MEDICAL RESOURCES INC /DE/, 424A, 1996-10-03

MEDICAL RESOURCES INC /DE/
424A, 1996-10-03
MEDICAL LABORATORIES

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Filed Pursuant to Rule 424(a)
Registration Statement No. 333-12859

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 any 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 SEPTEMBER 27, 1996

4,000,000 Shares

Medical Resources, Inc.

Common Stock

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The 4,000,000 shares of common stock, par value $.01 per share (the "Common
Stock"), offered hereby are being offered by Medical Resources, Inc. ("Medical
Resources" or the "Company"). The Common Stock is quoted on the Nasdaq National
Market ("Nasdaq") under the symbol "MRII." On September 26, 1996, the last
reported sales price of the Common Stock on Nasdaq was $8 3/8 per share. See
"Price Range of Common Stock and Dividend Policy."

For a discussion of certain risks of an investment in the shares of Common
Stock offered hereby, see "Risk Factors" on pages 6-10.

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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.

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Underwriting
Price to Discounts and Proceeds to
Public Commissions * Company+
Per Share ................... $ $ $
Total++ ..................... $ $ $

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* The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."

+ Before deducting expenses of the offering payable by the Company estimated
to be $465,000.

++ The Company has granted the Underwriters a 30-day option to purchase up to
600,000 additional shares of Common Stock on the same terms per share
solely to cover over-allotments, if any. If such option is exercised in
full, the total price to public will be $________, the total underwriting
discounts and commissions will be $__________ and the total proceeds to
Company will be $__________. See "Underwriting."

The Common Stock is being offered by the Underwriters as set forth under
"Underwriting" herein. It is expected that the delivery of certificates therefor
will be made at the offices of Dillon, Read & Co. Inc., New York, New York, on
or about October __, 1996. The Underwriters include:

Dillon, Read & Co. Inc. Smith Barney Inc.

The date of this Prospectus is October __, 1996

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Map with dots illustrating the Company's Chicago Area, Northeast Region and
Florida imaging center locations.

Map of the United States with dots illustrating the Company's per diem
healthcare staffing locations.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK OF THE COMPANY ON NASDAQ
IN ACCORDANCE WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."

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PROSPECTUS SUMMARY

The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information and consolidated financial
statements (including the notes thereto) included elsewhere herein and in the
other documents incorporated by reference in this Prospectus. Unless otherwise
indicated, the information in this Prospectus assumes that the Underwriters'
over-allotment option will not be exercised. As used in this Prospectus, the
"Company" and "Medical Resources" refers to Medical Resources, Inc. and its
subsidiaries.

The Company

The Company's diagnostic imaging centers provide diagnostic imaging
services to patients referred by physicians in a comfortable, service-oriented
outpatient environment. At each of its centers, the Company provides management,
administrative, marketing and technical services, as well as equipment and
facilities, to physicians who interpret scans performed on patients. Medical
services are provided by board-certified interpreting physicians, generally
radiologists, with whom the Company enters into contracts. Thirty-five of the
Company's 37 centers provide magnetic resonance imaging ("MR"), which accounts
for a majority of the Company's imaging revenues. Many of the Company's centers
also provide some or all of the following services: computerized tomography
("CT"), ultrasound, nuclear medicine, general radiology and fluoroscopy and
mammography.

The number of outpatient diagnostic imaging centers in the United States
has grown from approximately 700 in 1984 to an estimated 2,200 in 1995.
Ownership of outpatient diagnostic imaging centers is highly fragmented, with no
dominant national provider. As of December 31, 1995, no entity owned more than
55 centers and the ten largest operators owned a total of approximately 200
centers, or less than 10% of the total number of centers. The Company believes
that the environment faced by diagnostic imaging center operators is
characterized by rising business complexity, growing control over patient flows
by payors and reimbursement pressures that require center owners to seek
operational efficiencies. In addition, the Company believes that public and
private reforms in the healthcare industry emphasizing cost containment and
accountability will continue to shift the delivery of imaging services from
highly fragmented, individual or small center operators to companies operating
larger multi-modality networks of centers.

The Company's goal is to become the leading operator of diagnostic imaging
centers in the country. The Company has implemented a strategy for growth which
includes acquisitions as well as internal development of its existing
operations. The Company intends to capitalize on the fragmented nature of the
diagnostic imaging center industry through the acquisition of additional
centers. The Company's strategy is to expand the scope and efficiency of its
operations at its existing and acquired facilities by: (i) leveraging the
geographic concentration of its centers;(ii) expanding the imaging services
offered by its centers by upgrading existing technology and adding new
modalities; (iii) applying sophisticated operating, financial and information
systems and procedures; (iv) utilizing targeted local marketing programs; and
(v) developing its network management services to address more fully the needs
of managed care providers.

The Company has a successful record of acquiring imaging centers and
integrating and improving their operations. Since the beginning of 1995, the
Company has acquired 29 imaging centers through seven acquisitions, including 18
imaging centers resulting from the Company's acquisition (the "NMR Acquisition")
on August 30, 1996 of NMR of America, Inc. ("NMR"). The Company believes that it
will be able to continue to be a leader in the consolidation of the diagnostic
imaging services industry because of its: (i) experience in identifying,
structuring and completing acquisitions; (ii) ability to integrate effectively
these acquisitions; (iii) size and financial resources; and (iv) existing
presence in key geographic areas.

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The Company's temporary staffing business, StarMed, was founded in 1978 and
acquired by the Company in August 1994. StarMed's Per Diem staffing division
provides registered nurses, licensed practical nurses, nursing assistants,
therapists and medical transcriptionists on a daily basis to healthcare
facilities through 15 offices located in six states. StarMed's Travel Nursing
division is operated from a central office in Tampa, Florida and provides
registered nurses and operating room technicians for periods usually ranging
from 8 to 26 weeks. StarMed commenced its per diem operations in March 1995 and,
since such time, has opened 13 offices in six states. In addition, in January
1996, StarMed acquired a per diem healthcare staffing business in California and
in June 1996, StarMed acquired a per diem healthcare staffing business in
Florida. The Company's growth strategy for its temporary staffing business
includes offering new services to clients, expanding the number of markets
served by StarMed's Per Diem division and acquiring other companies in the
temporary healthcare staffing industry in selected markets.

Medical Resources ,was incorporated in Delaware in August 1990 and has its
principal executive office at 155 State Street, Hackensack, New Jersey 07601,
telephone number: 201-488-6230. Prior to the Company's incorporation, the
Company's operations, which commenced in 1979, were conducted by corporations
which are now among its subsidiaries.

The Offering

Common Stock offered ................. 4,000,000 shares

Common Stock to be outstanding after
the offering ....................... 17,449,853 shares(1)

Use of proceeds ...................... The net proceeds of this offering will
be used to finance future acquisitions
and internal growth, to repay the
Company's outstanding indebtedness under
its revolving lines of credit and for
working capital and general corporate
purposes. See "Use of Proceeds."

Nasdaq National Market symbol ....... MRII

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(1) Based on the number of shares outstanding as of September 25, 1996.
Excludes 600,000 shares of Common Stock subject to an over-allotment option
granted to the Underwriters. Also excludes an aggregate of 5,041,375 shares
of Common Stock consisting of (i) 1,332,563 shares reserved for issuance
pursuant to the Company's outstanding employee and director stock options,
(ii) 1,657,375 shares reserved for issuance upon conversion of the
Company's outstanding convertible debentures, (iii) 1,251,437 shares
reserved for issuance pursuant to the Company's outstanding warrants and
(iv) 800,000 shares issuable pursuant to the Company's 1995 acquisition of
the assets of New England MRI, Inc., 200,000 of which are contingent upon
the acquired centers achieving certain earnings objectives.

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Summary Consolidated and Pro Forma Financial and Other Data
(in thousands, except per share and supplemental data)

<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
---------------------------------------------------------------- -------------------------------
1995 1996
1991 1992 1993 1994 1995 Pro Forma(1) 1995 1996 Pro Forma(2)
---- ---- ---- ---- ---- ------------ ---- ---- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net service revenues(3) ......... $ 39,622 $ 41,143 $ 45,242 $ 45,179 $ 51,994 $ 99,896 $ 24,879 $ 36,776 $ 55,345
Operating income ................ 1,738 3,288 287 1,036 7,507 13,821 3,459 5,355 9,178
Income (loss) from continuing
operations before extraordinary
item .......................... (1,078) 610 (2,055) (1,093) 4,143 6,781 1,747 2,904 4,802
Income (loss) per share from
continuing operations before
extraordinary items:
Primary ....................... $ (0.22) $ 0.11 $ (0.32) $ (0.15) $ 0.53 $ 0.51 $ 0.24 $ 0.33 $ 0.35
Fully diluted ................. $ (0.22) $ 0.11 $ (0.32) $ (0.15) $ 0.53 $ 0.51 $ 0.24 $ 0.31 $ 0.34
Supplemental Data:
Number of consolidated imaging
centers at end of period ...... 6 7 8 8 11 29 11 19 37
Total procedures at consolidated
imaging centers(4) ............ 52,990 63,246 86,686 101,460 124,302 209,264 56,727 84,235 131,711
</TABLE>

June 30, 1996
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Pro Forma
Actual Pro Forma(5) As Adjusted(6)
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Balance Sheet Data:
Working capital ...................... $ 12,914 $ 19,264 $ 50,289
Total assets ......................... 66,815 133,099 159,799
Long-term debt and capital lease
obligations (excluding current
portion) ........................... 20,585 33,497 33,497
Total stockholders' equity ........... 26,986 66,242 97,267

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(1) Reflects the effects of the NMR Acquisition and the historical acquisitions
by the Company as if they had occurred on January 1, 1995 and the
historical acquisitions by NMR as if they had occurred on April 1, 1995.
See "Unaudited Pro Forma Combined Financial Statements."

(2) Reflects the effects of the historical acquisitions by the Company as if
they had occurred on January 1, 1996. See "Unaudited Pro Forma Combined
Financial Statements."

(3) Reflects the consolidation of (i) the Company's West Orange, New Jersey
center and (ii) the Company's SanBernardino, California center (which was
disposed of in 1992) as of August 1991. Net service revenues include equity
in earnings and management fees associated with the Company's Washington,
D.C. center which was sold during January 1992.

(4) The pro forma data represents the total number of procedures per day at
Medical Resources' consolidated centers, including procedures performed by
facilities acquired by the Company from the effective dates of such
acquisitions and procedures performed at NMR centers during the period
presented.

(5) Reflects the effects of the NMR Acquisition.

(6) Adjusted to give effect to the application of the net proceeds from this
offering.

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RISK FACTORS

In addition to the other information contained or incorporated by reference
in this Prospectus, prospective investors should carefully consider the
following matters in evaluating the Company and its business before purchasing
the shares of Common Stock offered hereby.

Acquisition Strategy; Management of Growth

One of the Company's key objectives is to continue to acquire diagnostic
imaging centers and temporary healthcare staffing businesses and integrate them
into the Company's operations. Successfully accomplishing this goal depends upon
a number of factors, including the Company's ability to find suitable
acquisition candidates, negotiate acquisitions on acceptable terms, obtain
necessary financing on acceptable terms, retain key personnel of the acquired
entities, hire and train other competent managers, and effectively and
profitably integrate the operations of the acquired businesses into the
Company's existing operations. The process of integrating acquired businesses,
including NMR, may require a significant amount of resources and management
attention which will temporarily detract from attention to the day-to-day
business of the Company and may be prolonged due to unforeseen circumstances.
The Company's ability to manage its growth effectively will require it to
continue to improve its operational, financial and management information
systems and controls, and to attract, retain, motivate and manage employees
effectively. The failure of the Company to manage growth in its business
effectively would have a material adverse effect on its results of operations.
Future acquisitions may be financed through the incurrence of additional
indebtedness or the issuance of equity securities. The issuance by the Company
of additional Common Stock in connection with acquisitions could be dilutive to
Company stockholders. Competition for suitable acquisition candidates is
expected to be intense and, in addition to local hospital and physician groups,
to include regional and national diagnostic imaging service companies, regional
and national staffing companies and other medical services companies, many of
which have greater financial resources than the Company. The Company may also
pursue the development of new centers. New centers may incur significant
operating losses during their development stages, and could materially adversely
affect the Company's operating results and financial condition.

The Company has recently entered into two letters of intent to acquire a
total of three imaging centers located in the Northeast and two letters of
intent to acquire two per diem healthcare staffing businesses located in
Michigan and California. The proposed acquisitions are subject to numerous
conditions, including the Company's satisfaction with its due diligence
investigations and the negotiation and execution of definitive documentation;
thus, there can be no assurance that the Company will complete any of the
proposed acquisitions. An acquisition of either a larger company or several
smaller companies may entail the use of a substantial portion of the net
proceeds from this offering.

Limitations and Delays in Reimbursement

Third-party payors, including Medicare, Medicaid, managed care/HMO
providers and certain commercial payors have taken extensive steps to contain or
reduce the costs of healthcare. In certain areas, the payors are subject to
regulations which limit the amount of payments. Discussions within the Federal
government regarding national healthcare reform are emphasizing containment of
healthcare costs. In addition, certain managed care organizations have
negotiated capitated payment arrangements for imaging services. Under
capitation, diagnostic imaging service providers are compensated using a fixed
rate per member of the managed care organization regardless of the total cost of
rendering diagnostic services to the members. Services provided under these
contracts are expected to become an increasingly significant part of the
Company's business. The inability of the Company to properly manage the
administration of capitated contracts could materially adversely effect the
Company. Although patients are ultimately responsible for payment for services
rendered, substantially all of the Company's imaging centers' revenues are
derived from third-party payors. Successful reduction of reimbursement amounts
and rates, changes in services covered, delays or denials of reimbursement
claims, negotiated or discounted pricing and other similar measures could
materially adversely affect the Company's respective imaging centers' revenues,
profitability and cash flow.

The Company's management believes that reimbursement rates will continue to
decline due to factors such as the expansion of managed care providers and
continued national healthcare reform efforts. The Company enters into
contractual arrangements with managed care organizations which, due to the size
of their membership, are able to

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command reduced rates for services. These agreements are expected to increase
the number of procedures performed due to the additional referrals from these
managed care arrangements. However, there can be no assurance that the increased
volume of procedures associated with these contractual arrangements will offset
the reduction in reimbursement rate per procedure.

In addition, during 1995 approximately 22.1% of the Company's net service
revenues from imaging centers (18.5% pro forma for the NMR Acquisition) were
derived through physicians providing imaging services to patients involved in
personal injury claims. Receivables relating to personal injury claims require
more extensive documentation than other procedures. In addition, those
individuals with obligations to the Company in excess of insurance coverage or
those who do not have insurance coverage tend to delay payment until legal
claims are resolved, which may result in significant collection delays. Due to
the greater complexity in processing receivables relating to personal injury
claims, as well as increased information requirements from third-party payors,
such receivables typically require a longer period of time to collect compared
to other receivables and, in the experience of the Company, incur a higher bad
debt expense. The Company believes that providing imaging services to patients
involved in personal injury claims is an attractive revenue source because of
the higher reimbursement rates typically realized in such cases as compared to
payors such as Medicare, Medicaid and managed care providers. Therefore, the
Company expects new centers which it has recently acquired, including NMR's
centers, and centers which it may acquire in the future to target actively such
personal injury cases, which may increase such centers' bad debt expense levels.
Significant delays in the collection or the inability to collect receivables
relating to personal injury claims could have an adverse effect on the Company's
diagnostic imaging operations.

Restrictions Imposed by Government Regulation

The healthcare industry is highly regulated. The ownership, construction,
operation, expansion and acquisition of outpatient diagnostic imaging centers
are subject to various federal and state laws, regulations and approvals
concerning such matters as physician referrals, licensing of facilities and
personnel, and Certificates of Need and other required certificates for certain
types of healthcare facilities and major medical equipment. Among other
penalties, violations of these laws can result in the shutdown of a company's
facilities and loss of Medicare and Medicaid reimbursement. The Federal
Anti-Kickback Act of 1986 (the "Anti-Kickback Act") prohibits the offer,
payment, solicitation or receipt of any form of remuneration in return for
referring Medicare or Medicaid patients or purchasing, leasing, ordering or
arranging for any item or service that is covered by Medicare or Medicaid. The
law provides several penalties for engaging in prohibited acts, including
criminal sanctions and exclusion from the Medicare and Medicaid programs.
Although the Company does not believe that it is operating in violation of this
law, the scope of the law remains somewhat unclear and there is no assurance
that the Company would prevail in its position. In addition, in 1991 and
subsequently, the Office of the Inspector General of the Department of Health
and Human Services promulgated "safe harbor" regulations specifying activities
that will be protected from criminal and civil investigation and prosecution
under the Anti-Kickback Act. The Office of the Inspector General has stated that
failure to satisfy the conditions of an applicable "safe harbor" does not
necessarily indicate that the arrangement in question violates the Anti-Kickback
Act, but means that the arrangement is not among those that the "safe harbor"
regulations protect from criminal and civil investigation and prosecution under
that law. The finding of a violation must still be determined based upon the
precise language of the Anti-Kickback Act.

The Federal Omnibus Budget Reconciliation Act of 1989, as amended by the
Federal Omnibus Budget Reconciliation Act of 1993, contains provisions that,
unless an exception applies, restrict physicians from making referrals to,among
others, providers of MR and other radiological services for services to be
rendered to Medicare or Medicaid patients in which the physicians have a
"financial relationship" or an ownership interest or with which they have a
compensation arrangement (the so-called "Stark Law"). The Stark Law provides
exceptions for certain types of employment and contractual relationships. The
Company believes that it is in compliance with the Stark Law, but there is no
assurance that the Company will prevail in its position if challenged.

The State of Florida also enacted in 1992 an anti-kickback statute
substantially similar in scope to the Anti-Kickback Act. Although the Company
does not believe that it is operating in violation of this law, as with its
Federalcounterpart, the scope of the Florida law remains unclear and there is no
assurance that the Company would prevail in its position.

The States of Florida, Illinois, New Jersey, New York and Pennsylvania have
enacted laws that restrict or prohibit physicians from referring patients to
healthcare facilities in which such physicians have a financial interest.

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Although the Company does not believe that these laws will have a material
adverse effect on its operations in these states, there is no assurance that
these laws will not be interpreted or applied in such a way as to create such a
material adverse effect, or that these states, or other states in which the
Company does business, will not adopt similar or more restrictive laws or
regulations that could have such a material adverse effect.

Certain states where the Company has imaging centers have enacted
Certificate of Need laws to facilitate healthcare planning by placing
limitations on the purchase of major medical equipment and other capital
expenditures.

These statutes, together with their implementing regulations, could limit
the Company's ability to acquire new imaging equipment or expand or replace its
existing equipment, and no assurances can be given that the required regulatory
approvals for any future acquisitions, expansions or replacements will be
granted to the Company.

The Company continues to review all aspects of its operations and believes
that it complies in all materialrespects with applicable provisions of the
Anti-Kickback Act, the Stark Law and applicable state laws governing fraud and
abuse as well as licensing and certification, although because of the broad and
sometimes vague nature of these laws and requirements, there can be no assurance
that an enforcement action will not be brought against the Company or that the
Company will not be found to be in violation of one or more of these regulatory
provisions. Further, there can be no assurance that new laws or regulations will
not be enacted, or existing laws or regulations interpreted or applied in the
future in such a way as to have a material adverse impact on the Company, or
that Federal or state governments will not impose additional restrictions upon
all or a portion of the Company's activities, which might adversely affect the
Company's business.

Significant Long-Term Debt, Including Capitalized Lease Obligations

The Company has significant outstanding debt, including capitalized lease
obligations relating to equipment at its centers. At June 30, 1996, the
Company's long-term debt (pro forma for the NMR Acquisition), excluding current
maturities, was approximately $33,497,000, of which capitalized lease
indebtedness was approximately $9,464,000. The Company has financed the
acquisition of substantially all of the diagnostic imaging equipment used at its
centers (typically with terms ranging from five to seven years) from lenders and
lessors, with the equipment and other assets serving as collateral for the
loans. Substantially all of the Company's assets have been pledged as collateral
for its capitalized lease obligations, as well as other indebtedness. In certain
cases, the center leasing the equipment and the subsidiary which operates the
center are the only obligors under the capitalized leases. A default under an
equipment lease or certain other indebtedness of the Company could materially
adversely affect the operations of the Company.

Competition; Reliance on Referrals

The outpatient diagnostic imaging industry is highly competitive.
Competition focuses primarily on attracting physician referrals, including
referrals through relationships with managed care organizations, at the local
market level. The Company believes that principal competitors in each of its
markets are hospitals and independent or management company owned imaging
centers, some of which are owned with physician investors. Some of these
competitors have greater financial and other resources than the Company.
Principal competitive factors include facility location, type and quality of
equipment, quality and timeliness of test results, ability to develop and
maintain relationships with referring physicians, convenience of scheduling and
availability of patient appointment times and the pricing of services.
Competition for physician referrals can also be affected by the ownership or
affiliation of competing centers or hospitals, with certain of the Company's
competitors having historically derived a significant portion of their revenues
from referrals by physicians who are also investors and have a financial
interest in, or are otherwise affiliated with, the competing center or hospital.
In addition, managed care has affected the availability of referrals by
approving only a certain number of centers in a given geographic region.

The temporary healthcare staffing business is also very competitive.
StarMed competes for clients' business with other providers of travel nurse
temporary staffing and with other staffing companies that provide per diem
staffing services. StarMed also competes for the limited number of available
qualified staff. StarMed competes with several companies which are larger and
may possess greater financial and other resources.

Potential Adverse Effect of Restrictions on Unlicensed Practice of Medicine

Diagnostic imaging centers are subject to laws prohibiting the practice of
medicine by non-physicians and the rebate or division of fees between physicians
and non-physicians. Professional radiology services are performed at

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the Company's centers by licensed physicians under contract with a medical
professional corporation, while the Company provides the imaging equipment,
technical employees and administrative functions. Although the Company believes
that it is in compliance with relevant existing laws, there can be no assurance
that state authorities or others may not challenge this structure as involving
the Company in the unlawful practice of medicine.

Dependence on Qualified Interpreting Physicians

The Company's strategy of maintaining the high quality of its services is
dependent upon its ability to obtain and maintain arrangements with qualified
interpreting physicians at each of its centers. No assurance can be given that
the Company's contractual arrangements with interpreting physician groups at
each of the Company's centers can be maintained on terms advantageous to the
Company. No assurance can be given that the interpreting physicians with whom
the Company has contracts will perform satisfactorily or continue to practice in
the markets served by its imaging centers. In addition, with respect to the
development of new centers, there can be no assurance that arrangements can be
entered into with interpreting physicians on acceptable terms or that such
physicians will be successful in such centers. The Company's success is
significantly dependent on the ability of these physicians to attract patient
referrals, thereby enabling the Company's centers to operate profitably. The
inability of these physicians to attract sufficient referrals could have a
material adverse effect on the Company's financial condition and operating
results.

Technological Obsolescence

There have been rapid technological advancements made in the software and,
to a lesser extent, hardware in the diagnostic imaging industry. Although the
Company believes that its equipment can generally be upgraded as necessary, the
development of new technologies or refinements of existing technologies might
make existing equipment technologically or economically obsolete. If such
obsolescence were to occur, the Company may be compelled to acquire new
equipment, which could have a material adverse effect on its earnings and cash
flow. In addition, certain of the Company's centers compete against local
centers which contain more advanced imaging equipment or provide additional
modalities.

Liability Claims and Insurance

Although the Company provides administrative and technical services and is
not engaged in the practice of medicine, the diagnostic imaging and temporary
staffing businesses entail the risk of professional liability claims. The
Company's exposure to such liability is reduced for its imaging centers because
interpreting physicians are required to carry their own medical malpractice
insurance. Similarly, the Company's nursing personnel perform services in
accordance with treatments prescribed by third-party physicians or under
hospital supervision. Nevertheless, the Company maintains general liability
insurance and professional liability insurance for both its diagnostic imaging
business and its temporary staffing business in amounts deemed adequate by
management of the Company. There can be no assurance, however, that potential
claims will not exceed the coverage limits or that, in the future, such
insurance will be available.

Anticipated Losses from Certain Centers

In connection with the NMR Acquisition, the Company acquired centers in Bel
Air, Maryland and Elgin, Illinois. To date, these centers have generated
significant losses. For the fiscal year ended March 31, 1996, NMR incurred net
losses amounting to approximately $359,000 and $136,000, respectively, relating
to the operations of the Bel Air, Maryland and Elgin, Illinois centers. In
addition to NMR's initial capital contributions and subsequent working capital
advances, the Company continues to advance working capital to fund the
operations of these centers and cannot determine if or when these centers will
become profitable, or if or when these advances will be repaid. As of June 30,
1996, the total amount of working capital advances, including accrued but unpaid
interest thereon, made to each of the Bel Air, Maryland and Elgin, Illinois
centers amounted to approximately $3,059,000 and $1,954,000, respectively. The
Company presently intends to close these centers due totheir historical and
anticipated future operating losses. However, the Company will evaluate other
disposition alternatives for such centers, including a sale, joint venture or
other transaction, in the event such market opportunities are presented to the
Company. The Company expects to

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incur a loss of approximately $1,600,000 upon the closure of such centers,
although there can be no assurance of the timing of such closures or that the
actual costs will not exceed such amount. The Company has accrued such amount in
its unaudited pro forma financial statements reflecting the NMR Acquisition
included herein. See "Unaudited Pro Forma Combined Financial Statements."

Shares Available for Future Sale; Possible Adverse Effect of Outstanding
Derivative Securities

As of September 20, 1996, there were approximately 10,275,555 shares of
Common Stock held by non-affiliates of the Company that are able to trade
without restriction. In addition, as of such date, 4,241,375 shares of Common
Stock were issuable upon exercise or conversion of presently outstanding
options, warrants or convertible securities of the Company ("Derivative
Securities"). The exercise or conversion of a substantial amount of the
Derivative Securities could adversely affect the market price of Common Stock
due to the large number of shares issuable upon exercise or conversion of such
securities. In addition, so long as such securities remain outstanding, the
market price of Common Stock and the terms under which the Company might obtain
additional equity capital may be materially and adversely affected. Any sales of
substantial amounts of Common Stock in the open market could have an adverse
effect on the market price of the Common Stock. The possibility that substantial
amounts of Common Stock may be sold in the public market may adversely affect
prevailing market prices and, therefore, could impair the Company's ability to
raise capital through the sale of equity securities.

Absence of Dividends

The Company has never paid cash dividends and has no present plans to pay
cash dividends to its stockholders and, for the foreseeable future, intends to
retain all of its earnings, if any, for use in its business. The declaration of
any future dividends by the Company is within the discretion of its Board of
Directors and will be dependent on the earnings, financial condition and capital
requirements of the Company, as well as any other factors deemed relevant by its
Board of Directors.

Certain Anti-Takeover Measures

Certain provisions of the Company's Certificate of Incorporation, as well
as Delaware corporate law and the Company's Stockholder Rights Plan (the "Rights
Plan"), may be deemed to have anti-takeover effects and may delay, defer or
prevent a takeover attempt that a stockholder might consider in its best
interest. Such provisions also may adversely affect prevailing market prices for
the Common Stock. Certain of such provisions allow the Company's Board of
Directors to issue, without additional stockholder approval, preferred stock
having rights senior to those of the Common Stock. In addition, the Company is
subject to the anti-takeover provisions of Section 203 of the Delaware General
Corporation Law, which prohibits the Company from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed matter.
In September 1996, the Company adopted the Rights Plan, pursuant to which
holders of the Common Stock received a distribution of rights to purchase
additional shares of Common Stock, which rights become exercisable upon the
occurrence of certain events.

Volatility of Stock Price

The market price of the Common Stock has been and may continue to be
volatile. Recently, the stock market in general and the shares of healthcare and
diagnostic imaging services companies in particular have experienced significant
price fluctuations. These broad market and industry fluctuations may adversely
affect the market price of the Common Stock. Factors such as quarterly
fluctuations in results of operations, the timing and terms of future
acquisitions and general conditions in the healthcare industry may have a
significant impact on the market price of the Common Stock. See "Price Range of
Common Stock and Dividend Policy."

10
<PAGE>

RECENT DEVELOPMENTS

On August 30, 1996, the Company acquired NMR through a merger of NMR into a
wholly owned subsidiary of the Company. As a result of the NMR Acquisition, the
Company acquired NMR's 18 outpatient imaging centers located in Florida, New
Jersey, Illinois, Maryland and Pennsylvania, complementing the presence of the
Company's existing facilities in Florida and the Northeast and expanding the
Company's operations into the Chicago area.

Prior to the NMR Acquisition, in 1996, the Company completed four
acquisitions in the diagnostic imaging business. The Company completed the
acquisition of four diagnostic imaging centers located in New York City in
January 1996, three centers located in Tampa and Tarpon Springs, Florida in
April 1996, one center located in Clearwater, Florida in May 1996 and one center
in Centereach, New York in July 1996.

In addition, during 1996, the Company, through StarMed, completed two
acquisitions in the per diem healthcare staffing business. In January 1996, the
Company acquired NurseCare Plus, Inc. ("NurseCare Plus"), a corporation based in
San Diego, California, which provides per diem healthcare staffing services in
Southern California. In June 1996, StarMed completed the acquisition of the
assets of WeCare-Allied Health Care Services ("We Care"), a general partnership
which provides per diem healthcare staffing services in Florida. StarMed also
opened six per diem staffing offices in six states in 1996.

11
<PAGE>

USE OF PROCEEDS

The net proceeds (assuming the Underwriters' over-allotment option is not
exercised) to be received by the Company from the sale of the Common Stock
offered hereby, assuming an offering price of $8 3/8 per share, after deducting
underwriting discounts and expenses, are estimated to be approximately
$31,025,000 (approximately $35,749,000 if the Underwriters' over-allotment
option is exercised in full).

The principal use of the net proceeds of this offering will be to fund
acquisitions and internal growth. The Company also intends to use approximately
$4,326,000 of the net proceeds of this offering to pay down outstanding
indebtedness under the Company's revolving line of credit arrangements. Such
indebtedness, which was incurred by the Company for general corporate purposes,
consists of $3,547,000 and $779,000 outstanding as of September 24, 1996 under
the Company's lines of credit with DVI Business Credit and First Union National
Bank, respectively, which lines bear interest at the annual rates of prime plus
1 1/2% and prime plus 1%, respectively. The remainder of the net proceeds will
be added to the Company's general funds and will be available for working
capital and general corporate purposes. Pending such uses, the net proceeds will
be invested by the Company in short-term, interest bearing, investment grade
securities.

As part of its diagnostic imaging center acquisition strategy, the Company
continually identifies and investigates potential acquisition candidates, which
range in size from single centers and multi-center groups to established imaging
center management companies some of which are larger than companies previously
acquired by the Company. The Company has recently entered into two letters of
intent to acquire a total of three imaging centers located in the Northeast.
Although the Company presently has no other arrangements, understandings or
agreements with any other diagnostic imaging company, the Company is in frequent
contact with numerous acquisition candidates and may enter into additional
letters of intent or a definitive acquisition agreement or agreements (including
those related to the existing letters of intent) at any time after the date
hereof. In addition, a key element of the Company's growth strategy for its
temporary staffing business includes acquiring temporary healthcare staffing
businesses in selected markets. The Company has recently entered into two
letters of intent to acquire two per diem healthcare staffing businesses located
in Michigan and California. The proposed acquisitions are subject to numerous
conditions, including the Company's satisfaction with its due diligence
investigations and the negotiation and execution of definitive documentation;
thus, there can be no assurance that the Company will complete any of the
proposed acquisitions. An acquisition of either a larger company or several
smaller companies may entail the use of a substantial portion of the net
proceeds from this offering.

12
<PAGE>

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Common Stock has traded on the Nasdaq National Market under the symbol
"MRII" since November 3, 1995 and on the Nasdaq SmallCap Market prior thereto.
The following table sets forth for the periods indicated below the high and low
closing sales prices of the Common Stock as reported by the Nasdaq National
Market and the Nasdaq SmallCap Market.

1994 High Low
---- ---- ---
First Quarter ............................. $ 2 3/4 $11 5/16
Second Quarter ............................ 3 1 3/4
Third Quarter ............................. 2 1/2 11 5/16
Fourth Quarter ............................ 4 1/4 1 5/8

1995
----
First Quarter ............................. $ 4 $ 2 7/8
Second Quarter ............................ 3 3/4 3 1/8
Third Quarter ............................. 6 1/2 3 1/2
Fourth Quarter ............................ 8 4 1/2

1996
----
First Quarter ............................. $ 6 3/8 $ 4 5/8
Second Quarter ............................ 10 1/4 6
Third Quarter (through September 26, 1996) 9 1/8 6 7/8

On September 26, 1996, the last reported sales price for the Common Stock
as reported by the Nasdaq National Market was $8 3/8 per share. As of September
26, 1996, there were approximately 294 record holders of Common Stock. Such
number does not include persons whose shares are held of record by a bank,
brokerage house or clearing agency, but does include such banks, brokerage house
and clearing agencies.

No cash dividends have been paid on the Common Stock since the organization
of the Company. The Company has no present plans to pay cash dividends to its
stockholders and, for the foreseeable future, intends to retain all of its
earnings, if any, for use in its business. The declaration of any future
dividends by the Company is within the discretion of its Board of Directors and
will be dependent on the earnings, financial condition and capital requirements
of the Company, as well as any other factors deemed relevant by its Board of
Directors.

13
<PAGE>

CAPITALIZATION

The following table sets forth the consolidated capitalization of the
Company (i) as of June 30, 1996, (ii) on a pro forma basis for the NMR
Acquisition, and (iii) on a pro forma as adjusted basis for the NMR Acquisition
and the sale by the Company of the 4,000,000 shares of Common Stock being
offered hereby (at an assumed offering price of $8 3/8 and assuming the
Underwriters' over-allotment option is not exercised) and the application of the
net proceeds therefrom. See "Use of Proceeds."

June 30, 1996
-----------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------ --------- -----------
(in thousands)
Short-term debt (including current portion
of long-term debt) ....................... $ 10,671 $ 15,866 $ 11,541
========= ========= =========
Long-term debt and capital lease obligations
(excluding current portion) .............. $ 20,585 $ 33,497 $ 33,497
Stockholders' equity:
Common Stock, $.01 par value, 20,000,000
shares authorized, 9,131,491 shares
issued and 8,866,491 shares outstanding;
13,587,946 shares issued and 13,322,946
shares outstanding on a pro forma basis;
17,587,946 shares issued and 17,322,946
shares outstanding on a pro forma
as adjusted basis (1)(2) ................. 91 136 176
Common Stock to be issued; 600,000 shares (3) 1,721 1,721 1,721
Additional paid-in capital ................. 27,897 67,198 98,183
Retained deficit ........................... (1,394) (1,394) (1,394)
Less 265,000 shares in treasury, at cost ... (1,419) (1,419) (1,419)
--------- --------- ---------
Total stockholders' equity .............. 26,896 66,242 97,267
--------- --------- ---------
Total capitalization .................. $ 47,480 $ 99,739 $ 130,764
========= ========= =========

- ----------
(1) On August 30, 1996, the Company increased its number of authorized shares
of Common Stock to 50,000,000.

(2) Excludes 600,000 shares of Common Stock subject to an over-allotment option
granted to the Underwriters. Also excludes an aggregate of 5,041,375 shares
of Common Stock consisting of (i) 1,332,563 shares reserved for issuance
pursuant to the Company's outstanding employee and director stock options,
(ii) 1,657,375 shares reserved for issuance upon conversion of the
Company's outstanding convertible debentures, (iii) 1,251,437 shares
reserved for issuance pursuant to the Company's outstanding warrants and
(iv) 800,000 shares issuable pursuant to the Company's 1995 acquisition of
the assets of New England MRI, Inc., 200,000 of which are contingent upon
the acquired centers achieving certain earnings objectives.

(3) Represents shares to be issued by the Company on a deferred basis in
connection with the Company's 1995 acquisition of the assets of New England
MRI, Inc.

14
<PAGE>

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

The following unaudited pro forma combined financial statements include an
unaudited pro forma combined balance sheet of the Company (the "Unaudited Pro
Forma Combined Balance Sheet") as of June 30, 1996, an unaudited pro forma
combined statement of operations for the year ended December 31, 1995 (the
"Unaudited Pro Forma Combined Statement of Operations") and an unaudited pro
forma combined statement of operations for the six months ended June 30, 1996
(the "Unaudited Pro Forma Combined Statement of Operations for the Six Months
Ended June 30, 1996"). These unaudited pro forma combined financial statements
include historical amounts for Medical Resources and NMR adjusted to reflect the
NMR Acquisition and other historical acquisitions of both companies as described
below.

Medical Resources' historical acquisitions during the year ended December
31, 1995 and six months ended June 30, 1996 included New England MRI, Inc. and
PCC Imaging, Inc., which were effective on May 26, 1995 and June 19, 1995,
respectively, MRI-CT, Inc. which was effective on January 9, 1996, Nurse Care
Plus, Inc. which was effective on January 12, 1996, Americare Imaging Centers,
Inc. and MRI Associates of Tarpon Springs, Inc. which were effective on April
19, 1996, Access Imaging Center, Inc. which was effective on April 30, 1996 and
We Care-Allied Health Care, Inc. which was effective on June 28, 1996.

NMR's historical acquisitions during its fiscal year ended March 31, 1996
included Morgan Medical Holdings, Inc. and Central Diversey MRI Center, Inc.,
which were effective on September 15, 1995 and January 1, 1996,respectively.

Medical Resources' fiscal year end is December 31 and NMR's fiscal year end
is March 31. Accordingly, the Unaudited Pro Forma Combined Statement of
Operations has been presented as if the NMR Acquisition and the historical
acquisitions by Medical Resources had occurred on January 1, 1995 and as if the
historical acquisitions by NMR had occurred on April 1, 1995. The Unaudited Pro
Forma Combined Statement of Operations for the Six Months Ended June 30, 1996
has been prepared on the basis that the NMR Acquisition and the other historical
acquisitions by Medical Resources occurred as of January 1, 1996. For purposes
of presenting the Unaudited Pro Forma Combined Balance Sheet, the NMR
Acquisition is considered to have occurred on June 30, 1996. NMR made no
acquisitions subsequent to January 1, 1996. The NMR Acquisition was accounted
for under the purchase method of accounting and, therefore, these statements are
prepared on such a basis.

These unaudited pro forma combined financial statements do not purport to
be indicative of the actual financial position or results of operations that
would have been achieved had the transactions been consummated on such date, or
at the beginning of the periods, for which the unaudited pro forma combined
financial statements are presented, nor do they purport to be indicative of
future operating results or financial position of the combined entity.

The following unaudited pro forma combined financial statements should be
read in conjunction with the historical consolidated financial statements and
related notes thereto of Medical Resources and NMR and the notes to the
Unaudited Pro Forma Combined Financial Statements, included elsewhere herein, as
certain data and notes normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted.

15
<PAGE>

Unaudited Pro Forma Combined Balance Sheet
As of June 30, 1996

(in thousands)

Combined
Medical Medical
Resources NMR Resources
June 30, June 30, Pro Forma and NMR
1996 1996(1) Adjustments Pro Forma
--------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Cash and cash equivalents .................. $ 8,015 $ 2,362 $ (1,168)(A) $ 7,984
(1,225)(B)
Short-term investments ..................... -- 1,830 1,830
Accounts receivable, net ................... 18,645 14,947 33,592
Other assets ............................... 4,491 1,302 5,793
--------- --------- --------- ---------
Total current assets ..................... 31,151 20,441 (2,393) 49,199

Medical diagnostic and office equipment, net 14,437 14,007 (2,908)(C) 25,536
Goodwill, net .............................. 17,707 10,660 (10,660)(D) 52,990
35,283 (E)
Other assets ............................... 3,520 1,424 1,409 (F) 5,374
(830)(G)
(149)(J)
--------- --------- --------- ---------
Total assets ............................. $ 66,815 $ 46,532 $ 19,752 $ 133,099
========= ========= ========= =========

Current portion of notes payable ........... $ 1,835 $ 4,591 $ 6,426
Current portion of obligations under
capital leases ........................... 4,511 604 5,115
Line of credit ............................. 4,325 -- 4,325
Accounts payable and accrued expenses ...... 5,572 4,449 10,021
Other current liabilities .................. 1,525 -- $ 2,054 (H) 3,579
Income taxes payable ....................... 469 -- 469
--------- --------- --------- ---------
Total current liabilities ................ 18,237 9,644 2,054 29,935
Notes payable .............................. 4,870 10,012 14,882
Obligations under capital leases ........... 8,455 1,009 9,464
Convertible debentures ..................... 7,260 1,891 9,151
Other long-term liabilities ................ 1,097 2,328 3,425
--------- --------- --------- ---------
Total liabilities ........................ 39,919 24,884 2,054 66,857

Common stock ............................... 91 67 (67)(I) 136
45 (E)
Common stock to be issued .................. 1,721 -- 1,721
Additional paid in capital ................. 27,897 17,073 (17,073)(I) 67,198
39,301 (E)
Retained (deficit) earnings ................ (1,394) 6,220 (6,220)(I) (1,394)
Treasury stock ............................. (1,419) (1,712) 1,712 (I) (1,419)
--------- --------- --------- ---------
Total stockholders' equity ............... 26,896 21,648 17,698 66,242
--------- --------- --------- ---------

Total liabilities and stockholders' equity $ 66,815 $ 46,532 $ 19,752 $ 133,099
========= ========= ========= =========
</TABLE>

- ----------
(1) As reclassified to conform with the Company's presentation of financial
information.

See Accompanying Notes (A) to (I) to Unaudited Pro Forma
Combined Financial Statements and
Notes to Audited Consolidated Financial Statements

16
<PAGE>

Unaudited Pro Forma Combined Statement of Operations
For the Year Ended December 31, 1995
(in thousands, except per share data)

<TABLE>
<CAPTION>
Combined
Medical
Resources/
NMR and
Medical Medical Medical
Medical Resources Resources NMR Resources/
Resources NMR and Historical Historical NMR
Year Ended Year Ended NMR Acquisitions Acquisitions Historical
December 31, March 31, Pro Forma Pro Forma Pro Forma Pro Forma Acquisitions
1995 1996(1) Adjustments Combined Adjustments Adjustments Pro Forma
------------ ---------- ----------- -------- ----------- ----------- ---------

<S> <C> <C> <C> <C> <C> <C> <C>
Net service revenues ........ $ 51,994 $ 23,957 $ (1,791)(a) $ 74,307 $ 22,122(j) $ 3,467(m) $ 99,896
147 (b)
Operating costs, excluding
interest, depreciation and
amortization .............. 31,564 13,125 (1,754)(a) 42,935 15,107(j) 1,641(k) 59,683
Provision for uncollectible
accounts receivable ........ 3,378 -- 3,378 1,045(j) 4,423
Corporate general and
administrative ............. 4,978 2,916 356 (c) 8,250 2,480(j) 344(k) 11,074
Depreciation and amortization 4,567 3,094 (532)(a) 8,049 2,438(j) 408(k) 10,895
(420)(d)
1,764 (e)
(60)(f)
(364)(g)
-------- -------- -------- -------- -------- -------- --------
Operating income .......... 7,507 4,822 (634) 11,695 1,052 1,074 13,821
Interest expense ............ 1,829 1,678 (518)(a) 2,989 301(j) 356(k) 3,646
-------- -------- -------- -------- -------- -------- --------
Income from continuing
operations before minority
interest and taxes ......... 5,678 3,144 (116) 8,706 751 718 10,175
Minority interest ........... (124) 411 287 287
-------- -------- -------- -------- -------- -------- --------
Income from continuing
operations before income
taxes ...................... 5,802 2,733 (116) 8,419 751 718 9,888
Income taxes ................ 1,659 956 (46)(h) 2,569 300(j) 238(k) 3,107
-------- -------- -------- -------- -------- -------- --------
Income from continuing
operations ................. $ 4,143 $ 1,777 $ (70) $ 5,850 $ 451 $ 480 $ 6,781
======== ======== ======== ======== ======== ======== ========

Earnings per share:
Primary (2) ................ $ 0.53 $ 0.30 $ 0.50 $ 0.51
======== ======== ======== ========
Weighted average shares
outstanding ................ 7,785 5,870 4,036(i) 11,821 1,092(l) 378(m) 13,291
======== ======== ======== ======== ======== ======== ========
</TABLE>

- ----------
(1) As reclassified to conform with the Company's presentation of financial
information.

(2) Fully diluted earnings per share equals primary earnings per share.

See Accompanying Notes (a) to (m) to Unaudited Pro Forma
Combined Financial Statements and
Notes to Audited Consolidated Financial Statements

17
<PAGE>

Unaudited Pro Forma Combined Statement of Operations
For the Six Months Ended June 30, 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>

Combined
Medical
Resources
/NMR
Medical Medical and
Resources NMR Medical Resources Medical
Six Months Six Months Resources Historical Resources
Ended Ended and NMR Acquisitions Historical
June 30, June 30, Pro Forma Pro Forma Pro Forma Acquisitions
1996 1996(1) Adjustments Combined Adjustments Pro Forma
--------- -------- ----------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net service revenues .......... $ 36,776 $ 14,228 $ (952)(aa) $ 50,052 $ 5,293(jj) $ 55,345
Operating costs, excluding
interest, depreciation
and amortization ............ 23,486 7,456 (1,066)(aa) 29,876 3,481(jj) 33,357
Provision for uncollectible
accounts receivable ......... 1,762 -- 1,762 144(jj) 1,906
Corporate general and
administration .............. 3,433 1,877 140 (cc) 5,450 437(jj) 5,887
Depreciation and
amortization ................ 2,740 1,689 (270)(aa) 4,490 528(jj) 5,017
(322)(dd)
882 (ee)
(48)(ff)
(182)(gg)
Transaction costs ............. -- 301 (301)(bb)
-------- -------- -------- -------- -------- --------
Operating income ............ 5,355 2,905 215 8,474 703 9,178
Interest expense .............. 1,288 910 (261)(aa) 1,936 48(jj) 1,985
-------- -------- -------- -------- -------- --------
Income from continuing
operations before minority
interest and taxes .......... 4,067 1,995 476 6,538 655 7,193
Minority interest ............. 64 197 261 261
-------- -------- -------- -------- -------- --------
Income from continuing
operations before
income taxes ................ 4,003 1,798 476 6,277 655 6,932
Income taxes .................. 1,099 579 190 (hh) 1,868 262(jj) 2,130
-------- -------- -------- -------- -------- --------
Income from continuing
operations .................. $ 2,904 $ 1,219 $ 285 $ 4,409 $ 393 $ 4,802
======== ======== ======== ======== ======== ========
Earnings per share:
Primary ..................... $ 0.33 $ 0.19 $ 0.33 $ 0.35
======== ======== ======== ========
Fully diluted ............... $ 0.31 $ 0.19 $ 0.32 $ 0.34
======== ======== ======== ========
Weighted average shares
outstanding ................. 8,835 6,440 4,428 (ii) 13,263 272(kk) 13,535
======== ======== ======== ======== ======== ========

</TABLE>

- ----------
(1) As reclassifed to conform with the Company's presentation of financial
information.

See Accompanying Notes (aa) to (kk) to Unaudited Pro Forma
Combined Financial Statements and
Notes to Audited Consolidated Financial Statements

18
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated historical financial data of the
Company is derived from the Company's consolidated financial statements for the
periods indicated. The Company's consolidated financial statements as of
December 31, 1995 and 1994 and for the years then ended have been audited by
Ernst & Young LLP, the Company's independent certified public accountants. The
Company's consolidated financial statements as of December 31, 1993 and for the
year then ended, after restatement for the 1994 acquisition of StarMed, have
been audited, as to the combination only, by Ernst & Young LLP. Such
consolidated financial statements and notes thereto are included herein. The
Company's consolidated financial statements as of December 31, 1993 and for the
year then ended, prior to restatement for the 1994 acquisition of StarMed and
not presented separately herein, were audited by Price Waterhouse LLP,
independent accountants. The selected balance sheet data at June 30, 1995 and
1996 and the income statement data for the six month periods ended June 30, 1995
and 1996 have been derived from the Company's unaudited consolidated financial
statements and include, in the opinion of management, all adjustments,
consisting only of normal recurring accruals, necessary for a fair statement of
such data. The operating results for the six month period ended June 30, 1996
are not necessarily an indication of the results to be expected for the year
ending December 31, 1996 or for future periods.

<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
------------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net service revenues(1) ............ $ 39,622 $ 41,143 $ 45,242 $ 45,179 $ 51,994 $ 24,879 $ 36,776
-------- -------- -------- -------- -------- -------- --------
Operating costs, excluding interest,
depreciation and amortization .... 27,033 26,294 30,687 29,307 31,564 15,507 23,486
Provision for uncollectible
accounts receivable .............. 678 1,656 1,672 2,495 3,378 1,681 1,762
Corporate general and
administrative ................... 5,708 5,755 6,915 4,438 4,978 2,067 3,433
Depreciation and amortization ...... 4,038 4,331 5,220 4,844 4,567 2,165 2,740
Write-downs and other
non-recurring charges ............ 427 (181) 460 3,059 -- -- --
-------- -------- -------- -------- -------- -------- --------
Operating income ................... 1,738 3,288 287 1,036 7,507 3,459 5,355
Interest expense ................... 2,563 2,302 2,507 1,693 1,829 840 1,288
Minority interests ................. 195 109 (229) (46) (124) 65 64
-------- -------- -------- -------- -------- -------- --------
Income from continuing
operations before income taxes
and extraordinary items .......... (1,020) 877 (1,991) (611) 5,802 2,554 4,003
Income taxes ....................... 58 267 64 481 1,659 807 1,099
-------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations before extraordinary
items ............................ $ (1,078) $ 610 $ (2,055) ($ 1,093) $ 4,143 $ 1,747 $ 2,904
======== ======== ======== ======== ======== ======== ========
Income (loss) per share from
continuing operations before
extraordinary items:
Primary ........................... $ (0.22) $ 0.11 $ (0.32) $ (0.15) $ 0.53 $ 0.24 $ 0.33
======== ======== ======== ======== ======== ======== ========
Fully diluted ..................... $ (0.22) $ 0.11 $ (0.32) $ (0.15) $ 0.53 $ 0.24 $ 0.31
======== ======== ======== ======== ======== ======== ========

<CAPTION>
December 31, June 30,
------------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $ 1,058 $ 5,077 $ 3,365 $ 5,834 $ 10,738 $ 9,888 $ 12,914
Total assets 29,431 33,993 40,881 40,372 44,136 49,197 66,815
Long-term debt and capital lease
obligations (excluding
current portion) 20,115 12,765 19,034 13,415 15,507 17,590 20,585
Total stockholders' equity 5,980 12,245 10,602 11,872 16,966 17,678 26,896
</TABLE>

- ----------
(1) Reflects the consolidation of (i) the Company's West Orange, New Jersey
center and (ii) the Company's SanBernardino, California center (which was
disposed of in 1992) as of August 1991. Net service revenues include equity
in earnings and management fees associated with the Company's Washington,
D.C. center which was sold during January 1992.

19
<PAGE>

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

The following discussion provides an analysis of the Company's financial
condition and results of operations and should be read in conjunction with the
consolidated financial statements and notes thereto of the Company and NMR and
the Unaudited Pro Forma Combined Financial Statements and notes thereto included
elsewhere herein.

Overview

The Company is engaged in two segments of the healthcare industry:
operating diagnostic imaging centers and providing temporary staffing services.
The Company currently operates 37 outpatient diagnostic imaging centers, and
provides network management services to managed care providers. StarMed provides
temporary staffing of registered nurses and other healthcare professionals and
administrative personnel to acute and sub-acute care facilities nationwide.

The Company is rapidly growing and has increased the number of diagnostic
imaging centers it owns from 11 at December 31, 1995 to 37 at August 30, 1996.
Since January 1, 1996, the Company has acquired 27 centers in five separate
transactions, including 18 imaging centers resulting from the NMR Acquisition
with aggregate pro forma revenues of approximately $27,300,000 for NMR's fiscal
year ended March 31, 1996 (which pro forma revenues reflect NMR's historical
acquisitions) and eight additional centers in 1996 which had aggregate pro forma
revenues totalling approximately $5,662,000 for the six months ended June 30,
1996. With respect to the same centers owned in 1994, the Company experienced
same center revenue growth of 7.4% in 1995. The Company's temporary healthcare
staffing business has also grown rapidly since commencing per diem operations in
March 1995, having opened 13 per diem offices and acquired two per diem
businesses since such time. These staffing acquisitions and new per diem offices
have contributed approximately $5,261,000 to the Company's revenues for the
first six months of 1996. For additional information with respect to the pro
forma effects of the NMR Acquisition and such other centers on the Company's
historical balance sheet as of June 30, 1996 and statement of operations for the
periods presented, see "Unaudited Pro Forma Combined Financial Statements."

Generally, revenues at diagnostic imaging centers are recognized on an
accrual basis and consist of patient service revenues adjusted for contractual
adjustments allocated to the Company under the terms of its management
agreements with radiologists or practice groups (net patient service revenue).
Such revenues are derived from charges for patient services rendered in
diagnostic imaging centers under the terms of certain payment arrangements with
various third party payors. Certain of such charges are paid at less than the
Company's established rates. Pursuant to the terms of its management agreements,
among other obligations, the Company staffs the centers, makes leasehold
improvements, provides all equipment and performs marketing, sales and certain
administrative functions relating to the provision of imaging services.

The Company also recognizes revenue from temporary staffing services. The
Company charges its staffing clients based upon an hourly fee for the services
of its registered nurses and other personnel. The Company's expenses for its
temporary staffing business consist primarily of the compensation provided to
such nurses and other personnel, as well as the overhead expenses required to
maintain temporary staffing offices.

20
<PAGE>

Results of Operations

The following table sets forth the percentages of total net service
revenues represented by certain items reflected in the Company's consolidated
statement of operations. The information that follows should be read in
conjunction with the consolidated financial statements and notes thereto
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
------------------------ -------------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net service revenues ............................ 100.0% 100.0% 100.0% 100.0% 100.0%
Operating costs, excluding interest, depreciation
and amortization .............................. 67.8 64.9 60.7 62.3 63.9
Provision for uncollectible accounts
receivable .................................... 3.7 5.5 6.5 6.8 4.8
Corporate general and administrative ............ 15.3 9.8 9.6 8.3 9.3
Depreciation and amortization ................... 11.5 10.7 8.8 8.7 7.5
Write-downs and non-recurring charges(1) ........ 1.0 6.8 -- -- --
----- ----- ----- ----- -----
Operating income ................................ 0.6% 2.3% 14.4% 13.9% 14.5%
===== ===== ===== ===== =====
</TABLE>

- ----------
(1) Includes executive severance of $332,000 and $327,678 in 1993 and 1994,
respectively; write-down of diagnostic equipment of $127,511 and $40,000 in
1993 and 1994, respectively; write-down of value of venture contracts and
intangible assets of $2,176,118 in 1994; provision for minority interest in
losses of joint venture of $531,543 in 1994; and gain on disposal of
diagnostic equipment of $17,500 in 1994.

For the years ended December 31, 1993, 1994 and 1995, operating costs,
excluding interest, depreciation and amortization declined as a percentage of
net service revenues due principally to increased revenues from diagnostic
imaging services, where a significant portion of operating costs are
non-variable, and the benefits of cost reduction programs. The provision for
uncollectible account receivable increased as a percentage of net service
revenues during such periods due to an increase in revenues relating to personal
injury claims and additional reserves relating to older accounts receivable.
Corporate general and administrative expenses declined as a percentage of net
service revenues as a result of cost reduction programs and increases in net
service revenues without proportional increases in corporate general and
administrative expenses. As a result of the foregoing, operating income before
write-downs and non-recurring charges increased as a percentage of net service
revenues from 1.7% to 9.1% to 14.4% for the years ended December 31, 1993, 1994
and 1995, respectively.

For the six months ended June 30, 1996 compared to the six months ended
June 30, 1995, operating costs, excluding interest, depreciation and
amortization increased as a percentage of net service revenues due to an
increase in the proportion of net service revenues being derived from temporary
staffing services (whose operating costs are a higher percentage of net service
revenues than those of diagnostic imaging) and higher operating costs associated
with the imaging centers and staffing businesses acquired in 1996. The provision
for uncollectible accounts receivable decreased as a percentage of net service
revenues in 1996 compared to 1995 due to an increase in the proportion of net
service revenues being derived from temporary staffing services (which carry a
significantly lower provision than diagnostic imaging revenues) and the absence
of certain adjustments to imaging accounts receivable taken in 1995. Corporate
general and administrative expenses increased as a percentage of net service
revenues as a result of increased expenditure on acquisition efforts, expenses
relating to the expanded scope of the Company's business and the relocation of
the Company's corporate headquarters. As a result of the foregoing, operating
income increased as a percentage of net service revenues from 13.9% for the six
months ended June 30, 1995 to 14.5% for the six months ended June 30, 1996.

Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995

Net service revenues for the six months ended June 30, 1996 and 1995 were
$36,776,000 and $24,879,000, respectively, representing an increase of
$11,897,000 or 48% in 1996. The increase is due primarily to additional

21
<PAGE>

revenues derived from the acquisitions of eight diagnostic imaging centers,
NurseCare Plus, We Care and the opening of nine per diem staffing offices in the
prior 12 months.

Operating costs, excluding interest, depreciation and amortization for the
six months ended June 30, 1996 and 1995 were $23,486,000 and $15,507,000,
respectively, an increase of $7,979,000 or 51% in 1996. The increase in the
operating costs is due to operational costs incurred at the diagnostic centers
acquired over the prior 12 months and the additional costs from the operations
of NurseCare Plus, We Care and the nine per diem offices opened over the last 12
months.

The provision for uncollectible accounts receivable for the six months
ended June 30, 1996 and 1995 were $1,762,000 and $1,681,000, respectively, an
increase of $81,000 or 5% in 1996. The increase reflects the provision required
on the additional diagnostic imaging revenue over the prior year partially
offset by additional charges in the first quarter of 1995 to increase the
reserve for bad debts attributable to accounts receivable related to personal
injury-related services. The provision for uncollectible accounts receivable as
a percentage of net service revenues has decreased to 4.8% for the six months
ended June 30, 1996 from 6.8% for the same period in 1995 due to the
aforementioned items.

Corporate general and administrative expenses for the six months ended June
30, 1996 and 1995 were $3,433,000 and $2,067,000, respectively, representing an
increase of $1,366,000, or 66% in 1996. The increase is due primarily to
additional overhead incurred to support the acquisition of the eight diagnostic
centers, NurseCare Plus, We Care and the opening of nine per diem staffing
offices in the prior 12 months.

Depreciation and amortization for the six months ended June 30, 1996 and
1995 was $2,741,000 and $2,165,000, respectively, representing an increase of
$576,000 or 27% in 1996. The increase in depreciation and amortization for the
six-month period ended June 30, 1996 over the same period in 1995 was due to
additions to medical diagnostic and office equipment and the goodwill that was a
result of the purchases of the new diagnostic centers.

As a result of the foregoing, operating income for the six months ended
June 30, 1996 and 1995 was $5,355,000 and $3,459,000, respectively, an increase
of $1,896,000 or 55% in 1996.

Interest expense for the six months ended June 30, 1996 and 1995 was
$1,288,000 and $840,000, respectively, representing an increase of $448,000 or
53% in 1996. The increase in interest expense for the six months ended June 30,
1996 over the same period in 1995 was due primarily to the interest on the
Company's 10.5% Convertible Subordinated Debentures due 2001 (the "10.5%
Debentures") and the interest cost related to the capital leases on the
diagnostic centers acquired over the past twelve months partially offset by
decreased interest expense on the capital leases on the Company's existing
diagnostic centers.

The provision for income taxes for the six months ended June 30, 1996 and
1995 was $1,099,000 and $807,000, respectively, representing an effective tax
rate of 27% and 32%, respectively. The corporate tax rate of approximately 39%
was reduced by the reversal of the reserves against the deferred tax asset and
certain other tax related liabilities of $480,000 for the six months ended June
30, 1996 and 1995. Based upon improved operations and other pertinent factors,
management believes it is more likely than not that the deferred asset is
recoverable and has accordingly reversed such reserves during the six months
ended June 30, 1996. As such, the Company expects to record provisions for
income taxes at higher effective rates during the remainder of 1996 and in
future periods.

The loss from operations from discontinued business of ($982,000) for the
six months ended June 30, 1995 represent the loss from operations of Maternity
Resources, Inc. ("Maternity"), the Company's former maternity apparel
manufacturing and retailing subsidiary. Maternity was disposed of by the Company
in November 1995.

As a result of the foregoing, net income for the six months ended June 30,
1996 and 1995 was $2,904,000 and $765,000, respectively, representing an
increase of $2,139,000 or 280% in 1996.

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

Net service revenues in 1995 and 1994 were $51,994,000 and $45,179,000,
respectively, representing an increase of $6,815,000, or 15%, in 1995. This
increase was primarily due to an increase in the revenues of the Company's
imaging business of $5,253,000. The increase in the same center revenues was
$2,272,000. In addition, revenues from the Company's staffing business increased
in 1995 by $1,562,000.

22
<PAGE>

Operating costs, excluding interest expense, depreciation and amortization
in 1995 and 1994 were $31,564,000 and $29,307,000, respectively, representing an
increase of $2,257,000, or 8%, in 1995. The increase is primarily due to an
increase in variable costs associated with the increased operating costs at the
Company's existing centers resulting from increased procedures and the
acquisition of three new centers. Additionally, there was increased operating
costs in the Company's staffing business associated with the increased revenues.

Provision for uncollectible accounts receivable in 1995 and 1994 was
$3,378,000 and $2,495,000, respectively, representing an increase of $883,000,
or 35% in 1995. As a percentage of total revenues, provision for uncollectible
accounts receivable increased to 6.5% in 1995, compared to 5.5% in 1994. The
increase is primarily attributable to a change in the estimate for receivables
derived from revenues with a higher risk of bad debts.

Corporate general and administrative expenses in 1995 and 1994 were
$4,978,000 and $4,438,000, representing an increase of $540,000, or 12%, in
1995. This increase is attributable to an increase in corporate staff associated
with the Company's increased business and acquisitions and new business
development activity during 1995.

Depreciation and amortization, including amortization of the value of
venture contracts, in 1995 and 1994 was $4,567,000 and $4,844,000, respectively,
representing a decrease of $277,000, or 6%, in 1995. The decrease in
depreciation and amortization was primarily due to the write-down of intangible
assets in 1994 of $2,176,000 relating to the value of venture contracts
recognized in connection with the acquisition by the Company of the Company's
predecessor companies in September 1990 and goodwill associated with the
Company's purchase of a diagnostic imaging center in July 1992. The decrease in
depreciation and amortization expense was partially offset by the depreciation
and amortization expense related to the three centers acquired by the Company
during fiscal 1995.

The provision for minority interest in losses of joint venture of $532,000
in 1994 relates to the Company's Brooklyn, New York facility. Executive
severance of $328,000 in 1994 is reflective of the separation agreements entered
into with two former senior executives of the Company during that year. The
write-down of medical diagnostic equipment of $40,000 arose from an adjustment
to the Clifton, New Jersey center's ultrasound unit to its fair market value in
February 1994. The gain on the disposal of $17,500 resulted from the sale of a
MR unit at the Company's Naples, Florida facility in February 1994 for $100,000.
There were no such charges or gains in 1995.

As a result of the foregoing, operating income in 1995 and 1994 was
$7,507,000 and $1,036,000, respectively, representing an increase of $6,471,000
in 1995.

Interest expense in 1995 and 1994 was $1,829,000 and $1,693,000,
respectively, representing an increase of $136,000, or 8%, in 1995. The increase
in interest expense is primarily due to the interest on the Company's 11%
Convertible Subordinated Debentures due 2000 (the "11% Debentures") which
accounted for $279,000 of interest partially offset by a reduction of notes
payable and renegotiation of some capital leases in the fourth quarter of 1994.

Minority interest in losses of joint ventures and limited partnerships in
1995 and 1994 was $124,000 and $46,000, respectively, an increase of $78,000.
This increase was due primarily to the Company's Brooklyn, New York and St.
Petersburg, Florida facilities operating at a combined loss in 1994 of $543,000
compared with net operating income of $268,000 in 1995 before adjustment for
minority partner capital contributions. The minority interest in losses of joint
ventures and limited partnerships in 1994 was reduced as a result of the Company
taking a charge for the majority of the operating losses at the Brooklyn
facility in the amount of $532,000.

The provision for income taxes in 1995 and 1994 was $1,659,000 and
$481,000, respectively, representing an increase of $1,178,000 in 1995. The 1995
provision for income taxes represents federal and state income taxes resulting
from separate company state tax filing requirements and is net of reductions in
the deferred tax asset valuation allowance of $1,508,000, in recognition of
profitable operations. The increase is attributable to the increase in current
taxable income during 1995. As disclosed in the Company's consolidated statement
of operations, StarMed operated as a partnership prior to the combination with
the Company in August, 1994; therefore, StarMed had not recorded any income tax
expense or benefits. The pro forma income tax expense (benefit), assuming
StarMed was taxed as a C Corporation, was $1,659,000 for 1995 and $660,000 for
1994, an increase of $999,000 excluding the $297,000 income tax effect for the
extraordinary item in 1994.

The extraordinary item, gain on debt restructuring of $762,000 relates to a
restructuring of a note payable in January 1994.

Loss from discontinued operations of $2,453,000 in 1995 was $790,000 higher
than 1994 losses of $1,663,000. The increase is due primarily to approximately
$1,376,000 of losses incurred upon the sale of Maternity partially offset by
reduced operating losses in 1995.

23
<PAGE>

As a result of the foregoing, net income (loss) in 1995 and 1994 was
$1,690,000 and ($1,994,000), respectively, representing an increase of
$3,684,000 in net income in 1995.

Year Ended December 31, 1994 Compared to Year Ended December 31, 1993

Net service revenues in 1994 and 1993 were $45,179,000 and $45,242,000,
respectively, representing a decrease of $63,000 in 1994. This decrease was
primarily due to a decrease in the revenues of the Company's staffing business
of $3,736,000 due to decreased demand in the temporary staffing industry. This
decrease was partially offset by increased revenues due to the realization of
revenues from the Company's Naples, Florida facility for the entire twelve month
period ended December 31, 1994 which accounted for approximately $1,325,000 of
the increase. Also, same center revenues increased $2,348,000.

Operating costs, excluding interest expense, depreciation and amortization
in 1994 and 1993 were $29,307,000 and $30,687,000, respectively, representing a
decrease of $1,380,000, or 4%, in 1994. The decrease was primarily attributable
to the decreased operating costs of the Company's staffing business of
$2,382,000. This decrease is primarily due to a decrease in variable costs
associated with the decreased revenues. This decrease was partially offset by
increased operating costs at the Naples facility for approximately $478,000 and
additional variable costs associated with increased revenues from diagnostic
imaging centers due to increased number of procedures performed.

Provision for uncollectible accounts receivable in 1994 and 1993 was
$2,495,000 and $1,672,000, respectively, representing an increase of $823,000,
or 49%, in 1994. As a percentage of total revenues, provision for uncollectible
accounts receivable increased to 5.5% in 1994, compared to 3.7% in 1993. This
increase is attributable to the change in revenue mix from the prior year
resulting in a higher percentage of revenues with a higher risk of bad debts.
The Company also increased its provision for future adjustments to billings
relating to discounts not applied at timeof service.

Corporate general and administrative expenses in 1994 and 1993 were
$4,438,000 and $6,915,000, respectively, representing a decrease of $2,477,000,
or 36%, in 1994. This decrease was due primarily to the Company's staffing
business which accounted for $2,129,000 of the decrease. This decrease was
primarily due to decreased marketing spending of approximately $600,000,
consulting expenses of approximately $245,000 in 1993 and a reduction in
executive management staff for StarMed. The remaining decrease was due to the
restructuring of the Company's management staff for the imaging business and the
reduction of corporate personnel during the second quarter 1994.

Depreciation and amortization, including the amortization of value of
venture contracts, in 1994 and 1993 was $4,844,000 and $5,220,000, respectively,
representing a decrease of $376,000, or 7%, in 1994. The decrease in
depreciation and amortization was due to the 1994 write-down of intangible
assets in the amount of $2,176,000 related to the value of venture contracts
recognized in connection with the acquisition of the Company in September 1990
and goodwill associated with the Company's purchase of a diagnostic imaging
center in July 1992. The decrease in amortization expense was partially offset
by the depreciation expense related to a new General Electric 1.5 Tesla Signa MR
Unit installed at the Company's Naples, Florida center in September 1993.

In addition to the write-downs referred to in the preceding paragraph, a
write-down of medical diagnostic equipment of $128,000 in 1993 resulted from the
disposal of medical equipment at the Company's Clifton, New Jersey and St.
Petersburg, Florida facilities. In October 1993, the Company installed a new
General Electric 1.5 Tesla Signa MR machine in its Clifton center. The
write-down of medical diagnostic equipment in 1994 of $40,000 arose from an
adjustment to the Clifton center's ultrasound unit to its fair market value in
February 1994.

The provision for minority interest in losses of joint venture in 1994 of
$532,000 relates to the Company's Brooklyn facility. Executive severance of
$328,000 in 1994 is reflective of the separation agreements entered into with
two former senior executives of the Company in that year. Executive severance of
$332,000 in 1993 represents the separation agreement entered into with a senior
executive of the Company in that year. The gain on the disposal of equipment of
$17,500 in 1994 resulted from the sale of a MR unit at the Company's Naples
facility in February 1994 for $100,000.

As a result of the foregoing, operating income in 1994 and 1993 was
$1,036,000 and $287,000, respectively, representing an increase of $749,000 in
1994.

Interest expense in 1994 and 1993 was $1,693,000 and $2,507,000,
respectively, representing a decrease of $814,000, or 32%, in 1994. The
reduction in interest expense is primarily due to the restructuring of a note
payable

24
<PAGE>

and the restructuring of capital lease agreements at a number of the Company's
centers and the completion of installment payments on capital lease agreements
at the Company's Yonkers, New York center, partially offset by the interest
associated with the leases in connection with the installation of new medical
equipment at the Naples and Clifton facilities.

Minority interest in losses in 1994 and 1993 was ($46,000) and ($229,000),
respectively, a decrease of $183,000. This was due to the Company recognizing
100% of the losses of the Company's Brooklyn facility.

The provision for income taxes in 1994 and 1993 was $481,000 and $65,000,
respectively, representing an increase of $416,000 in 1994. The 1994 provision
for income taxes represents federal and state income taxes resulting from
separate company state tax filing requirements and includes certain adjustments
related to payments of prior year state income taxes. The increase is
attributable to the increase in current taxable income during 1994. As discussed
in Note 1 to the Company's consolidated financial statements and disclosed in
the consolidated statement of operations, StarMed operated as a partnership
prior to the combination with the Company in August, 1994; therefore, StarMed
has not recorded any income tax expense or benefits. The pro forma income tax
expense (benefit), assuming StarMed was taxed as a C Corporation, was $660,000
for 1994 and ($427,000) for 1993, an increase of $1,087,000 excluding the
$297,000 income tax effect for the extraordinary item in 1994.

The extraordinary item, gain on debt restructuring of $762,000 relates to
the restructuring of a note payable in January 1994.

As a result of the foregoing, net loss in 1994 and 1993 was ($1,994,000)
and ($2,797,000), respectively, representing a decrease in the net loss of
$803,000 in 1994.

Liquidity and Capital Resources

The Company's cash balances at June 30, 1996 and December 31, 1995 were
$8,015,000 and $3,935,000, respectively, representing an increase of $4,080,000
or 104%, through the first six months of 1996. The Company's working capital
position at June 30, 1996 was $12,914,000 as compared to a December 31, 1995
balance of $10,738,000, representing an increase of $2,176,000 or 20% in the six
months ended June 30, 1996. The increase in working capital resulted primarily
from the proceeds from the issuance of the Company's 10.5% Debentures in
February 1996 and the increase in the Company's accounts receivable offset by
changes in the Company's other working capital accounts.

Net cash provided by (used in) operating activities for the first six
months of 1996 and 1995 was $2,657,000 and ($571,000), respectively representing
an increase of $3,228,000. The increase is primarily attributable to the
increase in net income and the increase in depreciation and amortization. Net
cash provided by operating activities for the years ended 1995 and 1994 was
$2,335,000 and $4,789,000, respectively, representing a decrease of $2,454,000
in 1995. The decrease was primarily due to a large increase in accounts
receivable partially offset by the increase in the changes in net income and
other operating assets and liabilities.

In the first six months of 1996, net cash used in investing activities
totalled $6,402,000 and reflects the acquisition by the Company of eight
diagnostic imaging centers and two temporary healthcare staffing businesses. In
1995, net cash used in investing activities totalled $645,000 which primarily
reflects the acquisition of the Hackensack, New Jersey imaging center for
$1,764,000 cash, the purchase of medical diagnostic and office equipment of
$877,000 both of which are partially offset by the cash received upon the
maturity of the short-term investments of $600,000 and the change in net assets
of discontinued business of $1,396,000.

Financing activities generated net cash of $7,826,000 in the first six
months of 1996 which primarily reflects the proceeds from the issuance of the
10.5% Debentures and borrowings under the Company's revolving lines of credit,
partially offset by principal payments on the Company's capital lease and debt
obligations. In 1995, financing activities used $1,696,000 which is related to
the principal payments made by the Company on capital lease and debt
obligations, the Company's purchase of 255,000 shares of its common stock for
$1,368,000 partially offset by the cash received from the issuance of the 11%
Debentures of $4,103,000, net of debt issue costs.

The Company currently has lines of credit aggregating $21,000,000 of which
$4,325,000 was used at June 30, 1996. Medical equipment purchases, capital
improvements, acquisitions and new center development have been funded primarily
through third party capital lease and debt obligations, seller financing and
internally generated cash flow. The debt is generally secured by the equipment,
and usually, other assets of the related center.

25
<PAGE>

In May 1995, the Company raised $4,350,000 through the private placement of
the 11% Debentures which are convertible into Common Stock at any time by the
debenture holder at $4.00 per share. In February 1996, the Company raised
$6,533,000 through a private placement of 10.5% Debentures which are convertible
into Common Stock at any time by the debenture holder at $6.00 per share. At
June 30, 1996, approximately $1,920,000 principal amount of the 11% Debentures
and $5,340,000 principal amount of the 10.5% Debentures were outstanding. The
decreases in the amounts outstanding under such debentures resulted from the
conversion of the debentures into Common Stock in accordance with their terms.
The monies raised from the private placement of 11% Debentures and the 10.5%
Debentures were used primarily to fund acquisitions.

The Company's short-term and long-term debt obligations were $10,671,000
and $20,585,000, respectively, at June 30, 1996 and $4,203,000 and $15,507,000,
respectively, at December 31, 1995. A significant portion of the Company's
long-term debt represents capital lease obligations which have repayment periods
of between five and seven years.

As of June 30, 1996, on a pro forma basis for the NMR Acquisition, the
Company's balances of cash and short-term investments totaled $9,814,000. The
Company's pro forma working capital position on such date was $19,264,000. The
Company's pro forma short-term and long-term debt obligations were $15,866,000
and $33,497,000, respectively, at June 30, 1996.

Management believes that the capital resources derived through internally
generated funds from operations, current cash balances, third-party credit
facilities combined with the net proceeds of this offering will be sufficient to
satisfy both the Company's operating and capital needs, as well as financing its
acquisition growth strategy, for the next twelve months. However, favorable
acquisition opportunities which may arise in the future could cause the Company
to accelerate its expected use of funds.

Other

With the exception of modestly lower revenues during the summer months, the
Company believes that its diagnostic imaging business is generally unaffected by
seasonality. The Company's temporary staffing services segment generally
experiences higher revenues during the first and, to a lesser extent, fourth
quarters as seasonal population shifts affect the demand for its services.

The impact of inflation and changing prices on the Company has been
primarily limited to salary, medical and film supplies and rent increases and
has not been material to date to the Company's operations. Management is aware
of inflationary expectations and growing healthcare costs, and believes that the
Company may not be able to raise the prices for its diagnostic imaging
procedures by an amount sufficient to offset cost inflation. The Company has
responded to these concerns in the past by increasing the volume of its
business. In addition, discussions within the Federal government regarding
national healthcare reform are emphasizing containment of healthcare costs as
well as expansion of the number of eligible parties. The implementation of this
reform could have a material effect on the financial results of the Company.

Forward-Looking Information May Prove Inaccurate

This Prospectus contains forward-looking statements and information that
are based on management's beliefs as well as assumptions made by and information
currently available to management. When used in this document, the words
"believes," "intends", "estimates," and "expects," and similar expressions are
intended to identify forward-looking statements. Such statements reflect the
Company's current views with respect to future events and are subject to certain
risks, uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those believed, estimated or expected.
The Company does not intend to update these forward-looking statements and
information.

26
<PAGE>

BUSINESS

General

The Company specializes in the operation, management and acquisition of
diagnostic imaging centers. The Company currently operates 37 outpatient
diagnostic imaging centers located in the Northeast (18), Florida (12) and the
Chicago area (7) and provides network management services to managed care
organizations. The Company is rapidly growing and has increased the number of
diagnostic imaging centers it owns and operates from 11 at December 31, 1995 to
37 at August 30, 1996. The Company's imaging centers provide diagnostic imaging
services to patients referred by physicians in a comfortable, service-oriented
outpatient environment. At each of its centers, the Company provides management,
administrative, marketing and technical services, as well as equipment and
facilities, to physicians who interpret scans performed on patients. Medical
services are provided by board-certified interpreting physicians, generally
radiologists, with whom the Company enters into long-term contracts. Thirty-five
of the Company's 37 centers provide magnetic resonance imaging (MR) which
accounts for a majority of the Company's imaging revenues. Many of the Company's
centers also provide some or all of the following services: computerized
tomography (CT), ultrasound, nuclear medicine, general radiology and fluoroscopy
and mammography.

In addition, through the Per Diem and Travel Nursing divisions of StarMed,
the Company's wholly owned subsidiary, the Company provides temporary healthcare
staffing to acute and sub-acute care facilities nationwide. StarMed's Per Diem
staffing division, which commenced operations in March 1995, provides registered
nurses, licensed practical nurses, nursing assistants, therapists and medical
transcriptionists on a daily basis to healthcare facilities from 15 offices
located in six states. StarMed's Per Diem division is rapidly growing, having
opened 13 locations and acquired two businesses since commencing operations.
StarMed's Travel Nursing division is operated from a central office in Tampa,
Florida and provides registered nurses and operating room technicians nationwide
for periods usually ranging from 8 to 26 weeks.

Diagnostic Imaging Services Industry

Overview

Imaging centers have played a vital role in the healthcare delivery system
by offering diagnostic services such as MR, CT, ultrasound, nuclear medicine,
mammography and x-ray in an outpatient setting. Diagnostic imaging procedures
are used to diagnose diseases and physical injuries through the use of various
imaging modalities. The use of non-invasive diagnostic imaging has grown rapidly
in recent years because it allows physicians to diagnose quickly and accurately
a wide variety of diseases and injuries without exploratory surgery or other
invasive procedures, which are usually more expensive, risky and potentially
debilitating for patients. In addition, diagnostic imaging is increasingly used
as a screening tool for preventative care. While conventional x-ray continues to
be the primary imaging modality based on the number of procedures performed, the
use of MR and CT procedures has increased due to their more sophisticated
diagnostic capabilities. The Company estimates that national spending on
outpatient diagnostic imaging has grown to more than $8 billion annually. The
Company believes that utilization will continue to increase because of the
growth in demand for diagnostic imaging services as well as the introduction of
new diagnostic imaging procedures using new or existing modalities.

Equipment and Modalities

Diagnostic imaging systems are based on the ability of energy waves to
penetrate human tissue and generate images of the body which can be displayed
either on film or on a video monitor. Imaging systems have evolved from
conventional x-rays to the advanced technologies of MR, CT, ultrasound, nuclear
medicine and mammography. The principal diagnostic imaging modalities used by
the Company include the following:

Magnetic Resonance Imaging. MR is a sophisticated diagnostic imaging
system that 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. A principal element of MR imaging is that
atoms in various kinds of body tissue behave differently in response to a
magnetic field, enabling the differentiation of internal organs and normal
and diseased tissue. Unlike CT and x-rays, MR does not utilize ionizing
radiation which can cause tissue damage in high doses. As with other
diagnostic imaging technologies, MR is generally non-invasive.

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Computerized Tomography. CT is used to detect tumors and other
conditions affecting bones and internal organs. CT provides higher
resolution images than conventional x-rays, but generally not as well
defined as those produced by MR. In a "cat scan", a computer directs the
movement of an x-ray tube to produce multiple cross sectional images of a
particular organ or area of the body.

Ultrasound. Ultrasound has widespread application, particularly for
procedures in obstetrics, gynecology and cardiology. Ultrasound imaging
relies on the computer-assisted processing of sound waves to develop images
of internal organs and the vascular system. A computer processes sound
waves as they are reflected by body tissue, providing an image that may be
viewed immediately on a computer screen or recorded continuously or in
single images for further interpretation.

Nuclear Medicine. Nuclear medicine is used primarily to study anatomic
and metabolic functions. During a nuclear medicine procedure, short-lived
radioactive isotopes are administered to the patient by ingestion or
injection. The isotopes release small amounts of radioactivity that can be
recorded by a gamma camera and processed by a computer to produce an image
of various anatomical structures.

General Radiology and Fluoroscopy ("X-Ray"). The most frequently used
type of imaging equipment, radiology uses "x-rays" or ionizing radiation to
penetrate the body and record images on film. Fluoroscopy uses a video
viewing system for real-time monitoring of the organs being visualized.

Mammography. Mammography is a specialized form of radiology equipment
using low dosage x-rays to visualize breast tissue. It is the primary
screening tool for breast cancer.

Industry Growth and Consolidation

The number of outpatient diagnostic imaging centers in the United States
has grown from approximately 700 in 1984 to an estimated 2,200 in 1995, with
most of the growth occurring before 1990. The reasons for this early growth
include several factors. First, the Federal government enacted the Prospective
Payments System in 1983 which put strict controls on inpatient reimbursement,
which led to the expansion of all types of outpatient services, including
surgery, radiation therapy and imaging. Second, the use of MR, CT and other
imaging equipment became more prevalent due to the quality and quantity of the
diagnostic information provided, technological improvements to the modalities
and increased government and third-party reimbursement. Lastly, the number of
outpatient centers, frequently owned by hospital and physician joint ventures,
increased in the late 1980s because hospitals were eager to minimize their
financial exposure to expensive equipment and physicians were seeking
alternative investments at a time when traditional tax shelters were being
eliminated. The rapid growth of imaging centers during the mid-1980s diminished
as a result of increased government regulation, the elimination of certain tax
benefits, the gains of national healthcare reform efforts seeking cost
containment and the growing influence of managed care providers.

Ownership of outpatient diagnostic imaging centers is highly fragmented,
with no dominant national provider. As of December 31, 1995, no entity owned
more than 55 centers and the ten largest operators owned a total of
approximately 200 centers, or less than 10% of the total number of centers. The
Company believes that the environment faced by diagnostic imaging center
operators is characterized by rising business complexity, growing control over
patient flows by payors and reimbursement pressures that require center owners
to seek operational efficiencies. In addition, the Company believes that public
and private reforms in the healthcare industry emphasizing cost containment and
accountability will continue to shift the delivery of imaging services from
highly fragmented, individual or small center operators to companies operating
larger multi-modality networks of centers.

The Company's Growth Strategy

The Company's goal is to become the leading operator of diagnostic imaging
centers in the country. The Company has implemented a strategy for growth which
includes acquisitions as well as internal development of its existing
operations. The Company intends to capitalize on the fragmented nature of the
diagnostic imaging center industry through the acquisition of additional
centers. The Company's strategy is to expand the scope and efficiency of its
operations at its existing and acquired facilities by: (i) leveraging the
geographic concentration of its centers; (ii) expanding the imaging services
offered by its centers by upgrading existing technology and adding new
modalities; (iii) applying sophisticated operating, financial and information
systems and procedures; (iv) utilizing targeted local marketing programs; and
(v) developing its network management services to address more fully the needs
of managed care providers. The Company's growth strategy for its temporary
staffing business includes offering new

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services to clients, expanding the number of markets served by its Per Diem
division and acquiring other companies in the temporary healthcare staffing
industry in selected markets.

Acquisition Strategy

The Company has a successful record of acquiring imaging centers and
integrating and improving their operations. Since the beginning of 1995, the
Company has acquired 29 imaging centers through seven acquisitions. The Company
believes that it will be able to continue to be a leader in the consolidation of
the diagnostic imaging services industry because of its: (i) experience in
identifying, structuring and completing acquisitions; (ii) ability to integrate
effectively these acquisitions; (iii) size and financial resources; and (iv)
existing presence in key geographic areas.

Through the Company's full-time acquisition staff, the Company identifies
suitable acquisition candidates based on various factors, including:

o market demographics

o physician referral patterns

o reimbursement profiles

o local competition

o location in relation to other Company centers and urban areas

o quality and reputation of interpreting physicians

o imaging equipment present

o ability to improve the center's operations and profitability

The Company's acquisitions have included individual centers, multi-center
groups and one imaging management company. The Company views each of these types
of acquisitions as attractive due to the operational improvements, cost savings
and strategic synergies which may benefit the Company. After the acquisition of
a center, the Company applies its operating and financial expertise and
procedures and utilizes its sales and marketing programs to manage the center
effectively and to improve the center's usage. In addition, the Company seeks to
reduce the operating expenses of its acquired centers through various means,
including capitalizing upon the Company's established relationships with vendors
and its ability to take advantage of group purchasing efficiencies.

Growth Strategy at Existing and Acquired Centers

Leverage Geographic Concentration. The Company has developed clusters of
imaging centers in certain geographic areas which enable it to improve the
utilization of its centers by attracting business from larger referral sources,
such as managed care providers, due to the Company's ability to meet the
quality, volume and geographic coverage requirements of these payors. The
Company intends to increase its center concentration in existing markets to
attract additional referrals of this type and to expand into new geographic
areas, through acquisitions, in order to attract additional managed care
contracts.

Expand Imaging Services Offered. The Company expands the imaging services
it offers by upgrading existing technology and adding new modalities at selected
centers. The Company's imaging centers utilize state-of-the-art imaging
equipment for which new applications are continually being developed. New
developments and system upgrades frequently have the ancillary benefit of
reducing the imaging time and thus increasing capacity of the centers' imaging
equipment.

Apply Sophisticated Operating, Financial and Information Systems and
Procedures. The Company provides management expertise, management information
systems, financial and operating controls, and capital resources to its centers
in order to optimize their performance. In addition, the Company is able to
achieve economies of scale and provide cost savings in developing managed care
contracts and negotiating group purchasing of goods and services.

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Utilize Targeted Local Marketing. The Company develops and coordinates
marketing programs which center managers, sales representatives, and affiliated
interpreting physicians utilize to establish referral relationships and to
maximize facility usage and reimbursement yield. The Company's marketing
programs emphasize the capabilities of its imaging equipment, the quality and
timeliness of the imaging results and reports and the high level of patient and
referring physician service.

Develop Network Management Services. The Company plans to further develop
and expand its network management services business. As a network manager, the
Company enters into contracts with managed care organizations to coordinate the
demand for imaging services and to provide certain administrative functions
related to the delivery of such services. The Company includes certain of its
centers in these networks and believes that the inclusion of these centers in
the networks will increase their utilization. In addition, the Company believes
that its network management services enhance its relationships with managed care
organizations and its ability to enter into additional contracts with such
entities.

Temporary Healthcare Staffing Industry

Overview

The demand for supplemental per diem staffing services in today's
healthcare market is being driven by a variety of factors in the acute and
sub-acute care segments. The increasing presence of managed care and the rapid
evolution of technology has dramatically reduced the average length of stay in
acute care hospitals. The dynamics of this reduction in length of stay has made
the task of staffing a facility difficult. Many hospitals are reducing the
number of full-time staff and managing the peak periods by utilizing per diem
nursing services. The attractiveness of utilizing per diem services is the
ability to monitor and regulate expenses more closely. When a hospital adds
full-time staff, it makes a commitment in salary and benefits which it can avoid
with per diem services. With the emphasis on outpatient care, the needs of a
hospital's admitted patients have increased which subsequently requires a higher
level of critical care nursing skills. Due to the intense environment of
critical care units, turnover is a significant challenge for a hospital. The
ability to utilize per diem services to address the needs of these units is
becoming increasingly advantageous to hospitals. In addition, the number of
nursing home beds continues to increase each year in an attempt to meet the
needs of the country's aging population. The ability of nursing services to
recruit and place qualified nursing assistants and licensed practical nurses in
these facilities who are available on a day-by-day or part-time basis is of
great benefit to this client base. Nursing homes, like hospitals, are regulated
on a state-by-state basis and are required to maintain a specific
patient-to-caregiver ratio. Per diem services provide experienced employees who
are productive on their first assignment, compared to new graduates who may
require extensive orientation.

The demand for travel nursing is being driven by dynamics similar to that
of the per diem market. In most cases, the client utilizes travel nurses when
they require additional personnel for an extended period of time. Examples of
this would be the opening of a new unit or satellite facility, an information
system conversion that might divert existing hospital employees from other
duties and, in many cases, a severe local market shortage for a specific nursing
specialty. Additionally, in areas of the country that have significant
population changes tied to seasonality, such as Florida during the winter
months, the utilization of travel nurses is an economical alternative.

Staffing Business Growth Strategy

The Company believes that it can take advantage of the demand for per diem
staffing services by entering new markets with newly developed offices or
acquisitions in selected markets. Since commencing per diem operations in March
1995, the Company has opened 13 per diem offices in six states and acquired two
per diem staffing businesses. StarMed monitors existing markets in order to
identify opportunities to add additional per diem services such as medical
transcriptionists, therapists and medical administrative support personnel.

With respect to the Travel Nursing division, StarMed is focused on
improving the level of services of its travel nurses and enhancing the skills of
it placement coordinators. In addition, StarMed is employing recruiting
incentives in order to attract new travel nurses and retain its existing
workforce.

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The Company's Diagnostic Imaging Business

Ownership and Modalities

The following table sets forth certain information concerning the imaging
centers operated by the Company. Imaging centers that are not 100% owned by the
Company, through a wholly owned subsidiary, are owned by limited partnerships or
other business entities in which a subsidiary of the Company is the sole general
partner or manager. The equity ownership interest shown includes general and
limited partnership interests or other equity interests owned by the Company.
For the centers not wholly owned by the Company, the Company also realizes a
management fee based upon center revenues.

Operated
Location Since (1) Ownership (2) Modalities (3)
-------- --------- ------------- --------------
Northeast Region
Englewood, NJ ........... December 1979 100% MR, CT, US, R, F, M
Marlton, NJ(4) .......... July 1984 91 MR
Union, NJ(4) ............ August 1984 64 MR
Morristown, NJ(4) ....... December 1984 94 MR
Clifton, NJ ............. June 1987 100 MR, CT, US, NM, R, F, M
West Orange, NJ ......... January 1991 100 MR, CT, US, NM, R, F, M
Jersey City, NJ ......... July 1992 100 MR
Hackensack, NJ .......... June 1995 100 MR, CT, US R, F, M
Yonkers, NY ............. September 1987 65 MR, CT, US, R, F, M
Brooklyn, NY (49th St.) . January 1993 100 MR, CT, US, NM, R, F, M
New York, NY ............ January 1996 100 MR, CT, US, R, M
Brooklyn, NY (Ocean Ave.) January 1996 100 CT, US, NM, R, F, M
Bronx, NY ............... January 1996 100 MR, CT
Centereach, NY .......... July 1996 100 MR
Bel Air, MD(4) .......... November 1991 63 MR, CT, US, NM, R, F, M
Seabrook, MD(4) ......... April 1995 87 MR, CT
Philadelphia, PA(4) ..... January 1986 98 MR, CT, US, NM, R, F
Allentown, PA(4) ........ May 1986 96 MR
Florida
St. Petersburg, FL ...... July 1984 80% MR
Naples, FL (South) ...... June 1993 100 MR
Ft. Myers, FL (Central) . May 1995 100 MR
Ft. Myers, FL (South) ... May 1995 100 MR
Cape Coral, FL(4) ....... September 1995 100 MR
Naples, FL (North)(4) ... September 1995 100 MR
Titusville, FL(4) ....... September 1995 100 MR
Sarasota, FL(4) ......... September 1995 100 MR, CT
Tampa, FL (Waters Ave.) . April 1996 100 CT, US, NM, R, M
Tampa, FL (Hamilton Ave.) April 1996 100 MR
Tarpon Springs, FL ...... April 1996 100 MR
Clearwater, FL .......... May 1996 100 MR
Chicago Area
Chicago, IL (Wellington)(4) April 1987 87% MR
Elgin, IL(4) ............ May 1992 100 MR
Chicago, IL (Cicero)(4) . June 1992 80 MR
Oak Lawn, IL(4) ......... January 1994 100 MR, CT, US, M, R, F
Des Plaines, IL(4) ...... January 1995 75 MR, CT, US, NM, R, F
Libertyville, IL(4) ..... January 1995 100 MR, R, F
Chicago, IL (Central)(4) January 1996 100 MR

- ----------
(1) Operated by the Company or NMR since such date.
(2) Represents the Company's interest in profits, losses and distributions of
the respective centers.
(3) Modalities are magnetic resonance imaging (MR), computerized tomography
(CT), ultrasound (US), nuclear medicine (NM), radiology (R), fluoroscopy
(F) and mammography (M).
(4) Acquired from NMR.

The Company may further increase its ownership of its non-wholly owned
centers and intends to acquire a majority equity interest, if not the entire
equity, in acquired or newly developed centers. There can be no assurance that
the Company will be successful in completing such acquisitions. The Company has
also increased its revenues and profit potential by adding new imaging equipment
modalities to its centers and plans to continue this strategy in those
situations in which the Company believes that such additions are economically
justified. The Company plans to install a bone densitometer in its Clifton
center in the fourth quarter of 1996.

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Operations of Centers and Services Provided by the Company

General. The Company's centers provide diagnostic imaging services to
patients referred by physicians who either are in private practice or affiliated
with managed care providers or other payor groups. The Company's centers are
operated in a manner which eliminates the admission and other administrative
inconvenience of in-hospital diagnostic imaging services. The Company's imaging
services are performed in an outpatient setting by trained medical technologists
under the direction of the interpreting physician. Following the diagnostic
procedures, the images are reviewed by the interpreting physicians who prepare a
report of these tests and their findings. These reports are transcribed by
Company personnel and then delivered to the referring physicians. The
interpreting physicians are board-certified specialists in radiology, nuclear
medicine, nuclear cardiology or neuroradiology, as appropriate, and are located
at the center on a full-time basis. Such interpreting physicians are independent
contractors, and are not employees of the Company. All medical aspects of each
center are under the direct control and are the sole responsibility of the
interpreting physician. The Company is not engaged in the practice of medicine.

Financial and Operational Programs. The Company applies its financial and
operating expertise and procedures, which it has developed over 17 years, to
each center in order to improve its operations. The compensation of the centers'
managers and certain other personnel is tied directly to the centers'
profitability. Each center implements a total quality management program which
emphasizes fully upgradeable imaging equipment, on-site board-certified
radiologists, the participation of technical employees in rigorous ongoing
quality assurance programs and patient and physician satisfaction surveys. The
Company also utilizes group purchasing of certain goods and services to reduce
the operating expenses of its centers.

Management Information Systems. The Company utilizes sophisticated
management information systems designed to, among other objectives, enhance the
efficiency and productivity of its centers, lower operating costs, facilitate
financial controls, increase reimbursement and assist in the analysis of sales,
marketing and referral data. The management information systems provide
information and assistance to managers with respect to, among other matters,
billing, patient scheduling, marketing, sales, accounts receivable, referrals
and collections. These systems, which provide highly detailed or customized
management reports, enable management to coordinate and enhance many aspects of
the centers' operations and allow for the development of working plans for
improving profit margins by reviewing results and trends in center operations.

Sales and Marketing

The Company develops and coordinates marketing programs which center
managers, sales representatives, affiliated interpreting physicians and
corporate managers utilize in an effort to establish and maintain profitable
referring physician relationships and to maximize reimbursement yields. These
marketing programs identify and target selected market segments consisting of
area physicians with certain desirable medical specialties and reimbursement
yields. Corporate and center managers determine these market segments based upon
an analysis of competition, imaging demand, medical specialty and payor mix of
each referral from the local market. The Company also directs marketing efforts
at managed care providers.

Managed care providers are becoming an increasingly important factor in the
diagnostic imaging industry, and, consequently, the Company places major
emphasis on cultivating and developing relationships with such organizations.
The Company employs industry professionals who have significant experience in
dealing with managed care and other providers. The Company believes that the
geographic concentration of its centers, the presence of multi-modality centers
in all of its regions, its ability to offer cost-effective services and its
experience in developing relationships with various managed care organizations
will constitute a competitive advantage in obtaining contracts with managed care
providers.

Billing, Reimbursement and Collection

Each center charges patients a fee per imaging study performed, which is
generally billed on behalf of and in the name of an independent physician group.
The Company's centers maintain a competitive billing strategy based upon
evaluation of available pricing data with respect to each location.

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healthcare reform are emphasizing the containment of healthcare costs as well as
the expansion of the number of eligible parties. Although such actions have
resulted in the general decline in reimbursement rates for the types of services
provided at the Company's centers, the Company has sought to offset the decline
in reimbursement rates by establishing contractual relationships with managed
care organizations and other commercial payors in order to increase the
utilization of its centers.

Interpreting Physicians Agreements

In accordance with the terms of the agreements with interpreting physicians
at each center, all medical aspects of a center are under the general
supervision of such interpreting physicians. Such medical aspects include
supervision of medical technicians, establishment of professional fees, analysis
of diagnostic information, preparation of reports to referring physicians, care
of patients while at the center and communications with referring physicians.
The Company's obligations include the administrative, marketing and financial
management of the centers as well as providing the necessary medical equipment
and leasehold improvements to the interpreting physicians. These agreements
typically have terms ranging between one and ten years.

The Company's Temporary Healthcare Staffing Business

Through its Per Diem and Travel Nursing divisions, StarMed provides
temporary staffing to acute and sub-acute care facilities nationwide. StarMed's
Per Diem staffing division provides registered nurses, licensed practical
nurses, nursing assistants, therapists and medical transcriptionists on a daily
basis to healthcare facilities through 15 offices located in six states.
StarMed's Travel Nursing division operates from a central office in Tampa,
Florida and provides registered nurses and operating room technicians nationwide
for periods usually ranging from 8 to 26 weeks. StarMed's travel nursing
personnel are relocated from their place of residence to the hospital location
for the period of an assignment. StarMed employs the travel nursing staff under
short-term employment agreements, provides accommodations, travel reimbursements
and other benefits to employees and bills the client on an hourly basis.

In 1995, StarMed expanded its temporary healthcare staffing segment by
opening eight per diem staffing offices; six in Florida and one each in Missouri
and Ohio. During 1996, StarMed has opened six per diem offices in six states. In
addition, in January 1996, StarMed completed the acquisition of NurseCare Plus,
which provides per diem healthcare staffing services in Southern California. In
June 1996, StarMed completed the acquisition of We Care, which provides per diem
healthcare staffing services in Florida.

Clients and Marketing

StarMed has entered into agreements with client hospitals nationwide to
provide temporary staffing of healthcare personnel. These hospitals, which are
both for-profit and not-for-profit, range from small rural hospitals to major
teaching and trauma centers.

StarMed's Per Diem division markets its services through its own direct
sales force. StarMed's marketing approach targets hospitals in major
metropolitan areas or other areas which are attractive from a patient census
perspective as well as to nurses and other professional medical personnel.
Marketing for the Travel Nursing division is conducted primarily by
telemarketing and also by attendance at national and regional conventions,
seminars and direct solicitations.

Upon receiving an order from a client for a travel nursing position,
StarMed utilizes a sophisticated software application program to match available
candidates to the client's order. The application program considers a number of
unique hiring criteria established by the client and also certain general
criteria established by StarMed. Suitable candidates are then presented to the
client for temporary staffing assignments.

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<PAGE>

Recruitment

Temporary staff are recruited through advertising in industry publications,
job fairs, referrals and other methods. All applicants for employment are
screened to ensure they have the required practical current experience and
skills, valid license and positive references. StarMed believes that temporary
assignments are attractive for nurses and other medical personnel because they
provide competitive compensation, the ability to work in various clinical
environments during the course of the year and flexible work schedules.

Competition

The outpatient diagnostic imaging industry is highly competitive.
Competition focuses primarily on attracting physician referrals at the local
market level and, increasingly, referrals through managed care organizations.
The Company believes that principal competitors in each of the Company's markets
are hospitals, independent or management company-owned imaging centers, some of
which are owned with physician investors and mobile MR units. Some of these
competitors have greater financial and other resources than the Company.
Principal competitive factors include quality and timeliness of test results,
ability to develop and maintain relationships with managed care organizations
and referring physicians, type and quality of equipment, facility location,
convenience of scheduling and availability of patient appointment times.
Competition for referrals can also be affected by the ownership or affiliation
of competing centers or hospitals. Certain of the Company's competitors have
historically derived a significant portion of their revenues from referrals by
physicians who are also investors and have a financial interest in, or are
otherwise affiliated with, the competing center or hospital. The Company may
benefit to the extent current or future regulations will reduce self-referrals
from physician investors and make their referrals part of the market for which
other centers may more effectively compete.

The temporary healthcare staffing industry is also highly competitive.
StarMed competes for client's business with other providers of temporary
staffing. StarMed also competes for the limited number of available qualified
staff. Within the temporary staffing industry, StarMed competes with several
companies which are larger and may possess greater financial resources than
StarMed. Competition for hospital clients is generally based upon the ability to
provide qualified nurses and medical personnel on a timely basis at competitive
prices. Location of assignment, nature of clinical responsibilities,
compensation and benefits are generally the principal factors considered by
nurses and medical personnel in deciding whether to accept a temporary
assignment.

Government Regulation

The healthcare industry is highly regulated at the Federal, state and local
levels. The following factors affect the Company's operations and development
activities:

Certificate of Need, Licensing and Certification

Certain states in which the Company currently operates or may operate have
laws that may require a certificate of need ("CON") in certain circumstances to
establish, construct, acquire or expand healthcare facilities and services,
including outpatient diagnostic imaging centers utilizing MR or other major
medical equipment. At the present time, the CON laws of the states of New
Jersey, New York, Illinois and Pennsylvania pertain to the Company's activities.
In states with CON programs, regulatory approvals are frequently required for
capital expenditures exceeding certain amounts, if such expenditures relate to
certain types of medical services.

State CON statutes generally provide that prior to the construction of new
facilities or the introduction of new services, a state health planning agency
(a "Planning Agency") must determine that a need exists for those facilities or
services. The CON process is intended to promote comprehensive healthcare
planning, assist in providing high quality health care at the lowest possible
cost and avoid unnecessary duplication by ensuring that only those healthcare
facilities that are needed will be built.

Typically, the provider of services submits an application to the
appropriate Planning Agency with information concerning the geographical area
and population to be served, the anticipated demand for the facility or service
to be provided, the amount of the capital expenditure, the estimated annual
operating costs, the relationship of the proposed facility or service to the
overall state health plan and the cost per patient for the type of care
contemplated. Whether the CON is granted is based upon a finding of need by the
Planning Agency in accordance with criteria set forth in CON statutes,
applicable regulations and state and regional health facilities plans. If the
proposed facility or service is found

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<PAGE>

to be necessary and the applicant to be an appropriate provider, the Planning
Agency will issue a CON containing a maximum amount of expenditure and a
specific time period for the holder of the CON to implement the approved
project.

The necessity for these CON approvals serves as a barrier to entry in
certain markets which the Company wishes to service and has the potential to
increase the costs and delay the Company's acquisition or addition of centers. A
CON program or similar requirement has the potential to curtail the Company's
expansion which could have a material adverse effect on the Company's future
growth.

The Company may also have to comply with Federal certification
requirements. All of the Company's centers which provide mammography
examinations must be certified by the Federal government. Further, additional
certification requirements may affect the Company's centers, but such
certification generally will follow specific standards and requirements that are
set forth in readily available public documents. Compliance with the
requirements is monitored by annual on-site inspections by representatives of
various government agencies. The Company believes that it currently has obtained
all necessary certifications, but the failure to obtain a necessary
certification could have a material adverse effect on the Company's imaging
business.

In addition to the CON programs and Federal certification described above,
the operations of outpatient imaging centers are subject to Federal and state
regulations relating to licensure, standards of testing, accreditation of
certain personnel and compliance with government reimbursement programs. The
operation of these centers requires a number of Federal and state licenses,
including licenses for technical personnel and certain equipment. Although the
Company believes that currently it has obtained all such necessary licenses, the
failure to obtain a required license could have a material adverse effect on the
Company's diagnostic imaging business. The Company believes that diagnostic
testing, will continue to be subject to intense regulation at the Federal and
state levels and cannot predict the scope and effect of such regulation nor the
cost to the Company of compliance.

Medicare Anti-Kickback Provisions

The Anti-Kickback Act prohibits the offering, payment, solicitation or
receipt of any form of remuneration in return for the referral of Medicare or
Medicaid patients or patient care opportunities, or in return for the purchase,
lease or order or provision of any item or service that is covered by Medicare
or Medicaid. Violation of the Anti-Kickback Act is punishable by substantial
fines, imprisonment for up to five years, or both. In addition, the Medicare and
Medicaid Patient and Program Protection Act of 1987 (the "Protection Act")
provides that persons guilty of violating the Anti-Kickback Act may be excluded
from the Medicare or Medicaid programs. Investigations leading to prosecutions
and/or program exclusion may be conducted by the Office of Inspector General
("OIG") of the Department of Health and Human Services ("HHS").

Under the Anti-Kickback Act, law enforcement authorities, HHS and the
courts are increasingly scrutinizing arrangements between healthcare providers
and referral sources (such as physicians) in order to ensure that the
arrangements are not designed as a mechanism to exchange remuneration for
patient referrals. This scrutiny is not limited to financial arrangements that
involve a direct payment for patient referrals, but extends to indirect payment
mechanisms that carry the potential for inducing Medicare and Medicaid
referrals, including situations where physicians hold investment interests in a
healthcare entity to which such physicians refer patients. The Company does not
believe that it is operating in violation of the Anti-Kickback Act.

Safe Harbor Regulations

On July 29, 1991, the OIG published safe harbor regulations that specify
the conditions under which certain kinds of financial arrangements, including
(i) investment interests in public companies, (ii) investment interests in small
entities, (iii) management and personal services contracts, and (iv) leases of
space and equipment, will be protected from criminal prosecution or civil
sanctions under the Anti-Kickback Act if the standards set forth in the
regulation are strictly followed. Additional regulations were proposed on July
21, 1994 to amend portions of the original Safe Harbor Regulations and to
reaffirm and clarify the OIG's original intent under the Safe Harbor
Regulations. However, these regulations are not yet in effect. Although the
Company believes its operations qualify for protection under the applicable safe
harbor regulations, these regulations have thus far been relatively untested in
practice, and there can be no assurance that the Company would prevail in its
position. The OIG has stated that failure to satisfy the conditions of an
applicable "safe harbor" does not necessarily indicate that the arrangement in
question

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violates the Anti-Kickback Act, but means that the arrangements are not among
those that the "safe harbor" regulations protect from criminal or civil
sanctions under that law.

While the Company believes that it is in compliance with the current
requirements of the Anti-Kickback Act under the applicable safe harbor
regulations, these regulations have thus far been relatively untested in
practice. Furthermore, no assurances can be given that a Federal or state agency
charged with enforcement of the Anti-Kickback Act and similar laws might not
assert a contrary position or that new Federal or state laws or new
interpretations of existing laws might not adversely affect relationships
established by the Company with healthcare providers, including physicians, or
result in the imposition of penalties on the Company or certain of its centers.
The assertion of a violation, even if successfully defended by the Company,
could have a material adverse effect upon the Company.

Stark Law Prohibition on Physician Referrals

The Federal "Stark Law" as amended in 1993 provides that where a physician
has a "financial relationship" with a provider of "designated health services"
(including, among other activities, the provision of MR and other radiology
services which are services provided by the Company), the physician will be
prohibited from making a referral of a Medicaid or Medicare patient to the
health care provider, and the provider will be prohibited from billing Medicare
or Medicaid, for the designated health service. In August 1995, regulations were
issued pursuant to the Stark Law as it existed prior to its amendment in 1993.
The preamble to these regulations indicates that the Health Care Financing
Administration ("HCFA") intends to rely on the language and interpretations in
the regulations when reviewing compliance under the Stark Law, as amended.
Submission of a claim that a provider knows or should know is for services for
which payment is prohibited under the amended Stark Law, could result in refunds
of any amounts billed, civil money penalties of not more than $15,000 for each
such service billed, and possible exclusion from the Medicare and Medicaid
programs.

The Stark Law provides exceptions from its prohibition for referrals which
include certain types of employment, personal services arrangements and
contractual relationships. The Company continues to review all aspects of its
operations and believes that it complies in all material respects with
applicable provisions of the Stark Law, although because of the broad and
sometimes vague nature of this law and the related regulations, there can be no
assurance that an enforcement action will not be brought against the Company or
that the Company will not be found to be in violation of the Stark Law.

False Claims Act

A number of Federal laws impose civil and criminal liability for knowingly
presenting or causing to be presented a false or fraudulent claim, or knowingly
making a false statement to get a false claim paid or approved by the
government. Under one such law, the False Claims Act, civil damages may include
an amount that is three times the government's loss plus $5,000 to $10,000 per
claim. Actions to enforce the False Claims Act may be commenced by a private
citizen on behalf of the federal government, and such private citizens receive
between 15 and 30 percent of the recovery. Efforts have been made to assert that
any claim resulting from a relationship in violation of the Anti-Kickback Act or
the Stark Law is false or fraudulent under the False Claims Act. The Company
carefully monitors its submissions to HCFA and all other claims for
reimbursement to assure that they are not false or fraudulent, and as noted
above, believes that it is not in violation of the Anti-Kickback Act or the
Stark Law.

State Laws

Many states, including the states in which the Company operates, have
adopted statutes and regulations prohibiting payments for patient referrals and
other types of financial arrangements with health care providers, which, while
similar in certain respects to the Federal legislation, vary from state to
state. Some states expressly prohibit referrals by physicians to facilities in
which such physicians have a financial interest. Sanctions for violating these
state restrictions may include loss of licensure and civil and criminal
penalties assessed against either the referral source or the recipient provider.
Certain states also have begun requiring health care practitioners to disclose
to patients any financial relationship with a provider, including advising
patients of the availability of alternative providers.

36
<PAGE>

fraud and abuse as well as licensing and certification, although because of the
broad and sometimes vague nature of these laws and requirements, there can be no
assurance that an enforcement action will not be brought against the Company or
that the Company will not be found to be in violation of one or more of these
regulatory provisions. Further, there can be no assurance that new laws or
regulations will not be enacted, or existing laws or regulations interpreted or
applied in the future in such a way as to have a material adverse impact on the
Company, or that Federal or state governments will not impose additional
restrictions upon all or a portion of the Company's activities, which might
adversely affect the Company's business.

Regulations Affecting StarMed

StarMed has obtained all necessary licenses to conduct business in the
states where required. Temporary staff are also subject to various occupational
and professional licensing laws that apply to medical professionals. Many states
have temporary staff laws requiring training, monitoring and regulating of
medical professionals.

Because the services of StarMed's temporary staff are paid for directly by
client hospitals, they are not subject to the reimbursement, billing and
collection procedures required by the existence of government and private third
party payors as is the case with respect to the Company's diagnostic imaging
centers.

Employees

As of September 20, 1996, the Company had approximately 510 full-time and
139 part-time employees, including two executive officers, 386 administrative
personnel, 57 sales and marketing personnel and 204 technical personnel. These
numbers do not include the healthcare personnel contracted with by StarMed for
its Per Diem and Travel Nursing divisions. The Company is not a party to any
collective bargaining agreements and considers its relationship with its
employees to be good.

Insurance

The Company carries workmen's compensation insurance, comprehensive and
general liability coverage, fire, allied perils coverage and professional
liability insurance in amounts deemed adequate by management. There is no
assurance that potential claims will not exceed the coverage amounts, that the
cost of coverage will not substantially increase or require the Company to
insure itself or that certain coverages will not be reduced or become
unavailable.

37
<PAGE>

MANAGEMENT

The directors, executive officers and certain key employees of the Company
are as follows:

Name Age Position
---- --- --------
Gary N. Siegler 35 Chairman of the Board

William D. Farrell 34 President, Chief Operating Officer and Director

John P. O'Malley III 34 Senior Vice President-Finance and Chief Financial
Officer

Gregory Mikkelsen 50 President and Chief Operating Officer of StarMed

Gerald H. Allen 51 Senior Vice President-New York and Chicago Area
Operations

Carl Larson 42 Senior Vice President-New Jersey Operations

Daniel F. Bafia 38 Vice President-Southeast Operations

Robert L. Farrell 31 Vice President-Business Development

Michael J. Drumgoole 50 Vice President-Sales and Marketing

Stephen M. Davis 42 Director and Secretary

Gary L. Fuhrman 35 Director

John H. Josephson 35 Director

Neil H. Koffler 30 Director

Directors, Executive Officers and Certain Key Employees

Gary N. Siegler has served as Chairman of the Board of Directors of the
Company since 1990. Mr. Siegler is a co-founder and, since January 1989, has
been President of Siegler, Collery & Co., a New York-based investment firm
("Siegler Collery"). Mr. Siegler is an executive officer of the general partner
of The SC Fundamental Value Fund, L.P. ("Fundamental Value Fund"), a fund
investing in marketable securities, and an executive officer of SC Fundamental
Value BVI, Inc. ("Fundamental Value BVI"), the investment advisor to an
off-shore fund investing in marketable securities. Mr. Siegler serves as the
Chairman of the Board of Directors of National R.V. Holdings, Inc., a
manufacturer of motorhomes and other recreational vehicles.

William D. Farrell has been a director of the Company since November 1995
and has been the Company's President since September 1996 and served as
Co-President since August 1994 and Chief Operating Officer from April 1994. From
May 1986 to April 1994, Mr. Farrell served in various executive capacities with
the Company. Mr. Farrell is a Certified Public Accountant.

John P. O'Malley III was appointed Senior Vice President-Finance and Chief
Financial Officer in September 1996. Prior thereto, Mr. O'Malley was Executive
Vice President-Finance and Chief Financial Officer of NMR since December 1992
and was initially employed by NMR in May 1992. From August 1984 to May 1992, Mr.
O'Malley was employed by Ernst & Young, a public accounting firm, and its
predecessors. Mr. O'Malley is a Certified Public Accountant.

Gregory Mikkelsen joined StarMed as President and Chief Operating Officer
in August 1996. Prior thereto, Mr. Mikkelsen was President and Chief Executive
Officer of Medical Recruiters of America, Inc. Mr. Mikkelsen has held senior
executive positions with Baxter Health Care and the Norrell Corporation.

Gerald H. Allen is Senior Vice President-New York and Chicago Area
Operations of the Company and since April 1995 has also held the positions of
Executive Vice President-Regional Operations and Senior Vice
President-Development. Mr. Allen was also employed by the Company in several
executive capacities from 1984 to 1993. From 1993 through 1995, Mr. Allen was
the Executive Vice President and Chief Financial Officer of Prime Capital
Corporation, a merchant banking company.

38
<PAGE>

Carl Larson is Senior Vice President-New Jersey Operations of the Company.
Prior to Mr. Larson's employment by the Company, Mr. Larson managed a 13-site
privately operated radiology practice in New York. Mr. Larson is a licensed
radiological technologist and, in prior positions, spent eight years in
hospital-based radiological administration and five years as a staff member at
the American College of Radiology.

Daniel F. Bafia is Vice President-Southeast Operations of the Company. Mr.
Bafia joined the Company in 1992 and prior thereto had over 10 years of
experience developing and managing radiation therapy and diagnostic imaging
centers for public and private companies and hospitals.

Robert L. Farrell is Vice President-Business Development of the Company and
over the past decade has held a number of executive positions with the Company,
including Manager of Corporate Accounting, Controller and Director of National
Operations. Mr. Farrell is the brother of William Farrell.

Michael J. Drumgoole is Vice President-Sales and Marketing of the Company
and has held such position since 1993. Mr. Drumgoole has over 20 years
experience in medical sales and has held various sales, sales training and sales
management positions within the healthcare industry.

Stephen M. Davis has been a director and Secretary of the Company since
1992 and is a member of theCompany's Audit Committee. For more than the last
five years, Mr. Davis has been a partner of the law firm Werbel & Carnelutti, A
Professional Corporation. Mr. Davis is a director of National R.V. Holdings,
Inc.

Gary L. Fuhrman has been a director of the Company since 1992 and is a
member of the Company's Audit Committee. Mr. Fuhrman has been a Director and a
Senior Vice President of Arnhold and S. Bleichroeder, Inc., an investment
banking firm, since March 1995 and January 1993, respectively, and a vice
president of such firm for more than five years prior thereto. Mr. Fuhrman is a
director of National R.V. Holdings, Inc.

John H. Josephson has been a director of the Company since July 1995. Mr.
Josephson is a Vice President and Director of Allen & Company Incorporated, an
investment banking firm, and has been with such firm since 1987. Mr. Josephson
is also a director of Norwood Promotional Products, Inc.

Neil H. Koffler has been a director of the Company since November 1995 and
is a member of the Company's Audit Committee. Mr. Koffler has been employed by
Siegler Collery since 1989. Mr. Koffler is an executive officer of Fundamental
Value Fund and Fundamental Value BVI. Mr. Koffler is a director of National R.V.
Holdings, Inc.

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<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth as of September 20, 1996 the number and
percentage of shares of Common Stock held by (i) each of the executive officers
and directors of the Company, (ii) all persons who are known by the Company to
be the beneficial owners of, or who otherwise exercise voting or dispositive
control over, five percent or more of the outstanding Common Stock and (iii) all
of the Company's present executive officers and directors as a group:

Percentage Beneficially Owned

<TABLE>
<CAPTION>
Name and Address Common Stock
of Beneficial Owner Owned(1) Before Offering After Offering
------------------- -------- --------------- --------------
<S> <C> <C> <C>
Gary N. Siegler(2)(3) ................ 3,520,442 25.2% 19.6%
c/o Siegler, Collery & Co.
712 Fifth Avenue
New York, NY 10019

Peter M. Collery(2)(4) ............... 3,067,993 22.5% 17.4%
c/o Siegler, Collery & Co.
712 Fifth Avenue
New York, NY 10019

StarMed Investors, L.P.(2) ........... 1,578,914 11.7% 9.0%
c/o Siegler, Collery & Co.
712 Fifth Avenue
New York, NY 10019

New England MRI, Inc.(5) ............. 730,000 5.4% 4.2%
3000 Colby Street
Berkeley, California 94705

William D. Farrell(6) ................ 78,165 * *
c/o Medical Resources, Inc.
155 State Street
Hackensack, NJ 07601

John P. O'Malley III(7) .............. 181,703 1.3% 1.0%
c/o Medical Resources, Inc.
155 State Street
Hackensack, NJ 07601

Gary L. Fuhrman(8) ................... 147,591 1.1% *
c/o Arnhold and S. Bleichroeder, Inc.
45 Broadway
New York, NY 10006

John H. Josephson(9) ................. 25,000 * *
c/o Allen & Company Incorporated
711 Fifth Avenue
New York, NY 10022

Stephen M. Davis(10) ................. 33,387 * *
c/o Werbel & Carnelutti
711 Fifth Avenue
New York, NY 10022

Neil H. Koffler(11) .................. 63,580 * *
c/o Siegler, Collery & Co.
712 Fifth Avenue
New York, NY 10019
All officers and directors as a group
(7 in number)(2)(3)(6)(7)(8)(9)(10)(11) 4,017,943 27.8% 21.8%

</TABLE>
(Footnotes on following page)

40
<PAGE>

- ----------
* Less than one percent.

(1) Except as otherwise indicated, the persons named in the table have sole
voting and investment power with respect to the shares of Common Stock
shown as beneficially owned by them.

(2) Messrs. Siegler and Collery, due to their joint ownership of Siegler
Collery and other affiliates which control StarMed Investors, L.P. (which
is included in the table) and certain other entities which beneficially own
an aggregate of 1,330,380 shares of Common Stock, including 112,500 shares
underlying convertible debentures, are each deemed to beneficially own all
of the shares of Common Stock owned of record by all such entities.

(3) Includes 282,000 shares underlying outstanding options which are
exercisable immediately or within 60 days, 6,250 shares underlying
convertible debentures and 120,000 shares issuable upon the exercise of
certain warrants held by 712 Advisory Services, Inc., of which Mr. Siegler
is the sole stockholder.

(4) Includes 51,000 shares underlying outstanding options which are exercisable
immediately or within 60 days and 6,250 shares underlying convertible
debentures.

(5) Does not include 800,000 shares issuable pursuant to the Company's
acquisition of the assets of New England MRI, Inc., 200,000 of which are
contingent upon the acquired centers achieving certain earnings objectives.

(6) Includes 76,665 shares underlying outstanding options which are exercisable
immediately or within 60 days.

(7) Includes 163,438 shares underlying outstanding warrants which are
exercisable immediately or within 60 days and 4,520 shares owned through
the Company's 401(k) plan.

(8) Includes 71,000 shares underlying outstanding options which are exercisable
immediately or within 60 days and 41,666 shares underlying convertible
debentures.

(9) Includes 25,000 shares underlying outstanding options which are exercisable
immediately or within 60 days.

(10) Includes 31,000 shares underlying outstanding options which are exercisable
immediately or within 60 days.

(11) Includes 60,000 shares underlying outstanding options which are exercisable
immediately or within 60 days.

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock, par value $.01 per share, and 100,000 shares of Preferred
Stock, par value $.01 per share ("Preferred Stock"). As of September 25, 1996,
the Company had outstanding 13,449,853 shares of Common Stock.

Common Stock

The holders of outstanding shares of Common Stock are entitled to receive
dividends out of assets legally available therefor at such times and in such
amounts as the Board of Directors may, from time to time, determine. Each
stockholder is entitled to one vote for each share of Common Stock held by such
stockholder. The Company's Certificate of Incorporation does not provide for
cumulative voting. The Common Stock is not entitled to preemptive rights and is
not subject to redemption. Upon liquidation, dissolution, or winding-up of the
Company, the assets legally available for distribution to stockholders are
distributed ratably among the holders of Common Stock outstanding at that time
after payment of liquidation preferences, if any, on any outstanding Preferred
Stock. Each outstanding share of Common Stock is fully paid and nonassessable.

Pursuant to the Rights Plan, holders of the Common Stock received a
distribution of one right (the "Rights") to purchase one ten thousandth of a
share of Series C Junior Participating Preferred Stock for each share of Common
Stock owned. The Rights will generally become exercisable ten days after a
person or group acquires 15% of the Company's outstanding voting securities or
ten business days after a person or group commences or announces an intention to
commence a tender or exchange offer that could result in the acquisition of 15%
of any such securities. Ten days after a person acquires 15% or more of the
Company's outstanding voting securities (unless this time period is extended by
the board of directors) each Right would, subject to certain adjustments and
alternatives, entitle the rightholder to purchase Common Stock of the Company or
stock of the acquiring company having a market value of twice the $24.00
exercise price of the Right (except that the acquiring person or group and other
related holders would not be able to purchase common stock of the company on
these terms). The Rights are nonvoting, expire in 2006 and

41
<PAGE>

may be redeemed by the Company at a price of $.001 per Right at any time prior
to the tenth day after an individual or group acquired 15% of the Company's
voting stock, unless extended. The purpose of the Rights is to encourage
potential acquirors to negotiate with the Company's Board of Directors prior to
attempting a takeover and to give the Board leverage in negotiating on behalf of
the stockholder the terms of any proposed takeover.

Preferred Stock

The Company's Certificate of Incorporation provides that the Company may,
without further action by the Company's stockholders, issue shares of Preferred
Stock in one or more series. The Board of Directors is authorized to establish
from time to time the number of shares to be included in any such series and to
fix the relative rights and preferences of the shares of any such series,
including without limitation dividend rights, dividend rate, voting rights,
redemption rights and terms, liquidation preferences and sinking fund
provisions. The Board of Directors may authorize and issue Preferred Stock with
voting or conversion rights that could adversely affect the voting power or
other rights of the holders of Common Stock. In addition, the issuance of
Preferred Stock could have the effect of delaying or preventing a change in
control of the Company.

Transfer Agent

The Transfer Agent and registrar for the Common Stock is American Stock
Transfer and Trust Company, New York, New York.

42
<PAGE>

UNDERWRITING

The names of the Underwriters of the shares of Common Stock offered hereby
and the aggregate number of shares each has severally agreed to purchase from
the Company, subject to the terms and conditions specified in the Underwriting
Agreement, are as follows:

Underwriters Number of Shares
------------ ----------------
Dillon, Read & Co. Inc. ........................
Smith Barney Inc. ..............................
---------
Total ..................................... 4,000,000
=========

The Managing Underwriters are Dillon, Read & Co. Inc. and Smith Barney Inc.

If any shares of Common Stock offered hereby are purchased by the
Underwriters, all such shares will be so purchased. The Underwriting Agreement
contains certain provisions whereby if any Underwriter defaults in its
obligation to purchase such shares and the aggregate obligations of the
Underwriters so defaulting do not exceed 10% of the shares offered hereby, the
remaining Underwriters, or some of them, must assume such obligations.

The shares of Common Stock offered hereby are being initially offered by
the several Underwriters for sale at the price set forth on the cover page
hereof, or at such price less a concession not to exceed $ per share on sales to
certain dealers. The Underwriters may allow, and such dealers may reallow, a
concession not to exceed $ per share on sales to certain other dealers. The
offering of the shares is made for delivery when, as, and if accepted by the
Underwriters and subject to prior sale and to withdrawal, cancellation, or
modification of the offer without notice. The Underwriters reserve the right to
reject any order for the purchase of the shares. After the shares are released
for sale to the public, the public offering price, the concession, and the
reallowance may be changed by the Managing Underwriters.

The Company has granted to the Underwriters an option to purchase up to an
additional 600,000 shares of Common Stock on the same terms per share. The
Underwriters may exercise such option on or before the thirtieth day from the
date of the public offering of the shares offered hereby, and only to cover
over-allotments of shares of Common Stock offered hereby. To the extent the
Underwriters exercise this option, each Underwriter will be obligated, subject
to certain conditions, to purchase the number of additional shares of Common
Stock proportionate to such Underwriter's initial commitment.

The Company and its officers and directors have agreed not to offer, sell,
contract to sell, grant any option to sell, or otherwise dispose of, directly or
indirectly, any shares of Common Stock or securities convertible into or
exchangeable or exercisable for any shares of Common Stock or permit the
registration of any shares of Common Stock for a period of 120 days after the
date of this Prospectus, without the prior written consent of Dillon, Read & Co.
Inc., except that the Company may, without such consent, (i) grant options
pursuant to any Company director and employee benefit plans, (ii) sell shares of
Common Stock pursuant to this offering, (iii) issue Common Stock pursuant to the
exercise of stock options outstanding on the date of the Prospectus or issued
pursuant to the foregoing clause (i) or the Company's outstanding warrants and
convertible debentures, (iv) issue Common Stock in connection with acquisitions
provided that stock issued in connection therewith may not be resold during the
120 day period referred to herein without the prior written consent of Dillon,
Read & Co. Inc., (v) issue Common Stock pursuant to its obligations under the
Rights Plan, and (vi) register Common Stock issued pursuant to the foregoing
clauses (ii) through (v).

The Company has agreed in the Underwriting Agreement to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribute to payments that the
Underwriters may be required to make in respect thereof.

Dillon, Read & Co. Inc. provided investment banking services to the Company
in connection with the NMR Acquisition, for which it has received customary
fees.

43
<PAGE>

In connection with this offering, certain Underwriters and selling group
members or their affiliates may engage in passive market making transactions in
the Common Stock on the Nasdaq National Market in accordance with Rule 10b-6A
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Passive market making consists of, among other things, displaying bids on Nasdaq
limited by the bid prices of independent market makers and purchases limited by
such prices and effected in response to order flow. Net purchases by a passive
market maker on each day are limited to a specified percentage of the passive
market maker's average daily trading volume in the Common Stock during a
specified prior period and all possible market making activity must be
discontinued when such limit is reached. Passive market making may stabilize the
market price of the Common Stock at a level above that which might otherwise
prevail and, if commenced, may be discontinued at any time.

LEGAL MATTERS

The validity of the shares of the Company's Common Stock offered hereby
will be passed upon for the Company by Werbel & Carnelutti, A Professional
Corporation, New York, New York. Stephen M. Davis, a partner of Werbel &
Carnelutti, is a director of the Company and beneficially owns 33,387 shares of
Common Stock. Certain legal matters in connection with the sale of the Common
Stock offered hereby will be passed upon for the Underwriters by Cahill Gordon &
Reindel, a partnership including a professional corporation, New York, New York.

EXPERTS

The consolidated financial statements of Medical Resources, Inc. at
December 31, 1995 and 1994, and for the years then ended, included and
incorporated by reference in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent certified public accountants, as
set forth in their report thereon included and incorporated by reference herein
which, as to the year ended December 31, 1994, is based in part on the reports
of Dixon, Odom & Co., L.L.P., independent auditors, and Kempisty & Company,
Certified Public Accountants, P.C., independent accountants. The consolidated
financial statements referred to above are included and incorporated by
reference herein in reliance upon such reports given upon the authority of such
firms as experts in accounting and auditing.

The consolidated financial statements and schedule of Medical Resources,
Inc. for the year ended December 31, 1993 included and incorporated by reference
in this Prospectus and Registration Statement have been audited, as to
combination only, by Ernst & Young LLP, independent certified public
accountants, as set forth in their report thereon included and incorporated by
reference elsewhere herein. The consolidated financial statements of Medical
Resources, Inc. (not presented separately herein) for the year ended December
31, 1993, prior to their restatement for the acquisition of StarMed Staffing, LP
in 1994 in a transaction accounted for as a pooling of interests and prior to
their restatement for the 1995 reorganization, in which Kik Kin L.P. and
Maternity Retail Partners, L.P., affiliated companies, became subsidiaries of
Medical Resources, Inc. in a transaction accounted for in a manner similar to a
pooling of interests, have been audited by Price Waterhouse LLP, independent
accountants, as set forth in their report thereon included and incorporated by
reference elsewhere herein. The financial statements of StarMed Staffing, LP for
the year ended December 31, 1993 (not presented separately herein), Kik Kin L.P.
for the year ended January 1, 1994 (not presented separately herein) and
Maternity Retail Partners, L.P. for the year ended January 30, 1994 (not
presented separately herein) have been audited by Ernst & Young LLP, Dixon Odom
& Co., L.L.P., and Kempisty & Company, PC, respectively, as set forth in their
reports thereon incorporated by reference herein. The consolidated financial
statements and schedule of Medical Resources, Inc. for the year ended December
31, 1993 referred to above are included and incorporated by reference herein in
reliance upon such reports given upon the authority of such firms as experts in
accounting and auditing.

The financial statements of NurseCare Plus, Inc. at December 31, 1995 and
1994 and for each of the three years in the period ended December 31, 1995,
incorporated by reference in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent certified public accountants, as
set forth in their report thereon incorporated by reference herein, and is
included in reliance upon such report given on the authority of said firm as
experts in accounting and auditing.

The financial statements of MRI-CT, Inc. at December 31, 1995 and for the
year then ended, incorporated by reference in this Prospectus and Registration
Statement have been so incorporated in reliance on the report of Bard &
Glassman, independent accountants, given on the authority of said firm as
experts in accounting and auditing.

44
<PAGE>

The financial statements of Americare Imaging Center, Inc. at December 31,
1995 and for the year then ended, incorporated by reference in this Prospectus
and Registration Statement have been so incorporated in reliance on the report
of Weisberg, Polansky, Kulberg, Einhorn & Mole, LLP, independent certified
public accountants, as set forth in their report thereon incorporated by
reference herein, and is included in reliance upon such report given on the
authority of said firm as experts in accounting and auditing.

The financial statements of Access Imaging Center, Inc. at December 31,
1995 and for the year then ended, incorporated by reference in this Prospectus
and Registration Statement have been so incorporated on the report of Weisburg,
Polansky, Kulberg, Einhorn & Mole, LLP, independent certified public
accountants, as set forth in their report thereon incorporated by reference
herein, and is included in reliance upon such report given on the authority of
said firm as experts in accounting and auditing.

The financial statements of We Care-Allied Health Care, Inc. at December
31, 1995 and for the year then ended, incorporated by reference in this
Prospectus and Registration Statement have been so incorporated on the report of
Weisberg, Polansky, Kuhlberg, Einhorn & Mole, LLP, independent certified public
accountants, as set forth in their report thereon incorporated by reference
herein, and is included in reliance upon such report given on the authority of
said firm as experts in accounting and auditing.

The consolidated balance sheets of NMR of America, Inc. at March 31, 1996
and 1995 and consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended March 31, 1996 included
and incorporated by reference in this Prospectus and Registration Statement have
been so incorporated in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy and information statements filed by the Company may be inspected
and copied at the Public Reference Section of the Commission at 450 Fifth
Street, N.W. Washington, D.C. 20549, and at the Commission's Regional Offices at
7 World Trade Center, 13th Floor, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can also be obtained from the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street N.W., Washington D.C. 20549 at prescribed rates. The Commission maintains
a Web site that contains reports, proxy and information statements and other
information regarding the Company; the address of such site is
http://www.sec.gov.

The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement"), under the Securities Act of 1933, as
amended, with respect to the Common Stock offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement certain parts of which are
omitted in accordance with the rules and regulations of the Commission. Copies
of the Registration Statement, including all exhibits thereto, may be obtained
from the Commission's principal office in Washington D.C. upon payment of the
fees prescribed by the Commission or may be examined without charge at the
offices of the Commission as described above.

The Common Stock is quoted on the Nasdaq National Market. Reports and other
information about the Company may be inspected at the offices maintained by the
National Association of Securities Dealers, Inc.,NASDAQ Reports Section, 1735 K
Street, N.W., Washington D.C. 20006.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents or portions of documents filed by the Company with
the Commission are incorporated by reference in this Prospectus:

(a) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 which contains consolidated financial statements of the
Company and certain other information regarding the Company.

(b) The Company's Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 31, 1996 andJune 30 1996.

(c) The Company's Current Reports on Form 8-K dated January 9, 1996
(as amended on Forms 8-K/A dated March 19, 1996 and July 19, 1996), April
30, 1996, May 20, 1996 and September 13, 1996.

45
<PAGE>

(d) The Company's Registration Statement on Form 10 filed under the
Exchange Act, File No. 0-20440, which contains a description of the Common
Stock.

(e) The description of certain rights attaching to the Common Stock to
purchase Series C Junior Participating Preferred Stock contained in the
Company Registration Statement on Form 8-A, filed with the Commission on
September 13, 1996.

(f) All other reports filed pursuant to Section 13(a) or 15(d) of the
Exchange Act since the end of the Company's fiscal year ended December 31,
1995.

Each document filed subsequent to the date of the Prospectus by the Company
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the
filing of a post-effective amendment which indicates that all securities offered
hereby have been sold or which deregisters all securities remaining unsold,
shall be deemed to be incorporated by reference herein and to be a part hereof
from the date of the filing of such reports and documents. Any statement
contained in a document, all or a portion of which is incorporated by reference
herein, shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained or incorporated by reference
herein modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.

The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, upon the written or oral
request of any such person, a copy of any or all such documents which are
incorporated herein by reference (other than exhibits to such documents unless
such exhibits are specifically incorporated by reference herein or into such
documents). Written or oral requests for copies should be directed to: Investor
Relations, Medical Resources, Inc., 155 State Street, Hackensack, New Jersey
07601, telephone number: 201-488-6230.

<PAGE>

INDEX TO FINANCIAL STATEMENTS AND
PRO FORMA COMBINED FINANCIAL STATEMENTS

Page

Medical Resources, Inc.

Unaudited Pro Forma Combined Financial Statements .................... F-2

Unaudited Pro Forma Combined Balance Sheet as of June 30, 1996 ....... F-3

Unaudited Pro Forma Combined Statement of Operations for the Year
Ended December 31, 1995 ............................................ F-4

Unaudited Pro Forma Combined Statement of Operations for the Six
Months Ended June 30, 1996 ......................................... F-5

Notes to Unaudited Pro Forma Combined Financial Statements ........... F-6

Report of Ernst & Young LLP--Independent Certified Public
Accountants ........................................................ F-13

Consolidated Balance Sheets as of December 31, 1994 (restated) and
1995 and June 30, 1996 (unaudited) ................................. F-14

Consolidated Statements of Operations--Years Ended December 31,
1993 (restated), 1994 (restated) and 1995, and Six Month
Periods Ended June 30, 1996 (unaudited) and 1995 (unaudited) ....... F-15

Consolidated Statements of Changes in Stockholders' Equity--Years
Ended December 31, 1993 (restated), 1994 (restated) and 1995
and Six Months Ended June 30, 1996 (unaudited) ..................... F-17

Consolidated Statements of Cash Flows--Years Ended December 31, 1993
(restated), 1994 (restated) and 1995 and Six Month Periods Ended
June 30, 1996 (unaudited) and 1995 (unaudited) ..................... F-18

Notes to Consolidated Financial Statements ........................... F-19

NMR of America, Inc. and Subsidiaries

Report of Coopers & Lybrand L.L.P. ................................... F-38

Consolidated Balance Sheets as of March 31, 1995 and 1996 and
June 30, 1996 (unaudited) .......................................... F-39

Consolidated Statements of Income--Years Ended March 31, 1994,
1995 and 1996 and Quarters Ended June 30, 1995 (unaudited)
and 1996 (unaudited) ............................................... F-40

Consolidated Statements of Cash Flows--Years Ended March 31, 1994,
1995 and 1996 and Quarters Ended June 30, 1995 (unaudited) and
1996 (unaudited) ................................................... F-41

Consolidated Statement of Changes in Stockholders' Equity--Years
Ended March 31, 1994, 1995 and 1996 and Quarter Ended June 30,
1996 (unaudited) ................................................... F-44

Notes to Consolidated Financial Statements ........................... F-45

F-1
<PAGE>

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

The following unaudited pro forma combined financial statements should be
read in conjunction with the historical consolidated financial statements and
related notes thereto of Medical Resources and NMR included elsewhere herein as
certain data and notes normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted, and the notes to the Unaudited Pro Forma Combined Financial Statements.

F-2
<PAGE>

UNAUDITED PRO FORMA COMBINED BALANCE SHEET

As of June 30, 1996

(In thousands)

<TABLE>
<CAPTION>
Medical
Resources
Medical and
Resources NMR NMR
June 30, June 30, Pro Forma Pro Forma
1996 1996(1) Adjustments Combined
--------- ------- ----------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents ......................... $ 8,015 $ 2,362 $ (1,168)(A) $ 7,984
(1,225)(B)
Short-term investments ............................ -- 1,830 1,830
Accounts receivable, net .......................... 18,645 14,947 33,592
Other assets ...................................... 4,491 1,302 5,793
--------- --------- --------- ---------
Total current assets ............................ 31,151 20,441 (2,393) 49,199

Medical diagnostic and office equipment, net ...... 14,437 14,007 (2,908)(C) 25,536
Goodwill, net ..................................... 17,707 10,660 (10,660)(D) 52,990
35,283 (E)
Other assets ...................................... 3,520 1,424 1,409 (F) 5,374
(830)(G)
(149)(J)
--------- --------- --------- ---------
Total assets .................................... $ 66,815 $ 46,532 $ 19,752 $ 133,099
========= ========= ========= =========

Current portion of notes payable .................. $ 1,835 $ 4,591 $ 6,426
Current portion of obligations under capital leases 4,511 604 5,115
Line of credit .................................... 4,325 -- 4,325
Accounts payable and accrued expenses ............. 5,572 4,449 10,021
Other current liabilities ......................... 1,525 -- $ 2,054 (H) 3,579
Income taxes payable .............................. 469 -- 469
--------- --------- --------- ---------
Total current liabilities ....................... 18,237 9,644 2,054 29,935
Notes payable ..................................... 4,870 10,012 14,882
Obligations under capital leases .................. 8,455 1,009 9,464
Convertible debentures ............................ 7,260 1,891 9,151
Other long-term liabilities ....................... 1,097 2,328 3,425
--------- --------- --------- ---------
Total liabilities ............................... 39,919 24,884 2,054 66,857

Common stock ...................................... 91 67 (67)(I) 136
45 (E)
Common stock to be issued ......................... 1,721 -- 1,721
Additional paid in capital ........................ 27,897 17,073 (17,073)(I) 67,198
39,301 (E)
Retained (deficit) earnings ....................... (1,394) 6,220 (6,220)(I) (1,394)
Treasury stock .................................... (1,419) (1,712) 1,712 (I) (1,419)
--------- --------- --------- ---------
Total stockholders' equity ...................... 26,896 21,648 17,698 66,242
--------- --------- --------- ---------
Total liabilities and stockholders' equity ...... $ 66,815 $ 46,532 $ 19,752 $ 133,099
========= ========= ========= =========
</TABLE>

- ----------
(1) As reclassified to conform with the Company's presentation of financial
information.

See Accompanying Notes (A) to (I) to Unaudited Pro Forma
Combined Financial Statements and
Notes to Audited Consolidated Financial Statements

F-3
<PAGE>

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
Year Ended December 31, 1995

(In thousands, except per share data)

<TABLE>
<CAPTION>
Medical
Resources/
NMR
Combined
and
Medical Medical Medical
Medical Resources Resources NMR Resources/
Resources NMR and Historical Historical NMR
Year Ended Year Ended NMR Acquisitions Acquisitions Historical
December 31, March 31, Pro Forma Pro Forma Pro Forma Pro Forma Acquisitions
1995 1996(1) Adjustments Combined Adjustments Adjustments Pro Forma
------------ --------- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net service revenues .............. $ 51,994 $ 23,957 $ (1,791)(a) $ 74,307 $ 22,122(j) $ 3,467(m) $ 99,896
147 (b)

Operating costs, excluding
interest, depreciation and
amortization .................... 31,564 13,125 (1,754)(a) 42,935 15,107(j) 1,641(k) 59,683

Provision for uncollectible
accounts receivable .............. 3,378 -- 3,378 1,045(j) 4,423

Corporate general and
administrative ................... 4,978 2,916 356 (c) 8,250 2,480(j) 344(k) 11,074

Depreciation and amortization ..... 4,567 3,094 (532)(a) 8,049 2,438(j) 408(k) 10,895
(420)(d)
1,764 (e)
(60)(f)
(364)(g)
-------- -------- -------- -------- -------- -------- --------
Operating income ................ 7,507 4,822 (634) 11,695 1,052 1,074 13,821

Interest expense .................. 1,829 1,678 (518)(a) 2,989 301(j) 356(k) 3,646
-------- -------- -------- -------- -------- -------- --------

Income from continuing
operations before minority
interest and taxes ............... 5,678 3,144 (116) 8,706 751 718 10,175

Minority interest ................. (124) 411 -- 287 -- -- 287
-------- -------- -------- -------- -------- -------- --------

Income from continuing
operations before income
taxes ............................ 5,802 2,733 (116) 8,429 751 718 9,888

Income taxes ...................... 1,659 956 (46)(h) 2,569 300(j) 238(k) 3,107
-------- -------- -------- -------- -------- -------- --------

Income from continuing
operations ....................... $ 4,143 $ 1,777 $ (70) $ 5,851 $ 451 $ 480 $ 6,781
======== ======== ======== ======== ======== ======== ========

Earnings per share:
Primary(2) ....................... $ 0.53 $ 0.30 $ 0.50 $ 0.51
======== ======== ======== ========

Weighted average shares
outstanding ...................... 7,785 5,870 4,036 (i) 11,820 1,092(l) 378(m) 13,291
======== ======== ======== ======== ======== ======== ========
</TABLE>

- ----------
(1) As reclassified to conform with the Company's presentation of financial
information.

(2) Fully diluted earnings per share equals primary earnings per share.

See Accompanying Notes (a) to (m) to Unaudited Pro Forma
Combined Financial Statements and
Notes to Audited Consolidated Financial Statements

F-4
<PAGE>

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
Six Months Ended June 30, 1996

(In thousands, except per share data)

Medical
Resources/NMR
Medical Medical Combined
Resources NMR Medical Resources and Medical
Six Months Six Months Resources Historical Resources
Ended Ended and NMR Acquisitions Historical
June 30, June 30, Pro Forma Pro Forma Pro Forma Acquisitions
1996 1996(1) Adjustments Combined Adjustments Pro Forma
-------- -------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net service revenues ................ $ 36,776 $ 14,228 $ (952)(aa) $ 50,052 $5,293 (jj) $ 55,345
Operating costs, excluding
interest, depreciation
and amortization ................... 23,486 7,456 (1,066)(aa) 29,876 3,481 (jj) 33,357
Provision for uncollectible
accounts receivable ................ 1,762 -- 1,762 144 (jj) 1,906
Corporate general and
administration ..................... 3,433 1,877 140 (cc) 5,450 437 (jj) 5,887
Depreciation and
amortization ....................... 2,740 1,689 (270)(aa) 4,490 528 (jj) 5,017
(322)(dd)
882 (ee)
(48)(ff)
(182)(gg)
Transaction costs ................... -- 301 (301)(bb)
-------- -------- -------- -------- ------ --------
Operating income .................. 5,355 2,905 215 8,474 703 9,178
Interest expense .................... 1,288 910 (261)(aa) 1,936 48 (jj) 1,985
-------- -------- -------- -------- ------ --------
Income from continuing
operations before minority
interest and taxes ................. 4,067 1,995 476 6,538 655 7,193
Minority interest ................... 64 197 261 261
-------- -------- -------- -------- ------ --------
Income from continuing
operations before
income taxes ....................... 4,003 1,798 476 6,277 655 6,932
Income taxes ........................ 1,099 579 190 (hh) 1,868 262 (jj) 2,130
-------- -------- -------- -------- ------ --------
Income from continuing
operations ......................... $ 2,904 $ 1,219 $ 286 $ 4,409 $ 393 $ 4,802
======== ======== ======== ======== =========== ========
Earnings per share:
Primary ............................ $ 0.33 $ 0.19 $ 0.33 $ 0.35
Fully diluted ...................... $ 0.31 $ 0.19 $ 0.32 $ 0.34
======== ======== ======== ========
Weighted average shares
outstanding ........................ 8,835 6,440 4,428 (ii) 13,263 272 (kk) 13,535
======== ======== ======== ======== =========== ========

</TABLE>

- ----------
(1) As reclassifed to conform with the Company's presentation of financial
information.

See Accompanying Notes (aa) to (kk) to Unaudited Pro Forma
Combined Financial Statements and
Notes to Audited Consolidated Financial Statements

F-5
<PAGE>

MEDICAL RESOURCES, INC.

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

1. Basis of Presentation

The Historical Financial Statements

The unaudited pro forma combined financial statements are presented for
illustrative purposes only, giving effect to the NMR Acquisition and other
historical acquisitions of Medical Resources and NMR, and therefore, are not
necessarily indicative of the financial position or financial results that might
have been achieved had the NMR Acquisition occurred as of an earlier date, nor
are they necessarily indicative of the financial position or financial results
which may occur in the future. The Unaudited Pro Forma Combined Balance Sheet
has been presented assuming the NMR Acquisition occurred on June 30, 1996.
Medical Resources' fiscal year end is December 31 and NMR's fiscal year end is
March 31. Accordingly, the Unaudited Pro Forma Combined Statement of Operations
been presented as if the NMR Acquisition and other historical acquisitions of
Medical Resources had occurred on January 1, 1995 and as if the historical
acquisitions of NMR had occurred on April 1, 1995. The Unaudited Pro Forma
Combined Statement of Operations for the Six Months Ended June 30, 1996 has been
prepared on the basis that the NMR Acquisition and the other 1996 historical
acquisitions of Medical Resources occurred as of January 1, 1996. The NMR
Acquisition was accounted for under the purchase method of accounting, whereby
the respective assets and liabilities of NMR are recorded at their estimated
fair values. The total purchase cost of the transaction is estimated to be
approximately $39,346,000 and the excess of the purchase cost over the estimated
fair value of net assets acquired is estimated to be approximately $35,134,000.

The Pro Forma Combined Statement of Operations for the fiscal year ended
December 31, 1995 reflects the impact of historical acquisitions made by Medical
Resources and NMR. Medical Resources' acquisitions of New England MRI ("NEM")
and PCC Imaging, Inc. ("PCC"), which were effective on May 26, 1995 and June 19,
1995 respectively, and of MRI-CT, Inc. ("MRI-CT") on January 9, 1996, Nurse Care
Plus, Inc. ("NurseCare") on January 12, 1996, Americare Imaging Centers, Inc.
and MRI Associates of Tarpon Springs, Inc. (collectively known as "Americare")
on April 19, 1996, Access Imaging Center, Inc. ("Access") on April 30, 1996 and
We Care--Allied Health Care, Inc. ("We Care") on June 28, 1996, are reflected as
if such acquisitions had occurred on January 1, 1995. NMR's acquisition of
Morgan Medical Holdings, Inc. ("Morgan") and Central Diversey MRI Center, Inc.
("CD MRI"), which were effective on September 15, 1995 and January 1, 1996,
respectively, are reflected as if these transactions had occurred on April 1,
1995.

The Unaudited Pro Forma Combined Statement of Income for the Six Months
Ended June 30, 1996 reflects the impact of historical acquisitions made by
Medical Resources. Medical Resources' aforementioned acquisition of MRI-CT,
NurseCare, Americare, Access and We Care are reflected as if these transactions
had occurred on January 1, 1996.

As mentioned, Medical Resources' fiscal year-end is December 31 and NMR's
is March 31. As a result, the operating results for NMR for the three months
ended March 31 have been included in the Pro Forma Combined Statement of Income
for the fiscal year ended December 31, 1995 and the Unaudited Pro Forma Combined
Statement of Operations for the Six Months Ended June 30, 1996. Unaudited net
service revenues and net income for this period were $6,960,000 and $630,000,
respectively.

2. Revenue Recognition

For Medical Resources' centers and those centers that NMR acquired (as
opposed to developed, see next paragraph), revenues are recognized on an accrual
basis as earned and consist of patient service revenues adjusted for contractual
adjustments (net patient service revenue) allocated to Medical Resources and NMR
under the terms of management agreements maintained. This revenue is derived
from charges for patient services rendered in diagnostic imaging centers under
the terms of certain payment arrangements with various third party payors, such
charges are paid at less than Medical Resources' established rates.

For the centers which NMR has developed, agreements have been entered into
with physicians engaging in business as professional associations ("Physicians")
pursuant to which NMR maintains and operates imaging systems in

F-6
<PAGE>

MEDICAL RESOURCES, INC.

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)

offices operated by the Physicians. The agreements have terms of up to six years
and are renewable at NMR's option. Under the agreements, Physicians have agreed
to be obligated to contract for radiological services at the centers and to
sublease each facility. NMR is obligated to make necessary leasehold
improvements, provide furniture and fixtures and perform certain administrative
functions relating to the provisions of technical aspects of the centers'
operations for which Physicians pay a quarterly fee composed of a fixed sum
based on the cost of the respective imaging system installed, including the
related financing costs, a charge per invoice processed and a charge based upon
system usage for each NMR-installed imaging system in operation. These fees, net
of a contractual allowance based upon Physicians ability to pay after Physicians
have fulfilled their obligations under facility subleases and radiological
service contracts as set forth above, constitute NMR's net revenue for sites
developed by NMR.

Medical Resources also recognizes revenue from temporary nurse staffing.

3. Earnings Per Share

The Medical Resources and NMR Pro Forma earnings per share presented on the
Unaudited Pro Forma Combined Statement of Operations has been calculated by
dividing net income by the number of shares outstanding during the period,
including the effect of the 4,456,455 shares of Medical Resources Common Stock
issued in the NMR Acquisition. Pro Forma earnings per share for the year ended
December 31, 1995 has been calculated assuming the 600,000 shares issued and
600,000 shares of Medical Resources Common Stock to be issued by Medical
Resources in conjunction with the acquisition of NEM and the 194,113, 228,571
and 192,063 shares of Medical Resources Common Stock issued by Medical Resources
in conjunction with the acquisition of MRI-CT, Americare and Access,
respectively, were issued on January 1, 1995; and the 1,195,848 and 10,000
shares of NMR Common Stock issued by NMR for the acquisition of Morgan and CD
MRI respectively, were issued on April 1, 1995. Pro Forma earnings per share for
the Six Months Ended June 30, 1996 has been calculated assuming the 4,456,455
shares issued in the NMR Acquisition, the 194,113, 228,571 and 192,063 shares of
Common Stock issued by Medical Resources in conjunction with the acquisition of
MRI-CT, Americare and Access, respectively, were issued on January 1, 1996. The
potential dilutive effect of warrants issued upon consummation of the NMR
Acquisition and the conversion of all NMR options and warrants into Medical
Resources options and warrants was taken into consideration in the pro forma
earnings per share calculation.

F-7
<PAGE>

MEDICAL RESOURCES, INC.

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)

4. Pro Forma Adjustments

Unaudited Pro Forma Combined Balance Sheet

(A) To reflect expenditure of estimated professional fees and other costs
expected to be expended by Medical Resources and NMR relating to the NMR
Acquisition, including investment banking, legal, accounting and appraisal
fees.

Medical Resources:
Investment banking ......................... $265
Fixed asset appraisal ...................... 30
Printing and mailing ....................... 85
Financial advisory ......................... 175
Accounting ................................. 150
Legal ...................................... 200
----
$ 905
Cash disbursed as of June 30, 1996 ........... 149
------
756
NMR:
Investment banking .......................... $215
Accounting .................................. 50
Legal ....................................... 150
----
415
Cash disbursed as of June 30, 1996 ........... 3
------
412
------
Estimated remaining NMR Acquisition related
expenditures ............................... $1,168
======

(B) To reflect lump sum cash payments to certain executives of NMR in
consideration of the termination of existing employment agreements pursuant
to terms of the NMR Acquisition. These payments were made in conjunction
with the consummation of the NMR Acquisition.

(C) To adjust NMR's fixed assets to their estimated fair value based upon
independent appraisals obtained by the Company.

(D) To eliminate NMR's historical goodwill.

(E) To record the estimated goodwill and equity relating to the NMR Acquisition
based upon a purchase price of approximately $39,346,000 calculated based
on the issuance of 4,456,000 shares of Common Stock in exchange for the
outstanding stock of NMR. For purposes of pro forma presentation, Common
Stock was valued at $8.83 per share.

<TABLE>
<CAPTION>
<S> <C> <C>
NMR historical book value as of June 30, 1996 $ 21,648
To reflect the expenditure of costs related to
the NMR Acquisition (412) (see (A))
To reflect lump sum payments to certain executives
of NMR (1,225) (see (B))
To adjust fixed assets to appraised fair value (2,908) (see (C))
To remove historical goodwill (10,660) (see (D))
To adjust the deferred tax asset, net 1,409 (see (F))
To adjust intangible and other assets (830) (see (G))
To adjust accrued liabilities (2,054) (see (H))
--------
Adjusted book value of NMR (net assets acquired) $ 4,968
========
Purchase price $39,346
Adjusted book value of NMR (net assets
acquired) 4,968
-------
Excess of purchase price over net assets
acquired 34,378
Capitalized NMR Acquisition costs 905 (see (A))
-------
Goodwill $35,283
=======
</TABLE>

F-8
<PAGE>

MEDICAL RESOURCES, INC.

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)

(F) To reflect the adjustment of pro forma combined deferred income tax assets
and liabilities based upon the tax effect of adjustments (C) and (G) as
follows:

Medical
Resources NMR
June 30, June 30, Pro Forma Pro Forma
1996 1996 Adjustments Combined
------- ------- ----------- --------
Assets:
Deferred income taxes ....... $ 3,136 $ 2,718 $ 5,854
Valuation allowance ......... (150) -- (150)
Liabilities:
Deferred income taxes ....... 101 2,808 $(1,163)(1) 1,500
(246)(2)
------- ------- ------- -------
Net deferred tax asset ...... $ 2,885 $ (90) $ 1,409 $ 4,204
======= ======= ======= =======

- ----------
(1) To adjust NMR's deferred tax liability related to fixed assets for the tax
effect impact, using 40%, of pro forma adjustment (C) to adjust NMR's fixed
assets by $2,908,000.

(2) To adjust NMR's deferred tax liability related to an intangible asset for
tax effect impact, using 40%, of the portion of pro forma adjustment (G)
related to the adjustment of the book value of a joint venture/purchase
option.

For purposes of pro forma presentation, as of June 30, 1996, the tax effect
of the combined company's future deductible amounts exceeds future taxable
amounts, as defined under Statement of Financial Accounting Standard No.
109 "Accounting for Income Taxes", by approximately $4,204,000 and is
reflected in the unaudited pro forma balance sheet as of March 31, 1996 as
a component of other assets.

As discussed in Note 10 to NMR's 1996 Consolidated Financial Statements, as
of March 31, 1996, NMR had recorded deferred tax assets of $2,332,000
related to net operating loss carryforwards of $6,389,000. Utilization of
certain of these net operating loss carryforwards is limited to $520,000
(pre tax effect) per year and could be limited further if there are future
changes in the ownership of NMR. The NMR Acquisition may result in further
limitations on the utilization of certain of these net operating loss
carryforwards. Adjustments, if any are required, will be made within the
allocation period permitted by APB No. 16.

(G) To eliminate NMR's joint venture option and to reflect the adjustment of
other assets including deferred organizational costs and other
miscellaneous assets for items that Medical Resources accounts for as
period expenses.

Joint venture/purchase option ................ $615
Deferred organizational costs ................ 108
Miscellaneous other assets ................... 107
----
$830
====

(H) To reflect liabilities that arise as a result of potential actions to be
taken by Medical Resources following the NMR Acquisition as follows:

Center closing costs (1) ..................... $1,565
Accrual of corporate rent (2) ................ 269
------
Employee severance (3) ....................... 220
$2,054
======
----------
(1) Represents liabilities assumed as of the consummation date in
conjunction with the closing of the Elgin and Bel Air centers. The
components of the costs are: $1,200,000 for the remaining facility
rental terms; $100,000 for the removal of the equipment at the Bel Air
facility; $200,000 to restore rental facilities to the condition
required under the terms of the respective leases; and $65,000 for
severance to involuntarily terminated employees. There can be no
assurance that the cost of such closing will not be greater than the
anticipated amount shown herein.
(2) Represents the rental liability related to NMR's corporate office
which is expected to be closed after the NMR Acquisition.
(3) Represents the severance for employees at NMR's corporate office that
are expected to be involuntarily terminated as a result of the NMR
Acquisition.

F-9
<PAGE>

MEDICAL RESOURCES, INC.

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)

(I) To eliminate NMR's historical stockholders' equity.

(J) To reclass amounts related to the expenditure of cash on acquisition costs
from other assets to Goodwill(See (A)).

Unaudited Pro Forma Combined Statement of Operations

(a) To eliminate the operations of NMR's Bel Air and Elgin centers which
Medical Resources expects it will close after the NMR Acquisition. The unaudited
historical operating results of the centers to be closed are as follows:

For the year
ended
March 31, 1996
(unaudited)
--------------
Revenue, net
Bel Air .............................. $1,706
Elgin ................................ 85
------
$1,791
======

Operating costs
Bel Air .............................. $1,399
Elgin ................................ 355
------
$1,754
======

Depreciation
Bel Air .............................. $ 518
Elgin ................................ 14
------
$ 532
======

Interest
Bel Air .............................. $ 514
Elgin ................................ 4
------
$ 518
======

(b) To reflect the increase in other income relating to the elimination of
the losses at the Austin, Texas center (in which NMR owned a minority interest)
which, for pro forma purposes, is assumed to have been disposed on January 1,
1995 (the center was closed on December 31, 1995).

(c) To reflect the increase of corporate general and administrative expense
resulting from non-competition and consulting agreements entered into in
connection with the NMR Acquisition offset by the elimination of the related
historical compensation.

Executive compensation (1) ............ $ (468)
Non-competition and consulting (2) .... 824
------
Net increase in corporate general
and administrative .................. $ 356
======

----------
(1) Represents the elimination of the certain historical compensation as
discussed above.

(2) Represents the expenses to be incurred during the pro forma period
presented relating to the non competition and consulting agreements
entered into in connection with the NMR Acquisition.

(d) To eliminate amortization expense relating to NMR's historical
goodwill.

(e) To reflect the amortization of the estimated $35,283,000 of goodwill
that results from the NMR Acquisition using the straight-line method over 20
years.

(f) To eliminate amortization expense relating to NMR's intangible assets
adjusted in footnote (G).

F-10
<PAGE>

MEDICAL RESOURCES, INC.

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)
(g) To reflect the decrease in depreciation of fixed assets (not including
land) based upon adjustments to record the assets at the estimated fair value as
determined by independent appraisal, depreciated over an estimated weighted
average remaining useful life of eight years.

Adjustment to decrease fixed assets to independent
appraisal of fair value $ (2,908)
Weighted average depreciable life (years) 8
--------
Pro forma decrease in depreciation expense $ (364)
========

(h) To reflect the pro forma income taxes calculated at statutory rates.

(i) To adjust weighted average shares outstanding for the shares issued in
conjunction with the NMR Acquisition.

(j) To reflect pro forma operating results for Medical Resources'
acquisition of NEM on May 26, 1995, PCC on June 19, 1995, MRI-CT on January 9,
1996, NurseCare on January 12, 1996, Americare on April 19, Access on April 30,
1996 and We Care on June 28, 1996, as though the transactions were consummated
on January 1, 1995.

(k) To reflect pro forma operating results for NMR's acquisition of Morgan
on September 15, 1995 and CD MRI on January 1, 1996 as though the transactions
were consummated on April 1, 1995.

(l) To reflect the pro forma effect of the shares issued in conjunction
with the acquisitions noted in (j) on the weighted average of shares
outstanding.

(m) To reflect the pro forma effect of the shares issued in conjunction
with the acquisition noted in (k) on the weighted average of shares outstanding.
The shares were also adjusted for the 0.6875 Exchange Ratio.

Unaudited Pro Forma Combined Statement of Operations for the Six Months
Ended June 30, 1996

(aa) To eliminate the operations of NMR's Bel Air and Elgin centers which
Medical Resources expects it will close. The unaudited historical operating
results of the centers to be closed are as follows:

For the six
months ended
June 30, 1996
(unaudited)
-------------
Revenue, net
Bel Air .................................... $ 917
Elgin ...................................... 35
------
$ 952
======

Operating costs
Bel Air .................................... $ 924
Elgin ...................................... 142
------
$1,066
======

Depreciation
Bel Air .................................... $ 260
Elgin ...................................... 10
------
$ 270
======

Interest
Bel Air .................................... $ 259
Elgin ...................................... 2
------
$ 261
======

(bb) To eliminate the NMR Acquisition transaction costs incurred and expensed by
NMR.

F-11
<PAGE>

MEDICAL RESOURCES, INC.

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)

(cc) To reflect the increase of corporate general and administrative expense
resulting from non-competition and consulting agreements entered into in
connection with the NMR Acquisition offset by the elimination of the
related historical compensation.

Executive compensation(1) ................................... $ (272)
Non competition and consulting(2) ........................... 412
------
Net increase in corporate general and administrative ........ $ 140
======

----------
(1) Represents the elimination of the certain historical compensation as
discussed above.

(2) Represents the expenses to be incurred during the pro forma period
presented relating to the non competition and consulting agreements
entered into in connection with the NMR Acquisition.

(dd) To eliminate amortization expense relating to NMR's historical goodwill.

(ee) To reflect the amortization of the estimated $35,283,000 of goodwill that
results from the NMR Acquisition using the straight-line method over 20
years.

(ff) To eliminate amortization expense relating to NMR's intangible assets
adjusted in footnote (G).

(gg) To reflect the decrease in depreciation of fixed assets (not including
land) based upon adjustments to record the assets at the estimated fair
value as determined by independent appraisal, depreciated over an estimated
weighted average remaining useful life of eight years.

Adjustment to decrease fixed assets to independent
appraisal of fair value $ (2,908)
Weighted average depreciable life (years) 8
Pro forma decrease in depreciation expense (364)
Six months expense (half-year) (DIVIDED) 2
--------
Pro forma quarterly decrease in depreciation expense $ (182)
========

(hh) To reflect the pro forma income taxes calculated at statutory rates.

(ii) To adjust weighted average shares outstanding for the shares issued in
conjunction with the NMR Acquisition.

(jj) To reflect pro forma operating results for Medical Resources' acquisition
of MRI-CT on January 9, 1996, NurseCare on January 12, 1996, Americare on
April 19, 1996, Access on April 30, 1996 and We Care on June 28, 1996, as
though the transactions were consummated on January 1, 1996.

(kk) To reflect the pro forma effect of the shares issued in conjunction with
the acquisitions noted in (jj) on the weighted average of shares
outstanding.

F-12
<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors
and Stockholders of Medical Resources, Inc.

We have audited the accompanying consolidated balance sheets of Medical
Resources, Inc. (the "Company") as of December 31, 1995 and 1994 and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the years then ended. These consolidated 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 did not audit the
financial statements of Maternity Resources, Inc. and its two predecessor
partnerships, a wholly-owned subsidiary, which statements reflect total assets
of $4,462,000 and loss from operations of discontinued business of $1,663,000 in
1994 and $756,000 in 1993. Those statements were audited by other auditors whose
reports have been furnished to us and our opinion, insofar as it relates to data
included for Maternity Resources, Inc., is based solely on the reports of the
other auditors.

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 consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audits and the reports of the other
auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Medical Resources,
Inc. at December 31, 1995 and 1994, and the consolidated results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.

We previously audited and reported on the balance sheet and the related
statements of operations, changes in partners' capital, and cash flows of
StarMed Staffing, L.P. (a Delaware Limited Partnership) for the year ended
December 31, 1993 prior to their restatement for the 1994 pooling of interests
as described in Note 3. The contribution of StarMed Staffing L.P. (a Delaware
Limited Partnership) to consolidated revenues and net loss represented 40% and
49% of the respective restated totals. The financial statements of the other
pooled companies included in the 1993 restated consolidated financial statements
were audited and reported on separately by other auditors. We also have audited,
as to combination only, the accompanying consolidated statements of operations,
changes in stockholders' equity and cash flows for the years ended December 31,
1993, after restatement for the 1994 pooling of interests; in our opinion, such
consolidated financial statements have been properly combined on the basis
described in Note 3 to the consolidated financial statements.

ERNST & YOUNG LLP

Tampa, Florida
February 29, 1996

F-13
<PAGE>

MEDICAL RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
December 31, December 31, June 30,
1994 1995 1996
------------ ------------ ------------
(Restated) (Unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents .......................... $ 3,941,120 $ 3,934,677 $ 8,015,014
Short-term investments ............................. 599,736 -- --
Accounts receivable, net ........................... 10,206,670 13,837,637 18,645,348
Due from joint ventures and limited partnerships ... 27,426 -- --
Other receivables .................................. 306,307 477,062 784,569
Receivables from affiliates ........................ 500,000 -- --
Prepaid expenses ................................... 439,409 1,074,459 1,834,888
Investment in joint venture held for sale .......... 232,004 -- --
Deferred tax assets, net ........................... -- 1,871,397 1,871,397
------------ ------------ ------------
Total current assets ............................ 16,252,672 21,195,232 31,151,216
Assets of discontinued business ...................... 4,462,255 -- --
Medical diagnostic and office equipment, net ......... 12,166,175 11,530,159 14,436,761
Goodwill, net ........................................ 5,671,156 9,122,663 17,706,940
Other assets ......................................... 1,192,437 1,497,207 2,294,347
Deferred tax assets, net ............................. 244,000 533,301 1,013,301
Value of venture contracts ........................... 383,034 257,261 212,419
------------ ------------ ------------
Total assets .................................... $ 40,371,729 $ 44,135,823 $ 66,814,984
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Current portion of notes payable ................... $ 1,187,711 $ 957,884 $ 1,835,322
Current portion of obligations under capital leases 3,161,321 3,244,652 4,511,148
Line of credit ..................................... -- -- 4,324,729
Accounts payable and accrued expenses .............. 4,492,676 4,602,926 5,571,388
Other current liabilities .......................... 1,008,115 1,405,875 1,525,234
Income taxes payable ............................... 568,629 245,899 469,002
------------ ------------ ------------
Total current liabilities ........................ 10,418,452 10,457,236 18,236,823

Liabilities of discontinued business ................. 3,788,833 -- --
Notes payable ........................................ 5,338,006 4,448,974 4,869,686
Obligations under capital leases ..................... 8,077,017 6,707,650 8,454,988
Convertible debentures ............................... -- 4,350,000 7,260,000
Other long-term liabilities .......................... 877,171 1,205,627 1,097,405
------------ ------------ ------------
Total liabilities ................................ 28,499,479 27,169,487 39,918,902
------------ ------------ ------------
Commitments and contingencies (Note 14)
Stockholders' equity:
Common stock, $.01 par value, 20,000,000
shares authorized, 7,097,500 issued and
outstanding at December 31, 1994,
7,697,500 issued and 7,442,500 outstanding
at December 31, 1995 and 9,131,491 issued and
8,866,491 outstanding at June 30, 1996 ........... 70,975 76,975 91,315
Common stock to be issued; 600,000 shares of
common stock ..................................... -- 1,721,250 1,721,250
Preferred stock-series A, $.01 par value, 2,000
shares authorized, 1,105 issued and outstanding
at December 31, 1994 ............................. 11 -- --
Preferred stock-series B, $.01 par value, 2,000
shares authorized, 1,416 issued and outstanding
at December 31, 1994 ............................. 14 -- --
Additional paid-in capital ........................ 18,360,137 20,834,922 27,896,825
Retained deficit .................................. (6,558,887) (4,298,678) (1,394,550)
Less 255,000 and 265,000 common shares in treasury,
at cost, at December 31, 1995 and June 30,
1996, respectively .............................. -- (1,368,133) (1,418,758)
------------ ------------ ------------
Total stockholders' equity .................... 11,872,250 16,966,336 26,896,082
------------ ------------ ------------
Total liabilities and stockholders' equity .... $ 40,371,729 $ 44,135,823 $ 66,814,984
============ ============ ============
</TABLE>

See accompanying notes to consolidated financial statements

F-14
<PAGE>

MEDICAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
-------------------------------------------- ----------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------
(Restated) (Restated) (Unaudited) (Unaudited)
(Restated)
<S> <C> <C> <C> <C> <C>
Net service revenues ........................... $ 45,241,531 $ 45,178,945 $ 51,993,758 $ 24,878,521 $ 36,776,497
------------ ------------ ------------ ------------ ------------
Operating costs, excluding interest,
depreciation and amortization ................. 30,687,163 29,307,450 31,563,796 15,507,318 23,485,999
Provision for uncollectible accounts receivable 1,672,094 2,495,413 3,377,862 1,681,290 1,761,835
Corporate general and administrative ........... 6,915,474 4,438,348 4,978,045 2,066,559 3,432,974
Depreciation and amortization .................. 5,219,840 4,844,265 4,567,144 2,164,741 2,740,676
Write-down of value of venture contracts
and intangible assets ......................... -- 2,176,118 -- -- --
Provision for minority interest in losses of
joint venture ................................. -- 531,543 -- -- --
Executive severance ............................ 332,000 327,679 -- -- --
Write-down of medical diagnostic equipment ..... 127,511 40,000 -- -- --
Gain on disposal of medical diagnostic equipment -- (17,500) -- -- --
------------ ------------ ------------ ------------ ------------
Operating income ............................... 287,449 1,035,629 7,506,911 3,458,613 5,355,013
Interest expense ............................... 2,507,076 1,692,931 1,829,017 839,989 1,287,583
------------ ------------ ------------ ------------ ------------
Income (loss) from continuing operations
before minority interest and income
taxes and extraordinary items ................. (2,219,627) (657,302) 5,677,894 2,618,624 4,067,430
Minority interest .............................. (229,060) (46,134) (124,085) 64,808 64,282
------------ ------------ ------------ ------------ ------------
Income (loss) from continuing operations
before income taxes and extraordinary items ... (1,990,567) (611,168) 5,801,979 2,553,816 4,003,148
Income taxes ................................... 64,506 481,436 1,659,111 807,124 1,099,020
------------ ------------ ------------ ------------ ------------
Income (loss) from continuing operations
before extraordinary items .................... (2,055,073) (1,092,604) 4,142,868 1,746,692 2,904,128
Discontinued operations, net of tax
Loss from operations of discontinued business . (759,947) (1,663,426) (1,076,644) (981,551) --
Loss on sale of discontinued business ......... -- -- (1,376,000) -- --
------------ ------------ ------------ ------------ ------------
Loss from discontinued operations ............. (759,947) (1,663,426) (2,452,644) (981,551) --
------------ ------------ ------------ ------------ ------------
Income (loss) before extraordinary items ....... (2,815,020) (2,756,030) 1,690,224 765,141 2,904,128
Extraordinary items:
Utilization of loss carryforward .............. 17,694 -- -- -- --
Debt extinguishment ........................... -- 761,683 -- -- --
------------ ------------ ------------ ------------ ------------
Net income (loss) .............................. $ (2,797,326) $ (1,994,347) $ 1,690,224 $ 765,141 $ 2,904,128
============ ============ ============ ============ ============
Income (loss) per common share:
Primary income (loss) per share:
Income (loss) from continuing operations
before extraordinary items .................... $ (0.32) $ (0.15) $ 0.53 $ 0.24 $ 0.33
Discontinued operations ........................ (0.11) (0.23) (0.31) (0.13) --
Extraordinary items ............................ -- 0.10 -- -- --
------------ ------------ ------------ ------------ ------------
Net income (loss) .............................. $ (0.43) $ (0.28) $ 0.22 $ 0.11 $ 0.33
============ ============ ============ ============ ============
Fully diluted income (loss) per share:
Income (loss) before discontinued operations
and extraordinary item ........................ $ (0.32) $ (0.15) $ 0.53 $ 0.24 $ 0.31
Discontinued operations ........................ (0.11) (0.23) (0.31) (0.13) --
Extraordinary item ............................. -- 0.10 -- -- --
------------ ------------ ------------ ------------ ------------
Net income (loss) .............................. $ (0.43) $ (0.28) $ 0.22 $ 0.11 $ 0.31
============ ============ ============ ============ ============
Weighted average number of shares-primary ...... 6,488,000 7,097,500 7,785,000 7,330,000 8,835,000
============ ============ ============ ============ ============
Weighted average number of shares-fully diluted 6,488,000 7,097,500 8,371,000 7,554,000 9,949,000
============ ============ ============ ============ ============
</TABLE>

See accompanying notes to consolidated financial statements

F-15
<PAGE>

MEDICAL RESOURCES, INC.

CONSOLIDATED STATEMENT OF OPERATIONS (Continued)

Year Ended December 31,
---------------------------
1993 1994
----------- -----------
(Restated) (Restated)
Unaudited pro forma data:
Income (loss) from continuing operations before
income taxes and extraordinary items .......... $(1,990,567) $ (611,168)
Income taxes .................................... (426,981) 660,061
----------- -----------
Income (loss) from continuing operations before
extraordinary items (1,563,586) (1,271,229)
Discontinued operations, net of taxes ........... (463,568) (1,014,690)
----------- -----------
Income (loss) before extraordinary items ........ (2,027,154) (2,285,919)
Extraordinary items, net of taxes ............... 17,694 464,627
----------- -----------
Net income (loss) ............................... $(2,009,460) $(1,821,292)
=========== ===========
Pro forma earnings (loss) per common share:
Income (loss) from continuing operations before
extraordinary items $ (0.24) $ (0.18)
Discontinued operations ........................ (0.07) (0.14)
Extraordinary items ............................ -- 0.07
----------- -----------
Net income (loss) ............................... $ (0.31) $ (0.25)
=========== ===========

F-16
<PAGE>

MEDICAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

Common Additional Treasury
Common Stock to Preferred Paid-In Retained Shares
Total Stock Be Issued Stock Capital Deficit at Cost
----------- ------- ---------- ------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 (restated) ... $15,341,861 $67,975 $ -- $ 25 $ 16,997,388 $(1,723,527) $ --
Additional expenses from public offering .. (71,000) -- -- -- (71,000) -- --
Purchase of Gulf Coast MRI in exchange
for 300,000 shares of unregistered
restricted common stock .................. 467,500 3,000 -- -- 464,500 -- --
Distributions ............................. (1,801) -- -- -- -- (1,801) --
Net loss .................................. (2,797,326) -- -- -- -- (2,797,326) --
----------- ------- ---------- ------- ------------ ----------- -----------
Balance at December 31, 1993 .............. 12,939,234 70,975 -- 25 17,390,888 (4,522,654) --
Distributions ............................. (41,886) -- -- -- -- (41,886) --
Capital contributions, including debt
conversion of $469,249 ................... 969,249 -- -- -- 969,249 -- --
Net loss .................................. (1,994,347) -- -- -- -- (1,994,347) --
----------- ------- ---------- ------- ------------ ----------- -----------
Balance at December 31, 1994 .............. 11,872,250 70,975 -- 25 18,360,137 (6,558,887) --
Maternity debt forgiveness, treated as a
capital contribution ..................... 1,022,184 -- -- -- 1,022,184 -- --
Maternity short period (1/1/95-1/31/95) ... 569,985 -- -- -- -- 569,985 --
Redemption by Maternity of its preferred
stock ................................... (268,650) -- -- -- (268,650) -- --
Purchase of Ft. Myers centers in
exchange for 1,200,000 shares of
unregistered restricted common stock ..... 3,448,500 6,000 1,721,250 -- 1,721,250 -- --
Preferred stock payout .................... (24) -- -- (25) 1 -- --
Purchase of treasury shares ............... (1,368,133) -- -- -- -- -- (1,368,133)
Net income ................................ 1,690,224 -- -- -- -- 1,690,224 --
----------- ------- ---------- ------- ------------ ----------- -----------
Balance at December 31, 1995 .............. 16,966,336 76,975 1,721,250 0 20,834,922 (4,298,678) (1,368,133)
Purchase of MRI-CT centers in exchange for
194,113 shares of common stock ........... 913,750 1,941 -- -- 911,809 -- --
Purchase of Americare centers in exchange
for 228,571 shares of common stock ....... 1,275,000 2,286 -- -- 1,272,714 -- --
Purchase of Access center in exchange for
192,063 shares of common stock ........... 1,445,000 1,921 -- -- 1,443,079 -- --
Conversion of debentures .................. 3,623,000 8,063 -- -- 3,614,937 -- --
Stock issuance costs ...................... (237,175) -- -- -- (237,175) -- --
Exercise of stock options ................. 56,668 129 -- -- 56,539 -- --
Purchase of treasury shares ............... (50,625) -- -- -- -- -- (50,625)
Net income ................................ 2,904,128 -- -- -- -- 2,904,128 --
----------- ------- ---------- ------- ------------ ----------- -----------
Balance at June 30, 1996 (unaudited) ...... $26,896,082 $91,315 $1,721,250 $ 0 $ 27,896,825 $(1,394,550) $(1,418,758)
=========== ======= ========== ======= ============ =========== ===========

</TABLE>

See accompanying notes to consolidated financial statements.

F-17
<PAGE>

MEDICAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months
Year Ended December 31, Ended June 30,
----------------------------------------- --------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(Restated) (Restated) (Unaudited) (Unaudited)
(Restated)
Cash flows from operating activities:
<S> <C> <C> <C> <C> <C>
Net income (loss) ........................................... $(2,797,326) $(1,994,347) $ 1,690,224 $ 765,141 $ 2,904,128
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Loss on sale of discontinued business ..................... -- -- 1,376,000 -- --
Deferred income tax provision ............................. -- (244,000) (2,160,698) -- --
Extraordinary gain on debt extinguishment ................. -- (761,683) -- -- --
Depreciation and amortization ............................. 5,219,840 4,844,265 4,567,144 2,164,741 2,740,676
Provision for uncollectible accounts receivable ........... 1,672,094 2,495,413 3,377,862 1,681,290 1,761,835
Write-down of medical diagnostic equipment ................ 127,511 40,000 -- -- --
Write-down of value of venture contracts and intangible
assets .................................................. -- 2,176,118 -- -- --
(Gain) loss on disposal of medical equipment .............. 32,597 (17,500) -- -- --
Equity in earnings of joint venture ....................... 1,908 5,120 -- -- --
Minority interest in losses of joint venture and
limited partnerships, net of distributions ............... (272,620) (46,134) 122,114 64,808 64,282
Provision for minority interest in losses of joint venture -- 531,543 -- -- --
Changes in operating assets and liabilities:
Accounts receivable ....................................... (3,347,965) (2,607,927) (6,308,829) (2,836,251) (4,157,911)
Due from joint ventures and limited partnerships .......... 64,863 18,113 27,426 -- --
Other receivables ......................................... 241,667 (698,991) (170,755) (202,364) (307,507)
Prepaid expenses .......................................... 301,078 (20,445) (613,913) (173,555) (713,714)
Other assets .............................................. (295,223) 376,317 (27,117) (1,399,123) (586,406)
Deferred tax asset ........................................ -- -- -- 244,000 (480,000)
Accounts payable and accrued expenses ..................... 1,706,597 (115,512) 3,818 280,230 1,651,736
Other current liabilities ................................. 56,823 268,195 567,760 (815,684) (318,371)
Income taxes payable ...................................... (130,961) 568,629 (322,730) (283,303) 223,103
Other long-term liabilities ............................... (82,630) (27,771) 206,342 (60,459) (125,083)
----------- ----------- ----------- ----------- -----------
Total adjustments ........................................ 5,295,579 6,783,750 644,424 (1,335,670) (247,360)
----------- ----------- ----------- ----------- -----------
Net cash (used in) provided by operating activities ...... 2,498,253 4,789,403 2,334,648 (570,529) 2,656,768
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
(Purchase) sale of short term investments .................. -- (599,736) 599,736 599,736 --
Change in net assets of discontinued business .............. 759,947 1,663,426 1,396,250 1,043,775 --
Purchase of Gulf Coast MRI ................................. (285,000) -- -- -- --
Purchase of PCC, Inc. ...................................... -- -- (1,763,832) (1,838,906) --
Purchase of NurseCare Plus ................................. -- -- -- -- (1,263,992)
Purchase of MRI-CT, Inc. ................................... -- -- -- -- (463,130)
Purchase of Americare Imaging Centers, Inc. ................ -- -- -- -- (1,500,000)
Purchase of Access Imaging Center, Inc. .................... -- -- -- -- (1,300,000)
Purchase of WeCare--Allied Health Care, Inc. ............... -- -- -- -- (1,049,618)
Proceeds from sale of medical equipment .................... -- 100,000 -- -- --
Purchase of medical diagnostic and office equipment ........ (452,198) (563,074) (877,018) (386,716) (825,454)
----------- ----------- ----------- ----------- -----------
Net cash (used in) provided by investing activities ...... 22,749 600,616 (644,864) (582,111) (6,402,194)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Increase in capital lease obligation ...................... 90,000 -- -- -- --
Stock issuance costs ...................................... -- -- -- -- (237,140)
Principal payments under capital lease obligations ........ (3,116,605) (3,466,647) (3,043,061) (1,468,297) (2,092,048)
Principal payments on notes payable ....................... (1,106,050) (1,006,722) (1,118,859) (538,772) (708,786)
Capital distributions ..................................... (1,801) (41,886) -- -- --
Proceeds from convertible debentures, net of $247,500
debt issue costs ......................................... -- -- 4,102,500 4,350,000 6,532,965
Purchase of treasury stock ................................ -- -- (1,368,133) -- (50,625)
Proceeds from issuance of common stock .................... (71,000) -- -- -- --
Purchase of Maternity preferred stock ..................... -- -- (268,674) -- --
Net borrowings on line of credit .......................... -- -- -- -- 4,324,729
Proceeds from exercise of options ......................... -- -- -- -- 56,668
----------- ----------- ----------- ----------- -----------
Net cash used in financing activities .................... (4,205,456) (4,515,255) (1,696,227) 2,342,931 7,825,763
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents ........ (1,684,454) 874,764 (6,443) 1,190,291 4,080,337
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at beginning of year .............. 4,750,810 3,066,356 3,941,120 3,941,120 3,934,677
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of year .................... $ 3,066,356 $ 3,941,120 $ 3,934,677 $ 5,131,411 $ 8,015,014
=========== =========== =========== =========== ===========

</TABLE>

See accompanying notes to consolidated financial statements.

F-18
<PAGE>

MEDICAL RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All data as of and for the six months ended June 30, 1996
and 1995 is unaudited)

Note 1--Nature of Business and Significant Accounting Policies:

Nature of Business

Medical Resources, Inc. (herein referred to as "MRI", and collectively with
its subsidiaries, affiliated partnerships and joint ventures referred to herein
as the "Company") is engaged in two segments of the healthcare industry. The
Company operates and manages free standing, outpatient diagnostic imaging
centers (hereinafter referred to as "centers"), and provides diagnostic imaging
network management services to managed care providers. The Company provides
services in a second segment of the healthcare industry through its wholly owned
subsidiary, StarMed Staffing, Inc. (hereinafter referred to as "StarMed").
StarMed provides temporary staffing of registered nurses and other professional
medical personnel to acute care and sub-acute care facilities nationwide.
Information on the Company's operation by segment are included in Note 16 to the
consolidated financial statements.

Principles of Consolidation

The consolidated financial statements of the Company include the accounts
of MRI, its wholly owned subsidiaries, and majority-owned joint ventures and
limited partnerships over which MRI has control (see Note 7). All significant
intercompany transactions and balances have been eliminated.

Unaudited Interim Financial Information

The accompanying consolidated balance sheet as of June 30, 1996 and related
consolidated statements of operations and cash flows for the six months ended
June 30, 1996 and 1995 are unaudited, but have been prepared on substantially
the same basis as are the annual financial statements. In the opinion of
management, the unaudited financial statement reflect all adjustments,
consisting of normal recurring accruals necessary for a fair presentation of the
financial position operating results and cash flows for the periods presented.
The unaudited results of operations and cash flows are not necessarily
indicative of the results to be expected for the full year.

Use of Estimates

The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.

Cash and Cash Equivalents

The Company considers cash on hand, money in checking accounts, time
deposits and investments with an original maturity of three months or less to be
cash equivalents.

Short Term Investments

Short term investments consist of certificates of deposits and treasury
bills with maturities between three and twelve months. Investments are held to
maturity and are carried at amortized cost which approximates market.

Investments in Joint Ventures and Limited Partnerships

The minority shareholders' interests in the equity of these joint ventures
and limited partnerships, which are not material, are reflected in the
accompanying consolidated financial statements. Investments in joint ventures
and limited partnerships over which the Company can exercise significant
influence but does not control are accounted for using the equity method (see
Note 7).

The Company suspends recognition of its share of joint venture losses in
entities in which it holds a minority interest when its investment is reduced to
zero. The Company does not provide for additional losses unless, through

F-19
<PAGE>

MEDICAL RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All data as of and for the six months ended June 30, 1996
and 1995 is unaudited)

guarantees made by partners or joint ventures, but not MRI, such partners or
joint ventures have guaranteed obligations of the joint ventures and limited
partnerships or have otherwise committed to provide financial support.

Revenue Recognition

Revenues are recognized on an accrual basis as earned and consist of (i)
net patient service revenue allocated to the Company under the terms of the
management agreements it maintains and is derived from charges for patient
services rendered in its imaging centers (under the terms of certain payment
arrangements between the Company and various third party payors, such charges
are paid at amounts less than the Company's established rates), (ii) management
fees earned by the Company for services provided to unconsolidated joint
ventures and limited partnerships, (iii) equity in earnings (losses) of
unconsolidated joint ventures and limited partnerships, and (iv) revenues from
temporary staffing services.

Medical Diagnostic and Office Equipment

Medical diagnostic and office equipment are stated at cost and are
depreciated or amortized on the straight-line basis over the shorter of their
estimated useful lives, generally five to seven years, or the term of the lease.
Repair and maintenance charges which do not materially extend the useful lives
of the assets are expensed as incurred. Upgrades and enhancements of diagnostic
hardware and related software are capitalized and depreciated over the remaining
life of the related equipment lease.

Medical diagnostic and office equipment that are acquired under leases
which meet certain criteria evidencing substantive ownership by the Company are
capitalized and the related capital lease obligations are included in current
and long-term liabilities. Related depreciation and interest are charged to
expense over the lease term. Leases not meeting the criteria are accounted for
as operating leases, with rent payments being charged to expense as occurred.

Assets and Liabilities of Discontinued Business

Assets and liabilities of discontinued business represent the assets and
liabilities of the Company's maternity apparel business, which in October 1995,
the Company's Board of Directors made a determination to dispose. The business
was sold to unrelated third parties in November 1995, resulting in a loss of
$1,376,000. As of December 31, 1995, there are no remaining assets and
liabilities of the discontinued business.

Organization and Capitalized Lease Costs

The Company recorded organization costs and lease costs as a part of a
purchase price allocation. The organization costs represent a portion of the
costs in the original purchase of the acquired company. The lease costs
represent the estimated value of favorable leases in the acquisition of the
acquired company. Organization costs and capitalized lease costs were $479,613
and $126,233 at December 31, 1994, respectively, $430,000 and $104,000 at
December 31, 1995, respectively, and $443,000 and $93,000 at June 30, 1996
(unaudited). Such costs are being amortized on the straight-line basis over a
five to ten year period.

Intangible Assets

The Company's policy is to account for its intangible assets (including
Value of Venture Contracts, Organization Costs and Goodwill) at the lower of
amortized cost or fair value. On an ongoing basis, management reviews the
amortization period and carrying value of these intangible assets. As part of
its ongoing review, management considers current events and circumstances and
evaluates whether such matters will impact the recoverability of unamortized
costs related to intangible assets. As a result of such review, during the
second quarter of 1994, the Company reduced the carrying value of certain
venture contracts, organization costs, and goodwill by approximately $2,176,000.

Value of Venture Contracts

Value of Venture Contracts, which represents the value associated with
management contracts with radiologist groups and the Company's ownership
interest in various joint ventures and limited partnerships, which was

F-20
<PAGE>

MEDICAL RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All data as of and for the six months ended June 30, 1996
and 1995 is unaudited)

recognized in connection with the acquisition of the Company in September 1990,
is being amortized on a straight-line basis over the shorter of the lives of the
facilities or the terms of the management contracts, as appropriate, generally
from five to ten years. Accumulated amortization at December 31, 1994 and 1995
was approximately $109,000 (after the write down discussed below) and $231,000,
respectively. Amortization of value of venture contracts was approximately
$605,000, $250,000, and $122,000 in 1993, 1994, and 1995, respectively and
$66,000 and $51,000 for the unaudited six months ended June 30, 1995 and 1996,
respectively.

The implementation of the Stark II anti-referral legislation, effective
January 1, 1995, restricting physicians from making referrals for services to be
rendered to Medicare and Medicaid patients to facilities in which they have an
ownership interest and the lower than expected level of cash flows generated
from the venture contracts, materially impacted the fair value of the Value of
venture contracts. Due to these changes in the regulatory and economic
environment, during the second quarter of 1994, the Company assessed the
recoverability of the value of venture contracts and determined that its current
estimate of the fair value of the assets was significantly less than the current
unamortized cost of the assets. As a result, the Company reduced the carrying
amount of its value of venture contracts by approximately $1,950,000. The
remaining unamortized balance of approximately $257,000 at December 31, 1995
represents the estimated value associated with the non-compete agreements with
the radiologists, which the Company estimates has future benefit and
recoverability through profitable operations of certain centers.

Goodwill

Excess cost over the fair value of net assets acquired (or goodwill)
generally is amortized on a straight-line basis over various periods not
exceeding 20 years. Pursuant to the Company's policy, the carrying value of
goodwill is reviewed if the facts and circumstances suggest that it may be
impaired. If this review indicates that goodwill will not be recoverable, as
determined based on the undiscounted cash flows of the entity acquired over the
remaining amortization period, the Company's carrying value of the goodwill is
reduced based upon the estimated shortfall of cash flows. Accumulated
amortization at December 31, 1994 and 1995, was approximately $1,144,000 and
$1,530,000, respectively and $1,915,000 at June 30, 1996 (unaudited).
Amortization expense of goodwill was approximately $461,000, $413,000, and
$386,000 in 1993, 1994 and 1995, respectively and $150,000 and $385,000 for the
unaudited six months ended June 30, 1995 and 1996, respectively.

Income Taxes

The Company applies the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109") effective January
1, 1993. SFAS 109 requires a company to recognize deferred tax liabilities and
assets for the expected future tax consequences of events that have been
recognized in a company's financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement carrying amounts and tax bases of
assets and liabilities using enacted tax rates in effect in the years in which
the differences are expected to reverse.

Differences between taxable income and income for financial statement
purposes result from the recognition of certain income and expense items for tax
purposes in periods which differ from those used for financial statement
purposes. Such differences are measured in accordance with the ownership
structures of the joint ventures and limited partnerships and the mechanics
underlying the flow of operating income (loss) to MRI.

Prior to the merger described in Note 3, the taxable income (loss) of
StarMed was included in the individual income tax returns of the partners.
Accordingly, for periods prior to the merger, no provision for income tax has
been recorded in the accompanying consolidated financial statements. The
unaudited pro forma information accompanying the consolidated statement of
operations reflects the income tax affects as if StarMed had been a taxable
entity for all periods presented. The income taxes are calculated at 39% of
income before income taxes, adjusted for nondeductible amortization of
intangibles and other nondeductible items.

F-21
<PAGE>

MEDICAL RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All data as of and for the six months ended June 30, 1996
and 1995 is unaudited)

Stock Based Compensation

The Company grants stock options for a fixed number shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for these stock option grants in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees, and accordingly,
recognizes no compensation for the stock option grants.

Employee Benefit Plan

Substantially all employees participate in a 401(k) savings plan under
which the Company matches one-half of employee contributions up to 2% of
qualified earnings and subject to Internal Revenue Service limitations. Plan
expense amounted to $55,000 and $80,000 in 1994 and 1995, respectively and
$38,000 and $47,000 for the unaudited six months ended June 30, 1995 and 1996,
respectively.

Earnings per Share

Earnings per share is based on the weighted average number of shares of
common stock and common stock equivalents outstanding during the period. Common
stock equivalents include stock options and warrants and also include 600,000
shares to be issued over a period of 24 months in accordance with the Fort Myers
Centers Asset Purchase Agreement. The 11% Convertible Subordinated Debentures
due 2000 and the 10.5% Convertible Subordinated Debentures due 2001, described
in Note 9, did not meet the test for treatment as common stock equivalents. For
purposes of fully-diluted earnings per share, the effect of convertible
debentures, options and warrants for all periods presented prior to the
unaudited six months ended June 30, 1996 were anti-dilutive.

Impact of Recently Issued Accounting Standards

In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets to Be Disposed Of ("Statement 121"), which
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets to be disposed of. The Company adopted Statement 121 in the first quarter
of 1996. No adjustments were required as a result of such adoption.

In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting and Disclosure of Stock-Based Compensation"
("Statement 123") which encourages but does not require companies to recognize
stock awards based on their fair value at the date of grant. The Company
currently follows, and expects to continue to follow, the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25), and related interpretations in accounting for its employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized. Although the Company is
permitted to continue to follow the provisions of APB 25 under Statement 123,
certain pro forma disclosure will be required beginning in 1996 as if the
Company had accounted for its stock options under the Statement 123 fair value
method.

Reclassification

Certain amounts in the 1994 consolidated financial statements have been
reclassified to conform to the 1995 presentation.

Note 2--Acquisitions

49th Street Imaging Associates

In January 1993, the Company commenced operations at its Brooklyn, New York
facility, a multi-modality imaging facility in which a wholly-owned subsidiary
of the Company owns 51% of the operating joint venture and receives a 10%
management fee based on net center revenues.

F-22
<PAGE>

MEDICAL RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All data as of and for the six months ended June 30, 1996
and 1995 is unaudited)

Gulf Coast MRI

In June 1993, Collier Resources, Inc. ("Collier"), a wholly owned
subsidiary of the Company, acquired the assets, property and business of Naples
MRI Partners Ltd., an imaging center in Naples, Florida. The assets consisted of
the accounts receivable, furniture, fixtures and medical diagnostic equipment
and operating imaging center. The acquisition has been accounted for by the
purchase method. The Company paid $1,862,030 for the center (including the
assumption of debt in the amount of $172,219 and $137,311 of other miscellaneous
payables). Of the purchase price, $285,000 was paid in cash and $800,000 by the
delivery of a promissory note by Collier to the Seller. The Note bears interest
at the annual rate of eight percent and is payable in quarterly payments of
principal and interest, with a final payment of $288,189, plus interest, on
September 30, 1995. The balance of the purchase price was paid by the delivery
to the seller of 300,000 unregistered shares of the Company's common stock in
June 1995 (estimated fair value of $467,500, given the restricted nature of the
shares) and on September 30, 1994 the seller sold all of the shares to an
unaffiliated third party. Goodwill in the amount of $1,035,000 was recorded and
is being amortized on a straight-line basis over 20 years.

PCC Imaging

On June 19, 1995, the Company acquired certain assets and liabilities of
PCC Imaging, Inc. ("PCC") a Delaware corporation based in Hackensack, New
Jersey, which owns and manages a diagnostic imaging center located in
Hackensack, New Jersey (the "Hackensack Center"). The acquisition was
consummated pursuant to an Asset Purchase Agreement dated as of June 19, 1995 by
and among Hackensack Resources, Inc. ("HRI") and PCC. Pursuant to the Asset
Purchase Agreement, the Company's wholly owned subsidiary, HRI, acquired
substantially all of the assets of the center for approximately $1,800,000 in
cash. The acquisition was accounted for as a purchase, under which the purchase
price was allocated to the acquired assets and assumed liabilities based upon
fair values at the date of acquisition. The excess of the purchase price over
the fair value of net assets acquired amounted to $751,000 and is being
amortized on a straight-line basis over 20 years. The accompanying consolidated
financial statements include the operations of PCC from the above date of
acquisition.

Fort Myers MRI

On May 26, 1995, the Company acquired certain assets and liabilities of New
England MRI, Inc. ("NEM"), a Florida Corporation based in Fort Myers, Florida,
which owns and manages two diagnostic imaging centers located at 16780 San
Carlos Blvd., Fort Myers, Florida (the "San Carlos Center") and 3660 Central
Avenue, Fort Myers, Florida (the "Central Center", collectively with the San
Carlos Center, the "Fort Myers Centers"). The acquisition was consummated
pursuant to an Asset Purchase Agreement dated as of May 17, 1995 by and among
Fort Myers Resources, Inc. ("FMR"), Central Fort Myers Resources, Inc. ("CMFR"),
and the NEM. Pursuant to the Asset Purchase Agreement, the Company's wholly
owned subsidiary, FMR acquired substantially all of the assets of the San Carlos
Center, and CMFR, another wholly owned subsidiary of the Company acquired
substantially all of the assets of the Central Center through the issuance of
1,200,000 shares of its common stock valued at $3,448,500. Of the 1,200,000
shares, 600,000 shares were issued at closing with the remaining 600,000 shares
to be issued in the future at 75,000 per quarter. The acquisition was accounted
for as a purchase, under which the purchase price was allocated to the acquired
assets and assumed liabilities based upon fair values at the date of
acquisition. The excess of the purchase price over the fair value of net assets
acquired amounted to $2,980,000 and is being amortized on a straight-line basis
over 20 years. Subject to the Fort Myers Centers achieving certain earnings
objectives within the next three years, an additional 200,000 shares of common
stock may be issued to the seller. These shares have not been included in the
allocated purchase price in light of the contingent nature of the arrangement.
If the earnings objectives are ultimately achieved, the market value of the
shares upon issuance will be recorded as additional goodwill subject to
amortization over the above stated period. The accompanying consolidated
financial statements include the operations of PCC from the above date of
acquisition.

F-23
<PAGE>

MEDICAL RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All data as of and for the six months ended June 30, 1996
and 1995 is unaudited)

MRI-CT

On January 9, 1996, the Company consummated the acquisition
(the"Acquisition") of the business assets of MRI-CT, Inc., a New York
corporation based in New York, New York (the "Seller") comprised primarily of
four diagnostic imaging centers located at (i) 197 Third Avenue, New York, New
York, (ii) 6511 Ft. Hamilton Parkway, Brooklyn, New York, (iii) 1401 Ocean
Avenue, Brooklyn, New York and (iv) 1612 St. Peters Avenue, Bronx, New York. The
Acquisition was consummated pursuant to an Asset Purchase Agreement (the
"Agreement") dated as of December 21, 1995 by and among the Company and the
Seller. Pursuant to the Agreement, a wholly owned subsidiary of the Company
acquired substantially all of business assets of the Seller for a combination of
$700,000 cash, 194,113 shares of common stock and a $375,000 note payable at
prime due January 9, 2001. In accordance with its acquisition plans, the Company
closed the Ft. Hamilton facility shortly after the acquisition.

NurseCare Plus

On January 12, 1996, the Company consummated the acquisition (the
"NurseCare Acquisition") of the common stock of NurseCare Plus, Inc.
("NurseCare") a California corporation based in San Diego, California, which
provides supplemental healthcare staffing services for clients including
hospitals, clinics, and home health agencies in Southern California. The
NurseCare Acquisition was consummated pursuant to a Stock Purchase Agreement
(the "NurseCare Agreement" dated as of January 11, 1996 by and among StarMed and
LouAnn Berg ("Berg"). Pursuant to the NurseCare Agreement, StarMed acquired from
Berg all of the common stock of NurseCare for $2,500,000, payable in $1,250,000
cash and a $1,250,000 note payable at prime plus one percent due January 1999.

Americare Imaging

On April 19, 1996, the Company entered into an asset purchase agreement
with Americare Imaging Centers, Inc. and MRI Associates of Tarpon Springs, Inc.
("Americare"). Pursuant to the acquisition, the Company acquired certain of the
asset and liabilities of Americare for $1,500,000 cash and 228,571 shares of the
Company's common stock.

Access Imaging

On April 30, 1996, the Company entered into an asset purchase agreement
with Access Imaging Center, Inc. ("Access"). Pursuant to the acquisition, the
Company acquired certain of the assets and liabilities of Access for $1,300,000
cash and 192,063 shares of the Company's common stock.

We-Care Allied Health Services

On June 28, 1996, the Company entered into an asset purchase agreement with
We-Care Allied Health Services, Inc. Pursuant to the agreement, the Company
acquired certain of the assets for $1,035,000 cash and a $510,000 note payable
at prime plus 1% due July 1998.

Pro Forma Results

The following unaudited consolidated pro forma data reflects the results
from continuing operations as if the 1995 acquisitions described above occurred
at the beginning of each period presented. The pro forma data does not purport
to be indicative of the results which would actually have been obtained had such
transactions been completed during the periods presented or which may be
obtained in the future.

F-24
<PAGE>

MEDICAL RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All data as of and for the six months ended June 30, 1996
and 1995 is unaudited)

Year Ended Year Ended
December 31, 1994 December 31, 1995
----------------- -----------------
Net service revenues ..................... $ 49,472,000 $ 53,593,000
Income (loss) from continuing operations
before extraordinary items .............. (651,000) 3,928,000
Net income (loss) ........................ (1,553,000) 1,475,000
Net income (loss) per common share ....... $ (0.19) $ 0.16

The following unaudited consolidated pro forma data reflects the results
from continuing operations as if the 1996 acquisitions described above occurred
at the beginning of the period presented. The pro forma data does not purport to
be indicative of the results which would actually have been obtained had such
transactions been completed during the periods presented or which may be
obtained in the future.

Six Months ended Six Months Ended
June 30, 1995 June 30, 1996
---------------- ----------------
Net service revenues ...................... $35,417,000 $42,070,000
Income (loss) from continuing operations
before extraordinary items ............... 2,677,000 3,297,000
Net Income (loss) ......................... 889,000 3,297,000
Net income (loss) per common share ........ $ 0.11 $ 0.35

Acquisitions Subsequent to June 30, 1996 (unaudited)

Centereach

On July 8, 1996, the Company acquired the assets of Centereach, a New York
imaging center, for cash of $3,100,000. The transaction was accounted for as a
purchase transaction where the consideration was allocated to the fair values of
assets acquired. The operating results of the Centereach center will be
consolidated with the Company for periods following the acquisition.

NMR of America

On August 30, 1996, the Company consummated the acquisition of NMR of
America, Inc. ("NMR"). NMR is engaged directly and through limited partnerships
in the operation of 18 imaging centers. Pursuant to the acquisition agreement
NMR was mergered into a wholly owned subsidiary of the Company and each issued
and outstanding share of NMR common stock was converted into 0.6875 shares of
the Company's common stock resulting in the issuance of 4,456,000 shares of the
Company's common stock valued at $39,346,000. The transaction was accounted for
as a purchase transaction where the value of the shares issued was allocated to
the net assets acquired based upon their respective fair values. The operating
results of NMR will be consolidated with the Company for periods following the
acquisition.

Note 3--Mergers

On August 3, 1994, the Company acquired, directly and indirectly, full
ownership of StarMed, a Delaware limited partnership based in Tampa, Florida.
The transaction was consummated pursuant to a Partnership Interest Purchase
Agreement dated as of July 28, 1994 by and among the Company, StarMed and the
owners of partnership interests in StarMed. Pursuant to the Agreement, the
Company's wholly-owned subsidiary, MRI-StarMed Inc. and MRI, acquired all of the
partnership interest of StarMed from the sellers, in exchange for an aggregate
of 2,500,000 restricted shares of the Company's common stock. At the time of
acquisition, the Company and StarMed were under common control through stock and
partnership interest ownership, respectively, and, as a result, the acquisition
was accounted for as a transfer between entities under common control since the
date common control existed. Under this method of accounting, when the entities
are under common control, the assets, liabilities and operations are combined at
historical cost in a manner similar to that in pooling-of-interests accounting.
Consequently, the consolidated

F-25
<PAGE>

MEDICAL RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All data as of and for the six months ended June 30, 1996
and 1995 is unaudited)

financial statements of the Company included herein have been restated for all
periods prior to the effective date of the merger to combine StarMed. In
addition, the per share data and weighted average number of common shares
outstanding have been restated to reflect the additional shares outstanding for
all periods presented. There were no adjustments necessary to conform accounting
policies of the two companies. See Note 16--Segment Information--for further
discussion of identifiable business segments.

On February 24, 1995, the Company consummated a merger (the "Merger") with
Maternity Resources, Inc. ("Maternity Resources"), a Delaware corporation
engaged in the wholesale, manufacture and retail sale of maternity apparel. The
Merger was consummated pursuant to a Stock Purchase Agreement (the "Agreement")
dated as of February 24, 1995 by and among the Company, Maternity Resources and
the other parties named therein (the "Sellers"). Maternity Resources was formed
to acquire Maternity Retail Partners, L.P. and Kik Kin, L.P.. Pursuant to the
Agreement, the Company acquired (i) 100% of the issued and outstanding common
stock of Maternity Resources from the Sellers in exchange for an aggregate of
480,000 shares of the Company's Common Stock, par value $0.01 and (ii) 100% of
the issued and outstanding shares of Series B and Series C Preferred Stock of
Maternity Resources from the holders thereof in exchange for shares of the
Company's Series A Preferred Stock and Series B Preferred Stock. At the time of
the Merger, the Company and Maternity Resources were under common control
through stock ownership and, as a result, the Merger was accounted for as a
transfer between entities under common control. Under this method of accounting,
when entities are under common control, the assets, liabilities and operations
are combined at historical cost in a manner similar to that in
pooling-of-interests accounting. Consequently, the financial information of the
Company included herein has been restated for all periods prior to the effective
date of the merger to combine Maternity Resources. The per share data and
weighted average number of common shares outstanding have also been restated to
reflect the additional shares outstanding for all periods. In November 1995, the
Company sold its Maternity Resources subsidiaries and consequently transferred
all of Maternity Resources liabilities to unaffiliated third parties. The
Company has no material contingent liabilities remaining with respect to
Maternity Resources. Since the Maternity operations have been sold, Maternity
Resources has been reported as a discontinued operation. The initial purchase
price of $4,075,912 (the aggregate recorded fair value of the Common Stock and
the Preferred Stock issued by the Company in connection with the Merger)
exceeded the book value of net assets acquired of $1,120,415 by $2,955,497. This
amount could be considered a distribution to shareholders. On December 27, 1995,
preferred shares, which were included as part of the $4,075,912, having a
potential redemption value of $2,392,000 were redeemed by the Company for an
agreed upon aggregate amount of $24. The net amount paid in excess of the net
assets acquired after the redemption amounted to $563,520.

The following table reflects the operating results of Medical Resources and
StarMed for the periods preceding the merger. For simplicity, results through
the fiscal quarter in 1994 closest to the StarMed merger, June 30, are
reflected. Since Maternity was acquired and disposed of during 1995, no amounts
related to Maternity are included in the table below.

Year Ended Six Months Ended
December 31, 1993 June 30, 1994
----------------- ----------------
(Unaudited)
Net service revenues:
MRI ................................... $ 26,933,844 $ 14,403,663
StarMed ............................... 18,307,687 7,944,172
------------ ------------
$ 45,241,531 $ 22,347,835
============ ============
Income (Loss) From Continuing
Operations Before Extraordinary Item:
MRI ................................... $ (129,771) $ (2,686,106)
StarMed ............................... (1,925,302) 760,437
------------ ------------
$ (2,055,073) $ (1,925,669)
============ ============

F-26

<PAGE>

MEDICAL RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All data as of and for the six months ended June 30, 1996
and 1995 is unaudited)

Extraordinary items of $762,000 in 1994 related to StarMed and of $18,000
in 1993 related to MRI. There were no material intercompany transactions during
the periods presented.

Note 4--Accounts Receivable

Accounts receivable is comprised of the following:

<TABLE>
<CAPTION>
December 31,
----------------------------
1994 1995 June 30, 1996
------------ ------------ -------------
(Unaudited)
<S> <C> <C> <C>
Accounts receivable ..................... $ 13,088,097 $ 19,669,154 $ 27,421,356
Less: Allowance for doubtful accounts
and contractual allowances ............ (2,881,427) (5,831,517) (8,776,008)
------------ ------------ ------------
$ 10,206,670 $ 13,837,637 $ 18,645,348
============ ============ ============
</TABLE>

The only significant financial instrument is accounts receivable, which is
concentrated among third-party medical reimbursement organizations, principally
insurance companies. Approximately 17.9% and 21.8% of the Company's 1994 and
1995, respectively (20.1% and 21.9% of the Company's unaudited six months ended
June 30, 1995 and 1996, respectively) imaging revenue was derived from the
delivery of services of which the timing of payment is substantially contingent
upon the timing of the settlement of pending litigation involving the recipient
of services and third parties (Letter of Protection or LOP type accounts
receivable). At December 31, 1994 and 1995, approximately 38% and 36%,
respectively, and 37% (unaudited) at June 30, 1996, of gross receivables
represent amounts due from such patients. By its nature, the realization of a
substantial portion of these receivables is expected to extend beyond one year
from the date the service was rendered. The Company's accounts receivable
balance as of December 31, 1995 includes amounts totaling $3,354,000 ($2,097,000
at December 31, 1994 and approximately $6,178,000, unaudited, at June 30, 1996)
which represent accounts outstanding in excess of twelve months. The Company
anticipates that a material amount of its accounts receivable will be
outstanding for periods in excess of twelve months in the future. The Company
considers the aging of its accounts receivable in determining the amount of the
allowance for doubtful accounts. Credit losses associated with the receivables
are provided for in the consolidated financial statements and have historically
been within management's expectations. During 1995, the Company changed its
estimate of the level of bad debts within the LOP balance to a higher overall
factor, based upon continuously updated levels of internal write off experience.
The effect on the consolidated financial statements of this change in estimate
in 1995 was a decrease in income from continuing operations before extraordinary
items of $595,000, net of income taxes of $239,000, and a decrease in net income
per common share of $.08.

Note 5--Medical Diagnostic and Office Equipment

Medical diagnostic and office equipment is comprised of the following:

<TABLE>
<CAPTION>
December 31,
----------------------------
1994 1995 June 30, 1996
------------ ------------ -------------
(Unaudited)
<S> <C> <C> <C>
Medical diagnostic equipment ............ $ 17,694,398 $ 20,184,995 $ 24,569,583
Office equipment, furniture and fixtures 2,030,713 2,421,621 2,203,454
Leasehold improvements .................. 4,923,988 6,449,980 7,006,281
------------ ------------ ------------
24,649,099 29,056,596 33,779,318
Less: Accumulated depreciation and
amortization .......................... (12,482,924) (17,526,437) (19,342,557)
------------ ------------ ------------
$ 12,166,175 $ 11,530,159 $ 14,436,761
============ ============ ============
</TABLE>

F-27
<PAGE>

MEDICAL RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All data as of and for the six months ended June 30, 1996
and 1995 is unaudited)

Note 6--Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses are comprised of the following:

<TABLE>
<CAPTION>
December 31,
----------------------------
1994 1995 June 30, 1996
------------ ------------ -------------
(Unaudited)
<S> <C> <C> <C>
Trade accounts payable .................. $ 1,379,226 $ 1,936,775 $ 2,358,402
Accrued professional fees ............... 420,234 195,531 542,708
Accrued payroll and bonuses ............. 1,005,651 975,643 1,318,765
Other accrued expenses .................. 1,687,565 1,494,977 1,351,513
------------ ------------ ------------
$ 4,492,676 $ 4,602,926 $ 5,571,388
============ ============ ============
</TABLE>

Note 7--Investments in Joint Ventures

Costa Mesa

Prior to its sale on February 24, 1995, the Company utilized the equity
method to account for its investment in Costa Mesa Services Group, in which it
held a 32% interest.

Summary combined financial information for Costa Mesa Services Group is as
follows:

December 31,
-------------------------------
1993 1994
----------- -----------
Balance sheet data:
Current assets ....................... $ 507,000 $ 365,280
Noncurrent assets .................... 110,000 83,974
Current liabilities .................. 240,000 283,225
Noncurrent liabilities ............... 84,000 32,771

Income statement data:
Revenue .............................. $ 1,285,000 $ 764,688
Net income (loss) .................... (9,000) 29,896

Cash distributions received from Costa Mesa Services Group amounted to
approximately $0, $16,000 and $0 for the years ended December 31, 1993, 1994 and
1995, respectively. Operating results for Costa Mesa in 1995, prior to the sale,
were insignificant. The Company realized a gain on the sale of $71,000.

Brooklyn

In January, 1993 the Company commenced operations of its Brooklyn, New York
facility in which a wholly-owned subsidiary of the Company owned 51% of the
operating joint venture through April 30, 1996 and 100% thereafter. The center
has not operated profitably, but rather has generated significant losses.
Through March 1994, the Company had recorded approximately $553,000 of the
losses incurred relating to its 51% ownership share of the operating joint
venture losses, and recorded the 49% minority interest's share of the losses as
recoverable from the minority shareholders coupled with anticipated future
profits of the center.

Continued operating losses of the center during 1994 resulted in a
reassessment of the recoverability of such losses not previously recognized by
the Company. Based on management's assessment, it appeared unlikely that the
center would achieve the level of profitability necessary to recover the losses
incurred. Accordingly, commencing in April 1994, the Company began recognizing
100% of losses of the joint venture, and recognized a loss provision of
approximately $532,000 in 1994 relating to the minority shareholder's share of
losses.

F-28
<PAGE>

MEDICAL RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All data as of and for the six months ended June 30, 1996
and 1995 is unaudited)

Note 8--Notes Payable

Notes payable are comprised of the following:

<TABLE>
<CAPTION>
December 31,
--------------------------
1994 1995 June 30, 1996
----------- ----------- -------------
(Unaudited)
<S> <C> <C> <C>
Note payable requiring monthly payments beginning
January 1995; remaining balance of $2,498,216 is due
January 2000 (See (a) below) ............................. $ 3,776,417 $ 3,545,965 $ 3,418,485

Note payable at prime plus 1% requiring monthly payments
of $35,714 beginning March 1996 through January 1999 ..... -- -- 1,096,971

Note payable at prime plus 1% requiring monthly payments of
$21,245 beginning August 1996 through July 1998 .......... -- -- 509,887

11.7% note payable requiring monthly payments of $16,382,
through January 2000 ..................................... 755,389 613,956 545,366

8.0% note payable requiring quarterly payments of $75,207
through August 1995. The unpaid balance was fully due
and payable September 1995 ............................... 427,845 -- --

8.25% note payable requiring monthly payments of $1,577
through January 2001 ..................................... -- -- 88,315

7.7% note payable requiring monthly payments of $6,750
through August 2000 ...................................... 372,405 306,070 290,786

9.5% note payable requiring monthly payments of $8,397
through September 1998 ................................... 328,845 249,445 210,140

9.5% note payable requiring monthly payments of $6,145
through September 1998 ................................... 282,644 205,518 177,864

3% note payable requiring monthly payments of $6,389
through June 1997 ........................................ 184,811 115,933 91,388

13.3% note payable requiring monthly payments of $7,400
through November 1996 .................................... 155,459 72,512 33,229

17.0% note payable requiring monthly payments of $5,250
plus interest through March 1995 ......................... 15,750 -- --

9.9% note payable requiring monthly payments of $4,875
through November 1998 .................................... -- -- 125,329

Notes payable--others (b) ................................. 226,152 297,459 117,248
----------- ----------- -----------
6,525,717 5,406,858 6,705,008
Less: Current portion ..................................... (1,187,711) (957,884) (1,835,322)
----------- ----------- -----------
$ 5,338,006 $ 4,448,974 $ 4,869,686
=========== =========== ===========
</TABLE>

a. Effective January 31, 1994, prior to the merger described in Note 3,
StarMed and the creditor renegotiated the note payable. Under the revised terms,
the creditor forgave approximately $2,500,000 of principal and accrued interest
and received a 16% ownership interest in the predecessor entity, which was
ultimately exchanged for the common stock of the Company pursuant to the merger.
The levels of undiscounted future cash payments under the renegotiated terms
resulted in the recognition of a gain of $761,683, treated as extraordinary for
reporting purposes in

F-29
<PAGE>

MEDICAL RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All data as of and for the six months ended June 30, 1996
and 1995 is unaudited)

1994. At the time of the restructuring, the note balance was adjusted to the
amount of the projected undiscounted future cash payments based upon the
prevailing interest rate and, accordingly, no interest expense has been recorded
subsequent to the effective date of the renegotiation other than the amounts
attributed to a change in the variable rate.

b. The notes payable--other relates primarily to loans for medical
diagnostic and office equipment which are payable in monthly installments,
mature at various dates through 2000 and bear interest at rates ranging from 7%
to 14%. Substantially all of the loans are secured by the related equipment with
a net carrying amount of $1,133,574 at December 31, 1995.

c. Maturities of notes payable over the next five years (from December 31,
1995) are as follows:

1996 ............................ $ 957,884
1997 ............................ 733,598
1998 ............................ 619,401
1999 ............................ 500,696
2000 ............................ 303,080
Thereafter ...................... 2,292,199
----------
$5,406,858
==========

Note 9--Convertible Subordinated Debentures and Line of Credit

On May 30, 1995 the Company issued $4,350,000 of 11% Convertible
Subordinated Debentures due 2000 (the "Debentures"). The Debentures are
convertible into common stock of the Company at any time by the holder at a
conversion price of $4.00 per share. The Debentures automatically convert to
common stock at $4.00 per share when, after June 1, 1997, the market price of
the stock exceeds $6.00 per share for any 15 consecutive day period. Interest is
payable on May 31 and November 30 in each year. Related debt issuance costs of
$248,000 are included as a deferred charge in other assets and are being
amortized over five years. During the six month period ended June 30, 1996,
$2,430,000 of the Debentures were converted into 607,500 shares of the Company's
common stock. No conversions were made prior to December 31, 1995.

On February 7, 1996, the Company issued at par $6,533,000 10.5% Convertible
Subordinated Debentures due 2001 (the "1996 Debentures"). The 1996 Debentures
are convertible into common stock of the Company at a conversion price of $6.00
per share. The debt issuance costs are being amortized over five years. Interest
is payable on February 1 and August 1 in each year. As of June 30, 1996,
$1,193,000 of the 1996 Debentures were converted into 198,833 shares of the
Company's common stock.

On August 3, 1995 the Company obtained a $2,000,000 secured line of credit
from First Union National Bank. The financing arrangement, which has a two-year
term and bears interest at one percent (1%) over the bank's prime rate, will be
used to finance the continued expansion of the Company's business. Availability
is based on eligible accounts receivable balances. The line of credit was unused
at December 31, 1995. Also, the Company is required to maintain certain
financial ratios and the line is secured by eligible accounts receivable. As of
June 30, 1996, $325,000 of the line was used.

In May 1996, the Company obtained two lines of credit from a third party
financing corporation. The lines of credit are comprised of an $8,000,000
revolving line of credit and a $7,000,000 capital lease line of credit both of
which have two year terms. The revolving line of credit bears interest at prime
plus 1.5% and the capital lease line bears interest at the 30 day T-bill rate
plus 398 points. As of June 30, 1996, $4,000,000 of the revolving line of credit
was used. The capital lease line was unused at June 30, 1996.

F-30
<PAGE>

MEDICAL RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All data as of and for the six months ended June 30, 1996
and 1995 is unaudited)

Note 10--Stockholders' Equity

Stock Options

The Company currently has two stock option plans in effect for certain of
its employees and directors. The options granted are either vested immediately
or ratably over a three-year period from the date of grant.

Information on stock options granted is shown in the following table:

Options Options Price
Outstanding Exercisable Range
----------- ----------- -------
Balances at December 31, 1993 ...... 122,625 106,750 $4-$5
Granted ............................ 271,000 -- 4
Became Exercisable ................. -- 15,875 --
------- ------- -------
Balances at December 31, 1994 ...... 393,625 122,625 4
Granted ............................ 472,500 -- 4-6.63
Cancelled .......................... (63,584) (26,333) --
Became Exercisable ................. -- 217,833 --
Exercised .......................... (12,916) (12,916) --
------- ------- --------
Balances at December 31, 1995 ...... 789,625 301,209 $4-$6.63
======= ======= ========

Stock Split

On August 19, 1993, the shareholders authorized a three-for-two stock split
of the common stock, thereby increasing the number of issued and outstanding
common stock to 3,817,500. All references in the accompanying financial
statements to the number of common shares and per-share amounts have been
restated to reflect the stock split.

Warrants

The Company issued warrants to acquire up to 170,000 shares of the
Company's common stock with exercise prices ranging from $5.25 to $7.50 per
share. The warrants expire in 1997.

Matters Pertaining to Maternity

As more fully discussed in Note 3, the acquisition of Maternity was
accounted for in a manner similar to that in a pooling of interests. This
accounting resulted in certain adjustments directly to stockholders' equity. A
credit of $1,022,000 was made to paid-in-capital related to the forgiveness of
certain debt owed by Maternity to affiliated organizations that is accounted for
as a capital contribution due to the related party nature. A credit of $570,000
was made to retained deficit that represents a portion of Maternity's January
1995 losses attributable to a subsidiary. These losses were included in the
Company's 1994 operations in recognition of the then full year's operating
results for the specific subsidiary's year ended January 31, 1995. Accordingly,
the amount duplicated in 1995 operating results is reversed. A charge of
$269,000 to paid-in-capital relates to a cash redemption by Maternity of its
then outstanding redeemable preferred stock, prior to the merger.

F-31
<PAGE>

MEDICAL RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All data as of and for the six months ended June 30, 1996
and 1995 is unaudited)

Note 11--Income Taxes

The provision for income taxes consists of the following:

Six months ended
Year ended December 31, June 30,
----------------------------------------- --------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Current
Federal ............... $ 0 $ 575,000 $ 3,051,000 $ 1,215,000 $ 3,472,000
State ................. 65,000 150,000 769,000 316,000 512,000
----------- ----------- ----------- ----------- -----------
65,000 725,000 3,820,000 1,531,000 3,984,000
Deferred
Federal ............... $ 0 $ (244,000) $(1,789,000) $ (724,000) $(2,485,000)
State ................. 0 0 (372,000) -- (400,000)
----------- ----------- ----------- ----------- -----------
0 (244,000) (2,161,000) (724,000) (2,885,000)
----------- ----------- ----------- ----------- -----------
Total Income Tax Expense $ 65,000 $ 481,000 $ 1,659,000 $ 807,000 $ 1,099,000
=========== =========== =========== =========== ===========

</TABLE>

A reconciliation of the federal statutory rate to the effective tax rate
follows:

Six months ended
Year ended December 31, June 30,
------------------------- -------------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Taxes at federal statutory rate ... (35.0%) (34.0%) 34.0% 34% 34.0%
Effect of Partnership status and
amounts taxed to parties other
than the Company ................. (68.5%) (1.5%) 2.0% -- --
State and local income taxes ...... 98.8% 6.0% 4.5% 6.0% 5.5%
Utilization of loss carryforwards . (27.1%) (31.4%) -- -- --
Reversal of federal benefit due to
loss carryforwards ............... 35.0% -- -- -- --
Meals and entertainment ........... -- 19.5% 3.6% 5.0% 1.2%
Increase (decrease) in valuation
allowance ........................ -- 93.2% (26.2%) (30.6%) (13.2%)
Nondeductible losses of pooled
subsidiaries and other ........... -- 27.0% 10.7% 36.9% --
----- ----- ----- ----- -----
Total ............................. 3.2% 78.8% 28.6% 51.3% 27.5%
===== ===== ===== ===== =====

</TABLE>

The provision for state income taxes for 1994 includes certain adjustments
related to payments of prior year state income taxes. Based on the results of
operations for 1993, a provision for federal income taxes was not necessary. The
provision for income taxes in 1993 of $65,000 represents state income taxes
resulting from separate company state tax filing requirements and includes
certain adjustments related to payments of prior year state income taxes.

The utilization of loss carryforwards has been recorded as an extraordinary
item in the Consolidated Statement of Operations for the year ended December 31,
1993. All operating loss carryforwards have been used at December 31, 1994.

Discontinued operations in 1995 is net of a benefit for federal income
taxes of $750,000 and a benefit for state income taxes of $218,000. These tax
benefits are allocated $312,000 to loss from operations of discontinued business
and $656,000 to loss on sale of discontinued business. In periods before the
merger, described in Note 3, the discontinued business operated under the form
of partnerships and, accordingly, no taxes are provided.

F-32
<PAGE>

MEDICAL RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All data as of and for the six months ended June 30, 1996
and 1995 is unaudited)

Deferred tax assets (liabilities) are comprised of the following:

<TABLE>
<CAPTION>
December 31, 1994 December 31, 1995 June 30, 1996
-------------------------- -------------------------- ---------------------------
Federal State Federal State Federal State
----------- ----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Deferred tax assets:
Obligations under capital leases ..... $ 70,000 $ 20,000 $ 130,000 $ 23,000 $ 135,000 $ 21,000
Accounts receivable, principally due to
allowance for doubtful accounts ...... 864,000 251,000 1,593,000 278,000 2,077,000 325,000
Intangible assets, principally due to
write-down ........................... 532,000 155,000 463,000 81,000 434,000 68,000
Capital loss carryforward ............. -- -- 64,000 10,000 65,000 11,000
Diagnostic equipment, due to
depreciation ......................... -- -- 44,000 8,000 -- --
Alternative minimum tax credit ........ 240,000 -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total gross deferred tax assets ....... 1,706,000 426,000 2,294,000 400,000 2,711,000 425,000
Less: Valuation Allowance ............. (1,310,000) (398,000) (185,000) (15,000) (139,000) (11,000)
----------- ----------- ----------- ----------- ----------- -----------
Net deferred tax assets ............... 396,000 28,000 2,109,000 385,000 2,572,000 414,000
Deferred tax liabilities:
Deferred rent ........................ (152,000) (28,000) (76,000) (13,000) (59,000) (10,000)
Diagnostic equipment dues to
depreciation ........................ -- -- -- -- (28,000) (4,000)
----------- ----------- ----------- ----------- ----------- -----------
Total gross deferred tax liabilities .. (152,000) (28,000) (76,000) (13,000) (87,000) (14,000)
----------- ----------- ----------- ----------- ----------- -----------
Net deferred tax assets ............... $ 244,000 $ -- $ 2,033,000 $ 372,000 $ 2,485,000 $ 400,000
=========== =========== =========== =========== =========== ===========
</TABLE>

Note 12--Related Party Transactions

The Company pays a financial advisory fee to an affiliate of the Company's
controlling stockholder. The advisory fees amounted to $225,000 in each of the
years ended December 31, 1993, 1994 and 1995 and $113,000 and $113,000 for the
unaudited six months ended June 30, 1995 and 1996 respectively. Such fees also
include fees for financial advisory services provided to subsidiaries and former
subsidiaries of MRI.

North Bronx Resources, Inc., a subsidiary of the Company and the General
Partner of North Bronx Services Group, L.P., has entered into a noncancelable
operating lease for the rental of space from an affiliate, Inter-County
Resources, Inc. The lease provides for scheduled increases in base rent at
varying intervals during the lease term and adjustments to the base rent based
on increases in the consumer price index. Under the terms of the agreement, the
General Partner of North Bronx Services Group, L.P. is responsible for the lease
payments in the event of default by the Partnership. Rental expense for the
Partnership was approximately $366,000, $418,000 and $306,000 for the years
ended December 31, 1993, 1994 and 1995, respectively and $183,000 and $148,000
for the unaudited six months ended June 30, 1995 and 1996 respectively.

F-33
<PAGE>

MEDICAL RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All data as of and for the six months ended June 30, 1996
and 1995 is unaudited)

Note 13--Supplementary Cash Flow Information

<TABLE>
<CAPTION>
Six months ended
Year Ended December 31, June 30,
--------------------------------------- -------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Interest paid ............................. $ 2,311,000 $ 1,695,000 $ 1,894,000 $ 930,000 $ 813,000
Income taxes paid ......................... 135,000 159,000 1,982,000 1,477,000 1,387,000
Noncash investing and financing activities:
Equipment financing ...................... 10,151,000 892,000 1,159,000 196,000 130,000
Purchase of minority interest in
limited partnership ..................... -- -- 45,000 -- --
Acquisition funding ...................... 468,000 -- 3,443,000 3,443,000 6,175,000
Reclassification of debt to equity ....... -- 469,000 1,022,000 -- --
Refinancing of assets under capital lease -- 1,079,000 -- -- --
</TABLE>

Note 14--Commitments and Contingencies:

Leases

The Company leases its corporate offices and certain centers for periods
generally ranging from three to seven years with renewal options for additional
periods. The leases generally require the Company to pay utilities, taxes,
insurance and other costs. Rental expenses incurred under such leases were
approximately $2,145,000, $2,296,000, and $2,238,000 for the years ended
December 31, 1993, 1994 and 1995, respectively and $1,090,000 and $1,307,000 for
the unaudited six months ended June 30, 1995 and 1996, respectively. In
addition, StarMed leases housing for its temporary employees under operating
leases with terms of one to three months. Total rent expense for housing
amounted to approximately $1,957,000, $1,787,000, and $1,757,000 for the three
years ended December 31, 1993, 1994 and 1995, respectively and $1,023,000 and
$1,030,000 for the unaudited six months ended June 30, 1995 and 1996,
respectively.

The Company has entered into noncancelable lease agreements for certain
medical diagnostic equipment and furniture and fixtures, and has capitalized the
assets relating to these leases. In most cases, the leases are secured by the
related equipment. Certain leases include renewal options for additional
periods. Additionally, at certain imaging centers, the Company is liable for
additional rent payments based upon predetermined annual activity levels where
the medical diagnostic equipment is located. These additional rent payments
amounted to approximately $79,000, $83,000, and $111,000 for the years ended
December 31, 1993, 1994 and 1995, respectively and $0 for the unaudited six
months ended June 30, 1996.

The following is a summary of assets under capital leases:

December 31, June 30, 1996
---------------------------- -------------
1994 1995 (Unaudited)
------------ ------------
<S> <C> <C> <C>
Medical diagnostic and office equipment $ 18,711,545 $ 15,819,882 $ 19,954,191
Less: Accumulated depreciation ........ (8,645,044) (7,745,386) (10,037,758)
------------ ------------ ------------
$ 10,066,501 $ 8,074,496 $ 9,916,433
============ ============ ============

</TABLE>

Amortization expense for assets under capital leases was approximately
$3,075,000, $3,389,000, and $2,045,000 for the years ended December 31, 1993,
1994, and 1995, respectively and $1,160,000 and $1,654,000 for the six months
ended June 30 1995 and 1996, respectively.

F-34
<PAGE>

MEDICAL RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All data as of and for the six months ended June 30, 1996
and 1995 is unaudited)

Future minimum payments under leases as of December 31, 1995 are as
follows:

Capital Operating
Leases Leases
------------ ------------
1996 ........................................ $ 4,236,205 $ 1,477,000
1997 ........................................ 3,198,482 1,110,754
1998 ........................................ 2,568,103 1,100,218
1999 ........................................ 1,816,166 950,752
2000 ........................................ 555,959 781,768
Thereafter .................................. -- 1,086,978
------------ ------------
Total minimum lease payments ................ 12,374,915 $ 6,507,470
============
Less: amount representing interest .......... (2,422,613)
------------
Present value of net minimum capital
lease payments (including $3,244,652
classified as current portion of
obligations under capital leases) ......... $ 9,952,302
============

Litigation

In September 1992, an individual brought an action in the Supreme Court of
the State of New York, County of Bronx, against a number of physicians, a
hospital and North Bronx Resources, Inc., a wholly-owned subsidiary of the
Company ("North Bronx"), for damages in an unspecified amount resulting from an
alleged failure to diagnose a brain tumor at the time imaging services were
performed for the plaintiff. The complaint alleges that North Bronx was
negligent in its rendering of medical care and treatment to the plaintiff. In
December 1992, North Bronx answered, denying the substantive allegations of the
complaint, raising an affirmative defense that the plaintiff's action does not
state a claim against North Bronx for which relief can be granted, and cross
claimed against the other defendants in the action. The parties are engaged in
discovery. Pursuant to the terms of a management agreement with North Bronx, one
of the other defendants in the action, the interpreting physician, who is
responsible for the medical aspect of the center's operation, is required to and
does carry malpractice insurance. Management believes that it will ultimately
prevail in this matter and has made no provision other than for costs of
defense.

Government Regulation

The health care industry is highly regulated at the federal, state and
local levels. Current discussions within the Federal government regarding
national health care reform are emphasizing containment of health care costs as
well as expansion of the number of eligible parties. The implementation of this
reform could have a material effect on the financial results of the Company by
limiting reimbursement levels, requiring the company to obtain certificates of
need in order to expand, limiting the types of contracts which may be entered
into with physicians who refer patients, increasing the limitations on referrals
by physicians to facilities in which they have an investment or a compensation
arrangement and other means.

Liability and Malpractice Insurance

The nature of the services provided by the Company exposes the Company to
greater risks of liability than are posed by other non-medical affiliated
businesses. The Company maintains public liability and medical malpractice
insurance in amounts which it deems adequate to protect against this potential
risk. There can be no assurance that the amount of such insurance will be
adequate to cover all potential liabilities.

F-35
<PAGE>

MEDICAL RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All data as of and for the six months ended June 30, 1996
and 1995 is unaudited)

Note 16--Segment Information

The Company operates in two industry segments--diagnostic imaging services
and temporary staffing services. Operations in the diagnostic imaging services
segment involves operating and managing 11 free-standing imaging centers,
located in three states. Operations in the temporary staffing services segment,
resulting from the merger on August 3, 1994 with StarMed (See Note 3) involves
providing temporary staffing of registered nurses, technicians and other medical
industry personnel to acute care and sub-acute care facilities.

The following table shows net revenues, operating income and other
financial information by industry segment:

Six months ended
Year Ended December 31, June 30,
-------------------------------------------- ---------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues:
Diagnostic imaging centers .. $ 26,933,844 $ 30,607,729 $ 35,860,798 $ 16,948,527 $ 24,268,810
Temporary staffing services . 18,307,687 14,571,216 16,132,960 7,929,994 12,507,687
------------ ------------ ------------ ------------ ------------
Total ...................... $ 45,241,531 $ 45,178,945 $ 51,993,758 $ 24,878,521 $ 36,776,497
============ ============ ============ ============ ============
Operating income (loss)(a)(b):
Diagnostic imaging centers .. $ 1,648,058 $ 1,168,896 $ 7,193,994 $ 3,145,714 $ 5,111,423
Temporary staffing services . (1,360,609) (133,267) 312,917 312,899 243,590
------------ ------------ ------------ ------------ ------------
Total ...................... $ 287,449 $ 1,035,629 $ 7,506,911 $ 3,458,613 $ 5,355,013
============ ============ ============ ============ ============
Depreciation and amortization:
Diagnostic imaging centers .. $ 4,733,253 $ 4,545,054 $ 4,274,140 $ 2,021,353 $ 2,532,718
Temporary staffing services . 486,587 299,211 293,004 143,388 207,958
------------ ------------ ------------ ------------ ------------
Total ...................... $ 5,219,840 $ 4,844,265 $ 4,567,144 $ 2,164,741 $ 2,740,676
============ ============ ============ ============ ============
Capital expenditures(c):
Diagnostic imaging centers .. $ 418,799 $ 476,648 $ 771,090 $ 362,482 $ 793,359
Temporary staffing services . 33,399 86,426 105,928 24,234 32,095
------------ ------------ ------------ ------------ ------------
Total ...................... $ 452,198 $ 563,074 $ 877,018 $ 386,716 $ 825,454
============ ============ ============ ============ ============

<CAPTION>
December 31,
-------------------------------------------- June 30, 1996
1993 1994 1995 -------------
------------ ------------ ------------ (unaudited)
Identifiable assets:
Diagnostic imaging centers $ 32,981,920 $ 28,131,474 $ 36,549,946 $ 54,579,321
Temporary staffing services 7,898,744 7,778,000 7,585,877 12,235,663
------------ ------------ ------------ ------------
Total .................... $ 40,880,664 $ 35,909,474 $ 44,135,823 $ 66,814,984
============ ============ ============ ============
</TABLE>

- ----------
(a.) The charges to operations in 1994 related to the write-down of value of
venture contracts and intangible assets, provision for minority interest in
losses of joint venture, executive severance, write-down of medical
diagnostic equipment and the gain on disposal of medical diagnostic
equipment, and are attributable to the operations of the diagnostic imaging
centers segment only.
(b.) The extraordinary gain on the debt restructuring in 1994 is attributable to
temporary staffing services.
(c.) Equipment financed under capital leases and notes payable amounted to
$1,159,000, $892,000, and $10,151,000 in 1995, 1994 and 1993, respectively.

F-36
<PAGE>

Note 17--Fair Value of Financial Instruments

The following estimated fair value amounts have been determined using
available market information and appropriate valuation methodologies. However,
considerable judgment is necessarily required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that the Company could realize in
a current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.

December 31, 1995
------------------------------
Carrying
Amount Fair Value
----------- -----------
Assets:
Cash and cash equivalents ............... $ 3,935,000 $ 3,935,000
Accounts receivable, net ................ 13,838,000 13,838,000

Liabilities:
Notes payable .......................... $ 5,407,000 $ 5,407,000
Convertible debentures ................. 4,350,000 4,466,000

The carrying amounts of cash and cash equivalents, accounts receivable and
notes payable are a reasonable estimate of their fair value. The fair value of
the Company's convertible debentures is based upon a discounted cash flow
calculation utilizing rates under which similar borrowing arrangements can be
entered into.

F-37
<PAGE>

NMR of America, Inc., and Subsidiaries
Report of Independent Accountants

The Shareholders of NMR of America, Inc.

We have audited the accompanying consolidated balance sheets of NMR of
America, Inc., and Subsidiaries as of March 31, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended March 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
onour 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 consolidated financial position of NMR of America,
Inc., and Subsidiaries as of March 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1996, inconformity with generally accepted accounting
principles.

COOPERS & LYBRAND L.L.P.

Parsippany, New Jersey
June 21, 1996

F-38
<PAGE>

NMR of America, Inc., and Subsidiaries
Consolidated Balance Sheets

<TABLE>
<CAPTION>
March 31, March 31, June 30,
1995 1996 1996
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents .............................. $ 3,966,804 $ 3,782,315 $ 2,072,925
Marketable securities .................................. 1,125,643 289,125
Short-term investments ................................. 886,609 663,660 2,022,405
Due from affiliated physician associations and patient
receivables, net ..................................... 9,498,268 14,182,008 14,946,978
Other current assets ................................... 903,373 1,442,394 1,301,461
----------- ----------- -----------
Total current assets ................................ 16,380,697 20,070,377 20,632,894
----------- ----------- -----------
Land, buildings and equipment .......................... 31,360,133 31,832,051 32,037,838
Less, accumulated depreciation and amortization ........ 19,580,504 17,381,581 18,030,369
----------- ----------- -----------
11,779,629 14,450,470 14,007,469
Long-term investments .................................. 192,000
Cost in excess of net assets acquired .................. 4,497,974 10,804,971 10,660,167
Deferred income taxes .................................. 1,099,000 109,000
Other assets ........................................... 1,571,547 1,446,868 1,231,880
----------- ----------- -----------
Total assets ........................................ $35,328,847 $47,073,686 $46,532,410
=========== =========== ===========

Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable and accrued expenses ............... $ 3,098,931 $ 4,276,846 $ 4,448,686
Current installments on capital lease obligations ... 286,263 612,985 604,644
Current installments on notes and mortgage payable .. 2,769,098 4,911,031 4,591,221
------------ ----------- -----------
Total current liabilities ........................ 6,154,292 9,800,862 9,644,551
------------ ----------- -----------
Deferred tax liability ................................. 90,000
Convertible subordinated debt, net ..................... 2,056,417 1,975,752 1,890,835
Obligations under capital leases, less
current installments ................................. 481,518 1,152,455 1,009,479
Notes and mortgage payable, less current installments .. 10,451,119 11,028,647 10,012,109
Minority interest in limited partnerships .............. 2,155,665 2,126,708 2,237,382

Commitments and contingencies

Shareholders' Equity:
Common Stock, $.01 par value; authorized 30,000,000
shares, 5,416,967, 6,705,146 and 6,715,143 shares
issued and outstanding at March 31, 1995,
March 31, 1996 and June 30, 1996, respectively ...... 54,169 67,051 67,151
Additional paid-in capital ............................. 11,570,401 17,027,890 17,072,790
Unrealized gains ....................................... 14,208
Retained earnings ...................................... 3,854,255 5,631,632 6,220,272
Less, 364,958 and 437,712 and 430,797 common
shares in Treasury at March 31, 1995 and March 31,
and June 30, 1996, respectively ..................... (1,463,197) (1,737,311) (1,712,159)
------------ ----------- -----------
Shareholders' equity ................................... 14,029,836 20,989,262 21,648,054
------------ ----------- -----------
Total liabilities and shareholders' equity .......... $ 35,328,847 $47,073,686 $46,532,410
============ =========== ===========
</TABLE>

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

F-39
<PAGE>

NMR of America, Inc., and Subsidiaries
Consolidated Statements of Income

<TABLE>
<CAPTION>
Years Ended March 31, Quarters Ended June 30,
-------------------------------------------- ----------------------------
1994 1995 1996 1995 1996
------------ ------------ ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenue, net ................................. $ 15,597,260 $ 17,987,824 $ 23,833,897 $ 4,771,293 $ 7,263,367
------------ ------------ ------------ ------------ ------------
Costs and Expenses:
Payroll and related costs ................ 3,957,626 4,780,025 6,442,710 1,439,737 1,788,463
Depreciation and amortization ............ 2,545,108 2,951,400 3,093,616 653,414 796,530
Medical supplies and other operating costs 5,186,883 6,048,762 8,834,668 1,828,170 2,776,614
Non-recurring write-down of center
equipment ............................... 560,091
Transaction costs ........................ 301,140
Other general and administrative ......... 689,347 553,422 763,662 141,156 219,927
------------ ------------ ------------ ------------ ------------
12,378,964 14,893,700 19,134,656 4,062,477 5,882,674
------------ ------------ ------------ ------------ ------------
Operating income ............................. 3,218,296 3,094,124 4,699,241 708,816 1,380,693
Interest expense ............................. 824,420 1,186,811 1,677,698 372,589 447,048
Other income, net ............................ (130,694) (24,546) (122,805) (82,075) (39,810)
------------ ------------ ------------ ------------ ------------
Income before minority interest and
income taxes ................................ 2,524,570 1,931,859 3,144,348 418,302 973,455
Minority interest in income of limited
partnerships ................................ 1,049,070 527,663 410,550 82,530 120,815
------------ ------------ ------------ ------------ ------------
Income before income taxes ................... 1,475,500 1,404,196 2,733,798 335,772 852,640
Provision for (benefit from) income taxes .... 108,000 (1,029,716) 956,421 98,000 264,000
------------ ------------ ------------ ------------ ------------
Net income ................................... $ 1,367,500 $ 2,433,912 $ 1,777,377 $ 237,772 $ 588,640
============ ============ ============ ============ ============
Per Share Data:

Primary:
Net income per share ......................... $ .29 $ .49 $ .30 $ .05 $ .09
============ ============ ============ ============ ============
Fully diluted:
Net income per share ......................... $ .29 $ .47 $ .30 $ .05 $ .09
============ ============ ============ ============ ============
</TABLE>

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

F-40
<PAGE>

NMR of America, Inc., and Subsidiaries
Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
Years Ended March 31, Quarters Ended June 30,
----------------------------------------- --------------------------
1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ............................................ $ 1,367,500 $ 2,433,912 $ 1,777,377 $ 237,772 $ 588,640
----------- ----------- ----------- ----------- -----------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization ........................ 2,545,108 2,951,400 3,093,616 653,414 796,530
Minority interest in income of
limited partnerships ................................ 1,049,070 527,663 410,550 82,530 120,815
Deferred income taxes ................................ (1,099,000) 1,016,918 80,000 199,000
Equity in (income) loss from
unconsolidated partnership .......................... (53,067) 68,770 171,085 30,939
Contractor reimbursement for lost revenues ........... (91,620) (175,000)
Loss (gain) on disposition of center assets .......... 47,021 12,084 (62,443) (62,443)
Non-recurring write-down of center
equipment ........................................... 560,091
Proceeds from sale of marketable
securities--trading ................................. 411,270
Unrealized gain on marketable securities ............. (9,464)
Changes in assets and liabilities, net of acquired centers:
Increase in amount due from affiliated physician
associations and patient receivables, net ............ (2,196,385) (965,897) (3,546,074) (332,300) (764,970)
Decrease (increase) in other current assets ........... 188,810 (130,104) 236,999 1,245 140,933
Decrease (increase) in other assets ................... 159,969 (92,931) 103,147 (65,911) 172,133
Increase (decrease) in accounts payable
and accrued expenses ................................. 531,966 (198,210) (80,001) (150,475) 196,992
Decrease in other liabilities ......................... (222,079)
Other ................................................. 14,483
----------- ----------- ----------- ----------- -----------
Total adjustments ..................................... 2,040,949 1,953,516 1,183,280 236,999 861,433
----------- ----------- ----------- ----------- -----------
Net cash provided by operating activities ................. 3,408,449 4,387,428 2,960,657 474,771 1,450,073
----------- ----------- ----------- ----------- -----------
</TABLE>

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

F-41
<PAGE>

NMR of America, Inc., and Subsidiaries
Consolidated Statements of Cash Flows--(Continued)

Years Ended March 31, Quarters Ended June 30,
----------------------------------------- --------------------------
1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from investing activities:
Purchase of equipment ...................... $ (338,080) $(1,705,020) $(1,411,389) $ (80,841) $ (205,787)
Purchase of short-term investments ......... (869,000) (2,814,660) (213,000) (1,495,745)
Purchase of marketable securities .......... (1,201,839) (1,111,435) (300,000) (300,000) (289,125)
Purchase of long-term investments .......... (192,000)
Purchase of limited partnership interests .. (2,185,005) (48,800)
Acquisition of purchase option ............. (200,000)
Acquisition of centers, net of cash acquired (325,000) (976,794) 371,905
Proceeds from sale of marketable securities 600,000 205,000 1,435,438 1,030,000
Proceeds from sale of short-term investments 3,070,449 183,375 329,000
Proceeds from disposition of center assets . 6,250
Advance to unconsolidated partnership ...... (48,000)
Other ...................................... (11,014) (15,350) (17,164) (2,716)
----------- ----------- ----------- ----------- -----------
Net cash (used in) provided by
investing activities ....................... (3,660,938) (4,515,149) 159,743 554,370 (1,664,373)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Repayments of debt, including
capital lease obligations ................. (1,587,922) (2,134,292) (3,669,129) (693,687) (1,487,665)
Distributions to limited partners .......... (683,067) (135,656) (232,283) (5,730) (7,425)
Proceeds from borrowings ................... 2,319,500 2,617,683 912,686
Purchase of common stock warrants .......... (12,000)
Proceeds from stock issuance and
exercise of stock options ................. 27,812 36,844
Purchases of treasury stock .................. (353,007)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities ...................... 36,511 375,547 (3,304,889) (699,417) (1,495,090)
----------- ----------- ----------- ----------- -----------
Net (decrease) increase in cash
and cash equivalents ....................... (215,978) 247,826 (184,489) 329,724 (1,709,390)
Cash and cash equivalents at April 1, ...... 3,934,956 3,718,978 3,966,804 3,966,804 3,782,315
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at March 31,
(or June 30) .............................. $ 3,718,978 $ 3,966,804 $ 3,782,315 $ 4,296,528 $ 2,072,925
=========== =========== =========== =========== ===========

</TABLE>

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

F-42
<PAGE>

NMR of America, Inc., and Subsidiaries
Consolidated Statements of Cash Flows--(Continued)

Years Ended March 31, Quarters Ended June 30,
--------------------------------------- -------------------------
1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Cash (received) paid during the year for:
Income taxes, net of refunds totaling
$155,676 in 1994, $26,474 in 1995 and
$46,052 in 1996 ............................. $ (131,237) $ 69,345 $ (13,320) $ 3,195 $ 26,925
Interest ......................................... $ 829,419 $ 1,187,160 $ 1,680,158 $ 329,249 $ 402,488

Supplemental Schedule of Noncash Activities:
Capital lease obligations incurred
for use of equipment ........................ $ 591,517
Capital lease obligations assumed in
connection with acquisition of centers ...... $ 1,444,779
Notes payable obligation assumed in
connection with acquisition of center ....... $ 1,475,000 $ 1,982,617 $ 4,690,296
Stock issued in connection with
acquisition of centers ...................... $ 487,500 $ 500,000 $ 5,224,320
Notes payable issued in connection
with acquisition of center .................. $ 435,000
Note payable obligation incurred in
connection with acquisition
of purchase option .......................... $ 593,000
Note payable obligation incurred in
connection with refinancing of Bel
Air, Maryland center debt ................... $ 2,493,683
Additions to fixed assets included in accounts
payable and accrued expenses ................ $ 214,410 $ 750,332
Conversion of subordinated debentures
to common stock ............................. $ 111,999 $ 123,000
Unrealized gain on marketable securities
available-for-sale .......................... $ 14,208 $ 3,092
Contribution to 401(k) plan .................. $ 10,061 $ 36,098
Note payable incurred in connection with
financing annual insurance premium .......... $ 278,488
Note payable incurred in connection with
equipment upgrade financing ................. $ 60,000
Issuance of restricted stock over two year
vesting period .............................. $ 94,800

</TABLE>

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

F-43
<PAGE>

NMR of America, Inc., and Subsidiaries
Consolidated Statement of Changes in Shareholders' Equity

Common Common Additional Treasury Treasury Unrealized Retained Total
Stock Stock Paid-In Stock Stock Gains Earnings Shareholders'
Shares Amount Capital Shares Amount (Losses) (Deficit) Equity
--------- -------- ------------ -------- ------------ ------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at March 31, 1993 .. 5,107,080 $ 51,071 $ 10,449,047 (377,326) $ (1,494,117) $ 52,843 $ 9,058,844
--------- -------- ------------ -------- ------------ ------- ----------- ------------
Purchase of warrants ........ (12,000) (12,000)
Issuance of common stock .... 150,000 1,500 486,000 487,500
Net income for fiscal 1994 .. 1,367,500 1,367,500
--------- -------- ------------ -------- ------------ ------- ----------- ------------
Balances at March 31, 1994 .. 5,257,080 52,571 10,923,047 (377,326) (1,494,117) 1,420,343 10,901,844
--------- -------- ------------ -------- ------------ ------- ----------- ------------
Issuance of common stock .... 135,000 1,350 528,650 530,000
Conversion of subordinated
debentures to common stock . 24,887 248 111,751 111,999
Exercise of employee
stock options .............. 2,187 10,250 25,625 27,812
401(k) plan contributions ... 4,766 2,118 5,295 10,061
Unrealized gain on securities
held for sale .............. $14,208 14,208
Net income for fiscal 1995 .. 2,433,912 2,433,912
--------- -------- ------------ -------- ------------ ------- ----------- ------------
Balances at March 31, 1995 .. 5,416,967 54,169 11,570,401 (364,958) (1,463,197) 14,208 3,854,255 14,029,836
--------- -------- ------------ -------- ------------ ------- ----------- ------------
Purchase of common stock .... (99,650) (353,007) (353,007)
Issuance of common stock .... 1,260,848 12,609 5,319,120 5,331,729
Conversion of subordinated
debentures to common stock . 27,328 273 122,727 123,000
Exercise of employee
stock options .............. 5,906 12,375 30,938 36,844
401(k) plan contributions ... 9,736 14,521 47,955 57,691
Unrealized gain on securities
held for sale .............. (14,208) (14,208)
Net income for fiscal 1996 .. 1,777,377 1,777,377
--------- -------- ------------ -------- ------------ ------- ----------- ------------
Balances at March 31, 1996 .. 6,705,143 67,051 17,027,890 (437,712) (1,737,311) 5,631,632 20,989,262
--------- -------- ------------ -------- ------------ ------- ----------- ------------
Conversion of subordinated
debentures to common
stock (unaudited) .......... 10,000 100 44,900 45,000
401(k) plan contributions
(unaudited) ................ 6,915 25,152 25,152
Net income for quarter ended
June 30, 1996 (unaudited) .. 588,640 588,640
--------- -------- ------------ -------- ------------ ------- ----------- ------------
Balances at June 30, 1996
(unaudited) ................ 6,715,143 $ 67,151 $ 17,072,790 (430,797) $ (1,712,159) $ 6,220,272 $ 21,648,054
========= ======== ============ ======== ============ ======= =========== ============

</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.

F-44
<PAGE>

NMR OF AMERICA, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All data as of and for the quarters ended June 30, 1995 and 1996 is unaudited)

1. The Company and its Significant Accounting Policies

The Company--NMR of America, Inc., and Subsidiaries (the "Company") is
engaged in installing and maintaining imaging systems used for diagnostic
purposes in offices operated by private physicians.

Consolidation--The accompanying consolidated financial statements include
the accounts of NMR of America, Inc., its wholly-owned subsidiaries and certain
limited partnerships in which the Company is a general partner. All material
intercompany balances and transactions have been eliminated. As general partner,
the Company is subject to all the liabilities of a general partner and as of
June 30, 1996, is entitled to share in partnership profits, losses and
distributable cash as follows:

Company Share of
Profits, Losses and
Partnership Distributions
----------- --------------
NMR Associates I (Union, New Jersey) ................... 64%
MR Associates I (Philadelphia, Pennsylvania) ........... 98%
MR Associates of Allentown (Allentown, Pennsylvania) ... 96%
MR Associates of Morristown (Morristown, New Jersey) ... 94%
MR Partners of Greenbelt (Seabrook, Maryland) .......... 87%
MR Associates of Chicago (Chicago, Illinois) ........... 87%
Garden State Imaging Partners (Marlton, New Jersey) .... 91%
Harford County Imaging Partners (Bel Air, Maryland) .... 63%
Accessible MRI (Chicago, Illinois) ..................... 80%
Golf MRI Center (Des Plaines, Illinois) ................ 75%
Diagnostic Imaging Center (Des Plaines, Illinois) ...... 75%

The Company owns a 100% interest in imaging centers located in Chicago,
Elgin, Libertyville, and Oak Lawn, Illinois as well as Cape Coral, Naples,
Sarasota and Titusville, Florida. The Company owns a 38% interest in an Austin,
Texas limited partnership, which is accounted for using the equity method (See
Note 13). The Company is also paid a monthly management fee based on patient
cash collections and/or patient volume under management agreements with certain
of the partnerships.

During the second quarter of the fiscal year ended March 31, 1993,
accumulated losses, from inception, of the Company's Harford County, Maryland
limited partnership fully offset the capital contributed by its limited
partners. Accordingly, losses incurred in excess of such limited partnership
capital have been charged, in full, to the Company as general partner. Future
profits, if any, in the Harford County partnership will be allocated, in full,
to the Company as general partner until such profits equal the Company's excess
share of allocable losses. Thereafter, future profits and losses will be
allocated in accordance with the parties respective ownership interests.

Reclassification--Certain prior year items have been reclassified to
conform to the current year presentation.

Use of Estimates--The preparation of the 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 in the
consolidated financial statements and accompanying notes. The most significant
estimates relate to contractual and other allowances, income taxes,
contingencies and the useful lives of equipment. Actual results could differ
from those estimates. In addition, healthcare industry reforms and reimbursement
practices will continue to impact the Company's operations.

Cash and Cash Equivalents--For financial statement purposes, cash
equivalents include short-term investments with an original maturity of ninety
days or less. At March 31, 1995, March 31, 1996 and June 30, 1996, the Company
had investments in money market accounts and certificates of deposit of
$729,759, $1,792,251 and $333,523, respectively. Cash and cash equivalents
includes $1,673,598, $571,477 and $723,270 as of March 31, 1995, March 31, 1996
and June 30, 1996, respectively, representing funds of the various partnerships.

Marketable Securities--The Company adopted effective April 1, 1994,
Statement of Financial Accounting Standards No. 115, ("SFAS 115") "Accounting
for Certain Investments in Debt and Equity Securities". SFAS 115

F-45
<PAGE>

NMR OF AMERICA, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All data as of and for the quarters ended June 30, 1995 and 1996 is unaudited)

requires a more detailed disclosure of debt and equity securities held for
investment, the methods to be used in determining fair value and when to record
unrealized holding gains and losses in earnings or in a separate component of
shareholders' equity. Debt securities for which the Company does not have the
intent or the ability to hold to maturity are classified as available-for-sale
along with the Company's investments in equity securities. Securities available
for sale are carried at fair value with unrealized gains and losses, net of tax,
reported as a separate component of shareholders' equity. Any realized gains and
losses are determined on the specific identification method. In accordance with
SFAS 115, prior year financial statements have not been restated to reflect the
change in accounting method. The cumulative effect as a result of adopting SFAS
115 in fiscal 1995 was not material.

Property and Equipment--Property and equipment are being depreciated for
financial accounting purposes using the straight-line method over their
respective estimated useful lives ranging from three to ten years. Leasehold
improvements are being amortized over the shorter of the useful life or the
remaining lease term, typically 10 years. Upon retirement or other disposition
of these assets, the cost and related accumulated depreciation are removed from
the accounts and the resulting gains or losses are reflected in the results of
operations. Expenditures for maintenance and repairs are charged to operations.
Renewals and betterments are capitalized.

Organizational Costs--The Company capitalizes costs associated with the
organization of the various limited partnerships and Company-owned centers. Such
costs are amortized on a straight-line basis over a five-year period beginning
with the commencement of operations at each location.

Cost in Excess of Net Assets Acquired--The excess of the purchase price
over the fair market value of net assets acquired is being amortized using the
straight-line method over 20 years. As of March 31, 1995, March 31, 1996 and
June 30, 1996 accumulated amortization amounted to $274,544, $694,783 and
$839,923, respectively.

The Company periodically reviews goodwill to assess recoverability based
upon expectations of undiscounted cash flows and operating income of each
consolidated entity having a material goodwill balance. An impairment would be
recognized in operating results, based upon the difference between each
consolidated entities' respective undiscounted cash flows and the carrying value
of the related costs in excess of net assets acquired, if a permanent diminution
in value were to occur.

401(k) Plan--The Company maintains a 401(k) savings plan under which the
Company matches one-half of employee contributions to purchase the Company's
common stock and one-quarter of employee contributions to purchase other plan
investments, up to 6% of qualified earnings and subject to Internal Revenue
Service limitations. Company matching contributions for fiscal 1996 have
utilized treasury stock. Plan expense amounted to $10,061 and $36,098 in fiscal
1995 and 1996, respectively.

Earnings Per Share--Earnings per share is computed on the basis of the
weighted average number of common shares outstanding and dilutive common stock
equivalents. Common stock equivalents consist of stock options and warrants. For
the year ended March 31, 1994, earnings per share is computed on the basis of
the weighted average number of common shares outstanding during each year as the
Company's common stock equivalents had an anti-dilutive effect. The shares
issued by the Company in connection with the purchases of Oak Lawn Imaging
Center, Golf MRI Center, Diagnostic Imaging Center, Morgan Medical Holdings,
Inc. and Central Diversey MRI Center were considered outstanding from the date
of acquisition.

The Convertible Subordinated Debentures are not common stock equivalents
and are not included in the calculation of primary earnings per share. The
debentures were also not assumed converted for purposes of calculating fully
diluted earnings per share for the year ended March 31, 1994, as such conversion
would have been anti-dilutive for such year.

The number of common shares used to compute primary and fully diluted net
income per share are as follows:

Fiscal Years Ended March 31, Quarters Ended June 30,
--------------------------------- -----------------------
1994 1995 1996 1995 1996
--------- --------- --------- --------- ---------
Primary ........ 4,757,102 5,017,952 5,870,494 5,260,669 6,539,912
Fully Diluted .. 4,757,102 5,589,900 6,324,716 5,742,225 7,141,089

F-46

<PAGE>

NMR OF AMERICA, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All data as of and for the quarters ended June 30, 1995 and 1996 is unaudited)

New Accounting Standards--Statement of Financial Accounting Standards No.
121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS 121") is effective for the Company's year
ending March 31, 1997. The Company believes that the adoption of SFAS 121 will
not have a material effect on the Company's financial position or results of
operations.

Statement of Financial Accounting Standards No. 123 "Accounting and
Disclosure of Stock-Based Compensation" ("SFAS 123") encourages but does not
require companies to recognize stock awards based on their fair value at the
date of grant. The Company currently follows, and expects to continue to follow,
the provisions of Accounting Principles Board Opinion No. 25 "Accounting for
Stock Issued to Employees" ("APB 25"), and related interpretations to account
for its employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized. Although the
Company is permitted to continue to follow the provisions of APB 25 under SFAS
123, certain pro forma disclosure, to reflect the impact on reported earnings,
will be required beginning with the Company's fiscal year ending March 31, 1997,
as if the Company has accounted for its stock options in accordance with the
fair value method under SFAS 123.

Interim Financial Information--The financial information presented as of
June 30, 1996, and for the quarter ended June 30, 1995 and 1996, is unaudited,
but, in the opinion of management, reflects all adjustments which consist of
normal accruals necessary for a fair presentation of such financial statements.

2. Due from Affiliated Physician Associations

For consolidated centers which the Company developed, it has entered into
agreements with physicians engaging in business as professional associations
("Physicians") pursuant to which the Company maintains and operates imaging
systems in offices operated by the Physicians. The agreements have terms of up
to six years and are renewable at the option of the Company. The Physicians'
principal, Dr. David L. Bloom, is a director of the Company. Under the
agreements, Physicians has agreed to be obligated to contract for radiological
services at the centers and to sublease each facility. The Company is obligated
to make necessary leasehold improvements, provide furniture and fixtures and
perform certain administrative functions relating to the provision of technical
aspects of the centers operations for which Physicians pays a quarterly fee
composed of a fixed sum based on the cost of the respective imaging system
installed, including the related financing costs, a charge per invoice processed
and a charge based upon system usage for each Company-installed imaging system
in operation. These fees, net of a contractual allowance based upon Physicians
ability to pay after Physicians have fulfilled their obligations under facility
subleases and radiological service contracts as set forth above, constitute the
Company's revenue, net for developed sites.

For consolidated centers which the Company has acquired, subsidiaries of
the Company have entered into agreements with unaffiliated professional
corporations to provide radiological services under Dr. Bloom's administration.
Accordingly, revenue, net for acquired centers consists of patient billings
adjusted for contractual and other allowances which have been negotiated with
various third-party payers. Fees paid to radiologists at these centers are
reflected as a component of medical supplies and other operating expense in the
accompanying statements of income.

Certain revenues are subject to audit and retroactive adjustment by third
party payers. The Company is aware of no pending audits or proposed adjustments
and no provisions for estimated retroactive adjustments have been provided.

3. Short-term Investments

Short-term investments at March 31, 1995, March 31, 1996 and June 30, 1996
are stated at cost plus accrued interest and consist of certificates of deposit
having original maturities of greater than three months but not in excess of one
year.

F-47
<PAGE>

NMR OF AMERICA, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All data as of and for the quarters ended June 30, 1995 and 1996 is unaudited)

4. Marketable Securities

Marketable securities classified as available-for-sale are as follows:

Gross Fair
unrealized market
Cost gains value
---------- ----------- ----------
June 30, 1996
Available-For-Sale:
U.S. Government obligations ..... $ 289,125 $ -- $ 289,125
========== =========== ==========
March 31, 1995
Available-For-Sale:
U.S. Government obligations ..... $1,111,435 $ 14,208 $1,125,643
========== =========== ==========

At March 31, 1995, all investments in debt securities had maturities of
less than one year.

5. Property and Equipment

Property and equipment stated at cost are set forth below:

<TABLE>
<CAPTION>
March 31, March 31, June 30,
1995 1996 1996
----------- ----------- ------------
<S> <C> <C> <C>
Diagnostic equipment ...................... $19,260,564 $18,328,154 $18,408,355
Diagnostic equipment under capital leases . 1,402,367 2,272,367 2,272,367
Leasehold improvements .................... 4,486,404 4,978,901 4,994,926
Leasehold improvements under capital leases 210,000 210,000
Land and buildings ........................ 1,353,569 1,353,569 1,353,569
Equipment ................................. 3,600,164 3,766,268 3,874,203
Equipment under capital leases ............ 290,000 290,000
Furniture and fixtures .................... 616,519 632,792 634,418
Construction in progress .................. 640,546 -- --
----------- ----------- ------------
$31,360,133 $31,832,051 $32,037,838
=========== =========== ============
</TABLE>

Depreciation expense for the years ended March 31, 1994, 1995 and 1996 and
the quarters ended June 30, 1995 and 1996 amounted to $2,197,181, $2,527,773,
$2,444,896, $548,701 and $648,788, respectively.

Accumulated amortization relating to property and equipment under capital
leases at March 31, 1995, March 31, 1996 and June 30, 1996 was $510,570,
$881,674 and $989,789, respectively.

The following is a schedule by fiscal year of the future minimum lease
payments under capital leases as of March 31, 1996:

Year ending March 31,
1997 $ 731,728
1998 601,886
1999 487,624
2000 176,043
2001 --
thereafter ..................................................... --
---------
Total minimum lease payments ................................... 1,997,281
Less: amount representing interest
(imputed at an average rate of 7.9%) 231,841
---------
Present value of minimum lease payments ........................ 1,765,440
Less current installments ...................................... 612,985
---------
Obligations under capital leases, less current installments .... $1,152,455
=========

F-48
<PAGE>

NMR OF AMERICA, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All data as of and for the quarters ended June 30, 1995 and 1996 is unaudited)

6. Long-term Investments

Long-term investments at March 31, 1996 are stated at cost plus accrued
interest and consist of certificates of deposit maturing in April and May 1997.

7. Convertible Subordinated Debentures

In July 1986, the Company completed a public offering of 8% Convertible
Subordinated Debentures of $4,000,000 due 2001 and received $3,365,000, net of
underwriting discount and other expenses. The debentures are redeemable at a
declining premium after July 1988, contain a mandatory sinking fund provision
calculated to retire 90% of the debentures before maturity at a rate of 10% per
year commencing in July 1992, and are convertible into the Company's common
stock at any time prior to maturity at $4.50 per share. As of June 30, 1996,
$1,999,000 of the debentures have been converted into the Company's common
stock. Under the provisions of the indenture, the Company has not been required
to meet its sinking fund requirement as a result of the cumulative debenture
conversions and does not expect to make a sinking fund payment until July of
1997. 8. Notes and Mortgage Payable

Notes and mortgage payable consist of the following:

<TABLE>
<CAPTION>
March 31, March 31, June 30,
1995 1996 1996
----------- ----------- -----------
<S> <C> <C> <C>
Mortgage payable to bank (A) ............... $ 524,065 $ 517,169 $ 514,920
Allentown equipment note payable to bank (B) 1,980,952 1,561,907 1,371,428
Note payable for acquisition of limited
partnership interests (C) ................ 1,861,835 1,029,343 800,555
Oak Lawn equipment note payable to bank (D) 1,334,594 1,218,476 1,184,805
Bel Air equipment note payable (E) ......... 2,705,136 2,520,116 2,470,531
Notes payable from Morgan acquisition (F) .. 3,612,007 3,240,104
Notes payable from other acquisitions (G) .. 2,455,856 2,637,360 2,488,756
Other notes payable for equipment, equipment
upgrades and leasehold improvements (H) .. 2,357,779 2,843,300 2,532,231
----------- ----------- -----------
Total ................................. 13,220,217 15,939,678 14,603,330
Less, current installments ................. 2,769,098 4,911,031 4,591,221
----------- ----------- -----------
Notes and mortgage payable less current
installments ............................. $10,451,119 $11,028,647 $10,012,109
=========== =========== ===========
</TABLE>

(A) The Company has a thirty-year mortgage collateralized by the Union, New
Jersey imaging center land and building. The mortgage bears interest at a
variable rate, adjusted annually based on the one-year Treasury bill rate
plus 2.75% (8.5% at June 30, 1996) and matures October 2019. The current
monthly payments are $4,310, including interest.

(B) During the year ended March 31, 1992, the Company completed an upgrade at
its Allentown, Pennsylvania center which included both new imaging
equipment, related leasehold improvements and a five year prepaid equipment
maintenance agreement aggregating approximately $3,200,000. The Company
financed these amounts using a note payable (the "Note ") over a five year
term which commenced in August 1992. The Note requires monthly installments
of $38,095 plus interest and a balloon payment of $952,395 due in July
1997. The Note bears interest at a variable rate equal to the bank's
prevailing prime rate plus one-half percent (8.75% at June 30, 1996),
however, the Note provides an option to fix the interest rate at any time
during the term. The Note is collateralized by substantially all of the
assets of the MR Associates of Allentown partnership. Effective for fiscal
1994, the Note's financial covenants were modified requiring the
Partnership to meet two debt coverage ratios, as defined, as of March 31 of
each fiscal year through the expiration of the Note.

F-49
<PAGE>

NMR OF AMERICA, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All data as of and for the quarters ended June 30, 1995 and 1996 is unaudited)

(C) In March 1994, the Company financed the acquisition of limited partnership
interests using a $2,240,000 three year note payable which bears interest
at a rate of 8.9% and requires monthly payments of $49,830, including
interest through April 1995 and $83,378, including interest per month
thereafter. The note is collateralized by the imaging equipment and
receivables of certain of the limited partnerships in which additional
interests were acquired.

(D) In January 1994, the Company assumed a five year $1,475,000 note payable to
a bank which bears interest at a variable rate equal to the bank's
prevailing prime rate plus one percent (9.25% at June 30, 1996). Monthly
payments, including principal and interest, for the first three years of
the note are fixed at $20,000, and $45,894 thereafter. The note is
collateralized by substantially all of the equipment of the Oak Lawn
Imaging Center.

(E) In December 1994, the Company refinanced the imaging equipment and
leasehold improvement debt of its Bel Air, Maryland center with a remaining
principal balance of $2,493,683 as of the date of the refinancing. In
conjunction with the refinancing, the Company also financed the cost of
upgrades to its MR and nuclear medicine equipment with an aggregate cost of
$238,614. The Company incurred a prepayment penalty of $15,945 in
conjunction with the refinancing, which was included as a component of
other expense (income), net in the accompanying statement of income for the
year ended March 31, 1995. The note payable obligation, aggregating
$2,748,242 of principal is payable over a seven year term due January 2001,
bears interest at 11.25% and requires fixed monthly payments of $40,000,
including interest, during the first 24 months and $61,465, including
interest, for the remaining term. The note is collateralized by the related
imaging equipment.

(F) In September 1995, in connection with the acquisition of Morgan Medical
Holdings, Inc. ("Morgan") the Company assumed Morgan's existing equipment
debt obligations, aggregating $4,018,574. These notes bear interest at
rates ranging from 7.36% to 11.5% and require monthly payments ranging from
$623 to $33,335, including interest. The notes are payable over varying
terms with the last note due in September 1999. One of the notes restricts
the Company's ability to pay dividends. The foregoing notes are
collateralized by the respective centers' imaging equipment.

(G) In January 1995, in connection with the acquisition of Golf MRI L.P. and
Diagnostic Imaging Center L.P. the Company consolidated and refinanced the
centers' existing equipment debt obligations, aggregating $1,823,167, using
a five year bank term note bearing interest at a variable rate equal to the
bank's prevailing prime rate plus one percent (9.25% at June 30, 1996). The
note requires monthly installments of $37,708, including interest, and is
due on March 31, 2000. In addition, the Company assumed $34,450 of notes
payable to former limited partners of Diagnostic Imaging Center which bear
interest at a rate of 10%, require quarterly payments of $8,612 plus
interest which were paid in December 1995, and a $125,000 two year note
payable to the former general partner, which does not bear interest. The
Company financed $550,000 of the cash portion of the acquisition price with
a bank using a five year term note bearing interest at a variable rate
equal to the bank's prevailing prime rate plus one percent (9.25% at June
30, 1996). The note requires monthly installments of $11,721, including
interest, and is due on March 31, 2000. The note agreement requires the
Company to meet certain financial ratios as of March 31 of each year the
agreement is in effect. The foregoing bank notes are collateralized by the
center's imaging equipment.

In January 1996, in connection with the acquisition of the assets of
Central Diversey MRI Center, Inc. the Company assumed a $631,784 note
payable bearing interest at 10% due September 1999. The note is
collateralized by cash deposits totaling $120,000 (included in other
assets) and the center's diagnostic equipment and requires monthly
installments of $16,894, including interest.

(H) Included in other debt obligations is $1,312,046, $2,179,139 and $1,960,467
at March 31, 1995, March 31, 1996 and June 30, 1996 respectively, of
various notes payable relating to the purchase of equipment, equipment
upgrades and leasehold improvements. These notes bear interest at rates
ranging from 8.9% to 11.8% and require monthly payments ranging from $1,106
to $18,082, including interest. The notes are payable over varying terms of
four and five years with the last note due September 2000. The notes are
primarily collateralized by the related imaging equipment.

F-50
<PAGE>

NMR OF AMERICA, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All data as of and for the quarters ended June 30, 1995 and 1996 is unaudited)

Included in other debt obligations is $1,045,733, $664,161 and $571,764 at
March 31, 1995, March 31, 1996 and June 30, 1996, respectively, of various
notes payable relating to the acquisition of the Des Plaines, Oak Lawn and
Libertyville, Illinois imaging centers and a purchase option related to the
general partner interest in MR Associates of Chicago. These notes bear
interest at rates ranging from 7.0% to 9.0%, and have varying terms of two
to five years. The payment terms are primarily monthly and range from
$3,554 to $13,294, including interest.

As of June 30, 1996, the Company has $5,890,951 outstanding obligations
with certain financial institutions under agreements which include a material
adverse change in financial condition or other similar subjective acceleration
clauses.

Aggregate maturities of the Company's notes and mortgage payable for fiscal
years 1997 through 2001 and thereafter are as follows: 1997--$4,911,031;
1998--$4,763,865; 1999--$3,459,298; 2000--$1,684,933; 2001--$648,838; thereafter
$471,713.

9. Shareholders' Equity

Authorized Stock

The Board of Directors is authorized to issue, without further action by
the shareholders, 500,000 shares of preferred stock, par value $.05, and to fix
and alter the rights related to such stock. The Company has a Shareholders'
Rights Plan (described below) which may require the issuance of Series A
Preferred Stock, $.05 par value, in connection with the exercise of certain
stock purchase rights. At March 31, 1996, there were no shares of preferred
stock issued or outstanding.

On October 25, 1995 the Board of Directors authorized a common stock
repurchase program whereby the Company can purchase up to $1,000,000 of its
outstanding common stock from time to time in the open market. The shares will
be held as treasury shares for reissuance upon the exercise of employee stock
options, warrants and other convertible securities. The timing of purchases and
the number of shares purchased will depend upon prevailing market prices and
other market conditions. As of June 30, 1996 the Company's cumulative stock
purchases, net of reissuance of 46,529 shares, amounted to 430,797 shares with
an aggregated cost of $1,712,159.

Shareholders' Rights Plan

Under the Shareholders' Rights Plan each outstanding share of the Company's
common stock has attached to it one stock purchase right. These rights will
continue to be represented by and trade with the Company's common stock
certificates unless and until certain takeover-related events occur. Following
such events, each right will become exercisable to purchase one one-hundredth of
a share of Series A Preferred Stock, par value $.05, at an exercise price of $15
per one one-hundredth share subject to adjustment. In the event any person
acquires beneficial ownership of 15% or more of the outstanding common shares,
(i) each right will be exercisable, for a sixty-day period following the
announcement of such acquisition, to purchase the Company's common stock or
common stock equivalent having a market value equal to two times the exercise
price and (ii) prior to such exercise the Company's Board of Directors, may, at
its option exchange outstanding rights to shares of common stock at an exchange
ratio of one share for each right. The Shareholders' Rights Plan further
provides that if, after the occurrence of such an acquisition, the Company is
merged into any other corporation or 50% or more of the Company's assets are
sold, each right will be exercisable to purchase common shares of the acquiring
corporation having a market value equal to two times the exercise price. The
rights expire on December 23, 2002, and are subject to redemption by the
Company's Board of Directors at $.01 per right at any time prior to the first
date upon which they become exercisable to purchase common shares.

Stock Options and Employee Stock Grants

The Company maintains an Incentive Stock Option and Non-Statutory Option
Plan (the "Plan") for employees of the Company. Under the Plan, established in
1986, up to 1,000,000 shares of common stock of the Company may be issued upon
the exercise of options to be granted during the ten-year term of the Plan. The
exercise price of options

F-51
<PAGE>

NMR OF AMERICA, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All data as of and for the quarters ended June 30, 1995 and 1996 is unaudited)

granted is equal to the fair market value of the Company's common shares on the
date of grant. Options with respect to 572,409 shares were outstanding at June
30, 1996, at an exercise price ranging from $2.25 to $6.38 per share for terms
of five and ten years. As of June 30, 1996, options with respect to 218,475
shares were exercisable. During the quarter ended June 30, 1996, no options were
exercised.

In September 1995, the Company granted 10,000 unregistered shares of common
stock to each of its two officers. The shares vest ratably on a quarterly basis
over two years from the date of grant.

Stock Purchase Warrants

As of June 30, 1996, the Company had granted warrants to purchase its
common stock with the following terms:

Number
of Exercise Expiration
shares price date
------ ----- ----------
50,000 .................... $7.00 September 26, 1996
50,000 .................... $8.00 September 26, 1996
50,000 .................... $3.00 August 2, 1996
50,000 .................... $3.50 August 2, 1996
100,000 .................... $8.00 February 6, 1997
7,000 .................... $5.00 March 30, 1997
75,000 .................... $3.00 November 5, 1998
35,000 .................... $3.00 January 20, 1999
25,000 .................... $3.09 February 23, 1999
100,000 .................... $3.92 May 18, 1999
25,000 .................... $5.00 September 30, 1999
190,000 .................... $6.38 December 18, 2001
-------
757,000
-------

In October 1994, the Company issued warrants to purchase 25,000 shares of
the Company's common stock at an exercise price of $5.00 per share to a
radiology group providing services to one of its centers. These warrants have a
term of five years and are exercisable from the date of grant.

In May 1994, the Company entered into an agreement with Ehrenkrantz King
Nussbaum, Inc. ("EKN") under which EKN will provide financial consulting
services to the Company for a term of two years. Pursuant to this agreement, EKN
received warrants to purchase 100,000 shares of the Company's common stock;
50,000 warrants with an exercise price of $3.00 per share and 50,000 warrants
with an exercise price of $3.50 per share. These warrants had an initial term of
two years and are exercisable from the date of grant. During May 1996, the
Company extended the term of the EKN financial consulting agreement and warrants
for a period of three months to August 2, 1996.

In January 1994, the Company entered into a three year administrative
services agreement with Radiology Business Management Inc. ("RBM") to provide
office and clerical services to the Oak Lawn Imaging Center, pursuant to which
the Company issued RBM warrants to purchase 35,000 shares of the Company's
common stock at an exercise price of $3.00 per share. These warrants have a term
of five years and are exercisable from the date of grant.

In connection with the Company's fiscal 1992 stock purchase warrant
redemption offer, the Company issued Strategic Growth International warrants to
purchase 100,000 shares of the Company's common stock; 50,000 warrants with an
exercise price of $7.00 per share and 50,000 warrants with an exercise price of
$8.00 per share. These warrants have a term of five years and are exercisable
from the date of grant.

In March 1992, the Company issued warrants to purchase 7,000 shares of
common stock at an exercise price of $5.00 per share in connection with the
execution of a ground lease for one of its facilities. The warrants have a term
of five years and are exercisable from the date of grant.

F-52
<PAGE>

NMR OF AMERICA, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All data as of and for the quarters ended June 30, 1995 and 1996 is unaudited)

In February 1992, the Company entered into an agreement with Seaboard
Securities, Inc. ("Seaboard") under which Seaboard will provide financial
consulting services for a term of three years. Pursuant to the agreement,
Seaboard received warrants to acquire 100,000 shares of the Company's common
stock at $8.00 per share. The warrants have a term of five years and vest as
services are provided. A member of the Company's board of directors is an
officer of Seaboard.

On December 19, 1991, the non-employee Directors of the Company were each
granted warrants to purchase 20,000 shares (an aggregate of 140,000 shares) of
common stock at $6.38 per share. These warrants have a term of ten years and are
exercisable from date of the grant.

On November 6, 1990, the Board of Directors granted an officer and director
of the Company warrants to acquire 75,000 shares of common stock at $3.00 per
share. The warrants vested over a three year period from the date of the grant
and have a term of eight years. During the year ended March 31, 1992, the
Company granted the same officer and director warrants to acquire 50,000 shares
of the Company's common stock with an exercise price of $6.38 per share. These
warrants are exercisable from date of grant and have a term of ten years.

In May 1989, the Company issued warrants to purchase 100,000 shares of
common stock at an exercise price of $3.92 per share to a non-employee director
of the Company. These warrants have a term of ten years and are exercisable from
the date of grant.

In February 1989, the Company issued warrants to purchase 25,000 shares of
common stock at an exercise price of $3.09 per share to a professional
corporation providing legal services to the Company. These warrants have a term
of ten years and are exercisable from the date of grant.

10. Income Taxes

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, ("SFAS No. 109") "Accounting for Income
Taxes," which requires an asset and liability approach. The asset and liability
approach requires the recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the financial
reporting basis and tax basis of the Company's assets and liabilities.

As of March 31, 1996, the Company for Federal income tax purposes, has net
operating loss carryforwards which begin to expire in the year 2000, of
approximately $6,389,000, of which approximately $3,390,000 represent net
operating losses of acquired companies. Under Section 382 of the Internal
Revenue Code, the Company's acquired operating losses are subject to an annual
utilization limitation of approximately $520,000.

Any unutilized annual limitation may be carried forward to available future
carryforward years.

Future changes in the ownership of the Company could result in additional
limitations on the utilization of its net operating loss carryovers. The state
tax jurisdictions in which the Company operates do not permit the carryback of
net operating losses to prior years in which taxes were paid. Such state tax net
operating losses were utilized to reduce the Company's fiscal 1994, 1995 and
1996 state income tax liability. For Federal income tax purposes, the Company
also has investment and alternative minimum tax credits of $386,000 and $81,000,
respectively, of which approximately $74,000 represents investment tax credits
of an acquired company. The Company's investment tax credits begin to expire in
the year 1999 and are accounted for under the flow through method. Alternative
minimum tax credits do not expire.

F-53
<PAGE>

NMR OF AMERICA, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All data as of and for the quarters ended June 30, 1995 and 1996 is unaudited)

Significant components, tax effected, of the Company's deferred tax assets
and (liabilities) at March 31, 1995, March 31, 1996 and June 30, 1996 are as
follows (in thousands):

March 31, March 31, June 30,
1995 1996 1996
--------- --------- ---------
Deferred tax liabilities:
Fixed assets ................................. $(1,123) $(1,794) $(1,780)
Purchase option .............................. (273) (249) (244)
Cash to accrual basis ........................ -- (784) (784)
--------- --------- ---------
Deferred tax liabilities ...................... (1,396) (2,827) (2,808)
--------- --------- ---------
Deferred tax assets:
Net operating losses ......................... 1,527 2,332 2,116
Excess financial reporting partnership losses 466 -- --
Tax credits .................................. 491 466 466
Accrued liabilities .......................... -- 82 80
Other ........................................ 11 56 56
--------- --------- ---------
Deferred tax assets ........................... 2,495 2,936 2,718
Valuation allowance ........................... -- -- --
--------- --------- ---------
Net deferred tax asset (liability) ............ $ 1,099 $ 109 $ (90)
========= ========= =========

The net decrease in the Company's valuation allowance on deferred tax
assets during the year ended March 31, 1995 totaled $1,304,000.

Components of the provision for (benefit from) income taxes are as follows:

Fiscal Years Ended March 31, Quarters Ended June 30,
------------------------------------- -------------------------
1994 1995 1996 1995 1996
---------- ----------- ----------- ----------- -----------
Current:
Federal $ 12,000 $ 25,000 $ 10,000 $ 8,000 $ 25,000
State . 96,000 44,284 29,421 10,000 40,000
---------- ----------- ----------- ----------- -----------
108,000 69,284 39,421 18,000 65,000
---------- ----------- ----------- ----------- -----------
Deferred:
Federal -- (1,142,000) 847,000 74,000 184,000
State -- 43,000 70,000 6,000 15,000
---------- ----------- ----------- ----------- -----------
-- (1,099,000) 917,000 80,000 199,000
---------- ----------- ----------- ----------- -----------
$ 108,000 $(1,029,716) $ 956,421 $ 98,000 $ 264,000
========== =========== =========== =========== ===========

A reconciliation of the Federal statutory income tax rate to the Company's
effective tax rate as reported is as follows:

Fiscal Years Ended Quarters Ended
March 31, June 30,
----------------------- --------------
1994 1995 1996 1995 1996
------ ------ ------ ------ ------
Expected Federal income tax rate .... 34.0% 34.0% 34.0% 34.0% 34.0%
State income taxes, net of
Federal benefit .................... 5.4% 6.2% 3.9% 6.2% 3.9%
Net operating loss carryforwards .... (33.2%) (32.2%) (12.0%)
Recognition of net deferred tax asset (82.4%)
Other ............................... 1.1% 1.1% (2.9%) 1.0% (6.9%)
------ ------ ------ ------ ------
Effective income tax rate ........... 7.3% (73.3%) 35.0% 29.2% 31.0%
====== ====== ====== ====== ======

F-54
<PAGE>

NMR OF AMERICA, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All data as of and for the quarters ended June 30, 1995 and 1996 is unaudited)

11. Commitments and Contingencies

As of June 30, 1996, the Company has entered into noncancelable leases for
eighteen offices that have imaging systems in current operation as well as
operating leases for magnetic resonance imaging equipment installed in its
Philadelphia, Pennsylvania and Seabrook, Maryland imaging centers and computed
axial tomography equipment installed in the Seabrook, Maryland imaging center.
Ten of the offices are subleased to affiliated Physicians. The office leases are
generally for terms of five and ten years and include rent escalation clauses
generally tied to the consumer price index and contain provisions for additional
terms at the option of the tenant. By reason of the sublease arrangements, if
the respective Physicians should be unable to pay the rental on the site, the
Company would be contingently liable. As of June 30, 1996, the Company has
subleased the operating sites to the Physicians for the base rental as
stipulated in the original lease. For the years ended March 31, 1994, 1995 and
1996 and the quarters ended June 30, 1995 and 1996, the related sublease income
has been offset by the lease rent expense.

The following summary of non-cancelable obligations includes the sublease
arrangements described above, certain equipment leases and the Company's
corporate rentals. As of March 31, 1996, the aggregate future minimum lease
payments and sublease rentals are as follows:

Original
Year ended March 31, Leases Subleases Net
- -------------------- ---------- ---------- ----------
1997 $2,146,015 $ 848,226 $1,297,789
1998 1,706,451 649,482 1,056,969
1999 1,118,892 529,929 588,963
2000 689,964 507,098 182,866
2001 459,330 322,617 136,713
thereafter 315,292 99,795 215,497
---------- ---------- ----------
$6,435,944 $2,957,147 $3,478,797
========== ========== ==========

Effective May 31, 1993, the Company terminated its leases for corporate
headquarters in Morristown, New Jersey. The Company entered into a lease
agreement for new executive and administrative office space under a 66 month
lease which commenced on May 19, 1993. The base agreement contains two five year
renewal options. Corporate rent expense for the years ended March 31, 1994, 1995
and 1996 and the quarters ended June 30, 1995 and 1996, amounted to $123,061,
$114,035, $116,318, $28,089 and $30,231, respectively.

During August, 1993, the Board of Directors authorized the Company to
guarantee personal loans made by a bank to an officer of the Company for the
purpose of purchasing the Company's common stock in the open market. The
guarantee was provided to the bank in the form of certificates of deposit
aggregating $75,000. The shares of common stock purchased by the officer are
pledged to the Company as collateral for the continuing guarantee of the related
loan.

The Company is from time to time involved in litigation incidental to the
conduct of its business. Management and its counsel believe that such pending
litigation will not have a material adverse effect on the Company's results of
operations, cash flows or financial condition.

12. Related Parties

During the years ended March 31, 1994, 1995 and 1996 and the quarters ended
June 30, 1995 and 1996, the Company, in accordance with the related partnership
agreements, allocated certain corporate overhead costs to the limited
partnerships which resulted in $19,982, $7,865, $7,230, $1,754 and $1,845,
respectively, of such costs being attributed to the minority interests.

As of March 31, 1996, the Company has notes receivable from two former
officers of Morgan Medical Holdings, Inc. in the amounts of $315,625 and
$35,366, including accrued interest thereon, which are included as a component
of other current assets and other assets in the Company's March 31, 1996 balance
sheet. The notes bear interest at

F-55
<PAGE>

NMR OF AMERICA, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All data as of and for the quarters ended June 30, 1995 and 1996 is unaudited)

prime and are payable in eight equal semi-annual principal installments, plus
interest, commencing March 15, 1996. The notes are collateralized by a pledge of
the Company's common stock which is owned by the individuals, one of whom now is
an employee of the Company. Subsequent to March 31, 1996, the loan for $315,625
plus interest was paid in full.

The Company has a consulting agreement with a member of the Board of
Directors. The consulting agreement has a one year term expiring on December 31,
1996, and provides compensation of $77,000 per annum.

13. Imaging Center Matters

During the first quarter of fiscal 1996 the Company temporarily ceased
operations at its Union, New Jersey facility in order to replace the center's
existing magnetic resonance imaging equipment, which was installed in 1984. The
new system was installed during June 1995 and became operational in early July
1995. The project was completed for an aggregate cost of approximately $910,000,
which includes the cost of related leasehold improvements, diagnostic imaging
equipment and related upgrades. The Company financed the equipment and related
leasehold improvements in the form of a five year note payable.

The Company's Greenbelt, Maryland magnetic resonance imaging center
facility lease expired on January 31, 1995. The Company constructed a new center
offering both magnetic resonance and CT imaging which opened April 1995. The
Company financed the cost of equipment, totaling $918,750, using an operating
lease and financed the $672,546 cost of related leasehold improvements using a
term note. The Greenbelt lease required the Company to repair damage caused by
the removal of equipment at that location. In lieu of performing such repairs,
the Company paid $51,600 to obtain the landlord's full release from such
obligations. This amount is reflected in the fiscal 1995 statement of income as
a component of other income, net.

The Company's Austin, Texas center was closed during December 1995. The
center operated pursuant to a limited partnership agreement (the "Austin
Partnership") which was scheduled to expire on January 31, 1996, but was
extended by the governing board of the partnership for the purpose of
liquidating and distributing the remaining assets of the Austin Partnership. It
is anticipated that such liquidation will be completed during fiscal 1997 and
will not have a material impact on the results of operations or liquidity of the
Company.

On May 15, 1996, effective January 1, 1996, the Company acquired the
remaining 10% ownership interest in Oak Lawn Imaging Center which increased the
Company's ownership percentage to 100%. As consideration for the acquisition,
the Company issued 35,000 unregistered shares of its common stock. 14. Quarterly
Consolidated Financial Information (Unaudited)

The following is a summary of unaudited quarterly consolidated financial
results for the years ended March 31: (000's omitted, except for per share
amounts)

1996 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
------- ------- ------- -------
Revenue, net ............................... $4,771 $5,289 $6,754 $7,020
Operating income ........................... 771 1,068 1,378 1,544
Net income ................................. 238 355 554 630
Per fully diluted common share (1):

Net income ................................. .05 .07 .09 .10

1995 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
------- ------- ------- -------
Revenue, net ............................... $4,437 $4,299 $4,376 $4,875
Operating income ........................... 1,082 920 865 227
Net income ................................. 622 501 382 929
Per fully diluted common share (1):

Net income ................................. .13 .10 .08 .18

- ----------

(1) Quarterly income per fully diluted common share does not equal the annual
amount due to changes in the common and equivalent shares outstanding.

F-56
<PAGE>

NMR OF AMERICA, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(All data as of and for the quarters ended June 30, 1995 and 1996 is unaudited)

(2) The Company's fourth quarter consolidated financial results include (i) a
non-recurring $560,000 adjustment to write-down the carrying value of
certain fixed assets (see Note 16) and (ii) the recognition of the
Company's net deferred tax asset in the amount of $1,099,000 (see Note 10).

Quarterly results are generally effected by the timing of acquisitions,
including limited partner interests, and the number of operating days in the
quarter.

15. Acquisitions

Effective January 1, 1996, the Company completed its acquisition of
substantially all of the operating assets of Central Diversey MRI Center, Inc.
("CD MRI") which operates a magnetic resonance imaging center located in
Chicago, Illinois. As consideration for the acquisition, NMR paid $80,000 in
cash at closing to the selling shareholders and issued 10,000 unregistered
shares of NMR common stock which are subject to a two-year holding period
restriction. In conjunction with the transaction, NMR acquired substantially all
of CD MRI's operating assets, which consist primarily of magnetic resonance
imaging equipment, related leasehold improvements, office equipment and deposits
on the MRI related equipment aggregating $120,000 which are pledged as
collateral therefor. In addition, NMR assumed certain trade accounts payable of
Central Diversey aggregating $90,000 and MRI related equipment debt, subject to
existing collateral, totaling approximately $632,000 of outstanding principal as
of January 1, 1996. The acquisition has been accounted for as a purchase and,
accordingly, the acquired assets and liabilities were recorded at the fair value
at the date of acquisition. The Company recorded $429,333 of excess cost over
fair value of the assets which is being amortized over twenty years on a
straight line basis.

On March 13, 1995, the Company announced that its Board of Directors had
approved an agreement, providing for the acquisition of Morgan Medical Holdings,
Inc. ("Morgan"). A definitive merger agreement was executed on April 11, 1995.
The transaction was approved by the shareholders of Morgan and the Company on
September 14, 1995 and became effective September 15, 1995. Morgan provides
diagnostic imaging equipment, facilities and management services to physicians
through four outpatient centers located in the Florida cities of Cape Coral,
Naples, Sarasota and Titusville. Pursuant to the terms of the acquisition,
Morgan shareholders received 1,195,848 shares of the Company's common stock in
the transaction. Under the terms of the merger agreement, the Company exercises
control over the voting rights of Morgan's largest shareholder for a period of
three years. The Company accounted for the transaction as a purchase and,
accordingly, the acquired assets and liabilities were recorded at their fair
values at the date of acquisition. In conjunction with the transaction, the
Company recorded $6,356,132 of costs in excess of fair value which will be
amortized over twenty years on a straight line basis.

Effective January 1, 1995, the Company acquired, approximately 75% of the
general and limited partnership interests of Diagnostic Imaging Center, L.P.
("DIC") and Golf MRI Center, L.P. ("Golf MRI") (collectively the "Centers").
These limited partnerships collectively operate a multi-modality imaging center
located in Des Plaines, Illinois. As consideration for the acquisition, the
Company paid $1,050,000 in cash and issued 125,000 unregistered shares of the
common stock of the Company and assigned a fair value of $500,000. In
conjunction with the acquisition, the Company entered into agreements with the
Center's radiologist to provide radiologic and other administrative services to
the Centers for three year terms. In addition, the Company consolidated and
refinanced the Centers' existing debt obligations, aggregating $1,823,167. The
acquisitions have been accounted for as purchases and, accordingly, the acquired
assets and liabilities have been recorded at their fair value at the date of
acquisition. The excess of the cost over the fair value of the net assets
acquired of $2,114,693 is being amortized over twenty years on a straight line
basis.

Effective January 1, 1995, the Company acquired the operations of a
magnetic resonance imaging center located in Libertyville, Illinois
("Libertyville"). As consideration for the acquisition, the Company acquired
certain of the seller's assets and assumed certain liabilities. In addition, the
Company agreed to pay deferred consideration of up to $300,000 which was
conditioned upon the center achieving certain levels of revenue during calendar
1995 which were not attained resulting in no additional consideration being
payable. The acquisition has been accounted for as a

F-57
<PAGE>

NMR OF AMERICA, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

purchase and, accordingly, the acquired assets and liabilities have been
recorded at their fair value at the date of acquisition. The excess of the cost
over the fair value of the net assets acquired was not material.

The Company's consolidated financial statements for the year ended March
31, 1996 include the results of operations of Morgan and CD MRI from the
September 15, 1995 and January 1, 1996 effective dates of such transactions,
respectively. The Company's consolidated financial statements for the year ended
March 31, 1995, do not include the results of operations of Morgan or CD MRI and
include the results of operations of Golf MRI, DIC and Libertyville ("Historical
Acquisitions") from the January 1, 1995 effective date of such transactions. The
following summarizes the unaudited proforma results of operations for the years
ended March 31, 1996 and 1995, assuming all of the foregoing acquisitions had
occurred on April 1, 1995 and 1994 (in thousands, except per share data):

Fiscal 1996
----------------------------------------------
(Unaudited)
NMR
Including
NMR Including Historical
Including Historical Acquisitions,
Historical Acquisitions Morgan and
Acquisitions and Morgan CD MRI
(Unaudited) (Unaudited) (Unaudited)
------------ ------------ --------------
<S> <C> <C> <C>
Revenue, net .................................. $21,844 $26,435 $27,300
Operating income .............................. 3,903 5,437 5,773
Income before income taxes .................... 2,080 3,189 3,452
Income before extraordinary item and cumulative
effect of change in accounting principle ..... 1,342 2,033 2,257
Fully diluted net income per share ............ $.21 $.31 $.35

</TABLE>

Fiscal 1995
----------------------------------------------
(Unaudited)
NMR
Including
NMR Including Historical
Including Historical Acquisitions,
Historical Acquisitions Morgan and
Acquisitions and Morgan CD MRI
(Unaudited) (Unaudited) (Unaudited)
------------ ------------ --------------
<S> <C> <C> <C>
Revenue, net .................................. $20,707 $25,962 $26,550
Operating income .............................. 3,637 5,336 5,647
Income before income taxes .................... 1,673 2,934 3,086
Income before extraordinary item and cumulative
effect of change in accounting principle ..... 2,716 3,806 3,936
Fully diluted net income per share ............ $.51 $.58 $.60

</TABLE>

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

(1) The Company's fiscal 1995 pro forma financial results include (i) a
non-recurring $560,000 adjustment to write-down the carrying value of
certain fixed assets (see Note 16) and (ii) the recognition of the
Company's net deferred tax asset in the amount of $1,099,000 (see Note 10).

16. Asset Write-down

The Company's results of operations for the fourth quarter of fiscal 1995
includes a charge to expense of approximately $560,000 representing the
remaining net book value of the diagnostic imaging equipment of the Company's
Elgin, Illinois imaging center which are no longer believed to be recoverable
from the center's future operations. The center has operated at a loss since it
opened in May 1992. The impact of this charge on fiscal 1995 and fourth quarter
net income, net of the related tax benefit, was approximately ($338,000) or
($.06) per share. The

F-58

<PAGE>

NMR OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(All data as of and for the quarters ended June 30, 1995 and 1996 is unaudited)

Company intends to utilize the facility to perform certain regional
administrative functions and to perform limited diagnostic imaging procedures at
reduced staffing levels in the future.

17. Fair Value of Financial Instruments

The following estimated fair value amounts have been determined using
available market information and appropriate valuation methodologies. However,
considerable judgement is necessarily required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that the Company could realize in
a current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.

March 31, 1996
--------------------------
Carrying Fair
Amount Value
----------- -----------
Assets:
Cash and cash equivalents ..................... $ 3,782,315 $ 3,782,315
Short-term investments ........................ 663,660 663,660
Long-term investments ......................... 192,000 192,000
Due from affiliated physician associations
and patient receivables, net ................. 14,182,008 14,182,008

Liabilities:
Notes payable ................................. 15,939,678 15,977,899
Capital lease obligations ..................... 1,765,440 1,765,541
Convertible debentures ........................ 1,975,752 1,849,578

The carrying amounts of cash and cash equivalents, short-term investments,
long-term investments and due from affiliated physician associations and patient
receivables, net are a reasonable estimate of their fair value. The fair value
of the Company's notes payable, capital lease obligations and convertible
debentures are based upon a discounted cash flow calculation utilizing rates
under which similar borrowing arrangements can be entered into.

18. Subsequent Event

On May 7, 1996, the Company announced that it was in negotiations regarding
a possible business combination with Medical Resources, Inc. ("Medical
Resources"). A definitive merger agreement was executed on May 20, 1996 which is
the subject to the merger conditions set forth below. Medical Resources provides
diagnostic imaging equipment, facilities and management services to physicians
through nineteen outpatient centers located in New York, New Jersey and Florida.
Pursuant to the terms of the acquisition, 0.6875 shares of Medical Resources
common stock would be issued for each outstanding share of NMR. The merger is
subject to certain conditions including shareholder and regulatory approval and
certain third party consents. Senior management of the combined company would be
composed of the current executives of Medical Resources with NMR's current
executive officers, Joseph G. Dasti and John P. O'Malley III serving as
consultants to the combined company. The closing of the merger is anticipated to
occur in the third quarter of fiscal 1997, although there can be no assurance
that the transactions will be completed as contemplated or that it will occur
when anticipated.

In June 1996, the Company entered into a line of credit agreement with a
lender for an amount up to $4,000,000. Borrowing under the line of credit will
bear interest at a rate of one and one-half percent over the lender's prime rate
and will be collateralized by the Company's receivables.

F-59

<PAGE>

ART WORK OF IMAGING EQUIPMENT

<PAGE>

================================================================================

No dealer, salesman or other person has been authorized to give any
information or to make any representation other than those contained in this
Prospectus in connection with the offer contained herein, 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, shares of
Common Stock in any jurisdiction to any person to whom it is not lawful to make
any such offer or solicitation in such jurisdiction or in which the person
making such offer or solicitation is not qualified to do so. Neither the
delivery of this Prospectus nor any sale made herein shall, under any
circumstances, create an implication that there has been no change in the
affairs of the Company since the date of this Prospectus or that the information
contained herein is correct as of any time subsequent to its date.

----------

TABLE OF CONTENTS

Page
----

Prospectus Summary ....................................................... 3
Risk Factors ............................................................. 6
Recent Developments ...................................................... 11
Use of Proceeds .......................................................... 12
Price Range of Common Stock and
Dividend Policy ......................................................... 13
Capitalization ........................................................... 14
Unaudited Pro Forma Combined
Financial Statements .................................................... 15
Selected Consolidated Financial Data ..................................... 19
Management's Discussion and Analysis
of Financial Condition and Results of
Operations .............................................................. 20
Business ................................................................. 27
Management ............................................................... 38
Principal Stockholders ................................................... 40
Description of Capital Stock ............................................. 41
Underwriting ............................................................. 43
Legal Matters ............................................................ 44
Experts .................................................................. 44
Available Information .................................................... 45
Incorporation of Certain Documents
by Reference ............................................................ 45
Index to Financial Statements ............................................ F-1

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[LOGO]

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4,000,000 Shares
Common Stock

PROSPECTUS

October __, 1996

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Dillon, Read & Co. Inc.

Smith Barney Inc.

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