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7. SUPPLEMENTAL GUARANTOR INFORMATION

3 Months Ended

Mar. 31, 2014

In accordance with SEC Regulation S-X, Rule 3-10, Paragraph (d), 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 registered senior notes due 2018 ; (b) Radnet Management, Inc., the subsidiary borrower and issuer (the “Subsidiary Issuer”) of the registered senior notes due 2018; (c) on a combined basis, the guarantor subsidiaries (the “Guarantor Subsidiaries”) of the 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 and the Crues Entities, which we consolidate as VIEs. 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.

RADNET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

March 31, 2014

(in thousands)

(unaudited)

				Subsidiary			Guarantor		Non-Guarantor
	Parent			Issuer			Subsidiaries		Subsidiaries		Eliminations			Consolidated

ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	–		$	–		$	291	$	–	$	–		$	291
Accounts receivable, net		–			–			75,567		65,062		–			140,629
Current portion of deferred taxes		–			–			16,691		–		–			16,691
Prepaid expenses, current portion of deferred financing costs and other current assets		–			9,579			15,133		543		–			25,255
Total current assets		–			9,579			107,682		65,605		–			182,866
PROPERTY AND EQUIPMENT, NET		–			56,455			163,428		6,326		–			226,209
OTHER ASSETS
Goodwill		–			49,444			142,521		4,740		–			196,705
Other intangible assets		–			120			49,140		74		–			49,334
Deferred financing costs, net of current portion		–			7,886			–		–		–			7,886
Investment in subsidiaries		(11,524	)		427,624			25,720		–		(441,820	)		–
Investment in joint ventures		–			1,009			27,930		–		–			28,939
Deferred tax assets, net of current portion		–			–			41,080		–		–			41,080
Deposits and other		–			1,550			2,596		79		–			4,225
Total assets	$	(11,524	)	$	553,667		$	560,097	$	76,824	$	(441,820	)	$	737,244
LIABILITIES AND EQUITY (DEFICIT)
CURRENT LIABILITIES
Intercompany	$	–		$	(102,714	)	$	68,411	$	34,303	$	–		$	–
Accounts payable, accrued expenses and other		–			45,811			32,002		12,646		–			90,459
Due to affiliates		–			–			1,548		–		–			1,548
Deferred revenue		–			–			1,305		–		–			1,305
Current portion of notes payable		–			18,406			1,179		32		–			19,617
Current portion of deferred rent		–			1,112			809		42		–			1,963
Current portion of obligations under capital leases		–			1,517			4,533		536		–			6,586
Total current liabilities		–			(35,868	)		109,787		47,559		–			121,478
LONG-TERM LIABILITIES
Deferred rent, net of current portion		–			11,097			7,745		423		–			19,265
Line of Credit		–			18,100			–		–		–			18,100
Notes payable, net of current portion		–			569,258			33		916		–			570,207
Obligations under capital leases, net of current portion		–			2,604			7,725		–		–			10,329
Other non-current liabilities		–			–			7,183		–		–			7,183
Total liabilities		–			565,191			132,473		48,898		–			746,562

STOCKHOLDERS' (DEFICIT) EQUITY
Total RadNet, Inc.'s stockholders' (deficit) equity		(11,524	)		(11,524	)		427,624		25,720		(441,820	)		(11,524	)
Noncontrolling interests		–			–			–		2,206		–			2,206
Total stockholders' (deficit) equity		(11,524	)		(11,524	)		427,624		27,926		(441,820	)		(9,318	)
Total liabilities and stockholders' (deficit) equity	$	(11,524	)	$	553,667		$	560,097	$	76,824	$	(441,820	)	$	737,244

RADNET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

December 31, 2013

(in thousands)

(unaudited)

				Subsidiary			Guarantor		Non-Guarantor
	Parent			Issuer			Subsidiaries		Subsidiaries		Eliminations			Consolidated

ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	–		$	–		$	8,412	$	–	$	–		$	8,412
Accounts receivable, net		–			–			56,696		76,903		–			133,599
Current portion of deferred taxes		–			–			13,321		–		–			13,321
Prepaid expenses, current portion of deferred financing costs and other current assets		–			13,982			6,336		694		–			21,012
Total current assets		–			13,982			84,765		77,597		–			176,344
PROPERTY AND EQUIPMENT, NET		–			54,271			157,981		6,295		–			218,547
OTHER ASSETS
Goodwill		–			49,444			142,211		4,740		–			196,395
Other intangible assets		–			130			49,831		81		–			50,042
Deferred financing costs, net of current portion		–			8,735			–		–		–			8,735
Investment in subsidiaries		(80	)		368,682			26,037		–		(394,639	)		–
Investment in joint ventures		–			1,053			27,896		–		–			28,949
Deferred tax assets, net of current portion		–			–			39,914		–		–			39,914
Deposits and other		–			1,486			2,085		79		–			3,650
Total assets	$	(80	)	$	497,783		$	530,720	$	88,792	$	(394,639	)	$	722,576
LIABILITIES AND EQUITY (DEFICIT)
CURRENT LIABILITIES
Intercompany	$	–		$	(132,501	)	$	87,529	$	44,972	$	–		$	–
Accounts payable, accrued expenses and other		–			44,241			48,906		13,169		–			106,316
Due to affiliates		–			–			2,655		–		–			2,655
Deferred revenue		–			–			1,344		–		–			1,344
Current portion of notes payable		–			1,700			1,325		78		–			3,103
Current portion of deferred rent		–			1,097			759		40		–			1,896
Current portion of obligations under capital leases		–			435			1,876		764		–			3,075
Total current liabilities		–			(85,028	)		144,394		59,023		–			118,389
LONG-TERM LIABILITIES
Deferred rent, net of current portion		–			11,129			7,480		380		–			18,989
Line of Credit		–			–			–		–		–			–
Notes payable, net of current portion		–			571,516			91		1,062		–			572,669
Obligations under capital leases, net of current portion		–			246			2,533		–		–			2,779
Other non-current liabilities		–			–			7,540		–		–			7,540
Total liabilities		–			497,863			162,038		60,465		–			720,366

STOCKHOLDERS' (DEFICIT) EQUITY
Total RadNet, Inc.'s stockholders' (deficit) equity		(80	)		(80	)		368,682		26,037		(394,639	)		(80	)
Noncontrolling interests		–			–			–		2,290		–			2,290
Total stockholders' (deficit) equity		(80	)		(80	)		368,682		28,327		(394,639	)		2,210
Total liabilities and stockholders' (deficit) equity	$	(80	)	$	497,783		$	530,720	$	88,792	$	(394,639	)	$	722,576

RADNET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For The Three Months Ended March 31, 2014

(in thousands)

(unaudited)

				Subsidiary			Guarantor			Non-Guarantor
	Parent			Issuer			Subsidiaries			Subsidiaries			Eliminations		Consolidated

NET SERVICE FEE REVENUE
Service fee revenue, net of contractual allowances and discounts	$	–		$	29,618		$	104,246		$	24,899		$	–	$	158,763
Provision for bad debts		–			(1,428	)		(4,061	)		(1,404	)		–		(6,893	)
Net service fee revenue		–			28,190			100,185			23,495			–		151,870
Revenue under capitation arrangements		–			9,546			4,417			3,043			–		17,006
Total net revenue		–			37,736			104,602			26,538			–		168,876

OPERATING EXPENSES
Cost of operations		–			33,960			85,849			25,221			–		145,030
Depreciation and amortization		–			3,556			11,582			433			–		15,571
Loss on sale and disposal of equipment		–			15			233			(2	)		–		246
Severance costs		–			104			377			–			–		481
Total operating expenses		–			37,635			98,041			25,652			–		161,328

INCOME FROM OPERATIONS		–			101			6,561			886			–		7,548

OTHER INCOME AND EXPENSES
Interest expense		–			2,609			9,139			24			–		11,772
Meaningful use incentive		–			–			(1,762	)		–			–		(1,762	)
Equity in earnings of joint ventures		–			–			(1,067	)		–			–		(1,067	)
Loss on early extinguishment of Senior Notes		–			15,456			–			–			–		15,456
Other income		–			–			2			–			–		2
Total other income and expenses		–			18,065			6,312			24			–		24,401

(LOSS) INCOME BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF JOINT VENTURES		–			(17,964	)		249			862			–		(16,853	)
Benefit from income taxes		–			–			4,478			–			–		4,478
(Losses) equity in earnings of consolidated subsidiaries		(12,424	)		5,540			813			–			6,071		–
NET (LOSS) INCOME		(12,424	)		(12,424	)		5,540			862			6,071		(12,375	)
Net income attributable to noncontrolling interests		–			–			–			49			–		49
NET (LOSS) INCOME ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS	$	(12,424	)	$	(12,424	)	$	5,540		$	813		$	6,071	$	(12,424	)

RADNET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For The Three Months Ended March 31, 2013

(in thousands)

(unaudited)


				Subsidiary			Guarantor			Non-Guarantor
	Parent			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
NET SERVICE FEE REVENUE
Service fee revenue, net of contractual allowances
and discounts	$	–		$	28,384		$	115,307		$	20,050		$	–		$	163,741
Provision for bad debts		–			(1,385	)		(4,217	)		(1,220	)		–			(6,822	)
Net service fee revenue		–			26,999			111,090			18,830			–			156,919
Revenue under capitation arrangements		–			9,124			4,043			2,854			–			16,021
Total net revenue		–			36,123			115,133			21,684			–			172,940

OPERATING EXPENSES
Cost of operations		–			33,236			95,518			20,808			–			149,562
Depreciation and amortization		–			3,128			11,323			309			–			14,760
Loss on sale and disposal of equipment		–			85			85			–			–			170
Severance costs		–			11			110			2			–			123
Total operating expenses		–			36,460			107,036			21,119			–			164,615

(LOSS) INCOME FROM OPERATIONS		–			(337	)		8,097			565			–			8,325

OTHER INCOME AND EXPENSES
Interest expense		–			6,673			5,391			83			–			12,147
Equity in earnings of joint ventures		–			–			(1,206	)		–			–			(1,206	)
Other income		–			–			(2	)		–			–			(2	)
Total other income and expenses		–			6,673			4,183			83			–			10,939

(LOSS) INCOME BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF JOINT VENTURES		–			(7,010	)		3,914			482			–			(2,614	)
Benefit from (provision for) income taxes		–			–			1,254			(6	)		–			1,248
(Losses) equity in earnings of consolidated subsidiaries		(1,342	)		5,668			500			–			(4,826	)		–
NET (LOSS) INCOME		(1,342	)		(1,342	)		5,668			476			(4,826	)		(1,366	)
Net loss attributable to noncontrolling interests		–			–			–			(24	)		–			(24	)
NET (LOSS) INCOME ATTRIBUTABLE TO RADNET, INC.COMMON STOCKHOLDERS	$	(1,342	)	$	(1,342	)	$	5,668		$	500		$	(4,826	)	$	(1,342	)

RADNET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For The Three Months Ended March 31, 2014

(in thousands)

(unaudited)

				Subsidiary			Guarantor			Non-Guarantor
	Parent			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income	$	(12,424	)	$	(12,424	)	$	5,540		$	862		$	6,071		$	(12,375	)
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization		–			3,556			11,582			433			–			15,571
Provision for bad debt		–			1,428			4,061			1,404			–			6,893
Equity in earnings of consolidated subsidiaries		12,424			(5,540	)		(813	)		–			(6,071	)		–
Distributions from consolidated subsidiaries		–			–			1,128			–			(1,128	)		–
Equity in earnings of joint ventures		–			(53	)		(1,014	)		–			–			(1,067	)
Distributions from joint ventures		–			–			1,866			–			–			1,866
Deferred rent amortization		–			(18	)		316			45			–			343
Amortization of deferred financing cost		–			552			–			–			–			552
Write off of deferred loan costs due to refinance		–			665			–			–			–			665
Amortization of term loan and bond discount		–			616			–			–			–			616
Loss on sale and disposal of equipment		–			15			231			–			–			246
Loss on extinguishment of debt		–			15,456			–			–			–			15,456
Stock-based compensation		–			256			769			–			–			1,025
Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in purchase transactions:
Accounts receivable		–			–			(29,822	)		15,899			–			(13,923	)
Other current assets		–			4,401			(9,056	)		152			–			(4,503	)
Other assets		–			(64	)		(511	)		–			–			(575	)
Deferred taxes		–			–			(4,536	)		–			–			(4,536	)
Deferred revenue		–			–			(39	)		–			–			(39	)
Accounts payable, accrued expenses and other		–			(38,301	)		43,882			(16,656	)		–			(11,075	)
Net cash (used in) provided by operating activities		–			(29,455	)		23,584			2,139			(1,128	)		(4,860	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of imaging facilities		–			–			(360	)		–			–			(360	)
Purchase of property and equipment		–			(435	)		(16,154	)		(458	)		–			(17,047	)
Proceeds from sale of equipment		–			–			4			–			–			4
Proceeds from sale of joint venture interests		–			–			–			–			–			–
Equity contributions in existing joint ventures		–			–			(789	)		–			–			(789	)
Net cash used in investing activities		–			(435	)		(17,299	)		(458	)		–			(18,192	)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on notes and leases payable		–			11,740			(13,249	)		(420	)		–			(1,929	)
Proceeds from borrowings upon refinancing		–			210,000			–			–			–			210,000
Principal payments on Senior Note Tender		–			(204,468	)		–			–			–			(204,468	)
Deferred financing costs		–			(6,650	)		–			–			–			(6,650	)
Proceeds from, net of payments, on line of credit		–			18,100			–			–			–			18,100
Distributions paid to non-controlling interests		–			–			–			(1,261	)		1,128			(133	)
Proceeds from issuance of common stock		–			29			–			–			–			29
Net provided by (cash used) in financing activities		–			28,751			(13,249	)		(1,681	)		1,128			14,949
EFFECT OF EXCHANGE RATE CHANGES ON CASH		–			–			(18	)		–						(18	)
NET DECREASE IN CASH AND CASH EQUIVALENTS		–			(1,139	)		(6,982	)		–			–			(8,121	)
CASH AND CASH EQUIVALENTS, beginning of period		–			1,139			7,273			–			–			8,412
CASH AND CASH EQUIVALENTS, end of period	$	–		$	–		$	291		$	–		$	–		$	291

RADNET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For The Three Months Ended March 31, 2013

(in thousands)

(unaudited)

				Subsidiary			Guarantor			Non-Guarantor
	Parent			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income	$	(1,342	)	$	(1,342	)	$	5,668		$	476		$	(4,826	)	$	(1,366	)
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		–			3,128			11,323			309			–			14,760
Provision for bad debt		–			1,385			4,217			1,220			–			6,822
Equity in earnings of consolidated subsidiaries		1,342			(5,668	)		(500	)		–			4,826			–
Distributions from consolidated subsidiaries		–			–			–			–			–			–
Equity in earnings of joint ventures		–			–			(1,206	)		–			–			(1,206	)
Distributions from joint ventures		–			–			1,921			–			–			1,921
Deferred rent amortization		–			156			254			23			–			433
Amortization of deferred financing cost		–			457			–			–			–			457
Amortization of term loan and bond discount		–			400			–			–			–			400
Loss on sale and disposal of equipment		–			85			85			–			–			170
Stock-based compensation		–			238			714			–			–			952
Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in purchase transactions:
Accounts receivable		–			–			1,214			(12,996	)		–			(11,782	)
Other current assets		–			(3,611	)		(1,606	)		118			–			(5,099	)
Other assets		–			225			(330	)		–			–			(105	)
Deferred revenue		–			–			3			–			–			3
Accounts payable, accrued expenses and other		–			7,957			(10,285	)		11,189			–			8,861
Net cash provided by operating activities		–			3,410			11,472			339			–			15,221
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of imaging facilities		–			(350	)		(3,275	)		–			–			(3,625	)
Purchase of property and equipment		–			(4,053	)		(8,847	)		(26	)		–			(12,926	)
Proceeds from sale of equipment		–			145			125			–			–			270
Proceeds from sale of joint venture interests		–			–			2,640			–			–			2,640
Purchase of equity interest in joint ventures		–			–			(724	)		–			–			(724	)
Net cash used in investing activities		–			(4,258	)		(10,081	)		(26	)		–			(14,365	)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on notes and leases payable		–			(1,424	)		(960	)		(313	)		–			(2,697	)
Deferred financing costs		–			–			–			–			–			–
Proceeds from, net of payments, on line of credit		–			1,500			–			–			–			1,500
Payments to counterparties of interest rate swaps, net of amounts received		–			–			–			–			–			–
Purchase of non-controlling interests		–			–			–			–			–			–
Proceeds from issuance of common stock		–			469			–			–			–			469
Net provided by (cash used) in financing activities		–			545			(960	)		(313	)		–			(728	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH		–			(59	)		–			–			–			(59	)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		–			(362	)		431			–			–			69
CASH AND CASH EQUIVALENTS, beginning of period		–			362			–			–			–			362
CASH AND CASH EQUIVALENTS, end of period	$	–		$	–		$	431		$	–		$	–		$	431