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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

For the quarterly period ended January 31, 2004

or

For the transition period from                      to                     

Commission File Number 0-19019

PRIMEDEX HEALTH SYSTEMS, INC.

(Exact name of registrant as specified in charter)

(310) 478-7808

(Registrant’s telephone number, including area code)

n/a

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 of 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes  x    No  ¨

APPLICABLE ONLY TO CORPORATE ISSUERS:

The number of shares outstanding of the registrant’s common stock as of March 5, 2004 was 41,106,813 (excluding treasury shares).

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these financial statements

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PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

The accompanying notes are an integral part of these financial statements

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PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

The accompanying notes are an integral part of these financial statements

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PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Supplemental Non-Cash Investing and Financing Activities

During the three months ended January 31, 2004, we converted equipment operating leases into capital leases and capitalized equipment of $5,971,000. During the three months ended January 31, 2003, we entered into capital leases or financed equipment through notes payable for $6,543,000.

The accompanying notes are an integral part of these financial statements

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PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1—BASIS OF PRESENTATION

The consolidated financial statements of Primedex include the accounts of Primedex, its wholly owned direct subsidiary, Radnet Management, Inc., or Radnet, and Beverly Radiology Medical Group III, or BRMG, which is a partnership of professional corporations, all collectively referred to as the Company, or we. The consolidated financial statements also include Radnet Sub, Inc., Radnet Management I, Inc., Radnet Management II, Inc., and SoCal MR Site Management, Inc., all wholly owned subsidiaries of Radnet; Burbank Advanced LLC, Diagnostic Imaging Services, Inc., or DIS, and Rancho Bernardo Advanced LLC, which are majority controlled subsidiaries of Radnet. Interests of minority shareholders are separately disclosed in the consolidated balance sheets and consolidated statements of operations of the Company.

The operations of BRMG are consolidated with those of the Company as a result of the contractual and operational relationship among BRMG, the Company and Howard G. Berger, M.D. The Company is considered to have a controlling financial interest in BRMG pursuant to the guidance in Emerging Issues Task Force, or EITF, 97-2. Medical services and supervision at most of the Company’s imaging centers are provided through BRMG and through other independent physicians and physician groups. BRMG is a partnership of and consolidated with Pronet Imaging Medical Group, Inc. and Beverly Radiology Medical Group, Inc., both of which are 99%-owned by Dr. Berger. Radnet and DIS provide non-medical, or technical, and administrative services to BRMG for which they receive a management fee.

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

Westchester Imaging Group, formerly a 50% owned entity, was consolidated with the Company based upon the criteria in EITF 97-2. Westchester Imaging Group, which was sold in March 2003, is reflected as a discontinued operation in the Company’s consolidated statements of operations.

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and, therefore, do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States for complete financial statements; however, in the opinion of our management, all adjustments consisting of normal recurring adjustments necessary for a fair presentation of financial position, results of operations and cash flows for the interim periods ended January 31, 2004 and 2003 have been made. The results of operations for any interim period are not necessarily indicative of the results for a full year. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto contained in our Annual Report on Form 10-K for the year ended October 31, 2003.

NOTE 2—FINANCIAL CONDITION

Liquidity and Capital Resources

We had a working capital deficit of $49.4 million at January 31, 2004 compared to a $44.6 million deficit at October 31, 2003, and had losses from continuing operations of $1.3 million and $2.1 million during the three months ended January 31, 2004 and 2003, respectively. We also had a stockholders’ deficit of $54.3 million at January 31, 2004 compared to a $53.1 million deficit at October 31, 2003.

We operate in a capital intensive, high fixed-cost industry that requires significant amounts of capital to fund operations. In addition to operations, we require significant amounts of capital for the initial start-up and development expense of new diagnostic imaging facilities, the acquisition of additional facilities and

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new diagnostic imaging equipment, and to service our existing debt and other contractual obligations. Because our cash flows from operations are insufficient to fund all of these capital requirements, we depend on the availability of financing under credit arrangements with third parties. Historically, our principal sources of liquidity have been funds available for borrowing under our existing lines of credit with an affiliate of General Electric Corporation, or GE, and an affiliate of DVI Financial Services, Inc., or DVI. We classify these lines of credit as current liabilities primarily because they are collateralized by accounts receivable and the eligible borrowing bases are classified as current assets. We finance the acquisition of equipment through capital and operating leases.

During the first quarter of fiscal 2004, we took actions to continue to fund our obligations. Some of our plans to provide the necessary working capital in the future are summarized below:

BRMG and our GE affiliate lender are parties to a credit facility under which BRMG may borrow the lesser of 75% to 80% of eligible accounts receivable, the prior four months’ cash collections, or $14.5 million. At any time, BRMG may borrow up to the aggregate collection of receivables in the prior four months as long as the collections in any one month do not decrease by more than 25% from the prior month. Under our management agreement with BRMG, BRMG regularly advances to us draws that it makes under the line. In February 2004, the maturity date of the facility was extended from February 29, 2004 to March 31, 2004. We and BRMG are currently negotiating with General Electric Capital Corporation, or GECC, on a new credit facility which, if successfully completed, will consolidate all of our and BRMG’s lines of credit into one facility. Interest on outstanding borrowings is payable monthly at the greater of 8.0% or the lender’s prime rate plus 2.5%, with a minimum interest paid each month of $30,000. At January 31, 2004, BRMG had approximately $11.7 million outstanding under this line. The GE affiliate lender holds a first lien on substantially all of BRMG’s assets. Dr. Berger, our CEO, President and a major shareholder, has personally guaranteed $10.0 million of the line, and we have guaranteed the full amount of BRMG’s obligations under the line.

Beginning in April 2003, an affiliate of GE began making short-term working capital loans to us in the amount of $0.2 million per month for nine months. These loans have now been fully funded by our lender. The loans are represented by five-year notes that accrue interest at 9.0% per annum, with the first interest payment for all nine notes paid in January 2004.

We also have a line of credit with an affiliate of DVI, under which we may borrow the lesser of 110% of eligible accounts receivable or $5.0 million. Interest on the outstanding balance is payable monthly at our lender’s prime rate plus 1.0%. At January 31, 2004, we had approximately $4.5 million outstanding under this line. This line of credit is available to us on a month-to-month basis and is collateralized by approximately 80% of the eligible accounts receivable from our Beverly Hills facilities, or the Tower facilities. On August 25, 2003, DVI commenced a Chapter 11 proceeding in the United States Bankruptcy Court, District of Delaware. Since its bankruptcy filing, the DVI affiliate has continued to provide funding to us on the same terms and conditions as prior to the bankruptcy filing.

Both of our working capital lenders’ prime rates at January 31, 2004 were 4.0%. As of January 31, 2004, the total funds available for borrowing under the two lines in accordance with the borrowing base formulas was approximately $2.8 million.

On December 19, 2003, we issued a $1.0 million convertible subordinated note payable at a stated rate of 11% per annum with interest payable quarterly. The note payable is convertible at the holder’s option anytime after June 19, 2004 at $0.50 per share. As additional consideration for the financing we issued a warrant for the purchase of 500,000 shares at an exercise price of $0.50 per share. We have allocated $0.1 million to the value of the warrants and believe the value of the conversion feature is nominal.

At January 31, 2004, we had an aggregate of $64.5 million in outstanding capital lease obligations which included the conversion of $6.0 million of operating leases into capital leases in November 2003.

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DVI Credit Restructuring. At January 31, 2004, we had approximately $79.9 million of debt outstanding under various contracts and financing arrangements comprised of equipment notes and capital leases with DVI and some of its affiliates. During fiscal 2003, we restructured some of these credit arrangements. In May 2003, we restructured 16 of our notes payable to DVI to reduce our monthly payments by approximately $210,000 per month through January 2004. Beginning February 2004, the monthly payments increased to approximately $350,000 per month, an increase of $16,000 per month over historical payment levels. The resulting cash flow deferrals between May 2003 and April 2004 total approximately $1.1 million. The restructured notes bear interest at rates ranging from 8.5% to 10.5% and have terms ranging from 45 to 71 months, with six notes payable having balloon payments ranging from $20,000 to $160,000 due in January 2009.

On August 25, 2003, DVI commenced a Chapter 11 proceeding in the United States Bankruptcy Court, District of Delaware. We have an agreement in principle to repay our debt outstanding under equipment notes and capital leases to DVI, which was approximately $79.9 million at January 31, 2004, for approximately $68.7 million, and we are currently negotiating the definitive terms of the repayment with all of the interested parties. This agreement is conditioned upon the receipt of waivers from vendors who have made claims on account of DVI’s failure to fund equipment purchases, which it had contracted to do.

During the first three months of fiscal 2004, we began negotiations with DVI concerning the restructuring of our outstanding notes payable and capital leases with DVI. During this period, both parties agreed that monthly scheduled principal payments would cease. Interest continues to accrue on outstanding principal balances due while a settlement is negotiated. During the three months ended January 31, 2004 and 2003, accrued interest on notes payable and capital leases with DVI was $1.5 million and $0.2 million, respectively.

In addition to these measures, we continue to work with our existing lenders to negotiate more favorable terms and pursue other sources of long-term financing to improve our liquidity and increase cash flows. These sources may include, among others, public or private offerings of debt or equity securities. However, it is impossible to predict with certainty whether we will be able to complete any such transactions, or if so, what the terms of any such transactions would be.

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

Our ability to generate sufficient cash flow from operations to make payments on our debt and other contractual obligations will depend on our future financial performance. A range of economic, competitive, regulatory, legislative and business factors, many of which are outside of our control, will affect our financial performance. If we do not refinance or further restructure our debt, sell assets, reduce or delay capital investments or seek to raise additional capital, we will not have sufficient cash flow from operations to satisfy our existing debt and other contractual obligations. Although we have historically been successful in refinancing and restructuring the terms of our debt with our principal lenders, we cannot predict whether any such refinancing or restructuring will be possible or that we will be able to sell any assets on acceptable terms or otherwise. Taking these factors into account, including our historical experience and our discussions with our lenders to date, although no assurance can be given, we believe that through implementing our strategic plans and continuing to restructure our financial obligations, we will obtain sufficient cash to satisfy our obligations as they become due in fiscal 2004.

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NOTE 3—ACCOUNTING POLICIES </