UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON D.C. 20549

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


                                   FORM 10-K/A
                                (AMENDMENT NO. 1)


ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
                                      1934

                   For the fiscal year ended October 31, 2005
                         Commission File Number 0-19019

                          PRIMEDEX HEALTH SYSTEMS, INC.
             (Exact name of registrant as specified in its charter)


            NEW YORK                                            13-3326724
(State or other jurisdiction of                              (I.R.S. Employer
 incorporation or organization)                             Identification No.)

          1510 COTNER AVENUE
        LOS ANGELES, CALIFORNIA                                   90025
(Address of principal executive offices)                        (Zip code)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 478-7808

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                          COMMON STOCK, $.01 PAR VALUE

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                 Yes [X] No [ ]

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

Indicate by check mark whether the registrant is a shell company (as defined in
Exchange Act Rule 12b-2) Yes [ ] No [X]

The aggregate market value of the registrant's voting and non-voting common
equity held by non-affiliates of the registrant was approximately $15,209,521 on
April 30, 2005 (the last business day of the registrant's most recently
completed second quarter) based on the closing price for the common stock on the
Nasdaq Over-the-Counter Bulletin Board on April 29, 2005.

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.

                                 Yes [X] No [ ]

The number of shares of the registrant's common stock outstanding on January 9,
2006, was 41,406,813 shares (excluding treasury shares).





Explanatory Note: This Amendment No. 1 on Form 10-K/A (this "Amendment") to our
Annual Report on Form 10-K for the fiscal year ended October 31, 2005 includes a
new discussion in Item 7. under "Results of Operations" with respect to our
evaluation of disclosure controls and procedures, clarifies our discussion in
Item 9a. and adds a paragraph to our CEO and CFO certifications filed as
Exhibits 31.1 and 31.2.


                                     PART I

ITEM 1.  BUSINESS
-------  --------

BUSINESS OVERVIEW

         We operate a group of regional networks comprised of 57 fixed-site,
freestanding outpatient diagnostic imaging facilities in California. We believe
our group of regional networks is the largest of its kind in California. We have
strategically organized our facilities into regional networks in markets that
have both high-density and expanding populations, as well as attractive payor
diversity.

         All of our facilities employ state-of-the-art equipment and technology
in modern, patient-friendly settings. Many of our facilities within a particular
region are interconnected and integrated through our advanced information
technology system. Thirty four of our facilities are multi-modality sites,
offering various combinations of magnetic resonance imaging, or MRI, computed
tomography, or CT, positron emission tomography, or PET, nuclear medicine,
mammography, ultrasound, diagnostic radiology, or X-ray and fluoroscopy. Twenty
three of our facilities are single-modality sites, offering either X-ray or MRI.
Consistent with our regional network strategy, we locate our single-modality
facilities near multi-modality sites to help accommodate overflow in targeted
demographic areas.

         At our facilities, we provide all of the equipment as well as all
non-medical operational, management, financial and administrative services
necessary to provide diagnostic imaging services. We give our facility managers
authority to run our facilities to meet the demands of local market conditions,
while our corporate structure provides economies of scale, corporate training
programs, standardized policies and procedures and sharing of best practices
across our networks. Each of our facility managers is responsible for meeting
our standards of patient service, managing relationships with local physicians
and payors and maintaining profitability.

         Howard G. Berger, M.D. is our President and Chief Executive Officer, a
member of our Board of Directors and owns approximately 30% of our outstanding
common stock. Dr. Berger also owns, indirectly, 99% of the equity interests in
Beverly Radiology Medical Group III, or BRMG. BRMG provides all of the
professional medical services at 42 of our facilities under a management
agreement with us, and contracts with various other independent physicians and
physician groups to provide the professional medical services at most of our
other facilities. We obtain professional medical services from BRMG, rather than
provide such services directly or through subsidiaries, in order to comply with
California's prohibition against the corporate practice of medicine. However, as
a result of our close relationship with Dr. Berger and BRMG, we believe that we
are able to better ensure that medical service is provided at our facilities in
a manner consistent with our needs and expectations and those of our referring
physicians, patients and payors than if we obtained these services from
unaffiliated physician groups.

         We derive substantially all of our revenue, directly or indirectly,
from fees charged for the diagnostic imaging services performed at our
facilities. For the year ended October 31, 2005, we performed 958,414 diagnostic
imaging procedures and generated net revenue from continuing operations of
$145.6 million.

The following table illustrates our work performed over the five-year period
ended October 31, 2005:


                                                                             YEAR ENDED OCTOBER 31,
                                                                ------------------------------------------------
                                                                  2001      2002      2003      2004      2005
                                                                --------   -------   -------   -------   -------
                                                                                               
Total number of MRI, CT and PET systems (at end of year)*             52        60        63        68        68
Total number of procedures performed*                            690,484   877,574   947,032   946,928   958,414
______________
* All procedures.  Excludes discontinued operation.



                                      1



INDUSTRY OVERVIEW

         Diagnostic imaging involves the use of non-invasive procedures to
generate representations of internal anatomy and function that can be recorded
on film or digitized for display on a video monitor. Diagnostic imaging
procedures facilitate the early diagnosis and treatment of diseases and
disorders and may reduce unnecessary invasive procedures, often minimizing the
cost and amount of care for patients. Diagnostic imaging procedures include MRI,
CT, PET, nuclear medicine, ultrasound, mammography, X-ray and fluoroscopy.

         While general X-ray remains the most commonly performed diagnostic
imaging procedure, the fastest growing and higher margin procedures are MRI, CT
and PET. The rapid growth in PET scans is attributable to the recent
introduction of reimbursement by payors of PET procedures. The number of MRI and
CT scans continues to grow due to their wider acceptance by physicians and
payors, an increasing number of applications for their use and a general
increase in demand due to the aging population in the United States.

       IMV, a provider of database and market information products and services
to the analytical, clinical diagnostic, biotechnology, life science and medical
imaging industries, estimates that over 24.2 million MRI procedures and 50.1
million CT procedures were conducted in the United States in 2003, representing
a 10% increase over the 2002 volume of both the MRI and CT procedures,
respectively. This data is particularly relevant to us, given that revenue from
MRI and CT scans constituted approximately 60% of our net revenue for the year
ended October 31, 2005. In addition, IMV estimates that over 706,100 clinical
PET patient studies were performed in the United States in 2003, representing a
58% increase over the 2002 volume of 447,200 clinical PET patient studies.
Revenue from PET scans constituted approximately 6% of our net revenue for the
year ended October 31, 2005.

INDUSTRY TRENDS

       We believe that the diagnostic imaging services industry will continue to
grow as a result of a number of factors, including the following:

       ESCALATING DEMAND FOR HEALTHCARE SERVICES FROM AN AGING POPULATION

       Persons over the age of 65 comprise one of the fastest growing segments
of the population in the United States. According to the United States Census
Bureau, this group is expected to increase as much as 14% from 2000 to 2010.
Because diagnostic imaging use tends to increase as a person ages, we believe
the aging population will generate more demand for diagnostic imaging
procedures.

       NEW EFFECTIVE APPLICATIONS FOR DIAGNOSTIC IMAGING TECHNOLOGY

       New technological developments are expected to extend the clinical uses
of diagnostic imaging technology and increase the number of scans performed.
Recent technological advancements include:

       o      MRI spectroscopy, which can differentiate malignant from benign
              lesions;

       o      MRI angiography, which can produce three-dimensional images of
              body parts and assess the status of blood vessels;

       o      Enhancements in teleradiology systems, which permit the digital
              transmission of radiological images from one location to another
              for interpretation by radiologists at remote locations; and

       o      The development of combined PET/CT scanners, which combine the
              technology from PET and CT to create a powerful diagnostic imaging
              system.

       Additional improvements in imaging technologies, contrast agents and scan
capabilities are leading to new non-invasive methods of diagnosing blockages in
the heart's vital coronary arteries, liver metastases, pelvic diseases and
vascular abnormalities without exploratory surgery. We believe that the use of
the diagnostic capabilities of MRI and other imaging services will continue to
increase because they are cost-effective, time-efficient and non-invasive, as
compared to alternative procedures, including surgery, and that newer
technologies and future technological advancements will continue the increased
use of imaging services. In addition, we believe the growing popularity of
elective full-body scans will further increase the use of imaging services. At

                                      2



the same time, we believe the industry has increasingly used upgrades to
existing equipment to expand applications, extend the useful life of existing
equipment, improve image quality, reduce image acquisition time and increase the
volume of scans that can be performed. We believe this trend toward equipment
upgrades rather than equipment replacements will continue, as we do not foresee
new imaging technologies on the horizon that will displace MRI, CT or PET as the
principal advanced diagnostic imaging modalities.

       WIDER PHYSICIAN AND PAYOR ACCEPTANCE OF THE USE OF IMAGING

       During the last 30 years, there has been a major effort undertaken by the
medical and scientific communities to develop higher quality, cost-effective
diagnostic imaging technologies and to minimize the risks associated with the
application of these technologies. The thrust of product development during this
period has largely been to reduce the hazards associated with conventional x-ray
and nuclear medicine techniques and to develop new, harmless imaging
technologies. As a result, the use of advanced diagnostic imaging modalities,
such as MRI, CT and PET, which provide superior image quality compared to other
diagnostic imaging technologies, has increased rapidly in recent years. These
advanced modalities allow physicians to diagnose a wide variety of diseases and
injuries quickly and accurately without exploratory surgery or other surgical or
invasive procedures, which are usually more expensive, involve greater risk to
patients and result in longer rehabilitation time. Because advanced imaging
systems are increasingly seen as a tool for reducing long-term healthcare costs,
they are gaining wider acceptance among payors.

       GREATER CONSUMER AWARENESS OF AND DEMAND FOR PREVENTIVE DIAGNOSTIC
       SCREENING

       Diagnostic imaging is increasingly being used as a screening tool for
preventive care such as elective full-body scans. Consumer awareness of and
demand for diagnostic imaging as a less invasive and preventive screening method
has added to the growth in diagnostic imaging procedures. We believe that
further technological advancements will create demand for diagnostic imaging
procedures as less invasive procedures for early diagnosis of diseases and
disorders.

DIAGNOSTIC IMAGING SETTINGS

       Diagnostic imaging services are typically provided in one of the
following settings:

       FIXED-SITE, FREESTANDING OUTPATIENT DIAGNOSTIC FACILITIES

       These facilities range from single-modality to multi-modality facilities
and are not generally owned by hospitals or clinics. These facilities depend
upon physician referrals for their patients and generally do not maintain
dedicated, contractual relationships with hospitals or clinics. In fact, these
facilities may compete with hospitals or clinics that have their own imaging
systems to provide services to these patients. These facilities bill third-party
payors, such as managed care organizations, insurance companies, Medicare or
Medi-Cal. All of our facilities are in this category.

       HOSPITALS OR CLINICS

       Many hospitals provide both inpatient and outpatient diagnostic imaging
services, typically on site. These inpatient and outpatient centers are owned
and operated by the hospital or clinic, or jointly by both, and are primarily
used by patients of the hospital or clinic. The hospital or clinic bills
third-party payors, such as managed care organizations, insurance companies,
Medicare or Medi-Cal.

       MOBILE FACILITIES

       Using specially designed trailers, imaging service providers transport
imaging equipment and provide services to hospitals and clinics on a part-time
or full-time basis, thus allowing small to mid-size hospitals and clinics that
do not have the patient demand to justify an on-site setting access to advanced
diagnostic imaging technology. Diagnostic imaging providers contract directly
with the hospital or clinic and are typically reimbursed directly by them.


                                      3



DIAGNOSTIC IMAGING MODALITIES

       The principal diagnostic imaging modalities we use at our facilities are:

       MRI

       MRI has become widely accepted as the standard diagnostic tool for a wide
and fast-growing variety of clinical applications for soft tissue anatomy, such
as those found in the brain, spinal cord and interior ligaments of body joints
such as the knee. MRI uses a strong magnetic field in conjunction with low
energy electromagnetic waves that are processed by a computer to produce
high-resolution, three-dimensional, cross-sectional images of body tissue,
including the brain, spine, abdomen, heart and extremities. A typical MRI
examination takes from 20 to 45 minutes. MRI systems can have either open or
closed designs, routinely have magnetic field strength of 0.2 Tesla to 3.0 Tesla
and are priced in the range of $0.6 million to $2.5 million.

       CT

       CT provides higher resolution images than conventional X-rays, but
generally not as well-defined as those produced by MRI. CT uses a computer to
direct the movement of an X-ray tube to produce multiple cross-sectional images
of a particular organ or area of the body. CT is used to detect tumors and other
conditions affecting bones and internal organs. It is also used to detect the
occurrence of strokes, hemorrhages and infections. A typical CT examination
takes from 15 to 45 minutes. CT systems are priced in the range of $0.3 million
to $1.2 million.
                                                            3
       PET

       PET scanning involves the administration of a radiopharmaceutical agent
with a positron-emitting isotope and the measurement of the distribution of that
isotope to create images for diagnostic purposes. PET scans provide the
capability to determine how metabolic activity impacts other aspects of
physiology in the disease process by correlating the reading for the PET with
other tools such as CT or MRI. PET technology has been found highly effective
and appropriate in certain clinical circumstances for the detection and
assessment of tumors throughout the body, the evaluation of some cardiac
conditions and the assessment of epilepsy seizure sites. The information
provided by PET technology often obviates the need to perform further highly
invasive or diagnostic surgical procedures. PET systems are priced in the range
of $0.8 million to $2.5 million. We provide PET-only services through the use of
mobile equipment services at a few of our sites. In addition, we have combined
PET/CT systems that blend the PET and CT imaging modalities into one scanner.
These combined systems are priced in the range of $1.8 million to $2.2 million.

       NUCLEAR MEDICINE

       Nuclear medicine uses short-lived radioactive isotopes that release small
amounts of radiation that can be recorded by a gamma camera and processed by a
computer to produce an image of various anatomical structures or to assess the
function of various organs such as the heart, kidneys, thyroid and bones.
Nuclear medicine is used primarily to study anatomic and metabolic functions.
Nuclear medicine systems are priced in the range of $300,000 to $400,000.

       X-RAY

       X-rays use roentgen rays to penetrate the body and record images of
organs and structures on film. Digital X-ray systems add computer image
processing capability to traditional X-ray images, which provides faster
transmission of images with a higher resolution and the capability to store
images more cost-effectively. X-ray systems are priced in the range of $50,000
to $250,000.

       ULTRASOUND

       Ultrasound imaging uses sound waves and their echoes to visualize and
locate internal organs. It is particularly useful in viewing soft tissues that
do not X-ray well. Ultrasound is used in pregnancy to avoid X-ray exposure as
well as in gynecological, urologic, vascular, cardiac and breast applications.
Ultrasound systems are priced in the range of $90,000 to $250,000.

                                      4



       MAMMOGRAPHY

       Mammography is a specialized form of radiology using low dosage X-rays to
visualize breast tissue and is the primary screening tool for breast cancer.
Mammography procedures and related services assist in the diagnosis of and
treatment planning for breast cancer. Mammography systems are priced in the
range of $70,000 to $100,000.

       FLUOROSCOPY

       Fluoroscopy uses ionizing radiation combined with a video viewing system
for real time monitoring of organs. Fluoroscopy systems are priced in the range
of $100,000 to $300,000.

COMPETITIVE STRENGTHS

       SIGNIFICANT AND KNOWLEDGEABLE PARTICIPANT IN THE NATION'S LARGEST ECONOMY

       We believe our group of regional networks of fixed-site, freestanding
outpatient diagnostic imaging facilities is the largest of its kind in
California, the nation's largest economy and most populous state. Our two
decades of experience in operating diagnostic imaging facilities in almost every
major population center in California gives us intimate, first-hand knowledge of
these geographic markets, as well as close, long-term relationships with key
payors, radiology groups and referring physicians within these markets.

       ADVANTAGES OF REGIONAL NETWORKS WITH BROAD GEOGRAPHIC COVERAGE

       The organization of our diagnostic imaging facilities into regional
networks around major population centers offers unique benefits to our patients,
our referring physicians, our payors and us.

       o      We are able to increase the convenience of our services to
              patients by implementing scheduling systems within geographic
              regions, where practical. For example, many of our diagnostic
              imaging facilities within a particular region can access the
              patient appointment calendars of other facilities within the same
              regional network to efficiently allocate time available and to
              meet a patient's appointment, date, time or location preferences.

       o      We have found that many third-party payors representing large
              groups of patients often prefer to enter into managed care
              contracts with providers that offer a broad array of diagnostic
              imaging services at convenient locations throughout a geographic
              area. We believe that our regional network approach and our
              utilization management system make us an attractive candidate for
              selection as a preferred provider for these third-party payors.

       o      Through our advanced information technology systems, we can
              electronically exchange information between radiologists in real
              time, enabling us to cover larger geographic markets by using the
              specialized training of other practitioners in our networks. In
              addition, many of our facilities digitally transmit to our
              headquarters, on a daily basis, comprehensive data concerning the
              diagnostic imaging services performed, which our corporate
              management closely monitors to evaluate each facility's
              efficiency. Similarly, BRMG uses our advanced information
              technology system to closely monitor radiologists to ensure that
              they consistently perform at expected levels. o The grouping of
              our facilities within regional networks enables us to easily move
              technologists and other personnel, as well as equipment, from
              under-utilized to over-utilized facilities on an as-needed basis.
              This results in operating efficiencies and better equipment
              utilization rates and improved response time for our patients.

       COMPREHENSIVE DIAGNOSTIC IMAGING SERVICES

       At each of our multi-modality facilities, we offer patients and referring
physicians one location to serve their needs for multiple procedures.
Furthermore, we have complemented many of our multi-modality sites with
single-modality sites to accommodate overflow and to provide a full range of
services within a local area consistent with demand. This can help patients
avoid multiple visits or lengthy journeys between facilities, thereby decreasing
costs and time delays.

                                      5



       STRONG RELATIONSHIPS WITH EXPERIENCED AND HIGHLY REGARDED RADIOLOGISTS

       Our contracted radiologists generally have outstanding credentials and
reputations, strong relationships with referring physicians, a broad mix of
sub-specialties and a willingness to embrace our approach for the delivery of
diagnostic imaging services. The collective experience and expertise of these
radiologists translates into more accurate and efficient service to patients.
Moreover, as a result of our close relationship with Dr. Berger and BRMG, we
believe that we are able to better ensure that medical service is provided at
our facilities in a manner consistent with our needs and expectations and those
of our referring physicians, patients and payors than if we obtained these
services from unaffiliated practice groups. We believe that physicians are drawn
to BRMG and the other radiologist groups with whom we contract by the
opportunity to work with the state-of-the-art equipment we make available to
them, as well as the opportunity to receive specialized training through our
fellowship programs, and engage in clinical research programs, which generally
are available only in university settings and major hospitals. Also, through the
use of options and warrants, we have made available to many of BRMG's key
physicians the opportunity to own an equity stake in our company, which we
believe further strengthens the commonality of their interests with ours.

       DIVERSIFIED PAYOR MIX

       Our revenue is derived from a diverse mix of payors, including private
payors, managed care capitated payors and government payors. We believe our
payor diversity mitigates our exposure to possible unfavorable reimbursement
trends within any one payor class. In addition, our experience with capitation
arrangements over the last several years has provided us with the expertise to
manage utilization and pricing effectively, resulting in a predictable stream of
profitable revenue. With the exception of Blue Cross/Blue Shield and government
payors, no single payor accounted for more than 5% of our net revenue for the
year ended October 31, 2005.

       EXPERIENCED AND COMMITTED MANAGEMENT TEAM

       Dr. Howard Berger, Norman Hames, our Chief Operating Officer, and Dr.
John Crues III, a Vice President of our company, together have close to 75 years
of healthcare management experience. Our executive management team has created
our differentiated approach based on their comprehensive understanding of the
diagnostic imaging industry and the dynamics of our regional markets. Our
management beneficially owns approximately 33% of our common stock.

BUSINESS STRATEGY

       MAXIMIZING PERFORMANCE AT OUR EXISTING FACILITIES

       We intend to enhance our operations and increase scan volume and revenue
at our existing facilities by:

       o      Establishing new referring physician and payor relationships;

       o      Increasing patient referrals through targeted marketing efforts to
              referring physicians;

       o      Adding modalities and increasing imaging capacity through
              equipment upgrades to existing machinery, additional machinery and
              relocating machinery to meet the needs of our regional markets;

       o      Leveraging our multi-modality offerings to increase the number of
              high-end procedures performed; and

       o      Building upon our capitation arrangements to obtain
              fee-for-service business.

       FOCUSING ON PROFITABLE CONTRACTING

       We regularly evaluate our contracts with third-party payors and radiology
groups, as well as our equipment and real property leases, to determine how we
may improve the terms to increase our revenues and reduce our expenses. Because
many of our contracts have one-year terms, we can regularly renegotiate these
contracts, if necessary. We believe our position as a leading provider of
diagnostic imaging services in California, our experience and knowledge of the
various geographic markets in California, and the benefits offered by our
regional networks enable us to obtain more favorable contract terms than would
be available to smaller or less experienced organizations.

                                      6



       EXPANDING MRI AND CT APPLICATIONS

       We intend to continue to use expanding MRI and CT applications as they
become commercially available. Most of these applications can be performed by
our existing MRI and CT systems with upgrades to software and hardware. By way
of example, in January 2005, we placed into service a new piece of equipment
which functions in conjunction with the MRI and utilizes focused ultrasound as a
completely non-invasive procedure to treat symptomatic uterine fibroids. The
equipment costing $750,000 received FDA approval in late October 2004 and we are
the first organization in the Western United States to acquire the equipment. We
also intend to introduce applications that will decrease scan and image-reading
time to increase our productivity.

       OPTIMIZING OPERATING EFFICIENCIES

       We intend to maximize our equipment utilization by adding, upgrading and
re-deploying equipment where we experience excess demand. We will continue to
trim excess operating and general and administrative costs where it is feasible
to do so, including consolidating, divesting or closing under-performing
facilities to reduce operating costs and improve operating income. We also may
continue to use, where appropriate, high-trained radiology physician assistants
to perform, under appropriate supervision of radiologists, basic services
traditionally performed by radiologists. We will continue to upgrade our
advanced information technology system to create cost reductions for our
facilities in areas such as image storage, support personnel and financial
management.

       EXPANDING OUR NETWORKS

       We intend to expand our networks of facilities through new developments
and acquisitions, using a disciplined approach for evaluating and entering new
areas, including consideration of whether we have adequate financial resources
to expand. We perform extensive due diligence before developing a new facility
or acquiring an existing facility, including surveying local referral sources
and radiologists, as well as examining the demographics, reimbursement
environment, competitive landscape and intrinsic demand of the geographic
market. We generally will only enter new markets where:

       o      There is sufficient patient demand for outpatient diagnostic
              imaging services;

       o      We believe we can gain significant market share;

       o      We can build key referral relationships or we have already
              established such relationships; and

       o      Payors are receptive to our entry into the market.

OUR SERVICES

       We offer the following services: MRI, CT, PET, nuclear medicine, X-ray,
ultrasound, mammography and fluoroscopy. Our facilities provide standardized
services, regardless of location, to ensure patients, physicians and payors
consistency in service and quality. We monitor our level of service, including
patient satisfaction, timeliness of services to patients and reports to
physicians.

     The key features of our services include:

       o      Patient-friendly, non-clinical environments;
       o      A 24-hour turnaround on routine examinations;
       o      Interpretations within one to two hours, if needed;
       o      Flexible patient scheduling, including same-day appointments;
       o      Extended operating hours, including weekends;
       o      Reports delivered via courier, fax or email;
       o      Availability of second opinions and consultations;
       o      Availability of sub-specialty interpretations at no additional
              charge;
       o      Standardized fee schedules by region; and
       o      Fees that are more competitive than hospital fees.

                                      7



RADIOLOGY PROFESSIONALS

       In California, a lay person or any entity other than a professional
corporation is not allowed to practice medicine, including by employing
professional persons or by having any ownership interest or profit participation
in or control over any medical professional practice. This doctrine is commonly
referred to as the prohibition on the "corporate practice" of medicine. In order
to comply with this prohibition, we contract, directly or through BRMG, with
radiologists to provide professional medical services in our facilities,
including the supervision and interpretation of diagnostic imaging procedures.
The radiology practice maintains full control over the physicians it employs.
Pursuant to each management contract, we make available the imaging facility and
all of the furniture and medical equipment at the facility for use by the
radiology practice, and the practice is responsible for staffing the facility
with qualified professional medical personnel. In addition, we provide
management services and administration of the non-medical functions relating to
the professional medical practice at the facility, including among other
functions, provision of clerical and administrative personnel, bookkeeping and
accounting services, billing and collection, provision of medical and office
supplies, secretarial, reception and transcription services, maintenance of
medical records, and advertising, marketing and promotional activities. As
compensation for the services furnished under contracts with radiologists, we
generally receive an agreed percentage of the medical practice billings for, or
collections from, services provided at the facility, typically varying between
79% to 84% of net revenue or collections.

       At 42 of our facilities, BRMG is our contracted radiology group. At
October 31, 2005, BRMG employed approximately 48 fulltime and 9 part-time
radiologists. At the balance of our facilities we contract, directly or through
BRMG, with other radiology groups to provide the professional medical services.
Two imaging facilities previously owned by Burbank Advanced Imaging Center LLC
and Rancho Bernardo Advanced Imaging Center LLC were charged a fee, for our
services as manager of the limited liability companies, of 10% of the collected
revenue of each company after deduction of the professional fees. In addition,
as a member owning 75% of the equity interests of those limited liability
companies, we were entitled to 75% of income after a deduction of all expenses,
including amounts paid for medical services and medical supervision. In the
fourth quarter of fiscal 2004, we purchased the interest we did not own in both
centers.

       Under our management agreement with BRMG, BRMG pays us, as compensation
for the use of our facilities and equipment and for our services, a percentage
of the amounts collected for the professional services it renders. The
percentage is adjusted annually, if necessary, to ensure that the parties
receive the fair value for the services they render.

       The following are the other principal terms of our management agreement
with BRMG:

       o      The agreement expires on January 1, 2014. However, the agreement
              automatically renews for consecutive 10-year periods, unless
              either party delivers a notice of non-renewal to the other party
              no later than six months prior to the scheduled expiration date.
              In addition, either party may terminate the agreement if the other
              party defaults under its obligations, after notice and an
              opportunity to cure, and we may terminate the agreement if Dr.
              Berger no longer owns at least 60% of the equity of BRMG.

       o      At its expense, BRMG employs or contracts with an adequate number
              of physicians necessary to provide all professional medical
              services at all of our facilities.

       o      At our expense, we provide all furniture, furnishings and medical
              equipment located at the facilities and we manage and administer
              all non-medical functions at, and provide all nurses and other
              non-physician personnel required for the operation of, the
              facilities.

       o      If BRMG wants to open a new facility, we have the right of first
              refusal to provide the space and services for the facility under
              the same terms and conditions set forth in the management
              agreement.

                                      8



       o      If we want to open a new facility, BRMG must use its best efforts
              to provide medical personnel under the same terms and conditions
              set forth in the management agreement. If BRMG cannot provide such
              personnel, we have the right to contract with other physicians to
              provide services at the facility.

       o      BRMG must maintain medical malpractice insurance for each of its
              physicians with coverage limits not less than $1 million per
              incident and $3 million in the aggregate per year. BRMG also has
              agreed to indemnify us for any losses we suffer that arise out of
              the acts or omissions of BRMG and its employees, contractors and
              agents.

PAYORS

      We derive substantially all of our revenue, directly or indirectly, from
fees charged for the diagnostic imaging services performed at our facilities.
These fees are paid by a diverse mix of payors, as illustrated for the year
ended October 31, 2005 by the following table:

                                                               PERCENTAGE OF NET
                                                                   REVENUE
                                                               -----------------
         PAYOR TYPE
         ----------
         Insurance(1)                                                41%
         Managed Care Capitated Payors                               26%
         Medicare/Medi-Cal                                           18%
         Other(2)                                                    11%
         Workers Compensation/Personal Injury                         4%

1  Includes Blue Cross/Blue Shield, which represented 15% of our net revenue for
   the year ended October 31, 2005.
2  Includes co-payments, direct patient payments and payments through contracts
   with physician groups and other non-insurance company payors.

       With the exception of Blue Cross/Blue Shield and government payors, no
single payor accounted for more than 5% of our net revenue for the year ended
October 31, 2005.

       We have described below the types of reimbursement arrangements we have,
directly or indirectly, including through BRMG, with third-party payors.

       INSURANCE

       Generally, insurance companies reimburse us, directly or indirectly,
including through BRMG, on the basis of agreed upon rates. These rates are on
average approximately the same as the rates set forth in the Medicare Fee
Schedule for the particular service. The patients are generally not responsible
for any amount above the insurance allowable amount.

       MANAGED CARE CAPITATION AGREEMENTS

       Under these agreements, which are generally between BRMG and the payor,
typically an independent physicians group or other medical group, the payor pays
a pre-determined amount per-member per-month in exchange for BRMG providing all
necessary covered services to the managed care members included in the
agreement. These contracts pass much of the financial risk of providing
outpatient diagnostic imaging services, including the risk of over-use, from the
payor to BRMG and, as a result of our management agreement with BRMG, to us.

       We believe that through our comprehensive utilization management, or UM,
program we have become highly skilled at assessing and moderating the risks
associated with the capitation agreements, so that these agreements are
profitable for us. Our UM program is managed by our UM department, which
consists of administrative and nursing staff as well as BRMG medical staff who
are actively involved with the referring physicians and payor management in both
prospective and retrospective review programs. Our UM program includes the
following features, all of which are designed to manage our costs while ensuring
that patients receive appropriate care:

                                      9



       o      PHYSICIAN EDUCATION

              At the inception of a new capitation agreement, we provide the new
       referring physicians with binders of educational material comprised of
       proprietary information that we have prepared and third-party information
       we have compiled, which are designed to address diagnostic strategies for
       common diseases. We distribute additional material according to the
       referral practices of the group as determined in the retrospective
       analysis described below.

       o      PROSPECTIVE REVIEW

              Referring physicians are required to submit authorization requests
       for non-emergency high-intensity services: MRI, CT, special procedures
       and nuclear medicine studies. The UM medical staff, according to accepted
       practice guidelines, considers the necessity and appropriateness of each
       request. Notification is then sent to the imaging facility, referring
       physician and medical group. Appeals for cases not approved are directed
       to us. The capitated payor has the final authority to uphold or deny our
       recommendation.

       o      RETROSPECTIVE REVIEW

              We collect and sort encounter activity by payor, place of service,
       referring physician, exam type and date of service. The data is then
       presented in quantitative and analytical form to facilitate understanding
       of utilization activity and to provide a comparison between
       fee-for-service and Medicare equivalents. Our Medical Director prepares a
       quarterly report for each payor and referring physician, which we send to
       them. When we find that a referring physician is over utilizing services,
       we work with the physician to modify referral patterns.

       MEDICARE/MEDI-CAL

       Medicare is the national health insurance program for people age 65 or
older and people under age 65 with certain disabilities. Medi-Cal is the
California health insurance program for qualifying low income persons. Medicare
and Medi-Cal reimburse us, directly or indirectly, including through BRMG, in
accordance with the Medicare Fee Schedule, which is a schedule of rates
applicable to particular services and annually adjusted upwards or downwards,
typically, within a 4-8% range. Medicare patients are not responsible for any
amount above the Medicare allowable amount. Medi-Cal patients are not
responsible for any unreimbursed portion.

       CONTRACTS WITH PHYSICIAN GROUPS AND OTHER NON-INSURANCE COMPANY PAYORS

       These payors reimburse us, directly or indirectly, on the basis of agreed
upon rates. These rates are typically set at 70-80% of the rates set forth in
the Medicare Fee Schedule for the particular service. However, we often agree to
a specified rate for MRI and CT procedures that is not tied to the Medicare Fee
Schedule. The patients are generally not responsible for the unreimbursed
portion.

FACILITIES

       Through our wholly owned subsidiaries, we operate 57 fixed-site,
freestanding outpatient diagnostic imaging facilities in California. We lease
the premises at which these facilities are located, with the exception of two
facilities located in buildings we own. We lease the land on which both of those
buildings are located.

       Our facilities are located in regional networks that we refer to as
regions. Thirty four of our facilities are multi-modality sites, offering
various combinations of MRI, CT, PET, nuclear medicine, ultrasound, X-ray and
fluoroscopy services. Twenty three of our facilities are single-modality sites,
offering either X-ray or MRI services. Consistent with our regional network
strategy, we locate our single-modality facilities near multi-modality
facilities, to help accommodate overflow in targeted demographic areas.

                                      10



       The following table sets forth the number of our facilities for each year
during the five-year period ended October 31, 2005:


                                                                             YEAR ENDED OCTOBER 31,
                                                                 --------------------------------------------
                                                                 2001      2002      2003      2004      2005
                                                                 ----      ----      ----      ----      ----
                                                                                           
Total facilities owned or managed (at beginning of year)          42        46        58        55        56
    Facilities added by:
      Acquisition                                                  3         1        --        --        --
      Internal development                                         4        11         3         4         1
      Facilities closed or sold                                   (3)       --        (6)       (3)       --

    Total facilities owned (at end of year)                       46        58        55        56        57


DIAGNOSTIC IMAGING EQUIPMENT

       The following table indicates, as of December 31, 2005, the quantity of
principal diagnostic equipment available at our facilities, by region:

                                   MRI    OPEN   CT    PET/CT   MAMMO-   ULTRA-   X-RAY   NUCLEAR    TOTAL
                                          MRI                   GRAPHY   SOUND           MEDICINE
                                  -------------------------------------------------------------------------
    Beverly Hills                   4      1      2      1        3        4        3        1        19
    Ventura                         2      2      1      2        5        9       15        2        38
    San Fernando Valley             3      3      3      1        2        6        7        1        26
    Antelope Valley                 1      1      1     --        1        1        2        1         8
    Central California              3      3      5     --        5       10       12        2        40
    Northern California             1      2      2     --       --       --        1       --         6
    Orange                          2      1      1      1        3        7        4        1        20
    Long Beach                      1     --      1     --        3        4        7        1        17
    Northern San Diego             --      1      1     --       --       --        1       --         3
    Palm Springs                    1      1      2     --        2        7        7        1        21
    Inland Empire                   5      1      4      1        8       12       12        3        46

Total                              23     16     23      6       32       60       71       13       244


       The average age of our MRI and CT units is less than six years, and the
average age of our PET units is less than four years. The useful life of our
MRI, CT and PET units is typically ten years.

INFORMATION TECHNOLOGY

       Our corporate headquarters and substantially all of our 57 facilities are
interconnected through a state-of-the-art information technology system. This
system, which is compliant with the Health Insurance Portability and
Accountability Act of 1996, is comprised of a number of integrated applications,
provides a single operating platform for billing and collections, electronic
medical records, practice management and image management.

       This technology has created cost reductions for our facilities in areas
such as image storage, support personnel and financial management and has
further allowed us to optimize the productivity of all aspects of our business
by enabling us to:

       o      Capture all necessary patient demographic, history and billing
              information at point-of-service;

       o      Automatically generate bills and electronically file claims with
              third-party payors;

       o      Record and store diagnostic report images in digital format;

       o      Digitally transmit on a real time basis diagnostic images from one
              location to another, thus enabling networked radiologists to cover
              larger geographic markets by using the specialized training of
              other networked radiologists;

       o      Perform claims, rejection and collection analysis; and

                                      11



       o      Perform sophisticated financial analysis, such as analyzing cost
              and profitability, volume, charges, current activity and patient
              case mix, with respect to each of our managed care contracts.

       Currently diagnostic reports and images are accessible via the Internet
to our referring providers. We have worked with some of the larger medical
groups with whom we have contracts to provide access to this content via their
web portals.

PERSONNEL

       At October 31, 2005, we had a total of 615 full-time, 41 part-time and 89
per-diem employees. These numbers do not include the 48 full-time and 9
part-time radiologists or the 288 full-time, 40 part-time and 161 per-diem
technologists.

       We employ a site manager who is responsible for overseeing day-to-day and
routine operations at each of our facilities, including staffing, modality and
schedule coordination, referring physician and patient relations and purchasing
of materials. In turn, our 8 regional managers and directors are responsible for
oversight of the operations of all facilities within their region, including
sales, marketing and contracting. The regional managers and directors, along
with our directors of contracting, marketing, facilities, management/purchasing
and human resources report to our chief operating officer. Our chief financial
officer, director of information services and our medical director report to our
chief executive officer.

       None of our employees is subject to a collective bargaining agreement nor
have we experienced any work stoppages. We believe our relationship with our
employees is good.

MARKETING

     Our marketing team, which consists of one director of marketing, five
territory sales managers and eighteen customer service representatives, one of
which is part-time, employs a multi-pronged approach to marketing:

       PHYSICIAN MARKETING

       Each customer service representative is responsible for marketing
activity on behalf of one or more facilities. The representatives act as a
liaison between the facility and referring physicians, holding meetings
periodically and on an as-needed basis with them and their staff to present
educational programs on new applications and uses of our systems and to address
particular patient service issues that have arisen. In our experience,
consistent hands-on contact with a referring physician and his or her staff
generates goodwill and increases referrals. The representatives also continually
seek to establish referral relationships with new physicians and physician
groups. In addition to a base salary and a car allowance, each representative
receives a quarterly bonus if the facility or facilities on behalf of which he
or she markets meets specified net revenue goals for the quarter.

       PAYOR MARKETING

       Our marketing team regularly meets with managed care organizations and
insurance companies to solicit contracts and meet with existing contracting
payors to solidify those relationships. The comprehensiveness of our services,
the geographic location of our facilities and the reputation of the physicians
with whom we contract all serve as tools for obtaining new or repeat business
from payors.

       SPORTS MARKETING PROGRAM

       We have a sports marketing program designed to increase our public
profile. We provide X-ray equipment and a technician for all of the games of the
Lakers, Clippers, Kings, Avengers and Sparks held at the Staples Center in Los
Angeles, Ducks games held at the Arrowhead Pond in Anaheim, and University of
Southern California football games held in Los Angeles. In exchange for this
service, we receive an advertisement in each team program throughout the season.
In addition, we have a close relationship with the physicians for some of these
teams.

                                      12



SUPPLIERS

       Historically, we have acquired almost all of our diagnostic imaging
equipment from GE Medical Systems, Inc., and we purchase medical supplies from
various national vendors. We believe that we have excellent working
relationships with all of our major vendors. However, there are several
comparable vendors for our supplies that would be available to us if one of our
current vendors becomes unavailable.

       We acquire our equipment primarily through various financing arrangements
directly with an affiliate of General Electric Corporation, or GE, involving the
use of capital leases with purchase options at minimal prices at the end of the
lease term. At October 31, 2005, capital lease obligations, excluding interest,
totaled approximately $62.8 million through 2010, including current installments
totaling approximately $58.6 million (see Note 7). If we open or acquire
additional imaging facilities, we may have to incur material capital lease
obligations.

       Timely, effective maintenance is essential for achieving high utilization
rates of our imaging equipment. We have an arrangement with GE Medical Systems
under which it has agreed to be responsible for the maintenance and repair of a
majority of our equipment for a fee that is based upon a percentage of our
revenue, subject to a minimum payment. Net revenue is reduced by the provision
for bad debt, mobile PET revenue and other professional reading service revenue
to obtain adjusted net revenue. The fiscal 2005 annual service fee was the
higher of 3.50% of our adjusted net revenue, or $4,970,000. The fiscal 2006
annual service rate will be the higher of 3.62% of our adjusted net revenue, or
$5,393,800. For the fiscal years 2007, 2008 and 2009, the annual service fee
will be the higher of 3.62% of our adjusted net revenue, or $5,430,000. We
believe this framework of basing service costs on usage is an effective and
unique method for controlling our overall costs on a facility-by-facility basis.

COMPETITION

       The market for diagnostic imaging services in California is highly
competitive. We compete principally on the basis of our reputation, our ability
to provide multiple modalities at many of our facilities, the location of our
facilities and the quality of our diagnostic imaging services. We compete
locally with groups of radiologists, established hospitals, clinics and other
independent organizations that own and operate imaging equipment. Our major
national competitors include Radiologix, Inc., Alliance Imaging, Inc.,
Healthsouth Corporation and Insight Health Services. Some of our competitors may
now or in the future have access to greater financial resources than we do and
may have access to newer, more advanced equipment.

       In addition, in the past some non-radiologist physician practices have
refrained from establishing their own diagnostic imaging facilities because of
the federal physician self-referral legislation. Final regulations issued in
January 2001 clarify exceptions to the physician self-referral legislation,
which created opportunities for some physician practices to establish their own
diagnostic imaging facilities within their group practices and to compete with
us. In the future, we could experience significant competition as a result of
those final regulations.

INSURANCE

       We maintain insurance policies with coverage that we believe are
appropriate in light of the risks attendant to our business and consistent with
industry practice. However, adequate liability insurance may not be available to
us in the future at acceptable costs or at all. We maintain general liability
insurance and professional liability insurance in commercially reasonable
amounts. Additionally, we maintain workers' compensation insurance on all of our
employees. Coverage is placed on a statutory basis and responds to California's
requirements.

       Pursuant to our agreements with physician groups with whom we contract,
including BRMG, each group must maintain medical malpractice insurance for the
group, having coverage limits of not less than $1.0 million per incident and
$3.0 million in the aggregate per year.

       California's medical malpractice cap further reduces our exposure.
California places a $250,000 limit on non-economic damages for medical
malpractice cases. Non-economic damages are defined as compensation for pain,
suffering, inconvenience, physical impairment, disfigurement and other
non-pecuniary injury. The cap applies whether the case is for injury or death,
and it allows only one $250,000 recovery in a wrongful death case. No cap
applies to economic damages.

                                      13



       We maintain a $5.0 million key-man life insurance policy on the life of
Dr. Berger. We are the beneficiary under the policy.

REGULATION

       GENERAL

       The healthcare industry is highly regulated, and we can give no assurance
that the regulatory environment in which we operate will not change
significantly in the future. Our ability to operate profitably will depend in
part upon us, and the contracted radiology practices and their affiliated
physicians obtaining and maintaining all necessary licenses and other approvals,
and operating in compliance with applicable healthcare regulations. We believe
that healthcare regulations will continue to change. Therefore, we monitor
developments in healthcare law and modify our operations from time to time as
the business and regulatory environment changes. Although we intend to continue
to operate in compliance, we cannot ensure that we will be able to adequately
modify our operations so as to address changes in the regulatory environment.

       LICENSING AND CERTIFICATION LAWS

       Ownership, construction, operation, expansion and acquisition of
diagnostic imaging facilities are subject to various federal and state laws,
regulations and approvals concerning licensing of facilities and personnel. In
addition, free-standing diagnostic imaging facilities that provide services not
performed as part of a physician office must meet Medicare requirements to be
certified as an independent diagnostic testing facility to bill the Medicare
program. We may not be able to receive the required regulatory approvals for any
future acquisitions, expansions or replacements, and the failure to obtain these
approvals could limit the market for our services.

       CORPORATE PRACTICE OF MEDICINE

       In California, a lay person or any entity other than a professional
corporation is not allowed to practice medicine, including by employing
professional persons or by having any ownership interest or profit participation
in or control over any medical professional practice. The laws of the State of
California also prohibit a lay person or a non-professional entity from
exercising control over the medical judgments or decisions of physicians and
from engaging in certain financial arrangements, such as splitting professional
fees with physicians. We structure our relationships with the radiology
practices, including the purchase of diagnostic imaging facilities, in a manner
that we believe keeps us from engaging in the practice of medicine or exercising
control over the medical judgments or decisions of the radiology practices or
their physicians or violating the prohibitions against fee-splitting. However,
because challenges to these types of arrangements are not required to be
reported, we cannot substantiate our belief. There can be no assurance that our
present arrangements with BRMG or the physicians providing medical services and
medical supervision at our imaging facilities will not be challenged, and, if
challenged, that they will not be found to violate the corporate practice
prohibition, thus subjecting us to a potential combination of damages,
injunction and civil and criminal penalties or require us to restructure our
arrangements in a way that would affect the control or quality of our services
or change the amounts we receive under our management agreements, or both.

       MEDICARE AND MEDICAID FRAUD AND ABUSE

       Our revenue is derived through our ownership, operation and management of
diagnostic imaging centers and from service fees paid to us by contracted
radiology practices. During the year ended October 31, 2005, approximately 18%
of our revenue generated at our diagnostic imaging centers was derived from
government sponsored healthcare programs (principally Medicare and Medicaid).

       Federal law prohibits the knowing and willful offer, payment,
solicitation or receipt of any form of remuneration in return for, or to induce,
(i) the referral of a person, (ii) the furnishing or arranging for the
furnishing of items or services reimbursable under the Medicare, Medicaid or
other governmental programs or (iii) the purchase, lease or order or arranging
or recommending purchasing, leasing or ordering of any item or service
reimbursable under the Medicare, Medicaid or other governmental programs.
Enforcement of this anti-kickback law is a high priority for the federal
government, which has substantially increased enforcement resources and is
scheduled to continue increasing such resources. The applicability of the
anti-kickback law to many business transactions in the healthcare industry has
not yet been subject to judicial or regulatory interpretation. Noncompliance
with the federal anti-kickback legislation can result in exclusion from the
Medicare, Medicaid or other governmental programs and civil and criminal
penalties.

                                      14



       We receive fees under our service agreements for management and
administrative services, which include contract negotiation and marketing
services. We do not believe we are in a position to make or influence referrals
of patients or services reimbursed under Medicare or other governmental programs
to radiology practices or their affiliated physicians or to receive referrals.
However, we may be considered to be in a position to arrange for items or
services reimbursable under a federal healthcare program. Because the provisions
of the federal anti-kickback statute are broadly worded and have been broadly
interpreted by federal courts, it is possible that the government could take the
position that our arrangements with the contracted radiology practices implicate
the federal anti-kickback statute. Violation of the law can result in monetary
fines, civil and criminal penalties, and exclusion from participation in federal
or state healthcare programs, any of which could have an adverse effect on our
business and results of operations. While our service agreements with the
contracted radiology practices will not meet a safe harbor to the federal
anti-kickback statute, failure to meet a safe harbor does not mean that
agreements violate the anti-kickback statute. We have sought to structure our
agreements to be consistent with fair market value in arms' length transactions
for the nature and amount of management and administrative services rendered.
For these reasons, we do not believe that service fees payable to us should be
viewed as remuneration for referring or influencing referrals of patients or
services covered by such programs as prohibited by statute.

       Significant prohibitions against physician referrals have been enacted by
Congress. These prohibitions are commonly known as the Stark Law. The Stark Law
prohibits a physician from referring Medicare patients to an entity providing
designated health services, as defined under the Stark Law, including, without
limitation, radiology services, in which the physician has an ownership or
investment interest or with which the physician has entered into a compensation
arrangement. The penalties for violating the Stark Law include a prohibition on
payment by these governmental programs and civil penalties of as much as $15,000
for each violative referral and $100,000 for participation in a circumvention
scheme. We believe that, although we receive fees under our service agreements
for management and administrative services, we are not in a position to make or
influence referrals of patients.

       On January 4, 2001, the Centers for Medicare and Medicaid Services
published final regulations to implement the Stark Law. Under the final
regulations, radiology and certain other imaging services and radiation therapy
services and supplies are services included in the designated health services
subject to the self-referral prohibition. Under the final regulations, such
services include the professional and technical components of any diagnostic
test or procedure using X-rays, ultrasound or other imaging services, CT, MRI,
radiation therapy and diagnostic mammography services (but not screening
mammography services). The final regulations, however, exclude from designated
health services: (i) X-ray, fluoroscopy or ultrasound procedures that require
the insertion of a needle, catheter, tube or probe through the skin or into a
body orifice; (ii) radiology procedures that are integral to the performance of,
and performed during, nonradiological medical procedures; (iii) nuclear medicine
procedures; and (iv) invasive or interventional radiology, because the radiology
services in these procedures are merely incidental or secondary to another
procedure that the physician has ordered.

       The Stark Law provides that a request by a radiologist for diagnostic
radiology services or a request by a radiation oncologist for radiation therapy,
if such services are furnished by or under the supervision of such radiologist
or radiation oncologist pursuant to a consultation requested by another
physician, does not constitute a referral by a referring physician. If such
requirements are met, the Stark Law self-referral prohibition would not apply to
such services. The effect of the Stark Law on the radiology practices,
therefore, will depend on the precise scope of services furnished by each such
practice's radiologists and whether such services derive from consultations or
are self-generated. We believe that, other than self-referred patients, all of
the services covered by the Stark Law provided by the contracted radiology
practices derive from requests for consultation by non-affiliated physicians.
Therefore, we believe that the Stark Law is not implicated by the financial
relationships between our operations and the contracted radiology practices.

       In addition, we believe that we have structured our acquisitions of the
assets of existing practices, and we intend to structure any future
acquisitions, so as not to violate the anti-kickback and Stark Law and
regulations. Specifically, we believe the consideration paid by us to physicians
to acquire the tangible and intangible assets associated with their practices is
consistent with fair market value in arms' length transactions and is not
intended to induce the referral of patients. Should any such practice be deemed
to constitute an arrangement designed to induce the referral of Medicare or

                                      15



Medicaid patients, then our acquisitions could be viewed as possibly violating
anti-kickback and anti-referral laws and regulations. A determination of
liability under any such laws could have an adverse effect on our business,
financial condition and results of operations.

       The federal government embarked on an initiative to audit all Medicare
carriers, which are the companies that adjudicate and pay Medicare claims. These
audits are expected to intensify governmental scrutiny of individual providers.
An unsatisfactory audit of any of our diagnostic imaging facilities or
contracted radiology practices could result in any or all of the following:
significant repayment obligations, exclusion from the Medicare, Medicaid or
other governmental programs, and civil and criminal penalties.

       Federal regulatory and law enforcement authorities have recently
increased enforcement activities with respect to Medicare, Medicaid fraud and
abuse regulations and other reimbursement laws and rules, including laws and
regulations that govern our activities and the activities of the radiology
practices. Our or the radiology practices' activities may be investigated,
claims may be made against us or the radiology practices and these increased
enforcement activities may directly or indirectly have an adverse effect on our
business, financial condition and results of operations.

       CALIFORNIA ANTI-KICKBACK AND PHYSICIAN SELF-REFERRAL LAWS

       California has adopted a form of anti-kickback law and a form of Stark
Law. The scope of these laws and the interpretations of them are enforced by
California courts and by regulatory authorities with broad discretion.
Generally, California law covers all referrals by all healthcare providers for
all healthcare services. A determination of liability under such laws could
result in fines and penalties and restrictions on our ability to operate.

       FEDERAL FALSE CLAIMS ACT

       The Federal False Claims Act provides, in part, that the federal
government may bring a lawsuit against any person who it believes has knowingly
presented, or caused to be presented, a false or fraudulent request for payment
from the federal government, or who has made a false statement or used a false
record to get a claim approved. The Federal False Claims Act further provides
that a lawsuit thereunder may be initiated in the name of the United States by
an individual who is an original source of the allegations. The government has
taken the position that claims presented in violation of the federal
anti-kickback law or Stark Law may be considered a violation of the Federal
False Claims Act. Penalties include civil penalties of not less than $5,500 and
not more than $11,000 for each false claim, plus three times the amount of
damages that the federal government sustained because of the act of that person.
We believe that we are in compliance with the rules and regulations that apply
to the Federal False Claims Act. However, we could be found to have violated
certain rules and regulations resulting in sanctions under the Federal False
Claims Act, and if we are so found in violation, any sanctions imposed could
result in fines and penalties and restrictions on and exclusion from
participation in federal and California healthcare programs that are integral to
our business.

       HEALTHCARE REFORM INITIATIVES

       Healthcare laws and regulations may change significantly in the future.
We continuously monitor these developments and modify our operations from time
to time as the regulatory environment changes. We cannot assure you, however,
that we will be able to adapt our operations to address new regulations or that
new regulations will not adversely affect our business. In addition, although we
believe that we are operating in compliance with applicable federal and state
laws, neither our current or anticipated business operations nor the operations
of the contracted radiology practices has been the subject of judicial or
regulatory interpretation. We cannot assure you that a review of our business by
courts or regulatory authorities will not result in a determination that could
adversely affect our operations or that the healthcare regulatory environment
will not change in a way that restricts our operations.

       HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT OF 1996

       In an effort to combat healthcare fraud, Congress enacted the Health
Insurance Portability and Accountability Act of 1996, or HIPAA. HIPAA, among
other things, amends existing crimes and criminal penalties for Medicare fraud
and enacts new federal healthcare fraud crimes, including actions affecting
non-government payors. Under HIPAA, a healthcare benefit program includes any
private plan or contract affecting interstate commerce under which any medical
benefit, item or service is provided. A person or entity that knowingly and
willfully obtains the money or property of any healthcare benefit program by

                                      16



means of false or fraudulent representations in connection with the delivery of
healthcare services is subject to a fine or imprisonment, or potentially both.
In addition, HIPAA authorizes the imposition of civil money penalties against
entities that employ or enter into contracts with excluded Medicare or Medicaid
program participants if such entities provide services to federal health program
beneficiaries. A finding of liability under HIPAA could have a material adverse
effect on our business, financial condition and results of operations.

       Further, HIPAA requires healthcare providers and their business
associates to maintain the privacy and security of individually identifiable
health information. HIPAA imposes federal standards for electronic transactions
with health plans, the security of electronic health information and for
protecting the privacy of individually identifiable health information.
Organizations such as ours were obligated to be compliant with the initial HIPAA
regulations by April 14, 2003, and with the electronic data interchange mandates
by October 16, 2003. The final security regulations were issued in February 2003
with a compliance date of April 2005. We believe that we are in compliance with
the current requirements, but we anticipate that we may encounter certain costs
associated with future compliance. A finding of liability under HIPAA's privacy
or security provisions may also result in criminal and civil penalties, and
could have a material adverse effect on our business, financial condition, and
results of operations.

       Although our electronic systems are HIPAA compatible, consistent with the
HIPAA regulations, we cannot guarantee the enforcement agencies or courts will
not make interpretations of the HIPAA standards that are inconsistent with ours,
or the interpretations of the contracted radiology practices or their affiliated
physicians. A finding of liability under the HIPAA standards may result in
criminal and civil penalties. Noncompliance also may result in exclusion from
participation in government programs, including Medicare and Medicaid. These
actions could have a material adverse effect on our business, financial
condition, and results of operations.

       COMPLIANCE PROGRAM

       We maintain a program to monitor compliance with federal and state laws
and regulations applicable to healthcare entities. We have a compliance officer
who is charged with implementing and supervising our compliance program, which
includes the adoption of (i) Standards of Conduct for our employees and
affiliates and (ii) a process that specifies how employees, affiliates and
others may report regulatory or ethical concerns to our compliance officer. We
believe that our compliance program meets the relevant standards provided by the
Office of Inspector General of the Department of Health and Human Services.

       An important part of our compliance program consists of conducting
periodic audits of various aspects of our operations and that of the contracted
radiology practices. We also conduct mandatory educational programs designed to
familiarize our employees with the regulatory requirements and specific elements
of our compliance program.

       U.S. FOOD AND DRUG ADMINISTRATION OR FDA

       The FDA has issued the requisite premarket approval for all of the MRI
and CT systems we use. We do not believe that any further FDA approval is
required in connection with the majority of equipment currently in operation or
proposed to be operated. Except under regulations issued by the FDA pursuant to
the Mammography Quality Standards Act of 1992, where all mammography facilities
are required to be accredited by an approved non-profit organization or state
agency. Pursuant to the accreditation process, each facility providing
mammography services must comply with certain standards including annual
inspection.

       Compliance with theses standards is required to obtain payment for
Medicare services and to avoid various sanctions, including monetary penalties,
or suspension of certification. Although the Mammography Accreditation Program
of the American College of Radiology currently accredits all of our facilities,
which provide mammography services, and we anticipate continuing to meet the
requirements for accreditation, the withdrawal of such accreditation could
result in the revocation of certification. Congress has extended Medicare
benefits to include coverage of screening mammography subject to the prescribed
quality standards described above. The regulations apply to diagnostic
mammography and image quality examination as well as screening mammography.

                                      17



       RADIOLOGIST LICENSING

       The radiologists providing professional medical services at our
facilities are subject to licensing and related regulations by the State of
California. As a result, we require BRMG and the other radiology groups with
which we contract to require those radiologists to have and maintain appropriate
licensure. We do not believe that such laws and regulations will either prohibit
or require licensure approval of our business operations, although no assurances
can be made that such laws and regulations will not be interpreted to extend
such prohibitions or requirements to our operations.

       INSURANCE LAWS AND REGULATION

       California has adopted certain laws and regulations affecting risk
assumption in the healthcare industry, including those that subject any
physician or physician network engaged in risk-based managed care to applicable
insurance laws and regulations. These laws and regulations may require
physicians and physician networks to meet minimum capital requirements and other
safety and soundness requirements. Implementing additional regulations or
compliance requirements could result in substantial costs to the contracted
radiology practices, limiting their ability to enter into capitated or other
risk-sharing managed care arrangements and indirectly affecting our revenue from
the contracted practices.

ENVIRONMENTAL MATTERS

       The facilities we operate or manage generate hazardous and medical waste
subject to federal and state requirements regarding handling and disposal. We
believe that the facilities that we operate and manage are currently in
compliance in all material respects with applicable federal, state and local
statutes and ordinances regulating the handling and disposal of such materials.
We do not believe that we will be required to expend any material additional
amounts in order to remain in compliance with these laws and regulations or that
compliance will materially affect our capital expenditures, earnings or
competitive position.

ITEM 2.  PROPERTIES
-------  ----------

       Information with respect to our facilities within our regional networks
is as follows:



                        NUMBER OF       APPROXIMATE
REGIONAL NETWORKS     FACILITIES(1)    SQUARE FOOTAGE     LEASE EXPIRATION (WITH OPTIONS TO EXTEND)
-----------------     -------------    --------------     -----------------------------------------
                                                                 
BEVERLY HILLS (3):
   Roxsan                  1                8,031         Various through 2012
   Wilshire                1               13,778         September 2028
   Women's                 1                3,830         February 2029
VENTURA (9):
   Camarillo               2                2,035         Various through May 2013
   Oxnard                  2                5,622         Various Month-to-month
   Thousand Oaks           3               12,914         Various through November 2019
   Ventura                 3               12,959         Various through July 2012
SAN FERNANDO VALLEY (8):
   Burbank                 2                6,500         Various through August 2010
   Northridge              2                9,050         Various through February 2019
   Santa Clarita           2                7,293         One through June 2019; other Month-to-month
   Tarzana                 2                6,320         Various through December 2021
ANTELOPE VALLEY (3):
   Antelope Valley         1                2,890         April 2008
   Lancaster               2                6,827         Various through October 2006
CENTRAL CALIFORNIA (5):
   Fresno                  1                7,231         June 2008
   Modesto                 1               17,852         December 2014
   Sacramento              1                8,083         June 2023
   Stockton                1                4,808         December 2006
   Vacaville               1                5,927         March 2012
NORTHERN CALIFORNIA (3):
   Emeryville              1                2,086         Various through December 2018
   San Francisco           1                1,240         Month-to-month
   Santa Rosa              1                4,235         July 2011

                                      18



ORANGE (5):
   Orange                  4               15,955         Various through October 2022
   Tustin                  1                2,139         January 2008
LONG BEACH (4):
   Long Beach              4               16,338         Various through July 2010
NORTHERN SAN DIEGO (1):
   Rancho Bernardo         1                9,557         May 2012
PALM SPRINGS (5):
   Palm Desert             3                9,024         Various through May 2021
   Palm Springs            2                9,042         Various through June 2013
INLAND EMPIRE (10):
   Chino                   1                2,700         June 2012
   Rancho Cucamonga        3               11,128         Various through May 2023
   Riverside               1               12,534         Various through January 2018
   San Gabriel Valley      1                2,871         December 2007
   Temecula                4               14,496         Various through January 2021
                       --------
       TOTAL              57
                       ========
____________
(1) Includes leased facilities and three facilities operated pursuant to managed
    care capitation agreements.


       Our corporate headquarters are located in adjoining premises at 1510 and
1516 Cotner Avenue, Los Angeles, California 90025, in approximately 16,500
square feet occupied under leases, which expire (with options to extend) on June
30, 2017. In addition, we lease 52,941square feet of warehouse and other space
under leases, which expire at various dates between February 2006 and January
2018.

ITEM 3. LEGAL PROCEEDINGS
------- -----------------

       We are involved in the following litigation:

       (a)    In Re DVI, Inc. Securities Litigation
              United States District Court, Eastern District of PA, Docket No.
              ----------------------------------------------------------------
              2:03-CV-05336-LDD
              -----------------

       This is a class action securities fraud case under Section 10(b) of the
Securities Exchange Act and Rule 10b-5. It was brought by shareholders of DVI,
Inc. ("DVI"), one of our former major lenders, against DVI officers and
directors and a number of third party defendants, including us. The case arises
from bankruptcy proceedings instituted by DVI in August 2003. We were named as a
defendant in the Third Amended Complaint filed in July 2004.

       The putative plaintiff class consists of those persons who purchased or
otherwise acquired DVI, Inc. securities between August of 1999 and August of
2003. Plaintiffs allege that in 2000, we acquired from a third party one or more
unprofitable imaging centers in order to help DVI conceal the fact that existing
DVI loans on the centers were delinquent. Plaintiffs argue that we should have
known that DVI was engaging in fraudulent practices to conceal losses, and our
alleged "lack of due diligence" in investigating DVI's finances in the course of
these acquisitions amounted to complicity in deceptive and misleading practices.

       We have answered the complaint. The matter is still in its initial stages
with discovery just beginning. We intend to vigorously contest the allegations.

       (b)    Fleet Nat'l Bank v. Boyle et. al., U.S. district Court for the
              --------------------------------------------------------------
              Eastern District of Pennsylvania, Docket No. 04-CV-1277
              -------------------------------------------------------

       This case is related to In re DVI Securities Litigation, but was filed by
several of DVI's lenders. It, too, arises from the DVI bankruptcy (referenced in
the matter above) and was brought against DVI officers and directors and a
number of third party defendants, including us. We were named in the First
Amended Complaint filed in this action in September 2004.

                                      19



       The plaintiff alleges violations of the Racketeering Influenced and
Corrupt Organizations Act, 18 U.S.C. 1961 et seq., ("RICO"), and common-law
claims, including conspiracy to commit fraud, tortious interference with a
contract, conspiracy to commit tortious interference with a contract, conspiracy
to commit conversion and aiding and abetting fraud. Plaintiffs allege that in
2000, we acquired from a third party one or more unprofitable imaging centers in
order to help DVI conceal the fact that existing DVI loans on the centers were
delinquent.

       We filed a motion to dismiss the complaint that was granted as to all
claims except the RICO claim. We have filed an answer to the complaint. The case
is in its initial stages. We intend to vigorously contest the remaining claims.

       (c)    Broadstream Capital Partners, LLC v. Primedex Health Systems,
              -------------------------------------------------------------
              Inc., Los Angeles Superior Court Case No. SC 084691.
              ----------------------------------------------------

       This case arises in connection with a financing agreement we entered into
with a third party. James Goldfarb, a partner of Broadstream Capital Partners,
LLC ("Broadstream"), and once a member of our Board of Directors, arranged a
meeting between us and a third party to discuss the third party financing the
purchase of a portion of our debt owed to DVI Financial Services, which had
filed for bankruptcy. Goldfarb alleges that, on behalf of Broadstream, he
entered into an oral agreement with us under which we owe Broadstream a
"finder's fee" for setting up this meeting. Broadstream has filed suit against
us, and Howard G. Berger, M.D., our president, for damages.

       The complaint alleges claims for breach of contract, breach of the
covenant of good faith and fair dealing, fraud, unjust enrichment, and bad faith
denial of contract. Broadstream claims that it is entitled to damages in excess
of $300,000, as well as punitive damages.

       We have responded to the complaint, and discovery is continuing. The
matter is scheduled to go to trial on March 13, 2006. We intend to pursue our
defense vigorously.

GENERAL

       We are engaged from time to time in the defense of lawsuits arising out
of the ordinary course and conduct of our business. We believe that the outcome
of our current litigation will not have a material adverse impact on our
business, financial condition and results of operations. However, we could be
subsequently named as a defendant in other lawsuits that could adversely affect
us.

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

       We did not submit any matters to a vote of security holders during the
fourth fiscal quarter of fiscal 2005.

                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK, RELATED STOCKHOLDER MATTERS
------- ---------------------------------------------------------------------
        AND ISSUER PURCHASES OF EQUITY SECURITIES
        -----------------------------------------

       Our common stock is quoted on the Nasdaq Over-the-Counter, or OTC,
Bulletin Board under the symbol "PMDX.OB". The following table indicates the
high and low prices for our common stock for the periods indicated based upon
information supplied by the National Quotation Bureau, Inc. Such quotations
reflect interdealer prices without adjustment for retail mark-up, markdown or
commission, and may not necessarily represent actual transactions.

               QUARTER ENDED                            LOW      HIGH
               -------------                            ---      ----

               January 31, 2005                        $0.41    $0.60
               April 30, 2005                           0.24     0.49
               July 31, 2005                            0.26     0.43
               October 31, 2005                         0.26     0.43

               January 31, 2004                         0.40     0.71
               April 30, 2004                           0.41     0.70
               July 31, 2004                            0.27     0.45
               October 31, 2004                         0.30     0.67

                                      20



       The last reported closing high and low prices for our common stock on the
OTC Bulletin Board on January 13, 2006 were $0.32 and $0.29, respectively. As of
January 13, 2006, the number of holders of record of our common stock was 3,966.
However, Cede & Co., the nominee for The Depository Trust Company, the clearing
agency for most broker-dealers, owned a substantial number of our outstanding
shares of common stock of record on that date. Our management believes that
customers of these broker-dealers beneficially own these shares and that the
number of beneficial owners of our common stock is substantially greater than
3,966.

       We did not pay dividends in fiscal 2004 or 2005 and we do not expect to
pay any dividends in the foreseeable future.

CONVERTIBLE SUBORDINATED DEBENTURES

       At October 31, 2005, we had $16.2 million convertible subordinated
debentures outstanding which mature June 30, 2008 and bear interest, payable
quarterly, at an annual rate of 11.5%. The debentures are convertible into our
common stock at a price of $2.50 per share.

RECENT SALES OF UNREGISTERED SECURITIES

       During the fiscal year ended October 31, 2005, we sold the following
securities pursuant to an exemption from registration provided under Section
4(2) of the Securities Act of 1933, as amended:

       o      In June 2005, we issued to one of BRMG's radiologists a five-year
              warrant exercisable at a price of $0.36 per share, which was the
              public market closing price for our common stock on the
              transaction date, to purchase 100,000 shares of our common stock.

       o      In June 2005, we issued to one of BRMG's radiologists and a
              director of our Company a five-year warrant exercisable at a price
              of $0.36 per share, which was the public market closing price for
              our common stock on the transaction date, to purchase 500,000
              shares of our common stock.

       o      In March 2005 and July 2005, we issued to two of our independent
              directors five-year warrants exercisable at $0.32 per share and
              $0.40 per share, respectively, which was the public market price
              closing price for our common stock on each of the respective
              transaction dates, for each to purchase 50,000 shares of our
              common stock.

       o      In October 2005, we issued to one of BRMG's radiologists a
              five-year warrant exercisable at a price of $0.30 per share, which
              was the public market closing price for our common stock on the
              transaction date, to purchase 100,000 shares of our common stock.

       o      In October 2005, we issued to one of our key employees five-year
              warrants exercisable at a price of $0.30 per share, which was the
              public market closing price for our common stock on the
              transaction date, to purchase 100,000 shares of our common stock.

EQUITY COMPENSATION PLAN INFORMATION

       The following table summarizes information with respect to options,
warrants and other rights under our equity compensation plans at October 31,
2005:


                                        NUMBER OF SECURITIES                            NUMBER OF SECURITIES
                                         TO BE ISSUED UPON         WEIGHTED-AVERAGE      REMAINING AVAILABLE
                                             EXERCISE OF           EXERCISE PRICE OF     FOR FUTURE ISSUANCE
                                         OUTSTANDING OPTIONS      OUTSTANDING OPTIONS       UNDER EQUITY
PLAN CATEGORY                            WARRANTS AND RIGHTS      WARRANTS AND RIGHTS    COMPENSATION PLANS
-------------                            -------------------      -------------------    ------------------
                                                                                    
Equity compensation plans approved
  by security holders                            687,167                $ 0.51               1,303,334
Equity compensation plans not
  approved by security holders                12,004,770                $ 0.60                     N/A

                                         ----------------                                 --------------
 Total                                        12,691,937                $ 0.60               1,303,334


                                      21



ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA
-------  ------------------------------------

       The following table sets forth our selected historical consolidated
financial data. The selected consolidated statements of operations data set
forth below for each of the years in the three year period ended October 31,
2005 and the consolidated balance sheet data set forth below as of October 31,
2004 and 2005 are derived from our audited consolidated financial statements and
notes thereto included elsewhere herein. The selected historical consolidated
statements of operations data set forth below for the years ended October 31,
2001 and 2002, and the consolidated balance sheet data set forth below as of
October 31, 2001, 2002 and 2003 are derived from our audited consolidated
financial statements not included herein. The selected historical consolidated
financial data set forth below should be read in conjunction with and is
qualified in its entirety by reference to the audited consolidated financial
statements and the related notes included elsewhere in this Form 10-K and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

       The financial data set forth below and discussed in this Annual Report
are derived from the consolidated financial statements of Primedex, its
subsidiaries and certain affiliates. As a result of the contractual and
operational relationship among BRMG, Dr. Berger and us, we are considered to
have a controlling financial interest in BRMG pursuant to guidance issued by the
Emerging Issues Task Force, or EITF, of the Financial Accounting Standards
Board, or FASB, in EITF's release 97-2. Due to the deemed controlling financial
interest, we are required to include BRMG as a consolidated entity in our
consolidated financial statements. This means, for example, that revenue
generated by BRMG from the provision of professional medical services to our
patients, as well as BRMG's costs of providing those services, are included as
net revenue in our consolidated statement of operations, whereas the management
fee that BRMG pays to us under our management agreement with BRMG is eliminated
as a result of the consolidation of our results with those of BRMG. Also,
because BRMG is a consolidated entity in our financial statements, any
borrowings or advances we have received from or made to BRMG are not reflected
in our consolidated balance sheet. If BRMG were not treated as a consolidated
entity in our consolidated financial statements, the presentation of certain
items in our income statement, such as net revenue and costs and expenses, would
change but our net income would not, because in operation and historically, the
annual revenue of BRMG from all sources closely approximates its expenses,
including Dr. Berger's compensation, fees payable to us and amounts payable to
third parties.


                                                               YEAR ENDED OCTOBER 31,
                                           -------------------------------------------------------------
                                              2001         2002         2003         2004         2005
                                              ----         ----         ----         ----         ----
STATEMENT OF OPERATIONS DATA:                                  (DOLLARS IN THOUSANDS)

                                                                                
Net revenue                                $ 107,567    $ 134,078    $ 140,259    $ 137,277    $ 145,573
Operating expenses:
    Operating expenses                        75,457      102,286      106,078      105,828      109,012
    Depreciation and amortization             10,315       15,010       16,874       17,762       17,101
    Provision for bad debts                    3,851        6,892        4,944        3,911        4,929
    Loss on disposal of equipment, net           --            --           --           --          696
Income (loss) from continuing operations      13,813       (6,435)      (5,464)     (14,576)      (3,135)
Income from discontinued operation               688          884        3,197           --           --
Net income (loss)                             14,501       (5,551)      (2,267)     (14,576)      (3,135)

BALANCE SHEET DATA:

Cash and cash equivalents                  $      40    $      36    $      30    $       1    $       2
Total assets                                 128,429      151,639      142,035      127,451      121,233
Total long-term liabilities                  110,188      121,830      122,096      139,980       23,840
Total liabilities                            174,071      202,560      195,122      195,006      191,866
Working capital (deficit)                    (26,987)     (44,668)     (44,615)     (32,172)    (143,430)
Stockholders' equity (deficit)               (45,642)     (50,921)     (53,087)     (67,555)     (70,633)



                                      22



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

OVERVIEW

       We operate a group of regional networks comprised of 57 fixed-site,
freestanding outpatient diagnostic imaging facilities in California. We believe
our group of regional networks is the largest of its kind in California. We have
strategically organized our facilities into regional networks in markets, which
have both high-density and expanding populations, as well as attractive payor
diversity.

       All of our facilities employ state-of-the-art equipment and technology in
modern, patient-friendly settings. Many of our facilities within a particular
region are interconnected and integrated through our advanced information
technology system. Thirty four of our facilities are multi-modality sites,
offering various combinations of MRI, CT, PET, nuclear medicine, ultrasound,
X-ray and fluoroscopy services. Twenty three of our facilities are
single-modality sites, offering either X-ray or MRI services. Consistent with
our regional network strategy, we locate our single-modality sites near
multi-modality sites to help accommodate overflow in targeted demographic areas.

       We derive substantially all of our revenue, directly or indirectly, from
fees charged for the diagnostic imaging services performed at our facilities.
For the year ended October 31, 2005, we derived 60% of our net revenue from MRI
and CT scans. Over the past three fiscal years, we have increased net revenue
primarily through improvements in net reimbursement, expansions of existing
facilities, upgrades in equipment and development of new facilities.

       The fees charged for diagnostic imaging services performed at our
facilities are paid by a diverse mix of payors, as illustrated for the year
ended October 31, 2005 by the following table:

                                                                      PERCENTAGE
                                                                        OF NET
PAYOR TYPE                                                             REVENUE
----------                                                             -------

  Insurance(1)                                                           41%
  Managed Care Capitated Payors                                          26
  Medicare/Medi-Cal                                                      18
  Other(2)                                                               11
  Workers Compensation/Personal Injury                                    4

(1)  Includes Blue Cross/Blue Shield, which represented 15% of our net revenue
     for the year ended October 31, 2005.
(2)  Includes co-payments, direct patient payments and payments through
     contracts with physician groups and other non-insurance company payors.

       Our eligibility to provide service in response to a referral often
depends on the existence of a contractual arrangement between the radiologists
providing the professional medical services or us and the referred patient's
insurance carrier or managed care organization. These contracts typically
describe the negotiated fees to be paid by each payor for the diagnostic imaging
services we provide. With the exception of Blue Cross/Blue Shield and government
payors, no single payor accounted for more than 5% of our net revenue for the
year ended October 31, 2005. Under our capitation agreements, we receive from
the payor a pre-determined amount per member, per month. If we do not
successfully manage the utilization of our services under these agreements, we
could incur unanticipated costs not offset by additional revenue, which would
reduce our operating margins.

       The principal components of our fixed operating expenses, excluding
depreciation, include professional fees paid to radiologists, except for those
radiologists who are paid based on a percentage of revenue, compensation paid to
technologists and other facility employees, and expenses related to equipment
rental and purchases, real estate leases and insurance, including errors and
omissions, malpractice, general liability, workers' compensation and employee
medical. The principal components of our variable operating expenses include
expenses related to equipment maintenance, medical supplies, marketing, business
development and corporate overhead. Because a majority of our expenses are
fixed, increased revenue as a result of higher scan volumes per system or
improvements in net reimbursement can significantly improve our margins.

                                      23



       BRMG strives to maintain qualified radiologists and technologists while
minimizing turnover and salary increases and avoiding the use of outside
staffing agencies, which are considerably more expensive and less efficient. In
recent years, there has been a shortage of qualified radiologists and
technologists in some of the regional markets we serve. As turnover occurs,
competition in recruiting radiologists and technologists may make it difficult
for our contracted radiology practices to maintain adequate levels of
radiologists and technologists without the use of outside staffing agencies. At
times, this has resulted in increased costs for us.

       For a discussion of other factors that may have an impact on our business
and our future results of operations, see "Risks Related to our Business."

OUR RELATIONSHIP WITH BRMG

       Howard G. Berger, M.D. is our President and Chief Executive, a member of
our Board of Directors, and owns approximately 30% of Primedex's outstanding
common stock. Dr. Berger also owns, indirectly, 99% of the equity interests in
BRMG. BRMG provides all of the professional medical services at 42 of our
facilities under a management agreement with us, and contracts with various
other independent physicians and physician groups to provide all of the
professional medical services at most of our other facilities. We obtain
professional medical services from BRMG, rather than providing such services
directly or through subsidiaries, in order to comply with California's
prohibition against the corporate practice of medicine. However, as a result of
our close relationship with Dr. Berger and BRMG, we believe that we are able to
better ensure that professional medical services are provided at our facilities
in a manner consistent with our needs and expectations and those of our
referring physicians, patients and payors than if we obtained these services
from unaffiliated practice groups.

       Under our management agreement with BRMG, which expires on January 1,
2014, BRMG pays us, as compensation for the use of our facilities and equipment
and for our services, a percentage of the gross amounts collected for the
professional services it renders. The percentage, which was 79% at October 31,
2005, is adjusted annually, if necessary, to ensure that the parties receive
fair value for the services they render. In operation and historically, the
annual revenue of BRMG from all sources closely approximates its expenses,
including Dr. Berger's compensation, fees payable to us and amounts payable to
third parties. For administrative convenience and in order to avoid
inconveniencing and confusing our payors, a single bill is prepared for both the
professional medical services provided by the radiologists and our non-medical,
or technical, services, generating a receivable for BRMG. BRMG finances these
receivables under a working capital facility with Bridge Healthcare Finance LLC
and regularly advances to us the funds that it draws under this working capital
facility, which we use for our own working capital purposes. We repay or offset
these advances with periodic payments from BRMG to us under the management
agreement. We guarantee BRMG's obligations under this working capital facility.

       As a result of our contractual and operational relationship with BRMG and
Dr. Berger, we are required to include BRMG as a consolidated entity in our
consolidated financial statements. See "Selected Consolidated Financial Data."

FINANCIAL CONDITION

       LIQUIDITY AND CAPITAL RESOURCES

       We had a working capital deficit of $143.4 million at October 31, 2005
and had losses from continuing operations of $14.6 million and $3.1 million
during fiscal 2004 and 2005, respectively. The loss in fiscal 2004 includes a
$5.2 million expense resulting from the increase in the valuation allowance for
deferred income taxes. We also had a stockholders' deficit of $70.6 million at
October 31, 2005.

       The working capital deficit increased in fiscal 2005 due to the
reclassification of approximately $109 million in notes and capital lease
obligations as current liabilities that are expected to be refinanced. We are
subject to financial covenants under our current debt agreements. We believe
that we may be unable to continue to be in compliance with our existing
financial covenants during fiscal 2006. As such, the associated debt has been
classified as a current liability. We expect to refinance these obligations
presented as current liabilities in the second quarter of fiscal 2006. On
January 31, 2006, we executed a commitment letter with an institutional lender
to which such lender provided us with a commitment, subject to final
documentation and legal due diligence, for a $160 million senior secured credit
facility to be used to refinance all of our existing indebtedness (except for
$16.1 million of outstanding subordinated debentures and $6.1 million of capital
lease obligations). The commitment provides for a $15 million five-year
revolving credit facility, an $85 million term loan due in five years and $60
million second lien term loan due in six years. The loans are subject to

                                       24


acceleration on February 28, 2008, unless we have made arrangements to discharge
or extend our outstanding subordinated debentures by that date. The loans are
essentially payable interest only monthly at varying rates that are yet to be
finalized but will be based upon market conditions. Finalization of the credit
facility is subject to customary conditions, including legal due diligence and
final documentation that is scheduled for completion on or about March 7, 2006.

       We operate in a capital intensive, high fixed-cost industry that requires
significant amounts of capital to fund operations. In addition to operations, we
require significant amounts of capital for the initial start-up and development
expense of new diagnostic imaging facilities, the acquisition of additional
facilities and new diagnostic imaging equipment, and to service our existing
debt and contractual obligations. Because our cash flows from operations are
insufficient to fund all of these capital requirements, we depend on the
availability of financing under credit arrangements with third parties.
Historically, our principal sources of liquidity have been funds available for
borrowing under our existing lines of credit, now with Bridge Healthcare Finance
LLC. Even though the line of credit matures in 2008, we classify the line of
credit as a current liability primarily because it is collateralized by accounts
receivable and the eligible borrowing base is classified as a current asset. We
finance the acquisition of equipment mainly through capital and operating
leases.

       During fiscal 2004 and 2005, we took the actions described below to
continue to fund our obligations.

       BRMG and Wells Fargo Foothill were parties to a credit facility under
which BRMG could borrow the lesser of 85% of the net collectible value of
eligible accounts receivable plus one month of average capitation receipts for
the prior six months, two times the trailing month cash collections, or
$20,000,000. Eligible accounts receivable excluded those accounts older than 150
days from invoice date and were net of customary reserves. In addition, Wells
Fargo Foothill set up a term loan where they could advance up to the lesser of
$3,000,000 or 80% of the liquidation value of the equipment value servicing the
loan. Under this term loan, we borrowed $880,000 in February 2005 to acquire
medical equipment. The five-year term loan had interest only payments through
February 28, 2005 with the first quarterly principal payments due on April 1,
2005. Access to additional funds under the term loan expired soon after the
February 2005 draw.

       Under the $20,000,000 revolving loan, an overadvance subline was
available not to exceed $2,000,000, or one month of the average capitation
receipts for the prior six months, until June 30, 2005. From July 1 to September
30, 2005, the overadvance subline was available not to exceed $1,500,000, or one
month of the average capitation receipts for the prior six months. Beginning
October 1, 2005, the maximum overadvance could not exceed the lesser of
$1,000,000 or one month of the average capitation receipts for the prior six
months. Also under the revolving loan, we were entitled to request that Wells
Fargo Foothill issue guarantees of payment in an aggregate amount not to exceed
$5,000,000 at any one time outstanding.

       Advances outstanding under the revolving loan bore interest at the base
rate plus 1.5%, or the LIBOR rate plus 3.0%. Advances under the overadvance
subline and term loan bore interest at the base rate plus 4.75%. Letter of
credit fees bore interest of 3.0% per annum times the undrawn amount of all
outstanding lines of credit. The base rate refers to the rate of interest
announced within Wells Fargo Bank at its principal office in San Francisco as it
prime rate. The line was collateralized by substantially all of our accounts
receivable and requires us to meet certain financial covenants including minimum
levels of EBITDA, fixed charge coverage ratios and maximum senior debt/EBITDA
ratios as well as limitations on annual capital expenditures.

       Effective September 14, 2005, we established a new $20 million working
capital revolving credit facility with Bridge Healthcare Finance, or Bridge, a
specialty lender in the healthcare industry. Upon the establishment of this
credit facility, we borrowed $15.5 million that was used to pay off the entire
balance of our existing credit facility with Wells Fargo Foothill. Upon
repayment, the existing credit facility with Wells Fargo Foothill was
terminated. Additionally, Bridge provided us approximately $0.8 million in the
form of a term loan, which we used to pay the balance of a term loan owed to
Wells Fargo Foothill.

                                      25



       Under the Bridge revolving credit facility, we may borrow the lesser of
85% of the net collectible value of eligible accounts receivable plus one month
capitation receipts for the preceding month, or $20,000,000. An overadvance
subline is available not to exceed $2,000,000, so long as after giving effect to
the overadvance subline, the revolver usage does not exceed $20,000,000.
Eligible accounts receivable shall exclude those accounts older than 150 days
from invoice date and will be net of customary reserves. Dr. Berger has agreed
to personally guaranty the repayment of any monies under the overadvance
subline. Advances under the revolving loan bear interest at the base rate plus
3.25%. The base rate refers to the prime rate publicly announced by La Salle
Bank National Association, in effect from time to time. The term loan bears
interest at the annual rate of 12.50%. The revolving credit facility is
collateralized by substantially all of our accounts receivable and requires us
to meet certain financial covenants including minimum levels of EBITDA, fixed
charge coverage ratios and maximum senior debt/EBITDA ratios. The term loan is
collateralized by specific imaging equipment used by us at certain of our
locations.

       Until November 2004, we had a line of credit with an affiliate of DVI
Financial Services, Inc. ("DVI"), when we issued $4.0 million in principal
amount of notes to Post Advisory Group, LLC ("Post"), a Los Angeles-based
investment advisor, and Post purchased the DVI affiliate's line of credit
facility with the residual funds utilized by us as working capital. The new note
payable has monthly interest only payments at 12% per annum until its maturity
in July 2008.

       On December 19, 2003, we issued a $1.0 million convertible subordinated
note payable to Galt Financial, Ltd., at a stated rate of 11% per annum with
interest payable quarterly. The note payable is convertible at the holder's
option anytime after January 1, 2006 at $0.50 per share. As additional
consideration for the financing we issued a warrant for the purchase of 500,000
shares at an exercise price of $.50 per share. We have allocated $0.1 million to
the value of the warrants and believe the value of the conversion feature is
nominal. In November 2005, subsequent to year-end, the right to convert was
waived and the warrant for the purchase of 500,000 shares of common stock was
terminated in exchange for the issuance of a five-year warrant to purchase
300,000 shares of our common stock at a price of $0.50 per share, the public
market price on the date the warrant, with the underlying note being extended to
July 1, 2006.

       During the third quarter of fiscal 2004, we renegotiated our existing
notes and capital lease obligations with our three primary lenders, General
Electric ("GE"), DVI Financial Services and U.S. Bank extending terms and
reducing monthly payments on approximately $135.1 million of combined
outstanding debt. At the time of the debt restructuring, outstanding principal
balances for DVI, GE and U.S. Bank were $15.2 million, $54.3 million and $65.6
million respectively.

       DVI's restructured note payable was six payments of interest only from
July to December 2004 at 9%, 41 payments of principal and interest of $273,988,
and a final balloon payment of $7.6 million on June 1, 2008 if and only if our
subordinated bond debentures, then due, are not extended and paid in full. If
the bond debenture payment is deferred, we would make monthly payments of
$290,785 to DVI for the next 29 months. Effective November 30, 2004, Post
acquired the DVI note payable and the debt was restructured. The new note
payable has monthly interest only payments at 11% per annum until its maturity
in June 2008. The assignment of the note payable to Post will not result in any
actual total dollar savings to us over the term of the new obligation, but it
will defer cash outlays of approximately $1.3 million per year until its
maturity.

       GE's restructured note payable is six payments of interest only at 9%, or
$407,210, beginning on August 1, 2004, 40 payments of principal and interest at
$1,127,067 beginning on February 1, 2005, and a final balloon payment of $21
million due on June 1, 2008 if and only if our subordinated bond debentures,
then due, are not extended and paid in full. If the bond debenture payment is
deferred, we will continue to make monthly payments of $1,127,067 to GE for the
next 20 months.

       U.S. Bank's restructured note payable is six payments of interest only at
9%, or $491,933, beginning on August 1, 2004, 40 payments of principal and
interest of $1,055,301 beginning on February 1, 2005, and a final balloon
payment of $39.7 million due on June 1, 2008 if and only if our subordinated
bond debentures, then due, are not extended and paid in full. If the bond
debenture payment is deferred, we will continue to make monthly payments of
$1,055,301 to U.S. Bank for the next 44 months.

                                      26



       In October 2003, we successfully consummated a "pre-packaged" Chapter 11
plan of reorganization with the United States Bankruptcy Court, Central District
of California, in order to modify the terms of our convertible subordinated
debentures by extending the maturity to June 30, 2008, increasing the annual
interest rate from 10.0% to 11.5%, reducing the conversion price from $12.00 to
$2.50 and restricting our ability to redeem the debentures prior to July 1,
2005. The plan of reorganization did not affect any of our operations or
obligations, other than the subordinated debentures.

       To assist with our financial liquidity in June 2005, Howard G. Berger,
M.D., our president, director and largest shareholder loaned us $1,370,000.
Interest and principal payments to Dr. Berger will not be made until such time
as our loans to Post Advisory Group (approximately $16.8 million at October 31,
2005) have been paid in full.

       Our business strategy with regard to operations will focus on the
following:

              o      Maximizing performance at our existing facilities;
              o      Focusing on profitable contracting;
              o      Expanding MRI and CT applications
              o      Optimizing operating efficiencies; and
              o      Expanding our networks.

       Our ability to generate sufficient cash flow from operations to make
payments on our debt and other contractual obligations will depend on our future
financial performance. A range of economic, competitive, regulatory, legislative
and business factors, many of which are outside of our control, will affect our
financial performance.

       Taking these factors into account, including our historical experience
and our discussions with our lenders to date, although no assurance can be
given, we believe that through implementing our strategic plans and continuing
to restructure our financial obligations, we will obtain sufficient cash to
satisfy our obligations as they become due in the next twelve months.

SOURCES AND USES OF CASH

       Cash increased for fiscal 2005 by $1,000 and decreased for fiscal 2004 by
$29,000.

       Cash provided by operating activities for the year ended October 31, 2005
was $11.1 million compared to $17.1 million for the same period in 2004. The
primary reason for the fiscal 2005 decrease in cash provided by operating
activities was due to imputed interest expense which decreased approximately
$5.3 million for the year ended October 31, 2005 compared to the same period in
2004. Imputed interest is interest accrued and unpaid on outstanding notes and
capital lease obligations, as well as interest on capitalized debt restructuring
charges which are amortized over the term of the new note payable or capital
lease obligation. During the first three quarters of fiscal 2004, we deferred
payments on the majority of our notes payable with DVI while negotiating with
external third parties and the existing lender. In addition, during fiscal 2004,
a $5.2 million expense was recorded resulting from the increase in the valuation
allowance for deferred income taxes.

       Cash used by investing activities for fiscal 2005 was $4.0 million
compared to $3.8 million for the same period in 2004. For fiscal 2005 and 2004,
we purchased property and equipment for approximately $4.1 million and $3.8
million, respectively, and received proceeds from the sale of medical equipment
of $65,000 in fiscal 2005 and purchased the balance of our former majority-owned
subsidiary's common stock for $35,000 in fiscal 2004.

       Cash used for financing activities for fiscal 2005 was $7.1 million
compared to $13.3 million for the same period in 2004. For fiscal 2005 and 2004,
we made principal payments on capital leases, notes payable and lines of credit
of approximately $14.1 million and $13.2 million, respectively, and received
proceeds from borrowings under existing lines of credit, refinancing
arrangements and related parties of approximately $6.1 million and $1.0 million,
respectively. During fiscal 2005, we also increased our cash disbursements in
transit by $0.9 million compared to a decrease in cash disbursements of $0.3
million in fiscal 2004. In addition, during fiscal 2004, we purchased
subordinated debentures for approximately $60,000 and made payments to limited
partners of $650,000.

                                      27



CONTRACTUAL COMMITMENTS

       Our future obligations for notes payable, equipment under capital leases,
lines of credit, subordinated debentures, equipment and building operating
leases and purchase and other contractual obligations for the next five years
and thereafter include (dollars in thousands):


                                                                                 THERE-
                            2006       2007       2008       2009       2010      AFTER      TOTAL
                          --------   --------   --------   --------   --------   --------   --------
                                                                       
Notes payable*            $ 87,768   $     --   $     --   $     --   $     --   $     --   $ 87,768
Capital leases*             69,288      1,713      1,429      1,353        226         --     74,009
Lines of credit             13,341         --         --         --         --         --     13,341
Subordinated debentures         --         --     16,147         --         --         --     16,147
Operating leases(1)          7,697      6,976      6,933      6,795      6,834     58,907     94,142
Purchase obligations(2)      2,500         --         --         --         --         --      2,500
Tower settlement               174         --         --         --         --         --        174
                          --------   --------   --------   --------   --------   --------   --------
TOTAL(3)                  $180,768   $  8,689   $ 24,509   $  8,148   $  7,060   $ 58,907   $288,081
______________
*  Includes interest and excludes discount on notes payable.
1  Includes all existing options to extend lease terms
2  Includes a three-year obligation to purchase imaging film from Fuji. We must
   purchase an aggregate of $7.5 million of film at a rate of approximately $2.5
   million per year over the term of the agreement in which two years have
   already been completed.
3  Does not include our obligation under our maintenance agreement with GE
   Medical Systems described below.


       We have an arrangement with GE Medical Systems under which it has agreed
to be responsible for the maintenance and repair of a majority of our equipment
for a fee that is based upon a percentage of our revenue, subject to a minimum
payment. Net revenue is reduced by the provision for bad debt, mobile PET
revenue and other professional reading service revenue to obtain adjusted net
revenue. The fiscal 2005 annual service fee was the higher of 3.50% of our
adjusted net revenue, or $4,970,000. The fiscal 2006 annual service rate will be
the higher of 3.62% of our adjusted net revenue, or $5,393,800. For the fiscal
years 2007, 2008 and 2009, the annual service fee will be the higher of 3.62% of
our adjusted net revenue, or $5,430,000. We believe this framework of basing
service costs on usage is an effective and unique method for controlling our
overall costs on a facility-by-facility basis.

CRITICAL ACCOUNTING ESTIMATES

       Our discussion and analysis of financial condition and results of
operations are based on our consolidated financial statements that were prepared
in accordance with generally accepted accounting principles, or GAAP. Management
makes estimates and assumptions when preparing financial statements. These
estimates and assumptions affect various matters, including:

       o      Our reported amounts of assets and liabilities in our consolidated
              balance sheets at the dates of the financial statements;

       o      Our disclosure of contingent assets and liabilities at the dates
              of the financial statements; and

       o      Our reported amounts of net revenue and expenses in our
              consolidated statements of operations during the reporting
              periods.

       These estimates involve judgments with respect to numerous factors that
are difficult to predict and are beyond management's control. As a result,
actual amounts could materially differ from these estimates.

       The Securities and Exchange Commission, or SEC, defines critical
accounting estimates as those that are both most important to the portrayal of a
company's financial condition and results of operations and require management's
most difficult, subjective or complex judgment, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain and may
change in subsequent periods. In Note 2 to our consolidated financial
statements, we discuss our significant accounting policies, including those that
do not require management to make difficult, subjective or complex judgments or
estimates. The most significant areas involving management's judgments and
estimates are described below.

                                      28



       REVENUE RECOGNITION

       Revenue is recognized when diagnostic imaging services are rendered.
Revenue is recorded net of contractual adjustments and other arrangements for
providing services at less than established patient billing rates. We estimate
contractual allowances based on the patient mix at each diagnostic imaging
facility, the impact of managed care contract pricing and historical collection
information. We operate 57 facilities, each of which has multiple managed care
contracts and a different patient mix. We review the estimated contractual
allowance rates for each diagnostic imaging facility on a monthly basis. We
adjust the contractual allowance rates, as changes to the factors discussed
above become known. Depending on the changes we make in the contractual
allowance rates, net revenue may increase or decrease.

       ACCOUNTS RECEIVABLE

       Substantially all of our accounts receivable are due under
fee-for-service contracts from third party payors, such as insurance companies
and government-sponsored healthcare programs, or directly from patients.
Services are generally provided pursuant to one-year contracts with healthcare
providers. Receivables generally are collected within industry norms for
third-party payors. We continuously monitor collections from our clients and
maintain an allowance for bad debts based upon any specific payor collection
issues that we have identified and our historical experience. For fiscal 2003,
2004 and 2005 our provision for bad debts as a percentage of net revenue was
3.5%, 2.8% and 3.4% respectively.

       DEFERRED TAX ASSETS

       We evaluate the realizability of the net deferred tax assets and assess
the valuation allowance periodically. If future taxable income or other factors
are not consistent with our expectations, an adjustment to our allowance for net
deferred tax assets may be required. Even though we expect to utilize our net
operating loss carry forwards in the future, the last three fiscal year losses
and available evidence cause the valuation of our net deferred tax assets to be
uncertain in the near term. As of October 31, 2005, we have fully allowed for
our net deferred tax assets.

       VALUATION OF GOODWILL AND LONG-LIVED ASSETS

       Our net goodwill at October 31, 2005 was $23.1 million. Goodwill is
recorded as a result of our acquisition of operating facilities. The operating
facilities are grouped by region into reporting units. We evaluate goodwill, at
a minimum, on an annual basis and whenever events and changes in circumstances
suggest that the carrying amount may not be recoverable in accordance with
Statement of Financial Accounting Standards, or SFAS, No. 142, "Goodwill and
Other Intangible Assets." Impairment of goodwill is tested at the reporting unit
level by comparing the reporting unit's carrying amount, including goodwill, to
the fair value of the reporting unit. The fair values of the reporting units are
estimated using a combination of the income or discounted cash flows approach
and the market approach, which uses comparable market data. If the carrying
amount of the reporting unit exceeds its fair value, goodwill is considered
impaired and a second step is performed to measure the amount of impairment
loss, if any.

       Our long-lived assets at October 31, 2005 consist of net property and
equipment of $68.1 million and other net intangible assets of $1.2 million. We
evaluate long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable in accordance with SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." An asset is considered impaired if its carrying
amount exceeds the future net cash flow the asset is expected to generate. If
such asset is considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the asset exceeds its
fair market value. We assess the recoverability of our long-lived and intangible
assets by determining whether the unamortized balances can be recovered through
undiscounted future net cash flows of the related assets.

       For each of the three years in the period ended October 31, 2005, we
recorded no impairment of goodwill or property and equipment. However, if our
estimates or the related assumptions change in the future, we may be required to
record impairment charges to reduce the carrying amount of these assets.

                                      29



SIGNIFICANT EVENTS

       NEW FINANCING

       Subsequent to year-end, on January 31, 2006, we executed a commitment
letter with an institutional lender to which such lender provided us with a
commitment, subject to final documentation and legal due diligence, for a $160
million senior secured credit facility to be used to refinance all of our
existing indebtedness (except for $16.1 million of outstanding subordinated
debentures and $6.1 million of capital lease obligations). The commitment
provides for a $15 million five-year revolving credit facility, an $85 million
term loan due in five years and $60 million second lien term loan due in six
years. The loans are subject to acceleration on February 28, 2008, unless we
have made arrangements to discharge or extend our outstanding subordinated
debentures by that date. The loans are essentially payable interest only monthly
at varying rates that are yet to be finalized but will be based upon market
conditions. Finalization of the credit facility is subject to customary
conditions, including legal due diligence and final documentation that is
scheduled for completion on or about March 7, 2006.

       SALE OF JOINT VENTURE INTEREST - DISCONTINUED OPERATION

       Effective March 31, 2003, we sold our 50% share of Westchester Imaging
Group, or Westchester, to our joint venture partner for $3.0 million. As part of
the transaction, we acquired 100% of the accounts receivable generated through
March 31, 2003 for $1.3 million and reimbursed Westchester $0.3 million, which
represented 50% of the remaining liabilities, resulting in net cash proceeds of
approximately $1.4 million. We recognized a gain on the transaction of
approximately $2.9 million in fiscal 2003.

       Westchester's results from fiscal 2003 were as follows:

                                                                   2003(1)
                                                                   -------
                Net revenue                                       $2,230,000

                Operating expenses                                 1,703,000

                Net income                                           255,000
____________
(1) Represents operations through March 31, 2003

       FACILITY OPENINGS

       In January 2004, we entered into a new building lease for approximately
3,963 square feet of space in Murrietta, California, near Temecula. The center
opened in December 2004 and offers MRI, CT, PET, nuclear medicine and x-ray
services. The equipment was financed by GE. During fiscal 2004, we had used
existing lines of credit for the payment of approximately $840,000 in leasehold
improvements for Murietta.

       In July 2003, we entered into a new building lease for approximately
3,533 square feet of space in Westlake, California, near Thousand Oaks. The
center opened in March 2005 and offers MRI, mammography, ultrasound and x-ray
services. During fiscal 2005, we used existing lines of credit for the payment
of approximately $873,000 in leasehold improvements for the new facility.

       In December 2002, we opened an imaging center in Rancho Bernardo,
California. Prior to its opening, in late November 2001, we entered into a new
building lease arrangement for 9,557 square feet in Rancho Bernardo in
anticipation of opening the new multi-modality imaging center. The center was
75%-owned by us and 25%-owned by two physicians who invested $250,000. Effective
July 31, 2004, we purchased the 25% minority interest from the two physicians
for $200,000 that consisted of an $80,000 down payment and monthly payments of
$10,000 due from September 2004 to August 2005. All payments due were made
during fiscal 2005. There was no goodwill recorded in the transaction.

       In addition, during fiscal 2003, upon entering into new capitation
arrangements, we opened two facilities adjacent to our Burbank and Santa Clarita
facilities to provide X-ray services. In fiscal 2004, we opened an additional
three satellite facilities servicing our Northridge, Rancho Cucamonga and
Thousand Oaks centers.

                                      30



       FACILITY CLOSURES

       In early fiscal 2004, we first downsized and later closed our San Diego
facility. The center's location was no longer productive and business could be
sent to our new facility in Rancho Bernardo. The equipment was moved to other
locations and our leasehold improvements were written off. During the years
ended October 31, 2003 and 2004, the center generated net revenue of $1,067,000
and $49,000, respectively. During the year ended October 31, 2004, the center
incurred a net loss of $122,000, and during the year ended October 31, 2003, the
center generated net income of $33,000.

       In addition, during fiscal 2004, we closed two satellite facilities
servicing our Antelope Valley and Lancaster regions.

       In July 2003, we closed our La Habra facility. The center's location was
no longer a productive asset in our network and business could be sent to our
facilities in Orange County. The equipment was moved to other locations or
returned to the vendor and its leasehold improvements were written off. During
the year ended October 31, 2003, the center generated net revenue of $368,000
and incurred a net loss of $155,000.

       In addition, during fiscal 2003, we closed three satellite facilities
servicing our Long Beach region and one satellite facility servicing our
Riverside region.

       Due to low volume, RadNet Heartcheck Management, Inc., one of our
subsidiaries, ceased doing business in early fiscal 2003. We wrote-off a
receivable related to Heartcheck of approximately $0.2 million during fiscal
2003.

       At various times, we may open or close small x-ray facilities acquired
primarily to service larger capitation arrangements over a specific geographic
region. Over time, patient volume from these contracts may vary, or we may end
the arrangement, resulting in the subsequent closures of these smaller satellite
facilities.

       TERMINATION OF CONTRACT WITH TOWER IMAGING MEDICAL GROUP, INC.

       In February 2003, we commenced an action against Tower Imaging Medical
Group, Inc., or Tower, and certain of its affiliated entities alleging Tower's
breach of a covenant not to compete in our existing management agreement with
them. Tower had been providing the professional medical services at our
Wilshire, Roxsan and Women's facilities located in Beverly Hills. Effective
October 20, 2003, as part of the final settlement of the litigation, we
terminated our management agreement with Tower. We were required to pay Tower
$1.5 million, comprised of 24 monthly installments of $50,000 and a final
balloon payment, less a residual balance, in settlement of the action. As part
of the settlement, we acquired use of the "Tower" name in connection with our
Beverly Hills facilities. We capitalized the $1.5 million payment as an
intangible asset for the "Tower" name, which was offset by a related $1.5
million of accrued expense. At October 31, 2005, we still owed approximately
$174,000 to Tower that was paid in November 2005. Historically, the Tower
physicians were entitled to 17.5% of the collections. BRMG is now providing the
professional medical services at those facilities. During fiscal 2004, BRMG
rehired seven former key Tower radiologists in the Beverly Hills area for the
Beverly Hill's facilities to solidify our staffing and related referral base. We
believe that with BRMG providing the professional medical services at our
Beverly Hills facilities, we should not experience further significant physician
turnover at those facilities.

       DEBT RESTRUCTURING

       During fiscal 2004 and 2005, we continued our focused efforts to improve
our financial position and liquidity by restructuring and reducing our
indebtedness on favorable terms. For a discussion of these efforts, see
"Financial Condition - Liquidity and Capital Resources."

                                      31



RESULTS OF OPERATIONS

       The following table sets forth, for the periods indicated, the percentage
that certain items in the statement of operations bears to net revenue.

                                                      YEAR ENDED OCTOBER 31,
                                                    ----------------------------
                                                     2003       2004       2005
                                                    ------     ------     ------
Net revenue                                         100.0%     100.0%     100.0%
Operating expenses:
  Operating expenses                                 75.6       77.1       74.9
  Depreciation and amortization                      12.0       12.9       11.7
  Provision for bad debts                             3.6        2.8        3.4
  Loss on disposal of equipment, net                   --         --        0.5
                                                    ------     ------     ------
     Total operating expense                         91.2       92.8       90.5

Income from operations                                8.8        7.2        9.5

Other expense (income):
  Interest expense                                   12.8       12.6       12.0
  Other income                                       (0.4)      (0.1)      (0.6)
  Other expense                                       0.2        1.2        0.2
                                                    ------     ------     ------
      Total other expense                            12.6       13.7       11.6

Loss before provision for income taxes,
  minority interest and discontinued operation       (3.8)      (6.5)      (2.1)
Income tax expense                                     --       (3.8)        --
                                                    ------     ------     ------
Loss before minority interest and
  discontinued operation                             (3.8)     (10.3)      (2.1)

      Minority interest in earnings
        of subsidiaries                               0.1        0.3         --
                                                    ------     ------     ------
Loss from continuing operations                      (3.9)     (10.6)      (2.1)
Discontinued operation:
   Income from operations of Westchester
     Imaging Group                                    0.2         --         --
   Gain on sale of discontinued operation             2.1         --         --
                                                    ------     ------     ------
Income from discontinued operation                    2.3         --         --

Net loss                                             (1.6)     (10.6)      (2.1)
                                                    ======     ======     ======

YEAR ENDED OCTOBER 31, 2005 COMPARED TO THE YEAR ENDED OCTOBER 31, 2004

       During fiscal 2005, we continued our efforts to enhance our operations
and expand our network, while improving our financial position and significantly
reducing our net loss. Our results for fiscal 2005 were aided by the opening and
integration of new facilities in prior periods, increases in PET volume, and
improvements in reimbursement from managed care capitated contracts and other
payors. As a result of these factors and the other matters discussed below, we
experienced an increase in income from operations of $4.1 million.

       During fiscal 2005, we made more progress in solidifying our financial
condition. Effective November 30, 2004, we issued $4.0 million in principal
amount of notes to Post and Post repurchased the DVI affiliate's line of credit
facility with the residual funds utilized by us as working capital. The new note
payable has monthly interest only payments at 12% per annum until its maturity
in July 2008. In addition, Post acquired $15.2 million of our notes payable from
an affiliate of DVI and the indebtedness was restructured by Post and us. The
new note payable has monthly interest only payments at 11% per annum until its
maturity in June 2008. The assignment of the note payable to Post will not
result in any actual total dollar savings to us over the term of the new
obligation, but it will defer cash flow outlays of approximately $1.3 million
per year until maturity. See "Financial Condition - Liquidity and Capital
Resources."


       As part of our evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) for the fiscal year ended October 31, 2005, we
concluded that we had insufficient personnel resources and technical accounting
expertise within the accounting function to resolve the following non-routine or
complex accounting matters: the recording of non-typical cost-based investments
and unusual debt-related transactions and the appropriate analysis of the
amortization lives of leasehold improvements in accordance with GAAP. We are
committed to establishing the necessary environment to ensure the effectiveness
of these controls in the future and quality financial reporting. We experienced
no impact on our financial statements for the year ended October 31, 2005 as a
result of the ineffective controls over non-routine matters.


                                      32



       NET REVENUE

       Net revenue from continuing operations for fiscal 2005 was $145.6 million
compared to $137.3 million for fiscal 2004, an increase of approximately $8.3
million, or 6.0%. The largest net revenue increases were at the following
facilities:

                                                    Fiscal 05
                                                    Increase             %
                                                    --------          -----
            Orange (4 sites)                        $2,383,000        17.6%
            Tarzana  (2 sites)                      $1,775,000        24.2%
            Palm Springs (5 sites)                  $1,618,000        21.7%
            Temecula (4 sites)                      $1,366,000        21.9%

       Orange's and Palm Springs' net revenue increases were primarily due to
increased patient volume, improved contracting and increases in reimbursement
from its managed care capitated payors. Temecula's net revenue increase was
primarily due to the return of a managed care capitated contract and the opening
of an additional facility in Murrietta providing MRI, CT, PET, nuclear medicine
and x-ray services in December 2004. Tarzana's net revenue increase was
primarily due to increased PET volume with the hiring of a new physician and the
upgrade of one of its MRI machines that increased throughput and patient volume.

       Managed care capitated payor revenue increased from 25% of net revenue,
or approximately $34 million, to 26% of net revenue, or approximately $38
million, for the years ended October 31, 2004 and 2005, respectively. We have
been successful in retaining existing contracts while obtaining increases in
reimbursement from the payors coupled with receiving increases in co-payments
from the individual patients upon service. We anticipate maintaining a similar
mix of managed care capitated payor business in fiscal 2006.

       OPERATING EXPENSES

       Operating expenses from continuing operations for fiscal 2005 increased
approximately $4.2 million, or 3.3%, from $127.5 million in fiscal 2004 to
$131.7 million in fiscal 2005. The following table sets forth our operating
expenses for fiscal 2004 and 2005 (dollars in thousands):

                                                          Year Ended October 31,
                                                          ----------------------
                                                             2004          2005
                                                          --------      --------
    Salaries and professional reading fees                $ 64,932      $ 66,674
    Building and equipment rental                            7,804         7,919
    General administrative expenses                         33,092        34,419
                                                          --------      --------
          Total operating expenses                         105,828       109,012

    Depreciation and amortization                           17,762        17,101
    Provision for bad debt                                   3,911         4,929
    Loss on disposal of equipment, net                          --           696


o      SALARIES AND PROFESSIONAL READING FEES

       Salaries and professional reading fees increased $1.7 million from fiscal
       2004 to 2005. The majority of the increase is due to the increase in net
       revenue from $137.3 million to $145.6 million in fiscal 2004 and 2005,
       respectively. In addition to the hiring of additional employees to staff
       two new centers in Murrieta and Westlake, California, professional fees
       increased at certain sites due to contracts where compensation to the
       professionals is based upon a percentage of net revenue.

o      BUILDING AND EQUIPMENT RENTAL

       Building and equipment rental expenses increased $0.1 million in fiscal
       year 2005 when compared to the same period last year. The increase is
       primarily due to cost of living rental increases within existing building
       lease agreements and the addition of new facilities and the related
       rental expense.

                                      33



o      GENERAL AND ADMINISTRATIVE EXPENSES

       General and administrative expenses include billing fees, medical
       supplies, office supplies, repairs and maintenance, insurance, business
       tax and license, outside services, utilities, marketing, travel and other
       expenses. Many of these expenses are variable in nature. These expenses
       increased $1.3 million, or 4.0%, in fiscal 2005 compared to the previous
       period primarily due to the increase in net revenue. The largest fiscal
       2005 increases were expenditures for billing fees and medical supplies
       that increased $711,000 and $635,000, respectively, when compared to the
       same period last year.

o      DEPRECIATION AND AMORTIZATION

       Depreciation and amortization decreased by $0.7 million in fiscal year
       2005 when compared to the same period last year. The primary reason for
       the decrease is the reduction in capital expenditures. During fiscal 2004
       and 2005, capital expenditures were $13.1 million and $8.8 million,
       respectively.

o      PROVISION FOR BAD DEBT

       The $1.0 million increase in provision for bad debt was primarily a
       result of increased net revenue and the increase in bad debts as a
       percentage of net revenue from 2.8% to 3.4% in fiscal 2004 and 2005,
       respectively. The bad debt percentage increased due to maturing accounts
       receivable and the faster write-off of slower-paying receivables to
       collection agencies to expedite cash receipts and accounts receivable
       turnover.

o      LOSS ON DISPOSAL OF EQUIPMENT, NET

       The $0.7 million increase in losses on disposal of equipment is primarily
       due to the trade-in and upgrade of an MRI at our Tarzana Advanced
       facility that was initiated to improve the existing equipment increasing
       throughput and patient volume at the site.

       INTEREST EXPENSE

       Interest expense for fiscal 2005 increased approximately $0.2 million, or
1.2%, from the same period in fiscal 2004. Interest expense is primarily from
our outstanding notes payable and capital lease obligations, subordinated bond
debentures, related party payables and our outstanding line of credit.

       OTHER INCOME

       In fiscal 2004 and 2005, we earned other income of $0.2 million and $0.9
million, respectively, principally comprised of sublease income, medical record
copying income, deferred rent income, other income related to certain write-offs
of liabilities and business interruption and insurance refunds. During fiscal
2005, we had gains on the settlement of debt of approximately $0.7 million.

       OTHER EXPENSE

       In fiscal 2004 and 2005, we incurred other expense of $1.7 million and
$0.3 million, respectively, principally comprised of write-offs of miscellaneous
receivables and other assets, losses on disposal of equipment, forgiveness of
notes, losses on the sale or disposal of assets, and costs related to bond
offerings and debt restructures. During fiscal 2004, we incurred approximately
$1.6 million of legal and professional service costs related to our earlier
attempts to solidify financing and the related bond offering that was not
completed.

       INCOME TAX EXPENSE

       In fiscal 2004, we increased the valuation allowance for the net deferred
tax asset by $5.2 million due to our recurring losses from continuing operations
over the prior three fiscal years. In fiscal 2005, the valuation allowance was
fully reserved.


                                      34



       MINORITY INTEREST IN EARNINGS OF SUBSIDIARIES

       Minority interest in earnings of subsidiaries represents the minority
investors' 25% share of the income from the Burbank Advanced Imaging Center LLC
and 25% share of the Rancho Bernardo Advanced LLC for the period. Both center's
residual interests were purchased by us in September and July 2004,
respectively. We now own 100% of all our locations and our minority interest
liabilities have been eliminated. Minority interest expense was $351,000 in
fiscal 2004.

YEAR ENDED OCTOBER 31, 2004 COMPARED TO THE YEAR ENDED OCTOBER 31, 2003

       During fiscal 2004, we continued our efforts to enhance our operations
and expand our network, while improving our financial position and cash flows.
Our results for fiscal 2004 were affected by the opening and integration of new
facilities and the closure of underperforming operations, the increase in the
valuation allowance for net deferred tax assets of $5.2 million, the expenses
involved with a bond offering which did not materialize, the slower than
expected improvements in net revenue at Beverly Tower, and our continuing focus
on controlling operating expenses. As a result of these factors and the other
matters discussed below, we experienced a decrease in income from operations of
$2.6 million and an increase in net loss from continuing operations of $9.1
million.

       Also during fiscal 2004, we made significant progress in solidifying our
financial condition. We restructured the majority of our existing notes and
capital lease obligations consolidating balances, extending terms and improving
future net cash flows for debt service, and we restructured our working capital
line with a new lender, Wells Fargo Foothill. Net cash used by financing
activities changed from $20.3 million in fiscal 2003 to $13.3 million in fiscal
2004, and our working capital deficit improved from $44.6 million in fiscal 2003
to $32.2 million in fiscal 2004. At the same time, however, net cash provided by
operating activities decreased in fiscal 2004.

       NET REVENUE

       Net revenue from continuing operations for fiscal 2004 was $137.3 million
compared to $140.3 million for fiscal 2003, a decrease of approximately $3.0
million, or 2.1%. Of the net revenue decrease, $1.4 million is attributable to
two facilities, La Habra and North County, which were closed in fiscal 2003 and
2004, respectively. The decrease was offset by $0.4 million in net revenue from
one facility, Rancho Bernardo, which opened in December 2002. Our same store
facilities', which we define as facilities open two years or more, net revenue
in 2003 and 2004 was $137.7 million and $135.8 million, respectively. The same
store facilities' net revenue was affected by a $3.4 million decrease in net
revenue at our Beverly Tower facilities over the same period. The decreases in
net revenue at our Beverly Tower facilities were attributable to disruptions
arising from the dispute described under "Significant Events - Termination of
Contract with Tower Imaging Medical Group, Inc." Exclusive of Beverly Tower, our
same store facilities had an increase in net revenue of approximately $1.4
million from fiscal 2003 to fiscal 2004. We present same store facilities as
those open two years or more because we believe that this presentation
eliminates the effect of facilities opened only a partial year.

       Managed care capitated payor revenue increased from 22% of net revenue,
or approximately $31 million, to 25% of net revenue, or approximately $34
million, for the years ended October 31, 2003 and 2004, respectively. We have
been successful in retaining existing contracts while obtaining increases in
reimbursement from the payors coupled with receiving increases in co-payments
from the individual patients upon service. We anticipate maintaining a similar
mix of managed care capitated payor business in fiscal 2005 due to increases in
reimbursement from existing payors, offset by expected decreases in contracts
that will not be renewed.

       OPERATING EXPENSES

       Operating expenses from continuing operations for fiscal 2004 decreased
approximately $0.4 million, or 0.3%, from $127.9 million in fiscal 2003 to
$127.5 million in fiscal 2004. The decrease includes $1.4 million of net
operating expenses related to two facilities, La Habra and North County, which
were closed during the last two fiscal years. This was offset by $0.1 million
for Rancho Bernardo which opened in December 2002.

                                      35



       The following table sets forth our operating expenses for fiscal 2003 and
2004 (dollars in thousands):

                                                          Year Ended October 31,
                                                          ----------------------
                                                            2003          2004
                                                          --------      --------
    Salaries and professional reading fees                $ 62,454      $ 64,932
    Building and equipment rental                            9,375         7,804
    General administrative expenses                         34,249        33,092
                                                          --------      --------

          Total operating expenses                         106,078       105,828

    Depreciation and amortization                           16,874        17,762
    Provision for bad debt                                   4,944         3,911


o      SALARIES AND PROFESSIONAL READING FEES

       Salaries and professional reading fees increased $2.5 million from fiscal
       2003 to 2004. The amount is net of $0.4 million relating to two closed
       facilities, La Habra and North County, and one new facility, Rancho
       Bernardo, which opened in December 2002. For our same store facilities,
       salaries increased $2.2 million and professional reading fees decreased
       $0.7 million from fiscal 2003 to fiscal 2004. The $0.7 million
       improvement in same store professional reading fees was due to changes in
       the fee arrangement at our Beverly Tower facilities. In October 2003, the
       radiologists, who had previously been compensated based on a percentage
       of net revenue, were eliminated and those physicians rehired by BRMG are
       now paid a fixed salary. See "Significant Events - Termination of
       Contract with Tower Imaging Medical Group, Inc." For fiscal 2003 and
       2004, professional reading fees at Beverly Tower were $3.9 million and
       $2.9 million, respectively.

       The $2.2 million increase in salaries is due to the higher costs
       associated with recruiting and retaining key personnel, the hiring of a
       chief financial officer, the solidifying of Beverly Tower's non physician
       staff due to the disruption in October 2003, the hiring of physician
       assistants, and the costs of additional personnel necessary to open
       additional satellite locations and the build-out of a new center in
       Murietta.

o      BUILDING AND EQUIPMENT RENTAL

       Building and equipment rental expenses decreased $1.6 million in fiscal
       year 2004 when compared to the same period last year. The decrease is
       primarily due to the elimination of equipment operating leases including
       GE operating leases which were converted into $6.0 million in capital
       leases in November 2003, and $250,000 for Toshiba MR equipment which was
       converted into a capital lease in April 2004. During fiscal 2003 and
       2004, we had equipment rental expenses of $2.2 million and $0.3 million,
       respectively.

o      GENERAL AND ADMINISTRATIVE EXPENSES

       General and administrative expenses include billing fees, medical
       supplies, office supplies, repairs and maintenance, insurance, business
       tax and license, outside services, utilities, marketing, travel and other
       expenses. Many of these expenses are variable in nature. These expenses
       decreased $1.2 million, or 3.4%, in fiscal 2004 compared to the previous
       period primarily due to the decrease in net revenue. In addition, general
       and administrative expenses decreased $0.4 million for two facilities
       which were closed during the last two fiscal periods, offset by one
       center which was opened in December 2002.

o      DEPRECIATION AND AMORTIZATION

       Depreciation and amortization increased by $0.9 million in fiscal year
       2004 when compared to the same period last year. The increase was
       primarily due to the conversion of $6.2 million in equipment operating
       leases into capital leases during fiscal 2004 coupled with a full-year's
       amortization of the Tower tradename purchased in October 2003 for $1.5
       million and amortized over 10 years.

                                      36



o      PROVISION FOR BAD DEBT

       The $1.0 million decrease in provision for bad debt was primarily a
       result of decreased bad debt write-offs, the improvement in billing and
       collections with the conversion to a single internal system, increased
       capitation business which has no bad debt, decreased net revenue, and no
       significant payor dissolutions in fiscal 2004.

       INTEREST EXPENSE

       Interest expense for fiscal 2004 decreased approximately $0.7 million, or
3.7%, from the same period in fiscal 2003. The decrease was primarily due to the
consolidation and restructuring of notes payable and capital lease obligations
with new terms and interest rates.

       OTHER INCOME

       In fiscal 2003 and 2004, we earned other income of $0.6 million and $0.2
million, respectively, principally comprised of sublease income, record copy
income, deferred rent income, other income related to certain write-offs of
liabilities and business interruption and insurance refunds. During fiscal 2004,
we had no write-offs of liabilities nor business interruption or insurance
refunds.

       OTHER EXPENSE

       In fiscal 2003 and 2004, we incurred other expense of $0.3 million and
$1.7 million, respectively, principally comprised of write-offs of miscellaneous
receivables and other assets, losses on disposal of equipment, forgiveness of
notes, losses on the sale or disposal of assets, and costs related to bond
offerings and debt restructures. During fiscal 2004, we incurred approximately
$1.6 million of legal and professional service costs related to our earlier
attempts to solidify financing and the related bond offering that was not
completed.

       INCOME TAX EXPENSE

       In fiscal 2004, we increased the valuation allowance for the net deferred
tax asset by $5.2 million due to our recurring losses from continuing operations
over the last three fiscal years.

       MINORITY INTEREST IN EARNINGS OF SUBSIDIARIES

       Minority interest in earnings of subsidiaries represents the minority
investors' 25% share of the income from the Burbank Advanced Imaging Center LLC
and 25% share of the Rancho Bernardo Advanced LLC for the period. The residual
interests of both centers were purchased by us in September and July 2004,
respectively. We now own 100% of all our locations and our minority interest
liabilities have been eliminated. Minority interest in earnings of subsidiaries
increased $250,000 in fiscal 2004 compared to the same period in the prior
period primarily due to the earnings incurred by Rancho Bernardo.

       DISCONTINUED OPERATION

       The income from operations of Westchester was $0.3 million for fiscal
2003. Net revenue was $2.2 million for fiscal 2003. Effective March 31, 2003, we
sold our 50% share of Westchester to our joint venture partner for $3.0 million.
As part of the transaction, we acquired 100% of the accounts receivable
generated through March 31, 2003 for $1.3 million and reimbursed Westchester
$0.3 million, which represented 50% of the remaining liabilities, resulting in
net cash proceeds of approximately $1.4 million. We recognized a gain on the
transaction of approximately $2.9 million in fiscal 2003.

SUMMARY OF OPERATIONS BY QUARTER

       The following table presents unaudited quarterly operating results for
each of our last eight fiscal quarters. We believe that all necessary
adjustments have been included in the amounts stated below to present fairly the
quarterly results when read in conjunction with the consolidated financial
statements. Results of operations for any particular quarter are not necessarily
indicative of results of operations for a full year or predictive of future
periods.

                                      37




                                                  2004 Quarter Ended                             2005 Quarter Ended
                                   ---------------------------------------------   --------------------------------------------
                                     Jan 31      Apr 30    Jul 31(1)   Oct 31(2)    Jan 31      Apr 30      Jul 31     Oct 31
                                     ------      ------    ---------   ---------    ------      ------      ------     ------
                                                                   (dollars in thousands)
                                                                                               
STATEMENT OF OPERATIONS DATA:
    Net revenue                    $ 34,047    $ 35,853    $ 33,900    $ 33,477    $ 34,110    $ 35,190    $ 36,178    $ 40,094

    Operating expenses               31,086      32,774      32,820      30,821      32,097      32,059      31,979      35,603

    Total other expense               4,265       4,965       5,363       4,173       4,211       3,727       4,236       4,796

    Income tax expense                   --          --          --       5,235          --          --          --          --

    Net income (loss)                (1,305)     (1,897)     (4,517)     (6,857)     (2,198)       (596)        (37)       (304)

    Basic earnings per share:
      Basic net loss per share         (.03)       (.05)       (.11)       (.16)       (.05)       (.02)         --        (.01)

    Diluted earnings per share:
      Diluted net loss per share       (.03)       (.03)       (.11)       (.16)       (.05)       (.02)         --        (.01)
________________

1      Includes costs related to some of our earlier attempts to solidify
       financing and the related bond offering that was not completed including
       $660,000 in professional and legal fees and $555,000 in interest expense.
2      Includes $5.2 million of expense for the increase in the valuation
       allowance for the net deferred tax asset.


RELATED PARTY TRANSACTIONS

       We describe certain transactions between us and certain related parties
under "Certain Relationships and Related Transactions" below.

RECENT ACCOUNTING PRONOUNCEMENTS

       SHARE-BASED PAYMENT

       In December 2004, the FASB issued SFAS No. 123 (Revised 2004),
"Share-Based Payment" which was amended effective April 2005. The new rule
requires that the compensation cost relating to share-based payment transactions
be recognized in financial statements based on the fair value of the equity or
liability instruments issued. We will be required to apply Statement 123R as of
the first annual reporting period starting after June 15, 2005, which is our
first quarter beginning November 1, 2005. We routinely use share-based payment
arrangements as compensation for our employees. During fiscal 2003, 2004 and
2005, had this rule been in effect, we would have recorded the non-cash expense
of $82,000, $379,000 and $341,000, respectively.

       DETERMINING AMORTIZATION PERIOD FOR LEASEHOLD IMPROVEMENTS

       In June 2005, the EITF issued EITF Issue No. 05-06, "Determining the
Amortization Period for Leasehold Improvements Purchased after Lease Inception
or Acquired in a Business Combination" ("EITF 05-06"). EITF 05-06 provides that
the amortization period for leasehold improvements acquired in a business
combination or purchased after the inception of a lease be the shorter of (a)
the useful life of the assets or (b) a term that includes required lease periods
and renewals that are reasonably assured upon the acquisition or the purchase.
The provision of EITF 05-06 are effective on a prospective basis for leasehold
improvements purchased or acquired beginning July 1, 2005. The adoption of EITF
05-06 during the three months ended October 31, 2005 did not have a material
affect on the Company's consolidated financial statements.

       EXCHANGES OF NONMONETARY ASSETS

       In December 2004, the FASB issued FASB Statement No. 153, "Exchanges of
Nonmonetary Assets - An Amendment of APB Opinion No. 29." The amendments made by
Statement 153 are based on the principle that exchanges of nonmonetary assets
should be measured based on the fair value of the assets exchanged. Further, the
amendments eliminate the narrow exception for nonmonetary exchanges of similar
productive assets and replace it with a broader exception for exchanges of
nonmonetary assets that do not have "commercial substance." The provisions in
Statement 153 are effective for nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005. Adoption of this standard is not expected
to have a material impact on the consolidated financial statements.

                                      38



       DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION

       In September 2004, the Emerging Issues Task Force (EITF) reached a
consensus on EITF Issue No. 04-10, "Applying Paragraph 19 of FAS 131 in
Determining Whether to Aggregate Operating Segments That Do Not Meet the
Quantitative Thresholds." The consensus states that operating segments that do
not meet the quantitative thresholds can be aggregated only if aggregation is
consistent with the objective and basic principles of SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information," the segments have
similar economic characteristics, and the segments share a majority of the
aggregation criteria (a)-(e) listed in paragraph 17 of SFAS 131. The consensus
was ratified by the FASB at their October 13, 2004 meeting. The effective date
of the consensus in this Issue has been postponed indefinitely at the November
17-18 EITF meeting. The Company does not anticipate a material impact on the
financial statements from the adoption of this consensus.

       DETERMINING WHETHER TO REPORT DISCONTINUED OPERATIONS

       In November 2004, the Emerging Issues Task Force (EITF) reached a
consensus on EITF Issue No. 03-13, "Applying the Conditions in Paragraph 42 of
FASB Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," in Determing Whether to Report Discontinued Operations. The consensus
provides guidance in determining: (a) which cash flows should be taken into
consideration when assessing whether the cash flows of the disposal component
have been or will be eliminated from the ongoing operations of the entity, (b)
the types of involvement ongoing between the disposal component and the entity
disposing of the component that constitute continuing involvement in the
operations of the disposal component, and (c) the appropriate (re)assessment
period for purposes of assessing whether the criteria in paragraph 42 have been
met. The consensus was ratified by the FASB at their November 30, 2004 meeting
and should be applied to a component of an enterprise that is either disposed of
or classified as held for sale in fiscal periods beginning after December 15,
2004. The Company does not anticipate a material impact on the financial
statements from the adoption of this consensus.

FORWARD-LOOKING STATEMENTS

       This Annual Report on Form 10-K contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements reflect, among other things, management's current
expectations and anticipated results of operations, all of which are subject to
known and unknown risks, uncertainties and other factors that may cause our
actual results, performance or achievements, or industry results, to differ
materially from those expressed or implied by such forward-looking statements.
Therefore, any statements contained herein that are not statements of historical
fact may be forward-looking statements and should be evaluated as such. Without
limiting the foregoing, the words "believes," "anticipates," "plans," "intends,"
"will," "expects," "should" and similar words and expressions are intended to
identify forward-looking statements. Except as required under the federal
securities laws or by the rules and regulations of the SEC, we assume no
obligation to update any such forward-looking information to reflect actual
results or changes in the factors affecting such forward-looking information.
The factors included in "Risks Relating to Our Business," among others, could
cause our actual results to differ materially from those expressed in, or
implied by, the forward-looking statements.

       Specific factors that might cause actual results to differ from our
expectations, include, but are not limited to:

       o      economic, competitive, demographic, business and other conditions
              in our markets;
       o      a decline in patient referrals;
       o      changes in the rates or methods of third-party reimbursement for
              diagnostic imaging services;
       o      the enforceability or termination of our contracts with radiology
              practices;
       o      the availability of additional capital to fund capital expenditure
              requirements;
       o      burdensome lawsuits against our contracted radiology practices and
              us;
       o      reduced operating margins due to our managed care contracts and
              capitated fee arrangements;
       o      any failure on our part to comply with state and federal
              anti-kickback and anti-self-referral laws or any other applicable
              healthcare regulations;
       o      our substantial indebtedness, debt service requirements and
              liquidity constraints;

                                      39



       o      the interruption of our operations in certain regions due to
              earthquake or other extraordinary events;
       o      the recruitment and retention of technologists by us or by
              radiologists of our contracted radiology groups; and
       o      other factors discussed in the "Risk Factors" section or elsewhere
              in this report.

       All future written and verbal forward-looking statements attributable to
us or any person acting on our behalf are expressly qualified in their entirety
by the cautionary statements contained or referred to in this section. In light
of these risks, uncertainties and assumptions, the forward-looking events
discussed in this report might not occur.

RISKS RELATING TO OUR BUSINESS

       WE MAY NOT BE ABLE TO GENERATE SUFFICIENT CASH FLOW TO MEET OUR DEBT
SERVICE OBLIGATIONS.

       Our ability to generate sufficient cash flow from operations to make
payments on our debt and other contractual obligations will depend on our future
financial performance. A range of economic, competitive, regulatory, legislative
and business factors, many of which are outside of our control, will affect our
financial performance. Our inability to generate sufficient cash flow to satisfy
our debt and other contractual obligations would adversely impact our business,
financial condition and results of operations.

       OUR ABILITY TO GENERATE REVENUE DEPENDS IN LARGE PART ON REFERRALS FROM
PHYSICIANS.

       A significant reduction in referrals would have a negative impact on our
business. We derive substantially all of our net revenue, directly or
indirectly, from fees charged for the diagnostic imaging services performed at
our facilities. We depend on referrals of patients from unaffiliated physicians
and other third parties who have no contractual obligations to refer patients to
us for a substantial portion of the services we perform. If a sufficiently large
number of these physicians and other third parties were to discontinue referring
patients to us, our scan volume could decrease, which would reduce our net
revenue and operating margins. Further, commercial third-party payors have
implemented programs that could limit the ability of physicians to refer
patients to us. For example, prepaid healthcare plans, such as health
maintenance organizations, sometimes contract directly with providers and
require their enrollees to obtain these services exclusively from those
providers. Some insurance companies and self-insured employers also limit these
services to contracted providers. These "closed panel" systems are now common in
the managed care environment, including California. Other systems create an
economic disincentive for referrals to providers outside the system's designated
panel of providers. If we are unable to compete successfully for these managed
care contracts, our results and prospects for growth could be adversely
affected.

       CHANGES IN THIRD-PARTY REIMBURSEMENT RATES OR METHODS FOR DIAGNOSTIC
IMAGING SERVICES COULD RESULT IN A DECLINE IN OUR NET REVENUE AND NEGATIVELY
IMPACT OUR BUSINESS.

       The fees charged for the diagnostic imaging services performed at our
facilities are paid by insurance companies, Medicare and Medi-Cal, workers
compensation, private and other payors. Any change in the rates of or conditions
for reimbursement from these sources of payment could substantially reduce the
amounts reimbursed to us or to our contracted radiology practices for services
provided, which could have an adverse effect on our net revenue. For example,
recent legislative changes in California's workers compensation rules had a
negative impact on reimbursement rates for diagnostic imaging services, although
because we derive only a small portion of our net revenue from workers
compensation, we did not experience a significant impact.

       PRESSURE TO CONTROL HEALTHCARE COSTS COULD HAVE A NEGATIVE IMPACT ON OUR
RESULTS.

       One of the principal objectives of health maintenance organizations and
preferred provider organizations is to control the cost of healthcare services.
Managed care contracting has become very competitive, and reimbursement
schedules are at or below Medicare reimbursement levels. The development and
expansion of health maintenance organizations, preferred provider organizations
and other managed care organizations within the geographic areas covered by our
network could have a negative impact on the utilization and pricing of our
services, because these organizations will exert greater control over patients'
access to diagnostic imaging services, the selections of the provider of such
services and reimbursement rates for those services.

                                      40



       IF BRMG OR ANY OF OUR OTHER CONTRACTED RADIOLOGY PRACTICES TERMINATE
THEIR AGREEMENTS WITH US, OUR BUSINESS COULD SUBSTANTIALLY DIMINISH.

       Our relationship with BRMG is an integral part of our business. Through
our management agreement, BRMG provides all of the professional medical services
at 42 of our 57 facilities, contracts with various other independent physicians
and physician groups to provide all of the professional medical services at most
of our other facilities, and must use its best efforts to provide the
professional medical services at any new facilities that we open or acquire. In
addition, BRMG's strong relationships with referring physicians are largely
responsible for the revenue generated at the facilities it services. Although
our management agreement with BRMG runs until 2014, BRMG has the right to
terminate the agreement if we default on our obligations and fail to cure the
default. Also, BRMG's ability to continue performing under the management
agreement may be curtailed or eliminated due to BRMG's financial difficulties,
loss of physicians or other circumstances. If BRMG cannot perform its obligation
to us, we would need to contract with one or more other radiology groups to
provide the professional medical services at the facilities serviced by BRMG. We
may not be able to locate radiology groups willing to provide those services on
terms acceptable to us, if at all. Even if we were able to do so, any
replacement radiology group's relationships with referring physicians may not be
as extensive as those of BRMG. In any such event, our business could be
seriously harmed. In addition, BRMG is party to substantially all of the managed
care contracts from which we derive revenue. If we were unable to readily
replace these contracts, our revenue would be negatively affected.

       Except for our management agreement with BRMG, most of the agreements we,
or BRMG, have with contracted radiology practices typically have terms of one
year, which automatically renew unless either party delivers a non-renewal
notice to the other within a prescribed period. Most of these agreements may be
terminated by either party under some conditions, including, with respect to
some of those agreements, the right of either party to terminate the agreement
without cause upon 30 to 120 days notice. For example, in October 2003, our
management agreement with Tower Imaging Medical Group, Inc. was terminated as
the result of the settlement of litigation between Tower and us. The termination
or material modification of any of the agreements we, or BRMG, have with the
radiologists that provide professional medical services at our facilities could
reduce our revenue, at least in the short term.

       IF OUR CONTRACTED RADIOLOGY PRACTICES, INCLUDING BRMG, LOSE A SIGNIFICANT
NUMBER OF THEIR RADIOLOGISTS, OUR FINANCIAL RESULTS COULD BE ADVERSELY AFFECTED.

       Recently, there has been a shortage of qualified radiologists in some of
the regional markets we serve. In addition, competition in recruiting
radiologists may make it difficult for our contracted radiology practices to
maintain adequate levels of radiologists. If a significant number of
radiologists terminate their relationships with our contracted radiology
practices and those radiology practices cannot recruit sufficient qualified
radiologists to fulfill their obligations under our agreements with them, our
ability to maximize the use of our diagnostic imaging facilities and our
financial results could be adversely affected. For example, in fiscal 2002, due
to a shortage of qualified radiologists in the marketplace, BRMG experienced
difficulty in hiring and retaining physicians and thus engaged independent
contractors and part-time fill-in physicians. Their cost was double the salary
of a regular BRMG full-time physician. Increased expenses to BRMG will impact
our financial results because the management fee we receive from BRMG, which is
based on a percentage of BRMG's collections, is adjusted annually to take into
account the expenses of BRMG. Neither we, nor our contracted radiology
practices, maintain insurance on the lives of any affiliated physicians.

       WE MAY NOT BE ABLE TO SUCCESSFULLY GROW OUR BUSINESS.

       As part of our business strategy, we intend to increase our presence in
California through selectively acquiring facilities, developing new facilities,
adding equipment at existing facilities, and directly or indirectly through BRMG
entering into contractual relationships with high-quality radiology practices.

       However, our ability to successfully expand depends upon many factors,
including our ability to:

       o      Identify attractive and willing candidates for acquisitions;
       o      Identify locations in existing or new markets for development of
              new facilities;
       o      Comply with legal requirements affecting our arrangements with
              contracted radiology practices, including California prohibitions
              on fee-splitting, corporate practice of medicine and
              self-referrals;

                                      41



       o      Obtain regulatory approvals where necessary and comply with
              licensing and certification requirements applicable to our
              diagnostic imaging facilities, the contracted radiology practices
              and the physicians associated with the contracted radiology
              practices;
       o      Recruit a sufficient number of qualified radiology technologists
              and other non-medical personnel;
       o      Expand our infrastructure and management; and
       o      Compete for opportunities. We may not be able to compete
              effectively for the acquisition of diagnostic imaging facilities.
              Our competitors may have more established operating histories and
              greater resources than we do. Competition also may make any
              acquisitions more expensive.

       Acquisitions involve a number of special risks, including the following:

       o      Obtain adequate financing.
       o      Possible adverse effects on our operating results;
       o      Diversion of management's attention and resources;
       o      Failure to retain key personnel;
       o      Difficulties in integrating new operations into our existing
              infrastructure; and
       o      Amortization or write-offs of acquired intangible assets.

       WE MAY BECOME SUBJECT TO PROFESSIONAL MALPRACTICE LIABILITY.

       Providing medical services subjects us to the risk of professional
malpractice and other similar claims. The physicians that our contracted
radiology practices employ are from time to time subject to malpractice claims.
We structure our relationships with the practices under our management
agreements with them in a manner that we believe does not constitute the
practice of medicine by us or subject us to professional malpractice claims for
acts or omissions of physicians employed by the contracted radiology practices.
Nevertheless, claims, suits or complaints relating to services provided by the
contracted radiology practices have been asserted against us in the past and may
be asserted against us in the future. In addition, we may be subject to
professional liability claims, including, without limitation, for improper use
or malfunction of our diagnostic imaging equipment. We may not be able to
maintain adequate liability insurance to protect us against those claims at
acceptable costs or at all.

       Any claim made against us that is not fully covered by insurance could be
costly to defend, result in a substantial damage award against us and divert the
attention of our management from our operations, all of which could have an
adverse effect on our financial performance. In addition, successful claims
against us may adversely affect our business or reputation. Although California
places a $250,000 limit on non-economic damages for medical malpractice cases,
no limit applies to economic damages.

       SOME OF OUR IMAGING MODALITIES USE RADIOACTIVE MATERIALS, WHICH GENERATE
REGULATED WASTE AND COULD SUBJECT US TO LIABILITIES FOR INJURIES OR VIOLATIONS
OF ENVIRONMENTAL AND HEALTH AND SAFETY LAWS.

       Some of our imaging procedures use radioactive materials, which generate
medical and other regulated wastes. For example, patients are injected with a
radioactive substance before undergoing a PET scan. Storage, use and disposal of
these materials and waste products present the risk of accidental environmental
contamination and physical injury. We are subject to federal, California and
local regulations governing storage, handling and disposal of these materials.
We could incur significant costs and the diversion of our management's attention
in order to comply with current or future environmental and health and safety
laws and regulations. Also, we cannot completely eliminate the risk of
accidental contamination or injury from these hazardous materials. In the event
of an accident, we could be held liable for any resulting damages, and any
liability could exceed the limits of or fall outside the coverage of our
insurance.

       WE EXPERIENCE COMPETITION FROM OTHER DIAGNOSTIC IMAGING COMPANIES AND
HOSPITALS. THIS COMPETITION COULD ADVERSELY AFFECT OUR REVENUE AND BUSINESS.

       The market for diagnostic imaging services in California is highly
competitive. We compete principally on the basis of our reputation, our ability
to provide multiple modalities at many of our facilities, the location of our
facilities and the quality of our diagnostic imaging services. We compete
locally with groups of radiologists, established hospitals, clinics and other
independent organizations that own and operate imaging equipment. Our major

                                      42



national competitors include Radiologix, Inc., Alliance Imaging, Inc.,
Healthsouth Corporation and Insight Health Services. Some of our competitors may
now or in the future have access to greater financial resources than we do and
may have access to newer, more advanced equipment.

       In addition, in the past some non-radiologist physician practices have
refrained from establishing their own diagnostic imaging facilities because of
the federal physician self-referral legislation. Final regulations issued in
January 2001 clarify exceptions to the physician self-referral legislation,
which created opportunities for some physician practices to establish their own
diagnostic imaging facilities within their group practices and to compete with
us. In the future, we could experience significant competition as a result of
those final regulations.

       TECHNOLOGICAL CHANGE IN OUR INDUSTRY COULD REDUCE THE DEMAND FOR OUR
SERVICES AND REQUIRE US TO INCUR SIGNIFICANT COSTS TO UPGRADE OUR EQUIPMENT.

       The development of new technologies or refinements of existing modalities
may require us to upgrade and enhance our existing equipment before we may
otherwise intend. Many companies currently manufacture diagnostic imaging
equipment. Competition among manufacturers for a greater share of the diagnostic
imaging equipment market may result in technological advances in the speed and
imaging capacity of new equipment. This may accelerate the obsolescence of our
equipment, and we may not have the financial ability to acquire the new or
improved equipment. In that event, we may be unable to deliver our services in
the efficient and effective manner that payors, physicians and patients expect
and thus our revenue could substantially decrease. During fiscal 2005, we
traded-in and upgraded our existing MRI at Tarzana Advanced to increase
throughput and patient volume and compete in the marketplace. We incurred a loss
on disposal of equipment of approximately $696,000 for the upgrade.

       WE HAVE EXPERIENCED OPERATING LOSSES AND WE HAVE A SUBSTANTIAL
ACCUMULATED DEFICIT. IF WE ARE UNABLE TO IMPROVE OUR FINANCIAL PERFORMANCE, WE
MAY BE UNABLE TO PAY OUR OBLIGATIONS.

       We have incurred net losses of $14.6 million and $3.1 million during the
years ended October 31, 2004 and 2005, respectively, and at October 31, 2005 we
had an accumulated stockholders' deficit of $70.6 million. Also, in recent
periods, we have suffered liquidity shortfalls which have led us to, among other
things, undertake and complete a "pre-packaged" Chapter 11 plan of
reorganization and modify the terms of various of our financial obligations.
While we believe that by taking these and other actions in the future we be able
to address these issues and solidify our financial condition, we cannot give
assurances that we will be able to generate sufficient cash flow from operations
to satisfy our debt obligations.

       A FAILURE TO MEET OUR CAPITAL EXPENDITURE REQUIREMENTS COULD ADVERSELY
AFFECT OUR BUSINESS.

       We operate in a capital intensive, high fixed-cost industry that requires
significant amounts of capital to fund operations, particularly the initial
start-up and development expenses of new diagnostic imaging facilities and the
acquisition of additional facilities and new diagnostic imaging equipment. We
incur capital expenditures to, among other things, upgrade and replace existing
equipment for existing facilities and expand within our existing markets and
enter new markets. To the extent we are unable to generate sufficient cash from
our operations, funds are not available from our lenders or we are unable to
structure or obtain financing through operating leases, long-term installment
notes or capital leases, we may be unable to meet our capital expenditure
requirements.

       BECAUSE WE HAVE HIGH FIXED COSTS, LOWER SCAN VOLUMES PER SYSTEM COULD
ADVERSELY AFFECT OUR BUSINESS.

       The principal components of our expenses, excluding depreciation, consist
of compensation paid to technologists, salaries, real estate lease expenses and
equipment maintenance costs. Because a majority of these expenses are fixed, a
relatively small change in our revenue could have a disproportionate effect on
our operating and financial results depending on the source of our revenue.
Thus, decreased revenue as a result of lower scan volumes per system could
result in lower margins, which would adversely affect our business.

       OUR SUCCESS DEPENDS IN PART ON OUR KEY PERSONNEL AND WE MAY NOT BE ABLE
TO RETAIN SUFFICIENT QUALIFIED PERSONNEL. IN ADDITION, FORMER EMPLOYEES COULD
USE THE EXPERIENCE AND RELATIONSHIPS DEVELOPED WHILE EMPLOYED WITH US TO COMPETE
WITH US.

                                      43



       Our success depends in part on our ability to attract and retain
qualified senior and executive management, managerial and technical personnel.
Competition in recruiting these personnel may make it difficult for us to
continue our growth and success. The loss of their services or our inability in
the future to attract and retain management and other key personnel could hinder
the implementation of our business strategy. The loss of the services of Dr.
Howard G. Berger, our President and Chief Executive Officer, or Norman R. Hames,
our Chief Operating Officer, could have a significant negative impact on our
operations. We believe that they could not easily be replaced with executives of
equal experience and capabilities. We do not maintain key person insurance on
the life of any of our executive officers with the exception of a $5.0 million
policy on the life of Dr. Berger. Also, if we lose the services of Dr. Berger,
our relationship with BRMG could deteriorate, which would adversely affect our
business.

       Unlike many other states, California does not enforce agreements that
prohibit a former employee from competing with the former employer. As a result,
any of our employees whose employment is terminated is free to compete with us,
subject to prohibitions on the use of confidential information and, depending on
the terms of the employee's employment agreement, on solicitation of existing
employees and customers. A former executive, manager or other key employee who
joins one of our competitors could use the relationships he or she established
with third party payors, radiologists or referring physicians while our employee
and the industry knowledge he or she acquired during that tenure to enhance the
new employer's ability to compete with us.

       CAPITATION FEE ARRANGEMENTS COULD REDUCE OUR OPERATING MARGINS.

       For fiscal 2005, we derived approximately 26% of our net revenue from
capitation arrangements, and we intend to increase the revenue we derive from
capitation arrangements in the future. Under capitation arrangements, the payor
pays a pre-determined amount per-patient per-month in exchange for us providing
all necessary covered services to the patients covered under the arrangement.
These contracts pass much of the financial risk of providing diagnostic imaging
services, including the risk of over-use, from the payor to the provider. Our
success depends in part on our ability to negotiate effectively, on behalf of
the contracted radiology practices and our diagnostic imaging facilities,
contracts with health maintenance organizations, employer groups and other
third-party payors for services to be provided on a capitated basis and to
efficiently manage the utilization of those services. If we are not successful
in managing the utilization of services under these capitation arrangements or
if patients or enrollees covered by these contracts require more frequent or
extensive care than anticipated, we would incur unanticipated costs not offset
by additional revenue, which would reduce operating margins.

       WE MAY BE UNABLE TO EFFECTIVELY MAINTAIN OUR EQUIPMENT OR GENERATE
REVENUE WHEN OUR EQUIPMENT IS NOT OPERATIONAL.

       Timely, effective service is essential to maintaining our reputation and
high use rates on our imaging equipment. Although we have an agreement with GE
Medical Systems pursuant to which it maintains and repairs the majority of our
imaging equipment, this agreement does not compensate us for loss of revenue
when our systems are not fully operational and our business interruption
insurance may not provide sufficient coverage for the loss of revenue. Also, GE
Medical Systems may not be able to perform repairs or supply needed parts in a
timely manner. Therefore, if we experience more equipment malfunctions than
anticipated or if we are unable to promptly obtain the service necessary to keep
our equipment functioning effectively, our ability to provide services would be
adversely affected and our revenue could decline.

       DISRUPTION OR MALFUNCTION IN OUR INFORMATION SYSTEMS COULD ADVERSELY
AFFECT OUR BUSINESS.

       Our information technology system is vulnerable to damage or interruption
from:

       o      Earthquakes, fires, floods and other natural disasters;

       o      Power losses, computer systems failures, internet and
              telecommunications or data network failures, operator negligence,
              improper operation by or supervision of employees, physical and
              electronic losses of data and similar events; and

       o      Computer viruses, penetration by hackers seeking to disrupt
              operations or misappropriate information and other breaches of
              security.

                                      44



     We, and BRMG, rely on this system to perform functions critical to our and
its ability to operate, including patient scheduling, billing, collections,
image storage and image transmission. Accordingly, an extended interruption in
the system's function could significantly curtail, directly and indirectly, our
ability to conduct our business and generate revenue.

       OUR ACTUAL FINANCIAL RESULTS MAY VARY SIGNIFICANTLY FROM THE PROJECTIONS
WE FILED WITH THE BANKRUPTCY COURT.

       In connection with our "pre-packaged" Chapter 11 plan of reorganization
that was confirmed by the Bankruptcy Court on October 20, 2003, we were required
to prepare projected financial information to demonstrate to the Bankruptcy
Court the feasibility of the plan of reorganization and our ability to continue
operations upon our emergence from bankruptcy. As indicated in the disclosure
statement with respect to the plan of reorganization and the exhibits thereto,
the projected financial information and various estimates of value discussed
therein should not be regarded as representations or warranties by us or any
other person as to the accuracy of that information or that those projections or
valuations will be realized. We, and our advisors, prepared the information in
the disclosure statement, including the projected financial information and
estimates of value. This information was not audited or reviewed by our
independent accountants. The significant assumptions used in preparation of the
information and estimates of value were included as an exhibit to the disclosure
statement.

       Those projections are not included in this report and you should not rely
upon them in any way or manner. We have not updated, nor will we update, those
projections. At the time we prepared the projections, they reflected numerous
assumptions concerning our anticipated future performance with respect to
prevailing and anticipated market and economic conditions which were and remain
beyond our control and which may not materialize. Projections are inherently
subject to significant and numerous uncertainties and to a wide variety of
significant business, economic and competitive risks and the assumptions
underlying the projections may be wrong in many material respects. Our actual
results may vary significantly from those contemplated by the projections. As a
result, we caution you not to rely upon those projections.

       WE ARE VULNERABLE TO EARTHQUAKES AND OTHER NATURAL DISASTERS.

       Our headquarters and all of our facilities are located in California, an
area prone to earthquakes and other natural disasters. An earthquake or other
natural disaster could seriously impair our operations, and our insurance may
not be sufficient to cover us for the resulting losses.

       COMPLYING WITH FEDERAL AND STATE REGULATIONS IS AN EXPENSIVE AND
TIME-CONSUMING PROCESS, AND ANY FAILURE TO COMPLY COULD RESULT IN SUBSTANTIAL
PENALTIES.

       We are directly or indirectly through the radiology practices with which
we contract subject to extensive regulation by both the federal government and
the State of California, including:

       o      The federal False Claims Act;

       o      The federal Medicare and Medicaid anti-kickback laws, and
              California anti-kickback prohibitions;

       o      Federal and California billing and claims submission laws and
              regulations;

       o      The federal Health Insurance Portability and Accountability Act of
              1996;

       o      The federal physician self-referral prohibition commonly known as
              the Stark Law and the California equivalent of the Stark Law;

       o      California laws that prohibit the practice of medicine by
              non-physicians and prohibit fee-splitting arrangements involving
              physicians;

       o      Federal and California laws governing the diagnostic imaging and
              therapeutic equipment we use in our business concerning patient
              safety, equipment operating specifications and radiation exposure
              levels; and

       o      California laws governing reimbursement for diagnostic services
              related to services compensable under workers compensation rules.

                                      45



       If our operations are found to be in violation of any of the laws and
regulations to which we or the radiology practices with which we contract are
subject, we may be subject to the applicable penalty associated with the
violation, including civil and criminal penalties, damages, fines and the
curtailment of our operations. Any penalties, damages, fines or curtailment of
our operations, individually or in the aggregate, could adversely affect our
ability to operate our business and our financial results. The risks of our
being found in violation of these laws and regulations is increased by the fact
that many of them have not been fully interpreted by the regulatory authorities
or the courts, and their provisions are open to a variety of interpretations.
Any action brought against us for violation of these laws or regulations, even
if we successfully defend against it, could cause us to incur significant legal
expenses and divert our management's attention from the operation of our
business. For a more detailed discussion of the various federal and California
laws and regulations to which we are subject, see "Business - Government
Regulation."

       IF WE FAIL TO COMPLY WITH VARIOUS LICENSURE, CERTIFICATION AND
ACCREDITATION STANDARDS, WE MAY BE SUBJECT TO LOSS OF LICENSURE, CERTIFICATION
OR ACCREDITATION, WHICH WOULD ADVERSELY AFFECT OUR OPERATIONS.

       Ownership, construction, operation, expansion and acquisition of our
diagnostic imaging facilities are subject to various federal and California
laws, regulations and approvals concerning licensing of personnel, other
required certificates for certain types of healthcare facilities and certain
medical equipment. In addition, freestanding diagnostic imaging facilities that
provide services independent of a physician's office must be enrolled by
Medicare as an independent diagnostic testing facility to bill the Medicare
program. Medicare carriers have discretion in applying the independent
diagnostic testing facility requirements and therefore the application of these
requirements may vary from jurisdiction to jurisdiction. We may not be able to
receive the required regulatory approvals for any future acquisitions,
expansions or replacements, and the failure to obtain these approvals could
limit the opportunity to expand our services.

       Our facilities are subject to periodic inspection by governmental and
other authorities to assure continued compliance with the various standards
necessary for licensure and certification. If any facility loses its
certification under the Medicare program, then the facility will be ineligible
to receive reimbursement from the Medicare and Medi-Cal programs. For the year
ended October 31, 2005, approximately 18% of our net revenue came from the
Medicare and Medi-Cal programs. A change in the applicable certification status
of one of our facilities could adversely affect our other facilities and in turn
us as a whole.

       OUR AGREEMENTS WITH THE CONTRACTED RADIOLOGY PRACTICES MUST BE STRUCTURED
TO AVOID THE CORPORATE PRACTICE OF MEDICINE AND FEE-SPLITTING.

       California law prohibits us from exercising control over the medical
judgments or decisions of physicians and from engaging in certain financial
arrangements, such as splitting professional fees with physicians. These laws
are enforced by state courts and regulatory authorities, each with broad
discretion. A component of our business has been to enter into management
agreements with radiology practices. We provide management, administrative,
technical and other non-medical services to the radiology practices in exchange
for a service fee typically based on a percentage of the practice's revenue. We
structure our relationships with the radiology practices, including the purchase
of diagnostic imaging facilities, in a manner that we believe keeps us from
engaging in the practice of medicine or exercising control over the medical
judgments or decisions of the radiology practices or their physicians or
violating the prohibitions against fee-splitting. However, because challenges to
these types of arrangements are not required to be reported, we cannot
substantiate our belief. There can be no assurance that our present arrangements
with BRMG or the physicians providing medical services and medical supervision
at our imaging facilities will not be challenged, and, if challenged, that they
will not be found to violate the corporate practice prohibition, thus subjecting
us to potential damages, injunction and/or civil and criminal penalties or
require us to restructure our arrangements in a way that would affect the
control or quality of our services and/or change the amounts we receive under
our management agreements. Any of these results could jeopardize our business.


                                      46



       FUTURE FEDERAL LEGISLATION COULD LIMIT THE PRICES WE CAN CHARGE FOR OUR
SERVICES, WHICH WOULD REDUCE OUR REVENUE AND ADVERSELY AFFECT OUR OPERATING
RESULTS.

       In addition to extensive existing government healthcare regulation, there
are numerous initiatives affecting the coverage of and payment for healthcare
services, including proposals that would significantly limit reimbursement under
the Medicare and Medi-Cal programs. Limitations on reimbursement amounts and
other cost containment pressures have in the past resulted in a decrease in the
revenue we receive for each scan we perform.

       THE REGULATORY FRAMEWORK IN WHICH WE OPERATE IS UNCERTAIN AND EVOLVING.

       Healthcare laws and regulations may change significantly in the future.
We continuously monitor these developments and modify our operations from time
to time as the regulatory environment changes. We cannot assure you, however,
that we will be able to adapt our operations to address new regulations or that
new regulations will not adversely affect our business. In addition, although we
believe that we are operating in compliance with applicable federal and
California laws, neither our current or anticipated business operations nor the
operations of the contracted radiology practices have been the subject of
judicial or regulatory interpretation. We cannot assure you that a review of our
business by courts or regulatory authorities will not result in a determination
that could adversely affect our operations or that the healthcare regulatory
environment will not change in a way that restricts our operations.

     Certain states have enacted statutes or adopted regulations affecting risk
assumption in the healthcare industry, including statutes and regulations that
subject any physician or physician network engaged in risk-based managed care
contracting to applicable insurance laws and regulations. These laws and
regulations, if adopted in California, may require physicians and physician
networks to meet minimum capital requirements and other safety and soundness
requirements. Implementing additional regulations or compliance requirements
could result in substantial costs to us and the contracted radiology practices
and limit our ability to enter into capitation or other risk sharing managed
care arrangements.

       OUR SUBSTANTIAL DEBT COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND
PREVENT US FROM FULFILLING OUR OBLIGATIONS.

       Our current substantial indebtedness and any future indebtedness we incur
could have important consequences by adversely affecting our financial
condition, which could make it more difficult for us to satisfy our obligations
to our creditors. Our substantial indebtedness could also:

       o      Require us to dedicate a substantial portion of our cash flow from
              operations to payments on our debt, reducing the availability of
              our cash flow to fund working capital, capital expenditures and
              other general corporate purposes;

       o      Increase our vulnerability to adverse general economic and
              industry conditions;

       o      Limit our flexibility in planning for, or reacting to, changes in
              our business and the industry in which we operate;

       o      Place us at a competitive disadvantage compared to our competitors
              that have less debt; and

       o      Limit our ability to borrow additional funds on terms that are
              satisfactory to us or at all.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-------- ----------------------------------------------------------

       We sell our services exclusively in the United States and receive payment
for our services exclusively in United States dollars. As a result, our
financial results are unlikely to be affected by factors such as changes in
foreign currency exchange rates or weak economic conditions in foreign markets.

       The majority of our interest expense is not sensitive to changes in the
general level of interest in the United States because the majority of our
indebtedness has interest rates that were fixed when we entered into the note
payable or capital lease obligation. None of our long-term liabilities have
variable interest rates. Our credit facility, classified as a current liability
on our financial statements, is interest expense sensitive to changes in the
general level of interest because it is based upon the current prime rate plus a
factor.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
------- -------------------------------------------

       The Financial Statements are attached hereto and begin on page F-1.

                                      47




             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




To the Stockholders and Board of Directors of
Primedex Health Systems, Inc.

We have audited the accompanying consolidated balance sheets of Primedex Health
Systems, Inc. and affiliates as of October 31, 2004 and 2005 and the related
consolidated statements of operations, stockholders' deficit and cash flows for
each of the years in the three-year period ended October 31, 2005. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Primedex Health Systems, Inc. and affiliates as of October 31, 2004 and 2005,
and the consolidated results of their operations and their cash flows for each
of the years in the three-year period ended October 31, 2005, in conformity with
accounting principles generally accepted in the United States of America.




/s/ MOSS ADAMS LLP

Los Angeles, California
February 13, 2006



                                      F-1





PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31,                                                  2004             2005
-----------                                              -------------    -------------
                                                                    
ASSETS
CURRENT ASSETS
      Cash and cash equivalents                          $       1,000    $       2,000
      Accounts receivable, net                              20,029,000       22,319,000
      Unbilled receivables and other receivables               966,000          476,000
      Other                                                  1,858,000        1,799,000
                                                         -------------    -------------
      Total current assets                                  22,854,000       24,596,000
                                                         -------------    -------------

PROPERTY AND EQUIPMENT, NET                                 77,333,000       68,107,000
                                                         -------------    -------------
OTHER ASSETS
      Accounts receivable, net                               1,868,000        1,267,000
      Goodwill                                              23,099,000       23,099,000
      Trade name and other                                   2,297,000        4,164,000
                                                         -------------    -------------
         Total other assets                                 27,264,000       28,530,000
                                                         -------------    -------------
         Total assets                                    $ 127,451,000    $ 121,233,000
                                                         =============    =============

LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
      Cash disbursements in transit                      $   2,536,000    $   3,425,000
      Line of credit                                        14,011,000       13,341,000
      Accounts payable and accrued expenses                 22,852,000       22,469,000
      Short-term notes expected to be refinanced:
        Notes payable                                               --       69,066,000
        Obligations under capital lease                             --       56,927,000
      Notes payable                                          6,785,000        1,101,000
      Obligations under capital lease                        8,842,000        1,697,000
                                                         -------------    -------------
       Total current liabilities                            55,026,000      168,026,000
                                                         -------------    -------------
LONG-TERM LIABILITIES

      Subordinated debentures payable                       16,147,000       16,147,000
      Notes payable to related party                         2,119,000        3,533,000
      Notes payable, net of current portion                 62,828,000               --
      Obligations under capital lease, net of
        current portion                                     58,557,000        4,129,000
      Accrued expenses                                         329,000           31,000
                                                         -------------    -------------
       Total long-term liabilities                         139,980,000       23,840,000
                                                         -------------    -------------
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT                                      (67,555,000)     (70,633,000)
                                                         -------------    -------------
      Total liabilities and stockholders' deficit        $ 127,451,000    $ 121,233,000
                                                         =============    =============



                                          F-2

 


PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED OCTOBER 31,                                    2003             2004              2005
-----------------------                                -------------    -------------    -------------

NET REVENUE                                            $ 140,259,000    $ 137,277,000    $ 145,573,000
OPERATING EXPENSES
  Operating expenses                                     106,078,000      105,828,000      109,012,000
  Depreciation and amortization                           16,874,000       17,762,000       17,101,000
  Provision for bad debts                                  4,944,000        3,911,000        4,929,000
  Loss on disposal of equipment, net                              --               --          696,000
                                                       -------------    -------------    -------------
     Total operating expenses                            127,896,000      127,501,000      131,738,000
                                                       -------------    -------------    -------------
INCOME FROM OPERATIONS                                    12,363,000        9,776,000       13,835,000
OTHER EXPENSE (INCOME)
  Interest expense                                        17,948,000       17,285,000       17,493,000
  Other income                                              (556,000)        (176,000)        (872,000)
  Other expense                                              334,000        1,657,000          349,000
                                                       -------------    -------------    -------------
       Total other expense                                17,726,000       18,766,000       16,970,000
                                                       -------------    -------------    -------------
LOSS BEFORE INCOME TAXES, MINORITY
  INTEREST AND DISCONTINUED OPERATION                     (5,363,000)      (8,990,000)      (3,135,000)
INCOME TAX EXPENSE                                                --       (5,235,000)              --
                                                       -------------    -------------    -------------
LOSS BEFORE MINORITY INTEREST AND
  DISCONTINUED OPERATION                                  (5,363,000)     (14,225,000)      (3,135,000)
MINORITY INTEREST IN EARNINGS (LOSS) OF SUBSIDIARIES         101,000          351,000               --
                                                       -------------    -------------    -------------
LOSS FROM CONTINUING OPERATIONS                           (5,464,000)     (14,576,000)      (3,135,000)
DISCONTINUED OPERATION:
  Income from operation of Westchester Imaging Group         255,000               --               --
  Gain on sale of discontinued operation                   2,942,000               --               --
                                                       -------------    -------------    -------------
INCOME FROM DISCONTINUED OPERATION                         3,197,000               --               --

NET LOSS                                               $  (2,267,000)   $ (14,576,000)   $  (3,135,000)
                                                       =============    =============    =============
BASIC EARNINGS PER SHARE
  Loss from continuing operations                      $       (0.13)   $       (0.35)   $       (0.08)
  Income from discontinued operation                            0.08               --               --
                                                       -------------    -------------    -------------
BASIC NET LOSS PER SHARE                               $       (0.05)   $       (0.35)   $       (0.08)
                                                       =============    =============    =============
DILUTED EARNINGS PER SHARE
  Loss from continuing operations                      $       (0.13)   $       (0.35)   $       (0.08)
  Income from discontinued operation                            0.08               --               --
                                                       -------------    -------------    -------------
DILUTED NET LOSS PER SHARE                             $       (0.05)   $       (0.35)   $       (0.08)
                                                       =============    =============    =============
WEIGHTED AVERAGE SHARES OUTSTANDING
  Basic                                                   41,090,768       41,106,813       41,207,909
                                                       =============    =============    =============
  Diluted                                                 41,090,768       41,106,813       41,207,909
                                                       =============    =============    =============


                                                  F-3





PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED OCTOBER 31, 2003, 2004 AND 2005



                                  COMMON STOCK, $.01 PAR
                                 VALUE, 100,000,000 SHARES
                                         AUTHORIZED                       TREASURY STOCK, AT COST                        TOTAL
                                -------------------------     PAID-IN     ------------------------    ACCUMULATED    STOCKHOLDERS'
                                   SHARES        AMOUNT       CAPITAL       SHARES        AMOUNT        DEFICIT         DEFICIT
                                -------------  ----------  -------------  -----------   ----------   -------------   -------------
BALANCE - OCTOBER 31, 2002         42,830,734     429,000    100,328,000   (1,825,000)    (695,000)   (150,983,000)    (50,921,000)
Issuance of common stock               95,000       1,000         27,000           --           --              --          28,000
Conversion of bond debentures           6,079          --         73,000           --           --              --          73,000
Net loss                                   --          --             --           --           --      (2,267,000)     (2,267,000)
                                -------------  ----------  -------------  -----------   ----------   -------------   -------------

BALANCE - OCTOBER 31, 2003         42,931,813     430,000    100,428,000   (1,825,000)    (695,000)   (153,250,000)    (53,087,000)
Issuance of warrant                        --          --        108,000           --           --              --         108,000
Net loss                                   --          --             --           --           --     (14,576,000)    (14,576,000)
                                -------------  ----------  -------------  -----------   ----------   -------------   -------------

BALANCE - OCTOBER 31, 2004         42,931,813     430,000    100,536,000   (1,825,000)    (695,000)   (167,826,000)    (67,555,000)
Issuance of common stock              300,000       3,000         54,000           --           --              --          57,000
Net loss                                   --          --             --           --           --      (3,135,000)     (3,135,000)
                                -------------  ----------  -------------  -----------   ----------   -------------   -------------

BALANCE - OCTOBER 31, 2005         43,231,813  $  433,000  $ 100,590,000   (1,825,000)  $ (695,000)  $(170,961,000)  $ (70,633,000)
                                =============  ==========  =============  ===========   ==========   =============   =============



                                                                 F-4




PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED OCTOBER 31,                                               2003            2004            2005
-----------------------                                           ------------    ------------    ------------
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                                        $ (2,267,000)   $(14,576,000)   $ (3,135,000)
  Adjustments to reconcile net loss to net cash from
    operating activities:
     Depreciation and amortization - continuing operations          16,874,000      17,762,000      17,101,000
     Depreciation and amortization - discontinued operations            63,000              --              --
     Provision for bad debts                                         4,944,000       3,911,000       4,929,000
     Deferred income tax expense                                            --       5,235,000              --
     Gain on write-downs and settlement of obligations                  (8,000)        (34,000)       (430,000)
     Loss (gain) on sale of assets and operating sites              (2,841,000)         27,000         696,000
     Imputed and accrued interest expense                            1,497,000       6,565,000       1,248,000
     Minority interest in earnings of continuing subsidiaries          101,000         351,000              --
     Minority interest in earnings of discontinued subsidiaries        255,000              --              --
     Changes in assets and liabilities:
       Accounts receivable                                            (629,000)      1,696,000      (6,617,000)
       Unbilled receivables                                          1,271,000        (786,000)        490,000
       Other assets                                                   (475,000)       (286,000)     (2,572,000)
       Accounts payable and accrued expenses                         3,217,000      (2,811,000)       (570,000)
                                                                  ------------    ------------    ------------

       Net cash provided by operating activities                    22,002,000      17,054,000      11,140,000
                                                                  ------------    ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Acquisition of imaging centers                                            --         (35,000)             --
  Purchase of property and equipment                                (3,069,000)     (3,774,000)     (4,063,000)
  Proceeds from sale of divisions, centers, and equipment            1,367,000              --          65,000
                                                                  ------------    ------------    ------------
       Net cash used by investing activities                        (1,702,000)     (3,809,000)     (3,998,000)
                                                                  ------------    ------------    ------------
CASH FLOWS FROM FINANCING ACTIVITIES
  Cash disbursements in transit                                     (1,731,000)       (317,000)        889,000
  Principal payments on notes and leases payable                   (25,694,000)    (13,247,000)    (14,146,000)
  Proceeds from short and long-term borrowings                       7,394,000       1,000,000       4,746,000
  Proceeds from borrowings from related parties                             --              --       1,370,000
  Purchase of subordinated debentures                                   (3,000)        (60,000)             --
  Proceeds from issuance of common stock                                28,000              --              --
  Joint venture distributions                                         (300,000)       (650,000)             --
                                                                  ------------    ------------    ------------
       Net cash used by financing activities                       (20,306,000)    (13,274,000)     (7,141,000)
                                                                  ------------    ------------    ------------
NET INCREASE (DECREASE) IN CASH                                         (6,000)        (29,000)          1,000
CASH, beginning of year                                                 36,000          30,000           1,000
                                                                  ------------    ------------    ------------
CASH, end of year                                                 $     30,000    $      1,000    $      2,000
                                                                  ============    ============    ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
  Cash paid during the year for interest                          $ 16,379,000    $ 10,686,000    $ 16,073,000
                                                                  ============    ============    ============



                                                      F-5




PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 2003, 2004 AND 2005

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

      In October 2003, we paid $1,500,000 to acquire exclusive rights to the use
of the "Tower" trade name from Tower Radiology Medical Group, Inc. for its
Beverly Hills facilities. The intangible asset was acquired with a note payable
and will be amortized over ten years.

      In July 2003, $73,000 in face value of subordinated bond debentures was
converted into 6,079 shares of common stock.

       Effective March 31, 2003, we sold our share of Westchester Imaging Group
and generated a gain on the sale of approximately $2,942,000. As part of the
transaction, we transferred $239,000 in net equipment, $52,000 in other assets,
$602,000 in accounts payable and accrued expenses, $341,000 in capital lease
obligations and $923,000 in minority interest obligations.

      We entered into capital leases or financed equipment through notes payable
for approximately $8,362,000, $9,351,000 and $4,781,000 for the years ended
October 31, 2003, 2004 and 2005, respectively.

                                      F-6



PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - NATURE OF BUSINESS

NATURE OF BUSINESS

       Primedex Health Systems, Inc., or Primedex, incorporated on October 21,
1985, provides diagnostic imaging services in the state of California. Imaging
services include magnetic resonance imaging, or MRI, computed tomography, or CT,
positron emission tomography, or PET, nuclear medicine, mammography, ultrasound,
diagnostic radiology, or X-ray, and fluoroscopy. Our operations comprise a
single segment for financial reporting purposes.

LIQUIDITY AND CAPITAL RESOURCES

       We had a working capital deficit of $143.4 million at October 31, 2005
and had losses from continuing operations of $14.6 million and $3.1 million
during fiscal 2004 and 2005, respectively. The loss in fiscal 2004 includes a
$5.2 million expense resulting from the increase in the valuation allowance for
deferred income taxes. We also had a stockholders' deficit of $70.6 million at
October 31, 2005.

       The working capital deficit increased in fiscal 2005 due to the
reclassification of approximately $109 million in notes and capital lease
obligations as current liabilities that are expected to be refinanced. We are
subject to financial covenants under our current debt agreements. We believe
that we may be unable to continue to be in compliance with our existing
financial covenants during fiscal 2006. As such, the associated debt has been
classified as a current liability. We expect to refinance these obligations
presented as current liablilities in the second quarter of fiscal 2006. On
January 31, 2006, we executed a commitment letter with an institutional lender
to which such lender provided us with a commitment, subject to final
documentation and legal due diligence, for a $160 million senior secured credit
facility to be used to refinance all of our existing indebtedness (except for
$16.1 million of outstanding subordinated debentures and $6.1 million of capital
lease obligations). The commitment provides for a $15 million five-year
revolving credit facility, an $85 million term loan due in five years and $60
million second lien term loan due in six years. The loans are subject to
acceleration on February 28, 2008, unless we have made arrangements to discharge
or extend our outstanding subordinated debentures by that date. The loans are
essentially payable interest only monthly at varying rates that are yet to be
finalized but will be based upon market conditions. Finalization of the credit
facility is subject to customary conditions, including legal due diligence and
final documentation that is scheduled for completion on or about March 7, 2006.

       We operate in a capital intensive, high fixed-cost industry that requires
significant amounts of capital to fund operations. In addition to operations, we
require significant amounts of capital for the initial start-up and development
expense of new diagnostic imaging facilities, the acquisition of additional
facilities and new diagnostic imaging equipment, and to service our existing
debt and contractual obligations. Because our cash flows from operations are
insufficient to fund all of these capital requirements, we depend on the
availability of financing under credit arrangements with third parties.
Historically, our principal sources of liquidity have been funds available for
borrowing under our existing lines of credit, now with Bridge Healthcare Finance
LLC. Even though the line of credit matures in 2008, we classify the line of
credit as a current liability primarily because it is collateralized by accounts
receivable and the eligible borrowing base is classified as a current asset. We
finance the acquisition of equipment mainly through capital and operating
leases.

       During fiscal 2004 and 2005, we took the actions described below to
continue to fund our obligations.

       BRMG and Wells Fargo Foothill were parties to a credit facility under
which BRMG could borrow the lesser of 85% of the net collectible value of
eligible accounts receivable plus one month of average capitation receipts for
the prior six months, two times the trailing month cash collections, or
$20,000,000. Eligible accounts receivable excluded those accounts older than 150
days from invoice date and were net of customary reserves. In addition, Wells
Fargo Foothill set up a term loan where they could advance up to the lesser of
$3,000,000 or 80% of the liquidation value of the equipment value servicing the
loan. Under this term loan, we borrowed $880,000 in February 2005 to acquire
medical equipment. The five-year term loan had interest only payments through
February 28, 2005 with the first quarterly principal payments due on April 1,
2005. Access to additional funds under the term loan expired soon after the
February 2005 draw.

       Under the $20,000,000 revolving loan, an overadvance subline was
available not to exceed $2,000,000, or one month of the average capitation
receipts for the prior six months, until June 30, 2005. From July 1 to September
30, 2005, the overadvance subline was available not to exceed $1,500,000, or one
month of the average capitation receipts for the prior six months. Beginning
October 1, 2005, the maximum overadvance could not exceed the lesser of
$1,000,000 or one month of the average capitation receipts for the prior six
months. Also under the revolving loan, we were entitled to request that Wells
Fargo Foothill issue guarantees of payment in an aggregate amount not to exceed
$5,000,000 at any one time outstanding.


                                       F-7



PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - NATURE OF BUSINESS - CONTINUED

       Advances outstanding under the revolving loan bore interest at the base
rate plus 1.5%, or the LIBOR rate plus 3.0%. Advances under the overadvance
subline and term loan bore interest at the base rate plus 4.75%. Letter of
credit fees bore interest of 3.0% per annum times the undrawn amount of all
outstanding lines of credit. The base rate refers to the rate of interest
announced within Wells Fargo Bank at its principal office in San Francisco as it
prime rate. The line was collateralized by substantially all of our accounts
receivable and requires us to meet certain financial covenants including minimum
levels of EBITDA, fixed charge coverage ratios and maximum senior debt/EBITDA
ratios as well as limitations on annual capital expenditures.

       Effective September 14, 2005, we established a new $20 million working
capital revolving credit facility with Bridge Healthcare Finance, or Bridge, a
specialty lender in the healthcare industry. Upon the establishment of this
credit facility, we borrowed $15.5 million that was used to pay off the entire
balance of our existing credit facility with Wells Fargo Foothill. Upon
repayment, the existing credit facility with Wells Fargo Foothill was
terminated. Additionally, Bridge provided us approximately $0.8 million in the
form of a term loan, which we used to pay the balance of a term loan owed to
Wells Fargo Foothill.

       Under the Bridge revolving credit facility, we may borrow the lesser of
85% of the net collectible value of eligible accounts receivable plus one month
capitation receipts for the preceding month, or $20,000,000. An overadvance
subline is available not to exceed $2,000,000, so long as after giving effect to
the overadvance subline, the revolver usage does not exceed $20,000,000.
Eligible accounts receivable shall exclude those accounts older than 150 days
from invoice date and will be net of customary reserves. Dr. Berger has agreed
to personally guaranty the repayment of any monies under the overadvance
subline. Advances under the revolving loan bear interest at the base rate plus
3.25%. The base rate refers to the prime rate publicly announced by La Salle
Bank National Association, in effect from time to time. The term loan bears
interest at the annual rate of 12.50%. The revolving credit facility is
collateralized by substantially all of our accounts receivable and requires us
to meet certain financial covenants including minimum levels of EBITDA, fixed
charge coverage ratios and maximum senior debt/EBITDA ratios. The term loan is
collateralized by specific imaging equipment used by us at certain of our
locations.

       Until November 2004, we had a line of credit with an affiliate of DVI
Financial Services, Inc. ("DVI"), when we issued $4.0 million in principal
amount of notes to Post Advisory Group, LLC ("Post"), a Los Angeles-based
investment advisor, and Post purchased the DVI affiliate's line of credit
facility with the residual funds utilized by us as working capital. The new note
payable has monthly interest only payments at 12% per annum until its maturity
in July 2008.

       On December 19, 2003, we issued a $1.0 million convertible subordinated
note payable to Galt Financial, Ltd., at a stated rate of 11% per annum with
interest payable quarterly. The note payable is convertible at the holder's
option anytime after January 1, 2006 at $0.50 per share. As additional
consideration for the financing we issued a warrant for the purchase of 500,000
shares at an exercise price of $.50 per share. We have allocated $0.1 million to
the value of the warrants and believe the value of the conversion feature is
nominal. In November 2005, subsequent to year-end, the right to convert was
waived and the warrant for the purchase of 500,000 shares of common stock was
terminated in exchange for the issuance of a five-year warrant to purchase
300,000 shares of our common stock at a price of $0.50 per share, the public
market price on the date the warrant, with the underlying note being extended to
July 1, 2006.

       During the third quarter of fiscal 2004, we renegotiated our existing
notes and capital lease obligations with our three primary lenders, General
Electric ("GE"), DVI Financial Services and U.S. Bank extending terms and
reducing monthly payments on approximately $135.1 million of combined
outstanding debt. At the time of the debt restructuring, outstanding principal
balances for DVI, GE and U.S. Bank were $15.2 million, $54.3 million and $65.6
million respectively.

       DVI's restructured note payable was six payments of interest only from
July to December 2004 at 9%, 41 payments of principal and interest of $273,988,
and a final balloon payment of $7.6 million on June 1, 2008 if and only if our
subordinated bond debentures, then due, are not extended and paid in full. If
the bond debenture payment is deferred, we would make monthly payments of
$290,785 to DVI for the next 29 months. Effective November 30, 2004, Post
acquired the DVI note payable and the debt was restructured. The new note
payable has monthly interest only payments at 11% per annum until its maturity
in June 2008. The assignment of the note payable to Post will not result in any
actual total dollar savings to us over the term of the new obligation, but it
will defer cash outlays of approximately $1.3 million per year until its
maturity.

       GE's restructured note payable is six payments of interest only at 9%, or
$407,210, beginning on August 1, 2004, 40 payments of principal and interest at
$1,127,067 beginning on February 1, 2005, and a final balloon payment of $21
million due on June 1, 2008 if and only if our subordinated bond debentures,
then due, are not extended and paid in full. If the bond debenture payment is
deferred, we will continue to make monthly payments of $1,127,067 to GE for the
next 20 months.



                                       F-8



PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - NATURE OF BUSINESS (CONTINUED)

       U.S. Bank's restructured note payable is six payments of interest only at
9%, or $491,933, beginning on August 1, 2004, 40 payments of principal and
interest of $1,055,301 beginning on February 1, 2005, and a final balloon
payment of $39.7 million due on June 1, 2008 if and only if our subordinated
bond debentures, then due, are not extended and paid in full. If the bond
debenture payment is deferred, we will continue to make monthly payments of
$1,055,301 to U.S. Bank for the next 44 months.

       In October 2003, we successfully consummated a "pre-packaged" Chapter 11
plan of reorganization with the United States Bankruptcy Court, Central District
of California, in order to modify the terms of our convertible subordinated
debentures by extending the maturity to June 30, 2008, increasing the annual
interest rate from 10.0% to 11.5%, reducing the conversion price from $12.00 to
$2.50 and restricting our ability to redeem the debentures prior to July 1,
2005. The plan of reorganization did not affect any of our operations or
obligations, other than the subordinated debentures.

       To assist with our financial liquidity in June 2005, Howard G. Berger,
M.D., our president, director and largest shareholder loaned us $1,370,000.
Interest and principal payments to Dr. Berger will not be made until such time
as our loans to Post Advisory Group (approximately $16.8 million at October 31,
2005) have been paid in full.

       Our business strategy with regard to operations will focus on the
following:

       o      Maximizing performance at our existing facilities;
       o      Focusing on profitable contracting;
       o      Expanding MRI and CT applications
       o      Optimizing operating efficiencies; and
       o      Expanding our networks.

       Our ability to generate sufficient cash flow from operations to make
payments on our debt and other contractual obligations will depend on our future
financial performance. A range of economic, competitive, regulatory, legislative
and business factors, many of which are outside of our control, will affect our
financial performance.

       Taking these factors into account, including our historical experience
and our discussions with our lenders to date, although no assurance can be
given, we believe that through implementing our strategic plans and continuing
to restructure our financial obligations, we will obtain sufficient cash to
satisfy our obligations as they become due in the next twelve months.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       PRINCIPLES OF CONSOLIDATION - The consolidated financial statements of
Primedex include the accounts of Primedex, its wholly owned direct subsidiary,
Radnet Management, Inc., or Radnet, and Beverly Radiology Medical Group III, or
BRMG, which is a professional corporation, all collectively referred to as "us"
or "we". The consolidated financial statements also include Radnet Sub, Inc.,
Radnet Management I, Inc., Radnet Management II, Inc., or Modesto, SoCal MR Site
Management, Inc., Diagnostic Imaging Services, Inc., or DIS, Burbank Advanced
LLC, or Burbank, and Rancho Bernardo Advanced LLC, or RB, all wholly owned
subsidiaries of Radnet, and Westchester Imaging Group, a 50% owned subsidiary.
Interests of minority shareholders are separately disclosed in the consolidated
balance sheets and consolidated statements of operations of the Company.
Westchester Imaging Group, which was sold in March 2003, is reflected as a
discontinued operation in our consolidated statements of operations. Effective
July 31, 2004 and September 30, 2004, we purchased the remaining 25% minority
interests in Rancho Bernardo and Burbank, respectively.

       The operations of BRMG are consolidated with us as a result of the
contractual and operational relationship among BRMG, Dr. Berger and us. We are
considered to have a controlling financial interest in BRMG pursuant to the
guidance in EITF 97-2. Medical services and supervision at most of our imaging
centers are provided through BRMG and through other independent physicians and
physician groups. BRMG is consolidated with Pronet Imaging Medical Group, Inc.
and Beverly Radiology Medical Group, both of which are 99%-owned by Dr. Berger.
Radnet provides non-medical, technical and administrative services to BRMG for
which they receive a management fee.


                                       F-9



PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

       Operating activities of subsidiary entities are included in the
accompanying financial statements from the date of acquisition. All intercompany
transactions and balances have been eliminated in consolidation.

       USE OF ESTIMATES - The preparation of the financial statements in
conformity with generally accepted accounting principles in the United States of
America requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. These
estimates and assumptions affect various matters, including our reported amounts
of assets and liabilities in its consolidated balance sheets at the dates of the
financial statements; its disclosure of contingent assets and liabilities at the
dates of the financial statements; and its reported amounts of revenues and
expenses in its consolidated statements of operations during the reporting
periods. These estimates involve judgments with respect to numerous factors that
are difficult to predict and are beyond management's control. As a result,
actual amounts could materially differ from these estimates.

       REVENUE RECOGNITION - Revenue consists of net patient fee for service
revenue and revenue from capitation arrangements, or capitation revenue.

       Net patient service revenue is recognized at the time services are
provided net of contractual adjustments based on our evaluation of expected
collections resulting from their analysis of current and past due accounts, past
collection experience in relation to amounts billed and other relevant
information. Contractual adjustments result from the differences between the
rates charged for services performed and reimbursements by government-sponsored
healthcare programs and insurance companies for such services.

       Capitation revenue is recognized as revenue during the period in which we
were obligated to provide services to plan enrollees under contracts with
various health plans. Under these contracts, we receive a per enrollee amount
each month covering all contracted services needed by the plan enrollees.

       The following table summarizes net revenue for the years ended October
31, 2003, 2004 and 2005:

                                    2003              2004              2005
                                ------------      ------------      ------------

Net patient service             $109,444,000      $103,271,000      $107,324,000
Capitation                        30,815,000        34,006,000        38,249,000
                                ------------      ------------      ------------
     Net revenue                $140,259,000      $137,277,000      $145,573,000
                                ============      ============      ============

       Accounts receivable are primarily amounts due under fee-for-service
contracts from third party payors, such as insurance companies and patients and
government-sponsored healthcare programs geographically dispersed throughout
California. Receivables from government agencies made up approximately 15.0% and
17.0% of accounts receivable at October 31, 2004 and 2005, respectively.

       Accounts receivable as of October 31, 2005 are presented net of
allowances of approximately $59,491,000, of which $56,296,000 is included in
current and $3,195,000 is included in noncurrent. Accounts receivable as of
October 31, 2004, are presented net of allowances of approximately $58,641,000,
of which $53,639,000 is included in current and $5,002,000 is included in
noncurrent.

       CREDIT RISKS - Financial instruments that potentially subject us to
credit risk are primarily cash equivalents and accounts receivable. We have
placed our cash and cash equivalents with one major financial institution. At
times, the cash in the financial institution is temporarily in excess of the
amount insured by the Federal Deposit Insurance Corporation, or FDIC.

       With respect to accounts receivable, we routinely assesses the financial
strength of our customers and third-party payors and, based upon factors
surrounding their credit risk, establish a provision for bad debt. Net revenue
by payor for the years ended October 31, 2003, 2004 and 2005 were:


                                      F-10




PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

                                                      Net Revenue
                                               ---------------------------
                                               2003       2004       2005
                                               ----       ----       ----
Capitation contracts                           22.0%      24.8%      26.3%
HMO/PPO/Managed care                           20.6%      21.3%      21.7%
Special group contract                         13.4%      12.3%       9.2%
Medicare                                       12.7%      13.6%      14.9%
Blue Cross/Shield/Champus                      12.0%      13.2%      14.6%
Commercial insurance                            8.1%       4.9%       4.2%
Workers compensation                            5.6%       3.8%       2.8%
Medi-Cal                                        2.3%       2.6%       2.9%
Other                                           3.3%       3.5%       3.4%

       Management believes that its accounts receivable credit risk exposure,
beyond allowances that have been provided, is limited.

       CASH AND CASH EQUIVALENTS - For purposes of the statement of cash flows,
we consider all highly liquid investments purchased that mature in three months
or less when purchased to be cash equivalents. The carrying amount of cash and
cash equivalents approximates their fair market value.

       LOAN FEES - Costs of financing are deferred and amortized on a
straight-line basis over the life of the respective loan.

       PROPERTY AND EQUIPMENT - Property and equipment are stated at cost, less
accumulated depreciation and amortization and valuation impairment allowances.
Depreciation and amortization of property and equipment are provided using the
straight-line method over their estimated useful lives, which range from 3 to 15
years. Leasehold improvements are amortized at the lower of lease term or their
estimated useful lives, whichever is lower, which range from 3 to 20 years.
Maintenance and repairs are charged to expenses as incurred.

       GOODWILL - Goodwill at October 31, 2005 totaled $23,099,000. Goodwill is
recorded as a result of the acquisition of operating facilities. The operating
facilities are grouped by territory into reporting units. Management evaluates
goodwill, at a minimum, on an annual basis and whenever events and changes in
circumstances suggest that the carrying amount may not be recoverable in
accordance with Statement of Financial Accounting Standards, or SFAS, No. 142,
"Goodwill and Other Intangible Assets." Impairment of goodwill is tested at the
reporting unit level by comparing the reporting unit's carrying amount,
including goodwill, to the fair value of the reporting unit. The fair values of
the reporting units are estimated using a combination of the income or
discounted cash flows approach and the market approach, which uses comparable
market data. If the carrying amount of the reporting unit exceeds its fair
value, goodwill is considered impaired and a second step is performed to measure
the amount of impairment loss, if any. For each of the three year periods ended
October 31, 2005, we recorded no impairment loss related to goodwill. However,
if estimates or the related assumptions change in the future, we may be required
to record impairment charges to reduce the carrying amount of these assets.

       LONG-LIVED ASSETS - We evaluate our long-lived assets (property, plant
and equipment) and definite-lived intangibles for impairment whenever indicators
of impairment exist. The accounting standards require that if the sum of the
undiscounted expected future cash flows from a long-lived asset or
definite-lived intangible is less than the carrying value of that asset, an
asset impairment charge must be recognized. The amount of the impairment charge
is calculated as the excess of the asset's carrying value over its fair value,
which generally represents the discounted future cash flows from that asset or
in the case of assets we expect to sell, at fair value less costs to sell.

       INCOME TAXES - Income tax expense is computed using an asset and
liability method and using expected annual effective tax rates. Under this
method, deferred income tax assets and liabilities result from temporary
differences in the financial reporting bases and the income tax reporting bases
of assets and liabilities. The measurement of deferred tax assets is reduced, if
necessary, by the amount of any tax benefit that, based on available evidence,
is not expected to be realized. When it appears more likely than not that
deferred taxes will not be realized, a valuation allowance is recorded to reduce
the deferred tax asset to its estimated realizable value. Income taxes are
further explained in Note 9.


                                      F-11




PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

       STOCK OPTIONS - We account for our stock-based employee compensation
plans under the recognition and measurement principles of APB Opinion 25,
"Accounting for Stock Issued to Employees," and related Interpretations. No
stock-based employee compensation cost for the issuance of stock options is
reflected in net income, as all options granted under those plans had an
exercise price equal to the market value of the underlying common stock on the
date of grant.

       The following table illustrates the effect on net income and earnings per
share if we had applied the fair value recognition principles of SFAS No. 123 to
stock-based employee compensation.


                                                                   Year Ended October 31,
                                                          2003             2004             2005
                                                     -------------    --------------    -------------
                                                                               
Net loss as reported                                 $  (2,267,000)   $  (14,576,000)   $  (3,135,000)

Deduct: Total stock-based employee compensation
  expense determined under fair value-based method         (82,000)         (379,000)        (341,000)
                                                     -------------    --------------    -------------
Pro forma net loss                                   $  (2,349,000)   $  (14,955,000)   $  (3,476,000)
                                                     =============    ==============    =============
Loss per share:
  Basic - as reported                                $       (0.05)   $        (0.35)   $       (0.08)
  Basic - pro forma                                  $       (0.06)   $        (0.36)   $       (0.08)
  Diluted - as reported                              $       (0.06)   $        (0.35)   $       (0.08)
  Diluted - pro forma                                $       (0.06)   $        (0.36)   $       (0.08)


       The fair value of each option granted is estimated on the grant date
using the Black-Scholes option pricing model which takes into account as of the
grant date the exercise price and expected life of the option, the current price
of the underlying stock and its expected volatility, expected dividends on the
stock and the risk-free interest rate for the term of the option. The following
is the average of the data used to calculate the fair value:

                 Risk-free       Expected      Expected       Expected
October 31,    interest rate       life       volatility      dividends
-----------    -------------       ----       ----------      ---------

   2005            3.00%          5 years       216.32%          --
   2004            3.00%          5 years        99.22%          --
   2003            3.00%          5 years       121.88%          --


       RECLASSIFICATIONS - Certain prior year amounts have been reclassified to
conform with the current year presentation. These changes have no effect on net
income.



                                      F-12




PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

       EARNINGS PER SHARE - Earnings per share are based upon the weighted
average number of shares of common stock and common stock equivalents
outstanding, net of common stock held in treasury, as follows:


                                                           Year Ended October 31,
                                                --------------------------------------------
                                                    2003            2004            2005
                                                ------------    ------------    ------------
                                                                       
Net loss from continuing operations             $ (5,464,000)   $(14,576,000)   $ (3,135,000)
Net income from discontinued operations            3,197,000              --              --
                                                ------------    ------------    ------------
Net loss for earnings per share computation     $ (2,267,000)   $(14,576,000)   $ (3,135,000)
                                                ============    ============    ============
BASIC EARNINGS (LOSS) PER SHARE

Weighted average number of common shares
  outstanding during the year                     41,090,768      41,106,813      41,207,909
                                                ============    ============    ============
Basic earnings (loss) per share:
Loss from continuing operations                 $      (0.13)   $      (0.35)   $      (0.08)
Income from discontinued operation              $       0.08    $         --    $         --
                                                ------------    ------------    ------------
Basic loss per share                            $      (0.05)   $      (0.35)   $      (0.08)
                                                ============    ============    ============
DILUTED EARNINGS (LOSS) PER SHARE

Weighted average number of common shares
  outstanding during the year                     41,090,768      41,106,813      41,207,909
Add additional shares issuable upon exercise
  of stock options and warrants                           --              --              --
                                                ------------    ------------    ------------
Weighted average number of common shares used
  in calculating diluted earnings per share       41,090,768      41,106,813      41,207,909
                                                ============    ============    ============
Diluted earnings (loss) per share:
Loss from continuing operations                 $      (0.13)   $      (0.35)   $      (0.08)
Income from discontinued operation              $       0.08    $         --    $         --
                                                ------------    ------------    ------------
Diluted loss per share                          $      (0.05)   $      (0.35)   $      (0.08)
                                                ============    ============    ============


       For the years ended October 31, 2003, 2004 and 2005, we excluded all
options, warrants and convertible debentures in the calculation of diluted
earnings per share because their effect would be antidilutive. However, these
instruments could potentially dilute earnings per share in future years.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

       SHARE-BASED PAYMENT

       In December 2004, the FASB issued SFAS No. 123 (Revised 2004),
"Share-Based Payment" which was amended effective April 2005. The new rule
requires that the compensation cost relating to share-based payment transactions
be recognized in financial statements based on the fair value of the equity or
liability instruments issued. We will be required to apply Statement 123R as of
the first annual reporting period starting after June 15, 2005, which is our
first quarter beginning November 1, 2005. We routinely use share-based payment
arrangements as compensation for our employees. During fiscal 2003, 2004 and
2005, had this rule been in effect, we would have recorded the non-cash expense
of $82,000, $379,000 and $341,000, respectively.


                                      F-13




PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS - CONTINUED

       DETERMINING AMORTIZATION PERIOD FOR LEASEHOLD IMPROVEMENTS

       In June 2005, the EITF issued EITF Issue No. 05-06, "Determining the
Amortization Period for Leasehold Improvements Purchased after Lease Inception
or Acquired in a Business Combination" ("EITF 05-06"). EITF 05-06 provides that
the amortization period for leasehold improvements acquired in a business
combination or purchased after the inception of a lease be the shorter of (a)
the useful life of the assets or (b) a term that includes required lease periods
and renewals that are reasonably assured upon the acquisition or the purchase.
The provision of EITF 05-06 are effective on a prospective basis for leasehold
improvements purchased or acquired beginning July 1, 2005. The adoption of EITF
05-06 during the three months ended October 31, 2005 did not have a material
affect on the Company's consolidated financial statements.

       EXCHANGES OF NONMONETARY ASSETS

       In December 2004, the FASB issued FASB Statement No. 153, "Exchanges of
Nonmonetary Assets - An Amendment of APB Opinion No. 29." The amendments made by
Statement 153 are based on the principle that exchanges of nonmonetary assets
should be measured based on the fair value of the assets exchanged. Further, the
amendments eliminate the narrow exception for nonmonetary exchanges of similar
productive assets and replace it with a broader exception for exchanges of
nonmonetary assets that do not have "commercial substance." The provisions in
Statement 153 are effective for nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005. Adoption of this standard is not expected
to have a material impact on the consolidated financial statements.

       DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION

       In September 2004, the Emerging Issues Task Force (EITF) reached a
consensus on EITF Issue No. 04-10, "Applying Paragraph 19 of FAS 131 in
Determining Whether to Aggregate Operating Segments That Do Not Meet the
Quantitative Thresholds." The consensus states that operating segments that do
not meet the quantitative thresholds can be aggregated only if aggregation is
consistent with the objective and basic principles of SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information," the segments have
similar economic characteristics, and the segments share a majority of the
aggregation criteria (a)-(e) listed in paragraph 17 of SFAS 131. The consensus
was ratified by the FASB at their October 13, 2004 meeting. The effective date
of the consensus in this Issue has been postponed indefinitely at the November
17-18 EITF meeting. The Company does not anticipate a material impact on the
financial statements from the adoption of this consensus.

       DETERMINING WHETHER TO REPORT DISCONTINUED OPERATIONS

       In November 2004, the Emerging Issues Task Force (EITF) reached a
consensus on EITF Issue No. 03-13, "Applying the Conditions in Paragraph 42 of
FASB Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," in Determing Whether to Report Discontinued Operations. The consensus
provides guidance in determining: (a) which cash flows should be taken into
consideration when assessing whether the cash flows of the disposal component
have been or will be eliminated from the ongoing operations of the entity, (b)
the types of involvement ongoing between the disposal component and the entity
disposing of the component that constitute continuing involvement in the
operations of the disposal component, and (c) the appropriate (re)assessment
period for purposes of assessing whether the criteria in paragraph 42 have been
met. The consensus was ratified by the FASB at their November 30, 2004 meeting
and should be applied to a component of an enterprise that is either disposed of
or classified as held for sale in fiscal periods beginning after December 15,
2004. The Company does not anticipate a material impact on the financial
statements from the adoption of this consensus.


                                      F-14




PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - ACQUISITIONS, SALES AND DIVESTITURES

SALE OF JOINT VENTURE INTEREST - DISCONTINUED OPERATION

       Effective March 31, 2003, we sold our 50% share of Westchester Imaging
Group, or Westchester, to our joint venture partner for $3.0 million. As part of
the transaction, we acquired 100% of the accounts receivable generated through
March 31, 2003 for $1.3 million and reimbursed Westchester $0.3 million, which
represented 50% of the remaining liabilities, resulting in net cash proceeds of
approximately $1.4 million. We recognized a gain on the transaction of
approximately $2.9 million in fiscal 2003. Westchester's results from fiscal
2003 were as follows:

                                                       2003(1)
                                                    ----------
       Net revenue                                  $2,230,000
       Operating expenses                            1,703,000
       Net income                                      255,000
________________
(1) Represents operations through March 31, 2003

FACILITY OPENINGS

       In January 2004, we entered into a new building lease for approximately
3,963 square feet of space in Murrietta, California, near Temecula. The center
opened in December 2004 and offers MRI, CT, PET, nuclear medicine and x-ray
services. The equipment was financed by GE. During fiscal 2004, we had used
existing lines of credit for the payment of approximately $840,000 in leasehold
improvements for Murietta.

       In July 2003, we entered into a new building lease for approximately
3,533 square feet of space in Westlake, California, near Thousand Oaks. The
center opened in March 2005 and offers MRI, mammography, ultrasound and x-ray
services. During fiscal 2005, we used existing lines of credit for the payment
of approximately $873,000 in leasehold improvements for the new facility.

       In December 2002, we opened an imaging center in Rancho Bernardo,
California. Prior to its opening, in late November 2001, we entered into a new
building lease arrangement for 9,557 square feet in Rancho Bernardo in
anticipation of opening the new multi-modality imaging center. The center was
75%-owned by us and 25%-owned by two physicians who invested $250,000. Effective
July 31, 2004, we purchased the 25% minority interest from the two physicians
for $200,000 that consisted of an $80,000 down payment and monthly payments of
$10,000 due from September 2004 to August 2005. All payments were made during
fiscal 2005. There was no goodwill recorded in the transaction.

       In addition, during fiscal 2003, upon entering into new capitation
arrangements, we opened two facilities adjacent to our Burbank and Santa Clarita
facilities to provide X-ray services. In fiscal 2004, we opened an additional
three satellite facilities servicing our Northridge, Rancho Cucamonga and
Thousand Oaks centers.

       FACILITY CLOSURES

       In early fiscal 2004, we first downsized and later closed our San Diego
facility. The center's location was no longer productive and business could be
sent to our new facility in Rancho Bernardo. The equipment was moved to other
locations and our leasehold improvements were written off. During the years
ended October 31, 2003 and 2004, the center generated net revenue of $1,067,000
and $49,000, respectively. During the year ended October 31, 2004, the center
incurred a net loss of $122,000, and during the year ended October 31, 2003, the
center generated net income of $33,000.

       In addition, during fiscal 2004, we closed two satellite facilities
servicing our Antelope Valley and Lancaster regions.

       In July 2003, we closed our La Habra facility. The center's location was
no longer a productive asset in our network and business could be sent to our
facilities in Orange County. The equipment was moved to other locations or
returned to the vendor and its leasehold improvements were written off. During
the year ended October 31, 2003, the center generated net revenue of $368,000
and incurred a net loss of $155,000.

       In addition, during fiscal 2003, we closed three satellite facilities
servicing our Long Beach region and one satellite facility servicing our
Riverside region.

                                      F-15



PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - ACQUISITIONS, SALES AND DIVESTITURES - CONTINUED

       Due to low volume, RadNet Heartcheck Management, Inc., one of our
subsidiaries, ceased doing business in early fiscal 2003. We wrote-off a
receivable related to Heartcheck of approximately $0.2 million during fiscal
2003.

       At various times, we may open or close small x-ray facilities acquired
primarily to service larger capitation arrangements over a specific geographic
region. Over time, patient volume from these contracts may vary, or we may end
the arrangement, resulting in the subsequent closures of these smaller satellite
facilities.

NOTE 4 - PROPERTY AND EQUIPMENT

       Property and equipment and accumulated depreciation and amortization as
of October 31, 2004 and 2005 are:

                                                     2004              2005
                                                 -------------    -------------
Buildings                                        $     600,000    $     600,000
Medical equipment                                   22,069,000       21,956,000
Office equipment, furniture and fixtures             7,171,000        7,587,000
Leasehold improvements                              26,243,000       28,313,000
Equipment under capital lease                       93,289,000       96,438,000
                                                 -------------    -------------
                                                   149,372,000      154,894,000
Accumulated depreciation and amortization          (72,039,000)     (86,787,000)
                                                 -------------    -------------
                                                 $  77,333,000    $  68,107,000
                                                 =============    =============

       Depreciation and amortization expense on property and equipment for the
years ended October 31, 2003, 2004 and 2005 was approximately $16,756,000,
$17,494,000 and $16,866,000, respectively. Accumulated amortization for
equipment under capital leases as of October 31, 2004 and 2005 was approximately
$41,747,000 and $52,243,000, respectively. Amortization expense for equipment
under capital leases for the years ended October 31 2003, 2004, and 2005
included above, was approximately, $10,507,000, $11,550,000, and $10,494,000,
respectively.


NOTE 5 - GOODWILL

       Goodwill is recorded at cost of $29,144,000 less accumulated amortization
of $6,045,000 for the years ended October 31, 2004 and 2005. Fully amortized
goodwill at the Company's Tustin location, with both cost and accumulated
amortization of $220,000, was written off in October 2004.

       Upon the adoption of SFAS No. 142, we discontinued amortization of
goodwill effective November 1, 2001. Thus, for the three years ended October 31,
2003, 2004 and 2005, no adjustment to amortization expense is necessary when
comparing net income and earnings per share.

                                      F-16




PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

                                                    2004               2005
                                                 ------------      ------------
      Accounts payable                           $  7,882,000      $  9,001,000
      Accrued expenses                              8,415,000         7,371,000
      Accrued payroll and vacation                  3,758,000         4,226,000
      Accrued professional fees                     1,045,000           693,000
      Accrued loss on legal judgments                 205,000                --
      Accrued patient service payable               1,876,000         1,209,000
                                                 ------------      ------------
                                                   23,181,000        22,500,000

Less long-term portion                               (329,000)          (31,000)
                                                 ------------      ------------
                                                 $ 22,852,000      $ 22,469,000
                                                 ============      ============

       Accrued professional fees consist of outside professional agreements,
which are paid out of net cash collections. The long-term portion relates to the
accounts receivable classified as long-term. Accrued patient service payable
relates to one contract that prepays us for future diagnostic exams to be
performed for which they receive a discount.

NOTE 7 - NOTES PAYABLE, LONG-TERM DEBT, LINE OF CREDIT AND CAPITAL LEASES

       Notes payable, long-term debt, line of credit and capital lease
obligations at October 31, 2004 and 2005 consist of the following:

                                                       2004            2005
                                                    ------------   ------------
Revolving lines of credit                           $ 14,011,000   $ 13,341,000

Notes payable at interest rates ranging from
  8.8% to 13.5%, due through 2009,
  collateralized by medical equipment                 72,320,000     71,940,000

Obligations under capital leases at interest
  rates ranging from 9.1% to 13.0%, due through
  2010, collateralized by medical and office
  equipment                                           67,399,000     62,753,000
                                                    ------------   ------------
                                                     153,730,000    148,034,000

Less: discount on notes payable                       (2,707,000)    (1,773,000)

Less: current portion                                (29,638,000)  (142,132,000)
                                                    ------------   ------------
                                                    $121,385,000   $  4,129,000
                                                    ============   ============

       The current portion of notes payable, long-term debt and capital lease
obligations increased in fiscal 2005 due to the reclassification of
approximately $109 million in notes and capital lease obligations as current
liabilities that are expected to be refinanced. We are subject to financial
covenants under our current debt agreements. We believe that we may be unable to
continue to be in compliance with our existing financial covenants during fiscal
2006. As such, the associated debt has been classified as a current liability.
We expect to refinance these obligations presented as current liabilities in the
second quarter of fiscal 2006. On January 31, 2006, we executed a commitment
letter with an institutional lender to which such lender provided us with a
commitment, subject to final documentation and legal due diligence, for a $160
million senior secured credit facility to be used to refinance all of our
existing indebtedness (except for $16.1 million of outstanding subordinated
debentures and $6.1 million of capital lease obligations). The commitment
provides for a $15 million five-year revolving credit facility, an $85 million
term loan due in five years and $60 million second lien term loan due in six
years. The loans are subject to acceleration on February 28, 2008, unless we
have made arrangements to discharge or extend our outstanding subordinated
debentures by that date. The loans are essentially payable interest only monthly
at varying rates that are yet to be finalized but will be based upon market
conditions. Finalization of the credit facility is subject to customary
conditions, including legal due diligence and final documentation that is
scheduled for completion on or about March 7, 2006.

                                      F-17




PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - NOTES PAYABLE, LONG-TERM DEBT, LINE OF CREDIT AND CAPITAL LEASES
         (CONTINUED)

       BRMG and Wells Fargo Foothill were parties to a credit facility under
which BRMG could borrow the lesser of 85% of the net collectible value of
eligible accounts receivable plus one month of average capitation receipts for
the prior six months, two times the trailing month cash collections, or
$20,000,000. Eligible accounts receivable excluded those accounts older than 150
days from invoice date and were net of customary reserves. In addition, Wells
Fargo Foothill set up a term loan where they could advance up to the lesser of
$3,000,000 or 80% of the liquidation value of the equipment value servicing the
loan. Under this term loan, we borrowed $880,000 in February 2005 to acquire
medical equipment. The five-year term loan had interest only payments through
February 28, 2005 with the first quarterly principal payments due on April 1,
2005. Access to additional funds under the term loan expired soon after the
February 2005 draw.

       Under the $20,000,000 revolving loan, an overadvance subline was
available not to exceed $2,000,000, or one month of the average capitation
receipts for the prior six months, until June 30, 2005. From July 1 to September
30, 2005, the overadvance subline was available not to exceed $1,500,000, or one
month of the average capitation receipts for the prior six months. Beginning
October 1, 2005, the maximum overadvance could not exceed the lesser of
$1,000,000 or one month of the average capitation receipts for the prior six
months. Also under the revolving loan, we were entitled to request that Wells
Fargo Foothill issue guarantees of payment in an aggregate amount not to exceed
$5,000,000 at any one time outstanding.

       Advances outstanding under the revolving loan bore interest at the base
rate plus 1.5%, or the LIBOR rate plus 3.0%. Advances under the overadvance
subline and term loan bore interest at the base rate plus 4.75%. Letter of
credit fees bore interest of 3.0% per annum times the undrawn amount of all
outstanding lines of credit. The base rate refers to the rate of interest
announced within Wells Fargo Bank at its principal office in San Francisco as it
prime rate. The line was collateralized by substantially all of our accounts
receivable and requires us to meet certain financial covenants including minimum
levels of EBITDA, fixed charge coverage ratios and maximum senior debt/EBITDA
ratios as well as limitations on annual capital expenditures.

       Effective September 14, 2005, we established a new $20 million working
capital revolving credit facility with Bridge Healthcare Finance, or Bridge, a
specialty lender in the healthcare industry. Upon the establishment of this
credit facility, we borrowed $15.5 million that was used to pay off the entire
balance of our existing credit facility with Wells Fargo Foothill. Upon
repayment, the existing credit facility with Wells Fargo Foothill was
terminated. Additionally, Bridge provided us approximately $0.8 million in the
form of a term loan, which we used to pay the balance of a term loan owed to
Wells Fargo Foothill.

       Under the Bridge revolving credit facility, we may borrow the lesser of
85% of the net collectible value of eligible accounts receivable plus one month
capitation receipts for the preceding month, or $20,000,000. An overadvance
subline is available not to exceed $2,000,000, so long as after giving effect to
the overadvance subline, the revolver usage does not exceed $20,000,000.
Eligible accounts receivable shall exclude those accounts older than 150 days
from invoice date and will be net of customary reserves. Dr. Berger has agreed
to personally guaranty the repayment of any monies under the overadvance
subline. Advances under the revolving loan bear interest at the base rate plus
3.25%. The base rate refers to the prime rate publicly announced by La Salle
Bank National Association, in effect from time to time. The term loan bears
interest at the annual rate of 12.50%.

       The revolving credit facility is collateralized by substantially all of
our accounts receivable and requires us to meet certain financial covenants
including minimum levels of EBITDA, fixed charge coverage ratios and maximum
senior debt/EBITDA ratios. The term loan is collateralized by specific imaging
equipment used by us at certain of our locations. As part of the Bridge
financing, our financial covenants were revised with our creditors, including
GE, US Bank and Post Advisory Group.

       We also had a line of credit with an affiliate of DVI. At October
31,2004, we had $3.4 million outstanding under this line. Interest on the
outstanding balance was payable monthly at our lender's prime rate plus 1.0%.
Future borrowings under this line of credit were no longer available and the
balance was being paid down by collections on historical accounts receivable and
variable monthly installment payments in the future. Effective November 30,
2004, we issued $4.0 million in principal amount of notes to Post Advisory
Group, LLC ("Post"), a Los Angeles-based investment advisor, and Post purchased
the DVI affiliate's line of credit facility with the residual funds utilized by
us as working capital.

       Bridge's prime rate on October 31, 2005 was 6.75%. As of October 31, 2005
the total funds available for borrowing under the line was approximately $4.6
million. For fiscal 2004 and 2005, the weighted average interest rates on
short-term borrowings were 7.1% and 8.6%, respectively.

                                      F-18



PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - NOTES PAYABLE, LONG-TERM DEBT, LINE OF CREDIT AND CAPITAL LEASES
         (CONTINUED)

       Annual principal maturities of notes payable and long-term obligations
exclusive of capital leases for future years ending October 31 are:

                             Principal due at     Discount on            Net
                                Maturity         Notes Payable        Principal
                                --------         -------------        ---------

2006                           $71,941,000        $ 1,774,000        $70,167,000
Thereafter                              --                 --                 --
                               -----------        -----------        -----------
                               $71,941,000        $ 1,774,000        $70,167,000
                               ===========        ===========        ===========

       We lease equipment under capital lease arrangements. Future minimum lease
payments under capital leases for future years ending October 31 are:

      2006                                                         $ 69,288,000
      2007                                                            1,713,000
      2008                                                            1,429,000
      2009                                                            1,353,000
      2010                                                              227,000
      Thereafter                                                             --
                                                                   ------------
      Total minimum payments                                         74,010,000

      Amount representing interest                                  (11,257,000)
                                                                   ------------
      Present value of net minimum lease payments                    62,753,000

      Current portion                                               (58,624,000)
                                                                   ------------
      Long-term portion                                            $  4,129,000
                                                                   ============

NOTE 8 - SUBORDINATED DEBENTURES

       In June 1993, our registration for a total of $25,875,000 of 10% Series A
convertible subordinated debentures due June 2003 was declared effective by the
Securities and Exchange Commission. The net proceeds to us were approximately
$23,000,000. Costs of $3,000,000 associated with the original offering were
fully amortized over ten years. The debentures were convertible into shares of
common stock at any time before maturity into $1,000 principal amounts at a
conversion price of $12.00 per share after June 1999.

       Amortization expense of the offering costs for the years ended October
31, 2003, 2004 and 2005 was $110,000, $-0- and $-0-, respectively. Interest
expense for the years ended October 31, 2003, 2004 and 2005 was approximately
$1,708,000, $1,862,000 and $1,857,000, respectively. Bondholders converted
$73,000 face value of debentures into 6,079 shares of common stock in July 2003.
There were no conversions during the years ended October 31, 2004 and 2005.
During the years ended October 31, 2003, 2004 and 2005, we repurchased
debentures with face amounts of $3,000, $68,000 and $-0-, for $3,000, $60,000
and $-0-, respectively, resulting in gains on early extinguishments of $-0-,
$8,000 and $-0-, respectively.

       In October 2003, we successfully consummated a "pre-packaged" Chapter 11
plan of reorganization with the United States Bankruptcy Court, Central District
of California, in order to modify the terms of our convertible subordinated
debentures by extending the maturity to June 30, 2008, increasing the annual
interest rate from 10.0% to 11.5%, reducing the conversion price from $12.00 to
$2.50 and restricting its ability to redeem the debentures prior to July 1,
2005. The plan of reorganization did not affect any of our operations or
obligations, other than the subordinated debentures.


                                      F-19



PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 - INCOME TAXES

       Income taxes have been recorded under SFAS No. 109, "Accounting for
Income Taxes." Deferred income taxes reflect the net tax effects of temporary
differences between carrying amounts of assets and liabilities for financial and
income tax reporting purposes and operating loss carryforwards. We did not incur
any federal or state income taxes in 2003, 2004 or 2005.

       Reconciliation between the effective tax rate and the statutory tax rates
for the years ended October 31, 2003, 2004 and 2005 are as follows:

                                                      2003      2004      2005
                                                      ----      ----      ----
Federal tax                                          (34.0)%   (34.0)%   (34.0)%
State franchise tax, net of federal benefit           (5.8)      2.2      (5.8)
Change in valuation allowance                         39.8      90.0      39.8
                                                    -------   -------   -------
      Income tax expense                                --%     58.2%       --%
                                                    =======   =======   =======

       At October 31, 2004 and 2005, our deferred tax assets and liabilities
were comprised of the following items:

                                                       2004             2005
                                                   ------------    ------------
DEFERRED TAX ASSETS AND LIABILITIES, noncurrent
  Fixed and intangible assets                      $(10,435,000)   $(10,726,000)
  Other                                                 632,000         794,000
  Net operating loss carryforwards                   57,259,000      57,239,000
                                                   ------------    ------------
                                                     47,456,000      47,307,000
  Valuation allowance                               (47,456,000)    (47,307,000)
                                                   ------------    ------------
                                                   $         --    $         --
                                                   ============    ============

       As of October 31, 2005, we had federal and state net operating loss
carryforwards of approximately $161,319,000 and $41,224,000, respectively, which
expire at various intervals from the years 2006 to 2025. As of October 31, 2005,
$4,100,000 of federal net operating loss carryforwards expired unused. As of
October 31, 2005, $18,046,000 of our federal net operating loss carryforwards
acquired during 1998 in connection with the acquisition of Diagnostic Imaging
Services, Inc. were subject to limitations related to their utilization under
Section 382 of the Internal Revenue Code, however, the annual limitation amount
has not been determined. Future ownership changes as determined under Section
382 of the Internal Revenue Code could further limit the utilization of net
operating loss carryforwards. Realization of deferred tax assets is dependent
upon future earnings, if any, the timing and amount of which are uncertain.
Accordingly, the net deferred tax assets have been fully offset by a valuation
allowance.

       For the next five years, and thereafter, federal net operating loss
carryforwards expire as follows:

                                                    Total Net
                                                 Operating Loss    Subject to
Year Ended                                        Carryforward     Limitation
----------                                        ------------    ------------

2006                                              $  3,439,000   $   3,439,000
2007                                                 1,226,000       1,226,000
2008                                                22,533,000       2,295,000
2009                                                16,421,000       2,513,000
2010                                                18,563,000       5,337,000
Thereafter                                          99,137,000       3,236,000
                                                  ------------    ------------
                                                  $161,319,000    $ 18,046,000
                                                  ============    ============


                                      F-20




PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 - CAPITAL STRUCTURE AND CAPITAL TRANSACTIONS

PREFERRED STOCK

       We have authorized the issuance of 10,000,000 shares of preferred stock
with a par value of $0.01 per share. There were no preferred shares issued or
outstanding at October 31, 2003, 2004 or 2005. Shares may be issued in one or
more series. During the year ended October 31, 2001, we issued 5,542,018
preferred shares in settlement of certain debt obligations and subsequently
retired the stock by restructuring existing notes payable and combining the
preferred stock balance due of approximately $5,542,000 plus accrued interest of
approximately $235,000. In conjunction with this refinancing, we issued
five-year warrants to purchase 1,000,000 shares of common stock at an exercise
price of $1.00 per share.

STOCK OPTION INCENTIVE PLANS

       We have two long-term incentive stock option plans. The 1992 plan has not
issued options since the inception of the new 2000 plan. The 2000 plan reserves
2,000,000 shares of common stock. Options granted under the plan are intended to
qualify as incentive stock options under existing tax regulations. In addition,
we have issued non-qualified stock options from time to time in connection with
acquisitions and for other purposes and have also issued stock under the plan.
Employee stock options generally vest over three years and expire five to ten
years from date of grant. As of October 31, 2005, approximately 637,000, or 93%,
of the outstanding stock options are fully vested.

       We have issued warrants under various types of arrangements to employees,
in conjunction with debt financing and in exchange for outside services. All
warrants are issued with an exercise price equal to the fair market value of the
underlying common stock on the date of issuance. Generally, the warrants expire
five years from the date of grant. The terms of vesting are determined by the
board of directors at issuance. Warrants issued to employees typically vest over
three years.

       The following table summarizes the activity for each of the three years
ended October 31, 2005:


                                       Outstanding Warrants           Outstanding Options
                                  ----------------------------   -----------------------------
                                                                                   Exercise
                                     Shares       Price Range        Number       Price Range
                                 -------------   -------------   -------------   -------------
                                                                  
Balance, October 31, 2002            7,462,135   $ 0.38 - 1.61       1,181,917   $ 0.40 - 1.67
  Granted                              750,000     0.19 - 0.41              --         ---
  Exercised                                 --         ---             (95,000)        0.30
  Canceled or expired                 (130,000)    0.75 - 0.79         (28,000)    0.46 - 1.67
                                 -------------   -------------   -------------   -------------
Balance, October 31, 2003            8,082,135   $ 0.19 - 1.61       1,058,917   $ 0.40 - 1.67
  Granted                            4,325,000     0.30 - 0.70         150,000         0.46
  Exercised                                 --         ---                  --         ---
  Canceled or expired                 (402,365)    0.41 - 0.80          (7,500)    0.46 - 1.67
                                 -------------   -------------   -------------   -------------
Balance, October 31, 2004           12,004,770   $ 0.19 - 1.61       1,201,417   $ 0.40 - 1.67
  Granted                              900,000     0.30 - 0.40              --         ---
  Exercised                           (300,000)       0.19                  --         ---
  Canceled or expired                 (600,000)    0.35 - 0.70        (514,250)    0.40 - 1.67
                                 -------------   -------------   -------------   -------------
Balance, October 31, 2005           12,004,770   $ 0.30 - 1.61         687,167   $ 0.40 - 1.67
                                 =============   =============   =============   =============



                                      F-21




PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 - CAPITAL STRUCTURE AND CAPITAL TRANSACTIONS (CONTINUED)

       Options under the plans are issued at the fair market value of the common
stock on the date issued. The following summarizes information about employee
stock options and warrants outstanding at October 31, 2005:


                                                           Outstanding Options
                                         --------------------------------------------------------
                                                             Weighted average
Range of                                     Number              remaining        Weighted average
exercise prices                           outstanding        contractual life     exercise price
---------------                           -----------        ----------------     --------------
                                                                          
$ 0.40 - $ 0.75                             669,167             4.89 years         $  0.48
$ 0.76 - $ 1.70                              18,000             1.33 years         $  1.67
                                          ----------
                                            687,167             4.87 years         $  0.51
                                          ==========

                                                           Outstanding Warrants
                                         --------------------------------------------------------
                                                             Weighted average
Range of                                     Number              remaining        Weighted average
exercise prices                           outstanding        contractual life     exercise price
---------------                           -----------        ----------------     --------------

$ 0.30 - $ 0.75                            9,312,115           2.12 years          $  0.47
$ 0.76 - $ 1.70                            2,692,655           0.81 years          $  1.06
                                         -----------
                                          12,004,770           1.82 years          $  0.60
                                         ===========


CAPITAL TRANSACTIONS

       On February 17, 2004, we filed a certificate of merger with the Delaware
Secretary of State to acquire the balance of our 91%-owned subsidiary, DIS, that
we did not previously own. Pursuant to the terms of the merger, we are obligated
to pay each stockholder of DIS, other than Primedex, $0.05 per share or
approximately $60,000 in the aggregate. We believe the price per share
represents the value of the minority interest. Stockholders had the right to
contest the price by exercising their appraisal rights at any time through March
15, 2004. During the year ended October 31, 2004, we paid $35,000 to acquire
648,366 shares of DIS common stock and recorded the purchases as goodwill.

         On December 19, 2003, we issued a $1.0 million convertible subordinated
note payable at a stated rate of 11% per annum with interest payable quarterly.
As additional consideration for the financing, we issued a warrant for the
purchase of 500,000 shares at an exercise price of $0.50 per share and an
expiration date of December 19, 2010. We have allocated $0.1 million to the
value of the warrants and believe the value of the conversion feature is
nominal.

       During the year ended October 31, 2003, one individual exercised his
options to purchase 95,000 shares of common stock at $0.30 per share, or
$28,500. During the year ended October 31, 2005, one individual exercised his
options to purchase 300,000 shares of common stock at $0.19 per share, or
$57,000.


                                      F-22




PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS

       The Company estimates the fair value of financial instruments as of
October 31, follows:


                                                         2004                        2005
                                              -------------------------   -------------------------
                                                Carrying       Fair        Carrying        Fair
                                                 Amount        Value        Amount         Value
                                              -----------   -----------   -----------   -----------
                                                                            
Accounts receivable, current                  $20,029,000   $20,029,000   $22,319,000   $22,319,000
Accounts receivable, long term                  1,868,000     1,868,000     1,267,000     1,267,000
Debt maturing within one year                  20,796,000    20,796,000    83,508,000    83,508,000
Long-term debt                                 62,828,000    59,364,000            --            --
Notes payable to related parties, long-term     2,119,000     2,258,000     3,533,000     2,654,000
Subordinated debentures                        16,147,000    17,983,000    16,147,000    16,882,000


       In assessing the fair value of these financial instruments, we had used a
variety of methods and assumptions, which were based on estimates of market
conditions and risks existing at that time. For certain instruments, including
cash and cash equivalents, cash overdraft, accounts receivable and current and
short-term debt, it was assumed that the carrying amount approximated fair value
for the majority of these instruments because of their short maturities. The
fair value of the long-term amounts for notes payable to related parties and
debt is based on current rates at which the Company could borrow funds with
similar remaining maturities. The fair value of the subordinated debentures is
the estimated value of debentures available to repurchase at current market
rates over the bond term including an estimated interest payment stream.

NOTE 12 - RELATED PARTY TRANSACTIONS

       The amount due to related parties at October 31, 2005 consisted of notes
payable, with interest at 6.58%, due to an officer and employee of ours for the
purchase of DIS common stock in 1996 of $940,000 and $61,000, respectively, and
a note payable of $2,532,000, with interest at 6.58%, due to another officer of
ours for loans made by him to us. During the year ended October 31, 2005, the
note payable due the employee was reduced by $43,000 and applied to the purchase
of his stock options exercised in the same period (see "Capital Transactions").
In addition, during the year ended October 31, 2005, an officer loaned the
Company an additional $1,370,000 (included above).

       The amount due to related parties at October 31, 2004 consisted of notes
payable, with interest at 6.58%, due to an officer and employee of ours for the
purchase of DIS common stock in 1996 of $940,000 and $105,000, respectively, and
a note payable of $1,074,000, with interest at 6.58%, due to another officer of
ours for loans made by him to us.

NOTE 13 - COMMITMENTS AND CONTINGENCIES

       LEASES - We lease various operating facilities and certain medical
equipment under operating leases with renewal options expiring through 2029.
Certain leases contain renewal options from two to ten years and escalation
based primarily on the consumer price index. The schedule below assumes we take
advantage of all lease renewal options. Minimum annual payments under
noncancellable operating leases for future years ending October 31 are as
follows:

                                        Facilities     Equipment       Total
                                        -----------   -----------   -----------
2005                                    $ 7,672,000        25,000     7,697,000
2006                                      6,971,000         5,000     6,976,000
2007                                      6,928,000         5,000     6,933,000
2008                                      6,792,000         3,000     6,795,000
2009                                      6,834,000            --     6,834,000
Thereafter                               58,907,000            --    58,907,000
                                        -----------   -----------   -----------
                                        $94,104,000   $    38,000   $94,142,000


                                      F-23




PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 - COMMITMENTS AND CONTINGENCIES - CONTINUED

       Total rent expense, including equipment rentals, for the years ended
October 31, 2003, 2004 and 2005 amounted to approximately $9,375,000, $7,804,000
and $7,919,000, respectively. Effective November 1, 2003, we converted operating
leases with an affiliate of GE into capital leases by amending the lease
agreements to include $1.00 buyouts. The total converted equipment cost and
capitalized lease obligation is $6,206,000. Included in equipment rental expense
for the year ended October 31, 2003 was GE rental expenses of approximately
$1,765,000.

       Salaries and consulting agreements - We have a variety of arrangements
for the payment of professional and employment services. The agreements provide
for the payment of professional fees to physicians under various arrangements,
including a percentage of revenue collected from 15.0% to 21.0%, fixed amounts
per periods and combinations thereof.

       We also have employment agreements with officers, key employees and
through BRMG, physicians, at annual compensation rates ranging from $50,000 to
$390,000 and for periods extending up to five years through October 2010. Total
commitments under the agreements are approximately $16,677,000 for fiscal 2006.
The majority of the contracts are for one year.

       PURCHASE COMMITMENT

       On December 18, 2003, we entered into a three-year purchase agreement
with an imaging film provider whereby we must purchase $7,500,000 of film at a
rate of approximately $2,500,000 annually over the term of the agreement.

         EQUIPMENT SERVICE CONTRACT

       On March 1, 2000, we entered into an equipment maintenance service
contract through October 2005, extended through October 2009, with GE Medical
Systems to provide maintenance and repair on the majority of its medical
equipment for a fee based upon a percentage of net revenues, subject to certain
minimum aggregate net revenue requirements. Net revenue is reduced by the
provision for bad debt, mobile PET revenue and other professional reading
service revenue to obtain adjusted net revenue. The fiscal 2005 annual service
fee was the higher of 3.50% of our adjusted net revenue, or $4,970,000. The
fiscal 2006 annual service rate will be the higher of 3.62% of our adjusted net
revenue, or $5,393,800. For the fiscal years 2007, 2008 and 2009, the annual
service fee will be the higher of 3.62% of our adjusted net revenue, or
$5,430,000. We believe this framework of basing service costs on usage is an
effective and unique method for controlling our overall costs on a
facility-by-facility basis. We have met or exceeded the minimum required revenue
for each of the last three fiscal years. As of October 31, 2005, we owe GE
Medical Systems $3,222,000 for past services under the arrangement since fiscal
2002. GE has made arrangements for interest-free payments that will continue to
reduce this liability during fiscal 2006. The liability is classified as
"Accounts Payable and Accrued Expenses-current" on the financial statements.

       LITIGATION

       In the ordinary course of business from time to time we become involved
in certain legal proceedings, the majority of which are covered by insurance.
Management is not aware of any pending material legal proceedings outside of the
ordinary course of business.

NOTE 14 - EMPLOYEE BENEFIT PLAN

       We adopted a profit-sharing/savings plan pursuant to Section 401(k) of
the Internal Revenue Code that covers substantially all non-professional
employees. Eligible employees may contribute on a tax-deferred basis a
percentage of compensation, up to the maximum allowable under tax law. Employee
contributions vest immediately. The plan does not require a matching
contribution by us. There was no expense for the years ended October 31, 2003,
2004 or 2005.

                                      F-24



PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 - MALPRACTICE INSURANCE

       We and our affiliated physicians are insured by Fairway Physicians
Insurance Company. Fairway provides claims-based malpractice insurance coverage
that covers only asserted malpractice claims within policy limits. Management
does not believe there are material uninsured malpractice costs at October 31,
2005.

       We recorded a $300,000 noncurrent asset for the cost basis of our
investment in the common stock we hold in Fairway Physicians Insurance Company,
the risk retention group that holds our malpractice policy.

NOTE 16 - SUBSEQUENT EVENTS

       On January 31, 2006, we executed a commitment letter with an
institutional lender to which such lender provided us with a commitment, subject
to final documentation and legal due diligence, for a $160 million senior
secured credit facility to be used to refinance all of our existing indebtedness
(except for $16.1 million of outstanding subordinated debentures and $6.1
million of capital lease obligations). The commitment provides for a $15 million
five-year revolving credit facility, an $85 million term loan due in five years
and $60 million second lien term loan due in six years. The loans are subject to
acceleration on February 28, 2008, unless we have made arrangements to discharge
or extend our outstanding subordinated debentures by that date. The loans are
essentially payable interest only monthly at varying rates that are yet to be
finalized but will be based upon market conditions. Finalization of the credit
facility is subject to customary conditions, including legal due diligence and
final documentation that is scheduled for completion on or about March 7, 2006.

       On November 7, 2005, we issued to one of our key employees five-year
options exercisable at a price of $0.50 per share, which was the public market
closing price for our common stock on the transaction date, to purchase 15,000
shares of our common stock. The options become exercisable, or vest, in equal
installments over three years with the first 5,000 options becoming exercisable
on November 7, 2005.

       On December 19, 2003, we issued a $1.0 million convertible subordinated
note payable to Galt Financial, Ltd., at a stated rate of 11% per annum with
interest payable quarterly. The note payable is convertible at the holder's
option anytime after January 1, 2006 at $0.50 per share. As additional
consideration for the financing we issued a warrant for the purchase of 500,000
shares at an exercise price of $.50 per share. We allocated $0.1 million to the
value of the warrants and believe the value of the conversion feature is
nominal. In November 2005, the right to convert was waived and the warrant for
the purchase of 500,000 shares of common stock was terminated in exchange for
the issuance of a five-year warrant to purchase 300,000 shares of our common
stock at a price of $0.50 per share, the public market price on the date the
warrant, with the underlying note being extended to July 1, 2006. We allocated
an additional $0.1 million to the value of the new warrants.

                                      F-25





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON SUPPLEMENTAL SCHEDULE





To the Stockholders and Board of Directors of
Primedex Health Systems, Inc.



Our report on the consolidated financial statements of Primedex Health Systems,
Inc. and its affiliates, as of October 31, 2004 and 2005 and for each of the
years in the three-year period ended October 31, 2005, is included on page F-1
of this Form 10-K. In connection with our audits of such consolidated financial
statements, which were conducted for purposes of forming an opinion on the basic
consolidated financial statements taken as a whole, we have also audited the
related accompanying financial statements Schedule II -- Valuation and
Qualifying Accounts for the years ended October 31, 2005, 2004, and 2003. In our
opinion, the financial statement schedule referred to above, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.





/s/ Moss Adams LLP

Los Angeles, California
February 13, 2006



                                       S-1





PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                                                     Additions
                                                     ---------
                                     Balance at                    Deductions
                                      Beginning    Charged Against    from         Balance at
                                       of Year        Income       Reserves (a)    End of Year
                                     ------------   ------------   ------------   ------------
                                                                      
Year ended October 31, 2005:
   Accounts receivable-contractual
     allowances-current              $ 52,961,000   $278,523,000   $276,115,000   $ 55,369,000
                                     ============   ============   ============   ============
   Accounts receivable-bad debt
     allowances-current              $    678,000   $  4,664,000   $  4,415,000   $    927,000
                                     ============   ============   ============   ============
   Accounts receivable-contractual
     allowances-noncurrent           $  4,939,000   $ 15,805,000   $ 17,602,000   $  3,142,000
                                     ============   ============   ============   ============
   Accounts receivable-bad debt
    allowances-noncurrent            $     63,000   $    265,000   $    275,000   $     53,000
                                     ============   ============   ============   ============
Year ended October 31, 2004:
   Accounts receivable-contractual
     allowances-current              $ 54,650,000   $279,414,000   $281,103,000   $ 52,961,000
                                     ============   ============   ============   ============
   Accounts receivable-bad debt
       allowances-current            $    955,000   $  3,577,000   $  3,854,000   $    678,000
                                     ============   ============   ============   ============
   Accounts receivable-contractual
     allowances-noncurrent           $  4,361,000   $ 26,056,000   $ 25,478,000   $  4,939,000
                                     ============   ============   ============   ============
   Accounts receivable-bad debt
     allowances-noncurrent           $     76,000   $    334,000   $    347,000   $     63,000
                                     ============   ============   ============   ============
Year ended October 31, 2003:
   Accounts receivable-contractual
     allowances-current              $ 53,158,000   $261,594,000   $260,102,000   $ 54,650,000
                                     ============   ============   ============   ============
   Accounts receivable-bad debt
     allowances-current              $  1,593,000   $  4,578,000   $  5,216,000   $    955,000
                                     ============   ============   ============   ============
   Accounts receivable-contractual
     allowances-noncurrent           $  4,271,000   $ 20,875,000   $ 20,785,000   $  4,361,000
                                     ============   ============   ============   ============
   Accounts receivable-bad debt
     allowances-noncurrent           $    128,000   $    366,000   $    418,000   $     76,000
                                     ============   ============   ============   ============

(a) Deductions include sales and divestitures



                                      S-2




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

       Inapplicable.


ITEM 9A. CONTROLS AND PROCEDURES
-------- -----------------------


       As of the end of the period covered by this report, we performed an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and our Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based
upon that evaluation, our Chief Executive Officer and our Chief Financial
Officer concluded that our disclosure controls and procedures are not effective
in alerting them prior to the end of a reporting period to all material
information required to be included in our periodic filings with the SEC because
we identified the following material weakness in the design of internal controls
over financial reporting. We concluded that we had insufficient personnel
resources and technical accounting expertise within the accounting function to
resolve the following non-routine accounting matters: the recording of
non-typical cost-based investments and unusual debt-related transactions and the
appropriate analysis of the amortization lives of leasehold improvements in
accordance with generally accepted accounting principles. The incorrect
accounting for the foregoing was sufficient to lead management to conclude that
a material weakness in the design of internal controls over the accounting for
non-routine transactions existed at October 31, 2005.

       We are in the process of remediating this weakness. Subsequent to October
31, 2005, we determined to change the design of our internal controls over
non-routine accounting matters by the identification of an outside resource at a
recognized professional services company that we can consult with on non-routine
transactions or the employment of qualified accounting personnel to deal with
this issue together with the utilization of other senior corporate accounting
staff, who are responsible for reviewing all non-routine matters and preparing
formal reports on their conclusions, and conducting quarterly reviews and
discussions of all non-routine accounting matters with our independent public
accountants. We believe we will substantially address the identified weakness
through the change in the design of our internal controls, and subject to
confirmation of the effectiveness of our implementation of these remediation
measures, anticipate that the material weakness should be remediated prior to
the end of fiscal 2006. We are continuing to evaluate additional controls and
procedures that we can implement and may add additional accounting personnel
during fiscal 2006 to enhance our technical accounting resources. We do not
anticipate that the cost of this remediation effort will be material to our
financial statements. We experienced no impact on our financial statements for
the year ended October 31, 2005.


       The above identified material weakness in internal control was determined
by management during our year-end audit to be a material change in our internal
control over financial reporting during the quarter ended October 31, 2005.

       It should be noted that any system of controls, however well designed and
operated, can provide only reasonable, and not absolute, assurance that the
objectives of the system will be met. In addition, the design of any control
system is based in part upon certain assumptions about the likelihood of future
events.



                                     48




                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

       The following table sets forth certain information with respect to each
of our directors and executive officers as of January 25, 2006:


                                                  Director or
Name                                        Age   Officer Since  Position
----                                        ---   -------------  --------
                                               
Howard G. Berger, M.D. (1)                   61      1992        President, Treasurer, Chief Executive Officer,
                                                                 and Director

Norman R. Hames                              49      1996        Vice President, Secretary, Chief Operating
                                                                 Officer and Director

John V. Crues, III, M.D.                     56      2000        Vice President and Director

David L. Swartz (2)                          61      2004        Director

Lawrence L. Levitt(2)                        62      2005        Director

Jeffrey L. Linden                            63      2001        Vice President and General Counsel

Mark D. Stolper                              34      2004        Chief Financial Officer
______________
(1)  Member of the Compensation Committee
(2)  Member of the Audit and Compensation Committee


       The following is a brief description of the business experience of each
director and executive officer during the past five years.

       Howard G. Berger, M.D. has served as President and Chief Executive
Officer of our company and its predecessor entities since 1987. Dr. Berger is
also the president of the entities that own BRMG. Dr. Berger has over 25 years
of experience in the development and management of healthcare businesses. He
began his career in medicine at the University of Illinois Medical School, is
Board Certified in Nuclear Medicine and trained in an Internal Medicine
residency, as well as in a masters program in medical physics in the University
of California system.

       Norman R. Hames has served as our Chief Operating Officer since 1996.
Applying his 20 years of experience in the industry, Mr. Hames oversees all
aspects of facility operations. His management team, comprised of regional
directors, managers and sales managers, are responsible for responding to all of
the day-to-day concerns of our facilities, patients, payors and referring
physicians. Prior to joining our company, Mr. Hames was President and Chief
Executive Officer of his own company, Diagnostic Imaging Services, Inc. (which
we have acquired), which owned and operated 14 multi-modality imaging facilities
throughout Southern California. Mr. Hames gained his initial experience in
operating imaging centers for American Medical International, or AMI, and was
responsible for the development of AMI's single and multi-modality imaging
centers.

       John V. Crues, III, M.D. is a world-renowned radiologist. Dr. Crues plays
a significant role as a musculoskeletal specialist for many of our patients as
well as a resource for physicians providing services at our facilities. Dr.
Crues received his M.D. at Harvard University, completed his internship at the
University of Southern California in Internal Medicine, and completed a
residency at Cedars-Sinai in Internal Medicine and Radiology. Dr. Crues has
authored numerous publications while continuing to actively participate in
radiological societies such as the Radiological Society of North America,
American College of Radiology, California Radiological Society, International
Society for Magnetic Resonance Medicine and the International Skeletal Society.

       David L. Swartz is a C.P.A. with thirty-five years of experience
providing accounting and advisory services to clients. Since 1993, Mr. Swartz
has been the managing partner of Good, Swartz, Brown & Berns. Prior to this, Mr.
Swartz served as managing partner and was on the national Board of Directors of
a 50 office international accounting firm. Mr. Swartz is also a former CFO of a
publicly held shopping center and development company.


                                      49



       Lawrence L. Levitt is a C.P.A. and has since 1987 been the president and
chief financial officer of Canyon Management Company, a company which manages a
privately held investment fund. Mr. Levitt is also a director of River Downs
Management Company, operator of a thoroughbred racetrack in Ohio.

       Jeffrey L. Linden joined us in 2001 as our Vice President and General
Counsel. He is also associated with Cohen & Lord, a professional corporation,
outside general counsel to us. Prior to joining us, Mr. Linden had been engaged
in the private practice of law. He has lectured before numerous organizations on
various topics, including the California State Bar, American Society of
Therapeutic Radiation Oncologists, California Radiological Association, and
National Radiology Business Managers Association.

       Mark D. Stolper had diverse experiences in investment banking, private
equity, venture capital investing and operations prior to joining us. Mr.
Stolper began his career as a member of the corporate finance group at Dillon,
Read and Co., Inc., executing mergers and acquisitions, public and private
financings and private equity investments with Saratoga Partners LLP, an
affiliated principal investment group of Dillon Read. After Dillon Read, Mr.
Stolper joined Archon Capital Partners, backed by the Milken Family and
NewsCorp, which made private equity investments in media and entertainment
companies. Mr. Stolper received his operating experience with Eastman Kodak,
where he was responsible for business development for Kodak's Entertainment
Imaging subsidiary ($1.5 billion in sales). Mr. Stolper was also co-founder of
Broadstream Capital Partners, a Los Angeles-based investment banking firm
focused on advising middle market companies engaged in financing and merger and
acquisition transactions.

       None of the directors serves as a director of any other corporation with
a class of securities registered pursuant to Section 12 of the Exchange Act or
subject to the requirements of Section 15(d) of the Exchange Act. There are no
family relationships among any of the officers and directors. Furthermore, none
of the events described in Item 401(f) of Regulation S-K involve a director or
officer during the past five years.

       The officers are elected annually and serve at the discretion of the
Board of Directors. There are no family relationships among any of the officers
and directors. During the fiscal year ended October 31, 2005, the Board of
Directors held two meetings in which all directors were present, except that Dr.
Crues was absent from one meeting, and took board action by unanimous written
consent on six occasions. All directors participated in all such actions.

AUDIT AND COMPENSATION COMMITTEES

       The Audit Committee reviews the results and scope of the audit and other
services provided by our independent auditors, and the Compensation Committee
determines salaries and incentive compensation for our employees and
consultants.

       David Swartz is designated our "audit committee financial expert" under
Item 401(h) of Regulation S-K under the Securities Act. Mr. Swartz is
"independent" as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the
Exchange Act.

DIRECTOR COMPENSATION

       Independent directors receive compensation of $25,000 per year and an
annual warrant to purchase 50,000 shares of our common stock.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

       During fiscal 2005, all executive compensation was determined by the then
members of our Board of Directors, Howard G. Berger, M.D., Norman R. Hames, John
V. Crues, III, M.D. Lawrence L. Levitt and David L. Swartz. In addition, no
individual who served as an executive officer of our company during fiscal 2005,
served during fiscal 2005, on the board of directors or compensation committee
of another entity where an executive officer of the other entity also served on
our Board of Directors.

                                      50



SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

       Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires our directors and officers and persons who own more than 10% of a
registered class of our equity securities to file reports of ownership and
changes in ownership with the SEC. Directors and officers and greater than 10%
stockholders are required by SEC regulation to furnish us with copies of the
reports they file. Based solely on the review of the copies of such reports and
written representations from certain persons that certain reports were not
required to be filed by such persons, we believe that all our directors,
officers and greater than 10% beneficial owners complied with all filing
requirements applicable to them with respect to transactions for the period
November 1, 2004 through October 31, 2005.

CODE OF ETHICS FOR SENIOR FINANCIAL OFFICERS

       Our Board of Directors has adopted a Code of Ethics for Senior Financial
Officers. A copy of the Code of Ethics is available on our website at
www.radnetonline.com.

ITEM 11. EXECUTIVE COMPENSATION
-------- ----------------------

       The following table sets forth information concerning the annual,
long-term and all other compensation for services rendered in all capacities to
us and our subsidiaries for the years ended October 31, 2005, 2004 and 2003, of
(i) the person who served as our chief executive officer during the year ended
October 31, 2005, and (ii) our three most highly compensated executive officers
(other than the chief executive officer) serving as executive officers at
October 31, 2005 ("Other Executive Officers"), and whose aggregate cash
compensation exceeded $100,000 for the year ended October 31, 2005. We
collectively refer to them as the "Named Executive Officers":



                                                           SUMMARY COMPENSATION TABLE

                                    Annual Compensation                                 Long-Term Compensation
                              ------------------------------     -----------   ---------------------------------------
                              Year                                Other         Securities    Restricted
                              Ended                               Annual        Underlying       Stock        LTIP        All Other
Name and Principal Position   10/31  Salary($)     Bonus ($)     Comp.($)(1)   Options (#)(7)   Awards($)   Payouts ($)    Comp($)
---------------------------   -----  ---------     ---------     -----------   --------------   ---------   -----------    -------
                               
Howard G. Berger, M.D.,       2005   $200,000(2)      --             --                 --         --            --          --
Chief Executive Officer       2004   $225,000(2)      --             --                 --         --            --          --
                              2003   $328,846(2)      --             --                 --         --            --          --

Norman R. Hames,              2005   $220,000         --             --          3,000,000         --            --          --
Vice President, Secretary     2004   $229,000         --             --          3,000,000         --            --          --
and Chief Operating Officer   2003   $225,000         --             --          3,000,000         --            --          --

John V. Crues, III, M.D.,     2005   $440,000(3)      --             --          1,000,000         --            --          --
Vice President                2004   $370,000(4)      --             --          1,000,000         --            --          --
                              2003   $363,000(5)      --             --            500,000         --            --          --

Jeffrey L. Linden,            2005   $350,000(6)      --             --          1,275,000         --            --          --
Vice President and            2004   $350,000(6)      --             --          1,574,910         --            --          --
General Counsel               2003   $303,015(6)      --             --          1,572,275         --            --          --



                                      51



(1)  The dollar value of perquisites and other personal benefits, if any, for
     each of the Named Executive Officers was less than $50,000 or 10% of salary
     and bonus, the reporting thresholds established by the SEC.

(2)  Includes $300,000, $225,000 and $200,000 received from BRMG (see
     "Employment Agreements") in 2003, 2004 and 2005, respectively. Dr. Berger
     voluntarily reduced compensation payable by us in 2003, 2004 and 2005 to
     assist with our liquidity.

(3)  Received from BRMG.

(4)  Includes $185,000 received from BRMG.

(5)  Includes $200,000 received from BRMG.

(6)  Mr. Linden voluntarily reduced compensation payable by us in 2003 to assist
     with our liquidity. Cohen & Lord, a professional corporation, a law firm
     with which Mr. Linden is associated, received $365,695 in fees from us
     during the year ended October 31, 2005. Mr. Linden has specifically waived
     any interest in our fees paid to Cohen & Lord since becoming an officer.

(7)  Shares of our common stock.

STOCK OPTION GRANTS AND EXERCISES IN LAST FISCAL YEAR

         In fiscal 2005, we granted options to John V. Crues, III, M.D. and to
no other executive officer. The following table provides information about that
option grant and projects potential realizable gains at hypothetical assumed
annual compound rates of appreciation. Primedex had outstanding 12,691,937
options and warrants to purchase common stock as of October 31, 2005.


                                                                                                    POTENTIAL REALIZABLE
                                                  PERCENT OF                                          VALUE AT ASSUMED
                                                    TOTAL                 OPTION GRANT IN              ANNUAL RATE OF
                                    NUMBER OF       OPTIONS               2005 INDIVIDUAL               STOCK PRICE
                                   SECURITIES      GRANTED TO                 GRANTS                   APPRECIATION FO
                                   UNDERLYING      EMPLOYEES        ----------------------------       OPTION TERM (1)
                                    OPTIONS        IN FISCAL         EXERCISE        EXPIRATION     ---------------------
   NAME                             GRANTED          YEAR              PRICE            DATE           5%           10%
   ----                             -------          ----              -----            ----           --           ---
                                                                                           
John V. Crues, III, M.D.            500,000          55.6%            $ 0.36           06/07/10      $50,000    $  96,715


(1)  These values are solely the mathematical results of hypothetical assumed
     appreciation of the market value of the underlying shares at an annual rate
     of 5% and 10% over the full term of the options, less the exercise price.
     Actual gains, if any, will depend on future stock market performance of the
     underlying stock, market factors and conditions, and optionee's continued
     employment through the applicable vesting periods. We make no prediction as
     to the future value of these options or of the underlying stock, and these
     values are provided solely as examples required by the SEC rules.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES

       There were no option exercises in the year ended October 31, 2005 by the
Named Executive Officers except as follows:



                                                                 NUMBER OF SECRUITIES           VALUE OF UNEXERCISED
                                                                UNDERLYING UNEXERCISED              IN-THE-MONEY
                                SHARES                        OPTIONS AT FISCAL YEAR END             OPTIONS(2)
                               ACQUIRED         VALUE        ----------------------------    ----------------------------
NAME                         ON EXERCISE      REALIZED(1)    EXERCISABLE    UNEXERCISABLE    EXERCISABLE    UNEXERCISABLE
----                         -----------      -----------    -----------    -------------    -----------    -------------
                                                                                   
Jeffrey L. Linden              300,000         $ 63,000        1,275,000          --           $ 6,000          --

_______________

(1)  The value realized equals the fair market value of the common stock
     acquired on the date of exercise minus the exercise price.
(2)  Based on the closing price of the common stock of $0.32 per share as of
     January 13, 2005, less the option exercise price.

                                      52



EMPLOYMENT AGREEMENTS

       BRMG entered into a Management Consulting Agreement with Howard G.
Berger, M.D. as of January 1, 1994. The Agreement automatically renews annually
unless either party delivers notice of non-renewal to the other party no less
than 90 days prior to the scheduled termination date. Dr. Berger serves as the
manager of BRMG and the chief executive for BRMG's partnerships, and receives
compensation for his services from BRMG equal to $300,000 per year. Dr. Berger's
duties include the direction of day-to- day activities of BRMG, supervision of
personnel, and the implementation of policies and plans appropriate to carry out
the operational, financial and business objectives of BRMG. Under this
agreement, if we terminate his employment for cause, he will be entitled to
compensation equal to one year's base salary. If Dr. Berger terminates this
agreement without cause, he is entitled to compensation accrued through the
effective date of termination, and if his employment is terminated by BRMG
without cause, BRMG shall pay to Dr. Berger an amount equal to the sum of (i)
his base salary accrued through the effective date of termination; (ii) his base
salary for the balance of the term, but not less than his base salary for five
years; and (iii) an amount equal to the cost of all benefits he would receive
for the balance of the term. Dr. Berger's employment shall not terminate in the
event of a merger, consolidation, dissolution or other transaction whereby BRMG
would not be the surviving entity of such transaction, and Dr. Berger holds the
right to terminate this agreement upon 60 days notice in the event of any such
transaction.

       John V. Crues, III, M.D. entered into a renewable one-year employment
agreement dated as of January 15, 1996 with each of us and BRMG which requires
him to devote one-half of his time to each entity in exchange for annual
combined remuneration currently of $370,000. Dr. Crues' duties for us include
information management systems for radiology practices, imaging facility network
development and network marketing and management, utilization management,
utilization review, all forms of provider and payor contracts and physician
interaction. For BRMG, Dr. Crues' duties include diagnostic imaging,
professional physician services, utilization management, utilization review, all
forms of provider and payor contracts and physician interaction, some of which
require a license to practice medicine.

       On April 16, 2001, we entered into a five-year employment agreement with
Jeffrey L. Linden for Mr. Linden to serve as vice president and general counsel.
The agreement provides for annual compensation of $350,000, together with the
option to purchase 1,000,000 shares of our common stock at a price of $0.43 per
share (the closing price reported on the OTC Bulletin Board on the date the
agreement was executed), exercisable throughout his employment, or by June 1,
2006 if Mr. Linden's employment is terminated. The agreement also extended Mr.
Linden's ability to exercise 145,000 options previously held by him through May
31, 2006. Under this agreement, if we terminate Mr. Linden's employment for
cause, he will be entitled to compensation equal to one year's base salary. If
Mr. Linden terminates this agreement without cause, he is entitled to
compensation accrued through the effective date of termination, and if his
employment is terminated by us without cause, we shall pay Mr. Linden an amount
equal to the sum of (i) his base salary accrued through the effective date of
termination; (ii) his base salary for the balance of the term, but not less than
his base salary for five years; and (iii) an amount equal to the cost of all
benefits he would receive for the balance of the term. Mr. Linden's employment
shall not terminate in the event of a merger, consolidation, dissolution or
other transaction whereby we would not be the surviving entity of such
transaction, and Mr. Linden holds the right to terminate this agreement upon 60
days notice in the event of any such transaction. If Mr. Linden's employment is
terminated in connection with any such transaction he shall be entitled to the
same compensation he would have received if we terminated his employment without
cause.

       On May 1, 2001, we entered into a three-year employment agreement with
Norman R. Hames. Pursuant to the agreement Mr. Hames agreed to continue his
employment with us as our vice president and chief operations officer. The
agreement provides for Mr. Hames to receive annual compensation of $225,000.
Additionally, in consideration of his entry into the agreement Mr. Hames
received the option to purchase 3,000,000 shares of our common stock at a price
of $0.55 per share (the closing price reported on the OTC Bulletin Board on the
date the agreement was executed) exercisable throughout his employment, or by
May 1, 2006 if Mr. Hames' employment is terminated. We also agreed to provide a
cash bonus to Mr. Hames of $0.20 for each share that he exercises under the
options, up to a maximum of $600,000. Under this agreement, if we terminate his
employment for cause, he will be entitled to compensation equal to one year's
base salary. If Mr. Hames terminates this agreement without cause, he is
entitled to compensation accrued through the effective date of termination, and

                                      53



if his employment is terminated by us without cause, we shall pay Mr. Hames an
amount equal to the sum of (i) his base salary accrued through the effective
date of termination; (ii) his base salary for the balance of the term, but not
less than his base salary for three years; and (iii) an amount equal to the cost
of all benefits he would receive for the balance of the term. Mr. Hames'
employment shall not terminate in the event of a merger, consolidation,
dissolution or other transaction whereby we would not be the surviving entity of
such transaction.

       On July 30, 2004, we entered into a three year employment agreement with
Mark Stolper for Mr. Stolper to serve as our chief financial officer. Mr.
Stolper received a $25,000 payment on entry into the agreement and receives
annual compensation during the first twelve months of $215,000 and thereafter
$250,000 per year. At the end of the first twelve months, Mr. Stolper receives a
one time payment of $10,000. In connection with his employment, Mr. Stolper
received five-year warrants to purchase 650,000 shares of our common stock at
$0.30 per share (the closing price reported on the OTC Bulletin Board on the
date the agreement was executed).

STOCK INCENTIVE PLANS

       We have two stock incentive plans: our 2000 Long-Term Incentive Plan and
our Incentive Stock Option Plan.

       We have reserved 2,000,000 shares of common stock for issuance under our
2000 Long-Term Incentive Plan, or the 2000 Plan. The material features of the
2000 Plan are as follows:

       ADMINISTRATION

       The 2000 Plan is presently administered by our Board of Directors, but
upon our locating non-employee directors who have the requisite qualifications
will then be administered by a compensation committee appointed by the Board
which will consist of two or more non-employee Directors. Subject to the terms
of the 2000 Plan, the Board, and the compensation committee, if established, has
full authority to administer the 2000 Plan in all respects, including: (i)
selecting the individuals who are to receive awards under the 2000 Plan; (ii)
determining the specific form of any award; and (iii) setting the specific terms
and conditions of each award. Our senior legal and human resources
representatives are also authorized to take ministerial actions as necessary to
implement the 2000 Plan and awards issued under the 2000 Plan.

       ELIGIBILITY

       Employees, directors and other individuals who provide services to us,
our affiliates and subsidiaries who, in the opinion of the Board, or the
compensation committee, if applicable, are in a position to make a significant
contribution to our success or the success of our affiliates and subsidiaries
are eligible for awards under the 2000 Plan.

       AMOUNT OF AWARDS

       The value of shares or other awards to be granted to any recipient under
the 2000 Plan are not presently determinable. However, the 2000 Plan restricts
the number of shares and the value of awards not based on shares that may be
granted to any individual during a calendar year or performance period. In order
to facilitate our compliance with Section 162(m) of the Internal Revenue Code of
1986, as amended, or the Code, which deals with the deductibility of
compensation for any of the chief executive officer and the four other most
highly-paid executive officers, the 2000 Plan limits to 500,000 the number of
shares for which options, stock appreciation rights or other stock awards may be
granted to an individual in a calendar year and limits to $1,000,000 the value
of non-stock-based awards that may be paid to an individual with respect to a
performance period. These restrictions were adopted by the Board of Directors as
a means of complying with Code Section 162(m) and are not indicative of
historical or contemplated awards made or to be made to any individual under the
2000 Plan.

       STOCK OPTIONS

       The 2000 Plan authorizes the grant of options to purchase shares of
common stock, including options to employees intended to qualify as incentive
stock options within the meaning of Section 422 of the Code, as well as
non-statutory options. The term of each option will not exceed ten years and
each option will be exercisable at a price per share not less than 100% of the
fair market value of a share of common stock on the date of the grant.

                                      54



Generally, optionees will pay the exercise price of an option in cash or by
check, although the Board, and the compensation committee, if established, may
permit other forms of payment including payment through the delivery of shares
of common stock. Options granted under the 2000 Plan are generally not
transferable, except at death or as gifts to certain Family Members, as defined
in the 2000 Plan. At the time of grant or thereafter, the Board, and the
compensation committee, if established, may determine the conditions under which
stock options vest and remain exercisable.

       Unless otherwise determined by the Board, and the compensation committee,
if established, unexercised options will terminate if the holder ceases for any
reason to be associated with us, our affiliates or our subsidiaries. Options
generally remain exercisable for a specified period following termination for
reasons other than for Cause, as defined in the 2000 Plan, particularly in
circumstances of death, Disability and Retirement, as defined in the 2000 Plan.
In the event of a Change in Control or Covered Transaction, as defined in the
Incentive 2000 Plan, of our company, options become immediately exercisable
and/or are converted into options for securities of the surviving party as
determined by the Board, and the compensation committee, if established.

       OTHER AWARDS

       The Board, and the compensation committee, if established, may grant
stock appreciation rights which pay, in cash or common stock, an amount
generally equal to the difference between the fair market values of the common
stock at the time of exercise of the right and at the time of grant of the
right. In addition, the Board, and the compensation committee, if established,
may grant awards of shares of common stock at a purchase price less than fair
market value at the date of issuance, including zero. A recipient's right to
retain these shares may be subject to conditions established by the Board, and
the compensation committee, if established, if any, such as the performance of
services for a specified period or the achievement of individual or company
performance targets. The Board, and the compensation committee, if established,
may also issue shares of common stock or authorize cash or other payments under
the 2000 Plan in recognition of the achievement of certain performance
objectives or in connection with annual bonus arrangements.

       PERFORMANCE CRITERIA

       The Board, and the compensation committee, if established, may condition
the exercisability, vesting or full enjoyment of an award on specified
Performance Criteria. For purposes of Performance Awards, as defined in the 2000
Plan, that are intended to qualify for the performance-based compensation
exception under Code Section 162(m), Performance Criteria means an objectively
determinable measure of performance relating to any of the following as
specified by the Board, and the compensation committee, if established,
determined either on a consolidated basis or, as the context permits, on a
divisional, subsidiary, line of business, project or geographical basis or in
combinations thereof: (i) sales; revenue; assets; liabilities; costs; expenses;
earnings before or after deduction for all or any portion of interest, taxes,
depreciation, amortization or other items, whether or not on a continuing
operations or an aggregate or per share basis; return on equity, investment,
capital or assets; one or more operating ratios; borrowing levels, leverage
ratios or credit rating; market share; capital expenditures; cash flow; working
capital requirements; stock price; stockholder return; sales, contribution or
gross margin, of particular products or services; particular operating or
financial ratios; customer acquisition, expansion and retention; or any
combination of the foregoing; or (ii) acquisitions and divestitures, in whole or
in part; joint ventures and strategic alliances; spin-offs, split-ups and the
like; reorganizations; recapitalizations, restructurings, financings of debt or
equity and refinancings; transactions that would constitute a change of control;
or any combination of the foregoing. Performance Criteria measures and targets
determined by the Board, and the compensation committee, if established, need
not be based upon an increase, a positive or improved result or avoidance of
loss.

       AMENDMENTS

       The Board, and the compensation committee, if established, may amend the
2000 Plan or any outstanding award for any purpose permitted by law, or may at
any time terminate the 2000 Plan as to future grants of awards. The Board, and
the compensation committee, if established, may not, however, increase the
maximum number of shares of common stock issuable under the 2000 Plan or change
the description of the individuals eligible to receive awards. In addition, no
termination of or amendment to the 2000 Plan may adversely affect the rights of
a participant with respect to any award previously granted under the 2000 Plan
without the participant's consent, unless the compensation committee expressly
reserves the right to do so in writing at the time the award is made. To the
extent the Board, and the compensation committee, if established, desires the
2000 Plan to qualify under the Code, certain amendments may require stockholder
approval.

                                      55



       Our stockholders have adopted our Incentive Stock Option Plan, or the
Incentive Plan. The Incentive Plan is designed to qualify as an "incentive stock
option plan" under Section 422A of the Code. Under the Incentive Plan, options
to purchase up to 1,600,000 shares of common stock were authorized for grant to
key employees, including officers and directors. A committee of three directors
appointed by the Board of Directors administers the Incentive Plan and
designates the optionees, the number of shares subject to the options, and the
terms and conditions of each option.

       In May 1992, our Board of Directors authorized amendments to the
Incentive Plan, subject to stockholder approval, increasing the number of shares
reserved under the Incentive Plan to 2,000,000 shares of our common stock and
amending the Incentive Plan in accordance with changes adopted in 1986 to the
Code. These proposed amendments to the Incentive Plan were adopted by
stockholders at the annual meeting of stockholders held on November 17, 1992.

       Under the Incentive Plan, as amended, except for options granted to
holders of 10% or more of our outstanding stock, the exercise price of an option
must be at least 100% of the fair market value of the common stock on the
effective date of grant. Options granted under the Incentive Plan to
stockholders possessing more than 10% of our outstanding stock must be at an
exercise price equal to not less than 110% of such fair market value. We are not
issuing any additional options under the Incentive Plan because the Incentive
Plan terminated in 2002. All options granted must be exercised within 10 years
of date of grant. The aggregate fair market value of our common stock with
respect to which options are exercisable for the first time by a grantee under
the Incentive Plan during any calendar year may not exceed $100,000. Options
must be exercised by an optionee, if at all, within three months after the
termination of such optionee's employment for any reason other than for cause,
and within one year after termination of employment due to death or permanent
disability, unless by its terms the option expires sooner.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
-------- ------------------------------------------------------------------
         RELATED STOCKHOLDER MATTERS
         ---------------------------

       The following table sets forth certain information regarding the
beneficial ownership of our common stock as of January 15, 2006, by (i) each
holder known by us to beneficially own more than five percent of the outstanding
common stock and (ii) each of our directors and executive officers. The
percentages set forth in the table have been calculated on the basis of treating
as outstanding, for purposes of computing the percentage ownership of a
particular holder, all shares of our common stock outstanding at such date and
all shares of common stock purchasable upon exercise of options and warrants
owned by such holder which are exercisable at or within 60 days after such date.

                                                 SHARES OF COMMON      PERCENT
                                                      STOCK              OF
Name of Beneficial Owner                       BENEFICIALLY OWNED(1)    CLASS
------------------------                       ---------------------    -----

Howard G. Berger, M.D.*                             13,137,400(2)       21.6%
John V. Crues, III, M.D.*                            1,493,875(3)        2.5%
Norman R. Hames*                                     3,000,000(4)        4.9%
David L. Swartz*                                       100,000(5)         -- (5)
Lawrence L. Levitt*                                     50,000(6)         -- (6)
Jeffrey L. Linden*                                   1,670,000(7)        2.7%
Mark D. Stolper*                                       708,800(8)        1.2%

All directors and executive officers
 as a group (seven persons)                         20,160,075(9)       33.0%
________________________
* The address of all of our officers and directors is c/o Primedex, 1510 Cotner
Avenue, Los Angeles, California 90025.

(1)  Subject to applicable community property statutes and except as otherwise
     noted, each holder named in the table has sole voting and investment power
     with respect to all shares of common stock shown as beneficially owned.

(2)  Includes 122,400 shares issuable upon conversion of our outstanding
     convertible debentures convertible at $2.50 per share. As a result of his
     stock ownership and his positions as president and a director of our
     company, Howard G. Berger, M.D. may be deemed to be a controlling person of
     our company.

                                      56



(3)  Includes warrants for 1,000,000 shares exercisable between $0.36 and $0.46
     per share.

(4)  Represents warrants exercisable at $0.55 per share.

(5)  Represents warrants exercisable between $0.40 and $0.60 per share and is
     less than 1.0% of the class.

(6)  Represents warrants exercisable at $0.32 per share and is less than 1.0% of
     the class.

(7)  Includes 1,275,000 options and warrants exercisable at prices between $0.30
     and $0.47 per share.

(8)  Represents warrants for 700,000 shares exercisable at prices between $0.30
     and $0.60 per share.

(9)  See the above footnotes. Includes 13,912,675 shares owned of record and
     6,247,400 shares issuable upon exercise of presently exercisable options,
     warrants and convertible debentures.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------- ----------------------------------------------

       Howard G. Berger, M.D. owns, indirectly, 99% of the equity interests in
BRMG. BRMG provides all of the professional medical services at 42 of our
facilities under a management agreement with us (and contracts with various
other independent physicians and physician groups to provide all of the
professional medical services at most of our other facilities). Under our
management agreement with BRMG, which expires on January 1, 2014, BRMG pays us,
as compensation for the use of our facilities and equipment and for our
services, a percentage of the gross amounts collected for the professional
services it renders. The percentage, which was 79% for fiscal 2005, is adjusted
annually, if necessary, to ensure that the parties receive the fair value for
the services they render. The annual revenue of BRMG from all sources closely
approximates its expenses, including Dr. Berger's compensation, fees payable to
us and amounts payable to third parties. In fiscal 2005, Dr. Berger received a
salary of $200,000 from BRMG. See "Business - Radiology Professionals."

       Dr. Berger has guaranteed $1,000,000 of our obligations to U.S. Bank.

       On August 27, 2003, Dr. Berger advanced to us $1,000,000 which we
transferred to BRMG, which in turn used these funds to reduce outstanding
borrowings under its credit facility. The advance bears interest at the same
rate paid by BRMG to its lender under its working capital facility and is due on
demand. During fiscal 2005, Dr. Berger advanced us an additional $1,370,000
which we transferred to BRMG, which in turn used these funds to reduce
outstanding borrowings under its credit facility. At October 31, 2005,
$2,531,560 was outstanding, including accrued interest at a rate of 6.58% per
annum. Dr. Berger agreed to subordinate his loan to our obligation to Bridge
Healthcare Finance, LLC under our revolving line of credit.

       We maintain a $5.0 million key-man life insurance policy on the life of
Dr. Berger. We are the beneficiary under the policy.

       Historically, BRMG has regularly advanced to us the funds that it drew
under its working capital facility, which we used for our own working capital
purposes. We repaid or offset these advances with periodic payments from BRMG to
us under the management agreement. We guaranteed BRMG's obligations under this
working capital facility. Because under current GAAP principles we are required
to include BRMG as a consolidated entity in our consolidated financial
statements, any borrowings or advances we have received from or made to BRMG are
not reflected in our consolidated balance sheets.

       On August 1, 1996, we acquired from Norman Hames (not then an officer or
director of our company) all of his common stock and warrants to purchase shares
of common stock of Diagnostic Imaging Services, Inc., a Delaware corporation, or
DIS, which then represented 21.6% of the outstanding shares of that entity, in
exchange for five year warrants to purchase 3,000,000 shares of our common stock
at $0.60 per share, as well as a 6.58% note having a principal balance at
October 31, 2005 of $940,185, payable interest only annually and due on June 30,
2005. The warrant expired unexercised. Pursuant to his May 1, 2001 employment
agreement, we granted to him a new warrant, which expires on May 1, 2006, to
purchase 3,000,000 shares at $0.55 per share plus a bonus to purchase $600,000
of shares at $0.20 per share at the time he exercises the warrant.

                                      57



       John V. Crues, III, M.D. agreed to continue his employment and leadership
roles with us in consideration of our agreement in June 2005, to issue to him
our five year warrant to purchase 500,000 shares of our common stock at an
exercise price of $0.36 per share (the price of our common stock on the date of
the agreement in the public market in which it trades).

       At October 31, 2005, we owed Jeffrey L. Linden $61,151 in connection with
our acquisition of his interest in DIS. The obligation accrues interest at the
rate of 6.58% per annum and is due July 1, 2006. In the acquisition transaction,
we issued to Mr. Linden warrants to purchase 197,365 shares of common stock at a
price of $0.60 per share expiring June 30, 2004. In connection with an agreement
to extend our obligation to Mr. Linden, we issued to him warrants to purchase
300,000 shares of common stock at a price of $0.19 per share that he exercised
in June 2005. On July 30, 2004, we issued to Mr. Linden a five year warrant to
purchase 200,000 shares of our common stock at an exercise price of $0.30 per
share in consideration of Mr. Linden's agreement to subordinate our obligation
to him to our debt with our revolving line of credit.

       Cohen & Lord, a professional corporation, a law firm with which Mr.
Linden is associated, received $365,695 in fees from us during the year ended
October 31, 2005. Mr. Linden has specifically waived any interest in our fees
since becoming an officer of our company.

       On July 30, 2004, we issued to Mark D. Stolper five-year warrants to
purchase 650,000 shares of our common stock at $0.30 per share in consideration
of his entry into a three year employment agreement with us under which he
became our chief financial officer and his assistance in refinancing our
outstanding institutional debt. The warrant exercise price is the price of our
common stock on the date of the agreement in the public market in which it
trades.


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
-------- ---------------------------------------

       The following table presents information about fees that Moss Adams LLP
charged us to audit our annual financial statements for 2005 and 2004, and fees
billed for other services rendered by Moss Adams LLP during those years.

                                                       2005               2004
                                                     --------           --------
Audit Fees (1)                                       $227,000           $221,000
Audit Related Fees (2)                                 13,000            239,000
Tax Fees (3)                                           92,000            104,000
                                                     --------           --------
Total                                                $332,000           $564,000
                                                     ========           ========

(1)  Audit Fees -- Audit fees billed to us by Moss Adams LLP for auditing our
     annual financial statements and reviewing the financial statements included
     in our Quarterly Reports on Form 10-Q.

(2)  Audit-Related Fees -- Audit-related fees billed to us by Moss Adams LLP
     include the audit of our 401(k) benefit plan and offering memorandum.

(3)  Tax Fees -- Tax fees billed to us by Moss Adams LLP include services
     provided to prepare federal, state, and local income and franchise tax
     returns for 2004, and related tax services and estimated tax payments for
     2005.


PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES OF INDEPENDENT AUDITOR

       The Audit Committee's policy is to pre-approve all audit and non-audit
services provided by the independent auditors. These services may include audit
services, audit-related services, tax services, and other services. Pre-approval
is generally provided for up to 12 months from the date of pre-approval and any
pre-approval is detailed as to the particular service or category of services.
The Audit Committee may delegate pre-approval authority to one or more of its
members when expedited services are necessary. The Audit Committee has
determined that the provision of non-audit services by Moss Adams LLP is
compatible with maintaining Moss Adams' independence.

                                      58





                                     PART IV
                                                                                                    
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                               PAGE NO.

(a) Financial Statements - The following financial statements are filed herewith:

    Report of Independent Registered Public Accounting Firm                                                F-1

    Consolidated Balance Sheets                                                                            F-2

    Consolidated Statements of Operations                                                                  F-3

    Consolidated Statements of Stockholders' Deficit                                                       F-4

    Consolidated Statements of Cash Flows                                                                  F-5 to F-7

    Notes to Consolidated Financial Statements                                                             F-8 to F-25

    Schedules - The Following financial statement schedules are filed herewith:

    Report of Independent Registered Public Accounting Firm on Supplemental Schedule                       S-1

    Schedule II - Valuation and Qualifying Accounts                                                        S-2

All other schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or notes thereto.

(b) Exhibits - The following exhibits are filed herewith or incorporated by
reference herein:

                                                                                     INCORPORATED BY
EXHIBIT NO.         DESCRIPTION OF EXHIBIT                                            REFERENCE TO

3.1.1               Certificate of Incorporation as amended                                 (A)

3.1.2               November 17, 1992 amendment to the Certificate of Incorporation         (A)

3.1.3               December 27, 2000 amendment to the Certificate of Incorporation         (E)

3.2                 By-laws                                                                 (A)

4.1                 Form of Common Stock Certificate                                        (AA)

4.2                 Form of Supplemental Indenture between Registrant and American
                    Stock Transfer and Trust Company as Incorporated by Indenture
                    Trustee with respect to the 11.5% Series A Convertible
                    Subordinated Debentures due 2008                                        (B)

4.3                 Form of 11.5% Series A Convertible Subordinated Debenture
                    Due 2008 [Included in Exhibit 4.2]                                      (B)

10.1                Employment Agreement dated as of June 12, 1992 between RadNet
                    and Howard G. Berger, M.D. and amendment to Agreement.                  (C)(I)

10.6                Securities Purchase Agreement dated March 22, 1996, between
                    the Company and Diagnostic Imaging Services, Inc.                       (D)

10.7                Stockholders Agreement by and among the Company, Diagnostic
                    Imaging Services, Inc. and Norman Hames                                 (D)

10.8                Securities Purchase Agreement dated June 18, 1996 between the
                    Company and Norman Hames                                                (D)

10.10               DVI Securities Purchase Agreement                                       (E)

10.11               General Electric Note Purchase Agreement                                (E)

10.12               Securities Purchase Agreement between the Company and
                    Howard G. Berger, M.D.                                                  (E)

10.13               2000 Long-Term Incentive Plan                                           (F)

                                      59



10.14               Employment Agreement dated April 16, 2001, with Jeffrey L. Linden
                    and amendment to agreement                                              (G)(I)

10.15               Employment Agreement with Norman R. Hames dated May 1, 2001
                    and amendment to agreement                                              (G)(I)

10.16               Amended and Restated Management Agreement with Beverly Radiology
                    Medical Group III dated as of January 1, 2004                           (H)

10.17               Code of Financial Ethics                                                (H)

10.18               Incentive Stock Option Plan                                             (H)

10.19               DVI Agreement as amended                                                (J)

10.20               Master Amendment Agreement with General Electric Capital
                    Corporation, General Electric Company and GE Healthcare
                    Financial Services                                                      (K)

10.21               Amended, Restated and Consolidated Loan and Security Agreement
                    with DVI Financial Services, Inc.                                       (K)

10.22               Amendment to Loan Documents re US Bank Portfolio Services               (K)

10.23               Credit Agreement with Wells Fargo Foothill, Inc.                        (K)

10.24               Employment Agreement with Mark Stolper dated July 30, 2004              (N)

10.25               Second Amended and Restated Loan and Security Agreement with
                    Post Advisory Group, LLC                                                (L)

10.26               Amended, Restated and Consolidated Loan and Security Agreement
                    with Post Advisory Group, LLC                                           (L)

10.27               Fourth Amendment to Credit Agreement Substituting Bridge
                    Healthcare Finance, LLC for Wells Fargo Foothill, Inc.                  (M)

23                  Consent of Independent Public Accountants                               (O)

31.1                CEO Certification pursuant to Section 302                               (O)

31.2                CFO Certification pursuant to Section 302                               (O)

32.1                CEO Certification pursuant to Section 906                               (O)

32.2                CFO Certification pursuant to Section 906                               (O)
__________________


(A) Incorporated by reference to exhibit filed with Registrant's Registration
Statement on Form S-1 [File No. 33-51870].

(AA) Incorporated by reference to exhibit filed with Registrant's Registration
Statement on Form S-3 [File 33-73150].

(B) Incorporated by reference to exhibit filed with Registrant's Registration
Statement on Form T-3 [File No. 022-28703].

(C) Incorporated by reference to exhibit filed in an amendment to Form 8-K
report for June 12, 1992.

(D) Incorporated by reference to exhibit filed with Form 10-K for the year ended
October 31, 1996.

(E) Incorporated by reference to exhibit filed with the Form 10-K for the year
ended October 31, 2000.

(F) Incorporated by reference to exhibit filed with the Form 10-Q for the
quarter ended January 31, 2000.

(G) Incorporated by reference to exhibit filed with the Form 10-K for the year
ended October 31, 2001.

(H) Incorporated by reference to exhibit filed with the Form 10-K for the year
ended October 31, 2003.

                                      60



(I) Incorporated by reference to exhibit filed with the Form 10-Q for the
quarter ended January 31, 2004.

(J) Incorporated by reference to exhibit filed with the Form 10-Q for the
quarter ended April 30, 2004.

(K) Incorporated by reference to exhibit filed with the Form 8-K report for
August 2, 2004.

(L) Incorporated by reference to exhibit filed with Form 8-K for November 29,
2004.

(M) Incorporated by reference to exhibit filed with Form 8-K for September 14,
2005.

(N) Incorporated by reference to exhibit filed with Form 10-K for October 31,
2004.

(O) Filed herewith.

REGISTRANT'S PERCENTAGE                            STATE OF
SUBSIDIARIES                                       OWNERSHIP       INCORPORATION
------------                                       ---------       -------------

RadNet Management, Inc.                              100%          California
RadNet Managed Imaging Services, Inc.                100%          California
Diagnostic Imaging Services, Inc.                    100%          Delaware
Primedex Corporation                                 100%          California
Radnet Management I, Inc.                            100%          California
Radnet Management II, Inc.                           100%          California
Radnet Sub, Inc.                                     100%          California
SoCal MR Site Management, Inc.                       100%          California

(c) Reports on Form 8-K

       No reports on Form 8-K were filed during the quarter ended October 31,
2005 except that on September 14, 2005, we reported under Item 2.03 the
replacement of our revolving line of credit accounts receivable facility, from
Wells Fargo Foothill, Inc. to Bridge Healthcare Finance, LLC.


                                      61




                                   SIGNATURES


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


                                        PRIMEDEX HEALTH SYSTEMS, INC.



Date: September 28, 2006                /s/ HOWARD G. BERGER, M.D.
                                        ----------------------------------------
                                        HOWARD G. BERGER, M.D., PRESIDENT


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


By /s/ HOWARD G. BERGER, M.D.
   ---------------------------------------
   HOWARD G. BERGER, M.D., DIRECTOR


Date: September 28, 2006



By /s/ JOHN V. CRUES, III, M.D.
   ---------------------------------------
   JOHN V. CRUES, III, M.D., DIRECTOR


Date: September 28, 2006


By /s/ NORMAN R. HAMES
   ---------------------------------------
   NORMAN R. HAMES, DIRECTOR


Date: September 28, 2006


By /s/ DAVID L. SWARTZ
   --------------------------------------
   DAVID L. SWARTZ, DIRECTOR


Date: September 28, 2006


By /s/ LAWRENCE L. LEVITT
   -------------------------------------
   LAWRENCE L. LEVITT, DIRECTOR


Date: September 28, 2006


By /s/ MARK D. STOLPER
   -------------------------------------
   MARK D. STOLPER, CHIEF FINANCIAL OFFICER
   (PRINCIPAL ACCOUNTING OFFICER)


Date: September 28, 2006


                                      62