, net. Depreciation and amortization expense of $0.5 million and
$0.6 million for the nine months ended March 31, 1997 and 1996, respectively,
reflects no material changes in the composition of fixed assets or depreciation
methods. Other practice expenses of

33
<PAGE> 35

$2.5 million and $2.6 million for the nine months ended March 31, 1997 and 1996,
respectively, remained consistent at 13% of medical service revenue, net.

Year Ended June 30, 1996 as Compared to Year Ended June 30, 1995

Revenues increased $0.5 million or 2% to $26.0 million for the year ended
June 30, 1996 from $25.5 million for the year ended June 30, 1995 due to an
increase in the number of procedures performed which resulted from the
establishment of a new facility.

Costs of affiliated physician services of $11.5 million and $10.9 million
for the years ended June 30, 1996 and 1995, respectively, included compensation
and benefits paid or payable to owner and non-owner physicians during the
period. The physician owners determined such payments based on cash earnings
available for distribution. Such amounts remained consistent at 44% and 43%,
respectively, of medical service revenue, net for the years ended June 30, 1996
and 1995.

Practice salaries, wages and benefits of $3.1 million for each of the years
ended June 30, 1996 and 1995 remained consistent at 12% of medical service
revenue, net. Depreciation and amortization expense of $0.8 million for each of
the years ended June 30, 1996 and 1995 reflects no material changes in the
composition of fixed assets or depreciation methods. Other practice expenses of
$3.4 million and $3.2 million for the years ended June 30, 1996 and 1995,
respectively, remained consistent at 13% of medical service revenue, net.

Year Ended June 30, 1995 as Compared to Year Ended June 30, 1994

Revenues increased $1.2 million or 5% to $25.5 million for the year ended
June 30, 1995 from $24.3 million for the year ended June 30, 1994 due to an
increase in the number of procedures performed.

Costs of affiliated physician services of $10.9 million and $10.3 million
for the years ended June 30, 1995 and 1994, respectively, included compensation
and benefits paid or payable to owner and non-owner physicians during the
period. The physician owners determined such payments based on cash earnings
available for distribution. Such amounts remained consistent at 43% and 42%,
respectively, of medical service revenue, net for the years ended June 30, 1995
and 1994.

Practice salaries, wages and benefits of $3.1 million and $3.0 million for
the years ended June 30, 1995 and 1994, respectively, remained consistent at 12%
of medical service revenue, net. Depreciation and amortization expense of $0.8
million and $0.7 million for the years ended June 30, 1995 and 1994,
respectively, reflects no material changes in the composition of fixed assets or
depreciation methods. Other practice expenses of $3.2 million and $2.8 million
for the years ended June 30, 1995 and 1994, respectively, were 13% and 12%,
respectively, of medical service revenue, net.

M&S X-RAY PRACTICES

Three Months Ended March 31, 1997 as Compared to Three Months Ended March 31,
1996

Medical service revenue, net decreased by $0.3 million or 7% to $3.4
million for the three months ended March 31, 1997 from $3.7 million for the
three months ended March 31, 1996. The decrease was attributable to a decrease
in the number of procedures performed.

Costs of affiliated physician services of $1.8 million (53% of medical
service revenue, net) and $1.6 million (44% of medical service revenue, net) for
the three months ended March 31, 1997 and 1996, respectively, included
compensation and benefits paid or payable to owner and non-owner physicians
during the period. The physician owners determined such payments based on cash
earnings available for distribution. The increase was due to improved
collections in the first quarter of 1997 as compared to the first quarter of
1996.

Practice salaries, wages and benefits increased $0.3 million or 118% to
$0.5 million for the three months ended March 31, 1997 from $0.2 million for the
three months ended March 31, 1996. For the three months

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<PAGE> 36

ended March 31, 1996, an outside management company paid all administrative
salaries of the company. During 1997, these salaries were paid by the company.

Practice rent and lease expense remained consistent at 2% of medical
service revenue, net for the three months ended March 31, 1997 and 1996.
Depreciation and amortization expense decreased $0.1 million or 57% to $0.1
million for the three months ended March 31, 1997 from $0.2 million for the
three months ended March 31, 1996 as certain assets became fully depreciated.
The company had no material changes in the composition of fixed assets or
depreciation methods. Other practice expenses decreased $0.5 million or 64% to
$0.3 million for the three months ended March 31, 1997 from $0.8 million for the
three months ended March 31, 1996 due to a reduction in fees paid to an outside
management company.

Year Ended December 31, 1996 as Compared to Year Ended December 31, 1995

Medical service revenue, net increased by $0.1 million or 0.4% to $14.8
million for the year ended December 31, 1996 from $14.7 million for the year
ended December 31, 1995 reflecting a consistent level of operations.

Investment income from joint ventures of $0.6 million and $0.2 million for
the years ended December 31, 1996 and 1995, respectively, represented the
company's 49% interest in the earnings of three joint ventures. The increase was
attributable to increased volume at each of the joint ventures.

Other revenue increased by $0.1 million or 21% to $0.4 million for the year
ended December 31, 1996 from $0.3 million for the year ended December 31, 1995
due to increased management fees earned from joint ventures. Management fees
were computed as a percentage of cash collections; therefore, as earnings of the
joint ventures increase, the related management fees also increase.

Costs of affiliated physician services of $8.7 million (59% of medical
service revenue, net) and $8.9 million (60% of medical service revenue, net) for
the years ended December 31, 1996 and 1995, respectively, included compensation
and benefits paid or payable to owner and non-owner physicians during the
period. The physician owners determined such payments based on cash earnings
available for distribution.

Practice salaries, wages and benefits increased $0.1 million or 9% to $1.3
million for the year ended December 31, 1996 from $1.2 million for the year
ended December 31, 1995. For seven months of 1995, an outside management company
paid all administrative salaries of the company. During 1996, five months of
administrative salaries were paid by the outside management company.

Practice supplies increased $0.1 million or 18% to $0.6 million for the
year ended December 31, 1996 from $0.5 million for the year ended December 31,
1995 due to increased costs of certain supplies. Practice rent and lease expense
remained consistent at 2% of medical service revenue, net for the years ended
December 31, 1996 and 1995. Depreciation and amortization expense decreased $0.3
million or 30% to $0.7 million for the year ended December 31, 1996 from $1.0
million for the year ended December 31, 1995 as certain assets became fully
depreciated. The company had no material changes in the composition of fixed
assets or depreciation methods. Other practice expenses decreased $0.4 million
or 19% to $1.5 million for the year ended December 31, 1996 from $1.9 million
for the year ended December 31, 1995 due to a reduction in fees paid to an
outside management company.

PACIFIC IMAGING CONSULTANTS

Three Months Ended March 31, 1997 as Compared to Three Months Ended March 31,
1996

Medical service revenue, net increased $0.8 million or 30% to $3.6 million
for the three months ended March 31, 1997 from $2.8 million for the three months
ended March 31, 1996. This increase is largely attributable to the addition of a
new hospital contract which resulted in an increase in the number of procedures
performed.

Costs of affiliated physician services of $2.1 million (59% of medical
service revenue, net) and $1.4 million (49% of medical service revenue, net) for
the three months ended March 31, 1997 and 1996, respectively, included physician
compensation and benefits paid or payable to owner and non-owner physicians

35
<PAGE> 37

during the period. The physician owners determined such payments based on
earnings available for distribution. This increase is primarily due to the
hiring of three new physicians and two other employees subsequent to March 31,
1996.

Practice salaries, wages and benefits of $0.5 million and $0.4 million for
the three months ended March 31, 1997 and 1996, respectively, were 13% and 14%,
respectively, of medical service revenue, net. Practice supplies of $0.1 million
for each of the three months ended March 31, 1997 and 1996 were 3% and 4%,
respectively, of medical service revenue, net. Depreciation and amortization
expense of $0.2 million for each of the three months ended March 31, 1997 and
1996 reflects no material changes in the composition of fixed assets or
depreciation methods. Other practice expenses of $0.5 million and $0.4 million
for the three months ended March 31, 1997 and 1996, respectively, remained
consistent at 13% of medical service revenue, net. Interest expense of $0.1
million for each of the three months ended March 31, 1997 and 1996, was 2% and
4%, respectively, of medical service revenue, net.

Year Ended December 31, 1996 as Compared to Year Ended December 31, 1995

Medical service revenue, net increased $1.9 million or 17% to $13.1 million
for the year ended December 31, 1996 from $11.2 million for the year ended
December 31, 1995 due primarily to increased revenue under capitated contracts.
In September 1995, the company signed a significant capitation contract.
Revenues under this contract were $1.4 million greater for the year ended
December 31, 1996 as compared to the year ended December 31, 1995. The remaining
increase in revenue was the result of an increased number of procedures
performed and covered lives.

Costs of affiliated physician services of $7.2 million (55% of medical
service revenue, net) and $5.9 million (52% of medical service revenue, net) for
the years ended December 31, 1996 and 1995, respectively, included physician
compensation and benefits paid or payable to owner and non-owner physicians
during the period. The physician owners determined such payments based on
earnings available for distribution.

Practice salaries, wages and benefits were $1.8 million and $1.6 million
for the years ended December 31, 1996 and 1995, respectively, representing 14%
of medical service revenue, net for each year. Practice supplies of $0.6 million
and $0.5 million for the years ended December 31, 1996 and 1995, respectively,
remained consistent at 4% of medical service revenue, net. Practice rent and
lease expense of $0.4 million for each of the years ended December 31, 1996 and
1995 remained consistent at 3% of medical service revenue, net. Depreciation and
amortization expense of $1.0 million for each of the years ended December 31,
1996 and 1995 reflects no material changes in the composition of fixed assets or
depreciation methods. Other practice expenses of $1.9 million and $1.7 million
for the years ended December 31, 1996 and 1995, respectively, remained
consistent at 15% of medical service revenue, net. Interest expense decreased
$0.2 million or 34% to $0.3 million for the year ended December 31, 1996 from
$0.5 million for the year ended December 31, 1995 due to a decrease in the
average debt outstanding, as well as a reduction in the average interest rates
applied. These reductions were achieved through a debt refinancing which
occurred in August 1996.

RADIOLOGY AND NUCLEAR MEDICINE, P.A.

Three Months Ended March 31, 1997 as Compared to Three Months Ended March 31,
1996

Medical service revenue, net increased $0.5 million or 17% to $3.6 million
for the three months ended March 31, 1997 from $3.1 million for the three months
ended March 31, 1996. This increase was attributable to the addition, in July
1996, of a new hospital at which the company provided services.

Costs of affiliated physician services of $2.1 million (58% of medical
service revenue, net) and $2.0 million (66% of medical service revenue, net) for
the three months ended March 31, 1997 and 1996, respectively, included
compensation and benefits paid or payable to owner and non-owner physicians
during the period. The physician owners determined such payments based on cash
earnings available for distribution.

Practice salaries, wages and benefits remained consistent at $0.4 million
for each of the three months ended March 31, 1997 and 1996. Such amounts were
10% and 11%, respectively, of medical service revenue,

36
<PAGE> 38

net. Other practice expenses of $0.2 million for each of the three months ended
March 31, 1997 and 1996 remained consistent at 5% of medical service revenue,
net.

Year Ended December 31, 1996 as Compared to Year Ended December 31, 1995

Medical service revenue, net decreased $0.3 million or 2% to $13.4 million
for the year ended December 31, 1996 from $13.7 million for the year ended
December 31, 1995. Although the company had a slight increase in volume of
services rendered, reimbursement rates from certain payor groups declined.

Costs of affiliated physician services of $10.3 million (76% of medical
service revenue, net) and $10.7 million (78% of medical service revenue, net)
for the years ended December 31, 1996 and 1995, respectively, included
compensation and benefits paid or payable to owner and non-owner physicians
during the period. The physician owners determined such payments based on cash
earnings available for distribution.

Practice salaries, wages and benefits of $1.7 million and $1.8 million for
the years ended December 31, 1996 and 1995, respectively, remained consistent as
13% of medical service revenue, net. Practice supplies of $0.3 million and $0.4
million for the years ended December 31, 1996 and 1995, respectively, were 2%
and 3% of medical service revenue, net, respectively. Depreciation and
amortization expense of $0.2 million for each of the years ended December 31,
1996 and 1995 reflects no material changes in the composition of fixed assets or
depreciation methods. Other practice expenses of $0.8 million for each of the
years ended December 31, 1996 and 1995 remained consistent at 6% of medical
service revenue, net.

ROCKLAND RADIOLOGICAL GROUP, P.C.

Six Months Ended March 31, 1997 as Compared to Six Months Ended March 31, 1996

Medical service revenue, net increased by $1.1 million or 15% to $8.8
million for the six months ended March 31, 1997 from $7.7 million for the six
months ended March 31, 1996. This increase was attributable to the addition of
new equipment at the company's imaging centers which resulted in an increase in
procedures performed.

Costs of affiliated physician services of $2.7 million (31% of medical
service revenue, net) and $2.4 million (31% of medical service revenue, net) for
the six months ended March 31, 1997 and 1996, respectively, included
compensation and benefits paid or payable to owner and non-owner physicians
during the period. The physician owners determined such payments based on cash
earnings available for distribution.

Practice salaries, wages and benefits of $2.2 million and $1.9 million for
the six months ended March 31, 1997 and 1996, respectively, remained consistent
at 25% of medical service revenue, net. Practice supplies of $0.6 million and
$0.5 million for the six months ended March 31, 1997 and 1996, respectively,
remained consistent at 7% of medical service revenue, net. Depreciation and
amortization expense of $0.6 million and $0.7 million for the six months ended
March 31, 1997 and 1996, respectively, reflects no material changes in the
composition of fixed assets or depreciation methods. Other practice expenses of
$1.5 million and $1.3 million for the six months ended March 31, 1997 and 1996,
respectively, were 17% and 18%, respectively, of medical service revenue, net.

Year Ended September 30, 1996 as Compared to Year Ended September 30, 1995

Medical service revenue, net decreased by $0.5 million or 3% to $17.3
million for the year ended September 30, 1996 from $17.8 million for the year
ended September 30, 1995. Although the company had a slight increase in volume
of services rendered, reimbursement rates from certain payor groups declined.

Costs of affiliated physician services of $6.1 million (35% of medical
service revenue, net) and $7.1 million (40% of medical service revenue, net) for
the years ended September 30, 1996 and 1995, respectively, included compensation
and benefits paid or payable to owner and non-owner physicians during the
period. The physician owners determined such payments based on cash earnings
available for distribution.

Practice salaries, wages and benefits of $4.3 million and $4.1 million for
the years ended September 30, 1996 and 1995, respectively, were 25% and 23%,
respectively, of medical service revenue, net. Practice

37
<PAGE> 39

supplies of $1.1 million and $1.2 million for the years ended September 30, 1996
and 1995, respectively, remained consistent at 7% of medical service revenue,
net. Practice rent and lease expense of $0.1 million and $0.2 million for the
years ended September 30, 1996 and 1995, respectively, remained consistent at 1%
of medical service revenue, net. Depreciation and amortization expense of $1.4
million and $1.6 million for the years ended September 30, 1996 and 1995,
respectively, reflects no material changes in the composition of fixed assets or
depreciation methods. Other practice expenses of $3.6 million and $4.0 million
for the years ended September 30, 1996 and 1995, respectively, were 21% and 22%,
respectively, of medical service revenue, net. Interest expense decreased $0.1
million or 17% to $0.6 million for the year ended September 30, 1996 from $0.7
million for the year ended September 30, 1995 due to reduced interest costs on
capital lease obligations.

Year Ended September 30, 1995 as Compared to Year Ended September 30, 1994

Medical service revenue, net increased $2.7 million or 18% to $17.8 million
for the year ended September 30, 1995 from $15.1 million for the year ended
September 30, 1994. This increase was attributable to increased procedures
performed at existing facilities, as well as the addition of contracts to
perform radiological services at new facilities.

Costs of affiliated physician services of $7.1 million (40% of medical
service revenue, net) and $3.7 million (24% of medical service revenue, net) for
the years ended September 30, 1995 and 1994, respectively, included compensation
and benefits paid or payable to owner and non-owner physicians during the
period. The physician owners determined such payments based on cash earnings
available for distribution.

Practice salaries, wages and benefits increased $0.2 million or 5% to $4.1
million for the year ended September 30, 1995 from $3.9 million for the year
ended September 30, 1994. These expenses were 23% and 26% of medical service
revenue, net.

Practice supplies increased $0.6 million or 96% to $1.2 million for the
year ended September 30, 1995 from $0.6 million for the year ended September 30,
1994 due to an increased volume of procedures. Practice rent and lease expense
of $0.2 million for each of the years ended September 30, 1995 and 1994 remained
consistent at 1% of medical service revenue, net. Depreciation and amortization
expenses of $1.6 million for each of the years ended September 30, 1995 and 1994
reflects no material changes in the composition of fixed assets or depreciation
methods. Other practice expenses of $4.0 million and $3.6 million for the years
ended September 30, 1995 and 1994, respectively, were 22% and 24%, respectively,
of medical service revenue, net. Interest expense decreased $0.4 million to $0.7
million for the year ended September 30, 1995 from $1.1 million for the year
ended September 30, 1994 due to reduced interest costs on capital lease
obligations.

VALLEY RADIOLOGY MEDICAL GROUP

Three Months Ended March 31, 1997 as Compared to Three Months Ended March 31,
1996

Medical service revenue, net increased $0.3 million or 12% to $2.8 million
for the three months ended March 31, 1997 from $2.5 million for the three months
ended March 31, 1996 due primarily due to the opening of an imaging center
subsequent to March 31, 1996.

Costs of affiliated physician services of $1.4 million (49% of medical
service revenue, net) and $1.3 million (50% of medical service revenue, net) for
the three months ended March 31, 1997 and 1996, respectively, included physician
compensation and benefits paid or payable to owner and non-owner physicians
during the period. The increase is related to the opening of another imaging
center subsequent to March 31, 1996. The physician owners determined such
payments based on earnings available for distribution.

Practice salaries, wages and benefits of $0.6 million and $0.5 million for
the three months ended March 31, 1997 and 1996, respectively, were 19% and 21%,
respectively, of medical service revenue, net. Practice rent and lease expense
of $0.1 million for each of the three months ended March 31, 1997 and 1996,
respectively, remained consistent at 4% of medical service revenue, net. Other
practice expenses of $0.3 million for each of the three months ended March 31,
1997 and 1996, were 12% and 13%, respectively, of medical service revenue, net.

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<PAGE> 40

Year Ended December 31, 1996 as Compared to Year Ended December 31, 1995

Medical service revenue, net increased $0.8 million or 8% to $11.0 million
for the year ended December 31, 1996 from $10.2 million for the year ended
December 31, 1995 due to an increase in volume of services provided as a result
of the establishment of a new facility.

Costs of affiliated physician services of $5.4 million (49% of medical
service revenue, net) and $5.5 million (54% of medical service revenue, net) for
the years ended December 31, 1996 and 1995, respectively, included physician
compensation and benefits paid or payable to owner and non-owner physicians
during the period. The physician owners determined such payments based on
earnings available for distribution.

Practice salaries, wages and benefits of $2.6 million and $2.3 million for
the years ended December 31, 1996 and 1995, respectively, were 24% and 22%,
respectively, of medical service revenue, net. Practice supplies of $0.4 million
and $0.2 million for the years ended December 31, 1996 and 1995, respectively,
were 3% and 2%, respectively, of medical service revenue, net. Practice rent and
lease expense of $0.4 million and $0.5 million for the years ended December 31,
1996 and 1995, respectively, were 4% and 5%, respectively, of medical service
revenue, net. Depreciation and amortization expense of $0.2 million for each of
the years ended December 31, 1996 and 1995 reflects no material changes in the
composition of fixed assets or depreciation methods. Other practice expenses of
$1.3 million and $1.4 million for the years ended December 31, 1996 and 1995,
respectively, were 12% and 14%, respectively, of medical service revenue, net.
Interest expense of $0.1 million for each of the years ended December 31, 1996
and 1995, respectively, remained consistent at 1% of medical service revenue,
net.

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<PAGE> 41

BUSINESS

GENERAL

The Company was incorporated in Delaware in April 1996, and prior to this
offering has not conducted any significant operations. In connection with the
Reorganizations, APPI will acquire certain assets and liabilities of, and enter
into long-term Service Agreements with, the Founding Affiliated Practices.
Pursuant to the Service Agreements, the Company will provide management,
administrative, technical and non-medical business services to the Founding
Affiliated Practices in exchange for a service fee. The Service Agreements have
a 40-year term, subject to earlier termination under certain circumstances. See
"Certain Transactions -- The Reorganizations."

INDUSTRY BACKGROUND

Market Overview

The Health Care Financing Administration estimates that national health
care spending in 1995 was approximately $1 trillion, including approximately
$200 billion for physician services and an additional $600 billion for health
care expenditures under the control or influence of physicians. According to the
American College of Radiology, an estimated 350 million radiological procedures
were performed in the United States during 1995. Total spending on radiology
services including diagnostic imaging, interventional radiology and radiation
oncology was estimated at $56 to $70 billion according to a 1995 report prepared
by SMG Marketing Group. Diagnostic imaging, including interventional radiology
procedures, accounted for approximately 82% of the aggregate amount spent on
radiological services performed in the United States, with radiation oncology
services accounting for approximately 18%.

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

40
<PAGE> 42

United States. Professional radiology services are provided by board certified
radiologists, general practitioners and other specialists. There are
approximately 3,200 radiology groups in the United States comprised of
approximately 27,000 practicing radiologists. These groups have a typical size
of six members, but vary in size up to approximately 100 physicians serving a
specific market. Approximately 88% of all radiologists perform diagnostic
procedures, including interventional radiology procedures, and approximately 12%
practice radiation oncology. The Company believes that few radiologists or
radiology groups are currently affiliated with physician practice management
companies.

Radiology

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

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

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

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

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

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

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

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

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<PAGE> 43

Trends In Radiology

Technological Advancements. The Company believes that advances in
technology, including the development and continued enhancements of MRI, CT,
nuclear medicine, ultrasound and interventional radiology have contributed to
the growth of the diagnostic imaging industry. These technological advances have
produced diagnostic procedures that are safer, more accurate and less-invasive
than techniques previously utilized. While traditional x-rays continue to be the
primary imaging modality based on the number of procedures performed, the use of
advanced diagnostic imaging modalities such as MRI and CT has increased rapidly
in recent years because these modalities allow physicians to diagnose a wide
variety of diseases and injuries quickly and accurately without exploratory
surgery or other surgical or invasive procedures, which are usually more
expensive, involve greater risk to the patient and result in longer
rehabilitation time. As a result, hospital days are shortened or eliminated and
time lost from work is significantly reduced. In addition, diagnostic imaging is
increasingly used as a screening tool for preventive care. The Company believes
that future technological advances will enhance the ability of radiologists to
diagnose and direct treatment, thereby lowering overall health care costs.

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

Reimbursement Patterns. Payment for radiology services comes primarily from
third-party payors such as private insurers (including traditional indemnity
insurance plans), managed care plans (including HMOs and PPOs) and governmental
payors (including Medicare and Medicaid). Historically, radiologists and other
physicians generally provided medical services on a fee-for-service basis. The
fee-for-service model provides few incentives for the efficient utilization of
resources and has contributed to increases in health care costs at rates
significantly higher than inflation. As managed care entities and other payors
have focused on providing care in a more cost-effective manner, they have
demanded and received significant discounts from fee-for-service rates charged
for radiological procedures. As a result, physicians have seen a decrease in per
procedure reimbursements from managed care and governmental entities for such
procedures. More recently, payors have focused on shifting more of the financial
risk for the provision of cost-effective services to providers through
capitation and other risk-sharing arrangements. The Company believes that this
reimbursement trend decreases the attractiveness of under-utilized imaging
equipment within a general practitioner's office and will accelerate the
centralization of resources to high-volume centers.

According to an article published in the American Journal of Radiology in
1993, approximately 64% of all radiological procedures (primarily x-rays and
ultrasound) performed in freestanding ICs and physicians' offices were performed
by non-radiologist physicians including internists, family and general
practitioners and orthopedists. The Company believes that the general diagnostic
imaging services performed by non-radiologists may be directed to radiologists
by managed care entities seeking to have services performed at the lowest
overall cost. As a result, the Company believes that managed care entities
provided with utilization reports will focus on reducing costs by shifting
radiological procedures performed by non-radiologists to radiologists.

Consolidation of ICs. Concurrent with the growth of managed care and strict
controls on Medicare reimbursement for inpatient costs, diagnostic imaging
services began to shift from hospital settings to ICs in the early 1980s. While
many of these ICs were developed by physicians and hospitals, a subsequent
change in federal law restricted the referral of patients by a physician to a
facility in which the physician maintained an ownership interest. As a result,
many physicians sold their interests in ICs to hospitals, radiologists and

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<PAGE> 44

companies engaged exclusively in the ownership, operation and management of ICs.
The Company believes that many of these entities have and will continue to
consolidate the ownership of ICs.

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

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

BUSINESS STRATEGY

Emphasize Quality Service

The Company plans to make patient service and referring physician
satisfaction a key element of its strategy. The Company intends to form regional
service networks and invest in advanced teleradiology technologies to provide
greater geographic coverage, improve response time and increase overall patient
accessibility. The Company will seek to offer, through its Affiliated Practices,
subspecialty expertise such as interventional radiology and radiation oncology
to address the full range of radiology service needs of patients, referring
physicians, hospitals and payors. The Company also intends to provide capital to
the Affiliated Practices to upgrade existing imaging equipment and purchase
equipment for newer modalities. In addition, the Company plans to implement
information systems which will provide the Company's payors and referral sources
with outcomes data, cost analyses, utilization management data and other
analyses, in each case with the objective of maximizing patient, referring
physician, hospital and payor satisfaction.

Expand Within Existing Regional Markets

A key element of the Company's strategy is to expand and leverage the
resources and capabilities of its Affiliated Practices to offer high-quality,
comprehensive and competitively priced diagnostic, interventional and
therapeutic radiology programs within selected markets. The Company believes
that cost-conscious

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<PAGE> 45

payors, particularly those interested in utilizing or implementing risk sharing
or global capitation arrangements, will prefer to contract with a single
provider for a full range of radiology services within select geographic
markets. The Company plans to acquire and affiliate with additional
complementary radiology practices and, when feasible, acquire, operate and
manage ICs to broaden the range of, and increase the capacity to deliver,
services within its markets. The Company intends to market its comprehensive
service offerings and geographic coverage to obtain payor contracts.

Improve Operating Efficiencies

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

Expand into New Markets

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

AFFILIATION STRUCTURE

APPI was formed to provide physician practice management and administrative
services to radiology practices and to own, operate and manage ICs. The
Company's business model is based on a "partnership" with its Affiliated
Practices in which the Company manages the non-medical functions of the
Affiliated Practices in a manner that promotes physician participation and input
in areas such as practice enhancement and operating efficiencies, marketing and
long-term strategy development. The Company believes that its partnering
approach (i.e., shared ownership, economic interest and governance) enables
physicians to provide input in the management and affairs of their practice and
aligns the interests of physicians in the Affiliated Practices with those of the
Company in promoting practice growth and operating efficiencies. The Company
believes its model will be attractive to potential practice acquisition
candidates. For a discussion of the contractual arrangements between the Company
and its Affiliated Practices, see "Business -- Service Agreements."

In connection with the Reorganizations, the Company will acquire certain
tangible and intangible assets and assume certain liabilities of the Founding
Affiliated Practices. The Company will pay the purchase price for such
transactions in shares of its Common Stock and, to a lesser extent, cash. At the
time of the Reorganizations, the Company will enter into a 40-year Service
Agreement with each Founding Affiliated

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<PAGE> 46

Practice pursuant to which the Company will provide a wide range of management,
administrative, technical and non-medical services. For providing services under
the Service Agreement, the Company will receive a fee which is structured to
align the interests of the Company and the Founding Affiliated Practices.
Additionally, the Service Agreements restrict the Founding Affiliated Practices
from competing with the Company and other Affiliated Practices within a
specified geographic area during the term of the Service Agreements and also
require each Affiliated Practice to obtain and enforce similar restrictive
covenants with the full-time physicians affiliated with their practices. As part
of its growth strategy, the Company intends to acquire the assets of and enter
into similar long-term Service Agreements with additional radiology practices
based on the partnership model it has established with the Founding Affiliated
Practices.

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

OPERATIONS AND DEVELOPMENT

General

The Founding Affiliated Practices consist of seven radiology practices,
comprised of 218 radiologists, located in five states. All of the Founding
Affiliated Practices provide professional services, which consist of the
supervision, performance and interpretation of radiological procedures in
hospitals, ICs or other settings. As a result of the Reorganizations, the
Company will own and operate 54 ICs and operate and manage 11 additional ICs
through joint venture relationships. In addition, the Founding Affiliated
Practices currently provide professional radiology services to 42 hospitals. In
the aggregate, the Founding Affiliated Practices will provide all subspecialty
diagnostic and interventional radiology and radiation oncology services.
Substantially all of the 218 radiologists are board certified.

The number and type of modalities offered at the Company's owned, operated
or managed ICs are determined by the demand for such services within their
respective market areas. Presently, 55 of these ICs offer multiple modalities
including various combinations of MRI, CT, mammography, ultrasound, nuclear
medicine, fluoroscopy and traditional radiography. By offering a wide spectrum
of imaging modalities, the Company intends to market itself as a full-service
provider of diagnostic imaging services. In addition to the ICs, the Founding
Affiliated Practices provide professional services to hospitals, hospital
outpatient facilities, physicians' offices, mobile imaging units and nursing
homes.

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

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<PAGE> 47

Set forth below are the locations and certain other information with
respect to the Founding Affiliated Practices as of April 30, 1997:

<TABLE>
<CAPTION>
IMAGING CENTERS
----------------------------- TOTAL
PRACTICE HOSPITAL OWNED AND JOINT NON-PHYSICIAN
LOCATION PHYSICIANS AFFILIATIONS(1) OPERATED SITES VENTURES(2) PERSONNEL
-------- ---------- --------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Baltimore, MD........................... 87 10 23 6 518
Rochester, NY........................... 30 5 8 0 127
Oakland, CA............................. 24 5 7 0 60
San Jose, CA............................ 24 4 6 0 72
San Antonio, TX......................... 20 5 3 4 107
Topeka, KS.............................. 19 11 2 1 49
New City, NY............................ 14 2 5 0 147
--- -- -- --- -----
Totals........................ 218 42 54 11 1,080
=== == == === =====
</TABLE>

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

(1) Hospital affiliations represent contractual or other relationships with
hospitals where the Founding Affiliated Practices provide diagnostic and
interventional radiology or radiation oncology services. In 41 of the 42
hospitals, the Founding Affiliated Practices provide substantially all of
the diagnostic and interventional radiology services provided by
radiologists at such hospitals.

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

The Founding Affiliated Practices were selected based on a variety of
factors, including: physician and practice credentials and reputation;
competitive market position; subspecialty mix of physicians; historical
financial performance and growth potential; and willingness to embrace the
Company's vision and philosophy regarding the provision of radiology services.

Services

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

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

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

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

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

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

46
<PAGE> 48
<TABLE>
<CAPTION>
MANAGEMENT EXPERTISE APPLICATION
-------------------- -----------
<S> <C>
Technical Operations Management Implementation of systems, procedures, management
techniques and standards to increase the effectiveness,
efficiency and profitability of a practice's technical
operations and to improve productivity and relationships
with patients, physicians and payors.

Materials Management/Purchasing Development and implementation of a national group
purchasing arrangement to provide cost savings related to
equipment purchasing, leasing and maintenance and the
purchase of supplies.
</TABLE>

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

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

Financial and Information Systems Integration of disparate clinical and
financial systems into one common data
repository and coordination of
centralized scheduling, transcription,
utilization and patient flow functions.

Network/Communications Infrastructure Implementation of technologies to link
voice, data and image transmission
capabilities.

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

Information Management

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

The Company intends to implement its initial information management plans
in two phases. During the first phase, the Company intends to focus on building
basic infrastructure. Specifically, the Company intends to create a network
communications infrastructure and implement the FAS during the remainder of
1997. The network communications infrastructure will provide access to the FAS
and EIS, facilitate the gathering of key operational data and increase internal
communications capabilities through the enterprise-wide deployment of standard
office automation applications. The Company expects that the network
infrastructure will provide the foundation for the sharing and utilization of
certain information among the Affiliated Practices and the Company. The network
will be created with standard components to be managed centrally in order to
minimize the need for local information systems personnel.

The Company intends to deploy the FAS to facilitate timely and accurate
financial reporting throughout the Company. Specifically, the Company intends to
deploy general ledger, accounts payable, payroll and materials management
systems at each of the Affiliated Practices. The FAS will be designed to
facilitate the

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<PAGE> 49

consistent, efficient reporting of financial information across all practices
using one standard chart of accounts with a single set of accounting practices
and financial controls. The Company expects that the deployment of the FAS will
streamline and simplify the financial reporting process and will provide a tool
for managing practice efficiency benchmarks.

During phase two, the Company expects to focus on assimilating and
analyzing data from its Affiliated Practices' disparate information systems. In
this phase, the Company intends to deploy an EIS that will facilitate the
management reporting of key operational data. The Company anticipates that the
EIS will provide a repository to store pertinent encounter data and initially
will use the Affiliated Practices' practice management systems, radiology
information systems and the FAS as primary data sources. It is anticipated that
the EIS will provide variance, utilization, reimbursement efficiency and trend
analysis reporting capabilities. The Company believes that the EIS will enable
Affiliated Practices to enhance the quality of information, increase revenue,
improve operating efficiencies and more effectively control costs. There can be
no assurance that the Company will be able to implement the FAS or EIS, that it
will not encounter delays in the implementation or that these systems will
produce the expected benefits. See "Risk Factors -- Dependence on Information
Systems."

SERVICE AGREEMENTS

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

The service fees payable to the Company by the Founding Affiliated
Practices under the Service Agreements vary based on the fair market value, as
determined in arms' length negotiations, for the nature and scope of services
provided. Such fees are payable monthly and consist of: (i) a fixed percentage
of the practice's revenue from physician and certain other medical services;
(ii) all or a substantial portion of the revenue derived from facility and
non-physician fees generated by ICs owned, operated or managed by the Company;
(iii) operating and non-operating expenses of the Founding Affiliated Practices
paid by the Company; and (iv) certain negotiated performance and other
adjustments. In order to comply with local law, the service fees from two of the
Founding Affiliated Practices will be based on flat fees that are subject to
renegotiation on an annual basis. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- APPI -- Overview."

Pursuant to the Service Agreement, the Company will, among other things:
(i) act as the exclusive manager and administrator of non-physician services
relating to the operation of the Founding Affiliated Practice, subject to
matters reserved to the Founding Affiliated Practice or referred to the Joint
Planning Board; (ii) aid in the billing of hospitals, insurance companies and
other third-party payors and collect on behalf of the Founding Affiliated
Practice the fees for professional medical and other services rendered by the
Founding Affiliated Practice; (iii) provide, as necessary, clerical, accounting,
purchasing, payroll, legal, bookkeeping and computer services and personnel,
information management, preparation of certain tax returns and medical
transcribing services; (iv) supervise and maintain custody of substantially all
files and records; (v) provide facilities for the Founding Affiliated Practice;
(vi) prepare, in consultation with the Joint Planning Board and the Founding
Affiliated Practice, all annual operating and capital budgets; (vii) order and
purchase inventory and supplies as necessary; (viii) implement, in consultation
with the Joint Planning Board and the Founding Affiliated Practice, national and
local public relations or advertising programs; (ix) provide financial and
business assistance in the negotiation, establishment, supervision and
maintenance of contracts and relationships with managed care and other similar
providers and payors; and (x) assist the Founding Affiliated Practice with
obtaining medical malpractice insurance for its physicians and other medical
professionals.

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<PAGE> 50

The Service Agreements require the Company and each Founding Affiliated
Practice to establish a Joint Planning Board consisting of no less than three or
more than six members; two designees of the Company (each with one vote) and no
less than one or more than four designee(s) of the Founding Affiliated Practice
(representing two votes in the aggregate). Each Joint Planning Board will have
responsibilities that include developing long-term strategic objectives relating
to practice expansion and payor contracting guidelines, promoting practice
efficiencies, recommending capital expenditures and generally serving as a means
by which the Company and each of the Founding Affiliated Practices will
communicate and exchange information. The Company intends to continue to
establish Joint Planning Boards in the future, some of which may be on a
regional level.

Under the Service Agreements, each Founding Affiliated Practice will remain
responsible for hiring and compensating its physicians and certain other medical
professionals, the licensing, credentialling and certification necessary to
conduct its practice and certain regulatory compliance. The Service Agreements
with the Founding Affiliated Practices also contain provisions whereby both the
Company and each Founding Affiliated Practice have agreed to certain
restrictions on accepting or pursuing radiology opportunities within a 15-mile
radius (decreasing to 10 miles upon the expiration of 12 months) of any of the
Company's owned, operated or managed ICs at which the Founding Affiliated
Practice provides professional radiology services or any hospital at which a
Founding Affiliated Practice provides on-site professional radiology services.
Each Service Agreement also restricts the applicable Founding Affiliated
Practice from competing with the Company and other Affiliated Practices within a
specified geographic area during the term of such Service Agreement. In
addition, the Service Agreements require the Founding Affiliated Practices to
enter into and enforce agreements with the stockholders and full-time
radiologists at each Founding Affiliated Practice (subject to certain
exceptions) that include covenants not to compete with the Company for a period
of two years after termination of employment.

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

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

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

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<PAGE> 51

PRACTICE MARKETING

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

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

GOVERNMENT REGULATION AND SUPERVISION

General

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

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

In addition to existing government health care regulation, there have been
numerous initiatives on the federal and state levels for comprehensive reforms
affecting the payment for and availability of health care services. The Company
believes that such initiatives will continue during the foreseeable future.
Certain aspects of these reforms as proposed in the past, such as further
reductions in Medicare and Medicaid payments and additional prohibitions on
physician ownership, directly or indirectly, of facilities to which they refer
patients, if adopted, could adversely affect the Company. Concern about the
potential effects of such reform measures has contributed to the volatility of
stock prices of many companies in health care and related industries and may
similarly affect the market price of the Common Stock.

Fee-Splitting; Corporate Practice of Medicine

The laws of many states (including each of the states in which the Founding
Affiliated Practices are located) prohibit physicians from splitting fees with
non-physicians and prohibit non-physician entities from

50
<PAGE> 52

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

Medicare Physician Payment System

The Company believes that regulatory trends in cost containment will
continue to result in a reduction from historical levels in per-patient revenue
for medical practices. The federal government has implemented, through the
Medicare program, the RBRVS payment methodology for physician services. The
RBRVS is a fee schedule that, except for certain geographical and other
adjustments, pays similarly situated physicians the same amount for the same
services. The RBRVS is adjusted each year and is subject to increases or
decreases at the discretion of Congress. To date, the implementation of the
RBRVS has reduced payment rates for certain of the procedures historically
provided by the Founding Affiliated Practices. There can be no assurance that
any reduced operating margins could be offset by the Company through cost
reductions, increased volume, the introduction of additional procedures or
otherwise.

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

Medicare and Medicaid Fraud and Abuse

Federal law prohibits the offer, payment, solicitation or receipt of any
form of remuneration in return for, or in order to induce, (i) the referral of a
person, (ii) the furnishing or arranging for the furnishing of items or services
reimbursable under Medicare or Medicaid programs or (iii) the purchase, lease or
order or arranging or recommending purchasing, leasing or ordering of any item
or service reimbursable under Medicare or Medicaid. Pursuant to this
anti-kickback law, the federal government has recently announced a policy of
increased scrutiny of joint ventures and other transactions among health care
providers in an effort to reduce potential fraud and abuse relating to Medicare
costs. The applicability of these provisions to many business transactions in
the health care industry has not yet been subject to judicial and regulatory
interpretation. Noncompliance with the federal anti-kickback legislation can
result in exclusion from Medicare and Medicaid programs and civil and criminal
penalties.

The Company believes that although it will receive fees under the Service
Agreements for management and administrative services, it is not in a position
to make or influence referrals of patients or services reimbursed under Medicare
or Medicaid programs to Affiliated Practices or their affiliated physicians, or
to receive such referrals. Such service fees are intended by the Company to be
consistent with fair market value in arms' length transactions for the nature
and amount of management and administrative services rendered. For these
reasons, the Company does not believe that fees payable to it would be viewed as
remuneration for referring or influencing referrals of patients or services
covered by such programs as prohibited by statute. If, however, the Company is
deemed to be in a position to make, influence or receive referrals from or to
physicians, or the Company is deemed to be a provider under the Medicare or
Medicaid programs, the operations of the Company could be subject to scrutiny
under federal and state anti-kickback and anti-referral laws and the Company's
operations could be materially and adversely affected.

Significant prohibitions against physician referrals have been enacted by
Congress. These prohibitions, commonly known as "Stark II," amended prior
physician self-referral legislation known as "Stark I" by dramatically enlarging
the field of physician-owned or physician-interested entities to which the
referral

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<PAGE> 53

prohibitions apply. Stark II prohibits a physician from referring Medicare or
Medicaid patients to an entity providing "designated health services" in which
the physician has an ownership or investment interest, or with which the
physician has entered into a compensation arrangement. The penalties for
violating Stark II include a prohibition on payment by these government programs
and civil penalties of as much as $15,000 for each violative referral and
$100,000 for participation in a "circumvention scheme." The Company believes
that although it will receive fees under the Service Agreements for management
and administrative services, it is not in a position to make or influence
referrals of patients. To the extent that the Company or any Affiliated Practice
is deemed to be subject to the prohibitions contained in Stark II for services,
the Company believes its activities fall within the permissible activities
defined in Stark II.

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

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

COMPETITION

The Affiliated Practices and the Company's owned, operated or managed ICs
will compete with local radiology and imaging service providers. The Company
believes that changes in governmental, private reimbursement policies and other
factors have resulted in increased competition among providers for medical
services to consumers and that cost, accessibility, quality and scope of
services provided are the principal factors that affect competition. There can
be no assurance that the Affiliated Practices and the Company's owned, operated
or managed ICs will be able to compete effectively in the markets that they
serve, which inability to compete could adversely affect the Company.

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

The Company is under competitive pressures for the acquisition and
retention of the assets of, and the provision of management, technical and
administrative services to, additional radiology practices, MSOs and ICs. There
are a number of publicly-traded companies focused on owning or managing ICs. The
Company is aware of two privately-held physician practice management companies
focused on professional and technical radiology services. Several companies,
both publicly and privately held, that have established operating

52
<PAGE> 54

histories and, in some instances, greater resources than the Company are
pursuing the acquisition of general and specialty physician practices and the
management of such practices. Additionally, some hospitals, clinics, health care
companies, HMOs and insurance companies engage in activities similar to those of
the Company. There can be no assurance that the Company will be able to compete
effectively with such competitors for the acquisition of, or affiliation with,
radiology practices, that additional competitors will not enter the market, that
such competition will not make it more difficult or expensive to acquire the
assets of, and provide management, administrative, technical and non-medical
services to, radiology practices on terms beneficial to the Company or that
competitive pressures will not otherwise adversely affect the Company.

FACILITIES AND EMPLOYEES

The Company's corporate headquarters are located at 2301 NationsBank Plaza,
901 Main Street, Dallas, Texas 75202, in approximately 10,500 square feet
occupied under a lease which expires on September 30, 2001. As of May 31, 1997,
the Company had 17 employees and, upon consummation of the Reorganizations, the
Company expects that it will have approximately 1,100 employees, of which
approximately 30 will be employed at the Company's headquarters and regional
offices and the remainder will be employed at the Founding Affiliated Practices.
The Company believes that its relationship with its employees is good. See
"Business -- Development and Operations."

CORPORATE LIABILITY AND INSURANCE

The Founding Affiliated Practices maintain professional liability insurance
coverage primarily on a claims made basis. Such insurance provides coverage for
claims asserted when the policy is in effect regardless of when the events that
caused the claim occurred. As a result of the Reorganizations, the Company will
in some cases succeed to certain liabilities of the Founding Affiliated
Practices. Therefore, claims may be asserted after the Reorganizations against
the Company for events which occurred prior to the Reorganizations. Following
the Reorganizations, the Company and the Affiliated Practices intend to maintain
insurance coverage similar to the coverage previously maintained by the Founding
Affiliated Practices. On May 22, 1997, the state of Texas adopted legislation
that permits injured patients to sue health insurance carriers, health
maintenance organizations and other managed care entities for medical
malpractice. The statute becomes effective September 1, 1997. There can be no
assurance that this legislation will not increase the cost of liability
insurance to the Company for services provided in Texas or any other states in
which the Company does business if similar legislation in adopted in those
states.

The provision of medical services entails an inherent risk of professional
malpractice and other similar claims. The Company's intent is to not influence
or control the practice of medicine by physicians or have responsibility for
compliance with certain regulatory and other requirements directly applicable to
physicians and physician groups. As a result of the relationship between the
Company and the Affiliated Practices, however, the Company may become subject to
medical malpractice actions under various theories, including successor
liability. There can be no assurance that claims, suits or complaints relating
to services provided by Affiliated Practices will not be asserted against the
Company in the future. The Company expects to maintain insurance coverage that
it believes will be adequate. The Company anticipates that such insurance will
extend to professional liability claims that may be asserted against employees
of the Company that work on site at Affiliated Practice locations. In addition,
pursuant to the Service Agreements, the Founding Affiliated Practices are
required (and the Company intends to require any other Affiliated Practices) to
maintain comprehensive professional liability insurance. The availability and
cost of such insurance is affected by various factors, many of which are beyond
the control of the Company and Affiliated Practices. The cost of such insurance
to the Company and the Affiliated Practices may have an adverse effect on the
Company's operations. In addition, successful malpractice or other claims
asserted against Affiliated Practices or the Company that exceed applicable
policy limits could have a material adverse effect on the Company.

In connection with the Reorganizations, the shareholders of the Founding
Affiliated Practices have agreed to indemnify the Company for certain claims.
There can be no assurance that the Company will be able to receive payments
under any such indemnity agreements or that the failure to fully recover such

53
<PAGE> 55

amounts will not have a material adverse effect on the Company's business,
financial condition or results of operations.

LEGAL PROCEEDINGS

The Company is not a party to any suits or complaints relating to services
provided by the Company or the Founding Affiliated Practices, although there can
be no assurances that claims will not be asserted against the Company in the
future. The Company will become subject to certain pending claims as the result
of successor liability in connection with the Reorganizations; however, the
Company believes that the ultimate resolution of such claims will not have a
material adverse effect on the business, financial condition or results of
operation of the Company.

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<PAGE> 56

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information with respect to the
executive officers and directors of the Company:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Gregory L. Solomon(1)(2).................. 52 President, Chief Executive Officer and Director
Lawrence R. Muroff, M.D.(1)(2)............ 54 Chairman of the Board of Directors and Senior Vice
President of Medical Affairs
Mark S. Martin............................ 37 Senior Vice President and Chief Operating Officer
Sami S. Abbasi............................ 32 Senior Vice President and Chief Financial Officer
Paul M. Jolas............................. 33 Senior Vice President, General Counsel and
Secretary
Robert J. Healy........................... 41 Chief Development Officer
John W. Colloton(3)(4).................... 66 Director
John Pappajohn(2)(4)...................... 68 Director
Derace L. Schaffer, M.D.(1)(3)............ 49 Director
Less T. Chafen, M.D....................... 55 Director Nominee
Michael L. Sherman, M.D................... 55 Director Nominee
</TABLE>

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

(1) Member of the Executive Committee of the Board of Directors.

(2) Member of the Acquisition Committee of the Board of Directors.

(3) Member of the Compensation and Stock Plan Administration Committee of the
Board of Directors.

(4) Member of the Audit Committee of the Board of Directors.

Gregory L. Solomon has served as President, Chief Executive Officer and a
director of the Company since its inception. From April 1995 through September
1995, Mr. Solomon served as Chairman of the Board of Directors and Chief
Executive Officer of Physicians Resource Group, Inc., a publicly-traded
physician practice management company which provides management and
administrative services to ophthalmic and optometric practices. Physicians
Resource Group, Inc. became a public company in June 1995 and is listed on the
New York Stock Exchange. From December 1994 through April 1995, Mr. Solomon
served as a consultant to Physicians Resource Group, Inc. From February 1991
through December 1994, Mr. Solomon served as Chairman of the Board of Directors
and Chief Executive Officer of Associated Optical, Inc., a company that provided
optical laboratory services and distributed contact lenses to private
practitioners, retailers and third-party providers of eye care. From March 1983
through February 1991, he served as President, Chief Executive Officer and a
director of Allco Chemical Corporation, a manufacturer of specialty chemicals
serving the electronic and aerospace industries. Mr. Solomon received his M.B.A.
in finance from Indiana University and his B.S. in economics from Xavier
University.

Lawrence R. Muroff, M.D. has served as Chairman of the Board of Directors
and Senior Vice President of Medical Affairs of the Company since its inception.
In connection with the Reorganizations, the Company will establish a Physician
Advisory Board and Dr. Muroff will serve as its chairman. Dr. Muroff has served
as President of Educational Symposia, Inc., an educational company which
provides qualified teaching credits to radiologists and certain referring
physicians, since January 1975. He has also served as President of Imaging
Consultants, Inc., a company which provides consulting services to radiology
groups, hospital corporations and other entities involved in diagnostic imaging,
since May 1994. Dr. Muroff holds appointments as Clinical Professor of Radiology
at the University of South Florida, College of Medicine (from 1982 to the
present); the University of Florida, College of Medicine (from 1988 to the
present); and the H. Lee Moffitt Cancer Center & Research Institute (from 1994
to the present). From 1974 through 1994, Dr. Muroff was a partner in Sheer,
Ahearn & Associates, a radiology group based in Florida. Dr. Muroff received his
M.D. from

55
<PAGE> 57

Harvard Medical School; his B.M.Sc. in basic medical science from Dartmouth
Medical School; and his A.B. in liberal arts from Dartmouth College.

Mark S. Martin has served as Chief Operating Officer and Senior Vice
President of the Company since June 1996. From January 1993 through June 1996,
Mr. Martin served as Executive Vice President of Practice Management Development
and Support for Medaphis Physician Services Corporation, a subsidiary of
Medaphis Corporation, a publicly-traded company which provides business and
information services to physicians, physician group practices and hospitals.
From October 1987 through December 1992, he served as Vice President of
Financial Services for CompMed, Inc., a company which provided comprehensive
management and administrative services to hospital-based physicians and
physician groups, with a primary emphasis on radiology. From 1982 through 1987,
Mr. Martin was employed by KPMG Peat Marwick as a tax manager. Mr. Martin was
licensed as a Certified Public Accountant in 1982. He received his B.A. in
accounting from Capital University.

Sami S. Abbasi has served as Chief Financial Officer and Senior Vice
President of the Company since August 1996. From January 1995 through July 1996,
Mr. Abbasi served as Vice President in the Health Care Group of Robertson,
Stephens & Company. His responsibilities included investment banking business
development and transaction execution with emerging growth publicly-held and
privately-held companies in the health care industry, with specific emphasis on
physician practice management companies. From 1988 through January 1995, he held
various positions with Citicorp Securities, Inc., including Vice President and
Senior Analyst -- Health Care Group. Mr. Abbasi received his M.B.A. from the
University of Rochester and his B.A. in economics from the University of
Pennsylvania.

Paul M. Jolas has served as General Counsel and Senior Vice President of
the Company since August 1996 and as Secretary of the Company since October
1996. From September 1989 through July 1996, Mr. Jolas was an attorney with the
law firm of Haynes and Boone, L.L.P. in Dallas, Texas, where he practiced in the
corporate finance section and was responsible for a broad range of corporate and
securities transactions including numerous initial and secondary public
offerings of equity and debt securities, mergers and acquisitions and public
company reporting requirements. Mr. Jolas received his J.D. from Duke University
School of Law and his B.A. in economics from Northwestern University.

Robert J. Healy has served as Chief Development Officer of the Company
since October 1996. From June 1995 through September 1996, Mr. Healy was an
independent consultant to physician practice management companies and several
independent diagnostic imaging providers. From 1990 to June 1995, Mr. Healy was
Corporate Vice President of Image America, an independent diagnostic imaging
provider. Mr. Healy received his B.A. from the University of Rochester.

John W. Colloton became a director of the Company in June 1997. Mr.
Colloton served as the director of the University of Iowa Hospitals and Clinics
from 1971 to 1993, and since 1993, has been Vice President for Statewide Health
Services for the University of Iowa. He also serves as a director of the
following companies: Baxter International, Inc.; MidAmerican Energy, Inc.;
Wellmark, Inc. (Blue Cross and Blue Shield of Iowa and South Dakota); OncorMed,
Inc.; and Iowa State Bank and Trust Company. Mr. Colloton is also a trustee of
the University of Pennsylvania Medical Center. Mr. Colloton, who earned his M.A.
in Hospital and Health Administration from the University of Iowa, has been
elected to the Institute of Medicine of the National Academy of Sciences and has
received Distinguished Service Awards from both the American Hospital
Association and the Association of American Medical Colleges.

John Pappajohn has been a director of the Company since its inception.
Since 1969, Mr. Pappajohn has been the President and principal stockholder of
Equity Dynamics, Inc., a financial consulting firm, and the sole owner of
Pappajohn Capital Resources, a venture capital firm, both located in Des Moines,
Iowa. He also serves as a director of the following public companies: Core,
Inc.; Drug Screening Systems, Inc.; Fuisz Technologies Ltd.; OncorMed, Inc.; The
Care Group, Inc.; PACE HealthManagement Systems, Inc.; Patient InfoSystems,
Inc.; and HealthDesk Corporation. Mr. Pappajohn received his Bachelors degree in
business from the University of Iowa.

56
<PAGE> 58

Derace L. Schaffer, M.D. has been a director of the Company since its
inception. Dr. Schaffer is President of The Ide Group, P.C., one of the Founding
Affiliated Practices, as well as the Lan Group, a venture capital firm. He also
serves as a director of the following public companies: The Care Group, Inc.,
Oncor, Inc., and Patient InfoSystems, Inc. He is also a director of several
private companies, including Automated Dispatch Solutions, Inc., Medical Records
Corporation, NeuralMed, Inc., NeuralTech, Inc. and Preferred Oncology Networks
of America, Inc. Dr. Schaffer is a board certified radiologist. He received his
postgraduate radiology training at the Harvard Medical School and Massachusetts
General Hospital, where he served as Chief Resident. Dr. Schaffer is a member of
Alpha Omega Alpha, the national medical honor society, and is Clinical Professor
of Radiology at the University of Rochester School of Medicine.

Less T. Chafen, M.D. has been nominated and approved to serve as a Director
of the Company effective upon consummation of this offering. Since 1978, Dr.
Chafen has served as the Chairman of the Board of Pacific Imaging Consultants, a
Medical Group, Inc., one of the Founding Affiliated Practices. Dr. Chafen
received his M.D. from Loma Linda University and his B.A. in zoology and
chemistry from Columbia Union College.

Michael L. Sherman, M.D. has been nominated and approved to serve as a
Director of the Company effective upon consummation of this offering. Since
1995, Dr. Sherman has served as the President of Advanced Radiology, LLC, one of
the Founding Affiliated Practices. From 1992 to 1995, Dr. Sherman served as the
Managing Partner of Drs. Copeland, Hyman & Shackman. Dr. Sherman received his
M.D. from the University of Maryland Medical School and his A.B. in history and
pre-medicine from Duke University.

BOARD OF DIRECTORS

Upon consummation of this offering, the number of directors of the Company
will be fixed at seven. Directors of the Company are elected by the stockholders
at each annual meeting to serve until the next annual meeting of the
stockholders or until their successors are duly elected and qualified.

The Company's Board of Directors has established an Executive Committee, an
Acquisition Committee, an Audit Committee and a Compensation and Stock Plan
Administration Committee. The Executive Committee exercises all the powers of
the Board of Directors between meetings of the Board of Directors, except such
powers as are reserved to the Board of Directors by law. Upon consummation of
this offering, the Executive Committee will consist of Mr. Solomon and Drs.
Muroff and Schaffer. The Acquisition Committee evaluates acquisition proposals
regarding radiology physician practices, MSOs, ICs and related businesses. Upon
consummation of this offering, the Acquisition Committee will consist of Messrs.
Solomon and Pappajohn and Dr. Muroff, with two directors to be named at a later
date. The Audit Committee recommends the firm to be appointed as independent
accountants to audit the Company's financial statements and to perform services
related to the audit, reviews the scope and results of the audit with the
independent accountants, reviews with management and the independent accountants
the Company's year-end operating results and considers the adequacy of the
Company's internal accounting procedures. Upon consummation of this offering,
the Audit Committee will consist of Mr. Pappajohn, Mr. Colloton and a director
to be named at a later date. The Compensation and Stock Plan Administration
Committee reviews and recommends the compensation arrangements for all directors
and officers and administers the Company's benefit plans, including the
Company's 1996 Stock Option Plan. Upon consummation of this offering, the
Compensation and Stock Plan Administration Committee will consist of Dr.
Schaffer, Mr. Colloton and a director to be named at a later date.

Directors of the Company who are also employees receive no additional
compensation for their services as members of the Board of Directors or as
members of Board Committees.

The Company has no regular compensation arrangements with its non-employee
directors. However, the Company's 1996 Stock Option Plan provides for automatic
grants of non-qualified options to purchase 30,000 shares of Common Stock to
non-employee directors at the time any such director is first elected or
appointed as a non-employee director. Each such option (i) entitles the director
to purchase shares of the Common Stock at an exercise price equal to the fair
market value of the Common Stock on the automatic grant date, (ii) is first
exercisable with respect to 10,000 shares underlying the option on the first
anniversary

57
<PAGE> 59

of the automatic grant date and is exercisable with respect to the remaining
shares underlying the option in 24 equal monthly installments over the next 24
months (provided such person remains a director of the Company) and (iii)
terminates on the day prior to the tenth anniversary of the automatic grant
date. On the date of each annual stockholders meeting held after this offering,
each non-employee director who is to continue to serve on the Board of Directors
shall automatically be granted an option to purchase 10,000 shares of Common
Stock, provided that the initial 30,000-share option grant to such individual
was made at least three years prior to the date of such meeting. Each such
10,000-share option grant shall become exercisable in 12 equal monthly
installments over the next 12 months following the grant date.

All directors of the Company are reimbursed for travel expenses incurred in
attending meetings of the Board of Directors and for other incidental expenses
for serving as a director.

EXECUTIVE COMPENSATION

Summary Compensation

The following table sets forth certain information regarding the
compensation paid by APPI for services rendered in all capacities to APPI during
1996 to the Company's Chief Executive Officer and the four other most highly
paid executive officers (the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
-------------------------------------- SECURITIES
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION($)
- ------------------ --------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Gregory L. Solomon...................... $142,500 -- -- 250,000 $ 4,518(1)
President and Chief Executive Officer

Lawrence R. Muroff, M.D. ............... 75,000 -- -- 230,000 --
Chairman of the Board of Directors and
Senior Vice President of Medical
Affairs

Mark S. Martin.......................... 84,529 -- -- 180,000 25,274(2)
Senior Vice President and Chief
Operating Officer

Sami S. Abbasi.......................... 66,667 -- -- 180,000 5,619(3)
Senior Vice President and Chief
Financial Officer

Paul M. Jolas........................... 58,333 -- -- 140,000 945(4)
Senior Vice President and General
Counsel
</TABLE>

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

(1) Represents amount of health insurance premiums reimbursed by the Company.

(2) Represents amount of health insurance premiums and $24,399 in relocation
expenses reimbursed by the Company.

(3) Represents amount of health insurance premiums and $4,103 in relocation
expenses reimbursed by the Company.

(4) Represents amount of health insurance premiums reimbursed by the Company.

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<PAGE> 60

Option Grants During 1996

The following table presents information regarding 1996 grants of options
to purchase shares of Common Stock for each of the Named Executive Officers:

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES PERCENT OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OR OPTION TERM(3)
OPTIONS TO EMPLOYEES BASE PRICE -----------------------
NAME GRANTED(1) IN FISCAL YEAR ($/SH)(2) EXPIRATION DATE 5%($) 10%($)
---- ---------- ---------------- ----------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gregory L. Solomon.......... 250,000(4) 20.2% $0.125 04/30/06 $19,653 $49,804
Lawrence R. Muroff, M.D..... 230,000(5) 18.5 0.125 04/30/06 18,081 45,820
Mark S. Martin.............. 180,000(4) 14.5 0.125 06/11/06 14,150 35,859
Sami S. Abbasi.............. 180,000(4) 14.5 0.125 07/31/06 14,150 35,859
Paul M. Jolas............... 140,000(6) 11.3 0.125 07/31/06 11,006 27,890
</TABLE>

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

(1) All options were granted at fair market value at the date of grant, as
determined by the Board of Directors. These options vest monthly over a
five-year period.

(2) The option exercise price may be paid in shares of Common Stock owned by the
executive officer, in cash, or in any other form of valid consideration as
determined by the Compensation and Stock Plan Administration Committee in
its discretion.

(3) The dollar amounts in these columns represent the potential realizable value
that might be realized upon exercise of the options immediately prior to the
expiration of their term, assuming that the market price of Common Stock
appreciates in value from the date of grant at assumed annual rates of 5%
and 10%. These assumed rates of appreciation are prescribed by the rules and
regulations of the Securities and Exchange Commission, and therefore are not
intended to forecast possible future appreciation, if any, of the price of
the Common Stock. These numbers do not take into account provisions of
certain options providing for termination of the option following
termination of employment, nontransferability or vesting over periods.

(4) Upon consummation of this offering, this option becomes exercisable with
respect to the greater of 50% of the shares covered thereby or the actual
number of shares that have vested. The remainder of the shares underlying
the option become exercisable in equal monthly installments over the
remaining vesting period. These numbers do not take into account provisions
of certain options providing for termination of the option following
termination of employment, nontransferability or vesting over periods.

(5) As to 200,000 shares, upon consummation of this offering, this option
becomes exercisable with respect to the greater of 100,000 shares or the
actual number of shares that have vested, and the remainder of such shares
become exercisable in equal monthly installments over the remaining vesting
period. As to 30,000 shares, 10,000 shares become exercisable on the first
anniversary of the date of grant and the remaining shares become exercisable
in 24 equal monthly installments over the next 24 months. These numbers do
not take into account provisions of certain options providing for
termination of the option following termination of consulting relationships,
cessation of services as a director of the Company or nontransferability.

(6) Upon consummation of this offering, this option becomes exercisable with
respect to the greater of 25% of the shares covered thereby or the actual
number of shares that have vested upon consummation of this offering. The
remainder of the shares underlying the option become exercisable in equal
monthly installments over the remaining vesting period. These numbers do not
take into account provisions of certain options providing for termination of
the option following termination of employment, nontransferability or
vesting over periods.

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<PAGE> 61

Aggregated Option Exercises During 1996 and Year-end Option Values

No stock options were exercised by the Named Executive Officers during the
fiscal year ended December 31, 1996. The following table sets forth certain
information regarding unexercised stock options held by each of the Named
Executive Officers as of December 31, 1996:

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR-END(#) FISCAL YEAR-END(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Gregory L. Solomon............................ 29,166 220,834 $433,844 $3,284,906
Lawrence R. Muroff, M.D....................... 23,333 176,667 347,078 2,627,922
Mark S. Martin................................ 18,000 162,000 267,750 2,409,750
Sami S. Abbasi................................ 12,000 168,000 178,500 2,499,000
Paul M. Jolas................................. 9,333 130,667 138,828 1,943,672
</TABLE>

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

(1) Based on an assumed initial public offering price of $15.00 per share, less
the option exercise price.

STOCK OPTION PLAN

In May 1996, the Board of Directors adopted, and the stockholders of the
Company subsequently approved, the Company's 1996 Stock Option Plan (the
"Plan"). The purpose of the Plan is to provide directors, key employees and
certain advisors with additional incentives by increasing their proprietary
interest in the Company. Under the Plan, the aggregate amount of Common Stock
with respect to which options may be granted may not exceed 3,000,000 shares.
The Plan is intended to qualify for favorable treatment under Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), pursuant to
Rule 16b-3 promulgated thereunder ("Rule 16b-3").

The Plan provides for the grant of incentive stock options ("ISOs") as
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and non-qualified stock options (collectively, "Awards"). Following the
consummation of this offering, the Plan will be administered by the Compensation
and Stock Plan Administration Committee, which will be comprised of two or more
non-employee directors who are "disinterested" within the meaning of Rule 16b-3
(the "Committee"). Prior to the consummation of this offering, the Plan has been
administered by the Company's full Board of Directors. The Board of Directors
currently has, and the Committee will have, following consummation of this
offering, subject to the terms of the Plan, the sole authority to grant Awards
under the Plan, to construe and interpret the Plan and to make all other
determinations and take any and all actions necessary or advisable for the
administration of the Plan.

All of the Company's employees, non-employee directors and advisors are
eligible to receive Awards under the Plan, but only employees of the Company are
eligible to receive ISOs. Options will be exercisable during the period
specified in each option agreement and will generally be exercisable in
installments pursuant to a vesting schedule to be designated by the Committee.
Notwithstanding the provisions of any option agreement, options will become
immediately exercisable in the event of a "change in control" (as defined in the
Plan) of the Company and in the event of certain mergers and reorganizations of
the Company. No option will remain exercisable later than ten years after the
date of grant (or five years from the date of grant in the case of ISOs granted
to holders of more than 10% of the Common Stock).

The exercise price for ISOs granted under the Plan may be no less than the
fair market value of the Common Stock on the date of grant (110% of fair market
value in the case of ISOs granted to holders of more than 10% of the Company's
Common Stock). The exercise price for nonqualified options granted under the
Plan may be no less than 85% of the fair market value of the Common Stock on the
date of grant.

The Plan provides for automatic grants of non-qualified options to purchase
30,000 shares of Common Stock to non-employee directors at the time a director
is first elected or appointed as a non-employee director to vest over a term of
36 months, provided that such person continues to serve as a director of the
Company. In

60
<PAGE> 62

addition, upon expiration of the 36-month period following the initial option
grant to such non-employee director, such non-employee director shall
automatically be granted at each annual stockholders meeting a non-qualified
option to purchase 10,000 shares of Common Stock vesting over a term of 12
months. Each such option entitles the director to purchase shares of Common
Stock at an exercise price equal to the fair market value of the Common Stock on
the automatic grant date. Each option shall have a ten year term measured from
the automatic grant date.

The Plan will also permit the Company to grant stock options to advisors
and consultants of the Company who are employed as physicians of an Affiliated
Practice. Generally, such options will expire upon the termination of employment
with the Affiliated Practice or the advisory or consultant relationship with the
Company or on the day prior to the tenth anniversary of the date of grant,
whichever occurs first.

The Company anticipates that upon the consummation of this offering it will
have outstanding options to purchase a total of approximately 1,735,000 shares
of Common Stock to its employees, directors and consultants. Generally, the
outstanding options are exercisable based on a monthly vesting schedule over 60
months. The Company anticipates that it will issue additional options
concurrently with or shortly following consummation of this offering. Such
options will be exercisable at the fair market value of the Common Stock on the
date of grant.

CASH BONUS PROGRAM

In April 1997, the Board of Directors adopted, and the stockholders of the
Company subsequently approved, the Company's Cash Bonus Program (the "Program").
The purpose of the Program is to establish a bonus plan pursuant to which
eligible employees will be entitled to receive cash bonuses based on the
performance of the Company. Those employees eligible to receive cash bonuses
under the Program include the executive officers of the Company and certain key
employees whose responsibilities and activities are closely connected to the
Company's overall performance.

Under the Program, cash bonuses are calculated as a percentage of each
eligible employee's base salary, with such percentage being determined based
upon the annual increase in the Company's earnings per share. In addition, each
eligible employee may receive a cash bonus based upon the achievement of certain
individual objectives and the Company's overall performance. The Program will
become effective upon consummation of this offering and will be administered by
the Compensation and Stock Plan Administration Committee of the Board of
Directors.

EMPLOYMENT AGREEMENTS; COVENANTS-NOT-TO-COMPETE

The Company has entered into employment agreements with Gregory L. Solomon,
Mark S. Martin, Sami S. Abbasi and Paul M. Jolas, each of whom shall receive
following this offering annual salaries at the rate of $225,000, $190,000,
$190,000 and $150,000, respectively. Each employment agreement has a term of one
year with automatic successive one-year renewal periods. Each employment
agreement provides that in the event of a termination of employment by the
Company (i) other than for cause, (ii) upon disability or (iii) upon voluntary
termination by employee due to an adverse change in duties, such employee shall
be entitled to receive from the Company a payment equal to one-half of the
amount of such employee's then current annual base salary, to be paid in one
lump sum, plus a payment for all accrued but unpaid wages and expense
reimbursements. Such employment agreements provide that in the event such
employee's employment terminates following a change in control transaction (as
defined in such employment agreements) of the Company, the Company shall pay
such employee two times such employee's then current annual base salary.

Each such employment agreement contains a covenant-not-to-compete with the
Company for a period of one year following termination of employment.

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CERTAIN TRANSACTIONS

On April 30, 1996, Derace L. Schaffer, M.D., a director of the Company,
purchased 1,000,000 shares of Common Stock in the Company for $125,000 and John
Pappajohn, a director of the Company, and his affiliates purchased 1,000,000
shares of Common Stock for $125,000. During August 1996, Mr. Pappajohn and Dr.
Schaffer advanced a total of $400,000 to the Company as loans which were repaid
on October 31, 1996, out of the proceeds of the Company's private placement of
the Convertible Notes. Dr. Schaffer owns $107,500 in principal amount of the
Convertible Notes. Mr. Pappajohn owns $250,000 in principal amount of the
Convertible Notes.

The Company and Lawrence R. Muroff, M.D., Chairman of the Board of
Directors of the Company and Senior Vice President of Medical Affairs, entered
into a consulting agreement in June 1997 pursuant to which Dr. Muroff receives
annual compensation of $100,000 (prorated for actual months worked) in exchange
for rendering consulting services to the Company. The annual compensation under
such agreement will increase to $112,500 following consummation of this
offering. As part of his consulting arrangement, Dr. Muroff received option
grants for 200,000 shares of Common Stock. In addition, he received option
grants for 30,000 shares for his services as a member of the Company's Board of
Directors. See "Business -- Management -- Option Grants During 1996."

The Company and Michael L. Sherman, M.D., a director nominee of the
Company, entered into a consulting agreement in August 1996 pursuant to which
Dr. Sherman received an option grant for 20,000 shares of Common Stock. In
addition, the Company and Dr. Sherman entered into a consulting agreement for
which Dr. Sherman will receive annual compensation of $100,000 commencing on the
date following the consummation of this offering.

REORGANIZATIONS

The Company will consummate the Reorganizations simultaneously with the
closing of this offering.

The total consideration to be paid to each Founding Affiliated Practice in
connection with the Reorganization described below was determined on a
consistent basis and assumes an initial public offering price of $15.00 per
share. To the extent that the initial public offering price exceeds $14.00 per
share the total consideration paid to each Founding Affiliated Practice will
increase in amount; and to the extent that the initial public offering price is
less than $14.00 per share, the total number of shares issued to each Founding
Affiliated Practice will increase.

The following is a brief discussion of the Reorganizations.

Advanced Radiology, LLC

In June 1997, the Company entered into agreements to acquire certain
tangible and intangible assets, and assume certain liabilities, of Advanced
Radiology, LLC ("Advanced") whose physician owners include Michael L. Sherman,
M.D., a director nominee of the Company, pursuant to which, upon completion of
the Reorganization, Advanced will become a wholly-owned subsidiary of the
Company. Pursuant to the terms of the agreements, the outstanding interests of
Advanced will be converted into 3,562,500 shares of Common Stock valued at
$53,437,500 in the aggregate and $17,812,500 in cash. In addition, the Company
will assume the outstanding indebtedness of Advanced. At March 31, 1997 this
indebtedness totaled $12.2 million. As part of the Reorganization, the Company
will issue shares of Common Stock and $ in cash to Dr.
Sherman in exchange for his ownership interest in Advanced. In connection with
the Reorganization, the Company also will become a party to a Service Agreement
with and its physician owners.

The Ide Group, P.C.

In June 1997, the Company entered into an agreement to acquire certain
tangible and intangible assets, and assume certain liabilities, of The Ide
Group, P.C. ("Ide") whose physician owners include Derace L. Schaffer, M.D., a
director of the Company, pursuant to which, upon completion of the
Reorganization, Ide will become a wholly-owned subsidiary of the Company.
Pursuant to the terms of the agreement, the outstanding shares of Ide will be
converted into 2,026,500 shares of Common Stock valued at $30,397,500 in

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<PAGE> 64

the aggregate and $10,132,500 in cash. In addition, the Company will assume the
outstanding indebtedness of Ide. At March 31, 1997 this indebtedness totaled
$1.6 million. As part of the Reorganization, the Company will issue
shares of Common Stock and $ in cash to Dr. Schaffer in exchange for
his ownership interest in Ide. In connection with the Reorganization, the
Company also will become a party to a Service Agreement with and
its physician owners.

Pacific Imaging Consultants

In June 1997, the Company entered into agreements to acquire certain
tangible and intangible assets, and assume certain liabilities, of Pacific
Imaging Consultants ("Pacific"), whose physician owners include Less T. Chafen,
M.D., a director nominee of the Company pursuant to which, upon completion of
the Reorganization, Pacific will become a wholly-owned subsidiary of the
Company. Pursuant to the terms of the agreement, the outstanding interests of
Pacific will be converted into 703,875 shares of Common Stock valued at
$10,558,125 in the aggregate and $3,519,375 in cash in respect of his ownership
interest in Pacific. In addition, the Company will assume the outstanding
indebtedness of Pacific. At March 31, 1997 this indebtedness totaled $3.8
million. As part of the Reorganization, the Company will issue shares
of Common Stock and $ in cash to Dr. Chafen in exchange for his
ownership interest in Pacific. In connection with of the Reorganization, the
Company also will become a party to a Service Agreement with and
its physician owners.

Radiology and Nuclear Medicine, P.A.

In June 1997, the Company entered into agreements to acquire certain
tangible and intangible assets, and assume certain liabilities, of Radiology and
Nuclear Medicine, P.A. ("RNM"), pursuant to which, upon completion of the
Reorganization, RNM will become a wholly-owned subsidiary of the Company.
Pursuant to the terms of the agreement, the outstanding shares of RNM will be
converted into 756,000 shares of Common Stock valued at $11,340,000 in the
aggregate and $3,780,000 in cash. In addition, the Company will assume the
outstanding indebtedness of RNM. At March 31, 1997 this indebtedness totaled
$1.6 million. In connection with the Reorganization, the Company also will
become a party to a Service Agreement with and its physician
owners.

Valley Radiology Group

In June 1997, the Company entered into agreements to acquire certain
tangible and intangible assets, and assume certain liabilities, of Valley
Radiology Group ("Valley"), pursuant to which, upon completion of the
Reorganization, Valley will become as wholly-owned subsidiary of the Company.
Pursuant to the terms of the agreements, the outstanding interests of Valley
will be converted into 623,250 shares of Common Stock valued at $9,348,750 in
the aggregate and $3,116,250 in cash. In addition, the Company will assume the
outstanding indebtedness of Valley. At March 31, 1997 this indebtedness totaled
$1.5 million. In connection with the Reorganization, the Company also will
become a party to a Service Agreement with and its physician
owners.

Rockland Radiological Group

In June 1997, the Company entered into agreements to acquire certain
tangible and intangible assets, and assume certain liabilities, of Rockland
Radiological Group ("Rockland"), pursuant to which, upon completion of the
Reorganization, Rockland will become a wholly-owned subsidiary of the Company.
Pursuant to the terms of the agreements, the outstanding interests of Rockland
will be converted into 1,446,375 shares of Common Stock valued at $21,695,625 in
the aggregate and $7,231,875 in cash. In addition, the Company will assume the
outstanding indebtedness of Rockland. At March 31, 1997 this indebtedness
totaled $9.4 million. In connection with the Reorganization, the Company also
will become a party to a Service Agreement with and its physician
owners.

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<PAGE> 65

M & S X-Ray Practices

In June 1997, the Company entered into agreements to acquire certain
tangible and intangible assets, and assume certain liabilities, of the M & S.
X-Ray Practices ("M & S"), pursuant to which upon completion of the
Reorganization M & S will become a wholly-owned subsidiary of the Company.
Pursuant to the terms of the agreements, the outstanding interests of M & S will
be converted into 1,595,625 shares of Common Stock valued at $23,934,375 in the
aggregate and $7,978,125 in cash. In addition, the Company will assume the
outstanding indebtedness of M & S. At March 31, 1997 this indebtedness totaled
$432,000. In connection with the Reorganization, the Company also will become a
party to a Service Agreement with and its physician owners.

COMPANY POLICY

It is anticipated that future transactions with affiliates of the Company
will be minimal, will be approved by a majority of the disinterested members of
the Board of Directors and will be made on terms no less favorable to the
Company than could be obtained from unaffiliated third parties. The Company does
not intend to make any loans to, or incur any indebtedness to, any of its
executive officers or directors.

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PRINCIPAL STOCKHOLDERS

The following table sets forth information with respect to the beneficial
ownership of Common Stock as of May 31, 1997, and as adjusted, to give effect to
the Reorganizations, the conversion of the Convertible Notes and completion of
this offering, by (i) all persons known to the Company to be the beneficial
owner of 5% or more of the Common Stock, (ii) each director of the Company,
(iii) each Named Executive Officer, and (iv) all directors and executive
officers as a group. This table does not include shares of Common Stock that may
be purchased pursuant to options not exercisable within 60 days of the
consummation of this offering. All persons listed have sole voting and
investment power with respect to their shares unless otherwise indicated.

<TABLE>
<CAPTION>
PERCENTAGE OWNED(2)
------------------------
SHARES BENEFICIALLY BEFORE THE AFTER THE
NAME OWNED(1) OFFERING OFFERING
---- ------------------- ---------- ---------
<S> <C> <C> <C>
Gregory L. Solomon(3)(4)............................. 135,208 6.3% *%
Lawrence R. Muroff, M.D.(3)(5)....................... 120,834 5.7 *
Mark S. Martin(3)(6)................................. 93,673 4.5 *
Sami S. Abbasi(3)(7)................................. 93,529 4.5 *
Paul M. Jolas(3)(8).................................. 39,118 1.9 *
Derace L. Schaffer, M.D.(3)(9)....................... 1,025,105 50.6 5.6
John Pappajohn(3)(10)................................ 1,042,917 51.1 5.7
Michael L. Sherman, M.D.............................. 20,000 1.0 *
Edgewater Private Equity Fund, II, L.P.(11).......... 250,000 11.1 1.4
All directors and executive officers as a group (11
persons)(12)....................................... 2,579,384 100.0 13.8
</TABLE>

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

* Less than one percent.

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power
with respect to securities. Shares of Common Stock issuable upon the
exercise or conversion of stock options or other securities currently
exercisable or convertible, or exercisable or convertible within 60 days of
May 31, 1997 are deemed outstanding and to be beneficially owned by the
person holding such option or security for purposes of computing such
person's percentage ownership, but are not deemed outstanding for the
purpose of computing the percentage ownership of any other person. Except
for shares held jointly with a person's spouse or subject to applicable
community property laws, or as indicated in the footnotes to this table,
each stockholder identified in the table possesses sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by such stockholder.

(2) Applicable percentage of ownership is based on 2,000,000 shares of Common
Stock outstanding as of May 31, 1997 and 18,151,625 shares of Common Stock
outstanding upon consummation of this offering, the Reorganizations and
conversion of the Convertible Notes.

(3) The address of Messrs. Solomon, Martin, Abbasi, Jolas and Pappajohn and
Drs. Muroff and Schaffer is c/o American Physician Partners, Inc., 2301
NationsBank Plaza, 901 Main Street, Dallas, Texas 75202.

(4) Includes 5,000 shares of Common Stock into which $40,000 in certain
Convertible Notes issued by the Company and held by Mr. Solomon are
convertible. See "Description of Capital Stock -- Convertible Notes." Also
includes 130,208 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of May 31, 1997.

(5) Includes 5,000 shares of Common Stock into which $40,000 in certain
Convertible Notes issued by the Company and held by Dr. Muroff are
convertible. See "Description of Capital Stock -- Convertible Notes." Also
includes 105,834 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of May 31, 1997; and exercisable options to
purchase 10,000 shares of Common Stock in connection with service as a
Director of the Company.

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<PAGE> 67

(6) Includes 93,673 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of May 31, 1997.

(7) Includes 93,529 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of May 31, 1997.

(8) Includes 39,118 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of May 31, 1997.

(9) Includes 13,438 shares of Common Stock into which $107,500 in certain
Convertible Notes issued by the Company and held by Dr. Schaffer are
convertible. Also includes exercisable option to purchase 11,667 shares of
Common Stock in connection with service as a Director of the Company.

(10) Includes 31,250 shares of Common Stock into which $250,000 in certain
Convertible Notes issued by the Company and held by Mr. Pappajohn are
convertible. Also includes exercisable options to purchase 11,667 shares of
Common Stock in connection with service as a Director of the Company. Also
includes 200,000 shares held by Halkis Ltd., a sole proprietorship owned by
Mr. Pappajohn, 150,000 owned by Thebes Ltd., a sole proprietorship owned by
Mr. Pappajohn's spouse, Mary Pappajohn, and 150,000 shares owned directly
by Mary Pappajohn. Mr. Pappajohn disclaims beneficial ownership of the
shares owned by Thebes Ltd. and by Mary Pappajohn.

(11) Includes 250,000 shares of Common Stock into which $2,000,000 in certain
Convertible Notes issued by the Company and held by Edgewater are
convertible.

(12) Includes 524,696 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of May 31, 1997 and 54,688 shares of Common
Stock issuable upon conversion of Convertible Notes.

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<PAGE> 68

DESCRIPTION OF CAPITAL STOCK

GENERAL

The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock, par value $.0001 per share, and 10,000,000 shares of preferred
stock, par value $.0001 per share (the "Preferred Stock").

As of the date of this Prospectus and giving effect to the Reorganizations,
the conversion of the Convertible Notes, and the completion of this offering,
the Company will have outstanding 18,151,625 shares of Common Stock (assuming an
initial public offering price of $15.00 per share) and no shares of Preferred
Stock.

COMMON STOCK

The holders of Common Stock are entitled to one vote for each share on all
matters voted upon by stockholders, including the election of directors.

Subject to the rights of any then outstanding shares of Preferred Stock,
the holders of the Common Stock are entitled to such dividends as may be
declared in the discretion of the Board of Directors out of funds legally
available therefor. Holders of the Common Stock are entitled to share ratably in
the net assets of the Company upon liquidation after payment or provision for
all liabilities and any preferential liquidation rights of any Preferred Stock
then outstanding. The holders of Common Stock have no preemptive rights to
purchase shares of stock of the Company. Shares of Common Stock are not subject
to any redemption provisions and are not convertible into any other securities
of the Company. All outstanding shares of Common Stock are, and the shares of
Common Stock being offered hereby will be, upon payment of consideration
therefor, fully paid and nonassessable.

PREFERRED STOCK

Preferred Stock may be issued from time to time at the discretion of the
Board of Directors as shares of one or more series. Subject to the provisions of
the Company's Restated Certificate of Incorporation and limitations prescribed
by law, the Board of Directors is expressly authorized to adopt resolutions to
issue the shares, to fix the number of shares and to change the number of shares
constituting any series, and to provide for or change the voting powers,
designations, preferences and relative, participating, optional or other special
rights, qualifications, limitations or restrictions thereof, including dividend
rights (including whether dividends are cumulative), dividend rates, terms of
redemption (including sinking fund provisions), redemption prices, conversion
rights and liquidation preferences of the shares constituting any class or
series of Preferred Stock, in each case without any further action or vote by
the stockholders.

One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of Preferred Stock pursuant to the Board of Directors'
authority described above may adversely affect the rights of the holders of
Common Stock. For example, Preferred Stock issued by the Company may rank prior
to the Common Stock as to dividend rights, liquidation preference or both, may
have full or limited voting rights and may be convertible into shares of Common
Stock. Accordingly, the issuance of shares of Preferred Stock may discourage
bids for the Common Stock at a premium to, or may otherwise adversely affect,
the market price of the Common Stock.

CONVERTIBLE NOTES

The following summaries of certain provisions of the Convertible Notes and
the Registration Rights Agreement do not purport to be complete and are subject
to, and are qualified in their entirety by reference to, all provisions of the
Convertible Notes and the Registration Rights Agreement.

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<PAGE> 69

General

The Convertible Notes represent unsecured general obligations of the
Company and are convertible into Common Stock as described below. The
Convertible Notes bear interest at the annual rate of 6%, and all accrued but
unpaid interest shall be due and payable upon the closing of this offering. In
the event the Convertible Notes are not converted into Common Stock by January
31, 1998, all accrued interest is due and payable immediately and the interest
rate will increase to the prime rate as published in The Wall Street Journal
plus 2% per annum thereafter, payable quarterly. Interest will be computed on
the basis of a 360-day year comprised of 12 30-day months. As of the date of
this Prospectus, the outstanding principal amount of the Convertible Notes was
$3,500,000.

Optional Redemption

The Convertible Notes are redeemable at the option of the Company, in whole
or in part, at the time of or any time after this offering. The Convertible
Notes are redeemable in their principal amount on at least 15 days' written
notice at the option of the Company, in whole or in part, together with accrued
and unpaid interest. The Company intends to call the Convertible Notes for
redemption as soon as practicable following the date of this Prospectus.

Conversion Rights

Upon receipt of written notice of redemption by the Company, the holders
may convert the principal of such Convertible Notes into Common Stock upon
approval of at least 50% of the outstanding principal of the Convertible Notes.
Upon conversion, holders of the Convertible Notes will receive shares of Common
Stock at the rate of one share of Common Stock for each $8.00 of Convertible
Note principal (the "Conversion Price"). Proportional adjustments shall be made
to the conversion ratio for splits, dividends, recapitalizations, and other
distributions of the Common Stock. The Conversion Price shall be reduced,
subject to several exceptions, if the Company sells any of its Common Stock for
less than $8.00 per share, to a price determined by dividing (i) an amount equal
to the sum of (A) the number of shares of Common Stock outstanding immediately
prior to such sale (including as outstanding all shares of Common Stock issuable
upon conversion of Convertible Notes) multiplied by the then existing Conversion
Price, and (B) the consideration, if any, received by the Company upon such
sale, by (ii) the total number of shares of Common Stock outstanding immediately
after the sale, including those issuable upon conversion of the Convertible
Notes. No adjustment is made to the Conversion Price for options granted to
officers, employees, directors and consultants of the Company pursuant to any
stock option plan of the Company, including the Plan.

Each Convertible Note may be converted into shares of Common Stock at the
then effective Conversion Price (i) upon approval of the holders of at least 50%
of the outstanding principal amount of the Convertible Notes following the
closing of an initial public offering of the Common Stock pursuant to an
effective registration statement under the Securities Act in which the aggregate
gross proceeds received by the Company equals or exceeds $10,000,000 prior to
January 31, 1998, or (ii) upon approval of the holders of at least 50% of the
outstanding principal amount of the Convertible Notes on or after January 31,
1998.

If the Company sells shares of Common Stock for less than $14.00 per share
in this offering, the conversion rate shall be adjusted so that at the time of
conversion the aggregate market value of the Common Stock into which the
Convertible Notes are converted will equal the principal of the Convertible
Notes times 1.75.

Lock-up

Each of the holders of the Convertible Notes has entered into a lock-up
agreement with the Company, pursuant to which each such holder has agreed with
the Company not to sell the Convertible Notes or the shares of Common Stock
issued or issuable upon conversion thereof owned by them at the time for a
period of 24 months following issuance of such Convertible Notes (which Notes
were issued between September 30 and December 31, 1996). The Company has agreed
with the Underwriters not to waive this lock-up agreement for 180 days following
the date of this Prospectus.

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Registration Rights

The holders of the Convertible Notes have certain registration rights upon
conversion of the Convertible Notes into Common Stock. At any time from and
after 12 months following this offering, and not later than September 30, 2001,
holders owning 50% or more of the aggregate of the shares of Common Stock into
which any of the Convertible Notes have been or can be converted shall have the
right on one occasion to require the Company to prepare and file a registration
statement under the Securities Act covering such shares of Common Stock, and the
Company, at its expense, will use its best efforts to cause such registration
statement to become effective as soon as possible.

In addition, the holders of Convertible Notes shall be entitled, subject to
the approval of the underwriter, to two "piggyback" registrations at the
Company's expense, as part of a registration by the Company of its shares of
Common Stock at any time subsequent to 12 months after the date of this
offering, but prior to September 30, 2001. Holders of the Convertible Notes are
granted the right on up to two occasions at the Company's expense, and prior to
September 30, 2001, to have their shares registered on Form S-3, if such form is
available for use by the Company and such holder or holders. The registration
rights are subject to a number of terms and conditions, including but not
limited to, requirements as to minimum offering size and reaching satisfactory
underwriting terms.

STATUTORY BUSINESS COMBINATION PROVISION

The Company is subject to the provisions of Section 203 ("Section 203") of
the Delaware General Corporation Law (the "DGCL"). Section 203 provides, with
certain exceptions, that a Delaware corporation may not engage in any of a broad
range of business combinations with a person or an affiliate, or associate of
such person, who is an "interested stockholder" for a period of three years from
the date that such person became an interested stockholder unless: (i) the
transaction resulting in a person becoming an interested stockholder, or the
business combination, is approved by the Board of Directors of the corporation
before the person becomes an interested stockholder; (ii) the interested
stockholder acquired 85% or more of the outstanding voting stock of the
corporation in the same transaction that makes such person an interested
stockholder (excluding shares owned by the persons who are both officers and
directors of the corporation, and shares held by certain employee stock
ownership plans); or (iii) on or after the date the person becomes an interested
stockholder, the business combination is approved by the corporation's board of
directors and by the holders of at least 66% of the corporation's outstanding
voting stock at an annual or special meeting, excluding the shares owned by the
interested stockholder. Under Section 203, an "interested stockholder" is
defined as any person who is (i) the owner of 15% or more of the outstanding
voting stock of the corporation or (ii) an affiliate or associate of the
corporation and who was the owner of 15% or more of the outstanding voting stock
of the corporation at any time within the three-year period immediately prior to
the date on which it is sought to be determined whether such person is an
interested stockholder.

A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or bylaws by action of
its stockholders to exempt itself from coverage. The Company has not adopted
such an amendment to the Company's Restated Certificate of Incorporation or
Amended and Restated Bylaws. The applicability of Section 203 to the Company
could delay or prevent a change in control of the Company and, consequently,
could adversely affect the market price for the Common Stock.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Under Section 145 of the Delaware General Corporation Law, the Company can
indemnify its directors and officers against liabilities they may incur in such
capacities, including liabilities under the Securities Act. The Company's
Amended and Restated Bylaws provide that the Company will indemnify its
directors and officers to the fullest extent permitted by law and require the
Company to advance litigation expenses upon receipt by the Company of an
undertaking by the director or officer to repay such advances if it is
ultimately determined that the director or officer is not entitled to
indemnification. The Amended and Restated Bylaws

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further provide that rights conferred under such Bylaws do not exclude any other
right such persons may have or acquire under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.

The Company's Restated Certificate of Incorporation provides that, pursuant
to Delaware law, its directors shall not be liable for monetary damages for
breach of the directors' fiduciary duty of care to the Company and its
stockholders. This provision in the Restated Certificate of Incorporation does
not eliminate the duty of care, and in appropriate circumstances equitable
remedies such as injunctive or other forms of nonmonetary relief will remain
available under Delaware law. In addition, each director will continue to be
subject to liability for breach of the director's duty of loyalty to the Company
or its stockholders, for acts or omissions not in good faith or involving
intentional misconduct or knowing violations of law, for actions leading to
improper personal benefit to the director, and for payment of dividends or
approval of stock repurchases or redemptions that are unlawful under Delaware
law. The provision also does not affect a director's responsibilities under any
other law, such as the federal securities laws or state or federal environmental
laws.

The Company intends to enter into agreements to indemnify its directors and
certain of its officers in addition to the indemnification provided for in the
Restated Certificate of Incorporation and Amended and Restated Bylaws. These
agreements, among other things, will indemnify the Company's directors and
certain of its officers for certain expenses (including attorneys' fees),
judgments, fines and settlement amounts incurred by such person in any action or
proceeding, including any action by or in the right of the Company, on account
of services as a director or officer of the Company, or as a director or officer
of any other company or enterprise to which the person provides services at the
request of the Company.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is .

SHARES ELIGIBLE FOR FUTURE SALE

The market price of the Common Stock could be adversely affected by the
sale of substantial amounts of Common Stock in the public market following this
offering. Upon the completion of this offering, the Company will have
outstanding 18,151,625 shares of Common Stock. The 5,000,000 shares of Common
Stock to be sold in this offering will be freely tradable without restriction
under the Securities Act unless acquired by "affiliates" of the Company, as that
term is defined under the Securities Act or contractually restricted.

Simultaneously with the closing of this offering, securityholders of the
Founding Affiliated Practices will receive, in the aggregate, 10,714,125 shares
of Common Stock as a portion of the consideration for their practices, which
shares will have been registered under the Securities Act. Certain other
stockholders of the Company will hold, in the aggregate, an additional 2,000,000
shares of Common Stock, none of which are being offered by this Prospectus and
none of which were acquired in transactions registered under the Securities Act.
Such unregistered shares may not be sold except in transactions registered under
the Securities Act or pursuant to an exemption from registration. The holders of
these 12,714,125 shares of Common Stock have entered into agreements with the
Company pursuant to which such holders have agreed not to sell any shares of
Common Stock owned by them at the time of consummation of the Reorganization for
a period of 12 months following this offering, and to thereafter limit the sale
of such Common Stock to 25% of such shares upon expiration of such 12-month
period following this offering; up to an additional 25% of such shares upon
expiration of an 18-month period following this offering, and the remaining 50%
of such shares upon expiration of a 24-month period following this offering.
Further, each of the holders of the Convertible Notes have also entered into
agreements with the Company pursuant to which each holder has agreed not to sell
any portion of the Convertible Notes or any shares of the Common Stock issued or
issuable upon conversion thereof for a period of 24 months following the date
the Convertible Notes were issued to such holder (which Convertible Notes were
issued between September 30, 1996 and December 31, 1996). The Company has agreed
with the Underwriters not to waive the restrictive provisions of these
agreements for 180 days after the date of this Prospectus without the prior
written consent of Smith Barney Inc. Upon expiration of these agreements, the
registered shares of Common Stock will be eligible for resale in the public
market and the

70
<PAGE> 72

unregistered shares of Common Stock, the Convertible Notes and the shares of
Common Stock issued or issuable upon conversion of the Convertible Notes will
become eligible for sale in the public market, subject to the provisions of Rule
144 of the Securities Act.

The Company anticipates that prior to the consummation of this offering,
the Company will have outstanding under its Plan options to purchase
approximately 1,735,000 shares of Common Stock, and at or shortly following
consummation of this offering the Company anticipates that it will issue options
to purchase up to 310,000 shares of Common Stock under its 1996 Stock Option
Plan. The Company intends to register the shares of Common Stock issuable upon
exercise of the options granted under its 1996 Stock Option Plan so that such
shares will be eligible for resale in the public market. The sale of the shares
will be subject to the lock-up provisions described above.

In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of the acquisition of restricted shares of Common
Stock from the Company or any affiliate of the Company, the acquiror or
subsequent holder thereof may sell, within any three-month period, a number of
shares that does not exceed the greater of 1% of the then-outstanding shares of
Common Stock or the average weekly trading volume of the Common Stock on all
exchanges and/or reported through the automated quotation system of a registered
securities association during the four calendar weeks preceding the date on
which notice of the sale is filed with the Securities and Exchange Commission.
Sales under Rule 144 are also subject to certain manner of sale provisions,
notice requirements and the availability of current public information about the
Company. If two years have elapsed since the later of the date of acquisition of
restricted shares of Common Stock from the Company or any affiliate of the
Company and the acquiror or subsequent holder thereof is deemed not to have been
an affiliate of the Company at any time during the 90 days preceding a sale,
such person will be entitled to sell such shares under Rule 144(k) without
regard to the limitations described above.

Prior to this offering there has been no market for the Common Stock, and
no prediction can be made as to the effect, if any, that the sale of shares or
the availability of shares for sale will have on the market price prevailing
from time to time. Nevertheless, sales of substantial amounts of the Common
Stock in the public market could adversely affect prevailing market prices and
the ability of the Company to raise equity capital in the future.

71
<PAGE> 73

UNDERWRITING

Under the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company has agreed to sell to such Underwriter,
shares of Common Stock which equal the number of shares set forth opposite the
name of such Underwriter below.

<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Smith Barney Inc. ..........................................
Cowen & Company.............................................
Piper Jaffray Inc. .........................................
Robertson, Stephens & Company LLC...........................

---------
Total............................................. 5,000,000
=========
</TABLE>

The Underwriters are obligated to take and pay for all shares of Common
Stock offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.

The Underwriters, for whom Smith Barney Inc., Cowen & Company, Piper
Jaffray Inc. and Robertson, Stephens & Company LLC are acting as representatives
(the "Representatives"), propose initially to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price that represents a concession
not in excess of $ per share under the public offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share to other Underwriters or to certain other dealers. After
the initial public offering, the public offering price and such concessions may
be changed by the Underwriters. The Representatives have informed the Company
that the Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.

The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of 750,000
additional shares of Common Stock at the public offering price set forth on the
cover page hereof less underwriting discounts and commissions. The Underwriters
may exercise such option to purchase additional shares solely for the purpose of
covering over-allotments, if any, incurred in connection with the sale of the
shares offered hereby. To the extent such option is exercised, each Underwriter
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional shares as the number set forth next to
such Underwriter's name in the preceding table bears to the total number of
shares in such table.

The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.

Each holder of Convertible Notes and each holder of shares of Common Stock
to be issued in the Reorganizations has agreed with the Company to certain
contractual restrictions on resales of such securities and, in the case of the
Convertible Notes, the underlying Common Stock. The Company has agreed with the
Underwriters not to waive the restrictive provisions of these agreements for 180
days after the date of this Prospectus without the prior written consent of
Smith Barney Inc. In addition, the Company, its officers and directors and all
other holders of Common Stock and securities convertible into or exercisable or
exchangeable for Common Stock have agreed that for a period of 180 days after
the date of this Prospectus they will not,

72
<PAGE> 74

without the prior written consent of Smith Barney Inc., offer, sell, contract to
sell or otherwise dispose of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock except, in the case of the Company,
in certain limited circumstances. See "Shares Eligible for Future Sale."

In connection with this offering and in accordance with applicable law and
industry practice, the Underwriters may over-allot or effect transactions which
stabilize, maintain or otherwise affect the market price of the Common Stock at
levels above those which might otherwise prevail in the open market, including
by entering stabilizing bids, effecting syndicate covering transactions or
imposing penalty bids. A stabilizing bid means the placing of any bid, or the
effecting of any purchase, for the purpose of pegging, fixing or maintaining the
price of a security. A syndicate covering transaction means the placing of any
bid on behalf of the underwriting syndicate or the effecting of any purchase to
reduce a short position created in connection with the offering. A penalty bid
means an arrangement that permits Smith Barney Inc., as managing underwriter, to
reclaim a selling concession from a syndicate member in connection with the
offering when shares of Common Stock originally sold by the syndicate member are
purchased in syndicate covering transactions. Such transactions may be effected
on the Nasdaq National Market, in the over-the-counter market, or otherwise. The
Underwriters are not required to engage in any of these activities. Any such
activities, if commenced, may be discontinued at any time.

Cowen & Company, one of the Representatives, purchased $200,000 principal
amount of the Convertible Notes in December 1996 at a purchase price equal to
100% of the principal amount thereof. The Convertible Notes held by Cowen &
Company were purchased on the same terms as, are pari passu with, and provide
the same privileges as, all of the Convertible Notes sold by the Company.

Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock has
been determined by negotiations between the Company and the Representatives.
Among the factors considered in determining the initial public offering price
were the history of, and the prospects for, the Company's business and the
industry in which it competes, an assessment of the Company's management, its
past and present operations, the past and present earnings of the Company and
the trend of such earnings, the prospects for earning of the Company, the
present state of the Company's development, the general condition of the
securities market at the time of this offering and the market prices and
earnings of similar securities of comparable companies at the time of this
offering.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Brobeck, Phleger & Harrison LLP, Newport Beach, California and for
the Underwriters by Dewey Ballantine, New York, New York. As of the date of this
Prospectus, certain members and investment partnerships of Brobeck, Phleger &
Harrison LLP beneficially own $67,500 in principal amount of the Convertible
Notes.

EXPERTS

The financial statements of American Physician Partners, Inc. as of
December 31, 1996 and for the period from inception (April 30, 1996) to December
31, 1996, included in this Registration Statement have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said report.

The consolidated financial statements of Advanced Radiology, LLC, Drs.
Thomas, Wallop, Kim, and Lewis, P.A., Diagnostic Imaging Associates, P.A., the
combined financial statements of M&S X-Ray Practices, the combined financial
statements of Pacific Imaging Consultants, the financial statements of Radiology
and Nuclear Medicine, P.A., the combined financial statements of Rockland
Radiological Group, and the combined financial statements of Valley Radiology
Group included in this Registration Statement, have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said reports.

73
<PAGE> 75

The combined financial statements of The Ide Group, P.C. and Ide Diagnostic
Imaging Associates included in this Registration Statement have been audited by
DeJoy, Knauf & Blood LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.

ADDITIONAL INFORMATION

A Registration Statement on Form S-1 including amendments thereto relating
to the Common Stock offered hereby has been filed by the Company with the
Securities and Exchange Commission, Washington, D.C. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. Statements contained in this Prospectus as to
the contents of any contract or other document referred to are not necessarily
complete and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, and each such
statement is qualified by such reference. For further information with respect
to the Company and the Common Stock offered hereby, reference is made to the
Registration Statement, including the exhibits and schedules. A copy of the
Registration Statement may be inspected without charge at the Securities and
Exchange Commission's principal office located at 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, the New York Regional Office located at 7 World
Trade Center, Suite 1300, New York, New York 10048, and the Chicago Regional
Office located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511 and copies of all or any part thereof may be obtained from
the Public Reference Section of the Securities and Exchange Commission. The
Registration Statement may also be obtained from the website that the Securities
and Exchange Commission maintains at http://www.sec.gov.

74
<PAGE> 76

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
AMERICAN PHYSICIAN PARTNERS, INC.

Report of Independent Public Accountants.................. F-3
Balance Sheets as of December 31, 1996, and March 31, 1997
(unaudited)............................................ F-4
Statements of Income for the period from inception (April
30, 1996) to December 31, 1996, and the three months
ended March 31, 1997 (unaudited)....................... F-5
Statements of Stockholders' Deficit for the period from
inception (April 30, 1996) to December 31, 1996, and
the three months ended March 31, 1997 (unaudited)...... F-6
Statements of Cash Flows for the period from inception
(April 30, 1996) to December 31, 1996, and the three
months ended March 31, 1997 (unaudited)................ F-7
Notes to Financial Statements............................. F-8
ADVANCED RADIOLOGY, LLC AND SUBSIDIARY
Report of Independent Public Accountants.................. F-12
Consolidated Balance Sheets as of December 31, 1995 and
1996, and March 31, 1997 (unaudited)................... F-13
Consolidated Statements of Income for the years ended
December 31, 1994, 1995 and 1996, and the three months
ended March 31, 1996 and 1997 (unaudited).............. F-14
Consolidated Statements of Owners' Equity for the years
ended December 31, 1994, 1995 and 1996, and the three
months ended March 31, 1997 (unaudited)................ F-15
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996, and the three months
ended March 31, 1996 and 1997 (unaudited).............. F-16
Notes to Consolidated Financial Statements................ F-17
DRS. THOMAS, WALLOP, KIM AND LEWIS, P.A.
Report of Independent Public Accountants.................. F-25
Balance Sheet as of December 31, 1994..................... F-26
Statement of Income for the year ended December 31,
1994................................................... F-27
Statement of Owners' Equity for the year ended December
31, 1994............................................... F-28
Statement of Cash Flows for the year ended December 31,
1994................................................... F-29
Notes to Financial Statements............................. F-30
DIAGNOSTIC IMAGING ASSOCIATES, P.A.
Report of Independent Public Accountants.................. F-33
Balance Sheet as of September 30, 1994.................... F-34
Statement of Income for the year ended September 30,
1994................................................... F-35
Statement of Owners' Equity for the year ended September
30, 1994............................................... F-36
Statement of Cash Flows for the year ended September 30,
1994................................................... F-37
Notes to Financial Statements............................. F-38
THE IDE GROUP, P.C.
Independent Auditors' Report.............................. F-42
Combined Balance Sheets as of June 30, 1994, 1995, and
1996 and March 31, 1997 (unaudited).................... F-43
Combined Statements of Income for the years ended June 30,
1994, 1995, and 1996 and the nine months ended March
31, 1996 and 1997 (unaudited).......................... F-44
Combined Statements of Changes in Stockholders' Equity and
Partners' Capital for the years ended June 30, 1994,
1995, and 1996, and the nine months ended March 31,
1997 (unaudited)....................................... F-45
Combined Statements of Cash Flows for the years ended June
30, 1994, 1995, and 1996, and the nine months ended
March 31, 1996 and 1997 (unaudited).................... F-46
Notes to Combined Financial Statements.................... F-47
M & S X-RAY PRACTICES
Report of Independent Public Accountants.................. F-52

</TABLE>
F-1
<PAGE> 77
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Combined Balance Sheets as of December 31, 1995 and 1996,
and March 31, 1997 (unaudited)......................... F-53
Combined Statements of Income for the years ended December
31, 1995 and 1996, and the three months ended March 31,
1996 and 1997 (unaudited).............................. F-54
Combined Statements of Owners' Equity for the years ended
December 31, 1995 and 1996, and the three months ended
March 31, 1997 (unaudited)............................. F-55
Combined Statements of Cash Flows for the years ended
December 31, 1995 and 1996, and the three months ended
March 31, 1996 and 1997 (unaudited).................... F-56
Notes to Combined Financial Statements.................... F-57
PACIFIC IMAGING CONSULTANTS
Report of Independent Public Accountants.................. F-63
Combined Balance Sheets as of December 31, 1995 and 1996,
and March 31, 1997 (unaudited)......................... F-64
Combined Statements of Income for the years ended December
31, 1995 and 1996, and the three months ended March 31,
1996 and 1997 (unaudited).............................. F-65
Combined Statements of Owners' Equity (Deficit) for the
years ended December 31, 1995 and 1996, and the three
months ended March 31, 1997 (unaudited)................ F-66
Combined Statements of Cash Flows for the years ended
December 31, 1995 and 1996, and the three months ended
March 31, 1996 and 1997 (unaudited).................... F-67
Notes to Combined Financial Statements.................... F-68
RADIOLOGY AND NUCLEAR MEDICINE, P.A.
Report of Independent Public Accountants.................. F-74
Balance Sheets as of December 31, 1995 and 1996, and March
31, 1997 (unaudited)................................... F-75
Statements of Income for the years ended December 31, 1995
and 1996, and the three months ended March 31, 1996 and
1997 (unaudited)....................................... F-76
Statements of Owners' Equity for the years ended December
31, 1995 and 1996, and the three months ended March 31,
1997 (unaudited)....................................... F-77
Statements of Cash Flows for the years ended December 31,
1995 and 1996, and the three months ended March 31,
1996 and 1997 (unaudited).............................. F-78
Notes to Financial Statements............................. F-79
ROCKLAND RADIOLOGICAL GROUP
Report of Independent Public Accountants.................. F-84
Combined Balance Sheets as of September 30, 1995 and 1996,
and March 31, 1997 (unaudited)......................... F-85
Combined Statements of Income for the years ended
September 30, 1994, 1995 and 1996, and the six months
ended March 31, 1996 and 1997 (unaudited).............. F-86
Combined Statements of Owners' Equity (Deficit) for the
years ended December 31, 1994, 1995 and 1996, and the
three months ended March 31, 1997 (unaudited).......... F-87
Combined Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996, and the six months
ended March 31, 1996 and 1997 (unaudited).............. F-88
Notes to Combined Financial Statements.................... F-89
VALLEY RADIOLOGY GROUP
Report of Independent Public Accountants.................. F-94
Combined Balance Sheets as of December 31, 1995 and 1996,
and March 31, 1997
(unaudited)............................................ F-95
Combined Statements of Income for the years ended December
31, 1995 and 1996, and the three months ended March 31,
1996 and 1997 (unaudited).............................. F-96
Combined Statements of Owners' Equity for the years ended
December 31, 1995 and 1996, and the three months ended
March 31, 1997 (unaudited)............................. F-97
Combined Statements of Cash Flows for the years ended
December 31, 1995 and 1996, and the three months ended
March 31, 1996 and 1997 (unaudited).................... F-98
Notes to Combined Financial Statements.................... F-99
</TABLE>

F-2
<PAGE> 78

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
American Physician Partners, Inc.:

We have audited the accompanying balance sheet of American Physician
Partners, Inc. -- A Development Stage Company (a Delaware corporation) as of
December 31, 1996, and the related statements of income, stockholders' deficit,
and cash flows for the period from inception (April 30, 1996) to December 31,
1996. 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 audit.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Physician Partners,
Inc. -- A Development Stage Company as of December 31, 1996, and the results of
its operations and its cash flows for the period from inception (April 30, 1996)
to December 31, 1996, in conformity with generally accepted accounting
principles.

Dallas, Texas,
April 10, 1997

F-3
<PAGE> 79

AMERICAN PHYSICIAN PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $2,490,679 $1,657,129
Prepaid expenses.......................................... 15,002 599,105
---------- ----------
Total current assets.............................. 2,505,681 2,256,234
PROPERTY AND EQUIPMENT, net of accumulated depreciation
of $2,612................................................. 57,405 143,852
OTHER ASSETS................................................ 14,480 17,254
---------- ----------
Total assets...................................... $2,577,566 $2,417,340
========== ==========

LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accrued expenses.......................................... $ 477,109 $1,196,765
CONVERTIBLE NOTES PAYABLE................................... 3,500,000 3,500,000
---------- ----------
Total liabilities................................. 3,977,109 4,696,765

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT:
Preferred stock, $.0001 par value; 10,000,000 shares
authorized; no shares outstanding...................... -- --
Common stock, $.0001 par value; 20,000,000 shares
authorized; 2,000,000 shares issued and outstanding.... 200 200
Additional paid-in capital................................ 249,800 249,800
Accumulated deficit....................................... (1,649,543) (2,529,425)
---------- ----------
Total stockholders' deficit....................... (1,399,543) (2,279,425)
---------- ----------
Total liabilities and stockholders' deficit....... $2,577,566 $2,417,340
========== ==========
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-4
<PAGE> 80

AMERICAN PHYSICIAN PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION PERIOD FROM
(APRIL 30, 1996) JANUARY 1, 1997,
TO TO
DECEMBER 31, MARCH 31,
1996 1997
---------------- ----------------
(UNAUDITED)
<S> <C> <C>
REVENUES.................................................... $ -- $ --
COSTS AND EXPENSES:
Salaries and benefits..................................... 545,949 410,003
Rent and lease expense.................................... 57,015 53,710
General and administrative................................ 299,585 188,739
Depreciation.............................................. 2,612 4,663
Interest expense.......................................... 36,031 52,500
Professional services..................................... 607,482 191,965
Marketing expense......................................... 114,067 --
----------- -----------
Total costs and expenses.......................... 1,662,741 901,580
----------- -----------
INTEREST INCOME............................................. 13,198 21,698
----------- -----------
NET LOSS.................................................... $(1,649,543) $ (879,882)
=========== ===========
NET LOSS PER COMMON SHARE................................... $ (0.45) $ (0.24)
=========== ===========
NUMBER OF SHARES............................................ 3,694,688 3,694,688
=========== ===========
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-5
<PAGE> 81

AMERICAN PHYSICIAN PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF STOCKHOLDERS' DEFICIT

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------ PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, April 30, 1996 (inception)..... -- $ -- $ -- $ -- $ --
Issuance of common stock.............. 2,000,000 200 249,800 -- 250,000
Net loss.............................. -- -- -- (1,649,543) (1,649,543)
--------- ---- -------- ----------- -----------
BALANCE, December 31, 1996.............. 2,000,000 200 249,800 (1,649,543) (1,399,543)
Net loss (unaudited).................. -- -- -- (879,882) (879,882)
--------- ---- -------- ----------- -----------
BALANCE, March 31, 1997 (unaudited)..... 2,000,000 $200 $249,800 $(2,529,425) $(2,279,425)
========= ==== ======== =========== ===========
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-6
<PAGE> 82

AMERICAN PHYSICIAN PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(APRIL 30, THREE MONTHS
1996) TO ENDED
DECEMBER 31, MARCH 31,
1996 1997
--------------- ------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(1,649,543) $ (879,882)
Adjustments to reconcile net loss to net cash used in
operating activities --
Depreciation........................................... 2,612 4,663
Changes in assets and liabilities --
Prepaid expenses..................................... (15,002) (584,103)
Other assets......................................... (14,480) (2,774)
Accrued expenses..................................... 477,109 719,656
----------- ----------
Net cash used in operating activities............. (1,199,304) (742,440)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (60,017) (91,110)
----------- ----------
Net cash used in investing activities............. (60,017) (91,110)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable................... 400,000 --
Payments on notes payable................................. (400,000) --
Proceeds from issuance of convertible notes payable....... 3,500,000 --
Issuance of common stock.................................. 250,000 --
----------- ----------
Net cash provided by financing activities......... 3,750,000 --
----------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS....................... 2,490,679 (833,550)
CASH AND CASH EQUIVALENTS, at inception..................... -- 2,490,679
----------- ----------
CASH AND CASH EQUIVALENTS, end of year...................... $ 2,490,679 $1,657,129
=========== ==========
SUPPLEMENTAL DISCLOSURE:
Cash paid during the period
Interest............................................... $ 7,104 $ --
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-7
<PAGE> 83

AMERICAN PHYSICIAN PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996

1. DESCRIPTION OF BUSINESS:

American Physician Partners, Inc. -- A Development Stage Company (the
"Company"), a Delaware corporation, is a radiology practice management entity.
The Company is a development stage company which through December 31, 1996, had
no revenue or significant operations. During the period from inception (April
30, 1996) to December 31, 1996, the Company reported a net loss of approximately
$1.6 million primarily as a result of general and administrative expenses
incurred during its startup and organizational stage. The Company's operating
prospects are dependent upon a number of factors including the ability to
attract physicians to its business concept and integrate their operations,
competition from similar entities as the Company and overall trends in the
healthcare industry (including the effects of government regulation and
reimbursement trends).

2. SIGNIFICANT ACCOUNTING POLICIES:

Basis of Presentation

The financial statements have been prepared on the accrual basis of
accounting and include the accounts of the Company.

The Company's financial statements have been prepared in anticipation of an
initial public offering of the Company's common stock (the "offering").

Cash and Cash Equivalents

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

Property and Equipment

Property and equipment, consisting of furniture, fixtures, and equipment,
are stated at cost. Depreciation is calculated using the straight-line method
over the estimated useful lives of the assets (five years).

Use of Estimates

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

Basis of Presentation -- Interim Financial Statements

The interim financial statements have been prepared by the Company without
audit, pursuant to the rules and regulations of Accounting Principles Board
("APB") Opinion No. 28, "Interim Financial Reporting." Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to APB Opinion No. 28; nevertheless, management of the Company
believes that the disclosures herein are adequate to prevent the information
presented from being misleading. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
financial position of the Company with respect to the results of its operations
for the interim period from January 1, 1997, to March 31,

F-8
<PAGE> 84

AMERICAN PHYSICIAN PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

1997, has been included herein. The results of operations for the interim period
is not necessarily indicative of the results for the full year.

3. CONVERTIBLE NOTES PAYABLE:

During 1996, the Company issued $3,500,000 in convertible notes (the
"Notes"). As of December 31, 1996, $40,000 and $357,000 of the Notes are held by
employees and shareholders, respectively. The interest rate on the Notes is 6%
and they mature on January 31, 1998. The Notes may, at the election of the
noteholders of at least 50% of the outstanding principal amount, be converted
into shares of common stock at a conversion price of $8 per share, subject to
certain limitations, as defined in the Note agreement. In addition, upon or
after the effective date of the offering, the Company may redeem the Notes at
par in whole or in part.

If the Notes remain outstanding at January 31, 1998, the interest rate
increases to the prime rate plus 2% per annum.

The Company issued $400,000 in notes to stockholders during 1996. The
interest rate on these notes was the bank base lending rate. These notes were
paid in full prior to December 31, 1996.

4. COMMON STOCK AND STOCK OPTION PLAN:

Common Stock

During 1996, the Company's Board of Directors issued 2,000,000 shares of
common stock. No shares of stock were held by employees at December 31, 1996.

Stock Option Plan

During 1996, the Company's Board of Directors approved a Stock Option Plan
(the "Plan") under which 3,000,000 options to purchase shares of the Company's
common stock may be granted to key directors, employees and other health care
professionals associated with the Company, as defined by the Plan. Options
granted under the Plan may be either incentive stock options (ISO) or
nonqualified stock options (NQSO). The option price per share under the Plan may
not be less than 100% of the fair market value at the grant date for ISO and may
not be less than 85% of the fair market value at the grant date for NQSO.
Generally, options vest over a 5-year period.

The Company accounts for its stock-based compensation arrangements under
the provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB No. 25). In 1995, Financial Accounting Standards
Board Statement No. 123, "Accounting for Stock-Based Compensation" (FASB No.
123), was issued, whereby companies may elect to account for stock-based
compensation using a fair value based method or continue measuring compensation
expense using the intrinsic value method prescribed in APB No. 25. FASB No. 123
requires that companies electing to continue to use the intrinsic value method
make pro forma disclosure of net income and net income per share as if the fair
value based method of accounting had been applied.

The pro forma effects of adopting FASB No. 123's fair value based method
for the period ended December 31, 1996 were not materially different from the
corresponding APB No. 25 intrinsic value methodology because the weighted
average grant-date fair value of options granted during the period was
negligible. However, the effects of applying FASB No. 123 during 1996 are not
likely to be representative of the effects on pro forma net income for future
years because the vesting of options will cause additional incremental expense
to be recognized in future periods.

F-9
<PAGE> 85

AMERICAN PHYSICIAN PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

As of December 31, 1996, 1,210,000 options were granted and 1,790,000
options were available to be granted under the Plan. The weighted average
exercise prices for total granted options and total exercisable options were
$.74 and $.20, respectively, at December 31, 1996. The following table
summarizes information for the significant option groups outstanding at December
31, 1996:

<TABLE>
<CAPTION>
EXERCISE OPTIONS REMAINING EXERCISABLE
PRICE OUTSTANDING LIFE OPTIONS
- -------- ----------- ----------- -----------
(YEARS)
<C> <C> <C> <C>
$ .125 1,115,000 10 99,083
8.00 95,000 10 917
</TABLE>

Upon the effective date of the offering, the vesting period of 480,000
options will accelerate.

5. NET LOSS PER SHARE:

Net loss per share is computed by dividing net loss by the number of common
stock and common stock equivalent shares outstanding during the periods in
accordance with the applicable rules of the Securities and Exchange Commission
("SEC"). All common stock and common stock options issued in the year prior to
the offering have been considered as outstanding common stock equivalents under
the treasury stock method, based on an estimate of the offering price. Shares of
common stock issuable upon conversion of the Notes are assumed to be common
stock equivalent shares for all periods presented.

In February, 1997, the Financial Accounting Standards Board issued
Statement No. 128 "Earnings per Share," which specifies the computations,
presentation, and disclosure requirements for earnings per share for entities
with publicly held common stock or potential common stock. The following pro
forma amounts indicate earnings per share as if computed in accordance with this
new statement.

<TABLE>
<S> <C>
Basic earnings per share.................................... $(0.82)
Diluted earnings per share.................................. $(0.43)
</TABLE>

6. INCOME TAXES:

The Company has incurred losses since inception. At December 31, 1996, the
Company has a net operating loss carryforward for income tax purposes of
approximately $1,647,000 available to reduce future amounts of taxable income.
If not utilized to offset future taxable income, the net operating loss
carryforward will expire in 2011.

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

7. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS:

Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Instruments," requires disclosure about the fair value of
financial instruments. The carrying amounts and the estimated fair values for
these financial instruments as of December 31, 1996, were as follows:

<TABLE>
<CAPTION>
CARRYING ESTIMATED
AMOUNT FAIR VALUE
---------- ----------
<S> <C> <C>
Cash and cash equivalents................................... $2,490,679 $2,490,679
Convertible notes payable................................... 3,500,000 3,421,687
</TABLE>

F-10
<PAGE> 86

AMERICAN PHYSICIAN PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

8. COMMITMENTS AND CONTINGENCIES:

Leases

Lease expense of $57,015 for the period ended December 31, 1996, consists
of corporate office space and corporate equipment.

The following is a schedule of future minimum lease payments under
noncancelable operating leases as of December 31, 1996:

9. SUBSEQUENT EVENTS:

The Company plans to reorganize and complete an initial public offering. As
part of this transaction, certain assets and liabilities of seven radiology
practices (the "Founding Affiliated Practices") will be exchanged for the
Company's common stock and cash. The exchange will be accounted for at the
historical cost basis with the stock being valued at the historical cost of the
net assets exchanged. The cash payments to the owners of the Founding Affiliated
Practices will be reflected as dividends paid by the Company. Concurrent with
these exchanges, the physicians will create new medical professional
corporations (PC's) which will enter into 40-year service agreements with the
Company. Additionally, all physicians will enter into employment and noncompete
agreements with the new PC's.

As of the closing date, the Company will agree to pay the owners of the
Founding Affiliated Practices amounts equal to their existing cash and net
accounts receivable, less certain accounts payable and accrued liabilities of
the Founding Affiliated Practices.

The following summarized unaudited pro forma information assumes the
exchange between the Company and the Founding Affiliated Practices, but does not
give effect to the offering. This pro forma information assumes the exchanges
occurred on March 31, 1997, for balance sheet purposes and on January 1, 1996,
for income statement purposes (in thousands):

<TABLE>
<S> <C>
Balance sheet --
Working capital........................................... $10,438
Total assets.............................................. 75,763
Long-term debt and capital leases, net of current
maturities............................................. 21,424
Stockholders' equity...................................... 20,183
Income statement --
Year ended December 31, 1996
Management service fee revenue......................... 89,576
Pro forma net income................................... 13,244
Three months ended March 31, 1997
Management service fee income.......................... 24,808
Pro forma net income................................... 3,719
</TABLE>

This pro forma information may not be indicative of actual results if the
transactions had occurred on the dates indicated or which may be realized in the
future.

F-11
<PAGE> 87

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of
Advanced Radiology, LLC:

We have audited the accompanying consolidated balance sheets of Advanced
Radiology, LLC (a Maryland limited liability company) and subsidiary as of
December 31, 1996 and 1995, and the related consolidated statements of income,
owners' equity, and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Advanced Radiology, LLC and
subsidiary as of December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996, in conformity with generally accepted accounting principles.

Dallas, Texas,
February 21, 1997

F-12
<PAGE> 88

ADVANCED RADIOLOGY, LLC AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents......................... $ 1,822,724 $ 3,048,169 $ 133,869
Accounts receivable, net of allowances of
$11,656,529, $13,591,727, and $14,287,248 at
December 31, 1995 and 1996 and March 31, 1997 ,
respectively................................... 9,957,828 12,041,297 14,077,813
Other receivables................................. -- 229,162 1,160,203
Other current assets.............................. 406,753 1,509,912 1,089,681
----------- ----------- -----------
Total current assets...................... 12,187,305 16,828,540 16,461,566
PROPERTY AND EQUIPMENT, net......................... 12,871,519 13,950,022 14,040,736
INVESTMENTS IN AFFILIATED ENTITIES.................. 497,345 743,586 898,928
OTHER ASSETS, net................................... 226,060 2,229,957 1,941,248
----------- ----------- -----------
Total assets.............................. $25,782,229 $33,752,105 $33,342,478
=========== =========== ===========

LIABILITIES AND OWNERS' EQUITY

CURRENT LIABILITIES:
Revolving credit facilities....................... $ 1,700,000 $ 4,000,000 $ 2,400,000
Accounts payable and accrued expenses............. 2,591,707 625,224 2,406,713
Accrued salaries and benefits..................... 2,073,807 1,328,370 1,046,237
Due to joint ventures............................. 1,162,296 1,430,415 686,062
Current portion of long-term debt................. 2,357,143 3,999,473 4,159,877
Other current liabilities......................... -- 248,450 183,177
----------- ----------- -----------
Total current liabilities................. 9,884,953 11,631,932 10,882,066
----------- ----------- -----------
LONG-TERM DEBT, net of current portion.............. 5,142,857 6,708,214 5,630,492
OTHER LIABILITIES................................... -- 359,012 359,012
----------- ----------- -----------
Total liabilities......................... 15,027,810 18,699,158 16,871,570
MINORITY INTEREST................................... -- 381,698 360,754
OWNERS' EQUITY...................................... 10,754,419 14,671,249 16,110,154
----------- ----------- -----------
Total liabilities and owners' equity...... $25,782,229 $33,752,105 $33,342,478
=========== =========== ===========
</TABLE>

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

F-13
<PAGE> 89

ADVANCED RADIOLOGY, LLC AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Medical service revenue,
net........................ $19,277,956 $37,357,073 $51,692,004 $12,006,327 $15,749,973
Other revenue................. 3,173,533 1,476,239 1,189,986 196,808 323,203
----------- ----------- ----------- ----------- -----------
Total revenue......... 22,451,489 38,833,312 52,881,990 12,203,135 16,073,176
----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Costs of affiliated physician
services................... 8,755,971 811,926 2,293,233 148,950 1,068,787
Practice salaries, wages and
benefits................... 6,325,282 10,051,129 12,317,949 2,512,440 3,864,784
Practice supplies............. 1,145,397 2,626,338 3,206,294 649,655 830,979
Practice rent and lease
expense.................... 862,257 2,184,472 2,301,575 600,735 810,692
Depreciation and
amortization............... 1,879,420 3,022,977 3,449,649 885,992 970,618
Other practice expenses....... 3,338,356 4,184,188 6,272,470 1,288,029 1,736,925
Interest expense.............. 410,752 1,003,042 751,086 78,323 197,651
----------- ----------- ----------- ----------- -----------
Total costs and
expenses............ 22,717,435 23,884,072 30,592,256 6,164,124 9,480,436
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE MINORITY
INTEREST AND EQUITY IN
EARNINGS OF INVESTMENTS....... (265,946) 14,949,240 22,289,734 6,039,011 6,592,740
EQUITY IN EARNINGS OF
INVESTMENTS................... 761,999 634,659 1,207,670 395,000 272,904
MINORITY INTEREST IN INCOME OF
CONSOLIDATED SUBSIDIARIES..... -- -- (18,055) 5,825 6,444
----------- ----------- ----------- ----------- -----------
NET INCOME...................... $ 496,053 $15,583,899 $23,479,349 $ 6,439,836 $ 6,872,088
=========== =========== =========== =========== ===========
</TABLE>

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

F-14
<PAGE> 90

ADVANCED RADIOLOGY, LLC AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OWNERS' EQUITY

<TABLE>
<S> <C>
BALANCE, December 31, 1993.................................. $ 10,638,485
Capital contributions..................................... 1,200
Net income................................................ 496,053
------------
BALANCE, December 31, 1994.................................. 11,135,738
Distribution to Copeland shareholders, net of practice net
assets contributed..................................... (5,910,218)
Capital contributions..................................... 2,300,000
Distributions to owners................................... (12,355,000)
Net income................................................ 15,583,899
------------
BALANCE, December 31, 1995.................................. 10,754,419
Contribution of practice net assets....................... 1,001,280
Distributions to owners................................... (20,563,799)
Net income................................................ 23,479,349
------------
BALANCE, December 31, 1996.................................. 14,671,249
Capital Contributions (unaudited)......................... 1,066,805
Distributions to owners (unaudited)....................... (6,499,988)
Net income (unaudited).................................... 6,872,088
------------
BALANCE, March 31, 1997 (unaudited)......................... $ 16,110,154
============
</TABLE>

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

F-15
<PAGE> 91

ADVANCED RADIOLOGY, LLC AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------- ---------------------------
1994 1995 1996 1996 1997
----------- ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................... $ 496,053 $ 15,583,899 $ 23,479,349 $ 6,439,836 $ 6,872,088
Adjustments to reconcile net income to net
cash provided by operating activities --
Minority interest in income of consolidated
subsidiaries.............................. -- -- 18,055 (5,825) (6,444)
Depreciation and amortization............... 1,879,420 3,022,977 3,449,649 885,992 970,618
Investment (income) loss from affiliated
entities.................................. (761,999) (634,659) (1,207,670) -- (272,904)
(Gain) loss on sale of assets............... (19,665) 12,302 379 -- --
Changes in assets and liabilities
(Increase) decrease in --
Accounts receivable, net.................. (208,451) (9,957,828) (2,083,469) (673,333) (2,036,516)
Other receivables and other current
assets................................. 96,924 (724,734) (261,143) (1,519,272) (510,810)
Other noncurrent assets................... (112,541) (242,636) (2,023,516) (1,296,046) 278,125
Increase (decrease) in --
Accounts payable and accrued expenses..... 265,456 2,307,168 (1,966,483) (1,197,217) 1,781,489
Accrued salaries and benefits............. 138,042 2,073,806 (745,436) (752,774) (282,133)
Due to joint ventures..................... 216,766 1,608,528 268,119 (6,131) (744,353)
Other liabilities......................... (91) -- 248,450 -- (65,273)
----------- ------------ ------------ ------------ ------------
Net cash provided by operating
activities........................... 1,989,914 13,048,823 19,176,284 1,875,230 5,983,887
----------- ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of capital equipment... 30,200 -- -- -- --
Purchases of capital equipment................ (2,133,526) (1,821,663) (3,295,696) -- (1,065,248)
Contributions to partnerships................. -- (61,198) (265,426) -- --
Distributions received from affiliated
entities.................................... 818,482 59,407 1,246,214 -- 117,562
----------- ------------ ------------ ------------ ------------
Net cash used in investing
activities........................... (1,284,844) (1,823,454) (2,314,908) -- (947,686)
----------- ------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.................. 1,069,512 9,000,000 5,114,881 -- --
Repayment of long-term debt................... (1,885,125) (10,047,645) (2,850,656) (642,857) (917,318)
Net increase in line of credit................ -- 1,700,000 2,300,000 1,000,000 (1,600,000)
Contributions from members.................... -- 2,300,000 -- -- 1,066,805
Stockholder distributions..................... -- (12,355,000) (20,563,799) (4,000,000) (6,499,988)
Distribution to Copeland shareholders......... -- (5,466) -- -- --
Proceeds from the sale of stock............... 1,200 -- -- -- --
Minority interest contribution to joint
venture..................................... -- -- 363,643 363,643 --
----------- ------------ ------------ ------------ ------------
Net cash used in financing
activities........................... (814,413) (9,408,111) (15,635,931) (3,279,214) (7,950,501)
----------- ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................... (109,343) 1,817,258 1,225,445 (1,403,984) (2,914,300)
CASH AND CASH EQUIVALENTS, beginning of
period........................................ 114,809 5,466 1,822,724 1,822,724 3,048,169
----------- ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of period........ $ 5,466 $ 1,822,724 $ 3,048,169 $ 418,740 $ 133,869
=========== ============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE:
Cash interest paid............................ $ 410,752 $ 1,003,000 $ 751,086 $ 78,323 $ 197,651
=========== ============ ============ ============ ============
</TABLE>

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

F-16
<PAGE> 92

ADVANCED RADIOLOGY, LLC AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996

1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION:

Advanced Radiology, LLC (the "Company") is a Maryland limited liability
company organized to provide radiology and imaging healthcare services. Its
offices are located in the Baltimore, Maryland, metropolitan area. The Company
was organized in October 1994 and began providing healthcare services in January
1995.

The consolidated financial statements include the accounts of the Company
and its seventy-three percent owned subsidiary, MRI at St. Joseph Medical
Center, LLC ("MRI"). All significant intercompany accounts and transactions have
been eliminated in consolidation.

The Company was formed through the merger of five existing radiology
practices -- Drs. Copeland, Hyman, and Shackman, P.A. ("Copeland"); Drs. Thomas,
Wallop, Kim, and Lewis, P.A. ("Arundel"); Diagnostic Imaging Associates, P.A.
(DIAPA); Drs. DeCarlo, Lyon, Hearn, and Pazourek, P.A. ("DeCarlo"); and Carroll
Imaging Associates, P.A. ("Carroll") (collectively, the "Practices"). Effective
January 1, 1995, the Practices contributed certain assets (primarily fixed
assets and investments in joint ventures) and the debt related to those assets
in exchange for ownership interests in the Company.

The initial formation of the Company has been accounted for using purchase
accounting under the provisions of APB No. 16. Based on the asset sizes of the
individual contributed radiology practices, Copeland was identified as the
acquirer, and accordingly, all balances prior to January 1, 1995, represent the
activities of Copeland on a stand alone basis. The assets contributed by
Arundel, DIAPA, DeCarlo, and Carroll were recorded at the estimated fair value
of the assets contributed and liabilities assumed. Following are the assets and
liabilities, by practice.

<TABLE>
<CAPTION>
ARUNDEL DIAPA DECARLO CARROLL TOTAL
----------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Fixed assets........................ $ 2,082,667 $ 931,433 $ 502,922 $ 37,939 $ 3,554,961
Investments in joint venture........ -- -- -- (336,732) (336,732)
Debt................................ (1,705,357) (670,203) (262,405) (20,998) (2,658,963)
Other............................... 19,732 (19,414) 923 875 2,116
----------- --------- --------- --------- -----------
Estimated fair market values........ $ 397,042 $ 241,816 $ 241,440 $(318,916) $ 561,382
=========== ========= ========= ========= ===========
</TABLE>

In addition, as part of the initial formation of the Company, all of the
assets and liabilities of Copeland, other than fixed assets, debt, and certain
miscellaneous assets, were maintained by Copeland and were not contributed to
the Company. Net assets in the amount of $6,471,600 (consisting primarily of
accounts receivable) were not contributed to the Company by Copeland. This
amount, less the $561,382 described above, has been reflected as a distribution
in the accompanying consolidated statements of owners' equity.

Each of the Practices received Class B membership interests in the Company.
Such Class B interests represent in excess of 99% of the Company's ownership.
The Class A members are approximately 50 physicians, each owning an .01%
interest. The Class B members appoint the Management Committee, which has the
authority to manage regular operations of the Company.

F-17
<PAGE> 93

ADVANCED RADIOLOGY, LLC AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In April 1996, Harbor Radiologists, P.A. ("Harbor") was admitted as a
14.30% Class B member of the Company. Its shareholders were also admitted as
Class A members. The estimated fair market values of assets and liabilities
contributed by Harbor in exchange for an interest in the Company are as follows:

<TABLE>
<S> <C>
Fixed Assets............................................. $1,921,376
Debt..................................................... (943,461)
Other.................................................... 23,365
----------
Estimated fair market value.............................. $1,001,280
==========
</TABLE>

The accompanying consolidated financial statements have been prepared on
the accrual basis of accounting.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Cash and Cash Equivalents

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

Accounts Receivable

Property and Equipment

Property and equipment is recorded at cost. Depreciation on furniture,
fixtures and equipment is computed using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized on
the straight-line method over the shorter of the noncancelable lease term or
estimated useful life of the asset. However, if the noncancelable lease term
expires in the near future and if the lease contains a renewal option of which
management is reasonably assured of exercising, the amortization period is the
shorter of the lease term including the renewal option period or the estimated
useful life.

Investments in Affiliated Entities

Investments in joint venture partnerships are accounted for using the
equity method. In addition, the Company holds two investments in entities
accounted for under the cost method.

Other Assets

Other assets include loan origination costs, organization costs, deposits
and other assets. Loan origination costs are being amortized on a straight-line
basis over a four-year period. Organizations costs are being amortized on a
straight-line basis over a five-year period.

Medical Service Revenues

F-18
<PAGE> 94

ADVANCED RADIOLOGY, LLC AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

governmental programs. Medicare and other governmental programs reimburse
physicians based on fee schedules which are determined by the related
governmental agency. Additionally, the Company participates in agreements with
managed care organizations to provide services at negotiated rates.

Costs of Affiliated Physician Services

Costs of Affiliated Physician Services include all compensation to
non-owner physicians, as well as certain benefits, educational and travel costs
paid to non-owner and owner physicians. All owner physicians are employed by the
Practices, thus distributions of equity are made by the Company to the
Practices, who then pay all owner physician salaries.

Income Taxes

There is no provision for income taxes in the accompanying consolidated
financial statements. The members include their respective share of Company
profits and losses in their individual and corporate tax returns. In 1994,
Copeland was an S corporation, and accordingly, all profits and losses were
reported by the individual physicians in their individual and corporate returns.

Concentration of Credit Risk

The Company extends credit to patients covered by programs such as Medicare
and Medicaid and private insurers. The Company manages credit risk with the
various public and private insurance providers, as appropriate. Allowances for
bad debts have been made for potential losses when appropriate.

Use of Estimates

The preparation of consolidated 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 consolidated
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.

Basis of Presentation -- Interim Financial Statements

3. INVESTMENTS IN AFFILIATED ENTITIES:

In 1995, investments in affiliated entities consist of 50% interests in two
partnerships (Franklin Imaging Joint Venture ("Franklin") and Advanced Imaging
of Carroll County Limited Partnership (AICC)), which perform radiology and
imaging healthcare services, and 50% of the common stock of a corporation
(Advanced Medical Imaging, Inc. (AMI)) which enters into and administers managed
care contracts for radiology services.

F-19
<PAGE> 95

ADVANCED RADIOLOGY, LLC AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In January 1996, the Company became a 50% member in Poole Road Imaging, LLC
("Poole"), which was organized to perform radiology and imaging healthcare
services in the Carroll County General Hospital service area. The Company's
initial capital contribution consisted primarily of the fixed assets at its
Poole Road office, which had a net book value of approximately $712,000 at
December 31, 1995. The Poole Road office is now operated by Poole. In August,
1996, the Company became a 50% member in Health Systems Imaging, LLC, which owns
and operates diagnostic imaging centers. These investment balances at December
31 are as follows:

<TABLE>
<CAPTION>
1995 1996
--------- --------
<S> <C> <C>
Franklin.................................................... $ 856,535 $539,843
AICC........................................................ (330,555) (71,075)
AMI......................................................... (33,635) 17,424
Health Systems Imaging, LLC................................. -- 107,598
Poole....................................................... -- 64,796
Other....................................................... 5,000 85,000
--------- --------
$ 497,345 $743,586
========= ========
</TABLE>

Summary information from the unaudited financial statements of Franklin as
of and for the year ended December 31, 1996, is as follows:

<TABLE>
<S> <C>
Current assets.............................................. $2,981,926
Total assets................................................ 3,123,695
Current liabilities......................................... 1,275,441
Total liabilities........................................... 1,662,751
Partners' equity............................................ 1,460,944
Revenue..................................................... $5,202,128
Net income.................................................. $1,567,258
</TABLE>

4. PROPERTY AND EQUIPMENT:

Property and equipment at December 31 consists of the following:

<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
(YEARS) 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Medical equipment.......................... 5-10 $ 19,312,384 $ 24,716,479
Leasehold improvements..................... 3-19 5,267,811 5,900,495
Furniture and fixtures..................... 5-7 4,156,432 5,078,959
------------ ------------
28,736,627 35,695,933
Accumulated depreciation and
amortization............................. (15,865,108) (21,745,911)
------------ ------------
Property and equipment, net.............. $ 12,871,519 $ 13,950,022
============ ============
</TABLE>

F-20
<PAGE> 96

ADVANCED RADIOLOGY, LLC AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. LONG-TERM DEBT:

Long-term debt as of December 31 is as follows:

<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Mercantile Safe Deposit and Trust -- prime plus 1/4% (8.5%
at December 31, 1996), due December 31, 1998............. $ 7,500,000 $ 5,142,858
Mercantile Safe Deposit and Trust -- prime (8.25% at
December 31, 1996), due June 30, 2001.................... -- 2,706,667
Mercantile Safe Deposit and Trust -- prime (8.25% at
December 31, 1996), due 2001............................. -- 2,214,882
First National Bank of Maryland notes -- 30 day LIBOR plus
2.25% (8.03% at December 30, 1996), due March 1999....... -- 643,280
----------- -----------
Total long-term debt....................................... 7,500,000 10,707,687
Less current maturities.................................... (2,357,143) (3,999,473)
----------- -----------
Total long term debt, net of current portion............... $ 5,142,857 $ 6,708,214
=========== ===========
</TABLE>

The Company has a $5,000,000 revolving line of credit for working capital
purposes with Mercantile Safe Deposit and Trust Company ("Mercantile"). At
December 31, 1996, the Company had $4,000,000 outstanding under the line. In
addition, the Company has a $15,000,000 revolving credit facility with
Mercantile for equipment purchases. Advances under the credit facilities bear
interest at bank's prime rate, payable monthly. The interest rate at December
31, 1996, was 8.25%. The maturity date is July 3, 1997 or on such later date as
the bank may elect; however, on an annual basis, the bank may approve a one-year
extension. Advances under the credit facility, when combined with any
outstanding balances on two of the term loan note payables described above, are
limited to $20,000,000 in total. At December 31, 1996, the maximum amount of
funds available under the credit facility approximated $8,200,000. Advances are
collateralized by a first lien on all assets of the Company and the guarantees
of the five Class B members.

In connection with the term and revolving credit facility to Mercantile,
the Company is required to maintain a liabilities to net worth ratio not
exceeding 1 to 1, and a minimum cash flow coverage ratio of at least 1.25 to 1.
In addition, the agreement provides that at no time shall total debt to
Mercantile exceed 80% of the fair market value of the Company's fixed assets,
plus the Company's and guarantors' eligible accounts receivable (as defined).

Future maturities of long-term debt at December 31, 1996, are as follows:

F-21
<PAGE> 97

ADVANCED RADIOLOGY, LLC AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. LEASES:

The Company leases office facilities and certain equipment under various
noncancelable operating leases that expire at various dates through 2004.
Certain of the office leases provide for renewal options. Future minimum lease
payments under noncancelable operating leases at December 31, 1996, are as
follows:

<TABLE>
<S> <C>
1997..................................................... $1,608,947
1998..................................................... 1,319,045
1999..................................................... 952,888
2000..................................................... 552,661
2001..................................................... 498,810
----------
Total.......................................... $4,932,351
==========
</TABLE>

Total rent expense was approximately $862,000 in 1994, $2,069,000 in 1995,
and $2,156,000 in 1996.

The Company has also entered into a three-year agreement, expiring in April
1998, whereby it pays a quarterly fee for selection, procurement, repair and
maintenance of its radiology and imaging equipment. Total fees paid under this
arrangement approximate $950,000 per year, and are subject to adjustment to
reflect changes in the equipment and clinical needs of the Company.

7. EMPLOYEE BENEFIT PLAN:

The Company sponsors a 401(k) plan for employees of the Company and its
five corporate members who have completed one year of service and are at least
age 21. The plan does not provide for employer matching contributions, but does
allow discretionary employer contributions. The Company's contribution in 1995
was $1,911,000, which was remitted in February 1996. Included in this amount is
$1,455,000 relating to Class A members, which is included in distributions to
owners in the accompanying statement of owners' equity. The Company's
contribution for 1996 was $2,136,000, which was remitted in March 1997. Included
in this amount is $1,605,000 relating to Class A members, which is included in
distributions.

8. RELATED-PARTY TRANSACTIONS:

As indicated in Note 3, the Company has 50% partnership interests in
Franklin, AICC, and Poole. A Class B member of the Company has a 50% partnership
interest in Greater Baltimore Diagnostic Imaging Partnership (GBDIP). Under
agreements with these partnerships (Franklin, AICC, GBDIP, and Poole), the
Company performs professional, billing, and management services. These services
are billed to the partnerships based primarily upon agreed-upon percentages of
the partnerships' cash basis revenue. Management and professional fees earned
from these partnerships are as follows:

<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Franklin............................... $2,016,579 $1,678,000 $1,851,000
AICC................................... -- 162,000 204,000
GBDIP.................................. -- 149,000 474,000
Poole.................................. -- -- 364,000
---------- ---------- ----------
$2,016,579 $1,989,000 $2,893,000
========== ========== ==========
</TABLE>

F-22
<PAGE> 98

ADVANCED RADIOLOGY, LLC AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company also collects the receivables of the partnerships and
periodically remits the collections to them. In addition, the Company pays
certain expenses on behalf of the partnerships and is periodically reimbursed by
them.

Amounts due to/(from) affiliated entities at December 31 are as follows:

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Franklin.................................................... $ 980,183 $ 687,226
AICC........................................................ (61,800) 186,303
GBDIP....................................................... 243,913 110,298
Poole....................................................... -- 99,644
Health Systems Imaging, LLC................................. -- 346,944
---------- ----------
$1,162,296 $1,430,415
========== ==========
</TABLE>

The Company performs radiology and imaging healthcare services under
managed care contracts entered into and administered by AMI (see Note 3), and
remits a management fee to AMI. Such management fees were not significant in
1995 and 1996. In addition, the Company pays certain expenses on behalf of AMI
and is periodically reimbursed. There are no significant amounts due from or to
AMI at December 31, 1995 and 1996.

The Company leases seven of its office facilities from entities in which
certain of the Company's members have ownership interests. Rent expense relating
to such facilities was approximately $800,000 in 1995 and $796,000 in 1996.
There were no such arrangements during 1994.

9. FAIR VALUE OF FINANCIAL INSTRUMENTS:

Statement of Financial Accounting Standards No. 107 requires all entities
to disclose the fair value of certain financial instruments in their financial
statements. The carrying amounts of accounts receivable, accounts payable and
accrued expenses approximate fair value due to the short maturity of these
instruments. The carrying amount of the Company's long-term debt also
approximates fair value.

10. MEMBERSHIP REDEMPTION OPTION:

Under the terms of the Company's operating agreement, at any time on or
after October 17, 1999, the Company has the option to redeem the membership
interests of all of the Class B members (which are the corporate members of the
Company) at a price equal to the then positive capital account balances of such
members, or, if such balances are zero or negative, for a price of $10.
Twenty-five percent of the redemption price is to be paid no later than six
months after the exercise of the option with the remainder generally being paid
in three annual installments, including interest.

11. CONTINGENCIES:

The Company is a defendant in certain claims arising from alleged acts of
malpractice. Legal counsel for the Company is of the opinion that such claims
are adequately covered by malpractice insurance.

The Company is a defendant in a lawsuit brought by two former employees of
a Class B member alleging employment discrimination. Total damages claimed are
$80 million. The case has been compelled to binding arbitration; however, no
Scheduling Order has been issued, and no substantive discovery has taken place.
In the opinion of management, the ultimate disposition of this case will not
have a material adverse effect on the Company's financial condition or results
of operations.

F-23
<PAGE> 99

ADVANCED RADIOLOGY, LLC AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

During 1996, the Company became self-insured for employee health insurance
benefits. Stop-loss insurance coverage has been purchased which covers all
claims exceeding $35,000 per family with an aggregate maximum limit of 125% of
expected claims, as determined by the insurance company (approximately $684,000
in 1996).

12. SUBSEQUENT EVENTS:

On August 13, 1996, the Company entered into a letter of intent with
American Physician Partners, Inc. (APPI) under which APPI will acquire certain
assets and liabilities of the Company in exchange for common stock and cash.
Completion of the transaction is subject to certain conditions, including the
execution of a forty-year service agreement, stockholder approval by both
parties and successful completion of an initial public offering by APPI. Under
the terms of the service agreement, APPI will provide practice management,
administration and other services to the physicians for a negotiated service
fee. All nonprofessional employees shall become employees of APPI. In addition,
APPI will assume responsibility for all maintenance, repairs, improvements,
leases and other general operating expenses.

Effective January 1, 1997, Drs. Perilla, Sindler & Associates, P.A. (PSA)
contributed certain assets and liabilities to the Company in exchange for an
11.39% ownership interest. This transaction will be accounted for using the
purchase method.

F-24
<PAGE> 100

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of
Drs. Thomas, Wallop, Kim and Lewis, P.A.
(d/b/a Arundel Radiology):

We have audited the accompanying balance sheet of Drs. Thomas, Wallop, Kim
and Lewis, P.A. as of December 31, 1994, and the related statements of income,
owners' equity, and cash flows for the year then ended. 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 audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Drs. Thomas, Wallop, Kim and
Lewis, P.A. as of December 31, 1994, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.

Dallas, Texas,
February 21, 1997

F-25
<PAGE> 101

DRS. THOMAS, WALLOP, KIM AND LEWIS, P.A.
(D/B/A ARUNDEL RADIOLOGY)

BALANCE SHEET

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 55,536
Accounts receivable, net of contractual allowances and
allowances for bad debts of $5,601,217................. 1,610,959
Prepaid expenses and other current assets................. 31,776
----------
Total current assets.............................. 1,698,271
PROPERTY AND EQUIPMENT, net................................. 2,082,667
OTHER ASSETS, net........................................... 59,152
----------
Total assets...................................... $3,840,090
==========

LIABILITIES AND OWNERS' EQUITY

CURRENT LIABILITIES:
Accounts payable and accrued expenses..................... $ 66,599
Accrued salaries and benefits............................. 193,604
Current portion of long-term debt......................... 583,166
----------
Total current liabilities......................... 843,369
LONG-TERM DEBT, net of current portion...................... 1,103,334
----------
Total liabilities................................. 1,946,703
COMMITMENTS AND CONTINGENCIES
OWNERS' EQUITY.............................................. 1,893,387
----------
Total liabilities and owners' equity.............. $3,840,090
==========
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-26
<PAGE> 102

DRS. THOMAS, WALLOP, KIM AND LEWIS, P.A.
(D/B/A ARUNDEL RADIOLOGY)

STATEMENT OF INCOME

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
1994
------------------
<S> <C>
REVENUES:
Medical service revenue, net.............................. $6,610,667
Other revenue............................................. 1,623
----------
Total revenue..................................... 6,612,290
----------
COSTS AND EXPENSES:
Costs of affiliated physician services.................... 3,115,789
Practice salaries, wages, and benefits.................... 1,393,081
Practice supplies......................................... 343,111
Practice rent and lease expense........................... 273,325
Depreciation and amortization............................. 503,325
Other practice expenses................................... 1,056,496
Interest expense.......................................... 149,012
----------
Total costs and expenses.......................... 6,834,139
----------
NET LOSS.................................................... $ (221,849)
==========
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-27
<PAGE> 103

DRS. THOMAS, WALLOP, KIM AND LEWIS, P.A.
(D/B/A ARUNDEL RADIOLOGY)

STATEMENT OF OWNERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1994

<TABLE>
<S> <C>
BALANCE, December 31, 1993.................................. $2,115,236
Net loss.................................................. (221,849)
----------
BALANCE, December 31, 1994.................................. $1,893,387
==========
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-28
<PAGE> 104

DRS. THOMAS, WALLOP, KIM AND LEWIS, P.A.
(D/B/A ARUNDEL RADIOLOGY)

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994
------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(221,849)
Adjustments to reconcile net loss to net cash provided by
operating activities --
Depreciation and amortization.......................... 503,325
Changes in assets and liabilities --
(Increase) decrease in --
Accounts receivable, net.......................... 266,981
Prepaid expenses and other current assets......... (31,776)
Other assets...................................... (54,042)
Increase (decrease) in --
Accounts payable and accrued expenses............. (53,808)
Accrued salaries and benefits..................... 170,461
---------
Net cash provided by operating activities....... 579,292
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net.................. (51,236)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt............................... (583,166)
---------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (55,110)
CASH AND CASH EQUIVALENTS, beginning of period.............. 110,646
---------
CASH AND CASH EQUIVALENTS, end of period.................... $ 55,536
=========
SUPPLEMENTAL DISCLOSURE:
Cash paid for interest.................................... $ 149,012
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-29
<PAGE> 105

DRS. THOMAS, WALLOP, KIM AND LEWIS, P.A.
(D/B/A ARUNDEL RADIOLOGY)

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994

1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION:

Drs. Thomas, Wallop, Kim and Lewis, P.A. (d/b/a Arundel Radiology, or
"Arundel") is a professional services corporation that is engaged in the
practice of medicine, specializing in radiology in Baltimore, Maryland. The
accompanying financial statements have been prepared on the accrual basis of
accounting.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Accounts Receivable

Accounts receivable primarily consist of receivables from patients,
insurers, government programs and other third-party payors for medical services
provided by physicians. Such amounts are reduced by an allowance for contractual
adjustments and other uncollectible amounts. Contractual adjustments result from
the differences between the rates charged by the physicians for services
performed and the amounts allowed by the Medicare and Medicaid programs and
other public and private insurers.

Property and Equipment

Property and equipment are recorded at cost. Depreciation on furniture,
fixtures, and equipment is calculated using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized using
the straight-line method over the shorter of the noncancelable lease term or
estimated useful life of the asset. However, if the noncancelable lease term
expires in the near future and if the lease contains a renewal option of which
management is reasonably assured of exercising, the amortization period is the
shorter of the lease term including the renewal option period or the estimated
useful life.

Income Taxes

Arundel is a taxable corporation and historically has not incurred
significant tax liabilities for federal or state income taxes. Compensation to
physician owners has traditionally reduced taxable income to nominal levels.
This relationship would be expected to continue in the future. Because of this
practice, provisions for income taxes and deferred tax assets and liabilities
are not material and have not been reflected in the financial statements.

Medical Service Revenues

Medical service revenue are accounted for in the period in which the
services are provided. The revenue are reported at the estimated realizable
amounts from patients, third-party payors and others. Provisions for estimated
third-party payor adjustments are estimated and recorded in the period in which
the related services are provided. Any adjustment to the amounts is recorded in
the period in which the revised amount is determined. A significant portion of
Arundel's medical service revenue are related to Medicare and other governmental
programs. Medicare and other governmental programs reimburse physicians based on
fee schedules which are determined by the related governmental agency.
Additionally, Arundel participates in agreements with managed care organizations
to provide services at negotiated rates.

Concentration of Credit Risk

Arundel extends credit to patients covered by programs such as Medicare and
Medicaid and private insurers. Arundel manages credit risk with the various
public and private insurance providers, as appropriate. Allowances for bad debts
have been made for potential losses when appropriate.

F-30
<PAGE> 106

DRS. THOMAS, WALLOP, KIM AND LEWIS, P.A.
(D/B/A ARUNDEL RADIOLOGY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Use of Estimates

3. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following:

<TABLE>
<CAPTION>
ESTIMATED USEFUL
LIVES (YEARS)
----------------
<S> <C> <C>
Equipment................................................ 5-7 $4,245,053
Leasehold improvements................................... 9-11 806,717
Furniture and fixtures................................... 5-10 549,052
----------
5,600,822
Less -- Accumulated depreciation and amortization........ (3,518,155)
----------
Property and equipment, net.................... $2,082,667
==========
</TABLE>

4. LONG-TERM DEBT:

Long-term debt consists of the following:

<TABLE>
<S> <C>
Note payable to bank, bearing interest at the prime rate,
due in 1997. Monthly payments of $17,688 plus interest,
collateralized by certain furniture and equipment......... $ 635,591
Note payable to bank, bearing interest at the prime rate
plus 1/4%, due in 1997. Monthly payments of $30,909 plus
interest, collateralized by furniture and equipment....... 1,050,909
----------
Long-term debt.................................... 1,686,500
Less -- Current maturities........................ (583,166)
----------
Long-term debt, net of current portion............ $1,103,334
==========
</TABLE>

As of December 31, 1994, the aggregate amounts of annual principal
maturities of long-term debt are as follows:

<TABLE>
<S> <C>
1995..................................................... $ 583,166
1996..................................................... 583,166
1997..................................................... 520,168
----------
Total.................................................... $1,686,500
==========
</TABLE>

5. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS:

F-31
<PAGE> 107

DRS. THOMAS, WALLOP, KIM AND LEWIS, P.A.
(D/B/A ARUNDEL RADIOLOGY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

accounts payable and accrued expenses approximate fair value due to the short
maturity of these instruments. The carrying amount of the Arundel's long-term
debt approximates fair value.

6. COMMITMENTS AND CONTINGENCIES:

Leases

Lease expense of approximately $414,000 for the year ended December 31,
1994, consists of building rent.

The following is a schedule of future minimum lease payments under
noncancelable operating leases as of December 31, 1994:

Litigation

Arundel is subject to various claims and legal actions which arise in the
ordinary course of business. Arundel has insurance to protect against such
claims or legal actions. In the opinion of management, the ultimate resolution
of such matters will be adequately covered by the insurance and will not have a
material adverse effect on Arundel's financial position or results of
operations.

7. EMPLOYEE BENEFIT PLAN:

Arundel has a profit sharing plan which provides for Arundel to make
discretionary contributions. There were no contributions made to the plan by
Arundel in 1994.

Arundel does not provide postretirement or postemployment benefits to
employees.

8. SUBSEQUENT EVENT:

Arundel joined Drs. Copeland, Hyman and Shackman, P.A.; Drs. DeCarlo, Lyon,
Hearn and Pazourek, P.A.; Diagnostic Imaging Associates, P.A.; and Carroll
Imaging Associates, P.A. to form Advanced Radiology, LLC ("Advanced") on January
1, 1995. Each P.A. became a Class B Member and each individual doctor became a
Class A Member.

Arundel physicians agreed to provide services to the Advanced in exchange
for a percentage interest. In addition, Arundel agreed to contribute its
existing business, including partnership and joint venture interests, income or
participation rights, and equipment. Arundel's long-term debt relating to all
operational assets, as well as all leases, was also contributed to the Advanced.
Arundel shareholders will have a 15.7% interest in the Company.

F-32
<PAGE> 108

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of
Diagnostic Imaging Associates, P.A.:

We have audited the accompanying balance sheet of Diagnostic Imaging
Associates, P.A. as of September 30, 1994, and the related statements of income,
owners' equity and cash flows for the year then ended. 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 audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Diagnostic Imaging
Associates, P.A. as of September 30, 1994, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.

Dallas, Texas,
February 21, 1997

F-33
<PAGE> 109

DIAGNOSTIC IMAGING ASSOCIATES, P.A.

BALANCE SHEET

ASSETS

<TABLE>
<CAPTION>
SEPTEMBER 30,
1994
-------------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 383,848
Accounts receivable, net of allowance for bad debts and
contractuals of $1,142,352............................. 1,403,089
Prepaid expenses and other current assets................. 83,012
----------
Total current assets.............................. 1,869,949
PROPERTY AND EQUIPMENT, net................................. 988,010
INVESTMENT IN JOINT VENTURE................................. 167,705
OTHER NONCURRENT ASSETS, net................................ 61,994
----------
Total assets...................................... $3,087,658
==========

LIABILITIES AND OWNERS' EQUITY

CURRENT LIABILITIES:
Accounts payable and accrued expenses..................... $ 108,300
Accrued salaries and benefits............................. 516,097
Short-term notes.......................................... 200,000
Current maturities of long-term debt...................... 169,918
Capitalized lease payable................................. 17,547
----------
Total current liabilities......................... 1,011,862
LONG-TERM DEBT, net of current portion...................... 501,723
----------
Total liabilities................................. 1,513,585
COMMITMENTS AND CONTINGENCIES
OWNERS' EQUITY.............................................. 1,574,073
----------
Total liabilities and owners' equity.............. $3,087,658
==========
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-34
<PAGE> 110

DIAGNOSTIC IMAGING ASSOCIATES, P.A.

STATEMENT OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
1994
-------------
<S> <C>
REVENUES:
Medical service revenue, net.............................. $7,273,697
Other revenue............................................. 13,446
----------
Total revenue..................................... 7,287,143
----------
COSTS AND EXPENSES:
Costs of affiliated physician services.................... 3,949,182
Practice salaries, wages, and benefits.................... 1,883,155
Practice supplies......................................... 72,604
Practice rent and lease expense........................... 179,112
Depreciation and amortization............................. 227,066
Other practice expenses................................... 902,947
Interest expense.......................................... 64,192
----------
Total costs and expenses.......................... 7,278,258
----------
NET INCOME.................................................. $ 8,885
==========
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-35
<PAGE> 111

DIAGNOSTIC IMAGING ASSOCIATES, P.A.

STATEMENT OF OWNERS' EQUITY
FOR THE YEAR ENDED SEPTEMBER 30, 1994

<TABLE>
<S> <C>
BALANCE, September 30, 1993................................. $1,558,092
Issuance of capital stock................................. 7,096
Net income................................................ 8,885
----------
BALANCE, September 30, 1994................................. $1,574,073
==========
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-36
<PAGE> 112

DIAGNOSTIC IMAGING ASSOCIATES, P.A.

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
1994
-------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 8,885
Adjustments to reconcile net income to net cash provided
by operating activities --
Depreciation and amortization.......................... 225,069
Changes in assets and liabilities --
(Increase) decrease in --
Accounts receivable, net.......................... (45,483)
Prepaid expenses and other current assets......... 132,788
Other noncurrent assets........................... (33,002)
Increase (decrease) in --
Accounts payable and accrued expenses............. 22,785
Accrued salaries and benefits..................... (72,441)
Short-term notes.................................. 200,000
----------
Net cash provided by operating activities....... 438,601
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net.................. (25,068)
Investment in joint venture............................... (167,705)
----------
Net cash used in investing activities........... (192,773)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of capital stock................................. 7,096
Repayment of long-term debt............................... (196,824)
----------
Net cash used in financing activities........... (189,728)
----------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 56,100
CASH AND CASH EQUIVALENTS, beginning of period.............. 327,748
----------
CASH AND CASH EQUIVALENTS, end of period.................... $ 383,848
==========
SUPPLEMENTAL DISCLOSURE:
Cash paid for interest.................................... $ 64,192
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-37
<PAGE> 113

DIAGNOSTIC IMAGING ASSOCIATES, P.A.

NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1994

1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION:

Diagnostic Imaging Associates, P.A. (DIAPA) is a professional services
corporation that is engaged in the practice of medicine, specializing in
radiology in Baltimore, Maryland. The accompanying financial statements have
been prepared on the accrual basis of accounting.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Accounts Receivable

Property and Equipment

Income Taxes

DIAPA is a taxable corporation and historically has not incurred
significant tax liabilities for federal or state income taxes. Compensation to
physician owners has traditionally reduced taxable income to nominal levels.
This relationship would be expected to continue in the future. Because of this
practice, provisions for income taxes and deferred tax assets and liabilities
are not material and have not been reflected in the financial statements.

Medical Service Revenues

Medical service revenue are accounted for in the period in which the
services are provided. The revenue are reported at the estimated realizable
amounts from patients, third-party payors and others. Provisions for estimated
third-party payor adjustments are estimated and recorded in the period in which
the related services are provided. Any adjustment to the amounts is recorded in
the period in which the revised amount is determined. A significant portion of
DIAPA's medical service revenue are related to Medicare and other governmental
programs. Medicare and other governmental programs reimburse physicians based on
fee schedules which are determined by the related governmental agency.
Additionally, DIAPA participates in agreements with managed care organizations
to provide services at negotiated rates.

Concentration of Credit Risk

DIAPA extends credit to patients covered by programs such as Medicare and
Medicaid and private insurers. DIAPA manages credit risk with the various public
and private insurance providers, as appropriate. Allowances for bad debts have
been made for potential losses when appropriate.

F-38
<PAGE> 114

DIAGNOSTIC IMAGING ASSOCIATES, P.A.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Use of Estimates

3. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following:

<TABLE>
<CAPTION>
ESTIMATED USEFUL
LIVES (YEARS)
----------------
<S> <C> <C>
Equipment.................................................. 5-10 $ 851,177
Leasehold improvements..................................... 7 550,709
Furniture and fixtures..................................... 5-10 417,879
----------
$1,819,765
Less -- Accumulated depreciation and amortization.......... (831,755)
----------
Property and equipment, net...................... $ 988,010
==========
</TABLE>

4. SHORT-TERM NOTES PAYABLE:

Short-term notes payable as of September 30, 1994, consist of a revolving
line of credit with the bank, bearing interest at prime plus 1/2%, with
principal payable on demand. Total amounts available under this line of credit
are $200,000, all of which was outstanding as of September 30, 1994.

5. LONG-TERM DEBT:

Long-term debt consists of the following:

<TABLE>
<S> <C>
Note payable to bank, bearing interest at the prime rate
plus 3/4%, due in 1998. Monthly payments of $10,000 plus
interest, collateralized by certain equipment, accounts
receivable and personal guarantees of the physicians...... $ 409,708
Note payable to bank, bearing interest at the prime rate
plus 1%, due in 1999. Monthly payments of $4,167 plus
interest, collateralized by equipment, accounts receivable
and personal guarantees of the physicians................. 261,933
---------
Long-term debt.................................... 671,641
Less -- Current maturities........................ (169,918)
---------
Long-term debt, net of current portion............ $ 501,723
=========
</TABLE>

The aggregate amounts of annual principal maturities of long-term debt in
each of the next five years from September 30, 1994, are as follows:

<TABLE>
<S> <C>
1995...................................................... $169,918
1996...................................................... 169,918
1997...................................................... 169,918
1998...................................................... 99,712
1999...................................................... 62,175
--------
Total........................................... $671,641
========
</TABLE>

F-39
<PAGE> 115

DIAGNOSTIC IMAGING ASSOCIATES, P.A.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

6. COMMITMENTS AND CONTINGENCIES:

Capitalized Lease

DIAPA leases equipment from Mercedes-Benz Credit Corporation under a
purchase option lease agreement which expires in June 1995. At September 30,
1994, minimum annual rental commitments under the purchase option lease are
$17,547. Upon payment of all obligations of the lease, the equipment can be
purchased for the sum of one dollar ($1.00). The lease has been accounted for as
a capital lease.

Operating Lease

Lease expense of approximately $178,000 for the year ended September 30,
1994, consists of building space leased from an affiliate, Loch Raven Radiology
Building Limited Partnership. This lease provides for minimum annual rentals of
$178,000 through September 30, 1998, plus annual increases based on the greater
of the Consumer Price Index or 4%.

Litigation

DIAPA is subject to various claims and legal actions which arise in the
ordinary course of business. DIAPA has insurance to protect against such claims
or legal actions. In the opinion of management, the ultimate resolution of such
matters will be adequately covered by the insurance and will not have a material
adverse effect on DIAPA's financial position or results of operations.

7. EMPLOYEE BENEFIT PLAN:

DIAPA has a 401(k) profit-sharing plan which provides for DIAPA to make
matching contributions. Total contributions made to the plan by DIAPA in 1994
were $353,873.

DIAPA does not provide post-retirement or post-employment benefits to
employees.

8. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS:

Statement of Financial Accounting Standards No. 107 requires all entities
to disclose the fair value of certain financial instruments in their financial
statements. The carrying amounts of accounts receivable, accounts payable,
accrued expenses, short-term notes, and capitalized lease approximate fair value
due to the short maturity of these instruments. The carrying amount of DIAPA's
long-term debt also approximates fair value.

9. INVESTMENT IN JOINT VENTURE:

Effective July 1, 1994, DIAPA acquired a fifty percent interest in Greater
Baltimore Diagnostic Imaging Partnership (GBDIP), a general partnership, from
LaSalle Pavilion, Inc. ("LaSalle"), in settlement of amounts owed to DIAPA by
LaSalle. The investment in GBDIP is accounted for under the equity method.

Summary information from the unaudited financial statements of GBDIP as of
and for the year ended June 30, 1994, is as follows:

<TABLE>
<S> <C>
Current assets........................................... $ 499,890
Total assets............................................. 594,876
Current liabilities...................................... 58,631
Partners' equity......................................... 536,245
Revenue.................................................. 1,413,865
Net income............................................... $ 158,018
</TABLE>

F-40
<PAGE> 116

DIAGNOSTIC IMAGING ASSOCIATES, P.A.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

DIAPA provides management and billing services to GBDIP. GBDIP reimburses
DIAPA on a monthly basis. At September 30, 1994, DIAPA had incurred expenses
totaling $45,272 which were subsequently reimbursed by GBDIP.

10. SUBSEQUENT EVENT:

DIAPA joined Drs. Copeland, Hyman and Shackman, P.A.; Drs. DeCarlo, Lyon,
Hearn and Pazourek, P.A.; Drs. Thomas, Wallop, Kim and Lewis, P.A.; and Carroll
Imaging Associates, P.A. to form Advanced Radiology, LLC ("Advanced") on January
1, 1995. Each P.A. became a Class B Member and each individual doctor became a
Class A Member.

DIAPA physicians agreed to provide services to Advanced in exchange for a
percentage interest. In addition, DIAPA agreed to contribute its existing
business, including partnership and joint venture interests, income or
participation rights, and equipment. DIAPA's debt relating to all operational
assets, as well as all leases, was also contributed to Advanced. DIAPA
shareholders will hold a 21.0% interest in Advanced.

F-41
<PAGE> 117

INDEPENDENT AUDITORS' REPORT

To the Shareholders of
The Ide Group, P.C.:

We have audited the accompanying combined balance sheets of The Ide Group,
P.C. (a New York professional corporation) and Ide Diagnostic Imaging Associates
(a New York general partnership) as of June 30, 1996, 1995 and 1994, and the
related combined statements of income, changes in stockholders' equity and
partners' capital, and cash flows for the three years then ended. These
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit 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 from
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 audit provides a reasonable basis for our
opinion.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of The Ide Group, P.C.
and Ide Diagnostic Imaging Associates as of June 30, 1996, 1995, and 1994, and
the results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.

January 3, 1997.

F-42
<PAGE> 118

THE IDE GROUP, P.C.

IDE DIAGNOSTIC IMAGING ASSOCIATES

COMBINED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
JUNE 30,
MARCH 31, ---------------------------------------
1997 1996 1995 1994
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash.................................. $2,050,973 $ 199,048 $ 268,854 $ 1,125,970
Accounts receivable, net of allowance
for doubtful accounts and
contractual adjustments of
$1,711,461, $1,857,000, $2,425,000
and $1,659,000 at March 31, 1997,
June 30, 1996, 1995 and 1994,
respectively........................ 4,566,994 4,770,648 4,235,067 4,612,137
Supplies on hand...................... 98,789 116,938 99,177 115,410
Prepaids and deposits................. 133,750 23,085 65,247 237,511
----------- ----------- ----------- -----------
Total current assets............ 6,850,506 5,109,719 4,668,345 6,091,028
----------- ----------- ----------- -----------
PROPERTY AND EQUIPMENT, at cost:
Radiology equipment................... 5,139,809 5,147,974 5,000,123 4,548,498
Furniture and fixtures................ 1,458,211 1,560,388 1,534,760 1,080,761
Leasehold improvements................ 409,119 409,862 555,785 548,022
----------- ----------- ----------- -----------
7,007,139 7,118,224 7,090,668 6,177,281
Less -- Accumulated depreciation...... (6,145,831) (5,787,413) (5,104,880) (4,633,849)
----------- ----------- ----------- -----------
861,308 1,330,811 1,985,788 1,543,432
----------- ----------- ----------- -----------
OTHER ASSETS:
Purchase deposits..................... -- -- -- 459,168
Cash surrender value of life insurance
policies............................ 337,326 337,326 314,591 301,899
Refundable bonds...................... -- 43,950 50,950 53,050
Other assets.......................... 30,304 38,541 10,274 14,788
----------- ----------- ----------- -----------
367,630 419,817 375,815 828,905
----------- ----------- ----------- -----------
TOTAL ASSETS............................ $8,079,444 $ 6,860,347 $ 7,029,948 $ 8,463,365
=========== =========== =========== ===========

LIABILITIES, STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL

CURRENT LIABILITIES:
Line of credit........................ $ -- -- $ 200,000 $ 600,000
Accounts payable...................... 848,513 755,391 759,743 684,870
Current portion of long-term debt..... 380,000 380,000 841,463 918,432
Accrued liabilities................... 751,141 355,346 77,628 65,200
Accrued profit sharing................ -- -- 240,678 --
Accrued vacation...................... 342,579 342,579 320,027 320,027
----------- ----------- ----------- -----------
Total current liabilities....... 2,322,233 1,833,316 2,439,539 2,588,529
----------- ----------- ----------- -----------
LONG-TERM LIABILITIES:
Long-term debt........................ 1,248,046 1,361,667 1,145,650 1,524,448
Life insurance loans payable.......... -- 171,379 167,613 167,613
Deferred income taxes................. 1,710,702 1,185,742 811,965 1,003,292
----------- ----------- ----------- -----------
2,958,748 2,718,788 2,125,228 2,695,353
----------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY AND PARTNERS'
CAPITAL:
Common stock ($1 par, 20,000 shares
authorized, 2,400 shares issued and
outstanding)........................ 2,400 2,400 2,300 2,000
Additional paid-in capital............ 3,268 3,268 3,268 3,268
Retained earnings..................... 2,793,045 2,034,754 1,594,827 1,665,141
Partners' capital..................... -- 268,071 865,036 1,509,174
Less -- Treasury stock................ (250) (250) (250) (100)
----------- ----------- ----------- -----------
Total stockholders' equity and
partners' capital............. 2,798,463 2,308,243 2,465,181 3,179,483
----------- ----------- ----------- -----------
TOTAL LIABILITIES, STOCKHOLDERS'
EQUITY AND PARTNERS'
CAPITAL....................... $8,079,444 $ 6,860,347 $ 7,029,948 $ 8,463,365
=========== =========== =========== ===========
</TABLE>

The accompanying notes to combined financial statements are an integral part of
these balance sheets.

F-43
<PAGE> 119

THE IDE GROUP, P.C.

IDE DIAGNOSTIC IMAGING ASSOCIATES

COMBINED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
MARCH 31, JUNE 30,
------------------------- ---------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Medical service revenue,
net..................... $19,850,814 $19,742,455 $25,996,948 $25,521,062 $24,291,013
Other revenue.............. -- -- 22,736 12,692 12,541
----------- ----------- ----------- ----------- -----------
19,850,814 19,742,455 26,019,684 25,533,754 24,303,554
----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Costs of affiliated
physician services...... 9,419,119 7,886,826 11,483,239 10,935,981 10,322,239
Practice salaries wages and
benefits................ 2,350,715 2,390,001 3,080,586 3,141,263 2,964,349
Practice supplies.......... 972,452 1,162,179 1,558,493 1,597,236 1,549,840
Practice rent and lease
expense................. 2,874,450 2,724,467 3,598,904 3,532,920 3,201,278
Depreciation and
amortization............ 489,549 616,228 835,326 838,919 726,335
Other practice expenses.... 2,361,366 2,440,607 3,356,050 3,241,889 2,818,445
Interest expense........... 97,753 150,394 202,195 225,447 218,059
----------- ----------- ----------- ----------- -----------
Total costs and
expenses......... 18,565,404 17,370,702 24,114,793 23,513,655 21,800,545
----------- ----------- ----------- ----------- -----------
INCOME BEFORE (PROVISION FOR)
BENEFIT FROM DEFERRED
INCOME TAXES............... 1,285,410 2,371,753 1,904,891 2,020,099 2,503,009
(PROVISION FOR) BENEFIT FROM
DEFERRED INCOME TAXES...... (527,119) (374,977) (374,977) 182,454 (292,582)
----------- ----------- ----------- ----------- -----------
NET INCOME................... $ 758,291 $ 1,996,776 $ 1,529,914 $ 2,202,553 $ 2,210,427
=========== =========== =========== =========== ===========
</TABLE>

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

F-44
<PAGE> 120

THE IDE GROUP, P.C.

IDE DIAGNOSTIC IMAGING ASSOCIATES

COMBINED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------- PAID-IN RETAINED PARTNERS' TREASURY
SHARES AMOUNT CAPITAL EARNINGS CAPITAL STOCK TOTAL
------ ------ ---------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, June 30, 1993..... 2,000 $2,000 $3,268 $1,268,733 $1,155,168 $(100) $2,429,069
Net income................. -- -- -- 396,408 1,814,019 -- 2,210,427
Capital contributions...... -- -- -- -- 46,237 -- 46,237
Capital distributions...... -- -- -- -- (1,506,250) -- (1,506,250)
----- ------ ------ ---------- ---------- ----- ----------
BALANCE, June 30, 1994..... 2,000 2,000 3,268 1,665,141 1,509,174 (100) 3,179,483
Net income (loss).......... -- -- -- (70,314) 2,272,867 -- 2,202,553
Sale of stock.............. 300 300 -- -- -- -- 300
Purchase of stock.......... -- -- -- -- -- (150) (150)
Capital distributions...... -- -- -- -- (2,917,005) -- (2,917,005)
----- ------ ------ ---------- ---------- ----- ----------
BALANCE, June 30, 1995..... 2,300 2,300 3,268 1,594,827 865,036 (250) 2,465,181
Net income................. -- -- -- 439,927 1,089,987 -- 1,529,914
Sale of stock.............. 100 100 -- -- -- -- 100
Capital contributions...... -- -- -- -- 68,661 -- 68,661
Capital distributions...... -- -- -- -- (1,755,613) -- (1,755,613)
----- ------ ------ ---------- ---------- ----- ----------
BALANCE, June 30, 1996..... 2,400 2,400 3,268 2,034,754 268,071 (250) 2,308,243
Net income (unaudited)..... -- -- -- 758,291 -- -- 758,291
Capital distributions
(unaudited).............. -- -- -- -- (268,071) -- (268,071)
----- ------ ------ ---------- ---------- ----- ----------
BALANCE, March 31, 1997
(unaudited).............. 2,400 $2,400 $3,268 $2,793,045 $ -- $(250) $2,798,463
===== ====== ====== ========== ========== ===== ==========
</TABLE>

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

F-45
<PAGE> 121

THE IDE GROUP, P.C.

IDE DIAGNOSTIC IMAGING ASSOCIATES

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31, YEARS ENDED JUNE 30,
---------------------------- ---------------------------------------
1997 1996 1996 1995 1994
------------ ------------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................ $ 758,291 $ 1,996,776 $ 1,529,914 $ 2,202,553 $ 2,210,427
---------- ----------- ----------- ----------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities--
Depreciation and amortization.......... 489,549 616,228 835,326 838,919 726,336
Deferred taxes......................... 524,960 374,177 373,777 (191,327) 290,426
(Increase) decrease in accounts
receivable........................... 203,654 (158,026) (535,581) 377,070 (341,712)
Decrease (increase) in prepaids and
deposits............................. (110,665) 26,553 42,162 172,264 81,533
(Increase) decrease in supplies on
hand................................. 18,149 10,511 (17,761) 16,233 (873)
(Increase) decrease in other assets.... 8,237 12,274 (28,267) 4,514 2,868
Increase (decrease) in accounts
payable.............................. 93,122 258,780 (4,352) 74,873 (111,494)
Increase (decrease) in accrued profit
sharing.............................. -- (240,678) (240,678) 240,678 --
Increase (decrease) in accrued
liabilities.......................... 395,795 99,566 300,270 12,428 (76,052)
---------- ----------- ----------- ----------- -----------
Total adjustments................. 1,622,801 999,385 724,896 1,545,652 571,032
---------- ----------- ----------- ----------- -----------
Net cash provided by operating
activities...................... 2,381,092 2,996,161 2,254,810 3,748,205 2,781,459
---------- ----------- ----------- ----------- -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........ (20,046) (178,900) (180,349) (1,281,275) (475,110)
(Increase) decrease in purchase
deposits............................... -- -- -- 459,168 (364,578)
Decrease in refundable bonds.............. 43,950 -- 7,000 2,100 --
Capital contributions and net stock
purchases.............................. -- -- 68,761 150 46,237
Capital distributions..................... (268,071) (1,517,736) (1,755,613) (2,917,005) (1,506,250)
Increase in cash surrender value of life
insurance policies..................... -- -- (22,735) (12,692) (12,541)
---------- ----------- ----------- ----------- -----------
Net cash used by investing
activities...................... (244,167) (1,696,636) (1,882,936) (3,749,554) (2,312,242)
---------- ----------- ----------- ----------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments on line of credit.......... -- (200,000) (200,000) (400,000) (208,920)
Principal payments on long-term debt...... (285,000) (150,447) (633,585) (910,767) (819,667)
Net proceeds from issuance of long-term
debt................................... -- -- 391,905 455,000 1,044,000
---------- ----------- ----------- ----------- -----------
Net cash provided (used) by financing
activities........................... (285,000) (350,447) (441,680) (855,767) 15,413
---------- ----------- ----------- ----------- -----------

NET INCREASE (DECREASE) IN CASH............. 1,851,925 949,078 (69,806) (857,116) 484,630

CASH, beginning of year..................... 199,048 268,854 268,854 1,125,970 641,340
---------- ----------- ----------- ----------- -----------
CASH, end of year........................... $2,050,973 $ 1,217,932 $ 199,048 $ 268,854 $ 1,125,970
========== =========== =========== =========== ===========
</TABLE>

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

F-46
<PAGE> 122

THE IDE GROUP, P.C.

IDE DIAGNOSTIC IMAGING ASSOCIATES

NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 AND 1994

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Presentation and Principles of Combination

The accompanying combined financial statements present the combined
financial position, results of operations, and cash flows of The Ide Group, P.C.
("Ide"), a New York professional corporation, and Ide Diagnostic Imaging
Associates ("IDIA"), a New York general partnership. Ide was formed to practice
medicine specializing in radiology and radiation oncology in the Rochester, New
York region. IDIA provided magnetic resonance imaging services in the Rochester,
New York region. Effective January 1, 1996, substantially all of the operations
of IDIA were assumed by Ide.

Ide and IDIA are affiliated through common ownership. All material
intercompany balances and transactions are eliminated in combination.

Basis of Accounting

The accompanying financial statements are prepared using the accrual basis
of accounting.

Revenue Recognition

Revenue is recognized when the related service is performed. Revenue is
recorded net of allowances for contractual adjustments and estimated
uncollectible accounts.

Supplies on Hand

Supplies on hand are stated at the lower of cost, determined on the
first-in, first-out basis, or market.

Property and Equipment

Depreciation and amortization of property and equipment are computed using
methods and lives prescribed under the Internal Revenue Code, which are as
follows:

<TABLE>
<S> <C>
Radiology equipment......................................... 5 years
Furniture and fixtures...................................... 5-7 years
Leasehold improvements...................................... 4-39 years
</TABLE>

Basis of Presentation -- Interim Financial Statements

F-47
<PAGE> 123

THE IDE GROUP, P.C.

IDE DIAGNOSTIC IMAGING ASSOCIATES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

2. LONG-TERM DEBT:

Long-term debt consisted of the following at June 30:

<TABLE>
<CAPTION>
TERMS 1996 1995 1994
----- ---------- ---------- ----------
<S> <C> <C> <C> <C>
M&T Bank-
Term loan agreement....................... (a) $1,741,667 $ -- $ --
Chase Manhattan Bank-
Term loan agreements...................... (b) -- 1,987,113
(c) -- -- 2,442,880
---------- ---------- ----------
1,741,667 1,987,113 2,442,880
Less- Current portion..................... (380,000) (841,463) (918,432)
---------- ---------- ----------
Long-term portion......................... $1,361,667 $1,145,650 $1,524,448
========== ========== ==========
</TABLE>

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

(a) During fiscal 1996, Ide refinanced its term loan agreement with M&T Bank
("The Bank"). The term loan agreement requires 60 equal monthly principal
payments of $31,667 through December 2001 plus interest. Interest on the
term loan is fixed at 7.74%. The term loan is secured by substantially all
of Ide's assets. Ide has received a commitment from the Bank to allow
borrowings up to a maximum of $3,000,000.

(b) Ide refinanced this term loan agreement in fiscal 1996.

(c) Ide had a term loan agreement allowing borrowings up to a maximum of
$4,000,000 at prime plus 1/4% or 1/2% or at a fixed rate equal to the
Treasury rate plus 2.25% computed as of the date of the loan, at Ide's
option.

The aggregate annual maturities of long-term debt are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
- ------------------------------------------------------------ ----------
<S> <C>
1997..................................................... $ 380,000
1998..................................................... 380,000
1999..................................................... 380,000
2000..................................................... 380,000
2001..................................................... 221,667
----------
$1,741,667
==========
</TABLE>

3. LINES OF CREDIT:

Ide has a line of credit facility with M&T Bank under which Ide may borrow
up to $1,300,000 at the prime rate (8.25% at June 30, 1996). There were no
borrowings outstanding under this line at June 30, 1996. The line of credit
agreement requires that there be no outstanding borrowings under the line for at
lease thirty consecutive days each year.

Ide previously had an agreement with Chase Manhattan Bank, N.A. which
permitted Ide to borrow up to $600,000 through February 28, 1996. Borrowings
under the agreement were $200,000 and $600,000 at June 30, 1995 and 1994. The
note was repaid in full and terminated in February 1996.

F-48
<PAGE> 124

THE IDE GROUP, P.C.

IDE DIAGNOSTIC IMAGING ASSOCIATES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

The Partnership had available a $200,000 line of credit. Amounts borrowed
bear interest at the prime plus 1/2%. There were no outstanding balances under
this line of credit at June 30, 1994, respectively. Amounts borrowed are
collateralized by accounts receivable.

4. LIFE INSURANCE LOANS PAYABLE:

Ide's life insurance loans payable are secured by the cash surrender value
of the related policies. These policies bear interest at rates which range from
a fixed rate of five percent to rates which float with the prime rate. It is
Ide's intention to not repay these loans during the next year. Therefore, the
loans are reflected as a long-term liability in the accompanying balance sheets.

5. INCOME TAXES:

Ide follows the provisions of Statement of Financial Accounting Standards
Number 109, "Accounting for Income Taxes."

Deferred taxes are recognized for temporary differences between the basis
of assets and liabilities for financial statement and income tax purposes. The
differences result from the use of the cash basis of accounting for income tax
purposes and the use of the accrual basis of accounting for financial statement
purposes, and consist primarily of accounts receivable, accounts payable,
accrued liabilities and net operating loss carryforwards. It is Ide's intention
in future years to pay compensation to employees in amounts sufficient to reduce
taxable income to zero each year.

For federal tax return purposes, Ide has approximately $422,474 of net
operating loss carryforwards as of June 30, 1996, which begin to expire in the
year 2006 through 2007.

The results of the Partnerships' operations are reported in the individual
federal and state income tax returns of the partners. The Partnership files
informational returns and, therefore, no provision for income taxes is recorded.

6. REFUNDABLE BONDS:

Refundable bonds consist of deposits required for each Ide physician by
Ide's medical malpractice mutual insurance carrier. The bonds are refundable
from the free and divisible surplus of the insurance company upon cessation of
medical practice of the Ide physician. The bonds earn interest at the rate of
six percent.

7. EMPLOYEE BENEFIT PLANS:

Ide maintains a discretionary qualified defined contribution 401(k) and
profit sharing plan ("the Plan"), covering substantially all employees of Ide
and IDIA who have attained the age of 21 and who have met certain minimum
eligibility requirements. The plan is subject to provisions of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). The plan also
provides that participants will be able to contribute up to 15% of their
compensation not to exceed $9,500. Ide contributes an amount equal to 25% of an
employee elective deferrals up to 4% of each employees compensation.

In addition, Ide maintains a qualified discretionary supplemental profit
sharing plan which is subject to provisions of ERISA. The profit sharing expense
under these plans was $539,737, $518,107 and $588,227 for the years ended June
30, 1996, 1995 and 1994, respectively.

F-49
<PAGE> 125

THE IDE GROUP, P.C.

IDE DIAGNOSTIC IMAGING ASSOCIATES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

8. COMMITMENTS AND CONTINGENCIES:

Deferred Compensation Agreements

Each Ide shareholder physician's employment contract contains a deferred
compensation agreement. Under the terms of these agreements, these individuals
will receive payments at retirement or death for past services performed. At
June 30, 1996, 1995 and 1994 the vested amount of deferred compensation balances
total approximately $9,016,000, $7,329,000, and $6,970,000, respectively. These
balances will be paid out over time at indeterminable future dates and in
indeterminable future amounts. As such, the amount of liability that would be
recorded in the balance sheet is not reasonably estimable.

Leases

Ide occupies certain offices under lease agreements expiring at various
dates through December, 2000. The minimum rental commitment under all leases in
effect at June 30, 1996 is as follows:

<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
- ----------- ----------
<S> <C> <C>
1997............................................................... $ 493,557
1998............................................................... 466,529
1999............................................................... 283,685
2000............................................................... 155,514
2001............................................................... 64,797
----------
$1,464,082
==========
</TABLE>

The Partnership leases office space under leases expiring through 1998. The
Partnership is fully reimbursed for its office space rental expense under the
terms of its agreement with MICA (see Note 12).

9. RELATED PARTY:

Ide has an agreement with an affiliated company whereby the affiliate
performs billing and collection functions for services rendered by Ide. Ide pays
the affiliate a fee based on the amount of billings collected. Payments to this
affiliate were $1,547,143, $1,324,882 and $1,161,287 in fiscal 1996, 1995 and
1994, respectively.

10. CREDIT RISK CONCENTRATIONS:

Ide and IDIA maintain bank account balances which, at times, exceeded the
federally insured limit during the years ended June 30, 1996, 1995 and 1994. The
Companies have not experienced losses related to these deposits and management
does not believe that the Companies are exposed to any significant credit risk
with respect to these accounts.

At June 30, 1996, Ide has approximately $1,270,568 of accounts receivable
due from Health Maintenance Organizations ("HMO") which is subject to
retrospective adjustment. This amount represents withholdings by the HMOs to be
used against any operating losses incurred by the HMO. In fiscal 1996, Ide
received 80% of funds withheld under its contract with one HMO relating to
calendar 1995. Other than fiscal 1996, Ide has historically collected the full
amount of withheld funds each year.

Substantially all of the Companies' revenue are derived from services
performed in the greater Rochester, New York metropolitan area.

F-50
<PAGE> 126

THE IDE GROUP, P.C.

IDE DIAGNOSTIC IMAGING ASSOCIATES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Substantially all of the Companies' revenue are derived from providing
medical services to patients covered under contracts with Blue Cross/Blue Shield
of Greater Rochester or affiliates, Blue Choice, Preferred Care, Medicare, or
Medicaid. Changes in the reimbursement rates Ide receives under these contracts
could have a material effect on Ide's financial position and operations.

Subsequent to June 30, 1996, Ide's management became aware of the intention
of the Rochester Community Individual Practice Association and the Rochester
Individual Practice Association, with whom Ide is a participating provider, to
adopt Resource-Based Relative Value Scale ("RBRVS") fee schedule methodologies.
These Individual Practice Associations contract with Blue Choice and Preferred
Care, respectively. Approximately 60% of Ide's revenue is derived from services
provided to patients of Blue Choice and Preferred Care. While the impact and
timing of the adoption of RBRVS methodologies are not yet known with certainty,
it is expected that this change may have a material detrimental effect on Ide's
future operations.

11. SUPPLEMENTARY CASH FLOW DISCLOSURES:

Cash payments for income taxes and interest are as follows for the years
ended June 30:

<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Income taxes....................................... $ 1,200 $ 8,873 $ 2,156
-------- -------- --------
Interest........................................... $202,798 $224,452 $236,723
======== ======== ========
</TABLE>

12. EXCLUSIVE SUPPLY AGREEMENT:

In August 1990, IDIA entered into a thirty-year agreement with MICA Imaging
and Medical Imaging Centers of America, Inc. ("MICA") in which IDIA agreed to
sell to MICA its magnetic resonance imaging ("MRI") equipment and not to compete
with MICA for the provision of MRI services in the City of Rochester ("City")
and within a twenty-five mile radius of the City. This covenant not to compete
also applies to all partners of IDIA for the duration of their participation as
a partner and for two years thereafter.

Under the agreement, MICA granted IDIA the right of first refusal for the
thirty-year term of the agreement to provide professional radiology services at
facilities located in specific states in the Northeast except under certain
circumstances as outlined in the agreement.

IDIA also grants to MICA, for the thirty-year term of the agreement, the
right of first refusal to provide MRI equipment, cryogens and/or maintenance at
any location in specific states in the Northeast where IDIA obtains the right to
provide MRI equipment, cryogens and/or maintenance or owns, leases or subleases
office space for the purposes of providing MRI services.

IDIA and MICA also entered into an equipment lease covering MRI equipment
sold by IDIA to MICA and other MRI equipment operated in private offices located
on the campuses of certain Rochester area hospitals. These lease terms range
from five to thirty years. The rental payments are based upon the aggregate
number of MRI scans performed by IDIA using all leased MRI equipment.

If certain events occur under this agreement, IDIA may be required to
purchase all fixed and mobile MRI equipment owned by MICA and leased to IDIA as
well as to assume leases for fixed MRI equipment leased by MICA and subleased to
IDIA by MICA.

IDIA also may be required to pay MICA a pro-rated portion of the amount for
the exclusive supply contract.

During fiscal 1996, the exclusive supply agreement was assigned by IDIA to
Ide with the consent of MICA.

F-51
<PAGE> 127

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of
M&S X-Ray Practices:

We have audited the accompanying combined balance sheets of M&S X-Ray
Practices (see Note 1) as of December 31, 1996 and 1995, and the related
combined statements of income, owners' equity, and cash flows for the years then
ended. 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of M&S X-Ray Practices as of
December 31, 1996 and 1995, and the results of their operations and their cash
flows for the years then ended in conformity with generally accepted accounting
principles.

Dallas, Texas,
March 5, 1997

F-52
<PAGE> 128

M&S X-RAY PRACTICES

COMBINED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................ $ 435,968 $ 425,619 $ 361,424
Accounts receivable, net of allowances of $5,650,732,
$4,887,279 and $6,379,293 at December 31, 1995 and
1996 and March 31, 1997, respectively............. 3,138,151 3,182,876 3,376,929
Other receivables.................................... 44,472 33,859 25,316
Prepaid expenses and other current assets............ 99,141 73,896 73,896
---------- ---------- ----------
Total current assets......................... 3,717,732 3,716,250 3,837,565
PROPERTY AND EQUIPMENT, net............................ 1,252,330 746,268 698,995
INVESTMENT IN JOINT VENTURES........................... 1,023,079 1,170,953 1,607,193
OTHER ASSETS, net...................................... 733,529 698,269 613,620
---------- ---------- ----------
Total assets................................. $6,726,670 $6,331,740 $6,757,373
========== ========== ==========

LIABILITIES AND OWNERS' EQUITY

CURRENT LIABILITIES:
Accounts payable..................................... $ 422,362 $ 190,036 197,158
Accrued expenses..................................... 382,943 24,669 24,669
Accrued salaries and benefits........................ 112,440 144,961 144,961
Current portion of deferred compensation............. 160,718 83,000 83,000
Current portion of long-term debt.................... 908,626 351,645 224,250
Current portion of capital lease obligations......... 11,773 12,783 12,783
---------- ---------- ----------
Total current liabilities.................... 1,998,862 807,094 686,821
DEFERRED COMPENSATION, net of current portion.......... 1,285,458 1,345,817 1,345,817
CAPITAL LEASE OBLIGATIONS, net of current portion...... 50,018 37,235 37,235
LONG-TERM DEBT, net of current portion................. 541,842 212,408 157,636
---------- ---------- ----------
Total liabilities............................ 3,876,180 2,402,554 2,227,509
COMMITMENTS AND CONTINGENCIES
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES........ 314,858 346,033 422,936
OWNERS' EQUITY......................................... 2,535,632 3,583,153 4,106,928
---------- ---------- ----------
Total liabilities and owners' equity......... $6,726,670 $6,331,740 $6,757,373
========== ========== ==========
</TABLE>

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

F-53
<PAGE> 129

M&S X-RAY PRACTICES

COMBINED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------------- ------------------------
1995 1996 1996 1997
----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Medical service revenue, net.......... $14,720,403 $14,776,742 $3,665,143 $3,405,029
Other revenue......................... 347,765 421,603 117,951 88,735
----------- ----------- ---------- ----------
Total revenue................. 15,068,168 15,198,345 3,783,094 3,493,764
COSTS AND EXPENSES:
Cost of affiliated physician
services........................... 8,866,396 8,703,013 1,604,573 1,818,110
Practice salaries, wages and
benefits........................... 1,227,517 1,337,633 239,850 521,780
Practice supplies..................... 495,959 583,610 145,400 141,789
Practice rent and lease expense....... 249,568 271,677 54,981 74,010
Depreciation and amortization......... 963,148 670,617 191,539 83,177
Other practice expense................ 1,907,070 1,541,530 842,663 303,262
Interest expense...................... 123,958 69,694 22,548 8,518
----------- ----------- ---------- ----------
Total costs and expenses...... 13,833,616 13,177,774 3,101,554 2,950,646
----------- ----------- ---------- ----------
INCOME BEFORE MINORITY INTERESTS AND
EQUITY IN EARNINGS OF INVESTMENTS..... 1,234,552 2,020,571 681,540 543,118
EQUITY IN EARNINGS OF INVESTMENTS....... 212,751 604,625 155,526 177,560
MINORITY INTERESTS IN INCOME OF
CONSOLIDATED SUBSIDIARIES............. (216,452) (249,365) (55,525) (76,903)
----------- ----------- ---------- ----------
NET INCOME.............................. $ 1,230,851 $ 2,375,831 $ 781,541 $ 643,775
=========== =========== ========== ==========
</TABLE>

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

F-54
<PAGE> 130

M&S X-RAY PRACTICES

COMBINED STATEMENTS OF OWNERS' EQUITY

<TABLE>
<S> <C>
BALANCE, December 31, 1994.................................. $ 2,624,570
Issuance of stock......................................... 100,000
Purchases of stock........................................ (56,418)
Distributions to stockholders............................. (1,363,371)
Net income................................................ 1,230,851
-----------
BALANCE, December 31, 1995.................................. 2,535,632
Issuance of stock......................................... 100,000
Distributions to stockholders............................. (1,428,310)
Net income................................................ 2,375,831
-----------
BALANCE, December 31, 1996.................................. 3,583,153
Distributions to shareholders (unaudited)................. (120,000)
Net income (unaudited).................................... 643,775
-----------
BALANCE, March 31, 1997 (unaudited)......................... $ 4,106,928
===========
</TABLE>

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

F-55
<PAGE> 131

M&S X-RAY PRACTICES

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------- ---------------------
1995 1996 1996 1997
----------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $ 1,230,851 $ 2,375,831 $ 781,541 $ 643,775
Adjustments to reconcile net income to net cash
provided by operating activities --
Minority interest in income of consolidated
subsidiaries.............................. 216,452 249,365 55,525 76,903
Depreciation and amortization............... 963,148 670,617 191,539 83,177
Investment income from joint ventures....... (212,751) (604,625) (155,526) (177,560)
Changes in assets and liabilities --
(Increase) decrease in --
Accounts receivable, net.................. (417,068) (44,725) (509,842) (185,510)
Prepaid expenses and other current
assets................................. (33,748) 35,858 (79,547) 69,488
Increase (decrease) in --
Accounts payable and accrued expenses..... 383,567 (590,600) 101,491 7,122
Accrued salaries and benefits............. (58,284) 15,162 51,195 --
----------- ----------- --------- ---------
Net cash provided by operating
activities........................... 2,072,167 2,106,883 436,376 517,395
----------- ----------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............ (60,437) (99,295) (1,356) (20,743)
Contributions to joint venture................. -- (258,680)
Distributions received from joint ventures..... 188,790 426,751 62,114 --
----------- ----------- --------- ---------
Net cash provided by investing
activities........................... 128,353 327,456 60,758 (279,423)
----------- ----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt................... 30,000 96,000 -- --
Repayment of long-term debt.................... (974,392) (982,415) (265,280) (182,167)
Principal payments on capital lease
obligation.................................. (5,534) (11,773)-- --
Proceeds from sale of stock.................... 100,000 100,000 74,049 --
Purchases of stock............................. (56,418) -- -- --
Distributions to stockholders and minority
interest holders............................ (1,633,511) (1,646,500) (100,662) (120,000)
----------- ----------- --------- ---------
Net cash used in financing
activities........................... (2,539,855) (2,444,688) (291,893) (302,167)
----------- ----------- --------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS........ (339,335) (10,349) 205,241 (64,195)
CASH AND CASH EQUIVALENTS, beginning of year..... 775,303 435,968 435,968 425,619
----------- ----------- --------- ---------
CASH AND CASH EQUIVALENTS,
end of year.................................... $ 435,968 $ 425,619 $ 641,209 $ 361,424
=========== =========== ========= =========
SUPPLEMENTAL DISCLOSURES:
Interest paid.................................. $ 122,937 $ 68,294 $ 22,548 $ 8,518
</TABLE>

NONCASH FINANCING ACTIVITY:
A capital lease obligation of $67,325 was incurred during 1995 when the Company
entered into a lease for new equipment.

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

F-56
<PAGE> 132

M&S X-RAY PRACTICES

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996

1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION:

The accompanying combined financial statements combine the accounts of five
entities under common ownership: M&S X-ray Associates ("M&S"), a Texas
professional association, Madison Square Joint Venture ("Madison"), South Texas
MR, Inc. ("South Texas"), San Antonio MR Inc. ("San Antonio"), and Lexington MR
Ltd. ("Lexington") (collectively the "Company"), all of which are located in San
Antonio, Texas. M&S, a company specializing in radiological medicine, has and an
eight percent investment in Stone Oak Limited Partnership, a real estate limited
partnership. In addition, M&S holds forty-nine percent interest in Southeast
Baptist Imaging Center, a joint venture which owns and operates a diagnostic
imaging center. Madison is also engaged in the practice of radiological
medicine. South Texas holds a forty-nine percent interest in two joint ventures
which own and operate diagnostic imaging centers -- Northeast Baptist MRI Center
and Baptist Imaging Center. San Antonio holds a sixty percent interest in
Lexington, a company which owns and operates diagnostic imaging centers. An
additional nineteen percent of Lexington is owned by individual radiologists
included in the common ownership group. All intercompany transactions have been
eliminated.

The accompanying combined financial statements have been prepared on the
accrual basis of accounting.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Cash and Cash Equivalents

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

Accounts Receivable

Property and Equipment

Property and equipment are recorded at cost. Depreciation on furniture,
fixtures and equipment is computed using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized on
the straight-line method over the shorter of the noncancelable lease term or
estimated useful life of the asset. However, if the noncancelable lease term
expires in the near future and if the lease contains a renewal option of which
management is reasonably assured of exercising, the amortization period is the
shorter of the lease term including the renewal option period or the estimated
useful life.

Investments in Joint Ventures

Investments in joint ventures are accounted for using the equity method. In
addition, the Company holds an investment in a limited partnership which is
accounted for using the cost method.

Other Assets

Other assets are comprised of organization costs, loan origination costs
and goodwill. Loan origination costs are amortized on a straight-line basis over
the term of the loan. Organization costs are amortized on a straight-line basis
over a five-year period. Goodwill is amortized on a straight-line basis over 15
years.

F-57
<PAGE> 133

M&S X-RAY PRACTICES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Deferred Compensation

Under the terms of the physician employment agreements, physicians who have
completed a minimum of five years of service are entitled to a payment equal to
two-thirds of their final compensation upon retirement or when they cease to be
employees of the Company. These payments are made in sixty equal monthly
payments beginning upon attainment of age 70 or the date when the physician
leaves the Company. The estimated present value of these liabilities is accrued
ratably during the five year service period.

Medical Service Revenues

Medical service revenue are accounted for in the period in which the
services are provided. The revenue are reported at the estimated realizable
amounts from patients, third party payors and others. Provisions for estimated
third party payor adjustments are estimated and recorded in the period the
related services are provided. Any adjustment to the amounts is recorded in the
period in which the revised amount is determined. A significant portion of the
Company's medical service revenue are related to Medicare and other governmental
programs. Medicare and other governmental programs reimburse physicians based on
fee schedules which are determined by the related governmental agency.
Additionally, the Company participates in agreements with managed care
organizations to provide services at negotiated rates.

Costs of Affiliated Physician Services

Costs of Affiliated Physician Services include physician compensation and
benefits paid or payable to owner and non-owner physicians during the period.

Income Taxes

As each of the consolidated entities is a non-taxable entity, there is no
provision for income taxes in the accompanying financial statements. The
individual owners include their respective share of Company profits and losses
in their tax returns.

Concentration of Credit Risk

Use of Estimates

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

Basis of Presentation -- Interim Financial Statements

F-58
<PAGE> 134

M&S X-RAY PRACTICES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Company with respect to the results of its operations for the interim periods
from January 1, 1996, to March 31, 1996, and from January 1, 1997, to March 31,
1997, have been included herein. The results of operations for the interim
periods are not necessarily indicative of the results for the full year.

3. PROPERTY AND EQUIPMENT:

Property and equipment at December 31, consists of the following:

<TABLE>
<CAPTION>
ESTIMATED USEFUL
LIVES (YEARS) 1995 1996
---------------- ----------- -----------
<S> <C> <C> <C>
Equipment................................. 5 $ 5,587,074 $ 5,670,340
Leasehold improvements.................... 1-15 448,734 448,734
Furniture and fixtures.................... 5 390,014 390,014
Computer software......................... 3-5 111,797 124,081
----------- -----------
6,537,619 6,633,169
Less -- Accumulated depreciation and
amortization............................ (5,285,289) (5,886,901)
----------- -----------
Property and equipment, net..... $ 1,252,330 $ 746,268
=========== ===========
</TABLE>

4. INVESTMENTS IN JOINT VENTURES:

Investments in joint ventures consist of 49% interests in three joint
ventures, each of which perform radiology and imaging healthcare services, and
an 8% interest in a real estate limited partnership. The carrying amounts of
these investments at December 31, are as follows:

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Southeast Baptist Imaging Center............................ $ 666,365 $ 735,770
Baptist Imaging Center...................................... 206,061 140,770
Northeast Baptist MRI Center................................ 77,835 229,996
Stone Oak Limited Partnership............................... 72,818 64,417
---------- ----------
$1,023,079 $1,170,953
========== ==========
</TABLE>

Summary information from the unaudited financial statements of the three
joint ventures, accounted for under the equity method, as of and for the year
ended December 31, 1996, is as follows:

<TABLE>
<CAPTION>
SOUTHEAST
BAPTIST BAPTIST NORTHEAST
IMAGING IMAGING BAPTIST
CENTER CENTER MRI CENTER
----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Current assets..................................... $1,338,915 $292,712 $ 623,320
Total assets....................................... 3,209,657 324,022 660,898
Current liabilities................................ 915,634 28,785 188,984
Total liabilities.................................. 1,684,905 28,785 188,984
Partners' equity................................... 1,524,752 295,237 471,914
Revenues........................................... $3,173,674 $776,433 $2,054,265
Net income (loss).................................. $ 143,974 $266,003 $ 826,283
Distributions to shareholders...................... $ -- $400,000 $ 515,000
</TABLE>

F-59
<PAGE> 135

M&S X-RAY PRACTICES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

5. LONG-TERM DEBT:

Long-term debt consists of the following as of December 31:

<TABLE>
<CAPTION>
1995 1996
-------- ---------
<S> <C> <C>
Note payable to related party, bearing interest at prime
(8.5% at December 31, 1995), due in 1996. Paid in full.... $ 30,000 $ --
Note payable to bank, bearing interest at 6.4%, due in 1998.
Quarterly payments of $49,000 plus interest,
collateralized by certain equipment. ..................... 539,000 343,000
Note payable to bank, bearing interest at 6.25%, due in
1996. Monthly payments of $2,780, collateralized by
certain equipment. Paid in full........................... 5,355 --
Note payable to bank, bearing interest at 6.25%, due in
1997. Monthly payments of $7,779, collateralized by
certain equipment......................................... 111,869 23,117
Note payable to bank, bearing interest at 8.25%, due in
2000. Monthly payments of $2,361, collateralized by
certain equipment......................................... -- 85,557
Note payable to bank, bearing interest at 6.25%, due in
1997. Monthly payments of $47,656, collateralized by
certain equipment......................................... 641,591 94,421
Note payable, bearing interest at 6.25%, due in 1997.
Monthly payments of $9,118, collateralized by certain
equipment................................................. 122,653 17,958
-------- ---------
Long-term debt.................................... 1,450,468 564,053
Less-current portion.............................. (908,626) (351,645)
-------- ---------
Long-term debt, net of current portion............ $541,842 $ 212,408
======== =========
</TABLE>

Future maturities of long-term debt at December 31, 1996, are as follows:

6. CAPITAL LEASE OBLIGATIONS:

The following represents the Company's outstanding capital lease
obligations at December 31:

<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Capital lease for computer software, due in 2000, payable in
monthly installments of $1,369 collateralized by the
equipment................................................. $61,791 $50,018
======= =======
</TABLE>

F-60
<PAGE> 136

M&S X-RAY PRACTICES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

As of December 31, 1996, the minimum annual lease commitments under capital
lease obligations are as follows:

<TABLE>
<S> <C>
1997........................................................ $ 16,433
1998........................................................ 16,433
1999........................................................ 16,433
2000........................................................ 8,496
--------
Total minimum lease payments due............................ $ 57,795
Less- Amounts representing interest....................... (7,777)
--------
Present value of minimum lease payments..................... $ 50,018
Less- Current portion..................................... (12,783)
--------
Long-term obligations, net of current portion............... $ 37,235
========
</TABLE>

7. LEASES:

The Company leases office facilities under various noncancelable operating
leases that expire at various dates through 1998. The Company leases office
space from Stone Oak Limited Partners (see Note 4) under a lease that expires in
1997. Certain of the office leases provide for renewal options. Future minimum
lease payments under noncancelable operating leases are as follows:

<TABLE>
<CAPTION>
RELATED
PARTIES OTHER
------- --------
<S> <C> <C>
1997........................................................ $59,252 $111,345
1998........................................................ -- 24,485
------- --------
Total............................................. $59,252 $135,830
======= ========
</TABLE>

Total rent expense in 1995 and 1996 was $240,395 and $260,067,
respectively. Included in rent expense was rent paid to related parties in the
amount of $88,878 in both 1995 and 1996.

8. EMPLOYEE BENEFIT PLAN:

The Company sponsors a 401(k) profit sharing plan. Employees of the Company
who are at least age 21 may participate in the 401(k) plan after one year of
service and are eligible for profit sharing after two years of service. The plan
provides for employer matching and profit sharing contributions. The Company's
contributions for 1995 and 1996 were $86,080 and $100,259, respectively.

9. RELATED-PARTY TRANSACTIONS:

Under agreements with affiliated joint ventures (Southeast Baptist Imaging
Center, Baptist Imaging Center, and Northeast Baptist MRI Center), the Company
performs professional, billing, and management services for these joint
ventures. These services are billed to the joint ventures based primarily upon
agreed-upon percentages of the joint ventures' cash basis revenue. Management
fee income from joint ventures is included in other revenue in the accompanying
combined statements of income and consist as follows:

<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Southeast Baptist Imaging Center............................ $138,658 $183,212
Baptist Imaging Center...................................... 12,375 12,000
Northeast Baptist MRI Center................................ 96,750 96,100
-------- --------
$247,783 $291,312
======== ========
</TABLE>

F-61
<PAGE> 137

M&S X-RAY PRACTICES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

The Company also collects the receivables of the joint ventures, and then
periodically remits the collections to them. In addition, the Company pays
certain expenses on behalf of the joint ventures, and is periodically reimbursed
by them. At December 31, 1996, there were no significant balances due from (to)
the joint ventures.

10. FAIR VALUE OF FINANCIAL INSTRUMENTS:

Statement of Financial Accounting Standards No. 107 requires all entities
to disclose the fair value of certain financial instruments in their financial
statements. Accordingly, the carrying amounts of accounts receivable, accounts
payable and accrued expenses approximate fair value due to the short maturity of
these instruments. The carrying amount of the Company's long-term debt and
capital lease obligations also approximates fair value.

11. CONTINGENCIES:

The Company is subject to various claims and legal actions which arise in
the ordinary course of business. In the opinion of management, the ultimate
resolution of such matters will not have a material adverse effect on the
Company's financial position or results of operations.

12. SUBSEQUENT EVENTS:

On September 24, 1996, the Company entered into a letter of intent with
American Physician Partners, Inc. (APPI) under which APPI will acquire certain
assets and liabilities of the Company in exchange for common stock and cash.
Completion of the transaction is subject to certain conditions, including the
execution of a forty-year service agreement, stockholder approval by both
parties and successful completion of an initial public offering by APPI. Under
the terms of the service agreement, APPI will provide practice management,
administration and other services to the physicians for a negotiated service
fee. All nonprofessional employees shall become employees of APPI. In addition,
APPI will assume responsibility for all maintenance, repairs, improvements,
lease and other general operating expenses.

F-62
<PAGE> 138

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of
Pacific Imaging Consultants:

We have audited the accompanying combined balance sheets of Pacific Imaging
Consultants (see Note 1) as of December 31, 1995 and 1996, and the related
combined statements of income, owners' equity (deficit) and cash flows for the
years then ended. 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Pacific Imaging Consultants
as of December 31, 1995 and 1996, and the results of their operations and their
cash flows for the years then ended in conformity with generally accepted
accounting principles.

Dallas, Texas,
March 19, 1997

F-63
<PAGE> 139

PACIFIC IMAGING CONSULTANTS

COMBINED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------ -----------
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................. $ -- $ -- $ --
Accounts receivable, net of allowances of $1,358,461,
$2,107,857 and $1,872,320 at December 31, 1995 and
1996 and March 31, 1997, respectively.............. 1,310,879 1,878,911 1,865,403
Prepaid pension expense............................... 197,049 2,100,113 2,100,113
Prepaid expenses and other............................ 62,072 197,251 122,041
---------- ---------- ----------
Total current assets.......................... 1,570,000 4,176,275 4,087,557
PROPERTY AND EQUIPMENT, net............................. 2,851,444 2,260,861 2,067,667
INTANGIBLE ASSETS, net.................................. 145,601 133,251 133,251
OTHER ASSETS, net....................................... 121,641 190,502 192,019
---------- ---------- ----------
Total assets.................................. $4,688,686 $6,760,889 $6,480,494
========== ========== ==========

LIABILITIES AND OWNERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable...................................... $ 412,823 $ 898,582 $ 799,238
Accrued salaries and benefits......................... 240,402 287,512 287,512
Accrued liabilities................................... 444,034 490,882 447,522
Deferred income tax liability......................... 165,440 868,958 886,575
Current portion of long-term debt..................... 1,522,779 844,241 844,241
---------- ---------- ----------
Total current liabilities..................... 2,785,478 3,390,175 3,265,088
DEFERRED INCOME TAX LIABILITY........................... 10,871 11,268 11,268
LONG-TERM DEBT, net of current portion.................. 2,742,162 3,133,004 2,945,537
OWNERS' EQUITY (DEFICIT)................................ (849,825) 226,442 258,601
---------- ---------- ----------
Total liabilities and owners' equity
(deficit)................................... $4,688,686 $6,760,889 $6,480,494
========== ========== ==========
</TABLE>

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

F-64
<PAGE> 140

PACIFIC IMAGING CONSULTANTS

COMBINED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------------- ------------------------
1995 1996 1996 1997
----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Medical service revenue, net.......... $11,245,044 $13,119,112 $2,765,584 $3,583,255
Other revenue......................... 203,296 175,408 43,055 38,912
----------- ----------- ---------- ----------
Total revenue................. 11,448,340 13,294,520 2,808,639 3,622,167
COSTS AND EXPENSES:
Costs to affiliated physician
services........................... 5,896,675 7,214,725 1,350,665 2,109,719
Practice salaries, wages and
benefits........................... 1,604,303 1,839,889 390,716 451,202
Practice supplies..................... 485,942 568,235 112,279 104,082
Practice rent and lease expense....... 355,073 384,615 91,231 110,022
Depreciation and amortization......... 996,058 981,289 244,252 239,228
Other practice expenses............... 1,739,436 1,939,384 355,011 480,335
Interest expense...................... 475,007 311,377 101,588 77,332
----------- ----------- ---------- ----------
Total costs and expenses...... 11,552,494 13,239,514 2,645,742 3,571,920
----------- ----------- ---------- ----------
INCOME (LOSS) BEFORE TAXES, UNUSUAL ITEM
AND EXTRAORDINARY ITEM................ (104,154) 55,006 162,897 50,247
UNUSUAL ITEM -- gain on curtailment of
defined benefit pension plan.......... -- 1,903,064 -- --
----------- ----------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES....... (104,154) 1,958,070 162,897 50,247
INCOME TAX EXPENSE...................... 104,194 715,493 58,642 18,088
----------- ----------- ---------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM.................................. (208,348) 1,242,577 104,255 32,159
EXTRAORDINARY ITEM -- gain on
refinancing of debt................... -- 134,084 -- --
----------- ----------- ---------- ----------
NET INCOME (LOSS)....................... $ (208,348) $ 1,376,661 $ 104,255 $ 32,159
=========== =========== ========== ==========
</TABLE>

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

F-65
<PAGE> 141

PACIFIC IMAGING CONSULTANTS

COMBINED STATEMENTS OF OWNERS' EQUITY (DEFICIT)

<TABLE>
<S> <C>
BALANCE, December 31, 1994.................................. $ (612,553)
Sale of stock............................................. 36,076
Net loss.................................................. (208,348)
Distributions............................................. (65,000)
----------
BALANCE, December 31, 1995.................................. (849,825)
Sale of stock............................................. (22,394)
Net income................................................ 1,376,661
Distributions............................................. (278,000)
----------
BALANCE, December 31, 1996.................................. 226,442
Net income (unaudited).................................... 32,159
----------
BALANCE, March 31, 1997 (unaudited)......................... $ 258,601
==========
</TABLE>

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

F-66
<PAGE> 142

PACIFIC IMAGING CONSULTANTS

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------ --------------------
1995 1996 1996 1997
---------- ----------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................... $ (208,348) $ 1,376,661 $ 104,255 $ 32,159
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities --
Depreciation and amortization............ 996,058 981,289 244,252 239,228
Deferred income taxes.................... 104,194 703,915 58,642 18,088
Gain on refinancing of debt.............. -- 134,084 -- --
Changes in assets and liabilities --
(Increase) decrease in --
Accounts receivable, net............ (114,465) (568,032) (44,766) 13,508
Prepaid pension expense............. 4,666 (1,903,064) -- --
Prepaid expenses and other.......... 33,991 (135,179) (151,594) 75,210
Other assets, net................... (72,334) (68,861) (98,420) (1,517)
Increase (decrease) in --
Accounts payable.................... 40,282 485,759 56,529 (99,344)
Accrued salaries and benefits....... (4,595) 47,110 (80,002) --
Accrued liabilities................. 360,805 46,848 185,239 (43,360)
---------- ----------- --------- --------
Net cash provided by operating
activities........................ 1,140,254 1,100,530 274,135 233,972
---------- ----------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......... (388,595) (378,356) (23,365) (46,505)
---------- ----------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt................ 198,992 585,868 -- --
Repayment of long-term debt................. (921,727) (1,007,648) (250,770) (187,467)
Distributions to owners..................... (65,000) (278,000) -- --
Sale (purchases) of stock................... 36,076 (22,394) -- --
---------- ----------- --------- --------
Net cash used in financing
activities........................ (751,659) (722,174) (250,770) (187,467)
---------- ----------- --------- --------
NET CHANGE IN CASH............................ -- -- -- --
CASH, beginning of year....................... -- -- -- --
---------- ----------- --------- --------
CASH, end of year............................. $ -- $ -- $ -- $ --
========== =========== ========= ========
SUPPLEMENTAL DISCLOSURES:
Cash interest paid.......................... $ 477,736 $ 283,081 $ 101,588 $ 77,332
Cash paid for income taxes.................. $ -- $ 11,578 $ -- $ --
</TABLE>

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

F-67
<PAGE> 143

PACIFIC IMAGING CONSULTANTS

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996

1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION:

The accompanying financial statements combine the accounts of three
entities under common ownership: Pacific Imaging Consultants, A Medical Group,
Inc. ("Pacific"), a California corporation formerly known as East Bay Medical
Imaging; Total Medical Imaging (TMI), a California S-corporation; and Lafayette
Medical Imaging Health Services (LMI), a California general partnership
(collectively the "Company"), all of which are located in the San Francisco Bay
area. The Company specializes in radiological medicine and the operation of
diagnostic imaging equipment. All intercompany transactions have been
eliminated.

The accompanying financial statements have been prepared on the accrual
basis of accounting.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Accounts Receivable

Property and Equipment

Intangible Assets

Intangible assets are comprised of organization costs and noncompete
agreements. Organization costs are being amortized on a straight-line basis over
a five-year period. Noncompete agreements are amortized on a straight-line basis
over the life of the agreements.

Other Assets

Other assets are comprised of equity investments in affiliated entities,
deposits and other receivables. Investments in affiliated entities are being
accounted for under the cost method and equity method as appropriate, based on
percentage of ownership and control of the entity. Such investments are not
material at December 31, 1996.

Medical Service Revenues

Medical service revenue are accounted for in the period in which the
services are provided. The revenue are reported at the estimated realizable
amounts from patients, third party payors and others. Provisions for estimated
third party payor adjustments are estimated and recorded in the period in which
the related services are provided. Any adjustment to the amounts is recorded in
the period in which the revised amount is determined. A significant portion of
the Company's medical service revenue are related to Medicare and other
governmental programs. Medicare and other governmental programs reimburse
physicians based on fee schedules which are determined by the related
governmental agency. Additionally, the Company participates in agreements with
managed care organizations to provide services at negotiated rates.

F-68
<PAGE> 144

PACIFIC IMAGING CONSULTANTS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Costs of Affiliated Physician Services

Costs of Affiliated Physician Services include physician compensation and
benefits paid or payable to owner and non-owner physicians during the period.

Income Taxes

Pacific accounts for income taxes under the liability method which states
that deferred income taxes are determined based on the estimated future tax
effects of differences between the financial reporting and income tax basis of
assets and liabilities given the provisions of enacted tax laws. Deferred income
tax provisions are based on the changes to the asset or liability from period to
period. TMI is an S-corporation and LMI is a general partnership, and
accordingly, there is no provision for income taxes related to these entities.
The individual owners include their respective share of profits and losses in
their tax returns.

Concentration of Credit Risk

Use of Estimates

The preparation of combined 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 combined
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.

Basis of Presentation -- Interim Financial Statements

F-69
<PAGE> 145

PACIFIC IMAGING CONSULTANTS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

3. PROPERTY AND EQUIPMENT:

Property and equipment at December 31, consists of the following:

<TABLE>
<CAPTION>
ESTIMATED USEFUL
LIVES (YEARS) 1995 1996
---------------- ----------- -----------
<S> <C> <C> <C>
Building.................................. 39 $ 122,645 $ 123,817
Automobiles............................... 5 22,818 22,818
Leasehold improvements.................... 5-10 670,479 670,479
Furniture and equipment................... 5-7 5,873,926 6,251,110
----------- -----------
6,689,868 7,068,224
Less -- Accumulated depreciation and
amortization............................ (3,838,424) (4,807,363)
----------- -----------
Property and equipment, net............... $ 2,851,444 $ 2,260,861
=========== ===========
</TABLE>

4. LONG-TERM DEBT:

Long-term debt consists of the following as of December 31:

<TABLE>
<CAPTION>
1995 1996
----------- ----------
<S> <C> <C>
Notes payable to Third Party, bearing interest at 7.5%, due
in 1999. Monthly payments of $5,009 including
interest................................................. $ 196,545 $ 136,648
Note payable to Service Provider, noninterest bearing,
balance due in 1996...................................... 13,405 --
Note payable to Bank, bearing interest at the U.S. Treasury
Securities rate plus 3.25% (9.125% at December 31, 1996),
due in 2003. Monthly payments of $1,052 including
interest................................................. 71,502 65,584
Notes payable to Bank, bearing interest at prime (8.5% at
December 31, 1995), due at various dates through 2001.
Monthly payments of $4,509 plus interest................. 443,615 --
Note payable to Bank, bearing interest at prime plus .25%
(8.75% at December 31, 1995), due in 1999. Monthly
payments of $6,636 including interest.................... 633,157 --
Note payable to Bank, bearing interest at prime plus 1%
(9.5% at December 31, 1995), due in 1998. Monthly
payments of $10,411 plus interest........................ 324,999 --
Notes payable to Finance Company, bearing interest ranging
from 8.97% to 9.72%, due in 1998, secured by accounts
receivable and certain property and equipment. Monthly
payments of $97,299 including interest................... 2,581,718 --
Note payable to Bank, bearing interest at the U.S. Treasury
Securities rate plus 2% (7.92% at December 31, 1996),
secured by accounts receivable and certain property and
equipment, due in 2001. Monthly payments of $92,017
including interest....................................... $ -- $3,775,013
----------- ----------
4,264,941 3,977,245
Less -- Current maturities................................. (1,522,779) (844,241)
----------- ----------
$ 2,742,162 $3,133,004
=========== ==========
</TABLE>

F-70
<PAGE> 146

PACIFIC IMAGING CONSULTANTS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

In August 1996, the Company refinanced all outstanding bank debt. The
previous notes had interest rates ranging from the prime rate to a fixed rate of
9.25%. The new note bears interest at the rate of U.S. Treasury securities plus
2%. The refinancing resulted in a gain of $134,084, which has been reflected as
an extraordinary item in the accompanying financial statements.

Future maturities of long-term debt at December 31, 1996, are as follows:

5. OPERATING LEASES:

The Company leases seven facilities under various noncancelable operating
leases that expire at various dates through 2000. Future minimum lease payments
under noncancelable leases are as follows:

<TABLE>
<S> <C>
1997...................................................... $231,936
1998...................................................... 222,312
1999...................................................... 184,492
2000...................................................... 133,418
2001...................................................... 150,206
Thereafter................................................ 67,695
--------
$990,059
========
</TABLE>

6. INCOME TAXES:

The provisions for income taxes consist of the following:

<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Current income tax expense..................... $ -- $ 11,578
Deferred income tax expense.................... 104,194 703,915
-------- --------
Total income tax expense....................... $104,194 $715,493
======== ========
</TABLE>

Significant components of the Company's deferred tax liabilities as of
December 31, are as follows:

<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Current:
Deferred tax assets --
Accounts payable and accrued liabilities............... $ 131,425 $ 180,275
Deferred tax (liabilities) --
Accounts receivable, net............................... (296,865) (402,191)
Prepaid pension expense................................ -- (647,042)
--------- ---------
Total net current deferred tax liabilities........ $(165,440) $(868,958)
========= =========
Noncurrent:
Deferred tax (liabilities) --
Depreciation........................................... $ (10,871) $ (11,268)
========= =========
</TABLE>

F-71
<PAGE> 147

PACIFIC IMAGING CONSULTANTS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

The differences between the provision for income taxes and the amounts
computed by applying the statutory Federal income tax rate to income (loss)
before income taxes are due to the income (losses) of S-Corporations and
partnerships included in these combined financial statements.

7. EMPLOYEE BENEFIT PLAN:

The Company has a defined benefit pension plan covering all physician
employees and shareholders. The benefits are based on the final pay of each
physician, with minimum flat dollar limits. The Company's funding policy is to
contribute annually the maximum amount that can be deducted for federal income
tax purposes. Contributions are intended to provide not only for benefits
attributed service to date but also for those expected to be earned in the
future.

Effective May 31, 1996, the Company curtailed the benefits under the plan
through Board of Director resolution to terminate the Plan. Plan benefits were
effectively frozen at this date and physicians will earn no additional defined
benefits for future services. All unrecognized prior service cost and
unrecognized net obligation from the initial application of SFAS 87 have been
reduced to zero as of the effective date of the curtailment, resulting in a gain
from curtailment of approximately $1.9 million. The plan of settlement has not
been determined and subsequent gain or loss may be recorded upon settlement.

The following table sets forth the plan's funded status and amounts
recognized in the Company's balance sheet at December 31,

<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Actuarial present value of benefits obligations:
Accumulated benefit obligation, including vested
benefits of $3,556,952 and $4,723,679,
respectively......................................... $(3,594,203) $(4,723,679)
=========== ===========
Projected benefit obligation for service rendered to
date................................................. $(4,392,486) $(4,723,679)
Plan assets at fair value, primarily...................... 6,345,352 6,823,792
----------- -----------
Plan assets in excess of projected benefit obligations.... 1,952,866 2,100,113
Unrecognized net obligation at initial adoption of SFAS
No. 87.................................................. (1,755,817) --
----------- -----------
Prepaid pension cost included in other assets............. $ 197,049 $ 2,100,113
=========== ===========
</TABLE>

Net periodic pension cost for 1995 and 1996 included the following
components (in thousands)

<TABLE>
<CAPTION>
1995 1996
--------- -----------
<S> <C> <C>
Service cost-benefits earned during the period............. $ 828,307 $ --
Interest cost on projected benefit obligation.............. 286,658 331,193
Actual return on plan assets............................... (269,853) (478,440)
Net amortization........................................... (39,035) (1,755,817)
--------- -----------
Net periodic pension cost (benefit)........................ $ 806,077 $(1,903,064)
========= ===========
Weighted average discount rate............................. 7.39% 7.54%
Rate of increase in future compensation.................... 3.00% N/A
Expected long-term rate of return on assets................ 7.39% 7.54%
</TABLE>

In 1996, the Company began sponsoring a 401(k) and profit sharing plan for
employees of the Company and its two corporate members, who have completed one
year of service and are at least age 21. The 401(k) plan provides for employer
matching contributions equal to three percent of gross salary for eligible
employees. The Company made no contributions to the plan in 1996. Physician
shareholders contributed $88,688 on behalf of the employees of the Company.

F-72
<PAGE> 148

PACIFIC IMAGING CONSULTANTS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

8. RELATED-PARTY TRANSACTIONS:

The Company has a non-interest bearing note receivable from an employee.
Amounts outstanding at December 31, 1995 and 1996 were $85,000 and $94,836,
respectively. The note has no stated maturity date.

The Company has a note receivable from a physician which bears interest at
8.5% and matures in August, 1995. Amounts outstanding at December 31, 1995 and
1996 were $38,936 and $36,173, respectively.

At December 31, 1995, the Company had a $25,000 note receivable from a
physician. This note was paid in full in 1996.

At December 31, 1996, the Company had a $10,000 note receivable from a
physician which bears interest at 8.25% and matures in 1997. In addition, in
1996, the Company made non-interest bearing advances totaling $70,287 to certain
physicians. These advances are to be repaid in 1997.

The Company has an ownership interest in a real estate partnership. Rent
paid to this partnership was $49,752 in 1995 and 1996.

9. FAIR VALUE OF FINANCIAL INSTRUMENTS:

10. CONTINGENCIES:

11. SUBSEQUENT EVENTS:

On February 26, 1997, the Company entered into a letter of intent with
American Physician Partners, Inc. (APPI) under which APPI will acquire certain
assets and liabilities of the Company in exchange for common stock and cash.
Completion of the transaction is subject to certain conditions, including the
execution of a forty-year service agreement, stockholder approval by both
parties and successful completion of an initial public offering by APPI. Under
the terms of the service agreement, APPI will provide practice management,
administration and other services to the physicians for a negotiated service
fee. All nonprofessional employees shall become employees of APPI. In addition,
APPI will assume responsibility for all maintenance, repairs, improvements,
lease and other general operating expenses.

Effective January 1, 1997, the Company and Valley Radiology Group, a group
of radiologists in San Jose, California, formed a management services
organization to manage their operations.

F-73
<PAGE> 149

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of
Radiology and Nuclear Medicine, P.A.:

We have audited the accompanying balance sheets of Radiology and Nuclear
Medicine, P.A., (a Kansas corporation) as of December 31, 1995 and 1996 and the
related statements of income, owners' equity, and cash flows for the years then
ended. 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Radiology and Nuclear
Medicine, P.A., as of December 31, 1995 and 1996 and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.

Dallas, Texas,
February 21, 1997

F-74
<PAGE> 150

RADIOLOGY AND NUCLEAR MEDICINE, P.A.

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................ $ 223,067 $ 173,258 $ 583,486
Accounts receivable, net of allowances of $1,664,580,
$1,922,264 and $2,163,784 at December 31, 1995, 1996
and March 31, 1997, respectively...................... 1,596,469 1,756,271 2,203,607
Prepaid expenses and other current assets............. 230,531 220,937 217,695
---------- ---------- ----------
Total current assets............................. 2,050,067 2,150,466 3,004,788

PROPERTY AND EQUIPMENT, net................................ 626,684 572,172 570,167

INVESTMENTS IN JOINT VENTURES.............................. 1,251,110 1,269,545 1,365,654

OTHER ASSETS, net.......................................... 85,361 88,368 88,452
---------- ---------- ----------
Total assets..................................... $4,013,222 $4,080,551 $5,029,061
========== ========== ==========

LIABILITIES AND OWNERS' EQUITY

CURRENT LIABILITIES:
Accounts payable......................................... $ 65,064 $ 64,561 $ 64,561
Accrued expenses......................................... 35,943 48,322 125,493
Accrued salaries and benefits............................ 399,750 361,571 455,686
Deferred income taxes.................................... 489,332 536,241 798,643
Short-term borrowings.................................... 1,400,000 1,400,000 1,400,000
Current portion of long-term debt........................ 174,371 186,611 176,414
---------- ---------- ----------
Total current liabilities........................ 2,564,460 2,597,306 3,020,797
LONG-TERM DEBT, net of current portion..................... 234,528 45,784 --
---------- ---------- ----------
Total liabilities................................ 2,798,988 2,643,090 3,020,797
COMMITMENTS AND CONTINGENCIES

OWNERS' EQUITY............................................. 1,214,234 1,437,461 2,008,264
---------- ---------- ----------
Total liabilities and owners' equity............. $4,013,222 $4,080,551 $5,029,061
========== ========== ==========
</TABLE>

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

F-75
<PAGE> 151

RADIOLOGY AND NUCLEAR MEDICINE, P.A.

STATEMENTS OF INCOME

COSTS AND EXPENSES:
Costs of affiliated physician
services........................... 10,700,150 10,265,121 2,034,069 2,104,639
Practice salaries, wages and
benefits........................... 1,807,179 1,743,761 352,085 366,522
Practice supplies..................... 385,666 293,545 87,627 66,780
Practice rent and lease expense....... 260,347 272,617 65,087 65,087
Depreciation and amortization......... 187,612 202,058 51,592 49,657
Other practice expenses............... 816,860 822,598 154,599 218,388
Interest expense...................... 67,542 70,530 38,776 33,958
----------- ----------- ---------- ----------
Total costs and expenses...... 14,225,356 13,670,230 2,783,835 2,905,031
----------- ----------- ---------- ----------

INCOME (LOSS) BEFORE INCOME TAXES AND
EQUITY IN EARNINGS OF INVESTMENTS..... (376,726) (98,050) 317,335 739,358

EQUITY IN EARNINGS OF INVESTMENTS....... 311,311 292,442 96,187 96,110

INCOME TAX EXPENSE (BENEFIT)............ (33,212) 57,305 119,921 264,665
----------- ----------- ---------- ----------
NET INCOME (LOSS)....................... $ (32,203) $ 137,087 $ 293,601 $ 570,803
=========== =========== ========== ==========
</TABLE>

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

F-76
<PAGE> 152

RADIOLOGY AND NUCLEAR MEDICINE, P.A.

STATEMENTS OF OWNERS' EQUITY

<TABLE>
<S> <C>
BALANCE, December 31, 1994.................................. $1,270,173
Net loss.................................................. (32,203)
Dividends paid............................................ (23,736)
----------
BALANCE, December 31, 1995.................................. 1,214,234
Sale of treasury stock.................................... 104,716
Net income................................................ 137,087
Dividends paid............................................ (18,576)
----------
BALANCE, December 31, 1996.................................. 1,437,461
Net income (unaudited).................................... 570,803
----------
BALANCE, March 31, 1997 (unaudited)......................... $2,008,264
==========
</TABLE>

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

F-77
<PAGE> 153

RADIOLOGY AND NUCLEAR MEDICINE, P.A.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- --------------------
1995 1996 1996 1997
---------- ---------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................. $ (32,203) $ 137,087 $ 293,601 $570,803
Adjustments to reconcile net income (loss) to
net cash used in operating activities --
Depreciation and amortization.............. 187,612 202,058 51,592 49,657
Deferred income taxes...................... (63,815) 46,909 119,924 262,402
Equity in earnings of investments.......... (311,311) (292,440) (96,187) (96,110)
Gain on sale of assets..................... (2,410) (6,519) -- --
Changes in assets and liabilities --
(Increase) decrease in --
Accounts receivable, net.............. 196,804 (159,802) (2,256) (447,336)
Prepaid expenses and other current
assets.............................. (14,393) 9,594 -- --
Other assets.......................... (6,231) (3,007) 3,107 3,158
Increase (decrease) in --
Accounts payable and accrued
expenses............................ (19,073) 11,876 -- 77,171
Accrued salaries and benefits......... 52,323 (38,178) -- 94,115
--------- --------- --------- --------
Net cash used in operating
activities....................... (12,697) (92,422) 369,781 513,860
--------- --------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of furniture and equipment, net..... (296,206) (147,547) (841) (47,651)
Proceeds from sale of fixed assets............ 2,410 7,020 -- --
Distributions from investments................ 515,447 273,502 -- --
--------- --------- --------- --------
Net cash provided by investing
activities....................... 221,651 132,975 (841) (47,651)
--------- --------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt................... (185,023) (176,502) (453,346) (55,981)
Sale of treasury stock........................ -- 104,716 -- --
Dividends paid................................ (23,736) (18,576) -- --
--------- --------- --------- --------
Net cash used in financing
activities....................... (208,759) (90,362) (453,346) (55,981)
--------- --------- --------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................... 195 (49,809) (84,406) 410,228
CASH AND CASH EQUIVALENTS, beginning of
period........................................ 222,872 223,067 223,067 173,258
--------- --------- --------- --------
CASH AND CASH EQUIVALENTS, end of period........ $ 223,067 $ 173,258 $ 138,661 $583,486
========= ========= ========= ========
SUPPLEMENTAL DISCLOSURE:
Cash interest paid............................ $ 67,542 $ 70,530 $ 38,776 $ 5,083
Cash income taxes paid........................ $ 30,603 $ 17,616 $ -- $ 2,263
</TABLE>

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

F-78
<PAGE> 154

RADIOLOGY AND NUCLEAR MEDICINE, P.A.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995

1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION:

Radiology and Nuclear Medicine, a Professional Association (the "Company"),
is a professional corporation organized under the laws of the State of Kansas to
provide diagnostic radiology medical imaging and radiation oncology services.
Its offices are located in Topeka, Kansas and the surrounding area.

The accompanying financial statements have been prepared on the accrual
basis of accounting.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Cash and Cash Equivalents

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

Accounts Receivable

Property and Equipment

Property and equipment are recorded at cost. Depreciation on furniture,
fixtures and equipment is computed using straight-line methods over the
estimated useful lives of the assets. Leasehold improvements are amortized on
the straight-line method over the shorter of the noncancelable lease term or
estimated useful life of the asset. However, if the noncancelable lease term
expires in the near future and if the lease contains a renewal option of which
management is reasonably assured of exercising, the amortization period is the
shorter of the lease term including the renewal option period or the estimated
useful life.

Investments in Affiliated Entities

The Company has investments in two partnerships, Magnetic Resonance Imaging
Center of Kansas ("MRI") and Medical Building West Associates, LP ("MBW") which
are accounted for using the equity method and the cost method, respectively (see
Note 3).

Other Noncurrent Assets

Other noncurrent assets consist of deposits with insurance companies and a
note receivable.

Medical Service Revenues

Medical service revenue are accounted for in the period in which the
services are provided. Revenues are reported at the estimated realizable amounts
from patients, third party payors and others. Provisions for estimated third
party payor adjustments are estimated and recorded in the period the related
services are provided. Any adjustment to the amounts is recorded in the period
in which the revised amount is determined. A significant portion of the
Company's medical service revenue are related to Medicare and other governmental
programs. Medicare and other governmental programs reimburse physicians based on
fee schedules which are determined by the related governmental agency.
Additionally, the Company participates in agreements with managed care
organizations to provide services at negotiated rates.

F-79
<PAGE> 155

RADIOLOGY AND NUCLEAR MEDICINE, P.A.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Income Taxes

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

Concentration of Credit Risk

Use of Estimates

The preparation of the 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 consolidated
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.

Basis of Presentation - Interim Financial Statements

3. INVESTMENTS:

Investments in affiliated entities primarily consist of a 22% interest in
MRI and a 15% interest in MBW. The purpose of MRI is to own and operate real and
personal property. The purpose of MBW is to acquire/own land for the production
of income. The initial amount contributed to MBW was $1,000,000.

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
MBW......................................................... $ 966,667 $ 966,667
MRI......................................................... 283,948 302,878
Other....................................................... 495 --
---------- ----------
$1,251,110 $1,269,545
========== ==========
</TABLE>

F-80
<PAGE> 156

RADIOLOGY AND NUCLEAR MEDICINE, P.A.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. PROPERTY AND EQUIPMENT:

Property and equipment at December 31, consists of the following:

<TABLE>
<CAPTION>
ESTIMATED
USEFUL
LIVES
(YEARS) 1995 1996
--------- ----------- -----------
<S> <C> <C> <C>
Equipment........................................ 5 - 10 $ 3,715,478 $ 3,781,288
Leasehold improvements........................... 10 319,532 319,532
Furniture and fixtures........................... 5 62,447 116,758
----------- -----------
4,097,457 4,217,578
Less -- Accumulated depreciation and
amortization................................... (3,470,773) (3,645,406)
----------- -----------
Property and equipment, net.................... $ 626,684 $ 572,172
=========== ===========
</TABLE>

5. SHORT-TERM BORROWINGS:

At December 31, 1995 and 1996, the Company had $1,400,000 of short-term
working capital notes outstanding. The interest rate on these borrowings was
8.5% and 8.25% at December 31, 1995 and 1996, respectively and the notes are due
within a one year period.

6. LONG-TERM DEBT:

Long-term debt consists of the following as of December 31:

<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Note payable to physician, bearing interest at 5.35%, due in
1998. Annual payments of $20,870 plus interest............ 62,607 41,737
Note payable to physician, bearing interest at 6.34%, due in
1997. Annual payments of $21,347 plus interest............ 42,694 21,347
Note payable to bank, bearing interest at the index of the
weekly average yield on U.S. Treasury securities plus 2%
(8.34% and 7.56% at December 31, 1995 and 1996,
respectively), due in 1998. Monthly payments of $12,912
and $12,643 in 1995 and 1996, respectively, secured by the
Company's interest in a limited partnership............... 303,598 169,311
-------- --------
Long-term debt.................................... 408,899 232,395
Less- Current maturities.......................... (174,371) (186,611)
-------- --------
Long-term debt, net of current maturities......... $234,528 $ 45,784
======== ========
</TABLE>

Future maturities of long-term debt at December 31, 1996, are as follows:

Under the terms of a Stock Purchase Agreement between the Company and its
stockholders, the Company is required to repurchase the stock of each
stockholder upon retirement or at any time the stockholder ceases to be an
employee of the Company. The purchase price is based upon the then accounts
receivable balances of the Company, tax-effected, plus owners' equity of the
Company as of the end of the previous year, with certain defined adjustments.
The purchase price is paid in annual installments, not to

F-81
<PAGE> 157

RADIOLOGY AND NUCLEAR MEDICINE, P.A.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

exceed five years, with unpaid balances bearing interest at the lesser of 9% or
the U.S. Treasury Note rate. At December 31, 1996, the Company had $63,084
payable under these arrangements.

7. INCOME TAXES:

The provisions for income taxes for the years ended December 31, consist of
the following:

<TABLE>
<CAPTION>
1995 1996
-------- -------
<S> <C> <C>
Current income tax expense.................................. $ 30,603 $10,396
Deferred income tax expense (benefit)....................... (63,815) 46,909
-------- -------
Total income tax expense (benefit)................ $(33,212) $57,305
======== =======
</TABLE>

Significant components of the Company's net deferred tax assets as of
December 31, are as follows:

<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Depreciation.............................................. $ 44,576 $ 50,331
Accounts payable and accrued liabilities.................. 87,272 85,679
Deferred tax liabilities:
Accounts receivable....................................... (542,800) (597,133)
Other..................................................... (78,380) (75,118)
--------- ---------
Net deferred tax liabilities........................... $(489,332) $(536,241)
========= =========
</TABLE>

The differences between the provision (benefit) for income taxes and the
amounts computed by applying the statutory Federal income tax rate to income
(loss) before income taxes are due to disallowed passive losses from certain
investments.

8. LEASES:

The Company leases office facilities under various noncancelable operating
leases that expire in 2007. Future minimum lease payments under noncancelable
operating leases are as follows:

<TABLE>
<S> <C>
1997..................................................... $ 177,396
1998..................................................... 149,742
1999..................................................... 149,742
2000..................................................... 149,742
2001..................................................... 149,742
Thereafter............................................... 885,974
----------
$1,662,338
==========
</TABLE>

The Company has also entered into various agreements, expiring in April
1997, whereby it pays a monthly fee for selection, procurement, repair and
maintenance of its radiology and imaging equipment. The fees paid are expected
to approximate $57,000 per year.

9. EMPLOYEE BENEFIT PLAN:

The Company sponsors a defined contribution pension plan for employees of
the Company who have completed one year of service, with a minimum of 1,000
hours worked. The plan provides for employer contributions of 10% of
compensation up to a maximum eligible compensation of $150,000. The Company's
contribution for 1995 and 1996 was approximately $472,000 and $477,000,
respectively.

F-82
<PAGE> 158

RADIOLOGY AND NUCLEAR MEDICINE, P.A.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The Company also sponsors a 401(k) plan for employees of the Company who
have completed one year of service, with a minimum 1,000 hours worked. The plan
provides for employer matching contributions of one-half of employee
contributions, up to 2% of the employee's salary. The plan also allows for
employer discretionary contributions. The Company's contributions for 1995 and
1996 were approximately $189,000 and $185,000, respectively.

10. RELATED-PARTY TRANSACTIONS:

As indicated in Note 3, the Company has a 15% partnership interest in MBW
from which the Company leases its office space. Rent expense relating to such
facilities was approximately $150,000 in 1995 and 1996.

11. FAIR VALUE OF FINANCIAL INSTRUMENTS:

Statement of Financial Accounting Standards No. 107 requires all entities
to disclose the fair value of certain financial instruments in their financial
statements. Accordingly, the carrying amounts of accounts receivable, accounts
payable, accrued expenses, short-term borrowings and long-term debt approximate
fair value due to the short maturity of these instruments.

12. CONTINGENCIES:

Litigation

Insurance

The Company is self-insured for employee health benefits. Stop-loss
insurance coverage has been purchased to cover claims exceeding certain
retention limits. At December 31, 1996, the Company's maximum exposure for
health insurance claims was $20,000 per family with an aggregate maximum limit
of 125% of expected claims, as determined by the insurance company
(approximately $379,000 in 1996.) An estimate of the amount due and payable on
existing claims for which the Company is liable is included in accrued expenses.

13. SUBSEQUENT EVENTS:

On January 20, 1997, the Company entered into a letter of intent with
American Physician Partners, Inc. (APPI) under which APPI will acquire certain
assets and liabilities of the Company in exchange for common stock and cash.
Completion of the transaction is subject to certain conditions, including the
execution of a forty-year service agreement, stockholder approval by both
parties and successful completion of an initial public offering by APPI. Under
the terms of the service agreement, APPI will provide practice management,
administration and other services to the physicians for a negotiated service
fee. All nonprofessional employees shall become employees of APPI. In addition,
APPI will assume responsibility for all maintenance, repairs, improvements,
lease and other general operating expenses.

F-83
<PAGE> 159

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of
Rockland Radiological Group:

We have audited the accompanying combined balance sheets of Rockland
Radiological Group (Note 1) as of September 30, 1995 and 1996, and the related
combined statements of income, owners' equity (deficit), and cash flows for each
of the three years in the period ended September 30, 1996. 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Rockland Radiological Group
as of September 30, 1995 and 1996, and the results of their operations and their
cash flows for each of the three years in the period ended September 30, 1996,
in conformity with generally accepted accounting principles.

Dallas, Texas,
March 19, 1997

F-84
<PAGE> 160

ROCKLAND RADIOLOGICAL GROUP

COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
ASSETS
SEPTEMBER 30,
------------------------- MARCH 31,
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................. $ 198,387 $ 226,579 $ 321,438
Accounts receivable, net of allowances of $2,457,694,
$2,614,800 and $3,019,452 at September 30, 1995 and
1996 and March 31, 1997, respectively.............. 2,686,087 2,995,190 3,241,135
Prepaid expenses and other current assets............. 194,872 212,011 530,117
----------- ----------- -----------
Total current assets.......................... 3,079,346 3,433,780 4,092,690
PROPERTY AND EQUIPMENT, net............................. 3,811,459 4,152,971 5,624,622
DEFERRED INCOME TAX ASSET............................... 854,993 1,029,209 1,029,209
OTHER ASSETS, net....................................... 30,626 2,000 2,064,422
----------- ----------- -----------
Total assets.................................. $ 7,776,424 $ 8,617,960 $12,810,943
=========== =========== ===========

LIABILITIES AND OWNERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
Accounts payable...................................... $ 202,486 $ 196,728 $ 186,987
Accrued salaries and benefits......................... 604,948 541,492 541,492
Deferred income tax liability......................... 533,921 639,961 428,009
Current portion of long-term debt..................... 719,078 944,199 1,675,146
Current portion of capital lease obligations.......... 1,077,848 1,193,100 545,557
----------- ----------- -----------
Total current liabilities..................... 3,138,281 3,515,480 3,377,191
DEFERRED COMPENSATION................................... 2,592,054 3,167,979 3,167,979
CAPITAL LEASE OBLIGATIONS, net of current portion....... 2,557,615 1,364,515 537,669
LONG-TERM DEBT, net of current portion.................. 1,832,526 2,548,330 6,619,787
----------- ----------- -----------
Total liabilities............................. 10,120,476 10,596,304 13,702,626
OWNERS' EQUITY (DEFICIT)................................ (2,344,052) (1,978,344) (891,683)
----------- ----------- -----------
Total liabilities and owners' equity
(deficit)................................... $ 7,776,424 $ 8,617,960 $12,810,943
=========== =========== ===========
</TABLE>

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

F-85
<PAGE> 161

ROCKLAND RADIOLOGICAL GROUP

COMBINED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, SIX MONTHS ENDED MARCH 31,
--------------------------------------- ---------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Medical service revenues, net......... $15,078,280 $17,823,023 $17,302,049 $7,651,963 $8,794,764
Other revenues........................ 2,023 1,110 30,759 149,062 101,843
----------- ----------- ----------- ---------- ----------
Total revenues................ 15,080,303 17,824,133 17,332,808 7,801,025 8,896,607
COSTS AND EXPENSES:
Costs of affiliated physician
services........................... 3,674,505 7,074,008 6,051,448 2,397,268 2,727,909
Practice salaries, wages and
benefits........................... 3,916,578 4,118,141 4,251,812 1,934,802 2,179,844
Practice supplies..................... 603,087 1,181,653 1,146,608 538,531 634,311
Practice rent and lease expense....... 188,399 163,878 110,413 54,615 48,951
Depreciation and amortization......... 1,605,316 1,628,181 1,350,324 704,191 614,286
Other practice expenses............... 3,565,411 4,001,394 3,577,232 1,340,720 1,472,188
Interest expense...................... 1,082,044 702,967 581,786 357,281 363,479
----------- ----------- ----------- ---------- ----------
Total costs and expenses...... 14,635,340 18,870,222 17,069,623 7,327,408 8,040,968
NET INCOME (LOSS) BEFORE INCOME TAXES... 444,963 (1,046,089) 263,185 473,617 855,639
INCOME TAX EXPENSE (BENEFIT)............ 57,662 (335,568) (71,023) (127,876) (231,022)
----------- ----------- ----------- ---------- ----------
NET INCOME (LOSS)....................... $ 387,301 $ (710,521) $ 334,208 $ 601,493 $1,086,661
=========== =========== =========== ========== ==========
</TABLE>

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

F-86
<PAGE> 162

ROCKLAND RADIOLOGICAL GROUP

COMBINED STATEMENTS OF OWNERS' EQUITY (DEFICIT)

<TABLE>
<S> <C>
BALANCE, September 30, 1993................................. $(2,059,332)
Sale of stock............................................. 11,000
Net income................................................ 387,301
-----------
BALANCE, September 30, 1994................................. (1,661,031)
Sale of stock............................................. 27,500
Net loss.................................................. (710,521)
-----------
BALANCE, September 30, 1995................................. (2,344,052)
Sale of stock............................................. 31,500
Net income................................................ 334,208
-----------
BALANCE, September 30, 1996................................. (1,978,344)
Net income (unaudited).................................... 1,086,661
-----------
BALANCE, March 31, 1997 (unaudited)......................... $ (891,683)
===========
</TABLE>

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

F-87
<PAGE> 163

ROCKLAND RADIOLOGICAL GROUP

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED SEPTEMBER 30, MARCH 31,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................ $ 387,301 $ (710,521) $ 334,208 $ 601,493 $ 1,086,661
Adjustments to reconcile net income (loss) to
net cash provided by operating
activities --
Depreciation and amortization............. 1,605,316 1,628,181 1,350,324 704,191 614,286
Deferred income taxes..................... 57,662 (335,568) (71,023) (127,876) (211,952)
Changes in assets and liabilities --
(Increase) decrease in --
Accounts receivable, net............. (602,918) (163,544) (309,103) (199,850) (245,945)
Prepaid expenses and other current
assets............................. (175,810) 234,131 (17,139) 50,168 (318,106)
Other assets......................... 27,569 39,814 28,626 (64,338) (2,072,422)
Increase (decrease) in --
Accounts payable..................... 277,466 (296,427) (5,758) (15,320) (9,741)
Accrued salaries and benefits........ 10,656 280,840 (63,456) (41,000) --
Deferred compensation................ 46,693 753,358 575,925 -- --
---------- ---------- ---------- --------- -----------
Net cash provided by operating
activities...................... 1,633,935 1,430,264 1,822,604 907,468 (1,157,219)
---------- ---------- ---------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of furniture and equipment......... (683,491) (275,043) (1,688,989) (757,297) (2,075,937)
---------- ---------- ---------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt................. 2,877,000 132,750 1,710,030 441,977 3,986,322
Repayment of long-term debt.................. (3,018,703) (235,524) (769,105) (234,840) (256,139)
Principal payments on capital lease
obligations............................... (657,836) (1,231,754) (1,077,848) (474,047) (402,168)
Proceeds from sale of stock.................. 11,000 27,500 31,500 -- --
---------- ---------- ---------- --------- -----------
Net cash used in financing
activities...................... (788,539) (1,307,028) (105,423) (266,910) 3,328,015
---------- ---------- ---------- --------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................. 161,905 (151,807) 28,192 (116,739) 94,859
CASH AND CASH EQUIVALENTS, beginning of
period....................................... 188,289 350,194 198,387 198,387 226,579
---------- ---------- ---------- --------- -----------
CASH AND CASH EQUIVALENTS, end of period....... $ 350,194 $ 198,387 $ 226,579 $ 81,648 $ 321,438
========== ========== ========== ========= ===========
SUPPLEMENTAL DISCLOSURES:
Cash interest paid........................... $ 602,225 $ 700,180 $ 607,321 $ 357,281 $ 363,479
Cash income taxes paid....................... $ -- $ -- $ -- $ -- $ --
</TABLE>

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

F-88
<PAGE> 164

ROCKLAND RADIOLOGICAL GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994, 1995, AND 1996

1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION:

The accompanying financial statements combine the accounts of nine entities
under common ownership: Mid Rockland Imaging Associates, P.C. ("MRI"), Rockland
Radiological Group, P.C. ("RRG"), Nyack Magnetic Resonance Imaging, P.C.
("NMR"), Central Imaging Associates, P.C., Advanced Imaging of Bergen, P.A.,
Pelham Imaging Associates, P.C., Women's Imaging Consultants, P.C., Montvale
Regional Imaging of Bergen, P.A., and Advanced Imaging of Orange County, P.C.
(collectively the "Company"), all of which are located in the states of New York
and New Jersey and specialize in the practice of radiological medicine. All
intercompany items and transactions have been eliminated.

The accompanying financial statements have been prepared on the accrual
basis of accounting.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Cash and cash equivalents

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

Accounts Receivable

Property and Equipment

Deferred Compensation

Under the terms of the physician employment agreements, physicians who have
completed a minimum of eight years of service are entitled to a payment of up to
one hundred percent of their final compensation upon retirement or when they
cease to be employees of the Company. The percentage of salary received by the
physician varies based upon the number of years of service. These payments are
made in 36 equal monthly payments beginning upon attainment of age 70 or the
date when the physician leaves the Company. The estimated present value of these
obligations is being accrued ratably during the eight year service period.

Medical Service Revenue

Medical service revenues are accounted for in the period in which the
services are provided. The revenues are reported at the estimated realizable
amounts from patients, third party payors and others. Provisions for estimated
third party payor adjustments are estimated and recorded in the period the
related services are provided. Any adjustment to the amounts is recorded in the
period in which the revised amount is determined. A significant portion of the
Company's medical service revenues are related to Medicare and other
governmental programs. Medicare and other governmental programs reimburse
physicians based on fee

F-89
<PAGE> 165

ROCKLAND RADIOLOGICAL GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

schedules which are determined by the related governmental agency. Additionally,
the Company participates in agreements with managed care organizations to
provide services at negotiated rates.

Costs of Affiliated Physician Services

Costs of Affiliated Physician Services include physician compensation and
benefits paid or payable to owner and non-owner physicians during the period.

Income Taxes

MRI and RRG account for income taxes under the liability method which
states that deferred income taxes are to be determined based on the estimated
future tax effects of differences between the financial reporting and income tax
basis of assets and liabilities given the provisions of enacted tax laws.
Deferred income tax provisions are based on the changes to the asset or
liability from period to period. The remaining companies included in the
accompanying combined financial statements are S corporations, and accordingly,
there is no provision for income taxes related to these entities. The individual
owners include their respective share of Company profits and losses in their tax
returns.

Concentration of Credit Risk

Use of Estimates

The preparation of combined 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 combined
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

Basis of Presentation -- Interim Financial Statements

F-90
<PAGE> 166

ROCKLAND RADIOLOGICAL GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

3. PROPERTY AND EQUIPMENT:

Property and equipment at September 30, consists of the following:

<TABLE>
<CAPTION>
ESTIMATED
USEFUL
LIVES (YEARS) 1995 1996
--------------- ---------- -----------
<S> <C> <C> <C>
Equipment.................................. 5 $6,852,399 $ 8,348,140
Leasehold improvements..................... 15 640,515 782,200
Furniture and fixtures..................... 7 642,978 679,762
Capitalized building lease................. 15 2,634,333 2,648,401
---------- -----------
10,770,225 12,458,503
Less -- Accumulated depreciation and
amortization............................. (6,958,766) (8,305,532)
---------- -----------
Property and equipment, net...... $3,811,459 $ 4,152,971
========== ===========
</TABLE>

4. LONG-TERM DEBT:

Long-term debt consists of the following as of September 30:

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Note payable to related party, bearing interest at 10%, due
in 1997. Monthly payments of $6,453 including interest.... $ 90,642 $ 19,042
Note payable to previous shareholder, bearing interest at
8%, due in 1996. Monthly payment of $4,000 plus
interest.................................................. 12,000 --
Note payable to vendor, bearing interest at 10.36%, due in
1998. Monthly payments of $1,339 including interest....... 34,448 20,712
Note payable to vendor, bearing interest at 8.26%, due in
2001. Monthly payments of $8,955 including interest....... -- 396,552
Note payable to Bank, bearing interest at 8.34%, due in
1999. Monthly payments of $49,603 plus interest, secured
by accounts receivable and certain property and
equipment................................................. 2,281,764 1,686,528
Note payable to Bank, bearing interest at 8.21%, due in
2000, secured by accounts receivable and certain property
and equipment. Monthly payments of $2,250 plus
interest.................................................. 132,750 105,750
Note payable to Bank, bearing interest at 8.95%, due in
2001. Monthly payments of $24,881 including interest...... -- 1,200,000
Note payable to vendor, bearing interest at 9.53%, due in
2001. Monthly payments of $1,419 including interest....... -- 63,945
---------- ----------
Total long-term debt...................................... 2,551,604 3,492,529
Less -- Current maturities................................ (719,078) (944,199)
---------- ----------
Total long-term debt, net of current portion.............. $1,832,526 $2,548,330
========== ==========
</TABLE>

Future maturities of long-term debt at September 30, 1996, are as follows:

F-91
<PAGE> 167

ROCKLAND RADIOLOGICAL GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

5. CAPITAL LEASES:

The Company leases certain medical equipment and facilities under capital
leases. These leases have been capitalized using the implicit rate stated in
each lease. Future payments due under capital leases as of September 30, 1996,
are as follows:

<TABLE>
<S> <C>
1997.................................................... $ 1,412,563
1998.................................................... 1,389,510
1999.................................................... 60,374
-----------
Total minimum lease payments due........................ 2,862,447
Less -- Amounts representing interest................. (304,832)
-----------
Present value of minimum lease payments................. 2,557,615
Less -- Current portion............................... (1,193,100)
-----------
Long-Term obligation.................................... $ 1,364,515
===========
</TABLE>

6. INCOME TAXES:

The provisions for income taxes consist of the following:

<TABLE>
<CAPTION>
1994 1995 1996
------- --------- --------
<S> <C> <C> <C>
Current income tax expense......................... $ -- $ -- $ --
Deferred income tax expense (benefit).............. 57,662 (335,568) (71,023)
------- --------- --------
Total income tax expense (benefit)....... $57,662 $(335,568) $(71,023)
======= ========= ========
</TABLE>

Significant components of the Company's net deferred tax assets and
liabilities as of September 30, are as follows:

<TABLE>
<CAPTION>
1995 1996
--------- ----------
<S> <C> <C>
Current:
Deferred tax assets --
Accounts payable and accrued liabilities............... $ 248,176 $ 241,283
Deferred tax (liabilities) --
Accounts receivable.................................... (773,933) (870,234)
Other.................................................. (8,164) (11,010)
--------- ----------
Total net current deferred tax liabilities........ $(533,921) $ (639,961)
========= ==========
Noncurrent:
Deferred tax assets --
Deferred compensation.................................. $ 881,298 $1,077,113
Deferred tax (liabilities) --
Depreciation........................................... (26,305) (47,904)
--------- ----------
Total net noncurrent deferred tax assets.......... $ 854,993 $1,029,209
========= ==========
</TABLE>

The differences between the provision (benefit) for income taxes and the amounts
computed by applying the statutory Federal income tax rate to income (loss)
before income taxes are due to the income (losses) of S-Corporations included in
these combined financial statements.

7. OPERATING LEASES:

The Company leases two facilities under various noncancelable operating
leases that expire at various dates through 1999. The Company leases a portion
of the MRI building under a lease that expires in 1998, and

F-92
<PAGE> 168

ROCKLAND RADIOLOGICAL GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

also maintains a lease at the Nyack Hospital through NMR. Future minimum lease
payments under noncancelable leases at September 30, are as follows:

8. EMPLOYEE BENEFIT PLAN:

The Company sponsors a profit sharing and 401(k) plan for employees of the
Company, who have completed one year of service and are at least age 21. The
plan provides for employer profit sharing contributions, depending upon the
level of the employee. The plan also provides for employees matching
contributions of 100% of employee contributions, up to 3% of the employee's
salary. The Company's contributions for 1994, 1995, and 1996 were $253,656,
$363,809, and, $404,047 respectively.

9. RELATED-PARTY TRANSACTIONS:

The Company leases office space from a limited partnership. Two
shareholders own an interest in this limited partnership. The Company paid rent
related to these leases of $659,500, $698,500, and $726,310 for the years ended
December 31, 1994, 1995, and 1996, respectively.

10. FAIR VALUE OF FINANCIAL INSTRUMENTS:

11. CONTINGENCIES:

12. SUBSEQUENT EVENTS:

On November 15, 1996, the Company entered into a letter of intent with
American Physician Partners, Inc. (APPI) under which APPI will acquire certain
assets and liabilities of the Company in exchange for common stock and cash.
Completion of the transaction is subject to certain conditions, including the
execution of a forty-year service agreement, stockholder approval by both
parties and successful completion of an initial public offering by APPI. Under
the terms of the service agreement, APPI will provide practice management,
administration and other services to the physicians for a negotiated service
fee. All nonprofessional employees shall become employees of APPI. In addition,
APPI will assume responsibility for all maintenance, repairs, improvements,
lease and other general operating expenses.

In April, 1997, the Company entered into an agreement to purchase certain
assets of Kingston Diagnostic Radiology, P.C. for $2,000,000 in cash and certain
assumed liabilities of approximately $1,850,000. Completion of the transaction
is subject to execution of a five-year service contract.

On March 11, 1997, Wallkill Radiology Associates, P.C. ("Wallkill")
contributed all of its assets to the Company. In exchange, the sole stockholder
of Wallkill was made an equal partner of the Company. At December 31, 1996,
Wallkill had total assets of approximately $480,000. For the year ended December
31, 1996, Wallkill had total revenues of approximately $1,480,000.

F-93
<PAGE> 169

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of
Valley Radiology Group:

We have audited the accompanying combined balance sheets of Valley
Radiology Group (Note 1) as of December 31, 1995 and 1996, and the related
combined statements of income, owners' equity, and cash flows for the years then
ended. 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Valley Radiology Group as of
December 31, 1995 and 1996, and the results of their operations and their cash
flows for the years then ended in conformity with generally accepted accounting
principles.

Dallas, Texas,
March 19, 1997

F-94
<PAGE> 170

VALLEY RADIOLOGY GROUP

COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
ASSETS

DECEMBER 31,
------------------------ MARCH 31,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............. $1,212,535 $1,014,649 485,588
Accounts receivable, net of allowances
of $1,624,631, $2,021,861 and
$2,254,900 at December 31, 1995 and
1996 and March 31, 1997,
respectively....................... 1,632,342 1,616,645 1,841,229
Prepaid expenses and other............ 9,228 28,414 24,838
---------- ---------- ----------
Total current assets.......... 2,854,105 2,659,708 2,351,655
PROPERTY AND EQUIPMENT, net............. 198,263 1,253,425 1,288,443
INVESTMENTS IN AFFILIATED ENTITIES...... 369,172 104,031 102,039
NOTES RECEIVABLE........................ 428,448 405,500 404,500
OTHER ASSETS, net....................... 163,353 61,440 37,328
---------- ---------- ----------
Total assets.................. $4,013,341 $4,484,104 $4,183,965
========== ========== ==========

LIABILITIES AND OWNERS' EQUITY

CURRENT LIABILITIES:
Accounts payable...................... $ 229,216 $ 94,550 $ 91,999
Accrued salaries and benefits......... 944,296 757,428 239,712
Deferred income tax liability......... 156,004 259,988 311,923
Line of credit payable................ 57,000 825,100 --
Current portion of long-term debt..... 298,298 329,028 611,522
---------- ---------- ----------
Total current liabilities..... 1,684,814 2,266,094 1,255,156
DEFERRED INCOME TAX LIABILITY........... 8,344 37,261 37,261
LONG-TERM DEBT, net of current
portion............................... 675,142 395,065 852,294
---------- ---------- ----------
Total liabilities............. 2,368,300 2,698,420 2,144,711
OWNERS' EQUITY.......................... 1,645,041 1,785,684 2,039,254
---------- ---------- ----------
Total liabilities and owners'
equity...................... $4,013,341 $4,484,104 $4,183,965
========== ========== ==========
</TABLE>

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

F-95
<PAGE> 171

VALLEY RADIOLOGY GROUP

COMBINED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------- -----------------------
1995 1996 1996 1997
----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Medical service revenues, net......... $10,156,958 $10,974,993 $2,543,800 $2,857,425
Other revenues........................ 350,331 198,605 89,273 33,063
----------- ----------- ---------- ----------
Total revenues................ 10,507,289 11,173,598 2,633,073 2,890,488
COSTS AND EXPENSES:
Costs of affiliated physician
services........................... 5,510,802 5,383,728 1,270,270 1,395,953
Practice salaries, wages and
benefits........................... 2,268,596 2,592,672 525,269 550,478
Practice supplies..................... 176,051 355,777 102,874 74,673
Practice rent and lease expense....... 466,155 420,260 111,016 115,653
Depreciation and amortization......... 168,900 223,248 37,395 72,361
Other practice expenses............... 1,385,743 1,337,118 323,689 348,163
Interest expense...................... 53,387 73,475 15,065 28,012
(Gain) loss on sale of equipment...... 20,099 (37,386) (4,465) (310)
----------- ----------- ---------- ----------
Total costs and expenses...... 10,049,733 10,348,892 2,381,113 2,584,983
INCOME BEFORE TAXES AND EQUITY IN
EARNINGS OF INVESTMENTS............... 457,556 824,706 251,960 305,505
EQUITY IN EARNINGS (LOSS) OF
INVESTMENTS........................... 13,698 (18,997) -- --
----------- ----------- ---------- ----------
INCOME BEFORE INCOME TAXES.............. 471,254 805,709 251,960 305,505
INCOME TAX EXPENSE (BENEFIT)............ (110,919) 132,901 42,833 51,935
----------- ----------- ---------- ----------
NET INCOME.............................. $ 582,173 $ 672,808 $ 209,127 $ 253,570
=========== =========== ========== ==========
</TABLE>

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

F-96
<PAGE> 172

VALLEY RADIOLOGY GROUP

COMBINED STATEMENTS OF OWNERS' EQUITY

<TABLE>
<S> <C>
BALANCE, December 31, 1994.................................. $1,270,013
Sale of stock............................................. 1,304
Net income................................................ 582,173
Distributions............................................. (208,449)
----------
BALANCE, December 31, 1995.................................. 1,645,041
Purchase of stock......................................... (165)
Net income................................................ 672,808
Distributions............................................. (532,000)
----------
BALANCE, December 31, 1996.................................. 1,785,684
Net income (unaudited).................................... 253,570
----------
BALANCE, March 31, 1997 (unaudited)......................... $2,039,254
==========
</TABLE>

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

F-97
<PAGE> 173

VALLEY RADIOLOGY GROUP

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31 MARCH 31,
----------------------- -----------------------
1995 1996 1996 1997
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 582,173 $ 672,808 $ 209,127 $ 253,570
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization.................... 168,900 223,248 37,395 72,361
Deferred income taxes............................ (110,919) 132,901 42,833 51,935
Investment income from affiliated entities....... (13,698) 18,997 1,910 1,992
Changes in assets and liabilities --
(Increase) decrease in --
Accounts receivable, net....................... 242,584 15,697 (168,744) (224,584)
Prepaid expenses and other..................... (8,284) (19,186) (16,812) 3,576
Other assets................................... 10,508 28,242 (23,223) 24,112
Increase (decrease) in --
Accounts payable............................... (9,662) (134,666) 20,941 (2,551)
Accrued liabilities............................ (609,468) -- -- --
Accrued salaries and benefits.................. 703,728 (186,868) (754,595) (517,716)
---------- ---------- ---------- ----------
Net cash provided by operating activities... 955,862 751,173 (651,168) (337,305)
---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................. (14,671) (1,204,739) (105,328) (107,379)
Proceeds from notes receivable...................... 26,826 22,948 -- 1,000
Distributions from affiliated entities.............. 297,000 246,144 -- --
---------- ---------- ---------- ----------
Net cash provided by (used in) investing
activities................................ 309,155 (935,647) (105,328) (106,379)
---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt........................ 745,000 300,000 18,448 74,040
Repayment of long-term debt......................... (731,144) (549,347) (55,041) --
Net change in line of credit payable................ (143,000) 768,100 136,300 (159,417)
Distributions to owners............................. (208,449) (532,000) (292,500) --
Sales (purchases) of stock.......................... 1,304 (165) (32) --
---------- ---------- ---------- ----------
Net cash used in financing activities....... (336,289) (13,412) (192,825) (85,377)
---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH....................... 928,728 (197,886) (949,321) (529,061)
CASH AND CASH EQUIVALENTS, beginning of year.......... 283,807 1,212,535 1,212,535 1,014,649
---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of year................ $1,212,535 $1,014,649 $ 263,214 $ 485,588
========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURES:
Cash interest paid.................................. $ 80,134 $ 73,475 $ 15,065 $ 28,012
Cash income taxes paid.............................. $ -- $ -- $ -- $ --
</TABLE>

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

F-98
<PAGE> 174

VALLEY RADIOLOGY GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION:

The accompanying financial statements combine the accounts of three
entities under common ownership: Valley Radiologists Medical Group, Inc.
("Valley"), a California corporation; LXL, Ltd. ("LXL"), a California general
partnership; and LXL Building Partnership ("LXLB"), a California general
partnership (collectively the "Company"), all of which are located in northern
California and specialize in the practice of radiological medicine and the
ownership and operation of diagnostic imaging equipment. All intercompany
transactions have been eliminated.

The accompanying financial statements have been prepared on the accrual
basis of accounting.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Cash and Cash equivalents

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

Accounts Receivable

Property and Equipment

Investments in Affiliated Entities

Investments in affiliated entities are accounted for using the equity
method.

Other Assets

Other assets are comprised of organization costs, noncompete agreements and
security deposits. Organization costs are being amortized on a straight-line
basis over a five-year period. Noncompete agreements are amortized on a
straight-line basis over the life of the agreements.

Medical Service Revenues

Medical service revenues are accounted for in the period in which the
services are provided. The revenues are reported at the estimated realizable
amounts from patients, third party payors and others. Provisions for estimated
third party payor adjustments are estimated and recorded in the period in which
the related services are provided. Any adjustment to the amounts is recorded in
the period in which the revised amount is determined. A significant portion of
the Company's medical service revenues are related to Medicare and other
governmental programs. Medicare and other governmental programs reimburse
physicians based on fee schedules which are determined by the related
governmental agency. Additionally, the Company participates in agreements with
managed care organizations to provide services at negotiated rates.

F-99
<PAGE> 175

VALLEY RADIOLOGY GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1996

Costs of Affiliated Physician Services

Costs of Affiliated Physician Services include physician compensation and
benefits paid or payable to owner and non-owner physicians during the period.

Income Taxes

Valley accounts for income taxes under the liability method which states
that deferred income taxes are determined based on the estimated future tax
effects of differences between the financial reporting and income tax basis of
assets and liabilities given the provisions of enacted tax laws. Deferred income
tax provisions are based on the changes to the asset or liability from period to
period. LXL and LXLB are partnerships, and accordingly, there is no provision
for income taxes related to these entities. The individual owners include their
respective share of profits and losses in their tax returns.

Concentration of Credit Risk

Use of Estimates

The preparation of combined 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 combined
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

Basis of Presentation - Interim Financial Statements

3. NOTES RECEIVABLE:

Notes receivable primarily consist of a $400,000 note receivable from a
third party, due July 18, 1999 with monthly interest only payments until that
date. The note bears interest of 8.0%.

4. INVESTMENTS IN AFFILIATED ENTITIES:

Investments in affiliated entities primarily consist of 40% interests in
two partnerships (Santa Clara Valley MRI ("Santa Clara") and Sunnyvale MRI
("Sunnyvale"), each of which perform radiology and

F-100
<PAGE> 176

VALLEY RADIOLOGY GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1996

imaging healthcare services. These investments are being accounted for under the
equity method of accounting. Balances at December 31 are as follows:

<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Santa Clara................................................. $387,564 $ --
Sunnyvale................................................... (20,734) 98,089
Other....................................................... 2,342 5,942
-------- --------
$369,172 $104,031
======== ========
</TABLE>

5. PROPERTY AND EQUIPMENT:

Property and equipment at December 31, consists of the following:

<TABLE>
<CAPTION>
ESTIMATED USEFUL
LIVES (YEARS) 1995 1996
---------------- ---------- ----------
<S> <C> <C> <C>
Equipment................................... 5 $4,236,818 $4,056,426
Leasehold improvements...................... 5-13 370,130 413,604
Furniture and fixtures...................... 5-7 109,415 113,561
---------- ----------
4,716,363 4,583,591
Less -- Accumulated depreciation and
amortization.............................. (4,518,100) (3,330,166)
---------- ----------
Property and equipment, net....... $ 198,263 $1,253,425
========== ==========
</TABLE>

F-101
<PAGE> 177

VALLEY RADIOLOGY GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1996

6. LONG-TERM DEBT:

Long-term debt consists of the following as of December 31:

<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Note payable to Bank, bearing interest at prime plus .5%
(8.75% on December 31, 1996), due March 1, 2000, secured
by accounts receivable and certain property and equipment.
Monthly payments of $12,420 plus interest. ............... $ 606,700 $ 244,962
Note payable to Bank, bearing interest at prime plus .5%
(8.75% on December 31, 1996), due May 1, 2001, secured by
accounts receivable and certain property and equipment.
Monthly payments of $5,000 including interest. ........... -- 261,649
Note payable to physician, bearing interest at prime,
adjustable every April 1 and October 1, (8.75% on December
31, 1995), due March 31, 1996. Monthly payments of $4,201
plus interest. ........................................... 12,604 --
Note payable to physician, bearing interest at prime,
adjustable every May 1 and November 1, (8.75% on December
31, 1995), due April 30, 1996. Monthly payments of $4,167
plus interest. ........................................... 16,666 --
Note payable to physician, noninterest bearing, due December
31, 1998. Monthly payments of $6,250. .................... 225,000 150,000
Note payable to physician, noninterest bearing, due June 30,
1998. Monthly payments of $3,749. ........................ 112,470 67,482
--------- ---------
Total long-term debt........................................ 973,440 724,093
Less -- Current maturities.................................. (298,298) (329,028)
--------- ---------
Total long-term debt, net of current portion................ $ 675,142 $ 395,065
========= =========
</TABLE>

Future maturities of long-term debt at December 31, 1996, are as follows:

During 1995, the Company maintained a $300,000 line of credit for working
capital purposes bearing interest at the prime rate (8.5% on December 31, 1995).
The amount outstanding at December 31, 1995 was $57,000. The Company currently
maintains a $900,000 line of credit bearing interest at the prime rate (8.25% on
December 31, 1996). The amount outstanding at December 31, 1996 was $825,100.

Under the terms of the physician employment agreements, any physician who
is a shareholder in the Company and has been employed as a full-time
professional for a continuous four year period is entitled to a payout upon
retirement or when they cease to be employees of the Company. The payout is
equal to the physician's pro rata share of 80% of accounts receivable less
amounts owed to former shareholders. Payments are made in forty-eight equal
monthly amounts beginning the month after employment ceases. At December 31,
1996, the Company had $217,482 payable under these arrangements.

F-102
<PAGE> 178

VALLEY RADIOLOGY GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1996

Notes payable to physicians outstanding at December 31, 1995 represents
amounts paid to two former physicians for non-compete agreements.

7. INCOME TAXES:

The provisions for income taxes for the years ended December 31, consist of
the following:

<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Current income tax expense................................. $ -- $ --
Deferred income tax expense (benefit)...................... (110,919) 132,901
--------- ---------
Total income tax expense (benefit)............... $(110,919) $ 132,901
========= =========
</TABLE>

Significant components of the Company's deferred tax assets and liabilities
as of December 31, are as follows:

<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Current:
Deferred tax assets --
Accounts payable and accrued salaries and benefits.... $ 398,993 $ 289,672
Deferred tax (liabilities) --
Accounts receivable, net.............................. (554,997) (549,660)
--------- ---------
Total net current deferred tax liabilities....... $(156,004) $(259,988)
========= =========
Noncurrent:
Deferred tax liabilities --
Depreciation.......................................... $ (8,344) $ (37,261)
========= =========
</TABLE>

The differences between the provision (benefit) for income taxes and the
amounts computed by applying the statutory Federal income tax rate to income
before income taxes are due to disallowed passive losses from certain
investments.

8. EMPLOYEE BENEFIT PLAN:

The Company sponsors a profit sharing plan for employees of the Company,
who have completed one year of service. The plan provides for discretionary
employer contributions. The Company's contributions for 1995 and 1996 were
$480,858 and $500,000, respectively.

9. OPERATING LEASES:

The Company leases various facilities under noncancelable operating leases
that expire at various dates through 1999. Future minimum lease payments under
noncancelable leases are as follows:

<TABLE>
<S> <C>
1997..................................................... $ 348,256
1998..................................................... 293,206
1999..................................................... 220,521
2000..................................................... 156,802
2001..................................................... 156,802
Thereafter............................................... 370,016
----------
$1,545,603
==========
</TABLE>

F-103
<PAGE> 179

VALLEY RADIOLOGY GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1996

10. RELATED-PARTY TRANSACTIONS:

As indicated in Note 4, the Company has 40% partnership interests in Santa
Clara and Sunnyvale. Under agreements with these partnerships, the Company
performs professional and management services. Management fees are billed to the
partnership based primarily upon agreed-upon rates per case. Management and
professional fees earned from these partnerships are as follows:

<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Santa Clara................................................. $198,327 $ 25,664
Sunnyvale................................................... 343,698 266,338
-------- --------
$542,025 $292,002
======== ========
</TABLE>

11. FAIR VALUE OF FINANCIAL INSTRUMENTS:

12. CONTINGENCIES:

13. SUBSEQUENT EVENTS:

On March 6, 1997, the Company entered into a letter of intent with American
Physician Partners, Inc. (APPI) under which APPI will acquire certain assets and
liabilities of the Company in exchange for common stock and cash. Completion of
the transaction is subject to certain conditions, including the execution of a
forty-year service agreement, stockholder approval by both parties and
successful completion of an initial public offering by APPI. Under the terms of
the service agreement, APPI will provide practice management, administration and
other services to the physicians for a negotiated service fee. All
nonprofessional employees shall become employees of APPI. In addition, APPI will
assume responsibility for all maintenance, repairs, improvements, lease and
other general operating expenses.

In 1997, the Company refinanced its $900,000 line of credit with a term
note. The term note provides for borrowings of $925,000 due February 2002.

Effective January 1, 1997, the Company and Pacific Imaging Consultants, a
group of radiologists in Oakland, California, formed a management services
organization to manage their operations.

F-104
<PAGE> 180

======================================================

NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 6
Use of Proceeds........................ 16
Dividend Policy........................ 16
Capitalization......................... 17
Dilution............................... 18
American Physician Partners, Inc.
Unaudited Pro Forma Combined
Financial Data....................... 19
Selected Financial Data................ 25
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 30
Business............................... 40
Management............................. 55
Certain Transactions................... 62
Principal Stockholders................. 65
Description of Capital Stock........... 67
Shares Eligible For Future Sale........ 70
Underwriting........................... 72
Legal Matters.......................... 73
Experts................................ 73
Additional Information................. 74
Index to Financial Statements.......... F-1
</TABLE>

UNTIL , 1997, (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
5,000,000 SHARES

[AMERICAN PHYSICIAN
PARTNERS, INC. LOGO]

COMMON STOCK
------------

PROSPECTUS

, 1997

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

SMITH BARNEY INC.

COWEN & COMPANY

PIPER JAFFRAY INC.

ROBERTSON, STEPHENS & COMPANY

======================================================
<PAGE> 181

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the expenses to be paid by the Company
(other than underwriting compensation expected to be incurred) in connection
with the offering described in this Registration Statement.

<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 27,879
NASD filing................................................. 9,700
Blue Sky Fees and Expenses.................................. 5,000
Printing and Engraving Costs................................ *
Legal Fees and Expenses..................................... *
Accounting Fees and Expenses................................ *
Transfer Agent and Registrar Fees and Expenses.............. *
Miscellaneous............................................... *
--------
Total............................................. $ *
========
</TABLE>

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

* To be supplied by amendment

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Company's Amended Bylaws provide that the Company shall, to the fullest
extent permitted by Section 145 of the DGCL, as amended from time to time,
indemnify all persons whom it may indemnify pursuant thereto.

Section 145 of the DGCL permits a corporation, under specified
circumstances, to indemnify its directors, officers, employees or agents against
expenses (including attorney's fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by them in connection with any
action, suit or proceeding brought by third parties by reason of the fact that
they were or are directors, officers, employees or agents of the corporation, if
such directors, officers, employees or agents acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the corporation and, with respect to any criminal action or proceeding, had no
reason to believe their conduct was unlawful. In a derivative action, i.e., one
by or in the right of the corporation, indemnification may be made only for
expenses actually and reasonably incurred by directors, officers, employees or
agents in connection with the defense or settlement of an action or suit, and
only with respect to a matter as to which they shall have acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made if
such person shall have been adjudged liable to the corporation, unless and only
to the extent that the court in which the action or suit was brought shall
determine upon application that the defendant directors, officers, employees or
agents are fairly and reasonably entitled to indemnity for such expenses despite
such adjudication of liability.

Article VI of the Company's Restated Certificate of Incorporation, as
amended, provides that the Company's directors will not be personally liable to
the Company or its stockholders for monetary damages resulting from breaches of
their fiduciary duty as directors except for liability (a) for any breach of the
duty of loyalty to the Company or its stockholders, (b) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (c) under Section 174 of the DGCL or (d) for any transaction from which
the director derived an improper personal benefit.

Reference is made to Article VIII of the Company's Amended and Restated
Bylaws filed as an Exhibit to this Registration Statement, which provides for
indemnification of directors and officers.

In 1997, the Company entered into an indemnification agreement
with certain of its directors and director nominees, pursuant to which the
Company agreed to indemnify such persons for losses arising out

II-1
<PAGE> 182

of any untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement of which this Prospectus forms a part.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

The following information relates to securities of the Company issued or
sold within the past three years that were not registered under the Securities
Act:

(i) In May 1996, the Company issued 2,000,000 shares of Common Stock
to John Pappajohn, Halkis Ltd., Mary Pappajohn, Thebes Ltd. and Derace L.
Schaffer, M.D. in connection with the initial capitalization of the Company
for an aggregate purchase price of $250,000. This transaction was effected
without registration under the Securities Act in reliance upon the
exemptions provided by Section 4(2) of the Securities Act.

(ii) Between September 30, 1996 and December 31, 1996, the Company
issued an aggregate of $3,500,000 of Convertible Promissory Convertible
Notes to 21 institutional and individual investors. This transaction was
effected without registration of the Convertible Promissory Convertible
Notes under the Securities Act in reliance upon the exemptions provided by
Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated
thereunder.

In relying on the exemptions provided by Section 4(2) of the Securities Act
and Rule 506 of Regulation D promulgated thereunder in connection with the
private placements described above, the Company relied upon written
representations of the persons acquiring the Company's shares of Common Stock
and Convertible Notes, that they were acquiring such shares or notes for
investment purposes and that they had received adequate opportunity to obtain
information, and had reviewed such information, regarding the Company.
Certificates and notes representing the shares and the Convertible Notes,
respectively, issued to these persons contained a legend restricting transfer
thereof absent registration under the Securities Act or the availability of an
exemption therefrom.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
1.1 -- Form of Underwriting Agreement.*

</TABLE>
II-2
<PAGE> 183
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
2.7 -- Agreement and Plan of Reorganization and Merger, dated
June 20, 1997 by and between American Physician Partners,
Inc., and Nyack Magnetic Resonance Imaging, P.C.*
2.8 -- Agreement and Plan of Reorganization and Merger, dated
June 20, 1997 by and between American Physician Partners,
Inc., and Pelham Imaging Associates, P.C.*
2.9 -- Agreement and Plan of Reorganization and Merger, dated
June 20, 1997 by and between American Physician Partners,
Inc., and Women's Imaging Consultants, P.C.*
2.10 -- Agreement and Plan of Reorganization and Merger, dated
June 20, 1997 by and between American Physician Partners,
Inc., and Pacific Imaging Consultants, A Medical Group,
Inc.*
2.11 -- Agreement and Plan of Reorganization and Merger, dated
June 20, 1997 by and between American Physician Partners,
Inc., and Total Medical Imaging, Inc.*
2.12 -- Agreement and Plan of Reorganization and Merger, dated
June 20, 1997 by and between American Physician Partners,
Inc., and Valley Radiologists Medical Group, Inc.*
2.13 -- Agreement and Plan of Reorganization and Merger, dated
June 20, 1997 by and between American Physician Partners,
Inc., and The Ide Group, P.C.*
2.14 -- Agreement and Plan of Reorganization and Merger, dated
June 20, 1997 by and between American Physician Partners,
Inc., and M & S X-Ray Associates, P.A.*
2.15 -- Agreement and Plan of Reorganization and Merger, dated
June 20, 1997 by and between American Physician Partners,
Inc., and South Texas MR, Inc.*
2.16 -- Agreement and Plan of Reorganization and Merger, dated
June 20, 1997 by and between American Physician Partners,
Inc., and San Antonio MR, Inc.*
2.17 -- Agreement and Plan of Exchange, dated June 20, 1997 by
and among American Physician Partners, Inc., Lexington
MR, Ltd., and the Sellers.*
2.18 -- Agreement and Plan of Exchange, dated June 20, 1997 by
and among American Physician Partners, Inc., Madison
Square Joint Venture and the Sellers.*
2.19 -- Agreement and Plan of Exchange, dated June 20, 1997 by
and among American Physician Partners, Inc., South Texas
No. 1 MRI Limited Partnership, a Texas limited
partnership, and the Sellers.*
2.20 -- Agreement and Plan of Exchange, dated June 20, 1997 by
and among American Physician Partners, Inc., San Antonio
MRI Partnership No. 2 Ltd., a Texas limited partnership,
and the Sellers.*
2.21 -- Agreement and Plan of Exchange, dated June 20, 1997 by
and among American Physician Partners, Inc., and the
Sellers.*
3.1 -- Restated Certificate of Incorporation of American
Physician Partners, Inc.*
3.2 -- Amended and Restated Bylaws of American Physician
Partners, Inc.*
4.1 -- Form of certificate evidencing ownership of Common Stock
of American Physician Partners, Inc.*
4.2 -- Form of Convertible Promissory Note of American Physician
Partners, Inc.*
5.1 -- Opinion of Brobeck, Phleger & Harrison LLP*
10.1 -- American Physician Partners, Inc. 1996 Stock Option
Plan.*
10.2 -- Employment Agreement between American Physician Partners,
Inc. and Gregory L. Solomon.*
10.3 -- Employment Agreement between American Physician Partners,
Inc. and Mark S. Martin.*
10.4 -- Employment Agreement between American Physician Partners,
Inc. and Sami S. Abbasi.*
</TABLE>

II-3
<PAGE> 184
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
10.5 -- Employment Agreement between American Physician Partners,
Inc. and Paul M. Jolas.*
10.6 -- Form of Indemnification Agreement for certain Directors
and Officers.*
10.14 -- Form of Registration Rights Agreement.*
11.1 -- Statement re computation of per share earnings.*
21.1 -- Subsidiaries.*
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of DeJoy, Knauf & Blood, LLP
23.3 -- Consent of Brobeck, Phleger & Harrison LLP (contained in
its opinion filed as Exhibit 5.1).*
24.1 -- Power of Attorney (contained on the signature page of
this Registration Statement).
</TABLE>

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

* To be filed by amendments.

(b) Financial Statement Schedules.

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

ITEM 17. UNDERTAKINGS.

The Registrant hereby undertakes to provide the Underwriters at the closing
specified in the Underwriting Agreement, certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.

The Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registration pursuant to the provisions described in Item 14 hereof, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.

II-4
<PAGE> 185

SIGNATURE PAGE

Pursuant to the requirements of the Securities Act of 1933, as amended,
American Physician Partners, Inc. has duly caused this Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Dallas, State of Texas, on June 27, 1997.

AMERICAN PHYSICIAN PARTNERS, INC.

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

POWER OF ATTORNEY

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

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

/s/ GREGORY L. SOLOMON President, Chief Executive June 27, 1997
- ----------------------------------------------------- Officer, and Director
Gregory L. Solomon (Principal Executive Officer)

/s/ LAWRENCE R. MUROFF, M.D. Chairman of the Board of June 27, 1997
- ----------------------------------------------------- Directors and Senior Vice
Lawrence R. Muroff, M.D. President of Medical Affairs

/s/ SAMI S. ABBASI Senior Vice President and Chief June 27, 1997
- ----------------------------------------------------- Financial Officer (Principal
Sami S. Abbasi Financial Officer)

/s/ STEVE W. RATTON, JR. Controller and Treasurer June 27, 1997
- ----------------------------------------------------- (Principal Accounting Officer)
Steve W. Ratton, Jr.

/s/ JOHN W. COLLOTON Director June 27, 1997
- -----------------------------------------------------
John W. Colloton

/s/ JOHN PAPPAJOHN Director June 27, 1997
- -----------------------------------------------------
John Pappajohn

/s/ DERACE L. SCHAFFER, M.D. Director June 27, 1997
- -----------------------------------------------------
Derace L. Schaffer, M.D.
</TABLE>

II-5
<PAGE> 186

EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
------- ----------- ------------
<C> <S> <C>
1.1 -- Form of Underwriting Agreement.*
</TABLE>

2.1 -- Agreement and Plan of Reorganization and Merger, dated
June 20, 1997 by and among American Physician Partners,
Inc., Carroll Imaging Associates, P.A., Diagnostic
Imaging Associates, P.A., Drs. Copeland, Hyman and
Shackman, P.A., Drs. Decarlo, Lyon, Hearn & Pazourek,
P.A., Drs. Thomas, Wallop, Kim & Lewis, P.A., Harbor
Radiologists, P.A., and Perilla, Syndler & Associates,
P.A.*
2.2 -- Agreement and Plan of Reorganization and Merger, dated
June 20, 1997 by and between American Physician Partners,
Inc., and Radiology and Nuclear Medicine, A Professional
Association.*
2.3 -- Agreement and Plan of Reorganization and Merger, dated
June 20, 1997 by and between American Physician Partners,
Inc., and Mid Rockland Imaging Associates, P.C.*
2.4 -- Agreement and Plan of Reorganization and Merger, dated
June 20, 1997 by and between American Physician Partners,
Inc., and Rockland Radiological Group, P.C.*
2.5 -- Agreement and Plan of Reorganization and Merger, dated
June 20, 1997 by and between American Physician Partners,
Inc., and Advanced Imaging of Orange County, P.C.*
2.6 -- Agreement and Plan of Reorganization and Merger, dated
June 20, 1997 by and between American Physician Partners,
Inc., and Central Imaging Associates, P.C.*
2.7 -- Agreement and Plan of Reorganization and Merger, dated
June 20, 1997 by and between American Physician Partners,
Inc., and Nyack Magnetic Resonance Imaging, P.C.*
2.8 -- Agreement and Plan of Reorganization and Merger, dated
June 20, 1997 by and between American Physician Partners,
Inc., and Pelham Imaging Associates, P.C.*
2.9 -- Agreement and Plan of Reorganization and Merger, dated
June 20, 1997 by and between American Physician Partners,
Inc., and Women's Imaging Consultants, P.C.*
2.10 -- Agreement and Plan of Reorganization and Merger, dated
June 20, 1997 by and between American Physician Partners,
Inc., and Pacific Imaging Consultants, A Medical Group,
Inc.*
2.11 -- Agreement and Plan of Reorganization and Merger, dated
June 20, 1997 by and between American Physician Partners,
Inc., and Total Medical Imaging, Inc.*
2.12 -- Agreement and Plan of Reorganization and Merger, dated
June 20, 1997 by and between American Physician Partners,
Inc., and Valley Radiologists Medical Group, Inc.*
2.13 -- Agreement and Plan of Reorganization and Merger, dated
June 20, 1997 by and between American Physician Partners,
Inc., and The Ide Group, P.C.*
2.14 -- Agreement and Plan of Reorganization and Merger, dated
June 20, 1997 by and between American Physician Partners,
Inc., and M & S X-Ray Associates, P.A.*
2.15 -- Agreement and Plan of Reorganization and Merger, dated
June 20, 1997 by and between American Physician Partners,
Inc., and South Texas MR, Inc.*
2.16 -- Agreement and Plan of Reorganization and Merger, dated
June 20, 1997 by and between American Physician Partners,
Inc., and San Antonio MR, Inc.*
<PAGE> 187
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
------- ----------- ------------
<C> <S> <C>
2.17 -- Agreement and Plan of Exchange, dated June 20, 1997 by
and among American Physician Partners, Inc., Lexington
MR, Ltd., and the Sellers.*
2.18 -- Agreement and Plan of Exchange, dated June 20, 1997 by
and among American Physician Partners, Inc., Madison
Square Joint Venture and the Sellers.*
2.19 -- Agreement and Plan of Exchange, dated June 20, 1997 by
and among American Physician Partners, Inc., South Texas
No. 1 MRI Limited Partnership, a Texas limited
partnership, and the Sellers.*
2.20 -- Agreement and Plan of Exchange, dated June 20, 1997 by
and among American Physician Partners, Inc., San Antonio
MRI Partnership No. 2 Ltd., a Texas limited partnership,
and the Sellers.*
2.21 -- Agreement and Plan of Exchange, dated June 20, 1997 by
and among American Physician Partners, Inc., and the
Sellers.*
3.1 -- Restated Certificate of Incorporation of American
Physician Partners, Inc.*
3.2 -- Amended and Restated Bylaws of American Physician
Partners, Inc.*
4.1 -- Form of certificate evidencing ownership of Common Stock
of American Physician Partners, Inc.*
4.2 -- Form of Convertible Promissory Note of American Physician
Partners, Inc.*
5.1 -- Opinion of Brobeck, Phleger & Harrison LLP*
10.1 -- American Physician Partners, Inc. 1996 Stock Option
Plan.*
10.2 -- Employment Agreement between American Physician Partners,
Inc. and Gregory L. Solomon.*
10.3 -- Employment Agreement between American Physician Partners,
Inc. and Mark S. Martin.*
10.4 -- Employment Agreement between American Physician Partners,
Inc. and Sami S. Abbasi.*
10.5 -- Employment Agreement between American Physician Partners,
Inc. and Paul M. Jolas.*
10.6 -- Form of Indemnification Agreement for certain Directors
and Officers.*
10.14 -- Form of Registration Rights Agreement.*
11.1 -- Statement re computation of per share earnings.*
21.1 -- Subsidiaries.*
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of DeJoy, Knauf & Blood, LLP
23.3 -- Consent of Brobeck, Phleger & Harrison LLP (contained in
its opinion filed as Exhibit 5.1).*
24.1 -- Power of Attorney (contained on the signature page of
this Registration Statement).
</TABLE>

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

* To be filed by amendments.

<PAGE> 1
EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.

ARTHUR ANDERSEN LLP

Dallas, Texas
June 27, 1997

<PAGE> 1
EXHIBIT 23.2

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our report,
dated January 3, 1997, on our audit of the combined financial statements of The
Ide Group, P.C. and Ide Diagnostic Imaging Associates (and to all references to
our Firm) included in or made a part of this registration statement.

/s/ DEJOY, KNAUF & BLOOD, LLP

Rochester, New York
June 25, 1997.