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UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
     Form 10-K
      (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2008ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission File Number
    001-33815
     Virtual Radiologic
    Corporation
 (Exact name of registrant as
    specified in its charter)
      Delaware(State or other jurisdiction
    of
    incorporation or organization)

27-0074530(IRS Employer
    Identification No.)5995 Opus Parkway, Suite 200
    Minnetonka, Minnesota(Address of principal
    executive offices)

55343(Zip
    code)   (952) 392-1100
 (Registrants telephone
    number, including area code)
      Securities
    registered pursuant to Section 12(b) of the Act:
  Title of Each Class:

Name of Each Exchange on Which Registered:Common Stock, par value $0.001 per share


NASDAQ Global Market   Securities registered pursuant to Section 12(g) of the
    Act:
 None
      o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  Large accelerated
    filer o

Accelerated
    filer o

Non-accelerated
    filer þ
    (Do not check if a smaller reporting company)

Smaller reporting
    company o   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K
  Form 10-K.




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##### 





TABLE OF
    CONTENTS
   
 Part ICautionary Statement


3Item 1


Business


4Item 1A.


Risk Factors


14Item 1B.


Unresolved Staff Comments


25Item 2.


Properties


25Item 3.


Legal Proceedings


26Item 4.


Submission of Matters to a Vote of Security
    Holders


26Part IIItem 5.


Market for Registrants Common Stock,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


26Item 6.


Selected Consolidated Financial Data


29Item 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


30Item 7A.


Quantitative and Qualitative Disclosures About
    Market Risk


50Item 8.


Financial Statements and Supplementary Data


51Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


82Item 9A.


Controls and Procedures


82Item 9B.


Other Information


82Part IIIItem 10.


Directors, Executive Officers and Corporate
    Governance


83Item 11.


Executive Compensation


83Item 12.


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


83Item 13.


Certain Relationships and Related Transactions
    and Director Independence


83Item 14.


Principal Accounting Fees and Services


83Part IVItem 15.


Exhibits, Financial Statement Schedules


84Signatures


89EX-3.1EX-3.2EX-10.14EX-10.33EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2   2




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PART I  Special
    Note Regarding Forward-Looking Statements
  Form 10-K Form 10-K
 3




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ITEM 1.
    Business  Overview
      v sm
  (952) 392-1100.
    Our
    Service Offerings
    Teleradiology.
 4




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Off-Hours
    and Daytime Services. off-hours off-hours
  Preliminary and Final Reads: Report
    Delivery.
  U.S.-based
  Technology Infrastructure. v sm
  Our
    Operations
  Our Affiliated Radiologists.
   5




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Recruitment of Radiologists.
    Licensing and Credentialing.
      Network and Workflow Overview.
  
    Site Implementation In conjunction with each
    new customer implementation, our site-implementation engineers
    establish firewall permissions for customer access to our
    web-based RIS and configure a VPN circuit to transfer digital
    imaging and communications. Upon successful testing of the image
    transfers and order entry functions, the customer may begin to
    use our services.
    Requisition of Reads When a radiological
    procedure is performed, the radiology technologist at the
    hospital transmits the patient images to us. A corresponding
    order is created within our web-based RIS that is accessible on
    the technologists computer screen at the hospital. 6




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##### Table of Contents




    Image Transmission and Assignment Radiological images and related data are directed via
    encrypted transmission to an affiliated radiologist that is
    properly licensed and credentialed.
    Reports and Delivery Our affiliated
    radiologists are presented with orders on their work list based
    on aging, examine the images and use the voice recognition
    dictation system integrated with our RIS to dictate a detailed
    report. When the report has been completed, the radiologist
    electronically signs the report, which immediately posts the
    report on our RIS screen located at the facility for viewing and
    simultaneously faxes the report to the proper destinations at
    the hospital.
    Quality Assurance Processes We have a Quality
    Assurance, or QA, Committee composed entirely of affiliated
    radiologists who are responsible for providing the professional
    peer review function for our medical practice, thereby reviewing
    the quality of the reads performed by our affiliated
    radiologists.
    Technical Infrastructure We have designed,
    implemented and maintained our technical infrastructure to be
    reliable, secure and scalable. We operate our production
    infrastructure from our data center locations utilizing multiple
    internet connections with diverse routing and redundant network,
    server and storage processing equipment with failover capability.
    HIPAA Compliance/Disaster Recovery Our
    network architecture and technical infrastructure are designed
    to comply with the requirements of the Health Insurance
    Portability and Accountability Act of 1996, or HIPAA. In
    accordance with HIPAA requirements, we also maintain a disaster
    recovery program in case of disaster or extended electrical
    outage at our headquarters.
    Operations Center We maintain a staffed
    operations center 24 hours everyday that performs and
    manages all non-physician functions, including receiving orders
    and images, monitoring the status of orders and turnaround
    times, confirming report delivery and facilitating any necessary
    direct communication between our affiliated radiologists and
    hospital staff.
    Systems and Network Administration We employ
    information technology professionals to continually monitor and
    maintain our systems and network and to provide technical
    support to our customers.
    Software Development We employ software
    development engineers to improve and enhance our existing
    workflow solutions, including development of new products and
    solutions that will enable us to more efficiently and
    effectively serve our customers. Our proprietary software and
    workflow solutions are subject to pending patent applications.  Sales.
  Marketing.
  Customers
    and Customer Service
  and/or
 7




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Competition
      
    Customers We compete to attract and retain
    customers primarily through the quality of our services, the
    reliability of our coverage, the ability to perform preliminary
    and final interpretations, the number, quality and subspecialty
    expertise of our affiliated radiologists and on price.
    Radiologists We compete to attract and retain
    radiologists primarily through the flexibility in lifestyle we
    offer, cash and equity compensation, the administrative support
    services we offer, our radiologist technology applications and
    systems, and our reputation.  Corporate
    Structure
           8




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Governmental
    Regulation and Oversight
    Physician Licensure Laws.
  Corporate Practice of Medicine.
   9




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Fee Splitting.
  Medicare and Medicaid Reimbursement
    Programs.
    Federal False Claims Act.
  and/or
 10




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Federal and State Anti-kickback
    Prohibitions. and/or
  Physician Self-Referral Prohibitions.
  Medicare Anti-Markup Rule.
 11




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Health Insurance Portability and Accountability Act of
    1996.
        Federal Deficit Reduction Act of 2005.
 12




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Intellectual
    Property
        Employees
    and Independent Contractors
    Website
  Form 10-K, Form 10-Q, Form 8-K, 1-800-SEC-0330, http://www.sec.gov.
 13




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ITEM 1A.
    Risk
    Factors  Our business, financial condition or results of operations
    could be materially adversely affected by any of the risks and
    uncertainties described below. Additional risks not presently
    known to us, or that we currently deem immaterial, may also
    impair our business, financial condition or results of
    operations.
  The
    number of reads we perform may be affected by a general decline
    in economic conditions.
    The
    industry in which we operate is highly competitive and has
    experienced pricing pressure, which may result in reduced
    revenue and reduced market share.
      Our
    inability to effectively manage our growth could adversely
    affect our business and our operating results.
     14




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We may
    in the future become subject to intellectual property rights
    claims, which could harm our business and operating
    results.
      If we
    are unable to recruit and retain a sufficient number of
    qualified radiologists, our future growth would be limited and
    our business and operating results would be negatively
    impacted.
    If we
    are unable to obtain proper physician licenses or hospital
    credentials on behalf of our affiliated radiologists, or if our
    affiliated radiologists lose those licenses or credentials, our
    business, financial condition and results of operations may be
    negatively impacted.
   15




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If our
    affiliated radiologists are characterized as employees, we would
    be subject to employment and withholding
    liabilities.
    We may
    be unable to enforce non-compete agreements with our affiliated
    radiologists.
    We are
    dependent upon our engagement with a physician who is properly
    licensed to oversee our medical practice.
    We are
    also dependent on our management team, and the loss of any key
    member of this team may prevent us from implementing our
    business plan in a timely manner.
      As a
    result of our corporate structure, we are highly dependent upon
    our Affiliated Medical Practices, which we do not
    own.
   16




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Interruptions
    or delays in our or our customers information systems or
    in network or related services provided by third party suppliers
    could impair the delivery of our services and harm our
    business.
   17




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If our
    security measures are breached and unauthorized access is
    obtained to patient or customer data, we may face liabilities
    and our system may be perceived as not being secure, causing
    customers to curtail or stop using our services, which could
    lead to a decline in revenues.
    Any
    failure to protect our intellectual property rights in our
    workflow technology could impair its value and our competitive
    advantage.
    Our
    ability to update our workflow technology may be limited because
    we are dependent upon a third party to make corresponding
    enhancements to its software.
    If our
    arrangements with our affiliated radiologists or our customers
    are found to violate state laws prohibiting the practice of
    medicine by general business corporations or fee splitting, our
    business, financial condition and ability to operate in those
    states could be adversely affected.
   18




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Non-compliance
    with federal and state anti-kickback laws could affect our
    business, operations or financial condition.
  and/or
  Federal
    or state self-referral regulations could impact our arrangements
    with our affiliated radiologists.
    The
    loss of our Joint Commission accreditation or the loss of our
    ability to leverage our accreditation for credentialing purposes
    could negatively impact our business and operating
    results
   19




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Because
    our customers submit claims to the Medicare program based on the
    services we provide, it is possible that a lawsuit could be
    brought against us or our customers under the Federal False
    Claims Act, and the outcome of any such lawsuit could have a
    material adverse effect on our business, financial condition and
    results of operations.
    and/or
       20




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Medicare
    and Medicaid rules governing reassignment of payments could
    affect our customers ability to collect fees for services
    provided by our affiliated radiologists and our ability to
    market our services to our customers.
  and/or and/or
      Future
    changes in healthcare regulation are difficult to predict and
    may constrain or require us to restructure our operations, which
    could negatively impact our business and operating
    results.
   21




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Non-compliance
    with state and federal regulations concerning the privacy and
    security of patient information may adversely affect our
    business, financial condition or operations.
    Changes
    in the rules and regulations governing Medicare and
    Medicaids payment for medical services could affect our
    revenues, particularly with respect to final
    reads.
   22




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Our
    business could be materially affected if a HHS-OIG study results
    in a recommendation that Medicare only pay for reads performed
    contemporaneously in an emergency room setting.
    Changes
    in the healthcare industry or litigation reform could reduce the
    number of diagnostic radiology procedures ordered by physicians,
    which could result in a decline in the demand for our services,
    pricing pressure and decreased revenue.
    Although
    we maintain medical liability insurance covering all of our
    affiliated radiologists, our Affiliated Medical Practices and
    our Company, we are subject to medical malpractice claims and
    other harmful lawsuits that may require us to pay significant
    damages if not covered by insurance.
      If we
    are unable to retain our customers because they terminate their
    contracts with us or allow those contracts to lapse, or if our
    customers businesses materially decline, our operating
    results and financial condition may be adversely
    affected.
   23




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Because
    our contracts with our customers contain fixed prices, we are
    unable to pass along any increase in our expenses to our
    customers during their contract term.
    We may
    be subject to less favorable levels of payment based upon third
    party payer fee schedules.
    If we
    acquire any companies or technologies in the future, they could
    prove difficult to integrate, disrupt our business, dilute
    stockholder value and adversely affect our operating
    results.
    
    difficulties in integrating operations, technologies, services
    and personnel;
    diversion of financial and management resources from existing
    operations;
    risk of entering new markets;
    potential write-offs of acquired assets;
    potential loss of key employees; and
    inability to generate sufficient revenue to offset acquisition
    costs.     24




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Our
    operating results are subject to seasonal fluctuations, which
    makes our results difficult to predict and could cause our
    performance to fall short of quarterly
    expectations.
    If we
    are unable to maintain an effective system of internal controls,
    our ability to report our financial results in a timely and
    accurate manner, and to comply with Sections 302 and 404 of
    the Sarbanes-Oxley Act of 2002, may be adversely
    affected.
      We
    have incurred operating losses and net losses in the past and
    may incur additional losses in the future. If we fail to
    increase our revenues to offset our expenses, our recent
    profitability may not continue.
    ITEM 1B.
    Unresolved
    Staff Comments    ITEM 2.
    Properties   25




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ITEM 3.
    Legal
    Proceedings        ITEM 4.
    Submission
    of Matters to a Vote of Security Holders   PART II  ITEM 5.
    Market
    for Registrants Common Stock, Related Stockholder Matters
    and Issuer Purchases of Equity Securities  Market
    for Our Common Stock
    Common Stock PriceHigh


LowFiscal Year Ended December 31, 2007Fourth Quarter (from November 15)

$
26.97


$
18.15Fiscal Year Ended December 31, 2008First Quarter

$
21.10


$
13.88Second Quarter


18.44



9.52Third Quarter


16.17



6.74Fourth Quarter


9.50



5.97  26




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Holders
    Dividends
    Issuer
    Purchases of Equity Securities
  Rule 10b5-1
    Approximate DollarTotal Number of





Cumulative Number of


Value of SharesShares Purchased





Shares Purchased


that may yetas Part of Publicly


Average Price


as Part of Publicly


be PurchasedPeriod

Announced Plans


Paid per Share


Announced Plans


Under the Plan(in thousands)August 7, 2008  August 31, 2008


69,704


$
10.61



69,704


$
7,300September 1, 2008  September 30, 2008


127,719



8.87



197,423



6,100October 1, 2008  October 24, 2008


747,337



8.16



944,760



Total


944,760


$
8.44



944,760


$
  27




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Performance
    Graph
    
  Virtual





Dow Jones


NASDAQRadiologic





US


GlobalCorporation


Russell 2000


Healthcare


Market11/15/2007

$
100.00


$
100.00


$
100.00


$
100.0012/31/2007


97.73



99.28



100.18



101.293/31/2008


73.64



89.16



88.77



87.046/30/2008


63.86



89.38



87.34



87.579/30/2008


39.33



88.07



87.92



79.8912/31/2008


40.87



64.73



76.11



60.23   Recent
    Sales of Unregistered Securities
    Securities
    Authorized for Issuance Under Equity Compensation
    Plans
   28




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ITEM 6.
    Selected
    Consolidated Financial Data  The following selected consolidated financial data should be
    read in conjunction with Managements Discussion and
    Analysis of Financial Condition and Results of Operations
    and our consolidated financial statements included elsewhere in
    this report. The consolidated statements of operations data for
    the fiscal years ended December 31 2008, 2007 and 2006, and the
    consolidated balance sheet data as of December 31, 2008 and
    2007 was derived from our audited consolidated financial
    statements included elsewhere in this report. The consolidated
    statement of operations for the fiscal years ended
    December 31, 2005 and 2004 and the consolidated balance
    sheet data as of December 31, 2006, 2005 and 2004 was
    derived from our audited consolidated financial statements not
    included in this report. The financial data presented below as
    of and for the years ended December 31, 2008, 2007 and 2006
    reflects the consolidated operations of Virtual Radiologic
    Corporation and our Affiliated Medical Practices. The financial
    data presented below as of and for the years ended
    December 31, 2005 and 2004 reflects the consolidated
    operations of Virtual Radiologic Consultants, Inc., our
    predecessor corporation, and VRP. The historical results
    presented below are not necessarily indicative of financial
    results to be achieved in future periods.
  For the Years Ended December 31,2008


2007


2006


2005


2004(in thousands, except per share data)Consolidated Statements of Operation Data:Revenue

$
106,567


$
86,243


$
54,099


$
26,991


$
12,899Operating costs and expenses(1)


92,780



77,013



53,594



29,816



14,142Operating income (loss)


13,787



9,230



505



(2,825
)


(1,243
)Net income (loss)


8,454



3,451



(529
)


(1,465
)


(1,400
)Net income (loss) applicable to common stockholders


8,454



(20,272
)


(11,966
)


(29,646
)


(1,400
)Earnings (loss) per common shareBasic

$
0.51


$
(2.31
)

$
(1.80
)

$
(4.74
)

$
(0.25
)Diluted

$
0.50


$
(2.31
)

$
(1.80
)

$
(4.74
)

$
(0.25
)Cash flow data:Net cash provided by (used in) operating activities

$
14,496


$
6,861


$
3,977


$
(1,794
)

$
203Net cash (used in) provided by investing activities


(25,135
)


(5,093
)


1,208



(7,754
)


(360
)Net cash (used in) provided by financing activities


(3,668
)


25,761



(2,315
)


12,151



566Consolidated Balance Sheet Data:Cash, cash equivalents and short-term investments

$
29,316


$
33,487


$
5,958


$
8,180


$
484Total Assets


71,001



59,436



25,649



17,555



4,351Total Liabilities


14,484



9,098



8,532



3,850



4,078Stock Data:Weighted average number of common shares outstanding(2)(3)


16,500



8,762



6,640



6,254



5,659Dividends declared per share






3.00











Series A Cumulative Redeemable Convertible Preferred Stock
    outstanding










3,627



3,627



Dividends declared per share






3.00











     (1)
    
    Includes the non-cash stock-based compensation, medical
    malpractice loss reserves, and depreciation and amortization
    charges set forth in the following table:  29




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Year Ended December 31,2008


2007


2006


2005


2004(in thousands)Professional servicesNon-cash stock-based compensation

$
(479
)

$
3,687


$
3,416


$
1,995


$
154Medical malpractice loss reserves


997















Sales, general and administrativeNon-cash stock-based compensation


1,544



686



115







Depreciation and amortization


4,700



2,488



1,351



586



230Total

$
6,762


$
6,861


$
4,882


$
2,581


$
384   (2)
    
    The calculation of weighted average common shares outstanding
    for the year ended December 31, 2004 assumes the
    five-for-one common stock split, which occurred during 2004, was
    effected on January 1, 2004.(3)
    
    The calculation of weighted average common shares outstanding
    for the years ended December 31, 2005, 2006 and 2007
    excludes the assumed conversion of the shares of Series A
    Cumulative Redeemable Convertible Preferred Stock into shares of
    common stock, because they are anti-dilutive. The calculation of
    weighted average common shares for the years ended
    December 31, 2004, 2005, 2006 and 2007 also excludes any
    other potential common stock equivalents that were outstanding
    during the relevant periods, calculated using the treasury stock
    method, because they are anti-dilutive.  ITEM 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  The following discussion and analysis should be read in
    conjunction with our audited consolidated financial statements
    and notes thereto that appear elsewhere in this report. This
    discussion contains forward-looking statements reflecting our
    current expectations that involve risks and uncertainties.
    Actual results may differ materially from those discussed in
    these forward-looking statements due to a number of factors,
    including those set forth in the section entitled Risk
    Factors and elsewhere in this report.
  Overview
      v sm
 30




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Critical
    Accounting Policies and Estimates
      Principles
    of Consolidation
  Consolidation of Variable Interest
   31




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Condensed
    Consolidating Balance Sheets
  As of December 31, 2008AffiliatedMedicalVRC


Practices


Eliminations


Consolidated(in thousands)Cash and cash equivalents

$
17,399


$
1,781


$



$
19,180Short-Term Investment


10,136











10,136Other current assets


29,519



16,764



(24,074
)


22,209Non-current assets


19,292



16



168



19,476Total assets

$
76,346


$
18,561


$
(23,906
)

$
71,001Current liabilities

$
10,014


$
26,566


$
(24,074
)

$
12,506Other non-current liabilities


1,810







168



1,978Total liabilities


11,824



26,566



(23,906
)


14,484Non-controlling interest










22



22Total stockholders equity (deficiency)


64,522



(8,005
)


(22
)


56,495Total liabilities and stockholders equity

$
76,346


$
18,561


$
(23,906
)

$
71,001   As of December 31, 2007AffiliatedMedicalVRC


Practices


Eliminations


Consolidated(in thousands)Cash and cash equivalents

$
31,497


$
1,990


$



$
33,487Other current assets


37,178



51,302



(70,890
)


17,590Non-current assets


8,359



19



(19
)


8,359Total assets

$
77,034


$
53,311


$
(70,909
)

$
59,436Current liabilities

$
19,350


$
60,410


$
(70,890
)

$
8,870Non-current liabilities


247







(19
)


228Total liabilities


19,597



60,410



(70,909
)


9,098Non-controlling interest










8



8Total stockholders equity (deficiency)


57,437



(7,099
)


(8
)


50,330Total liabilities and stockholders equity

$
77,034


$
53,311


$
(70,909
)

$
59,436  32




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Condensed
    Consolidating Statements of Operations
  For the Year Ended December 31, 2008AffiliatedMedicalVRC


Practices


Eliminations


Consolidated(in thousands)Revenue

$
82,047


$
96,020


$
(71,500
)

$
106,567Operating costs and expenses


67,362



96,918



(71,500
)


92,780Operating income (loss)


14,685



(898
)






13,787Other income


599











599Income (loss) before non-controlling interest and income tax


15,284



(898
)






14,386Non-controlling interest expense










14



14Income tax expense


5,910



8







5,918Net income (loss)

$
9,374


$
(906
)

$
(14
)

$
8,454   For the Year Ended December 31, 2007AffiliatedMedicalVRC


Practices


Eliminations


Consolidated(in thousands)Revenue

$
65,711


$
82,294


$
(61,762
)

$
86,243Operating costs and expenses


54,292



84,483



(61,762
)


77,013Operating income (loss)


11,419



(2,189
)






9,230Other expense


(1,929
)










(1,929
)Income (loss) before non-controlling interest and income tax


9,490



(2,189
)






7,301Non-controlling interest income










(17
)


(17
)Income tax expense (benefit)


3,877



(10
)






3,867Net income (loss)

$
5,613


$
(2,179
)

$
17


$
3,451   For the Year Ended December 31, 2006AffiliatedMedicalVRC


Practices


Eliminations


Consolidated(in thousands)Revenue

$
42,277


$
54,148


$
(42,326
)

$
54,099Operating costs and expenses


39,951



55,969



(42,326
)


53,594Operating income (loss)


2,326



(1,821
)






505Other income


217











217Income (loss) before non-controlling interest and income tax


2,543



(1,821
)






722Non-controlling interest expense










25



25Income tax expense


1,213



13







1,226Net income (loss)

$
1,330


$
(1,834
)

$
(25
)

$
(529
)  33




---



##### Table of Contents



Revenue
    Recognition and Allowance for Doubtful Accounts
  v sm
    Stock-Based
    Compensation
  Accounting for Stock Based Compensation No. 96-18, Accounting for Equity Instruments that are Issued to Other
    than Employees for Acquiring, or in Conjunction with Selling,
    Goods or Services, No. 96-18. EITF 96-18,
  Physician Stock-Based Compensation. No. 96-18.
  Employee Stock-Based Compensation. Accounting for Stock Issued to Employees
  Medical
    Malpractice Loss Reserves
   34




---



##### Table of Contents



Intangible
    Assets and Goodwill
  Business
    Combinations, Goodwill and Other Intangible Assets,
    Income
    Taxes
    and/or
      Trends in
    our Business and Factors Affecting Our Results of
    Operations
   35




---



##### Table of Contents



v sm
    Rule 10b5-1
  Revenue
      
    an increase in our customer base;
    an increase in utilization of our services by our customers;
    an increase in volume of higher-priced final reads;
    high customer retention rates; and
    customer relationships acquired through our acquisition of
    Diagna.       36




---



##### Table of Contents



Key
    Revenue Metrics
  For the Year Ended December 31,2008


% Change


2007


% Change


2006


% ChangeCustomers


621



32
%


469



25
%


374



57
%Facilities


1,026



28
%


804



21
%


663



49
%Reads


2,200,365



30
%


1,691,859



64
%


1,033,527



102
%% of U.S. hospitals served


17
%






13
%






11
%Same site volume growth


6
%






18
%






20
%Percentage of read revenue from:Final reads


24
%






24
%






19
%Preliminary reads


76
%






76
%






81
%Year-over-year change in price per read:Plain film(1)


(7.2
)%






(6.5
)%






0.8
%All other(2)


(3.8
)%






(0.6
)%






1.7
%Total


(4.7
)%






(2.8
)%






(0.2
)%Percentage change in price per read from:Price


75
%






74
%






100
%Mix


25
%






26
%







%     (1)
    
    Plain film modality includes all x-ray technology images.(2)
    
    All other modalities are primarily comprised of CT, MRI and
    ultrasound images.  sm
  Operating
    Expenses
    Professional Services Expense.
  
    Physician Cash Compensation Expense.  Physician
    cash compensation expense is the fees paid to our affiliated
    radiologists for providing diagnostic interpretation services
    for our customers. We compensate our affiliated radiologists
    using a formula that includes a base level of compensation and
    additional amounts with regard to the number of hours worked and
    the number and type of reads performed. We recognize physician
    cash compensation expense in the month in which our affiliated
    radiologists perform the reads for our customers. Physician cash
    compensation also includes amounts paid for quality assurance
    services. Since our inception, our physician cash compensation
    expense has increased each year as we have added more affiliated
    radiologists to fulfill the increased demand for our services as
    our business and customer base has grown. However, physician
    cash compensation expense as a percentage of revenue has
    decreased due to the increased productivity of our affiliated
    radiologists. The increases in productivity by the existing 37




---



##### Table of Contents



affiliated radiologists have been, and may continue to be,
    offset, in part, by significant increases in newly engaged
    affiliated radiologists and the costs associated with the
    typical 90- to
    180-day
    period during which newly engaged affiliated radiologists obtain
    necessary state licenses and hospital credentials, and
    thereafter become accustomed to our workflow technology. We
    expect that our physician cash compensation expense will
    continue to increase, but may decrease as a percentage of
    revenues over time as the efficiency and utilization of our
    affiliated radiologists improves.  
    Physician Stock-Based Compensation Expense.  We
    record stock-based compensation expense in connection with any
    award of stock options to our affiliated radiologists. Physician
    stock-based compensation expense is a non-cash expense that
    fluctuates based upon the fair value of our common stock
    underlying the awards at the close of each reporting period as
    required by EITF Issue
    No. 96-18.
    As the value of an award is based on the underlying value of the
    common stock, we may record additional expense or income based
    on fluctuations in that value. Our physician stock-based
    compensation expense may also increase in future periods if we
    issue additional options and other stock-based awards to our
    affiliated radiologists.
    Medical Liability Expense.  Medical liability
    expense consists primarily of premiums paid for third-party
    medical malpractice insurance, claims made loss development
    reserves related to our self-insured retention and incurred but
    not reported, or IBNR, loss reserves. We amortize medical
    liability insurance premiums over the term of the policy to
    which they related and recognize loss development and IBNR
    reserves based on actuarial analyses performed during the policy
    term. Our medical liability expense has increased each year
    since inception due to the increases in our medical liability
    insurance premiums primarily associated with the increased
    volume of reads our affiliated radiologists have performed. In
    addition, as a result of the growth in our business we have
    experienced an increase in loss claim frequency which has
    resulted in an increase in loss reserves during 2008.  Key
    Professional Service Metrics
  For the Year Ended December 31,2008


2007


2006Radiologists under contract


144



132



91Radiologists providing services


134



112



72Average diagnostic cash compensation per read

$
21.22


$
22.37


$
24.38   Sales, General and Administrative
    Expense.
 38




---



##### Table of Contents



Results
    of Operations
    Year Ended December 31,2008


2007


2006Revenue


100.0
%


100.0
%


100.0
%Operating costs and expenses:Professional services


46.3



50.6



55.4Physician cash compensation


44.4



44.5



47.2Physician stock-based compensation


(0.4
)


4.3



6.3Medical malpractice liability expenses


2.3



1.8



1.9Sales, general and administrative


36.4



35.8



41.2Depreciation and amortization


4.4



2.9



2.5Total operating costs and expenses


87.1



89.3



99.1Operating income


12.9



10.7



0.9Interest income (expense), net


0.6



(2.2
)


0.4Non-controlling interest expense (income)(1)










Income tax expense


(5.6
)


(4.5
)


(2.3
)Net income (loss)


7.9



4.0



(1.0
)Series A Cumulative Redeemable Convertible Preferred Stock
    accretion






(11.7
)


(21.1
)Series A Preferred Stock dividend






(15.8
)


Net income (loss) available to common stockholders


7.9
%


(23.5
)%


(22.1
)%     (1)
    
    Non-controlling interest for the years ended December 31,
    2008, 2007 and 2006, represents less than 0.1% as a percentage
    of revenue.  Comparison
    of the Years Ended December 31, 2008 and December 31,
    2007
  Revenue
  Year EndedDecember 31,


Change2008


2007


In Dollars


Percentage(Dollars in thousands)Revenue from reads

$
105,042


$
84,964


$
20,078



23.6
%Other revenue


1,525



1,279



246



19.2Total revenue

$
106,567


$
86,243


$
20,324



23.6    39




---



##### Table of Contents



Operating
    Costs and Expenses
  Professional
    Services
  Year Ended





Year EndedDecember 31,


Percentage


December 31,


Percentage


Change2008


of Revenue


2007


of Revenue


In Dollars


Percentage(Dollars in thousands)Physician cash compensation expense

$
47,343



44.4
%

$
38,388



44.5
%

$
8,955



23.3
%Physician stock-based compensation


(479
)


(0.4
)


3,687



4.3



(4,166
)


(113.0
)Medical malpractice liability expense


2,499



2.3



1,532



1.8



967



63.1Professional services

$
49,363



46.3


$
43,607



50.6


$
5,756



13.2     Sales,
    General and Administrative
  Year Ended





Year EndedDecember 31,


Percentage


December 31,


Percentage


Change2008


of Revenue


2007


of Revenue


In Dollars


Percentage(Dollars in thousands)Sales, general and administrative

$
38,717



36.4
%

$
30,918



35.8
%

$
7,799



25.2
%     
    Employee Compensation.  Our employee
    compensation expense increased from $17.1 million for the
    year ended December 31, 2007 to $19.3 million for the
    year ended December 31, 2008. The 12.9% increase resulted
    primarily from an increase in non-cash employee stock-based
    compensation expense and increased compensation paid to existing
    employees. The increase in non-cash employee stock-based
    compensation from $686,000 for the year ended December 31,
    2007 to $1.5 million for the year ended December 31,
    2008 relates primarily to an increase in the number of options
    outstanding as of December 31, 2008. This increase was
    partially offset by a decrease in performance-based bonus
    compensation. In addition, the number of administrative and
    operations personnel decreased 4.5% from December 31, 2007
    to December 31, 2008. Employee compensation expense as a
    percentage of revenue was 18.2% and 19.8% for the years ended
    December 31, 2008 and 2007, respectively.
    Sales and Marketing.  Our sales and marketing
    expenses increased from $3.4 million for the year ended
    December 31, 2007 to $4.4 million for the year ended
    December 31, 2008. The 29.4% increase resulted from the
    hiring of additional sales professionals during 2008 and higher
    commissions on increased revenue 40




---



##### Table of Contents



amounts. The number of sales and marketing personnel increased
    25.0%, from December 31, 2007 to December 31, 2008.
    Sales and marketing expenses as a percentage of revenue were
    4.2% and 3.9% for the years ended December 31, 2008 and
    2007, respectively.  
    Information Technology.  Our information
    technology expense increased from $1.9 million for the year
    ended December 31, 2007 to $2.9 million for the year
    ended December 31, 2008. The 52.6% increase resulted from
    increased provisioning costs for data center floor space and
    communications bandwidth and additional radiologist network
    connections together with increases in software transactional
    costs associated with our growth in volumes. Information
    technology expense as a percentage of revenue was 2.7% and 2.2%
    for the years ended December 31, 2008 and 2007,
    respectively.
    Other General and Administrative.  Our other
    general and administrative expenses increased from
    $7.0 million for the year ended December 31, 2007 to
    $10.6 million for the year ended December 31, 2008.
    The 51.4% increase resulted primarily from the settlement of a
    medical malpractice claim and from the establishment of loss
    reserves for additional medical malpractice claims. In addition,
    we recorded asset impairment charges of $509,000 related to a
    portion of a trade show booth that is no longer being utilized
    and $157,000 for internally developed software that is no longer
    expected to generate future economic benefit. We also
    experienced significant increases in repairs and maintenance
    expense, general insurance expense, facilities expense and
    outside accounting and board of director fees relating to the
    costs of being a public company and the growth in our business.
    Other general and administrative expenses as a percentage of
    revenue were 9.9% and 8.1% for the years ended December 31,
    2008 and 2007, respectively.    Depreciation and Amortization
    Expense.
  Other Income (Expense).
  Income Tax Expense.
   41




---



##### Table of Contents



Comparison
    of the Years Ended December 31, 2007 and December 31,
    2006
  Revenue
  Year EndedDecember 31,


Change2007


2006


In Dollars


Percentage(Dollars in thousands)Revenue from reads

$
84,964


$
53,485


$
31,479



58.9
%Other revenue


1,279



614



665



108.3Total revenue

$
86,243


$
54,099


$
32,144



59.4     Operating
    Costs and Expenses
  Professional
    Services
  Year Ended





Year EndedDecember 31,


Percentage


December 31,


Percentage


Change2007


of Revenue


2006


of Revenue


In Dollars


Percentage(Dollars in thousands)Physician cash compensation expense

$
38,388



44.5
%

$
25,504



47.2
%

$
12,884



50.5
%Physician stock-based compensation expense


3,687



4.3



3,416



6.3



271



7.9Medical liability expense


1,532



1.8



1,053



1.9



479



45.5Professional services

$
43,607



50.6


$
29,973



55.4


$
13,634



45.5    42




---



##### Table of Contents



Sales,
    General and Administrative
  Year Ended



Year EndedDecember 31,

Percentage

December 31,

Percentage

Change2007

of Revenue

2006

of Revenue

In Dollars

Percentage(Dollars in thousands)Sales, general and administrative

$
30,918



35.8
%

$
22,270



41.2
%

$
8,648



38.8
%     
    Employee Compensation.  Our employee
    compensation expense increased from $11.8 million for the
    year ended December 31, 2006 to $17.1 million for the
    year ended December 31, 2007. The 44.9% increase resulted
    primarily from the hiring of additional administrative and
    operations personnel to manage, operate and maintain our
    business, and from performance-based bonus compensation. The
    number of administrative and operations personnel increased
    18.8% from December 31, 2006 to December 31, 2007.
    Employee compensation expense as a percentage of revenue was
    19.8% and 21.9% for the years ended December 31, 2007 and
    2006, respectively.
    Sales and Marketing.  Our sales and marketing
    expenses increased from $3.1 million for the year ended
    December 31, 2006 to $3.4 million for the year ended
    December 31, 2007. The 9.7% increase resulted from expanded
    efforts in sales and marketing activities and programs and
    higher commissions on increased revenue amounts. The number of
    sales and marketing personnel decreased 11.1%, from
    December 31, 2006 to December 31, 2007. Sales and
    marketing expenses as a percentage of revenue were 3.9% and 5.7%
    for the years ended December 31, 2007 and 2006,
    respectively.
    Information Technology.  Our information
    technology expense increased from $1.7 million for the year
    ended December 31, 2006 to $1.9 million for the year
    ended December 31, 2007. The 11.8% increase resulted from
    increased provisioning costs for communications bandwidth and
    additional radiologist network connections together with
    increases in software transactional costs associated with
    increased volumes, which was partially offset by a decrease in
    software transactional costs resulting from our implementation
    of our own RIS in February 2006. Information technology expense
    as a percentage of revenue was 2.2% and 3.2% for the years ended
    December 31, 2007 and 2006, respectively.
    Licensing and Credentialing.  Our licensing and
    credentialing related expenses increased from $938,000 for the
    year ended December 31, 2006 to $1.5 million for the
    year ended December 31, 2007. The 59.9% increase relates
    primarily to the amount and timing of initial and renewal
    license applications on a greater number of affiliated
    radiologists, which was partially offset by the comparatively
    lower costs of renewal applications. Licensing and credentialing
    related expenses as a percentage of revenue were 1.8% and 1.7%
    for the years ended December 31, 2007 and 2006,
    respectively.
    Other General and Administrative.  Our other
    general and administrative expenses increased from
    $4.7 million for the year ended December 31, 2006 to
    $7.0 million for the year ended December 31, 2007. The
    48.9% increase resulted from an increase in facilities expense
    and outside professional expense as well as other general
    operating expense primarily due to our initial public offering
    and the growth in our business. Other general and administrative
    expenses as a percentage of revenue were 8.1% and 8.7% for the
    years ended December 31, 2007 and 2006, respectively.  Depreciation and Amortization
    Expense.
 43




---



##### Table of Contents



Other Income (Expense).
  Income Tax Expense.
  Preferred Stock Accretion.
 44




---



##### Table of Contents



Quarterly
    Results of Operations
  Form 10-K.
  Three Months EndedDec 31,


Sept 30,


Jun 30,


Mar 31,


Dec 31,


Sept 30,


Jun 30,


Mar 31,2008


2008


2008


2008


2007


2007


2007


2007(in thousands)Consolidated Statement of Operations Data:Revenue

$
28,301


$
29,025


$
25,921


$
23,320


$
22,945


$
24,033


$
21,163


$
18,102Operating costs and expenses(1)


26,580



23,785



22,458



19,957



20,741



20,244



20,002



16,026Operating income


1,721



5,240



3,463



3,363



2,204



3,789



1,161



2,076Other income (expense)Interest Income


149



185



89



176



199



138



71



43Interest Expense


















(1,938
)


(435
)


(1
)


(6
)Other income (expense)


149



185



89



176



(1,739
)


(297
)


70



37Income before non-controlling interest and income tax


1,870



5,425



3,552



3,539



465



3,492



1,231



2,113Non-controlling interest expense (income)


4



2



4



4



(2,108
)


1,752



(341
)


680Income tax expense


976



1,859



1,548



1,535



1,288



1,192



995



392Net income


890



3,564



2,000



2,000



1,285



548



577



1,041Series A Cumulative Redeemable Convertible Preferred Stock
    decretion (accretion)


















14,941



(4,950
)


(24,892
)


4,774Cash dividends paid on preferred stock






















(13,596
)






Net income (loss) available to common shareholders

$
890


$
3,564


$
2,000


$
2,000


$
16,226


$
(17,998
)

$
(24,315
)

$
5,815Earnings (loss) per share:Basic

$
0.06


$
0.21


$
0.12


$
0.12


$
1.28


$
(2.22
)

$
(3.27
)

$
0.56Diluted

$
0.05


$
0.21


$
0.12


$
0.12


$
0.08


$
(2.22
)

$
(3.27
)

$
0.08     (1)
    
    Includes the non-cash stock-based compensation, medical
    malpractice loss reserves, and depreciation and amortization
    charges set forth in the following table:  45




---



##### Table of Contents



Three Months EndedDec 31,


Sept 30,


Jun 30,


Mar 31,


Dec 31,


Sept 30,


Jun 30,


Mar 31,2008


2008


2008


2008


2007


2007


2007


2007(in thousands)Professional servicesNon-cash stock-based compensation

$
499


$
(419
)

$
(64
)

$
(495
)

$
759


$
875


$
2,158


$
(105
)Medical malpractice loss reserves


997



























Sales, general and administrativeNon-cash stock-based compensation


423



417



422



282



278



292



89



27Depreciation and amortization


1,343



1,286



1,216



855



787



654



549



498$
3,262


$
1,284


$
1,574


$
642


$
1,824


$
1,821


$
2,796


$
420   Liquidity
    and Capital Resources
  Cash,
    Cash Equivalents and Short-Term Investments
      Year Ended December 31,2008


2007


2006(in thousands)Net cash provided by operating activities

$
14,496


$
6,861


$
3,977Net cash (used in) provided by investing activities


(25,135
)


(5,093
)


1,208Net cash (used in) provided by financing activities


(3,668
)


25,761



(2,315
)(Decrease) increase in cash and cash equivalents

$
(14,307
)

$
27,529


$
2,870   Cash
    Flows from Operating Activities
     46




---



##### Table of Contents



Cash
    Flows from Investing Activities
        Cash
    Flows from Financing Activities
       47




---



##### Table of Contents



Future
    Liquidity Requirements
    Contractual
    Obligations and Commitments
    Less than

1 - 3

3 - 5

More thanTotal

1 Year

Years

Years

5 Years(in thousands)Operating Lease Commitments(1)

$
18,931


$
2,055


$
4,289


$
3,290


$
9,297     (1)
    
    Operating lease commitments consist of: (i) leases for our
    office facilities in Minnetonka, Minnesota, Eden Prairie,
    Minnesota, Maui, Hawaii and Mountain View, California and
    (ii) the security deposit and lease for our new corporate
    headquarters in Eden Prairie, Minnesota.  Guarantors Accounting and Disclosure
    Requirements for Guarantees, Including Indirect Guarantees of
    Indebtedness of Others, FIN 45-3, Application of FASB Interpretation No. 45 to Minimum
    Revenue Guarantees Granted to a Business or Its Owners
    Accounting for Uncertain Income Tax
  Recent
    Accounting Pronouncements
  Fair Value Measurements, FAS 157-2, Effective Date of FASB Statement No. 157, FAS 157-2. FAS 157-2
 48




---



##### Table of Contents



FAS 157-2
  The
    Fair Value Option for Financial Assets and Financial
    Liabilities,
  Business Combinations,
  Noncontrolling Interests in Consolidated Financial
    Statements an amendment of ARB 51
  No. FAS 142-3, Determination of the Useful Life of Intangible Assets,
  FAS 140-4 FIN 46R-8, Disclosures by Public Entities (Enterprises) about Transfers
    of Financial Assets and Interests in Variable Interest
    Entities, Accounting for Transfers and Servicing of Financial Assets
    and Extinguishments of Liabilities, Consolidation of Variable Interest
    Entities,
 49




---



##### Table of Contents



ITEM 7A.
    Quantitative
    and Qualitative Disclosure About Market Risk  Foreign
    Currency Exchange Risk
    Interest
    Rate Market Risk
   50




---



##### 



ITEM 8.
    Financial
    Statements and Supplementary Data  Virtual
    Radiologic Corporation
  INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
 Contents
   
 PageReport of Independent Registered Public
    Accounting Firm


52Consolidated Financial StatementsConsolidated Balance Sheets


53Consolidated Statements of Operations


54Consolidated Statements of Changes in
    Stockholders Equity (Deficiency)


55Consolidated Statements of Cash Flows


56Notes to Consolidated Financial Statements


58     51




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM    Internal Control 
    Integrated Framework
        
    52




---



##### Table of Contents



VIRTUAL
    RADIOLOGIC CORPORATIONCONSOLIDATED BALANCE SHEETS
  As ofDecember 31,2008


2007(in thousands, except share data)ASSETSCurrent assets:Cash and cash equivalents

$
19,180


$
33,487Short-term investments


10,136



Restricted cash


700



700Accounts receivable, net


17,383



12,486Prepaid expenses


1,704



2,073Current taxes receivable


664



1,995Other current assets


1,758



336Total current assets


51,525



51,077Property, plant and equipment, net


11,692



8,013Intangible assets, net


5,073



252Goodwill


858



Deferred tax asset


184



Medical malpractice excess loss reserves receivable


1,288



Other assets


381



94Total assets

$
71,001


$
59,436LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
421


$
801Accrued professional services compensation expense


5,690



4,681Accrued sales, general and administrative compensation expense


1,383



1,717Medical malpractice loss reserves


1,419



25Other accrued expenses


1,848



1,248Current deferred tax liability


1,103



237Other current liabilities


642



161Total current liabilities


12,506



8,870Non-current taxes payable


235



Deferred rent


150



204Medical malpractice excess loss reserves


1,288



Other non-current liabilities


305



24Non-controlling interest


22



8Commitments and contingencies (Note 11)Stockholders equityCommon stock, $.001 par value; 100,000,000 shares
    authorized at December 31, 2008 and 2007; 15,849,398 and
    16,463,173 shares issued and outstanding at
    December 31, 2008 and 2007, respectively


17



16Additional paid-in capital


95,881



90,165Treasury stock at cost, 944,760 shares at December 31,
    2008


(8,000
)


Accumulated deficit


(31,397
)


(39,851
)Accumulated other comprehensive loss


(6
)


Total stockholders equity


56,495



50,330Total liabilities and stockholders equity

$
71,001


$
59,436    53




---



##### Table of Contents



VIRTUAL
    RADIOLOGIC CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONS
  Year Ended December 31,2008


2007


2006(in thousands, except share data)Revenue

$
106,567


$
86,243


$
54,099Operating costs and expensesProfessional services


49,363



43,607



29,973Sales, general and administrative


38,717



30,918



22,270Depreciation and amortization


4,700



2,488



1,351Total operating costs and expenses


92,780



77,013



53,594Operating income


13,787



9,230



505Other income (expense)Interest income


599



451



254Interest expense






(2,380
)


(37
)Total other income (expense)


599



(1,929
)


217Income before non-controlling interest and income taxes


14,386



7,301



722Non-controlling interest expense (income)


14



(17
)


25Income before income taxes


14,372



7,318



697Income tax expense


5,918



3,867



1,226Net income (loss)


8,454



3,451



(529
)Series A Cumulative Redeemable Convertible Preferred Stock
    accretion






(10,127
)


(11,437
)Cash Dividends Paid:Series A Preferred Stock






(13,596
)


Net income (loss) available to common stockholders

$
8,454


$
(20,272
)

$
(11,966
)Earnings (loss) per common shareBasic

$
0.51


$
(2.31
)

$
(1.80
)Diluted

$
0.50


$
(2.31
)

$
(1.80
)Weighted average common shares outstandingBasic


16,500



8,762



6,640Diluted


16,976



8,762



6,640    54




---



##### Table of Contents



VIRTUAL
    RADIOLOGIC CORPORATIONCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
    (DEFICIENCY)
  Common





Accumulated


TotalAdditional





Stock





Other


StockholdersCommon Stock


Paid-In


Treasury


Subscription


Accumulated


Comprehensive


EquityShares


Amount


Capital


Stock


Receivable


Deficit


Income


(Deficiency)(in thousands)Balance at December 31, 2005


6,604


$
7


$
(23,328
)

$



$
(200
)

$
(2,864
)

$



$
(26,385
)Accretion of Series A Cumulative Redeemable Convertible
    Preferred Stock










(11,437
)


















(11,437
)Equity based compensation for independent contractor physicians










3,416



















3,416Equity based compensation for employees










115



















115Stock subscription receivable payment


















200











200Issuance of common stock to independent contractor physicians


35







105



















105Stock option exercises


80







80



















80Net loss






















(529
)






(529
)Balance at December 31, 2006


6,719


$
7


$
(31,049
)

$



$



$
(3,393
)

$



$
(34,435
)Accretion of Series A Cumulative Redeemable Convertible
    Preferred Stock










(10,127
)


















(10,127
)Equity based compensation for independent contractor physicians










3,687



















3,687Equity based compensation for employees










686



















686Stock option exercises


2,045



2



1,512



















1,514Common stock re-purchased


(910
)


(1
)


(10,009
)


















(10,010
)Common stock re-issued


910



1



10,009



















10,010Warrant exercise


72







1



















1Payment of dividend






















(39,909
)






(39,909
)Common stock issued in initial public offering


4,000



4



63,236



















63,240Series A Preferred Stock conversion to common stock


3,627



3



61,650



















61,653Excess tax benefit from exercises of stock options










4,780



















4,780Stock issuance costs










(4,211
)


















(4,211
)Net income






















3,451







3,451Balance at December 31, 2007


16,463


$
16


$
90,165


$



$



$
(39,851
)

$



$
50,330Net income






















8,454







8,454Other comprehensive incomeForeign currency translation adjustments


























(6
)


(6
)Total comprehensive income





























$
8,448Equity based compensation for independent contractor physicians










(479
)


















(479
)Equity based compensation for employees










1,544



















1,544Stock option exercises


331



1



313



















314Excess tax benefit from exercises of stock options










4,396



















4,396Stock issuance costs










(58
)


















(58
)Repurchase of common shares


(945
)










(8,000
)














(8,000
)Balance at December 31, 2008


15,849


$
17


$
95,881


$
(8,000
)

$



$
(31,397
)

$
(6
)

$
56,495    55




---



##### Table of Contents



VIRTUAL
    RADIOLOGIC CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS
  For the Years Ended December 31,2008


2007


2006(in thousands)Cash flows from operating activitiesNet income (loss)

$
8,454


$
3,451


$
(529
)Adjustments to reconcile net income (loss) to net cash provided
    by operating activitiesNon-controlling interest


14



(17
)


25Provision for doubtful accounts and sales allowance


879



298



191Depreciation and amortization


4,700



2,488



1,351Amortization of debt issuance costs






1,428



Interest and discount amortization on short-term investment










(67
)Loss on disposal and impairment of property, plant and equipment


774



114



90Equity based compensation for independent contractor physicians


(479
)


3,687



3,416Equity based compensation for employees


1,544



686



115Deferred income taxes


659



197



64Changes in operating assets and liabilitiesAccounts receivable


(5,212
)


(3,748
)


(4,648
)Prepaid expenses


369



(577
)


(606
)Current taxes receivable


1,330



(1,995
)


Other current assets


(1,179
)


(301
)


(35
)Other assets






(23
)


(11
)Accounts payable


(498
)


350



93Accrued expenses


1,329



1,390



3,770Medical malpractice loss reserves


1,394



(75
)


100Current taxes payable






(608
)


608Other current liabilities


236



130



32Non-current taxes payable


235







Deferred rent


(53
)


(14
)


18Net cash provided by operating activities


14,496



6,861



3,977Cash flows from investing activitiesPurchase of property, plant and equipment


(8,429
)


(5,051
)


(3,511
)Proceeds from sale of property, plant and equipment


49



11



Payments to acquire patents


(74
)


(53
)


(40
)Payment for acquisition related costs


(98
)






Cash paid for acquisition, net of cash acquired


(6,447
)






Purchase of short-term investment


(10,136
)






Proceeds from maturity of short-term investment










5,159Restricted cash










(400
)Net cash (used in) provided by investing activities


(25,135
)


(5,093
)


1,208Cash flows from financing activitiesPayments on related party notes payable










(200
)Payments on capital leases






(21
)


(292
)Payment of offering costs


(306
)


(2,139
)


(1,823
)Proceeds from issuance of common stock






63,240



Proceeds from stock option exercises


242



1,238



Payments for the re-purchase of common stock






(10,010
)


Proceeds from the re-issuance of common stock






10,010



Excess tax benefit from exercises of stock options


4,396



4,780



Repurchases of common stock


(8,000
)






Proceeds from the issuance of debt






41,000



Payment of debt






(41,000
)


Payment of debt issuance costs






(1,428
)


Cash dividends paid






(39,909
)


Net cash (used in) provided by financing activities


(3,668
)


25,761



(2,315
)Net (decrease) increase in cash and cash equivalents


(14,307
)


27,529



2,870Cash and cash equivalentsBeginning of period


33,487



5,958



3,088End of period

$
19,180


$
33,487


$
5,958    56




---



##### Table of Contents



VIRTUAL
    RADIOLOGIC CORPORATION
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS  (Continued)
  For the Years Ended December 31,2008


2007


2006(in thousands)Supplemental disclosure of cash flow informationCash paid for interest

$



$
940


$
30Cash paid for income taxes


(900
)


1,298



412Significant non-cash transactionsMedical malpractice excess receivable


1,288







Medical malpractice excess liability


1,288







Stock issuance costs reclassified to additional paid-in capital






4,211



Accretion of Series A Preferred Stock






10,127



11,437Series A Preferred stock conversion to common stock






61,653



    57




---



##### Table of Contents



VIRTUAL
    RADIOLOGIC CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE
    YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
  1.
    Business
    Overview              2.
    Summary
    of Significant Accounting Policies  Principles
    of Consolidation and Basis of Presentation
  Consolidation of Variable
    Interest Entities,
 58




---



##### Table of Contents



VIRTUAL
    RADIOLOGIC CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Use of
    Estimates
    Cash
    and Cash Equivalents
    Restricted
    Cash
   59




---



##### Table of Contents



VIRTUAL
    RADIOLOGIC CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Property,
    Plant and Equipment
    Software
    Development Costs
  98-1, Accounting for the Costs of Computer Software Developed or
    Obtained for Internal Use, SOP 98-1. SOP 98-1 SOP 98-1 SOP 98-1
  Accounting for the Costs of Computer
    Software to be Sold, Leased, or Otherwise Marketed,
  Intangible
    Assets and Other Long-Lived Assets
   60




---



##### Table of Contents



VIRTUAL
    RADIOLOGIC CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Goodwill
  Goodwill and Other Intangible
    Assets
  Medical
    Malpractice Loss Reserves
    Medical
    Malpractice Excess Loss Reserves and Receivables
  Offsetting of Amounts Related
    to Certain Contracts,
  Operating
    Leases
   61




---



##### Table of Contents



VIRTUAL
    RADIOLOGIC CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Revenue
    Recognition and Trade Accounts Receivable
    v sm
    Income
    Taxes
        and/or
 62




---



##### Table of Contents



VIRTUAL
    RADIOLOGIC CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Professional
    Services Expense
    Sales,
    General and Administrative Expenses
        Stock-Based
    Compensation
  Share-Based
    Payment Accounting for Stock Issued to Employees,
  Accounting for
    Stock-Based Compensation,
 63




---



##### Table of Contents



VIRTUAL
    RADIOLOGIC CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2008


2007


2006(in thousands, except per share data)Net income (loss), as reported

$
8,454


$
3,451


$
(529
)Less:Total employee stock-based compensation expense determined under
    the fair value-based method, net of related tax effects


26



33



63Pro forma net income (loss)

$
8,428


$
3,418


$
(592
)Pro forma earnings (loss) per common share:BasicAs reported

$
0.51


$
(2.31
)

$
(1.80
)Pro forma


0.51



(2.31
)


(1.81
)DilutedAs reported

$
0.50


$
(2.31
)

$
(1.80
)Pro forma


0.50



(2.31
)


(1.81
)   No. 96-18, Accounting for Equity Instruments That Are Issued to Other
    Than Employees for Acquiring, or in Conjunction with Selling,
    Good or Services, No. 96-18, No. 96-18
  Accounting
    for Series A Preferred Stock
  Presentation in Financial Statements of Redeemable
    Preferred Stocks Classification and Measurement of Redeemable Securities
   64




---



##### Table of Contents



VIRTUAL
    RADIOLOGIC CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Concentration
    of Credit Risk
      Fair
    Value Financial Instruments
    Recent
    Accounting Pronouncements
  Fair Value Measurements, FAS 157-2, Effective Date of FASB Statement No. 157 FAS 157-2. FAS 157-2 FAS 157-2
  The
    Fair Value Option for Financial Assets and Financial
    Liabilities,
  Business Combinations,
  Noncontrolling Interests in Consolidated Financial
    Statements an amendment of ARB 51
 65




---



##### Table of Contents



VIRTUAL
    RADIOLOGIC CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    No. FAS 142-3, Determination of the Useful Life of Intangible Assets
  FAS 140-4 FIN 46R-8, Disclosures by Public Entities (Enterprises) about Transfers
    of Financial Assets and Interests in Variable Interest
    Entities Accounting for Transfers and Servicing of Financial Assets
    and Extinguishments of Liabilities, Consolidation of Variable Interest
    Entities,
  3.
    Selected
    Consolidated Financial Statement Information  Short-term
    Investments
  held-to-maturity Accounting for Certain Investments in
    Debt and Equity Securities
  As of December 31,2008


2007(in thousands)Due in one year or less:Certificates of deposit

$
10,136


$
   Accounts
    Receivable, Net
  December 31,2008


2007(in thousands)Accounts receivable

$
17,762


$
12,829Less: Allowance for doubtful accounts


360



328Less: Allowance for sales credits


19



15Accounts receivable, net

$
17,383


$
12,486   66




---



##### Table of Contents



VIRTUAL
    RADIOLOGIC CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Allowance for


Allowance forDoubful Accounts


Sales Credits(in thousands)Beginning Balance, January 1, 2006

$
268


$
10Charged (credited) to costs and expenses


191



12Deductions/Write-offs


(155
)


(11
)Ending Balance, December 31, 2006

$
304


$
11Beginning Balance, January 1, 2007

$
304


$
11Charged (credited) to costs and expenses


98



202Deductions/Write-offs


(74
)


(198
)Ending Balance, December 31, 2007

$
328


$
15Beginning Balance, January 1, 2008

$
328


$
15Charged (credited) to costs and expenses


364



511Deductions/Write-offs


(332
)


(507
)Ending Balance, December 31, 2008

$
360


$
19   Property,
    Plant and Equipment, Net
  December 31,2008


2007(in thousands)Equipment

$
10,332


$
6,390Software


6,110



3,575Furniture and fixtures


1,144



1,648Leasehold improvements


342



345Other


1,742



141Total property, plant and equipment


19,670



12,099Less: Accumulated depreciation and amortization


7,978



4,086Property, plant and equipment, net

$
11,692


$
8,013     Accounting for the
    Impairment or Disposal of Long-Lived Assets
   67




---



##### Table of Contents



VIRTUAL
    RADIOLOGIC CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Intangible
    Assets, Net
  December 31, 2008


December 31, 2007Carrying


Accumulated





Carrying


AccumulatedAmount


Amortization


Net


Amount


Amortization


Net(in thousands)Patent application costs

$
347


$
56


$
291


$
284


$
32


$
252Non-compete agreements


298



105



193











Customer relationships


4,968



379



4,589











Intangible assets, net

$
5,613


$
540


$
5,073


$
284


$
32


$
252       (in thousands)2009

$
1,1212010


8792011


6902012


570Thereafter


1,813$
5,073     Goodwill
   68




---



##### Table of Contents



VIRTUAL
    RADIOLOGIC CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Other
    Accrued Expenses
  December 31,2008


2007(in thousands)Professional fees

$
282


$
271Property, plant and equipment


465



208Licensing fees


289



231Initial public offering costs






112Medical claims


161



129Board of Directors Fees


109



Other


542



297Total other accrued expenses

$
1,848


$
1,248   4.
    Acquisition  24-hour
  Business Combinations
      (in thousands)Current assets, including cash of $57,000

$
644Property, plant and equipment


Intangible assets


5,266Goodwill


858Total assets acquired


6,768Current liabilities


149Total liabilities assumed


149Net assets acquired

$
6,619  69




---



##### Table of Contents



VIRTUAL
    RADIOLOGIC CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      5.
    Financing
    Arrangements     70




---



##### Table of Contents



VIRTUAL
    RADIOLOGIC CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    6.
    Stockholders
    Equity  FAS 123R-6, Technical Corrections of FASB Statement No. 123R.
    7.
    Preferred
    Stock    Form S-1
  Warrant
   71




---



##### Table of Contents



VIRTUAL
    RADIOLOGIC CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    8.
    Stock
    Purchase Plan and Stock Option Plan             72




---



##### Table of Contents



VIRTUAL
    RADIOLOGIC CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2008


2007(1)


2006Weighted average fair value of options granted

$
14.41


$
6.13


$
4.93Dividend yield


None



None



NoneWeighted average risk-free interest rate


3.64
%


4.59
%


4.92
%Weighted average expected volatility


43.80
%


40.40
%


49.05
%Weighted average expected term of options (in years)


3.9



4.1



4.5     (1)
    
    Includes 140,000 options granted in May 2007 to members of the
    Companys Board of Directors that were not issued pursuant
    to the Plan.    Year Ended December 31,2008


2007


2006Dividend yield


None



None



NoneWeighted average risk-free interest rate


2.24
%


4.03
%


4.88
%Weighted average expected volatility


97.80
%


50.20
%


46.08
%Weighted average expected term of options (in years)


3.44



1.82



2.47     Options OutstandingWeighted


WeightedAverage


Average


AggregateNumber of


Exercise Price


Contractual Life


IntrinsicShares


per Share


(in years)


Value(1)Balance at December 31, 2007


2,284,906


$
8.96






$
6,006,072Granted


392,000



14.10







81,360Exercised(2)


(330,985
)


1.78







4,869,830Forfeited/Cancelled/Expired


(161,926
)


10.98







262,645Balance at December 31, 2008


2,183,995



10.82



6.24



3,601,774Options vested and expected to vest at December 31, 2008(3)


1,988,842



10.89



6.32



3,225,365Exercisable at December 31, 2008


732,135



6.76



5.38



2,541,190     (1)
    
    The aggregate intrinsic value in the table above represents the
    difference between the closing market price of the
    Companys common stock at December 31, 2008, and the
    exercise price, multiplied by the number of in-the-money options
    that would have been received by the option holders had all
    option holders exercised their options on December 31, 2008.(2)
    
    The Company issues new shares when stock option awards are
    exercised.(3)
    
    Options expected to vest reflect an estimated forfeiture rate. 73




---



##### Table of Contents



VIRTUAL
    RADIOLOGIC CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     As of December 31, 2008Options Outstanding


Options ExercisableWeightedAverageRemaining


Weighted





WeightedContractual


Average





AverageNumber


Life


Exercise


Number


ExerciseRange of Exercise Prices

Outstanding


(in Years)


Price


Exercisable


Price$2.00  $2.00


384,278



5.73


$
2.00



297,322


$
2.003.75  5.50


305,610



3.62



5.11



182,180



5.116.00  9.00


69,000



8.22



7.30







10.20  14.52


713,517



7.05



12.09



183,663



12.0016.46  19.23


696,590



6.65



16.99



65,220



17.4123.00  23.00


15,000



5.91



23.00



3,750



23.002,183,995



6.24



10.82



732,135



6.76     Stock-Based
    Compensation  Employees
        Stock-Based
    Compensation  Physicians
     74




---



##### Table of Contents



VIRTUAL
    RADIOLOGIC CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    9.
    Income
    Taxes      December 31,2008


2007(in thousands)Deferred tax assetNon-controlling interest

$
3,037


$
2,779Stock-based compensation deductions


211



422Accruals and reserves


682



225Accrued compensation and employee benefits


172



170Credits


793



Other


95



8Total deferred tax asset before valuation allowance


4,990



3,604Less: Valuation allowance


(3,098
)


(2,787
)Total deferred tax asset


1,892



817Deferred tax liabilityAccelerated depreciation and amortization


1,397



706Prepaid expenses


1,431



372Total deferred tax liability


2,828



1,078Net deferred tax liability

$
(936
)

$
(261
)      75




---



##### Table of Contents



VIRTUAL
    RADIOLOGIC CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Year Ended December 31,2008


2007


2006(in thousands)CurrentFederal

$
4,369


$
2,946


$
954State


862



724



208Total current


5,231



3,670



1,162DeferredFederal


806



156



50State


(119
)


41



14Total deferred


687



197



64$
5,918


$
3,867


$
1,226     Year Ended December 31,2008


2007


2006Statutory federal income tax rate


34.0
%


34.0
%


34.0
%State income taxes, net of federal benefit


3.4



6.9



21.4Valuation allowance


2.8



10.2



90.7Other


1.0



1.7



29.8Effective income tax rate


41.2
%


52.8
%


175.9
%     Accounting for Contingencies Accounting for Income
    Taxes
 76




---



##### Table of Contents



VIRTUAL
    RADIOLOGIC CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      (in thousands)Balance at December 31, 2007

$
Additions based on tax positions related to the current year


135Balance at December 31, 2008

$
135           10.
    Stock
    Repurchase Program  Rule 10b5-1
  11.
    Commitments
    and Contingencies   77




---



##### Table of Contents



VIRTUAL
    RADIOLOGIC CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (in thousands)Twelve months ending December 31, 2009


2,0552010


2,4952011


1,7952012


1,6532013


1,637Thereafter


9,296$
18,931       Professional
    Liability Coverage
    and/or
   78




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##### Table of Contents



VIRTUAL
    RADIOLOGIC CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Litigation
        12.
    Employee
    Benefit Plans   79




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##### Table of Contents



VIRTUAL
    RADIOLOGIC CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    13.
    Related
    Party Transactions      Year Ended December 31,2008


2007


2006(in thousands)VRP professional services revenue from VRC

$
23,243


$
20,633


$
16,182VRC professional services expense to VRP


23,243



20,633



16,182VRP professional services revenue from the Professional
    Corporations


24,250



21,873



15,076Professional Corporations professional services expense to VRP


24,250



21,873



15,076VRC management fee revenue from the Professional Corporations


24,007



19,256



11,068Professional Corporations management fee expense to VRC


24,007



19,256



11,068Cash paid for professional services by VRC to VRP


23,243



20,633



16,182Cash paid for professional services by the Professional
    Corporations to VRP


24,250



21,873



15,076Cash paid for management fees by the Professional Corporations
    to VRC


24,007



19,256



11,068   14.
    Earnings
    Per Share  No. 03-6 Participating Securities and the two-class method under FASB
    Statement No. 128, No. 03-6.
  No. 03-6 Earnings per Share, No. 03-6.
 80




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##### Table of Contents



VIRTUAL
    RADIOLOGIC CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2008


2007


2006(in thousands)Basic and Diluted Earnings per Share
    (Two-class Method)Net income (loss)

$
8,454


$
3,451


$
(529
)Less:Series A Cumulative Redeemable Convertible Preferred Stock
    accretion






(10,127
)


(11,437
)Cash dividends paid:Series A Preferred Stock






(13,596
)


Undistributed income (loss)

$
8,454


$
(20,272
)

$
(11,966
)Distributed Earnings per ShareBasic and DilutedCash dividends paid to Series A Preferred stockholders

$



$
13,596


$
Weighted average preferred shares outstanding






3,150



3,627Distributed earnings per share  Preferred

$



$
4.32


$
Cash dividends paid to common stockholders

$



$
26,312


$
Weighted average common shares outstanding


16,500



8,762



6,640Distributed earnings per share  Common

$



$
3.00


$
Undistributed Earnings per ShareBasicUndistributed income (loss)

$
8,454


$
(20,272
)

$
(11,966
)Series A Preferred ownership on a converted basis


0
%


0
%


35
%Series A Preferred stockholders interest in undistributed
    loss

$



$

(a)

$

(a)Weighted average Series A Preferred shares






3,150



3,627Undistributed income (loss) per share  Series A
    Preferred Stock

$



$



$
Undistributed income (loss)

$
8,454


$
(20,272
)

$
(11,966
)Common ownership


100
%


100
%


65
%Common stockholders interest in undistributed income (loss)

$
8,454


$
(20,272
)(a)

$
(11,966
)(a)Weighted average common shares outstanding  Basic


16,500



8,762



6,640Total basic income (loss) per share  Common

$
0.51


$
(2.31
)

$
(1.80
)Diluted Earnings per Share
    (If-converted Method)Net income (loss) available to common stockholders

$
8,454


$
(20,272
)

$
(11,966
)Less: Series A Cumulative Redeemable Convertible Preferred
    Stock accretion







(b)



(b)Net income (loss) used in diluted earnings per share

$
8,454


$
(20,272
)

$
(11,966
)Weighted average common shares outstanding  Basic


16,500



8,762



6,640Convertible preferred stock







(b)



(b)Common share equivalents


476




(c)



(c)Shares used to compute income (loss) per common
    share  Diluted


16,976



8,762



6,640Total diluted income (loss) per share

$
0.50


$
(2.31
)

$
(1.80
)     (a)
    
    Preferred stockholders do not participate in any undistributed
    losses with common stockholders.(b)
    
    The impact of the assumed conversion of the Series A
    Preferred Stock has been excluded from the calculation of
    diluted earnings per share because the effect is anti-dilutive.(c)
    
    Common share equivalents are not included in the diluted
    earnings per common share calculation for these periods as they
    are anti-dilutive. Potential common shares totaled approximately
    0.8 million and 3.4 million for the years ended
    December 31, 2007 and 2006, respectively. 81




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##### Table of Contents



ITEM 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    ITEM 9A.
    Controls
    and Procedures  Evaluation
    of Disclosure Controls and Procedures
  Rule 13a-15(e)
  Managements
    Report on Internal Control Over Financial
    Reporting
  Rule 13a-15(f)
        Changes
    in Internal Controls
  Rule 13a-15(f)
  ITEM 9B.
    Other
    Information   82




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##### Table of Contents



PART III ITEM 10.
    Directors,
    Executive Officers and Corporate Governance    ITEM 11.
    Executive
    Compensation    ITEM 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Securities
    Authorized for Issuance Under Equity Compensation
    Plans
    (a)


(b)


(c)Number of SecuritiesRemaining Availablefor Future IssuanceNumber of Securities


Weighted-Average


under Equityto be Issued Upon


Exercise Price of


Compensation PlansExercise of Outstanding


Outstanding


(Excluding SecuritiesOptions, Warrants


Options, Warrants


Reflected inPlan Category

and Rights


and Rights


Column a)Equity compensation plans approved by security holders(1)


2,063,995


$
10.76



386,517Equity compensation plans not approved by security holders





$




Total


2,063,995


$
10.76



386,517     (1)
    
    The number of options to be issued excludes 120,000 options
    granted to members of our Board of Directors that were not
    issued pursuant to an equity compensation plan.  ITEM 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence    ITEM 14.
    Principal
    Accounting Fee and Services   83




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##### Table of Contents



PART IV  ITEM 15.
    Exhibits,
    Financial Statement Schedules    1)
    Consolidated Financial Statements: See Index to Consolidated
    Financial Statements contained in Item 8 on page 51 of
    this annual report.      3)
    Exhibits are incorporated herein by reference or are filed with
    this annual report on
    Form 10-K
    as set forth below: 84




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##### Table of Contents



EXHIBIT INDEX
  Exhibit No.

Description3
.1

Second Amended and Restated Certificate of Incorporation of
    Virtual Radiologic Corporation***3
.2

Amended and Restated Bylaws of Virtual Radiologic Corporation***3
.3(13)

Amendment No. 1 to Amended and Restated Bylaws of Virtual
    Radiologic Corporation4
.1(4)

Form of Stock Certificate.10
.1(4)

Lease Agreement, dated as of March 11, 2004, by and between
    Midwest Holding Corp. #9, Inc. and Virtual Radiologic
    Consultants, LLC.10
.2(4)

First Amendment to Lease Agreement, dated August 12, 2004,
    by and between Midwest Holding Corp. #9, Inc. and Virtual
    Radiologic Consultants, LLC.10
.3(4)

MEDB Building Lease Agreement, dated November 28, 2005, by
    and between Maui Economic Development Board, Inc. and Virtual
    Radiologic Consultants, Inc.10
.4(4)

Lease Agreement, dated November 22, 2006, by and between
    Liberty Property Limited Partnership and Virtual Radiologic
    Corporation.10
.5(4)

Lease, dated as of July 2, 2007, by and between 465
    Fairchild Holdings, LLC and Virtual Radiologic Corporation.10
.6(4)

Second Amendment to Lease, dated as of December 1, 2006, by
    and between Wells REIT II  5995 Opus Parkway, LLC and
    Virtual Radiologic Corporation.10
.7(4)

Third Amendment to Lease, dated as of August 21, 2007, by
    and between Wells REIT II  5995 Opus Parkway, LLC and
    Virtual Radiologic Corporation.10
.8(6)

Office Lease, effective December 3, 2007, by and between
    Windsor Plaza, LLC and Virtual Radiologic Corporation.10
.9(1)

Investor Rights Agreement, dated as of May 2, 2005, by and
    among Virtual Radiologic Consultants, Inc., the parties listed
    on the signature page thereto as investors and, for purposes of
    Section 1 only, William Blair & Company, L.L.C.10
.10(1)

Form of Indemnification Agreement, between Virtual Radiologic
    Corporation and each member of the Board of Directors.10
.11(4)

Amended and Restated Virtual Radiologic Corporation Equity
    Incentive Plan.*10
.12(1)

Form of Incentive Stock Option Agreement.*10
.13(1)

Form of Non-Incentive Stock Option Agreement*10
.14

Form of Restricted Stock Award Agreement*** *10
.15(4)

Second Revised Licensing Agreement, dated as of April 1,
    2006, between Fujifilm Medical Systems U.S.A., Inc. and Virtual
    Radiologic Corporation.10
.16(9)

Membership Interest Purchase Agreement between the Company,
    Diagna Radiology, LLC, and the owners of Diagna Radiology, LLC
    dated April 14, 2008.10
.17(4)

Stock Purchase Agreement, dated as of April 2007, by and between
    the individuals listed on Schedule A thereto, Generation
    Capital Partners VRC LP, individually and as the agent for
    Generation Members Fund II LP, and Virtual Radiologic
    Corporation.10
.18(4)

Employment Agreement, effective as of July 1, 2006, by and
    between Virtual Radiologic Corporation and Eduard
    Michel, M.D.*10
.19(11)

First Amendment to Employment Agreement dated December 30,
    2008, between Virtual Radiologic Corporation and Eduard
    Michel, M.D.*10
.20(5)

Independent Physician Agreement, dated as of April 12,
    2006, by and between Virtual Radiologic Professionals, LLC and
    Eduard Michel, M.D.*10
.21(4)

Employment Agreement, effective as of October 1, 2007, by
    and between Virtual Radiologic Corporation and Sean Casey*10
.22(11)

First Amendment to Employment Agreement dated December 30,
    2008, between Virtual Radiologic Corporation and Sean
    Casey, M.D.* 85




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##### Table of Contents



Exhibit No.

Description10
.23(4)

Amended and Restated Independent Physician Agreement, effective
    as of September 13, 2007, by and between Virtual Radiologic
    Professionals, LLC and Sean Casey, M.D.*10
.24(12)

Transition Agreement, effective as of January 26, 2009, by
    and among Virtual Radiologic Corporation, Sean O.
    Casey, M.D., and, for solely the purposes of
    Section 1(f) thereof, Virtual Radiologic Professionals, LLC*10
.25(3)

Employment Agreement, effective as of May 29, 2007, between
    Virtual Radiologic Corporation and Robert Kill.*10
.26(11)

First Amendment to Employment Agreement dated December 30,
    2008, between Virtual Radiologic Corporation and Robert Kill*10
.27(12)

Second Amendment to Employment Agreement, effective as of
    January 26, 2009, between Virtual Radiologic Corporation
    and Robert Kill*10
.28(8)

Employment Agreement between the Company and Leonard Purkis,
    effective April 14, 2008.*10
.29(11)

First Amendment to Employment Agreement dated December 30,
    2008, between Virtual Radiologic Corporation and Leonard Purkis.*10
.30(6)

Employment Agreement, dated as of April 2, 2007, between
    Virtual Radiologic Corporation and Richard W. Jennings.*10
.31(3)

Amendment No. 1 to Employment Agreement, dated as of
    April 17, 2007, by and between Virtual Radiologic
    Corporation and Richard W. Jennings.*10
.32(11)

Second Amendment to Employment Agreement dated December 30,
    2008, between Virtual Radiologic Corporation and Richard W.
    Jennings.*10
.33

Employment Agreement dated January 1, 2009 between Virtual
    Radiologic Corporation and Michael J. Kolar.*** *10
.34(2)

Professional and Management Services Agreement and License,
    dated as of January 1, 2006, by and between Virtual
    Radiologic Professionals, LLC and Virtual Radiologic
    Corporation.10
.35(2)

Amendment No. 1 to Professional and Management Services
    Agreement and License, dated as of February 1, 2007, by and
    between Virtual Radiologic Professionals, LLC and Virtual
    Radiologic Corporation.10
.36(7)

Amendment No. 2 to Professional and Management Services
    Agreement and License, dated as of January 30, 2008, by and
    between Virtual Radiologic Professionals, LLC and Virtual
    Radiologic Corporation.10
.37(10)

Amendment to Amendment No. 2 to Professional and Management
    Services Agreement and License, dated as of April 22, 2008,
    by and between Virtual Radiologic Professionals, LLC and Virtual
    Radiologic Corporation.10
.38(2)

Management Services Agreement, dated as of January 1, 2006,
    by and between Virtual Radiologic Corporation and Virtual
    Radiologic Professionals of California, P.A.10
.39(7)

Amendment No. 1 to Management Services Agreement, dated as
    of January 30, 2008, by and between Virtual Radiologic
    Professionals of California, P.A. and Virtual Radiologic
    Corporation.10
.40(2)

Management Services Agreement, dated as of January 1, 2006,
    by and between Virtual Radiologic Corporation and Virtual
    Radiologic Professionals of Illinois, P.A.10
.41(7)

Amendment No. 1 to Management Services Agreement, dated as
    of January 30, 2008, by and between Virtual Radiologic
    Professionals of Illinois, S.C. and Virtual Radiologic
    Corporation.10
.42(2)

Management Services Agreement, dated as of January 1, 2006,
    by and between Virtual Radiologic Corporation and Virtual
    Radiologic Professionals of Michigan, P.A.10
.43(7)

Amendment No. 1 to Management Services Agreement, dated as
    of January 30, 2008, by and between Virtual Radiologic
    Professionals of Michigan, P.C. and Virtual Radiologic
    Corporation.10
.44(2)

Management Services Agreement, dated as of January 1, 2006,
    by and between Virtual Radiologic Corporation and Virtual
    Radiologic Professionals of Minnesota, P.A.10
.45(7)

Amendment No. 1 to Management Services Agreement, dated as
    of January 30, 2008, by and between Virtual Radiologic
    Professionals of Minnesota, P.A. and Virtual Radiologic
    Corporation. 86




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##### Table of Contents



Exhibit No.

Description10
.46(2)

Management Services Agreement, dated as of January 1, 2006,
    by and between Virtual Radiologic Corporation and Virtual
    Radiologic Professionals of New York, P.A.10
.47(7)

Amendment No. 1 to Management Services Agreement, dated as
    of January 30, 2008, by and between Virtual Radiologic
    Professionals of New York, P.A. and Virtual Radiologic
    Corporation.10
.48(2)

Management Services Agreement, dated as of January 1, 2006,
    by and between Virtual Radiologic Corporation and Virtual
    Radiologic Professionals of Texas, P.A.10
.49(7)

Amendment No. 1 to Management Services Agreement, dated as
    of January 30, 2008, by and between Virtual Radiologic
    Professionals of Texas, P.A. and Virtual Radiologic
    Corporation.10
.50(2)

Professional Services Agreement, dated as of January 1,
    2006, by and between Virtual Radiologic Professionals, LLC, and
    Virtual Radiologic Professionals of California, P.A.10
.51(2)

Amendment No. 1 to Professional Services Agreement, dated
    as of February 1, 2007, by and between Virtual Radiologic
    Professionals, LLC, and Virtual Radiologic Professionals of
    California, P.A.10
.52(7)

Amendment No. 2 to Professional Services Agreement, dated
    as of January 30, 2008, by and between Virtual Radiologic
    Professionals, LLC and Virtual Radiologic Professionals of
    California, P.A.10
.53(2)

Professional Services Agreement, dated as of January 1,
    2006, by and between Virtual Radiologic Professionals, LLC, and
    Virtual Radiologic Professionals of Illinois, P.A.10
.54(2)

Amendment No. 1 to Professional Services Agreement, dated
    as of February 1, 2007, by and between Virtual Radiologic
    Professionals, LLC and Virtual Radiologic Professionals of
    Illinois, S.C.10
.55(7)

Amendment No. 2 to Professional Services Agreement, dated
    as of January 30, 2008, by and between Virtual Radiologic
    Professionals, LLC and Virtual Radiologic Professionals of
    Illinois, S.C.10
.56(2)

Professional Services Agreement, dated as of January 1,
    2006, by and between Virtual Radiologic Professionals, LLC, and
    Virtual Radiologic Professionals of Michigan, P.A.10
.57(2)

Amendment No. 1 to Professional Services Agreement, dated
    as of February 1, 2007, by and between Virtual Radiologic
    Professionals, LLC, and Virtual Radiologic Professionals of
    Michigan, P.A.10
.58(7)

Amendment No. 2 to Professional Services Agreement, dated
    as of January 30, 2008, by and between Virtual Radiologic
    Professionals, LLC and Virtual Radiologic Professionals of
    Michigan, P.C.10
.59(2)

Professional Services Agreement, dated as of January 1,
    2006, by and between Virtual Radiologic Professionals, LLC, and
    Virtual Radiologic Professionals of Minnesota, P.A.10
.60(2)

Amendment No. 1 to Professional Services Agreement, dated
    as of February 1, 2007, by and between Virtual Radiologic
    Professionals, LLC, and Virtual Radiologic Professionals of
    Minnesota, P.A.10
.61(7)

Amendment No. 2 to Professional Services Agreement, dated
    as of January 30, 2008, by and between Virtual Radiologic
    Professionals, LLC, and Virtual Radiologic Professionals of
    Minnesota, P.A.10
.62(2)

Professional Services Agreement, dated as of January 1,
    2006, by and between Virtual Radiologic Professionals, LLC, and
    Virtual Radiologic Professionals of New York, P.A.10
.63(2)

Amendment No. 1 to Professional Services Agreement, dated
    as of February 1, 2007, by and between Virtual Radiologic
    Professionals, LLC, and Virtual Radiologic Professionals of New
    York, P.A.10
.64(7)

Amendment No. 2 to Professional Services Agreement, dated
    as of January 30, 2008, by and between Virtual Radiologic
    Professionals, LLC and Virtual Radiologic Professionals of New
    York, P.A.10
.65(2)

Professional Services Agreement, dated as of January 1,
    2006, by and between Virtual Radiologic Professionals, LLC, and
    Virtual Radiologic Professionals of Texas, P.A.10
.66(2)

Amendment No. 1 to Professional Services Agreement, dated
    as of February 1, 2007, by and between Virtual Radiologic
    Professionals, LLC, and Virtual Radiologic Professionals of
    Texas, P.A.10
.67(7)

Amendment No. 2 to Professional Services Agreement, dated
    as of January 30, 2008, by and between Virtual Radiologic
    Professionals, LLC and Virtual Radiologic Professionals of
    Texas, P.A.21
.1

List of subsidiaries of Registrant.***23
.1

Consent of PricewaterhouseCoopers LLP.***31
.1

Certification by Principal Executive Officer pursuant to
    Rule 13a-14(a)
    or 15d-14(a) of the Securities Exchange Act of 1934, as amended,
    as adopted pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002.*** 87




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##### Table of Contents



Exhibit No.

Description31
.2

Certification of Principal Financial Officer pursuant to
    Rule 13a-14(a)
    or 15d-14(a) of the Securities Exchange Act of 1934, as amended,
    as adopted pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002.***32
.1

Certification by Chief Executive Officer pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.***32
.2

Certification by Chief Financial Officer pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.***     (1)
    
    Incorporated by reference to the Registration Statement on Form
    S-1
    (No. 333-136504)
    filed by the Registrant on September 26, 2006, as amended.(2)
    
    Incorporated by reference to the Registration Statement on Form
    S-1
    (No. 333-136504)
    filed by the Registrant on February 9, 2007, as amended.(3)
    
    Incorporated by reference to the Registration Statement on Form
    S-1
    (No. 333-136504)
    filed by the Registrant on July 2, 2007, as amended.(4)
    
    Incorporated by reference to the Registration Statement on Form
    S-1
    (No. 333-136504)
    filed by the Registrant on September 17, 2007, as amended.(5)
    
    Incorporated by reference to the Registration Statement on
    Form S-1
    (No. 333-136504)
    filed by the Registrant on October 19, 2007, as amended.(6)
    
    Incorporated by reference to the Current Report on
    Form 8-K
    (No
    001-33815)
    filed by the Registrant on December 7, 2007(7)
    
    Incorporated by reference to the Current Report on
    Form 8-K
    (No.
    001-33815)
    filed by the Registrant on February 1, 2008.(8)
    
    Incorporated by reference to the Current Report on
    Form 8-K
    (No.
    001-33815)
    filed by the Registrant on April 9, 2008.(9)
    
    Incorporated by reference to the Current Report on
    Form 8-K
    (No.
    001-33815)
    filed by the Registrant on April 16, 2008.(10)
    
    Incorporated by reference to the Current Report on
    Form 8-K
    (No.
    001-33815)
    filed by the Registrant on April 25, 2008.(11)
    
    Incorporated by reference to the Current Report on
    Form 8-K
    (No.
    001-33815)
    filed by the Registrant on January 2, 2009.(12)
    
    Incorporated by reference to the Current Report on
    Form 8-K
    (No.
    001-33815)
    filed by the Registrant on January 29, 2009(13)
    
    Incorporated by reference to the Current Report on
    Form 8-K
    (No.
    001-33815)
    filed by the Registrant on February 9, 2009*
    
    Indicates management contract or compensatory plan contract or
    arrangement.***
    
    Filed herewith.
    
    Confidential treatment has been requested for certain portions
    of this exhibit, which portions have been omitted and filed
    separately with the Securities and Exchange Commission. 88




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##### Table of Contents



SIGNATURES  th
    By:
    /s/  Robert
    C. Kill   Title:
    President and Chief Executive Officer    Signature

Title

Date/s/  Robert
    C. KillRobert
    C. Kill

President and Chief Executive Officer (Principal Executive
    Officer)

February 20, 2009/s/  Leonard
    C. PurkisLeonard
    C. Purkis

Chief Financial Officer
    (Principal Financial and Accounting Officer)

February 20, 2009/s/  Sean
    O. Casey, M.D.Sean
    O. Casey, M.D.

Chairman of the Board of Directors

February 20, 2009/s/  Nabil
    N. El-HageNabil
    N. El-Hage

Director

February 20, 2009/s/  Andrew
    P. HertzmarkAndrew
    P. Hertzmark

Director

February 20, 2009/s/  Mark
    E. JenningsMark
    E. Jennings

Director

February 20, 2009/s/  Eduard
    Michel, M.D., Ph.D.Eduard
    Michel, M.D., Ph.D.

Director

February 20, 2009/s/  Richard
    J. NigonRichard
    J. Nigon

Director

February 20, 2009/s/  Kevin
    H. RocheKevin
    H. Roche

Director

February 20, 2009/s/  David
    L. SchlotterbeckDavid
    L. Schlotterbeck

Director

February 20, 2009/s/  Brian
    F. SullivanBrian
    F. Sullivan

Director

February 20, 2009  89