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

                                    FORM 10-K

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

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008

                         COMMISSION FILE NUMBER 0-19019

                                  RADNET, INC.
               (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

                  DELAWARE                                 13-3326724
       (STATE OR OTHER JURISDICTION OF                  (I.R.S. EMPLOYER
       INCORPORATION OR ORGANIZATION)                 IDENTIFICATION NO.)

             1510 COTNER AVENUE
           LOS ANGELES, CALIFORNIA                            90025
  (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                 (ZIP CODE)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 478-7808
       SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: COMMON
        STOCK, $.0001 PAR VALUE SECURITIES REGISTERED PURSUANT TO SECTION
                12(G) OF THE ACT: COMMON STOCK, $.0001 PAR VALUE

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ]  No  [X]

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) or the act.   Yes [ ]  No [X]

     NOTE--Checking the box above will not relieve any registrant required to
file reports pursuant to section 13 or (15(d) of the exchange Act from their
obligations under those Sections.

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.

   Large Accelerated Filer [  ]         Accelerated Filer  [X]
   Non-Accelerated Filer   [  ]         Smaller Reporting Company  [ ]
(Do not check if a smaller reporting company)

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

The aggregate market value of the registrant's voting and nonvoting common
equity held by non-affiliates of the registrant was approximately $171,470,387
on June 30, 2008 (the last business day of the registrant's most recently
completed second quarter) based on the closing price for the common stock on the
NASDAQ Global Market on June 30, 2008.

The number of shares of the registrant's common stock outstanding on March 10,
2009, was 35,924,279 shares (excluding treasury shares).

                       DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of the Form 10-K, to the extent not set
forth herein, is incorporated herein by reference from the registrant's
definitive proxy statement for the Annual Meeting of Shareholders to be held on
May 28, 2009, to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A not later than 120 days after the close of the registrant's
fiscal year.

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<TABLE>
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<S>     <C>
                                  RADNET, INC.

                                TABLE OF CONTENTS

FORM 10-K ITEM                                                                   PAGE
--------------                                                                   ----
PART I.
   Item 1.   Business                                                               3
   Item 1A.  Risk Factors                                                          22
   Item 1B.  Unresolved Staff Comments                                             29
   Item 2.   Properties                                                            29
   Item 3.   Legal Proceedings                                                     29
   Item 4.   Submission of Matters to a Vote of Security Holders                   30

PART II.
   Item 5.   Market for Registrant's Common Equity, Related
               Stockholder Matters and Issuer Purchases of Equity Securities       30
   Item 6.   Selected Financial Data                                               33
   Item 7.   Management's Discussion and Analysis of Financial Condition
               and Results of Operations                                           33
   Item 7A.  Quantitative and Qualitative Disclosures About Market Risk            47
   Item 8.   Financial Statements and Supplementary Data                           48
   Item 9.   Changes in and Disagreements with Accountants on Accounting
               and Financial Disclosure                                            75
   Item 9A.  Controls and Procedures                                               75
   Item 9B.  Other Information                                                     77

PART III.
   Item 10.  Directors and Executive Officers of the Registrant                    77
   Item 11.  Executive Compensation                                                77
   Item 12.  Security Ownership of Certain Beneficial Owners and Management
                and Related Stockholder Matters                                    77
   Item 13.  Certain Relationships and Related Transactions                        77
   Item 14.  Principal Accountant Fees and Services                                77

PART IV.
   Item 15.  Exhibits, Financial Statement Schedules                               77
</TABLE>

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This annual report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended. These statements relate to future
events or our future financial performance, and involve known and unknown risks,
uncertainties and other factors that may cause our actual results, levels of
activity, performance or achievements to be materially different from any future
results, levels of activity, performance or achievements expressed or implied by
these forward-looking statements. These risks and other factors include, among
other things, those listed in Item 1A, "Risk Factors," Item 7 -- "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this annual report. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "expect," "intend,"
"plan," "anticipate," "believe," "estimate," "predict," "potential," "continue,"
"assumption" or the negative of these terms or other comparable terminology. The
forward-looking statements contained herein reflect our current views with
respect to future events and are based on our currently available financial,
economic and competitive data and on current business plans. Actual events or
results may differ materially depending on risks and uncertainties that may
affect the Company's operations, markets, services, prices and other factors.
Important factors that could cause actual results to differ materially from
those in the forward-looking statements include, but are not limited to
statements concerning RadNet's ability to successfully acquire and integrate new
operations, to grow our contract management business, our financial guidance,
our statements regarding cost savings, and our statements regarding increased
business from new equipment or operations.

We do not undertake any responsibility to release publicly any revisions to
these forward-looking statements to take into account events or circumstances
that occur after the date of this annual report. Additionally, we do not
undertake any responsibility to update you on the occurrence of any
unanticipated events which may cause actual results to differ from those
expressed or implied by the forward-looking statements contained in this annual
report.

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                                     PART I

ITEM 1.      BUSINESS

BUSINESS OVERVIEW

         We operate a group of regional networks comprised of 164 diagnostic
imaging facilities located in six states with operations in California,
Delaware, Maryland, the Treasure Coast area of Florida, Kansas and the Finger
Lakes (Rochester) and Hudson Valley areas of New York, providing diagnostic
imaging services including magnetic resonance imaging, or MRI, computed
tomography, or CT, positron emission tomography, or PET, nuclear medicine,
mammography, ultrasound, diagnostic radiology, or X-ray, and fluoroscopy. The
Company's operations comprise a single segment for financial reporting purposes.

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

         We also provide administrative, management and information services to
certain radiology practices that provide professional services in connection
with diagnostic imaging centers and to hospitals and radiology practices with
which we operate joint ventures. The services we provide leverage our existing
infrastructure, and we believe the services improve the profitability,
efficiency and effectiveness of the radiology practice or joint venture.

         Howard G. Berger, M.D. is our President and Chief Executive Officer, a
member of our Board of Directors and owns approximately 18% of our outstanding
common stock. Dr. Berger also owns, indirectly, 99% of the equity interests in
Beverly Radiology Medical Group III, or BRMG. BRMG provides all of the
professional medical services at 85 of our facilities located in California
under a management agreement with us, and contracts with various other
independent physicians and physician groups to provide the professional medical
services at most of our other California facilities. We obtain professional
medical services from BRMG in California, rather than provide such services
directly or through subsidiaries, in order to comply with California's
prohibition against the corporate practice of medicine. However, as a result of
our close relationship with Dr. Berger and BRMG, we believe that we are able to
better ensure that medical service is provided at our California facilities in a
manner consistent with our needs and expectations and those of our referring
physicians, patients and payors than if we obtained these services from
unaffiliated physician groups. At eleven centers in California and at all of the
centers which are located outside of California, we have entered into long-term
contracts with prominent radiology groups in the area to provide physician
services at those facilities.

         We derive substantially all of our revenue, directly or indirectly,
from fees charged for the diagnostic imaging services performed at our
facilities. For the year ended December 31, 2008, we performed 3,014,039
diagnostic imaging procedures and generated net revenue from continuing
operations of $502.1 million.

         On September 3, 2008 we reincorporated from New York into Delaware and
are now a Delaware corporation.

COMPANY WEBSITE

         We maintain a website at WWW.RADNET.COM. Our annual report on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all
amendments to those reports are made available on our website as soon as is
reasonably practicable after the material is electronically filed with the
Securities and Exchange Commission. References to our website addressed in this
report are provided as a convenience and do not constitute, or should be viewed
as, an incorporation by reference of the information contained on, or available
through, the website. Therefore, such information should not be considered part
of this report.

RADIOLOGIX ACQUISITION

         On November 15, 2006, we completed the acquisition of Radiologix, Inc.
Radiologix, a Delaware corporation, then employing approximately 2,200 people,
through its subsidiaries, was a national provider of diagnostic imaging services
through the ownership and operation of freestanding, outpatient diagnostic
imaging centers. Radiologix owned, operated and maintained equipment in 69
locations, with imaging centers in seven states, including primary operations in
the Mid-Atlantic; the Bay-Area, California; the Treasure Coast area, Florida;
Northeast Kansas; and the Finger Lakes (Rochester) and Hudson Valley areas of
New York State. Under the terms of the acquisition agreement, Radiologix
shareholders received aggregate consideration of 11,310,950 shares (after giving
effect to the one-for-two reverse stock split effected in November 2006) of our
common stock and $42,950,000 in cash. We financed the transaction and refinanced
substantially all of our outstanding debt with a $405 million senior secured
credit facility with GE Commercial Healthcare Financial Services.


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         The results of operations of Radiologix and its wholly owned
subsidiaries have been included in our consolidated financial statements from
the date of acquisition.

         In connection with our acquisition of Radiologix, we changed to a
calendar-year basis of reporting financial results. As a requirement of this
change under Rule 13a-10 of the Securities Exchange Act of 1934, we reported
results for November and December 2006 as a separate transition ("stub") period
on a Form 10-K/T and filed on April 17, 2007.

INDUSTRY OVERVIEW

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

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

INDUSTRY TRENDS

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

         ESCALATING DEMAND FOR HEALTHCARE SERVICES FROM AN AGING POPULATION

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

         NEW EFFECTIVE APPLICATIONS FOR DIAGNOSTIC IMAGING TECHNOLOGY

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

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

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

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

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

         Additional improvements in imaging technologies, contrast agents and
scan capabilities are leading to new non-invasive methods of diagnosing
blockages in the heart's vital coronary arteries, liver metastases, pelvic
diseases and vascular abnormalities without exploratory surgery. We believe that
the use of the diagnostic capabilities of MRI and other imaging services will
continue to increase because they are cost-effective, time-efficient and
non-invasive, as compared to alternative procedures, including surgery, and that
newer technologies and future technological advancements will continue the
increased use of imaging services. In addition, we believe the growing
popularity of elective full-body scans will further increase the use of imaging
services. At the same time, we believe the industry has increasingly used
upgrades to existing equipment to expand applications, extend the useful life of
existing equipment, improve image quality, reduce image acquisition time and
increase the volume of scans that can be performed. We believe this trend toward
equipment upgrades rather than equipment replacements will continue, as we do
not foresee new imaging technologies on the horizon that will displace MRI, CT
or PET as the principal advanced diagnostic imaging modalities.

         WIDER PHYSICIAN AND PAYOR ACCEPTANCE OF THE USE OF IMAGING

         During the last 30 years, there has been a major effort undertaken by
the medical and scientific communities to develop higher quality, cost-effective
diagnostic imaging technologies and to minimize the risks associated with the
application of these technologies. The thrust of product development during this
period has largely been to reduce the hazards associated with conventional x-ray
and nuclear medicine techniques and to develop new, harmless imaging
technologies. As a result, the use of advanced diagnostic imaging modalities,
such as MRI, CT and PET, which provide superior image quality compared to other
diagnostic imaging technologies, has increased rapidly in recent years. These
advanced modalities allow physicians to diagnose a wide variety of diseases and
injuries quickly and accurately without exploratory surgery or other surgical or

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invasive procedures, which are usually more expensive, involve greater risk to
patients and result in longer rehabilitation time. Because advanced imaging
systems are increasingly seen as a tool for reducing long-term healthcare costs,
they are gaining wider acceptance among payors.

         GREATER CONSUMER AWARENESS OF AND DEMAND FOR PREVENTIVE DIAGNOSTIC
         SCREENING

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

DIAGNOSTIC IMAGING SETTINGS

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

         FIXED-SITE, FREESTANDING OUTPATIENT DIAGNOSTIC FACILITIES

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

         HOSPITALS OR CLINICS

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

         MOBILE FACILITIES

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

DIAGNOSTIC IMAGING MODALITIES

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

         MRI

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

         CT

         CT provides higher resolution images than conventional X-rays, but
generally not as well defined as those produced by MRI. CT uses a computer to
direct the movement of an X-ray tube to produce multiple cross-sectional images
of a particular organ or area of the body. CT is used to detect tumors and other
conditions affecting bones and internal organs. It is also used to detect the
occurrence of strokes, hemorrhages and infections. A typical CT examination
takes from 15 to 45 minutes. CT systems are priced in the range of $0.3 million
to $1.2 million. We currently have 66 CT systems in operation.


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         PET

         PET scanning involves the administration of a radiopharmaceutical agent
with a positron-emitting isotope and the measurement of the distribution of that
isotope to create images for diagnostic purposes. PET scans provide the
capability to determine how metabolic activity impacts other aspects of
physiology in the disease process by correlating the reading for the PET with
other tools such as CT or MRI. PET technology has been found highly effective
and appropriate in certain clinical circumstances for the detection and
assessment of tumors throughout the body, the evaluation of some cardiac
conditions and the assessment of epilepsy seizure sites. The information
provided by PET technology often obviates the need to perform further highly
invasive or diagnostic surgical procedures. PET systems are priced in the range
of $0.8 million to $2.5 million. We provide PET-only services through the use of
mobile equipment services at two of our sites. In addition, we have combined
PET/CT systems that blend the PET and CT imaging modalities into one scanner.
These combined systems are priced in the range of $1.8 million to $2.2 million.
We currently have 26 PET or combination PET/CT systems in operation.

         NUCLEAR MEDICINE

         Nuclear medicine uses short-lived radioactive isotopes that release
small amounts of radiation that can be recorded by a gamma camera and processed
by a computer to produce an image of various anatomical structures or to assess
the function of various organs such as the heart, kidneys, thyroid and bones.
Nuclear medicine is used primarily to study anatomic and metabolic functions.
Nuclear medicine systems are priced in the range of $300,000 to $400,000. We
currently have 24 nuclear medicine systems in operation.

         X-RAY

         X-rays use roentgen rays to penetrate the body and record images of
organs and structures on film. Digital X-ray systems add computer image
processing capability to traditional X-ray images, which provides faster
transmission of images with a higher resolution and the capability to store
images more cost-effectively. X-ray systems are priced in the range of $50,000
to $250,000. We currently have 189 x-ray systems in operation.

         ULTRASOUND

         Ultrasound imaging uses sound waves and their echoes to visualize and
locate internal organs. It is particularly useful in viewing soft tissues that
do not X-ray well. Ultrasound is used in pregnancy to avoid X-ray exposure as
well as in gynecological, urologic, vascular, cardiac and breast applications.
Ultrasound systems are priced in the range of $90,000 to $250,000. We currently
have 194 ultrasound systems in operation.

         MAMMOGRAPHY

         Mammography is a specialized form of radiology using low dosage X-rays
to visualize breast tissue and is the primary screening tool for breast cancer.
Mammography procedures and related services assist in the diagnosis of and
treatment planning for breast cancer. Analog mammography systems are priced in
the range of $70,000 to $100,000, and digital mammography systems are priced in
the range of $250,000 to $400,000. We currently have 113 mammography systems in
operation.

         FLUOROSCOPY

         Fluoroscopy uses ionizing radiation combined with a video viewing
system for real time monitoring of organs. Fluoroscopy systems are priced in the
range of $100,000 to $300,000. We currently have 73 fluoroscopy systems in
operation.

COMPETITIVE STRENGTHS

         SIGNIFICANT AND KNOWLEDGEABLE PARTICIPANT IN THE NATION'S LARGEST
         ECONOMY AND ON A NATIONAL SCALE

         We believe our group of regional networks of fixed-site, freestanding
outpatient diagnostic imaging facilities is the largest of its kind in
California, the nation's largest economy and most populous state and the largest
outpatient diagnostic imaging facility owner in the U.S. based on our 165
locations. Our two decades of experience in operating diagnostic imaging
facilities in almost every major population center in California gives us
intimate, first-hand knowledge of these geographic markets, as well as close,
long-term relationships with key payors, radiology groups and referring
physicians within these markets.


         ADVANTAGES OF REGIONAL NETWORKS WITH BROAD GEOGRAPHIC COVERAGE

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

         We are able to increase the convenience of our services to patients by
implementing scheduling systems within geographic regions, where practical. For
example, many of our diagnostic imaging facilities within a particular region
can access the patient appointment calendars of other facilities within the same

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regional network to efficiently allocate time available and to meet a patient's
appointment, date, time or location preferences.

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

         Through our advanced information technology systems, we can
electronically exchange information between radiologists in real time, enabling
us to cover larger geographic markets by using the specialized training of other
practitioners in our networks. In addition, many of our facilities digitally
transmit to our headquarters, on a daily basis, comprehensive data concerning
the diagnostic imaging services performed, which our corporate management
closely monitors to evaluate each facility's efficiency. Similarly, BRMG uses
our advanced information technology system to closely monitor radiologists to
ensure they consistently perform at expected levels.

         The grouping of our facilities within regional networks enables us to
easily move technologists and other personnel, as well as equipment, from
under-utilized to over-utilized facilities on an as-needed basis. This results
in operating efficiencies and better equipment utilization rates and improved
response time for our patients.

         COMPREHENSIVE DIAGNOSTIC IMAGING SERVICES

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

         STRONG RELATIONSHIPS WITH EXPERIENCED AND HIGHLY REGARDED RADIOLOGISTS

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

         DIVERSIFIED PAYOR MIX

         Our revenue is derived from a diverse mix of payors, including private
payors, managed care capitated payors and government payors. We believe our
payor diversity mitigates our exposure to possible unfavorable reimbursement
trends within any one-payor class. In addition, our experience with capitation
arrangements over the last several years has provided us with the expertise to
manage utilization and pricing effectively, resulting in a predictable stream of
profitable revenue. With the exception of Blue Cross/Blue Shield and government
payors, no single payor accounted for more than 5% of our net revenue for the
twelve months ended December 31, 2008.

         EXPERIENCED AND COMMITTED MANAGEMENT TEAM

         Our senior management group, together have over 100 years of healthcare
management experience. Our executive management team has created our
differentiated approach based on their comprehensive understanding of the
diagnostic imaging industry and the dynamics of our regional markets. Our
management beneficially owns approximately 24% of our common stock.

BUSINESS STRATEGY

         MAXIMIZING PERFORMANCE AT OUR EXISTING FACILITIES

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


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         o        Establishing new referring physician and payor relationships;

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

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

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

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

         FOCUSING ON PROFITABLE CONTRACTING

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

         EXPANDING MRI, CT AND PET APPLICATIONS

         We intend to continue to use expanding MRI, CT and PET applications as
they become commercially available. Most of these applications can be performed
by our existing MRI, CT and PET systems with upgrades to software and hardware.
We intend to introduce applications that will decrease scan and image-reading
time to increase our productivity.

         OPTIMIZING OPERATING EFFICIENCIES

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

         EXPANDING OUR NETWORKS

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

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

         o        We believe we can gain significant market share;

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

         o        Payors are receptive to our entry into the market.

         OUR SERVICES

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

         The key features of our services include:

         o        Patient-friendly, non-clinical environments;

         o        A 24-hour turnaround on routine examinations;

         o        Interpretations within one to two hours, if needed;

         o        Flexible patient scheduling, including same-day appointments;

         o        Extended operating hours, including weekends;

         o        Reports delivered via courier, fax or email;

         o        Availability of second opinions and consultations;

         o        Availability of sub-specialty interpretations at no additional
                  charge;

         o        Standardized fee schedules by region; and

         o        Fees that are more competitive than hospital fees.



                                       8
<PAGE>

         RADIOLOGY PROFESSIONALS

         In the states in which we provide services, a lay person or any entity
other than a professional corporation or similar professional organization is
not allowed to practice medicine, including by employing professional persons or
by having any ownership interest or profit participation in or control over any
medical professional practice. This doctrine is commonly referred to as the
prohibition on the "corporate practice" of medicine. In order to comply with
this prohibition, we contract with radiologists to provide professional medical
services in our facilities, including the supervision and interpretation of
diagnostic imaging procedures. The radiology practice maintains full control
over the physicians it employs. Pursuant to each management contract, we make
available the imaging facility and all of the furniture and medical equipment at
the facility for use by the radiology practice, and the practice is responsible
for staffing the facility with qualified professional medical personnel. In
addition, we provide management services and administration of the non-medical
functions relating to the professional medical practice at the facility,
including among other functions, provision of clerical and administrative
personnel, bookkeeping and accounting services, billing and collection,
provision of medical and office supplies, secretarial, reception and
transcription services, maintenance of medical records, and advertising,
marketing and promotional activities. As compensation for the services furnished
under contracts with radiologists, we generally receive an agreed percentage of
the medical practice billings for, or collections from, services provided at the
facility, typically varying between 75% to 84% of net revenue or collections.

         At all but eight of our California facilities we contract, directly or
through BRMG, with other radiology groups to provide professional medical
services. At our imaging facilities we charge a fee for our services as manager
of the entity which owns the center. Our fee is typically 80% to 90% of the
collected revenue of each company after deduction of the professional fees. In
addition, we generally own a percentage of the equity interests of the entity,
which owns the facility from which we are also entitled to a percentage of
income after a deduction of all expenses, including amounts paid for medical
services and medical supervision commensurate with our ownership percentage.

         BRMG

         At 85 of our facilities, BRMG is our contracted radiology group. At
December 31, 2008, BRMG employed 72 full-time and eight part-time radiologists.
Under our management agreement with BRMG we are paid, as compensation for the
use of our facilities and equipment and for our services, a percentage of the
amounts collected for the professional services BRMG physicians render which for
the year ended December 31, 2008, was 79%. The percentage may be adjusted, if
necessary, to ensure that the parties receive the fair value for the services
they render. The following are the other principal terms of our management
agreement with BRMG:

         o        The agreement expires on January 1, 2014. However, the
                  agreement automatically renews for consecutive 10-year
                  periods, unless either party delivers a notice of non-renewal
                  to the other party no later than six months prior to the
                  scheduled expiration date. In addition, either party may
                  terminate the agreement if the other party defaults under its
                  obligations, after notice and an opportunity to cure, and we
                  may terminate the agreement if Dr. Berger no longer owns at
                  least 60% of the equity of BRMG. Dr. Berger owns 99% of the
                  equity of BRMG.

         o        At its expense, BRMG employs or contracts with an adequate
                  number of physicians necessary to provide all professional
                  medical services at all of our California facilities, except
                  for eight facilities for which we contract with separate
                  medical groups.

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

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

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

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

         At the non-California locations and at eight California locations:

         Typically, one of our subsidiaries contracts with radiology practices
to provide professional services, including supervision and interpretation of
diagnostic imaging procedures performed in the imaging centers. The contracted
radiology practices generally have outstanding physician and practice
credentials and reputations; strong competitive market positions; a broad

                                       9
<PAGE>

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.

         We have two models by which we contract with radiology practices: a
comprehensive services model and a technical services model. Under our
comprehensive services model, we enter 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 our 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 outside of our imaging centers. Under our technical
services model, which relates primarily to seven of our subsidiary operations,
we enter into a shorter-term agreement with a radiology practice group
(typically 10 to 15 years) and pay a fee to the radiology group (typically
between 10% to 15% of the cash collections from reimbursement for imaging
procedures). In both the comprehensive services and technical services models,
we own the diagnostic imaging assets and, therefore, receive 100% of the
technical reimbursements associated with imaging procedures.

         The agreements with the radiology practices under our comprehensive
services model contain provisions whereby both parties have agreed to certain
restrictions on accepting or pursuing radiology opportunities within a five to
fifteen-mile radius of any of our owned, operated or managed diagnostic imaging
centers at which the radiology practice provides professional radiology services
or any hospital at which the radiology practice provides on-site professional
radiology services. Each of these agreements also restricts the applicable
radiology practice from competing with us and our other contracted radiology
practices within a specified geographic area during the term of the agreement.
In addition, the agreements require the radiology practices to enter into and
enforce agreements with their physician shareholders at each radiology practice
(subject to certain exceptions) that include covenants not to compete with us
for a period of two years after termination of employment or ownership, as
applicable.

         Under our comprehensive services model, we have the right to terminate
each agreement if the radiology practice or a physician of the contracted
radiology practice engages in conduct, or is formally accused of conduct, for
which the physician employee's license to practice medicine reasonably would be
expected to be subject to revocation or suspension or is otherwise disciplined
by any licensing, regulatory or professional entity or institution, the result
of any of which (in the absence of termination of this physician or other action
to monitor or cure this act or conduct) adversely affects or would reasonably be
expected to adversely affect the radiology practice.

         Under our comprehensive services model, upon termination of an
agreement with a radiology practice, depending upon the termination event, we
may have the right to require the radiology practice to purchase and assume, or
the radiology practice may have the right to require us to sell, assign and
transfer to it, the assets and related liabilities and obligations associated
with the professional and technical radiology services provided by the radiology
practice immediately prior to the termination. The purchase price for the
assets, liabilities and obligations would be the lesser of their fair market
value or the return of the consideration received in the acquisition. However,
the purchase price may not be less than the net book value of the assets being
purchased.

         The agreements with most of the radiology practices under our technical
services model contain non-compete provisions that are generally less
restrictive than those provisions under our comprehensive services model. The
geographic scope of and types of services covered by the non-compete provisions
vary from practice to practice. Under our technical services model, we generally
have the right to terminate the agreement if a contracted radiology practice
loses the licenses required to perform the service obligations under the
agreement, violates non-compete provisions relating to the modalities offered or
if income thresholds are not met.

PAYORS

         The fees charged for diagnostic imaging services performed at our
facilities are paid by a diverse mix of payors, as illustrated for the following
periods presented in the table below:

<TABLE>
<CAPTION>
<S>     <C>

                                                                    % OF NET REVENUE
                                                    -------------------------------------------
                                                        YEAR ENDED              YEAR ENDED
                                                     DECEMBER 31, 2007       DECEMBER 31, 2008
                                                    ------------------     --------------------
         Insurance (1)                                      57%                     56%
         Managed Care Capitated Payors                      15%                     15%
         Medicare/Medicaid                                  22%                     23%
         Other (2)                                          2%                      2%
         Workers Compensation/Personal Injury               4%                      4%
</TABLE>

----------

(1) Includes Blue Cross/Blue Shield, which represented 19% of our net revenue
for the year ended December 31, 2007 and 19% of our net revenue for the year
ended December 31, 2008.

(2) Includes co-payments, direct patient payments and payments through contracts
with physician groups and other non-insurance company payors.


                                       10
<PAGE>

         We have described below the types of reimbursement arrangements we have
with third-party payors.

         INSURANCE

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

         MANAGED CARE CAPITATION AGREEMENTS

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

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

         |X|      PHYSICIAN EDUCATION

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

         |X|      PROSPECTIVE REVIEW

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

         |X|      RETROSPECTIVE REVIEW

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

         MEDICARE/MEDICAID

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


                                       11
<PAGE>

         CONTRACTS WITH PHYSICIAN GROUPS AND OTHER NON-INSURANCE COMPANY PAYORS

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

FACILITIES

         Through our wholly owned subsidiaries, we operate 93 fixed-site,
freestanding outpatient diagnostic imaging facilities in California, 35 in the
Baltimore-Washington, D.C. area and 18 in the Rochester and Hudson Valley areas
of New York, 15 in Delaware, as well as two individual facilities in Florida and
one in Kansas. We lease the premises at which these facilities are located.

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

         The following table sets forth the number of our facilities for each
year during the five-year period ended December 31, 2008:

<TABLE>
<CAPTION>
<S>     <C>

                                                                                  YEAR ENDED DECEMBER 31,
                                                                      --------------------------------------------
                                                                      2004      2005     2006       2007      2008
                                                                      ----      ----     ----       ----      ----
         Total facilities owned or managed (at beginning of year)       56        56       57        132       141
         Facilities added by:
         Acquisition*                                                   --        --       78         12        24
         Internal development                                            3         1        4          2         4
         Facilities closed or sold                                      (3)       --       (7)        (5)       (5)
                                                                      ----      ----     ----       ----      ----
         Total facilities owned (at end of year)                        56        57      132*       141       164
                                                                      ====      ====     ====       ====      ====

         * Includes 69 Radiologix facilities acquired on November 15, 2006.
</TABLE>


DIAGNOSTIC IMAGING EQUIPMENT

         The following table indicates, as of December 31, 2008, the quantity of
principal diagnostic equipment available at our facilities, by region:

<TABLE>
<CAPTION>
<S>     <C>

                        MRI       Open MRI       CT       PET/CT       Mammography      Ultra Sound    X-ray     Medicine     Total
                     --------------------------------------------------------------------------------------------------------------
Kansas                    0             0         1           0                  0             1          4           0          6
California               46            21        30          17                 70           107         74           9        374
Florida                   2             1         3           1                  3             4          4           2         20
New York                 14             1        10           3                 13            30         16           2         89
Maryland                 15             7        16           5                 23            41         26          10        143
Delaware                  7             1         6           0                  4            11         11           1         41
                     --------------------------------------------------------------------------------------------------------------
  Total                  84            31        66          26                113           194        135          24        673
                     ==============================================================================================================
</TABLE>

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

FACILITY ACQUISITIONS AND DIVESTITURES

ACQUISITIONS

         On October 31, 2008, we acquired the assets and business of Middletown
Imaging in Middletown, Delaware for $210,000 in cash and the assumption of
capital lease debt of $1.2 million. We made a preliminary purchase price
allocation of the acquired assets and liabilities, and approximately $530,000 of
goodwill was recorded with respect to this transaction.


                                       12
<PAGE>

         On August 15, 2008, we acquired the women's imaging practice of Parvis
Gamagami, M.D., Inc. in Van Nuys, CA for $600,000. Upon acquisition, we
relocated the practice to a nearby center we recently acquired from InSight
Health in Encino, CA. We rebranded the InSight center as the Encino Breast Care
Center, and focused it on Digital Mammography, Ultrasound, MRI and other
modalities pertaining to women's health. We have allocated the full purchase
price of $600,000 to goodwill.

         On July 23, 2008, we acquired the assets and business of NeuroSciences
Imaging Center in Newark, Delaware for $4.5 million in cash. The center, which
performs MRI, CT, Bone Density, X-ray, Fluoroscopy and other specialized
procedures, is located in a highly specialized medical complex called the
Neuroscience and Surgery Institute of Delaware. The acquisition complements our
recent purchase of the Papastavros Associates Imaging centers completed in
March, 2008. We made a preliminary purchase price allocation of the acquired
assets and liabilities, and approximately $2.6 million of goodwill was recorded
with respect to this transaction.

         On June 18, 2008, we acquired the assets and business of Ellicott Open
MRI for the assumption of approximately $181,000 of capital lease debt. We made
a preliminary purchase price allocation of the acquired assets and liabilities,
and no goodwill was recorded with respect to this transaction.

         On June 2, 2008, we acquired the assets and business of Simi Valley
Advanced Medical, a Southern California based multi-modality imaging center, for
the assumption of capital lease debt of $1.7 million. We made a preliminary
purchase price allocation of the acquired assets and liabilities, and
approximately $313,000 of goodwill was recorded with respect to this
transaction.

         On April 15, 2008, we acquired the net assets of five Los Angeles area
imaging centers from InSight Health Corp. We completed the purchase of a sixth
center in Van Nuys, CA from Insight Health Corp. on June 2, 2008. The total
purchase price for the six centers was $8.5 million in cash. The centers provide
a combination of imaging modalities, including MRI, CT, X-ray, Ultrasound and
Mammography. We made a preliminary purchase price allocation of the acquired
assets and liabilities, and approximately $5.6 million of goodwill was recorded
with respect to this transaction.

         On April 1, 2008, we acquired the net assets and business of BreastLink
Medical Group, Inc., a prominent Southern California breast medical oncology
business and a leading breast surgery business, for the assumption of
approximately $4.0 million of accrued liabilities and capital lease obligations.
We made a preliminary purchase price allocation of the acquired assets and
liabilities, and approximately $2.1 million of goodwill was recorded with
respect to this transaction.

         On March 12, 2008, we acquired the net assets and business of
Papastavros Associates Medical Imaging for $9.0 million in cash and the
assumption of capital leases of $337,000. Founded in 1958, Papastavros
Associates Medical Imaging is one of the largest and most well established
outpatient imaging practices in Delaware. The 12 Papastavros centers offer a
combination of MRI, CT, PET, nuclear medicine, mammography, bone densitometry,
fluoroscopy, ultrasound and X-ray. We made a preliminary purchase price
allocation of the acquired assets and liabilities, and approximately $3.6
million of goodwill, and $1.2 million for covenants not to compete, was recorded
with respect to this transaction.

         On February 1, 2008, we acquired the net assets and business of The
Rolling Oaks Imaging Group, located in Westlake and Thousand Oaks, California,
for $6.0 million in cash and the assumption of capital leases of $2.7 million.
The practice consists of two centers, one of which is a dedicated women's
center. The centers are multimodality and include a combination of MRI, CT,
PET/CT, mammography, ultrasound and X-ray. The centers are positioned in the
community as high-end, high-quality imaging facilities that employ
state-of-the-art technology, including 3 Tesla MRI and 64 slice CT units. The
facilities have been fixtures in the Westlake/Thousand Oaks market since 2003.
We made a preliminary purchase price allocation of the acquired assets and
liabilities, and approximately $5.6 million of goodwill was recorded with
respect to this transaction.

         On October 9, 2007, we acquired the assets and business of Liberty
Pacific Imaging located in Encino, California for $2.8 million in cash. The
center operates a successful MRI practice utilizing a 3T MRI unit, the strongest
magnet strength commercially available at this time. The center was founded in
2003. The acquisition allows us to consolidate a portion of our Encino/Tarzana
MRI volume onto the existing Liberty Pacific scanner. This consolidation allows
us to move our existing 3T MRI unit in that market to our Squadron facility in
Rockland County, New York. Approximately $1.1 million of goodwill was recorded
with respect to this transaction. Also, $200,000 was recorded for the fair value
of a covenant not to compete contract.

         In September 2007, we acquired the assets and business of three
facilities comprising Valley Imaging Center, Inc. located in Victorville, CA for
$3.3 million in cash plus the assumption of approximately $866,000 of debt. The
acquired centers offer a combination of MRI, CT, X-ray, Mammography, Fluoroscopy
and Ultrasound. The physician who provided the interpretive radiology services
to these three locations joined BRMG. The leased facilities associated with
these centers includes a total monthly rental of approximately $18,000.
Approximately $3.0 million of goodwill was recorded with respect to this
transaction. Also, $150,000 was recorded for the fair value of a covenant not to
compete contract.


                                       13
<PAGE>

         In September 2007, we acquired the assets and business of Walnut Creek
Open MRI located in Walnut Creek, CA for $225,000. The center provides MRI
services. The leased facility associated with this center includes a monthly
rental of approximately $6,800 per month. Approximately $50,000 of goodwill was
recorded with respect to this transaction.

         In July 2007, we acquired the assets and business of Borg Imaging Group
located in Rochester, NY for $11.6 million in cash plus the assumption of
approximately $2.4 million of debt. Borg was the owner and operator of six
imaging centers, five of which are multimodality, offering a combination of MRI,
CT, X-ray, Mammography, Fluoroscopy and Ultrasound. After combining the Borg
centers with RadNet's existing centers in Rochester, New York, RadNet has a
total of 11 imaging centers in Rochester. The leased facilities associated with
these centers includes a total monthly rental of approximately $71,000 per
month. Approximately $8.9 million of goodwill was recorded with respect to this
transaction. Also, $1.4 million was recorded for the fair value of covenant not
to compete contracts.

         In March 2007, we acquired the assets and business of Rockville Open
MRI, located in Rockville, Maryland, for $540,000 in cash and the assumption of
a capital lease of $1.1 million. The center provides MRI services. The center is
3,500 square feet with a monthly rental of approximately $8,400 per month.
Approximately $365,000 of goodwill was recorded with respect to this
transaction.

DIVESTITURES

         In December 2007, we sold 24% of a 73% investment in one of our
consolidated joint ventures for approximately $2.3 million reducing our
ownership to 49%. As a result of this transaction, we no longer consolidate this
joint venture. Accordingly, our consolidated balance sheet at December 31, 2007
includes this 49% interest as a component of our total investment in
non-consolidated joint ventures where it is accounted for under the equity
method. The amounts eliminated from our consolidated balance sheet as a result
of the deconsolidation were not material. Since the deconsolidation occurred at
the end of 2007, no significant amounts were eliminated from our statement of
operations.

         In October 2007 we divested a non-core center in Golden, Colorado for
$325,000.

         In June 2007 we divested a non-core center in Duluth, Minnesota to a
local multi-center operator for $1.3 million.


INFORMATION TECHNOLOGY

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

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

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

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

         o        Record and store diagnostic report images in digital format;

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

         o        Perform claims, rejection and collection analysis; and

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

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

PERSONNEL

         At December 31, 2008, we had a total of 2,940 full-time, 789 part-time
and 574 per diem employees. These numbers include 72 full-time and eight
part-time physicians and 1,073 full-time, 569 part-time and 261 per-diem
technologists.

         We employ site managers who are responsible for overseeing day-to-day
and routine operations at each of our facilities, including staffing, modality
and schedule coordination, referring physician and patient relations and
purchasing of materials. In turn, these site managers report to regional
managers and directors, who are responsible for oversight of the operations of
all facilities within their region, including sales, marketing and contracting.

                                       14
<PAGE>

The regional managers and directors, along with our directors of contracting,
marketing, facilities, management/purchasing and human resources report to our
eastern and western chief operating officers. Our chief financial officer,
director of information services and our medical director report to our chief
executive officer.

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

EXECUTIVE OFFICERS

         Our executive officers are:
<TABLE>
<CAPTION>
<S>     <C>

NAME                                       AGE     OFFICER SINCE   POSITION
----                                       ---     -------------   --------
Howard G. Berger, M.D.                      64          1992       President and Chief Executive Officer

John V. Crues, III, M.D.                    58          2000       Medical Director

Stephen M. Forthuber                        46          2006       Executive Vice President and Chief Operating
                                                                   Officer-Eastern Operations

Norman R. Hames                             51          1996       Executive Vice President, Secretary, Chief Operating
                                                                   Officer-Western Operations

Jeffrey L. Linden                           65          2001       Executive Vice President and General Counsel

Mark D. Stolper                             37          2004       Executive Vice President and Chief Financial Officer
</TABLE>

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

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

         Stephen M. Forthuber became our Executive Vice President and Chief
Operating Officer for Eastern Operations subsequent to the Radiologix
acquisition. He joined Radiologix in January 2000 as Regional Director of
Operations, Northeast. From July 2002 until January 2005 he served as Regional
Vice President of Operations, Northeast and from February until December 2005 he
was Senior Vice President and Chief Development Officer for Radiologix. Prior to
working at Radiologix, Mr. Forthuber was employed from 1982 until 1999 by Per-Se
Technologies, Inc. and its predecessor companies, where he had significant
physician practice management and radiology operations responsibilities.

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

         Jeffrey L. Linden joined us in 2001 and currently serves as our
Executive Vice President and General Counsel. Prior to joining us, Mr. Linden
had been engaged in the private practice of law. He has lectured before numerous
organizations on various topics, including the California State Bar, American
Society of Therapeutic Radiation Oncologists, California Radiological
Association, and National Radiology Business Managers Association.

         Mark D. Stolper has served as our Chief Financial Officer since 2004
and prior to that was an independent member of our Board of Directors. Prior to
joining us, he had diverse experiences in investment banking, private equity,
venture capital investing and operations prior to joining us. Mr. Stolper began

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<PAGE>

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

         The officers are elected annually and serve at the discretion of the
Board of Directors. There are no family relationships among any of the officers
and directors.

MARKETING

         Our California marketing team consists of one director of marketing,
six territory sales managers and 20 customer service representatives. Our
eastern marketing team consists of 27 customer sales representatives and six
sales managers who each report to a district manager. Our marketing team employs
a multi-pronged approach to marketing.

   PHYSICIAN MARKETING

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


   PAYOR MARKETING

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

   SPORTS MARKETING PROGRAM

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

SUPPLIERS

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

         We primarily acquire our equipment with cash or through various
financing arrangements with equipment venders and third party equipment finance
companies involving the use of capital leases with purchase options at minimal
prices at the end of the lease term. At December 31, 2008, capital lease
obligations, excluding interest, totaled approximately $39.3 million through
2013, including current installments totaling approximately $15.1 million. If we
open or acquire additional imaging facilities, we may have to incur material
capital lease obligations.

         Timely, effective maintenance is essential for achieving high
utilization rates of our imaging equipment. We have an arrangement with GE
Medical Systems under which it has agreed to be responsible for the maintenance
and repair of a majority of our equipment for a fee that is based upon a
percentage of our revenue, subject to a minimum payment. Net revenue is reduced
by the provision for bad debts, mobile PET revenue and other professional
reading service revenue to obtain adjusted net revenue.


                                       16
<PAGE>

COMPETITION

         The market for diagnostic imaging services is highly competitive. We
compete principally on the basis of our reputation, our ability to provide
multiple modalities at many of our facilities, the location of our facilities
and the quality of our diagnostic imaging services. We compete locally with
groups of radiologists, established hospitals, clinics and other independent
organizations that own and operate imaging equipment. Our major national
competitors include Alliance Imaging, Inc., Medical Resources, Inc. and InSight
Health Services. Some of our competitors may now or in the future have access to
greater financial resources than we do and may have access to newer, more
advanced equipment. In addition, some physician practices have established their
own diagnostic imaging facilities within their group practices to compete with
us. We experience additional competition as a result of those activities.

         Each of the non-BRMG contracted radiology practices under the
comprehensive services model has entered into agreements with its physician
shareholders and full-time employed radiologists that generally prohibit those
shareholders and radiologists from competing for a period of two years within
defined geographic regions after they cease to be owners or employees, as
applicable. In most states, a covenant not to compete will be enforced only:

         o        to the extent it is necessary to protect a legitimate business
                  interest of the party seeking enforcement;

         o        if it does not unreasonably restrain the party against whom
                  enforcement is sought; and

         o        if it is not contrary to public interest.

         Enforceability of a non-compete covenant is determined by a court based
on all of the facts and circumstances of the specific case at the time
enforcement is sought. For this reason, it is not possible to predict whether or
to what extent a court will enforce the contracted radiology practices'
covenants. The inability of the contracted radiology practices or us to enforce
radiologist's non-compete covenants could result in increased competition from
individuals who are knowledgeable about our business strategies and operations.



INSURANCE

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

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

         California's medical malpractice cap further reduces our exposure.
California places a $250,000 limit on non-economic damages for medical
malpractice cases. Non-economic damages are defined as compensation for pain,
suffering, inconvenience, physical impairment, disfigurement and other
non-pecuniary injury. The cap applies whether the case is for injury or death,
and it allows only one $250,000 recovery in a wrongful death case. No cap
applies to economic damages. Other states in which we now operate do not have
similar limitations and in those states we believe our insurance coverage to be
sufficient.

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

REGULATION

   GENERAL

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


                                       17
<PAGE>

   LICENSING AND CERTIFICATION LAWS

         Ownership, construction, operation, expansion and acquisition of
diagnostic imaging facilities are subject to various federal and state laws,
regulations and approvals concerning licensing of facilities and personnel. In
addition, free-standing diagnostic imaging facilities that provide services not
performed as part of a physician office must meet Medicare requirements to be
certified as an independent diagnostic testing facility to bill the Medicare
program. We may not be able to receive the required regulatory approvals for any
future acquisitions, expansions or replacements, and the failure to obtain these
approvals could limit the market for our services. We have experienced a
slowdown in the credentialing of our physicians over he last several years which
has lengthened our billing and collection cycle. Physician credentialing is a
requirement of our payors prior to their commencement of payment.

   CORPORATE PRACTICE OF MEDICINE

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


   MEDICARE AND MEDICAID FRAUD AND ABUSE

         Our revenue is derived through our ownership, operation and management
of diagnostic imaging centers and from service fees paid to us by contracted
radiology practices. During the twelve months ended December 31, 2008,
approximately 23% of our revenue generated at our diagnostic imaging centers was
derived from government sponsored healthcare programs (principally Medicare and
Medicaid).

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

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

         Significant prohibitions against physician referrals have been enacted
by Congress. These prohibitions are commonly known as the Stark Law. The Stark
Law prohibits a physician from referring Medicare patients to an entity
providing designated health services, as defined under the Stark Law, including,
without limitation, radiology services, in which the physician has an ownership
or investment interest or with which the physician has entered into a
compensation arrangement. The penalties for violating the Stark Law include a
prohibition on payment by these governmental programs and civil penalties of as
much as $15,000 for each violation referral and $100,000 for participation in a

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<PAGE>

circumvention scheme. We believe that, although we receive fees under our
service agreements for management and administrative services, we are not in a
position to make or influence referrals of patients.

         On January 4, 2001, the Centers for Medicare and Medicaid Services
published final regulations to implement the Stark Law. Under the final
regulations, radiology and certain other imaging services and radiation therapy
services and supplies are services included in the designated health services
subject to the self-referral prohibition. Under the final regulations, such
services include the professional and technical components of any diagnostic
test or procedure using X-rays, ultrasound or other imaging services, CT, MRI,
radiation therapy and diagnostic mammography services (but not screening
mammography services). The final regulations, however, exclude from designated
health services: (i) X-ray, fluoroscopy or ultrasound procedures that require
the insertion of a needle, catheter, tube or probe through the skin or into a
body orifice; (ii) radiology procedures that are integral to the performance of,
and performed during, non-radiological medical procedures; (iii) nuclear
medicine procedures; and (iv) invasive or interventional radiology, because the
radiology services in these procedures are merely incidental or secondary to
another procedure that the physician has ordered. Beginning January 1, 2007, PET
and nuclear medicine procedures are included as designated health services under
the Stark Law.

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

         In addition, we believe that we have structured our acquisitions of the
assets of existing practices, and we intend to structure any future
acquisitions, so as not to violate the anti-kickback and Stark Law and
regulations. Specifically, we believe the consideration paid by us to physicians
to acquire the tangible and intangible assets associated with their practices is
consistent with fair market value in arms' length transactions and is not
intended to induce the referral of patients. Should any such practice be deemed
to constitute an arrangement designed to induce the referral of Medicare or
Medicaid patients, then our acquisitions could be viewed as possibly violating
anti-kickback and anti-referral laws and regulations. A determination of
liability under any such laws could have a material adverse effect on our
business, financial condition and results of operations.

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

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

   STATE ANTI-KICKBACK AND PHYSICIAN SELF-REFERRAL LAWS

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

   FEDERAL FALSE CLAIMS ACT

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

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<PAGE>

result in fines and penalties and restrictions on and exclusion from
participation in federal and state healthcare programs that are integral to our
business.

   HEALTHCARE REFORM INITIATIVES

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

   HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT OF 1996

         In an effort to combat healthcare fraud, Congress enacted the Health
Insurance Portability and Accountability Act of 1996, or HIPAA. HIPAA, among
other things, amends existing crimes and criminal penalties for Medicare fraud
and enacts new federal healthcare fraud crimes, including actions affecting
non-government payors. Under HIPAA, a healthcare benefit program includes any
private plan or contract affecting interstate commerce under which any medical
benefit, item or service is provided. A person or entity that knowingly and
willfully obtains the money or property of any healthcare benefit program by
means of false or fraudulent representations in connection with the delivery of
healthcare services is subject to a fine or imprisonment, or potentially both.
In addition, HIPAA authorizes the imposition of civil money penalties against
entities that employ or enter into contracts with excluded Medicare or Medicaid
program participants if such entities provide services to federal health program
beneficiaries. A finding of liability under HIPAA could have a material adverse
effect on our business, financial condition and results of operations.

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

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

   COMPLIANCE PROGRAM

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

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

   U.S. FOOD AND DRUG ADMINISTRATION OR FDA

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


                                       20
<PAGE>

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

   RADIOLOGIST LICENSING

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

   INSURANCE LAWS AND REGULATION

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

ENVIRONMENTAL MATTERS

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

DEFICIT REDUCTION ACT OF 2005

         On February 8, 2006, the President signed into law the Deficit
Reduction Act of 2005, referred to as the DRA. The DRA provides that
reimbursement for the technical component for imaging services (excluding
diagnostic and screening mammography) in non-hospital based freestanding
facilities will be capped at the lesser of reimbursement under the Medicare Part
B physician fee schedule or the Hospital Outpatient Prospective Payment System
(HOPPS) schedule.

         Prior to January 1, 2007, the technical component of our imaging
services was reimbursed under the Part B physician fee schedule, which, in most
cases, allows for higher reimbursement than under the HOPPS. Under the DRA, as
of January 1, 2007 we are reimbursed at the lower of the two schedules.

         The DRA also codifies the reduction in reimbursement for multiple
images on contiguous body parts previously announced by the Centers for Medicare
and Medicaid Services (CMS). In November 2005, CMS announced that it will pay
100% of the technical component of the higher priced imaging procedure and 50%
of the technical component of each additional imaging procedure for imaging
procedures involving contiguous body parts within a family of codes when
performed in the same session. Under current methodology, Medicare pays 100% of
the technical component of each procedure. CMS had indicated that it would phase
in this rate reduction over two years, so that the reduction was 25% for each
additional imaging procedure in 2006 and another 25% in 2007. CMS has issued a
rule that eliminated the 25% reduction in 2007.

         Implementation of the reimbursement reductions contained in the DRA has
had a significant adverse effect on our business, financial condition and
results of operations.

ITEM 1A.     RISK FACTORS

RISKS RELATING TO OUR BUSINESS

CURRENT LEVELS OF MARKET VOLATILITY ARE UNPRECEDENTED AND ADVERSE CAPITAL AND
CREDIT MARKET CONDITIONS MAY AFFECT OUR ABILITY TO ACCESS COST-EFFECTIVE SOURCES
OF FUNDING.


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<PAGE>

         The capital and credit markets have been experiencing extreme
volatility and disruption which has led to uncertainty and liquidity issues for
both borrowers and investors. We currently have in place financing arrangements
which we anticipate will be sufficient to meet our needs for the next two years
and we anticipate that our business will generate sufficient cash for us to
service our debt.

         In connection with our revolving line of credit we have some exposure
to financial institutions which have come under pressure as a result of the
current credit crisis. For example, GE Commercial Finance Healthcare Financial
Services finances the largest portion of our $55 million revolving credit
facility. While GE has stated its GE Capital business to be sound, nevertheless,
should it be unable to continue to provide funding under the revolving credit
facility, our ability to replace GE at this time, on favorable terms, or at all,
would be difficult, which could have a material adverse effect on our business
and results of operations.

THE CALIFORNIA BUDGET CRISIS, IF NOT SUCCESSFULLY RESOLVED COULD HAVE AN IMPACT
ON OUR REVENUE.

         California is experiencing a budget crisis which has resulted in
significant state government cutbacks. 93 of our facilities are located in
California. One to one-and-one-half percent (1% to 1.5%) of our revenues come
from the California Medicaid program ($5 million to $7.5 million). While this is
a relatively minor portion of our overall revenues, nevertheless, to the extent
California is unable to provide these payments on a timely basis, or at all, our
revenues will be negatively impacted.

OUR FAILURE TO INTEGRATE THE BUSINESSES WE ACQUIRE SUCCESSFULLY AND ON A TIMELY
BASIS INTO OUR OPERATIONS COULD REDUCE OUR PROFITABILITY.

         We expect that our acquisitions will generally result in some
synergies, business opportunities and growth prospects. We, however, may never
realize these expected synergies, business opportunities and growth prospects.
We may experience increased competition that limits our ability to expand our
business. We may not be able to capitalize on expected business opportunities,
assumptions underlying estimates of expected cost savings may be inaccurate, or
general industry and business conditions may deteriorate. In addition,
integrating operations will require significant efforts and expenses on our
part. Personnel may leave or be terminated because of an acquisition. Our
management may have its attention diverted while trying to integrate an
acquisition. If these factors limit our ability to integrate the operations of
an acquisition successfully or on a timely basis, our expectations of future
results of operations, including certain cost savings and synergies expected to
result from the acquisition, may not be met. In addition, our growth and
operating strategies for a target's business may be different from the
strategies that the target company pursued prior to our acquisition. If our
strategies are not the proper strategies, it could have a material adverse
effect on our business, financial condition and results of operations.

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

         We have incurred net losses of $12.8 million, $18.1 million, $11.0
million and $6.9 million for the years ended December 31, 2008 and 2007, the two
months ended December 31, 2006, and the year ended October 31, 2006,
respectively. We had a stockholders' deficit of $81.1 million and $69.8 million
at December 31, 2008 and 2007, respectively. While we believe that our past
actions have been successful in dealing with our liquidity and that in the
future we will be able to address these issues and solidify our financial
condition, we cannot give assurances that we will be able to generate sufficient
cash flow from operations to satisfy our debt obligations.

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

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

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

         A significant reduction in referrals would have a negative impact on
our business. We derive substantially all of our net revenue, directly or
indirectly, from fees charged for the diagnostic imaging services performed at
our facilities. We depend on referrals of patients from unaffiliated physicians
and other third parties who have no contractual obligations to refer patients to
us for a substantial portion of the services we perform. If a sufficiently large
number of these physicians and other third parties were to discontinue referring
patients to us, our scan volume could decrease, which would reduce our net
revenue and operating margins. Further, commercial third-party payors have
implemented programs that could limit the ability of physicians to refer
patients to us. For example, prepaid healthcare plans, such as health
maintenance organizations, sometimes contract directly with providers and
require their enrollees to obtain these services exclusively from those
providers. Some insurance companies and self-insured employers also limit these

                                       22
<PAGE>

services to contracted providers. These "closed panel" systems are now common in
the managed care environment. Other systems create an economic disincentive for
referrals to providers outside the system's designated panel of providers. If we
are unable to compete successfully for these managed care contracts, our results
and prospects for growth could be adversely affected.

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

         The fees charged for the diagnostic imaging services performed at our
facilities are paid by insurance companies, Medicare and Medicaid, workers
compensation, private and other payors. Any change in the rates of or conditions
for reimbursement from these sources of payment could substantially reduce the
amounts reimbursed to us or to our contracted radiology practices for services
provided, which could have a material adverse effect on our net revenue. For
example, recent legislative changes in California's workers compensation rules
had a negative impact on reimbursement rates for diagnostic imaging services,
and federal Medicare changes taking effect beginning January 1, 2007 have also
had a negative impact on the rates paid for MRI, CT and PET services.

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

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

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

         Our relationship with BRMG is an integral part of our business. Through
our management agreement, BRMG provides all of the professional medical services
at 85 of our 93 California facilities with the balance of our other facilities
through management contracts with other radiology groups. BRMG and these other
radiology groups contract with various other independent physicians and
physician groups to provide all of the professional medical services at most of
our facilities, and must use their best efforts to provide the professional
medical services at any new facilities that we open or acquire in their areas of
operation. In addition, the radiology groups' strong relationships with
referring physicians are largely responsible for the revenue generated at the
facilities they service. Although our management agreement with BRMG runs until
2014, and with the other groups for terms as long, if not longer, BRMG and the
other radiology groups have the right to terminate the agreements if we default
on our obligations and fail to cure the default. Also, the various radiology
groups' ability to continue performing under the management agreements may be
curtailed or eliminated due to the groups' financial difficulties, loss of
physicians or other circumstances. If the radiology groups cannot perform their
obligations to us, we would need to contract with one or more other radiology
groups to provide the professional medical services at the facilities serviced
by the group. We may not be able to locate radiology groups willing to provide
those services on terms acceptable to us, if at all. Even if we were able to do
so, any replacement radiology group's relationships with referring physicians
may not be as extensive as those of the terminated group. In any such event, our
business could be seriously harmed. In addition, the radiology groups are party
to substantially all of the managed care contracts from which we derive revenue.
If we were unable to readily replace these contracts, our revenue would be
negatively affected.

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

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

WE MAY NOT BE ABLE TO SUCCESSFULLY GROW OUR BUSINESS.

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


                                       23
<PAGE>

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

         o        Identify attractive and willing candidates for acquisitions;

         o        Identify locations in existing or new markets for development
                  of new facilities;

         o        Comply with legal requirements affecting our arrangements with
                  contracted radiology practices, including state prohibitions
                  on fee-splitting, corporate practice of medicine and
                  self-referrals;

         o        Obtain regulatory approvals where necessary and comply with
                  licensing and certification requirements applicable to our
                  diagnostic imaging facilities, the contracted radiology
                  practices and the physicians associated with the contracted
                  radiology practices;

         o        Recruit a sufficient number of qualified radiology
                  technologists and other non-medical personnel;

         o        Expand our infrastructure and management; and

         o        Compete for opportunities. We may not be able to compete
                  effectively for the acquisition of diagnostic imaging
                  facilities. Our competitors may have more established
                  operating histories and greater resources than we do.
                  Competition also may make any acquisitions more expensive.

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

         o        Inability to obtain adequate financing;

         o        Possible adverse effects on our operating results;

         o        Diversion of management's attention and resources;

         o        Failure to retain key personnel;

         o        Difficulties in integrating new operations into our existing
                  infrastructure; and

         o        Amortization or write-offs of acquired intangible assets.

WE MAY BECOME SUBJECT TO PROFESSIONAL MALPRACTICE LIABILITY.

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

         Any claim made against us that is not fully covered by insurance could
be costly to defend, result in a substantial damage award against us and divert
the attention of our management from our operations, all of which could have an
adverse effect on our financial performance. In addition, successful claims
against us may adversely affect our business or reputation. Although California
places a $250,000 limit on non-economic damages for medical malpractice cases,
no limit applies to economic damages and no such limits exist in the other
states in which we now provide services. To reduce our exposure to claims
incurred but not reported under the annual policy, the Company purchased an
effective tail policy to cover all claims filed after December 31, 2008 relating
to incidents prior to January 1, 2009, thus eliminating any liability for future
claims made related to December 31, 2008 and prior.

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

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


                                       24
<PAGE>

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

         The market for diagnostic imaging services is highly competitive. We
compete principally on the basis of our reputation, our ability to provide
multiple modalities at many of our facilities, the location of our facilities
and the quality of our diagnostic imaging services. We compete locally with
groups of radiologists, established hospitals, clinics and other independent
organizations that own and operate imaging equipment. Our major national
competitors include Alliance Imaging, Inc., Medical Resources, Inc. and InSight
Health Services. Some of our competitors may now or in the future have access to
greater financial resources than we do and may have access to newer, more
advanced equipment. In addition, some physician practices have established their
own diagnostic imaging facilities within their group practices and compete with
us. We are experiencing increased competition as a result of such activities.

STATE AND FEDERAL ANTI-KICKBACK AND ANTI-SELF-REFERRAL LAWS MAY ADVERSELY AFFECT
INCOME.

         Various federal and state laws govern financial arrangements among
healthcare providers. The federal anti-kickback law prohibits the knowing and
willful offer, payment, solicitation or receipt of any form of remuneration in
return for, or to induce, the referral of Medicare, Medicaid, or other federal
healthcare program patients, or in return for, or to induce, the purchase, lease
or order of items or services that are covered by Medicare, Medicaid, or other
federal healthcare programs. Similarly, many state laws prohibit the
solicitation, payment or receipt of remuneration in return for, or to induce the
referral of patients in private as well as government programs. Violation of
these anti-kickback laws may result in substantial civil or criminal penalties
for individuals or entities and/or exclusion from federal or state healthcare
programs. We believe we are operating in compliance with applicable law and
believe that our arrangements with providers would not be found to violate the
anti-kickback laws. However, these laws could be interpreted in a manner
inconsistent with our operations.

         Federal law prohibiting physician self-referrals (the "Stark Law")
prohibits a physician from referring Medicare or Medicaid patients to an entity
for certain "designated health services" if the physician has a prohibited
financial relationship with that entity, unless an exception applies. Certain
radiology services are considered "designated health services" under the Stark
Law. Although we believe our operations do not violate the Stark Law, our
activities may be challenged. If a challenge to our activities is successful, it
could have an adverse effect on our operations. In addition, legislation may be
enacted in the future that further addresses Medicare and Medicaid fraud and
abuse or that imposes additional requirements or burdens on us.

         All of the states in which our diagnostic imaging centers are located
have adopted a form of anti-kickback law and almost all of those states have
also adopted a form of Stark Law. The scope of these laws and the
interpretations of them vary from state to state and are enforced by state
courts and regulatory authorities, each with broad discretion. A determination
of liability under the laws described in this risk factor could result in fines
and penalties and restrictions on our ability to operate in these jurisdictions.

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

         The development of new technologies or refinements of existing
modalities may require us to upgrade and enhance our existing equipment before
we may otherwise intend. Many companies currently manufacture diagnostic imaging
equipment. Competition among manufacturers for a greater share of the diagnostic
imaging equipment market may result in technological advances in the speed and
imaging capacity of new equipment. This may accelerate the obsolescence of our
equipment, and we may not have the financial ability to acquire the new or
improved equipment. In that event, we may be unable to deliver our services in
the efficient and effective manner that payors, physicians and patients expect
and thus our revenue could substantially decrease.

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

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

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

         The principal components of our expenses, excluding depreciation,
consist of compensation paid to technologists, salaries, real estate lease
expenses and equipment maintenance costs. Because a majority of these expenses
are fixed, a relatively small change in our revenue could have a

                                       25
<PAGE>

disproportionate effect on our operating and financial results depending on the
source of our revenue. Thus, decreased revenue as a result of lower scan volumes
per system could result in lower margins, which could materially adversely
affect our business.

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

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

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

CAPITATION FEE ARRANGEMENTS COULD REDUCE OUR OPERATING MARGINS.

         For fiscal 2008 we derived approximately 15% of our net revenue from
capitation arrangements, and we intend to increase the revenue we derive from
capitation arrangements in the future. Under capitation arrangements, the payor
pays a pre-determined amount per-patient per-month in exchange for us providing
all necessary covered services to the patients covered under the arrangement.
These contracts pass much of the financial risk of providing diagnostic imaging
services, including the risk of over-use, from the payor to the provider. Our
success depends in part on our ability to negotiate effectively, on behalf of
the contracted radiology practices and our diagnostic imaging facilities,
contracts with health maintenance organizations, employer groups and other
third-party payors for services to be provided on a capitated basis and to
efficiently manage the utilization of those services. If we are not successful
in managing the utilization of services under these capitation arrangements or
if patients or enrollees covered by these contracts require more frequent or
extensive care than anticipated, we would incur unanticipated costs not offset
by additional revenue, which would reduce operating margins.

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

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

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

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

         o        Earthquakes, fires, floods and other natural disasters;

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

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

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


                                       26
<PAGE>

WE ARE VULNERABLE TO EARTHQUAKES AND OTHER NATURAL DISASTERS.

         Our headquarters and 93 of our facilities are located in California, an
area prone to earthquakes and other natural disasters. Three of our facilities
are located in an area of Florida, which has suffered from hurricanes. An
earthquake or other natural disaster could seriously impair our operations, and
our insurance may not be sufficient to cover us for the resulting losses.

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

         We are directly or indirectly through the radiology practices with
which we contract subject to extensive regulation by both the federal government
and the state governments in which we provide services, including:

         o        The federal False Claims Act;

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

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

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

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

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

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

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

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

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

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

         Our facilities are subject to periodic inspection by governmental and
other authorities to assure continued compliance with the various standards
necessary for licensure and certification. If any facility loses its
certification under the Medicare program, then the facility will be ineligible
to receive reimbursement from the Medicare and Medicaid programs. For the year
ended December 31, 2008, approximately 23% of our net revenue came from the
Medicare and Medicaid programs. A change in the applicable certification status
of one of our facilities could adversely affect our other facilities and in turn
us as a whole. We have experienced a slowdown in the credentialing of our
physicians over the last several years which has lengthened our billing and
collection cycle, and could negatively impact our ability to collect revenue
from patients covered by Medicare. Credentialing of physicians is required by
our payors prior to commencing payment.


                                       27
<PAGE>

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

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

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

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

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

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

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

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

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

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

         |X|      Increase our vulnerability to adverse general economic and
                  industry conditions;

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

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

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

ITEM 1B.     UNRESOLVED STAFF COMMENTS

None.


                                       28
<PAGE>

ITEM 2.      PROPERTIES

         Our corporate headquarters is located in adjoining premises at 1508,
1510 and 1516 Cotner Avenue, Los Angeles, California 90025, in approximately
21,500 square feet occupied under leases, which expire (with options to extend)
on June 30, 2017. In addition, we lease 52,941 square feet of warehouse and
other space under leases, which expire at various dates through August 2020. We
also occupy approximately 7,000 square feet in Dallas, Texas pursuant to a
lease, which expires on September 30, 2011. We also have a regional office of
approximately 39,000 square feet in Baltimore, Maryland under a lease, which
expires September 30, 2012. Our facility lease terms vary in length from month
to month to 15 years with renewal options upon prior written notice, from 1 year
to 10 years depending upon the agreed upon terms with the local landlord.
Facility lease amounts generally increase from 1% to 6% on an annual basis. We
do not have options to purchase the facilities we rent.

ITEM 3.      LEGAL PROCEEDINGS

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

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

         Inapplicable

                                     PART II

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

         Our common stock is quoted on the NASDAQ Global Market under the symbol
"RDNT." The following table indicates the high and low prices for our common
stock for the periods indicated based upon information supplied by the NASDAQ
Global Market. Such quotations have been adjusted to reflect interdealer prices
without adjustment for retail mark-up, markdown or commission, and may not
necessarily represent actual transactions.

                                                      LOW       HIGH

                 QUARTER ENDED
                 December 31, 2008                   1.94       3.84
                 September 30, 2008                  3.53       6.60
                 June 30, 2008                       6.09       7.75
                 March 31, 2008                     $6.23      $9.64

                 December 31, 2007                   8.31      10.39
                 September 30, 2007                  7.81      10.57
                 June 30, 2007                       5.38       9.60
                 March 31, 2007                     $4.50      $6.67

         The last low and high prices for our common stock on the NASDAQ Global
Market on March 10, 2009 were $0.97 and $1.06, respectively. As of March 10,
2009, the number of holders of record of our common stock was 3,786. However,
Cede & Co., the nominee for The Depository Trust Company, the clearing agency
for most broker-dealers, owned a substantial number of our outstanding shares of
common stock of record on that date. Our management believes that customers of
these broker-dealers beneficially own these shares and that the number of
beneficial owners of our common stock is approximately 4,000.

STOCK PERFORMANCE GRAPH

         The following graph compares the yearly percentage change in cumulative
total stockholder return of the Company's Common Stock during the period from
2003 to 2008 with (i) the cumulative total return of the S&P500 index and (ii)
the cumulative total return of the S&P500 - Healthcare Sector index. The
comparison assumes $100 was invested in October 31, 2003 in the Common Stock and
in each of the foregoing indices and the reinvestment of dividends through
January 1, 2009. The stock price performance on the following graph is not
necessarily indicative of future stock price performance.

         This graph shall not be deemed incorporated by reference by any general
statement incorporating by reference this Form 10-K into any filing under the
Securities Act or under the Exchange Act, except to the extent that RadNet
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.


                                       29
<PAGE>


         We did not pay dividends in fiscal 2007 or 2008 and we do not expect to
pay any dividends in the foreseeable future.


       [Comparison of Cumulative Five Year Total Return Graph appears here]


                          TOTAL RETURN TO SHAREHOLDERS
                      (INCLUDES REINVESTMENT OF DIVIDENDS)

<TABLE>
<CAPTION>
<S>     <C>

                                                                   ANNUAL RETURN PERCENTAGE
                                                                         YEARS ENDING

COMPANY / INDEX                                      10/29/04    10/31/05    10/31/06     12/29/06    12/31/07     12/31/08
----------------------------------------------------------------------------------------------------------------------------
RADNET, INC.                                            14.29      -33.93      594.59       -10.12      119.70       -67.00
S&P 500 INDEX                                            9.42        8.72       16.34         3.33        5.49       -37.00
S&P HEALTH CARE SECTOR                                   1.76        9.57       11.36         0.91        7.15       -22.81



                                                                       INDEXED RETURNS
                                        BASE                             YEARS ENDING
                                       PERIOD
COMPANY / INDEX                       10/31/03       10/29/04    10/31/05    10/31/06     12/29/06    12/31/07     12/31/08
----------------------------------------------------------------------------------------------------------------------------
RADNET, INC.                            100            114.29       75.51      524.49       471.43     1035.71       341.84
S&P 500 INDEX                           100            109.42      118.96      138.40       143.01      150.87        95.05
S&P HEALTH CARE SECTOR                  100            101.76      111.49      124.16       125.29      134.25       103.63

</TABLE>

RECENT SALES OF UNREGISTERED SECURITIES

         During the fiscal year ended December 31, 2008, we sold the following
securities pursuant to an exemption from registration provided under Section
4(2) of the Securities Act of 1933, as amended:

         o        In October 2008, we issued to two radiologists in order retain
                  their employment with BRMG, five-year warrants exercisable at
                  a price of $3.24 per share, which was the public market
                  closing price for our common stock on the transaction date, to
                  purchase 75,000 shares and 35,000 shares of our common stock,
                  respectively.

         o        In November 2008, we issued to a radiologist in order to
                  retain his employment with BRMG, a five-year warrant
                  exercisable at a price of $3.29 per share, which was the
                  public market closing price of our common stock on the
                  transaction date, to purchase 50,000 shares of our common
                  stock.

ITEM 6.      SELECTED CONSOLIDATED FINANCIAL DATA

         The following table sets forth our selected historical consolidated
financial data. The selected consolidated statements of operations data set
forth below for the years ended December 31, 2008 and 2007, the year ended
October 31, 2006, the two months ended December 31, 2006, and the consolidated
balance sheet data as of December 31, 2008 and 2007, are derived from our
audited consolidated financial statements and notes thereto included elsewhere
herein. The selected historical consolidated statements of operations data set
forth below for the years ended October 31, 2005 and 2004, and the consolidated
balance sheet data set forth below as of December 31, 2006 and October 31, 2006,
2005 and 2004 are derived from our audited consolidated financial statements not
included herein. This data should be read in conjunction with and is qualified
in its entirety by reference to the audited consolidated financial statements
and the related notes included elsewhere in this Form 10-K and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

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


                                       30
<PAGE>

<TABLE>
<CAPTION>
<S>     <C>
                                                       YEARS ENDED               TWO MONTHS ENDED            YEARS ENDED
                                                        December 31,                DECEMBER 31,               OCTOBER 31,
                                          ---------------------------------  ---------------------  -------------------------------
                                             2008       2007       2006        2006        2005       2006        2005      2004
                                          ---------  ---------   ---------   ---------   ---------  ---------  ---------  ---------
                                                                (UNAUDITED)             (UNAUDITED)

                                                                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Statement of Operations Data:

Net revenue                               $ 502,118  $ 425,470   $ 192,859   $  57,374   $  22,520  $ 161,005  $ 145,573  $ 137,277
Operating expenses:
Operating expenses                          384,297    330,550     147,226      46,033      19,149    120,342    109,012    105,828
Depreciation and amortization                53,548     45,281      19,542       5,907       2,759     16,394     17,536     17,917
Provision for bad bebts                      30,832     27,467      10,707       3,907         826      7,626      4,929      3,911
Loss (gain) on disposal of equipment, net       516         72         335         (38)         --        373        696         --
Gain from sale of joint venture interests        --     (1,868)         --          --          --         --         --         --
Net loss                                    (12,836)   (18,131)    (17,722)    (10,983)       (155)    (6,894)    (3,570)   (14,731)

Basic and diluted loss per share              (0.36)     (0.52)      (0.57)      (0.35)      (0.01)     (0.33)     (0.17)     (0.72)

Balance Sheet Data:

Cash and cash equivalents                 $      --  $      18   $   3,221   $   3,221   $       2  $       2  $       2  $       1
Total assets                                495,572    433,620     394,766     394,766     119,112    131,636    117,784    124,437
Total long-term liabilities                 469,994    428,743     381,903     381,903      23,586    179,288     23,840    139,980
Total liabilities and minority interests    576,680    503,450     441,762     441,762     189,725    210,430    191,866    195,006
Working capital (deficit)                     1,962     23,180      31,230      31,230    (141,586)     2,896   (143,430)   (32,172)
Stockholders' deficit                       (81,108)   (69,830)    (46,996)    (46,996)    (70,613)   (78,794)   (74,082)   (70,569)
</TABLE>


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

OVERVIEW

         We operate a group of regional networks comprised of 164 diagnostic
imaging facilities located in six states with operations in California,
Delaware, Maryland, the Treasure Coast area of Florida, Kansas and the Finger
Lakes (Rochester) and Hudson Valley areas of New York, providing diagnostic
imaging services including magnetic resonance imaging, or MRI, computed
tomography, or CT, positron emission tomography, or PET, nuclear medicine,
mammography, ultrasound, diagnostic radiology, or X-ray, and fluoroscopy. The
Company's operations comprise a single segment for financial reporting purposes.

         The results of operations of Radiologix and its wholly-owned
subsidiaries have been included in the consolidated financial statements from
November 15, 2006, the date of the Company's acquisition of Radiologix. The
consolidated financial statements also include the accounts of RadNet
Management, Inc., or RadNet Management, and Beverly Radiology Medical Group III
(BRMG), which is a professional partnership, all collectively referred to as
"us" or "we". The consolidated financial statements also include RadNet Sub,
Inc., RadNet Management I, Inc., RadNet Management II, Inc., SoCal MR Site
Management, Inc., Radiologix, Inc., RadNet Management Imaging Services, Inc.,
Delaware Imaging Partners, Inc. and Diagnostic Imaging Services, Inc. (DIS), all
wholly owned subsidiaries of RadNet Management.

         Howard G. Berger, M.D. is our President and Chief Executive Officer, a
member of our Board of Directors and owns approximately 18% of our outstanding
common stock. Dr. Berger also owns, indirectly, 99% of the equity interests in
BRMG. BRMG provides all of the professional medical services at the majority of
our facilities located in California under a management agreement with us, and
contracts with various other independent physicians and physician groups to
provide the professional medical services at most of our other California
facilities. We generally obtain professional medical services from BRMG in
California, rather than provide such services directly or through subsidiaries,
in order to comply with California's prohibition against the corporate practice
of medicine. However, as a result of our close relationship with Dr. Berger and
BRMG, we believe that we are able to better ensure that medical service is
provided at our California facilities in a manner consistent with our needs and
expectations and those of our referring physicians, patients and payors than if
we obtained these services from unaffiliated physician groups. BRMG is a
partnership of Pronet Imaging Medical Group, Inc. (99%), Breastlink Medical
Group, Inc. (100%) and Beverly Radiology Medical Group, Inc. (99%), each of
which are 99% or 100% owned by Dr. Berger. RadNet provides non-medical,
technical and administrative services to BRMG for which it receives a management
fee, per the management agreement. Through the management agreement and our
relationship with Dr. Berger, we have exclusive authority over all non-medical
decision making related to the ongoing business operations of BRMG. Based on the
provisions of the agreement, we have determined that BRMG is a variable interest
entity, and that we are the primary beneficiary as defined in Financial
Accounting Standards Board (FASB) Interpretation No. 46 (revised December 2003),
CONSOLIDATION OF VARIABLE INTEREST ENTITIES, AN INTERPRETATION OF ARB NO. 51
(FIN 46(R)), and consequently, we consolidate the revenue and expenses of BRMG.
All intercompany balances and transactions have been eliminated in
consolidation.


                                       31
<PAGE>

         At a portion of our centers in California and at all of the centers
which are located outside of California, we have entered into long-term
contracts with prominent radiology groups in the area to provide physician
services at those facilities. These third party radiology practices provide
professional services, including supervision and interpretation of diagnostic
imaging procedures, in our diagnostic imaging centers. The radiology practices
maintain full control over the provision of professional 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.

         In these facilities we enter into long-term agreements with radiology
practice groups (typically 40 years). Under these arrangements, in addition to
obtaining technical fees for the use of our 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 outside of our diagnostic imaging centers. We own the diagnostic imaging
assets and, therefore, receive 100% of the technical reimbursements associated
with imaging procedures. We have no financial controlling interest in the
contracted radiology practices, as defined in EITF 97-2; accordingly, we do not
consolidate the financial statements of those practices in our consolidated
financial statements.

LIQUIDITY AND CAPITAL RESOURCES

         We had a working capital balance of $2.0 million and $23.2 million at
December 31, 2008 and 2007, respectively. We had net losses of $12.8 million,
$18.1 million, $11.0 million and $6.9 million for the years ended December 31,
2008 and 2007, the two months ended December 31, 2006, and the year ended
October 31, 2006, respectively. We also had a stockholders' deficit of $81.1
million and $69.8 million at December 31, 2008 and 2007, respectively.

         We operate in a capital intensive, high fixed-cost industry that
requires significant amounts of capital to fund operations. In addition to
operations, we require significant amounts of capital for the initial start-up
and development expense of new diagnostic imaging facilities, the acquisition of
additional facilities and new diagnostic imaging equipment, and to service our
existing debt and contractual obligations. Because our cash flows from
operations have been insufficient to fund all of these capital requirements, we
have depended on the availability of financing under credit arrangements with
third parties or have entered into capital leases.

         Our business strategy with regard to operations focuses on the
following:

         |X|      Maximizing performance at our existing facilities;

         |X|      Focusing on profitable contracting;

         |X|      Expanding MRI, CT and PET applications;

         |X|      Optimizing operating efficiencies; and

         |X|      Expanding our networks

         Our ability to generate sufficient cash flow from operations to make
payments on our debt and other contractual obligations will depend on our future
financial performance. A range of economic, competitive, regulatory, legislative
and business factors, many of which are outside of our control, will affect our
financial performance. Taking these factors into account, including our
historical experience and our discussions with our lenders to date, although no
assurance can be given, we believe that through implementing our strategic plans
and continuing to restructure our financial obligations, we will obtain
sufficient cash to satisfy our obligations as they become due in the next twelve
months.

SOURCES AND USES OF CASH

         Cash provided by operating activities was $45.2 million, $29.2 million,
$440,000 and $10.3 million for the years ended December 31, 2008 and 2007, the
two months ended December 31, 2006 and the year ended October 31, 2006,
respectively.

         Cash used in investing activities was $56.0 million, $45.9 million, and
$13.5 million for the years ended December 31, 2008, 2007, and October 31, 2006,
respectively. Cash provided by investing activities for the two months ended
December 31, 2006 was $10.2 million. For the year ended December 31, 2008, we
purchased property and equipment for approximately $29.2 million and acquired
the assets and businesses of additional imaging facilities for approximately
$28.9 million (see Note 2 to our consolidated financial statements). We also
generated $3.0 million from the sale of equipment.

         Cash provided by financing activities was $10.8 million, $13.5 million
and $3.2 million for the years ended December 31, 2008 and 2007, and October 31,
2006, respectively. Cash used in financing activities for the two months ended
December 31, 2006 was $7.4 million. The cash provided by financing activities
for the year ended December 31, 2008 was primarily related to our borrowing of
an additional $35 million as part of our second lien term loan with GE
Commercial Healthcare Financial Services offset by principal payments on notes
and leases payable of $19 million.


                                       32
<PAGE>

CONTRACTUAL COMMITMENTS

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

<TABLE>
<CAPTION>
<S>     <C>

                           2009         2010         2011        2012          2013      THEREAFTER     TOTAL
                         --------     --------     --------     --------     --------     --------     --------
Notes payable (1)        $ 46,444     $ 38,907     $ 39,168     $270,009     $177,368     $     --     $571,896
Capital leases (2)         17,700       13,597        8,288        4,155          615           --       44,355
Operating leases (3)       38,531       35,441       28,852       24,933       20,827       74,771      223,355
                         --------     --------     --------     --------     --------     --------     --------
Total                    $102,675     $ 87,945     $ 76,308     $299,097     $198,810     $ 74,771     $839,606
                         ========     ========     ========     ========     ========     ========     ========
</TABLE>

(1)   Includes variable rate debt for which the contractual obligation was
      estimated using the applicable rate as of December 31, 2008.
(2)   Includes interest component of capital lease obligations.
(3)   Includes all existing options to extend lease terms that are reasonably
      assured to be exercised.

         We have an arrangement with GE Medical Systems under which it has
agreed to be responsible for the maintenance and repair of a majority of our
equipment for a fee that is based upon a percentage of our revenue, subject to a
minimum payment. Net revenue is reduced by the provision for bad debts, mobile
PET revenue and other professional reading service revenue to obtain adjusted
net revenue.

CRITICAL ACCOUNTING ESTIMATES

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

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

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

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

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

         The Securities and Exchange Commission, or SEC, defines critical
accounting estimates as those that are both most important to the portrayal of a
company's financial condition and results of operations and require management's
most difficult, subjective or complex judgment, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain and may
change in subsequent periods. In Note 4 to our consolidated financial
statements, we discuss our significant accounting policies, including those that
do not require management to make difficult, subjective or complex judgments or
estimates. The most significant areas involving management's judgments and
estimates are described below.

REVENUE RECOGNITION

         Our consolidated net revenue consists of net patient fee for service
revenue and revenue from capitation arrangements, or capitation revenue. Net
patient service revenue is recognized at the time services are provided net of
contractual adjustments based on our evaluation of expected collections
resulting from the analysis of current and past due accounts, past collection
experience in relation to amounts billed and other relevant information. The
amount of expected collection is continually adjusted as more information is
received and such adjustments are recorded in current operations. Contractual
adjustments result from the differences between the rates charged for services
performed and reimbursements by government-sponsored healthcare programs and
insurance companies for such services. Capitation revenue is recognized as
revenue during the period in which we were obligated to provide services to plan
enrollees under contracts with various health plans. Under these contracts, we
receive a per-enrollee amount each month covering all contracted services needed
by the plan enrollees.

ACCOUNTS RECEIVABLE

         Substantially all of our accounts receivable are due under
fee-for-service contracts from third party payors, such as insurance companies
and government-sponsored healthcare programs, or directly from patients.
Services are generally provided pursuant to one-year contracts with healthcare
providers. Receivables generally are collected within industry norms for
third-party payors. We continuously monitor collections from our clients and


                                       33
<PAGE>

maintain an allowance for bad debts based upon specific payor collection issues
that we have identified and our historical experience.

DEPRECIATION AND AMORTIZATION OF LONG-LIVED ASSETS

         We depreciate our long-lived assets over their estimated economic
useful lives with the exception of leasehold improvements where we use the
shorter of the assets useful lives or the lease term of the facility for which
these assets are associated.

DEFERRED TAX ASSETS

         We evaluate the realizability of the net deferred tax assets and assess
the valuation allowance periodically. If future taxable income or other factors
are not consistent with our expectations, an adjustment to our allowance for net
deferred tax assets may be required. Even though we expect to utilize our net
operating loss carry forwards in the future, the last three fiscal year losses
and available evidence cause the valuation of our net deferred tax assets to be
uncertain in the near term. As of December 31, 2008, we have provided a full
allowance on our net deferred tax assets.

VALUATION OF GOODWILL AND LONG-LIVED ASSETS

         Goodwill at December 31, 2008 totaled $105.3 million. Goodwill is
recorded as a result of business combinations. Management evaluates goodwill, at
a minimum, on an annual basis and whenever events and changes in circumstances
suggest that the carrying amount may not be recoverable in accordance with
Statement of Financial Accounting Standards, or SFAS, No. 142, "Goodwill and
Other Intangible Assets." Impairment of goodwill is tested at the reporting unit
level by comparing the reporting unit's carrying amount, including goodwill, to
the fair value of the reporting unit. The fair value of a reporting unit is
estimated using a combination of the income or discounted cash flows approach
and the market approach, which uses comparable market data. If the carrying
amount of the reporting unit exceeds its fair value, goodwill is considered
impaired and a second step is performed to measure the amount of impairment
loss, if any. Using the services of an external valuation expert, we performed
our annual impairment test of goodwill as of October 1, 2008. Based on our
analysis, we recorded no impairment loss related to goodwill in 2008. However,
if estimates or the related assumptions change in the future, we may be required
to record impairment charges to reduce the carrying amount of goodwill.

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

DERIVATIVE FINANCIAL INSTRUMENTS

         The Company holds derivative financial instruments for the purpose of
hedging the risks of certain identifiable and anticipated transactions. In
general, the types of risks hedged are those relating to the variability of cash
flows caused by movements in interest rates. The Company documents its risk
management strategy and hedge effectiveness at the inception of the hedge, and,
unless the instrument qualifies for the short-cut method of hedge accounting,
over the term of each hedging relationship. Our use of derivative financial
instruments is limited to interest rate swaps, the purpose of which is to hedge
the cash flows of variable-rate indebtedness. We do not hold or issue derivative
financial instruments for speculative purposes.

         In accordance with Statement of Financial Accounting Standards No. 133,
derivatives that have been designated and qualify as cash flow hedging
instruments are reported at fair value. The gain or loss on the effective
portion of the hedge (i.e., change in fair value) is initially reported as a
component of other comprehensive income in the Company's Consolidated Statement
of Stockholders' Equity. The remaining gain or loss, if any, is recognized
currently in earnings. Amounts in accumulated other comprehensive income are
reclassified into net income in the same period in which the hedged forecasted
transaction affects earnings.

MEDICAL MALPRACTICE INSURANCE

         We and our affiliated physicians are insured by Fairway Physicians
Insurance Company. Fairway provides claims-made malpractice insurance coverage
that covers only asserted malpractice claims made during the policy period and
within policy limits. To reduce our exposure to claims incurred but not reported
under the annual policy, the Company purchased an effective tail policy to cover
all claims filed after December 31, 2008 relating to incidents prior to January
1, 2009, thus eliminating any liability for future claims made related to
December 31, 2008 and prior.


                                       34
<PAGE>

FACILITY ACQUISITIONS AND DIVESTITURES

ACQUISITIONS

         On October 31, 2008, we acquired the assets and business of Middletown
Imaging in Middletown, Delaware for $210,000 in cash and the assumption of
capital lease debt of $1.2 million. We made a preliminary purchase price
allocation of the acquired assets and liabilities, and approximately $530,000 of
goodwill was recorded with respect to this transaction.

         On August 15, 2008, we acquired the women's imaging practice of Parvis
Gamagami, M.D., Inc. in Van Nuys, CA for $600,000. Upon acquisition, we
relocated the practice to a nearby center we recently acquired from InSight
Health in Encino, CA. We rebranded the InSight center as the Encino Breast Care
Center, and focused it on Digital Mammography, Ultrasound, MRI and other
modalities pertaining to women's health. We allocated the full purchase price of
$600,000 to goodwill.

         On July 23, 2008, we acquired the assets and business of NeuroSciences
Imaging Center in Newark, Delaware for $4.5 million in cash. The center, which
performs MRI, CT, Bone Density, X-ray, Fluoroscopy and other specialized
procedures, is located in a highly specialized medical complex called the
Neuroscience and Surgery Institute of Delaware. The acquisition complements our
recent purchase of the Papastavros Associates Imaging centers completed in
March, 2008. We made a preliminary purchase price allocation of the acquired
assets and liabilities, and approximately $2.6 million of goodwill was recorded
with respect to this transaction.

         On June 18, 2008, we acquired the assets and business of Ellicott Open
MRI for the assumption of approximately $181,000 of capital lease debt. We made
a preliminary purchase price allocation of the acquired assets and liabilities,
and no goodwill was recorded with respect to this transaction.

         On June 2, 2008, we acquired the assets and business of Simi Valley
Advanced Medical, a Southern California based multi-modality imaging center, for
the assumption of capital lease debt of $1.7 million. We made a preliminary
purchase price allocation of the acquired assets and liabilities, and
approximately $313,000 of goodwill was recorded with respect to this
transaction.

         On April 15, 2008, we acquired the net assets of five Los Angeles area
imaging centers from InSight Health Corp. We completed the purchase of a sixth
center in Van Nuys, CA from Insight Health Corp. on June 2, 2008. The total
purchase price for the six centers was $8.5 million in cash. The centers provide
a combination of imaging modalities, including MRI, CT, X-ray, Ultrasound and
Mammography. We made a preliminary purchase price allocation of the acquired
assets and liabilities, and approximately $5.6 million of goodwill was recorded
with respect to this transaction.

         On April 1, 2008, we acquired the net assets and business of BreastLink
Medical Group, Inc., a prominent Southern California breast medical oncology
business and a leading breast surgery business, for the assumption of
approximately $4.0 million of accrued liabilities and capital lease obligations.
We made a preliminary purchase price allocation of the acquired assets and
liabilities, and approximately $2.1 million of goodwill was recorded with
respect to this transaction.

         On March 12, 2008, we acquired the net assets and business of
Papastavros Associates Medical Imaging for $9.0 million in cash and the
assumption of capital leases of $337,000. Founded in 1958, Papastavros
Associates Medical Imaging is one of the largest and most established outpatient
imaging practices in Delaware. The 12 Papastavros centers offer a combination of
MRI, CT, PET, nuclear medicine, mammography, bone densitometry, fluoroscopy,
ultrasound and X-ray. We made a preliminary purchase price allocation of the
acquired assets and liabilities, and approximately $3.6 million of goodwill, and
$1.2 million for covenants not to compete, was recorded with respect to this
transaction.

         On February 1, 2008, we acquired the net assets and business of The
Rolling Oaks Imaging Group, located in Westlake and Thousand Oaks, California,
for $6.0 million in cash and the assumption of capital leases of $2.7 million.
The practice consists of two centers, one of which is a dedicated women's
center. The centers are multimodality and include a combination of MRI, CT,
PET/CT, mammography, ultrasound and X-ray. The centers are positioned in the
community as high-end, high-quality imaging facilities that employ
state-of-the-art technology, including 3 Tesla MRI and 64 slice CT units. The
facilities have been fixtures in the Westlake/Thousand Oaks market since 2003.
We made a preliminary purchase price allocation of the acquired assets and
liabilities, and approximately $5.6 million of goodwill was recorded with
respect to this transaction.

         On October 9, 2007, we acquired the assets and business of Liberty
Pacific Imaging located in Encino, California for $2.8 million in cash. The
center operates a successful MRI practice utilizing a 3T MRI unit, the strongest
magnet strength commercially available at this time. The center was founded in
2003. The acquisition allows us to consolidate a portion of our Encino/Tarzana
MRI volume onto the existing Liberty Pacific scanner. This consolidation allows
us to move our existing 3T MRI unit in that market to our Squadron facility in
Rockland County, New York. Approximately $1.1 million of goodwill was recorded
with respect to this transaction. Also, $200,000 was recorded for the fair value
of a covenant not to compete contract.

         In September 2007, we acquired the assets and business of three
facilities comprising Valley Imaging Center, Inc. located in Victorville, CA for
$3.3 million in cash plus the assumption of approximately $866,000 of debt. The
acquired centers offer a combination of MRI, CT, X-ray, Mammography, Fluoroscopy
and Ultrasound. The physician who provided the interpretive radiology services
to these three locations joined BRMG. The leased facilities associated with
these centers includes a total monthly rental of approximately $18,000.

                                       35
<PAGE>

Approximately $3.0 million of goodwill was recorded with respect to this
transaction. Also, $150,000 was recorded for the fair value of a covenant not to
compete contract.

         In September 2007, we acquired the assets and business of Walnut Creek
Open MRI located in Walnut Creek, CA for $225,000. The center provides MRI
services. The leased facility associated with this center includes a monthly
rental of approximately $6,800 per month. Approximately $50,000 of goodwill was
recorded with respect to this transaction.

         In July 2007, we acquired the assets and business of Borg Imaging Group
located in Rochester, NY for $11.6 million in cash plus the assumption of
approximately $2.4 million of debt. Borg was the owner and operator of six
imaging centers, five of which are multimodality, offering a combination of MRI,
CT, X-ray, Mammography, Fluoroscopy and Ultrasound. After combining the Borg
centers with RadNet's existing centers in Rochester, New York, RadNet has a
total of 11 imaging centers in Rochester. The leased facilities associated with
these centers includes a total monthly rental of approximately $71,000 per
month. Approximately $8.9 million of goodwill was recorded with respect to this
transaction. Also, $1.4 million was recorded for the fair value of covenant not
to compete contracts.

         In March 2007, we acquired the assets and business of Rockville Open
MRI, located in Rockville, Maryland, for $540,000 in cash and the assumption of
a capital lease of $1.1 million. The center provides MRI services. The center is
3,500 square feet with a monthly rental of approximately $8,400 per month.
Approximately $365,000 of goodwill was recorded with respect to this
transaction.

DIVESTITURES

         In December 2007, we sold 24% of a 73% investment in one of our
consolidated joint ventures for approximately $2.3 million reducing our
ownership to 49%. As a result of this transaction, we no longer consolidate this
joint venture. Accordingly, our consolidated balance sheet at December 31, 2007
includes this 49% interest as a component of our total investment in
non-consolidated joint ventures where it is accounted for under the equity
method. The amounts eliminated from our consolidated balance sheet as a result
of the deconsolidation were not material. Since the deconsolidation occurred at
the end of 2007, no significant amounts were eliminated from our statement of
operations.

         In October 2007 we divested a non-core center in Golden, Colorado for
$325,000.

         In June 2007 we divested a non-core center in Duluth, Minnesota to a
local multi-center operator for $1.3 million.

RESULTS OF OPERATIONS

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



                                       36
<PAGE>

<TABLE>
<CAPTION>
<S>     <C>

                                           RADNET, INC. AND SUBSIDIARIES
                                       CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                YEARS ENDED         TWO MONTHS ENDED   YEAR ENDED
                                                                 DECEMBER 31,         DECEMBER 31,     OCTOBER 31,
                                                               ---------------      -------------      -----------
                                                               2008      2007            2006             2006
                                                              -----      -----          -----            -----

NET REVENUE                                                   100.0%     100.0%         100.0%           100.0%


OPERATING EXPENSES
     Operating expenses                                        76.5%      77.7%          80.2%            74.7%
     Depreciation and amortization                             10.7%      10.6%          10.3%            10.2%
     Provision for bad debts                                    6.1%       6.5%           6.8%             4.7%
     Loss (gain) on sale of equipment                           0.1%       0.0%          -0.1%             0.2%
     Severance costs                                            0.1%       0.2%           0.4%             0.0%
         Total operating expenses                              93.5%      95.0%          97.6%            89.9%


INCOME FROM OPERATIONS                                          6.5%       5.0%           2.4%            10.1%

OTHER EXPENSES (INCOME)
     Interest expense                                          10.3%      10.4%           9.8%            12.6%
     Gain from sale of joint venture interest                   0.0%      -0.4%           0.0%             0.0%
     Loss (gain) on debt extinguishment, net                    0.0%       0.0%          12.6%             1.3%
     Other (income) expense                                     0.0%       0.0%          -0.1%             0.5%
         Total other expense                                   10.3%      10.0%          22.3%            14.4%

LOSS BEFORE INCOME TAXES, MINORITY
     INTERESTS AND EARNINGS FROM
     MINORITY INVESTMENTS                                      -3.8%      -5.0%         -19.9%            -4.3%
     Provision for income taxes                                 0.0%      -0.1%           0.0%             0.0%
     Minority interest in (income) loss of subsidiaries         0.0%      -0.1%          -0.1%             0.0%
     Equity in earnings of joint ventures                       1.3%       1.0%           0.9%             0.1%
                                                              ------     ------         ------           ------
NET LOSS                                                      -2.6%       -4.3%         -19.1%            -4.3%
                                                              =====      ======         ======           =====
</TABLE>


YEAR ENDED DECEMBER 31, 2008 COMPARED TO THE YEAR ENDED DECEMBER 31, 2007

NET REVENUE

         Net revenue for the year ended December 31, 2008 was $502.1 million
compared to $425.5 million for the year ended December 31, 2007, an increase of
$76.6 million, or 18.0%.

         Net revenue, including only those centers which were in operation
throughout the full fiscal years of both 2008 and 2007, increased $28.6 million,
or 7.1%. This 7.1% increase is mainly due to an increase in procedure volumes.
This comparison excludes revenue contributions from centers that were acquired
or divested subsequent to January 1, 2007. For the year ended December 31, 2008,
net revenue from centers that were acquired subsequent to January 1, 2007 and
excluded from the above comparison was $70.0 million. For the year ended
December 31, 2007, net revenue from centers that were acquired subsequent to
January 1, 2007 and excluded from the above comparison was $10.6 million. Also
excluded was $11.4 million from centers that were divested subsequent to January
1, 2007.

OPERATING EXPENSES

         Operating expenses for the year ended December 31, 2008 increased
approximately $53.7 million, or 16.3%, from $330.6 million for the year ended
December 31, 2007 to $384.3 million for the year ended December 31, 2008. The
following table sets forth our operating expenses for the years ended December
31, 2008 and 2007 (in thousands):


                                       37
<PAGE>
                                                           YEARS ENDED
                                                           DECEMBER 31,
                                                      ---------------------
                                                        2008         2007
                                                      --------     --------

Salaries and professional reading fees,
  excluding stock compensation                        $210,450     $178,573
Stock compensation                                       2,902        3,313
Building and equipment rental                           43,478       41,299
General administrative expenses                        127,467      107,245
NASDAQ one-time listing fee                                 --          120
                                                      --------     --------
Operating expenses                                     384,297      330,550

Depreciation and amortization                           53,548       45,281
Provision for bad debts                                 30,832       27,467
Loss on sale of equipment, net                             516           72
Severance costs                                            335          934
                                                      --------     --------
Total operating expenses                              $469,528     $404,304
                                                      ========     ========


o        SALARIES AND PROFESSIONAL READING FEES, EXCLUDING STOCK COMPENSATION
         AND SEVERANCE

         Salaries and professional reading fees increased $31.9 million, or
         17.9%, to $210.5 million for the year ended December 31, 2008 compared
         to $178.6 million for the year ended December 31, 2007.

         Salaries and professional reading fees, including only those centers
         which were in operation throughout the full fiscal years of both 2008
         and 2007 increased $12.7 million, or 7.1%. This 7.1% increase is
         primarily due to increased salaries and staffing to support the revenue
         growth of these existing imaging centers. This comparison excludes
         contributions from centers that were acquired or divested subsequent to
         January 1, 2007. For the year ended December 31, 2008, salaries and
         professional reading fees from centers that were acquired subsequent to
         January 1, 2007 and excluded from the above comparison was $25.6
         million. For the year ended December 31, 2007, salaries and
         professional reading fees from centers that were acquired subsequent to
         January 1, 2007 and excluded from the above comparison was $3.2
         million. Also excluded was $3.2 million from centers that were divested
         subsequent to January 1, 2007.

o        SHARE-BASED COMPENSATION

         Share-based compensation decreased $411,000, or 12.4%, to $2.9 million
         for the year ended December 31, 2008 compared to $3.3 million for the
         year ended December 31, 2007. Share-based compensation for the year
         ended December 31, 2007 included $1.7 million of additional stock based
         compensation expense as a result of the acceleration of vesting of
         certain warrants.

o        BUILDING AND EQUIPMENT RENTAL

         Building and equipment rental expenses increased $2.2 million, or 5.3%,
         to $43.5 million for the year ended December 31, 2008 compared to $41.3
         million for the year ended December 31, 2007.

         Building and equipment rental expenses, including only those centers
         which were in operation throughout the full fiscal years of both 2008
         and 2007 decreased $1.7 million, or 4.2%. This 4.2% decrease is
         primarily due to the conversion of certain equipment leases contracts
         from operating to capital leases. This comparison excludes
         contributions from centers that were acquired or divested subsequent to
         January 1, 2007. For the year ended December 31, 2008, building and
         equipment rental expenses from centers that were acquired subsequent to
         January 1, 2007 and excluded from the above comparison was $6.4
         million. For the year ended December 31, 2007, building and equipment
         rental expenses from centers that were acquired subsequent to January
         1, 2007 and excluded from the above comparison was $1.2 million. Also
         excluded was $1.3 million from centers that were divested subsequent to
         January 1, 2007.

o        GENERAL AND ADMINISTRATIVE EXPENSES

         General and administrative expenses include billing fees, medical
         supplies, office supplies, repairs and maintenance, insurance, business
         tax and license, outside services, utilities, marketing, travel and
         other expenses. Many of these expenses are variable in nature including
         medical supplies and billing fees, which increase with volume and
         repairs and maintenance under our GE service agreement as a percentage
         of net revenue. Overall, general and administrative expenses increased

                                       38
<PAGE>

         $20.2 million, or 18.8%, for the year ended December 31, 2008 compared
         to the previous period. The increase is consistent with our increase in
         procedure volumes at both existing centers as well as newly acquired
         centers.

o        DEPRECIATION AND AMORTIZATION EXPENSE

         Depreciation and amortization expense increased $8.3 million, or 18.3%,
         to $53.6 million for the year ended December 31, 2008 when compared to
         the same period last year. The increase is primarily due to property
         and equipment additions for existing centers and newly acquired
         centers.

o        PROVISION FOR BAD DEBTS

         Provision for bad debts increased $3.3 million, or 12.3%, to $30.8
         million, or 6.1% of net revenue, for the year ended December 31, 2008
         compared to $27.5 million, or 6.4% of net revenue, for the year ended
         December 31, 2007. The decrease in our provision for bad debts as a
         percentage of revenue is primarily due to an increase in collection
         performance and the completion of our billing system implementation
         which began in the first quarter of 2007.

o        LOSS ON SALE OF EQUIPMENT

         Loss on sale of equipment was $516,000 and $72,000 for the years ended
         December 31, 2008 and 2007, respectively.

o        SEVERANCE COSTS

         During the year ended December 31, 2008, we recorded severance costs of
         $335,000 compared to $934,000 recorded during the year ended December
         31, 2007. In each period, these costs were primarily associated with
         the integration of Radiologix and other acquired operations.

INTEREST EXPENSE

         Interest expense for the year ended December 31, 2008 increased
approximately $7.5 million, or 16.9%, from the same period in 2007. The increase
is primarily due to the $60 million increase in Term Loans B & C and increased
borrowing on our line of credit. Also included in interest expense for the year
ended December 31, 2008 and 2007 is amortization of deferred loan costs of $2.6
million and $1.6 million, respectively, as well as realized gains of $707,000
and realized losses of $820,000 on our fair value hedges for the years ended
December 31, 2008 and 2007, respectively.

INCOME TAX EXPENSE

         For the years ended December 31, 2008 and 2007, we recorded $151,000
and $337,000, respectively, for income tax expense related to taxable income
generated in the state of Maryland.

EQUITY IN EARNINGS FROM UNCONSOLIDATED JOINT VENTURES

         For the year ended December 31, 2008, we recognized equity in earnings
from unconsolidated joint ventures of $6.5 million compared to $4.1 million for
the year ended December 31, 2007. This increase is due to our purchase of
additional equity interests in certain existing joint ventures as well as the
deconsolidation in the fourth quarter of 2007of a previously consolidated joint
venture.

YEAR ENDED DECEMBER 31, 2007 COMPARED TO THE YEAR ENDED DECEMBER 31, 2006
(UNAUDITED)

     During the year ended December 31, 2006, we completed our acquisition of
Radiologix. The results of Radiologix and its wholly owned subsidiaries have
been included in our consolidated financial statements from the date of
acquisition, November 15, 2006.

NET REVENUE

     Net revenue from continuing operations for the year ended December 31, 2007
was $425.5 million compared to $192.9 million for the year ended December 31,
2006, an increase of $232.6 million, or 120.6 %. Net revenue from the
acquisition of Radiologix, effective November 15, 2006, was $264.3 million and
$30.5 million for the years ended December 31, 2007 and 2006, respectively. Net
revenue excluding Radiologix increased $7.3 million for the year ended December
31, 2007 when compared to the year ended December 31, 2006. This increase is
mainly due to an increase in procedure volumes from existing centers as well as
from the addition of new centers and is net of the effects of reimbursement
reductions experienced as a result of the government's reduction of certain
Medicare payments (DRA), which became effective in January 2007.

     During 2007, we re-evaluated the net realizable value of our December 31,
2006 receivable balances and concluded that current revised estimates are less
than the prior year recorded amounts. As a result, we have recorded adjustments

                                       39
<PAGE>

in 2007 to appropriately reflect current estimates of the net realizable value
of our December 31, 2006 receivables which decreased 2007 net revenue by $8.5
million.

OPERATING EXPENSES

         Operating expenses from continuing operations for the year ended
December 31, 2007 increased approximately $227.3 million, or 127.1%, to $404.3
million for the year ended December 31, 2007 compared to $177.0 million for the
year ended December 31, 2006. The following table sets forth our operating
expenses for the years ended December 31, 2007 and 2006 (dollars in thousands):


                                                       YEARS ENDED DECEMBER 31,
                                                      --------------------------
                                                        2007            2006
                                                      --------        --------
                                                                    (UNAUDITED)
          Salaries and professional reading fees,
             excluding stock compensation             $178,573        $ 88,514
          Stock compensation                             3,313             510
          Building and equipment rental                 41,299          13,536
          General administrative expenses              107,245          44,666
          NASDAQ one-time listing fee                      120              --
                                                      --------        --------
          Operating expenses                           330,550         147,226

          Depreciation and amortization                 45,281          19,542
          Provision for bad debts                       27,467          10,707
          Loss on sale of equipment, net                    72             335
          Severance costs                                  934             205
                                                      --------        --------
          Total operating expenses                    $404,304        $178,015
                                                      ========        ========


o        SALARIES AND PROFESSIONAL READING FEES (EXCLUDING STOCK COMPENSATION
         AND SEVERANCE)

         Salaries and professional reading fees increased $90.1 million, or
         101.7%, to $178.6 million for the year ended December 31, 2007 compared
         to $88.5 million for the year ended December 31, 2006. Salaries and
         professional reading fees from Radiologix were $90.2 million and $11.2
         million for the years ended December 31, 2007 and 2006, respectively.
         Salaries excluding Radiologix increased $11.1 million for the year
         ended December 31, 2007 when compared to the same period last year.
         This increase includes a $600,000 accrual for a cash bonus tied to the
         vesting of certain warrants. The remaining increase of $10.5 million is
         consistent with DRA effected increases in net revenue and increases in
         our procedure volumes.

o        STOCK BASED COMPENSATION

         Stock compensation increased $2.8 million to $3.3 million for the year
         ended December 31, 2007 compared to $510,000 for the year ended
         December 31, 2006. This increase is primarily due to additional options
         and warrants granted during 2007 and $1.7 million of additional stock
         based compensation expense recorded during 2007 as a result of the
         vesting of certain warrants to our senior executives.

         Messrs. Linden, Hames and Stolper who hold the positions of Executive
         Vice President and General Counsel, Executive Vice President and Chief
         Operating Officer, Western Operations and Executive Vice President and
         Chief Financial Officer, respectively, were issued certain warrants in
         prior periods which fully vest upon the sooner of their respective
         multi-year vesting schedules or at such time as the 30 day average
         closing stock price of our shares in the public market in which it
         trades equals or exceeds $6.00. For the 30 day trading period ended
         March 7, 2007, the average closing price exceeded $6.00 per share.
         Accordingly, these warrants fully vested resulting in the expensing of
         the remaining unamortized fair value of these warrants of $1.7 million.

o        SEVERANCE

         During the year ended December 31, 2007, we recorded severance costs of
         $934,000 associated with the integration of Radiologix.


                                       40
<PAGE>

o        BUILDING AND EQUIPMENT RENTAL

         Building and equipment rental expenses increased $28.0 million, or
         206.4%, to $41.5 million for the year ended December 31, 2007 compared
         to $13.5 million for the year ended December 31, 2006. Building and
         equipment rental expense from Radiologix was $29.8 million and $4.0
         million for the years ended December 31, 2007 and 2006, respectively.
         Building and equipment rental expenses excluding Radiologix increased
         $2.0 million for the year ended December 31, 2007 when compared to the
         same period in the previous year. The increase was due to normal
         consumer price index escalations built into existing operating leases
         as well as additional facility rent from new centers including
         approximately $288,000 from centers acquired during 2007 (see Note 3 to
         our consolidated financial statements). Also included in this increase
         is $381,000 resulting from straight-lining the fixed rent escalators
         existing in some of our lease contracts.

o        GENERAL AND ADMINISTRATIVE EXPENSES

         General and administrative expenses include billing fees, medical
         supplies, office supplies, repairs and maintenance, insurance, business
         tax and license, outside services, utilities, marketing, travel and
         other expenses. Many of these expenses are variable in nature,
         including medical supplies and billing fees, which increase with volume
         and repairs, and maintenance under our GE service agreement, which
         adjust with changes in net revenue. Overall, general and administrative
         expenses increased $62.4 million, or 139.7%, to $107.1 million for the
         year ended December 31, 2007 compared to $44.7 million for the year
         ended December 31, 2006. General and administrative expenses for
         Radiologix were $61.2 million and $7.4 million for the years ended
         December 31, 2007 and 2006, respectively. General and administrative
         expenses excluding Radiologix increased $8.8 million for the year ended
         December 31, 2007 when compared to the same period last year. The
         increase is in line with our increase in procedure volumes at both
         existing centers as well as new centers. Also in this increase are
         increased expenditures for accounting fees associated with our efforts
         towards compliance with the Sarbanes-Oxley Act of 2002, as well as a
         $172,000 increase to accrued medical insurance and a $120,000 increase
         to accrued legal settlements.

o        NASDAQ ONE-TIME LISTING FEE

         During the year ended December 31, 2007, we recorded $120,000 for fees
         associated with listing our common stock with NASDAQ.

o        DEPRECIATION AND AMORTIZATION

         Depreciation and amortization increased $25.8 million, or 131.7%, to
         $45.3 million for the year ended December 31, 2007 compared to $19.5
         million for the year ended December 31, 2006. Depreciation and
         amortization expense for Radiologix was $24.8 million and $3.0 million
         for the years ended December 31, 2007 and 2006, respectively.
         Depreciation and amortization expense excluding Radiologix increased
         $3.9 million for the year ended December 31, 2007 when compared to the
         same period last year primarily due to property and equipment
         additions, as well as the acceleration of the amortization of leasehold
         improvements related to our vacated San Francisco, Rancho Bernardo and
         San Gabriel facilities of approximately $716,000, as well as $743,000
         related to adjustments to our in-service dates in our fixed asset
         system.

o        PROVISION FOR BAD DEBTS

         Provision for bad debts increased $16.8 million, or 156.5%, to $27.5
         million, or 6.3% of net revenue, for the year ended December 31, 2007
         compared to $10.7 million, or 5.6% of net revenue, for the year ended
         December 31, 2006. Provision for bad debts for Radiologix was $21.2
         million and $2.7 million, and was 8.0% and 8.8 % of net revenue, for
         the years ended December 31, 2007 and 2006, respectively. Historically,
         Radiologix has experienced higher bad debts/expense as compared to our
         business pre-acquisition due to the higher concentration of business
         associated with hospital payers in the markets that Radiologix serves
         and the poor collection percentages that are inherent with hospital
         business. Provision for bad debts excluding Radiologix was $6.3 million
         and $8.0 million for the years ended December 31, 2007 and 2006,
         respectively.

INTEREST EXPENSE

         Interest expense for the year ended December 31, 2007 increased
approximately $21.3 million, or 92.5%, to $44.3 million compared to $23.0
million for the year ended December 31, 2006. The increase was primarily due to
the increased indebtedness of $214 million incurred upon the acquisition of
Radiologix as well as an addition to our first lien Term Loan B of $25 million
in August 2007. Also included is the amortization of our deferred finance costs

                                       41
<PAGE>

associated with this new financing which was approximately $1.6 million for the
year ended December 31, 2007 as well as realized losses on our fair value hedges
of $820,000 for the year ended December 31, 2007.

GAIN ON SALE OF JOINT VENTURE INTERESTS

         During the year ended December 31, 2007, we recorded a gain of $1.9
million from the sale of part of our interest in a joint venture acquired from
our acquisition of Radiologix (see Acquisitions and Divestitures above).

INCOME TAX EXPENSE

         For the year ended December 31, 2007, we recognized $337,000 in income
tax expense related to certain state tax obligations of Radiologix.

MINORITY INTEREST IN INCOME OF SUBSIDIARIES

         For the year ended December 31, 2007, we recognized $600,000 in
minority interest in income of our consolidated joint ventures.

EQUITY IN EARNINGS FROM UNCONSOLIDATED JOINT VENTURES

         For the year ended December 31, 2007, we recognized equity in earnings
from unconsolidated joint ventures of $4.1 million.

TWO MONTHS ENDED DECEMBER 31, 2006 COMPARED TO THE TWO MONTHS ENDED DECEMBER 31,
2005 (UNAUDITED)

         During the two months ended December 31, 2006, we completed our
acquisition of Radiologix. The results of Radiologix and its wholly owned
subsidiaries have been included in our consolidated financial statements from
the date of acquisition, November 15, 2006, which is the primary reason for the
increase noted below.

NET REVENUE

         Net revenue from continuing operations for the two months ended
December 31, 2006 was $57.4 million compared to $25.5 million for the two months
ended December 31, 2005, an increase of $31.9 million, or 125.1%. Net revenue
from the acquisition of Radiologix, effective November 15, 2006, was $30.5
million, and net revenue from five new centers added during calendar 2006 (net
of two closed centers) was $1.4 million. On the other hand, our same store net
revenue decreased $405,000 when compared to the same period in 2005. The
decrease was primarily the result of our Beverly Hills locations in which net
revenue decreased $514,000 when compared to the same period in 2005 due to
increased competition in the area.

OPERATING EXPENSES

         Operating expenses from continuing operations for the two months ended
December 31, 2006 increased approximately $33.4 million, or 146.4%, from $22.6
million for the two months ended December 31, 2005 to $56.0 million for the two
months ended December 31, 2006. The following table sets forth our operating
expenses for the two months ended December 31, 2005 and 2006 (dollars in
thousands):

                                                           TWO MONTHS ENDED
                                                              DECEMBER 31,
                                                      -------------------------
                                                        2006            2005
                                                      --------         --------
                                                                     (unaudited)

           Salaries and professional reading fees     $ 25,382         $ 11,880
           Building and equipment rental                 6,112            1,388
           General administrative expenses              14,539            5,881
                                                      --------         --------
           Operating expenses                           46,033           19,149

           Depreciation and amortization                 5,907            2,759
           Provision for bad debts                       3,907              826
           Gain on sale of equipment, net                  (38)              --
           Severance costs                                 205               --
                                                      --------         --------
           Total operating expenses                   $ 56,014         $ 22,734
                                                      ========         ========

                                       42
<PAGE>

o        SALARIES AND PROFESSIONAL READING FEES

         Salaries and professional reading fees increased $13.5 million, or
         340.3%, from the two months ended December 31, 2005 to the two months
         ended December 31, 2006. During the two months ended December 31, 2006,
         salaries and professional reading fees were $11.2 million and $0.6
         million for Radiologix and the five new centers opened during calendar
         2006 (net of two closed centers), respectively. In addition, salaries
         for the San Fernando Valley Interventional Radiology and Imaging
         Center, or SFVIR, were $27,000 for the two months ended December 31,
         2006. The costs were for the preliminary set up of the facility that
         opened on March 12, 2007. Same store salaries and professional reading
         fees increased $0.9 million and $0.8 million, respectively, for the two
         months ended December 31, 2006 when compared to the same period last
         year. The majority of the increases were at the sites of Palm Springs
         and Palm Desert, Modesto, Orange Imaging, Tarzana Advanced and Ventura
         due to increases in net revenue, and at corporate and the Beverly Hills
         facilities due to the hiring or retention of key employees or
         physicians.

o        BUILDING AND EQUIPMENT RENTAL

         Building and equipment rental expenses increased $4.7 million, or
         340.3%, to $6.1 million in the two months ended December 31, 2006
         compared to $1.4 million in the two months ended December 31, 2005.
         During the two months ended December 31, 2006, building and equipment
         rental expense was $4.0 million and $0.2 million for Radiologix and the
         five new centers opened during calendar 2006 (net of two closed
         centers), respectively. In addition, building rent expense for SFVIR
         was $39,000 for the two months ended December 31, 2006. Same store
         building and equipment rental expenses increased $114,000 and $347,000,
         respectively, for the two months ended December 31, 2006 when compared
         to the same period last year. The increase in building rent was due to
         normal escalations built into the operating leases, and the increase in
         equipment rental was primarily due to the increased costs of renting
         mobile MRI equipment while repairs were being done at our Orange
         facility.

o        GENERAL AND ADMINISTRATIVE EXPENSES

         General and administrative expenses include billing fees, medical
         supplies, office supplies, repairs and maintenance, insurance, business
         tax and license, outside services, utilities, marketing, travel and
         other expenses. Many of these expenses are variable in nature including
         medical supplies and billing fees, which increase with volume and
         repairs and maintenance under our GE service agreement at 3.62% of net
         revenue for the two-month period. Overall, general and administrative
         expenses increased $8.7 million, or 147.2%, for the two months ended
         December 31, 2006 compared to the previous period. During the two
         months ended December 31, 2006, general and administrative expenses
         were $7.4 million and $450,000 for Radiologix and the five new centers
         opened during calendar 2006 (net of two closed centers), respectively.
         In addition, general and administrative expenses for SFVIR were $26,000
         for the two months ended December 31, 2006. Same store general and
         administrative expenses increased $0.8 million for the two months ended
         December 31, 2006 when compared to the same period last year. The
         increase was primarily due to increased expenditures for accounting
         fees, costs related to repairs at our Orange facility, and employee and
         marketing expenditures at year-end.

o        DEPRECIATION AND AMORTIZATION

         Depreciation and amortization increased by $3.1 million, or 114.1%, in
         the two months ended December 31, 2006 when compared to the same period
         last year. During the two months ended December 31, 2006, depreciation
         and amortization expense was $3.0 million and $0.2 million for
         Radiologix and the five new centers opened during calendar 2006 (net of
         two closed centers), respectively. In addition, depreciation and
         amortization expense for SFVIR was $34,000 for the two months ended
         December 31, 2006. Same store depreciation and amortization expense
         decreased $7,000 for the two months ended December 31, 2006 when
         compared to the same period last year. Depreciation from same store
         property and equipment additions during the two months ended December
         31, 2006 was offset by historical property and equipment fully
         depreciating during the same period.

o        PROVISION FOR BAD DEBTS

         Provision for bad debts increased $3.1 million, or 373.0%, in the two
         months ended December 31, 2006 to $3.9 million compared to $826,000 for
         the two months ended December 31, 2005. During the two months ended
         December 31, 2006, the provision for bad debts was $2.7 million and
         $0.1 million for Radiologix and the five new centers opened during
         calendar 2006 (net of two closed centers), respectively. Radiologix's
         provision for bad debts is higher due to the large number of
         hospital-based receivables they possess. Same store provision for bad
         debt expense increased $0.3 million for the two months ended December
         31, 2006 when compared to the same period last year. The increase was
         primarily due to increased write-offs due to billing issues related to
         untimely filing, and incomplete or incorrect demographic information
         collected at the sites.


                                       43
<PAGE>

o        SEVERANCE COSTS

         During the two months ended December 31, 2006, we recorded severance
         costs for Radiologix of $205,000 related to the acquisition.

INTEREST EXPENSE

         Interest expense for the two months ended December 31, 2006 increased
approximately $2.6 million, or 86.9%, from the same period in 2005. The increase
was primarily due to the increased indebtedness of $360.0 million upon the
acquisition of Radiologix.

LOSS (GAIN) ON DEBT EXTINGUISHMENTS, NET

         For the two months ended December 31, 2006, we recognized a loss from
extinguishments of debt of $7.2 million. With the acquisition or Radiologix, we
paid off existing notes payable and subordinated bond debentures and incurred
pre-payment penalties of $2.3 million, and wrote-off deferred financing costs
related to prior debt instruments of $4.9 million.

OTHER INCOME

         For the two months ended December 31, 2006 and 2005, we earned other
income of $51,000 and $29,000, respectively.

INCOME TAX EXPENSE

         For the two months ended December 31, 2006, we recognized $20,000 in
income tax expense related to Radiologix.

MINORITY INTEREST IN (INCOME) LOSS OF SUBSIDIARIES

         For the two months ended December 31, 2006, we recognized $45,000 in
minority interest expense related to joint ventures of Radiologix.

EARNINGS FROM MINORITY INVESTMENTS

         For the two months ended December 31, 2006, we recognized earnings from
minority investments of $503,000 including $476,000 from investments of
Radiologix and $27,000 from an investment in a PET center in Palm Desert,
California.

RECENT ACCOUNTING PRONOUNCEMENTS

         As discussed in Note 2, we adopted the provisions of SFAS 157 as of
January 1, 2008 for financial instruments. We are required to adopt the
provisions of SFAS 157 for non-financial instruments in 2009 and do not expect
this adoption to have a material impact on our consolidated financial
statements.

         In September 2006, the FASB issued SFAS 157, FAIR VALUE MEASUREMENTS,
which defines fair value, establishes a framework for measuring fair value in
U.S. generally accepted accounting principles, and expands disclosures about
fair value measurements. SFAS 157 applies under other accounting pronouncements
that require or permit fair value measurements, the FASB having previously
concluded in those accounting pronouncements that fair value is the relevant
measurement attribute. We adopted the provisions of SFAS 157 as of January 1,
2008 for financial instruments. Although the adoption of SFAS 157 for financial
instruments did not materially impact our financial position, results of
operations, or cash flow, we are now required to provide additional disclosures
as part of our financial statements (see Note 2 to our consolidated financial
statements). We are required to adopt the provisions of SFAS 157 for
non-financial instruments in 2009 and do not expect this adoption to have a
material impact on our consolidated financial statements.

         In February 2007, the FASB issued SFAS 159, THE FAIR VALUE OPTION FOR
FINANCIAL ASSETS AND FINANCIAL LIABILITIES, INCLUDING AN AMENDMENT OF FASB
STATEMENT NO. 115, which is effective for fiscal years beginning after November
15, 2007. SFAS 159 permits entities to measure eligible financial assets,
financial liabilities and firm commitments at fair value, on an
instrument-by-instrument basis, that are otherwise not permitted to be accounted
for at fair value under other U.S. generally accepted accounting principles. The
fair value measurement election is irrevocable and subsequent changes in fair
value must be recorded in earnings. As we have not elected the fair value option
allowed for by SFAS 159 for any assets or liabilities that are otherwise not
permitted to be accounted for at fair value under other U.S. generally accepted
accounting principals, the adoption of SFAS 159 did not have an impact on our
consolidated financial statements.

         In December 2007, the FASB issued SFAS 141(R), BUSINESS COMBINATIONS
and SFAS 160, NONCONTROLLING INTERESTS IN CONSOLIDATED FINANCIAL STATEMENTS.
Those standards were intended to improve, simplify, and converge internationally
the accounting for business combinations and the reporting of noncontrolling
(minority) interests in consolidated financial statements. SFAS 141(R) requires
the acquiring entity in a business combination to recognize all (and only) the
assets acquired and liabilities assumed in the transaction; establishes the
acquisition-date fair value as the measurement objective for all assets acquired
and liabilities assumed; requires acquisition related transaction costs to be
expensed, and requires the acquirer to disclose to investors and other users all
of the information they need to evaluate and understand the nature and financial
effect of the business combination. SFAS 141(R) is effective for fiscal years,
and interim periods within those fiscal years, beginning on or after December
15, 2008. SFAS 141(R) applies prospectively to business combinations for which

                                       44
<PAGE>

the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. Earlier adoption is prohibited.
We have not evaluated the potential impact that SFAS 141(R) will have on our
financial statements.

         SFAS 160 is designed to improve the relevance, comparability, and
transparency of financial information provided to investors by requiring all
entities to report minority interests in subsidiaries in the same way as equity
in the consolidated financial statements. Moreover, SFAS 160 eliminates the
diversity that currently exists in accounting for transactions between an entity
and minority interests by requiring they be treated as equity transactions. SFAS
160 is effective for fiscal years, and interim periods within those fiscal
years, beginning on or after December 15, 2008. Earlier adoption is prohibited.
In addition, SFAS 160 shall be applied prospectively as of the beginning of the
fiscal year in which it is initially applied, except for the presentation and
disclosure requirements. The presentation and disclosure requirements shall be
applied retrospectively for all periods presented. We currently do not expect
SFAS 160 to have a material impact on our financial statements, however, the
effect is largely dependent on potential future transactions which we are
currently unable to forecast.

         Other recent accounting pronouncements issued by the FASB (including
its Emerging Issues Task Force), the AICPA, and the SEC did not, or are not
believed by management to, have a material impact on our present or future
consolidated financial statements.

ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

         A large portion of our interest expense is not sensitive to changes in
the general level of interest in the United States because the majority of our
indebtedness has interest rates that were fixed when we entered into the note
payable or capital lease obligation. On November 15, 2006, we entered into a
$405 million senior secured credit facility with GE Commercial Finance
Healthcare Financial Services. This facility was used to finance our acquisition
of Radiologix, refinance existing indebtedness, pay transaction costs and
expenses relating to our acquisition of Radiologix, and to provide financing for
working capital needs post-acquisition. The facility consists of a revolving
credit facility of up to $45 million, a $225 million term loan and a $135
million second lien term loan. The revolving credit facility has a term of five
years, the term loan has a term of six years and the second lien term loan has a
term of six and one-half years. Interest is payable on all loans initially at an
Index Rate plus the Applicable Index Margin, as defined. The Index Rate is
initially a floating rate equal to the higher of the rate quoted from time to
time by The Wall Street Journal as the "base rate on corporate loans posted by
at least 75% of the nation's largest 30 banks" or the Federal Funds Rate plus 50
basis points. The Applicable Index Margin on each the revolving credit facility
and the term loan is 2% and on the second lien term loan is 6%. We may request
that the interest rate instead be based on LIBOR plus the Applicable LIBOR
Margin, which is 3.5% for the revolving credit facility and the term loan and
7.5% for the second lien term loan. The credit facility includes customary
covenants for a facility of this type, including minimum fixed charge coverage
ratio, maximum total leverage ratio, maximum senior leverage ratio, limitations
on indebtedness, contingent obligations, liens, capital expenditures, lease
obligations, mergers and acquisitions, asset sales, dividends and distributions,
redemption or repurchase of equity interests, subordinated debt payments and
modifications, loans and investments, transactions with affiliates, changes of
control, and payment of consulting and management fees.

         On February 22, 2008, we secured an incremental $35 million ("Second
Incremental Facility") as part of our existing credit facilities with GE
Commercial Finance Healthcare Financial Services. The Second Incremental
Facility consists of an additional $35 million as part of our second lien term
loan and the ability to further increase the second lien term loan by up to $25
million and the first line term loan or revolving credit facility by up to an
additional $40 million sometime in the future. As part of the transaction,
partly due to the drop in LIBOR of over 2.00% since the credit facilities were
established in November 2006, we increased the Applicable LIBOR Margin to 4.25%
for the revolving credit facility and the term loan and 9.0% for the second lien
term loan. The additions to RadNet's existing credit facilities are intended to
provide capital for near-term opportunities and future expansion.

         As part of the financing, we were required to swap at least 50% of the
aggregate principal amount of the facilities to a floating rate within 90 days
of the close of the agreement on November 15, 2006. On April 11, 2006, effective
April 28, 2006, we entered into an interest rate swap on $73.0 million fixing
the LIBOR rate of interest at 5.47% for a period of three years. This swap was
made in conjunction with the $161.0 million credit facility closed on March 9,
2006. In addition, on November 15, 2006, we entered into an interest rate swap
on $107.0 million fixing the LIBOR rate of interest at 5.02% for a period of
three years, and on November 28, 2006, we entered into an interest rate swap on
$90.0 million fixing the LIBOR rate of interest at 5.03% for a period of three
years. Previously, the interest rate on the above $270.0 million portion of the
credit facility was based upon a spread over LIBOR which floats with market
conditions.

         Subsequent to year end 2008, the Company was able to modify two of its
three interest rate swaps. The modifications extended the maturity of, and
re-priced two existing interest rate hedges originally executed in 2006 for an
additional 36 months, resulting in an annualized cash interest expense savings
of $2.9 million. On one of the LIBOR hedge modifications for a notional amount
of $107 million of LIBOR exposure, the Company on January 29, 2009 replaced a
fixed LIBOR rate of 5.02% with a new rate of 3.47% maturing on November 15,
2012. On the second LIBOR hedge modification for a notional amount of $90
million of LIBOR exposure, the Company on February 5, 2009 replaced a fixed
LIBOR rate of 5.03% with a new rate of 3.61% also maturing on November 15, 2012.


                                       45
<PAGE>

     In addition, our credit facility, classified as a long-term liability on
our financial statements, is interest expense sensitive to changes in the
general level of interest because it is based upon the current prime rate plus a
factor.

ITEM 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The Financial Statements are attached hereto and begin on page 47.


                                       46
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



The Board of Directors and Stockholders of RadNet, Inc.

We have audited the accompanying consolidated balance sheets of RadNet, Inc. and
subsidiaries (the "Company" or "RadNet") as of December 31, 2008 and 2007, and
the related consolidated statements of operations, stockholders' deficit, and
cash flows for the years then ended. Our audit also includes the financial
statement schedule listed in the index at Item 15(b) for the years ended
December 31, 2008 and 2007. These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of RadNet, Inc. and
subsidiaries at December 31, 2008 and 2007, and the consolidated results of
their operations and their cash flows for the years then ended, in conformity
with U.S. generally accepted accounting principles. Also, in our opinion, the
related financial statement schedule for the years ended December 31, 2008 and
2007, when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.

We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), RadNet's internal control over
financial reporting as of December 31, 2008, based on criteria established in
INTERNAL CONTROL-INTEGRATED FRAMEWORK issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 16, 2009,
expressed an unqualified opinion thereon.


                                            /s/ Ernst & Young LLP


Los Angeles, California
March 16, 2009


<
                                       47
<PAGE>


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



The Board of Directors and Stockholders
RadNet, Inc.

We have audited the accompanying consolidated statements of operations,
stockholders' deficit and cash flows of RadNet, Inc. and subsidiaries (the
"Company") for the two month period ended December 31, 2006 and for the year
ended October 31, 2006. Our audits also included the financial statement
schedule listed in the Index at Item 15(b). These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of their operations
and their cash flows of RadNet, Inc. and subsidiaries for the two month period
ended December 31, 2006 and for the year ended October 31, 2006, in conformity
with accounting principles generally accepted in the United States of America.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.

                                            /s/ Moss Adams LLP

Los Angeles, California
April 17, 2007


                                       48
<PAGE>

<TABLE>
<CAPTION>
<S>     <C>

                                     RADNET, INC. AND SUBSIDIARIES
                                      CONSOLIDATED BALANCE SHEETS
                                    (IN THOUSANDS EXCEPT SHARE DATA)
                                                                             DECEMBER 31,  DECEMBER 31,
                                                                                2008           2007
                                                                              ---------      ---------
                                                 ASSETS
CURRENT ASSETS
          Cash and cash equivalents                                           $      --      $      18
          Accounts receivable, net                                               96,097         87,285
          Refundable income taxes                                                   103            105
          Prepaid expenses and other current assets                              12,370         10,273
                                                                              ---------      ---------
                       Total current assets                                     108,570         97,681
PROPERTY AND EQUIPMENT, NET                                                     193,104        164,097
OTHER ASSETS
          Goodwill                                                              105,278         84,395
          Other intangible assets                                                56,861         58,908
          Deferred financing costs, net                                          10,907          9,161
          Investment in joint ventures                                           17,100         15,036
          Deposits and other                                                      3,752          4,342
                                                                              ---------      ---------
                       Total other assets                                       193,898        171,842
                                                                              ---------      ---------
                      Total assets                                            $ 495,572      $ 433,620
                                                                              =========      =========
                                 LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
          Accounts payable and accrued expenses                               $  83,676      $  59,965
          Due to affiliates                                                       1,977          1,350
          Notes payable                                                           5,501          3,536
          Current portion of deferred rent                                          390            195
          Obligations under capital leases                                       15,064          9,455
                                                                              ---------      ---------
                       Total current liabilities                                106,608         74,501
                                                                              ---------      ---------
LONG-TERM LIABILITIES
          Line of credit                                                          1,742          4,222
          Deferred rent, net of current portion                                   7,996          4,394
          Deferred taxes                                                            277            277
          Notes payable, net of current portion                                 419,735        382,064
          Obligations under capital lease, net of current portion                24,238         22,527
          Other non-current liabilities                                          16,006         15,259
                                                                              ---------      ---------
                       Total long-term liabilities                              469,994        428,743
                                                                              ---------      ---------
COMMITMENTS AND CONTINGENCIES

MINORITY INTERESTS                                                                   78            206
STOCKHOLDERS' DEFICIT
          Common stock - $.0001 par value, 200,000,000 shares authorized;
             35,911,474 and 35,239,558 shares issued and outstanding at
             December 31, 2008 and 2007, respectively                                 4              4
          Paid-in-capital                                                       153,006        149,631
          Accumulated other comprehensive loss                                   (6,396)        (4,579)
          Accumulated deficit                                                  (227,722)      (214,886)
                                                                              ---------      ---------
             Total stockholders' deficit                                        (81,108)       (69,830)
                                                                              ---------      ---------
          Total liabilities and stockholders' deficit                         $ 495,572      $ 433,620
                                                                              =========      =========

               The accompanying notes are an integral part of these financial statements.

                                             49
<PAGE>

                                              RADNET, INC. AND SUBSIDIARIES
                                          CONSOLIDATED STATEMENTS OF OPERATIONS
                                            (IN THOUSANDS EXCEPT SHARE DATA)


                                                             YEARS ENDED               TWO MONTHS ENDED    YEAR ENDED
                                                              DECEMBER 31,               DECEMBER 31,     OCTOBER 31,
                                                     ------------------------------      ------------     -------------
                                                        2008               2007              2006              2006
                                                     ------------      ------------      ------------      ------------

NET REVENUE                                          $    502,118      $    425,470      $     57,374      $    161,005

OPERATING EXPENSES
     Operating expenses                                   384,297           330,550            46,033           120,342
     Depreciation and amortization                         53,548            45,281             5,907            16,394
     Provision for bad debts                               30,832            27,467             3,907             7,626
     Loss (gain) on sale of equipment                         516                72               (38)              373
     Severance costs                                          335               934               205                --
                                                     ------------      ------------      ------------      ------------
          Total operating expenses                        469,528           404,304            56,014           144,735
                                                     ------------      ------------      ------------      ------------


INCOME FROM OPERATIONS                                     32,590            21,166             1,360            16,270

OTHER EXPENSES (INCOME)
     Interest expense                                      51,811            44,307             5,620            20,362
     Gain from sale of joint venture interest                  --            (1,868)               --                --
     Loss on debt extinguishment, net                          --                --             7,212             2,097
     Other (income) expense                                  (151)              (29)              (51)              788
                                                     ------------      ------------      ------------      ------------
          Total other expense                              51,660            42,410            12,781            23,247
                                                     ------------      ------------      ------------      ------------

LOSS BEFORE INCOME TAXES, MINORITY
     INTERESTS AND EARNINGS FROM
     MINORITY INVESTMENTS                                 (19,070)          (21,244)          (11,421)           (6,977)
     Provision for income taxes                              (151)             (337)              (20)               --
     Minority interest in income of subsidiaries             (103)             (600)              (45)               --
     Equity in earnings of joint ventures                   6,488             4,050               503                83
                                                     ------------      ------------      ------------      ------------
NET LOSS                                             $    (12,836)     $    (18,131)     $    (10,983)     $     (6,894)
                                                     ============      ============      ============      ============

BASIC AND DILUTED NET LOSS PER SHARE                 $      (0.36)     $      (0.52)     $      (0.35)     $      (0.33)

WEIGHTED AVERAGE SHARES OUTSTANDING
     Basic and diluted                                 35,721,028        34,592,716        30,972,282        21,013,957


                       The accompanying notes are an integral part of these financial statements.

                                                           50
<PAGE>

                                                   RADNET, INC. AND SUBSIDIARIES
                                         CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
                                                 (IN THOUSANDS EXCEPT SHARE DATA)


                                                      Common Stock                                Treasury stock, at cost
                                             ----------------------------       Paid-in        ---------------------------
                                                Shares           Amount         Capital           Shares           Amount
                                             -----------      -----------     -----------      -----------      -----------

BALANCE - OCTOBER 31, 2005                    21,615,906      $         2     $   101,021         (912,500)     $      (695)
   Issuance of warrant                         1,290,062               --           1,451               --               --
   Issuance of common stock upon
       exercise of options/warrants               56,084                              156
   Conversion of bonds                            23,200               --             116               --               --
   Share-based compensation                           --               --             459               --               --
   Net loss                                           --               --              --               --               --

     Comprehensive loss
                                             -----------      -----------     -----------      -----------      -----------
BALANCE - OCTOBER 31, 2006                    22,985,252      $         2     $   103,203         (912,500)     $      (695)
   Issuance of common stock
       to shareholders of Radiologix          11,310,950                1          39,399               --               --
   Issuance of common stock
       upon conversion of bonds                  674,600               --           3,373               --               --
   Issuance of common stock upon
       exercise of options/warrants                3,125               --               3               --               --
     Stock split partial shares                     (147)              --              --               --               --
   Share-based compensation                           --               --              78               --               --
   Unrealized loss on the change in fair
     value of cash flow hedging                       --               --              --               --               --
     Net loss                                         --               --              --               --               --

       Comprehensive loss
                                             -----------      -----------     -----------      -----------      -----------
BALANCE - DECEMBER 31, 2006                   34,973,780      $         3     $   146,056         (912,500)     $      (695)
   Cumulative effect adjustment pursuant
       to adoption of SAB No. 108                     --               --              --               --               --
   Issuance of common stock upon
       exercise of options/warrants            1,178,278                1             957               --               --
   Retirement of treasury shares                (912,500)              --            (695)         912,500              695
   Share-based compensation                           --               --           3,313               --               --
   Change in fair value of
     cash flow hedge                                  --               --              --               --               --
     Net loss                                         --               --              --               --               --

       Comprehensive loss
                                             -----------      -----------     -----------      -----------      -----------
BALANCE - DECEMBER 31, 2007                   35,239,558      $         4     $   149,631               --      $        --
   Issuance of common stock upon
       exercise of options/warrants              671,916               --             473               --               --
   Share-based compensation                           --               --           2,902               --               --
   Change in fair value of
     cash flow hedge                                  --               --              --               --               --
     Net loss                                         --               --              --               --               --

       Comprehensive loss
                                             -----------      -----------     -----------      -----------      -----------
BALANCE - DECEMBER 31, 2008                   35,911,474      $         4     $   153,006               --      $        --
                                             ===========      ===========     ===========      ===========      ===========



                                                      51a
[table continued on next page]
<PAGE>
[table continued from previous page]



                                                                  Accumulated
                                                                   Other              Total
                                                Accumulated     Comprehensive     Stockholders'
                                                  Deficit           Loss            Deficit
                                                -----------      -----------      -----------

BALANCE - OCTOBER 31, 2005                      $  (174,410)     $        --      $   (74,082)
   Issuance of warrant                                   --               --            1,451
   Issuance of common stock upon
       exercise of options/warrants                                                       156
   Conversion of bonds                                   --               --              116
   Share-based compensation                              --               --              459
   Net loss                                          (6,894)              --           (6,894)
                                                                                  -----------
     Comprehensive loss                                                                (6,894)
                                                -----------      -----------      -----------
BALANCE - OCTOBER 31, 2006                      $  (181,304)     $        --      $   (78,794)
   Issuance of common stock
       to shareholders of Radiologix                     --               --           39,400
   Issuance of common stock
       upon conversion of bonds                          --               --            3,373
   Issuance of common stock upon
       exercise of options/warrants                      --               --                3
     Stock split partial shares                          --               --               --
   Share-based compensation                              --               --               78
   Unrealized loss on the change in fair
     value of cash flow hedging                          --              (73)             (73)
     Net loss                                       (10,983)              --          (10,983)
                                                                                  -----------
       Comprehensive loss                                                             (11,056)
                                                -----------      -----------      -----------
BALANCE - DECEMBER 31, 2006                     $  (192,287)     $       (73)     $   (46,996)
   Cumulative effect adjustment pursuant
       to adoption of SAB No. 108                    (4,468)              --           (4,468)
   Issuance of common stock upon
       exercise of options/warrants                      --               --              958
   Retirement of treasury shares                         --               --               --
   Share-based compensation                              --               --            3,313
   Change in fair value of
     cash flow hedge                                     --           (4,506)          (4,506)
     Net loss                                       (18,131)              --          (18,131)
                                                                                  -----------
       Comprehensive loss                                                            (22,637)
                                                -----------      -----------      -----------
BALANCE - DECEMBER 31, 2007                     $  (214,886)     $    (4,579)     $   (69,830)
   Issuance of common stock upon
       exercise of options/warrants                      --               --              473
   Share-based compensation                              --               --            2,902
   Change in fair value of
     cash flow hedge                                     --           (1,817)          (1,817)
     Net loss                                       (12,836)              --          (12,836)
                                                                                  -----------
       Comprehensive loss                                                             (14,653)
                                                -----------      -----------      -----------
BALANCE - DECEMBER 31, 2008                     $  (227,722)     $    (6,396)     $   (81,108)
                                                ===========      ===========      ===========


                            The accompanying notes are an integral part of these financial statements.


                                                                51b
<PAGE>


                                                  RADNET, INC. AND SUBSIDIARIES
                                      CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)

                                                                             YEARS ENDED          TWO MONTHS ENDED  YEAR ENDED
                                                                              DECEMBER 31,           DECEMBER 31,    OCTOBER 31,
                                                                          2008            2007           2006          2006
                                                                        ---------      ---------      ---------      ---------
 CASH FLOWS FROM OPERATING ACTIVITIES

     Net loss                                                           $ (12,836)     $ (18,131)     $ (10,983)     $  (6,894)
     Adjustments to reconcile net loss to net cash
        provided by operating activities:
     Depreciation and amortization                                         53,548         45,281          5,907         16,394
     Provision for bad debts                                               30,832         27,467          3,907          7,626
     Minority interest in income of subsidiaries                              103            600             45             --
     Distributions to minority interests                                     (231)        (1,219)          (285)            --
     Equity in earnings of joint ventures                                  (6,488)        (4,050)          (503)           (83)
     Distributions from joint ventures                                      5,216          4,570            179             --
     Deferred rent amortization                                             3,514          1,037             --             --
     Deferred financing cost interest expense                               2,567          1,632            233            710
     Net loss (gain) on disposal of assets                                    516             72            (38)           373
     Gain from sale of joint venture interest                                  --         (1,868)            --             --
     Loss (gain) on extinguishment of debt                                    (47)            --          4,939          2,097
     Accrued interest expense and interest related to swap                  3,674          2,959          2,426          1,366
     Refinancing fees and pre-payment penalties                                --             --          2,273             --
     Share-based compensation                                               2,902          3,313             78            459
     Amortization of tenant improvements and other contracts                   --             --            (46)            98
     Changes in operating assets and liabilities, net of assets
        acquired and liabilities assumed in purchase transactions:
            Accounts receivable                                           (36,297)       (42,923)        (2,705)       (13,727)
            Other current assets                                           (1,515)         4,396            621             --
            Other assets                                                      684            588          2,077         (1,973)
            Accounts payable and accrued expenses                            (941)         5,477         (7,685)         3,805
                                                                        ---------      ---------      ---------      ---------
               Net cash provided by operating activities                   45,201         29,201            440         10,251
                                                                        ---------      ---------      ---------      ---------
CASH FLOWS FROM INVESTING ACTIVITIES
     Purchase of imaging facilities                                       (28,859)       (18,465)            --         (4,092)
     Purchase of property and equipment                                   (29,199)       (27,207)        (2,513)        (9,452)
     Purchase of Radiologix, net of cash acquired                              --           (370)        12,708             --
     Proceeds from sale of equipment                                        2,961            845             19             47
     Proceeds from sale of joint venture interest                              --          2,260             --             --
     Purchase of equity interest in joint ventures                           (938)        (4,413)            --             --
     Proceeds from the divestiture of imaging centers                          --          1,625             --             --
     Purchase of covenant not to compete contract                              --           (250)            --             --
     Payments collected on notes receivable                                    --            111             --             --
                                                                        ---------      ---------      ---------      ---------
               Net cash provided (used) by investing activities           (56,035)       (45,864)        10,214        (13,497)
                                                                        ---------      ---------      ---------      ---------
CASH FLOWS FROM FINANCING ACTIVITIES
     Cash disbursements in transit                                             --         (5,099)         4,488         (2,813)
     Principal payments on notes and leases payable                       (19,112)       (10,398)          (708)        (6,962)
     Repayment of debt upon extinguishments                                    --             --       (348,411)      (141,242)
     Proceeds from borrowings upon refinancing                              1,212             --        360,000        146,468
     Proceeds from borrowings on notes payable                             35,000         33,137             --         11,425
     Proceeds from borrowings from line of credit                              --             --          4,918            737
     Deferred financing costs                                              (4,277)        (1,351)        (9,655)        (5,864)
     Payments on notes to related party                                        --             --           (737)            --
     Payments on line of credit                                            (2,480)        (3,787)       (17,333)            --
     Proceeds from issuance of common stock                                   473            958              3          1,497
                                                                        ---------      ---------      ---------      ---------
               Net cash provided (used) by financing activities            10,816         13,460         (7,435)         3,246
                                                                        ---------      ---------      ---------      ---------
NET INCREASE (DECREASE) IN CASH                                               (18)        (3,203)         3,219             --
CASH, BEGINNING OF PERIOD                                                      18          3,221              2              2
                                                                        ---------      ---------      ---------      ---------
CASH, END OF PERIOD                                                     $      --      $      18      $   3,221      $       2
                                                                        =========      =========      =========      =========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
     Cash paid during the period for interest                           $  49,236      $  41,382      $   3,229      $  18,392
     Cash paid during the period for income taxes                       $     389      $     186      $      --      $      --

   The accompanying notes are an integral part of these financial statements.
</TABLE>


                                                               52
<PAGE>

                          RADNET, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)


SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

       We entered into capital leases and equipment notes for approximately
$23.7 million, $19.6 million, $6.0 million and $4.0 million for the years ended
December 31, 2008 and 2007, the two months ended December 31, 2006 and the year
ended October 31, 2006, respectively. We also acquired capital equipment for
approximately $17.8 million and $4.4 million during the years ended December 31
2008 and 2007 that we had not paid for as of December 31, 2008 and 2007,
respectively. The offsetting amount due was recorded in our consolidated balance
sheets under accounts payable and accrued expenses.

       We record the change in fair value of our interest rate swaps that are
designated as cash flow hedges to accumulated other comprehensive loss. During
the years ended December 31, 2008 and 2007 and the two months ended December 31,
2006, we recorded unrealized losses of $1.8 million, $4.5 million and 73,000,
respectively, to accumulated other comprehensive loss for the change in fair
value in these respective periods.

       Detail of non-cash investing and financing activity related to
acquisitions can be found in Notes 3 and 4.


                                       53
<PAGE>


                           RADNET, INC. AND AFFILIATES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - NATURE OF BUSINESS

         RadNet, Inc. or RadNet (formerly Primedex Health Systems, Inc.) ("we"
or the "Company") was incorporated on October 21, 1985 in New York. On September
3, 2008, we reincorporated in the state of Delaware. We operate a group of
regional networks comprised of 165 diagnostic imaging facilities located in six
states with operations primarily in California, Maryland, the Treasure Coast
area of Florida, Kansas, Delaware and the Finger Lakes (Rochester) and Hudson
Valley areas of New York, providing diagnostic imaging services including
magnetic resonance imaging (MRI), computed tomography (CT), positron emission
tomography (PET), nuclear medicine, mammography, ultrasound, diagnostic
radiology, or X-ray, and fluoroscopy. The Company's operations comprise a single
segment for financial reporting purposes.

         The consolidated financial statements also include the accounts of
RadNet Management, Inc., or RadNet Management, and Beverly Radiology Medical
Group III (BRMG), which is a professional partnership, all collectively referred
to as "us" or "we". The consolidated financial statements also include RadNet
Sub, Inc., RadNet Management I, Inc., RadNet Management II, Inc., SoCal MR Site
Management, Inc. (sold in 2008), Radiologix, Inc., RadNet Management Imaging
Services, Inc., Delaware Imaging Partners, Inc. and Diagnostic Imaging Services,
Inc. (DIS), all wholly owned subsidiaries of RadNet Management.

         Howard G. Berger, M.D. is our President and Chief Executive Officer, a
member of our Board of Directors and owns approximately 18% of our outstanding
common stock. Dr. Berger also owns, indirectly, 99% of the equity interests in
BRMG. BRMG provides all of the professional medical services at the majority of
our facilities located in California under a management agreement with us, and
contracts with various other independent physicians and physician groups to
provide the professional medical services at most of our other California
facilities. We generally obtain professional medical services from BRMG in
California, rather than provide such services directly or through subsidiaries,
in order to comply with California's prohibition against the corporate practice
of medicine. However, as a result of our close relationship with Dr. Berger and
BRMG, we believe that we are able to better ensure that medical service is
provided at our California facilities in a manner consistent with our needs and
expectations and those of our referring physicians, patients and payors than if
we obtained these services from unaffiliated physician groups. BRMG is a
partnership of Pronet Imaging Medical Group, Inc. (99%), Breastlink Medical
Group, Inc. (100%) and Beverly Radiology Medical Group, Inc. (99%), each of
which are 99% or 100% owned by Dr. Berger. RadNet provides non-medical,
technical and administrative services to BRMG for which it receives a management
fee, per the management agreement. Through the management agreement and our
relationship with Dr. Berger, we have exclusive authority over all non-medical
decision making related to the ongoing business operations of BRMG. Based on the
provisions of the agreement, we have determined that BRMG is a variable interest
entity, and that we are the primary beneficiary as defined in Financial
Accounting Standards Board (FASB) Interpretation No. 46 (revised December 2003),
CONSOLIDATION OF VARIABLE INTEREST ENTITIES, AN INTERPRETATION OF ARB NO. 51
(FIN 46(R)), and consequently, we consolidate the revenue and expenses of BRMG.
All intercompany balances and transactions have been eliminated in
consolidation.

         At a portion of our centers in California and at all of the centers
which are located outside of California, we have entered into long-term
contracts with independent radiology groups in the area to provide physician
services at those facilities. These third party radiology practices provide
professional services, including supervision and interpretation of diagnostic
imaging procedures, in our diagnostic imaging centers. The radiology practices
maintain full control over the provision of professional 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. In these facilities we enter into long-term agreements with radiology
practice groups (typically 40 years). Under these arrangements, in addition to
obtaining technical fees for the use of our 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 outside of our diagnostic imaging centers. We own the diagnostic imaging
equipment and, therefore, receive 100% of the technical reimbursements
associated with imaging procedures. The radiology practice groups retain the
professional reimbursements associated with imaging procedures after deducting
management service fees. Our management service fees are included in net revenue
in the consolidated statement of operations and totaled $31.8 and $31.2 for the
years ended December 31, 2008 and 2007, respectively. We have no financial
controlling interest in the independent radiology practices, as defined in EITF
97-2; accordingly, we do not consolidate the financial statements of those
practices in our consolidated financial statements.

LIQUIDITY AND CAPITAL RESOURCES

       We had a working capital balance of $2.0 million and $23.2 million at
December 31, 2008 and 2007, respectively. We had net losses of $12.8 million,
$18.1 million, $11.0 million and $6.9 million for the years ended December 31,
2008 and 2007, the two months ended December 31, 2006, and the year ended
October 31, 2006, respectively. We also had a stockholders' deficit of $81.1
million and $69.8 million at December 31, 2008 and 2007, respectively.


                                       54
<PAGE>

         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 a significant amount of capital for the initial start-up
and development expense of new diagnostic imaging facilities, the acquisition of
additional facilities and new diagnostic imaging equipment, and to service our
existing debt and contractual obligations. Because our cash flows from
operations have been insufficient to fund all of these capital requirements, we
have depended on the availability of financing under credit arrangements with
third parties.

         Our business strategy with regard to operations focuses on the
following:

         |X|      Maximizing performance at our existing facilities;

         |X|      Focusing on profitable contracting;

         |X|      Expanding MRI, CT and PET applications;

         |X|      Optimizing operating efficiencies; and

         |X|      Expanding our networks.

         Our ability to generate sufficient cash flow from operations to make
payments on our debt and other contractual obligations will depend on our future
financial performance. A range of economic, competitive, regulatory, legislative
and business factors, many of which are outside of our control, will affect our
financial performance. Although no assurance can be given, taking these factors
into account, including our historical experience, we believe that through
implementing our strategic plans and continuing to restructure our financial
obligations, we will obtain sufficient cash to satisfy our obligations as they
become due in the next twelve months.

         On February 22, 2008, we secured a second incremental $35 million
("Second Incremental Facility") of capacity as part of our existing credit
facilities with GE Commercial Finance Healthcare Financial Services. The Second
Incremental Facility consists of an additional $35 million as part of our second
lien term loan and the first lien term loan or revolving credit facility may be
increased by up to an additional $40 million sometime in the future. As part of
the transaction, partly due to a material drop in LIBOR since the credit
facilities were established in November 2006, we increased the Applicable LIBOR
Margin to 4.25% for the revolving credit facility and the term loan to 9% from
6% for the second lien term loan. The additions to our existing credit
facilities are intended to provide capital for near-term opportunities and
future expansion.

         Subsequent to year end 2008, the Company was able to modify two of its
three interest rate swaps. The modifications extended the maturity of, and
re-priced two existing interest rate hedges originally executed in 2006 for an
additional 36 months, resulting in an annualized cash interest expense savings
of $2.9 million. On one of the LIBOR hedge modifications for a notional amount
of $107 million of LIBOR exposure, the Company on January 29, 2009 replaced a
fixed LIBOR rate of 5.02% with a new rate of 3.47% maturing on November 15,
2012. On the second LIBOR hedge modification for a notional amount of $90
million of LIBOR exposure, the Company on February 5, 2009 replaced a fixed
LIBOR rate of 5.03% with a new rate of 3.61% also maturing on November 15, 2012.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         PRINCIPLES OF CONSOLIDATION - The operating activities of subsidiaries
are included in the accompanying consolidated financial statements from the date
of acquisition. Investments in companies in which the Company has the ability to
exercise significant influence, but not control, are accounted for by the equity
method. All intercompany transactions and balances have been eliminated in
consolidation.

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

         REVENUE RECOGNITION - Our consolidated net revenue consists of net
patient fee for service revenue and revenue from capitation arrangements, or
capitation revenue. Net patient service revenue is recognized at the time
services are provided net of contractual adjustments based on our evaluation of
expected collections resulting from the analysis of current and past due
accounts, past collection experience in relation to amounts billed and other
relevant information. The amount of expected collection is continually adjusted
as more information is received and such adjustments are recorded in current
operations. Contractual adjustments result from the differences between the
rates charged for services performed and reimbursements by government-sponsored
healthcare programs and insurance companies for such services. Capitation
revenue is recognized as revenue during the period in which we were obligated to
provide services to plan enrollees under contracts with various health plans.
Under these contracts, we receive a per-enrollee amount each month covering all
contracted services needed by the plan enrollees. Net revenue is reduced by the
provision for bad debts.


                                       55
<PAGE>

         CONCENTRATION OF CREDIT RISKS - Financial instruments that potentially
subject us to credit risk are primarily cash equivalents and accounts
receivable. We have placed our cash and cash equivalents with one major
financial institution. At times, the cash in the financial institution is
temporarily in excess of the amount insured by the Federal Deposit Insurance
Corporation, or FDIC. Substantially all of our accounts receivable are due under
fee-for-service contracts from third party payors, such as insurance companies
and government-sponsored healthcare programs, or directly from patients.
Services are generally provided pursuant to one-year contracts with healthcare
providers. Receivables generally are collected within industry norms for
third-party payors. We continuously monitor collections from our clients and
maintain an allowance for bad debts based upon any specific payor collection
issues that we have identified and our historical experience. As of December 31,
2008 and 2007, our allowance for bad debts was $12.1 million and $11.6 million,
respectively.

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

         DEFERRED FINANCING COSTS - Costs of financing are deferred and
amortized on a straight-line basis over the life of the loan.

         PROPERTY AND EQUIPMENT - Property and equipment are stated at cost,
less accumulated depreciation and amortization. Depreciation and amortization of
property and equipment are provided using the straight-line method over the
estimated useful lives, which range from 3 to 15 years. Leasehold improvements
are amortized at the lesser of lease term or their estimated useful lives,
whichever is lower, which range from 3 to 30 years. Only a few leasehold
improvements are deemed to have a life greater than 15 to 20 years. Maintenance
and repairs are charged to expenses as incurred.

         GOODWILL - Goodwill at December 31, 2008 totaled $105.3 million.
Goodwill is recorded as a result of business combinations. Management evaluates
goodwill, at a minimum, on an annual basis and whenever events and changes in
circumstances suggest that the carrying amount may not be recoverable in
accordance with Statement of Financial Accounting Standards, or SFAS, No. 142,
"Goodwill and Other Intangible Assets." Impairment of goodwill is tested at the
reporting unit level by comparing the reporting unit's carrying amount,
including goodwill, to the fair value of the reporting unit. The fair value of a
reporting unit is estimated using a combination of the income or discounted cash
flows approach and the market approach, which uses comparable market data. If
the carrying amount of the reporting unit exceeds its fair value, goodwill is
considered impaired and a second step is performed to measure the amount of
impairment loss, if any. We tested goodwill on October 1, 2008. Based on our
review, we noted no impairment related to goodwill as of October 1, 2008.
However, if estimates or the related assumptions change in the future, we may be
required to record impairment charges to reduce the carrying amount of goodwill.

         LONG-LIVED ASSETS - We evaluate our long-lived assets (property and
equipment) and definite-lived intangibles for impairment whenever indicators of
impairment exist. The accounting standards require that if the sum of the
undiscounted expected future cash flows from a long-lived asset or
definite-lived intangible is less than the carrying value of that asset, an
asset impairment charge must be recognized. The amount of the impairment charge
is calculated as the excess of the asset's carrying value over its fair value,
which generally represents the discounted future cash flows from that asset or
in the case of assets we expect to sell, at fair value less costs to sell. No
indicators of impairment were identified with respect to our long-lived assets
as of December 31, 2008.

         INCOME TAXES - Income tax expense is computed using an asset and
liability method and using expected annual effective tax rates. Under this
method, deferred income tax assets and liabilities result from temporary
differences in the financial reporting bases and the income tax reporting bases
of assets and liabilities. The measurement of deferred tax assets is reduced, if
necessary, by the amount of any tax benefit that, based on available evidence,
is not expected to be realized. When it appears more likely than not that
deferred taxes will not be realized, a valuation allowance is recorded to reduce
the deferred tax asset to its estimated realizable value. Income taxes are
further explained in Note 10.

         UNINSURED RISKS - Prior to November 1, 2006 the Company maintained a
high deductible self-insured workers' compensation insurance program. The
liability is based on the Company's estimate of losses for claims incurred but
unpaid. Funding is made directly to the providers and/or claimants through a
third party administrator. To guarantee performance under the workers'
compensation program, the Company has maintained a cash collateral account with
the administrator. The cash collateral account is restricted as security for
potential claims. The Company has recorded restricted cash of approximately $1.3
million and $1.3 million as of December 31, 2008 and December 31, 2007,
respectively. These amounts are included in the other current assets balance
sheet line item. At December 31, 2008 and December 31, 2007 the Company has
recorded a reserve of approximately $973,000 and $1.4 million, respectively, for
potential losses on existing claims as such amounts are believed to be probable
and reasonably estimable.

         For the subsequent two years that ended October 31, 2008, the Company
pre-funded the anticipated claims' losses as well as the policy and claim
handling costs. The total loss reserves reported as of January 2009 for the two
years ended October 31, 2008 was $1.26 million and the company has paid $2.15
million to the administrator. Thus, unless the incurred losses increase by more
than $900,000, the Company will not have any uninsured risks for those periods.
The Company does not anticipate that the loss development will exceed our
reserve.

         On November 1, 2008 the Company obtained a fully funded and insured
workers' compensation policy, thereby eliminating any uninsured risks for
injuries occurring on or after that date.

         We and our affiliated physicians are insured by Fairway Physicians
Insurance Company. Fairway provides claims-made medical malpractice insurance
coverage that covers only asserted medical malpractice claims during the year
that fall within policy limits. We accrued a liability of $1.7 million as of

                                       56
<PAGE>

December 31, 2007 for our exposure to incurred but unreported claims. In
December 2008, to remove the exposure to unreported claims, the Company
purchased a medical malpractice tail policy, which provides coverage for any
future claims reported that were incurred during previous periods. Therefore, as
of December 31, 2008 the Company no longer requires an accrued liability for
future claims. The $960,000 cost of the policy versus the reversal of the
previous accrual of $1.7 million resulted in a $700,000 reduction in the
Company's malpractice insurance costs in 2008. We currently hold a $300,000
asset for the cost basis of our investment in the common stock we hold in
Fairway Physicians Insurance Company, the risk retention group that holds our
medical malpractice policy.

         On January 1, 2008 the Company entered into an arrangement with Blue
Shield to administer and process the claims for the Company's new self-insured
health insurance plan that provides coverage for its employees and dependents.
We have recorded a $1.7 million liability as of December 31, 2008 for claims
incurred in 2008 by its participants, but were not paid by December 31, 2008.
Additionally, the Company entered into an agreement with Sun Life Assurance
Company to provide a stop loss policy that provides coverage for any claims in
excess of $150,000 up to a maximum of $1.0 million in order to limit its
exposure for unusual or catastrophic claims.

         LOSS CONTRACTS - We assess the profitability of our contracts to
provide management services to our contracted physician groups and identify
those contracts where current operating results or forecasts indicate probable
future losses. Anticipated future revenue is compared to anticipated costs. If
the anticipated future costs exceeds the revenue, a loss contract accrual is
recorded. In connection with the acquisition of Radiologix in November 2006, we
acquired certain management service agreements for which forecasted costs
exceeds forecasted revenue. As such, an $8.9 million loss contract accrual was
established in purchase accounting, and is included in other non-current
liabilities. The recorded loss contract accrual is being accreted into
operations over the remaining term of the acquired management service
agreements. As of December 31, 2008 and 2007, the remaining accrual balance is
$8.8 million, and $8.5 million, respectively.

         EQUITY BASED COMPENSATION - We have three long-term incentive plans. We
have not issued options under the 1992 plan since the adoption of the 2000 plan
and we have not issued options under the 2000 plan since the adoption of the
2006 plan. We have reserved for issuance under the 2006 plan 2,500,000 shares of
common stock. Options granted under the 2006 plan to employees are intended to
qualify as incentive stock options under existing tax regulations. In addition,
we issue non-qualified stock options and warrants under the 2006 plan from time
to time to non-employees, in connection with acquisitions and for other purposes
and we may also issue stock under the plans. Stock options and warrants
generally vest over two to five years and expire five to ten years from date of
grant.

         The compensation expense recognized for all equity-based awards is net
of estimated forfeitures and is recognized over the awards' service period. In
accordance with Staff Accounting Bulletin ("SAB") No. 107, we classified
equity-based compensation within operating expenses with the same line item as
the majority of the cash compensation paid to employees

         SEGMENTS OF AN ENTERPRISE - The Company reports segment information in
accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"). Under SFAS 131 all publicly traded companies
are required to report certain information about the operating segments,
products, services and geographical areas in which they operate and their major
customers. The Company operates in a single business segment and operates only
in the United States.

         DERIVATIVE FINANCIAL INSTRUMENTS - The Company holds derivative
financial instruments for the purpose of hedging the risks of certain
identifiable and anticipated transactions. In general, the types of risks hedged
are those relating to the variability of cash flows caused by movements in
interest rates. The Company documents its risk management strategy and hedge
effectiveness at the inception of the hedge, and, unless the instrument
qualifies for the short-cut method of hedge accounting, over the term of each
hedging relationship. The Company's use of derivative financial instruments is
limited to interest rate swaps, the purpose of which is to hedge the cash flows
of variable-rate indebtedness. The Company does not hold or issue derivative
financial instruments for speculative purposes.

         In accordance with Statement of Financial Accounting Standards No. 133,
derivatives that have been designated and qualify as cash flow hedging
instruments are reported at fair value. The gain or loss on the effective
portion of the hedge (i.e., change in fair value) is initially reported as a
component of other comprehensive income in the Company's Consolidated Statement
of Stockholders' Deficit. The remaining gain or loss, if any, is recognized
currently in earnings. Amounts in accumulated other comprehensive income are
reclassified into income in the same period in which the hedged forecasted
transaction affects earnings.

         COMPREHENSIVE INCOME - SFAS No. 130 REPORTING COMPREHENSIVE INCOME
establishes rules for reporting and displaying comprehensive income and its
components. SFAS No. 130 requires unrealized gains or losses on the change in
fair value of the Company's cash flow hedging activities to be included in
comprehensive income. The components of comprehensive loss are included in the
Consolidated Statement of Stockholders Deficit.

         FAIR VALUE MEASUREMENTS - In September 2006, the FASB issued SFAS 157,
FAIR VALUE MEASUREMENTS. SFAS 157 defines fair value, establishes a framework
for measuring fair value in accordance with accounting principles generally
accepted in the United States, and expands disclosures about fair value
measurements. We adopted the provisions of SFAS 157 as of January 1, 2008 for
financial instruments. Although the adoption of SFAS 157 did not materially
impact our financial position, results of operations, or cash flow, we are now
required to provide additional disclosures as part of our financial statements.


                                       57
<PAGE>

         SFAS 157 establishes a three-tier fair value hierarchy, which
prioritizes the inputs used in measuring fair value. These tiers are: Level 1,
defined as observable inputs such as quoted prices in active markets; Level 2,
defined as inputs other than quoted prices in active markets that are either
directly or indirectly observable; and Level 3, defined as unobservable inputs
in which little or no market data exists, therefore requiring an entity to
develop its own assumptions.

         Our consolidated balance sheets include the following financial
instruments: cash and cash equivalents, receivables, trade accounts payable,
capital leases, long-term debt and other liabilities. We consider the carrying
amounts of cash and cash equivalents, receivables, other current assets and
current liabilities to approximate their fair value because of the relatively
short period of time between the origination of these instruments and their
expected realization or payment. Additionally, we consider the carrying amount
of our capital lease obligations to approximate their fair value because the
weighted average interest rate used to formulate the carrying amounts
approximates current market rates.

         At December 31, 2008, based on Level 2 inputs, we determined the fair
values of our first and second lien term loans issued on November 15, 2006 and
extended on August 23, 2007 (see Note 9) to be $196.1million and $127.5million,
respectively. The carrying amount of the first and second lien term loans at
December 31, 2008 was $245.1 million and $170.0 million, respectively.

         The Company maintains interest rate swaps which are required to be
recorded at fair value on a recurring basis. At December 31, 2008 the fair value
of these swaps of $7.2 million was determined using Level 2 inputs. More
specifically, the fair value was determined by calculating the value of the
difference between the fixed interest rate of the interest rate swaps and the
counterparty's forward LIBOR curve, which would be the input used in the
valuations. The forward LIBOR curve is readily available in the public markets
or can be derived from information available in the public markets. We have
included $822,000 of this fair value in accounts payable and accrued expenses
and the remaining in other non-current liabilities.

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

<TABLE>
<CAPTION>
<S>     <C>

                                                                       YEARS ENDED              TWO MONTHS ENDED     YEAR ENDED
                                                                      DECEMBER 31,                 DECEMBER 31,      OCTOBER 31,
                                                              -------------------------------------------------------------------
                                                                  2008             2007               2006             2006
                                                              ------------      ------------      ------------      ------------
Net loss                                                      $    (12,836)     $    (18,131)     $    (10,983)     $     (6,894)

BASIC LOSS PER SHARE
Weighted average number of common shares
outstanding during the year                                     35,721,028        34,592,716        30,972,282        21,013,957
                                                              ------------      ------------      ------------      ------------
Basic loss per share:
Basic loss per share                                          $      (0.36)     $      (0.52)     $      (0.35)     $      (0.33)
                                                              ------------      ------------      ------------      ------------
DILUTED LOSS PER SHARE
Weighted average number of common shares
outstanding during the year                                      35,721,028        34,592,716        30,972,282        21,013,957
                                                              ------------      ------------      ------------      ------------
Add additional shares issuable upon exercise of
stock options and warrants                                              --                --                --                --
                                                              ------------      ------------      ------------      ------------
Weighted average number of common shares used
in calculating diluted loss per share                           35,721,028        34,592,716        30,972,282        21,013,957
                                                              ------------      ------------      ------------      ------------
Diluted loss per share:
Diluted loss per share                                        $      (0.36)     $      (0.52)     $      (0.35)     $      (0.33)
                                                              ------------      ------------      ------------      ------------
</TABLE>


         For all periods presented we excluded all options and warrants in the
calculation of diluted earnings per share because their effect would be
antidilutive. However, these instruments could potentially dilute earnings per
share in future years.

         INVESTMENT IN JOINT VENTURES - We have eight 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 contracted radiology practices or a radiology practice that
participates in the joint venture. Our investment in these joint ventures is
accounted for under the equity method. Investment in joint ventures increased
$2.1 million to $17.1 million at December 31, 2008 compared to $15.0 million at
December 31, 2007. This increase is primarily related to our purchase of an
additional $938,000 of share holdings in joint ventures that were existing as of

                                       58
<PAGE>

December 31, 2007 as well as our equity earnings of $6.5 million for the year
ended December 31, 2008, offset by $5.2 of distributions received during the
period.

         We received management service fees from the centers underlying these
joint ventures of approximately $7.6 million, $5.0 million and $456,000 for the
years ended December 31, 2008 and 2007, and the two months ended December 31,
2006, respectively.

         The following table is a summary of key financial data for these joint
ventures as of and for the years ended December 31, 2008 and 2007, respectively
(in thousands):
<TABLE>
<CAPTION>
<S>     <C>

                                                                                             DECEMBER 31,
                                                                                       ----------------------
          Balance Sheet Data:                                                            2008          2007
                                                                                       --------      --------
          Current assets                                                               $ 20,732      $ 21,076
          Noncurrent assets                                                              23,557        13,691
          Current liabilities                                                            (4,634)       (3,360)
          Noncurrent liabilities                                                         (7,848)       (5,300)
                                                                                       --------      --------
             Total net assets                                                          $ 31,807      $ 26,107
                                                                                       ========      ========

                  Book value of Radnet joint venture interests                         $ 13,717      $ 11,674
                  Cost in excess of book value of acquired joint venture interests        3,383         3,362
                                                                                       --------      --------
                     Total value of Radnet joint venture interests                     $ 17,100      $ 15,036
                                                                                       ========      ========

                     Total book value of other joint venture partner interests         $ 18,090      $ 14,433
                                                                                       ========      ========

                  Net revenue                                                          $ 80,948      $ 59,501
                  Net income                                                           $ 17,758      $ 11,758
</TABLE>


NOTE 3 - FACILITY ACQUISITIONS AND DIVESTITURES

ACQUISITIONS

         On October 31, 2008, we acquired the assets and business of Middletown
Imaging in Middletown, Delaware for $210,000 in cash and the assumption of
capital lease debt of $1.2 million. We made a preliminary purchase price
allocation of the acquired assets and liabilities, and approximately $530,000 of
goodwill was recorded with respect to this transaction.

         On August 15, 2008, we acquired the women's imaging practice of Parvis
Gamagami, M.D., Inc. in Van Nuys, CA for $600,000. Upon acquisition, we
relocated the practice to a nearby center we recently acquired from InSight
Health in Encino, CA. We rebranded the InSight center as the Encino Breast Care
Center, and focused it on Digital Mammography, Ultrasound, MRI and other
modalities pertaining to women's health. We have allocated the full purchase
price of $600,000 to goodwill.

         On July 23, 2008, we acquired the assets and business of NeuroSciences
Imaging Center in Newark, Delaware for $4.5 million in cash. The center, which
performs MRI, CT, Bone Density, X-ray, Fluoroscopy and other specialized
procedures, is located in a highly specialized medical complex called the
Neuroscience and Surgery Institute of Delaware. The acquisition complements our
recent purchase of the Papastavros Associates Imaging centers completed in
March, 2008. We made a preliminary purchase price allocation of the acquired
assets and liabilities, and approximately $2.6 million of goodwill was recorded
with respect to this transaction.

         On June 18, 2008, we acquired the assets and business of Ellicott Open
MRI for the assumption of approximately $181,000 of capital lease debt. We made
a preliminary purchase price allocation of the acquired assets and liabilities,
and no goodwill was recorded with respect to this transaction.

         On June 2, 2008, we acquired the assets and business of Simi Valley
Advanced Medical, a Southern California based multi-modality imaging center, for
the assumption of capital lease debt of $1.7 million. We made a preliminary
purchase price allocation of the acquired assets and liabilities, and
approximately $313,000 of goodwill was recorded with respect to this
transaction.

                                       59
<PAGE>


         On April 15, 2008, we acquired the net assets of five Los Angeles area
imaging centers from InSight Health Corp. We completed the purchase of a sixth
center in Van Nuys, CA from Insight Health Corp. on June 2, 2008. The total
purchase price for the six centers was $8.5 million in cash. The centers provide
a combination of imaging modalities, including MRI, CT, X-ray, Ultrasound and
Mammography. We made a preliminary purchase price allocation of the acquired
assets and liabilities, and approximately $5.6 million of goodwill was recorded
with respect to this transaction.

         On April 1, 2008, we acquired the net assets and business of BreastLink
Medical Group, Inc., a prominent Southern California breast medical oncology
business and a leading breast surgery business, for the assumption of
approximately $4.0 million of accrued liabilities and capital lease obligations.
We made a preliminary purchase price allocation of the acquired assets and
liabilities, and approximately $2.1 million of goodwill was recorded with
respect to this transaction.

         On March 12, 2008, we acquired the net assets and business of
Papastavros Associates Medical Imaging for $9.0 million in cash and the
assumption of capital leases of $337,000. Founded in 1958, Papastavros
Associates Medical Imaging is one of the largest and most established outpatient
imaging practices in Delaware. The 12 Papastavros centers offer a combination of
MRI, CT, PET, nuclear medicine, mammography, bone densitometry, fluoroscopy,
ultrasound and X-ray. We made a preliminary purchase price allocation of the
acquired assets and liabilities, and approximately $3.6 million of goodwill, and
$1.2 million for covenants not to compete, was recorded with respect to this
transaction.

         On February 1, 2008, we acquired the net assets and business of The
Rolling Oaks Imaging Group, located in Westlake and Thousand Oaks, California,
for $6.0 million in cash and the assumption of capital leases of $2.7 million.
The practice consists of two centers, one of which is a dedicated women's
center. The centers are multimodality and include a combination of MRI, CT,
PET/CT, mammography, ultrasound and X-ray. The centers are positioned in the
community as high-end, high-quality imaging facilities that employ
state-of-the-art technology, including 3 Tesla MRI and 64 slice CT units. The
facilities have been fixtures in the Westlake/Thousand Oaks market since 2003.
We made a preliminary purchase price allocation of the acquired assets and
liabilities, and approximately $5.6 million of goodwill was recorded with
respect to this transaction.

         On October 9, 2007, we acquired the assets and business of Liberty
Pacific Imaging located in Encino, California for $2.8 million in cash. The
center operates a successful MRI practice utilizing a 3T MRI unit, the strongest
magnet strength commercially available at this time. The center was founded in
2003. The acquisition allows us to consolidate a portion of our Encino/Tarzana
MRI volume onto the existing Liberty Pacific scanner. This consolidation allows
us to move our existing 3T MRI unit in that market to our Squadron facility in
Rockland County, New York. Approximately $1.1 million of goodwill was recorded
with respect to this transaction. Also, $200,000 was recorded for the fair value
of a covenant not to compete contract.

         In September 2007, we acquired the assets and business of three
facilities comprising Valley Imaging Center, Inc. located in Victorville, CA for
$3.3 million in cash plus the assumption of approximately $866,000 of debt. The
acquired centers offer a combination of MRI, CT, X-ray, Mammography, Fluoroscopy
and Ultrasound. The physician who provided the interpretive radiology services
to these three locations joined BRMG. The leased facilities associated with
these centers includes a total monthly rental of approximately $18,000.
Approximately $3.0 million of goodwill was recorded with respect to this
transaction. Also, $150,000 was recorded for the fair value of a covenant not to
compete contract.

         In September 2007, we acquired the assets and business of Walnut Creek
Open MRI located in Walnut Creek, CA for $225,000. The center provides MRI
services. The leased facility associated with this center includes a monthly
rental of approximately $6,800 per month. Approximately $50,000 of goodwill was
recorded with respect to this transaction.

         In July 2007, we acquired the assets and business of Borg Imaging Group
located in Rochester, NY for $11.6 million in cash plus the assumption of
approximately $2.4 million of debt. Borg was the owner and operator of six
imaging centers, five of which are multimodality, offering a combination of MRI,
CT, X-ray, Mammography, Fluoroscopy and Ultrasound. After combining the Borg
centers with RadNet's existing centers in Rochester, New York, RadNet has a
total of 11 imaging centers in Rochester. The leased facilities associated with
these centers includes a total monthly rental of approximately $71,000 per
month. Approximately $8.9 million of goodwill was recorded with respect to this
transaction. Also, $1.4 million was recorded for the fair value of covenant not
to compete contracts.

         In March 2007, we acquired the assets and business of Rockville Open
MRI, located in Rockville, Maryland, for $540,000 in cash and the assumption of
a capital lease of $1.1 million. The center provides MRI services. The center is
3,500 square feet with a monthly rental of approximately $8,400 per month.
Approximately $365,000 of goodwill was recorded with respect to this
transaction.

DIVESTITURES

         In December 2007, we sold 24% of a 73% investment in one of our
consolidated joint ventures for approximately $2.3 million reducing our
ownership to 49%. As a result of this transaction, we no longer consolidate this
joint venture. Accordingly, our consolidated balance sheet at December 31, 2007

                                       60
<PAGE>

includes this 49% interest as a component of our total investment in
non-consolidated joint ventures where it is accounted for under the equity
method. The amounts eliminated from our consolidated balance sheet as a result
of the deconsolidation were not material. Since the deconsolidation occurred at
the end of 2007, no significant amounts were eliminated from our statement of
operations.

         In October 2007 we divested a non-core center in Golden, Colorado for
$325,000.

         In June 2007 we divested a non-core center in Duluth, Minnesota to a
local multi-center operator for $1.3 million.

NOTE 4 - ACQUISITION OF RADIOLOGIX

         On November 15, 2006, we completed our acquisition of Radiologix, Inc.
as a stock purchase. Under the terms of the merger agreement, Radiologix
shareholders received aggregate consideration of 11,310,950 shares of our common
stock and $42,950,000 in cash.

                                                         (IN THOUSANDS)
                                                         --------------
          Value of stock given by RadNet to Radiologix*     $39,400
          Cash                                               42,950
          Transaction fees and expenses**                    15,208
                                                            -------
          Total purchase price                              $97,558
                                                            =======

(*) Calculated as 11,310,950 shares multiplied by $3.48 (average closing price
of $3.48 from June 28, 2006 to July 13, 2006).

(**) Includes $8,274,000 in assumed liabilities of Radiologix, including
$3,210,000 in merger and acquisition fees and $5,064,000 in Radiologix bond
prepayment penalties.

         Under the purchase method of accounting, the total purchase price as
shown above is allocated to Radiologix's net tangible and intangible assets
based on their fair values as of the date of acquisition. The following table
summarizes the final purchase price allocation at the date of acquisition.

                                                           (IN THOUSANDS)
                                                           --------------
          Current assets                                      $ 114,764
          Property and equipment, net                            78,644
          Identifiable intangible assets                         61,000
          Goodwill                                               47,762
          Investments in joint ventures                           9,482
          Other assets                                              974
          Current liabilities                                   (25,191)
          Accrued restructuring charges                            (314)
          Contracts                                              (8,994)
          Assumption of debt                                   (177,358)
          Long-term liabilities                                  (2,002)
          Minority interests in consolidated subsidiaries        (1,209)
                                                              ---------

          Total purchase price                                $  97,558
                                                              =========

         CASH, MARKETABLE SECURITIES, INVESTMENTS AND OTHER ASSETS: We valued
cash, marketable securities, investments and other assets at their respective
carrying amounts as we believe that these amounts approximated their current
fair values.

         IDENTIFIABLE INTANGIBLE ASSETS: Identifiable intangible assets acquired
include management service agreements and covenants not to compete. Management
service agreements represent the underlying relationships and agreements with
certain professional radiology groups. Covenants not to compete are contracts
entered into with certain former members of management of Radiologix on the date
of acquisition.

Identifiable intangible assets consist of:

<TABLE>
<CAPTION>
<S>     <C>
                                                        ESTIMATED
                                           ESTIMATED    AMORTIZATION        ANNUAL
             (IN THOUSANDS)                FAIR VALUE      PERIOD         AMORTIZATION
             -------------                ----------- ------------------  ------------

          Management service agreements       $57,880     25 years            $ 2,315
          Covenants not to compete              3,120     1 to 2 years          1,810
</TABLE>


                                       61
<PAGE>

         Estimated useful lives for the intangible assets were based on the
average contract terms, which are greater than the amortization period that will
be used for management contracts. Intangible assets are being amortized using
the straight-line method, considering the pattern in which the economic benefits
of the intangible assets are consumed.

         GOODWILL: $47,762,000 has been allocated to goodwill. This is an
increase of approximately $9.3 million from our previous estimate. The increase
in goodwill relates to an $8.0 million decrease to property and equipment, a
$100,000 increase to current assets, a $277,000 increase to deferred taxes and a
$1.1 million increase to accrued liabilities. Goodwill represents the excess of
the purchase price over the fair value of the underlying net tangible and
identifiable intangible assets net of liabilities assumed. In accordance with
SFAS No. 142, "Goodwill and Other Intangible Assets" goodwill will not be
amortized but instead will be tested for impairment at least annually. We
performed this test on October 1, 2008. As a result of this test, management
determined that the value of goodwill is not impaired. Because this goodwill was
established through a stock purchase, no amount is deductible for tax purposes.

         OPERATING LEASES: We assumed certain operating leases for both
equipment and facilities. All related historical deferred rent liabilities have
been eliminated.


NOTE 5 - RECENT ACCOUNTING STANDARDS AND PRONOUNCEMENTS

         As discussed in Note 2, we adopted the provisions of SFAS 157 as of
January 1, 2008 for financial instruments. We are required to adopt the
provisions of SFAS 157 for non-financial instruments in 2009 and do not expect
this adoption to have a material impact on our consolidated financial
statements.

         In February 2007, the FASB issued SFAS 159, THE FAIR VALUE OPTION FOR
FINANCIAL ASSETS AND FINANCIAL LIABILITIES, INCLUDING AN AMENDMENT OF FASB
STATEMENT NO. 115, which is effective for fiscal years beginning after November
15, 2007. SFAS 159 permits entities to measure eligible financial assets,
financial liabilities and firm commitments at fair value, on an
instrument-by-instrument basis, that are otherwise not permitted to be accounted
for at fair value under other U.S. generally accepted accounting principles. The
fair value measurement election is irrevocable and subsequent changes in fair
value must be recorded in earnings. The adoption of SFAS 159 did not have a
material impact on our consolidated financial statements. As we have not elected
the fair value option allowed for by SFAS 159 for any assets or liabilities that
are otherwise not permitted to be accounted for at fair value under other U.S.
generally accepted accounting principals, the adoption of SFAS 159 did not have
an impact on our consolidated financial statements.

         In December 2007, the FASB issued SFAS 141(R), BUSINESS COMBINATIONS
and SFAS 160, NONCONTROLLING INTERESTS IN CONSOLIDATED FINANCIAL STATEMENTS.
Those standards were intended to improve, simplify, and converge internationally
the accounting for business combinations and the reporting of noncontrolling
(minority) interests in consolidated financial statements. SFAS 141(R) requires
the acquiring entity in a business combination to recognize all (and only) the
assets acquired and liabilities assumed in the transaction; establishes the
acquisition-date fair value as the measurement objective for all assets acquired
and liabilities assumed; requires acquisition related transaction costs to be
expensed and requires the acquirer to disclose to investors and other users all
of the information they need to evaluate and understand the nature and financial
effect of the business combination. SFAS 141(R) is effective for fiscal years,
and interim periods within those fiscal years, beginning on or after December
15, 2008. SFAS 141(R) applies prospectively to business combinations for which
the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. Earlier adoption is prohibited.
We have not evaluated the potential impact that SFAS 141(R) will have on our
financial statements.

         SFAS 160 is designed to improve the relevance, comparability, and
transparency of financial information provided to investors by requiring all
entities to report minority interests in subsidiaries in the same way as equity
in the consolidated financial statements. Moreover, SFAS 160 eliminates the
diversity that currently exists in accounting for transactions between an entity
and minority interests by requiring they be treated as equity transactions. SFAS
160 is effective for fiscal years, and interim periods within those fiscal
years, beginning on or after December 15, 2008. Earlier adoption is prohibited.
In addition, SFAS 160 shall be applied prospectively as of the beginning of the
fiscal year in which it is initially applied, except for the presentation and
disclosure requirements. The presentation and disclosure requirements shall be
applied retrospectively for all periods presented. We currently do not expect
SFAS 160 to have a material impact on our financial statements, however, the
effect is largely dependent on potential future transactions which we are
currently unable to forecast.

         Other recent accounting pronouncements issued by the FASB (including
its Emerging Issues Task Force), the AICPA, and the SEC did not, or are not
believed by management to, have a material impact on our present or future
consolidated financial statements.


                                       62
<PAGE>

NOTE 6 - PROPERTY AND EQUIPMENT

         Property and equipment and accumulated depreciation and amortization
are as follows (in thousands):

                                                            DECEMBER 31,
                                                      ------------------------
                                                        2008           2007
                                                      ---------      ---------
          Buildings                                   $       2      $     602
          Medical equipment                             173,884        142,423
          Office equipment, furniture and fixtures       49,676         42,466
          Leasehold improvements                         93,573         80,518
          Equipment under capital lease                  59,543         43,162
                                                      ---------      ---------
                                                        376,678        309,171
          Accumulated depreciation and amortization    (183,574)      (145,074)
                                                      ---------      ---------
                                                      $ 193,104      $ 164,097
                                                      =========      =========


     Depreciation and amortization expense on property and equipment, including
amortization of equipment under capital leases, for the fiscal years ended
December 31, 2008 and 2007, the two months ended December 31, 2006 and the year
ended October 31, 2006 was $49.4 million, $40.7 million, $5.4 million and $16.2
million, respectively.

NOTE 7 - GOODWILL AND OTHER INTANGIBLE ASSETS

     Goodwill at December 31, 2008 totaled $105.3 million. Goodwill is recorded
as a result of business combinations. Activity in goodwill for the year ended
October 31, 2006, the two months ended December 31, 2006, and the years ended
December 31, 2007 and 2008 are provided below (in thousands):

<TABLE>
<CAPTION>
<S>     <C>

          Balance as of October 31, 2006 and 2005                                                                 $  23,099
               Goodwill acquired through the acquisition of Radiologix                                               38,508
                                                                                                                  ---------
          Balance as of December 31. 2006                                                                            61,607
               Adjustments to our preliminary allocation of the purchase price of Radiologix                          9,253
               Goodwill acquired through the acquisition of Walnut Creek Open MRI                                        50
               Goodwill acquired through the acquisition of Valley Imaging Center, Inc.                               2,818
               Goodwill acquired through the acquisition of Borge Imaging Group                                       9,202
               Goodwill acquired through the acquisition of Rockville Open MRI                                          365
               Goodwill acquired through the acquisition of Liberty Pacific Imaging                                   1,100
                                                                                                                  ---------
          Balance as of December 31, 2007                                                                            84,395
               Adjustments to our preliminary allocation of the purchase price of Borge Imaging Group                  (254)
               Adjustments to our preliminary allocation of the purchase price of Valley Imaging Center, Inc.           212
               Goodwill acquired through the acquisition of Rolling Oaks Imaging Group                                5,612
               Goodwill acquired through the acquisition of Papastavros Associates Medical Imaging                    3,649
               Goodwill acquired through the acquisition of BreastLink Medical Group, Inc                             2,048
               Goodwill acquired through the acquisition of InSight Health Corp.                                      5,560
               Goodwill acquired through the acquisition of Simi Valley Advanced Medical                                313
               Goodwill acquired through the acquisition of NeuroSciences Imaging Center                              2,613
               Goodwill acquired through the acquisition of imaging practice of Parvis Gamagami, M.D                    600
               Goodwill acquired through the acquisition of Middletown Imaging                                          530
                                                                                                                  ---------
          Balance as of December 31, 2008                                                                         $ 105,278
                                                                                                                  =========
</TABLE>


         Other intangible assets are primarily related to the value of
management service agreements obtained through our acquisition of Radiologix and
are recorded at cost of $57.9 million less accumulated amortization of $4.9
million at December 31, 2008. Also included in other intangible assets is the
value of covenant not to compete contracts associated with our recent facility
acquisitions (see note 3) totaling $6.4 million less accumulated amortization of
$3.9 million, as well as the value of trade names associated with acquired
imaging facilities totaling $2.2 million less accumulated amortization of
$791,000. Amortization expense for the year ended December 31, 2008 was $4.1
million. Intangible assets are amortized using the straight-line method.
Management service agreements are amortized over 25 years using the straight
line method.


                                       63
<PAGE>



     The following table shows annual amortization expense, by asset classes
that will be recorded over the next five years (in thousands):

<TABLE>
<CAPTION>
<S>     <C>

                                                          YEAR ENDED DECEMBER 31,
                                           2009         2010        2011        2012       2013     THEREAFTER      TOTAL
                                          -------     -------     -------     -------     -------     -------     -------
    Management service agreements         $ 2,315     $ 2,315     $ 2,315     $ 2,315     $ 2,315     $41,385     $52,960
    Covenent not to compete contracts         727         660         597         438          50          --       2,472
    Trade names                               150         150         150         150         109         720       1,429
                                          -------     -------     -------     -------     -------     -------     -------
       Total annual amortization          $ 3,192     $ 3,125     $ 3,062     $ 2,903     $ 2,474     $42,105     $56,861
                                          =======     =======     =======     =======     =======     =======     =======
</TABLE>


NOTE 8 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES (IN THOUSANDS)

                                               DECEMBER 31,
                                           -------------------
                                             2008        2007
                                           -------     -------

          Accounts payable                 $26,071     $13,288
          Accrued expenses                  37,950      31,950
          Accrued payroll and vacation      11,506       8,216
          Accrued professional fees          8,149       6,511
                                           -------     -------
              Total                        $83,676     $59,965
                                           =======     =======


NOTE 9 - NOTES PAYABLE, LONG-TERM DEBT, LINE OF CREDIT AND CAPITAL LEASES

         On November 15, 2006, we entered into a $405 million senior secured
credit facility with GE Commercial Finance Healthcare Financial Services (the
"November 2006 Credit Facility"). This facility was used to finance our
acquisition of Radiologix, refinance existing indebtedness, pay transaction
costs and expenses relating to our acquisition of Radiologix, and provide
financing for working capital needs post-acquisition. The facility consists of a
revolving credit facility of up to $45 million, a $225 million first lien Term
Loan and a $135 million second lien Term Loan. The first lien term loan has a
term of six years and the second lien term loan has a term of six and one-half
years. Interest is payable on all loans initially at an Index Rate plus the
Applicable Index Margin, as defined. The Index Rate is initially a floating rate
equal to the higher of the rate quoted from time to time by The Wall Street
Journal as the "base rate on corporate loans posted by at least 75% of the
nation's largest 30 banks" or the Federal Funds Rate plus 50 basis points. The
Applicable Index Margin on each of the revolving credit facility and the term
loan is 2% and on the second lien term loan is 6%. We may request that the
interest rate instead be based on LIBOR plus the Applicable LIBOR Margin, which
is 3.5% for the revolving credit facility and the term loan and 7.5% for the
second lien term loan. The credit facility includes customary covenants for a
facility of this type, including minimum fixed charge coverage ratio, maximum
total leverage ratio, maximum senior leverage ratio, limitations on
indebtedness, contingent obligations, liens, capital expenditures, lease
obligations, mergers and acquisitions, asset sales, dividends and distributions,
redemption or repurchase of equity interests, subordinated debt payments and
modifications, loans and investments, transactions with affiliates, changes of
control, and payment of consulting and management fees.

         On August 23, 2007, we secured an incremental $35 million ("Incremental
Facility") as part of our existing credit facilities with GE Commercial Finance
Healthcare Financial Services. The Incremental Facility consists of an
additional $25 million as part of our first lien Term Loan and $10 million of
additional capacity under our existing revolving line of credit bringing the
total capacity to $55 million. As of December 31, 2008, the Company qualified to
borrow up to $34 million on the revolver. The Incremental Facility will be used
to fund certain identified strategic initiatives and for general corporate
purposes.

         On February 22, 2008, we secured a second incremental $35 million
("Second Incremental Facility") of capacity as part of our existing credit
facilities with GE Commercial Finance Healthcare Financial Services. The Second
Incremental Facility consists of an additional $35 million as part of our second
lien term loan and the first lien term loan or revolving credit facility may be
increased by up to an additional $40 million sometime in the future. As part of
the transaction, partly due to the drop in LIBOR of over 2.00% since the credit
facilities were established in November 2006, we increased the Applicable LIBOR
Margin to 4.25% for the revolving credit facility and first lien term loan and
to 9.0% for the second lien term loan. The additions to our existing credit
facilities are intended to provide capital for near-term opportunities and
future expansion.

         As part of the senior secured credit facility financing, we swapped 50%
of the aggregate principal amount of the facilities to a floating rate within 90
days of the closing. On April 11, 2006, effective April 28, 2006, we entered
into an interest rate swap, not designated as a cash flow hedge, on $73.0
million fixing the LIBOR rate of interest at 5.47% for a period of three years.
This swap was made in conjunction with the $161.0 million credit facility that
closed on March 9, 2006. In addition, on November 15, 2006, we entered into a
designated cash flow hedge interest rate swap on $107.0 million fixing the LIBOR
rate of interest at 5.02% for a period of three years, and on November 28, 2006,

                                       64
<PAGE>

we entered into a designated cash flow hedge interest rate swap on $90.0 million
fixing the LIBOR rate of interest at 5.03% for a period of three years.
Previously, the interest rate on the above $270.0 million portion of the credit
facility was based upon a spread over LIBOR which floats with market conditions.

         The Company documents its risk management strategy and hedge
effectiveness at the inception of the hedge, and, unless the instrument
qualifies for the short-cut method of hedge accounting, over the term of each
hedging relationship. The Company's use of derivative financial instruments is
limited to interest rate swaps, the purpose of which is to hedge the cash flows
of variable-rate indebtedness. The Company does not hold or issue derivative
financial instruments for speculative purposes. In accordance with Statement of
Financial Accounting Standards No. 133, derivatives that have been designated
and qualify as cash flow hedging instruments are reported at fair value. The
gain or loss on the effective portion of the hedge (i.e., change in fair value)
is initially reported as a component of other comprehensive income in the
Company's Consolidated Statement of Stockholders' Equity. The remaining gain or
loss, if any, is recognized currently in earnings. For the derivative held that
is not designated as a cash flow hedging instrument, we recorded a decrease to
interest expense of approximately $707,000 and an increase to interest expense
of $820,000 for the years ended December 31, 2008 and 2007, respectively. The
corresponding liability of approximately $823,000 is included in accounts
payable and accrued expenses in the consolidated balance sheet at December 31,
2008. Of the derivatives that were designated as cash flow hedging instruments,
we recorded $6.4 million to accumulated other comprehensive loss, and have an
offsetting liability of the same amount, included in other non-current
liabilities, for the fair value of these hedging instruments at December 31,
2008.

         Subsequent to year end 2008, the Company was able to modify two of its
three interest rate swaps. The modifications extended the maturity of, and
re-priced two existing interest rate hedges originally executed in 2006 for an
additional 36 months, resulting in an annualized cash interest expense savings
of $2.9 million. On one of the LIBOR hedge modifications for a notional amount
of $107 million of LIBOR exposure, the Company on January 29, 2009 replaced a
fixed LIBOR rate of 5.02% with a new rate of 3.47% maturing on November 15,
2012. On the second LIBOR hedge modification for a notional amount of $90
million of LIBOR exposure, the Company on February 5, 2009 replaced a fixed
LIBOR rate of 5.03% with a new rate of 3.61% also maturing on November 15, 2012.

         Notes payable, long-term debt, line of credit and capital lease
obligations consist of the following (in thousands):

<TABLE>
<CAPTION>
<S>     <C>

                                                                                                  DECEMBER 31,
                                                                                             ------------------------
                                                                                               2008         2007
                                                                                             ---------      ---------
          Revolving lines of credit                                                          $   1,742      $   4,222

          Notes payable at interest rates ranging from 8.8% to 13.5%, due
          through 2009, collateralized by medical equipment                                    425,236        385,600

          Obligations under capital leases at interest rates ranging from 9.1% to 13.0%,
          due through 2010, collateralized by medical and
           office equipment                                                                     39,302         31,982
                                                                                             ---------      ---------
                                                                                               466,280        421,804

          Less: current portion                                                                (20,565)       (12,991)
                                                                                             ---------      ---------
                                                                                             $ 445,715      $ 408,813
                                                                                             =========      =========
</TABLE>


         The following is a listing of annual principal maturities of notes
payable and long-term obligations exclusive of capital leases and repayments on
our revolving credit facilities for years ending December 31 (in thousands):

                                  2009      $ 5,501
                                  2010        4,993
                                  2011        5,711
                                  2012      238,636
                                  2013      170,395
                                           --------
                                           $425,236
                                           ========



                                       65
<PAGE>

         We lease equipment under capital lease arrangements. Future minimum
lease payments under capital leases for years ending December 31 (in thousands)
is as follows:

          2009                             $ 17,700
          2010                               13,597
          2011                                8,288
          2012                                4,155
          2013                                  615
                                           --------
          Total minimum payments             44,355
          Amount representing interest       (5,053)
                                           --------
          Present value of net minimum
          lease payments                     39,302
          Less current portion              (15,064)
                                           --------
          Long-term portion                $ 24,238
                                           ========


NOTE 10 - INCOME TAXES

         Income taxes have been recorded under SFAS No. 109, "Accounting for
Income Taxes." Deferred income taxes reflect the net tax effects of temporary
differences between carrying amounts of assets and liabilities for financial and
income tax reporting purposes and operating loss carryforwards. For the years
ended December 31, 2008 and 2007, and the two months ended December 31, 2006, we
recognized $151,000, $337,000 and $20,000, respectively, of state income tax
related to profitable imaging centers from Radiologix. We did not incur any
federal or state income taxes during the year ended October 31, 2006.

Following is a reconciliation between the effective tax rate and the statutory
tax rates:

<TABLE>
                                                          YEARS ENDED            TWO MONTHS ENDED    YEAR ENDED
                                                          DECEMBER 31,             DECEMBER 31,      OCTOBER 31,
                                                 ----------------------------      -----------------------------
                                                     2008            2007              2006             2006
                                                 ------------    ------------      ------------     ------------
<S>                                                  <C>             <C>               <C>              <C>
Federal tax                                          -34.00%         -34.00%           -34.00%          -34.00%
State franchise tax, net of federal benefit            1.26%           2.12%             0.00%            0.00%
Non deductible expenses                                1.44%           1.14%             0.70%            0.70%
Provision to return reconciliation and other          -2.89%           1.36%

Changes in valuation allowance                        35.45%          31.50%            33.30%           33.30%
                                                 ------------    ------------      ------------     ------------
Income tax expense                                     1.26%           2.12%             0.00%            0.00%
                                                 ============    ============      ============     ============
</TABLE>

                                       66
<PAGE>

Our deferred tax assets and liabilities comprise the following items:


Deferred Tax Assets & Liabilities:
----------------------------------
                                                         DECEMBER 31,
                                                  -----------------------
         Deferred tax assets:                       2008           2007
                                                  --------       --------
         Net operating losses                     $ 68,860       $ 61,108
         Tax Basis in Goodwill & Intangibles        25,276         26,657
         Unfaverable contract liability              3,647          3,348
         Allowance for doubtful accounts             1,510          1,482
         Other                                       8,020          1,567
         Valuation Allowance                       (57,409)       (48,002)
                                                  --------       --------
         Total Deferred Tax Assets                $ 49,904       $ 46,160
                                                  --------       --------

         Deferred tax liabilities:
         Property Plant & Equipment                 (7,421)        (7,638)
         Book Basis in Goodwill                    (19,195)       (14,276)
         Book Basis in Intangibles                 (23,065)       (24,275)
         Other                                        (500)          (248)

                                                  --------       --------
         Total Deferred Tax Liabilities           $(50,181)      $(46,437)
                                                  --------       --------

                                                  --------       --------
         Net deferred tax liability               $   (277)      $   (277)
                                                  ========       ========

         As of December 31, 2008, we had federal and state net operating loss
carryforwards of approximately $181.2 million and $166.8 million, respectively,
which expire at various intervals from the years 2007 to 2026. As of December
31, 2008, $23.3 million of our federal net operating loss carryforwards acquired
in connection with the 1998 acquisition of Diagnostic Imaging Services, Inc. and
the 2006 acquisition of Radiologix Inc. were subject to limitations related to
their utilization under Section 382 of the Internal Revenue Code. As of December
31, 2006, future ownership changes as determined under Section 382 of the
Internal Revenue Code could further limit the utilization of net operating loss
carryforwards. Realization of deferred tax assets is dependent upon future
earnings, if any, the timing and amount of which are uncertain. Accordingly, the
net deferred tax assets have been fully offset by a valuation allowance.
Included in the net operating loss is $1.6 million of excess tax benefits
related to the exercise of nonqualified stock options which will be recorded in
equity when realized.

         We consider all evidence available when determining whether deferred
tax assets are more likely-than-not to be realized, including tax planning
strategies that would be employed to prevent an NOL from expiring unutilized. As
of December 31, 2008, we have determined that deferred tax assets of $49.9
million are more-likely than not to be realized. We have also determined that
deferred tax liabilities of $19.2 million are required related to book basis in
goodwill that has an indefinite life.

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

                              TOTAL NET OPERATING            AMOUNT SUBJECT
      Year Ended               LOSS CARRYFORWARDS          TO 382 LIMITATION
----------------------    --------------------------   -------------------------
2009                                      $  18,562                    $  5,337
2010                                         13,283                       1,737
2011                                          1,501                       1,501
2012                                              -                           -
2013                                              -                           -
Thereafter                                  147,852                      14,698
                          ------------------------------------------------------
                                          $ 181,198                    $ 23,273
                          ======================================================

                                       67
<PAGE>

NOTE 11 - CAPITAL STRUCTURE AND CAPITAL TRANSACTIONS

STOCK INCENTIVE PLANS

         We have three long-term incentive plans. We have not issued options
under the 1992 plan since the adoption of the 2000 plan and we have not issued
options under the 2000 plan since the adoption of the 2006 plan. We have
reserved for issuance under the 2006 plan 2,500,000 shares of common stock.
Options granted under the 2006 plan to employees are intended to qualify as
incentive stock options under existing tax regulations. In addition, we issue
non-qualified stock options and warrants under the 2006 plan from time to time
to non-employees, in connection with acquisitions and for other purposes and we
may also issue stock under the plan. Stock options and warrants generally vest
over two to five years and expire five to ten years from date of grant.

         As of December 31, 2008, 932,500, or approximately 38.0%, of all the
outstanding stock options and warrants under our option plans are fully vested.
During the year ended December 31, 2008, we granted options and warrants to
acquire approximately 1.4 million shares of common stock.

         We have issued warrants outside the plan under various types of
arrangements to employees, in conjunction with debt financing and in exchange
for outside services. All warrants issued to employees, directors and
consultants after our February 2007 listing on the NASDAQ Global Market have
been characterized as awards under the 2006 plan. All warrants outside the plan
are issued with an exercise price equal to the fair market value of the
underlying common stock on the date of grant. The warrants expire from five to
seven years from the date of grant. Vesting terms are determined by the board of
directors or the compensation committee of the board of directors at the date of
grant.

         As of December 31, 2008, 2,666,232, or approximately 77.7%, of all the
outstanding warrants outside the 2006 plan are fully vested. During the year
ended December 31, 2008, we granted warrants outside the 2006 plan to acquire
160,000 shares of common stock.

         In anticipation of the adoption of SFAS No. 123(R), we did not modify
the terms of any previously granted awards.

         Mssrs. Linden, Hames and Stolper who hold the positions of Executive
Vice President and General Counsel, Executive Vice President and Chief Operating
Officer, Western Operations and Executive Vice President and Chief Financial
Officer, respectively, were issued certain warrants in prior periods which fully
vest upon the sooner of their respective multi-year vesting schedules or at such
time as the 30 day average closing stock price of our shares in the public
market in which it trades equals or exceeds $6.00. For the 30 day trading period
ended March 7, 2007, the average closing price exceeded $6.00 per share.
Accordingly, these warrants fully vested resulting in the expensing of the
remaining unamortized fair value of these warrants of $1.7 million in the first
quarter of 2007. In 2007, we also recorded $600,000 in bonus expense for the
$0.40 per share for each share exercised cash bonus Mr. Hames will receive for
each vested share exercised (see Note 12).

         The compensation expense recognized for all equity-based awards is net
of estimated forfeitures and is recognized over the awards' service period. In
accordance with Staff Accounting Bulletin ("SAB") No. 107, we classified
equity-based compensation in operating expenses with the same line item as the
majority of the cash compensation paid to employees.

         The following tables illustrate the impact of equity-based compensation
on reported amounts (in thousands except per share data):

<TABLE>
<CAPTION>
<S>     <C>

                                                           FOR THE YEARS ENDED DECEMBER 31,
                                                         2008                            2007
                                            ---------------------------------------------------------------
                                                              IMPACT OF EQUITY-BASED COMPENSATION
                                            ---------------------------------------------------------------
                                              AS REPORTED         COMP.      AS REPORTED         COMP.
                                            ---------------------------------------------------------------
Income from operations                      $     32,590      $  (2,902)     $    21,166      $  (3,313)
Loss before income tax                      $    (12,685)     $  (2,902)     $   (17,794)     $  (3,313)
Net loss                                    $    (12,836)     $  (2,902)     $   (18,131)     $  (3,313)
Net basic and diluted earning per share     $      (0.36)     $   (0.08)     $     (0.52)     $   (0.10)



[table continued]



                                                FOR THE TWO MONTHS ENDED          FOR THE YEAR ENDED
                                                      DECEMBER 31, 2006           OCTOBER 31, 2006
                                            ------------------------------------------------------------
                                                IMPACT OF EQUITY-BASED COMPENSATION
                                            ------------------------------------------------------------
                                                AS REPORTED        COMP.      AS REPORTED         COMP.
                                            ------------------------------------------------------------
Income from operations                          $    1,360      $    (78)     $   16,270      $   (459)
Loss before income tax                          $  (10,963)     $    (78)     $   (6,894)     $   (459)
Net loss                                        $  (10,983)     $    (78)     $   (6,894)     $   (459)
Net basic and diluted earning per share         $    (0.35)     $  (0.00)     $    (0.33)     $  (0.02)
</TABLE>


                                       68
<PAGE>


         The following summarizes all of our option and warrant transactions
from January 1, 2006 to December 31, 2008:

<TABLE>
<CAPTION>
<S>     <C>
                                                           Weighted Average      Remaining      Aggregate
Outstanding Options and Warrants                            Exercise price   Contractual Life   Intrinsic
      Under the 2006 Plan                   Shares         Per Common Share     (in years)        Value
      -------------------                   ------         ----------------     ----------        -----

Balance, December 31, 2007                 1,165,250           $   5.74
Granted                                    1,355,000               5.06
Exercised                                    (50,250)              1.44
Canceled or expired                          (19,000)              7.69
                                          ---------
Balance, December 31, 2008                 2,451,000               5.44            4.88         $  456,680
                                         ==========
Exercisable at December 31, 2008             932,500               5.05            4.51            397,280
                                         ==========

                                                                             Weighted Average
                                                           Weighted Average    Remaining        Aggregate
         Non-Plan                                           Exercise price   Contractual Life    Intrinsic
   Outstanding Warrants                      Shares        Per Common Share    (in years)         Value
   --------------------                      ------        ----------------    ----------         -----

Balance, December 31, 2007                 3,996,667           $   1.85
Granted                                      160,000               3.26
Exercised                                   (621,666)              0.99
Canceled or expired                         (102,103)              1.78
                                          ----------
Balance, December 31, 2008                 3,432,898               2.07            3.05         $5,465,363
                                          ==========
Exercisable at December 31, 2008           2,666,232               1.44            3.01          5,302,296
                                          ==========
</TABLE>


         The aggregate intrinsic value in the table above represents the total
pretax intrinsic value (the difference between our closing stock price on
December 31, 2008 and the exercise price, multiplied by the number of
in-the-money options) that would have been received by the option holder had all
option holders exercised their options on December 31, 2008. Total intrinsic
value of options and warrants exercised during the year ended December 31, 2008
was approximately $4.2 million. As of December 31, 2008, total unrecognized
share-based compensation expense related to non-vested employee awards was
approximately $6.3 million, which is expected to be recognized over a weighted
average period of approximately 3.1 years.


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

                         RISK-FREE         EXPECTED             EXPECTED
                      INTEREST RATE          LIFE              VOLATILITY
                      -------------          ----              ----------

December 31, 2008             2.75%       3.41 years             71.75%
December 31, 2007             4.54%       4.19 years             94.38%
December 31, 2006     No options were granted during the two months
                                    ended December 31, 2006
October 31, 2006     4.75% to 5.07%       3.5 years    96.21% to 101.31%


         We have determined the 2008 and 2007 expected life assumption under the
"Simplified Method" as defined in SAB 107 and amended by SAB 110. The expected
stock price volatility is based on the historical volatility of our stock. The
risk-free interest rate is based on the U.S. Treasury yield in effect at the
time of grant with an equivalent remaining term. We have not paid dividends in
the past and do not currently plan to pay any dividends in the near future.

         The weighted average fair value of options granted during the years
ended December 31, 2008 and 2007 was $2.54 and $3.43, respectively. No options
were issued during the two months ended December 31, 2006. The weighted average
fair value of options granted during the year ended October 31, 2006 was $1.30.


                                       69
<PAGE>

NOTE 12 - COMMITMENTS AND CONTINGENCIES

LEASES - We lease various operating facilities and certain medical equipment
under operating leases with renewal options expiring through 2025. Certain
leases contain renewal options from two to ten years and escalation based either
on the consumer price index or fixed rent escalators. The schedule below
includes lease renewals that are reasonably assured. Minimum annual payments
under noncancellable operating leases for future years ending December 31 are as
follows (in thousands):

                              FACILITIES        EQUIPMENT             TOTAL
                              ----------        ----------         ----------
             2009             $   27,320        $   11,211         $   38,531
             2010                 26,014             9,427             35,441
             2011                 23,590             5,262             28,852
             2012                 21,447             3,486             24,933
             2013                 18,484             2,343             20,827
             Thereafter           74,771                --             74,771
                              ----------        ----------         ----------
                              $  191,626        $   31,729         $  223,355
                              ==========        ==========         ==========


         Total rent expense, including equipment rentals, for the years ended
December 31, 2008 and 2007, the two months ended December 31, 2006 and the year
ended October 31, 2006 was $43.5 million, $41.3 million, $6.1 million and $8.8
million, respectively.

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

         In consideration of the continued employment by Norman Hames, our
Executive Vice President and Chief Operating Officer - Western Operations and a
director in March 2006 we issued to Mr. Hames a seven year warrant to purchase
1,500,000 shares at an exercise price of $1.12 per share, the price of our
common stock on the date of the transaction in the public market in which it
trades, vesting over the seven year period. The issuance was an extension of the
option originally issued to Mr. Hames in 2001 in connection with the sale of his
business to us. We have agreed to provide to Mr. Hames a bonus of $0.40 per
share for each share exercised. This warrant fully vested in March 2007.
Accordingly, we have accrued $600,000 as of December 31, 2007 for the vested
$0.40 per share bonus.

EQUIPMENT SERVICE CONTRACT

         On March 1, 2000, we entered into an equipment maintenance service
contract through October 2005, extended through October 2009, with GE Medical
Systems to provide maintenance and repair on the majority of our medical
equipment for a fee based upon a percentage of net revenues, subject to certain
minimum aggregate net revenue requirements.


LITIGATION

         We are involved in the following litigation:

         (a) In Re DVI, Inc. Securities Litigation. UNITED STATES DISTRICT
COURT, EASTERN DISTRICT OF PA, DOCKET NO. 2:03-CV-05336-LDD

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

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

         The plaintiff's have signed an agreement and given notice to the class
that they intend to dismiss us from the case in exchange for our agreement not
to seek costs in connection with our being named. The Court is expected to rule
on the dismissal in April 2009.

                                       70
<PAGE>

GENERAL

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


NOTE 13 - EMPLOYEE BENEFIT PLAN

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

NOTE 14 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

         The following table sets forth a summary of our unaudited quarterly
operating results for each of the last eight quarters in the years ended
December 31, 2008 and 2007. This quarterly data has been derived from our
unaudited consolidated interim financial statements which, in our opinion, have
been prepared on substantially the same basis as the audited financial
statements contained elsewhere in this report and include all normal recurring
adjustments necessary for a fair presentation of the financial information for
the periods presented. These unaudited quarterly results should be read in
conjunction with our financial statements and notes thereto included elsewhere
in this report. The operating results in any quarter are not necessarily
indicative of the results that may be expected for any future period (in
thousands except for earnings per share).

<TABLE>
<S> <C>
                                                    2008 QUARTER ENDED                             2007 QUARTER ENDED
                                     ---------------------------------------------   ---------------------------------------------
                                       Mar 31     June 30     Sept 30     Dec 31      Mar 31      June 30     Sept 30      Dec 31
                                     ---------   ---------   ---------   ---------   ---------   ---------   ---------   ---------
                                                                            (1)                                              (2)
Statement of Operations Data:
Net revenue                          $ 114,698   $ 127,446   $ 131,717   $ 128,257   $ 105,815   $ 107,027   $ 110,209   $ 102,419

Total operating expenses               107,961     119,011     121,362     121,194     101,406      96,875     101,546     104,477

Total other expense                     13,556      12,495      12,047      13,562      10,837       9,728      11,575      10,270

Equity in earnings of joint ventures     1,491       1,950       1,871       1,176         995         982       1,103         970

Minority interests in income
      of subsidiaries                      (24)        (25)        (27)        (27)       (115)       (170)       (198)       (117)

Income tax expense                         123          14          14          --          16          13          86         222

Net income (loss)                       (5,475)     (2,149)        138      (5,350)     (5,564)      1,223      (2,093)    (11,697)


Basic earnings (loss) per share:         (0.15)      (0.06)       0.00       (0.15)      (0.16)       0.04       (0.06)      (0.33)

Diluted earnings (loss) per share:       (0.15)      (0.06)       0.00       (0.15)      (0.16)       0.03       (0.06)      (0.33)
</TABLE>

         (1) During the quarter ended December 31, 2008, the Company revised its
estimate of the net realizable value of its accounts receivable and recorded a
charge of $7.2 million.

         (2) During the quarter ended December 31, 2007, the Company revised its
estimate of the net realizable value of its accounts receivable and recorded a
charge of $8.5 million.


                                       71
<PAGE>

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

     Inapplicable.


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

         We have performed an evaluation under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of our disclosure controls and
procedures, as defined under the Securities Exchange Act of 1934. Based on that
evaluation, our management, including our Chief Executive Officer, and Chief
Financial Officer, concluded that our disclosure controls and procedures were
effective as of December 31, 2008 to ensure that information required to be
disclosed by us in the reports filed or submitted by us under the Exchange Act
is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms. There were no significant changes in our
disclosure controls and procedures during the last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

         Our management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Exchange
Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the
participation of our management, including our Chief Executive Officer, and
Chief Financial Officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting as of December 31, 2008 based on the
guidelines established in INTERNAL CONTROL -- INTEGRATED FRAMEWORK issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Our
internal control over financial reporting includes policies and procedures that
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external reporting purposes in
accordance with U.S. generally accepted accounting principles GAAP.

         Based on the results of our evaluation, our management concluded that
our internal control over financial reporting was effective as of December 31,
2008. We reviewed the results of management's assessment with our Audit
Committee.

         The effectiveness of the Company's internal control over financial
reporting has been audited by Ernst & Young LLP, an independent registered
public accounting firm, as stated in their report appearing on the page
immediately following, which expresses an unqualified opinion on the
effectiveness of the Company's internal control over financial reporting as of
December 31, 2008.

                                       72
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders of
RadNet, Inc.


We have audited RadNet Inc. and subsidiaries ("RadNet's") internal control over
financial reporting as of December 31, 2008, based on criteria established in
INTERNAL CONTROL--INTEGRATED FRAMEWORK issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). RadNet's
management is responsible for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying "Management's
Report on Internal Control over Financial Reporting." Our responsibility is to
express an opinion on the Company's internal control over financial reporting
based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.

A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

In our opinion RadNet, Inc. maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2008, based on the
COSO criteria.

We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States) the consolidated balance sheets of
RadNet, Inc. as of December 31, 2008 and 2007, and the related consolidated
statements of operations, stockholders' deficit, and cash flows for the years
then ended and our report dated March 16, 2009 expressed an unqualified opinion
thereon.

                                                           /s/ Ernst & Young LLP

Los Angeles, California
March 16, 2009


                                       73
<PAGE>

ITEM 9B.     OTHER INFORMATION.
             ------------------

         None

                                    PART III

As used in this Part III, "RadNet" and the "Company" means RadNet, Inc.

ITEM 10.     DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
             ------------------------------------------------------

         The information required by this item regarding the Company's directors
and executive officers is incorporated herein by reference to the sections
entitled "Proposal 1 - Election Of Directors" and "Compensation of Directors and
Executive Officers" and "Corporate Governance - Board Committees - Section 16(a)
Beneficial Ownership Reporting Compliance" in the Company's definitive Proxy
Statement for the Annual Meeting of Shareholders to be held on May ___, 2009
(the "Proxy Statement"). Information regarding the Company's executive officers
is set forth in Part 1 of this Report under the caption "Executive Officers."

         The Company adopted a code of financial ethics applicable to its chief
executive officer, chief financial officer, controller and other finance
leaders, which is a "code of ethics" as defined by applicable rules of the SEC.
This code is publicly available on the Company's web site at WWW.RADNET.COM. If
the Company makes any amendments to this code other than technical,
administrative or other non-substantive amendments, or grants any waivers,
including implicit waivers, from a provision of this code to the Company's chief
executive officer, chief financial officer or controller, the Company will
disclose the nature of the amendment or waiver, its effective date and to whom
it applies on its web site or in a report on Form 8-K filed with the SEC.

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

         The information required by this item is incorporated by reference to
the sections entitled "Compensation of Directors and Executive Officers" and
"Compensation Discussion and Analysis" in the Proxy Statement.

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

         The information required by this item is incorporated by reference to
the sections entitled "Security Ownership of Certain Beneficial Owners and
Management" and "Compensation of Directors and Executive Officers- Summary
Compensation Table" in the Proxy Statement.

ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
             ------------------------------------------------------------
             INDEPENDENCE
             ------------

         The information required by this item is incorporated by reference to
the section entitled ""Certain Relationships and Related Party Transactions" in
the Proxy Statement.


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

         The information required by this item is incorporated by reference to
the sections entitled "Independent Registered Public Accounting Firm Fees" and
"Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit
Services of the Independent Registered Public Accounting Firm" in the Proxy
Statement.

                                     PART IV

ITEM 15.     EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                 PAGE NO.
             ------------------------------------------                 --------

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

Reports of Independent Registered Public Accounting Firms               47 to 48

Consolidated Balance Sheets                                             49

Consolidated Statements of Operations                                   50

Consolidated Statements of Stockholders' Deficit                        51

Consolidated Statements of Cash Flows                                   52

Notes to Consolidated Financial Statements                              54 to 71


                                       74
<PAGE>


(b) Financial Statements Schedules

Schedules - The Following financial statement schedules are filed herewith:

Schedule II - Valuation and Qualifying Accounts

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

RADNET, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<S>     <C>
                                                    BALANCE AT         CHARGES
                                                   BEGINNING OF        AGAINST          DEDUCTIONS        BALANCE AT END
                                                       YEAR            INCOME          FROM RESERVE          OF YEAR
                                                     --------          --------          --------           --------

Year Ended December 31, 2008
Accounts Receivable-Allowance for Bad Debts          $ 11,571          $ 30,833          $(30,338)          $ 12,066

Year Ended December 31, 2007
Accounts Receivable-Allowance for Bad Debts          $  8,486          $ 27,467          $ 24,382           $ 11,571

Two months Ended December 31, 2006
Accounts Receivable-Allowance for Bad Debts          $  1,490          $  3,907          $ (3,807)          $  8,486

Year Ended October 31, 2006
Accounts Receivable-Allowance for Bad Debts          $    980          $  7,626          $  7,116           $  1,490
</TABLE>

                                       75
<PAGE>

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

<TABLE>
<S>     <C>
                                                                                               INCORPORATED BY
EXHIBIT NO.                                 DESCRIPTION OF EXHIBIT                               REFERENCE TO
-----------                                 ----------------------                               ------------

2.1.1            Agreement and Plan of Merger, dated as of July 6, 2006, by and among                 (O)
                 Primedex, Radiologix, RadNet and Merger Sub

2.1.2            Agreement and Plan of Merger and Reorganization, dated as of September 3,            (Y)
                 2008
3.1.1            Certificate of Incorporation as amended                                              (A)

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

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

3.1.4            November 15, 2006 amendment to the Certificate of Incorporation                      (Q)

3.1.5            November 27, 2006 amendment to the Certificate of Incorporation                      (Q)

3.1.6            Certificate of Incorporation of RadNet, Inc., a Delaware corporation                 (Y)

3.1.7            Certificate of Amendment to Certificate of Incorporation of RadNet, Inc.,            (Y)
                 a Delaware corporation, dated September 2, 2008

3.3              By-laws                                                                              (Y)

3.2.1            First Amendment to By-laws

4.1              Form of Common Stock Certificate                                                     (R)

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

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

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

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

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

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

10.10            DVI Securities Purchase Agreement                                                    (E)

10.11            General Electric Note Purchase Agreement                                             (E)

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

10.13            2000 Long-Term Incentive Plan*                                                       (F)

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

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

                                       76
<PAGE>
                                                                                               INCORPORATED BY
EXHIBIT NO.                                 DESCRIPTION OF EXHIBIT                               REFERENCE TO
-----------                                 ----------------------                               ------------

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

10.18            Incentive Stock Option Plan*                                                         (H)

10.19            DVI Agreement as amended                                                             (J)

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

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

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

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

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

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

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

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

10.28            2006 Incentive Stock Plan*                                                           (O)

10.29            Credit Agreement, dated as November 15, 2006, among Radnet Management,               (P)
                 Inc., the Credit Parties designated therein, General Electric Capital
                 Corporation, as Agent, the lenders described therein, and GE Capital
                 Markets, Inc.

10.30            Guaranty, dated as of November 15, 2006, by and among the Guarantors                 (P)
                 identified therein and General Electric Capital Corporation.

10.31            Pledge Agreement, dated as of November 15, 2006, by and among
                 the Pledgors (P) identified therein and General Electric
                 Capital Corporation.

10.32            Security Agreement, dated as of November 15, 2006, by and among the                  (P)
                 Grantors identified therein and General Electric Capital Corporation.

10.33            Second Lien Credit Agreement, dated as of November 15, 2006, among Radnet            (P)
                 Management, Inc., the Credit Parties designated therein, General Electric
                 Capital Corporation, as Agent, the Lenders described therein,
                 and GE Capital Markets, Inc.

10.34            Second Lien Guaranty, dated as of November 15, 2006, by and
                 among the (P) Guarantors identified therein and General
                 Electric Capital Corporation.

10.35            Pledge Agreement, dated as of November 15, 2006, by and among
                 the Pledgors (P) identified therein and General Electric
                 Capital Corporation.

10.36            Second Lien Security Agreement, dated as of November 15, 2006, by and                (P)
                 among the Grantors identified therein and General Electric Capital
                 Corporation.
10.37            Retention Agreement with Stephen Forthuber dated November 15, 2006.                  (S)

10.38            Amendment of Existing Credit Agreement with General Electric Capital                 (T)
                 Corporation dated November 2007.

10.39            Amendment of Existing Credit Agreement with General Electric Capital                 (V)
                 Corporation dated February 2008.

                                       77
<PAGE>

                                                                                               INCORPORATED BY
EXHIBIT NO.                                 DESCRIPTION OF EXHIBIT                               REFERENCE TO
-----------                                 ----------------------                               ------------

10.40            First amendment to the 2006 Equity Incentive Plan                                    (W)

10.41            Form of warrant recharacterized as under the 2006 Equity Incentive plan -            (W)
                 Form A

10.42            Form of warrant recharacterized as under the 2006 Equity Incentive plan -            (W)
                 Form B

10.43            Form of Indemnification Agreement between the registrant and each of its             (X)
                 officers and directors

14               Code of Financial Ethics                                                             (H)

21               List of Subsidiaries                                                                 (Z)

23.1             Consent of Registered Independent Public Accounting Firm                             (Z)

31.1             CEO Certification pursuant to Section 302                                            (Z)

31.2             CFO Certification pursuant to Section 302                                            (Z)

32.1             CEO Certification pursuant to Section 906                                            (Z)

32.2             CFO Certification pursuant to Section 906                                            (Z)
</TABLE>

---------------
    * Management contract with compensatory arrangement.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(O)      Incorporated by reference to exhibit filed with Registrant's
         Registration Statement on Form S-4 (File No. 333-136800).

(P)      Incorporated by reference to exhibit filed with Form 8-K for November
         15, 2006.

(Q)      Incorporated by reference to exhibit filed with Form 8-K for November
         27, 2006.

(R)      Incorporated by reference to exhibit filed with Form 10-K for October
         31, 2006.

                                       78
<PAGE>

(S)      Incorporated by reference to exhibit filed with Form 10-K/T for
         December 31, 2006.

(T)      Incorporated by reference to exhibit filed with Form 8-K for August 24,
         2007.

(U)      Incorporated by reference to exhibit filed with Form 8-K for November
         30, 2007.

(V)      Incorporated by reference to exhibit filed with Form 10-K for December
         31, 2007.

(W)      Incorporated by reference to exhibit filed with Form 10-Q for the
         quarter ended June 30, 2008.

(X)      Incorporated by reference to exhibit filed with Form 10-Q for the
         quarter ended March 31, 2008.

(Y)      Incorporated by reference to exhibit filed with Form 8-K for September
         3, 2008.

(Z)      Filed herewith.


                                       79
<PAGE>

                                   SIGNATURES


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

                                       RADNET, INC.
Date:  March 16, 2009                       /s/  HOWARD G. BERGER, M.D.
                                            ------------------------------------
                                            HOWARD G. BERGER, M.D., PRESIDENT,
                                            CHIEF EXECUTIVE OFFICER AND DIRECTOR

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


By              /s/    HOWARD G. BERGER, M.D.
    --------------------------------------------------------
HOWARD G. BERGER, M.D., DIRECTOR, CHIEF EXECUTIVE OFFICER AND PRESIDENT

Date:   March 16, 2009


By              /s/    MARVIN S. CADWELL
    --------------------------------------------------------
MARVIN S. CADWELL, DIRECTOR

Date:   March 16, 2009


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

Date:     March 16, 2009


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

Date:   March 16, 2009


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

Date:   March 16, 2009


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

Date:   March 16, 2009



                                       80
<PAGE>

By              /s/    MICHAEL L. SHERMAN, M.D.
    --------------------------------------------------------
MICHAEL L. SHERMAN, M.D., DIRECTOR

Date:   March 16, 2009


By              /s/    MARK D. STOLPER
    --------------------------------------------------------
MARK D. STOLPER, CHIEF FINANCIAL OFFICER (Principal Accounting Officer)

Date:   March 16, 2009


                                       81