DVI INC, 424B4, 1995-07-26

DVI INC
424B4, 1995-07-26
FINANCE LESSORS

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<PAGE> 1
Filed pursuant to Rule 424(b)(4)
Registration No. 33-60547

PROSPECTUS
- --------------------------------------------------------------------------------

2,500,000 Shares

[LOGO]

Common Stock
- --------------------------------------------------------------------------------

All 2,500,000 shares of common stock, par value $.005 per share (the "Common
Stock"), offered hereby are being sold by DVI, Inc. (the "Company").

The Common Stock is traded on the New York Stock Exchange, Inc. (the "NYSE")
under the symbol "DVI." On July 25, 1995, the last reported sales price of the
Common Stock on the NYSE was $11.875 per share. See "Price Range of Common Stock
and Dividend Policy." The shares of Common Stock offered hereby have been
approved for listing on the NYSE, subject to official notice of issuance.

SEE "RISK FACTORS" ON PAGES 8 TO 14 FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
======================================================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................ $11.00 $0.66 $10.34
- ------------------------------------------------------------------------------------------------------
Total(3)......................... $27,500,000 $1,650,000 $25,850,000
======================================================================================================
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated to be $490,000.
(3) The Company has granted to the several Underwriters a 30-day over-allotment
option to purchase up to 375,000 additional shares of Common Stock on the
same terms and conditions as set forth above. If all such additional shares
are purchased by the Underwriters, the total Price to Public will be
$31,625,000, the total Underwriting Discounts and Commissions will be
$1,897,500 and the total Proceeds to Company will be $29,727,500. See
"Underwriting."
- --------------------------------------------------------------------------------
The shares of Common Stock are offered by the several Underwriters subject to
delivery by the Company and acceptance by the Underwriters, to prior sale and to
withdrawal, cancellation or modification of the offer without notice. Delivery
of the shares to the Underwriters is expected to be made at the office of
Prudential Securities Incorporated, One New York Plaza, New York, New York, on
or about July 31, 1995.

PRUDENTIAL SECURITIES INCORPORATED OPPENHEIMER & CO., INC.
July 25, 1995.
<PAGE> 2

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

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

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and, in accordance therewith,
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and other
information filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549; and at its regional offices at 7 World
Trade Center, 13th Floor, New York, New York 10048 and at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, at prescribed rates. Such
reports, proxy statements and other information can also be inspected at the
office of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.

The Company has filed with the Commission a Registration Statement on Form
S-1 (which, together with all amendments thereto, is referred to in this
Prospectus as the "Registration Statement") under the Securities Act of 1933, as
amended (the "1933 Act"), with respect to the securities offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which have been omitted in accordance with the rules
and regulations of the Commission. For further information with respect to the
Company and the securities offered hereby, reference is made to the Registration
Statement. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract, agreement or other document designated as an
exhibit to the Registration Statement, reference is made to such exhibit for a
more complete description of the document involved, and each such statement
shall be deemed qualified in its entirety by such reference. Copies of the
Registration Statement may be inspected, without charge, at the offices of the
Commission, or obtained at prescribed rates from the Public Reference Section of
the Commission at the address set forth above.

2
<PAGE> 3

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus. As
used in this Prospectus (i) "Offering" refers to the offering of shares of
Common Stock made hereby, (ii) "loan portfolio" refers to the Company's net
financed receivables unless the context otherwise requires and (iii) "loan
originations" refers to equipment loans originated by the Company and equipment
loans purchased by the Company through its wholesale loan origination program.
Unless otherwise indicated, information in this Prospectus assumes that the
Underwriters' over-allotment option will not be exercised.

THE COMPANY

DVI, Inc. (the "Company") is a specialty commercial finance company whose
core business is financing higher cost diagnostic imaging, radiation therapy and
other types of sophisticated medical equipment for outpatient healthcare
centers, groups of physicians and hospitals. Over the last 10 years, the Company
has developed extensive expertise in analyzing the credit of healthcare
providers that lack audited financial statements and detailed business plans. By
servicing the equipment financing needs of these healthcare providers and the
corresponding need for equipment manufacturers to arrange financing for their
customers, the Company has established a niche in markets underserved by most
banks and finance companies. In addition to equipment financing, a small but
growing part of the Company's business is making working capital loans to
outpatient healthcare providers secured by their medical receivables and other
collateral; these working capital loans are referred to collectively in this
Prospectus as "medical receivables loans."

Virtually all of the Company's equipment loans are structured on a fixed
interest rate basis and such that the full cost of the equipment and all
financing costs are repaid during the financing term, which typically is five
years. The Company's risk management strategy is to avoid risks associated with
the residual value of equipment and of loan prepayments and to minimize its
exposure to interest rate fluctuations. The Company's equipment loans are
structured principally as notes secured by equipment or direct financing leases
with a bargain purchase option for the equipment user, and are referred to
collectively in this Prospectus as "equipment loans."

In the past two years, the Company has grown substantially. In its fiscal
year ended June 30, 1994 ("fiscal 1994"), the Company's loan origination volume
increased approximately 178% to $163.0 million from $58.6 million for the fiscal
year ended June 30, 1993 ("fiscal 1993"). During the nine months ended March 31,
1995, loan origination volume increased approximately 89% to $233.0 million from
$123.0 million for the first three quarters of fiscal 1994. The Company's net
financed receivables increased approximately 100% to $234.8 million at June 30,
1994 from $117.5 million at June 30, 1993, and increased approximately 79% to
$370.6 million at March 31, 1995 from $206.7 million at March 31, 1994.

The Company uses asset securitization ("securitization") and other
structured finance techniques to permanently fund most of its equipment loans
and since 1991 has funded $414.8 million of equipment loans in this manner. The
Company's ability to securitize loans improved significantly in recent years
which enabled it to securitize loans in the public market in fiscal 1994. Access
to the public securitization market has lowered the Company's relative funding
costs and expanded its access to funding.

The Company's growth strategy is to increase the size of its loan portfolio
by expanding its share of the diagnostic imaging and radiation therapy equipment
financing markets and by generating financing opportunities in other areas of
the healthcare industry. The Company's principal means of implementing this
strategy are to (i) maximize the value of its relationships with four of the six
largest manufacturers of diagnostic imaging equipment by obtaining additional
customer referrals, (ii) originate medical equipment loans on a wholesale basis,
(iii) generate additional equipment and medical receivable financing business
directly from the Company's existing customer base, (iv) establish equipment
financing relationships with manufacturers of patient treatment devices and (v)
expand its medical receivable financing activities.

3
<PAGE> 4

THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered Hereby....................... 2,500,000 shares
Common Stock to be Outstanding after the 9,211,180 shares(1)
Offering........................................
Use of Proceeds................................... For working capital, temporary reduction
of existing short-term indebtedness and
general corporate purposes. See "Use of
Proceeds."
NYSE Symbol....................................... DVI
</TABLE>

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

(1) Does not include (i) 575,000 shares of Common Stock issuable upon the
exercise of outstanding warrants to purchase Common Stock resulting from the
Company's public offering of units consisting of Common Stock and warrants
to purchase Common Stock completed in February 1991, which have an exercise
price of $12.00 per share, (ii) 335,000 shares of Common Stock issuable upon
the exercise of various outstanding options and warrants to purchase Common
Stock held by third parties, which have a weighted average exercise price of
$14.30 per share, (iii) 755,994 shares of Common Stock issuable upon the
exercise of various outstanding options and warrants to purchase Common
Stock available to the Company's employees and directors, which have a
weighted average exercise price of $8.50 per share, (iv) 1,367,924 shares of
Common Stock issuable upon conversion of the Company's 9 1/8% Convertible
Subordinated Notes due 2002 (the "Convertible Subordinated Notes"), at a
conversion price of $10.60 per share, subject to adjustment in certain
circumstances, (v) 400,000 shares of Common Stock issuable to the former
shareholders of Medical Equipment Finance Corp. ("MEF Corp.") in connection
with the acquisition of MEF Corp., which issuance is subject to stockholder
approval and an increase in the Company's authorized capital stock, and (vi)
200,000 shares of Common Stock issuable to certain employees of the Company
under a stock incentive plan, which plan is subject to stockholder approval
and an increase in the Company's authorized capital stock. See "Description
of Capital Stock," "Underwriting," "Shares Eligible for Future Sale" and
Notes 10, 11, 15 and 19 to the Company's Consolidated Financial Statements
located elsewhere in this Prospectus.

4
<PAGE> 5

SUMMARY CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED JUNE 30, MARCH 31,
---------------------------------------------- -----------------
1990 1991 1992 1993 1994 1994 1995
------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Finance and other income.............................. $6,972 $10,571 $14,736 $15,199 $20,911 $14,363 $26,345
Margins earned(1)..................................... 3,261 5,638 8,747 10,194 12,078 8,463 10,896
Earnings from continuing operations before provision
for income taxes, equity in net earnings (loss) of
investees and discontinued operations............... 1,444 2,843 4,915 4,459 4,313 2,872 4,578
Earnings from continuing operations................... 873 1,726 3,053 2,580 2,260 1,424 2,655
Loss from discontinued operations(2).................. 0 0 (346) (1,922) (3,145) 0 0
------ ------- ------- ------- ------- ------- -------
Net earnings (loss)(2)................................ $ 873 $ 1,726 $ 2,707 $ 658 $ (885) $ 1,424 $ 2,655
====== ======= ======= ======= ======= ======= =======
Earnings (loss) per common and common equivalent
share:
From continuing operations(2)....................... $ 0.28 $ 0.37 $ 0.57 $ 0.39 $ 0.34 $ 0.21 $ 0.39
From discontinued operations........................ 0.00 0.00 (0.06) (0.29) (0.47) 0.00 0.00
------ ------- ------- ------- ------- ------- -------
Net earnings (loss) per common and common equivalent
share............................................... $ 0.28 $ 0.37 $ 0.51 $ 0.10 $ (0.13) $ 0.21 $ 0.39
====== ======= ======= ======= ======= ======= =======
Weighted average number of common and common
equivalent shares outstanding....................... 3,173 4,728 5,353 6,601 6,717 6,716 6,870
</TABLE>

<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF MARCH 31, 1995
---------------------------------------------- ------------------------
1990 1991 1992 1993 1994 ACTUAL AS ADJUSTED(3)
------- ------- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Unearned income(4)............................... $16,868 $22,211 $ 21,720 $ 24,563 $ 47,644 $ 71,681 $ 71,681
Total assets..................................... 55,479 85,084 104,714 147,161 265,949 434,847 434,847
Short-term borrowings due under warehouse
facilities..................................... 18,187 22,153 31,349 45,221 34,586 147,969 122,609
Long-term debt (primarily limited recourse)...... 22,177 36,358 24,569 51,827 148,852 218,878 218,878
Convertible subordinated notes................... 0 0 0 0 14,112 13,742 13,742
Shareholders' equity............................. 6,194 16,113 34,006 34,664 33,993 37,770 63,130
</TABLE>

<TABLE>
<CAPTION>
AS OF OR FOR THE
NINE MONTHS
AS OF OR FOR THE ENDED
YEAR ENDED JUNE 30, MARCH 31,
---------------------------------------------- --------------------
1990 1991 1992 1993 1994 1994 1995
------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
ADDITIONAL OPERATING AND OTHER DATA:
Gross financed receivables(5)........................ $68,187 $92,670 $107,306 $142,073 $282,413 $250,269 $442,268
Net financed receivables(6).......................... 51,319 70,459 85,586 117,510 234,769 206,708 370,587
Loans originated(7).................................. 42,000 39,600 46,400 58,600 163,000 123,000 233,000
Net charge-offs as a percentage of average net
financed receivables(8)............................ 0.37% 0.11% 0.05% 0.04% 0.14% 0.07%(9) 0.11%(9)
</TABLE>

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

(1) Margins earned consists of finance and other income less interest expense.
Expenses associated with the issuance of the Company's debt for the years
1990 through 1994, as well as the nine months ended March 31, 1994, have
been reclassified from Selling, General and Administrative Expense to
Interest Expense to conform with the March 31, 1995 presentation.

(2) On June 30, 1993, the Company formally adopted a plan to divest
substantially all of its healthcare operations, which consisted of seven
outpatient healthcare facilities that the Company operated or managed on a
direct basis and one facility which was in the development stage and not yet
in operation. At June 30, 1994, the Company had disposed of or entered into
definitive agreements to sell six of these outpatient healthcare facilities
and had written off the investment in and assets of the remaining two. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

(3) Adjusted to give effect to the sale of 2,500,000 shares of Common Stock in
the Offering, after deduction of underwriting discounts and commissions and
estimated offering expenses payable by the Company and application of the
estimated net proceeds therefrom. See "Use of Proceeds" and
"Capitalization."

(4) Unearned income consists of interest income that will be recognized, using
the interest method of accounting, over the remaining life of the loans
outstanding.

(5) Gross financed receivables consist of receivables in installments,
receivables in installments-related parties, residual valuation, notes
collateralized by medical receivables and equipment on operating leases.

(6) Net financed receivables consist of gross financed receivables net of
unearned income.

(7) Includes equipment loans purchased through the Company's wholesale loan
program which the Company implemented in June 1994. See "Business -- Sales
and Marketing" and " -- Loan Characteristics and Underwriting."

(8) Presentation is based on averages of beginning and ending balances for
period. See "Business -- Credit Experience."

(9) Information is presented on an annualized basis.

5
<PAGE> 6

SUMMARY QUARTERLY FINANCIAL INFORMATION AND OTHER DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS OF OR FOR THE AS OF OR FOR THE
THREE MONTHS ENDED THREE MONTHS ENDED
------------------------------------------------- --------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1992 1992 1993 1993 1993 1993 1994 1994
------------- ------------ --------- -------- -------------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Finance and other
income(1)............ $ 4,321 $ 3,341 $ 3,654 $ 3,883 $ 4,262 $ 4,567 $ 5,523 $ 6,559
Margins earned(1)(2)... 3,108 2,167 2,516 2,403 2,646 2,675 3,132 3,625
Earnings from
continuing operations
before provision for
income taxes, equity
in net earnings
(loss) of investees
and discontinued
operations........... 1,896 903 1,038 622 634 1,006 1,232 1,441
Earnings from
continuing
operations........... 1,172 498 562 348 330 447 646 837
Loss from discontinued
operations(3)........ (275) (261) (520 ) (866) 0 0 0 (3,145)
------ ------ ------ ------ ------ ------ ------ ------
Net earnings
(loss)(3)............ $ 897 $ 237 $ 42 $ (518) $ 330 $ 447 $ 646 $ (2,308)
====== ====== ====== ====== ====== ====== ====== ======
Earnings (loss) per
common and common
equivalent share:
From continuing
operations......... $ .18 $ .08 $ .08 $ .05 $ .05 $ .07 $ .10 $ .12
From discontinued
operations(3)...... (.04) (.04) (.08 ) (.13) .00 .00 .00 (.47)
------ ------ ------ ------ ------ ------ ------ ------
Net earnings (loss) per
common and common
equivalent
share(4)............. $ .14 $ .04 $ .00 $ .(08) $ .05 $ .07 $ .10 $ (.35)
====== ====== ====== ====== ====== ====== ====== ======
ADDITIONAL OPERATING AND
OTHER DATA:
Gross financed
receivables(5)....... $ 102,640 $103,980 $109,620 $142,073 $173,127 $205,638 $250,269 $282,413
Net financed
receivables(6)....... 82,912 84,552 90,471 117,510 142,749 169,615 206,708 234,769
Loans originated(7).... 7,900 7,300 15,400 28,000 36,000 42,000 45,000 40,000

<CAPTION>
AS OF OR FOR THE
THREE MONTHS ENDED
---------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31,
1994 1994 1995
-------------- ------------ ---------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Finance and other
income(1)............ $ 7,197 $ 8,695 $ 10,453
Margins earned(1)(2)... 3,047 3,710 4,139
Earnings from
continuing operations
before provision for
income taxes, equity
in net earnings
(loss) of investees
and discontinued
operations........... 885 1,524 2,169
Earnings from
continuing
operations........... 513 893 1,249
Loss from discontinued
operations(3)........ 0 0 0
------ ------ ------
Net earnings
(loss)(3)............ $ 513 $ 893 $ 1,249
====== ====== ======
Earnings (loss) per
common and common
equivalent share:
From continuing
operations......... $ .08 $ .13 $ .18
From discontinued
operations(3)...... .00 .00 .00
------ ------ ------
Net earnings (loss) per
common and common
equivalent
share(4)............. $ .08 $ .13 $ .18
====== ====== ======
ADDITIONAL OPERATING AND
OTHER DATA:
Gross financed
receivables(5)....... $328,283 $376,567 $442,268
Net financed
receivables(6)....... 274,344 314,127 370,587
Loans originated(7).... 52,000 74,000 107,000
</TABLE>

- ---------------
(1) The sum of the items indicated for each of the three fiscal quarters
ended March 31, 1994 may not reconcile to the corresponding item for
the nine months ended March 31, 1994 included under "-- Summary
Consolidated Financial Information and Other Data" due to minor
reclassifications and the fact that the items for each of the three
fiscal quarters ended March 31, 1994 are as reported.

(2) Margins earned consists of finance and other income less interest
expense. Expenses associated with the issuance of the Company's debt
for each of the quarters in 1993 and 1994 have been reclassified from
Selling, General and Administrative Expenses to Interest Expense to
conform with the March 31, 1995 presentation.

(3) On June 30, 1993, the Company formally adopted a plan to divest
substantially all of its healthcare operations, which consisted of
seven outpatient healthcare facilities that the Company operated or
managed on a direct basis and one facility which was in the
development stage and not yet in operation. At June 30, 1994, the
Company had disposed of or entered into definitive agreements to sell
six of these outpatient healthcare facilities and had written off the
investment in and assets of the remaining two. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations."

(4) The sum of the items indicated for each of the three fiscal quarters
ended March 31, 1994 may not reconcile to the corresponding item for
the nine months ended March 31, 1994 included under "-- Summary
Consolidated Financial Information and Other Data" due to rounding and
the fact that the items indicated for each of the three fiscal
quarters ended March 31, 1994 are as reported.

(6) Net financed receivables consist of gross financed receivables net of
unearned income.

(7) Includes equipment loans purchased through the Company's wholesale
loan program which the Company implemented in June 1994. See
"Business -- Sales and Marketing" and " -- Loan Characteristics and
Underwriting."

6
<PAGE> 7

THE COMPANY

The Company is a specialty commercial finance company whose core business
is financing higher cost diagnostic imaging, radiation therapy and other types
of sophisticated medical equipment for outpatient healthcare centers, groups of
physicians and hospitals. Over the last 10 years, the Company has developed
extensive expertise in analyzing the credit of healthcare providers that lack
audited financial statements and detailed business plans. By servicing the
equipment financing needs of these healthcare providers and the corresponding
need for equipment manufacturers to arrange financing for their customers, the
Company has established a niche in markets underserved by most banks and finance
companies. In addition to equipment financing, a small but growing part of the
Company's business is making working capital loans to outpatient healthcare
providers secured by their medical receivables and other collateral.

In the past two years, the Company has grown substantially. In fiscal 1994,
the Company's loan origination volume increased approximately 178% to $163.0
million from $58.6 million for fiscal 1993. During the nine months ended March
31, 1995, loan origination volume increased approximately 89% to $233.0 million
from $123.0 million for the first three quarters of fiscal 1994. The Company's
net financed receivables increased approximately 100% to $234.8 million at June
30, 1994 from $117.5 million at June 30, 1993, and increased approximately 79%
to $370.6 million at March 31, 1995 from $206.7 million at March 31, 1994.

The Company uses securitization and other structured finance techniques to
permanently fund most of its equipment loans and since 1991 has funded $414.8
million of equipment loans in this manner. The Company's ability to securitize
loans improved significantly in recent years which enabled it to securitize
loans in the public market in fiscal 1994. Access to the public securitization
market has lowered the Company's relative funding costs and expanded its access
to funding.

The Company is a Delaware corporation and conducts its business operations
through operating subsidiaries. The principal operating subsidiaries are DVI
Financial Services Inc. ("DVI Financial Services") and DVI Business Credit
Corporation ("DVI Business Credit"). The Company conducts securitizations
through DVI Receivables Corp. ("DVI Receivables Corp.") and other limited
purpose subsidiaries, each of which is wholly owned by DVI Financial Services.
The Company also conducts other structured financings through limited purpose
subsidiaries or through DVI Financial Services. The obligors under the Company's
various warehouse credit facilities are DVI Financial Services or DVI Business
Credit. The Convertible Subordinated Notes are obligations of DVI, Inc. Except
as the context otherwise requires, in this Prospectus the term "Company" refers
to DVI, Inc. and its wholly owned subsidiaries.

The Company's principal executive offices are located at 500 Hyde Park,
Doylestown, Pennsylvania 18901 (telephone: (215) 345-6600).

7
<PAGE> 8

RISK FACTORS

An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider the following
risk factors in addition to the other information set forth in this Prospectus
in connection with an investment in the Common Stock offered hereby.

DEPENDENCE ON WAREHOUSE FINANCING. The Company's ability to sustain the
growth of its financing business is dependent upon funding obtained through
warehouse facilities until its equipment loans are permanently funded. The funds
the Company obtains through warehouse facilities are full recourse short-term
borrowings secured primarily by the underlying equipment. These borrowings in
turn typically are repaid with the proceeds received by the Company when its
equipment loans are securitized or sold. The Company has an $81.5 million
revolving credit facility with a syndicate of banks led by NatWest Bank N.A.
("NatWest"), which is renewable annually at the bank syndicate's discretion; a
$100.0 million warehouse facility with Prudential Securities Realty Funding
Corporation, which provides warehouse financing for certain equipment loans to
be securitized through its affiliate, Prudential Securities Incorporated; a $5.5
million warehouse facility with Prudential Securities Realty Funding
Corporation, which provides warehouse financing for certain medical receivables
loans; and a $75.0 million warehouse facility with ContiTrade Services L.L.C.
("ContiTrade"), which provides warehouse financing for certain equipment loans
to be securitized or otherwise permanently funded through ContiTrade. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Warehouse Facilities."
Prudential Securities Incorporated is one of the underwriters in the Offering.
See "Underwriting." There can be no assurance that this type of warehouse
financing will continue to be available to the Company on acceptable terms. If
the Company were unable to arrange continued access to acceptable warehouse
financing, the Company would have to curtail its loan originations, which in
turn would have a material adverse effect on the Company's financial condition
and operations.

DEPENDENCE ON PERMANENT FUNDING PROGRAMS. The Company's use of
securitization as its principal form of permanent funding is an important part
of the Company's business strategy. To sustain the growth of its securitization
program, the Company will need an increasing amount of equity and/or long-term
debt financing. If for any reason the Company were to become unable to access
the securitization market to permanently fund its equipment loans, the
consequences for the Company would be materially adverse. The Company's ability
to complete securitizations and other structured finance transactions depends
upon a number of factors, including general conditions in the credit markets,
the size and liquidity of the market for the types of receivable-backed
securities issued or placed in securitizations sponsored by the Company and the
overall financial performance of the Company's loan portfolio. The Company does
not have binding commitments from financial institutions or investment banks to
provide permanent funding for its equipment or medical receivables loans.

IMPACT OF CREDIT ENHANCEMENT REQUIREMENTS. In connection with its
securitizations and other structured financings, the Company is required to
provide credit enhancement for the debt obligations issued and sold to third
parties. Typically, the credit enhancement consists of cash deposits, the
funding of subordinated tranches and/or the pledge of additional equipment loans
which are funded with the Company's capital. In the securitizations sponsored to
date by the Company, the Company effectively has been required to furnish credit
enhancement equal to the difference between (i) the aggregate principal amount
of the equipment loans originated by the Company and transferred to the
Company's special purpose finance subsidiary and the related costs of
consummating the securitization and (ii) the net proceeds received by the
Company in such securitizations. See "Business -- Capital Resources and
Transaction Funding." The requirement to provide this credit enhancement reduces
the Company's liquidity and requires it to obtain additional capital. If the
Company is unable to obtain and maintain sufficient capital, it may be required
to halt or curtail its securitization or other structured financing programs,
which in turn would have a material adverse effect on the Company's financial
condition and operations.

CREDIT RISK. Many of the Company's customers are outpatient healthcare
providers that have complex credit characteristics. Providing financing for
these customers often involves a high degree of credit risk. Although the
Company seeks to mitigate its risk of default and credit losses through its
underwriting practices

8
<PAGE> 9

and loan servicing procedures and through the use of various forms of limited
and non-recourse financing (in which the financing sources that permanently fund
the Company's equipment loans assume some or all of the risk of default by the
Company's customers), the Company remains exposed to potential losses resulting
from a default by an obligor. Obligors' defaults could cause the Company to make
payments to the extent of the recourse position the Company maintains under its
permanent equipment funding arrangements; could result in the loss of the cash
or other collateral pledged as credit enhancement under its permanent equipment
funding arrangements; or could require the Company to forfeit any residual
interest it may have retained in the underlying equipment. At March 31, 1995,
the Company's contingent liability under all of its limited recourse equipment
loans was approximately $36.5 million. During the period after the Company
initially funds an equipment loan and prior to the time it funds the loan on a
permanent basis with non-recourse or limited recourse financing, the Company is
exposed to full recourse liability in the event of default by the obligor. In
addition, under the terms of securitizations and other types of structured
finance transactions, the Company generally is required to replace or repurchase
equipment loans in the event they fail to conform to the representations and
warranties made by the Company, even in transactions otherwise designated as
non-recourse or limited recourse.

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

Under the Company's wholesale loan origination program (the "Wholesale
Program"), the Company purchases equipment loans from regional medical equipment
finance companies and equipment manufacturers (collectively, "Originators") that
generally do not have direct access to the securitization market as a source of
permanent funding for their loans. The Company does not work directly with the
borrowers at the origination of these equipment loans and therefore is not
directly involved in structuring the credits and generally does not
independently verify credit information supplied by the Originator. Accordingly,
the Company faces a higher degree of risk when it acquires loans on a wholesale
basis. The Company initiated the Wholesale Program in June 1994 and expects to
focus on this business as a significant part of the Company's growth strategy.
During the nine months ended March 31, 1995, loans originated under the
Wholesale Program constituted 23% of total loans originated during the period.
The Company has limited experience in the wholesale loan origination business
and there can be no assurance that the Company will be able to grow this
business successfully or avoid related liabilities or losses. See
"Business -- Loan Characteristics and Underwriting."

INTEREST RATE RISK. The Company's equipment loans are all structured on a
fixed interest rate basis with its customers. Prior to securitization or sale of
its loans, the Company funds its loans through short-term warehouse facilities
which bear interest at variable rates. At any point in time, the Company may be
exposed to interest rate risk on loans funded through its warehouse facilities
to the extent interest rates increase between the time the loans are initially
funded and the time they are permanently funded. Increases in interest rates
during this period could narrow or eliminate the spread, or result in a negative
spread, between the interest rate the Company realizes on its equipment loans
and the interest rate that the Company pays under its warehouse facilities. To
protect itself against this risk, the Company may use a hedging strategy,
including taking short positions in U.S. Treasury securities having maturities
comparable to the maturities of the equipment loans to be securitized. There can
be no assurance, however, that the Company's hedging strategy or techniques will
be effective, that the profitability of the Company will not be adversely
affected during any period of changes in interest rates or that the costs of
hedging will not exceed the benefits. In addition, the Company is subject to
margin calls on the outstanding short positions in U.S. Treasury obligations it
assumes

9
<PAGE> 10

in connection with its hedging activities. If the Company is required to pay
additional margin on its short positions, the Company's capital may be adversely
affected. A substantial and sustained increase in interest rates could adversely
affect the Company's ability to originate loans. In certain circumstances, the
Company for a variety of reasons may retain for an indefinite period certain of
the equipment loans it originates. In such cases, the Company's interest rate
exposure may continue for a longer period of time. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and Note 18 to the Company's Consolidated Financial
Statements contained elsewhere in this Prospectus.

LEVERAGE. The Company is highly leveraged. As of March 31, 1995, the
Company and its consolidated subsidiaries had total debt of $380.6 million, of
which $161.7 million was full recourse debt and $218.9 million was limited
recourse debt. Of the $380.6 million of total debt, $232.6 million was long-term
debt and $148.0 million was short-term debt. Since substantially all of the net
proceeds of the Offering are expected to be applied to the temporary reduction
of short-term borrowings under the Company's warehouse facilities, the Company's
total long-term debt will not change on completion of the Offering. After
completion of the Offering, the Company will continue to have substantial debt
service requirements. The degree to which the Company is leveraged also may
impair its ability to obtain additional financing on acceptable terms.

POSSIBLE ADVERSE CONSEQUENCES FROM RECENT GROWTH. In the past two years,
the Company originated a significantly greater number of equipment loans than it
did in previous years. As a result of this rapid growth, the Company's loan
portfolio grew from $206.7 million at March 31, 1994 to $370.6 million at March
31, 1995. In light of this growth, the historical performance of the Company's
loan portfolio, including rates of credit loss, may be of limited relevance in
predicting future loan portfolio performance. Any credit or other problems
associated with the large number of equipment loans originated in the recent
past will not become apparent until sometime in the future. Further, while the
Company's loan originations have grown substantially in the past two years, the
Company's gross margins have declined significantly during the same period, and,
as a result, the Company's historical results of operations may be of limited
relevance to an investor seeking to predict the Company's future performance.

In order to support the growth of its business, the Company has added a
significant number of new operating procedures and personnel and has relocated
its headquarters from Irvine, California to Doylestown, Pennsylvania. The
Company is absorbing the effects of this relocation and the implementation of
new computer hardware and software to manage its business operations. The recent
move, the related service and support personnel turnover and the Company's
significant growth all have placed substantial new and increased pressures on
the Company's personnel. Although the Company believes the addition of new
operating procedures and personnel, together with its new computer system, will
be sufficient to enable it to meet its current operating needs, there can be no
assurance that this will be the case. If the Company does not effectively manage
its growth, or if the Company fails to sustain its historical levels of
performance in credit analysis and transaction structuring with respect to the
increased loan origination volume, the consequences will be materially adverse.

ABILITY TO SUSTAIN GROWTH. To sustain the rates of growth it has achieved
in the last two years, the Company will be required to penetrate further the
markets for lower cost diagnostic imaging equipment and for other types of
medical equipment or devices such as lasers used in patient treatment. The
Company faces significant barriers to entry in the patient treatment device
market, which is more diverse than the diagnostic imaging market because of the
larger number of manufacturers and types of products and the greater price range
of those products. The Company has limited experience in the patient treatment
device market. There can be no assurance that the Company will be able to
penetrate and compete effectively in the markets described above.

RISKS RELATED TO THE MEDICAL RECEIVABLE FINANCING BUSINESS. In July 1993,
the Company entered the medical receivable financing business and expects to
focus on this business as a part of the Company's growth strategy. The Company's
medical receivable financing business generally consists of providing loans to
healthcare providers that are secured by their receivables from payors such as
insurance companies, large self-insured companies and governmental programs and
by other collateral. The Company has limited experience

10
<PAGE> 11

in the medical receivable financing business and there can be no assurance that
the Company will be able to grow this business successfully or avoid related
liabilities or losses. The Company has funded its medical receivable financing
business to date through the use of the Company's capital and a relatively small
medical receivables warehouse facility and recently, on a limited basis, through
the Company's revolving credit facility which the Company generally uses for its
equipment financing business. The growth of the Company's medical receivable
financing business is dependent on various factors including the Company's
ability to obtain additional funding facilities to finance medical receivables
loans.

While the medical receivable financing business shares certain
characteristics, including an overlapping customer base, with the Company's core
equipment financing business, there are many differences, including unique
risks. Healthcare providers could overstate the quality and characteristics of
their medical receivables, which the Company analyzes in determining the amount
of the line of credit to be secured by such receivables. After the Company has
established or funded a line of credit, the healthcare providers could change
their billing and collection systems, accounting systems or patient records in a
way that could adversely affect the Company's ability to monitor the quality
and/or performance of the related medical receivables. There are substantial
technical legal issues associated with creating and maintaining perfected
security interests in medical receivables. Payors may make payments directly to
healthcare providers that have the effect (intentionally or otherwise) of
circumventing the Company's rights in and access to such payments. Payors may
attempt to offset their payments to the Company against debts owed to the payors
by the healthcare providers. In addition, as a lender whose position is secured
by receivables, the Company is likely to have less leverage in collecting
outstanding receivables in the event of a borrower's insolvency than a lender
whose position is secured by medical equipment which the borrower needs to run
its business. A customer which receives medical receivables loans from the
Company and defaults on obligations secured by such receivables may require
additional loans, or modifications to the terms of existing loans, in order to
continue operations and repay outstanding loans. The Company may have a conflict
of interest when the Company acts as servicer for an equipment-based
securitization and originates medical receivables loans to borrowers whose
previous equipment loans have been securitized. The Company's efforts to develop
suitable sources of funding for its medical receivable financing business
through securitization or other structured finance transactions may be
constrained or hindered due to the fact that the use of structured finance
transactions to fund medical receivables is a relatively new process. The
Company has not previously issued debt secured by medical receivables in the
structured finance markets. While the Company believes it has structured its
credit policies and lending practices to take account of these and other
factors, there is no assurance the Company will not realize credit losses in
connection with its medical receivable financing business or that the medical
receivable financing business will meet the Company's growth expectations.

MEDICAL EQUIPMENT MARKET. The demand for the Company's equipment financing
services is impacted by numerous factors beyond the control of the Company.
These factors include general economic conditions, including the effects of
recession or inflation, and fluctuations in supply and demand for various types
of sophisticated medical equipment resulting from, among other things,
technological and economic obsolescence and government regulation. In addition,
the demand for sophisticated medical equipment also may be negatively affected
by declining reimbursement to healthcare providers for their services from
third-party payors such as insurance companies and government programs, and the
increased use of managed healthcare plans that often restrict the use of certain
types of high technology medical equipment. For the nine months ended March 31,
1995, magnetic resonance imaging ("MRI") machines accounted for approximately
49.6% (by dollar volume) of the loans originated by the Company during such
period. Any substantial decrease in the Company's loan originations for the
purchase of MRI machines could have a material adverse effect on the Company.

HEALTHCARE REFORM. During the past half decade, large U.S. corporations
and U.S. consumers of healthcare services have substantially increased their use
of managed healthcare plans such as health maintenance organizations ("HMOs")
and preferred provider organizations ("PPOs"). This development has increased
the purchasing power of those plans, which in turn have used that power to lower
the amounts they pay for healthcare services. Since 1993, numerous proposals
have been presented to Congress to restructure the U.S. healthcare system. The
principal features of these proposals are to provide universal access to

11
<PAGE> 12

healthcare services and to achieve overall cost containment. To date none of the
proposals initiated at the federal government level has been enacted. In the
private sector, however, cost containment initiatives have continued. Certain
aspects of these actual and proposed cost containment initiatives, particularly
plans to eliminate payment for duplicative procedures, may reduce the overall
demand for the types of medical equipment financed by the Company. Declining
reimbursement for medical services also could pressure hospitals, physician
groups and other healthcare providers, which form a significant portion of the
Company's customer base, to experience cash flow problems. This in turn could
negatively impact their ability to meet their financial obligations to the
Company and/or reduce their future equipment acquisitions which could adversely
affect the Company. The Company believes that the general movement toward a
managed healthcare system in the U.S. will materially reduce the demand for
medical equipment and for related financing. See "Business -- Government
Regulation."

CONSEQUENCES OF GOVERNMENT REGULATION. The acquisition, use, maintenance
and ownership of most types of sophisticated medical equipment financed by the
Company are regulated by federal, state and/or local authorities. See
"Business -- Government Regulation."

DEPENDENCE ON REFERRALS AND SUPPORT FROM EQUIPMENT MANUFACTURERS. The
Company obtains a significant amount of its equipment financing business through
referrals from four manufacturers of diagnostic imaging equipment and other
manufacturers of medical equipment it finances. In addition, these manufacturers
often provide credit support for or assume first loss positions with respect to
equipment financing they refer to the Company. These manufacturers are not
contractually obligated to refer their customers to the Company or to provide
credit support. There is no assurance that these manufacturers will continue to
provide such referrals or credit support. If for any reason the Company were no
longer to benefit from these referrals or credit support, its equipment
financing business would be materially adversely affected.

COMPETITION. The business of financing sophisticated medical equipment is
highly competitive. The Company competes with equipment manufacturers that sell
and finance sales of their own equipment and finance subsidiaries of national
and regional commercial banks and equipment leasing and financing companies.
Many of the Company's competitors have significantly greater financial and
marketing resources than the Company. In addition, the competition in the new
markets recently targeted by the Company, specifically equipment financing in
the hospital market and medical receivable financing market, may be greater than
the levels of competition historically experienced by the Company.

The Company believes that increased equipment loan originations during the
past two years resulted, in part, from a decrease in the number of competitors
in the higher cost medical equipment financing market and the Company's high
level of penetration in this market. There can be no assurance that new
competitive providers of financing will not enter the medical equipment
financing market in the future. To meet its long-term growth plans, the Company
must penetrate further its targeted markets for lower cost medical equipment and
medical receivable financing businesses. Such penetration may require the
Company to reduce its margins to be competitive in the lower cost medical
equipment and medical receivable financing businesses. In addition, there can be
no assurance that the Company will sustain the same level of equipment loan
originations in future periods as during the past two years or that it will be
able to meet its long-term growth objectives. See "Business -- Competition."

DISCONTINUED OPERATIONS. In June 1993, the Company adopted a formal plan
to discontinue its healthcare services segment that consisted of seven
outpatient healthcare facilities which it operated or managed on a direct basis
and one facility which was in the developmental stage and not yet in operation.
At the end of fiscal 1993, the Company established a reserve for the divestiture
of the operations and recorded a loss on discontinued operations and disposal of
discontinued operations. As of June 30, 1994, the Company had disposed of or
entered into definitive agreements to sell six of these outpatient healthcare
facilities, had written off the investment and assets of the remaining two, and
recorded an additional $3.1 million after-tax charge in excess of the amounts of
estimated losses reported as of June 30, 1993 for the disposition of this
segment of the Company's business. The Company may be subject to certain
contingent liabilities based on the prior operations of the facilities. The
consideration received by the Company from several of the purchasers in these
transactions included promissory notes, and in some cases, the purchasers
entered into

12
<PAGE> 13

other arrangements with the Company to refinance the medical equipment and/or
other assets used in these facilities. In addition, in connection with the
disposal of these facilities, the Company retained certain assets associated
with the prior operation of the facilities, primarily accounts receivable, which
it is collecting and for which it believes it established sufficient reserves.
The purchasers who acquired the facilities and/or equipment and other assets
related to the facilities generally have limited financial resources and
substantial amounts of indebtedness in addition to their obligations to the
Company. Should one or more of the purchasers become insolvent and be unable to
meet its obligations to the Company and if the Company is unable to successfully
remarket the financed equipment and other assets or if a significant percentage
of the accounts receivable retained by the Company prove to be uncollectible,
the Company could incur additional losses. At March 31, 1995, the Company's
aggregate maximum exposure, if all of the purchasers of these facilities were to
become insolvent and the financed equipment and other assets were to be
unsaleable, was approximately $6.9 million.

INVESTEE COMPANIES. The Company has investments in and does business with
two companies that operate diagnostic imaging equipment and accordingly is
subject to the risks of that business. As of March 31, 1995, the remaining
balances of loans made to Diagnostic Imaging Services, Inc. ("DIS") and
Healthcare Imaging Services, Inc. ("HIS") that have been permanently funded on a
limited recourse basis were approximately $7.2 million and $2.7 million,
respectively. As of March 31, 1995, the remaining balances of such loans that
have been permanently funded on a recourse basis or through internally generated
funds were approximately $15.2 million and $1.5 million, respectively. The
Company owns approximately 4.5 million shares of convertible preferred stock of
DIS having an aggregate liquidation preference of $4.5 million. In addition, as
of March 31, 1995, the Company owned approximately 9% and 17% of the common
stock of DIS and HIS, respectively. See "Business -- Other Business Activities,"
"Certain Transactions" and Note 6 to the Company's Consolidated Financial
Statements included elsewhere in this Prospectus.

SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of the Offering, the
Company will have outstanding approximately 9,211,180 shares of Common Stock
(9,586,180 if the Underwriters' over-allotment option is exercised in full). Of
these shares of Common Stock, 8,122,880 shares, which include the 2,500,000
shares offered hereby, will be freely tradable without restriction or further
registration under the 1933 Act. All of the remaining 1,088,300 shares of Common
Stock outstanding upon completion of the Offering are restricted securities as
defined in the 1933 Act (the "Restricted Securities"). All of the Restricted
Securities and any other shares of Common Stock acquired by an officer, director
or more than 10% stockholder of the Company (each, an "affiliate") are eligible
for resale pursuant to the provisions of Rule 144 under the 1933 Act ("Rule
144") or at any time pursuant to an effective registration statement covering
such shares of Common Stock. Of these Restricted Securities, 835,013 shares of
Common Stock are subject to lock-up provisions as described below. See "Shares
Eligible for Future Sale" and "Description of Capital Stock."

The Company also has reserved or made available for issuance 3,347,685
shares of Common Stock pursuant to various options and warrants to purchase
Common Stock and the Company's 1986 Stock Incentive Plan, as amended (the
"Plan"), and the conversion of the Convertible Subordinated Notes. Of these
reserved shares, 1,009,761 shares, available for issuance pursuant to the Plan,
1,367,924 shares, issuable upon conversion of the Convertible Subordinated
Notes, 35,000 shares, issuable pursuant to the exercise of certain warrants to
purchase Common Stock, and 675,000 shares, issuable pursuant to the exercise of
warrants to purchase Common Stock and a unit option issued in a public offering
in February 1991, are covered by currently effective registration statements
under the 1933 Act and are therefore freely tradable upon issuance. The
remaining 260,000 reserved shares are Restricted Securities that are eligible
for resale upon exercise pursuant to Rule 144 or at any time pursuant to an
effective registration statement covering such shares of Common Stock. The
Company also has reserved, subject to stockholder approval and an increase in
the Company's authorized capital stock, (i) 400,000 shares of Common Stock for
issuance to the former shareholders of MEF Corp. in connection with the January
1993 acquisition of MEF Corp. and (ii) 200,000 shares of Common Stock for
issuance to certain employees of the Company under a stock incentive plan. Of
these reserved shares, 1,344,937 shares of Common Stock issuable under various
options and warrants and pursuant to the conversion of the Convertible
Subordinated Notes are subject to lock-up provisions as described below. See
"Shares Eligible for Future Sale" and "Description of Capital Stock."

13
<PAGE> 14

The Company, its officers and directors and certain stockholders, certain
holders of outstanding options and warrants to purchase Common Stock and certain
holders of Convertible Subordinated Notes owning or holding options or warrants
or conversion rights for an aggregate of 3,565,041 shares of Common Stock, have
agreed that they will not, directly or indirectly, offer, sell, offer to sell,
contract to sell, grant any option to purchase or otherwise sell or dispose (or
announce any offer, sale, offer of sale, contract of sale, grant of any option
to purchase or other sale or disposition) of any shares of Common Stock or any
securities convertible into, or exercisable or exchangeable for, Common Stock or
other capital stock of the Company, or any right to purchase or acquire Common
Stock or other capital stock of the Company, for a period of 180 days after the
date of this Prospectus, without the prior written consent of Prudential
Securities Incorporated, on behalf of the Underwriters. See "Underwriting."

No prediction can be made as to the effect, if any, that sales of the
Common Stock or the availability of such shares for sale in the public market
will have on the market price for the Common Stock prevailing from time to time.
Nevertheless, sales of substantial amounts of Common Stock in the public market
under Rule 144 or otherwise could adversely affect prevailing market prices for
the Common Stock and impair the ability of the Company to raise capital through
the sale of equity securities in the future. See "Shares Eligible for Future
Sale."

DEPENDENCE UPON KEY PERSONNEL. The ability of the Company to successfully
continue its existing financing business, to expand into its targeted markets
and to develop its newer businesses depends upon the ability of the Company to
retain the services of its key management personnel, including David L. Higgins,
the Company's Chief Executive Officer, and Michael A. O'Hanlon, the Company's
President and Chief Operating Officer. The loss of any of these individuals or
an inability to attract and maintain additional qualified personnel could
adversely affect the Company. There can be no assurance that the Company will be
able to retain its existing management personnel or to attract additional
qualified personnel. See "Management."

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock in the Offering are estimated to be approximately $25.4 million
($29.2 million if the Underwriters' over-allotment option is exercised in full),
after deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company.

The purpose of the Offering is to provide the Company with additional
capital to fund its growth. The Company intends to utilize the net proceeds from
the Offering (i) to increase its capital base and thereby increase its access to
both warehouse and permanent funding sources; and (ii) to fund the cash
collateral required in securitizations sponsored by the Company which is equal
to the difference between (A) the aggregate principal amount of the equipment
loans originated by the Company and transferred to the Company's special purpose
finance subsidiary and the related costs of consummating the securitizations and
(B) the net proceeds received by the Company in the securitizations. See
"Business -- Capital Resources and Transaction Funding." Pending such use, the
net proceeds will be used to temporarily reduce existing short-term debt under
the Company's principal warehouse facility and for general corporate purposes.
The debt under the principal warehouse facility bears interest at the Company's
option at either a variable rate equal to the prime rate established by NatWest
plus up to an additional 25 basis points depending upon the Company's leverage
ratio from time to time or a rate of interest that varies from 150 to 180 basis
points over the one-month, two-month or three-month London interbank offered
rate ("LIBOR") depending upon the Company's leverage ratio from time to time.
Borrowings that are based on LIBOR have a term of one, two or three months, and
the rate of interest on any such borrowings remains fixed for such one-, two- or
three-month period, as the case may be. The rates charged on borrowings from any
one-, two- or three-month period to another change based on fluctuations in
LIBOR. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."

Prudential Securities Incorporated, one of the representatives of the
Underwriters, is an affiliate of Prudential Securities Realty Funding
Corporation, the lender under two warehouse facilities. One of these

14
<PAGE> 15

facilities provides funding for equipment loans that are securitized through
Prudential Securities Incorporated and the other provides funding for medical
receivables loans to borrowers approved by Prudential Securities Realty Funding
Corporation. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources -- Warehouse
Facilities." In the event that the Company is unable to obtain permanent
financing for the amounts outstanding under these warehouse facilities, which
totaled $22.9 million at May 31, 1995, a portion of the proceeds of the Offering
may be used to repay amounts outstanding under these two warehouse facilities.
See "Underwriting" and Note 7 to the Company's Consolidated Financial Statements
located elsewhere in the Prospectus.

Pending application of the net proceeds as described above, the Company
intends to invest the net proceeds in short-term corporate investment grade or
U.S. Government interest-bearing securities.

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

PRICE RANGE OF COMMON STOCK

The Common Stock has been listed on the NYSE since May 14, 1992. Prior to
that time, it was included in The Nasdaq Stock Market's National Market (the
"Nasdaq National Market") since August 7, 1990. The following table sets forth
the high and low last reported sales prices per share of Common Stock on the
NYSE for the periods indicated.

<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
FISCAL YEAR ENDED JUNE 30, 1994
First Quarter.............................................................. $ 9 1/8 $ 5 3/4
Second Quarter............................................................. 12 1/2 8 3/8
Third Quarter.............................................................. 10 5/8 9 1/4
Fourth Quarter............................................................. 10 8 1/4

FISCAL YEAR ENDED JUNE 30, 1995
First Quarter.............................................................. $11 1/4 $ 9 1/4
Second Quarter............................................................. 11 1/2 9 7/8
Third Quarter.............................................................. 13 5/8 10 5/8
Fourth Quarter............................................................. 13 1/8 11
</TABLE>

On July 25, 1995, the last reported sales price of the Common Stock on the
NYSE was $11.875 per share, and there were approximately 245 holders of record
of the Common Stock.

DIVIDEND POLICY

The Company has not declared or paid any cash dividends since its
inception, and the Company anticipates that any future earnings will be retained
for investment in corporate operations. Any declaration of dividends in the
future will be determined in light of the conditions affecting the Company at
that time, including, among other things, its earnings, financial condition,
capital requirements, level of debt and the terms of any contractual limitations
on dividends. The Company's principal warehouse facility prohibits DVI Financial
Services, the Company's principal operating subsidiary, from paying cash
dividends. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources -- Warehouse
Facilities." In addition, the agreement with respect to the Convertible
Subordinated Notes places limitations on the payment of dividends by the Company
and its subsidiaries.

15
<PAGE> 16

CAPITALIZATION

The following table sets forth the capitalization of the Company at March
31, 1995, and as adjusted to reflect the sale of 2,500,000 shares of Common
Stock in the Offering, after deducting the underwriting discounts and
commissions and the estimated offering expenses payable by the Company and the
application of the estimated net proceeds therefrom. This table should be read
in conjunction with the Company's Consolidated Financial Statements and related
Notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
AS OF
MARCH 31, 1995
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term borrowings due under warehouse facilities and lines of
credit(1)........................................................... $147,969 $ 122,609
======== ========

Long-term debt (primarily limited recourse)........................... $218,878 $ 218,878
Convertible subordinated notes........................................ 13,742 13,742
-------- --------
Total long-term debt........................................ 232,620 232,620
-------- --------

Shareholders' equity:
Preferred stock, $10.00 par value, 100,000 shares authorized, no
shares issued.................................................... -- --
Common stock, $.005 par value, 13,000,000 shares authorized;
6,711,180 issued and outstanding and 9,211,180 shares as
adjusted(2)...................................................... 34 46
Additional paid-in capital.......................................... 29,276 54,624
Retained earnings................................................... 8,460 8,460
-------- --------
Total shareholders' equity.................................. 37,770 63,130
-------- --------
Total shareholders' equity and long-term debt............... $270,390 $ 295,750
======== ========
</TABLE>

- ---------------
(1) For a more detailed explanation of short-term borrowings due under warehouse
facilities see Note 7 to the Company's Consolidated Financial Statements
included elsewhere in this Prospectus.

(2) Does not include (i) 575,000 shares of Common Stock issuable upon the
exercise of outstanding warrants resulting from the Company's public
offering of units consisting of Common Stock and warrants to purchase Common
Stock completed in February 1991, which have an exercise price of $12.00 per
share, (ii) 335,000 shares of Common Stock issuable upon the exercise of
various outstanding options and warrants to purchase Common Stock held by
third parties, which have a weighted average exercise price of $14.30 per
share, (iii) 755,994 shares of Common Stock issuable upon the exercise of
various outstanding options and warrants to purchase Common Stock available
to the Company's employees and directors, which have a weighted average
exercise price of $8.50 per share, (iv) 1,367,924 shares of Common Stock
issuable upon conversion of the Convertible Subordinated Notes, at a
conversion price of $10.60 per share, subject to adjustment in certain
circumstances, (v) 200,000 shares of Common Stock issuable to certain
employees of the Company under a stock incentive plan, which plan is subject
to stockholder approval and an increase in the Company's authorized capital
stock, and (vi) 400,000 shares of Common Stock issuable to the former
shareholders of MEF Corp. in connection with the acquisition of MEF Corp.,
which issuance is subject to stockholder approval and an increase in the
Company's authorized capital stock. See "Description of Capital Stock,"
"Underwriting," "Shares Eligible for Future Sale" and Notes 10, 11, 15 and
19 to the Company's Consolidated Financial Statements included elsewhere in
this Prospectus.

16
<PAGE> 17

SELECTED FINANCIAL INFORMATION AND OTHER DATA

The following table summarizes selected financial information for the
periods presented. The Statement of Operations and Balance Sheet Data at June
30, 1993 and 1994 and for each of the three years in the period ended June 30,
1994 are derived from the Company's Financial Statements for such years audited
by Deloitte & Touche LLP, which Financial Statements are included elsewhere
herein. The Statement of Operations and Balance Sheet Data at June 30, 1990,
1991 and 1992 and for each of the two years in the period ended June 30, 1991
are derived from the Company's audited Financial Statements for such years
audited by Deloitte & Touche, which Financial Statements are not included
herein. The selected financial data for the nine months ended March 31, 1994 and
1995 have been derived from unaudited Financial Statements of the Company, but,
in the opinion of management of the Company, include all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of the
Company's financial condition and results of operations at the end of and for
such periods. The results of operations for the nine months ended March 31, 1995
are not necessarily indicative of future results. The following data should be
read in conjunction with the Company's financial statements and related notes
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus. Summations and differences of
the numbers set forth below may not reconcile due to rounding.

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------------------------ ----------------
1990 1991 1992 1993 1994 1994 1995
------ ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Finance and other income:
Amortization of finance income................ $5,365 $ 8,839 $10,130 $10,826 $18,265 $12,849 $24,015
Gain on sale of financing transactions, net... 1,142 752 2,197 1,104 302 246 1,430
Other income(1)............................... 465 980 2,409 3,269 2,344 1,268 900
------ ------- ------- ------- ------- ------- -------
Finance and other income...................... 6,972 10,571 14,736 15,199 20,911 14,363 26,345
Interest expense.............................. 3,711 4,933 5,989 5,005 8,833 5,900 15,449
------ ------- ------- ------- ------- ------- -------
Margins earned(1)............................... 3,261 5,638 8,747 10,194 12,078 8,463 10,896
Selling, general and administrative expense..... 1,817 2,795 3,832 5,735 7,765 5,591 6,318
------ ------- ------- ------- ------- ------- -------
Earnings from continuing operations before
provision for income taxes, equity in net
earnings (loss) of investees and discontinued
operations.................................... 1,444 2,843 4,915 4,459 4,313 2,872 4,578
Provision for income taxes...................... 571 1,117 2,015 1,828 1,811 1,206 1,923
------ ------- ------- ------- ------- ------- -------
Earnings from continuing operations before
equity in net earnings (loss) of investees and
discontinued operations(2).................... 873 1,726 2,900 2,631 2,502 1,666 2,655
Equity in net earnings (loss) of investees...... 0 0 153 (51) (242) (242) 0
------ ------- ------- ------- ------- ------- -------
Net earnings (loss) from continuing
operations(2)................................. 873 1,726 3,053 2,580 2,260 1,424 2,655
Loss from discontinued operations(2)............ 0 0 (346) (1,922) (3,145) 0 0
------ ------- ------- ------- ------- ------- -------
Net earnings (loss)(2).......................... $ 873 $ 1,726 $ 2,707 $ 658 $ (885) $ 1,424 $ 2,655
====== ======== ======== ======== ======== ======== ========
Earnings (loss) per common and common equivalent
share:
From continuing operations ................... $ 0.28 $ 0.37 $ 0.57 $ 0.39 $ 0.34 $ 0.21 $ 0.39
From discontinued operations(2)............... 0.00 0.00 (0.06) (0.29) (0.47) 0.00 0.00
------ ------- ------- ------- ------- ------- -------
Net earnings (loss) per common and common
equivalent share.............................. $ 0.28 $ 0.37 $ 0.51 $ 0.10 $ (0.13) $ 0.21 $ 0.39
====== ======== ======== ======== ======== ======== ========
Weighted average number of common and common
equivalent shares outstanding................. 3,173 4,728 5,353 6,601 6,717 6,716 6,870
</TABLE>

- ---------------
(see footnotes on following page)

17
<PAGE> 18

<TABLE>
<CAPTION>
AS OF
AS OF JUNE 30, MARCH 31,
---------------------------------------------- -----------
1990 1991 1992 1993 1994 1995
------- ------- -------- -------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Unearned income(3).............................. $16,868 $22,211 $ 21,720 $ 24,563 $ 47,644 $ 71,681
Total assets.................................... 55,479 85,084 104,714 147,161 265,949 434,847
Short-term borrowings due under warehouse
facilities.................................... 18,187 22,153 31,349 45,221 34,586 147,969
Long-term debt (primarily limited recourse)..... 22,177 36,358 24,569 51,827 148,852 218,878
Convertible subordinated notes.................. 0 0 0 0 14,112 13,742
Shareholders' equity............................ 6,194 16,113 34,006 34,664 33,993 37,770
</TABLE>

<TABLE>
<CAPTION>
AS OF
OR FOR THE
NINE MONTHS
AS OF OR FOR THE ENDED
YEAR ENDED JUNE 30, MARCH 31,
-------------------------------------------------- -----------
1990 1991 1992 1993 1994 1995
------- ------- -------- -------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ADDITIONAL OPERATING AND OTHER DATA:
Gross financed receivables(4)............. $68,187 $92,670 $107,306 $142,073 $282,413 $ 442,268
Net financed receivables(5)............... 51,319 70,459 85,586 117,510 234,769 370,587
Loans originated(6)....................... 42,000 39,600 46,400 58,600 163,000 233,000
Net charge-offs as a percentage of average
net financed receivables(7)............. 0.37% 0.11% 0.05% 0.04% 0.14% 0.11%(8)
</TABLE>

- ---------------
(1) Margins earned consists of finance and other income less interest expense.
Expenses associated with the issuance of the Company's debt for the years
1990 through 1994, as well as the nine months ended March 31, 1994, have
been reclassified from selling, general and administrative expenses to
interest expense to conform with the March 31, 1995 presentation.

(2) On June 30, 1993, the Company formally adopted a plan to divest
substantially all of its healthcare operations, which consisted of seven
outpatient healthcare facilities that the Company had operated or managed on
a direct basis and one facility which was in the development stage and not
yet in operation. At June 30, 1994, the Company had disposed of or entered
into definitive agreements to sell six of these outpatient healthcare
facilities and had written off the investment in and assets of the remaining
two. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

(3) Unearned income consists of interest income that will be recognized, using
the interest method of accounting, over the remaining life of the finance
contracts outstanding.

(4) Gross financed receivables consist of receivables in installments,
receivables in installment-related parties, residual valuation, notes
collateralized by medical receivables and equipment on operating leases.

(5) Net financed receivables consist of gross financed receivables net of
unearned income.

(6) Includes equipment loans purchased through the Company's wholesale loan
program which the Company implemented in June 1994. See "Business -- Loan
Characteristics and Underwriting."

(7) Presentation is based on averages of period beginning and period ending
balances.

(8) Information is presented on an annualized basis.

<PAGE> 19

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

GENERAL

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

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

Subsequent to the January 1993 acquisition of MEF Corp., the Company
significantly reduced its emphasis on entering into fair market value
transactions and adopted a strategy to reduce the dollar amount of residual
valuation on its balance sheet. As of March 31, 1995, residual valuation
decreased to $3.9 million from $6.2 million at June 30, 1993, and from 5% of net
financed receivables as of June 30, 1993 to 1% at March 31, 1995. Accordingly,
during this period the percentage of the Company's equipment financing
transactions structured as loans and conditional sales agreements have increased
significantly. The Company believes that loans and conditional sales agreements
will constitute a high percentage of its equipment financing transactions in the
future.

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

The Company has classified income under the categories of "amortization of
finance income," "gain on sale of financing transactions" and "other income."
Amortization of finance income consists of the interest component of payments
received on notes secured by equipment (or medical receivables) and direct
financing leases, and is calculated using the interest method whereby the income
is reported over the term of the transactions. "Gain on sale of financing
transactions" consists of gains recognized when the Company permanently funds
transactions through whole loan sales. "Other income" consists primarily of late
charges, income from operating leases and income from the billing and collecting
of medical receivables. The Company withdrew from the business of billing,
collecting and purchasing medical receivables late in fiscal 1994, but will
continue to record income as the receivables outstanding as of such date are
collected by the third parties that the Company hired to service these accounts.
In the event the aggregate uncollected amounts with respect to receivables the
Company purchased exceeds amounts reserved for losses with respect thereto, the
Company will record a loss.

Notes secured by equipment and direct financing lease transactions are all
noncancelable "net" transactions under which the obligor must make all scheduled
payments, maintain the equipment, insure the equipment against casualty loss and
pay all equipment related taxes. In fair market value transactions, at the end
of the initial financing term, the obligor has the option either to purchase the
equipment for its fair market

19
<PAGE> 20

value, extend the financing term under renegotiated payments or return the
equipment to the Company. If the equipment is returned to the Company, the
Company must sell or lease the equipment to another user.

In accordance with generally accepted accounting principles ("GAAP"), in
transactions classified as notes secured by equipment and direct financing
leases that the Company permanently funds through securitization or other
structured finance transactions whereby the Company treats the funds received as
debt, income is deferred and recognized using the interest method over the
respective terms of the transactions. If an obligor under a transaction
defaults, the Company may not receive all or a portion of the unamortized income
associated with the transaction.

Medical Receivable Financing. A small portion of the Company's business is
providing lines of credit under which the Company makes full recourse loans to
outpatient healthcare providers that are secured by medical receivables and
other collateral. The respective interest and fee income from these loans are
recognized over the terms of the lines of credit which are typically one to
three years and are recorded as amortization of finance income.

Discontinued Operations. In June 1993, the Company announced its decision
to dispose of seven outpatient healthcare facilities which it operated or
managed on a direct basis and one facility which was in the developmental stage
and not yet in operation. At June 30, 1993, the Company established a reserve
for the divestiture of the operations and recorded a loss on discontinued
operations and disposal of discontinued operations of $1.9 million net of tax.
This estimate was based on certain assumptions as to the likely timing of the
divestitures, the estimated proceeds to be received upon the sale of certain of
the facilities and the financial results of those operations pending
divestiture. These operations have been reflected as discontinued operations in
the Company's financial statements at June 30, 1992, 1993 and 1994. The pre-tax
loss from discontinued operations of $3.3 million at June 30, 1993 was comprised
of $2.6 million relating to actual and estimated losses from operations of this
segment through the date of disposition and $720,000 relating to estimated
losses to be incurred upon the disposition of the segment's net assets.

At June 30, 1994, the Company had disposed of or entered into definitive
agreements to sell six of these outpatient healthcare facilities and had written
off the investment in and assets of the remaining two. In connection with the
disposal of these facilities, the Company retained certain assets and
liabilities of these facilities, primarily accounts receivable and accounts
payable. The Company's results of operations for fiscal 1994 include an
additional $3.1 million net after tax change in estimate in the amounts reported
as of June 30, 1993 for the disposition of this segment of the Company's
operations. The change in estimate was comprised almost entirely of a change in
the estimate, in the quarter ended June 30, 1994, in the estimated proceeds from
the disposition of underlying healthcare operations assets which included
goodwill, other intangibles, equipment and other assets. The change in estimate
reflects the complete disposal or write-off of the discontinued operations
segment. The Company estimates that its aggregate maximum exposure, in the event
that all of the purchasers of these facilities become insolvent and the
financial equipment and other assets are unsaleable, is approximately $6.9
million. See "Risk Factors -- Discontinued Operations."

RESULTS OF OPERATIONS

Impact of Financing Strategies on Results of Operations

The Company's financing strategy is to obtain permanent funding for most of
its equipment loans through securitization and to sell the remainder to reduce
borrower concentration and to manage the Company's leverage. When funding loans
through securitization, the issuer generally can structure the securitization so
that the proceeds received are treated either as borrowed funds (i.e., debt on
the issuer's financial statements) or funds it receives as a result of the sale
of the underlying equipment loans. The accounting method to report finance
income differs significantly depending on which of the two structures the issuer
uses. When the proceeds received are treated as long-term debt, the issuer
reports finance income over the term of the equipment loans that are funded.
When the proceeds are treated as funds received from the sale of equipment
loans, the income is generally reported at the time the equipment loans are
funded. The Company uses the first alternative to recognize finance income when
it sponsors a securitization; this means the Company treats the proceeds
received as long-term debt on its financial statements and reports the finance
income over the

20
<PAGE> 21

term of the equipment loans that are funded. When the Company sells loans, it
generally recognizes the unamortized finance income at the time the funding
takes place; however, it may recognize servicing and/or interest income over the
remaining term of the equipment loans sold. Since the Company permanently funds
most of its equipment loans by securitization or other forms of structured
finance and therefore reports the finance income from these equipment loans over
approximately five years, its near-term reported earnings are comparatively
lower than they would be if the Company sold all of the loans.

Results of Operations for Nine Months Ended March 31, 1995 Compared to Nine
Months Ended March 31, 1994

The following table sets forth certain information regarding the Company's
operations for the nine-month periods ended March 31, 1994 and 1995.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
---------------------
1994 1995
-------- --------
(IN THOUSANDS,
EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
Loans originated............................................... $123,000 $233,000

Amortization of finance income................................. $ 12,849 $ 24,015
Gain on sale of financing transactions, net.................... 246 1,430
Other income................................................... 1,268 900
Total finance and other income................................. 14,363 26,345
Interest expense............................................... 5,900 15,449
Margins earned................................................. 8,463 10,896
Selling, general and administrative expense (including
provision for doubtful accounts)............................. 5,591 6,318
Net earnings................................................... 1,424 2,655
Net earnings per common share.................................. $ 0.21 $ 0.39
</TABLE>

The Company originated $233.0 million of loans for the nine months ended
March 31, 1995, as compared to $123.0 million for the nine months ended March
31, 1994, an increase of 89%. This increase resulted from increased funding
capacity and efficiency and improvements in sales and marketing capabilities,
including the implementation of the Wholesale Program. Of this $110.0 million
increase, $52.7 million represented loan originations under the Wholesale
Program. The Company experienced an 87% increase in its average net financed
receivables to $302.7 million for the nine months ended March 31, 1995, from
$162.1 million for the nine months ended March 31, 1994. Average net financed
receivables is calculated based on period beginning and period ending balances.

Amortization of finance income increased 88% to $24.0 million for the nine
months ended March 31, 1995 from $12.8 million for the nine months ended March
31, 1994. The increase was primarily a result of the overall increase in the
amount of the Company's net financed receivables.

The gain on sale of financing transactions, net increased 469% to $1.4
million for the nine months ended March 31, 1995 compared with a gain of
$246,000 for the same period in the prior year. The increase relates solely to
the Company's need to fund certain loans through whole loan sales to manage
borrower concentrations. See "-- Impact of Financing Strategies on Results of
Operations" and "-- General."

Other income, which consists of late charges, operating lease income, fees
from billing and collecting medical receivables, management income and other
miscellaneous items decreased 31% to $900,000 for the nine months ended March
31, 1995, as compared to $1.3 million for the nine months ended March 31, 1994.
This decrease was primarily due to the fact that the Company discontinued its
billing and collecting of medical receivables operations late in fiscal 1994.

For the nine months ended March 31, 1995, interest expense increased 163%
to $15.5 million from $5.9 million during the same period in the prior year. For
the nine months ended March 31, 1995, the

21
<PAGE> 22

Company's average indebtedness (calculated based on beginning and ending period
balances) increased 119% to $289.1 million from $132.0 million during the same
period in the prior year. The increase in interest expense and average
indebtedness is primarily a result of the growth of the Company's loan
portfolio. As a percentage of total finance and other income, interest expense
was 59% in the nine months ended March 31, 1995, as compared to 41% in the same
period a year earlier. The increase in interest expense as a percent of total
finance and other income is primarily the result of (i) the Company's strategy
to narrow the interest rate spread between the cost of its funding and the
interest rate charged its customers in order to increase its market share, (ii)
interest rate increases that reduced the interest rate spread on loans funded by
warehouse facilities that were not protected by hedging positions and (iii) the
Company's strategy to originate equipment loans in which the residual positions
are not retained thereby reducing the Company's rate of return and its income on
the respective loans.

Margins earned were $10.9 million for the nine months ended March 31, 1995,
as compared to $8.5 million for the nine months ended March 31, 1994, an
increase of 28%. The increase was primarily a result of the overall increase in
the size of the Company's loan portfolio.

Selling, general and administrative expense ("SG&A") increased 13% to $6.3
million for the nine months ended March 31, 1995 from $5.6 million for the nine
months ended March 31, 1994. The increase primarily reflects additional
personnel and other costs associated with the growth in the Company's business.
As a percentage of total finance and other income, SG&A was 24% for the nine
months ended March 31, 1995 versus 39% for the same period last year. The
percentage decrease in SG&A is a result of the Company's ability to increase the
volume of transactions entered into and thus the size of its loan portfolio
without a proportionate increase in SG&A.

The Company's SG&A includes the provision for doubtful accounts. That
provision was $826,000 for the nine months ended March 31, 1995 as compared to
$849,000 for the same period the previous year. The amounts are not
significantly different despite the growth in the Company's loan portfolio, and
this reflects management's judgment that the provisions are adequate based on
current trends in the Company's delinquencies and losses.

The Company's net earnings increased 93% to $2.7 million or $.39 per share
as compared to $1.4 million or $.21 per share for the same period the prior
year.

The Company's cash and cash equivalents at March 31, 1994 and March 31,
1995 were $1.3 million and $4.6 million, respectively. The increase was
attributable to the uninvested proceeds from the Company's most recent
securitization. The following describes the changes from March 31, 1994 to March
31, 1995 in the items which had the most significant impact on the Company's
cash flow during the nine months ended March 31, 1995.

The Company's net cash used in operating activities was $47.9 million
during the nine months ended March 31, 1995 compared to $21.7 million net cash
provided by operations for the nine months ended March 31, 1994. The increase in
cash utilization during the nine months ended March 31, 1995 stems largely from
a reduction in the Company's accounts payable from June 30, 1994 by $18.1
million. The decrease in accounts payable, which consists primarily of amounts
due manufacturers of equipment that the Company has financed, stems from
payments made to these manufacturers during the nine months ended March 31,
1995.

The Company's net cash used in investing activities increased to $133.3
million during the nine months ended March 31, 1995 as compared to $91.5 million
for the nine months ended March 31, 1994. This increase is attributable
primarily to cash used to acquire equipment and to finance notes secured by
equipment of $234.3 million during the nine months ended March 31, 1995 compared
to $115.5 million for the nine months ended March 31, 1994. These uses of cash
were offset by receipt of $101.2 million and $24.1 million in excess of amounts
included in income for the same periods, respectively.

The Company's net cash provided by financing activities was $184.0 million
during the nine months ended March 31, 1995 up from $69.0 million for the nine
months ended March 31, 1994. This results from an increase in the Company's
short-term debt of $113.4 million for the nine months ended March 31, 1995 as
compared to a $10.7 million increase in short-term debt for the nine months
ended March 31, 1994.

22
<PAGE> 23

Results of Operations for Year Ended June 30, 1994 Compared to Year Ended June
30, 1993

The following table sets forth certain information regarding the Company's
operations for fiscal 1994 and fiscal 1993.

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------
1993 1994
-------- --------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Loans originated....................................................... $ 58,600 $163,000

Amortization of finance income......................................... $ 10,826 $ 18,265
Gain on sale of financing transactions, net............................ 1,104 302
Other income........................................................... 3,269 2,344
Total finance and other income......................................... 15,199 20,911
Interest expense....................................................... 5,005 8,833
Margins earned......................................................... 10,194 12,078
Selling, general and administrative expense (including provision for
doubtful accounts)................................................... 5,735 7,765
Equity in net loss of investees........................................ (51) (242)
Net earnings from continuing operations................................ 2,580 2,260
Discontinued operations:
Loss from discontinued operations, net of tax of $1,065 (1993) and
$51 (1994)........................................................ (1,497) (74)
Loss on disposal of discontinued operations, net of tax of $295
(1993) and $2,213 (1994).......................................... (425) (3,071)
Loss from discontinued operations.................................... (1,922) (3,145)
Net earnings (loss).................................................... 658 (885)
Net earnings (loss) per common and common equivalent share:
From continuing operations........................................... 0.39 0.34
From discontinued operations......................................... (0.29) (0.47)
-------- --------
Net earnings (loss) per share.......................................... $ 0.10 $ (0.13)
======== ========
</TABLE>

The Company originated $163.0 million of loans in fiscal 1994, as compared
to $58.6 million in fiscal 1993, an increase of 178%. The increase from period
to period was primarily because the Company expanded its equipment financing
capabilities as a result of its acquisition of MEF Corp. in January 1993. The
Company's average net financed receivables increased 73% to $176.1 million for
the period ended June 30, 1994, from $101.5 million for the period ended June
30, 1993. The Company experienced a decrease in its residual valuation to $3.7
million at June 30, 1994, from $6.2 million at June 30, 1993. The decrease stems
primarily from the Company's sale of residuals totalling $1.2 million and the
Company's strategy to reduce the number of loans in its portfolio in which
residual values are recorded.

Amortization of finance income increased 69% to $18.3 million for fiscal
1994 from $10.8 million for fiscal 1993. Although the Company's net financed
receivables increased significantly, the amortization of finance income did not
increase on a proportionate basis due to four factors: (i) the Company's
strategy to originate equipment loans in which residual positions are not
retained reduced the Company's rate of return on the respective transactions;
(ii) the Company has narrowed the interest rate spread between the Company's
costs of funding its equipment loans and the interest rates charged its
customers; (iii) the volume of equipment loans originated in fiscal 1994 was
greater in the second half of the year than in the first half; and (iv) the
interest rates under the Company's warehouse facilities increased during the
year which increased interest expense and thus reduced margins.

Gain on sale of financing transactions, net declined 73% to $302,000 in
fiscal 1994 from $1.1 million in fiscal 1993 due to the reduction in the number
and dollar amount of equipment loans funded through whole loan sales and the
increased use of securitization to obtain permanent funding for the Company's
equipment loans.

23
<PAGE> 24

fiscal 1994 from $3.3 million for fiscal 1993. This decrease was due to a
decline in net operating lease income, which was partially offset by a slight
increase in receivable financing income. Net operating lease income declined 74%
to $359,000 in fiscal 1994 from $1.4 million in fiscal 1993 as a result of the
Company's strategy to reduce its originations of operating leases and the
expiration of two substantial transactions near the end of fiscal 1993.
Receivable management fees increased to $1.5 million in fiscal 1994 from $1.3
million in fiscal 1993. Although the Company's notes collateralized by medical
receivables portfolios increased significantly, receivable financing income did
not increase on a proportionate basis primarily because the increase in the
Company's volume of medical receivable loans occurred late in fiscal 1994.
Consequently, receivable financing income as a percent of the notes
collateralized by medical receivables was reduced.

Interest expense increased 76% to $8.8 million in fiscal 1994 from $5.0
million in fiscal 1993. For fiscal 1994, the Company's average indebtedness
increased 92% to $147.3 million from $76.7 million during fiscal 1993. This
increase stems primarily from an increase in the average outstanding balance of
long-term debt during fiscal 1994 as compared to fiscal 1993. As a percentage of
total finance and other income, interest expense was 42% for fiscal 1994 as
compared to 33% in fiscal 1993. The increase in interest expense as a percent of
total finance and other income is principally the result of: (i) the Company
narrowing the interest rate spread between the cost of its funding and the
interest rate charged its customers; (ii) the interest rates under the Company's
warehouse facilities increasing during the year; and (iii) the Company's
strategy to originate equipment loans in which residual positions are not
retained reducing the Company's rate of return and thus its income on the
respective equipment loans. Consequently, as a percentage of finance and other
income, interest expense increased in fiscal 1994.

Margins earned were $12.1 million in fiscal 1994 as compared to $10.2
million in fiscal 1993, an increase of 19%. The increase in fiscal 1994 over
fiscal 1993 was primarily a result of the overall increase in the size of the
Company's loan portfolio.

SG&A increased 37% to $7.8 million in fiscal 1994 from $5.7 million in
fiscal 1993. The largest component of this increase is a $1.4 million increase
in the Company's provision for doubtful accounts which in fiscal 1994 was
attributable to the growth of the Company's loan portfolio. The increase also
reflects costs associated with additional personnel and related costs incurred
in connection with the Company's acquisition of MEF Corp. during fiscal 1993,
the acquisition of Medical Device Capital Company during fiscal 1994 and the
expansion of its medical receivable financing business in fiscal 1994.

Equity in net losses of investees increased 375% to $242,000 in fiscal 1994
from $51,000 in fiscal 1993. The increase in net losses of investees is
primarily attributable to greater losses incurred by the Company's investees in
the first half of fiscal 1994 than in fiscal 1993. See "Business -- Other
Business Activities."

The Company's net earnings from continuing operations were $2.3 million, or
$.34 per share, for fiscal 1994 as compared to $2.6 million, or $0.39 per share,
for fiscal 1993 a decrease of 12%. After giving effect to its discontinued
operations, the Company's loss was $885,000, or $0.13 per share, for fiscal 1994
versus net earnings of $658,000, or $0.10 per share, for fiscal 1993. The
Company's net earnings from continuing operations did not increase in fiscal
1994 despite the growth of its loan portfolio and the increase in finance and
other income.

The Company's cash and cash equivalents at June 30, 1993 and 1994 was $2.2
million and $1.7 million, respectively. The following describes the changes from
fiscal 1993 to fiscal 1994 in the items which had the most significant impact on
the Company's cash flow during fiscal 1994.

The Company's net cash provided by operating activities increased $16.0
million to $13.0 million in fiscal 1994 from $(3.0) million in fiscal 1993. The
increase stems almost entirely from an increase in the Company's accounts
payable from June 30, 1993 to June 30, 1994 of $17.0 million. The increase in
accounts payable, which consists primarily of amounts due manufacturers of
equipment that the Company has financed, stems from the increased volume of the
Company's financing transactions near the end of fiscal 1994.

The Company's net cash used in investing activities increased $75.7 million
to $113.9 million in fiscal 1994 from $38.2 million in fiscal 1993. This
increase is attributable primarily to the increase in cash used to acquire
equipment of $86.4 million to $149.0 million in fiscal 1994 from $62.6 million
in fiscal 1993. These

24
<PAGE> 25

uses of cash were offset by receipt of $34.3 million and $28.3 million in excess
of amounts included in income for the same periods, respectively.

The Company's net cash provided by financing activities increased $59.6
million to $100.5 million in fiscal 1994 from $40.9 million in fiscal 1993. This
increase primarily resulted from an increase in the Company's long-term debt
related to securitizations from June 30, 1993 through June 30, 1994 and the
issuance of Convertible Subordinated Notes in which the Company realized net
proceeds of approximately $14.1 million in fiscal 1994.

Results of Operations for Year Ended June 30, 1993 Compared to Year Ended June
30, 1992

The following table sets forth certain information regarding the Company's
operations for fiscal 1993 and the year ended June 30, 1992 ("fiscal 1992").

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------
1992 1993
------- --------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Loans originated...................................................... $46,400 $ 58,600

Amortization of finance income........................................ $10,130 $ 10,826
Gain on sale of financing transactions, net........................... 2,197 1,104
Other income.......................................................... 2,409 3,269
Total finance and other income........................................ 14,736 15,199
Interest expense...................................................... 5,989 5,005
Margins earned........................................................ 8,747 10,194
Selling, general and administrative expense (including provision
for doubtful accounts).............................................. 3,832 5,735
Equity in net earnings (loss) of investees............................ 153 (51)
Net earnings from continuing operations............................... 3,053 2,580
Discontinued operations:
Loss from discontinued operations, net of tax of $302 (1992)
and $1,065 (1993)................................................ (346) (1,497)
Loss on disposal of discontinued operations, net of tax of $295
(1993)........................................................... -- (425)
Loss from discontinued operations................................... (346) (1,922)
Net earnings.......................................................... 2,707 658
Net earnings (loss) per common and common equivalent share:
From continuing operations.......................................... 0.57 0.39
From discontinued operations........................................ (0.06) (0.29)
------- --------
Net earnings per share................................................ $ 0.51 $ 0.10
======= ========
</TABLE>

The Company originated $58.6 million of equipment loans in fiscal 1993, as
compared to $46.4 million in fiscal 1992, an increase of 26%. The increase from
period to period was primarily because the Company expanded its equipment
financing capabilities and market presence as a result of its acquisition of MEF
Corp. in January 1993. The Company's average net financed receivables increased
30% to $101.5 million for the period ended June 30, 1993 from $78.0 million for
the period ended June 30, 1992.

Amortization of finance income increased 7% to $10.8 million for fiscal
1993 from $10.1 million for fiscal 1992. Although the Company's net financed
receivables increased significantly, the amortization of finance income did not
increase on a proportionate basis due to the fact that the volume of
originations of equipment loans in fiscal 1993 was greater in the second half of
the year than in the first half. Consequently, amortization of finance income as
a percent of the loan portfolio was reduced.

Gain on sales of financing transactions, net decreased 50% to $1.1 million
in fiscal 1993 from $2.2 million in fiscal 1992 due to the reduction in the
number and dollar amount of equipment loans funded through whole loan sales in
fiscal 1993 from fiscal 1992 levels. The use of securitization to obtain
permanent funding for the

25
<PAGE> 26

Company's equipment loans significantly reduced the Company's need to sell
equipment loans on a whole loan sale basis.

Other income, which consists of late charges, operating lease income, fees
from billing and collecting medical receivables, management income and other
miscellaneous items increased 38% to $3.3 million in fiscal 1993 as compared to
$2.4 million for fiscal 1992. This increase was due to increases in net
operating lease income and receivable financing income. Net operating lease
income increased 27% to $1.4 million in fiscal 1993 from $1.1 million in fiscal
1992 as a result of an overall increase in the Company's operating lease
portfolio in fiscal 1993 as compared to fiscal 1992. Receivable management fees
increased 135% to $1.3 million in fiscal 1993 from $553,000 in fiscal 1992. The
increase is primarily attributable to an expansion in size and scope of the
billing and collecting services and purchased/financed receivables business in
fiscal 1993 from fiscal 1992 levels. As a result, receivables associated with
purchased and financed management business increased to $2.6 million at June 30,
1993 from $536,000 at June 30, 1992.

Interest expense decreased 17% to $5.0 million in fiscal 1993 from $6.0
million in fiscal 1992. For fiscal 1993 the Company's average indebtedness
increased 33% to $76.7 million from $57.6 million during fiscal 1992. This
decrease stems from a decrease in the cost of funds obtained by the Company in
fiscal 1993 through the use of securitization and the general decline in
prevailing interest rates in fiscal 1993 compared to fiscal 1992.

Margins earned were $10.2 million in fiscal 1993 as compared to $8.7
million in fiscal 1992, an increase of 17%. The increase in fiscal 1993 over
fiscal 1992 was primarily as a result of the overall increase in the size of the
Company's loan portfolio.

SG&A increased 50% from $3.8 million in fiscal 1992 to $5.7 million in
fiscal 1993. The increase reflects costs associated with additional personnel
and related costs incurred in connection with the Company's acquisition of MEF
Corp. during fiscal 1993, the expansion of its medical receivable financing
business in both fiscal 1993 and fiscal 1992, and the increased emphasis on
financing rather than managing medical receivables for third-party healthcare
providers. SG&A relative to the Company's receivables management business
increased to $1.5 million for fiscal 1993, from $775,000 for fiscal 1992, its
initial year of operation. Additions to the Company's allowance for losses
declined to $167,000 in fiscal 1993 from $422,000 in fiscal 1992.

Equity in the net loss/earnings of investees decreased to a net loss of
$51,000 in fiscal 1993 from net earnings of $153,000 in fiscal 1992. The decline
to a net loss during fiscal 1993 from a position of net earnings in the prior
year is primarily attributable to more significant losses incurred by one of the
Company's investees in fiscal 1993.

The Company's net earnings from continuing operations were $2.6 million, or
$0.39 per share, for fiscal 1993 as compared to $3.1 million, or $0.57 per
share, for fiscal 1992. After giving effect to its discontinued operations, the
Company's net earnings were $658,000, or $0.10 per share, for fiscal 1993 and
$2.7 million, or $0.51 per share, for fiscal 1992.

LIQUIDITY AND CAPITAL RESOURCES

General

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

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

26
<PAGE> 27

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

Working capital financing for equipment financing customers is occasionally
provided by the Company where the loan is adequately secured by acceptable
collateral (typically accounts receivable) and the Company's other credit
criteria are satisfied.

In June 1994, the Company completed a $15.0 million private placement of
Convertible Subordinated Notes. The Convertible Subordinated Notes (i) are
convertible into shares of Common Stock at $10.60 per share at the discretion of
the noteholders; (ii) bear interest at a rate of 9 1/8% payable in quarterly
installments of interest only; and (iii) mature in June 2002. The proceeds
generated from the placement were utilized by the Company to repay a portion of
the existing debt under its principal warehouse facility and on a limited basis
to fund medical receivables loans. The agreement with respect to the Convertible
Subordinated Notes contains, among other things, limitations on the Company's
ability to pay dividends and to make certain other kinds of payments. That
agreement also prohibits the Company from incurring additional indebtedness
unless certain financial ratio tests are met. As of March 31, 1995, $500,000
aggregate principal of the Convertible Subordinated Notes had been converted
into 47,169 shares of Common Stock.

After giving effect to the Offering, the Company believes that its present
warehouse and permanent funding sources are sufficient to fund the Company's
current needs for its equipment financing business. However, the Company will
have to expand both its warehouse and permanent funding capacity to meet the
Company's projected growth of its equipment financing business. In addition, the
growth of the Company's medical receivable financing business is dependent on
the Company's ability to obtain suitable funding for that business. Continued
expansion of the Company's business and its continued use of securitizations
will also require additional capital that the Company may seek to obtain from
public offerings and/or private placements of equity securities and/or
additional long-term debt financing. If the Company is unable to continue to
increase its capital base, its ability to expand its financing business will be
significantly constrained.

Warehouse Facilities

At March 31, 1995, the Company had an aggregate maximum of $256.5 million
potentially available under various warehouse facilities, of which the Company
had borrowed an aggregate of $148.0 million. The Company's primary warehouse
facility, a revolving credit agreement with a syndicate of banks that was
amended and restated as of March 28, 1995 (the "Revolving Credit Agreement"),
provides the Company with $81.5 million in borrowing capacity. Borrowings under
the Revolving Credit Agreement bear interest at the Company's option at either a
variable rate equal to the prime rate established by NatWest plus up to an
additional 25 basis points depending upon the Company's leverage ratio from time
to time as defined in the Revolving Credit Agreement or a rate of interest that
varies from 150 to 180 basis points over the one-month, two-month or three-month
LIBOR based on the Company's leverage ratio from time to time. The interest
rates on the Company's borrowings under the Revolving Credit Agreement generally
are re-set at the end of each applicable LIBOR period (i.e., every one-, two- or
three-month period). The rate of interest on any such borrowings changes from
one period to another based on fluctuations in the applicable LIBOR. The
Revolving Credit Agreement is renewable annually at the bank syndicate's
discretion. However, the Revolving Credit Agreement provides that if the banks
elect not to renew the facility at the end of its stated term, December 31,
1995, the outstanding loans automatically convert to four-year amortizing term
loans at higher interest rates.

The Revolving Credit Agreement requires the Company to limit all of its
borrowings to specified levels determined by ratios based on the Company's
tangible net worth and, under certain circumstances, to use specified
percentages of internally generated funds to pay for equipment purchases. The
Revolving Credit Agreement also prohibits the payment of dividends by DVI
Financial Services to the Company. In addition, the amount of funds available at
any given time under the Revolving Credit Agreement is constrained by the

27
<PAGE> 28

amount, type and payment status of the Company's equipment loans. If, at any
time, a significant amount of the Company's loans were to become delinquent, the
availability of credit under the Revolving Credit Agreement would be reduced
and, under other circumstances, the Company could be required to prepay a
portion of the amounts outstanding under the Revolving Credit Agreement. Since
the Revolving Credit Agreement was established, the only collateral that was
eligible for borrowing purposes was equipment loans. To fund the growth of its
medical receivable financing business, the Company requested that the banks
participating in the Revolving Credit Agreement begin to allow the Company to
use the credit facility to fund medical receivable loans. During the quarter
ended December 31, 1994, the banks agreed to permit borrowings by the Company of
up to $7.0 million collateralized by medical receivables.

The Company also has two warehouse facilities with Prudential Securities
Realty Funding Corporation. The first facility, dated as of September 13, 1994
(the "$100.0 million Prudential Facility"), provides the Company with $100.0
million in warehouse funding. Borrowings under this facility bear interest at a
variable rate equal to 75 basis points over the one-month LIBOR and are re-set
every month based on changes in the underlying LIBOR index. The rate of interest
on any such borrowings changes from one period to another based on fluctuations
in the applicable LIBOR. The $100.0 million Prudential Facility provides funding
for equipment loans that are securitized through Prudential Securities
Incorporated. In addition, the $100.0 million Prudential Facility was amended in
March and April 1995 to allow the Company to borrow up to $4.3 million in
special advances (the "Special Advances"). The Special Advances bear interest at
a variable rate equal to 150 basis points over the one-month LIBOR until August
31, 1995. Borrowings under the $100.0 million Prudential Facility, including the
Special Advances, are secured by (i) certain equipment loans and the equipment
financed thereunder, (ii) the Company's interest in the $9.0 million, 7.13%
Asset-Backed Note, Series 1994-A, Class C of DVI Receivables Corp. and (iii) the
Company's rights to receive funds from certain securitized equipment loans. The
obligation of Prudential Securities Realty Funding Corporation to make advances
under the $100.0 million Prudential Facility, including the Special Advances,
has been extended to August 31, 1995. Pursuant to this extension, all borrowings
under the $100.0 million Prudential Facility mature on August 31, 1995.

The second facility with Prudential Securities Realty Funding Corporation,
dated as of June 7, 1995 (the "$5.5 million Prudential Facility"), provides the
Company with $5.5 million in warehouse funding to make medical receivables loans
to borrowers approved by Prudential Securities Realty Funding Corporation.
Borrowings under the $5.5 million Prudential Facility bear interest at a rate
equal to the prime rate established by Morgan Guaranty Trust Company of New
York. The borrowings are secured by medical receivables loans originated by the
Company and the underlying receivables. The $5.5 million Prudential Facility
matures on August 31, 1995.

The Company also has a $75.0 million warehouse facility dated as of
February 2, 1995 with ContiTrade, which was amended on March 2, 1995 and June
30, 1995 (the "Conti Facility"). The Conti Facility provides the Company with
warehouse funding for certain equipment loans to be securitized or otherwise
permanently funded through ContiTrade. Borrowings under the Conti Facility bear
interest at a rate equal to 150 basis points over one-month or two-month LIBOR
which is fixed as to the related funding period. The rate of interest on any
such borrowings from one period to another changes based on fluctuations in
LIBOR. Borrowings under the Conti Facility mature on October 31, 1995.

On March 31, 1995, an aggregate of approximately $148.0 million was
outstanding under all of the Company's warehouse facilities and lines of credit.

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

When the Company borrows funds through warehouse facilities, it is exposed
to a certain degree of risk caused by interest rate fluctuations. Although the
Company's equipment loans are structured and permanently funded on a fixed
interest rate basis, it uses warehouse facilities until permanent funding is
obtained. Because

28
<PAGE> 29

funds borrowed through warehouse facilities are obtained on a floating interest
rate basis, the Company uses hedging techniques to protect its interest rate
margins during the period that warehouse facilities are used. The Company's sole
reason for using hedging techniques is to offset the loss that occurs when loans
are funded on an interim basis and interest rates rise causing the Company's
interest rate margins on the loans to decline. Therefore, gains or losses
generated through hedging techniques only benefit the Company to the extent they
offset the corresponding reduction in margin due to rising interest rates until
the loans are permanently funded. The Company's primary hedging technique is to
assume short positions in U.S. Treasury obligations of comparable maturities to
the life of its loans. To the extent hedging gains or losses resulting from U.S.
Treasury contracts are significant, the resulting cash payments or receipts may
impact the Company's liquidity. See "Risk Factors -- Interest Rate Risk" and
"Business -- Capital Resources and Transaction Funding -- Hedging Strategy."

Permanent Funding Methods

The Company has completed seven securitizations or other structured finance
transactions since 1991 totalling $414.8 million, including two public debt
issues of $75.7 million and $90.0 million and five private placements of debt
totalling $249.1 million. In January 1994, the Company filed a $350 million
registration statement (Registration No. 33-74446) with the Commission to
provide for the future issuance of securitized debt in a series of transactions
pursuant to the Commission's "shelf" registration rule. The registration
statement was declared effective by the Commission on June 23, 1994. The $75.7
million and $90.0 million public debt issues were the two initial fundings under
the $350 million shelf registration. The Company expects to continue to use
securitization, on both a public and private basis, as its principal means to
permanently fund its loans for the foreseeable future, except when issues of
borrower concentration exist that warrant the sale of loans.

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

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

INCOME TAX ISSUES

Historically, the Company has deferred a substantial portion of its federal
and state income tax liability because of its ability to obtain depreciation
deductions from transactions structured as fair market value leases. Over the
past 18 months, the proportion of transactions originated by the Company
structured as fair market value leases has declined significantly, and the
Company expects that trend to continue. In addition, the Company disposed of a
portion of its equipment residual portfolio in fiscal 1994 and may continue to
do so in future periods. As a result, the Company expects that in future periods
its ability to defer its income tax liability will correspondingly decline.

29
<PAGE> 30

BUSINESS
OVERVIEW

The Company is a specialty commercial finance company whose core business
is financing higher cost diagnostic imaging, radiation therapy and other types
of sophisticated medical equipment by outpatient healthcare centers, groups of
physicians and hospitals. Over the last 10 years, the Company has developed
extensive expertise in analyzing the credit of healthcare providers that lack
audited financial statements and detailed business plans. By servicing the
equipment financing needs of these healthcare providers and the corresponding
need for equipment manufacturers to arrange financing for their customers, the
Company has established a niche in markets underserved by most banks and finance
companies. In addition to equipment financing, a small but growing part of the
Company's business is making working capital loans to outpatient healthcare
providers secured by their medical receivables and other collateral.

Virtually all of the Company's equipment loans are structured on a fixed
interest rate basis such that the full cost of the equipment and all financing
costs are repaid during the financing term, which typically is five years. The
Company's risk management strategy is to avoid risks associated with the
residual value of equipment and of loan prepayments and to minimize its exposure
to interest rate fluctuations. The Company's equipment loans are structured
principally as notes secured by equipment or direct financing leases with a
bargain purchase option for the equipment user.

In the past two years, the Company has grown substantially. In fiscal 1994,
the Company's loan origination volume increased approximately 178% to $163.0
million from $58.6 million for fiscal 1993. During the nine months ended March
31, 1995, the Company's loan origination volume increased approximately 89% to
$233.0 million from $123.0 million for the first three quarters of fiscal 1994.
The Company's net financed receivables increased approximately 100% to $234.8
million at June 30, 1994 from $117.5 million at June 30, 1993. The Company's net
financed receivables increased approximately 79% to $370.6 million at March 31,
1995 from $206.7 million at March 31, 1994.

The Company uses securitization and other structured finance techniques to
permanently fund most of its equipment loans and since 1991 has funded $414.8
million of equipment loans in this manner. The Company's ability to securitize
loans has improved significantly in recent years which enabled it to securitize
loans in the public market in fiscal 1994. Access to the public securitization
market has lowered the Company's relative funding costs and expanded the
Company's access to funding.

GROWTH STRATEGY

- Maximize the value of its relationships with manufacturers. The Company
established a close working relationship with four of the six largest
manufacturers of diagnostic imaging equipment by meeting their needs to
arrange financing for the higher cost equipment they sell to non-hospital
healthcare providers. The Company intends to continue to fulfill those
needs and place greater emphasis on financing the lower cost patient
treatment devices these manufacturers produce such as ultrasound, nuclear
medicine and X-ray equipment, and on financing equipment for their
hospital customers.

- Originate medical equipment loans on a wholesale basis. A growing part
of the Company's equipment financing business is purchasing loans
originated by regional medical equipment finance companies and medical
equipment manufacturers (collectively, "Originators"). The Company uses
its securitization capabilities and its expertise in analyzing healthcare
credits to service Originators that generally do not have access to cost
effective permanent funding. See "-- Loan Characteristics and
Underwriting" and "-- Capital Resources and Transaction
Funding -- Permanent Funding Program."

- Generate additional business through its existing customer base. The
Company enjoys relationships with a large number of users of
sophisticated medical equipment. The Company believes its existing

30
<PAGE> 31

customers, particularly those that are expanding to provide additional
healthcare services, can be a continuing source of equipment and medical
receivable financing business.

- Establish equipment financing relationships with manufacturers of patient
treatment devices. The Company intends to use its reputation as a
medical equipment financing specialist and its ability to finance a wide
range of healthcare providers to establish its presence in the patient
treatment device market. The Company's objective is to build
relationships with manufacturers of sophisticated patient treatment
devices such as surgical lasers.

- Expand its medical receivables financing activity. The Company believes
that its expertise in underwriting and financing complex healthcare
credits and established presence in the healthcare market will enable it
to obtain additional medical receivable financing business from
outpatient healthcare providers.

HEALTHCARE FINANCING INDUSTRY

Competitors in the healthcare financing business include equipment
manufacturers that sell and finance their products, leasing subsidiaries of
national and regional commercial banks and other leasing and financing
companies. Competition among providers of equipment financing varies based on
the type of healthcare provider being financed and the acquisition cost of the
equipment. When hospitals acquire capital equipment directly (i.e., they accept
full financial liability), competitors are numerous as lenders generally can
make credit decisions based on audited financial statements that normally
reflect a financial condition that is strong relative to the cost of the
equipment being acquired. The competition is similar when physician specialists
such as radiologists are acquiring relatively inexpensive equipment (i.e.,
$200,000 or less). Many banks and finance companies are willing to make loans of
this amount to physician specialists based solely on their personal net worth.
Specialty finance companies, such as the Company, typically provide financing
for borrowers other than those described above.

Competition in medical receivable financing is similar to that in medical
equipment financing. Medical receivable financing is readily available for most
hospitals and for physicians seeking relatively small amounts of funding.
However, for outpatient healthcare providers seeking funding in excess of
approximately $500,000, the principal sources of financing generally are limited
to specialty finance companies or factoring companies that purchase receivables
at a discount.

Medical equipment financing providers often compete on the basis of
relationships with manufacturers of the equipment being financed. General
Electric Medical Systems and Siemens Medical Systems (which according to
published sources together have approximately 40 to 50% of the U.S. market for
diagnostic imaging equipment) have captive equipment financing subsidiaries. The
four remaining major manufacturers of diagnostic imaging equipment depend
largely on relationships with financing providers, such as the Company, to
finance the sale of their products.

SALES AND MARKETING

The Company generates most of its financing opportunities from two sources:
(i) medical equipment manufacturers that use third parties to finance the sale
of their products and (ii) healthcare providers with whom the Company's sales
organization has relationships. Generally, medical equipment manufacturers refer
customers to the Company for financing because the Company has the ability to
understand and measure the creditworthiness of the customer's business and
provide the financing necessary for the completion of the equipment sale. The
Company often assists the customer in preparing a comprehensive business and
financial plan that generally includes a demographic study of the equipment
user's market, an analysis of the local competition and the effect of managed
care on the market and the specific requirements for regulatory compliance and
working capital. The Company's sales force of financing specialists work with
the equipment user, the manufacturer and the Company's credit department to
formulate this business and financial plan.

The Company established a close working relationship with four of the six
largest manufacturers of diagnostic imaging equipment by meeting their needs to
arrange financing for the higher cost equipment they

31
<PAGE> 32

sell to non-hospital healthcare providers. These manufacturers are Hitachi
Medical Systems America, Philips Medical Systems, Picker International and
Toshiba America Medical Systems. The Company believes these relationships afford
it a competitive edge over other providers of medical equipment financing. Since
the January 1993 acquisition of MEF Corp., the Company has reorganized its sales
force with a view to increasing the volume of business it conducts with those
companies principally by focusing on the lower cost equipment sold by those
companies.

The Company has a sales unit dedicated to its Wholesale Program. The
Company purchases equipment loans from Originators that generally do not have
access to cost effective permanent funding for their loans. The Company
initiated the Wholesale Program in June 1994 and during the three fiscal
quarters ended March 31, 1995, the Company purchased an aggregate of $52.7
million of equipment loans from six Originators. The Company believes that it
has an opportunity to increase the volume of loans it buys in this manner
because the number of companies that finance Originators has declined in the
past few years. See "-- Loan Characteristics and Underwriting."

In addition to financing medical equipment, the Company also makes working
capital loans under revolving lines of credit for outpatient healthcare
providers that are secured by their receivables from payors such as insurance
companies, large self-insured companies and governmental programs such as
Medicare, and other collateral. These lines of credit are secured by (i)
specific receivables due the provider that the Company has analyzed to determine
the amount and likelihood of collection, (ii) the overall receivables portfolio
of the healthcare provider and (iii) other forms of credit enhancement such as
cash collateral, letters of credit and guarantees. The Company's two medical
receivables loan specialists assist the Company's sales force in originating
medical receivables loans. The medical receivable loan business entails
significant risks and capital requirements. See "Risk Factors -- Risks Related
to the Medical Receivable Financing Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."

The Company intends to expand into the patient treatment device market. The
Company believes its ability to finance a wide range of healthcare providers and
meet the equipment financing needs of major manufacturers of diagnostic imaging
equipment will help it build relationships with patient treatment device
manufacturers. To establish relationships with patient treatment device
manufacturers, the Company expects to train their vendor personnel in the use of
equipment financing as a sales tool and to provide equipment financing programs
that make these device manufacturers more competitive. The Company believes the
patient treatment device market is more diverse than the diagnostic imaging
market because of the larger number of manufacturers and types of products and
the greater price range of those products. The patient treatment device
manufacturers targeted by the Company produce relatively high cost treatment
products such as surgical lasers.

The Company's sales and marketing organization consists of 21 healthcare
finance specialists located in various parts of the U.S. These individuals
generally have a credit industry and/or medical equipment background. The
Company generally locates sales personnel in geographic areas where they have
knowledge of the local market. The Company believes that sales personnel who
understand local economic and political trends are a valuable component of its
credit underwriting process.

PROFILE OF EQUIPMENT FINANCED

The following table sets forth certain information with respect to loan
originations by the Company for the seven fiscal quarters ending March 31, 1995.
Summations and differences of the numbers set forth below may not reconcile due
to rounding.

32
<PAGE> 33

LOANS ORIGINATED BY THE COMPANY
(IN THOUSANDS, EXCEPT PERCENTAGES)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------
SEPTEMBER 30, 1993 DECEMBER 31, 1993 MARCH 31, 1994 JUNE 30, 1994
-------------------- -------------------- -------------------- --------------------
DIAGNOSTIC/TREATMENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
EQUIPMENT(1) ORIGINATED OF TOTAL ORIGINATED OF TOTAL ORIGINATED OF TOTAL ORIGINATED OF TOTAL
-------------------- ---------- -------- ---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MRI........................... $18,773 52.1% $25,185 60.0% $32,208 71.6% $19,765 49.4%
CT(2)......................... 1,022 2.8 4,917 11.7 4,645 10.3 1,149 2.9
Radiation therapy............. 467 1.3 2,869 6.8 190 0.4 6,414 16.0
Ultrasound.................... 497 1.4 523 1.2 766 1.7 968 2.4
Medical devices............... 780 2.2 915 2.2 590 1.3 140 0.4
Nuclear camera................ 887 2.5 1,342 3.2 977 2.2 1,615 4.0
X-Ray......................... 67 0.2 800 1.9 427 0.9 409 1.0
Lithotripter.................. 664 1.9 475 1.1 0.0 0.0 1,491 3.7
Lab........................... 372 1.0 30 0.1 0.0 0.0 991 2.5
Other......................... 269 0.7 3,095 7.4 4,762 10.6 122 0.3

SECURED LINES OF CREDIT(3)
--------------------------
Hospitals(4).................. 11,692 32.5 815 1.9 272 0.6 3,916 9.8
Medical receivables(5)........ 510 1.4 1,034 2.5 163 0.4 3,020 7.6
------- ----- ------- ----- ------- ----- ------- -----
Total....................... $36,000 100.0% $42,000 100.0% $45,000 100.0% $40,000 100.0%
======= ===== ======= ===== ======= ===== ======= =====

<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------
SEPTEMBER 30, 1994 DECEMBER 31, 1994 MARCH 31, 1995
--------------------- -------------------- --------------------
DIAGNOSTIC/TREATMENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
EQUIPMENT(1) ORIGINATED OF TOTAL ORIGINATED OF TOTAL ORIGINATED OF TOTAL
- ------------------------------ ---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
MRI........................... $29,470 56.7% $37,900 51.2% $ 48,228 45.1%
CT(2)......................... 1,735 3.3 5,513 7.5 7,828 7.3
Radiation therapy............. 2,459 4.7 2,369 3.2 6,098 5.7
Ultrasound.................... 1,325 2.6 194 0.3 5,934 5.5
Medical devices............... 4,263 8.2 2,900 3.9 4,379 4.1
Nuclear camera................ 1,752 3.4 888 1.2 3,812 3.6
X-Ray......................... 123 0.2 603 0.8 1,057 1.0
Lithotripter.................. 0.0 0.0 191 0.3 770 0.7
Lab........................... 159 0.3 103 0.1 619 0.6
Other......................... 2,314 4.5 4,601 6.2 214 0.2

SECURED LINES OF CREDIT(3)
--------------------------
Hospitals(4).................. 6,152 11.8 15,818 21.4 22,744 21.3
Medical receivables(5)........ 2,248 4.3 2,920 3.9 5,317 5.0
------- ----- ------- ----- -------- -----
Total....................... $52,000 100.0% $74,000 100.0% $107,000 100.0
======= ===== ======= ===== ======== =====
</TABLE>

- ---------------
(1) Percentages are based on the original cost of equipment financed.

(2) Computerized tomography.

(3) Percentages are based on the total dollar volume of the amounts funded under
the lines of credit.

(4) Consists of lines of credit provided to hospitals for a variety of equipment
which secure the loans made under these lines of credit. See "-- Loan
Characteristics and Underwriting."

(5) Consists of lines of credit provided to outpatient healthcare providers that
are secured by medical receivables and other forms of credit enhancement.
See "-- Loan Characteristics and Underwriting."

<PAGE> 34

The following table sets forth certain information with respect to the
geographic distribution of the Company's equipment loan portfolio as of March
31, 1995.

GEOGRAPHIC DISTRIBUTION OF EQUIPMENT LOAN PORTFOLIO
TOP 15 STATES
(IN THOUSANDS)

<TABLE>
<CAPTION>
STATE NET INVESTMENT(1)
--------------------------------------------------------------------- -----------------
<S> <C>
California........................................................... $ 102,608
New York............................................................. 44,672
Florida.............................................................. 32,182
New Jersey........................................................... 23,153
Texas................................................................ 22,073
Pennsylvania......................................................... 21,782
Tennessee............................................................ 9,533
Alabama.............................................................. 9,254
Illinois............................................................. 8,803
Ohio................................................................. 7,019
Arizona.............................................................. 6,955
Maryland............................................................. 6,508
Georgia.............................................................. 5,567
Indiana.............................................................. 5,202
Louisiana............................................................ 3,672
</TABLE>

- ---------------
(1) Based on cost of equipment financed.

The following table sets forth management's estimate of the approximate
cost of new equipment financed by the Company as of March 31, 1995.

COST ESTIMATE OF NEW EQUIPMENT FINANCED

<TABLE>
<CAPTION>
EQUIPMENT TYPE PRICE RANGE
--------------------------------------------------------------- ---------------------
<S> <C>
MRI............................................................ $750,000 - $2,000,000
CT............................................................. 350,000 - 1,000,000
Radiation therapy.............................................. 400,000 - 1,200,000
Diagnostic ultrasound.......................................... 50,000 - 250,000
Nuclear medicine............................................... 200,000 - 600,000
Positron emission tomography................................... 750,000 - 2,000,000
X-ray
Radiographic................................................. 40,000 - 150,000
Radiographic/Fluoroscopic.................................... 100,000 - 500,000
Special procedures........................................... 750,000 - 2,000,000
Other X-ray.................................................. 50,000 - 200,000
Image management/archiving systems............................. 50,000 - 500,000
</TABLE>

LOAN CHARACTERISTICS AND UNDERWRITING

The Company's typical equipment loan is secured by one or more pieces of
medical equipment, is a five-year contract that is not prepayable and has an
initial principal balance ranging from $300,000 to $2.0 million. The Company's
equipment loans are structured (i) on a "net" basis, requiring the obligor to
pay for

34
<PAGE> 35

equipment maintenance and all other operating expenses, including taxes and
insurance and (ii) to require the obligor to be responsible for compliance with
all applicable laws and regulations with respect to the use and operation of the
equipment. The terms of the Company's equipment loans range from 36 to 84
months. As of March 31, 1995, approximately 90% (as measured by equipment cost)
of the Company's loan portfolio had an initial term of 72 months or less. The
Company's policy is to structure its equipment loans so that the obligor pays
for the full cost of the equipment and the financing during the financing term.

Due to the relatively large size of the Company's typical equipment loan
(which in the Company's three fiscal quarters ended March 31, 1995 averaged
$713,100), each loan is analyzed individually. The Company applies specific
credit guidelines to each of its various customers, depending on their credit
strength. All loans must be approved by the Company's credit committee (the
"Credit Committee"), which consists of three designated senior credit officers.
In addition, loans in excess of $750,000 generally require the approval of the
Company's senior credit committee (the "Senior Credit Committee"), which
consists of the two senior members of the Credit Committee and a designated
member of the Company's Board of Directors. To service the needs of its
customers, equipment manufacturers and sales organization, the Credit Committee
and Senior Credit Committee generally meet at least weekly to review and make
credit decisions on new loans.

The credit underwriting process the Company uses to evaluate non-hospital
borrowers enables it to prescribe specific working capital and net worth
requirements and specify the amount and form of any credit enhancement and/or
financial support (such as cash collateral, letter of credit, guarantees, fee
subordinations or equipment manufacturer guarantees). When analyzing hospital
credits, the credit analysis process is generally simpler and less time
consuming than the process for analyzing outpatient and physician credits due to
the financial strength of the borrower and the availability of audited financial
statements.

Under the Wholesale Program, the Company purchases loans that satisfy the
same credit guidelines that it employs to originate equipment loans on a direct
basis. The Company is not required to purchase all or any of such loans. The
Company believes that following its credit guidelines helps minimize the
Company's financial risk in connection with purchasing loans from Originators
and ensures that the loans conform to the requirements of the Company's
securitization programs. The Company selects Originators based on the type and
cost of the medical equipment they finance, the business and credit history of
Originators and the historical performance of the loans they have originated.
The Company requires Originators to use loan documentation supplied by or
acceptable to the Company and to furnish it the same general credit information
the Company requires when it originates loans on a direct basis.

The purchase price for wholesale loans is based on the present value of
remaining payments discounted at an agreed upon interest rate that is higher
than the borrowing costs the Company expects to incur when it securitizes or
otherwise permanently funds the purchased loans. Pending securitization or sale,
the Company borrows under its warehouse facilities, which bear interest at
variable rates, in order to purchase loans from Originators. Accordingly, the
Company may be exposed to interest rate risk on purchases under the Wholesale
Program to the extent interest rates increase between the time the purchases are
initially funded and the time they are permanently funded. In addition, the
Company services the loans it purchases under the Wholesale Program for the
remaining terms of the contracts. See "-- Loan Characteristics and
Underwriting."

The Company's medical receivables financing business consists primarily of
providing lines of credit under which the Company makes full recourse loans to
healthcare providers that are secured by medical receivables and other
collateral. The loan amounts range from $300,000 to $4.0 million and are based
upon the Company's evaluation of the net collectible amount of the healthcare
providers' eligible receivables. These medical receivables generally have
maturities ranging from 30 to 150 days and generally involve payors such as
insurance plans, self insured companies and governmental programs. Essentially
all of the Company's medical receivable lines of credit have terms from 12 to 36
months. The medical receivable financing business entails significant risks and
capital requirements. See "Risk Factors -- Risks Related to the Medical
Receivable Financing Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

The Company provides lines of credit to hospitals for the purchase of a
variety of equipment. Loans under these facilities are direct obligations of the
hospitals and are secured by the purchased equipment. In providing

35
<PAGE> 36

these lines of credit, the Company seeks to increase its financing for
healthcare providers whose audited financial statements normally reflect a
financial condition that is strong relative to the size of the line of credit.
Providing these lines of credit allows the Company to diversify the range of
medical equipment it finances and the types of loans it securitizes.

CREDIT EXPERIENCE.

The following table sets forth certain information with respect to the
delinquencies for the equipment loans originated by the Company (including loans
held by the Company in its loan portfolio and loans sold or otherwise
permanently funded) for the periods indicated.

DELINQUENCY EXPERIENCE(1)

AS OF JUNE 30,
-----------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994
----------------- ----------------- ----------------- ------------------ ------------------
% OF % OF % OF % OF % OF
AMOUNT TOTAL(2) AMOUNT TOTAL(2) AMOUNT TOTAL(2) AMOUNT TOTAL(2) AMOUNT TOTAL(2)
------- -------- ------- -------- ------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT FOR PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net financed
receivables(3).......... $51,319 $70,459 $85,586 $117,510 $234,769
Delinquencies(1)
31 - 60 days........... $ 183 0.4% $ 452 0.6% $ 1,099 1.3% $ 4,058 3.5% $ 3,996 1.7%
61 - 90 days........... 0 0 16 0 2,616 3.1 2,095 1.8 200 0.1
91 + days.............. 0 0 2,597 3.7 257 0.3 3,948 3.4 4,513 1.9
------- --- ------- --- ------- --- -------- --- -------- ---
Total delinquencies.. $ 183 0.4% $ 3,065 4.3% $ 3,972 4.7% $ 10,101 8.7% $ 8,709 3.7%
======= === ======= === ======= === ======== === ======== ===

<CAPTION>
AS OF
MARCH 31,
------------------
1995
------------------
% OF
AMOUNT TOTAL(2)
-------- --------
(IN THOUSANDS, EXCEPT
FOR PERCENTAGES)
<S> <C> <C>
Net financed
receivables(3).......... $370,587
Delinquencies(1)
31 - 60 days........... $ 9,761 2.6%
61 - 90 days........... 1,995 0.5
91 + days.............. 7,624 2.1
-------- ---
Total delinquencies.. $ 19,380 5.2%
</TABLE>

- ---------------
(1) Under the relevant agreements, the Company's obligors generally are
considered in default if payment on a contract has not been received when
due. Information presented does not include obligations that are overdue by
less than 30 days.

(2) Delinquencies as a percentage of total net financed receivables.
Delinquencies reflects the entire outstanding balance on delinquent
contracts.

(3) Net financed receivables consists of gross financed receivables net of
unearned income. Gross financed receivables consist of receivables in
installments, receivables in installments-related parties, residual
valuation, notes collateralized by medical receivables and equipment on
operating leases.

The following table sets forth certain information with respect to losses
for the equipment loans originated by the Company (including loans held by the
Company in its loan portfolio and loans sold or otherwise permanently funded)
for the periods indicated.

LOSS EXPERIENCE

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED JUNE 30, MARCH 31,
----------------------------------------------------- -----------
1990 1991 1992 1993 1994 1995
------- ------- ------- -------- -------- -----------
(IN THOUSANDS, EXCEPT FOR PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Average net financed receivables(1)..... $41,418 $60,889 $78,023 $101,548 $176,140 $ 302,678
Net charge-offs......................... 154 68 37 39 248 257
Net charge-offs as a percentage of
average net financed receivables...... 0.37% 0.11% 0.05% 0.04% 0.14% 0.11%(2)
</TABLE>

- ---------------
(1) Presentation is based on averages of period beginning and period ending
balances.

(2) Information is presented on an annualized basis.

36
<PAGE> 37

The following table sets forth certain information with respect to
reconciliation of allowance for losses for the equipment loans originated by the
Company (including loans held by the Company in its loan portfolio and loans
sold or otherwise permanently funded) for the periods indicated. On a monthly
basis, the Company compiles information with respect to the current and
anticipated performance of its loan portfolio. The Company analyzes this
information regularly and makes an adjustment to the allowance at the end of
each fiscal quarter.

RECONCILIATION OF ALLOWANCE FOR LOSSES

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDING JUNE 30, MARCH 31,
---------------------------------------------------- -----------
1990 1991 1992 1993 1994 1995
------ ------ ------ ------- ------- -----------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Beginning allowance............ $201 $346 $697 $1,082 $1,210 $2,498
Provision for doubtful
accounts..................... 299 419 422 167 1,536 826
Net charge-offs................ (154) (68) (37) (39) (248) (257)
------ ------ ------ ------- ------- -----------
Ending allowance............... $346 $697 $1,082 $1,210 $2,498 $3,067
====== ====== ====== ======= ======= =========
Net financed receivables....... 51,319 70,459 85,586 117,510 234,769 370,587
Ending allowance as a
percentage of net financed
receivables(1)............... 0.67% 0.99% 1.26% 1.03% 1.06% 0.83%
====== ====== ====== ======= ======= =========
</TABLE>

- ---------------
(1) Net financed receivables consists of gross financed receivables net of
unearned income. Gross financed receivables consists of receivables in
installments, receivables in installments -- related parties, residual
valuation, notes collateralized by medical receivables and equipment on
operating leases.

CAPITAL RESOURCES AND TRANSACTION FUNDING

The Company obtains initial funding for most of its equipment loans through
warehouse facilities. Funds borrowed through these facilities are repaid when
the Company permanently funds its equipment loans through securitization or
other limited recourse permanent funding programs. Typically, equipment loans
will be held in warehouse facilities for 30 to 180 days before they are
permanently funded. To protect its interest rate spreads during periods in which
it has borrowed funds under its warehouse facilities, the Company sometimes
employs a hedging strategy to mitigate the impact of changes in interest rates.

Warehouse Facilities. At March 31, 1995, the Company had an aggregate
maximum of $256.5 million potentially available under various warehouse
facilities, of which it had borrowed an aggregate of $148.0 million. These
facilities are provided by a syndicate of banks that participate in a revolving
credit arrangement and by two investment banking firms that the Company uses for
securitization. The funds obtained through these warehouse facilities are
borrowed on a floating interest rate and full recourse basis. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

Since the Company uses securitization as its primary source of permanent
funding, the Company requires a substantial warehousing capacity. To be cost
efficient, securitization must cover a relatively large and diverse portfolio of
equipment loans. One of the basic requirements of the credit rating agencies
that rate the notes issued in securitizations relates to borrower concentration
and requires that no single credit (borrower) may constitute a significant
portion of the pool of equipment loans being securitized (in the Company's case,
the limit is generally about 3%). Because the Company's equipment loans are
often in the $2.0 million range, it must generally accumulate in excess of $60
million in loans for each securitization. The credit rating agencies also have
other concentration guidelines such as equipment type and the geographic
location of the obligors. These strict requirements mean that not all of the
equipment loans held in the Company's warehouse facilities at any point in time
can be placed in one securitization.

37
<PAGE> 38

Permanent Funding Program. Since 1991, the most important source of
permanent funding for the Company has been securitization and other forms of
structured finance. Securitization is a process in which a pool of equipment
loans (in the Company's case, typically 100 to 150) are transferred to a
special-purpose financing vehicle which issues notes to investors. In the
Company's case, the vehicle usually is an indirect wholly owned special purpose
subsidiary, with the result that the subsidiary's assets and liabilities are
consolidated with the Company's for financial accounting purposes. Principal and
interest on the notes are paid from the cash flows produced by the loan pool,
and the notes are secured by a pledge of the assets in the loan pool as well as
by other collateral or other credit enhancement. In the Company's case,
equipment loans funded through securitization must be credit enhanced to receive
an investment grade credit rating. Credit enhancement can be provided in a
number of ways, including cash collateral, letters of credit, a subordinated
"strip" of transactions or an insurance policy. Typically, securitizations
sponsored by the Company are enhanced through a combination of some or all of
these methods.

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

The Company's financing strategy is to obtain permanent funding for most of
its equipment loans through securitization and to sell the remainder of its
equipment loans. Under current market conditions, the Company believes funding
equipment loans through securitization is more cost effective than selling
loans. However, the Company sells certain of its loans to reduce borrower
concentration and to manage the Company's leverage. When the Company sells
loans, it often is required to provide credit enhancement in a lesser amount
than required when it uses securitization.

The following table sets forth certain information with respect to the
Company's securitizations and other structured finance transactions through
March 31, 1995.

SECURITIZATIONS AND OTHER STRUCTURED FINANCE TRANSACTIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
INITIAL
PRINCIPAL ACCOUNTING PRIVATE OR
FUNDING DATE DESIGNATION AMOUNT TREATMENT PUBLIC ISSUE
- ----------------------- ---------------------------------- --------- ---------------- ------------
<S> <C> <C> <C> <C>
May 1991............... Asset-Backed Notes, Series 1991-A $ 21,289 Debt Financing Private
April 1993............. Asset-Backed Notes, Series 1993-1 41,789 Debt Financing Private
December 1993.......... Asset-Backed Notes, Series 1993-A 73,950 Debt Financing Private
December 1993.......... Asset-Backed Notes, Series 1993-A 5,100 Debt Financing Private
June 1994.............. Asset-Backed Notes, Series 1994-A 72,675 Debt Financing Public
June 1994.............. Asset-Backed Notes, Series 1994-A 2,975 Debt Financing Public
November 1994.......... Commercial Paper 50,000 Whole Loan Sale Private
March 1995............. Asset-Backed Notes, Series 1995-A 85,500 Debt Financing Public
March 1995............. Asset-Backed Notes, Series 1995-A 4,500 Debt Financing Public
March 1995............. Asset-Backed Notes, Series 1995-1 57,000 Whole Loan Sale Private
---------
$ 414,778
========
</TABLE>

Hedging Strategy. The Company's equipment loans are all structured on a
fixed interest rate basis. When the Company originates equipment loans, it bases
its pricing in part on the "spread" it expects to achieve between the interest
rate it charges its equipment loan customers and the effective interest cost it
will pay when it permanently funds those loans. Increases in interest rates
between the time the loans are

38
<PAGE> 39

originated and the time they are permanently funded could narrow or eliminate
the spread, or result in a negative spread, between the interest rate the
Company realizes on its equipment loans and the interest rate that the Company
pays under its warehouse facilities. To protect itself against that risk, the
Company sometimes uses a hedging strategy. When the Company hedges against this
risk, it does so either by assuming a short position in U.S. Treasury
obligations of similar maturities to the specific equipment loans being held for
securitization, or by entering into Treasury "lock" or "swap" transactions under
which the Company will either pay to or receive from a counterparty funds in
amounts calculated by reference to price movements of U.S. Treasury obligations
of similar maturities to the respective equipment loans. The Company believes
this strategy can help hedge against the interest rate risk associated with a
portfolio of fixed rate equipment loans prior to permanent funding. See "Risk
Factors -- Interest Rate Risk" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources -- Warehouse Facilities."

Medical Receivable Financing. Until recently, the Company has funded its
medical receivable financing business using its own working capital. During the
fiscal quarter ended December 31, 1994, the Revolving Credit Agreement was
amended to permit the Company to use up to $7.0 million of the availability
under the facility to fund loans to outpatient healthcare providers that are
secured by medical receivables. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources -- Warehouse Facilities." The Company is seeking to develop new
sources of funding for its medical receivable financing business, including
securitization.

Continuing Need for Capital. The Company's ability to maintain and build
its financing businesses is dependent on its continued ability to obtain the
substantial amounts of warehouse and permanent debt financing it requires. In
addition, in order to sustain continued growth, the Company will require
significant amounts of additional capital. Because of its holding company
structure, the Company can seek to satisfy its requirements for additional
long-term debt and/or equity capital by issuing equity or debt securities at the
parent company level and then contributing the proceeds of those financings to
DVI Financial Services or DVI Business Credit (which are the obligors under the
Company's various warehouse facilities).

OTHER BUSINESS ACTIVITIES

General. In 1991, the Company initiated a strategy to participate in the
healthcare services business by making investments in emerging healthcare
service companies and developing or acquiring healthcare facilities that it
operated on a direct basis. Subsequent to the acquisition of MEF Corp. in
January 1993, the Company withdrew from this area to redirect capital,
management and other resources invested in the healthcare services business to
support the growth of the Company's financial services business. In March 1995,
the Company sold its equity interest in SMT Health Services, Inc., a provider of
mobile diagnostic imaging services.

Investments. In October 1991, the Company purchased an equity interest in
Healthcare Imaging Services, Inc.("HIS"), a company which provides diagnostic
imaging and lithotripsy services in the northeast U.S. HIS's common stock is
traded on the Nasdaq National Market under the symbol HISS. As of March 31,
1995, the Company owned approximately 17% of the common shares of HIS. The
800,000 common shares of HIS owned by the Company are carried on the Company's
consolidated balance sheet at book value, which approximates the market value of
HIS's common stock. As of March 31, 1995, the Company also owned approximately
9% of the common shares of Diagnostic Imaging Services, Inc. ("DIS"), a
California corporation that owns and operates medical imaging facilities in
Southern California. DIS's common stock is traded on the Nasdaq National Market
under the symbol DIAM. The Company acquired these shares as a result of the
September 1994 merger of DIS with and into IPS Health Care, Inc. ("IPS"). The
730,768 common shares of DIS owned by the Company are carried at a book value
which has been reduced to zero on the Company's consolidated balance sheet. The
Company initially made its investment in IPS, a diagnostic imaging service
company, in 1992. In addition, the Company holds two seats on the Board of
Directors of DIS. See "Risk Factors -- Investee Companies," "Certain
Transactions" and Note 6 to the Company's Consolidated Financial Statements
included elsewhere in this Prospectus.

39
<PAGE> 40

As of March 31, 1995 the remaining balance of the Company's equipment loans
with HIS was approximately $4.2 million, which consisted of approximately $2.7
million funded on a limited recourse basis and approximately $1.5 million funded
on a full recourse basis or through internally generated funds. As of March 31,
1995 the remaining balance of the Company's loans with DIS was approximately
$22.4 million, which consisted of approximately $7.2 million funded on a limited
recourse basis and approximately $15.2 million funded on a full recourse basis
or through internally generated funds. As of March 31, 1995, the Company owned
approximately 4.5 million shares of preferred stock in DIS which are carried on
the Company's consolidated balance sheet at its liquidation value which
approximates the market value of such stock. The majority stockholder of DIS has
the right to repurchase the preferred stock at $4.5 million plus accrued
dividends before September 2001.

As part of its strategy to operate exclusively as a financial services
company, the Company intends to divest its equity interests in HIS and DIS and
reduce its credit exposure to both companies. During the three-month period
ended June 30, 1994, the Company completed a series of steps which significantly
diminished its influence over HIS. Under arrangements made with HIS, the Company
agreed to allow existing equipment loans between the Company and HIS to be
refinanced through third parties and to terminate its first right of refusal for
the financing of any future equipment acquisition with HIS. In addition, upon
completion of such refinancing, the Company agreed to relinquish its seats on
the Board of Directors of HIS and to sell the common shares it owned in HIS.
During the refinancing period, the Company agreed to vote its common shares
consistent with HIS's management.

Discontinued Operations. In June 1993, the Company adopted a formal plan
to discontinue its healthcare services segment that consisted of seven
outpatient healthcare facilities which it operated or managed on a direct basis
and one facility which was in the developmental stage and not yet in operation.
At the end of fiscal 1993, the Company established a reserve for the divestiture
of the operations and recorded a loss on discontinued operations and disposal of
discontinued operations. As of June 30, 1994, the Company had disposed of or
entered into definitive agreements to sell six of these outpatient healthcare
facilities, had written off the investment and assets of the remaining two, and
recorded an additional $3.1 million after-tax charge in excess of the amounts of
estimated losses reported as of June 30, 1993 for the disposition of this
segment of the Company's business. At March 31, 1995, the Company's aggregate
maximum exposure, if all of the purchasers of these facilities were to become
insolvent and the financed equipment and other assets were to be unsaleable, was
approximately $6.9 million. See "Risk Factors -- Discontinued Operations,"
"-- Investee Companies" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

COMPETITION

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

GOVERNMENT REGULATION

General. The Company's equipment financing business, while generally not
directly subject to government regulation, is indirectly affected by regulation
in several ways. The use, maintenance and operation of certain types of
diagnostic imaging and patient treatment equipment is regulated by federal,
state and/or local authorities. For example, a shared service provider or
healthcare provider using equipment financed by the Company may be required to
obtain and maintain approvals from governmental authorities in order to service
other healthcare providers with whom it has entered into service agreements.
Failure by the Company's customers to comply with these requirements could
adversely affect their ability to meet their obligations to

40
<PAGE> 41

the Company. The ability of the Company's equipment financing customers to
satisfy their obligations to the Company could also be adversely affected by
changes in regulations which limit or prohibit the referral of patients by
physicians who have invested in healthcare facilities financed by the Company.
Several of the regulatory factors impacting the Company's business are discussed
below.

Certificate of Need Regulation. Many states regulate the acquisition of
medical equipment or the provision of new services through Certificate of Need
or similar programs. The Company believes these requirements have had a limited
effect on its business, although there can be no assurance that future changes
in those laws will not adversely affect the Company. Additionally, repeal of
existing regulations of this type in jurisdictions where the Company's customers
have met the specific requirements could adversely affect the Company since such
customers could face increased competition. In addition, there is no assurance
that expansion of the Company's equipment financing business within the hospital
market will not be increasingly affected by regulations of this type.

Medicare-Medicaid Fraud and Abuse Statutes. The Department of Health and
Human Services ("HHS") has increased its enforcement efforts under the
Medicare-Medicaid Fraud and Abuse Statutes in cases where physicians own an
interest in a facility to which they refer their patients for treatment or
diagnosis. These statutes prohibit the offering, payment, solicitation or
receipt of remuneration directly or indirectly as an inducement to refer
patients for services reimbursable in whole or in part by the Medicare-Medicaid
programs. HHS has taken the position that distributions of profits from
corporations or partnerships to physician investors who refer patients to the
entity for a procedure which is reimbursable under Medicare (government-assisted
medical care for the aged) or Medicaid (government-assisted medical care for the
poor) may be a form of remuneration for referrals which is prohibited by the
statute. HHS has also published safe harbor guidelines which describe the
requirements which must be met to ensure that distributions of profits to a
physician who has invested in an equity security issued by a business to which
he or she refers patients does not violate the Medicare-Medicaid fraud and abuse
statute.

Further Regulation of Physician Self-Referral. Additional regulatory
attention has been directed toward physician-owned healthcare facilities and
other arrangements whereby physicians are compensated, directly or indirectly,
for referring patients to such healthcare facilities. Federal law generally
prohibits a physician from referring Medicare or Medicaid patients to an entity
providing "designated health services" in which the physician has an ownership
or investment interest, or with which the physician has entered into a
compensation arrangement. The designated health services include medical
imaging, radiation therapy, and physical rehabilitation services. A variety of
existing and pending state laws currently limit the extent to which a physician
may profit from referring patients to a facility in which that physician has a
proprietary or ownership interest. Many states also have laws similar to the
Medicare fraud and abuse statute which are designed to prevent the receipt or
payment of consideration in connection with the referral of a patient. The
Company believes that as a result of these legislative initiatives, demand for
new medical equipment by the outpatient healthcare facilities (which in many
cases are owned by referring physicians who are directly affected by the
legislation) has diminished.

EMPLOYEES

As of March 31, 1995, the Company had 95 full-time employees consisting of
10 executive officers, 21 sales and sales management personnel, and 65
administrative, accounting and technical personnel. None of the Company's
employees is covered by a collective bargaining agreement, and management
believes that its relations with its employees are good.

PROPERTIES

The Company owns no real property and leases all of its offices. The
Company's principal executive offices are located in Doylestown, Pennsylvania.
In total, the Company leases an aggregate of approximately 24,900 square feet of
office space in California, Georgia, New York, Ohio and Pennsylvania. None of
the

41
<PAGE> 42

Company's facility leases exceed a term of 60 months. The Company believes that
the present facilities are adequate to meet its foreseeable needs.

LEGAL PROCEEDINGS

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

MANAGEMENT

The Directors and executive officers of the Company are:

<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- ----------------------------------------------
<S> <C> <C>
David L. Higgins................. 49 Chairman, Chief Executive Officer and Director
Michael A. O'Hanlon.............. 48 President, Chief Operating Officer and
Director
James G. Costello................ 59 Senior Vice President and Chief Financial
Officer
Anthony J. Turek................. 51 Senior Vice President and Chief Credit Officer
John P. Boyle.................... 45 Vice President and Chief Accounting Officer
Cynthia J. Cohn.................. 36 Vice President
Dominic A. Guglielmi............. 44 Vice President
Richard E. Miller................ 43 Vice President
Tony A. Pham..................... 42 Vice President
Alan J. Zeppenfeld............... 48 Vice President
Gerald L. Cohn................... 66 Director
William R. Ingles................ 73 Director
Sidney Luckman................... 78 Director
John E. McHugh................... 66 Director
</TABLE>

Mr. Higgins is the Company's Chairman and Chief Executive Officer. Mr.
Higgins founded the Company and served as the Company's President until
September 1994. Mr. Higgins was the President and Chief Executive Officer of
Delta Health, Inc. ("Delta Health"), the predecessor company to DVI that was
acquired by the Company in 1986. Prior to founding the Company, Mr. Higgins
managed the North American sales and service operations of Elscint, Inc.
("Elscint"), a full-line manufacturer of diagnostic imaging equipment, for two
years. Previously, he held the same position for one year with Xonics Medical
Systems, Inc. ("Xonics"), also a full-line manufacturer of medical imaging
equipment. Xonics was acquired by Elscint in 1983. For five years prior, Mr.
Higgins served as President and Chief Executive Officer of Radiographic
Development Corporation ("RDC"), which was acquired by Xonics in 1982. RDC was a
manufacturer of products to upgrade diagnostic imaging equipment. Mr. Higgins
also serves on the Board of Directors of HIS.

Mr. O'Hanlon is the Company's President and Chief Operating Officer and has
served as such since September 1994. Mr. O'Hanlon became a Director of the
Company in November 1993. From the time Mr. O'Hanlon joined the Company in March
1993 until September 1994, he served as Executive Vice President of the Company.
Before joining the Company, for nine years he served as President and Chief
Executive Officer of Concord Leasing, Inc. ("Concord Leasing"), a major source
of medical, aircraft, ship and industrial equipment financing. Previously, Mr.
O'Hanlon was a senior executive with Pitney Bowes Credit Corporation. Mr.
O'Hanlon is a director of DIS.

Mr. Costello is a Senior Vice President and the Chief Financial Officer of
the Company. Mr. Costello has served as a Senior Vice President since he joined
the Company in October 1993 and as Chief Financial Officer since August 1994.
Mr. Costello also serves on the Executive Committee of the Company. Before
joining the Company, for six years Mr. Costello was Executive Vice President of
Concord Leasing and was responsible for all capital markets/funding activities,
including term loans, commercial paper and the sale of securitized

42
<PAGE> 43

assets. During his tenure at Concord Leasing, he also served as President of
Concord Commercial Corporation. Previously, Mr. Costello was President of Unisys
Finance Corporation, and Vice President and Chief Financial Officer of Pitney
Bowes Credit Corporation. Since April 1995, Mr. Costello has been unable to
participate on a full time basis in the day to day affairs of the Company due to
medical reasons, and his ability to do so in the future is uncertain.

Mr. Turek is a Senior Vice President and the Chief Credit Officer of the
Company. Mr. Turek has served in that capacity since joining the Company in
March 1988. Mr. Turek also serves on the Executive Committee of the Company.
Before joining the Company, Mr. Turek was Vice President, Commercial Banking at
Continental Illinois National Bank ("CINB") from 1968 to 1988. For the last five
years of his tenure at CINB, Mr. Turek managed the equipment leasing and
transportation divisions of the bank. His prior responsibilities included
management positions in the Special Industries, Metropolitan and National
Divisions of CINB. Prior to his employment with CINB, Mr. Turek was a Trust
Officer with Bank of America.

Mr. Boyle is a Vice President and the Chief Accounting Officer of the
Company. Mr. Boyle joined the Company in January 1995. His primary
responsibility is managing the Company's accounting, tax and reporting
functions. Before joining the Company, Mr. Boyle spent 17 years of his
professional career in senior finance and accounting positions with financial
services organizations. He spent the initial five years of his career with Peat
Marwick Mitchell & Co., in Philadelphia. Mr. Boyle is a General Securities
Principal and a CPA with almost 20 years of experience in the financial services
industry. Beyond his accounting background, he has extensive experience in
credit and corporate finance matters.

Ms. Cohn has been a Vice President of the Company since October 1988 and
Executive Vice President of DVI Business Credit since January 1994. Ms. Cohn has
been employed by the Company in a sales and sales management capacity since July
1986. She is responsible for the sales and marketing functions of DVI Business
Credit, the Company's medical receivables financing subsidiary. She served as an
Assistant Vice President from July 1987 to October 1988. Prior to joining the
Company, Ms. Cohn served as Research Coordinator for Cantor, Fitzgerald Co.,
Inc., a stock brokerage firm, from February 1983 to July 1986, where she was
responsible for development and coordination of the firm's research product for
both institutional and retail clientele. Ms. Cohn is the daughter of Gerald L.
Cohn.

Mr. Guglielmi is a Vice President of the Company. Mr. Guglielmi joined the
Company when it acquired MEF Corp. in January 1993. His primary responsibility
is to maximize the value of the Company's existing relationships with equipment
manufacturers and establish relationships with additional manufacturers of
medical equipment and devices. Prior to joining the Company, Mr. Guglielmi
served as the President of the Healthcare Division of U.S. Concord, Inc. for
five years where he was responsible for sales, marketing, documentation, credit
and collections, financial budgeting and all aspects of strategic planning.
Previously, Mr. Guglielmi held management positions with General Electric Credit
Corporation and Pitney Bowes Credit Corporation.

Mr. Miller is a Vice President of the Company who joined the Company in
April 1994. His primary responsibility is to manage the Company's sales
organization of financing specialists that interface directly with the Company's
customers. Before joining the Company, he served for six years as Vice President
Sales for Toshiba America Medical Systems, a major manufacturer of medical
imaging equipment. Previously, Mr. Miller was National Sales Manager for Thomsen
CGR, a French manufacturer of medical imaging equipment, which was acquired by
General Electric Medical Systems. He also previously served in sales management
with General Electric Medical Systems.

Mr. Pham is Vice President/Structured Finances and Financial Planning for
DVI Financial Services. Prior to joining DVI Financial Services in May 1994, Mr.
Pham was Director of Securitization for Advanta Leasing Corporation from August
1993. From April 1984 to July 1993, Mr. Pham was Vice President, Portfolio
Management of Concord Leasing.

Mr. Zeppenfeld is a Vice President of the Company. Mr. Zeppenfeld joined
the Company in June 1995. His primary responsibility is managing the Company's
administrative operations functions. Before joining the Company, Mr. Zeppenfeld
spent 21 years with Xerox Corporation in administrative management positions at

43
<PAGE> 44

the district, regional and headquarters levels. During his last three years at
Xerox, Mr. Zeppenfeld managed administrative operations and product development
functions for Xerox Administrative Services. Previously, Mr. Zeppenfeld held
administrative positions with General Electric and GTE Data Services.

Mr. Cohn is a Director of the Company and has served in that capacity since
1986. Mr. Cohn is a private investor. Mr. Cohn presently serves as a director of
HIS, DIS, SMT Health Services Inc., I.V.I. Publishing, Inc. and International
Metals Acquisition Corp.. In addition to his responsibilities as a Director, Mr.
Cohn also acts as a consultant to the Company and serves on the Company's Senior
Credit Committee. Mr. Cohn is the father of Cynthia J. Cohn.

Mr. Ingles is a Director of the Company and has served in that capacity
since 1986. Mr. Ingles is retired. Prior to 1986, Mr. Ingles performed
consulting services for American Medical International, an investor-owned
hospital group, Med Ventures, Inc., a medical technical evaluation concern, and
Radiation Safety Services, a radiation system monitoring and compliance entity.

Mr. Luckman is a Director of the Company and has served in that capacity
since 1987. Mr. Luckman is currently a national sales manager of Cellucraft
Products Inc., a company engaged in the manufacturing and marketing of flexible
packaging, and with which he has been associated for over 40 years. Mr. Luckman
is a member of the National Football League Hall of Fame.

Mr. McHugh is a Director of the Company and has served in that capacity
since 1990. Mr. McHugh was formerly the President of, and now serves in a
marketing and public relations capacity with, McHugh Construction and
Developers, a firm he has been associated with since 1954.

COMMITTEES OF THE BOARD OF DIRECTORS

The board of directors of the Company (the "Board of Directors") has a
standing executive committee, audit committee and a compensation committee. The
Board of Directors has no nominating committee. The executive committee consists
of Messrs. Higgins, Cohn and Luckman and reviews certain policies and operations
of the Company. The executive committee met frequently during fiscal 1994.

The audit committee consists of Messrs. Cohn, Luckman and McHugh and makes
recommendations concerning the engagement of the Company's independent auditors,
consults with the independent auditors concerning the audit plan and thereafter
concerning the auditors' report and management letter. During the fiscal 1994,
the audit committee met once.

The compensation committee consists of the entire Board of Directors and
did not meet at any times other than in the normal course of the Board of
Directors' meetings.

During fiscal 1994, the Company paid $500 to non-employee Directors for
each meeting attended in person and $100 for each meeting attended by telephone.
Directors who are employed by the Company do not receive a fee for serving as
Directors.

COMPENSATION COMMITTEE INTERLOCK AND INSIDER PARTICIPATION

The compensation committee consists of the entire Board of Directors. The
Board of Directors, sitting as the compensation committee, meets in the normal
course of the Board of Directors' meetings and reviews the annual compensation
rates of the officers and key employees of the Company, administers the
Company's compensation plans and makes recommendations in connection with such
plans. No Directors other than those serving currently on the Board of Directors
served as members of the compensation committee during fiscal 1994. No member of
that committee, other than Messrs. Higgins, Cohn, Luckman and O'Hanlon, was an
officer or employee of the Company or any of its subsidiaries during fiscal
1994. None of the executive officers of the Company has served on the board of
directors or on the compensation committee of any other entity, any of whose
officers served either on the Board of Directors or on the compensation
committee of the Company.

44
<PAGE> 45

EXECUTIVE COMPENSATION

The following table sets forth information concerning the annual and
long-term compensation for services in all capacities paid to the Chief
Executive Officer of the Company and to the Company's four most highly
compensated executive officers other than the Chief Executive Officer who were,
at June 30, 1994, executive officers of the Company.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------- ----------------------
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS STOCK OPTIONS (SHARES)
- ------------------------------------------- ---- -------- ------- ----------------------
<S> <C> <C> <C> <C>
David L. Higgins........................... 1994 $176,923 -0- 50,000
Chairman of the Board and 1993 $216,779 -0- -0-
Chief Executive Officer 1992 $185,000 $65,000 50,000

Michael A. O'Hanlon........................ 1994 $175,000 -0- 75,000
President 1993 $ 77,404(2) -0- 15,000

Cynthia J. Cohn............................ 1994 $109,058 -0- 10,000
Vice President 1993 $148,077 -0- 10,000
1992 $182,683 $47,500 10,000

Anthony J. Turek........................... 1994 $124,256 -0- 15,000
Senior Vice President 1993 $113,279 -0- 10,000
1992 $115,500 $47,500 -0-

Dominic A. Guglielmi....................... 1994 $184,545(3) -0- 10,000
Vice President 1993 $ 52,885(4) -0- 10,000
</TABLE>

- ---------------
(1) Indicates salary paid through June 24, 1994, the last regular payment date
prior to the end of fiscal 1994.

(2) Includes compensation from February 16, 1993, the date which Mr. O'Hanlon
began employment with the Company.

(3) Includes a base salary of $110,000 and commissions earned for financing
transactions of $74,545 for fiscal 1994.

(4) Includes compensation from January 4, 1993, the date which Mr. Guglielmi
began employment with the Company. Mr. Guglielmi's salary for fiscal 1993,
if stated on an annualized basis, would have been $110,000. Mr. Guglielmi
also received 10,000 stock options upon joining the Company.

45
<PAGE> 46

OPTION GRANTS IN FISCAL 1994

The following table sets forth information regarding the grant of stock
options in fiscal 1994 to the executive officers listed in the Summary
Compensation Table.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL
NUMBER OF PERCENTAGE OF RATES OF STOCK
SHARES ISSUABLE TOTAL OPTIONS PRICE APPRECIATION
ON EXERCISE GRANTED TO EXERCISE OR FOR OPTION TERM(2)
OF OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -------------------------
NAME GRANTED FISCAL 1994(1) (PER SHARE) DATE 5% 10%
- ---------------------------- --------------- -------------- ------------ ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
David L. Higgins............ 50,000 12.6% $7.625 9/20/03 $239,766 $607,614
Michael A. O'Hanlon......... 25,000 6.3 7.625 9/20/03 119,883 303,807
50,000 12.6 8.875 5/23/04 279,072 707,223
Cynthia J. Cohn............. 10,000 2.5 7.625 9/20/03 47,953 121,523
Anthony J. Turek............ 15,000 3.8 7.625 9/20/03 71,930 182,284
Dominic A. Guglielmi........ 10,000 2.5 7.625 9/20/03 47,953 121,523
</TABLE>

- ---------------
(1) These options were granted pursuant to the Plan. The options vest one-third
per year on the third, fourth and fifth anniversaries, respectively, after
the date of grant. The options have a term of 10 years. Options to acquire
138,600 shares of Common Stock (with various vesting periods) also were
granted to certain other key employees of the Company in fiscal 1994.

(2) As suggested by the rules of the Commission, the Company used the assumed
rates of the Company's stock price appreciation in valuing executive stock
options. The actual value, if any, an executive may realize will depend on
the excess of the stock price over the exercise price on the date the option
is exercised, so that there is no assurance that the value realized by an
executive will be at or near the values estimated above. The Company does
not advocate or necessarily agree that the stated assumed rates of
appreciation properly determine the value of the options.

AGGREGATE OPTION EXERCISES IN
FISCAL 1994 AND FISCAL YEAR END OPTION VALUES

The following table sets forth information with respect to previously
granted options which were exercised in fiscal 1994 or which remain outstanding
at the end of fiscal 1994 for the executive officers listed in the Summary
Compensation Table.

<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS HELD IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR END AT FISCAL YEAR END(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David L. Higgins................... -0- N/A 65,000 80,000 $ 138,125 $93,750
Michael A. O'Hanlon................ -0- N/A 3,000 87,000 12,000 46,875
Cynthia J. Cohn.................... -0- N/A 35,000 15,000 146,250 18,750
Anthony J. Turek................... -0- N/A 42,000 23,000 223,620 55,125
Dominic A. Guglielmi............... -0- N/A 2,000 18,000 8,000 50,750
</TABLE>

- ---------------
(1) Represents the difference between the closing price of the Company's Common
Stock on June 30, 1994 and the exercise price of the options.

EMPLOYMENT AGREEMENTS AND INCENTIVE COMPENSATION

The Company has not entered into any employment agreements with any of its
executive officers or employees and, other than the Plan, has no long-term
incentive compensation plans. The Company, however, does provide short-term
incentive compensation to certain executive officers through the award of
quarterly and/or annual bonuses based upon certain agreed upon performance
criteria.

46
<PAGE> 47

The Board of Directors and stockholders of the Company adopted the Plan in
1986. The Plan has been amended to increase the number of shares of Common Stock
for which options, could be issued. Currently, the total number of shares of
Common Stock for which options could be issued is 1,250,000. Under the Plan, the
number of shares which may be issued on exercise of the options is subject to
adjustments by reason of stock splits or other similar capital events.

The Plan provides for the granting of nonstatutory stock options as well as
incentive stock options to certain key employees and provides that the option
exercise price per share for options granted under the Plan must be at least
100% of the fair market value of the Common Stock on the date such options were
granted. Options are not transferrable under the Plan other than by will or by
laws of descent and distribution, and during the participants lifetime are
exercisable only by the participant.

EMPLOYEE SAVINGS PLAN

The Company maintains and administers an Employee Savings Plan (the
"Employee Savings Plan") pursuant to Internal Revenue Code Section 401(k). The
Employee Savings Plan provides for discretionary contributions as determined by
the Board of Directors. The Company contributed $9,245, $21,493 and $48,673 to
the Employee Savings Plan during the fiscal years ended June 30, 1992, 1993 and
1994, respectively.

CERTAIN TRANSACTIONS

DIS. Subsequent to the Company's initial investment in IPS in November
1992, the Company made additional investments in common and preferred stock of
IPS, financed various leasing transactions for magnetic resonance imaging and
other equipment, and entered into several restructuring agreements with IPS. In
those restructuring agreements, IPS issued several series of convertible
preferred stock to the Company in exchange for cash, equipment and an exchange
of debt obligations of IPS previously held by the Company. Through these
restructurings, the Company also obtained the right to appoint representatives
to IPS's Board of Directors.

In 1994, the businesses of IPS and DIS were combined through a merger (the
"IPS Merger"). In the IPS Merger, each outstanding share of common stock of DIS
was converted into approximately 4.69 shares of common stock of IPS ("IPS Common
Stock"). In addition, each stockholder of DIS received on a pro rata basis
(based on each such stockholder's percentage ownership of DIS common stock
immediately prior to the IPS Merger), options and warrants to purchase
additional shares of IPS common stock that are substantially identical in number
and terms to the options and warrants issued by IPS and outstanding immediately
prior to the IPS Merger. As a result of the IPS Merger, Norman Hames, who
formerly was the beneficial owner of approximately 95% of the outstanding
capital stock of DIS, and the other four stockholders of DIS acquired 50% of the
IPS Common Stock.

In September 1994, following the completion of the IPS Merger, the Company
exchanged all the preferred stock of IPS owned by the Company for two new series
of convertible redeemable preferred stock (Series F and Series G) of IPS. The
agreement also provided for the exchange of certain assets and liabilities of
IPS valued at approximately $164,000, the return to IPS of IPS debt obligations
valued at approximately $4.0 million, assumption by the Company of certain
assets and liabilities of IPS, the return of certain equipment previously used
by the Company to IPS. The Company did not record a gain or loss on any of the
restructuring transactions.

Subsequent to the IPS Merger and the exchange and other transactions
described above, IPS changed its name to DIS.

The approximately 4.5 million shares of DIS convertible preferred stock now
held by the Company have an aggregate liquidation preference of approximately
$4.5 million, are redeemable at the option of DIS for approximately $4.5 million
plus accrued dividends, and are convertible into common stock of DIS at $2.42
per share for the Series F convertible preferred stock and $1.00 per share for
the Series G convertible preferred stock. In addition, the majority shareholder
of DIS has the right to repurchase the DIS convertible preferred

47
<PAGE> 48

stock for approximately $4.5 million through September 2001. The Company also
owns approximately 9% of DIS's issued and outstanding common stock. Following
the completion of the IPS Merger, the Company's representatives (Mr. Higgins and
Mr. Turek) resigned from the Board of Directors of IPS.

MEF Corp. In January 1993, the Company acquired all of the outstanding
shares of common stock of MEF Corp. from MEFC Partners L.P. ("MEFC Partners").
Under the terms of the original purchase agreement, the purchase price was
payable before October 15, 1998 in cash or Common Stock of the Company, as
elected by the Company. As initially structured, the purchase price was to be
determined as a percentage of the after-tax earnings of the MEF Corp. division
of the Company during the sixty-six month period following the date of
acquisition. During the year ended June 30, 1994, management entered into
negotiations with the former shareholders of MEF Corp. to revise certain terms
of the purchase agreement. The Company and the former shareholders of MEF Corp.
agreed in June 1995 to set the purchase price of MEF Corp. at 400,000 shares of
Common Stock (the "MEFC Shares"). Michael A. O'Hanlon (President, Chief
Operating Officer and a Director of the Company), Dominic A. Guglielmi (Vice
President of the Company) and Mark H. Idzerda (an employee of DVI Financial
Services) are general partners of MEFC Partners and are entitled to receive
160,000, 100,000 and 40,000 MEFC Shares, respectively. The issuance of the MEFC
Shares is subject to stockholder approval and an increase in the authorized
capital stock of the Company. In addition, the MEFC Partners have been granted
certain registration rights with respect to the MEFC Shares. See "Description of
Capital Stock -- Outstanding Registration Rights."

48
<PAGE> 49

PRINCIPAL STOCKHOLDERS

The following table sets forth information regarding beneficial ownership
of shares of Common Stock as of March 31, 1995 by each stockholder known to the
Company to be the beneficial owner of more than 5% of the outstanding shares of
Common Stock, each director and all current officers and directors as a group.
Persons named in the following table have sole voting and investment powers with
respect to all shares shown as beneficially owned by them, subject to community
property laws where applicable and other information contained in the footnotes
to the table. The information in the table below does not give effect to the
conversion of Convertible Subordinated Notes held by any of the individuals or
entities listed in such table. Information with respect to beneficial ownership
is based upon the Common Stock records and data supplied to the Company by its
stockholders.

<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING SHARES
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP COMMON STOCK
- ------------------------------------------------------- ----------------------- ------------------
<S> <C> <C>
David L. Higgins**..................................... 353,780(1)(2) 5.2%
Gerald L. Cohn**....................................... 336,666(3)(4) 5.0%
William R. Ingles**.................................... 24,999(4) *
Sidney Luckman**....................................... 24,666(4)(5) *
John E. McHugh**....................................... 50,399(4) *
Michael A. O'Hanlon***................................. 29,323(6)(7)(8) *
Canadian Imperial Bank of Commerce Trust Company
(Bahamas) Limited****................................ 1,483,739(9) 22.1%
Granite Capital, L.P.*****............................. 420,100 6.3%
All directors and officers as a group (12 persons)..... 1,918,014(10)(11) 27.3%(10)
</TABLE>

- ---------------
* Less than 1%.

** One Park Plaza, Suite 800, Irvine, California 92714.

*** 500 Hyde Park, Doylestown, Pennsylvania 18901.

**** P.O. Box N-3933, Nassau, Bahamas.

***** 375 Park Avenue, 18th Floor, New York, New York 10152.

(1) Includes 95,000 shares of Common Stock which may be purchased on the
exercise of stock options granted under the Plan.

(2) Includes 2,380 shares of Common Stock held through the Employee Savings
Plan.

(3) Does not include (a) 46,500 shares of Common Stock held of record by
Cynthia J. Cohn, who is a Vice President of the Company and one of Mr.
Cohn's daughters, in her capacity as trustee of the Cynthia J. Cohn
Revocable Trust, (b) 15,000 shares of Common Stock held of record by a
trust established for the benefit of Shelly Cohn Schmidt, another of Mr.
Cohn's daughters, and (c) 9,750 shares of Common Stock held of record by a
trust established for the benefit of Clayton Schmidt, Mr. Cohn's
grandchild, as to all of which Mr. Cohn disclaims any beneficial interest.

(4) Includes 16,666 shares of Common Stock which may be purchased on the
exercise of stock options granted under the Plan.

(5) Does not include 80,000 shares of Common Stock held of record by various
trusts established for the benefit of certain members of Mr. Luckman's
family, of which either Robert Luckman (Mr. Luckman's son) or another
individual is the trustee, as to which Mr. Luckman disclaims any
beneficial ownership.

(6) Includes 24,750 shares of Common Stock which may be purchased on the
exercise of stock options granted under the Plan.

(7) Includes 1,573 shares of Common Stock held through the Employee Savings
Plan.

49
<PAGE> 50

(8) Does not include 160,000 shares of Common Stock which Mr. O'Hanlon, a
former shareholder of MEF Corp., may become entitled to receive in
connection with the Company's acquisition of MEF Corp. See "Certain
Transactions -- MEF Corp." and "Description of Capital Stock -- MEF Corp."

(9) Held by Canadian Imperial Bank of Commerce Trust Company (Bahamas) Limited
("CIBC"), as trustee of trusts for the benefit of various descendants of
A.N. Pritzker, deceased. Does not include 56,339 shares of Common Stock
owned by Diversified Capital, L.P., a partnership comprised principally of
trusts for the benefit of various members of the Pritzker Family. CIBC is
not the trustee of such trusts. As used herein, "Pritzker Family" refers
to the lineal descendants of Nicholas J. Pritzker, deceased.

(10) Includes 233,750 shares of Common Stock which may be purchased on the
exercise of stock options granted under the Plan, in addition to those
shares of Common Stock that may be purchased on the exercise of options
set forth in footnotes (1) and (3).

(11) Does not include 100,000 shares of Common Stock which Dominic A.
Guglielmi, a vice president of the Company and a former shareholder of MEF
Corp., may become entitled to receive in connection with the Company's
acquisition of MEF Corp. See "Certain Transactions -- MEF Corp." and
"Description of Capital Stock -- MEF Corp."

50
<PAGE> 51

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 13,000,000 shares
of Common Stock and 100,000 shares of preferred stock, par value $10.00 per
share ("Preferred Stock"). As of March 31, 1995, there were 6,711,180 shares of
Common Stock issued and outstanding. No shares of Preferred Stock are
outstanding.

COMMON STOCK

Holders of shares of Common Stock are entitled to one vote per share on
matters to be voted upon by the stockholders of the Company. Holders of shares
of Common Stock do not have cumulative voting rights; therefore, the holders of
more than 50% of the Common Stock will have the ability to elect all of the
Company's directors. Holders of shares of Common Stock will be entitled to
receive dividends when, as and if declared by the Board of Directors and to
share ratably in the assets of the Company legally available for distribution to
its stockholders in the event of the liquidation, dissolution or winding up of
the Company, in each case subject to the rights of the holders of any Preferred
Stock issued by the Company. Holders of Common Stock have no preemptive,
subscription, redemption or conversion rights.

PREFERRED STOCK

The Company's Board of Directors has the authority, without further action
by the stockholders of the Company, to issue shares of Preferred Stock in one or
more series and to fix the rights, preferences, privileges and restrictions of
those shares. The issuance of Preferred Stock could adversely affect the voting
power and economic rights of holders of Common Stock and could have the effect
of delaying, deferring or preventing a change in control of the Company.

WARRANTS

In February 1991, the Company issued and sold 575,000 warrants (the "Public
Warrants") in a public offering (the "Public Offering"). The Public Warrants
currently are exercisable and each Public Warrant entitles the registered holder
to purchase one share of Common Stock at a price of $12.00 per share until
February 7, 1996, subject to adjustment. The Public Warrants are subject to
redemption by the Company at any time after issuance on not less than 30 days'
written notice, at a price of $.05 per Public Warrant, if the last sale price of
the Common Stock for any period of 20 consecutive trading days ending within 15
days of the date on which the notice of redemption is given has exceeded $13.00
per share. The Public Warrants are traded on the Nasdaq National Market.

UNITS

In connection with the Public Offering, the Company granted Stratton
Oakmont, Inc. (the "1991 Underwriter") a unit purchase option ("the Unit
Purchase Option"). In May 1995, the 1991 Underwriter assigned the Unit Purchase
Option to three of its executive officers. Accordingly, each of the three
officers has the right to purchase up to 12,500, 27,500 and 10,000 Units,
respectively at a price per Unit of $12.60 until February 7, 1996, subject to
adjustment. Each Unit consists of one share of Common Stock (a "Unit Share") and
one warrant (a "Unit Warrant") to purchase one share of Common Stock at a price
of $12.00 per share. The Unit Warrants are separately transferable from the Unit
Shares immediately upon issuance. The 1991 Underwriter acted as underwriter in
connection with the Public Offering. The Unit Purchase Option may not be sold,
transferred, assigned or hypothecated except to officers of the 1991 Underwriter
or a member of the selling group for the Public Offering or any officer or
partner of any member of such selling group. The Unit Shares and shares of
Common Stock issuable upon exercise of the Unit Warrants are covered by a
currently effective registration statement and therefore will be freely
tradeable upon issuance.

The prices payable for the Units upon exercise of the Unit Purchase Option
and the number of shares of Common Stock underlying the Unit Warrants are
subject to adjustment to prevent dilution.

51
<PAGE> 52

CONVERTIBLE SUBORDINATED NOTES

In June 1994, the Company issued and sold $15.0 million aggregate principal
amount of Convertible Subordinated Notes in a private placement to certain
accredited investors. Of that amount, approximately $9.6 million was sold to
officers, directors, 10% or more stockholders and investors related to such
officers, directors and stockholders. The Convertible Subordinated Notes are
convertible at a conversion price of $10.60 per share, subject to adjustment in
certain circumstances. As of March 31, 1995, $500,000 aggregate principal amount
of the Convertible Subordinated Notes had been converted into 47,169 shares of
Common Stock (the "March 1995 Conversion Shares"). The remaining outstanding
Convertible Subordinated Notes are convertible, at the option of the holders,
into up to 1,367,924 shares of Common Stock (collectively with the March 1995
Conversion Shares, the "Conversion Shares").

OTHER OUTSTANDING OPTIONS AND WARRANTS

At March 31, 1995, in addition to the Public Warrants and the Unit Purchase
Option there were options and warrants outstanding under which an aggregate of
990,994 shares of Common Stock were issuable. Of this amount, 755,994 shares are
issuable on exercise of various options or warrants issued to employees and
directors of the Company pursuant to compensatory arrangements, 200,000 shares
are issuable to W.I.G. Securities Limited Partnership ("W.I.G. Securities")
pursuant to a warrant issued as compensation for prior investment banking
services, and 35,000 shares are issuable to a holder of warrants (the "35,000
Share Warrant").

OUTSTANDING REGISTRATION RIGHTS

The Company has entered into agreements under which it has granted to
certain of its security holders rights under specified circumstances to require
the registration under the 1933 Act of shares of Common Stock held by them.
Under the first agreement, the holder of any portion of the Unit Purchase Option
has a "demand" registration right to require the Company to file a registration
statement on one occasion at any time until February 7, 1996, and also has a
"piggyback" registration right to require inclusion of the holder's shares in
any registration statement filed by the Company. Under the second agreement, the
holder of the 35,000 Share Warrant has a one-time "piggyback" registration
right. The Company has the right to reject the piggyback registration request if
the managing underwriter of the offering which is the subject of the request so
requires; however, if the Company does so, it is required to grant the holder a
one-time "demand" registration right to require filing of a registration
statement solely for the holder's shares. Under the third agreement, W.I.G.
Securities, as a holder of a warrant to purchase an aggregate of 200,000 shares
of Common Stock, has a "demand" registration right to require the Company to
file a registration statement on one occasion at any time until April 27, 1997,
and also has a "piggyback" registration right to require inclusion of the shares
issuable pursuant to the warrant in any registration statement filed by the
Company after April 27, 1995 but before May 14, 1999. Under the fourth
agreement, holders of the Convertible Subordinated Notes have three "piggyback"
registration rights, exercisable beginning after June 21, 1995, and two "demand"
registration rights, which currently are exercisable, in each case with respect
to the Conversion Shares. Under a fifth agreement, the Company is required to
register the MEFC Shares promptly after the issuance of the MEFC Shares. The
issuance of the MEFC Shares is subject to stockholder approval and an increase
in the authorized capital stock of the Company. See "-- MEF Corp." The holders
of registration rights under the second, third, fourth and fifth agreements
described above have waived the right to require inclusion of their shares in
the Registration Statement. The shares of Common Stock issuable upon exercise of
the Unit Purchase Option, the Conversion Shares and the 35,000 Share Warrant are
covered by currently effective registration statements under the 1933 Act and
therefore will be freely tradeable upon issuance.

EMPLOYEE MATTERS

As part of an employee incentive plan, the Company agreed in principle on
June 8, 1995 to issue, subject to stockholder approval and an increase in the
authorized capital stock of the Company, an aggregate of 200,000 shares of
Common Stock of the Company (the "Incentive Shares") to certain of its employees
if the

52
<PAGE> 53

last sale price (as reported in the consolidated reporting system of the NYSE)
of the Common Stock is $16.00 per share or higher for 30 consecutive calendar
days at any time before December 31, 1998, provided that any such employee must
be employed by the Company during the above-described 30-day period in order to
receive any Incentive Shares under this agreement. The Company has agreed that,
if there is an event or series of events that constitutes a sale of the Company
at any time prior to December 31, 1998 and the consideration to be received for
each share of Common Stock of the Company in such sale of the Company is $13.00
or higher, the Company will issue the Incentive Shares to those employees.

MEF CORP.

In January 1993, the Company acquired the outstanding shares of MEF Corp.
Under the terms of the original purchase agreement, the purchase price was
payable before October 15, 1998 in cash or Common Stock of the Company, as
elected by the Company. As initially structured, the purchase price was to be
determined as a percentage of the aftertax earnings of the MEF Corp. division of
the Company during the sixty-six month period following the date of acquisition.
During the year ended June 30, 1994, management entered into negotiations with
the former shareholders of MEF Corp. to revise certain terms of the purchase
agreement. The Company and the former shareholders of MEF Corp. agreed in June
1995 to set the purchase price of MEF Corp. at 400,000 shares of Common Stock.
The issuance of these shares is subject to stockholder approval and an increase
in the authorized capital stock of the Company.

TRANSFER AGENT

The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.

DELAWARE ANTI-TAKEOVER LAW

The Company is governed by the provisions of Section 203 of the General
Corporation Law of the State of Delaware, an anti-takeover law. In general, the
law prohibits a public Delaware corporation 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 the prescribed
manner. "Business combination" includes merger, asset sales and other
transactions resulting in a financial benefit to the interested stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of the
corporation's voting stock.

53
<PAGE> 54

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have outstanding
approximately 9,211,180 shares of Common Stock (9,586,180 if the Underwriters'
over-allotment option is exercised in full). Of these shares of Common Stock,
8,122,880 shares, which include the 2,500,000 shares offered hereby, will be
freely tradeable without restriction or further registration under the 1933 Act.
All of the remaining 1,088,300 shares of Common Stock outstanding upon
completion of the Offering are Restricted Securities. All of the Restricted
Securities and any other shares of Common Stock acquired by an affiliate of the
Company are eligible for resale pursuant to the provision of Rule 144 or at any
time pursuant to an effective registration statement covering such shares of
Common Stock. Of these Restricted Securities, 835,013 shares of Common Stock are
subject to lock-up provisions as described below. See "Description of Capital
Stock"

The Company also has reserved or made available for issuance 3,347,685
shares of Common Stock pursuant to various options and warrants to purchase
Common Stock and the Plan and the conversion of the Convertible Subordinated
Notes. Of these reserved shares, 1,009,761 shares, issuable pursuant to the
Plan, 1,367,924 shares, issuable upon conversion of the Convertible Subordinated
Notes, 35,000 shares, issuable pursuant to the exercise of certain warrants to
purchase Common Stock, and 675,000 shares issuable pursuant to the exercise of
the Public Warrants and the Unit Purchase Option, are covered by currently
effective registration statements under the 1933 Act and are therefore freely
tradable upon issuance. The remaining 260,000 reserved shares are Restricted
Securities that are eligible for resale pursuant to Rule 144 or at any time
pursuant to an effective registration statement covering such shares of Common
Stock. The Company has also reserved, subject to stockholder approval and an
increase in the Company's authorized capital stock, (i) the MEFC Shares for
issuance to the former shareholders of MEF Corp. and (ii) 200,000 shares of
Common Stock for issuance to certain employees of the Company under a stock
incentive plan. Of these reserved shares, 1,344,937 shares of Common Stock
issuable under various options and warrants and pursuant to the conversion of
the Convertible Subordinated Notes are subject to lock-up provisions as
described below.

In general, under Rule 144 as currently in effect, any affiliate of the
Company or any person (or persons whose shares are aggregated in accordance with
Rule 144) who has beneficially owned "restricted securities" for at least two
years would be entitled to sell within any three-month period a number of shares
that does not exceed the greater of 1% of the outstanding shares of Common Stock
or the reported average weekly trading volume of the Common Stock for the four
calendar weeks preceding the sale. Sales under Rule 144 are also subject to
certain manner of sale restrictions and notice requirements and to the
availability of current public information concerning the Company. Persons who
have not been affiliates of the Company for at least three months and who have
beneficially held their shares of Common Stock for more than three years are
entitled to sell "restricted securities" without regard to the volume, manner of
sale, notice and public information requirements of Rule 144.

The Company, its officers and directors, certain stockholders, certain
holders of outstanding options and warrants to purchase Common Stock and certain
holders of Convertible Subordinated Notes owning or holding options or warrants
or conversion rights for an aggregate of 3,565,041 shares of Common Stock, have
agreed that they will not, directly or indirectly, offer, sell, offer to sell,
contract to sell, grant any option to purchase or otherwise sell or dispose (or
announce any offer, sale, offer of sale, contract of sale, grant of any option
to purchase or other sale or disposition), of any shares of Common Stock or any
securities convertible into, or exercisable or exchangeable for Common Stock or
other capital stock of the Company, or any right to purchase or acquire Common
Stock or other capital stock of the Company, for a period of 180 days after the
date of this Prospectus, without the prior written consent of Prudential
Securities Incorporated, on behalf of the Underwriters. See "Underwriting."

No prediction can be made as to the effect, if any, that sales of the
Common Stock or the availability of such shares for sale in the public market
will have on the market price for the Common Stock prevailing from time to time.
Nevertheless, sales of substantial amounts of Common Stock in the public market
after the restrictions described above lapse could adversely affect prevailing
market prices for the Common Stock and impair the ability of the Company to
raise capital through the sale of equity securities in the future.

54
<PAGE> 55

UNDERWRITING

The underwriters named below (the "Underwriters"), for whom Prudential
Securities Incorporated and Oppenheimer & Co., Inc. are acting as
representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions contained in the Underwriting Agreement, to purchase from
the Company the number of shares of Common Stock set forth below opposite their
respective names:

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Prudential Securities Incorporated................................ 845,000
Oppenheimer & Co., Inc............................................ 845,000
Bear, Stearns & Co. Inc. ......................................... 60,000
CS First Boston Corporation....................................... 60,000
Alex. Brown & Sons Incorporated................................... 60,000
Dillon, Read & Co. Inc. .......................................... 60,000
Donaldson, Lufkin & Jenrette Securities Corporation............... 60,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated................ 60,000
Morgan Stanley & Co. Incorporated................................. 60,000
Salomon Brothers Inc.............................................. 60,000
Smith Barney Inc. ................................................ 60,000
Advest, Inc. ..................................................... 30,000
Robert W. Baird & Co. Incorporated................................ 30,000
Baron Capital, Inc. .............................................. 30,000
William Blair & Company........................................... 30,000
Cowen & Company................................................... 30,000
Janney Montgomery Scott Inc. ..................................... 30,000
McDonald & Company Securities, Inc. .............................. 30,000
Piper Jaffray Inc. ............................................... 30,000
The Robinson-Humphrey Company, Inc. .............................. 30,000
---------
Total................................................... 2,500,000
=========
</TABLE>

The Company is obligated to sell, and the Underwriters are obligated to
purchase, all of the shares of Common Stock offered hereby if any are purchased.

The Underwriters, through their Representatives, have advised the Company
that they propose to offer the Common Stock initially at the public offering
price set forth on the cover page of this Prospectus; that the Underwriters may
allow to selected dealers a concession of $0.37 per share; and that such dealers
may reallow a concession of $0.10 per share to certain other dealers. After the
initial public offering, the offering price and the concessions may be changed
by the Representatives.

The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 375,000 additional
shares of Common Stock at the initial public offering price, less underwriting
discounts and commissions, as set forth on the cover page of this Prospectus.
The Underwriters may exercise such option solely for the purpose of covering
over-allotments incurred in the sale of the shares of Common Stock offered
hereby. To the extent such option to purchase is exercised, each Underwriter
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional shares as the number set forth next to
such Underwriter's name in the preceding table bears to 2,500,000.

The Company has agreed to indemnify the several Underwriters or contribute
to losses arising out of certain liabilities, including liabilities under the
Securities Act.

55
<PAGE> 56

agreed that they will not, directly or indirectly, offer, sell, offer to sell,
contract to sell, grant any option to purchase or otherwise sell or dispose (or
announce any offer, sale, offer of sale, contract of sale, grant of any option
to purchase or other sale or disposition) of any shares of Common Stock or any
securities convertible into, or exchangeable or exercisable therefor or other
capital stock of the Company or any right to purchase or acquire shares of
Common Stock or other capital stock of the Company, for a period of 180 days
after the date of this Prospectus, without the prior written consent of
Prudential Securities Incorporated, on behalf of the Underwriters.

The Offering is being made pursuant to the provisions of Section 44(c)(8)
of Article III of the National Association of Securities Dealers, Inc.'s Rules
of Fair Practice. Prudential Securities Incorporated is an affiliate of
Prudential Securities Realty Funding Corporation, the warehouse facility lender
under the $100.0 million Prudential Facility and the $5.5 million Prudential
Facility. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources -- Warehouse
Facilities." In the event that the Company is unable to obtain permanent
financing for the amounts outstanding under these warehouse facilities, which
totaled $22.9 million at May 31, 1995, a portion of the proceeds of the Offering
may be used to repay amounts outstanding under these warehouse facilities. See
"Use of Proceeds" and Note 7 to the Company's Consolidated Financial Statements
located elsewhere in the Prospectus.

LEGAL MATTERS

The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by Rogers & Wells, New York, New York. Certain legal
matters will be passed upon for the Underwriters by Gibson, Dunn & Crutcher, New
York, New York.

EXPERTS

The financial statements as of June 30, 1993 and 1994 and for each of the
three years in the period ended June 30, 1994 included in this Prospectus and
the related financial statement schedules included elsewhere in the Registration
Statement have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein and elsewhere in the Registration
Statement, and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.

56
<PAGE> 57

DVI, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report......................................................... F-2
Consolidated Balance Sheets.......................................................... F-4
Consolidated Statements of Operations................................................ F-6
Consolidated Statements of Shareholders' Equity...................................... F-7
Consolidated Statements of Cash Flows................................................ F-8
Notes to Consolidated Financial Statements........................................... F-11
</TABLE>

F-1
<PAGE> 58

INDEPENDENT AUDITORS' REPORT

Board of Directors and Shareholders
DVI, Inc. and Subsidiaries
Irvine, California

We have audited the accompanying consolidated balance sheets of DVI, Inc.
and its Subsidiaries (the "Company") as of June 30, 1994 and 1993, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended June 30, 1994. Our audits
also included the financial statement schedules listed in the Index at Item
16(b). These consolidated financial statements and financial statement schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedules based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of DVI, Inc. and its Subsidiaries
as of June 30, 1994 and 1993, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended June 30,
1994 in conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.

DELOITTE & TOUCHE LLP

Costa Mesa, California
October 3, 1994

F-2
<PAGE> 59

[THIS PAGE INTENTIONALLY LEFT BLANK]

F-3
<PAGE> 60

DVI, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
JUNE 30,
----------------------------- MARCH 31,
1993 1994 1995
------------ ------------ ------------
(UNAUDITED)
ASSETS
<S> <C> <C> <C>

CASH AND CASH EQUIVALENTS (Note 2)............... $ 2,199,208 $ 1,713,769 $ 4,566,595
------------ ------------ ------------
RESTRICTED CASH AND CASH EQUIVALENTS (Note 4).... 6,825,485 13,064,814 49,818,082
------------ ------------ ------------
INVESTMENT IN DIRECT FINANCING LEASES AND NOTES
SECURED BY EQUIPMENT (Notes 2, 5, 6, 12 and
16):
Receivable in installments (net of allowance
for losses of $1,210,125 (1993), $2,497,916
(1994), and $3,067,032 (March 31, 1995)).... 106,046,337 250,854,526 413,319,616
Receivable in installments -- related parties
(Note 12)................................... 19,285,865 16,427,684 4,340,188
Residual valuation............................. 6,205,621 3,730,592 3,868,260
Unearned income................................ (24,562,613) (47,643,772) (71,681,240)
------------ ------------ ------------
Net investment in direct financing leases and
notes secured by equipment.................. 106,975,210 223,369,030 349,846,824
------------ ------------ ------------
OTHER RECEIVABLES (Note 2):
From sale of leases and notes secured by
equipment................................... 2,860,329 911,585 113,143
Patient service accounts receivable............ 3,258,270 3,667,123 1,588,366
Notes collateralized by medical receivables.... 2,565,451 6,006,600 14,036,369
------------ ------------ ------------
Total other receivables..................... 8,684,050 10,585,308 15,737,878
------------ ------------ ------------
EQUIPMENT ON OPERATING LEASES (Notes 2 and 5)
(net of accumulated depreciation of $1,515,344
(1993), $1,163,591 (1994), and 1,407,741 (March
31, 1995))..................................... 6,759,629 2,893,683 3,636,905
------------ ------------ ------------
FURNITURE AND FIXTURES (Note 2) (net of
accumulated depreciation of $513,600 (1993),
$525,032 (1994), and $646,250 (March 31,
1995))......................................... 1,579,241 817,135 755,823
------------ ------------ ------------
INVESTMENTS IN AND ADVANCES TO INVESTEES (Notes 2
and 6)......................................... 5,578,500 4,646,382 5,825,695
------------ ------------ ------------
GOODWILL, NET (Notes 2 and 15)................... 1,956,239 2,024,253 1,900,000
------------ ------------ ------------
OTHER ASSETS (Note 2)............................ 6,603,606 6,834,972 2,759,222
------------ ------------ ------------
TOTAL ASSETS..................................... $147,161,168 $265,949,346 $434,847,024
============ ============ ============
</TABLE>

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

F-4
<PAGE> 61

DVI, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
JUNE 30,
----------------------------- MARCH 31,
1993 1994 1995
------------ ------------ ------------
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
ACCOUNTS PAYABLE................................. $ 6,785,683 $ 23,861,905 $ 5,783,720
------------ ------------ ------------
OTHER ACCRUED EXPENSES........................... 4,181,190 8,215,021 7,268,806
------------ ------------ ------------
SHORT-TERM BORROWINGS (Notes 7 and 12)........... 45,221,225 34,586,373 147,969,332
------------ ------------ ------------
DEFERRED INCOME TAXES (Notes 2 and 9)............ 4,481,289 2,329,205 3,435,267
------------ ------------ ------------
LONG-TERM DEBT:
Notes payable to bank.......................... 136,070
Discounted receivables (primarily limited
recourse)
(Notes 5, 8 and 16)......................... 51,691,297 148,851,584 218,877,882
Convertible subordinated notes (Notes 8, 10 and
12)......................................... 14,112,000 13,741,981
------------ ------------ ------------
Total long-term debt, net................... 51,827,367 162,963,584 232,619,863
------------ ------------ ------------
TOTAL LIABILITIES...................... 112,496,754 231,956,088 397,076,988
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
(Notes 13 and 15)
SHAREHOLDERS' EQUITY (Notes 10, 11 and 15):
Preferred stock, $10.00 par value; authorized,
100,000 shares; no shares issued
Common stock, $.005 par value; authorized
13,000,000 shares, outstanding, 6,530,295
shares (1993), 6,567,295 shares (1994) and
6,711,180 shares (March 31, 1995)........... 32,652 32,836 33,556
Additional capital............................. 27,941,466 28,155,502 29,276,502
Retained earnings.............................. 6,690,296 5,804,920 8,459,978
------------ ------------ ------------
TOTAL SHAREHOLDERS' EQUITY.................. 34,664,414 33,993,258 37,770,036
------------ ------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY.................................... $147,161,168 $265,949,346 $434,847,024
============ ============ ============
</TABLE>

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

F-5
<PAGE> 62

DVI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------------------------- ---------------------------
1992 1993 1994 1994 1995
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Finance and Other Income (Note 2)
Amortization of finance income............ $10,130,255 $10,826,020 $18,264,742 $12,272,052 $23,844,476
Receivables financing income.............. 552,873 1,295,514 1,461,677 1,011,993 326,878
Net operating lease income................ 1,146,471 1,447,264 359,353 272,137 (274,121)
Gain on sale of financing transactions,
net..................................... 2,196,547 1,103,528 302,053 245,862 1,430,083
Other income.............................. 709,590 526,226 523,314 561,188 1,018,036
----------- ----------- ----------- ----------- -----------
Finance and other income.................. 14,735,736 15,198,552 20,911,139 14,363,232 26,345,352
Interest expense.......................... 5,988,802 5,004,744 8,832,836 5,900,105 15,449,513
----------- ----------- ----------- ----------- -----------
Margins Earned.............................. 8,746,934 10,193,808 12,078,303 8,463,127 10,895,839
Selling, general and administrative
expense................................. 3,832,384 5,734,981 7,765,112 5,591,226 6,318,154
----------- ----------- ----------- ----------- -----------
Earnings from Continuing Operations Before
Provision for Income Taxes, Equity in Net
Earnings (Loss) of Investees and
Discontinued Operations................... 4,914,550 4,458,827 4,313,191 2,871,901 4,577,685
Provision for Income Taxes (Notes 2 and
9).................................... 2,014,965 1,828,118 1,811,540 1,206,221 1,922,627
----------- ----------- ----------- ----------- -----------
Earnings from Continuing Operations Before
Equity in Net Earnings (Loss) of Investees
and Discontinued Operations............... 2,899,585 2,630,709 2,501,651 1,665,680 2,655,058
Equity in Net Earnings (Loss) of
Investees................................. 153,314 (50,547) (242,150) (242,150)
----------- ----------- ----------- ----------- -----------
Earnings from Continuing Operations......... 3,052,899 2,580,162 2,259,501
Discontinued operations (Note 3):
Loss from discontinued operations net of
tax of $301,760 (1992), $1,064,529
(1993), and $51,000 (1994).............. 345,743 1,497,398 74,000
Loss on disposal of discontinued
operations, net of tax of $295,200
(1993) and $2,212,536 (1994)............ 424,800 3,070,877
----------- ----------- -----------
Loss from discontinued operations......... 345,743 1,922,198 3,144,877
----------- ----------- -----------
Net Earnings (Loss)......................... $ 2,707,156 $ 657,964 $ (885,376) $ 1,423,530 $ 2,655,058
=========== =========== =========== =========== ===========
Net Earnings (Loss) Per Common and Common
Equivalent Share (Note 2):
From continuing operations.............. $ 0.57 $ 0.39 $ 0.34
From discontinued operations............ (0.06) (0.29) (0.47)
----------- ----------- -----------
Net Earnings (Loss) Per Share............... $ 0.51 $ 0.10 $ (0.13) $ 0.21 $ 0.39
=========== =========== =========== =========== ===========
Weighted Average Number of Common and Common
Equivalent Shares Outstanding
(Note 2).................................. 5,353,000 6,601,000 6,717,000 6,716,000 6,870,000
</TABLE>

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

F-6
<PAGE> 63

DVI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK
$.005 PAR TOTAL
--------------------- ADDITIONAL RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JULY 1, 1991...... 4,986,423 $24,932 $12,762,695 $3,325,176 $16,112,803
Issuance of common stock
upon exercise of stock
options................. 18,705 94 57,554 57,648
Increase as a result of
subsidiary's sale of
stock, net of income
taxes................... 1,210,958 1,210,958
Income tax benefit arising
from the exercise of
nonstatutory stock
options and disposition
of common stock acquired
by option............... 144,998 144,998
Issuance of common stock... 1,525,000 7,625 13,764,729 13,772,354
Net earnings............... 2,707,156 2,707,156
--------- ------- ----------- ---------- -----------
BALANCE AT JUNE 30, 1992..... 6,530,128 32,651 27,940,934 6,032,332 34,005,917
Issuance of common stock
upon exercise of stock
options................. 167 1 532 533
Net earnings............... 657,964 657,964
--------- ------- ----------- ---------- -----------
BALANCE AT JUNE 30, 1993..... 6,530,295 32,652 27,941,466 6,690,296 34,664,414
Issuance of common stock
upon exercise of stock
options................. 37,000 184 214,036 214,220
Net loss................... (885,376) (885,376)
--------- ------- ----------- ---------- -----------
BALANCE AT JUNE 30, 1994..... 6,567,295 32,836 28,155,502 5,804,920 33,993,258
Issuance of common stock
upon (unaudited):
Exercise of stock
options............... 96,716 484 621,236 621,720
Conversion of
subordinate notes..... 47,169 236 499,764 500,000
Net earnings (unaudited)... 2,655,058 2,655,058
--------- ------- ----------- ---------- -----------
BALANCE AT MARCH 31, 1995
(unaudited)................ 6,711,180 $33,556 $29,276,502 $8,459,978 $37,770,036
========= ======= =========== ========== ===========
</TABLE>

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

F-7
<PAGE> 64

DVI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
----------------------------------------------- ------------------------------
1992 1993 1994 1994 1995
------------ ------------ ------------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)................ $ 2,707,156 $ 657,964 $ (885,376) $ 1,423,530 $ 2,655,058
------------ ------------ ------------- ------------ -------------
Adjustments to reconcile net (loss)
earnings to net cash provided by
(used in) operating activities:
Equity in net loss (earnings) of
investees...................... (244,053) 16,780 242,150 242,729
Gain on sale of common stock of
investee....................... (135,942)
Minority interest in
subsidiaries................... (61,827) (132,404)
Depreciation and amortization.... 3,600,621 4,515,108 1,902,873 2,347,894 4,506,319
Additions to allowance accounts,
net............................ 897,085 1,153,585 979,210 290,303 592,027
Deferred income taxes............ 1,359,726 228,923 (2,152,084) 581,490 1,106,062
Provision for discontinued
operations..................... 720,000 1,865,500
Loss on disposition of assets.... 3,542,913
Changes in assets and liabilities
(net of effects from purchase
of acquired entities):
(Increases) decreases in:
Restricted cash................ 526,568 (2,821,330) (6,239,329) (4,707,798) (36,753,268)
Accounts receivable............ (2,584,661) (4,016,448) (4,489,680) (1,313,554) (5,815,581)
Receivables from sale of leases
and notes secured by
equipment................... 1,220,731 1,212,300 1,948,744 2,860,327 798,442
Other assets................... 2,155,368 (4,207,045) (679,089) (6,567,691) 4,075,750
Increases (decreases) in:
Accounts payable............... 178,729 (475,490) 16,531,725 26,607,419 (18,078,185)
Other accrued expenses......... 1,513,983 116,464 409,889 (107,584) (946,215)
------------ ------------ ------------- ------------ -------------
Total adjustments................ 8,426,328 (3,689,557) 13,862,822 20,233,535 (50,514,649)
------------ ------------ ------------- ------------ -------------
Net cash provided by (used in)
operating activities............. 11,133,484 (3,031,593) 12,977,446 21,657,065 (47,859,591)
------------ ------------ ------------- ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of equipment acquired......... (41,396,620) (62,633,598) (149,027,781) (115,531,546) (234,302,578)
Receipts in excess of amounts
included in income............... 22,829,899 28,288,380 34,263,640 24,084,574 101,217,862
Furniture and fixtures additions... (329,317) (1,095,433) 17,606 (611,673) (233,842)
Investments in common and preferred
stock of investees............... (1,230,000) (1,399,614) 149,998
Amounts received from minority
partners......................... 140,000 116,944
Payment for purchase of acquired
entities......................... (2,017,055) (1,435,720)
Cash proceeds from sale of
assets........................... 125,000
Cash received from sale of common
and preferred stock of
investee......................... 675,942 540,000 540,000
------------ ------------ ------------- ------------ -------------
Net cash used in investing
activities....................... (21,327,151) (38,159,041) (113,931,537) (91,518,645) (133,318,558)
------------ ------------ ------------- ------------ -------------
</TABLE>

(Continued)

F-8
<PAGE> 65

DVI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)

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

F-9
<PAGE> 66

During the year ended June 30, 1994, the following non-cash transactions
occurred in conjunction with the disposal of the Company's healthcare segment
(see Note 3):

<TABLE>
<S> <C>
Net assets sold or written off:
Furniture and fixtures................................................. $ 733,065
Equipment on operating leases.......................................... 2,615,011
Receivables............................................................ 1,106,664
Other assets, net...................................................... 686,842
----------
$5,141,582
----------
Liabilities assumed by Company:
Accounts payable....................................................... $ 544,500
Accrued liabilities.................................................... 1,758,442
----------
2,302,942
----------
Less proceeds:
Cash................................................................... 125,000
Notes receivable....................................................... 3,776,611
----------
3,901,611
----------
Loss on disposal of assets............................................... $3,542,913
==========
</TABLE>

See Note 6 for discussion of additional noncash transactions.

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

F-10
<PAGE> 67

DVI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Insofar as these consolidated financial statements and notes relate to
information at March 31, 1995 and for the nine-month periods ended March 31,
1994 and 1995, they are unaudited. In the opinion of management, such unaudited
consolidated financial statements and notes thereto reflect all adjustments
consisting only of normal recurring adjustments, necessary for a fair
presentation of consolidated financial position, results of operations and cash
flows for such periods. The consolidated financial position at March 31, 1995
and consolidated results of operations for the nine months ended are not
necessarily indicative of the consolidated financial position that may be
expected at June 30, 1995 or consolidated results of operations that may be
expected for the year ending June 30, 1995.

NOTE 1. GENERAL

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

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Cash Equivalents -- Cash equivalents include highly liquid securities with
original maturities of 90 days or less.

Investment in Direct Financing Leases and Notes Secured by Equipment -- At
contract commencement, the Company records the gross contract receivable,
initial direct costs, estimated residual value of the financed equipment, if
any, and unearned income. At June 30, 1994 and 1993, unamortized initial direct
costs amounted to $5,444,135 and $3,548,361, respectively. Initial direct costs
are amortized over the life of the contract on the interest method which
reflects a constant effective yield.

Receivables from Sale of Leases and Notes Secured by Equipment -- The
receivables from sale of leases and notes secured by equipment primarily relate
to the sale of financing transactions which were complete as of the end of the
respective period.

Patient Service Accounts Receivable -- Patient service accounts receivable
relate to billings for services performed by the Company's discontinued
healthcare segment of its business (See Note 3). The receivables have been
stated at their estimated net realizable value at June 30, 1994 and 1993.

Notes Collateralized by Medical Receivables -- Notes collateralized by
medical receivables consist of receivables purchased from unrelated entities
(1993) and notes receivable resulting from working capital and other loans made
to entities in the healthcare industry (1994). The purchased receivables are
stated at the lower of the Company's cost or the estimated collectible value.
The notes receivable are stated at the original issuance amount net of reserves
for uncollectible amounts.

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

F-11
<PAGE> 68

DVI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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

Investments in and Advances to Investees -- The investments in and advances
to investees consist of common and nonvoting preferred equity interests in
unconsolidated subsidiaries. Prior to fiscal 1994, the Company accounted for its
investments in the common stock of these subsidiaries using the equity method of
accounting. Subsequent to fiscal 1993, when the Company no longer exerted
significant influence over two of the investees, the Company began accounting
for these two investees utilizing the cost method. The Company's common stock
investment in the remaining investee is accounted for under the equity method.
The investment in the investees accounted for under the cost method are
classified as held for sale and are stated at fair value. The investment in the
common and preferred stock of the remaining entity has been classified as held
for investment because the Company does not intend to dispose of its interest in
the near-term. The investment in the common stock of the remaining investee has
been written down to zero to reflect the Company's cumulative share of equity
losses in the investee. The investment in the preferred stock has been recorded
at the lower of cost or estimated market value (See Note 6).

Goodwill -- Goodwill at June 30, 1994 represents the estimated excess
contingent purchase price over the net tangible assets stemming from the
acquisition of Medical Equipment Finance Corporation ("MEF Corp."). (See Note
15.) Goodwill at June 30, 1993 represents the excess of the purchase price over
the fair value of the net assets acquired in conjunction with the Company's
healthcare segment. Goodwill relating to the acquisition of MEF Corp. is being
amortized over a fifteen year period. Goodwill relating to the healthcare
segment was written off during fiscal 1994 in conjunction with the change in
estimate of the loss on discontinued operations (See Note 3). The Company
evaluates the recoverability of its goodwill separately for each applicable
business acquisition at each balance sheet date . The recoverability of goodwill
is determined by comparing the carrying value of the goodwill to the estimated
operating income of the related entity on an undiscounted cash flow basis.
Should the carrying value of the goodwill exceed the estimated operating income
for the expected period of benefit, an impairment for the excess is recorded at
that time.

Other Assets -- Other assets consists primarily of equipment held for sale
or release and is stated at the lower of cost or its estimated market value.

Debt Issuance Costs -- Debt issuance costs related to securitizations and
convertible subordinated notes are offset against the related debt and are being
amortized over the life of the notes using the interest method.

Amortization of Finance Income -- Amortization of finance income primarily
consists of the amortization of unearned income which is recognized over the
term of the contract on the interest method so as to approximate a level rate of
return of the net investment. It also includes servicing fees earned for billing
and collecting services related to the assets securitizations (See Note 8) and a
gain on sale of residual interests of $799,661 during the fiscal year ended June
30, 1994.

Receivables Financing Income -- Receivables financing income is primarily
related to interest earned and fee income on notes collateralized by medical
receivables; income generated from receivable purchases; and income from
billing/collecting activities which the Company has curtailed. Interest income
on loans is recognized as earned. Income from medical receivable purchases is
recognized ratably as collections are made. Income from billing/collecting
activities is recognized as services are performed.

Gain on Sale of Financing Transactions -- Gains arising from the sale of
direct financing leases and investments in notes secured by equipment occur when
the Company obtains permanent funding through the whole loan sale of a
transaction to a third party. Subsequent to a sale, the Company has no remaining
interest in the transaction or equipment and no obligation to indemnify the
purchaser in the event of a default on the transaction by the obligor, except
when the sale agreement provides for limited recourse in which the

F-12
<PAGE> 69

DVI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Company guarantees reimbursement under the agreement up to a specific maximum,
which maximum is of nominal value. Consequently, in the event of default by the
obligor, the lender would exercise its rights under the lien with no further
recourse against the Company, notwithstanding any facts or circumstances that
might promulgate the lender's assertion under representations and warranties
made by the Company.

Taxes on Income -- The Company adopted Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), Accounting for Income Taxes, in July 1992. The
effect of the adoption of this change in accounting principle was not
significant to the accompanying consolidated financial statements (See Note 9).

Deferred taxes on income result from temporary differences between the
reporting of income for financial statement and tax reporting purposes. Such
differences arise principally in lease transactions in which the operating lease
method of accounting is used for tax purposes and the financing lease method, as
described above, is used for financial statement purposes. Under the operating
lease method, leased equipment is recorded at cost and depreciated over the
useful life of the equipment and lease payments are recorded as revenue when
earned.

Net Earnings (Loss) Per Common and Common Equivalent Share -- The net
earnings (loss) per common and common equivalent share are calculated using the
weighted average number of common and common equivalent shares outstanding,
except where antidilutive. For earnings from continuing operations in 1994 and
net earnings in 1993 and 1992, common equivalent shares include shares issuable
upon the exercise of stock options, rights and warrants less the number of
shares assumed purchased with the proceeds available from the assumed exercise
of the options, rights and warrants. Common equivalent shares have been excluded
from the computation of net loss per common share in 1994, because their effect
would be antidilutive. The proforma net earnings per share for the year ended
June 30, 1992 and the nine months ended March 31, 1995, assuming that the net
proceeds of $13,772,354 and $25,360,000, respectively, from the Company's
offering and proposed offering of its common stock were used to repay existing
short-term debt under the Company's principal revolving credit facilities at the
beginning of that period, is $.50 and $.39, respectively, per share.

Recent Accounting Development -- The Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" as of July 1, 1994. The
impact of the adoption did not have a material impact on the Company's
operations.

Reclassifications -- Certain amounts as previously reported have been
reclassified to conform to the year ended June 30, 1994 presentation.

NOTE 3. DISCONTINUED OPERATIONS

On June 30, 1993, the Company formally adopted a plan to divest
substantially all of its healthcare operations.

The following table presents net revenues, losses and selected balance
sheet information relating to the healthcare operations segment as of, and for
the years ended, June 30, 1992, 1993 and 1994.

<TABLE>
<CAPTION>
1992 1993 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net service income..................................... $3,007,849 6,455,932 $6,095,397
Loss from discontinued operations, net of tax of
$301,760 (1992), $1,064,529 (1993) and $51,000
(1994)............................................... 345,743 1,497,398 74,000
Loss on disposal of discontinued operations, net of tax
$295,200 (1993) and $2,212,536 (1994)................ 424,800 3,070,877
Net assets............................................. 2,943,897 7,589,025 1,300,000
</TABLE>

F-13
<PAGE> 70

DVI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 3. DISCONTINUED OPERATIONS (CONTINUED)

In June 1993, the Company adopted a formal plan to discontinue its DVI
Healthcare Operations segment consisting of seven outpatient healthcare
facilities which it operated or managed on a direct basis and one facility which
was in the developmental stage and not yet in operation. At June 30, 1993 the
Company established a reserve for the divestiture of the operations and recorded
a loss on discontinued operations and disposal of discontinued operations of
$1.9 million net of tax. This estimate was based on certain assumptions as to
the likely timing of the divestitures, the estimated proceeds to be received
upon the sale of certain of the facilities and the financial results of those
operations pending divestiture. These operations have been reflected as
discontinued operations in the Company's financial statements at June 30, 1992,
1993 and 1994. The pretax loss from discontinued operations of $3.3 million at
June 30, 1993 was comprised of $2.6 million relating to actual and estimated
losses from operations of this segment through the date of disposition and
approximately $700,000 relating to estimated losses to be incurred upon the
disposition of the segment's net assets.

At June 30, 1994, the Company had disposed or entered into definitive
agreements to sell five of these outpatient healthcare facilities and had
written off the investment and assets of the remaining two. In connection with
the disposal of these facilities, the Company retained certain assets and
liabilities of these facilities, primarily accounts receivable and accounts
payable. The change in estimate reflects the complete disposal or write-off of
the discontinued operations segment.

NOTE 4. RESTRICTED CASH AND CASH EQUIVALENTS

Restricted cash and cash equivalents consist of cash and certificates of
deposit maintained by the Company which are pledged as collateral for certain
limited recourse borrowings related to direct financing leases, notes secured by
equipment and operating leases.

NOTE 5. INVESTMENT IN DIRECT FINANCING LEASES AND NOTES
SECURED BY EQUIPMENT AND EQUIPMENT ON OPERATING LEASES

Receivables in installments are receivable in monthly installments of
varying amounts and are collateralized by the underlying equipment. Receivables
from operating leases relate to noncancellable operating leases and are
receivable in monthly installments of varying amounts. Information regarding
scheduled collections for direct financing leases, notes secured by equipment
and operating leases are as follows:

<TABLE>
<CAPTION>
DIRECT FINANCING LEASES
AND NOTES SECURED OPERATING
YEAR ENDING JUNE 30, BY EQUIPMENT LEASES
-------------------- ----------------------- ---------
<S> <C> <C>
1995........................................................ $ 75,248,978 $ 462,004
1996........................................................ 62,880,283 412,009
1997........................................................ 54,643,515 304,034
1998........................................................ 44,002,771 82,500
1999........................................................ 27,108,828
Thereafter.................................................. 5,895,751
------------ ----------
269,780,126 1,260,547
Residual valuation.......................................... 3,730,592
------------ ----------
Total....................................................... $273,510,718 1,260,547
============ ==========
</TABLE>

Residual valuation represents the estimated amount to be received at
contract termination from the disposition of equipment financed under direct
financing leases and notes secured by equipment. Amounts to be realized at
contract termination depend on the fair market value of the related equipment
and may vary

F-14
<PAGE> 71

DVI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5. INVESTMENT IN DIRECT FINANCING LEASES AND NOTES SECURED BY EQUIPMENT AND
EQUIPMENT ON OPERATING LEASES

from the recorded estimate. Residual values are reviewed on an annual basis to
determine if the equipment's fair market value is below its recorded value.

At June 30, 1994, direct financing lease receivables amounting to
$192,382,867 are assigned as collateral for the long-term debt (See Note 8).

NOTE 6. INVESTMENTS IN AND ADVANCES TO INVESTEES

At June 30, 1994, the Company held investments in three entities, SMT
Health Services, Inc. ("SMT"), Healthcare Imaging Services, Inc. ("HIS") and IPS
Health Care, Inc. ("IPS") totalling approximately 15%, 18% and 22%,
respectively, of the outstanding common stock of each entity. In September 1994,
IPS merged with Diagnostic Imaging Services, which reduced the Company's common
stock ownership from approximately 22% to 10%. At this time, the Company began
accounting for its investment in IPS on a cost basis.

The investments in these entities originally consisted of investments in
nonvoting, convertible preferred stock and voting common stock. Subsequent to
the Company's investment in SMT and HIS, those entities issued and sold shares
of their common stock in public offerings. As a result of these public
offerings, the Company increased the basis of its investment in these entities
to reflect the public offering price (See Note 2). During fiscal 1991, the
Company converted its preferred stock of HIS to common stock and then sold the
common stock in the open market for a gain of $135,942. During fiscal 1994, the
Company sold its preferred stock in SMT for $540,000 at no gain or loss. After
giving effect to the above transactions and the equity in the earnings (losses)
of the investees recorded by the Company, the Company's remaining interest in
SMT and HIS represents investments in common stock totalling $2.2 million. The
Company's investments in common stock of all of these unconsolidated entities
have historically been accounted for using the equity method of accounting
because the Company maintained significant influence over the investees.

As a part of the Company's overall strategy to operate exclusively as a
financial services company, the Company initiated a process to divest of its
interests in these investees. As a part of this process, during each of the
three months ended December 31, 1993 and March 31, 1994, the Company completed a
series of steps which significantly diminished its influence over SMT and HIS,
respectively. These steps included, among other things, arrangements with both
SMT and HIS to have all existing financing transactions between DVI and the
related entity refinanced through third party lenders and relinquishment by DVI
of its first right of refusal to finance all future equipment purchases made by
the entities. The Company also agreed that, upon completion of the refinancings,
it would relinquish its representation on the respective investees' Boards of
Directors and sell the common shares it owns in each investee. Finally, during
the refinancing process, DVI agreed to vote its common shares consistent with
each of the investee's management. As a result of the Company's significant
decline in influence over HIS and SMT, the Company's investments in those
entities have been accounted for on a cost basis since January 1, 1994 for SMT
and April 1, 1994 for HIS. Had the Company continued to account for these
investees on the equity method, the net loss for the year ended June 30, 1994
would have increased by $236,000, before offsetting any losses due to mark to
market adjustments. Prior to these dates, the Company accounted for its
investments in HIS and SMT under the equity method due to factors that existed
which the Company believes yielded it significant influence on the operating and
financial policies of these investees. These factors included the Company
providing a significant portion of the investees' equipment financing, the
Company's right of first refusal to finance all the investees' equipment
purchases and the Company's representation on the investee's Board of Directors
allowing it voting power relating to mergers, major dispositions of assets and
liquidations. The Company's investment in the equity of the common stock of IPS
continued to be accounted for under the equity method until September 1994 when
the Company's ownership of IPS declined to approximately 10% and its influence
over IPS declined significantly. Subsequent to the merger of IPS and DIS, the
Company will use the cost method to

F-15
<PAGE> 72

DVI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 6. INVESTMENTS IN AND ADVANCES TO INVESTEES (CONTINUED)

account for its investment in DIS. Any impairment in the value of these
investments is recorded at the time of reduction.

Subsequent to the Company's initial investment in IPS, the Company made
additional investments in common and preferred stock of IPS, financed various
leasing transactions for MRI and other equipment and entered into several
restructuring agreements with IPS as follows.

In August 1992, due to severe cash flow difficulties experienced by IPS,
the Company restructured certain debt of IPS. The restructuring of debt
included, among other things, the reduction of interest rates on four
transactions, extension of payment terms on certain direct finance lease
receivables, the transfer of direct patient billing and collection process to a
wholly owned subsidiary of the Company, the issuance of a working capital line
of credit to IPS, an agreement for IPS to provide consulting services to DVI,
and the appointment of two of the Officers of the Company to IPS's Board of
Directors. At the same time, the Company acquired 730,768 shares of restricted
IPS common stock from persons affiliated with the Company in exchange for
$137,019 which represented the fair value of the common stock as agreed to by
the parties.

In September 1992, one of the Company's wholly owned subsidiaries acquired
700,000, 725,000 and 420,000 shares of IPS's Series B, C and D of convertible
preferred stock, respectively for $1.00 per share. On November 12, 1992, an
additional 637,000 shares of Series E convertible preferred stock were acquired
from IPS for $1.00 per share. The preferred stock, with an aggregate value of
$2,482,000, was issued in exchange for cash of $1.12 million, exchange of debt
of $725,000 and imaging equipment valued at $637,000.

In September 1994, following the completion of a merger agreement between
IPS and Diagnostic Imaging Services, Inc., an unaffiliated entity, the Company
entered into an Agreement for the Exchange of Stock and Assets. The agreement
provided for the exchange of all the then outstanding preferred stock of IPS
owned by DVI for a new series of preferred stock (Series F). The agreement also
provided for the exchange of certain debt with a carrying value of $4 million,
assumption by DVI of certain assets and liabilities of IPS valued at
approximately $164,000, the return of certain equipment under leases with IPS to
DVI valued at approximately $2,164,000 and the issuance of Series G preferred
stock of IPS valued at $2,000,000. The Company did not record a gain or loss on
any of the restructuring transactions.

The Series F and G Preferred Stock have liquidation preferences at $1.00
per share, are redeemable at the option of IPS at $1.00 per share plus accrued
dividends, are convertible into common stock of IPS at $2.42 per share for
Series F and $1.00 per share for Series G, and are entitled to annual cumulative
dividends ranging from $.05 per share to $.10 per share. In addition, the
majority shareholder of IPS has the right to repurchase the Series F and G
preferred stock at $4,482,000 through September 2001.

NOTE 7. SHORT-TERM BANK BORROWINGS

At October 3, 1994, the Company had available to it an aggregate of $162.5
million in interim funding facilities. The Company's primary credit facility,
pursuant to a revolving credit agreement with a syndicate of banks (the "Bank
Revolving Credit Agreement"), provides for the borrowing of up to $79.0 million.
Borrowings under this facility bear interest at the Company's option at either a
variable rate equal to 25 basis points over the prime rate established by
National Westminster Bank USA or a fixed rate equal to 200 basis points over a
30-, 60- or 90-day LIBOR rate. The Revolving Credit Agreement was renewable
annually at the bank syndicate's discretion. The credit agreement also provides
that if the banks elect not to renew the facility at the end of its stated term,
then outstanding loans automatically convert to four-year amortizing term loans
at slightly higher interest rates. The Company also has a $75.0 million interim
funding facility with Prudential Securities Realty Funding Corporation (the
"Prudential Facility"). This interim funding facility is available for certain
transactions which are to be securitized under specified terms and bear interest
at a fixed rate equal to 90 basis points over the 30 day LIBOR rate. The Company
also has $8.5 million of additional interim

F-16
<PAGE> 73

DVI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 7. SHORT-TERM BANK BORROWINGS (CONTINUED)

funding facilities with other financial institutions. The Bank Revolving Credit
Agreement prohibits the Company from paying dividends other than dividends
payable solely in shares of the Company's common stock. Additionally, the Bank
Revolving Credit Agreement limits borrowings to specified levels determined by
ratios based on the Company's tangible net worth and, under certain
circumstances to use specified percentages of internally generated funds to pay
for equipment purchases. At June 30, 1994, an aggregate of approximately $34.6
million was outstanding under the Company's interim credit facilities and $97.9
million was available.

On March 28, 1995, the Bank Revolving Credit Agreement was amended and restated
to provide the Company with $81.5 million in borrowing capacity (the "Amended
and Restated Revolving Credit Agreement"). Borrowings under the Amended and
Restated Revolving Credit Agreement bear interest at the Company's option at
either a variable rate equal to up to 25 basis points over the prime rate
established by NatWest Bank N.A. depending on the Company's leverage ratio from
time to time as defined in the Amended and Restated Revolving Credit Agreement
or a rate of interest that varies from 150 to 180 basis points over a 30-, 60-
or 90-day LIBOR rate based on the Company's leverage ratio from time to time.
The Prudential Facility, as amended (the "Amended Prudential Facility"),
provides the Company with $100.0 million in warehouse funding. Borrowings under
the Amended Prudential Facility bear interest at a rate equal to 75 basis
points over the 30 day LIBOR rate. In March and April 1995, the Amended
Prudential Facility was further amended to allow the Company to borrow up to
$4.3 million in special advances (the "Special Advances"). The Special Advances
bear interest at a variable rate equal to 150 basis points over the 30-day
LIBOR until August 31, 1995. Borrowings under the Amended Prudential Facility,
including the Special Advances, are secured by (i) certain equipment loans and
the equipment financed thereunder, (ii) the Company's interest in the $9.0
million, 7.13% Asset-Backed Note, Series 1994-A, Class C of DVI Receivables
Corp. and (iii) the Company's rights to receive funds from certain securitized
equipment loans. The obligation of Prudential Securities Realty Funding
Corporation to make advances under the Amended Prudential Facility, including
the Special Advances, has been extended to August 31, 1995. Pursuant to this
extension, all borrowings under the Amended Prudential Facility mature on
August 31, 1995.

On June 7, 1995 the Company entered into a second facility with Prudential
Securities Realty Funding Corporation (the "$5.5 million Prudential Facility"),
which provides the Company with $5.5 million in warehouse funding to make
medical receivables loans to approved borrowers. Borrowings under the $5.5
million Prudential Facility bear interest at a variable rate equal to the prime
rate established by Morgan Guaranty Trust Company of New York. The borrowings
are secured by medical receivables loans originated by the Company and the
underlying receivables. This facility matures on August 31, 1995.

In addition, on February 2, 1995, the Company entered into a $75.0 million
warehouse facility with ContiTrade Services Corporation, (as amended to date,
the "Conti Facility"). The Conti Facility provides the Company with warehouse
financing for certain equipment loans to be securitized or otherwise permanently
funded through ContiTrade Services Corporation and bears interest at a rate
equal to 150 basis points over 30-or 60-day LIBOR which is fixed as to the
related funding period. Borrowings under the Conti Facility mature on June 30,
1995.

At March 31, 1995, the Company had available an aggregate of $256.5 million
in interim funding facilities, $108.5 of which was unused.

NOTE 8. LONG-TERM DEBT

The discounted receivables are payable to financial institutions, relate to
the discounting of direct financing lease obligations and notes secured by
equipment primarily on a limited or nonrecourse basis, and are collateralized by
the underlying equipment receivables (See Note 5).

F-17
<PAGE> 74

DVI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 8. LONG-TERM DEBT (CONTINUED)

Future annual maturities of discounted receivables, net of capitalized
issuance costs of $2,586,379 are as follows.

<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
--------------------
<S> <C>
1995................................................................. $ 35,215,830
1996................................................................. 36,206,157
1997................................................................. 32,641,743
1998................................................................. 26,478,346
1999................................................................. 15,324,414
Thereafter........................................................... 2,985,094
------------
Total.............................................................. $148,851,584
============
</TABLE>

Of the total discounted receivables, $148.4 million has been permanently
funded through three asset securitization which were initiated during fiscal
years 1992 through 1994. Debt under these securitizations are limited recourse,
bear interest at rates ranging between 5.34% to 7.67% and are serviced by the
Company. The agreements require that the Company comply with certain servicing
requirements as defined in the related securitization agreement, require limited
collateral in the form of cash (See Note 4) or residual interests. Total
collateral required under these arrangements amounted to $7.4 million at June
30, 1994.

Under the Company's most recent asset securitization, permanent funding was
secured for $75.7 million of financing transactions. Approximately $55.5 million
was utilized for financing transactions completed as of June 30, 1994. The
remaining $20.2 million was received subsequent to June 30, 1994, as the
underlying financing agreements were originated.

In June 1994, the Company completed a $14,112,000, net of issuance costs
totalling $888,000, private placement of convertible subordinated notes. The
Convertible Subordinated Notes are convertible into common shares at $10.60 per
share at the discretion of the noteholders, bear interest at a rate of 9 1/8%
payable in quarterly installments of interest only and mature in June 2002.

During the nine months ended March 31, 1995, $500,000 of subordinated notes
were converted into shares of the Company's common stock.

NOTE 9. INCOME TAXES

The provision for income taxes is comprised of the following:

<TABLE>
<CAPTION>
JUNE 30,
----------------------------------------
1992 1993 1994
---------- ---------- ----------
<S> <C> <C> <C>
Currently payable...................................... $ 353,479 $ 608,998 $2,623,340
Deferred............................................... 1,661,486 1,219,120 (811,800)
---------- ---------- ----------
Total................................................ $2,014,965 $1,828,118 $1,811,540
========== ========== ==========
</TABLE>

F-18
<PAGE> 75

DVI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 9. INCOME TAXES (CONTINUED)

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

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------
1992 1993 1994
---------- ---------- ----------
<S> <C> <C> <C>
Provision for income taxes at the federal statutory
rate................................................. $1,670,947 $1,516,001 $1,509,617
State income taxes, net of federal tax benefit......... 271,267 312,327 298,904
Other.................................................. 72,751 (210) 3,019
---------- ---------- ----------
Total................................................ $2,014,965 $1,828,118 $1,811,540
========== ========== ==========
</TABLE>

The major components of the Company's net deferred taxes of $4,481,289 and
$2,329,205 at June 30, 1993 and 1994, respectively, are as follows:

<TABLE>
<CAPTION>
1993 1994
------------ ------------
<S> <C> <C>
Accumulated depreciation........................................ $ 20,343,031 $ 23,214,892
Deferred recognition of lease income............................ (13,521,028) (18,023,343)
Net operating loss carryforwards and alternative minimum tax
credits....................................................... (1,773,334) (699,428)
Gain on investment.............................................. 841,514 696,679
Allowances for uncollectible receivables........................ (544,412) (953,372)
State income taxes.............................................. (356,658) (379,195)
Reserve for discontinued operations and loss on disposal........ (302,400) (1,193,420)
Other........................................................... (205,424) (333,608)
------------ ------------
Total......................................................... $ 4,481,289 $ 2,329,205
============ ============
</TABLE>

Included in the tax benefit for discontinued operations in fiscal 1994 of
$2,263,536 are net deferred assets of approximately $1,340,000 which are
expected to reverse during fiscal 1995.

At June 30, 1994, the Company has federal alternative minimum tax credit
carryforwards of $699,428 available to offset future taxable income.

NOTE 10. SHAREHOLDERS' EQUITY

Prior to June 30, 1994, the Company issued warrants to purchase a total of
80,000 common shares at prices between $7.625 and $8.375 per share to all
non-employee Directors of the Company and warrants to an unrelated party to
purchase up to 35,000 common shares at $8.50 per share. Additionally, in fiscal
1992, the Company issued warrants to purchase up to 200,000 shares of the
Company's common stock at $18.00 per share to an underwriter as compensation for
investment banking services. No compensation expense was recognized as a result
of this transaction. The warrants vest at various dates through November 1996
and expire at various dates through 2003. At June 30, 1994, warrants for 280,000
common shares were exercisable and none of the warrants had been exercised.

In February 1991, the Company issued 575,000 units at $10.50 per unit
(consisting of 575,000 shares of the Company's common stock and redeemable
warrants to purchase 575,000 shares of the Company's common stock at $12.00 per
share) to the public for total proceeds of $6,037,500 before net offering costs
of $999,875. As of June 30, 1994, none of these warrants had been exercised. The
warrants expire in February, 1996, and are redeemable by the Company provided
certain conditions are met. In addition, the underwriter has an option to
purchase an additional 50,000 units at $12.60 per share. The underwriter's
option is exercisable during a three-year period commencing February 7, 1993.

F-19
<PAGE> 76

DVI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 10. SHAREHOLDERS' EQUITY (CONTINUED)

In June 1994, the Company issued convertible subordinated notes to related
and unrelated parties which are convertible at the option of the holder into
1,415,094 shares of common stock at $10.60 per share (See Note 8 and 12).

NOTE 11. STOCK OPTION PLAN

The Company has a stock option plan which currently provides for the
granting of options to employees to purchase up to 950,000 shares of the
Company's common stock at the fair market value at the date of grant. Options
granted under the plan generally vest over three to five years from the date of
grant and expire ten years after the date of the grant. Any unexercised options
are canceled ninety days subsequent to the termination of the employee and are
returned to the plan.

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

<TABLE>
<CAPTION>
OPTIONS EXERCISE PRICE
OUTSTANDING PER SHARE
----------- --------------
<S> <C> <C>
Outstanding at July 1, 1991..................................... 314,170 $1.44 - $13.38
Granted......................................................... 171,000 8.25 - 13.50
Exercised....................................................... (18,705) 1.82 - 9.63
Canceled........................................................ (41,293)
----------- --------------
Outstanding at June 30, 1992.................................... 425,172 1.44 - 13.50
Granted......................................................... 158,600 5.00 - 13.50
Exercised....................................................... (167) 3.19
Canceled........................................................ (47,500)
----------- --------------
Outstanding at June 30, 1993.................................... 536,105 1.44 - 13.50
Granted......................................................... 399,625 7.00 - 10.38
Exercised....................................................... (37,000) 3.00 - 8.38
Canceled........................................................ (88,868)
----------- --------------
Outstanding at June 30, 1994.................................... 809,862 $1.44 - $13.50
========= =============
</TABLE>

As of June 30, 1994, options to purchase 285,682 shares were exercisable.

NOTE 12. RELATED PARTY TRANSACTIONS

Until March 31, 1994, a shareholder/director of the Company was also a
director of a bank which provides the Company with short-term bank borrowings.
The Company had short-term borrowings from the bank amounting to $2,181,099 and
$2,907,696 at June 30, 1993 and 1994, respectively (See Note 7).

At June 30, 1993 and 1994, receivables in installments from investees were
$19,285,865 and $16,427,684 respectively (See Note 3).

During the year ended June 30, 1994, the Company entered into various
agreements with an investee which are described in Note 6.

During the year ended June 30, 1994, the Company issued convertible
subordinated notes totalling $9,550,000 to related parties.

During the nine months ended March 31, 1995, $500,000 of subordinated notes
were converted into shares of the Company's common stock. The effect on net
earnings had the conversion occurred at the

F-20
<PAGE> 77

DVI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 12. RELATED PARTY TRANSACTIONS (CONTINUED)

beginning of the period would not have been significant to the accompanying
consolidated financial statements.

NOTE 13. COMMITMENTS AND CONTINGENCIES

Facility Leases -- The Company leases its facilities under noncancelable
operating leases with terms in excess of one year. The lease for the Company's
principal facility expires in May 1995 and provides for fixed increased periodic
rentals which are being recognized on a straight-line basis over the lease term.
Rent expense for the years ended June 30, 1992, 1993 and 1994 amounted to
$272,895, $715,246 and $462,731 respectively. Future minimum lease payments
under these leases are as follows:

<TABLE>
<CAPTION>
FUTURE MINIMUM
YEAR ENDING JUNE 30, LEASE PAYMENTS
-------------------------------------------------------------- --------------
<S> <C>
1995........................................................ $ 662,959
1996........................................................ 393,324
1997........................................................ 270,419
1998........................................................ 130,985
1999........................................................ 108,800
Thereafter.................................................. 329,905
--------------
Total.................................................... $1,896,392
============
</TABLE>

Commitments -- Under certain limited recourse agreements, the Company may
be required to provide for losses incurred on uncollected lease receivables
previously collateralized. At June 30, 1994, the maximum contingent liability
under the limited recourse agreements amounted to $28,002,976. This contingent
liability, however, could be offset by any proceeds received from the resale or
remarketing of available equipment financed under the agreements.

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

NOTE 14. BENEFIT PLANS

The Company maintains and administers an Employee Savings Plan pursuant to
Internal Revenue Code Section 401(k). The Plan provides for discretionary
contributions as determined by the Company's Board of Directors. The Company
contributed $9,245, $21,493 and $48,673 to the Plan during the years ending June
30, 1992, 1993 and 1994, respectively.

NOTE 15. ACQUISITIONS

In February 1992 the Company purchased from IPS Health Care, Inc. an
interest in a joint venture for $967,778 in cash and the assumption of $131,512
in liabilities. The Company's interest in this joint venture was included in the
Company's healthcare operations segment which was discontinued as of June 30,
1993 (See Note 3).

In January 1993, the Company acquired the outstanding shares of Medical
Equipment Finance Corporation ("MEF Corp."), which had only intangible assets at
the date of acquisition. Under the terms of the purchase agreement, the purchase
price is payable before October 15, 1998 in cash or common stock of DVI, as
elected by the Company. As initially structured, the purchase price was to be
determined as a percentage of the after-tax earnings of the acquired entity
during the sixty-six month period following the date

F-21
<PAGE> 78

DVI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 15. ACQUISITIONS (CONTINUED)

of acquisition, consequently, no amounts were recorded at the date of
acquisition. At June 30, 1994, no amounts were earned under the contract,
however, at that time the Company accrued $2 million as costs in excess of net
assets acquired (goodwill) which represents the Company's estimate of the
minimum amount to be payable to former shareholders of MEF Corp. Had the
acquisition occurred on July 1, 1992, the impact on the operations of the
Company would not have been significant.

During the year ended June 30, 1994, management entered into negotiations
with the former shareholders of MEF Corp. to revise certain terms of the
purchase agreement. In June 1995, the Company and the former shareholders of MEF
Corp. agreed, subject to stockholder approval and an increase in the authorized
capital stock of the Company, to set the purchase price of MEF Corp. at 400,000
shares of the Company's common stock valued at $4.65 million.

The acquisition of MEF Corp. will be accounted for as a purchase with the
costs in excess of net assets acquired being recorded as goodwill. Had the
revised purchase agreement been finalized on July 1, 1992, net income would have
decreased by $112,636, $73,970 and $55,478 and earnings per share would have
been reduced $0.017, $0.011 and $0.008 for the years ended June 30, 1993 and
1994 and the nine months ended March 31, 1995, respectively.

In February 1994, the Company acquired the outstanding shares of Medical
Device Capital Company ("MDCC"). Under the terms of the purchase agreement, the
purchase price is payable before October 15, 1999 in cash or common stock of
DVI, as elected by the Company. The purchase price is contingent and is to be
determined by a percentage of the after-tax earnings of the acquired entity
during the sixty-four month period following the date of acquisition. Had this
acquisition occurred on July 1, 1993, the impact on the operations of the
Company would not have been significant. At June 30, 1994, no amounts were
earned under the contract and due to the uncertainty of any future contingent
payments no amounts have been accrued under such agreement. Subsequent to June
30, 1994, the agreement was rescinded.

During the year ended June 30, 1994, the Company acquired additional shares
of IPS Health Care, Inc. preferred stock. (See Note 6.)

NOTE 16. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

In accordance with Statement of Financial Accounting Standards No. 107
("SFAS 107"), Disclosures About Fair Value of Financial Instruments, a summary
of the estimated fair value of the Company's consolidated financial instruments
at June 30, 1994 and March 31, 1995 is presented below. The estimated fair value
amounts have been determined by the Company using available market information
and appropriate valuation methodologies. However, considerable judgment is
necessary to interpret market data to develop the estimated fair values.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts the Company could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.

<TABLE>
<CAPTION>
JUNE 30, 1994
----------------------------------------
CARRYING AMOUNT ESTIMATED FAIR VALUE
--------------- --------------------
<S> <C> <C>
Assets:
Receivable in installments (excluding investment in
direct financing leases).............................. $ 81,732,962 $ 85,022,168
Liabilities:
Discounted receivables................................... $ 148,851,584 $146,999,444
</TABLE>

The carrying values of cash and cash equivalents, restricted cash and cash
equivalents, receivables from sale of leases and notes secured by equipment,
patient service accounts receivable, notes collateralized by

F-22
<PAGE> 79

DVI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 16. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

medical receivables, investment subordinated notes, accounts payable, other
accrued expenses, short-term bank borrowings, convertible subordinated notes and
deferred income taxes approximate fair values at June 30, 1994.

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

Receivable in installments:

The fair value of the financing contracts was estimated by discounting
expected cash flows using the current rates at which loans of similar credit
quality, size and remaining maturity would be made as of June 30, 1994. The
Company believes that the risk factor embedded in the entry-value interest rates
applicable to performing loans for which there are no known credit concerns
results in a fair valuation of such loans on an entry-value basis. In accordance
with SFAS 107, the Company has excluded receivables from lease contracts of
approximately $141.6 million from the receivable in installments fair value
calculation. Additionally, the receivable in installments -- related parties
balances relates exclusively to lease receivables and has therefore been
excluded from the Company's fair value calculation.

Discounted receivables:

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

The fair value estimates presented herein were based on information
available as of June 30, 1994. Although the Company is not aware of any factors
that would significantly affect the estimated fair values, such values have not
been updated since June 30, 1994; therefore, current estimates of fair value may
differ significantly from the amounts presented herein.

F-23
<PAGE> 80

DVI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 17. QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is a summary of the quarterly results of operations for the
fiscal years ended June 30, 1994 and 1993:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------
SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30
------------ ----------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
FISCAL 1994
Finance and other income...................... $4,262 $ 4,567 $5,523 $ 6,559
Margins earned................................ 2,646 2,675 3,132 3,625
Earnings from continuing operations before
provision for income taxes, equity in net
earnings (loss) of investees and
discontinued operations..................... 634 1,006 1,232 1,441
Earnings from continuing operations........... 330 447 646 837
Loss from discontinued operations............. 0 0 0 (3,145)
Net earnings (loss)........................... 330 447 646 (2,308)
Net earnings (loss) per common and common
equivalent share:
From continuing operations.................... $ .05 $ .07 $ .10 $ .12
From discontinued operations.................. 0 0 0 (.47)
------ ------ ------ -------
Net earnings (loss) per share................. $ .05 $ .07 $ .10 $ (.35)
====== ====== ====== =======
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------
SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30
------------ ----------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
FISCAL 1993
Finance and other income...................... $4,321 $ 3,341 $3,654 $ 3,883
Margins earned................................ 3,108 2,167 2,516 2,403
Earnings from continuing operations before
provision for income taxes, equity in net
earnings (loss) of investees and
discontinued operations..................... 1,896 903 1,038 622
Earnings from continuing operations........... 1,172 498 562 348
Loss from discontinued operations............. (275) (261) (520) (866)
Net earnings (loss)........................... 897 237 42 (518)
Net earnings (loss) per common and common
equivalent share:
From continuing operations.................... $ .18 $ .08 $ .08 $ .05
From discontinued operations.................. (.04) (.04) (.08) (.13)
------ ------ ------ -------
Net earnings (loss) per share................. $ .14 $ .04 $ .00 $ (.08)
====== ====== ====== =======
</TABLE>

NOTE 18. HEDGING TRANSACTIONS (UNAUDITED)

The Company's equipment loans are all structured on a fixed interest rate
basis. Although the Company permanently funds these transactions on a fixed
interest rate basis, it uses variable rate interim funding facilities until
permanent funding is obtained, generally through asset securitization. Because
funds borrowed through interim funding facilities are obtained on a floating
interest rate basis, the Company uses hedging techniques to protect its interest
rate margins during the period that interim funding facilities are used. The
Company's strategies are to hedge its portfolio by either assuming a short
position in Treasury notes of comparable maturity or entering into Treasury lock
transactions whereby DVI will either pay or receive funds

F-24
<PAGE> 81

DVI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 18. HEDGING TRANSACTIONS (UNAUDITED) (CONTINUED)

based on price movements of Treasury notes having a comparable maturity to DVI's
fixed rate portfolios. DVI believes this strategy hedges its portfolio of fixed
rate equipment financing contracts while waiting for permanent securitization
funding thus stabilizing the Company's weighted average borrowing rate. The
Company has not altered its underlying asset structure through hedging
activities but does have liabilities to cover its hedging position in the event
there is an upward movement in interest rates and a corresponding decline in the
value of the Treasury notes in which it has taken short positions or contracts.

On June 30, 1994, DVI had no outstanding derivative financial instruments.
During the nine months since June 30, 1994, the Company commenced its hedging
program by entering into $193 million of contracts and closing out $135 million.
On March 31, 1995, the Company had $58 million of outstanding financial
instruments that were matched either to specific financing transactions or DVI's
existing portfolio:

SCHEDULE OF TREASURY SHORTS
AND TREASURY LOCKS

<TABLE>
<CAPTION>
NOTIONAL AMOUNTS
NINE MONTHS
ENDED MARCH 31, 1995
--------------------
(UNAUDITED)
<S> <C>
Beginning Balance................................................. $ 0
New Contracts..................................................... 193,000,000
Terminated Contracts.............................................. (87,000,000)
Expired Contracts................................................. (48,000,000)
------------
Ending Balance.................................................... $ 58,000,000
============
</TABLE>

When DVI's hedging activities are matched to specific borrowings relating
to securitizations, gains or losses from hedging positions are reflected as a
decrease or increase in the interest expense and thus the gain or loss is spread
over the remaining term of the transactions securitized. Gains and losses from
hedging are reflected as an increase or decrease in the gain on sale proceeds
when transactions are funded through whole loan sales. At March 31, 1995 the
Company had net unrealized hedging losses of $1.2 million offset by margin
gains.

NOTE 19. COMPENSATION AGREEMENTS (UNAUDITED)

In June 1995, the Company agreed in principle to adopt an employee
incentive plan. Under the Plan the Company has agreed to issue, subject to
stockholder approval and an increase in the authorized capital stock of the
Company, an aggregate of 200,000 shares of common stock of the Company (the
"Incentive Shares") to certain of its employees if the last sale price of the
Company's common stock is $16.00 per share or higher for 30 consecutive calendar
days at any time before December 31, 1998, provided that any such employee must
be employed by the Company during the above-described 30-day period in order to
receive any Incentive Shares under this agreement. The Company has agreed that,
if there is an event or series of events that constitutes a sale of the Company
at any time prior to December 31, 1998 and the consideration to be received for
each share of common stock of the Company in such sale of the Company is $13.00
or higher, the Company will issue the Incentive Shares to the employees
described above.

F-25
<PAGE> 82

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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SHARES OF
COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information................. 2
Prospectus Summary.................... 3
The Company........................... 7
Risk Factors.......................... 8
Use of Proceeds....................... 14
Price Range of Common Stock and
Dividend Policy..................... 15
Capitalization........................ 16
Selected Financial Information and
Other Data.......................... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 30
Management............................ 42
Certain Transactions.................. 47
Principal Stockholders................ 49
Description of Capital Stock.......... 51
Shares Eligible for Future Sale....... 54
Underwriting.......................... 55
Legal Matters......................... 56
Experts............................... 56
Financial Statements.................. F-1
</TABLE>

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

2,500,000 Shares

[LOGO]

Common Stock

------------------
PROSPECTUS
------------------

PRUDENTIAL SECURITIES INCORPORATED

OPPENHEIMER & CO., INC.

July 25, 1995
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