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NOTE 2 - SUPPLEMENTAL GUARANTOR INFORMATION

9 Months Ended

Sep. 30, 2011

Guarantor Obligations, Related Party Disclosure

NOTE 2 — SUPPLEMENTAL GUARANTOR INFORMATION

The following tables present unaudited interim condensed consolidating financial information for: (a) RadNet, Inc. (the “Parent”) on a stand-alone basis as a guarantor of the publicly registered senior notes due 2018 ; (b) Radnet Management, Inc., the subsidiary issuer (the “Subsidiary Issuer”) of the publicly registered senior notes due 2018; (c) on a combined basis, the guarantor subsidiaries (the “Guarantor Subsidiaries”) of the publicly registered senior notes due 2018, which include all other 100% owned subsidiaries of the Subsidiary Issuer; (d) on a combined basis, the non-guarantor subsidiaries, which include joint venture partnerships of which the Subsidiary Issuer holds investments of 50% or greater, as well as BRMG, which we consolidate as a variable interest entity. Separate financial statements of the Subsidiary Issuer or the Guarantor Subsidiaries are not presented because the guarantee by the Parent and each Guarantor Subsidiary is full and unconditional, joint and several. In lieu thereof, the Parent includes the following:

RADNET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, 2011

(in thousands)

(unaudited)

						Subsidiary				Guarantor				Non-Guarantor
		Parent				Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated

ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	-			$	-			$	22			$	232			$	-			$	254
Accounts receivable, net			-				-				72,492				49,544				-				122,036
Prepaid expenses and other current assets			-				9,133				6,610				560				-				16,303
Total current assets			-				9,133				79,124				50,336				-				138,593
PROPERTY AND EQUIPMENT, NET			-				47,016				142,630				1,785				-				191,431
OTHER ASSETS
Goodwill			-				42,790				111,105				-				-				153,895
Other intangible assets			-				72				54,317				-				-				54,389
Deferred financing costs, net			-				13,517				-				-				-				13,517
Investment in subsidiaries			(76,292	)			239,470				9,100				-				(172,278	)			-
Investment in joint ventures			-				-				17,275				-				-				17,275
Deposits and other			-				1,564				1,570				-				-				3,134
Total assets		$	(76,292	)		$	353,562			$	415,121			$	52,121			$	(172,278	)		$	572,234
LIABILITIES AND EQUITY CURRENT LIABILITIES
Intercompany		$	-			$	(147,805	)		$	113,661			$	34,144			$	-			$	-
Accounts payable and accrued expenses			-				48,607				37,351				7,882				-				93,840
Due to affiliates			-				-				1,525				-				-				1,525
Deferred revenue			-				-				1,191				-				-				1,191
Current portion of notes payable			-				2,980				2,359				-				-				5,339
Current portion of deferred rent			-				484				490				-				-				974
Obligations under capital leases			-				3,726				2,465				365				-				6,556
Total current liabilities			-				(92,008	)			159,042				42,391				-				109,425
LONG-TERM LIABILITIES
Deferred rent, net of current portion			-				7,543				4,526				-				-				12,069
Deferred taxes			-				-				277				-				-				277
Line of Credit			-				31,300																31,300
Notes payable, net of current portion			-				474,519				3,358				-				-				477,877
Obligations under capital leases, net of current portion			-				1,743				606				522				-				2,871
Other non-current liabilities			-				6,757				7,842				-				-				14,599
Total liabilities			-				429,854				175,651				42,913				-				648,418

EQUITY DEFICIT
Total Radnet, Inc.'s equity deficit			(76,292	)			(76,292	)			239,470				9,100				(172,278	)			(76,292	)
Noncontrolling interests			-				-				-				108				-				108
Total equity deficit			(76,292	)			(76,292	)			239,470				9,208				(172,278	)			(76,184	)
Total liabilities and equity deficit		$	(76,292	)		$	353,562			$	415,121			$	52,121			$	(172,278	)		$	572,234

RADNET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

December 31, 2010

(in thousands)

						Subsidiary				Guarantor				Non-Guarantor
		Parent				Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated

ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	-			$	205			$	-			$	422			$	-			$	627
Accounts receivable, net			-				-				52,493				43,601				-				96,094
Prepaid expenses and other current assets			-				8,481				5,543				280				-				14,304
Total current assets			-				8,686				58,036				44,303				-				111,025
PROPERTY AND EQUIPMENT, NET			-				46,893				145,770				1,567				-				194,230
OTHER ASSETS
Goodwill			-				41,768				101,585				-				-				143,353
Other intangible assets			-				137				57,211				-				-				57,348
Deferred financing costs, net			-				15,486				-				-				-				15,486
Investment in subsidiaries			(82,530	)			218,393				9,223				-				(145,086	)			-
Investment in joint ventures			-				-				15,444				-				-				15,444
Deposits and other			-				1,320				1,308				-				-				2,628
Total assets		$	(82,530	)		$	332,683			$	388,577			$	45,870			$	(145,086	)		$	539,514
LIABILITIES AND EQUITY DEFICIT
CURRENT LIABILITIES
Intercompany		$	-			$	(133,637	)		$	107,258			$	26,379			$	-			$	-
Accounts payable and accrued expenses			-				44,450				30,997				7,172				-				82,619
Due to affiliates			-				-				1,082				1,893				-				2,975
Deferred revenue			-				-				1,568				-				-				1,568
Current portion of notes payable			-				3,082				5,136				-				-				8,218
Current portion of deferred rent			-				321				424				-				-				745
Obligations under capital leases			-				5,640				3,150				349				-				9,139
Total current liabilities			-				(80,144	)			149,615				35,793				-				105,264
LONG-TERM LIABILITIES
Deferred rent, net of current portion			-				6,086				4,293				-				-				10,379
Deferred taxes			-				-				277				-				-				277
Notes payable, net of current portion			-				475,231				6,347				-				-				481,578
Obligations under capital leases, net of current portion			-				3,535				1,307				797				-				5,639
Other non-current liabilities			-				10,505				8,345				-				-				18,850
Total liabilities			-				415,213				170,184				36,590				-				621,987

EQUITY DEFICIT
Total Radnet, Inc.'s equity deficit			(82,530	)			(82,530	)			218,393				9,223				(145,086	)			(82,530	)
Noncontrolling interests			-				-				-				57				-				57
Total equity deficit			(82,530	)			(82,530	)			218,393				9,280				(145,086	)			(82,473	)
Total liabilities and equity deficit		$	(82,530	)		$	332,683			$	388,577			$	45,870			$	(145,086	)		$	539,514

RADNET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For The Three Months Ended September 30, 2011

(in thousands)

(unaudited)

						Subsidiary				Guarantor				Non-Guarantor
		Parent				Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated
NET REVENUE		$	-			$	31,509			$	104,743			$	14,593			$	-			$	150,845

OPERATING EXPENSES
Operating expenses			-				27,756				76,459				13,532				-				117,747
Depreciation and amortization			-				3,640				10,497				172				-				14,309
Provision for bad debts			-				1,155				6,822				631				-				8,608
Gain on sale of equipment			-				(271	)			(60	)			-				-				(331	)
Severance costs			-				14				302				-				-				316
Total operating expenses			-				32,294				94,020				14,335				-				140,649

INCOME (LOSS) FROM OPERATIONS			-				(785	)			10,723				258				-				10,196

OTHER EXPENSES
Interest expense			-				7,649				5,579				14				-				13,242
Other expenses (income)			-				(1,581	)			75				-				-				(1,506	)
Total other expenses			-				6,068				5,654				14				-				11,736


INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF JOINT VENTURES			-				(6,853	)			5,069				244				-				(1,540	)
Benefit from (provision for) income taxes			-				-				(236	)			2				-				(234	)
Equity in earnings of consolidated subsidiaries			39				6,892				237				-				(7,168	)			-
Equity in earnings of joint ventures			-				-				1,822				-				-				1,822
NET INCOME			39				39				6,892				246				(7,168	)			48
Net income attributable to noncontrolling interests			-				-				-				9				-				9

NET INCOME ATTRIBUTABLE TO RADNET, INC.COMMON STOCKHOLDERS		$	39			$	39			$	6,892			$	237			$	(7,168	)		$	39

RADNET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For The Three Months Ended September 30, 2010

(in thousands)

(unaudited)

						Subsidiary				Guarantor				Non-Guarantor
		Parent				Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated
NET REVENUE		$	-			$	29,997			$	95,966			$	14,130			$	-			$	140,093

OPERATING EXPENSES
Operating expenses			-				26,164				67,361				13,109				-				106,634
Depreciation and amortization			-				3,536				9,433				33				-				13,002
Provision for bad debts			-				1,313				6,529				616				-				8,458
Loss on sale of equipment			-				130				321				-				-				451
Severance costs			-				106				31				27				-				164
Total operating expenses			-				31,249				83,675				13,785				-				128,709

INCOME (LOSS) FROM OPERATIONS			-				(1,252	)			12,291				345				-				11,384

OTHER EXPENSES
Interest expense			-				7,073				5,706				2				-				12,781
Other expenses			-				821				-				-				-				821
Total other expenses			-				7,894				5,706				2				-				13,602

INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF JOINT VENTURES			-				(9,146	)			6,585				343				-				(2,218	)
Benefit from (provision for) income taxes			-				1				(314	)			(4	)			-				(317	)
Equity in earnings (losses) of consolidated subsidiaries			(285	)			8,860				307				-				(8,882	)			-
Equity in earnings of joint ventures			-				-				2,282				-				-				2,282
NET INCOME (LOSS)			(285	)			(285	)			8,860				339				(8,882	)			(253	)
Net income attributable to noncontrolling interests			-				-				-				32				-				32

NET INCOME (LOSS) ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS		$	(285	)		$	(285	)		$	8,860			$	307			$	(8,882	)		$	(285	)

RADNET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For The Nine Months Ended September 30, 2011

(in thousands)

(unaudited)

						Subsidiary				Guarantor				Non-Guarantor
		Parent				Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated
NET REVENUE		$	-			$	93,923			$	312,639			$	46,131			$	-			$	452,693

OPERATING EXPENSES
Operating expenses			-				81,650				228,448				42,590				-				352,688
Depreciation and amortization			-				10,649				31,484				393				-				42,526
Provision for bad debts			-				3,300				20,066				1,895				-				25,261
Loss (gain) on sale of equipment			-				(2,334	)			406				-				-				(1,928	)
Severance costs			-				203				767				-				-				970
Total operating expenses			-				93,468				281,171				44,878				-				419,517

INCOME FROM OPERATIONS			-				455				31,468				1,253				-				33,176

OTHER EXPENSES
Interest expense			-				22,569				16,689				49				-				39,307
Other expenses (income)			-				(3,641	)			75				-				-				(3,566	)
Total other expenses			-				18,928				16,764				49				-				35,741

INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF JOINT VENTURES			-				(18,473	)			14,704				1,204				-				(2,565	)
Provision for income taxes			-				(31	)			(683	)			(4	)			-				(718	)
Equity in earnings of consolidated subsidiaries			2,684				21,188				1,038								(24,910	)			-
Equity in earnings of joint ventures			-				-				6,129				-				-				6,129
NET INCOME			2,684				2,684				21,188				1,200				(24,910	)			2,846
Net income attributable to noncontrolling interests			-				-				-				162				-				162

NET INCOME ATTRIBUTABLE TO RADNET, INC.COMMON STOCKHOLDERS		$	2,684			$	2,684			$	21,188			$	1,038			$	(24,910	)		$	2,684

RADNET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For The Nine Months Ended September 30, 2010

(in thousands)

(unaudited)

										Subsidiary
						Subsidiary				Guarantor				Non-Guarantor
		Parent				Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated
NET REVENUE		$	-			$	89,204			$	271,830			$	42,188			$	-			$	403,222

OPERATING EXPENSES
Operating expenses			-				78,255				193,750				39,473				-				311,478
Depreciation and amortization			-				10,184				29,866				103				-				40,153
Provision for bad debts			-				3,920				18,836				1,847				-				24,603
Loss on sale of equipment			-				202				404				-				-				606
Severance costs			-				471				233				27				-				731
Total operating expenses			-				93,032				243,089				41,450				-				377,571

INCOME (LOSS) FROM OPERATIONS			-				(3,828	)			28,741				738				-				25,651

OTHER EXPENSES
Interest expense			-				18,157				17,312				8				-				35,477
Loss on extinguishment of debt			-				9,871				-				-				-				9,871
Other expenses			-				1,971				-				-				-				1,971
Total other expenses			-				29,999				17,312				8				-				47,319

INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF JOINT VENTURES			-				(33,827	)			11,429				730				-				(21,668	)
Provision for income taxes			-				(18	)			(499	)			(6	)			-				(523	)
Equity in earnings (losses) of consolidated subsidiaries			(16,152	)			17,693				649								(2,190	)			-
Equity in earnings of joint ventures			-				-				6,114				-				-				6,114
NET INCOME (LOSS)			(16,152	)			(16,152	)			17,693				724				(2,190	)			(16,077	)
Net income attributable to noncontrolling interests			-				-				-				75				-				75

NET INCOME (LOSS) ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS		$	(16,152	)		$	(16,152	)		$	17,693			$	649			$	(2,190	)		$	(16,152	)

RADNET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For The Nine Months Ended September 30, 2011

(in thousands)

(unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES		Parent				Subsidiary Issuer				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations				Consolidated
Net income		$	2,684			$	2,684			$	21,188			$	1,200			$	(24,910	)		$	2,846
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization			-				10,649				31,484				393				-				42,526
Provision for bad debts			-				3,300				20,066				1,895				-				25,261
Equity in earnings of consolidated subsidiaries			(2,684	)			(21,188	)			(1,038	)							24,910				-
Distributions from consolidated subsidiaries							-				1,160				-				(1,160	)			-
Equity in earnings of joint ventures			-				-				(6,129	)											(6,129	)
Distributions from joint ventures			-				-				6,408				-				-				6,408
Deferred rent amortization			-				1,603				316				-				-				1,919
Amortization of deferred financing costs			-				2,186				-				-				-				2,186
Amortization of bond discount							180				-												180
Loss (gain) on sale of equipment			-				(2,334	)			406				-				-				(1,928	)
Amortization of cash flow hedge							918				-												918
Stock-based compensation			-				625				1,874				-				-				2,499
Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in purchase transactions:
Accounts receivable			-				-				(36,807	)			(13,058	)			-				(49,865	)
Other current assets			-				(641	)			(1,391	)			(280	)			-				(2,312	)
Other assets			-				(244	)			(220	)			-				-				(464	)
Deferred revenue											(377	)											(377	)
Accounts payable and accrued expenses			-				(11,051	)			9,629				11,806				-				10,384
Net cash provided by (used in) operating activities			-				(13,313	)			46,569				1,956				(1,160	)			34,052
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of imaging facilities			-				(2,005	)			(11,681	)			-				-				(13,686	)
Purchase of property and equipment			-				(8,299	)			(25,368	)			(616	)			-				(34,283	)
Proceeds from insurance claims on damaged equipment							2,422				318												2,740
Proceeds from sale of equipment							-				310												310
Purchase of equity interest in joint ventures			-				-				(1,500	)			-				-				(1,500	)
Net cash used in investing activities			-				(7,882	)			(37,921	)			(616	)			-				(46,419	)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on notes and leases payable			-				(5,461	)			(8,677	)			(259	)			-				(14,397	)
Deferred financing costs			-				(217	)			-				-				-				(217	)
Distributions paid to noncontrolling interests			-				-				-				(1,271	)			1,160				(111	)
Proceeds from, net of payments, on line of credit			-				31,300				-				-				-				31,300
Payments to counterparties of cash flow hedges			-				-				-				-				-				-
net of amounts received							(4,874	)															(4,874	)
Proceeds from issuance of common stock			-				242				-				-				-				242
Net cash provided by (used in) financing activities			-				20,990				(8,677	)			(1,530	)			1,160				11,943
EFFECT OF EXCHANGE RATE CHANGES ON CASH											51				-								51
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			-				(205	)			22				(190	)			-				(373	)
CASH AND CASH EQUIVALENTS, beginning of period			-				205				-				422				-				627
CASH AND CASH EQUIVALENTS, end of period		$	-			$	-			$	22			$	232			$	-			$	254

RADNET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For The Nine Months Ended September 30, 2010

(in thousands)

(unaudited)

						Subsidiary				Guarantor				Non-Guarantor
CASH FLOWS FROM OPERATING ACTIVITIES		Parent				Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Net income (loss)		$	(16,152	)		$	(16,152	)		$	17,693			$	724			$	(2,190	)		$	(16,077	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization			-				10,184				29,866				103				-				40,153
Provision for bad debts			-				3,920				18,836				1,847				-				24,603
Equity in (earnings) loss of consolidated subsidiaries			16,152				(17,693	)			(649	)							2,190				-
Distributions from consolidated subsidiaries							-				685				-				(685	)			-
Equity in earnings of joint ventures			-				-				(6,114	)											(6,114	)
Distributions from joint ventures			-				-				8,339				-				-				8,339
Deferred rent amortization			-				1,037				838				-				-				1,875
Amortization of deferred financing costs			-				2,074				-				-				-				2,074
Amortization of bond discount							107																107
Loss on sale of equipment			-				202				404				-				-				606
Loss on extinguishment of debt			-				9,871				-				-				-				9,871
Amortization of cash flow hedge			-				611				-				-				-				611
Stock-based compensation			-				705				2,115				-				-				2,820
Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in purchase transactions:
Accounts receivable			-				-				(17,628	)			(10,050	)			-				(27,678	)
Other current assets			-				(3,161	)			(2,254	)			(260	)			-				(5,675	)
Other assets			-				960				(1,008	)			-				-				(48	)
Accounts payable and accrued expenses			-				(6,972	)			12,861				8,798				-				14,687
Net cash provided by (used in)operating activities			-				(14,307	)			63,984				1,162				(685	)			50,154
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of imaging facilities			-				(1,401	)			(33,179	)			-				-				(34,580	)
Proceeds from sale of equipment							61				33												94
Purchase of property and equipment			-				(11,381	)			(21,409	)			(345	)			-				(33,135	)
Purchase of equity interest in joint ventures			-				-				-				-				-				-
Net cash used in investing activities			-				(12,721	)			(54,555	)			(345	)			-				(67,621	)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on notes and leases payable			-				(6,866	)			(9,429	)			-				-				(16,295	)
Repayment of debt			-				(412,000	)			-				-				-				(412,000	)
Proceeds from borrowings			-				482,360				-				-				-				482,360
Deferred financing costs			-				(17,407	)			-				-				-				(17,407	)
Distributions paid to noncontrolling interests			-				-				-				(769	)			685				(84	)
Payments on line of credit			-				-				-				-				-				-
Payments to counterparties of cash flow hedges			-				(4,783	)			-				-				-				(4,783	)
Proceeds from issuance of common stock			-				49				-				-				-				49
Net cash provided by (used in)financing activities			-				41,353				(9,429	)			(769	)			685				31,840
EFFECT OF EXCHANGE RATE CHANGES ON CASH															(5	)							(5	)
NET INCREASE IN CASH AND CASH EQUIVALENTS			-				14,325				-				43				-				14,368
CASH AND CASH EQUIVALENTS, beginning of period			-				10,094				-				-				-				10,094
CASH AND CASH EQUIVALENTS, end of period		$	-			$	24,419			$	-			$	43			$	-			$	24,462

Describes certain required disclosures for those guarantees that are issued to benefit entities meeting the definition of a related party.

Reference 1: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 850

-SubTopic 10

-Section 50

-Paragraph 1

-URI http://asc.fasb.org/extlink&oid=6457730&loc=d3e39549-107864

Reference 2: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Glossary Related Parties

-URI http://asc.fasb.org/extlink&oid=6523133

Reference 3: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 57

-Paragraph 2

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 4: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 460

-SubTopic 10

-Section 50

-Paragraph 6

-URI http://asc.fasb.org/extlink&oid=6851643&loc=d3e12265-110248

Reference 5: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 57

-Paragraph 24

-Subparagraph f

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 6: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name FASB Interpretation (FIN)

-Number 45

-Paragraph 16

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.