RADIOLOGIX INC - 10-Q Quarterly Report

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

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FORM 10-Q

(MARK ONE)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM_____________________________________

COMMISSION FILE NO. 0-23311

RADIOLOGIX, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 75-2648089
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)

2200 ROSS AVENUE
3600 JP MORGAN CHASE TOWER
DALLAS, TEXAS 75201-2776
(Address of principal executive offices, including zip code)

(214) 303-2776
(Registrant's telephone number, including area code)

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 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 whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).

Yes [X] No [ ]

Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.

Class Outstanding at May 14, 2003
- ---------------------------------------- -------------------------------
COMMON STOCK, $0.0001 PAR VALUE 21,695,153 SHARES

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RADIOLOGIX, INC.

FORM 10-Q

INDEX

PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

RADIOLOGIX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

See accompanying notes to consolidated financial statements.

1

RADIOLOGIX, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)

See accompanying notes to unaudited consolidated financial statements.

2

RADIOLOGIX, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

See accompanying notes to unaudited consolidated financial statements.

3

RADIOLOGIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
(UNAUDITED)

1. DESCRIPTION OF BUSINESS

Radiologix, Inc. (together with its subsidiaries referred to as
"Radiologix", the "Company" "we" or "us"), a Delaware corporation, is a leading
national provider of diagnostic imaging services through its ownership and
operation of free-standing, outpatient diagnostic imaging centers. Radiologix
utilizes sophisticated technology and technical expertise to perform a broad
range of imaging procedures, such as magnetic resonance imaging (MRI), computed
tomography (CT), positron emission tomography (PET), nuclear medicine,
ultrasound, mammography, bone densitometry (DEXA), general radiography (X-ray)
and fluoroscopy. Radiologix operates 117 diagnostic imaging centers, including
seven imaging centers that are included in discontinued operations in the
accompanying financial statements, located in 17 states, with a concentration of
diagnostic imaging centers in markets located in California, Florida, Kansas,
Maryland, New York, Texas and Virginia. Radiologix offers multi-modality imaging
services at 64 of its diagnostic imaging centers, which provide patients and
referring physicians access to advanced diagnostic imaging services in one
convenient location.

Radiologix also provides administrative, management and information
services to certain radiology practices that provide professional services in
connection with its diagnostic imaging centers and to hospitals and radiology
practices with which the Company operates joint ventures. The services
Radiologix provides leverage its existing infrastructure and improve radiology
practice or joint venture profitability, efficiency and effectiveness.

Radiologix has two models by which it contracts with radiology practices: a
comprehensive services model and a technical services model. Under the
comprehensive services model, the Company enters into a long-term agreement with
a radiology practice group (typically 40 years). Under this arrangement, in
addition to obtaining technical fees for the use of Radiologix's diagnostic
imaging equipment and the provision of technical services, we provide management
services and receive a fee based on the practice group's professional revenue,
including revenue derived from outside of our diagnostic imaging centers.

Under the technical services model, the Company enters into a shorter-term
agreement with a radiology practice group (typically 10 to 15 years) and pays
them a fee based on cash collections from reimbursements for imaging procedures.
In both the comprehensive services and technical services models, the Company
owns the diagnostic imaging assets and, therefore, receives 100% of the
technical reimbursements associated with imaging procedures. Additionally, in
most instances, both the comprehensive services and the technical services
models contemplate an incentive technical bonus for the radiology group if the
net technical income exceeds specified thresholds. The service agreements
generally cannot be terminated by either party without cause, consisting
primarily of bankruptcy or material default. Two physicians of two of the
contracted radiology practices are members of the board of directors of the
Company.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

This quarterly report for Radiologix supplements our annual report to
security holders for the fiscal year ended December 31, 2002. As permitted by
the Securities Exchange Commission for interim reporting, we have omitted
certain footnotes and disclosures that substantially duplicate those in the
annual report. In the opinion of management, all adjustments necessary for a
fair presentation have been included and are of a normal recurring nature, other
than those adjustments related to severance costs and discontinued operations
which are discussed separately in Notes 2 and 5. Interim results are not
necessarily indicative of the results that may be expected for the year. For
further information refer to the audited consolidated financial statements and
footnotes included in our annual report to security holders for the year ended
December 31, 2002.

4

The consolidated unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
and include the accounts of the Company and its wholly owned and majority owned
subsidiaries. All significant intercompany transactions have been eliminated.
Investments in entities that the Company does not control, but in which it has a
substantial ownership interest and can exercise significant influence, are
accounted for using the equity method.

Certain prior-year balances in the accompanying consolidated financial
statements have been reclassified to conform to the current year's presentation
of financial information. These reclassifications have no impact on total
assets, liabilities, shareholder's equity, net income, or cash flows.

Use of Estimates in the Preparation of the Financial Statements

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, results of operations and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.

Impairment of Long-Lived Assets

We have identified seven imaging centers that have been designated for sale
or closure over the next 12 months. These imaging centers do not represent
centers around which we can build a market concentration. In accordance with
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" the financial results from these
seven imaging centers are reported in discontinued operations for the three
months ended March 31, 2002 and 2003. The three months ended March 31, 2003
includes a $6.9 million pre-tax charge to write down the related goodwill of
these centers. For the three months ended March 31, 2002, the consolidated
statement of income in the accompanying financial statements has been restated
to reflect the results of operations for the seven imaging centers as
discontinued operations.

Goodwill and Intangible Assets

The value of intangible assets (consisting primarily of service agreements
and goodwill) is stated at the lower of cost or fair value.

At March 31, 2003, the Company has $21.6 million of goodwill related to the
acquired intangible assets of our Questar operations. During the first quarter
of 2003, in accordance with Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" we performed the initial impairment test
of our Questar operations. We engaged an independent third party valuation
specialist to determine the fair value of these operations. Their preliminary
valuation was completed in the first quarter 2003 and indicated that the fair
value of the Questar operations exceeded the carrying value after considering
the write-down of goodwill and consequently, no impairment was recorded.

The intangible asset related to a service agreement is recorded on the date
of acquisition, and represents the difference between the cost of purchasing the
right to manage a radiology practice and the net assets acquired. Under the
initial 40-year term of the agreements, the contracted radiology practices have
agreed to provide medical services to facilities managed by Radiologix. In the
event a contracted radiology practice breaches the service agreement, or if
Radiologix terminates with cause, the contracted radiology practice is required
to purchase all related tangible and intangible assets, including the
unamortized portion of the service agreement intangible asset, at the then net
book value. The Company's service agreements, included in the consolidated
balance sheets as intangible assets, net, are not considered to have an
indefinite useful life and will continue to

5

be amortized over a useful life of 25 years. In connection with the
restructuring of certain management agreements during 2002, $6.0 million has
been capitalized as an addition to service agreements. Accumulated amortization
of intangible assets at March 31, 2002 and 2003 amounted to $12.2 and $15.7
million, respectively. Amortization expense for the three months ending March
31, 2002 and 2003 equated to $841,000 and $953,000, respectively. We expect
amortization expense to approximate $19.1 million over the next five years.

We regularly evaluate the carrying value of our finite lived intangible
assets in light of any events or circumstances that may indicate that the
carrying amount or amortization period should be adjusted. As of March 31, 2003,
we do not believe there are any indicators that the carrying values or the
useful lives of these assets need to be adjusted.

Stock-Based Awards

In December 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure" ("SFAS No. 148"). SFAS No. 148
provides companies alternative methods of transitioning to Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation"
("SFAS No. 123") fair value of accounting for stock-based employee compensation.
It also requires certain disclosure in both annual and quarterly financial
statements about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. SFAS No. 148 does not
mandate fair value accounting for stock-based employee compensation, but does
require all companies to meet the disclosure requirements. We do not recognize
compensation expense for our stock option grants, which are issued at fair value
at the date of grant. During the three months ended March 31, 2003, 500,000
options were issued which vest based on the Company's common stock exceeding
various stock closing sales prices for 20 consecutive days. None of these
options vested during the three months ended March 31, 2003. Due to the
volatility of the Company's most recent stock prices, the Company was not able
to estimate the fair value of the 500,000 options vesting at a determined sales
price and therefore, did not recognize compensation expense. The Company has not
adopted fair value accounting for its employee stock options.

The Company currently accounts for its employee stock-based compensation
arrangements under the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25"). The Company accounts
for stock-based compensation of non-employees under the provisions of SFAS No.
123. The Company did not have any stock-based compensation to non-employees
during 2002 and 2003.

6

SFAS No. 123 also requires that companies electing to continue to use the
intrinsic value method make pro forma disclosure of net income and net income
per share as if the fair value method of accounting had been applied. The
effects of applying SFAS No. 123 during the three months ended March 31, 2002
and 2003 are as follows (in thousands, except per share amounts):

The fair value of each option grant is estimated at the date of grant using
a Black-Scholes option pricing model with the following weighted average
assumptions for grants during the three months ended March 31, 2002 and 2003,
respectively: risk-free interest rate of 5.28% and 3.81%; expected life of 7.19
and 7.40 years; expected volatility of 36.9%, and 54.6%; and dividend yield of
zero in 2002 and 2003, respectively. The weighted-average grant-date fair value
of new grants during the three months ended March 31, 2002 and 2003 was $10.66
per share, and $1.71 per share, respectively.

The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

Revenue Presentation

The Financial Accounting Standards Board's Emerging Issues Task Force issued
its abstract, Issue 97-2, "Application of FASB Statement No. 94 and APB Opinion
No. 16 to Physician Practice Management Entities and Certain Other Entities with
Contractual Arrangements" ("EITF 97-2"). Since Radiologix has not established a
"controlling financial interest" under EITF 97-2, Radiologix does not
consolidate the contracted radiology practices.

7

The following table sets forth the amounts of revenue for the contracted
radiology practices and diagnostic imaging centers that would have been
presented in the consolidated statements of income had Radiologix met the
provisions of EITF 97-2 (in thousands):

Revenue of the contracted radiology practices and diagnostic imaging centers
is recorded when services are rendered by the contracted radiology practice and
diagnostic imaging center based on established charges and reduced by
contractual allowances. In addition, bad debt expense related to established
charges is recognized as costs and expenses rather than a deduction of net
revenue. We use historical collection experience in estimating our contractual
allowances and bad debt expense.

Service fee revenue represents the contracted radiology practices' and
diagnostic imaging centers' revenue less amounts retained by the contracted
radiology practices. The amounts retained by the contracted radiology practices
represents amounts paid to the physicians pursuant to the service agreements
between Radiologix and the contracted radiology practices. Under the service
agreements, the Company provides each contracted radiology practice with the
facilities and equipment used in its medical practice, assumes responsibility
for the management of the operations of the practice, and employs substantially
all of the non-physician personnel utilized by the contracted radiology
practice.

The Company's service fee revenue is dependent upon the operating results of
the contracted radiology practices and diagnostic imaging centers. Where state
law allows, service fees due under the service agreements for the contracted
radiology practices are derived from two distinct revenue streams: (1) a
negotiated percentage (typically 20% to 30%) of the adjusted professional
revenues as defined in the service agreements; and (2) 100% of the adjusted
technical revenues as defined in the service agreements. In states where the law
requires a flat fee structure, Radiologix has negotiated a base service fee,
which is equal to the estimated fair market value of the services provided under
the service agreements and which is renegotiated each year to equal the fair
market value of the services provided under the service agreements. Adjusted
professional revenues and adjusted technical revenues are determined by
deducting certain contractually agreed-upon expenses (non-physician salaries and
benefits, rent, depreciation, insurance, interest and other physician costs)
from the contracted radiology practices' revenue. Questar revenues are primarily
derived from technical revenues generated from its diagnostic imaging centers.

Service fee revenue consists of the following (in thousands):

8

Severance and Other Related Costs

During the three months ended March 31, 2003, we recorded severance costs of
$969,000. These costs include severance incurred in connection with changes in
the Company's senior management team and a cost reduction program that resulted
in a workforce reduction at the corporate office and among certain field
employees. We expect to incur additional severance costs of approximately
$750,000 as we move forward with our plans to reduce operating expenses. The
following table provides a reconciliation of the beginning and ending liability
balances in connection with severance and other related costs recorded in the
current and prior periods as of March 31, 2003 (in thousands):

Balance at December 31, 2002 $ 773
Expense............................... 969
Cash payment.......................... (741)
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Balance at March 31, 2003............. $ 1,001
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The above liability balances are included in accounts payable and accrued
expenses in the accompanying consolidated balance sheets.

3. LONG TERM DEBT

Senior Notes

The Company's $160 million senior notes due December 15, 2008 bear interest
at an annual rate of 10 1/2% payable semiannually in arrears on June 15 and
December 15 of each year, commencing June 15, 2002. The senior notes are
redeemable on or after December 15, 2005 at various redemption prices, plus
accrued and unpaid interest to the date of redemption. The senior notes are
unsecured obligations, which rank senior in right of payment to all of our
subordinate indebtedness and equal in right of payment with all other senior
indebtedness. The senior notes are unconditionally guaranteed on a senior
unsecured basis by certain restricted existing and future subsidiaries.

Credit Facility

At March 31, 2003, no borrowings were outstanding under a credit facility
whereby the Company can borrow up to $35 million. Under the credit facility, the
interest rate is (i) an adjusted LIBOR rate, plus an applicable margin which can
vary from 3.0% to 3.5% dependent on certain financial ratios or (ii) the prime
rate, plus an applicable margin which can vary from 1.75% to 2.25%. In each
case, the applicable margin varies based on financial ratios maintained by the
Company. The credit facility includes certain restrictive covenants including
prohibitions on the payment of dividends and the maintenance of certain
financial ratios (including minimum fixed charge coverage ratio and maximum
leverage ratio, as defined). At March 31, 2003, the Company was in compliance
with these covenants. Borrowings under the credit facility are secured by all
service agreements that the Company is or becomes a party to, a pledge of the
stock of the Company's subsidiaries and all of the Company's and its
wholly-owned subsidiaries' assets.

Convertible Subordinated Debt

The Company has a $12.0 million convertible junior subordinated note, which
matures July 31, 2009, and bears interest, payable quarterly in cash or payment
in kind securities, at an annual rate of 8.0%. If by August 1, 2003, the closing
price of Radiologix's common stock has not exceeded $7.52 for 45 of the 60 days
of the determination period, the interest rate will be increased to 8.5%.

9

4. DEFERRED REVENUE

In connection with the amendment of a service agreement in July 2002 with
one of the contracted radiology practices, we have recorded deferred revenue of
$3.3 million in consideration recognized for the amended agreement, which will
be amortized over a 20-year period. In December 2002, we amended a service
agreement of another contracted radiology practice and recorded deferred revenue
of $4.8 million in consideration recognized for the amended agreement. Beginning
January 2003, the deferred revenue is being amortized over approximately a
19-year period.

5. DISCONTINUED OPERATIONS

We have identified seven imaging centers that have been designated for sale
or closure over the next 12 months. These imaging centers do not represent
centers around which we can build a market concentration. The seven imaging
centers are reported in discontinued operations for the three months ended March
31, 2002 and 2003. The three months ended March 31, 2003 includes a $6.9 million
pre-tax charge to write down the related goodwill of these centers.

Revenues and loss from the discontinued operations were as follows (in
thousands):

Assets and liabilities of the discontinued operations were as follows (in
thousands):

6. EARNINGS PER SHARE

Basic earnings per share ("EPS") is calculated by dividing income available
to common stockholders by the weighted average number of common shares
outstanding during the period (including shares to be issued). Options,
warrants, and other potentially dilutive securities are excluded from the
calculation of basic EPS. Diluted EPS includes the options, warrants, and other
potentially dilutive securities that are excluded from basic EPS using the
treasury stock method to the extent that these securities are not anti-dilutive.
Diluted EPS also includes the effect of the convertible junior subordinated note
using the "if converted" method to the extent the securities are not
anti-dilutive. For the three months ended March 31, 2003, approximately $145,000
of tax-effected interest savings and 1,593,098 weighted average shares related
to the convertible junior subordinated note were not included in the computation
of diluted EPS because to do so would be anti-dilutive for the period. For the
three months ended March 31, 2002, approximately $261,000 of tax-effected
interest savings and 2,783,631 weighted average shares related to the
convertible junior subordinated note were included in the computation of diluted
EPS. For the three months ended March 31, 2002 and 2003, 1,159,546 shares and
56,085 shares, respectively, related to stock options were included in diluted
EPS.

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7. SEGMENT REPORTING

The Company reports the results of its operations through four designated
regions of the United States: Mid-Atlantic, Northeastern, Central and Western.
In addition, the Company reports the results of its operations of the imaging
centers of its subsidiary, Questar. The Company's operations in each of the four
designated regions are comprised of the ownership and operation of diagnostic
imaging centers and the provision of administrative, management and information
services to the contracted radiology practices that provide professional
interpretation and supervision services in connection with its diagnostic
imaging centers and to hospitals and radiology practices with which the Company
operates joint ventures. The Company's services leverage our existing
infrastructure and improve radiology practice or joint venture profitability,
efficiency and effectiveness. The Company has divided the operations into the
four regions and Questar only for purposes of the division of internal
management responsibilities, but does not focus on each of these regions as a
separate product line or make financial decisions as if they were separate
product lines. The Questar operations are looked at as a separate group only
from the perspective that the imaging centers of Questar do not have the same
type of management service agreement with physicians as we have with each of the
contracted radiology practices in the four designated regions. In addition, any
imaging centers of Questar that are in the same market as the operations of the
contracted radiology practices in the four designated regions are not included
in the service agreements of the contracted radiology practices.

11

The following table summarizes the operating results and assets by the five
reportable segments (dollars in thousands):

(1) Includes the Baltimore/Washington, D.C. Metropolitan area.

(2) Includes Rochester, New York, Rockland County, New York and the surrounding
areas.

(3) Includes San Antonio, Texas, St. Lucie County, Florida, Topeka, Kansas,
Northeast Kansas and the surrounding areas.

(4) Includes San Francisco/Oakland/San Jose, California and surrounding areas.

(5) Includes diagnostic imaging centers in Arizona, California, Colorado,
Delaware, Florida, Georgia, Illinois, Kansas, Minnesota, Missouri, Nebraska,
Nevada, Ohio and Pennsylvania that were acquired as part of the Questar
acquisition and that have not been integrated into pre-existing Radiologix
market areas.

Corporate assets, including intangible assets, as of March 31, 2002 and 2003
were $112,979 and $97,694, respectively.

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The following is a reconciliation of income (loss) before income taxes and
purchases of property and equipment by the Company's five reportable segments to
the Company's consolidated financial statements for the three months ended March
31, 2002 and 2003 (in thousands):

8. JOINT VENTURE FINANCIAL INFORMATION

The Company has nine unconsolidated joint ventures with ownership interests
ranging from 22% to 50%. These joint ventures represent partnerships with
hospitals, health systems or radiology practices and were formed for the purpose
of owning and operating diagnostic imaging centers. Professional services at the
joint venture diagnostic imaging centers are performed by the contracted
radiology practices in such market area or a radiology practice that
participates in the joint venture. The following table is a summary of key
financial data for these joint ventures: (in thousands):

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9. SUPPLEMENTAL GUARANTOR INFORMATION

In connection with the senior notes, certain of the Company's subsidiaries
("Subsidiary Guarantors") guaranteed, jointly and severally, the Company's
obligation to pay principal and interest on the senior notes on a full and
unconditional basis.

The following supplemental condensed consolidating financial information
presents the balance sheets as of December 31, 2002 and March 31, 2003, and the
statements of income (loss) and cash flows for the three months ended March 31,
2002 and 2003. In the consolidating condensed financial statements, the
Subsidiary Guarantors account for their investment in the non-guarantor
subsidiaries using the equity method.

The non-guarantor subsidiaries include Advanced PET Imaging of Maryland,
L.P., Lakewood OpenScan MR, LLC, Lexington MR, Ltd., Montgomery Community
Magnetic Imaging Center Limited Partnership, Tower OpenScan MRI, and MRI at St.
Joseph Medical Center LLC. The Subsidiary Guarantors include all wholly owned
subsidiaries of Radiologix, Inc. (the "Parent").

14

RADIOLOGIX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

DECEMBER 31, 2002
(IN THOUSANDS)

15

RADIOLOGIX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)

MARCH 31, 2003
(IN THOUSANDS)

16

RADIOLOGIX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2002
(IN THOUSANDS)

17

RADIOLOGIX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2003
(IN THOUSANDS)

18

RADIOLOGIX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2002
(IN THOUSANDS)

19

RADIOLOGIX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2003
(IN THOUSANDS)

20

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the Company's
consolidated financial statements and notes thereto included in the Annual
Report on Form 10-K for the year ended December 31, 2002, and with the Company's
consolidated financial statements and notes included in this Form 10-Q.

OVERVIEW

We are a leading national provider of diagnostic imaging services through
our ownership and operation of free-standing, outpatient diagnostic imaging
centers. We utilize sophisticated technology and technical expertise to perform
a broad range of imaging procedures, such as magnetic resonance imaging (MRI),
computed tomography (CT), positron emission tomography (PET), nuclear medicine,
ultrasound, mammography, bone densitometry (DEXA), general radiography (X-ray)
and fluoroscopy. For the three months ended March 31, 2003, we derived 82% of
our service fee revenue from the ownership, management and operation of our
radiology and imaging center network and 18% of our service fee revenue from
administrative, management and information services provided to contracted
radiology practices. As of March 31, 2003, we owned, operated or maintained an
ownership interest in imaging equipment at 117 locations, including seven
imaging centers that are included in discontinued operations in the accompanying
financial statements. In addition, we provided management services to ten
radiology practices. As of March 31, 2003, our imaging centers are located in 17
states, with concentrated geographic coverage in markets located in California,
Florida, Kansas, Maryland, New York, Texas and Virginia.

We focus on providing quality patient care and service to ensure patient and
referring physician satisfaction. Our development of comprehensive radiology
networks permits us to invest in technologically advanced imaging equipment,
including MRI, open MRI, spiral CT and PET. Our consolidation of diagnostic
imaging centers into coordinated networks improves response time, increases
overall patient accessibility, permits us to standardize certain customer
relations procedures and permits us to develop "best practices" for our
diagnostic imaging centers. We seek the input and participation of the
contracted radiology practices to which we provide administrative, management
and information services to develop best practices and to improve productivity
and the quality of services. By focusing on further improving and, where
appropriate, standardizing the operations of our diagnostic imaging centers, we
believe that we can increase patient and referring physician satisfaction, which
should lead to increased referrals and increased utilization of our diagnostic
imaging centers.

We contract with radiology practices to provide professional services,
including the supervision and interpretation of diagnostic imaging procedures
performed in our diagnostic imaging centers. We believe that we do not engage in
the practice of medicine nor do we employ physicians. The radiology practices
maintain full control over the provision of professional radiological services.
The contracted radiology practices generally have outstanding physician and
practice credentials and reputations; strong competitive market positions; a
broad sub-specialty mix of physicians; a history of growth and potential for
continued growth; and a willingness to embrace our strategy for the delivery of
diagnostic imaging services.

For the three months ended March 31, 2003, payment for diagnostic imaging
services came primarily from commercial third-party payors (66%), governmental
payors (28%, including Medicare and Medicaid) and private and other payors (6%).
In January 2002, Medicare decreased the payment rates for physician and
outpatient services, including diagnostic imaging services, by approximately
5.4%. This payment rate schedule is effective through February 2003. Effective
March 1, through December 31, 2003, Congress legislated an increase of
approximately 1.6% in the overall reimbursement rates for physician and
outpatient services, including diagnostic imaging services. Our diagnostic
imaging centers are principally dependent on our ability to attract referrals
from primary care physicians, specialists and other healthcare providers. The
referral often depends on the existence of a contractual arrangement with the
referred patient's health benefit plan. For the three months ended March 31,
2003, approximately 5% of our revenue generated at our diagnostic imaging
centers was generated from capitated arrangements.

21

Revenue of the contracted radiology practices and diagnostic imaging centers
is recorded when services are rendered by the contracted radiology practices and
diagnostic imaging centers based on established charges and reduced by
contractual allowances. In addition, bad debt expense related to established
charges is recognized as costs and expenses rather than a deduction from
revenue. We use historical collection experience in estimating contractual
adjustments and bad debt expense. The factors influencing the historical
collection experience include the contracted radiology practices' and diagnostic
imaging centers' patient mix, impact of managed care contract pricing and
contract revenue and the aging of patient accounts receivable balances. As these
factors change, the historical collection experience is revised accordingly in
the period known. Service fee revenue represents the contracted radiology
practices' and diagnostic imaging centers' revenue less amounts retained by the
contracted radiology practices. The amounts retained by the contracted radiology
practices represents amounts paid to the physicians pursuant to the service
agreements between us and the contracted radiology practices. Under the service
agreements, we provide each contracted radiology practice with the facilities
and equipment used in its medical practice, assume responsibility for managing
the operations of the practice, and employ substantially all of the
non-physician personnel utilized by the contracted radiology practice.

Our service fee revenue is dependent upon the operating results of the
contracted radiology practices and diagnostic imaging centers. Where state law
allows, service fees due under the service agreements for the contracted
radiology practices are derived from two distinct revenue streams: (1) a
negotiated percentage (up to 30%) of the adjusted professional revenues as
defined in the service agreements; and (2) 100% of the adjusted technical
revenues as defined in the service agreements. In states where the law requires
a flat fee structure, we have negotiated a base service fee, which is equal to
the estimated fair market value of the services provided under the service
agreements and which is renegotiated each year to equal the fair market value of
the services provided under the service agreements. Adjusted professional
revenues and adjusted technical revenues are determined by deducting
contractually agreed-upon expenses (non-physician salaries and benefits, rent,
depreciation, insurance, interest and other physician costs) from the contracted
radiology practices' revenue. Revenues of our subsidiary, Questar Imaging, Inc.
("Questar") are primarily derived from technical revenues generated from those
imaging centers.

RESULTS OF OPERATIONS

We report the results of our operations through four designated regions of
the United States: Mid-Atlantic, Northeastern, Central and Western regions. In
addition, we report separately the results of our operations of the imaging
centers of our subsidiary, Questar. Our operations in each of the four
designated regions are comprised of the ownership and operation of diagnostic
imaging centers and the provision of administrative, management and information
services to the contracted radiology practices that provide professional
interpretation and supervision services in connection with our diagnostic
imaging centers and to hospitals and radiology practices with which we operate
joint ventures. Our services leverage our existing infrastructure and improve
radiology practice or joint venture profitability, efficiency and effectiveness.
We have divided the operations into the four regions and Questar only for
purposes of the division of internal management responsibilities, but do not
focus on each of these regions as a separate product line or make financial
decisions as if they were separate product lines. The Questar operations are
treated as a separate group only from the perspective that the imaging centers
of Questar do not have the same type of management service agreement with
physicians as we have with each of the contracted radiology practices in the
four designated regions. In addition, any imaging centers of Questar that are in
the same region as the operations of the contracted radiology practices in the
four designated regions are not included in the service agreements of the
contracted radiology practices.

22

Our results of operations during the three months ended March 31, 2003
continued to be affected by such factors as increased competition, the current
recession, increased payor pre-authorization activity, a shortage of
technologists, and harsh weather conditions. Beginning in the second half of
2002, and continuing into 2003, increased competition resulted in lower volumes
of diagnostic imaging procedures performed. Pre-authorization programs
implemented by many of our larger payors and the recruitment and retention of
additional technologists have impacted our operating margin. An increasing
number of payors with which we do business have instituted more comprehensive
pre-authorization programs on certain procedures. Under pre-authorization
programs, the referring physician must justify medical necessity based on the
payor's specific guidelines prior to the services being rendered. The current
recession in the United States, economy has contributed to the decline in our
volumes of diagnostic imaging procedures performed due the decrease in the
demand for elective procedures within the general population who are no longer
covered by health insurance. Also, in early fiscal 2002 the shortage of
qualified technologists resulted in scheduling backlogs and lost procedure
volumes. As many of the open technologist positions were filled by mid-2002,
salaries and benefits increased. These costs continued to increase or remain
stable, while volume began to decline resulting in lower revenues from
contracted radiology practices and diagnostic imaging centers. The combined
effect of increased salaries and benefits and lower revenues decreased our
operating margins during the three months ended March 31, 2003. We cannot give
any assurance that any of the factors discussed above will not continue to have
an adverse effect on our business, results of operations or financial condition.

Income before income taxes for each of the regions and Questar decreased
from the three months ended March 31, 2002 to the three months ended March 31,
2003. For the three months ended March 31, 2002 and 2003, the Mid Atlantic
region decreased from $8.0 million to $5.0 million, respectively, the
Northeastern region decreased from $3.6 million to $853,000, respectively, the
Central region decreased from $2.3 million to $2.1 million, respectively, and
Questar decreased from $1.1 million to a loss before income taxes of $7.3
million, respectively. The decline in the income before income taxes for each of
the four regions and Questar was primarily affected by each of the factors
discussed above. Additional factors in specific regions also contributed to the
decreased in income before income taxes, Questar's income before income taxes
was also affected by each of the above factors due to the relative fixed
salaries and benefits costs. Due to the relative fixed cost structure of
Questar, the decline in volume and therefore, lower revenue for diagnostic
imaging centers resulted in a decline in the income before taxes. In addition,
we have identified seven imaging centers of the Questar subsidiary that have
been designated for sale or closure over the next 12 months. These imaging
centers do not represent centers around which we can build a market
concentration. In accordance with Financial Accounting Standards Board Statement
144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the
financial results from these seven imaging centers are included in discontinued
operations in the accompanying consolidated financial statements. For the three
months ended March 31, 2003 includes a $6.9 million pre-tax charge to write down
the related goodwill of these centers. For the three months ended March 31, 2002
and 2003, the Western region income before income taxes remained flat.

We completed no acquisitions or dispositions in the three months ended March
31, 2002 and March 31, 2003.

23

THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2003

Service Fee Revenue

The following table sets forth the amounts of revenue from contracted
radiology practices and diagnostic imaging centers and the amounts retained by
the contracted radiology practices (in thousands):

Revenue from contracted radiology practices and diagnostic imaging centers,
net of contractual allowances, decreased $8.3 million, from $97.5 million in
2002 to $89.2 million in 2003. This decrease was primarily due to decreased
revenues derived from decreased volume at the diagnostic imaging centers, which
decreased our revenue from contracted radiology practices and diagnostic imaging
centers. Amounts retained by contracted radiology practices decreased from $26.5
million in 2002 to $24.8 million in 2003. The decrease in revenue from
contracted radiology practices and diagnostic imaging centers, net of
contractual allowances, offset by the decrease in amounts retained by contracted
radiology practices, resulted in a decrease in service fee revenue of $6.6
million, from $71.0 million in 2002 to $64.4 million in 2003.

Salaries and Benefits

Salaries and benefits increased $1.2 million, from $20.1 million in 2002 to
$21.3 million in 2003. Salaries and benefits increased as the cost of salaries
and benefits for technologists increased. As a percentage of service fee
revenue, these costs were 28.3% and 33.1% in 2002 and 2003, respectively. During
the first quarter 2003, we initiated cost reduction programs at our corporate
office and at our field operations. At our field offices, we began reducing
salaries and benefits costs primarily associated with administrative positions.
We believe this may result in annual cost savings of approximately $4.0 million.

Field Supplies

Field supplies decreased $100,000, from $4.2 million in 2002 to $4.1 million
in 2003. As a percentage of service fee revenue, these costs were 5.9% and 6.4%
in 2002 and 2003, respectively.

Field Rent and Lease Expense

Field rent and lease expense increased $637,000, from $7.5 million in 2002
to $8.1 million in 2003. As a percentage of service fee revenue, these costs
were 10.5% and 12.6% in 2002 and 2003, respectively.

Other Field Expenses

Other field expenses decreased $1.1 million, from $11.6 million in 2002 to
$10.5 million in 2003. In connection with the amendment of two service
agreements during the year ended December 31, 2002, certain costs are no longer
paid by the Company, which contributed to the decrease in other field expenses.
As a percentage of service fee revenue, these costs remained relatively flat at
16.4% in 2002 to 16.3% in 2003.

Bad Debt Expense

Bad debt expense decreased $300,000, from $5.9 million in 2002 to $5.6
million in 2003. The decrease in bad debt expense is primarily the result of
terminating services performed at certain hospitals. Generally, bad debt
experience with reimbursement for hospital services is at a higher percentage of
revenues than the experience with reimbursement for imaging center services. As
a percentage of service fee revenue, these costs were 8.3% and 8.6% in 2002 and
2003, respectively. Since service fee revenue represents contracted radiology
practices' and diagnostic imaging centers' revenue less amounts retained by
contracted radiology practices,

24

these percentages are inherently at a higher stated value. Therefore, bad debt
expense should be compared for 2002 and 2003 as a percentage of revenue of the
contracted radiology practices and diagnostic imaging centers, net of
contractual allowances, rather than as a percentage of service fee revenue. As a
percentage of revenue of the contracted radiology practices and diagnostic
imaging centers, net of contractual allowances, bad debt expense was 6.1% and
6.2% in 2002 and 2003, respectively.

Severance and Other Related Costs

During the three months ended March 31, 2003, we recorded $969,000 in
severance and other related costs. These costs include severance cost incurred
in connection with changes in the Company's senior management team and the
reduction of employees at the corporate office and among certain field offices.
In February 2003, the former president and chief operating officer resigned from
his positions. In March 2003, we began a cost reduction program to reduce
administrative positions. We expect to incur additional severance costs of
approximately $750,000 as we move forward with our plans to reduce operating
expenses.

Corporate, General and Administrative

Corporate, general and administrative expenses decreased $300,000, from $3.9
million in 2002 to $3.6 million in 2003. As a percentage of service fee revenue,
these costs were 5.5% and 5.7% in 2002 and 2003, respectively. During the three
months ended March 31, 2003, we initiated cost reduction programs at our
corporate office and our field offices. We believe this may result in corporate,
general and administrative annual cost savings of approximately $2.0 million.

Depreciation and Amortization

Depreciation and amortization expense increased $800,000, from $6.1 million
in 2002 to $6.9 million in 2003. As a percentage of service fee revenue, these
costs were 8.6% and 10.7% in 2002 and 2003, respectively. The increase in
depreciation expense is primarily attributable to the purchases of $26.8 million
of property and equipment for replacement, maintenance, and expansion in 2002
and of $8.0 million in the three months ended March 31, 2003.

Interest Expense, Net

Interest expense, net, decreased $200,000, from $4.9 million in 2002 to $4.7
million in 2003.

Discontinued Operations

We have identified seven imaging centers that have been designated for sale
or closure over the next 12 months. These imaging centers do not represent
centers around which we can build a market concentration. In accordance with
Financial Accounting Standards Board Statement 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," the financial results from these
seven imaging centers are included in discontinued operations in the
accompanying consolidated financial statements for the three months ended March
31, 2002 and 2003. For the three months ended March 31, 2002, the consolidated
statement of income in the accompanying consolidated statement of income has
been restated to reflect the results of operations for the seven imaging centers
as discontinued operations. Loss from discontinued operations for the three
months ended March 31, 2003 was $7.4 million ($4.4 million net of tax benefit).
The net loss for the three months ended March 31, 2003, includes a charge to
write-down the goodwill related to these centers. Loss from discontinued
operations for the three months ended March 31, 2002 was $226,000 ($136,000 net
of tax benefit).

Income Tax Expense

Income tax expense of $3.0 million in 2002 and an income tax benefit of $3.1
million in 2003 remained comparable based on a 40% effective tax rate.

25

Net Income

Net income decreased from $4.4 million in 2002 to a loss of $4.6 million in
2003. Included in net income for 2002 is a loss from discontinued operations of
$136,000. Included in net loss for 2003 is a loss from discontinued operations
of $4.4 million. In addition, the three months ended March 31, 2003 includes
$581,000, net of tax benefit related to severance and other related costs.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity for the three months ended March 31, 2003, was derived from cash
and cash equivalents and net cash proceeds from operating activities. As of
March 31, 2003, we had net working capital of $60.0 million, including cash and
cash equivalents of $13.0 million. We had current assets of $98.7 million and
current liabilities of $38.7 million, including current maturities of long-term
debt and capital lease obligations of $4.1 million. For the three months ended
March 31, 2003, we generated $961,000 in net operating cash flow, invested $6.0
million and used cash of $1.2 million in financing activities.

Net cash from operating activities for the three months ended March 31, 2003
of $961,000 decreased from $10.8 million for the same period in 2002. The
decrease in the results of operations for the three months ended March 31, 2003
and the timing of payments on accounts payable and accrued expenses, as well as,
severance cost payments, resulted in a decrease in net cash from operating
entries for the three months ended March 31, 2003. Accounts receivable days
outstanding increased from 68 days at March 31, 2002 to 75 days at March 31,
2003 was primarily due to a delay in a radiology information system conversion
at one of our contracted radiology practices and delays by one of our Medicare
intermediaries in implementing a new Medicare fee schedule.

Net cash used in investing activities for the three months ended March 31,
2002 and 2003 was $2.2 million and $6.0 million, respectively. Purchases of
property and equipment during the three months ended March 31, 2002 and 2003
were $3.0 million and $8.0 million, respectively. For the three months ended
March 31, 2003, we invested $4.2 million to replace and maintain property and
equipment and $3.8 million in the expansion of property and equipment.

Net cash flows used in financing activities for the three months ended March
31, 2002 and 2003 were $1.9 million and $1.2 million, respectively. Borrowings
of long-term debt for the three months ended March 31, 2002 and 2003 were used
to purchase equipment and capital improvements, as well as for working capital
needs.

At March 31, 2003, we had outstanding borrowings of $160 million under our
senior notes, $12.0 million outstanding under our convertible subordinated
junior note and an additional $5.1 million in other debt obligations. At March
31, 2003, no borrowings were outstanding under the credit facility whereby the
Company can borrow up to $35 million. The credit facility includes certain
restrictive covenants, including prohibitions on the payment of dividends and
the maintenance of certain financial ratios (including minimum fixed charge
coverage ratio and maximum leverage ratio, as defined). Borrowings under the
credit facility are secured by all service agreements to which we are a party, a
pledge of the stock of our subsidiaries and all of Radiologix's and its wholly
owned subsidiaries' assets.

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 expense of new diagnostic imaging centers and the
acquisition of additional centers and new diagnostic imaging equipment. To the
extent we are unable to generate sufficient cash from our operations, funds are
not available under our credit facility or we are unable to structure or obtain
operating leases, we may be unable to meet our capital expenditure requirements.
Furthermore, we may not be able to raise any necessary additional funds through
bank financing or the issuance of equity or debt securities on terms acceptable
to us, if at all.

26

Health Insurance Portability and Accountability Act

The administrative provisions of the Health Insurance Portability and
Accountability Act of 1996 ("HIPAA") direct the federal government to adopt
national electronic standards for automated transfer of certain healthcare data
between healthcare payors, plans and providers. HIPAA is designed to enable the
entire healthcare industry to communicate electronic data using a single set of
standards, thus eliminating all nonstandard formats currently in use. Our
contracted radiology practices and diagnostic imaging centers are "covered
entities" under HIPAA, and as such, must comply with the HIPAA electronic data
interchange mandates. We are required to be compliant by October 16, 2003. We
are in the process of determining the readiness status of our software vendors,
payors and claim clearinghouses to assess exposure with regard to this
legislation. We are at risk for both our own HIPAA compliance and the compliance
of those with whom we do business, particularly third party payors and
hospitals. There can be no assurance that HIPAA compliance issues will not have
an adverse effect on our business, results of operations or financial condition.

Forward-Looking Statements

Throughout this report we make "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking
statements include words such as "may," "will," "would," "could," "likely,"
"estimate," "intend," "plan," "continue," "believe," "expect" or "anticipate"
and other similar words and include all discussions about our acquisition and
development plans. We do not guarantee that the transactions and events
described in this report will happen as described or that any positive trends
noted in this report will continue. The forward-looking statements contained in
this report are generally located in the material set forth under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", but may be found in other locations as well. These forward-looking
statements generally relate to our plans, objectives and expectations for future
operations and are based upon management's reasonable estimates of future
results or trends. Although we believe that our plans and objectives reflected
in or suggested by such forward-looking statements are reasonable, we may not
achieve such plans or objectives. You are cautioned not to unduly rely on such
forward-looking statements when evaluating the information presented in this
report. You should read this report completely and with the understanding that
actual future results may be materially different from what we expect. We will
not update forward-looking statements even though our situation may change in
the future.

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

o economic, demographic, business and other conditions in our markets;

o the highly competitive nature of the healthcare business;

o a decline in patient referrals;

o changes in the rates or methods of third-party reimbursement for
diagnostic imaging services;

o the 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 by us to comply with state and federal anti-kickback and
anti-self referral laws or any other applicable healthcare regulations;

o changes in business strategy and development plans;

o changes in Federal, state or local regulations affecting the healthcare
industry;

o our substantial indebtedness, debt service requirements and liquidity
constraints; and

o risks related to our notes and healthcare securities generally.

A more comprehensive list of such factors are set forth in the Company's
Annual Report on Form 10-K for the year ended December 31, 2002, and our other
filings with the Securities and Exchange Commission.

27

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's cash equivalents, credit facility, and its
convertible notes. At March 31, 2003, Radiologix had no borrowings outstanding
under its senior credit facility. Radiologix's notes bear interest at fixed
rates.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. Based on their evaluation
as of a date within 45 days of the filing date of this Quarterly report on Form
10-Q, the Company's principal executive officer and principal financial officer
have concluded that the Company's disclosure controls and procedures (as defined
in Rules 13a-14 (c) and 15d-14 (c) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) are effective to ensure that information required
to be disclosed by the Company in reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and forms.

Changes in Internal Controls. There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation. There were no
significant deficiencies or material weaknesses, and therefore there were no
corrective actions taken.

We have investments, not material in amount, in certain unconsolidated
entities. Since we do not control these entities, our disclosure controls and
procedures with respect to these entities are necessarily substantially more
limited than those we maintain with respect to our consolidated subsidiaries.

28

PART II: OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits. The list of exhibits filed as part of this report is
incorporated by reference to the Index to Exhibits at the end of
this report.

(b) Reports on Form 8-K. The registrant did not file any current reports
on Form 8-K during the quarter ended March 31, 2003.

29

SIGNATURES

Pursuant to the requirements 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.

RADIOLOGIX, INC.

Date: May 15, 2003 /s/ STEPHEN D. LINEHAN
---------------------------------------
Stephen D. Linehan
President and Chief Executive Officer
(Principal Executive Officer)

Date: May 15, 2003 /s/ SAMI S. ABBASI
---------------------------------------
Sami S. Abbasi
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)

30

CERTIFICATION OF
CHIEF EXECUTIVE OFFICER

I, Stephen D. Linehan, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Radiologix, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and

c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.

Date: May 15, 2003

By: /s/ Stephen D. Linehan
----------------------------------------
Stephen D. Linehan
President and Chief Executive Officer

31

CERTIFICATION OF
CHIEF FINANCIAL OFFICER

I, Sami S. Abbasi, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Radiologix, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:

a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and

c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.

Date: May 15, 2003

By: /s/ Sami S. Abbasi
--------------------------------------
Sami S. Abbasi
Executive Vice President and Chief Financial Officer

32

INDEX TO EXHIBITS

- ----------

* Filed herewith.

M Management contract or compensatory plan.

33