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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-K





(Mark One)



|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2009

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from                      to

Commission File Number 000-51786





NightHawk
Radiology Holdings, Inc.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Delaware                                                       |  | 87-0722777                       
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)
|                                                               | 
|4900 N. Scottsdale Road, 6thFloor, Scottsdale, Arizona         |  | 85251                            
|(Address of principal executive offices)                       |  | (Zip code)                       

(480)
822-4000

(Registrants telephone number, including area code)





Securities registered pursuant to Section 12(b) of the Act:

Common Stock, par value $0.001 per share

NASDAQ Global Market

Securities registered pursuant to Section 12(g) of the Act:

None





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

Indicate by check mark whether the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.    Yes   ̈    No  x

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of the registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  x

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



|                           |  |                                               |  |                          |  |                             
|-------------------------- |  | --------------------------------------------- |  | ------------------------ |  | ----------------------------
|Large accelerated filer   ̈ |  | Accelerated filer  x                          |  | Non-accelerated filer   ̈ |  | Smaller reporting company   ̈
|                           |  | (do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes   ̈    No  x

As of June 30, 2009 (the last business day of the registrants most recently completed second quarter), the aggregate market value of the voting stock held by non-affiliates of the Registrant was $97.8 million. Shares of voting
stock beneficially held by each officer and director and by each person who owns 5% or more of the outstanding voting stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.

As of February 5, 2010, 23,575,061 shares of the
registrants Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Listed hereunder are the documents, any portions of which are incorporated by reference and the Parts of this Form 10-K into which such
portions are incorporated:



|1. | The Registrants definitive proxy statement for use in connection with the Annual Meeting of Stockholders to be held on or about April 30, 2010 to be filed
within 120 days after the Registrants year ended December 31, 2009, portions of which are incorporated by reference into Part III of this Form 10-K.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------









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TABLE OF CONTENTS



|           |  |                                                                                                             |  |   
|---------- |  | ----------------------------------------------------------------------------------------------------------- |  | --
|Part I     |  |                                                                                                             |  |   
|           |  | Cautionary Statement                                                                                        |  | 1 
|Item 1.    |  | Business                                                                                                    |  | 1 
|Item 1A.   |  | Risk Factors                                                                                                |  | 8 
|Item 1B.   |  | Unresolved Staff Comments                                                                                   |  | 22
|Item 2.    |  | Properties                                                                                                  |  | 22
|Item 3.    |  | Legal Proceedings                                                                                           |  | 22
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                         |  | 23
|           |  |                                                                                                            
|Part II    |  |                                                                                                             |  |   
|Item 5.    |  | Market for Registrants Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 24
|Item 6.    |  | Selected Consolidated Financial Data                                                                        |  | 27
|Item 7.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                       |  | 28
|Item 7A.   |  | Quantitative and Qualitative Disclosures About Market Risk                                                  |  | 40
|Item 8.    |  | Financial Statements and Supplementary Data                                                                 |  | 41
|Item 9.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                        |  | 67
|Item 9A.   |  | Controls and Procedures                                                                                     |  | 67
|Item 9B.   |  | Other Information                                                                                           |  | 69
|           |  |                                                                                                            
|Part III   |  |                                                                                                             |  |   
|Item 10.   |  | Directors, Executive Officers and Corporate Governance of the Registrant                                    |  | 69
|Item 11.   |  | Executive Compensation                                                                                      |  | 69
|Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters              |  | 69
|Item 13.   |  | Certain Relationships and Related Transactions and Director Independence                                    |  | 69
|Item 14.   |  | Principal Accounting Fees and Services                                                                      |  | 69
|           |  |                                                                                                            
|Part IV    |  |                                                                                                             |  |   
|Item 15.   |  | Exhibits, Financial Statement Schedules                                                                     |  | 70
|Signatures |  | 75                                                                                                         



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Cautionary Statement for Purposes of Safe Harbor Provisions of the Private Securities
Litigation Reform Act of 1995

This Annual Report contains forward-looking statements that
involve risks and uncertainties. The statements contained in this Annual Report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. In some cases you can identify forward-looking statements by terms such as may, will, should, could, would, expect,
plan, anticipate, believe, estimate, project, predict, and potential, and similar expressions intended to identify forward-looking statements. These forward-looking
statements include, without limitation, statements relating to future economic conditions in general and statements about our future:



| |  |  | strategy and business prospects;
| | - |  | --------------------------------



| |  |  | development and expansion of services, and the size, growth, and leadership of the potential markets for these services;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | development of new customer relationships and products;
| | - |  | -------------------------------------------------------



| |  |  | sales, earnings, income, expenses, operating results, tax rates, operating and gross profit and profit margins, valuations, receivables, reserves,
liquidity, investment income, currency rates, employee stock option exercises, capital resource needs, customers, and competition;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | ability to obtain and protect our intellectual property and proprietary rights; and
| | - |  | -----------------------------------------------------------------------------------



| |  |  | acquisitions and transaction costs and adjustments.
| | - |  | ---------------------------------------------------

All of these forward-looking statements are based on information available to us on the date of this Annual Report. Our actual results
could differ materially from those discussed in this Annual Report. The forward-looking statements contained in this Annual Report, and other written and oral forward-looking statements made by us from time to time, are subject to certain risks and
uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in Item 1A of this report
entitled Risk Factors.



|ITEM 1. | Business
|------- | --------

NightHawk Radiology Holdings, Inc. (NightHawk), headquartered in Scottsdale, Arizona, is leading the transformation of the practice of radiology by providing high-quality, cost-effective solutions to radiology groups and
hospitals throughout the United States. Nighthawk Radiology Services, LLC, which is a wholly-owned subsidiary of NightHawk, was formed in Coeur dAlene, Idaho in 2001 as an Idaho limited liability company and is currently the entity through
which we conduct our principal operations. In March 2004, NightHawk Radiology Holdings, Inc. was formed to facilitate a recapitalization of Nighthawk Radiology Services, LLC.

Industry Background

The practice of diagnostic radiology involves the
interpretation of images of the human body to aid in the diagnosis and treatment of diseases, conditions and injuries. Diagnostic imaging procedures include computed tomography, or CT, magnetic resonance imaging, or MRI, ultrasound, nuclear medicine
and X-ray technologies. Diagnostic radiologists correlate imaging findings with clinical information and other medical examinations, make diagnoses and may recommend further examinations or treatments.

Due to significant advances in imaging quality and technology, diagnostic imaging procedures are becoming increasingly essential components
of the practice of medicine in most medical centers and hospitals. The non-invasive nature of most diagnostic imaging procedures, combined with faster digital processing capabilities and rapid broadband connectivity that allows for the transmission
of images to radiology experts, has made the performance of these procedures in the emergency room and in other treatment venues more appealing and practical. As a result, attending physicians are increasing their reliance on imaging procedures and
radiological



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interpretations as a standard of care to aid in patient care management decisions, resulting in continuing growth in the volume of radiological procedures performed. This increase has also been
driven by an aging population, advances in diagnostic imaging technologies, the growing availability and accessibility of imaging equipment in hospitals and clinics and more frequent physician referrals for diagnostic imaging procedures.
Additionally, advances in digital technology now allow for the transmission of radiological images in a high quality, standardized, cost-effective and encrypted format, which permits radiologists to provide their professional services from locations
other than where the imaging services are performed.

While the volume of diagnostic imaging procedures is expected to
continue to grow, the number of practicing radiologists has historically been growing at a slower pace. The challenges associated with these trends are further compounded by the fact that radiology groups are required to provide their hospital
customers with services 24 hours per day, seven days a week. Consequently, radiology practice groups and hospitals are seeking the assistance of outside providers to assist their own radiology staffs with both day and night coverage. Although the
growth in the number of practicing radiologists has been slowing in recent years, some evidence suggests that this trend may be weakening. If the growth in the number of radiologists accelerates, we could face diminished demand for our services and
increased competition.

Our Solution Suite

We are leading the transformation of the practice of radiology by providing high-quality, cost-effective solutions to radiology groups and hospitals throughout the United States. Our team of independent
contractor, American Board of Radiology-certified, state-licensed and hospital-privileged physicians, provides professional services (interpretations, exams, scans or reads) 24 hours per day, seven
days a week, for approximately 26% of all U.S. hospitals. The reads that we provide continue to consist primarily of off-hours preliminary reads, but increasingly include final and sub-specialty interpretations. In addition to these professional
services, we also provide our customers with cardiac 3D reconstructions, radiology clinical workflow technology, and business services, all designed to enhance the care they provide to patients and improve the efficiency of their practices. For more
information, visit our website at www.nighthawkrad.net. The information contained on, or accessible through, our website is not incorporated in this filing.

Professional Services

Preliminary Interpretations

Approximately eighty-six percent of the professional services we currently provide are preliminary reads from images generated from hospital
emergency departments. These reads are used by the treating physician to determine whether any immediate action is required in response to symptoms being presented by a patient. Typically, the preliminary diagnosis is followed the next morning by a
more exhaustive final read. Because third-party payors and patients pay only for the final reads and not the preliminary reads that we provide, our services related to these preliminary reads do not result in any incremental costs to third-party
payors or patients nor are we currently dependent on payments by them for these reads. Recently we have seen an increase in interest for final emergent reads in lieu of a preliminary read. Like a preliminary read, these reads are typically generated
from hospital emergency departments but our customers are requesting a final read instead of a preliminary. Our customers generally pay us on a per read basis.

Final and Sub-specialty Interpretations

In response to the growing needs
of our radiology group customers, we also provide our customers with final and sub-specialty interpretations in addition to the preliminary reads we have historically provided. The growth in imaging, combined with the recruiting challenges of many
radiology groups, continues to put increasing professional demands on radiologists, requiring radiologists to perform an increasing number of interpretations, and to work longer hours. Providing adequate staffing to hospitals, 24 hours per day,
seven days a



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week, continues to be a challenge for many radiology groups. Hiring additional radiologists to address all the variables that exist with staffing, together with the management challenges
associated with the increasing complexity of imaging modalities, is making our solution suite a valuable and affordable alternative for radiology groups. By offering final and sub-specialty read capabilities, including final emergent exams, we can
reduce this burden as well as provide our customers with access to our highly-qualified, sub-specialty-trained radiologists which helps improve the quality of care for our customers patients. Our customers generally pay us on a per read basis
and then these customers bill to and collect from the third-party payors.

Business Services

In addition to the professional radiology services we offer, we also offer our customers a complete suite of business services, including
revenue cycle management, facilities and human resources management, transcription, information technology, quality control, radiologist support and other services required to effectively operate a radiology practice. Currently, almost all of our
business services revenue is generated from our long-term administrative services agreement with St. Paul Radiology, P.A.

Operations

Affiliated radiologists.    As of December 31, 2009, we had approximately 140 affiliated
radiologists who were providing services for us. We structure our relationships with our affiliated radiologists as independent contractors and we have no control over the radiological services or interpretations rendered by the radiologists or
their independent judgment concerning the practice of medicine. The contracts we have with our affiliated radiologists typically provide that we will make available a minimum number of hours that the radiologists can work per year. In each case, the
contract is structured so that the radiologist has significant flexibility in determining, and control of, the radiologists work schedule. We believe that our affiliated radiologists consider this flexibility an attractive and unique aspect of
their relationship with us.

For each hospital from which an affiliated radiologist receives radiological images, the
affiliated radiologist must hold a current license in good standing to practice medicine in the state in which the hospital is located and must have been granted privileges to practice at that particular hospital. As a result, and because we were
providing services to more than 1,500 hospitals as of December 31, 2009, we have licensed each of our affiliated radiologists in an average of 36 states and have privileged each of our affiliated radiologists at an average of over 500
hospitals. By ensuring that our affiliated radiologists are licensed and privileged at many of our hospital sites, we design redundancy into our solution in order to minimize or eliminate the periods of time during which we do not have an affiliated
radiologist available to provide services to a particular hospital.

Many of the hospital privileges held by our affiliated
radiologists were issued pursuant to a standard promulgated by The Joint Commission that allows the local hospital to rely upon the credentialing and privileging processes performed by us with respect to our affiliated radiologists. Essentially,
because we are a Joint Commission-accredited facility, other Joint Commission-accredited facilities can rely on our processes as opposed to duplicating work already performed in accordance with approved standards. However, over the past few years,
the Centers for Medicare and Medicaid Services, or CMS, has increasingly expressed concerns regarding this ability for hospitals to rely on the processes of another institution. In response to the CMS position, The Joint Commission has recently
announced that the standards allowing this practice will expire in July 2010.

In light of the planned changes adopted by The
Joint Commission, we are working with our customers that have historically relied upon these standards to institute new credentialing processes to help them comply with the new standards once they take effect. We anticipate that, because of the
additional workload that will be inherent in any new process that our customers may adopt, these customers will seek to credential and privilege fewer physicians than are currently privileged at those sites. This may require us to change how we
schedule the services of our affiliated radiologists which could, in turn, negatively impact our financial condition and results of operations.



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The licensing procedures and requirements vary according to each states laws and
regulations governing the issuance of medical licenses. These procedures typically include an extensive application process that covers significant aspects of the applicants professional and personal life. In addition, to maintain a license to
practice medicine in a given state, the state will often require the physician to undergo continuing education and training and maintain minimum thresholds of medical liability insurance.

To facilitate compliance with the licensing requirements of the various states in which we provide services, we employ licensing specialists
to manage the state medical license application processes for our affiliated radiologists. These state-licensing specialists perform a number of functions, including tracking expiration dates, implementing procedures to renew licenses, and tracking
continuing medical education, medical liability insurance coverage and other ongoing licensing-related obligations.

Network and workflow.    We deliver our professional services through a technology platform that utilizes public and private network infrastructures, multiple datacenters, and proprietary workflow and image
management technologies. Our systems have been designed to be secure, scalable and redundant. We employ information technology professionals to maintain our systems and to provide customer technical support 24 hours per day, seven days a week. In
addition, we continue to enhance our technology platform through the efforts of our internal software development personnel as well as by leveraging leading third-party software and hardware solutions.

Customers

As of
December 31, 2009, we provided professional radiology services to nearly 800 radiology practices serving more than 1,500 hospitals. In 2009, we generated $16.9 million in revenue from one customer, St. Paul Radiology, P.A., representing 10.4%
of our revenue, under a multiyear business services agreement. As described more fully in Item 3 Litigation and in Item 1A Risk Factors, we are currently involved in a dispute with St. Paul Radiology, P.A. regarding
our services agreement with them, and the revenue generated under our agreement with St. Paul Radiology, P.A. may decline materially or cease if the dispute is not resolved in a manner favorable to us.

Our customer contracts typically have a one-year term and automatically renew for successive terms unless earlier terminated pursuant to the
terms of the contract. Our customer contracts specify the agreed upon coverage periods and whether preliminary and/or final reads will be provided. We typically charge an agreed upon per-read fee that varies with the type and complexity of the
interpretation being performed.

Sales and Marketing

Sales.    We sell our services primarily through our direct sales force comprised of telesales and field sales personnel. Our sales professionals focus their efforts on
radiology groups of all sizes and, in some cases, cardiology groups and hospitals.

Marketing.    Our marketing objectives are to generate qualified sales leads, build our brand and raise awareness of NightHawk as the leading provider of radiology solutions to radiology groups across the United
States.

Our principal marketing initiatives include:



| |  |  | direct mail campaigns,
| | - |  | ----------------------



| |  |  | participation in, and sponsorship of, radiology conferences and trade shows, and
| | - |  | --------------------------------------------------------------------------------



| |  |  | using our website to provide service and company information.
| | - |  | -------------------------------------------------------------



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Competition

The market for our services is highly competitive, rapidly evolving and fragmented, and subject to changing technology and market dynamics. Our primary competitors are Virtual Radiologic Corporation
(VRC), as well as other large and small scale service providers, some of which have only a local or regional presence. We believe that the primary competitive factors in our market include:



| |  |  | quality of the service provided,
| | - |  | --------------------------------



| |  |  | price of service,
| | - |  | -----------------



| |  |  | report accuracy and content,
| | - |  | ----------------------------



| |  |  | turnaround time required to complete and return interpretations,
| | - |  | ----------------------------------------------------------------



| |  |  | market acceptance by radiology groups and hospitals,
| | - |  | ----------------------------------------------------



| |  |  | quality and reliability of service-provider technology and workflow infrastructure,
| | - |  | -----------------------------------------------------------------------------------



| |  |  | quality and availability of customer support,
| | - |  | ---------------------------------------------



| |  |  | sales and marketing capabilities of the service provider, and
| | - |  | -------------------------------------------------------------



| |  |  | financial stability of the service provider.
| | - |  | --------------------------------------------

Government Regulation and Supervision

The healthcare industry is highly
regulated and remains subject to significant political debate at all levels of our government. Our ability to operate profitably will depend in part upon the ability of us, our affiliated radiologists, and our customers and their radiologists to
continue to operate effectively in whatever health care environment we might find ourselves in the future. At a minimum, we know that our business depends upon our ability to obtain and maintain all necessary licenses and other approvals and operate
in compliance with current applicable healthcare regulations. Although it remains unclear what changes to our healthcare system may result from the healthcare reform packages that are currently being debated, we believe that healthcare regulations
will continue to change in the future. Although we believe that we are operating in compliance with all applicable federal and state laws, many aspects of our business operations have not been the subject of judicial or regulatory interpretation. We
cannot provide assurance that a review of our business by courts or regulatory authorities will not result in a determination that could adversely affect our operations or that the healthcare regulatory environment will not change in a way that
restricts our operations. Some of the areas of healthcare regulation that affect our business are as follows:

Physician
licensure laws.    The practice of medicine, including the practice of radiology and teleradiology, is subject to state licensure laws, regulations and approvals. Physicians who provide professional medical services to a
patient via a telemedicine system must, in most instances, hold a valid license to practice medicine in the state in which the patient is located. We have established a system for ensuring that our affiliated radiologists are appropriately licensed
under applicable state law.

Corporate practice of medicine; fee splitting.    The laws of many
states, including states in which our customers are located, prohibit us from exercising control over the medical judgments or decisions of our affiliated radiologists and from engaging in certain financial arrangements, such as splitting
professional fees with physicians. These laws and their interpretations vary from state to state and are enforced by state courts and regulatory authorities, each with broad discretion. We structure our relationships with our affiliated radiologists
and our customers in a manner that we believe is in compliance with prohibitions against the corporate practice of medicine and fee splitting, and in a manner that requires that our affiliated radiologists exercise complete control over their own
medical judgments and decisions.

Medicare and Medicaid reimbursement programs affecting professional
services.    Professional radiology interpretation services performed from a location outside of the United States are generally not reimbursable by



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the Medicare program and certain state Medicaid programs. Accordingly, we (or our customers) do not bill Medicare or Medicaid programs for professional services performed by our affiliated
radiologists located outside of the United States. Instead, we ensure that all services that may be subject to reimbursement (i.e. final interpretations) are performed by our affiliated physicians located within the United States. Currently, over
100 of our affiliated radiologists are located in the United States.

As discussed above, our customers generally pay us
directly on a per read basis. These customers then, in turn, typically bill and receive payments from Medicare and/or other third party payors for the professional services which were performed by our affiliated radiologists. This is done through a
procedure called reassignment. Medicare and many of the other third party payors have established certain rules against such reassignment unless the procedures fall within specific exceptions. We believe that the services provided by our
affiliated radiologists satisfy one or more of these exceptions and we believe our reassignment procedures are consistent with all applicable laws and regulations. However, complying with these regulations can prove burdensome to our customers and
results in additional complexity in our final interpretation service offering.

For example, Medicare reimbursement rules
currently provide that the proper Medicare carrier to pay physician claims is the Medicare carrier for the region in which the physician is located, rather than the Medicare carrier for the region in which the patient receiving the services is
located. Many of our affiliated radiologists are located in a Medicare region that is different from the Medicare region in which the patient is located. Since it is incumbent on our customers to file with the proper Medicare carrier in order to
receive payment, it may be necessary for our customers to enroll with additional Medicare carriers in order to properly submit claims for reimbursement. To the extent that our customers are unwilling or unable to do so, they may be unwilling to use
our services unless we were to submit the claims. Should this occur, we would either be required to forgo business with such customers or be required to design, develop and implement an appropriate recordkeeping and billing system to bill Medicare
and Medicaid. If we are unable to effectively address these challenges, our business, financial condition and results of operations could be adversely affected.

Federal and state anti-kickback prohibitions.    Various federal and state laws govern financial arrangements among healthcare providers. The federal anti-kickback law prohibits
the knowing and willful offer, payment, solicitation or receipt of any form of remuneration in return for, or with the purpose to induce, the referral of Medicare, Medicaid, or other federal healthcare program patients, or in return for, or with the
purpose to induce, the purchase, lease or order of items or services that are covered by Medicare, Medicaid, or other federal healthcare programs. Similarly, many state laws prohibit the solicitation, payment or receipt of remuneration in return
for, or to induce the referral of patients in private as well as government programs. Violation of these anti-kickback laws may result in substantial civil or criminal penalties for individuals or entities and/or exclusion from participating in
federal or state healthcare programs. We believe that we are operating in compliance with applicable federal and state anti-kickback laws and that our contractual arrangements with our customers are structured in a manner that is compliant with such
laws.

Health Insurance Portability and Accountability Act of 1996.    The Health Insurance
Portability and Accountability Act of 1996, or HIPAA authorizes the imposition of civil money penalties against entities that employ or enter into contracts with individuals or entities that have been excluded from participation in the Medicare
or Medicaid programs. We perform background checks on our affiliated radiologists, and do not believe that we employ or contract with any excluded individuals or entities. However, a finding that we have violated this provision of HIPAA could have a
material adverse effect on our business and financial condition.

HIPAA also established several separate criminal penalties
for making false or fraudulent claims to insurance companies and other non-governmental payors of healthcare services. These provisions are intended to punish some of the same conduct in the submission of claims to private payors as the Federal
False Claims Act covers in connection with governmental health programs. We believe that our services have not historically been provided in a way that would place either our clients or ourselves at risk of violating the HIPAA anti-fraud statutes.
We could be vulnerable to prosecution under these statutes if any of our customers deliberately or recklessly submits claims that contain false, misleading or incomplete information.



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In addition, the Administrative Simplification provisions of HIPAA require the promulgation
of regulations establishing national standards for, among other things, certain electronic healthcare transactions, the use and disclosure of certain individually identifiable patient health information, and the security of the electronic systems
maintaining this information. These are commonly known as the HIPAA transaction and code set standards, privacy standards, and security standards, respectively.

The administrative provisions of HIPAA direct the federal government to adopt national electronic standards for automated transfer of certain healthcare data among healthcare payors, plans and providers.
HIPAA is designed to enable the entire healthcare industry to communicate electronic data using a single set of standards. We are a covered entity under HIPAA and, as such, we must operate in compliance with the electronic transaction
code standards, privacy standards and security standards. We have developed policies, procedures and systems for handling patient health information and data that we believe are in compliance with the requirements of HIPAA.

In addition to HIPAA, Australia and many U.S. states have adopted statutes and regulations that are similar to or, in some cases, more
stringent than HIPAA. We believe that our operations are in compliance with these statutes and regulations.

Federal
Deficit Reduction Act of 2005.The Federal Deficit Reduction Act of 2005, or the DRA, requires that medical providers receiving more than $5,000,000 in annual Medicaid payments from a specific state must establish certain
written policies to be disseminated to that providers employees, contractors and agents. The written policies required by the DRA include information about the Federal False Claims Act, administrative remedies under the Program Fraud Civil
Remedies Act, state and local laws regarding false claims for those localities in which the practice operates, and the protections given to whistleblowers under such laws. We believe that we are not currently subject to the informational and
educational mandates of the DRA because we do not now receive more than the requisite amount of Medicaid payments from any state.

For more information regarding how these and other healthcare regulations may impact our business, see Part I Item 1A Risk Factors.

Intellectual Property

Our principal intellectual property assets include
our brand and our proprietary software technology. We rely primarily on trade secret and unfair competition laws in the United States and other jurisdictions as well as confidentiality procedures and contractual provisions to protect these assets.
We believe that the name NightHawk cannot be afforded trademark protection as it is a generic term used to describe the provision of off-hours radiology services. However, we intend to pursue all protections available, including common
law claims for unfair competition practices, for improper use of the NightHawk name.

In addition to our trade names, we have
filed one patent application covering certain aspects of our proprietary workflow technology. This patent remains under review by the U.S. Patent and Trade Office.

We enter into confidentiality and proprietary rights agreements with our employees, affiliated radiologists, consultants and other third parties and control access to software, documentation and other
proprietary information.

Employees and Independent Contractors

As of December 31, 2009, we had approximately 500 employees. None of our employees are represented by a labor union. We consider our
relationships with our employees to be good.



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Also as of December 31, 2009, we had approximately 140 affiliated radiologists who
provide services to our customers. Our affiliated radiologists are independent contractors of NightHawk. We consider our relationships with our independent contractors to be good.

Website

Our website address is www.nighthawkrad.net and can be used
to access, free of charge, through the investor relations category, our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable
after we electronically file such material with or furnish it to the SEC. The information on our website is not incorporated as a part of this Annual Report. The public can also obtain copies of these reports by visiting the SECs Public
Reference Room at 100 F Street, NE, Washington DC 20549, or by calling the SEC at 1-800-SEC-0330, or by accessing the SECs website at http://www.sec.gov.



|ITEM 1A. | Risk Factors
|-------- | ------------

YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING AN INVESTMENT DECISION. OUR BUSINESS, PROSPECTS, FINANCIAL CONDITION OR OPERATING RESULTS COULD BE MATERIALLY ADVERSELY AFFECTED BY
ANY OF THESE RISKS. THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE DUE TO ANY OF THESE RISKS AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT. IN ASSESSING THE RISKS DESCRIBED BELOW, YOU SHOULD ALSO REFER TO THE OTHER INFORMATION CONTAINED IN
THIS REPORT, INCLUDING OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES, BEFORE DECIDING TO PURCHASE ANY SHARES OF OUR COMMON STOCK.

We operate in an emerging and rapidly evolving market, which makes it difficult to evaluate our business and prospects.

Our industry is relatively new and is rapidly evolving. As a result, our current business and future prospects are difficult to evaluate. You
must consider our business and prospects in light of the risks and difficulties we encounter as an early leader in a rapidly evolving market. Some of these risks relate to our potential inability to:



| |  |  | effectively manage our business and technology,
| | - |  | -----------------------------------------------



| |  |  | continue to provide consistently high levels of service quality as we expand the scale of our business,
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | develop new services that complement our existing business,
| | - |  | -----------------------------------------------------------



| |  |  | acquire additional customers and maintain current customers in a highly competitive environment,
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | market our services to our customers due to regulatory rules governing reassignment of payments, which could affect our customers ability to
collect fees for services provided by our affiliated radiologists,
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | effectively manage the integration of companies that we may acquire in the future,
| | - |  | ----------------------------------------------------------------------------------



| |  |  | manage growth in personnel and operations,
| | - |  | ------------------------------------------



| |  |  | effectively manage our medical liability risk, and
| | - |  | --------------------------------------------------



| |  |  | recruit and retain radiologists and other key personnel.
| | - |  | --------------------------------------------------------

We may not be able to successfully address these and the other risks described in this report. Failure to adequately do so would harm our
business and cause our operating results to suffer. Furthermore, our early operating history resulted in historical revenue growth rates that we will likely not be able to repeat, and therefore will not be indicative of our future results of
operations. As a result, the price of our common stock could decline.



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The market in which we participate is competitive and we expect competition to
increase in the future, which will make it more difficult for us to sell our services and has resulted and may continue to result in pricing pressure, reduced revenue and reduced market share.

The market for professional radiology services and business process services is competitive and rapidly changing, barriers to entry are
relatively low, and with the introduction of new technologies and market entrants, we expect competition to continue to intensify in the future. In fact, in recent periods we have experienced an increase in competition from regional providers of
services similar to ours. If we fail to compete effectively, our operating results will be harmed. Some of our principal competitors, including our largest competitor, VRC, offer their services at a lower price, which has resulted and may continue
to result in pricing pressure and lost customers. If we are unable to maintain our current pricing or effectively revise the way we compensate our affiliated radiologists, our operating results could be negatively impacted. In addition, pricing
pressures and increased competition could result in reduced revenue and reduced profits.

In addition, if companies larger
than we are enter the market through internal expansion or acquisition of one of our competitors, the change in the competitive landscape could adversely affect our ability to compete effectively. These competitors could have established customer
relationships and greater financial, technical, sales, marketing and other resources than we do, and may be able to respond more quickly to new or emerging technologies or devote greater resources to the development, promotion and sale of their
services. This competition could harm our ability to sell our services, which may lead to lower prices, reduced revenue and, ultimately, reduced market share.

We may be unable to successfully expand our services beyond the off-hours emergency radiology market.

A key part of our strategy to offset the moderation of growth in our provision of preliminary reads involves providing final reads and sub-specialty services; however, our efforts to provide these final
reads and sub-specialty services, or any other services beyond our current services offerings and radiology solutions, may not result in significant revenue growth for us. The markets for final and sub-specialty reads are more complex than the
market for preliminary reads. If we are to be successful in these markets, we will be required to develop, execute and maintain new sales and marketing efforts, as well as new information technology capabilities. In addition, our final and
sub-specialty service offering requires our customers to navigate the billing and collecting rules related to the reads our affiliated physicians provideincluding the billing reassignment rules and the rules regarding where to bill for such
servicesrules that are often cumbersome and difficult for our customers. As a result, our efforts to expand our services into these new markets may divert management resources from existing operations and require us to commit significant
financial resources to an unproven business. If we are unable to effectively address the challenges that these new service offerings present, our business, financial condition and results of operations could be adversely affected.

If our customers perceive that we are offering services that are competitive to theirs, some of our customers may terminate their
agreements with us, which could adversely affect our business, financial condition and results of operation.

Historically, some radiology groups have been concerned that teleradiology companies may potentially become competitive with them for their business. Our core mission has always been to work with and to support our radiology group customers
and we are committed to acting consistently with our mission of supporting our radiology group customers and not competing with them. Despite this, as the largest teleradiology company in the industry, we are particularly vulnerable to the potential
that there could be speculation or misperception by some radiology groups that we may become competitive with their business, which may result in some customers choosing to discontinue doing business with us. If this were to occur, our business,
financial condition and results of operations could be adversely affected.



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If our arrangements with our affiliated radiologists or our customers are found to
violate state laws prohibiting the corporate practice of medicine or fee splitting, our business, financial condition and our ability to operate in those states could be adversely impacted.

The laws of many states, including states in which our customers are located, prohibit us from exercising control over the medical judgments
or decisions of physicians and from engaging in certain financial arrangements, such as splitting professional fees with physicians. These laws and their interpretations vary from state to state and are enforced by state courts and regulatory
authorities, each with broad discretion. We enter into agreements with our affiliated radiologists pursuant to which the radiologists render professional medical services using their independent judgment and discretion with no influence by
NightHawk. In addition, we enter into agreements with our customers to deliver professional radiology interpretation services in exchange for a service fee. We structure our relationships with our affiliated radiologists and our customers in a
manner that we believe is in compliance with prohibitions against the corporate practice of medicine and fee splitting. If any state regulatory or similar authority determines that we are engaged in the corporate practice of medicine or that the
payment of service fees to us by our customers constitutes fee splitting, we could be subject to civil and criminal penalties and could be required to restructure or terminate the applicable contractual arrangements. A determination that these
arrangements violate state statutes, or our inability to successfully restructure our relationships with our affiliated radiologists to comply with these statutes, could eliminate customers located in certain states from the market for our services,
which would have a materially adverse effect on our business, financial condition and operations.

Our growth strategy
depends on our ability to recruit and retain qualified radiologists. If we are unable to do so, our future growth would be limited and our business and operating results would be harmed.

Our success is dependent upon our continuing ability to recruit and retain qualified radiologists. An inability to recruit and retain
radiologists would have a material adverse effect on our ability to service our customers and grow our revenues and would adversely affect our results of operations. We face competition for radiologists from other healthcare providers, including
radiology groups, teleradiology companies, research and academic institutions, government entities and other organizations. If we are unable to effectively recruit and retain qualified radiologists, our business, financial condition and results of
operations could be adversely affected.

If our affiliated radiologists are characterized as employees, we would be
subject to employment and withholding liabilities and may be subject to prohibitions against the corporate practice of medicine.

We structure our relationships with our affiliated radiologists in a manner that we believe results in an independent contractor relationship, not an employee relationship. An independent contractor is
generally distinguished from an employee by his or her degree of autonomy and independence in providing services. A high degree of autonomy and independence is generally indicative of a contractor relationship, while a high degree of control is
generally indicative of an employment relationship. Although we believe that our affiliated radiologists are properly characterized as independent contractors, tax or other regulatory authorities may in the future challenge our characterization of
these relationships. If the Internal Revenue Service (IRS) (or other state, federal or foreign courts) were to determine that our affiliated radiologists are employees, and not independent contractors, we would be required to withhold
income taxes, to withhold and pay social security, Medicare and similar taxes and to pay unemployment and other related payroll taxes, would be liable for unpaid past taxes by our affiliated radiologists and may be subject to penalties, all of which
may materially harm our business and operating results. In connection with its audit of our tax filing for the 2006 tax year, the IRS reviewed our characterization of our affiliated radiologists as independent contractors. As a result of that
review, we received a letter on August 27, 2009 stating that no changes to the tax as reported would be made and no further examination of this matter will be made by the IRS. However we cannot provide assurances that future audits would be
consistent with this conclusion. If, in the future, the IRS were to reach a different conclusion, we believe we could successfully modify our relationships with our affiliated radiologists to address such an outcome. However, if we were unable to
successfully implement this new relationship with our affiliated radiologists, our business and results of operations could be adversely affected.



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If our customers terminate their agreements with us or if our customers
businesses materially decline, our financial condition and operating results could be adversely affected.

Our revenue
is derived primarily from fee-for-service billings to our radiology group customers. Our agreements with our customers generally provide for one-year terms and automatically renew for successive one-year terms unless terminated by our customers or
us upon 30 days prior notice. Our customers may elect not to renew their contracts with us, they may seek to renegotiate the terms of their contracts or they may choose to reduce or eliminate our services. For example, due to a number of competitive
factors, we saw an 11% decrease in read volumes that resulted from the cumulative impact of customers that we lost over the preceding 12 months. If our arrangements with our customers are canceled, or are not renewed or replaced with other
arrangements having at least as favorable terms, whether due to competitive factors or not, our business, financial condition and results of operations could be adversely affected. In addition, if our radiology group customers agreements with
the hospitals that they serve are terminated, or if our radiology group customers businesses begin to decline for other reasons (such as a material increase in the rate of uninsured patients or uncollectible accounts), our business, financial
condition and results of operations could be adversely affected.

Substantially all of our business services revenue is
generated from St. Paul Radiology, P.A. under a multiyear business services agreement. In 2009, we generated $16.9 million in revenue from St. Paul Radiology, P.A., representing 10.4% of our revenue. If the business of St. Paul Radiology, P.A. were
to decline significantly or if St. Paul Radiology, P.A. were to experience a material increase in uncollectible accounts, our business, financial condition and results of operations would be adversely affected.

St. Paul Radiology, P.A. has indicated that it believes that we are in breach of certain of our obligations under our agreements with it and
that, as a result of such alleged breaches, it is entitled to terminate the agreements and it has incurred material damages which St. Paul Radiology claims could exceed $70 million. We believe such claims of breach and allegations of damages are
without merit, that we have fulfilled all of our obligations under the agreements and that the agreements may not be terminated by St. Paul Radiology. However, there is always inherent uncertainty of any litigation or arbitration proceeding. If
such claims of breach and related damages are proven to be true and the dispute resolution process does not achieve a result favorable to us, we may be required to remedy the alleged breach, pay damages, and/or the agreements may be terminated
resulting in the loss of the associated future revenue and profit. Termination of our agreements with St. Paul Radiology, P.A. or a reduction in the revenue and related profits received under the agreements would have a material adverse impact on
our business, financial condition and results of operations. In addition, termination of our agreements with St. Paul Radiology or a reduction in the revenue and related profits received under the agreements could cause our total leverage ratio
under our credit agreement to exceed 2.5, which in turn would trigger a mandatory principal repayment by us equal to approximately 50% of our cash flow for such year, or 4.0, which could result in the acceleration of our obligation to repay all of
our borrowings under our credit agreement. See Item 7 Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesFinancial condition and liquidity of
this Annual Report for more information. As an example, if we did not have the revenue and related profits generated by our agreements with St. Paul Radiology, P.A. in 2009, our total leverage ratio would have exceeded 2.5 (but would have been less
than 4.0) and we would have been required to repay a portion of the principal amount of the term loan. If we fail to meet either of our total leverage ratio tests in the future, whether as a result of a termination of our agreements with
St. Paul Radiology, P.A. or otherwise, and we are required to make a mandatory repayment of a portion of the principal of our term loan, or if our obligations under our term loan are accelerated as a result of our default, our financial
condition could be materially adversely impacted.

We have been subject to medical liability claims and may become
subject to additional claims or other harmful lawsuits, which could cause us to incur significant expenses and may require us to pay significant damages if not covered by insurance.

Our business entails the risk of medical liability claims against our affiliated radiologists and us. We or our affiliated radiologists are
subject to ongoing medical liability claims in the ordinary course of business. In addition, in some instances, these medical liability proceedings include allegations by plaintiffs that our business



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practices violate the appropriate standard of care and that, as a result, a court should institute punitive damages against us. Although we maintain medical liability insurance for ourselves and
our affiliated radiologists with coverage that we believe is appropriate in light of the risks attendant to our business, successful medical liability claims could result in substantial damage awards which exceed the limits of our insurance
coverage. In addition, medical liability insurance is expensive and insurance premiums may increase significantly in the future, particularly as we continue to grow our final and sub-specialty services. As a result, adequate medical liability
insurance may not be available to our affiliated radiologists or us in the future at acceptable costs or at all.

Any claims
made against us, including any claims that our business practices violate the standard of care, that are not fully covered by insurance could be costly to defend against, result in substantial damage awards against us and divert the attention of our
management and our affiliated radiologists from our operations, which could adversely affect our operations and financial performance. In addition, any claims might adversely affect our business or reputation.

In addition to medical liability claims, we may also become subject to other litigation proceedings that, if not fully covered by insurance,
could be costly to defend against, result in substantial damage awards against us and divert the attention of our management. For example, if our dispute with St. Paul Radiology, P.A. results in a litigation proceeding, we will incur significant
legal costs and may be required to remedy the alleged breach, pay damages, or both. Although we believe the chances of such outcomes are remote, there is always inherent uncertainty of any litigation or arbitration proceeding.

We indemnify our radiology group customers and hospital customers against damages or liabilities that they may incur as a result of the
actions of our affiliated radiologists or us. We also indemnify some of our affiliated radiologists against medical liability claims. Our indemnification obligations are typically payable only to the extent that damages incurred are not covered by
insurance.

We have also assumed and succeeded to substantially all of the obligations of the businesses that we have
acquired. Medical liability claims may be asserted against us for events that occurred prior to these acquisitions.

We are
also dependent upon the financial health of our medical liability insurance provider. Currently our medical malpractice provider is Chartis, Inc., an insurance subsidiary of American International Group (AIG). Recently, AIG has received
significant U.S. government financial support. We believe Chartis is adequately collateralized, however we cannot guarantee its financial health. Should AIG or Chartis not have the funds available to cover claims made against us or our radiologists,
our business, the financial condition and results of operations could be adversely affected.

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.

We are required to implement administrative, physical and technological safeguards to ensure the security of
the patient data that we create, process or store. These safeguards may fail to ensure the security of patient or customer data, thereby subjecting us to liability, including civil monetary penalties and possible criminal penalties. If our security
measures are breached, whether as a result of third party action, employee error, malfeasance or otherwise, and, as a result, someone obtains unauthorized access to patient or customer data, our reputation will be damaged, our business may suffer
and we could incur significant liability. Because techniques used to obtain unauthorized access to systems change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to
implement adequate preventive measures.

Enforcement of federal and state laws regarding privacy and security of patient
information may adversely affect our business, financial condition or operations.

The use and disclosure of certain
healthcare information by healthcare providers and their business associates has come under increasing public scrutiny. Federal standards under the Health Insurance Portability and Accountability Act of 1996, or HIPAA, establish rules concerning how
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information may be used, disclosed and protected. Historically, state law has governed confidentiality issues and HIPAA preserves these laws to the extent they are more protective of a
patients privacy or provide the patient with more access to his or her health information. As a result of the implementation of the HIPAA regulations, many states have adopted or may adopt revisions to their existing laws and regulations that
may be more stringent or burdensome than the federal HIPAA provisions. We must operate our business in a manner that complies with all applicable laws, both federal and state and that does not jeopardize the ability of our customers to comply with
all applicable laws to which they are subject. We believe that our operations are consistent with these legal standards. Nevertheless, these laws and regulations present risks for healthcare providers and their business associates that provide
services to patients in multiple states. Because few of the state laws and regulations have been interpreted by government regulators or courts, our interpretations and activities may be challenged. If a challenge to our activities is successful, it
could have an adverse effect on our operations, may require us to forgo relationships with customers in certain states, and may restrict the territory available to us to expand our business. In addition, even if our interpretations of HIPAA and
other federal and state laws and regulations are correct, we could be held liable for unauthorized uses or disclosures of patient information as a result of inadequate systems and controls to protect this information or due to the theft of
information by unauthorized computer programmers who penetrate our network security.

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.

The healthcare industry is heavily regulated and subject to frequent changes in governing laws and regulations as well as to evolving
administrative interpretations. Our ability to operate profitably will depend in part upon the ability of us, our affiliated radiologists, and our customers and their radiologists to continue to operate effectively in whatever health care
environment we might find ourselves in the future. Although it remains unclear what changes to our healthcare system may come under the healthcare reform packages currently being debated in the U.S. Congress, the proposed reforms could adversely
affect the overall imaging market and our customers by, among other things, reducing the growth in, or overall number of, diagnostic imaging procedures performed, and the payments to radiology groups and facilities for such procedures. Although we
believe our direct exposure to potential reforms will be limited due to the nature of our services being principally contracting with radiology groups for outsourced interpretations, any reduction in demand for diagnostic imaging, as well as reduced
reimbursement to groups and facilities that utilize our services could in turn adversely affect our business.

Our business
could also be adversely affected by regulatory changes at the federal or state level that impose new requirements for licensing, new restrictions on reimbursement for medical services by government programs, new pretreatment certification
requirements for patients seeking radiology procedures, or new limitations on services that can be performed by us. In addition, federal, state and local legislative bodies have adopted and continue to consider medical cost containment legislation
and regulations that have restricted or may restrict reimbursement to entities providing services in the healthcare industry and referrals by physicians to entities in which the physicians have a direct or indirect financial interest or other
relationship. For example, Medicare has adopted a regulation that limits reimbursement for the technical component when multiple diagnostic tests are performed during a single session at medical facilities other than hospitals. Any of these or
future reimbursement regulations or policies could limit the number of diagnostic tests our customers order and could have a material adverse effect on our business.

Although we monitor legal and regulatory developments and modify our operations from time to time as the regulatory environment changes, we may not be able to adapt our operations to address every new
regulation, and such regulations may adversely affect our business. In addition, although we believe that we are operating in compliance with applicable federal and state laws, our business operations have not been scrutinized or assessed by
judicial or regulatory agencies. We cannot assure you that a review of our business by courts or regulatory authorities would not result in a determination that adversely affects our operations or that the healthcare regulatory environment will not
change in a way that will restrict our operations.



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Our operating results are subject to seasonal fluctuation, which makes our results
difficult to predict and could cause our performance to fall short of quarterly expectations.

Historically, we have
experienced increased demand for and revenues from our services during the second and third fiscal quarters of each year. We believe that these increases are a result of increased outdoor and transportation activities and a greater utilization of
service hours during the summer months. During the first and fourth quarters of each fiscal year, when weather conditions are colder for a large portion of the United States, we have historically experienced relatively lower revenues than those
experienced during the second and third quarters. We may or may not continue to experience this or other seasonality in the future. These seasonal factors may lead to unpredictable variations in our quarterly operating results and cause the trading
price of our common stock to decline. Additionally, our ability to schedule adequate radiologist coverage during the seasonal period of increased demand for our services may affect our ability to provide appropriate turnaround times in our services
to clients.

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

Our operations depend on the
uninterrupted performance of our information systems, which are substantially dependent on systems we have developed internally since our inception as well as systems provided by third parties over which we have little control. Failure to maintain
reliable information systems, or disruptions in our information systems could cause disruptions and delays in our business operations which could have a material adverse effect on our business, financial condition and results of operations.

We rely on broadband connections provided by third party suppliers to route digital images from hospitals in the United
States to our facilities in Australia, Switzerland and the United States. Any interruption in the functioning of our internal systems or in the availability of the network connections between the hospitals and our affiliated physicians (regardless
of location) would reduce our revenue and profits. Frequent or persistent interruptions in our services could cause permanent harm to our reputation and brand and could cause current or potential customers to believe that our systems are unreliable,
leading them to switch to our competitors. Because our customers may use our services for critical healthcare services, any system failures could result in damage to our customers businesses and reputation. These customers could seek
significant compensation from us for their losses, and our agreements with our customers do not limit the amount of compensation that they may receive. Any claim for compensation, even if unsuccessful, would likely be time consuming and costly for
us to resolve.

Our systems are vulnerable to damage or interruption, including damage and/or interruption due to earthquakes,
floods, fires, power loss, telecommunication failures, terrorist attacks, computer viruses, break-ins, sabotage, and acts of vandalism. We do not carry business interruption insurance to protect us against losses that may result from interruptions
in our service as a result of system failures.

Finally, from time to time, we upgrade, replace or expand our information
systems. If we fail to successfully manage these activities, we could experience disruptions and delays in our operations, which could have a material adverse effect on our business.

Hospital privileging requirements or physician licensure laws may limit our market, and the loss of hospital privileges or state
medical licenses held by our affiliated radiologists could have a material adverse affect on our business, financial condition and results of operations.

Each of our affiliated radiologists must be granted privileges to practice at each hospital from which the radiologist receives radiological images and must hold a license in good standing to practice
medicine in the state in which the hospital is located. The requirements for obtaining and maintaining hospital privileges and state medical licenses vary significantly among hospitals and states. If a hospital or state restricts or impedes the
ability of physicians located outside of the United States to obtain privileges or a license to practice medicine at that hospital or in that state, the market for our services could be reduced. In addition, any loss of existing



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privileges or medical licenses held by our affiliated radiologists could impair our ability to serve our existing customers and have a material adverse effect on our business, financial condition
and results of operations.

Many of the hospital privileges held by our affiliated radiologists were issued pursuant to a
standard promulgated by The Joint Commission that allows the local hospital to rely upon the credentialing and privileging processes performed by us with respect to our affiliated radiologists, a process called privileging by proxy.
Essentially, because we are a Joint Commission-accredited facility, other Joint Commission-accredited facilities can rely on our processes as opposed to duplicating work already performed in accordance with approved standards. However, over the past
few years, the Centers for Medicare and Medicaid Services, or CMS, has increasingly expressed concerns regarding this ability for hospitals to rely on the processes of another institution. In response to the CMS position, The Joint Commission has
recently announced that the standards allowing this practice will expire in July 2010.

In light of the planned changes
adopted by The Joint Commission, we are working with our customers that have historically relied upon these standards to institute new credentialing processes that will help them comply with the new standards once they become effective. We
anticipate that, because of the additional workload that will be inherent in any new process that our customers may adopt, these customers will seek to credential and privilege fewer physicians than are currently privileged at those sites. This may
require us to change how we schedule the services of our affiliated radiologists which could, in turn, negatively impact our financial condition and results of operations.

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.

The majority of our
customers are radiology practices. These customers, and not us, typically bill and receive payments from Medicare and/or Medicaid for professional services which were either performed by our affiliated radiologists that are U.S.-based or performed
by the customers radiologist after submission of the preliminary reads provided by our affiliated radiologists. Medicare and Medicaid generally prohibit a physician who performs a covered medical service from reassigning to anyone
else (including to other physicians) the performing physicians right to receive payment directly from Medicare or Medicaid, except in certain circumstances. We believe that the services provided by our affiliated radiologists satisfy one or
more of the exceptions to this prohibition, but the various Medicare carriers and state Medicaid authorities may interpret these exceptions differently than we do. Because Medicare and Medicaid payments may comprise a significant portion of the
total payments received by our customers for the services of our U.S.-based affiliated radiologists, if it were determined that we do not qualify for an exception, our customers could be prohibited from billing Medicare and/or Medicaid for the
services of our U.S.-based affiliated radiologists and this would cause a material adverse effect on our ability to market our services and on our business and results of operations. Future laws or regulations, moreover, may require that we bill
Medicare or Medicaid directly for new services we provide to our customers. Should this occur, we would either be required to forgo business with such customers or be required to design, develop and implement an appropriate recordkeeping and billing
system to bill Medicare and Medicaid.

Medicare reimbursement rules currently provide that the proper Medicare carrier to pay
physician claims is the Medicare carrier for the region in which the physician or practice providing the service is located, rather than the Medicare carrier for the region in which the patient receiving the services is located. Many of our
affiliated radiologists are located in a Medicare region that is different from the Medicare region in which the patient and treating hospital are located. Since it is incumbent on our customers to file with the proper Medicare carrier in order to
receive payment, it may be necessary for our customers to enroll with additional Medicare carriers in order to properly submit claims for reimbursement. To the extent that our customers are unwilling or unable to do so, they may be unwilling to use
our services unless we were to submit the claims. Should this occur, we would either be required to forgo business with such customers or be required to design, develop and implement



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an appropriate recordkeeping and billing system to bill Medicare and Medicaid. If we are unable to effectively address these challenges, our business, financial condition and results of
operations could be adversely affected.

Changes in the rules and regulations governing Medicares and
Medicaids payment for medical services could affect our revenues, particularly with respect to final reads.

Although most reads we provide are preliminary reads rather than final reads, we are providing an increasing number of final and sub-specialty reads. Cost containment pressures on Medicare and Medicaid could result in a reduction in the
amount that the government will pay for these reads, which could cause pricing pressure on our services. Should that occur, we could be required to lower our prices, or our customers could elect to provide the reads themselves or obtain such
services from one of our competitors, and not utilize the services of our affiliated radiologists, which would have a material adverse effect on our business, results of operations and financial condition.

We may be subject to less favorable levels of payment based upon third party payor fee schedules.

Many patients are covered by some form of private or government health insurance or other third party payment program. Third party payors
generally establish fee schedules or other payment authorization methods for various procedures that govern which procedures will be reimbursed by the third party payors and the amount of reimbursement. To the extent that such schedules impact the
rates at which third party payors are willing to pay the healthcare providers with whom we contract to provide imaging services, we are indirectly impacted by such fee schedules. However, if we were to negotiate direct payment arrangements with
third party payors in the future, we would be directly impacted by such schedules. In addition, there is no guarantee that Medicare, state Medicaid programs, or commercial third party payors will continue to cover professional radiology services.
For example, in some states, the Medicaid program budgets have been either cut or funds diverted to other programs, which have resulted in limiting the enrollment of participants. This has resulted in an increasing number of bankruptcies and
difficulty in collecting accounts receivable at hospitals in certain states. Any reduction or elimination in coverage for our services could adversely impact our business.

Our business could be materially affected if a U.S. Department of Health & Human Services Office of Inspector General study
results in a recommendation that Medicare only pay for reads performed contemporaneously in an emergency room setting.

In its Fiscal Year 2009 Work Plan, the U.S. Department of Health & Human Services Office of Inspector General, or HHS-OIG, indicated that it would conduct a study and issue a report assessing the appropriateness of Medicare
billings for diagnostic tests performed in hospital emergency rooms. Part of the assessment may include a determination as to whether the tests were read contemporaneously with the patients treatment. It is possible that, in the final report,
the HHS-OIG could recommend to CMS that it change its reimbursement rules to clearly indicate that CMS will only pay for reads performed contemporaneously with a patients treatment by a physician located within the United States. If CMS were
to adopt this recommendation, final reads may no longer be eligible for reimbursement if performed by a physician other than the one who performed the preliminary read. In turn, if our customers were no longer able to be reimbursed for certain final
reads, our customers may seek alternative arrangements for the performance of their preliminary reads, which could adversely impact our business.

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.

Changes in the healthcare industry directed at controlling
healthcare costs and perceived over-utilization of diagnostic radiology procedures could reduce the volume of radiological procedures performed. For example, in an effort to contain increasing imaging costs, as part of the overall healthcare reform
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is considering what some managed care organizations and private insurers have already adoptednamely, instituting pre-authorization policies which require physicians to pre-clear orders for
diagnostic radiology procedures before those procedures can be performed. If pre-clearance protocols are broadly instituted by Medicare and/or throughout the healthcare industry, the volume of radiological procedures could decrease, resulting in
pricing pressure and declining demand for our services. In addition, it is often alleged that many physicians order diagnostic procedures even when the procedures may have limited clinical utility in large part to establish a record for defense in
the event of a medical liability claim. Changes in tort law could reduce the number of radiological procedures ordered for this purpose and therefore reduce the total number of radiological procedures performed each year, which could harm our
operating results.

We may not have adequate intellectual property rights in our brand, which could limit our ability to
enforce such rights.

Our success depends in part upon our ability to market our services under the
NightHawk brand. However, we believe that the term NightHawk cannot be afforded trademark protection as it is a generic term used to describe the provision of off-hours radiology services. Other businesses may have prior
rights in the brand names that we market under or in similar names, which could limit or prevent our ability to use these marks, or to prevent others from using similar marks. If we are unable to prevent others from using our brand names, or if
others prohibit us from using them, our revenue could be adversely affected. Even if we are able to protect our intellectual property rights in such brands, we could incur significant costs in doing so.

Any failure to protect our intellectual property rights in our workflow technology could impair its value and our competitive
advantage.

We rely heavily on our proprietary workflow technology to distribute radiological images to the
appropriately licensed and privileged radiologist best able to provide the necessary clinical insight in the least amount of turnaround time. If we fail to protect our intellectual property rights adequately, our competitors may gain access to our
technology, and our business may be harmed. We currently do not hold any patents with respect to our technology. Although we have filed an application for a patent covering our workflow technology, we may be unable to obtain patent protection for
this technology. In addition, any patents we may obtain may be challenged by third parties. Accordingly, despite our efforts, we may be unable to prevent third parties from using or misappropriating our intellectual property.

We may in the future become subject to intellectual property rights claims, which could harm our business and operating results.

The information technology industry is characterized by the existence of a large number of patents, trademarks and
copyrights and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. As an example, we are aware that on July 31, 2007, Merge eMed, Inc., or Merge, filed a complaint against another
teleradiology provider, VRC, alleging that VRC has infringed on certain of Merges patents relating to teleradiology. In connection with that litigation, VRC filed a Request for Reexamination with the U.S. Patent and Trademark Office, or US
PTO, which asks the US PTO to re-examine the validity of the patents at issue. Based solely upon publicly available information from VRC, we understand that, in August 2008, the US PTO ruled invalid all of the claims in the patents upon which Merge
had sued VRC. While we are not currently a party to any intellectual property litigation, if Merge or another third party asserts that our technology violates that third-partys proprietary rights, or if a court holds that our technology
violates such rights, we may be required to re-engineer our technology, obtain licenses from third parties to continue using our technology without substantial re-engineering or remove the infringing functionality or feature. In addition, we may
incur substantial costs defending any such claim. We may also become subject to damage awards, which could cause us to incur additional losses and harm our financial position.

Monitoring potential infringement of and defending or asserting our intellectual property rights may entail significant expense. We may
initiate claims or litigation against third parties for infringement of our proprietary



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rights or to establish the validity of our proprietary rights. Any litigation, whether or not it is resolved in our favor, could result in significant expense to us and divert the efforts of our
technical and management personnel.

We are 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.

Our success depends largely upon the
continued services of our executive officers, particularly David Engert, our President & Chief Executive Officer, Tim Murnane, our Chief Operating Officer, and David Sankaran, our Chief Financial Officer. The loss of any of these executive
officers could have a material adverse effect on our business, financial condition, results of operations and the trading price of our common stock. The search for replacements for any of our executives could be time consuming and could distract our
management team from the day-to-day operations of our business.

If we fail to implement and maintain an effective
system of internal controls, we may not be able to report our financial results in an accurate or timely manner, prevent fraud or comply with Section 404 of the Sarbanes-Oxley Act of 2002, which may harm our business and affect the trading
price of our stock.

Effective internal controls are necessary for us to provide reliable financial reports in a timely
manner and to prevent fraud. We cannot assure you that we will maintain an effective system of internal controls in the future. If we fail to adequately staff and train our accounting and finance personnel to meet the demands of operating as a
public company, including the requirements of the Sarbanes-Oxley Act of 2002, or fail to maintain adequate internal controls, any resulting material weakness in internal controls could prevent our management from concluding the internal controls are
effective and impair our ability to prevent material misstatements in our financial statements, which could cause our business to suffer. In addition, investors perceptions that our internal controls are inadequate or that we are unable to
produce accurate financial statements in a timely manner or prevent fraud may negatively affect the trading price of our stock or result in stockholder litigation.

We may be unable to enforce non-compete agreements with our affiliated radiologists.

Our independent contractor agreements with our affiliated radiologists typically provide that the radiologists may not compete with us for a period of time, typically ranging from 180 days to one year,
after the agreements terminate. These covenants not to compete are enforceable to varying degrees from jurisdiction to jurisdiction. In most jurisdictions, a covenant not to compete will be enforced only to the extent that it is necessary to protect
the legitimate business interest of the party seeking enforcement, that it does not unreasonably restrain the party against whom enforcement is sought and that it is not contrary to the public interest. This determination is made based upon all the
facts and circumstances of the specific case at the time enforcement is sought. It is unclear whether our interests will be viewed by courts as the type of protected business interest that would permit us to enforce a non-competition covenant
against the radiologists. A determination that these provisions are not enforceable could have a material adverse effect on us.

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.

An element of our strategy is to pursue strategic acquisitions that are complementary to our business or offer us other strategic benefits.
Acquisitions in which we may engage involve numerous risks, including:



| |  |  | difficulties or delays in integrating physician compensation models,
| | - |  | --------------------------------------------------------------------



| |  |  | 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,
| | - |  | ----------------------------------------



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| |  |  | potential loss of key employees, and
| | - |  | ------------------------------------



| |  |  | inability to generate sufficient revenue to offset acquisition costs.
| | - |  | ---------------------------------------------------------------------

We have in the past experienced, and may experience in the future, these difficulties as we integrate the operations of companies we
acquire.

In addition, if we finance acquisitions by issuing convertible debt or equity securities, our existing stockholders
may be diluted which could affect the market price of our stock. We have made six acquisitions to date, and our management has experienced challenges in completing acquisitions and integrating acquired businesses with our operations. If we fail to
properly evaluate and execute acquisitions, our business and prospects may be harmed.

Enforcement of state and federal
anti-kickback laws may adversely affect our business, financial condition or operations.

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

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 operations.

The Federal False Claims Act provides, in part, that the federal
government may bring a lawsuit against any person whom it believes has knowingly presented, or caused to be presented, a false or fraudulent request for payment from the federal government, or who has made a false statement or used a false record to
get a claim approved. The government has taken the position that claims presented in violation of the federal anti-kickback law may be considered a violation of the Federal False Claims Act. The Federal False Claims Act further provides that a
lawsuit brought under that act may be initiated in the name of the United States by an individual who was the original source of the allegations, known as the relator. Actions brought under the Federal False Claims Act are sealed by the court at the
time of filing. The only parties privy to the information contained in the complaint are the relator, the federal government and the court. Therefore, it is possible that lawsuits have been filed against us that we are unaware of or which we have
been ordered by the court not to discuss until the court lifts the seal from the case. Penalties include fines ranging from $5,500 to $11,000 for each false claim, plus three times the amount of damages that the federal government sustained because
of the act of that person. We believe that we are operating in compliance with the Medicare rules and regulations, and thus, the Federal False Claims Act. However, if we were found to have violated certain rules and regulations and, as a result,
submitted or caused our customers to submit allegedly false claims, any sanctions imposed under the Federal False Claims Act could result in substantial fines and penalties or exclusion from participation in federal and state healthcare programs
which could have a material adverse effect on our business and financial condition.



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Federal regulatory and law enforcement authorities have recently increased enforcement
activities with respect to Medicare and Medicaid fraud and abuse regulations and other reimbursement laws and regulations, including laws and regulations that govern our activities and the activities of teleradiologists. These increased enforcement
activities may have a direct or indirect adverse affect on our business, financial condition and results of operations.

Additionally, some state statutes contain prohibitions similar to and possibly even more restrictive than the Federal False Claims Act. These state laws may also empower state administrators to adopt regulations restricting financial
relationships or payment arrangements involving healthcare providers under which a person benefits financially by referring a patient to another person. We believe that we are operating in compliance with these laws. However, if we are found to have
violated such laws, our business, results of operations and financial condition would be harmed.

Changes in the
governmental interpretation or enforcement of the federal prohibition on physician self-referral may adversely affect our business, financial conditions or operations.

The federal Stark Law prohibits a physician from referring Medicare or Medicaid patients for the provision of designated health
services by an entity in which the physician has an investment interest or with which the physician has entered into a compensation arrangement. Designated health services include both the professional and technical components of
diagnostic tests using X-rays, ultrasound or other imaging services, CT, MRI, radiation therapy and diagnostic mammography services. Violation of the Stark Law may result in substantial civil penalties and/or exclusion from participation in federal
health care programs for both the referring physicians and any entities that submit technical and/or professional component claims for any diagnostic tests ordered by those referring physicians. We believe that we have structured our arrangements
between our affiliated radiologists and our customers in a manner that complies with applicable law. However, this law could be interpreted in a manner inconsistent with our arrangements.

The trading price of our common stock has been volatile and will likely remain volatile.

The trading prices of many publicly-traded companies are highly volatile, particularly companies such as ours that have relatively limited
operating histories and are operating in an evolving industry. Since our initial public offering in February 2006, the trading price of our common stock has been subject to wide fluctuations. Factors that will continue to affect the trading price of
our common stock include:



| |  |  | variations in our operating results,
| | - |  | ------------------------------------



| |  |  | announcements of new services, strategic alliances or significant agreements by us or by our competitors,
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | recruitment or departure of key personnel,
| | - |  | ------------------------------------------



| |  |  | changes in the estimates of our operating results or changes in recommendations by any securities analysts that follow our common stock, and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | market conditions in our industry, the industries of our customers and the economy as a whole.
| | - |  | ----------------------------------------------------------------------------------------------

In addition, if the market for healthcare stocks or healthcare services or the stock market in general experiences loss of investor
confidence, the trading price of our common stock could decline for reasons unrelated to our business, operating results or financial condition. The trading price of our common stock might also decline in reaction to events that affect other
companies in our industry even if these events do not directly affect us.

We may need additional capital, which may not
be available to us.

We currently anticipate that our existing capital resources and cash generated from future
operations will be sufficient to meet our liquidity needs for at least the next 12 months. However, we may need to raise additional



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funds if our estimates of revenues, working capital and/or capital expenditure requirements change or prove inaccurate or in order for us to respond to unforeseen technological or marketing
hurdles or to take advantage of unanticipated opportunities. There can be no assurance that any such funds will be available at the time or times needed or available on terms acceptable to us. Furthermore, if our agreement with St. Paul Radiology,
P.A. is terminated, we may be required to repay all or a portion of our term loan. See If our customers terminate their agreements with us or if our customers businesses materially decline, our financial condition and operating
results could be adversely affected. If we are required to make such mandatory repayments, our business, financial condition and results of operations could be materially adversely affected.

If securities analysts do not publish research or reports about our business, or if they downgrade our stock, the price of our stock
could decline.

The trading market for our common stock will rely in part on the availability of research and reports
that third-party industry or financial analysts publish about us. There are many large, publicly-traded companies active in the healthcare services industry, which may mean it will be less likely that we receive widespread analyst coverage.
Furthermore, if one or more of the analysts who do cover us downgrade our stock, our stock price would likely decline. If one or more of these analysts cease coverage of our company, we could lose visibility in the market, which in turn could cause
our stock price to decline.

Adverse changes in general economic conditions could adversely affect our operating
results.

Our success depends upon our ability to continue to provide our services to our customers and the willingness
of our customers to engage us for these services. The willingness and ability of our customers to engage us for our services depends upon a number of factors, including broader economic conditions and perceptions of such conditions by our customers.
Adverse changes in the broader U.S. economy may have an adverse impact on the behavior of our customers and the extent to which they are willing to engage us for our services. In addition, we may experience difficulty collecting accounts receivable
in a timely manner, or at all, if our customers are adversely affected by prevailing economic conditions. Any of these factors could, in turn, have a material adverse effect on our business, financial condition, results of operations and cash flows.

A change in our customer composition may impact our collection rates.

An increasing number of our customers are hospitals or hospital groups. As changes occur in general economic conditions, hospitals may be
required to modify their budgets and/or move funds to other programs as directed by their management or changes in government funding. Recently, we have noticed an increasing number of hospitals becoming insolvent as government funds decrease to
hospitals in certain states. If this trend continues and impacts our customers, our collection rates may decrease and our bad debt expense increase which, in turn, could have a material adverse effect on our business, financial condition, results of
operations and cash flows.

We are exposed to foreign currency exchange risks, which could harm our business and
operating results.

We maintain significant operations in Australia and Switzerland, and are exposed to adverse changes
in exchange rates associated with the expenses of our operations in these countries. However, we do not currently engage in any hedging transactions to mitigate these risks. Although from time to time we review our foreign currency exposure and
evaluate whether we should enter into hedging transactions, we may not adequately hedge against any future volatility in currency exchange rates and, if we engage in hedging transactions, the transactions will be based on forecasts which later may
prove to be inaccurate. Any failure to hedge successfully or anticipate currency risks properly could adversely affect our operating results.

In addition, a third of our affiliated radiologists live in Australia and Switzerland, but receive compensation from us in U.S. dollars. Any relative weakness in the U.S. dollar compared to the Australian
dollar or Swiss franc may increase the cost of living for our affiliated radiologists and make it less attractive for our affiliated radiologists to sign or renew their service contracts with us.



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Provisions in our certificate of incorporation and bylaws and Delaware law might
discourage, delay or prevent a change of control of our company or changes in our management and, therefore, depress the trading price of our common stock.

Our certificate of incorporation and bylaws contain provisions that could depress the trading price of our common stock by acting to discourage, delay or prevent a change in control of our company or
changes in our management that the stockholders of our company may deem advantageous. These provisions:



| |  |  | establish a classified Board of directors so that not all members of our board are elected at one time,
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | provide that directors may only be removed for cause,
| | - |  | -------------------------------------------------------



| |  |  | authorize the issuance of blank check preferred stock that our board could issue to increase the number of outstanding shares and to
discourage a takeover attempt,
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | eliminate the ability of our stockholders to call special meetings of stockholders,
| | - |  | -----------------------------------------------------------------------------------



| |  |  | prohibit stockholder action by written consent, which has the effect of requiring all stockholder actions to be taken at a meeting of stockholders,
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | provide that the Board of directors is expressly authorized to make, alter or repeal our bylaws, and
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | establish advance notice requirements for nominations for election to our board or for proposing matters that can be acted upon by stockholders at
stockholder meetings.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, Section 203 of the Delaware General Corporation Law may discourage,
delay or prevent a change in control of our company.



|ITEM 1B. | Unresolved Staff Comments
|-------- | -------------------------

None.



|ITEM 2. | Properties
|------- | ----------

The table below provides a summary of our principal facilities as of December 31, 2009:



|                          |  |                     |  |                |  |                                     
|------------------------- |  | ------------------- |  | -------------- |  | ------------------------------------
|Location                  |  | Total SquareFeet(1) |  | Leased orOwned |  | Principal Function                  
|                          |  |                     | 
|St Paul, Minnesota        |  | 58,000              |  | Leased         |  | Staff operations                    
|                          |  |                     | 
|Scottsdale, Arizona       |  | 25,000              |  | Leased         |  | Corporate offices                   
|                          |  |                     | 
|Coeur dAlene, Idaho      |  | 23,000              |  | Leased         |  | Staff operations                    
|                          |  |                     | 
|Sydney, Australia         |  | 9,000               |  | Leased         |  | Reading facility and staffoperations
|                          |  |                     | 
|Milwaukee, Wisconsin      |  | 9,000               |  | Leased         |  | Staff operations                    
|                          |  |                     | 
|Zurich, Switzerland       |  | 8,000               |  | Leased         |  | Reading facility and staffoperations
|                          |  |                     | 
|Austin, Texas             |  | 5,000               |  | Leased         |  | Reading facility                    
|                          |  |                     | 
|San Francisco, California |  | 3,000               |  | Leased         |  | Reading facility                    



|(1) | Rounded to the nearest thousand square feet.
|--- | --------------------------------------------



|ITEM 3. | Legal Proceedings
|------- | -----------------

From time to time, we are involved in various legal proceedings, primarily medical liability proceedings, arising in the ordinary course of our business activities. In some instances, these proceedings
include allegations by plaintiffs that our business practices violate the appropriate standard of care and that, as a result, a court should institute punitive damages against us. We defend each of our medical liability proceedings vigorously and



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are confident that our business practices will withstand scrutiny that may arise in connection with these proceedings. In addition, we maintain insurance policies with policy limits that we
believe are appropriate in light of the risks attendant to our business, and believe that the resolution of the current claims will not have a material adverse impact on our consolidated results of operations, cash flows or our financial position.
However, depending on the amount of damages resulting from a current or future claim, an unfavorable resolution of a claim could materially affect our future results of operations, cash flows or financial position.

In addition to the litigation matters in which we are involved in the ordinary course of business, during the third quarter of 2009, we
received a notice from St. Paul Radiology, P.A. in which St. Paul Radiology, P.A. indicated that it believes that we are in breach of certain of our obligations under our agreements with it and that, as a result, it is entitled to terminate the
agreements and it has incurred material damages which they claim could exceed $70 million. We believe such claims of breach and allegations of damages are without merit, that we have fulfilled all of our obligations under the agreements and that the
agreements may not be terminated by St. Paul Radiology. The parties are currently pursuing the dispute resolution processes prescribed by the agreements between the parties. However, there is always inherent uncertainty of any litigation or
arbitration proceeding. If such claims of breach and related damages are proven to be true and the dispute resolution process does not achieve a result favorable to us, we may be required to remedy the alleged breach, pay damages, and/or the
agreements may be terminated resulting in the loss of the associated future revenue and profit. Termination of our agreements with St. Paul Radiology, P.A. or a reduction in the revenue and related profits received under the agreements would have a
material adverse impact on our business, financial condition and results of operations and could also trigger a mandatory principal repayment under our term loan or result in the acceleration of our obligation to pay all of our borrowings under our
credit agreement. See Item 1ARisk FactorsIf our customers terminate their agreements with us or if our customers businesses materially decline, our financial condition and operating results could be adversely
affected of this Annual Report for more information. If we are required to make a mandatory repayment of a portion of the principal of our term loan, or if our repayment obligations under our credit agreement are accelerated, our financial
condition could be materially adversely impacted.

On December 17, 2009, a putative shareholder class action lawsuit was
filed against us and certain of our former officers in the United States District Court for the District of Idaho. The case is captioned City of Marysville General Employees Retirement System v. NightHawk Radiology Holdings, Inc., et
al., Case No. CIV 09-659-N-CWD. The complaint purports to be brought on behalf of a class of persons who purchased or otherwise acquired our stock during the period April 10, 2007 to February 13, 2008, and asserts claims under
Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. Plaintiffs contend that we and the individual defendants violated the federal securities laws by issuing false and misleading
statements concerning our operations, business, and prospects during the purported class period, and thereby artificially increased the price of our stock. Plaintiffs seek unspecified compensatory damages, interest, and attorneys fees and
costs. Management intends to vigorously defend against these claims.



|ITEM 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

None.



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PART II



|ITEM 5. | Market for Registrants Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities
|------- | -----------------------------------------------------------------------------------------------------------

Market for Our Common Stock

Our common stock is traded on the NASDAQ Global Market under the symbol NHWK. The following table sets forth, for the period indicated, the high and low sales prices of our common stock for our two most recent years.



|                             |  |                    |       |     |   |     
|---------------------------- |  | ------------------ | ----- | --- | - | ----
|                             |  | Common Stock Price
|                             |  | High               |       | Low
|Year Ended December 31, 2009 |  |                    |       |     |   |     
|First Quarter                |  | $                  | 5.16  |     | $ | 2.22
|Second Quarter               |  | $                  | 4.44  |     | $ | 2.64
|Third Quarter                |  | $                  | 7.68  |     | $ | 3.65
|Fourth Quarter               |  | $                  | 7.21  |     | $ | 4.20
|                             |  |                   
|Year Ended December 31, 2008 |  |                    |       |     |   |     
|First Quarter                |  | $                  | 20.61 |     | $ | 8.87
|Second Quarter               |  | $                  | 9.49  |     | $ | 7.08
|Third Quarter                |  | $                  | 9.41  |     | $ | 6.69
|Fourth Quarter               |  | $                  | 6.99  |     | $ | 2.33

Holders

On February 5, 2010, the last reported sale price for our common stock on the NASDAQ Global Market was $4.01 per share. As of
February 5, 2010, there were approximately 8,065 holders of our common stock.

Dividends

We have not declared any cash dividends on our common stock since our initial public offering. We currently intend to retain future earnings
and do not expect to pay any dividends in the foreseeable future and certain covenants in our debt agreement restrict our ability to pay dividends or make other distributions with respect to our equity securities. See Note 10 to our
consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.

Securities Authorized for Issuance
Under Equity Compensation Plans

Please see Part III, Item 12 of this report for disclosure relating to our equity
compensation plans.



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Performance Graph

The performance graph below illustrates a comparison of cumulative total stockholder return data based on an initial investment of $100 in our common stock, as compared with the Russell 2000 Index and the
Dow Jones US Healthcare Index from February 6, 2006 through December 31, 2009.

LOGO



|                   |  |                    |        |             |   |                        |  |   |       
|------------------ |  | ------------------ | ------ | ----------- | - | ---------------------- |  | - | ------
|Dates              |  | NightHawkRadiology |        | Russell2000 |   | Dow Jones USHealthcare
|February 6, 2006   |  | $                  | 100.00 |             | $ | 100.00                 |  | $ | 100.00
|March 31, 2006     |  | $                  | 115.69 |             | $ | 106.75                 |  | $ | 100.30
|June 30, 2006      |  | $                  | 86.88  |             | $ | 100.95                 |  | $ | 95.35 
|September 30, 2006 |  | $                  | 92.64  |             | $ | 101.65                 |  | $ | 103.34
|December 31, 2006  |  | $                  | 123.49 |             | $ | 110.17                 |  | $ | 104.61
|March 31, 2007     |  | $                  | 88.09  |             | $ | 111.69                 |  | $ | 104.95
|June 30, 2007      |  | $                  | 87.41  |             | $ | 116.76                 |  | $ | 109.40
|September 30, 2007 |  | $                  | 118.69 |             | $ | 113.00                 |  | $ | 111.66
|December 31, 2007  |  | $                  | 101.94 |             | $ | 107.19                 |  | $ | 111.47
|March 31, 2008     |  | $                  | 45.33  |             | $ | 96.22                  |  | $ | 98.11 
|June 30, 2008      |  | $                  | 34.29  |             | $ | 97.28                  |  | $ | 96.91 
|September 30, 2008 |  | $                  | 34.96  |             | $ | 96.00                  |  | $ | 97.82 
|December 31, 2008  |  | $                  | 23.54  |             | $ | 69.52                  |  | $ | 84.68 
|March 31, 2009     |  | $                  | 13.08  |             | $ | 59.37                  |  | $ | 77.92 
|June 30, 2009      |  | $                  | 17.92  |             | $ | 72.12                  |  | $ | 85.36 
|September 30, 2009 |  | $                  | 35.01  |             | $ | 85.05                  |  | $ | 92.98 
|December 31, 2009  |  | $                  | 21.94  |             | $ | 88.15                  |  | $ | 100.66

Recent Sales of Unregistered
Securities

There were no sales of unregistered equity securities during 2009.



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Issuer Purchases of Equity Securities

In December 2008, we initiated a program to repurchase up to $10.0 million in shares of our common stock. As of December 31, 2008, we
had purchased and retired 1.1 million shares at a cost of $4.5 million pursuant to such program. The remaining $5.5 million authorized to be repurchased under the program was purchased in January 2009 and resulted in the retirement of an
additional 1.1 million shares. All shares were repurchased in the open market pursuant to a SEC Rule 10b5-1 repurchase plan established by us.

On August 12, 2009, we entered into a share repurchase agreement with our founder and former chief executive officer, Dr. Paul E. Berger, pursuant to which we purchased and retired shares
of our common stock from Dr. Berger.

The following table sets forth details regarding all shares repurchased in 2009:



|                                  |  |                                    |  |                                 |      |                                                                         |           |                                                                                        |   |  
|--------------------------------- |  | ---------------------------------- |  | ------------------------------- | ---- | ----------------------------------------------------------------------- | --------- | -------------------------------------------------------------------------------------- | - | -
|Period                            |  | (a) Total Numberof SharesPurchased |  | (b) Average Price Paidper Share |      | (c) Total Number of SharesPurchased as Part ofPublicly AnnouncedProgram |           | (d)
MaximumApproximate DollarValue of Shares thatMay Yet Be PurchasedUnder the Program
|January 2, 2009 January 29, 2009 |  | 1,134,058                          |  | $                               | 4.87 |                                                                         | 1,134,058 |                                                                                        | $ | 0
|August 12, 2009 (1)               |  | 3,000,000                          |  |                                 | 4.63 |                                                                         | 0         |                                                                                        |   | 0
|                                  |  |                                    |  |                                 |      |                                                                         |           |                                                                                        |   |  
|Total                             |  | 4,134,058                          |  | $                               | 4.70 |                                                                         | 1,134,058 |                                                                                        | $ | 0
|                                  |  |                                    |  |                                 |      |                                                                         |           |                                                                                        |   |  



|(1) | The August 12, 2009 share repurchase was effected through a private transaction and was not part of a pre-announced open market repurchase program.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------



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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. All references to number of shares outstanding and per share amounts have been restated to reflect the 1 for 1.25 reverse stock split that occurred January 23, 2006. Company
results include the results from Midwest Physicians Services, LLC (MPS), Emergency Radiology Services, LLC (ERS), The Radlinx Group, Ltd. (Radlinx) and Teleradiology Diagnostic Service, Inc. (TDS) from
their respective acquisition dates in 2007, and American Teleradiology Nighthawks, Inc. (ATN) purchased on September 30, 2005. The historical results presented below are not necessarily indicative of financial results to be achieved
in future periods.



|                                                    |  |                                          |         |   |      |   |         |      |  |   |          |   |  |      |         |   |  |   |         |  
|--------------------------------------------------- |  | ---------------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | -------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                    |  | For the Years Ended December 31,         |        
|                                                    |  | (In thousands, except per share amounts) |        
|                                                    |  | 2009                                     |         |   | 2008 |   |         | 2007 |  |   | 2006     |   |  | 2005 |        
|Service Revenue                                     |  | $                                        | 162,536 |   |      | $ | 167,607 |      |  | $ | 151,662  |   |  | $    | 92,168  |   |  | $ | 64,062  |  
|Operating Income (Loss)                             |  |                                          | (50,404 | ) |      |   | 21,630  |      |  |   | 26,127   |   |  |      | 23,399  |   |  |   | 17,322  |  
|Net Income (Loss) (1)                               |  |                                          | (48,144 | ) |      |   | 9,442   |      |  |   | 14,694   |   |  |      | (28,401 | ) |  |   | (29,960 | )
|Net Income (Loss) Applicable to Common Stockholders |  | $                                        | (48,144 | ) |      | $ | 9,442   |      |  | $ | 14,694   |   |  | $    | (28,519 | ) |  | $ | (36,509 | )
|Earnings (Loss) Per Common Share:                   |  |                                          |         |   |      |   |         |      |  |   |          |   |  |      |         |   |  |   |         |  
|Basic                                               |  | $                                        | (1.89   | ) |      | $ | 0.32    |      |  | $ | 0.49     |   |  | $    | (1.00   | ) |  | $ | (2.11   | )
|Diluted                                             |  | $                                        | (1.89   | ) |      | $ | 0.31    |      |  | $ | 0.47     |   |  | $    | (1.00   | ) |  | $ | (2.11   | )
|Cash Flow Data                                      |  |                                          |         |   |      |   |         |      |  |   |          |   |  |      |         |   |  |   |         |  
|Net cash provided by operating activities           |  |                                          | 28,377  |   |      |   | 29,087  |      |  |   | 23,637   |   |  |      | 19,131  |   |  |   | 11,529  |  
|Net cash provided by (used in) investing activities |  |                                          | (12,687 | ) |      |   | 18,261  |      |  |   | (123,425 | ) |  |      | (40,049 | ) |  |   | (3,305  | )
|Net cash provided by (used in) financing activities |  |                                          | (36,557 | ) |      |   | (32,144 | )    |  |   | 85,243   |   |  |      | 54,808  |   |  |   | (1,427  | )
|Total Assets                                        |  |                                          | 165,674 |   |      |   | 245,149 |      |  |   | 263,466  |   |  |      | 116,066 |   |  |   | 35,536  |  
|Total Long-Term Debt (including current portion)    |  |                                          | 78,206  |   |      |   | 94,100  |      |  |   | 99,500   |   |  |      |        |   |  |   | 24,003  |  
|Total Liabilities                                   |  |                                          | 96,944  |   |      |   | 115,382 |      |  |   | 128,777  |   |  |      | 13,437  |   |  |   | 85,184  |  
|Common Stock Data                                   |  |                                          |         |   |      |   |         |      |  |   |          |   |  |      |         |   |  |   |         |  
|Market price at year end                            |  | $                                        | 4.53    |   |      | $ | 4.86    |      |  | $ | 21.05    |   |  | $    | 25.50   |   |  |   | N/A     |  
|Average number of common shares outstanding         |  |                                          | 25,443  |   |      |   | 29,483  |      |  |   | 30,083   |   |  |      | 28,528  |   |  |   | 17,274  |  
|Dividends declared per common share                 |  |                                          |        |   |      |   |        |      |  |   |         |   |  |      |        |   |  | $ | 0.844   |  
|Preferred Stock Data                                |  |                                          |         |   |      |   |         |      |  |   |          |   |  |      |         |   |  |   |         |  
|Redeemable convertible preferred shares outstanding |  |                                          |        |   |      |   |        |      |  |   |         |   |  |      |        |   |  |   | 6,500   |  
|Dividends declared per convertible preferred share  |  |                                          |        |   |      |   |        |      |  |   |         |   |  | $    | 0.844   |   |  | $ | 0.295   |  



|(1) | The year ended December 31, 2009 includes a $68.7 goodwill impairment charge ($54.3 million after taxes). The years ended December 31, 2006 and 2005 include
$44.2 million and $39.7 million, net of tax, respectively, of non-cash charges associated with the change in the fair value of the redeemable preferred stock conversion feature.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|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

We are leading the transformation of the practice of radiology by providing high-quality,
cost-effective solutions to radiology groups and hospitals throughout the United States. Our team of independent contractor, American Board of Radiology-certified, state-licensed and hospital-privileged physicians, provides professional services
(interpretations, exams, scans or reads) 24 hours per day, seven days a week, for approximately 26% of all U.S. hospitals. The reads that we provide continue to consist primarily of off-hours
preliminary reads, but increasingly include final and sub-specialty interpretations. In addition to these professional services, we also provide our customers with cardiac 3D reconstructions, radiology clinical workflow technology, and business
services, all designed to enhance the care they provide to patients and improve the efficiency of their practices. For more information, visit our website at www.nighthawkrad.net.

2009 Highlights



| |  |  | Evolving market for teleradiology service.    The market for our services is relatively new and is evolving rapidly. The
past several years have seen a substantial increase in the number of competitors in the market for our services. As a result, we have experienced declining prices for our services and increasing levels of customer attrition. To improve our customer
retention, we have focused our efforts on setting and maintaining high quality service levels and we have lowered our prices where appropriate to retain customers. We did see modest improvement in customer retention during 2009 compared with 2008;
however, we also experienced an increase in the rate of price decline. On the other hand, our expenses have remained flat or increased, resulting in reduced margins and profit. We expect these trends to continue in the future.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Capital structure.    During 2009, we used a total of $36.2 million in cash to reduce our outstanding debt and to repurchase
shares of our common stock. We believe that these transactions were prudent uses of our cash given our history of strong free cash flow generation and our then-current levels of available cash and investments. Specifically, in the first quarter
of 2009, we repurchased 1.1 million shares of our common stock under an open market share repurchase program that we began in December 2008 for approximately $5.5 million. We also settled certain December 2008 repurchases in January 2009 for
approximately $0.9 million. In addition, in the third quarter of 2009, we repurchased 3.0 million shares of common stock held by our founder and former chief executive officer for approximately $13.9 million. Finally, in addition to making $0.9
million in required debt principal payments in 2009, we made two voluntary principal payments on our outstanding debt for a total of $15.0 million, reducing the outstanding balance to $78.2 million at year end.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Goodwill impairment.    The difficult macroeconomic environment and decline in the market price of our common stock as of
March 31, 2009, indicated that our goodwill could be impaired. As a result, we performed an impairment test as of March 31, 2009 as required by theIntangibles-Goodwill and OtherTopic of the FASB Accounting Standards
Codification (ASC Topic 350), and determined that the entire goodwill balance of $68.7 million was impaired. As a result, we recorded a non-cash goodwill impairment charge of $68.7 million ($54.3 million after-taxes) for the three months ended
March 31, 2009.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Trends in our Business and Results of Operations

Service Revenue.

We generate revenue from a number of sources, including off-hours preliminary exams, business services offerings and final and subspecialty interpretations. The revenue growth that we experienced in the past was due in large part to
the growth in scan volume in our off-hours preliminary business, which continues to make up the bulk of our revenue. Recently, however, our volume growth in the off-hours preliminary business has slowed as the market for these services has
matured and become more competitive. As a result of these factors, we have seen the average price for our preliminary reads decline significantly and have also experienced customer losses which, combined, have caused our revenues and margins from
our off-hours preliminary business to decline in recent periods. We expect these challenges to continue in the foreseeable future which will affect our ability to grow revenue and profits organically in our off-hours preliminary business. In
response to such trends, our strategy is to sell new services, principally final interpretations, to our existing customers by communicating their value and demonstrating the advantages we offer over our competitors. Our future growth depends
primarily upon our ability to successfully execute that strategy while also effectively responding to competitive pressures in the market for off-hours preliminary exams.

In 2009, we generated $16.9 million in revenue from our agreements with St. Paul Radiology, P.A., representing 10.4% of our revenue. St. Paul Radiology has indicated that it believes that we are in breach
of certain of our obligations under our agreements with it. If such claims of breach are proven to be true and the dispute resolution process does not achieve a result favorable to us, or if St. Paul Radiologys business declines for other
reasons, the amount of revenue we generate from our relationship with St. Paul Radiology may be materially reduced. See Item 1A  Risk Factors  If our customers terminate their agreements with us or if our customers
businesses materially decline, our financial condition and operating results could be adversely affected of this Annual Report for more information.

Professional Service Expenses.

Professional service expenses consist
primarily of the fees we pay to our affiliated radiologists, any physician stock-based compensation, the premiums for medical liability insurance, and any medical liability claims loss expenses. Since inception, our professional service fees have
increased in absolute dollars each year, primarily due to the increased number of reads performed as our volumes have increased and the addition of new affiliated radiologists to perform the increased workload. We expect that our professional
service fees will continue to fluctuate in absolute dollars as volumes and modality mix vary. We also expect our professional services expenses to increase as a percentage of revenue due to the shift in our business towards more final reads and due
to the price declines we are experiencing.

Our medical liability expense has also increased in absolute dollars each year
since inception, primarily due to the increasing number of scans as our business has grown. We expect our medical liability premiums and our IBNR expense to continue to fluctuate as our claims experience and volumes change over time.

We record physician stock-based compensation expense in connection with any equity-based grants to our affiliated radiologists in accordance
with the Compensation-Stock CompensationTopic of the FASB Accounting Standards Codification (ASC Topic 718) and the EquityTopic of the FASB Accounting Standards Codification (ASC Topic 505), and present this expense in our
consolidated statements of operations as part of our professional services expense. The amount of physician stock-based compensation expense we record in a given period depends primarily on the number of shares subject to equity-based grants held by
our affiliated radiologists, the number of hours worked, and the change in the value of our common stock in that period. Our expense in future periods for physician stock-based compensation will be driven primarily by changes in our stock price, new
equity-based grants we make to our affiliated radiologists, and the rate at which those equity-based grants are earned over such periods. We anticipate increased physician stock-based compensation expense in 2010 and 2011 resulting primarily from
equity grants of our common stock to be issued to our affiliated physicians in connection with the adoption of a new form of physician contract in December 2009.



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Sales, General and Administrative Expenses.

Our sales, general and administrative expenses consist primarily of salaries and related expenses for our employees, employee stock-based
compensation, information technology and telecommunications expenses, costs associated with licensing and privileging our affiliated radiologists, facilities and office-related expenses, sales and marketing expenses and other general and
administrative expenses. Our sales, general and administrative expenses have increased in absolute dollars since inception primarily as a result of increased payroll expenses in connection with higher headcount in support of the growth in our
business. In the coming quarters, we expect our sales, general and administrative expenses to grow as we invest in our information technology platform and our sales and marketing capabilities.

The amount of employee stock-based compensation expense we record in a given period depends primarily on the number of shares subject to
outstanding shared-based awards and the valuation criteria used at the time of the grant. The amount of expense is also impacted by the accelerated method we use to expense these awards and by forfeitures of non-vested awards.

Interest Expense.

Interest on our outstanding debt is at a variable rate. Since 2007, we have hedged the risk associated with fluctuations in interest rates by entering into interest rate swap contracts. In December 2008, in response to interest rates
falling to historically low levels, we settled our original interest rate swap contracts and entered into new interest rate swap contracts that have a term roughly equal to the remaining term on our loan. Our new effective interest rate under these
hedges is 4.95%. Our new effective interest rate and actual cash payments for interest under these hedges will be 4.95% for the remaining life of the loan. The swap contracts expire in June 2014. Over the next four quarters our reported interest
rate will be higher than our stated effective rate due to the amortization of losses from our original swap contracts and amortization of loan closing costs. In addition, interest expense will be impacted by the mark-to-market adjustment of two
interest rate swap contracts which have been deemed to be ineffective hedges.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. The preparation of these financial statements in accordance with U.S. GAAP requires us to utilize accounting policies and
make certain estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingencies as of the date of the financial statements and the reported amounts of revenue and expenses during a fiscal period.
The SEC considers an accounting policy to be critical if it is important to a companys financial condition and results of operations, and if it requires the exercise of significant judgment and the use of estimates on the part of management in
its application. Management evaluates its estimates on an ongoing basis. Although we believe that our judgments and estimates are appropriate, actual results may differ from those estimates. We have reviewed our critical accounting policies with the
Audit Committee of our Board of Directors, and the Audit Committee has reviewed our related disclosures in this report.

Our
critical accounting policies arise in conjunction with the following:



| |  |  | contingencies;
| | - |  | --------------



| |  |  | purchase accounting and long-lived assets including goodwill and other acquired intangible assets;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | stock-based compensation;
| | - |  | -------------------------



| |  |  | income taxes; and
| | - |  | -----------------



| |  |  | derivative accounting
| | - |  | ---------------------



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If actual results or events differ materially from those contemplated by us in making these
estimates, our reported financial condition and results of operations for future periods could be materially affected. See Risk Factors for certain matters that may affect our financial condition or future results of operations.

Contingencies

Loss contingency for legal claims.    We record a loss contingency for a legal claim at the time we deem such liability to be probable. Our determination of the probability of
the liability is based upon a review of the claim by our internal legal counsel, external legal counsel and, in the case of medical liability claims, our medical liability insurance carrier. Upon the determination that a liability is probable, we
record a loss contingency for the estimated potential claim. Actual future losses from a legal claim may differ from our estimate to the extent that we suffer an adverse determination for a claim that we did not deem the liability probable, did not
record a sufficient loss contingency, the loss was in excess of applicable insurance limits, or in the event that we do not have insurance coverage or indemnification rights covering the specific claim.

Loss contingency for medical liability claims.    We record a loss contingency for a medical liability claim at
the time we deem such liability to be probable. Our determination of the probability of the liability is based upon a review of the claim by our internal legal counsel, external legal counsel and medical liability insurance carrier. Upon the
determination that a liability is probable, we record a loss contingency for the potential claim up to the amount of the deductible specified in our medical liability insurance policy. Actual future losses from medical liability claims may differ
from our estimates to the extent that we suffer an adverse determination for a claim that we did not deem the liability probable, did not record a loss contingency up to the maximum amount of our insurance deductible, the loss was in excess of our
coverage limits, or do not have insurance coverage or indemnification rights.

Incurred But Not Reported Claims
(IBNR).    We use actuarial assumptions to estimate and record a liability for IBNR professional liability claims. Our estimated IBNR liability is based on long-term industry trends and averages, and considers a
number of factors, including changes in claim reporting patterns, claim settlement patterns, judicial and legislative decisions, and economic conditions. Our estimated IBNR liability will fluctuate as claims experience and volumes change over time.

Purchase Accounting and Long-Lived Assets Including Goodwill and Other Acquired Intangible Assets

All of our acquisitions were accounted for using the purchase method of accounting as prescribed in the Business Combinations Topic
of the FASB Accounting Standards Codification (ASC Topic 805). Accordingly, purchase accounting adjustments have been reflected in our financial statements for all periods subsequent to the respective purchase dates. The purchase accounting entries
are reflected on our financial statements as of the purchase date. In accordance with ASC Topic 805, we revalued the assets and liabilities acquired at their respective fair values on the acquisition date.

As required by the Intangibles-Goodwill and OtherTopic of the FASB Accounting Standards Codification (ASC Topic 350), an
interim test for impairment must be performed whenever impairment indicators are present. As a result of the difficult macroeconomic environment and significant decline in the market price of the Companys common stock as of March 31,
2009, the Company determined that an impairment indicator was present related to its goodwill. The Company performed this interim impairment testing as of March 31, 2009 and determined that the fair value of its recorded goodwill, estimated
using discounted cash flow analyses and reconciled to its market capitalization, was less than the carrying value. Based on this testing, the Company concluded that its goodwill balance of $68.7 million was fully impaired. As a result, the Company
recorded a non-cash goodwill impairment charge of $68.7 million ($54.3 million after-tax) in the three months ended March 31, 2009.



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In accordance with the Property, Plant, and EquipmentTopic of the FASB Accounting
Standards Codification (ASC Topic 360), we periodically review long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful
lives of those assets are no longer appropriate. We perform impairment tests using discounted cash flows, valuation analyses or comparisons to recent sales or purchase transactions to determine estimated fair value. If impairment is indicated, the
asset is written down to its estimated fair value based on a discounted cash flow analysis.

Stock-Based Compensation

Physician Stock-Based Compensation.    We record physician stock-based compensation expense
in connection with any equity-based grants to our affiliated radiologists in accordance with the Compensation-Stock CompensationTopic of the FASB Accounting Standards Codification (ASC Topic 718) and the EquityTopic of the
FASB Accounting Standards Codification (ASC Topic 505), by determining the fair value using the Black-Scholes option pricing model at the date of grant and at the end of each subsequent financial reporting period thereafter when service is
delivered. Physician stock-based compensation expense is included in professional services expense.

Non-Physician
Stock-Based Compensation.    We also record stock-based compensation expense in connection with any grant of stock options, restricted stock units (RSUs), warrants or other issuance of shares of common stock to
employees and directors. We calculate the stock-based compensation expense associated with the issuance of stock options and warrants to our employees and directors in accordance with the Compensation-Stock Compensation Topic of the FASB
Accounting Standards Codification (ASC Topic 718) by determining the fair value using a Black-Scholes model. We calculate the stock-based compensation expense related to the issuance of RSUs or shares of our common stock to our employees and
directors based on the fair value of our common stock on the date the RSUs or shares are issued. Options and RSUs granted to employees and directors are valued using the Black-Scholes model, and the resulting expense is recognized using the
accelerated method over the service period for the entire award. Stock-based compensation to employees and non-physician contractors is included in sales, general and administrative expense.

Determination of Fair Value of our Stock Options.    To determine the fair value of our stock options, we use a
Black-Scholes model which takes into account the exercise price of the stock option, the fair value of the common stock underlying the stock option, as measured on the date of grant (or at each reporting date for grants to non-employees that require
future service), expected dividends, risk free interest rates, expected term and an estimation of the volatility of the common stock underlying the stock option.

Income Taxes

We account for income taxes in accordance with the
Income Taxes Topic of the FASB Accounting Standards Codification (ASC Topic 740).This standard requires, among other things, the separate recognition of deferred tax assets and deferred tax liabilities. Such deferred tax assets and
deferred tax liabilities represent the tax effect of temporary differences between financial reporting and tax reporting measured at enacted tax rates in effect for the year in which the differences are expected to reverse. ASC Topic 740 Subtopic 10
Section 05 requires that we recognize only the impact of tax positions that, based on their technical merits, are more likely than not to be sustained upon an audit by the taxing authority. ASC Topic 740 Subtopic 10 Section 05 also
specifies standards for estimating and recognizing interest income and expense associated with the tax positions.

Developing
our provision for income taxes, including our effective tax rate and analysis of potential tax exposure items, if any, requires significant judgment and expertise in federal and state income tax laws, regulations and strategies, including the
determination of deferred tax assets and liabilities and any estimated valuation allowances we deem necessary to value deferred tax assets. Our judgments and tax strategies are subject to audit by various taxing authorities. While we believe we have
provided adequately for our uncertain



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income tax positions in our consolidated financial statements, adverse determinations by these taxing authorities could have a material adverse effect on our consolidated financial condition,
results of operations or cash flows.

Derivative Accounting

In accordance with U.S. GAAP, we recognize all derivatives on the consolidated balance sheet at fair value. We designate at inception whether
the derivative contract is considered hedging or non-hedging in accordance with the Derivatives and HedgingTopic of the FASB Accounting Standards Codification (ASC Topic 815). If the derivative qualifies and is designated as a hedge,
depending on the nature of the hedge, changes in its fair value will either be offset against the change in fair value of the hedged item through earnings or recognized in other comprehensive income (loss) until the hedged item is recognized in
earnings. The ineffective portion of a derivatives change in fair value will be immediately recognized in earnings.

Since 2007, we have utilized interest rate swap contracts to maintain compliance with debt requirements and to protect us against changes in the interest payments associated with our variable-rate long-term debt. The contracts are
considered cash flow hedges. As a result, as long as the swaps are deemed highly effective, changes in the fair value of the swaps are recorded as either an asset (a gain position), or a liability (a loss position) on the balance sheet, with the
offset recorded in accumulated other comprehensive income, a separate component of stockholders equity.

In December
2008, we settled the two interest rate swap contracts entered into during 2007 resulting in a cash payment by us. The pre-tax net unrealized loss within accumulated other comprehensive income associated with the cancelled interest rate swap
contracts is being amortized to interest expense over the original lives of the contracts. The cancelled swaps were replaced with five interest rate swap contracts. As principal is repaid on the debt, the combined notional amounts of the five
interest rate swap contracts will be different than the principal balance of the outstanding debt. If this difference is material, it can cause certain of the five interest rate swap contracts to be deemed ineffective. Due to voluntary principal
payments made by us, two of the interest rate swap contracts have been deemed ineffective. As a result, changes in the fair values of these ineffective contracts are recorded as a component of interest expense in our statement of operations.



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Results of Operations

The following table sets forth selected consolidated statements of operations data for each of the periods indicated as a percentage of service revenue.



|                                                    |  |                         |    |  |      |   |  |      |  
|--------------------------------------------------- |  | ----------------------- | -- |  | ---- | - |  | ---- | -
|                                                    |  | Year Ended December 31, |   
|                                                    |  | 2009                    |    |  | 2008 |   |  | 2007 |  
|Service revenue                                     |  | 100                     | %  |  | 100  | % |  | 100  | %
|Operating costs and expenses:                       |  |                         |    |  |      |   |  |      |  
|Professional services                               |  | 45                      |    |  | 41   |   |  | 42   |  
|Sales, general and administrative                   |  | 37                      |    |  | 39   |   |  | 36   |  
|Depreciation and amortization                       |  | 7                       |    |  | 7    |   |  | 5    |  
|Goodwill impairment                                 |  | 42                      |    |  |     |   |  |     |  
|                                                    |  |                         |    |  |      |   |  |      |  
|Total operating costs and expenses                  |  | 131                     |    |  | 87   |   |  | 83   |  
|                                                    |  |                         |    |  |      |   |  |      |  
|Operating income                                    |  | (31                     | )  |  | 13   |   |  | 17   |  
|Other income (expense):                             |  |                         |    |  |      |   |  |      |  
|Interest expense                                    |  | (5                      | )  |  | (5   | ) |  | (4   | )
|Interest income                                     |  |                        |    |  | 1    |   |  | 2    |  
|Other, net                                          |  |                        |    |  |     |   |  |     |  
|                                                    |  |                         |    |  |      |   |  |      |  
|Total other income (expense)                        |  | (5                      | )  |  | (4   | ) |  | (2   | )
|                                                    |  |                         |    |  |      |   |  |      |  
|Income (loss) before income taxes                   |  | (36                     | )  |  | 9    |   |  | 15   |  
|Income tax expense (benefit)                        |  | (6                      | )  |  | 3    |   |  | 6    |  
|                                                    |  |                         |    |  |      |   |  |      |  
|Net income (loss) applicable to common stockholders |  | (30                     | )% |  | 6    | % |  | 9    | %
|                                                    |  |                         |    |  |      |   |  |      |  

Comparison of Years Ended December 31, 2009 and December 31, 2008

Service Revenue



|                |  |                        |         |        |   |            |  |   |            |   |  |    |   
|--------------- |  | ---------------------- | ------- | ------ | - | ---------- |  | - | ---------- | - |  | -- | --
|                |  | Year EndedDecember 31, |         | Change |  
|                |  | (Dollars in thousands) |        
|                |  | 2009                   |         | 2008   |   | In Dollars |  |   | Percentage |  
|Service revenue |  | $                      | 162,536 |        | $ | 167,607    |  | $ | (5,071     | ) |  | (3 | %)

The decrease
in service revenue for the year ended December 31, 2009 relative to the year ended December 31, 2008 primarily consists of a decrease of $10.2 million in preliminary read revenue partially offset by an increase of $4.1 million in final
read revenue and an increase of $0.9 million in business service revenue.

The preliminary read revenue decrease was
predominantly due to a 9% decline in our average price from 2008. Offsetting this price decline, over this same period, we saw a 2% net increase in preliminary read volume, consisting of same site volume growth of 6% and new customer volumes of 6%,
partially offset by an 11% decrease in volumes from the cumulative impact of customers lost over the past 12 months.

The
final read revenue increase was predominantly due to a 28% increase in volume. Final read volume growth consisted of new customer growth of 52% offset by a 5% decrease in same site volume and a 19% decrease in volumes from the impact of customers
lost over the past 12 months. Final read pricing was down 6% compared to the same period one year ago.



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Operating Costs and Expenses

Professional Services



|                              |  |                        |        |   |        |   |        |            |  |            |       |  |   |  
|----------------------------- |  | ---------------------- | ------ | - | ------ | - | ------ | ---------- |  | ---------- | ----- |  | - | -
|                              |  | Year EndedDecember 31, |        |   | Change |  
|                              |  | (Dollars in thousands) |       
|                              |  | 2009                   |        |   | 2008   |   |        | In Dollars |  | Percentage |      
|Professional services         |  | $                      | 72,368 |   |        | $ | 68,932 |            |  | $          | 3,436 |  | 5 | %
|Percentage of service revenue |  |                        | 45     | % |        |   | 41     | %          |  |            |       |  |   |  

The increase in professional services expense for the year ended December 31, 2009 compared
to the year ended December 31, 2008 is primarily attributable to an increase in professional service fees and medical liability expenses related to higher read volumes partially offset by a $1.0 million decrease in physician stock-based
compensation expense due to our lower common stock prices during 2009. The increase in professional services expense as a percentage of revenue resulted from a combination of an increase in professional services fees coupled with an 8% decline in
our average price per study.

Sales, General and Administrative



|                                  |  |                        |        |   |        |   |        |            |  |   |            |   |  |    |   
|--------------------------------- |  | ---------------------- | ------ | - | ------ | - | ------ | ---------- |  | - | ---------- | - |  | -- | --
|                                  |  | Year EndedDecember 31, |        |   | Change |  
|                                  |  | (Dollars in thousands) |       
|                                  |  | 2009                   |        |   | 2008   |   |        | In Dollars |  |   | Percentage |  
|Sales, general and administrative |  | $                      | 60,845 |   |        | $ | 65,683 |            |  | $ | (4,838     | ) |  | (7 | %)
|Percentage of service revenue     |  |                        | 37     | % |        |   | 39     | %          |  |   |            |   |  |    |   

The sales, general and administrative expense for the year ended December 31, 2009 was
approximately $4.8 million lower than in the comparable period of 2008. During 2009, stock compensation and severance expenses were lower compared to 2008, and were partially offset by higher information technology spending.

Goodwill Impairment

We recorded a $68.7 million goodwill impairment charge during the quarter ended March 31, 2009 due to our determination that the fair value of goodwill was less than the carrying value. The goodwill impairment charge was non-cash and
does not affect our operations, cash flow or cash position.

Other Income (Expense)

Interest Expense



|                              |  |                        |       |   |        |   |       |            |  |   |            |   |  |    |   
|----------------------------- |  | ---------------------- | ----- | - | ------ | - | ----- | ---------- |  | - | ---------- | - |  | -- | --
|                              |  | Year EndedDecember 31, |       |   | Change |  
|                              |  | (Dollars in thousands) |      
|                              |  | 2009                   |       |   | 2008   |   |       | In Dollars |  |   | Percentage |  
|Interest expense              |  | $                      | 8,466 |   |        | $ | 8,508 |            |  | $ | (42        | ) |  | (0 | %)
|Percentage of service revenue |  |                        | 5     | % |        |   | 5     | %          |  |   |            |   |  |    |   

Interest expense for 2009 was relatively flat compared with our interest expense in 2008. The
impact of a lower effective interest rate on our debt in 2009 was offset by $3.1 million in net expense relating to the amortization of losses from our original swap contracts that were cancelled in December 2008 and the mark-to-market adjustment of
our two ineffective interest rate hedges.



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Income Tax Expense



|                             |  |                        |         |        |      |   |            |  |   |            |   |  |      |   
|---------------------------- |  | ---------------------- | ------- | ------ | ---- | - | ---------- |  | - | ---------- | - |  | ---- | --
|                             |  | Year EndedDecember 31, |         | Change |     
|                             |  | (Dollars in thousands) |        
|                             |  | 2009                   |         |        | 2008 |   | In Dollars |  |   | Percentage |  
|Income tax expense (benefit) |  | $                      | (10,578 | )      |      | $ | 5,257      |  | $ | (15,835    | ) |  | (301 | )%

The change in
our income tax expense was due primarily to the tax benefit resulting from the goodwill impairment charge recorded during 2009. The Company recorded a non-cash goodwill impairment charge of $68.7 million in the three months ended March 31,
2009. $30.9 million of that impairment is not deductible for tax purposes, resulting in an effective tax rate different than the statutory rate.

Comparison of Years Ended December 31, 2008 and December 31, 2007

Service Revenue



|                |  |                        |         |        |   |            |  |            |        |  |    |  
|--------------- |  | ---------------------- | ------- | ------ | - | ---------- |  | ---------- | ------ |  | -- | -
|                |  | Year EndedDecember 31, |         | Change |  
|                |  | (Dollars in thousands) |        
|                |  | 2008                   |         | 2007   |   | In Dollars |  | Percentage |       
|Service revenue |  | $                      | 167,607 |        | $ | 151,662    |  | $          | 15,945 |  | 11 | %

The increase
in service revenue for the year ended December 31, 2008 relative to the year ended December 31, 2007 consists of a $17.5 million increase from the full-year effect of acquisitions completed during 2007, a $2.2 million increase in organic
final read revenue driven largely by an increase in the average price due to a modality shift towards higher-priced, more complex exams, partially offset by a $4.0 million decrease in organic preliminary read revenue. The net decrease in organic
preliminary read revenue resulted from 3% higher volumes, which were more than offset by the impact of declines in average selling prices of 6%.

Operating Costs and Expenses

Professional Services



|                              |  |                        |        |   |        |   |        |            |  |            |       |  |   |  
|----------------------------- |  | ---------------------- | ------ | - | ------ | - | ------ | ---------- |  | ---------- | ----- |  | - | -
|                              |  | Year EndedDecember 31, |        |   | Change |  
|                              |  | (Dollars in thousands) |       
|                              |  | 2008                   |        |   | 2007   |   |        | In Dollars |  | Percentage |      
|Professional services         |  | $                      | 68,932 |   |        | $ | 63,618 |            |  | $          | 5,314 |  | 8 | %
|Percentage of service revenue |  |                        | 41     | % |        |   | 42     | %          |  |            |       |  |   |  

The increase in professional services expense for the year ended December 31, 2008 compared
to the year ended December 31, 2007 is primarily attributable to an increase in professional service fees and medical liability expenses related to higher read volumes partially offset by a decrease in physician stock-based compensation expense
due to our lower common stock prices during 2008.

Sales, General and Administrative



|                                  |  |                        |        |   |        |   |        |            |  |            |        |  |    |  
|--------------------------------- |  | ---------------------- | ------ | - | ------ | - | ------ | ---------- |  | ---------- | ------ |  | -- | -
|                                  |  | Year EndedDecember 31, |        |   | Change |  
|                                  |  | (Dollars in thousands) |       
|                                  |  | 2008                   |        |   | 2007   |   |        | In Dollars |  | Percentage |       
|Sales, general and administrative |  | $                      | 65,683 |   |        | $ | 54,018 |            |  | $          | 11,665 |  | 22 | %
|Percentage of service revenue     |  |                        | 39     | % |        |   | 36     | %          |  |            |        |  |    |  



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The increase in sales, general and administrative expense for the year ended
December 31, 2008 compared to the year ended December 31, 2007 resulted primarily from a $9.6 million increase in payroll expense resulting from costs associated with the employees added from the acquisitions and also from $2.0 million of
severance costs related to the departure of certain former executive officers. We also experienced a $1.2 million increase in licensing and credentialing expenses, a $1.0 million increase in facility expenses and a $1.4 million increase in
telecommunications expenses due primarily from the impact of prior year acquisitions. These increases were partially offset by a decrease in employee stock compensation expense and cost reductions resulting from restructurings which optimized office
space utilization and streamlined operations.

Other Income (Expense)

Interest Expense



|                              |  |                        |       |   |        |   |       |            |  |            |       |  |    |  
|----------------------------- |  | ---------------------- | ----- | - | ------ | - | ----- | ---------- |  | ---------- | ----- |  | -- | -
|                              |  | Year EndedDecember 31, |       |   | Change |  
|                              |  | (Dollars in thousands) |      
|                              |  | 2008                   |       |   | 2007   |   |       | In Dollars |  | Percentage |      
|Interest expense              |  | $                      | 8,508 |   |        | $ | 5,885 |            |  | $          | 2,622 |  | 46 | %
|Percentage of service revenue |  |                        | 5     | % |        |   | 4     | %          |  |            |       |  |    |  

Our interest expense for the 2007 consists of the interest expense incurred on our fully
syndicated term loan (the Term Loan). On April 5, 2007 we borrowed $53.0 million in connection with the Radlinx acquisition and an additional $47.0 million on July 10, 2007 in connection with the MPS and ERS acquisitions. Also
included in interest expense is $0.4 million of amortized deferred loan fees. Our interest expense for 2008 consists of a full year impact of the above debt.

Income Tax Expense



|                   |  |                        |       |        |   |            |  |   |            |   |  |     |   
|------------------ |  | ---------------------- | ----- | ------ | - | ---------- |  | - | ---------- | - |  | --- | --
|                   |  | Year EndedDecember 31, |       | Change |  
|                   |  | (Dollars in thousands) |      
|                   |  | 2008                   |       | 2007   |   | In Dollars |  |   | Percentage |  
|Income tax expense |  | $                      | 5,257 |        | $ | 8,615      |  | $ | (3,358     | ) |  | (39 | )%

We recorded
income tax expense of $5.3 million for 2008 and $8.6 million for 2007. The change in income tax expense is due primarily to a corresponding change in pre-tax income.

Liquidity and Capital Resources

The discussion below highlights
significant aspects of our capital resources and cash flow activities (in millions).



|                          |  |                  |      |                  |   |     
|------------------------- |  | ---------------- | ---- | ---------------- | - | ----
|                          |  | December 31,2009 |      | December 31,2008
|Capital resources         |  |                  |      |                  |   |     
|Cash and cash equivalents |  | $                | 26.3 |                  | $ | 47.2
|Marketable securities     |  |                  | 6.0  |                  |   |    
|                          |  |                  |      |                  |   |     
|Total                     |  | $                | 32.3 |                  | $ | 47.2
|                          |  |                  |      |                  |   |     



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|                                                 |  |                  |       |   |                  |   |       |  
|------------------------------------------------ |  | ---------------- | ----- | - | ---------------- | - | ----- | -
|                                                 |  | December 31,2009 |       |   | December 31,2008 |  
|Cash flow activities                             |  |                  |       |   |                  |   |       |  
|Net cash provided (used) by:                     |  |                  |       |   |                  |   |       |  
|Operating activities                             |  | $                | 28.4  |   |                  | $ | 29.1  |  
|Investing activities                             |  |                  | (12.7 | ) |                  |   | 18.2  |  
|Financing activities                             |  |                  | (36.6 | ) |                  |   | (32.1 | )
|                                                 |  |                  |       |   |                  |   |       |  
|Increase (decrease) in cash and cash equivalents |  | $                | (20.9 | ) |                  | $ | 15.2  |  
|                                                 |  |                  |       |   |                  |   |       |  

Operating Activities

We fund our operations primarily from cash flows generated by our operating activities and the incurrence of debt. Net cash provided by
operating activities in 2009, 2008 and 2007 was $28.4 million, $29.1 million and $23.6 million, respectively. The decrease in net cash from operations from 2008 to 2009 primarily resulted from lower earnings, partially offset by better working
capital management.

Investing Activities

Net cash used in investing activities was $12.7 million for the year ended December 31, 2009 compared to $18.2 million provided by
investing activities for the year ended December 31, 2008. The decrease from 2008 to 2009 primarily reflects $6.0 million in net purchases of marketable securities in 2009, compared to $30.1 million in net proceeds from sales, maturities and
purchases of marketable securities in 2008. During 2008, net proceeds from sales and maturities of marketable securities were used primarily to enhance our capital structure by paying down outstanding debt and repurchasing shares of our common
stock.

Financing Activities

Net cash used in financing activities was $36.6 million for the year ended December 31, 2009, compared with $32.1 million for the year ended December 31, 2008. The increase in net cash used in
financing activities in 2009 compared to 2008 primarily reflects higher voluntary debt principal payments in 2009 as part of the enhancement of our capital structure. This was partially offset by the early settlement of our interest rate swap
contracts of $5.3 million in 2008, as compared to no such activity in 2009. During 2009, we used our existing cash and cash equivalents to repurchase of shares of our common stock for $20.3 million, whereas in 2008 we used net proceeds from
marketable securities to repurchase $22.2 million of such shares.

Financial condition and liquidity

We expect our short and long-term liquidity needs to consist primarily of working capital, capital expenditures related to information
technology and any future acquisitions. We may also have liquidity needs arising from any repurchases of shares of our common stock and if we elect or are required to make principal payments under our Term Loan agreement. We intend to fund
future liquidity needs from current capital resources and cash generated from operations. We believe our capital resources are invested in appropriate investments and will be sufficient to meet our anticipated cash needs for at least the next 12
months.

Our Term Loan contains customary affirmative, negative and financial covenants, including, among other requirements,
negative covenants that restrict our ability to create liens, enter into mergers and acquisitions, pay dividends, repurchase stock, incur indebtedness, make investments and make capital expenditures, and financial covenants that limit the maximum
leverage we can maintain at any one time. As of December 31, 2009, we were in compliance with all covenants contained in our Term Loan agreement and expect to remain in compliance with these covenants in 2010.

Our Term Loan is subject to mandatory repayment under certain circumstances, including in connection with our receipt of proceeds from
certain issuances of equity or debt, sales of assets and casualty events. In



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addition, our Term Loan requires a principal payment in the amount of our Excess Cash Flow (as defined in our credit agreement) if the Total Leverage Ratio (as defined in our credit agreement) is
at or above 2.5 at year end. Furthermore, if our Total Leverage Ratio exceeds 4.0 on any trailing four quarter basis, our obligation to repay all borrowings could be accelerated. As of December 31, 2009, our Total Leverage Ratio was 2.35,
so no additional principal payment was required.

We generate a substantial portion of our revenue and profits from our
customer relationship with St. Paul Radiology, P.A. St. Paul Radiology has indicated that it believes that we are in breach of certain of our obligations under our agreements with it. If such claims of breach are proven to be true and the dispute
resolution process does not achieve a result favorable to us, or if St. Paul Radiologys business declines for other reasons, the amount of revenue we generate from our relationship with St. Paul Radiology may be materially reduced which could
cause us to fail either of our Total Leverage Ratio tests described above. For example, if our agreement with St. Paul Radiology (under which we generated $16.9 million, or 10.4% of total revenue, in 2009) had been terminated prior to 2009, the
resulting loss of revenue and related profits would have caused the Total Leverage Ratio to exceed 2.5 at year end, which in turn would have triggered a mandatory principal repayment. Any future loss in revenue, under the agreement with St. Paul
Radiology, P.A. or otherwise, could cause us to fail the Total Leverage Ratio test and trigger a mandatory principal repayment or result in the acceleration of our obligation to repay all of our borrowings under the credit agreement. Finally, we may
elect from time to time to make additional principal payments on our debt in order to enhance our capital structure as we did in 2008 and 2009. We anticipate funding any such elective or required principal payments out of our available cash and cash
equivalents. However, if our estimates of revenues, working capital and/or capital expenditure requests change or prove inaccurate, we may need to raise additional funds to satisfy any required principal repayment. There can be no assurance that any
such funds will be available at the time or times needed or available on terms acceptable to us.

Off-Balance Sheet Arrangements and
Contractual Obligations

Off-Balance Sheet Arrangements

The Company had no material off-balance sheet arrangements as of December 31, 2009.

Contractual Obligations

The following table presents a summary of our contractual obligations as of December 31, 2009:



|                                     |  |                     |     |          |   |          |  |                  |      |       |   |     |  |   |      
|------------------------------------ |  | ------------------- | --- | -------- | - | -------- |  | ---------------- | ---- | ----- | - | --- |  | - | -----
|(in millions)                        |  | Payments Due Within
|                                     |  | Less than1 Year     |     | 1-3Years |   | 3-5Years |  | More than5 Years |      | Total
|Long-term debt obligations (a)       |  | $                   | 0.8 |          | $ | 1.6      |  | $                | 75.8 |       | $ | 0.0 |  | $ | 78.2 
|Interest on long-term borrowings (b) |  |                     | 3.9 |          |   | 7.6      |  |                  | 5.5  |       |   | 0.0 |  |   | 17.0 
|Operating lease commitments          |  |                     | 2.7 |          |   | 4.1      |  |                  | 3.4  |       |   | 2.9 |  |   | 13.1 
|                                     |  |                     |     |          |   |          |  |                  |      |       |   |     |  |   |      
|Total contractual obligations        |  | $                   | 7.4 |          | $ | 13.3     |  | $                | 84.7 |       | $ | 2.9 |  | $ | 108.3
|                                     |  |                     |     |          |   |          |  |                  |      |       |   |     |  |   |      



|(a) | See Note 5 of the Notes to Consolidated Financial Statements in Item 8.
|--- | -----------------------------------------------------------------------

|(b) | Actual interest paid in future years may differ from amounts shown in this table due to any future refinancing or repayment of our debt. Interest on our floating rate
debt was calculated for all years using the effective rate as of December 31, 2009 including the impact of our interest rate swap contracts. The amounts given above do not include the unamortized $2.0 million spent to settle the interest rate
swap contracts held within Accumulated Other Comprehensive Income which will be amortized to interest expense through September 2010. See Note 11 of the Notes to Consolidated Financial Statements in Item 8.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Total contractual obligations exclude our liability for uncertain tax positions of $2.3 million as of December 31, 2009, because we
were unable to make reasonable estimates as to the period of settlement with the respective taxing authorities.



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New Accounting Pronouncements

See Note 1 to our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for a discussion of
recently issued accounting standards.



|ITEM 7A. | Quantitative and Qualitative Disclosures about Market Risk
|-------- | ----------------------------------------------------------

Foreign Currency Exchange Risk

During the periods covered by this
annual report, substantially all of our customers are in the United States and thus revenue is denominated in U.S. dollars. Although some of our affiliated radiologists work from our centralized reading facilities in Australia and Switzerland, the
professional service fees we pay to our affiliated radiologists are denominated primarily in U.S. dollars. As a result, only our support personnel and facility costs in those countries present foreign currency exchange risks. Because we are not
currently subject to material foreign currency exchange risk, we have not, to date, entered into any hedging contracts. If a weakening U.S. dollar requires us to increase the amounts we pay to our affiliated radiologists in the future in order to
maintain a constant level of compensation, our results of operations and cash flows could be affected. Currently, any foreign exchange risks are related to the foreign currency exchange rates between the U.S. dollar and the Australian dollar and
between the U.S. dollar and the Swiss franc.

Interest Rate Sensitivity

We had cash and cash equivalents totaling $26.3 million at December 31, 2009. These amounts were invested primarily in interest-bearing
money market accounts and are held for working capital purposes. In addition, we had investments in marketable securities of $6.0 million as of December 31, 2009. The marketable securities are U.S. Treasury notes. We do not enter into
investments for trading or speculative purposes. We believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates. However, any declines in interest rates will
reduce future investment income.

As of December 31, 2009, we had $78.2 million in variable interest rate
debt. Because of the interest rate swap contracts in place at December 31, 2009 such debt will not be subject to risks associated with fluctuations in interest rates until such contracts expire on June 30, 2014.

Since 2007, we have utilized interest rate swap contracts to maintain compliance with debt requirements and to protect us against changes in
the interest payments associated with our variable-rate long-term debt. The contracts are considered cash flow hedges. As a result, as long as the swap contracts are deemed highly effective, changes in the fair value of the swap contracts are
recorded as either an asset (a gain position), or a liability (a loss position) on the balance sheet, with the offset recorded in accumulated other comprehensive income, a separate component of stockholders equity.

In December 2008, the Company settled the two interest rate swap contracts entered into during 2007 resulting in a cash payment by the
Company. The pre-tax net unrealized loss within accumulated other comprehensive income associated with the cancelled interest rate swap contracts is being amortized to interest expense over the original lives of the contracts. The cancelled swap
contracts were replaced with five interest rate swap contracts. As principal is repaid on the debt, the combined notional amounts of the five interest rate swap contracts will be different than the principal balance of the outstanding debt. If this
difference is material, it can cause certain of the five interest rate swap contracts to be deemed ineffective. Due to voluntary principal payments made by the Company, two of the interest rate swap contracts have been deemed ineffective. As a
result, changes in the fair values of these ineffective contracts are recorded as a component of interest expense in the Companys statement of operations.

For more information on our hedging activities, see Notes 5 and 11 of the Notes to Consolidated Financial Statements in Item 8.



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|ITEM 8. | Financial Statements and Supplementary Data
|------- | -------------------------------------------

INDEX TO FINANCIAL STATEMENTS



|                                                           |  |     
|---------------------------------------------------------- |  | ----
|                                                           |  | Page
|NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES        |  |     
|                                                           | 
|Consolidated Financial Statements:                         |  |     
|Reports of Independent Registered Public Accounting Firm   |  | 42  
|Consolidated Statements of Operations                      |  | 43  
|Consolidated Balance Sheets                                |  | 44  
|Consolidated Statements of Stockholders Equity            |  | 45  
|Consolidated Statements of Cash Flows                      |  | 46  
|Consolidated Statements of Comprehensive Income (Loss)     |  | 48  
|Notes to Consolidated Financial Statements                 |  | 49  
|Schedule IIConsolidated Valuation and Qualifying Accounts |  | 71  



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

NightHawk Radiology Holdings, Inc.

Scottsdale, Arizona

We have audited the accompanying consolidated balance sheets of NightHawk Radiology Holdings, Inc. and subsidiaries (the
Company) as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders equity, cash flows, and comprehensive income (loss) for each of the three years in the period ended
December 31, 2009. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Companys management. Our
responsibility is to express an opinion on the financial statements and the financial statement schedule based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of NightHawk Radiology Holdings, Inc. and subsidiaries as of December 31, 2009
and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America. Also, in our
opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Companys
internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated February 22, 2010 expressed an unqualified opinion on the Companys internal control over financial reporting.

/s/
DELOITTE & TOUCHE LLP

Boise, Idaho

February 22, 2010



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NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)



|                                               |  |                                  |            |   |      |   |            |      |  |   |            |  
|---------------------------------------------- |  | -------------------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                               |  | For the Years Ended December 31, |           
|                                               |  | 2009                             |            |   | 2008 |   |            | 2007 | 
|Service revenue                                |  | $                                | 162,536    |   |      | $ | 167,607    |      |  | $ | 151,662    |  
|Operating costs and expenses:                  |  |                                  |            |   |      |   |            |      |  |   |            |  
|Professional services                          |  |                                  | 72,368     |   |      |   | 68,932     |      |  |   | 63,618     |  
|Sales, general and administrative              |  |                                  | 60,845     |   |      |   | 65,683     |      |  |   | 54,018     |  
|Depreciation and amortization                  |  |                                  | 11,009     |   |      |   | 11,362     |      |  |   | 7,899      |  
|Goodwill impairment                            |  |                                  | 68,718     |   |      |   |           |      |  |   |           |  
|                                               |  |                                  |            |   |      |   |            |      |  |   |            |  
|Total operating costs and expenses             |  |                                  | 212,940    |   |      |   | 145,977    |      |  |   | 125,535    |  
|                                               |  |                                  |            |   |      |   |            |      |  |   |            |  
|Operating income (loss)                        |  |                                  | (50,404    | ) |      |   | 21,630     |      |  |   | 26,127     |  
|Other income (expense):                        |  |                                  |            |   |      |   |            |      |  |   |            |  
|Interest expense                               |  |                                  | (8,466     | ) |      |   | (8,508     | )    |  |   | (5,885     | )
|Interest income                                |  |                                  | 164        |   |      |   | 1,380      |      |  |   | 3,130      |  
|Other, net                                     |  |                                  | (16        | ) |      |   | 197        |      |  |   | (63        | )
|                                               |  |                                  |            |   |      |   |            |      |  |   |            |  
|Total other income (expense)                   |  |                                  | (8,318     | ) |      |   | (6,931     | )    |  |   | (2,818     | )
|                                               |  |                                  |            |   |      |   |            |      |  |   |            |  
|Income (loss) before income taxes              |  |                                  | (58,722    | ) |      |   | 14,699     |      |  |   | 23,309     |  
|Income tax expense (benefit)                   |  |                                  | (10,578    | ) |      |   | 5,257      |      |  |   | 8,615      |  
|                                               |  |                                  |            |   |      |   |            |      |  |   |            |  
|Net income (loss)                              |  | $                                | (48,144    | ) |      | $ | 9,442      |      |  | $ | 14,694     |  
|                                               |  |                                  |            |   |      |   |            |      |  |   |            |  
|Earnings (loss) per common share:              |  |                                  |            |   |      |   |            |      |  |   |            |  
|Basic                                          |  | $                                | (1.89      | ) |      | $ | 0.32       |      |  | $ | 0.49       |  
|Diluted                                        |  | $                                | (1.89      | ) |      | $ | 0.31       |      |  | $ | 0.47       |  
|Weighted average of common shares outstanding: |  |                                  |            |   |      |   |            |      |  |   |            |  
|Basic                                          |  |                                  | 25,443,493 |   |      |   | 29,482,536 |      |  |   | 30,083,080 |  
|Diluted                                        |  |                                  | 25,443,493 |   |      |   | 30,561,942 |      |  |   | 31,083,971 |  

The accompanying
notes are an integral part of the consolidated financial statements.



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NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)



|                                                                                                                                   |  |              |          |   |      |   |          |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | -------- | - | ---- | - | -------- | -
|                                                                                                                                   |  | December 31, |         
|                                                                                                                                   |  | 2009         |          |   | 2008 |  
|ASSETS                                                                                                                             |  |              |          |   |      |   |          |  
|Current assets:                                                                                                                    |  |              |          |   |      |   |          |  
|Cash and cash equivalents                                                                                                          |  | $            | 26,293   |   |      | $ | 47,160   |  
|Marketable securities                                                                                                              |  |              | 6,000    |   |      |   |         |  
|Trade accounts receivable, net                                                                                                     |  |              | 21,359   |   |      |   | 24,393   |  
|Deferred income taxes                                                                                                              |  |              | 910      |   |      |   | 855      |  
|Prepaid expenses and other current assets                                                                                          |  |              | 4,702    |   |      |   | 6,231    |  
|                                                                                                                                   |  |              |          |   |      |   |          |  
|Total current assets                                                                                                               |  |              | 59,264   |   |      |   | 78,639   |  
|Property and equipment, net                                                                                                        |  |              | 13,507   |   |      |   | 10,528   |  
|Goodwill                                                                                                                           |  |              |         |   |      |   | 68,718   |  
|Intangible assets, net                                                                                                             |  |              | 72,550   |   |      |   | 79,616   |  
|Deferred income taxes                                                                                                              |  |              | 15,707   |   |      |   | 4,082    |  
|Other assets, net                                                                                                                  |  |              | 4,646    |   |      |   | 3,566    |  
|                                                                                                                                   |  |              |          |   |      |   |          |  
|Total assets                                                                                                                       |  | $            | 165,674  |   |      | $ | 245,149  |  
|                                                                                                                                   |  |              |          |   |      |   |          |  
|LIABILITIES                                                                                                                        |  |              |          |   |      |   |          |  
|Current liabilities:                                                                                                               |  |              |          |   |      |   |          |  
|Accounts payable                                                                                                                   |  | $            | 6,130    |   |      | $ | 6,327    |  
|Accrued expenses and other liabilities                                                                                             |  |              | 3,473    |   |      |   | 3,617    |  
|Accrued payroll and related benefits                                                                                               |  |              | 3,769    |   |      |   | 3,783    |  
|Long-term debt, due within one year                                                                                                |  |              | 802      |   |      |   | 955      |  
|                                                                                                                                   |  |              |          |   |      |   |          |  
|Total current liabilities                                                                                                          |  |              | 14,174   |   |      |   | 14,682   |  
|Insurance reserve                                                                                                                  |  |              | 4,018    |   |      |   | 3,705    |  
|Long-term debt                                                                                                                     |  |              | 77,404   |   |      |   | 93,145   |  
|Other liabilities                                                                                                                  |  |              | 1,348    |   |      |   | 3,850    |  
|                                                                                                                                   |  |              |          |   |      |   |          |  
|Total liabilities                                                                                                                  |  |              | 96,944   |   |      |   | 115,382  |  
|                                                                                                                                   |  |              |          |   |      |   |          |  
|Commitments and contingencies                                                                                                      |  |              |          |   |      |   |          |  
|                                                                                                                                   |  |             
|STOCKHOLDERS EQUITY:                                                                                                              |  |              |          |   |      |   |          |  
|Common stock150,000,000 shares authorized; $.001 par value; 23,558,890 and 27,590,774 shares issued and outstanding,
respectively |  |              | 24       |   |      |   | 28       |  
|Additional paid-in capital                                                                                                         |  |              | 221,106  |   |      |   | 237,429  |  
|Retained earnings (deficit)                                                                                                        |  |              | (151,660 | ) |      |   | (103,516 | )
|Accumulated other comprehensive income (deficit)                                                                                   |  |              | (740     | ) |      |   | (4,174   | )
|                                                                                                                                   |  |              |          |   |      |   |          |  
|Total stockholders equity                                                                                                         |  |              | 68,730   |   |      |   | 129,767  |  
|                                                                                                                                   |  |              |          |   |      |   |          |  
|Total liabilities and stockholders equity                                                                                         |  | $            | 165,674  |   |      | $ | 245,149  |  
|                                                                                                                                   |  |              |          |   |      |   |          |  

The accompanying notes are an integral part of the consolidated financial statements.



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NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(In thousands, except share data)



|                                                                                                   |        |              |   |        |                           |    |   |                                 |   |         |                           |  |   |        |   |  |   |          |   |  |   |         |  
|-------------------------------------------------------------------------------------------------- | ------ | ------------ | - | ------ | ------------------------- | -- | - | ------------------------------- | - | ------- | ------------------------- |  | - | ------ | - |  | - | -------- | - |  | - | ------- | -
|                                                                                                   |        | Common Stock |   |        | AdditionalPaid-in Capital |    |   | OtherComprehensiveIncome (Loss) |   |         | RetainedEarnings(Deficit) |  |   | Total  |  
|                                                                                                   | Shares |              |   | Amount |                           |    |   |                                 |  
|BalanceDecember 31, 2006                                                                          |        | 29,944,069   |   |        | $                         | 30 |   |                                 | $ | 230,117 |                           |  | $ |       |   |  | $ | (127,517 | ) |  | $ | 102,631 |  
|Cumulative impact of change in accounting for in income taxes                                      |        |              |   |        |                           |    |   |                                 |   |         |                           |  |   |        |   |  |   | (135     | ) |  |   | (135    | )
|Net income                                                                                         |        |              |   |        |                           |    |   |                                 |   |         |                           |  |   |        |   |  |   | 14,694   |   |  |   | 14,694  |  
|Shares issued upon exercise of stock options and vesting of restricted stock units (RSU)         |        | 368,253      |   |        |                           |    |   |                                 |   | 1,163   |                           |  |   |        |   |  |   |          |   |  |   | 1,163   |  
|Issuance of stock options and RSUsemployees                                                       |        |              |   |        |                           |    |   |                                 |   | 8,330   |                           |  |   |        |   |  |   |          |   |  |   | 8,330   |  
|Issuance of stock options and RSUsnon-employees                                                   |        |              |   |        |                           |    |   |                                 |   | 4,705   |                           |  |   |        |   |  |   |          |   |  |   | 4,705   |  
|Excess tax benefit (deficit) from stock options exercised and RSU vesting                          |        |              |   |        |                           |    |   |                                 |   | 1,625   |                           |  |   |        |   |  |   |          |   |  |   | 1,625   |  
|Issuance of warrants in acquisitions                                                               |        |              |   |        |                           |    |   |                                 |   | 3,334   |                           |  |   |        |   |  |   |          |   |  |   | 3,334   |  
|Change in fair value of derivatives, net of tax                                                    |        |              |   |        |                           |    |   |                                 |   |         |                           |  |   | (1,658 | ) |  |   |          |   |  |   | (1,658  | )
|                                                                                                   |        |              |   |        |                           |    |   |                                 |   |         |                           |  |   |        |   |  |   |          |   |  |   |         |  
|BalanceDecember 31, 2007                                                                          |        | 30,312,322   |   |        | $                         | 30 |   |                                 | $ | 249,274 |                           |  | $ | (1,658 | ) |  | $ | (112,957 | ) |  | $ | 134,689 |  
|Net income                                                                                         |        |              |   |        |                           |    |   |                                 |   |         |                           |  |   |        |   |  |   | 9,442    |   |  |   | 9,442   |  
|Shares issued upon exercise of stock options and vesting of RSUs, net of shares withheld for taxes |        | 370,999      |   |        |                           |    |   |                                 |   | 477     |                           |  |   |        |   |  |   |          |   |  |   | 477     |  
|Shares issued for acquisition earnout                                                              |        | 181,971      |   |        |                           |    |   |                                 |   | 2,078   |                           |  |   |        |   |  |   |          |   |  |   | 2,078   |  
|Shares issued for accrued bonus                                                                    |        | 30,214       |   |        |                           |    |   |                                 |   | 1,751   |                           |  |   |        |   |  |   |          |   |  |   | 1,751   |  
|Shares acquired and retired, net of costs                                                          |        | (3,304,732   | ) |        |                           | (2 | ) |                                 |   | (23,099 | )                         |  |   |        |   |  |   |          |   |  |   | (23,101 | )
|Issuance of stock options and RSUsemployees                                                       |        |              |   |        |                           |    |   |                                 |   | 6,890   |                           |  |   |        |   |  |   |          |   |  |   | 6,890   |  
|Issuance of stock options and RSUsnon-employees                                                   |        |              |   |        |                           |    |   |                                 |   | 1,440   |                           |  |   |        |   |  |   |          |   |  |   | 1,440   |  
|Excess tax benefit (deficit) from stock options exercised and RSU vesting                          |        |              |   |        |                           |    |   |                                 |   | (1,382  | )                         |  |   |        |   |  |   |          |   |  |   | (1,382  | )
|Change in fair value of derivatives, net of tax                                                    |        |              |   |        |                           |    |   |                                 |   |         |                           |  |   | (2,516 | ) |  |   |          |   |  |   | (2,516  | )
|                                                                                                   |        |              |   |        |                           |    |   |                                 |   |         |                           |  |   |        |   |  |   |          |   |  |   |         |  
|BalanceDecember 31, 2008                                                                          |        | 27,590,774   |   |        | $                         | 28 |   |                                 | $ | 237,429 |                           |  | $ | (4,174 | ) |  | $ | (103,516 | ) |  | $ | 129,767 |  
|Net loss                                                                                           |        |              |   |        |                           |    |   |                                 |   |         |                           |  |   |        |   |  |   | (48,144  | ) |  |   | (48,144 | )
|Shares issued upon exercise of stock options and vesting of RSUs, net of shares withheld for taxes |        | 102,174      |   |        |                           |    |   |                                 |   | 108     |                           |  |   |        |   |  |   |          |   |  |   | 108     |  
|Cash settlement of stock options                                                                   |        |              |   |        |                           |    |   |                                 |   | (53     | )                         |  |   |        |   |  |   |          |   |  |   | (53     | )
|Shares acquired and retired, net of costs                                                          |        | (4,134,058   | ) |        |                           | (4 | ) |                                 |   | (19,442 | )                         |  |   |        |   |  |   |          |   |  |   | (19,446 | )
|Issuance of stock options and RSUsemployees                                                       |        |              |   |        |                           |    |   |                                 |   | 3,290   |                           |  |   |        |   |  |   |          |   |  |   | 3,290   |  
|Issuance of stock options and RSUsnon-employees                                                   |        |              |   |        |                           |    |   |                                 |   | 700     |                           |  |   |        |   |  |   |          |   |  |   | 700     |  
|Excess tax benefit (deficit) from stock options exercised and RSU vesting                          |        |              |   |        |                           |    |   |                                 |   | (926    | )                         |  |   |        |   |  |   |          |   |  |   | (926    | )
|Foreign currency translation adjustments, net of tax                                               |        |              |   |        |                           |    |   |                                 |   |         |                           |  |   | (68    | ) |  |   |          |   |  |   | (68     | )
|Change in fair value of derivatives and amortization of cancelled swap contracts, net of tax       |        |              |   |        |                           |    |   |                                 |   |         |                           |  |   | 3,502  |   |  |   |          |   |  |   | 3,502   |  
|                                                                                                   |        |              |   |        |                           |    |   |                                 |   |         |                           |  |   |        |   |  |   |          |   |  |   |         |  
|BalanceDecember 31, 2009                                                                          |        | 23,558,890   |   |        | $                         | 24 |   |                                 | $ | 221,106 |                           |  | $ | (740   | ) |  | $ | (151,660 | ) |  | $ | 68,730  |  
|                                                                                                   |        |              |   |        |                           |    |   |                                 |   |         |                           |  |   |        |   |  |   |          |   |  |   |         |  

The accompanying notes are an integral part of the consolidated financial statements.



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NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



|                                                                                         |  |                                  |         |   |      |   |         |      |  |   |          |  
|---------------------------------------------------------------------------------------- |  | -------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | -------- | -
|                                                                                         |  | For the Years Ended December 31, |        
|                                                                                         |  | 2009                             |         |   | 2008 |   |         | 2007 | 
|Cash flows from operating activities:                                                    |  |                                  |         |   |      |   |         |      |  |   |          |  
|Net income (loss)                                                                        |  | $                                | (48,144 | ) |      | $ | 9,442   |      |  | $ | 14,694   |  
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                                  |         |   |      |   |         |      |  |   |          |  
|Depreciation and amortization                                                            |  |                                  | 11,009  |   |      |   | 11,362  |      |  |   | 7,899    |  
|Goodwill impairment                                                                      |  |                                  | 68,718  |   |      |   |        |      |  |   |         |  
|Accretion of discounts on marketable securities                                          |  |                                  | (11     | ) |      |   | (21     | )    |  |   | (355     | )
|Amortization of debt issuance costs and effect of interest rate swaps                    |  |                                  | 3,830   |   |      |   | 648     |      |  |   | 395      |  
|Loss on disposal of fixed assets and other, net                                          |  |                                  | 103     |   |      |   | 646     |      |  |   | 199      |  
|Deferred income taxes (excluding effects of acquisitions)                                |  |                                  | (13,804 | ) |      |   | (1,210  | )    |  |   | (6,098   | )
|Non-cash stock compensation expense                                                      |  |                                  | 3,990   |   |      |   | 8,330   |      |  |   | 15,030   |  
|Excess tax benefit from exercise of stock options                                        |  |                                  | (32     | ) |      |   | (234    | )    |  |   | (1,625   | )
|Provision for doubtful accounts and sales credits                                        |  |                                  | 583     |   |      |   | 1,127   |      |  |   | 404      |  
|Changes in operating assets and liabilities (excluding effects of acquisitions):         |  |                                  |         |   |      |   |         |      |  |   |          |  
|Trade accounts receivable, net                                                           |  |                                  | 2,545   |   |      |   | 371     |      |  |   | (8,245   | )
|Prepaid expenses and other assets                                                        |  |                                  | 1,389   |   |      |   | (3,420  | )    |  |   | (274     | )
|Accounts payable                                                                         |  |                                  | (454    | ) |      |   | 527     |      |  |   | 2,701    |  
|Accrued expenses and other liabilities                                                   |  |                                  | (1,205  | ) |      |   | 346     |      |  |   | (641     | )
|Accrued payroll and related benefits                                                     |  |                                  | (140    | ) |      |   | 1,173   |      |  |   | (447     | )
|                                                                                         |  |                                  |         |   |      |   |         |      |  |   |          |  
|Net cash provided by operating activities                                                |  |                                  | 28,377  |   |      |   | 29,087  |      |  |   | 23,637   |  
|                                                                                         |  |                                  |         |   |      |   |         |      |  |   |          |  
|Cash flows from investing activities:                                                    |  |                                  |         |   |      |   |         |      |  |   |          |  
|Purchase of marketable securities                                                        |  |                                  | (13,988 | ) |      |   | (26,390 | )    |  |   | (34,221  | )
|Proceeds from maturities of marketable securities                                        |  |                                  | 8,000   |   |      |   | 33,755  |      |  |   | 41,763   |  
|Proceeds from sale of marketable securities                                              |  |                                  |        |   |      |   | 23,303  |      |  |   |         |  
|Purchase of property and equipment                                                       |  |                                  | (6,699  | ) |      |   | (4,757  | )    |  |   | (4,546   | )
|Cash paid for acquisitions, net                                                          |  |                                  |        |   |      |   | (7,650  | )    |  |   | (126,760 | )
|Cash and cash equivalents received from acquisitions                                     |  |                                  |        |   |      |   |        |      |  |   | 339      |  
|                                                                                         |  |                                  |         |   |      |   |         |      |  |   |          |  
|Net cash provided by (used in) investing activities                                      |  |                                  | (12,687 | ) |      |   | 18,261  |      |  |   | (123,425 | )
|                                                                                         |  |                                  |         |   |      |   |         |      |  |   |          |  
|Cash flows from financing activities:                                                    |  |                                  |         |   |      |   |         |      |  |   |          |  
|Repayment of notes payable and debt                                                      |  |                                  | (15,894 | ) |      |   | (5,400  | )    |  |   | (11,366  | )
|Settlement of interest rate swap contracts                                               |  |                                  |        |   |      |   | (5,331  | )    |  |   |         |  
|Proceeds from exercise of stock options                                                  |  |                                  | 134     |   |      |   | 559     |      |  |   | 1,163    |  
|Excess tax benefit from exercise of stock options                                        |  |                                  | 32      |   |      |   | 234     |      |  |   | 1,625    |  
|Purchase and retirement of common stock                                                  |  |                                  | (20,342 | ) |      |   | (22,206 | )    |  |   |         |  
|Proceeds from notes payable and debt                                                     |  |                                  |        |   |      |   |        |      |  |   | 100,000  |  
|Repayments of lines of credit                                                            |  |                                  |        |   |      |   |        |      |  |   | (1,679   | )
|Debt amendment and issuance costs                                                        |  |                                  | (434    | ) |      |   |        |      |  |   | (4,500   | )
|Cash exchange for stock options                                                          |  |                                  | (53     | ) |      |   |        |      |  |   |         |  
|                                                                                         |  |                                  |         |   |      |   |         |      |  |   |          |  
|Net cash (used in) provided by financing activities                                      |  |                                  | (36,557 | ) |      |   | (32,144 | )    |  |   | 85,243   |  
|                                                                                         |  |                                  |         |   |      |   |         |      |  |   |          |  
|Net increase (decrease) in cash and cash equivalents                                     |  |                                  | (20,867 | ) |      |   | 15,204  |      |  |   | (14,545  | )
|Cash and cash equivalentsbeginning of year                                              |  |                                  | 47,160  |   |      |   | 31,956  |      |  |   | 46,501   |  
|                                                                                         |  |                                  |         |   |      |   |         |      |  |   |          |  
|Cash and cash equivalentsend of year                                                    |  | $                                | 26,293  |   |      | $ | 47,160  |      |  | $ | 31,956   |  
|                                                                                         |  |                                  |         |   |      |   |         |      |  |   |          |  



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NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS(Continued)



|                                                                                                |  |                                  |       |      |   |       |  |   |         |  
|----------------------------------------------------------------------------------------------- |  | -------------------------------- | ----- | ---- | - | ----- |  | - | ------- | -
|                                                                                                |  | For the Years Ended December 31, |      
|                                                                                                |  | 2009                             |       | 2008 |   | 2007  | 
|Supplemental disclosures of cash flow information:                                              |  |                                  |       |      |   |       |  |   |         |  
|Cash paid for interest                                                                          |  | $                                | 4,607 |      | $ | 7,838 |  | $ | 5,460   |  
|Cash paid for income taxes                                                                      |  |                                  | 4,181 |      |   | 6,885 |  |   | 13,210  |  
|                                                                                                |  |                                  |      
|Non-cash investing and financing activities:                                                    |  |                                  |       |      |   |       |  |   |         |  
|Purchases of equipment included in accounts payable                                             |  | $                                | 263   |      | $ | 271   |  | $ | 176     |  
|Earnout liability included in accrued expenses settled in stock                                 |  |                                  |      |      |   | 2,078 |  |   |        |  
|Issuance of common stock in connection with settlement of accrued bonuses                       |  |                                  |      |      |   | 2,107 |  |   |        |  
|Accrual for unsettled share repurchases                                                         |  |                                  |      |      |   | 895   |  |   |        |  
|Acquisition costs included in accrued expenses and accounts payable                             |  |                                  |      |      |   |      |  |   | 105     |  
|                                                                                                |  |                                  |      
|Details of Teleradiology Diagnostic Service, Inc. Acquisition:                                  |  |                                  |       |      |   |       |  |   |         |  
|Cash                                                                                            |  |                                  |       |      |   |       |  | $ | 79      |  
|Receivables                                                                                     |  |                                  |       |      |   |       |  |   | 1,316   |  
|Other assets                                                                                    |  |                                  |       |      |   |       |  |   | 85      |  
|Property and equipment                                                                          |  |                                  |       |      |   |       |  |   | 197     |  
|Deferred income tax assets                                                                      |  |                                  |       |      |   |       |  |   | 26      |  
|Goodwill                                                                                        |  |                                  |       |      |   |       |  |   | 16,078  |  
|Intangible assets                                                                               |  |                                  |       |      |   |       |  |   | 12,250  |  
|Accounts payable and other liabilities                                                          |  |                                  |       |      |   |       |  |   | (1,394  | )
|Deferred income tax liabilities                                                                 |  |                                  |       |      |   |       |  |   | (4,816  | )
|Contingent liability in escrow, paid in 2008                                                    |  |                                  |       |      |   |       |  |   | (1,150  | )
|                                                                                                |  |                                  |       |      |   |       |  |   |         |  
|Net cash paid for acquisition                                                                   |  |                                  |       |      |   |       |  | $ | 22,671  |  
|                                                                                                |  |                                  |       |      |   |       |  |   |         |  
|Details of The Radlinx Group , LTD. Acquisition:                                                |  |                                  |       |      |   |       |  |   |         |  
|Cash                                                                                            |  |                                  |       |      |   |       |  | $ | 8       |  
|Receivables                                                                                     |  |                                  |       |      |   |       |  |   | 3,356   |  
|Other assets                                                                                    |  |                                  |       |      |   |       |  |   | 277     |  
|Property and equipment                                                                          |  |                                  |       |      |   |       |  |   | 663     |  
|Goodwill                                                                                        |  |                                  |       |      |   |       |  |   | 40,450  |  
|Intangible assets                                                                               |  |                                  |       |      |   |       |  |   | 19,400  |  
|Accounts payable and other liabilities                                                          |  |                                  |       |      |   |       |  |   | (2,235  | )
|Deferred income tax liabilities                                                                 |  |                                  |       |      |   |       |  |   | (3,308  | )
|Debt assumed                                                                                    |  |                                  |       |      |   |       |  |   | (12,545 | )
|Contingent consideration, paid in 2008                                                          |  |                                  |       |      |   |       |  |   | (4,925  | )
|                                                                                                |  |                                  |       |      |   |       |  |   |         |  
|Net cash paid for acquisition                                                                   |  |                                  |       |      |   |       |  | $ | 41,141  |  
|                                                                                                |  |                                  |       |      |   |       |  |   |         |  
|Details of Midwest Physicians Services, LLC and Emergency Radiology Services, LLC acquisitions: |  |                                  |       |      |   |       |  |   |         |  
|Cash                                                                                            |  |                                  |       |      |   |       |  | $ | 252     |  
|Receivables                                                                                     |  |                                  |       |      |   |       |  |   | 446     |  
|Other assets                                                                                    |  |                                  |       |      |   |       |  |   | 111     |  
|Property and equipment                                                                          |  |                                  |       |      |   |       |  |   | 1,814   |  
|Goodwill                                                                                        |  |                                  |       |      |   |       |  |   | 7,054   |  
|Intangible assets                                                                               |  |                                  |       |      |   |       |  |   | 57,590  |  
|Accounts payable and other liabilities                                                          |  |                                  |       |      |   |       |  |   | (987    | )
|Warrants issued                                                                                 |  |                                  |       |      |   |       |  |   | (3,334  | )
|                                                                                                |  |                                  |       |      |   |       |  |   |         |  
|Net cash paid for acquisition                                                                   |  |                                  |       |      |   |       |  | $ | 62,946  |  
|                                                                                                |  |                                  |       |      |   |       |  |   |         |  

The accompanying notes are an integral part of the consolidated financial statements.



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NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)



|                                                                                          |  |                                  |         |   |      |   |        |      |  |   |        |  
|----------------------------------------------------------------------------------------- |  | -------------------------------- | ------- | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                                          |  | For the Years Ended December 31, |        
|                                                                                          |  | 2009                             |         |   | 2008 |   |        | 2007 | 
|Net income (loss)                                                                         |  | $                                | (48,144 | ) |      | $ | 9,442  |      |  | $ | 14,694 |  
|Other comprehensive income (loss):                                                        |  |                                  |         |   |      |   |        |      |  |   |        |  
|Change in fair value of interest rate swaps                                               |  |                                  | 2,355   |   |      |   | (4,043 | )    |  |   | (2,717 | )
|Reclassification adjustments for net losses on interest rate swaps included in net income |  |                                  | 3,322   |   |      |   |       |      |  |   |       |  
|Foreign currency translation adjustments                                                  |  |                                  | (119    | ) |      |   |       |      |  |   |       |  
|Less deferred income taxes                                                                |  |                                  | (2,124  | ) |      |   | 1,527  |      |  |   | 1,059  |  
|                                                                                          |  |                                  |         |   |      |   |        |      |  |   |        |  
|Net other comprehensive income (loss)                                                     |  |                                  | 3,434   |   |      |   | (2,516 | )    |  |   | (1,658 | )
|                                                                                          |  |                                  |         |   |      |   |        |      |  |   |        |  
|Comprehensive income (loss)                                                               |  | $                                | (44,710 | ) |      | $ | 6,926  |      |  | $ | 13,036 |  
|                                                                                          |  |                                  |         |   |      |   |        |      |  |   |        |  

The accompanying notes are an integral part of the consolidated financial statements.



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NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007

1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

BackgroundNightHawk
Radiology Holdings, Inc. and its subsidiaries (the Company) provide professional services, business services, and clinical workflow technology to radiology groups and hospitals across the United States. The Companys functional
currency is the U.S. dollar.

Basis of PresentationThese consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the United States of America and include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions have been eliminated.

We have evaluated subsequent events through February 22, 2010, the date of issuance of the consolidated financial
statements.

Use of EstimatesThe preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosures of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses during the reporting period. Some of these estimates require difficult, subjective or complex judgments about matters that are inherently uncertain. Actual results could
differ from those estimates.

On an ongoing basis, the Company evaluates its estimates, including those related to the
accounts receivable allowance, fair value of acquired intangible assets and goodwill, useful lives of intangible assets and property and equipment, income taxes, the loss contingency for general and medical liability claims, reserves for incurred
but not reported (IBNR) medical liability claims, for determining stock-based compensation, the fair value of interest rate swap contracts and the Companys business services customers expected net collections.

Cash and Cash EquivalentsThe Company considers all highly liquid investments with a remaining maturity of three months
or less at the date of purchase to be cash equivalents.

Trade Accounts ReceivableTrade accounts
receivable represent receivables for services and are recorded at the invoiced amount and are non-interest bearing. Company management reviews past due accounts receivable to identify specific customers with known disputes or collectability issues.
As of December 31, 2009 and 2008, the Company had reserved $0.9 million and $1.1 million, respectively, for doubtful accounts based on its estimate of the collectability of outstanding receivables as of those dates.

Marketable SecuritiesThe Company determines the appropriate classification of investments in marketable debt and equity
securities at the time of purchase and reevaluates such designation at each balance sheet date. Marketable debt and equity securities have been classified and accounted for as available for sale. The Company may or may not hold securities with
stated maturities greater than twelve months until maturity. In response to changes in the availability of and the yield on alternative investments as well as liquidity requirements, the Company occasionally sells these securities prior to their
stated maturities. The Company primarily invests in high-credit-quality debt instruments with an active resale market and money market funds to ensure liquidity and the ability to readily convert these investments into cash to fund current
operations, or satisfy other cash requirements as needed. Accordingly, all marketable securities have been classified as current assets in the accompanying balance sheets. These securities are carried at fair value, with the unrealized gains and
losses, net of taxes, reported as a component of stockholders equity, except for unrealized losses determined to be other than temporary which would be recorded as other income or expense. Any realized gains or losses on the sale of marketable
securities are determined on a specific identification method, and such gains and losses are reflected as a component of other income or expense.



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Property and EquipmentProperty and equipment are stated at cost.
Depreciation is provided using the straight-line method over the estimated useful lives of each asset, which range as follows:



|                                                                  |  |                                                 
|----------------------------------------------------------------- |  | ------------------------------------------------
|Computers, diagnostic workstations and telecommunications systems |  | 35 years                                       
|Office furniture and equipment                                    |  | 710 years                                      
|Software                                                          |  | 37 years                                       
|Leasehold improvements                                            |  | Term of lease or assetlife, whichever is shorter

Expenditures for maintenance and repairs are charged to operating expense as incurred and expenditures for renewals and betterments are
capitalized. Upon sale or retirement of depreciable assets, the related cost and accumulated depreciation are removed from the records and any gain or loss is reflected in operating expenses.

The cost of computer software developed for internal use is capitalized and accounted for in accordance with the Intangibles-Goodwill and
OtherTopic of the FASB Accounting Standards Codification (ASC Topic 350), Subtopic 40 Internal-Use Software. Capitalized costs are amortized based on their expected useful lives.

ContingenciesThe Company records a loss contingency for a legal claims at the time the Company deems such liability to
be probable. The determination of the probability of the liability is based upon a review of the claim by the Companys internal legal counsel, external legal counsel and, in the case of medical liability claims, the Companys medical
liability insurance carrier. Upon the determination that a liability is probable, the Company records a loss contingency for the estimated potential claim. Actual future losses from these legal claims may differ from the Companys estimates to
the extent that the Company suffers an adverse determination for a claim that the Company did not deem the liability probable, did not record a sufficient loss contingency, the loss was in excess of applicable insurance limits, or in the event that
the Company does not have insurance coverage or indemnification rights covering the specific claim.

Medical Liability
InsuranceThe Company is exposed to various risks of loss related to litigation that may arise related to malpractice and maintains insurance for medical liabilities in amounts considered adequate by Company management. The
Companys claims-made policy provides coverage up to the policy limits for claims filed within the period of the policy term, subject to deductible requirements and coverage limits. Coverage for affiliated radiologists is initiated when they
begin providing services on behalf of the Company.

The Company records reserves for both asserted and IBNR amounts. Asserted
claims are reserved based upon the Companys best estimate of future probable costs in accordance with the ContingenciesTopic of the FASB Accounting Standards Codification (ASC Topic 450). The IBNR reserve is intended to cover potential
medical claims that might arise related to past medical services performed by the Companys affiliated radiologists which have not yet been asserted. IBNR amounts are estimated using historical claims information and actuarial-based industry
indices.

Operating LeasesThe Company leases various office space under operating leases. Certain lease
arrangements contain rent escalation clauses for which the lease expense is recognized on a straight-line method over the term of the leases.

Long-Lived Assets Including Goodwill and Other Acquired Intangible AssetsUnder the provisions of the Intangibles-Goodwill and Other Topic of the FASB Accounting Standards
Codification (ASC Topic 350), certain intangible assets are amortized over their estimated useful lives. We do not amortize goodwill. Goodwill and unamortized intangible assets are evaluated for impairment at least annually or more frequently if
events and circumstances indicate that the goodwill and intangible assets might be impaired.

In accordance with the
Property, Plant, and EquipmentTopic of the FASB Accounting Standards Codification (ASC Topic 360), the Company periodically reviews long-lived assets for impairment whenever



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events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of those assets are no longer appropriate. The
Company performs impairment tests using discounted cash flows, valuation analyses or comparisons to recent sales or purchase transactions to determine estimated fair value. If impairment is indicated, the asset is written down to its estimated fair
value based on a discounted cash flow analysis.

Revenue Recognition and PresentationService revenue is
recognized when all significant contractual obligations have been satisfied and collection of the resulting receivable is probable. Radiological service revenue is recognized in the month when the radiological interpretation is complete and
delivered to the customer. Business service revenue is recognized in the period the service is provided.

Professional
Services ExpensesProfessional service expenses consist primarily of the fees the Company pays to affiliated radiologists, any physician stock-based compensation, the premiums for medical liability insurance, and any medical liability
claims loss expenses. Affiliated radiologists are independent contractors compensated using a formula that is generally based upon the number of hours worked, with additional incentives for the workload completed. Professional services expenses are
recognized in the month in which the services are performed. The Company recognizes expenses associated with medical liability premiums in the month in which the expense is incurred. The Company records medical liability loss contingency expenses in
the month in which the Company deems such liability probable.

Sales, General and Administrative
ExpenseSales, general and administrative expense consists primarily of salaries and related expenses for all employees and non-physician contractors, non-physician stock-based compensation, information technology and telecommunications
expenses, costs associated with licensing and privileging the Companys affiliated radiologists, facilities and office-related expenses, sales and marketing expenses and other general and administrative expenses.

Stock-Based CompensationThe Company records stock-based compensation expense in connection with any grant of stock
options or restricted stock units to affiliated radiologists. The Company follows the provisions of the CompensationStock Compensation Topic of the FASB Accounting Standards Codification (ASC Topic 718). As a result, the Company
calculates the stock-based compensation expense associated with the issuance of stock-based compensation to affiliated radiologists in accordance with the EquityTopic of the FASB Accounting Standards Codification (ASC Topic 505), Subtopic
50, Equity-Based Payments to Non-Employees. The Company calculates the stock-based compensation expense related to the issuance of common stock or restricted stock units to affiliated radiologists based on the fair value of common stock at
the date the shares or restricted stock units were earned. Stock-based compensation related to affiliated radiologists is included in professional services expenses.

The Company also records stock-based compensation expense in connection with any grant of stock options or restricted stock units to employees, directors and non-physician contractors. The Company
calculates the stock-based compensation expense associated with the issuance of options or restricted stock units to the Companys employees, directors and non-physician contractors in accordance with ASC Topic 718. Options and RSUs granted to
employees and directors are valued using the Black-Scholes model, and the resulting expense is recognized using the accelerated method over the service period for the entire award. Stock-based compensation related to employees, directors and
non-physician contractors is included in sales, general and administrative expenses.

Income TaxesThe
Company recognizes income taxes under the asset and liability method in accordance with the Income Taxes Topic of the FASB Accounting Standards Codification (ASC Topic 740). This approach requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities.

The provision for income taxes, including the effective tax rate and analysis of potential tax exposure items, if any, requires significant judgment and expertise in federal and state income tax laws,
regulations and



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strategies, including the determination of deferred tax assets and liabilities and any estimated valuation allowances deemed necessary to value deferred tax assets. The Companys judgment
and tax strategies are subject to audit by various taxing authorities. While the Company believes it has provided adequately for its income tax liabilities in the consolidated financial statements, adverse determinations by these taxing authorities
could have a material adverse effect on the consolidated financial condition, results of operations or cash flows.

Earnings Per Common ShareBasic earnings per common share is calculated based on the weighted-average number of outstanding common shares during the applicable period. Diluted earnings per common
share are based on the weighted-average number of outstanding common shares plus the weighted-average number of potential outstanding common shares. Potential common shares that would increase earnings per share amounts or decrease loss per share
amounts are anti-dilutive and are, therefore, excluded from the earnings per common share computations. Earnings per common share are computed separately for each period presented.

Concentration of Credit RiskFinancial instruments that potentially expose the Company to concentration of credit risk
consist primarily of cash, cash equivalents, marketable securities and accounts receivable. The Company maintains its cash, cash equivalents and marketable securities with high-credit-quality institutions. As of December 31, 2009 and 2008, a
total of $26.2 million and $7.5 million, respectively, of cash and cash equivalents exceeded federal government insured amounts.

In 2009, the Company generated $16.9 million in revenue from one customer, St. Paul Radiology, P.A., representing 10.4% of the Companys revenue, under a multiyear business services agreement. As described more fully in Note 6, the
Company is currently involved in a dispute with St. Paul Radiology, P.A. regarding its services agreement with them.

Fair Value of Financial InstrumentsThe carrying amounts of the Companys financial instruments, including cash and cash equivalents, marketable securities, accounts receivable and current liabilities approximate
their fair value because of their short duration. See Note 12 for fair value disclosure.

Derivative Financial
InstrumentsAccounting for derivative instruments and hedging activities requires the Company to recognize all derivatives on the consolidated balance sheet at fair value in accordance with the Derivatives and Hedging Topic of
the FASB Accounting Standards Codification (ASC Topic 815). If the derivative is a qualifying cash flow hedge, changes in its fair value are recognized in other comprehensive income until the hedged item is recognized in earnings. The Company does
not generally engage in speculative transactions, nor does it hold or issue financial instruments for trading purposes.

The
Company formally documents hedging instruments, as well as its risk management objective and strategy for undertaking hedged items. This process includes linking all derivatives that are cash flow hedges to forecasted payments. The Company also
formally assesses, both at inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair value or cash flows of hedged items. If it is determined that a derivative
is not highly effective, the Company discontinues hedge accounting prospectively for that specific hedge instrument and the ineffective portion is recognized in earnings.

Recently Issued Accounting StandardsIn April 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) SFAS 142-3,
Determination of Useful Life of Intangible Assets,which can now be found within the Intangibles-Goodwill and OtherTopic of the FASB Accounting Standards Codification (ASC Topic 350). This standard amends the factors that should be
considered in developing the renewal or extension assumptions used to determine the useful life of a recognized intangible asset. This topic also includes required expanded disclosure related to the determination of intangible asset useful lives.
The Company adopted this new accounting pronouncement as of January 1, 2009 and the impact of adoption was not significant.



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In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities which amends and expands the disclosure requirements of as SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. These pronouncements can be found in the
Derivatives and HedgingTopic of the FASB Accounting Standards Codification (ASC Topic 815). The Company adopted this new accounting pronouncement as of January 1, 2009 and the impact of adoption was not significant.

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations which (i) establishes principles and requirements
for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any controlling interest, (ii) recognizes and measures the goodwill acquired in the
business combination or a gain from a bargain purchase, and (iii) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effect of the business combination. This pronouncement
which can be found in the Business CombinationsTopic of the FASB Accounting Standards Codification (ASC Topic 805) is to be applied prospectively to business combinations for which the acquisition date is on or after an entitys fiscal
year that begins after December 15, 2008. The Company adopted this new accounting pronouncement as of January 1, 2009 and the impact of adoption was not significant.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statementsan amendment of
ARB No. 51, which requires that all entities in which its parent has a controlling financial interest be consolidated into the parent at 100 percent of fair value and the parents consolidated net income include amounts attributable to
both the parent and noncontrolling interest. This guidance can be found in the ConsolidationTopic of the FASB Accounting Standards Codification (ASC Topic 810). ASC Topic 810 clarifies that non-controlling interests in subsidiaries be
presented as equity and any changes to the ownership interest are considered equity transactions provided the parent maintains its controlling financial interest in the subsidiary. The Company adopted this new accounting pronouncement as of
January 1, 2009 and the impact of adoption was not significant.

In May 2009, the FASB issued SFAS No. 165,
Subsequent Events.This guidance can be found in the Subsequent EventsTopic of the FASB Accounting Standards Codification (ASC Topic 855). This standard provides guidance on managements assessment of subsequent events, which are
defined as events or transactions that occur after the balance sheet date but before the financial statements are issued or are available to be issued. This standard also requires disclosure of the date through which subsequent events have been
evaluated and whether that is the date that the financial statements were issued or available to be issued. ASC Topic 855 is effective for interim or annual fiscal periods ending after June 15, 2009. The Company adopted this new accounting
pronouncement as of April 1, 2009 and the impact of adoption was not significant.

In June 2009, the
FASB issued SFAS No. 168, The FASB Accounting Standards Codificationand the Hierarchy of Generally Accepted Accounting Principlesa replacement of FASB Statement No. 162,which can now be found under
the Generally Accepted Accounting PrinciplesTopic of the FASB Accounting Standards Codification (ASC Topic 105). ASC Topic 105 provides for the FASB Accounting Standards CodificationTM(the Codification) to become the single official source of authoritative, nongovernmental
U.S. generally accepted accounting principles (GAAP). The Codification did not change GAAP but reorganizes the literature. The Company adopted this new accounting pronouncement as of July 1, 2009 and the impact of adoption was not
significant.

In August 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-05, which amended the
Fair Value Measurements and DisclosuresTopic of the FASB Accounting Standards Codification (ASC Topic 820), Subtopic 10, Overall.This update provides clarification that in circumstances in which a quoted price in an
active market for the identical liability is not available, a reporting entity is required to measure fair value using one of more of the following techniques: 1) A valuation technique that uses: a) The quoted price of the identical liability when
traded as an asset b) Quoted prices for similar liabilities or similar liabilities when traded as assets. 2) Another valuation technique that is consistent with the principles of ASC Topic 820. The



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amendments in this update reduce potential ambiguity in financial reporting when measuring the fair value of liabilities. Therefore, preparers, investors, and other users of financial statements
will have a better understanding of how the fair value of liabilities was measured, helping to improve consistency in the application of ASC Topic 820. See Note 5 for fair value disclosure of the Companys debt, as required by ASC Topic
820.

2. MARKETABLE SECURITIES

Marketable securities include various available-for-sale securities. These securities are carried at fair value, with the unrealized gains and losses, net of taxes, reported as a component of
stockholders equity. Gross unrealized gains and losses on marketable securities were not significant at December 31, 2009.

Below are the Companys marketable securities at fair value:



|                                              |  |                  |       |                  |   |  
|--------------------------------------------- |  | ---------------- | ----- | ---------------- | - | -
|                                              |  | December 31,2009 |       | December 31,2008
|                                              |  | (In thousands)  
|Due in one year or less:                      |  |                  |       |                  |   |  
|U.S. Government and Federal Agency securities |  | $                | 6,000 |                  | $ | 
|                                              |  |                  |       |                  |   |  
|Total marketable securities                   |  | $                | 6,000 |                  | $ | 
|                                              |  |                  |       |                  |   |  

3. GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying value of goodwill for the years ended December 31, 2009 and 2008 are as follows (in thousands):



|                                    |  |        |         |  
|----------------------------------- |  | ------ | ------- | -
|Description:                        |  | Amount |        
|Outstanding as of January 1, 2008   |  | $      | 68,601  |  
|Adjustments, net                    |  |        | 117     |  
|                                    |  |        |         |  
|Balance as of December 31, 2008     |  |        | 68,718  |  
|Impairments                         |  |        | (68,718 | )
|                                    |  |        |         |  
|Outstanding as of December 31, 2009 |  | $      |        |  
|                                    |  |        |         |  

The 2008 adjustments represent purchase price adjustments related to the 2007 acquisitions of The Radlinx
Group, Ltd. (Radlinx) and American Teleradiology Nighthawks, Inc. (ATN).

As required by the
Intangibles-Goodwill and OtherTopic of the FASB Accounting Standards Codification (ASC Topic 350), an interim test for impairment must be performed whenever impairment indicators are present. During 2009, as a result of the difficult
macroeconomic environment and significant decline in the market price of the Companys common stock, the Company determined that an impairment indicator was present related to its goodwill. The Company performed this interim impairment testing
as of March 31, 2009 and determined that the fair value of its recorded goodwill, estimated using discounted cash flow analyses and reconciled to its market capitalization, was less than the carrying value. Based on this testing, the Company
concluded that its goodwill balance of $68.7 million was fully impaired. As a result, the Company recorded a non-cash goodwill impairment charge of $68.7 million in the three months ended March 31, 2009.



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The Company amortizes its intangible assets using the straight-line method over their
estimated useful lives. The Company reviews intangible assets subject to amortization to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in the remaining useful life. A
summary of intangible assets at December 31 is as follows:



|                                 |  |                      |  |                  |        |                         |   |           |  |                  |        |                         |   |           |  |   |        |  |   |       
|-------------------------------- |  | -------------------- |  | ---------------- | ------ | ----------------------- | - | --------- |  | ---------------- | ------ | ----------------------- | - | --------- |  | - | ------ |  | - | ------
|                                 |  |                      |  | 2009             |        | 2008                   
|                                 |  | EstimatedUseful Life |  | HistoricalAmount |        | AccumulatedAmortization |   | NetAmount |  | HistoricalAmount |        | AccumulatedAmortization |   | NetAmount
|                                 |  |                      |  | (In thousands)  
|Customer lists and relationships |  | 6-10 years           |  | $                | 30,770 |                         | $ | 9,579     |  | $                | 21,191 |                         | $ | 30,770    |  | $ | 6,368  |  | $ | 24,402
|Tradename and trademarks         |  | 5 years              |  |                  | 2,820  |                         |   | 1,773     |  |                  | 1,047  |                         |   | 2,820     |  |   | 1,143  |  |   | 1,677 
|Customer contracts (a)           |  | 20 years             |  |                  | 57,180 |                         |   | 7,028     |  |                  | 50,152 |                         |   | 57,180    |  |   | 4,169  |  |   | 53,011
|Noncompete agreements            |  | 2-5 years            |  |                  | 780    |                         |   | 620       |  |                  | 160    |                         |   | 1,880     |  |   | 1,354  |  |   | 526   
|                                 |  |                      |  |                  |        |                         |   |           |  |                  |        |                         |   |           |  |   |        |  |   |       
|                                 |  |                      |  | $                | 91,550 |                         | $ | 19,000    |  | $                | 72,550 |                         | $ | 92,650    |  | $ | 13,034 |  | $ | 79,616
|                                 |  |                      |  |                  |        |                         |   |           |  |                  |        |                         |   |           |  |   |        |  |   |       



|(a) | The customer contract amount shown relates specifically to the 20 year agreement between St. Paul Radiology, P.A. and the Company.
|--- | ----------------------------------------------------------------------------------------------------------------------------------

Amortization expense was $7.1 million, $7.5 million and $5.0 million for the years ended December 31, 2009, 2008 and 2007,
respectively. The following is a schedule of estimated future amortization expense as of December 31, 2009:



|                                    |  |                |       
|----------------------------------- |  | -------------- | ------
|                                    |  | Amount        
|Estimated Amortization Expense (a): |  | (in thousands)
|Year ending December 31, 2010       |  | $              | 6,685 
|Year ending December 31, 2011       |  |                | 6,452 
|Year ending December 31, 2012       |  |                | 5,879 
|Year ending December 31, 2013       |  |                | 5,748 
|Year ending December 31, 2014       |  |                | 5,739 
|Thereafter                          |  |                | 42,047
|                                    |  |                |       
|Total                               |  | $              | 72,550
|                                    |  |                |       



|(a) | Actual amortization amounts in future years may differ from amounts shown in this table due to any future acquisitions or changes in existing intangible asset balances.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:



|                                                                   |  |                |         |   |      |   |        |  
|------------------------------------------------------------------ |  | -------------- | ------- | - | ---- | - | ------ | -
|                                                                   |  | December 31,   |        
|                                                                   |  | 2009           |         |   | 2008 |  
|                                                                   |  | (in thousands) |        
|Computers, diagnostic workstations, and telecommunications systems |  | $              | 9,263   |   |      | $ | 7,544  |  
|Office furniture and equipment                                     |  |                | 2,007   |   |      |   | 1,861  |  
|Software                                                           |  |                | 11,207  |   |      |   | 6,695  |  
|Leasehold improvements                                             |  |                | 3,575   |   |      |   | 3,178  |  
|                                                                   |  |                |         |   |      |   |        |  
|                                                                   |  |                | 26,052  |   |      |   | 19,278 |  
|Less accumulated depreciation                                      |  |                | (12,545 | ) |      |   | (8,750 | )
|                                                                   |  |                |         |   |      |   |        |  
|                                                                   |  | $              | 13,507  |   |      | $ | 10,528 |  
|                                                                   |  |                |         |   |      |   |        |  



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Depreciation expense for the years ended December 31, 2009, 2008 and 2007 was $3.9
million, $3.8 million and $2.9 million, respectively.

5. LONG-TERM DEBT

The Company has outstanding a fully syndicated term loan (the Term Loan) payable to Morgan Stanley Senior Funding pursuant to
which the Company has $78.2 million in outstanding borrowings as of December 31, 2009. The Term Loan is required to be repaid in quarterly installments of $0.2 million with the projected remaining balance of $74.8 million payable on the
maturity date of July 10, 2014.

Interest under the Term Loan is based, at the option of the Company, on either:
(i) a floating per annum rate based on prime rate plus 1.50% or (ii) a floating per annum rate (based upon one, two, three or six-month interest periods), which the Company has chosen, based on LIBOR plus 2.50% (2.76% at December 31,
2009). The Company entered into five interest rate swap contracts during 2008 which, while in place, will maintain a fixed effective interest rate on the Term Loan of approximately 4.95%.

The Term Loan contains customary covenants and restrictions and is guaranteed by certain of the Companys wholly owned operating
subsidiaries, including NightHawk Radiology Services, LLC, the Companys primary operating entity, and is collateralized by substantially all of the Companys assets.

The Term Loan is subject to mandatory repayment under certain circumstances, including in connection with our receipt of proceeds from
certain issuances of equity or debt, sales of assets and casualty events. In addition, the Term Loan requires a principal payment in the amount of our Excess Cash Flow as defined in our loan agreement if the Total Leverage Ratio as defined in the
Term Loan agreement is at or above 2.50 at year end. As of December 31, 2009, our Total Leverage Ratio was 2.35, so no additional principal payment was required.

The Term Loan contains customary affirmative, negative and financial covenants, including, among other requirements, negative covenants that
restrict the Companys ability to create liens, enter into mergers and acquisitions, pay dividends, repurchase stock, incur indebtedness, make investments and make capital expenditures, and financial covenants that limit the maximum leverage
the Company can maintain at any one time. The maximum Total Leverage Ratio allowed under the terms of the loan is below 4.00 as measured on a trailing four quarter basis. As of December 31, 2009, this leverage ratio was 2.35. The Total
Leverage Ratio excludes non-cash charges such as goodwill and intangible impairment charges and stock compensation. As of December 31, 2009, we were in compliance with all covenants contained in our Term Loan agreement and expect to remain in
compliance with these covenants in 2010.

The Term Loan may be voluntarily repaid without premium or penalty. The Company
made required principal payments of $0.9 million plus voluntary payments of $15.0 million on the Term Loan in 2009.

As of
December 31, 2009, the fair value of long-term debt, including the current portion, is estimated to be approximately $71.1 million. Measurement of fair value was performed on a Level 3 basis as defined by the Fair Value
Measurements and Disclosures Topic of the FASB Accounting Standards Codification. This analysis consisted of measuring estimated future cash flows for the debt instrument and then discounting those cash flows back to the measurement date of
December 31, 2009.

6. COMMITMENTS AND CONTINGENCIES

LeasesThe Company has operating leases for offices around the world. Total rent expense was $2.3 million, $2.2 million
and $1.9 million for the years ended December 31, 2009, 2008 and 2007, respectively.



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The following is a schedule of approximate minimum future rental payments under
non-cancelable operating leases having initial or remaining terms in excess of one year as of December 31, 2009:



|           |  |                |       
|---------- |  | -------------- | ------
|           |  | (In thousands)
|2010       |  | $              | 2,729 
|2011       |  |                | 2,172 
|2012       |  |                | 1,959 
|2013       |  |                | 1,731 
|2014       |  |                | 1,684 
|Thereafter |  |                | 2,856 
|           |  |                |       
|           |  | $              | 13,131
|           |  |                |       

LitigationThe Company is involved
in litigation in the normal course of business. In addition to the litigation matters in which the Company is involved in the ordinary course of business, during the third quarter of 2009, the Company received a notice from St. Paul Radiology, P.A.
in which St. Paul Radiology, P.A. indicated that it believes that the Company is in breach of certain of its obligations under the agreements between St. Paul Radiology, P.A. and the Company and that, as a result of such alleged breaches, it is
entitled to terminate the agreements and it has incurred material damages which St. Paul Radiology claims could exceed $70 million. The Company believes such claims of breach and allegations of damages are without merit, that the Company has
fulfilled all of its obligations under the agreements and that the agreements may not be terminated by St. Paul Radiology. However, there is always inherent uncertainty of any litigation or arbitration proceeding. If such claims of breach and
related damages are proven to be true and the dispute resolution process does not achieve a result favorable to the Company, the Company may be required to remedy the alleged breach, pay damages and/or the agreements may be terminated resulting in
the loss of the associated future revenue and profit and a potential material reduction in the value of the intangible asset associated with these agreements. Termination of the agreements with St. Paul Radiology, P.A. or a reduction in the revenue
and related profits received under the agreements would have a material adverse impact on our business, financial condition and results of operations and could cause the Companys total leverage ratio under its credit agreement to exceed 2.5,
which in turn would trigger a mandatory principal repayment by the Company equal to approximately 50% of its cash flow for such year, or 4.0, which could result in the acceleration of the Companys obligation to repay all of its borrowings
under its credit agreement. As an example, if the Company did not have the revenue and related profits generated by the agreements with St. Paul Radiology, P.A. in 2009, the total leverage ratio would have exceeded 2.5 (but would have been less than
4.0) and the Company would have been required to repay a portion of the principal amount of the term loan. If the Company fails to meet either total leverage ratio tests in the future, whether as a result of a termination of the agreements with St.
Paul Radiology, P.A. or otherwise, and the Company is required to make a mandatory repayment of a portion of the principal of the term loan, or if the Companys obligations under the term loan are accelerated as a result of the Companys
default, the Companys financial condition could be materially adversely impacted.

On December 17, 2009, a putative
shareholder class action lawsuit was filed against us and certain of our former officers in the United States District Court for the District of Idaho. The case is captioned City of Marysville General Employees Retirement System v. NightHawk
Radiology Holdings, Inc., et al., Case No. CIV 09-659-N-CWD. The complaint purports to be brought on behalf of a class of persons who purchased or otherwise acquired our stock during the period April 10, 2007 to February 13,
2008, and asserts claims under Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. Plaintiffs contend that we and the individual defendants violated the federal securities laws by
issuing false and misleading statements concerning our operations, business, and prospects during the purported class period, and thereby artificially increased the price of our stock. Plaintiffs seek unspecified compensatory damages, interest, and
attorneys fees and costs. Management intends to vigorously defend against these claims.



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Medical LiabilityIn addition to the litigation matters described above,
the Company is also exposed to various risks of loss related to litigation that may arise related to medical malpractice claims. The Company maintains insurance for medical liabilities in amounts considered adequate by Company management. The
Companys claims-made policy provides coverage up to the policy limits for claims filed within the period of the policy term, subject to deductible requirements. Coverage for affiliated radiologists is initiated when they begin providing
services on behalf of the Company.

The Company records reserves for both asserted legal claims (medical liability and
otherwise) as well as IBNR amounts for incurred but not reported medical liability claims. Asserted claims are reserved based upon the Companys best estimate of future probable loss in accordance with the ContingenciesTopic of the FASB
Accounting Standards Codification (ASC Topic 450). The IBNR reserve is intended to cover potential medical claims that might arise related to past medical services performed by the Companys affiliated radiologists which have not yet been
asserted. IBNR amounts are estimated using historical claims information and actuarial-based industry indices. During 2009 and 2008, the Company recorded an additional $0.3 million and $0.7 million, respectively, for estimated IBNR amounts
based on increased volumes. IBNR amounts, recorded as professional liability reserve on the balance sheet at December 31, 2009 and 2008 totaled $4.0 million and $3.7 million, respectively.

7. STOCK COMPENSATION

Stock-Based Award PlansThe Company has two stock-based award plans, the 2004 Stock Plan (the 2004 Plan) and the 2006 Equity Incentive Plan (the 2006 Plan). In February 2006, all shares available
for grant under the 2004 Plan were rolled over and became available for grant under the 2006 Plan. In addition, on the first day of each fiscal year beginning in 2007, the number of shares available for issuance under the 2006 Plan may be increased
by an amount equal to the lesser of (i) 3% of the outstanding shares of the Companys common stock on the first day of the fiscal year, and (ii) such other amount as the Companys Board of Directors may determine. As of
December 31, 2009 and 2008, the Company had an aggregate of 5,015,773 and 4,298,397 shares of its common stock reserved for issuance under the 2004 Plan and 2006 Plan, respectively. Of these shares, 884,210 and 107,272 shares were available for
future grants and 4,131,563 and 4,191,125 shares were subject to outstanding stock awards as of December 31, 2009 and 2008, respectively.

The Companys Board of Directors administers the plans and establishes to whom the awards are granted, and the terms and conditions, including the exercise period, of such awards. All stock
options granted have an exercise price equal to or greater than the fair value of the Companys common stock on the date the option is granted. All restricted stock units (RSUs) are granted with an exercise price of zero. Both stock
options and RSUs granted generally have contractual terms of ten years and vest over two, three, or four years, depending upon the type of grant. Options and RSUs granted to employees and directors are valued using the Black-Scholes model, and the
resulting expense is recognized using the accelerated method over the service period for the entire award.

Non-Employee
GrantsWe record physician stock-based compensation expense in connection with any equity-based grants to our affiliated radiologists in accordance with the Compensation-Stock CompensationTopic of the FASB Accounting Standards
Codification (ASC Topic 718) and the EquityTopic of the FASB Accounting Standards Codification (ASC Topic 505), by determining the fair value using the Black-Scholes option pricing model.

Because the Companys affiliated radiologists are independent contractors, the Company calculates the fair value of the stock-based
compensation expense in each period. The amount of physician stock-based compensation expense we record in a given period depends primarily on the number of shares subject to equity-based grants held by our affiliated radiologists, the number of
hours worked, and the change in the value of our common stock in that period. If the price of the Companys common stock increases over a given period, this



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accounting treatment results in compensation expense that exceeds the expense the Company would have recorded if these individuals were employees. Stock-based compensation to the Companys
affiliated radiologists is included in professional services expense.

Stock-Based Awards SummaryA summary
of the Companys stock-based award activity for employees and non-employees under the 2004 and 2006 plans are as follows:



|                                                    |  |                        |   |  |                               |       |                                                |      |                                        |   |      
|--------------------------------------------------- |  | ---------------------- | - |  | ----------------------------- | ----- | ---------------------------------------------- | ---- | -------------------------------------- | - | -----
|Stock Options                                       |  | Number ofStock Options |   |  | WeightedAverage ExercisePrice |       | Weighted AverageRemainingContractual Life(Yrs) |      | AggregateIntrinsic Value(In thousands)
|Outstanding as of January 1, 2008                   |  | 3,650,770              |   |  | $                             | 12.27 |                                                |      |                                        |   |      
|Granted                                             |  | 1,310,000              |   |  |                               | 3.62  |                                                |      |                                        |   |      
|Exercised                                           |  | (60,773                | ) |  |                               | 2.21  |                                                |      |                                        |   |      
|Cancelled                                           |  | (1,729,664             | ) |  |                               | 17.39 |                                                |      |                                        |   |      
|                                                    |  |                        |   |  |                               |       |                                                |      |                                        |   |      
|Outstanding as of December 31, 2009                 |  | 3,170,333              |   |  | $                             | 5.51  |                                                | 7.89 |                                        | $ | 2,684
|                                                    |  |                        |   |  |                               |       |                                                |      |                                        |   |      
|Exercisable as of December 31, 2009                 |  | 1,564,058              |   |  | $                             | 6.28  |                                                | 6.68 |                                        | $ | 1,600
|Vested and expected to vest as of December 31, 2009 |  | 3,087,159              |   |  | $                             | 5.55  |                                                | 7.86 |                                        | $ | 2,623

Intrinsic value
represents the amount by which the fair market value of the underlying stock exceeds the exercise price of the options. The weighted-average grant date fair value of stock options granted, the total intrinsic value of options exercised and the fair
value of shares that have vested during each of the past three years is as follows:



|                                                    |  |                          |       |      |   |       |  |   |      
|--------------------------------------------------- |  | ------------------------ | ----- | ---- | - | ----- |  | - | -----
|                                                    |  | Years Ended December 31,
|                                                    |  | 2009                     |       | 2008 |   | 2007 
|Weighted-average grant date fair value              |  | $                        | 1.65  |      | $ | 3.24  |  | $ | 7.16 
|Intrinsic value of exercised options (in thousands) |  |                          | 157   |      |   | 1,671 |  |   | 6,094
|Fair value of shares vested (in thousands)          |  |                          | 3,231 |      |   | 5,713 |  |   | 877  

During the year ended
December 31, 2009, options to purchase 60,773 shares of common stock were exercised for proceeds of $0.1 million. During the year ended December 31, 2008, options to purchase 228,023 shares of common stock were exercised for proceeds of
$0.6 million.

A reconciliation of the non-vested options as of December 31, 2009, and changes during the year then ended
is as follows:



|                                     |  |                        |   |  |                                       |     
|------------------------------------ |  | ---------------------- | - |  | ------------------------------------- | ----
|Outstanding Non-Vested Stock Options |  | Number ofStock Options |   |  | Weighted AverageGrant Date Fair Value
|Outstanding as of January 1, 2009    |  | 2,163,085              |   |  | $                                     | 4.87
|Granted                              |  | 1,310,000              |   |  |                                       | 1.65
|Vested                               |  | (1,017,741             | ) |  |                                       | 3.17
|Cancelled                            |  | (849,069               | ) |  |                                       | 6.43
|                                     |  |                        |   |  |                                       |     
|Outstanding as of December 31, 2009  |  | 1,606,275              |   |  | $                                     | 2.08
|                                     |  |                        |   |  |                                       |     



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Activity related to the Companys restricted stock unit awards is as follows:



|                                                    |  |                 |   |  |                            |       |                                                 |      |                                        |   |      
|--------------------------------------------------- |  | --------------- | - |  | -------------------------- | ----- | ----------------------------------------------- | ---- | -------------------------------------- | - | -----
|Restricted Stock Unit Awards                        |  | Number ofAwards |   |  | WeightedAverage Fair Value |       | Weighted AverageRemainingContractual Life (Yrs) |      | AggregateIntrinsic Value(In
thousands)
|Outstanding as of January 1, 2009                   |  | 540,355         |   |  | $                          | 13.72 |                                                 |      |                                        |   |      
|Granted                                             |  | 529,955         |   |  |                            | 3.86  |                                                 |      |                                        |   |      
|Vested (1)                                          |  | (49,574         | ) |  |                            | 4.84  |                                                 |      |                                        |   |      
|Cancelled                                           |  | (59,506         | ) |  |                            | 7.09  |                                                 |      |                                        |   |      
|                                                    |  |                 |   |  |                            |       |                                                 |      |                                        |   |      
|Outstanding as of December 31,2009                  |  | 971,228         |   |  | $                          | 8.70  |                                                 | 1.21 |                                        | $ | 4,354
|                                                    |  |                 |   |  |                            |       |                                                 |      |                                        |   |      
|Vested and expected to vest as of December 31, 2009 |  | 961,230         |   |  | $                          | 8.70  |                                                 | 1.18 |                                        | $ | 4,111



|(1) | The number of restricted stock unit awards vested includes shares withheld on behalf of employees to satisfy the statutory tax withholding requirements.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------

Intrinsic value represents the amount by which the fair market value of the underlying stock exceeds the
exercise price of the RSUs.

As of December 31, 2009, the total remaining unrecognized compensation cost related to
unvested stock-based employee/director arrangements, net of an estimated forfeiture rate of 8.9%, was $3.9 million and is expected to be recognized over a weighted average period of 1.19 years.

Recognition of compensation expenseStock-based compensation expense, along with the related income tax benefit, for each
of the past three years was approximately as follows:



|                                            |  |                          |        |   |      |   |        |      |  |   |        |  
|------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                            |  | Years Ended December 31, |       
|                                            |  | 2009                     |        |   | 2008 |   |        | 2007 | 
|                                            |  | (In thousands)           |       
|Stock-based compensation expense recognized |  | $                        | 3,990  |   |      | $ | 8,330  |      |  | $ | 15,030 |  
|Income tax benefit recognized               |  |                          | (1,514 | ) |      |   | (3,187 | )    |  |   | (5,862 | )
|                                            |  |                          |        |   |      |   |        |      |  |   |        |  
|After-tax stock-based compensation expense  |  | $                        | 2,476  |   |      | $ | 5,143  |      |  | $ | 9,168  |  
|                                            |  |                          |        |   |      |   |        |      |  |   |        |  

The Company measures the compensation cost associated with stock-based payments by estimating the fair value
of stock options as of the grant date using the Black-Scholes option pricing model. The Company believes that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of
the stock options granted. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by the employees who receive equity awards.

The weighted average fair values of stock-based arrangements on the date of grant and the assumptions used to estimate the fair value of the
stock-based arrangements were as follows:



|                                                 |  |                             |   |  |                             |   |  |                             |  
|------------------------------------------------ |  | --------------------------- | - |  | --------------------------- | - |  | --------------------------- | -
|                                                 |  | Year EndedDecember 31, 2009 |   |  | Year EndedDecember 31, 2008 |   |  | Year EndedDecember 31, 2007 |  
|Dividend yield                                   |  |                            |   |  |                            |   |  |                            |  
|Expected volatility                              |  | 57                          | % |  | 50                          | % |  | 36                          | %
|Risk-free interest rates                         |  | 1.78                        | % |  | 2.40                        | % |  | 4.60                        | %
|Expected term for employees (years)              |  | 4.2                         |   |  | 4.2                         |   |  | 4.1                         |  
|Expected/remaining term for non-employee (years) |  | N/A                         |   |  | 10                          |   |  | 10                          |  

Expected
volatility is estimated based primarily on evaluating similar companies volatility rates and the Companys trading history. The risk-free interest rate is based on the U.S. Treasury yields in effect at the time of



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grant corresponding with the expected term of the options. The expected option term for employees is the number of years estimated that options will be outstanding prior to exercise considering
vesting schedules, historical exercise experience and other relevant factors.

Stock Option ExchangeIn
April 2009, the Company completed an option exchange program pursuant to which the Company exchanged certain outstanding stock options from employees and affiliated radiologists in exchange for RSUs or, under certain circumstances, cash. The ratio
of the exchange was determined by establishing a value for the current options using the Black-Scholes model and the current stock price to value the RSUs. The Company offered the exchange to 121 employees and affiliated radiologists holding options
covering 2.0 million shares of the Companys common stock. The exchange program resulted in options covering 1.6 million shares being exchanged for RSUs covering approximately 75,000 shares and cash of $0.1 million. The chief
executive officer, chief operating officer, chief financial officer, vice president of sales and members of the Companys Board of Directors, were not eligible to participate in the exchange.

Performance BonusesIn connection with the employment agreements with key executives, the Company may pay to each
executive an annual performance bonus, in cash and/or restricted stock of the Company, as determined by the Compensation Committee at its sole discretion. At December 31, 2007, $1.6 million was accrued for performance bonuses that were paid in
restricted stock unit awards and was expensed as stock compensation expense in 2007. No performance bonuses to be paid in restricted stock unit awards were accrued at December 31, 2009 and 2008.

8. EARNINGS PER SHARE

The following table presents a reconciliation of the numerators and denominators used in the basic and diluted earnings per common share computations:



|                                                                           |  |                          |            |   |      |   |            |  |   |           
|-------------------------------------------------------------------------- |  | ------------------------ | ---------- | - | ---- | - | ---------- |  | - | ----------
|                                                                           |  | Years Ended December 31,
|(In thousands, except share data)                                          |  | 2009                     |            |   | 2008 |   | 2007      
|Numerator:                                                                 |  |                          |            |   |      |   |            |  |   |           
|Net income (loss) available to common stockholders                         |  | $                        | (48,144    | ) |      | $ | 9,442      |  | $ | 14,694    
|                                                                           |  |                          |            |   |      |   |            |  |   |           
|Denominator:                                                               |  |                          |            |   |      |   |            |  |   |           
|Weighted-average common shares outstandingbasic                           |  |                          | 25,443,493 |   |      |   | 29,482,536 |  |   | 30,083,080
|Effect of dilutive stock options, restricted stock units, and warrants (a) |  |                          |           |   |      |   | 1,048,221  |  |   | 817,356   
|Effect of contingently issuable shares                                     |  |                          |           |   |      |   | 31,185     |  |   | 183,535   
|                                                                           |  |                          |            |   |      |   |            |  |   |           
|Weighted average common shares outstandingdilutive                        |  |                          | 25,443,493 |   |      |   | 30,561,942 |  |   | 31,083,971
|                                                                           |  |                          |            |   |      |   |            |  |   |           
|Earnings (loss) per common sharebasic                                     |  | $                        | (1.89      | ) |      | $ | 0.32       |  | $ | 0.49      
|Earnings (loss) per common sharediluted                                   |  |                          | (1.89      | ) |      |   | 0.31       |  |   | 0.47      
|                                                                           |  |                          |            |   |      |   |            |  |   |           
|Anti-dilutive shares excluded from calculation (a)                         |  |                          | 2,911,561  |   |      |   | 2,913,752  |  |   | 1,652,514 
|                                                                           |  |                          |            |   |      |   |            |  |   |           



|(a) | The effects of the shares which would be issued upon exercise of these options, restricted stock units and warrants have been excluded from the calculation of diluted
earnings (loss) per common share because they are anti-dilutive.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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9. INCOME TAXES

Income tax expense / (benefit) consists of the following:



|                                   |  |                            |         |   |                            |   |        |                            |  |   |        |  
|---------------------------------- |  | -------------------------- | ------- | - | -------------------------- | - | ------ | -------------------------- |  | - | ------ | -
|(In thousands)                     |  | Year EndedDecember 31,2009 |         |   | Year EndedDecember 31,2008 |   |        | Year EndedDecember 31,2007 | 
|Current:                           |  |                            |         |   |                            |   |        |                            |  |   |        |  
|Federal                            |  | $                          | 3,243   |   |                            | $ | 5,611  |                            |  | $ | 12,091 |  
|State                              |  |                            | (313    | ) |                            |   | 402    |                            |  |   | 2,235  |  
|Foreign                            |  |                            | 296     |   |                            |   | 454    |                            |  |   | 387    |  
|                                   |  |                            |         |   |                            |   |        |                            |  |   |        |  
|Total current                      |  |                            | 3,226   |   |                            |   | 6,467  |                            |  |   | 14,713 |  
|Deferred:                          |  |                            |         |   |                            |   |        |                            |  |   |        |  
|Federal                            |  |                            | (12,126 | ) |                            |   | (1,141 | )                          |  |   | (5,473 | )
|State                              |  |                            | (1,678  | ) |                            |   | (69    | )                          |  |   | (625   | )
|                                   |  |                            |         |   |                            |   |        |                            |  |   |        |  
|Total deferred                     |  |                            | (13,804 | ) |                            |   | (1,210 | )                          |  |   | (6,098 | )
|                                   |  |                            |         |   |                            |   |        |                            |  |   |        |  
|Total income tax expense (benefit) |  | $                          | (10,578 | ) |                            | $ | 5,257  |                            |  | $ | 8,615  |  
|                                   |  |                            |         |   |                            |   |        |                            |  |   |        |  

The reconciliation between the federal statutory tax rate and the Companys effective tax rate is as
follows:



|                                                                    |  |                            |         |   |  |       |    |                            |   |       |   |  |      |                            |  |   |       |   |  |      |   
|------------------------------------------------------------------- |  | -------------------------- | ------- | - |  | ----- | -- | -------------------------- | - | ----- | - |  | ---- | -------------------------- |  | - | ----- | - |  | ---- | --
|(In thousands)                                                      |  | Year EndedDecember 31,2009 |         |   |  |       |    | Year EndedDecember 31,2008 |   |       |   |  |      | Year EndedDecember 31,2007 |  |   |       |  
|Computed federal income tax expense (benefit) at the statutory rate |  | $                          | (20,553 | ) |  | 35.0  | %  |                            | $ | 5,144 |   |  | 35.0 | %                          |  | $ | 8,158 |   |  | 35.0 | % 
|State income taxes, net of federal income tax benefit               |  |                            | (1,294  | ) |  | 2.2   | %  |                            |   | 217   |   |  | 1.5  | %                          |  |   | 828   |   |  | 3.6  | % 
|Non deductible portion of goodwill impairment                       |  |                            | 10,801  |   |  | (18.4 | )% |                            |   |      |   |  |     |                            |  |   |      |   |  |     |   
|Other, net                                                          |  |                            | 468     |   |  | (0.8  | )% |                            |   | (104  | ) |  | (0.7 | )%                         |  |   | (371  | ) |  | (1.6 | )%
|                                                                    |  |                            |         |   |  |       |    |                            |   |       |   |  |      |                            |  |   |       |   |  |      |   
|                                                                    |  | $                          | (10,578 | ) |  | 18.0  | %  |                            | $ | 5,257 |   |  | 35.8 | %                          |  | $ | 8,615 |   |  | 37.0 | % 
|                                                                    |  |                            |         |   |  |       |    |                            |   |       |   |  |      |                            |  |   |       |   |  |      |   

The components of the reconciliation between the federal statutory rate and the Companys
effective tax rate are shown net of the effect of uncertain tax positions. The Company recorded a non-cash goodwill impairment charge of $68.7 million in the three months ended March 31, 2009. $30.9 million of that impairment is not deductible
for tax purposes, resulting in an effective tax rate different than the statutory rate.

For the years ended December 31,
2009, 2008 and 2007, income considered to be permanently reinvested in non-U.S. subsidiaries totaled $0.5 million, $0.5 million and $0.3 million, respectively. Deferred U.S. income taxes have not been provided on this income, as the Company does not
plan to initiate any action that would require the payment of U.S. income. It is not practical to estimate the amount of additional tax that might be payable on this undistributed foreign income.

In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxesan interpretation of FASB
Statement No. 109 (FIN 48), which clarifies the accounting for uncertainty in tax positions. FIN 48 is now codified as ASC Topic 740 Subtopic 10 Section 05 and requires that the impact of a tax position be recognized in the
financial statements if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The Company adopted the provisions of ASC Topic 740 Subtopic 10 Section 05 on January 1,
2007. As a result, the Company recorded a $0.7 million liability for unrecognized tax benefits. Of the unrecognized tax benefit at adoption, $0.6 million would affect the Companys effective tax rate if recognized. Accordingly, the net
impact on retained earnings for the cumulative effect of



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adopting ASC Topic 740 Subtopic 10 Section 05 was $0.1 million. The Company recorded a decrease of $253 thousand of net unrecognized tax benefits in the year ended December 31, 2009 and
an additional $2.2 million and $44 thousand of net unrecognized tax benefits in the years ended December 31 2008 and 2007, respectively.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



|                                                    |  |                            |       |   |                            |   |      
|--------------------------------------------------- |  | -------------------------- | ----- | - | -------------------------- | - | -----
|                                                    |  | Year endedDecember 31,2009 |       |   | Year endedDecember 31,2008
|                                                    |  | (In thousands)            
|Unrecognized tax benefits at beginning of year      |  | $                          | 2,327 |   |                            | $ | 104  
|Gross increasesprior year tax positions            |  |                            | 245   |   |                            |   | 96   
|Gross increasescurrent year tax positions          |  |                            | 328   |   |                            |   | 2,034
|Decrease due to settlements with taxing authorities |  |                            | (826  | ) |                            |   |     
|Lapse of statute of limitations                     |  |                            |      |   |                            |   | 93   
|                                                    |  |                            |       |   |                            |   |      
|Unrecognized tax benefits at end of year            |  | $                          | 2,074 |   |                            | $ | 2,327
|                                                    |  |                            |       |   |                            |   |      

Of the balance of unrecognized tax benefits at
December 31, 2009, $1.2 million relates to positions taken with regard to certain state income tax filings. A corresponding deferred tax asset in the amount of $0.4 million has been established for the related federal tax benefit. Of the $2.1
million unrecognized income tax benefits at December 31, 2009, $2.1 million would affect the Companys effective tax rate if recognized. The corresponding de-recognition of the related deferred tax asset of $0.4 million would reduce the
net effect to $1.7 million. The Company does not anticipate a material change to the total amount of unrecognized tax benefits within the next twelve months.

Interest and penalties related to income tax liabilities are included in Other Expense. Estimated interest and penalties related to income tax liabilities were immaterial during the years ended
December 31, 2009, 2008 and 2007.

The Company files U.S., state and foreign income tax returns in jurisdictions with
various statutes of limitations. The 2005 through 2009 tax years remain subject to examination at December 31, 2009. The Companys consolidated federal tax return for the year ended December 31, 2006 is currently under examination by
the Internal Revenue Service and the Companys combined Idaho tax returns for the years ended December 31, 2005, 2006 and 2007 are currently under examination by the Idaho State Tax Commission. Annual tax provisions include amounts
considered necessary to pay assessments that may result from examination of prior year tax returns; however, the amount ultimately paid upon resolution of issues may differ materially from the amount accrued. Other than Idaho, no significant state
tax returns nor any foreign tax returns are currently under examination. At December 31, 2009 and 2008, the Company had no material net operating loss or credit carry forwards.

Deferred income taxes are recognized for temporary differences between the financial statements and tax basis of assets and liabilities
using presently enacted tax rates and laws.



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Deferred tax assets and liabilities consist of the following:



|                                              |  |                |        |      |   |       
|--------------------------------------------- |  | -------------- | ------ | ---- | - | ------
|                                              |  | December 31,  
|                                              |  | 2009           |        | 2008
|                                              |  | (In thousands)
|Deferred tax assets:                          |  |                |        |      |   |       
|Accrued compensation and employee benefits    |  | $              | 8,803  |      | $ | 8,666 
|Basis difference in intangible assets         |  |                | 6,718  |      |   |      
|Professional liability reserve                |  |                | 1,781  |      |   | 1,586 
|Fair value of derivatives                     |  |                | 411    |      |   | 2,586 
|Liability for unrecognized state tax benefits |  |                | 429    |      |   | 686   
|Allowance for doubtful accounts               |  |                | 360    |      |   | 478   
|Deferred rent                                 |  |                | 246    |      |   | 230   
|Other, net                                    |  |                | 248    |      |   | 173   
|                                              |  |                |        |      |   |       
|Total deferred tax assets                     |  |                | 18,996 |      |   | 14,405
|                                              |  |               
|Deferred tax liabilities:                     |  |                |        |      |   |       
|Basis difference in intangible assets         |  |                |       |      |   | 7,613 
|Basis difference in property and equipment    |  |                | 1,687  |      |   | 1,146 
|Prepaid expenses                              |  |                | 615    |      |   | 709   
|Other, net                                    |  |                | 77     |      |   |      
|                                              |  |                |        |      |   |       
|Total deferred tax liabilities                |  |                | 2,379  |      |   | 9,468 
|                                              |  |                |        |      |   |       
|Net deferred tax assets                       |  | $              | 16,617 |      | $ | 4,937 
|                                              |  |                |        |      |   |       

10. STOCKHOLDERS EQUITY

In May 2008, the Company announced that the Board of Directors had authorized a tender offer to purchase shares of its common stock not to
exceed an aggregate purchase price of $50.0 million. The tender offer commenced on May 14, 2008 and settled on June 19, 2008 with the Company purchasing and retiring 2.2 million shares at a cost of $18.6 million, including expenses.

In December 2008, the Company initiated a program previously approved by the Board of Directors to repurchase up to $10.0
million in shares of Company common stock, excluding expenses. As of December 31, 2008, the Company had purchased and retired 1.1 million shares at a cost of $4.5 million pursuant to such program. The remaining $5.5 million authorized to
be repurchased under the program was purchased in January 2009 and resulted in the retirement of another 1.1 million shares and $0.1 million in additional expenses. All shares were repurchased in the open market pursuant to a SEC Rule 10b5-1
repurchase plan established by the Company.

In April 2009, the Company completed an option exchange program pursuant to which
the Company exchanged certain outstanding stock options from employees and affiliated radiologists in exchange for RSUs or, under certain circumstances, cash. As a result of the exchange, $0.1 million of cash was paid to certain employees and was
recorded as a decrease to additional paid in capital on the statement of stockholders equity.

In August 2009, the
Company entered into a share repurchase agreement with its founder and former chief executive officer, Dr. Paul E. Berger, pursuant to which it purchased and retired 3.0 million shares of the Companys common stock at a cost of
$13.9 million, including expenses.

The Company did not declare or pay any cash dividends in 2009, 2008, or 2007.



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11. DERIVATIVE FINANCIAL INSTRUMENTS

The Company recognizes all derivatives on the condensed consolidated balance sheet at fair value. The Company designates at inception whether
the derivative contract is considered hedging or non-hedging in accordance with the Derivatives and HedgingTopic of the FASB Accounting Standards Codification (ASC Topic 815).

During the year ended December 31, 2007, the Company entered into two interest rate swap contracts with a combined notional amount of
$100.0 million in connection with its outstanding debt. The contracts were to expire on September 30, 2009 and 2010, respectively. These contracts, while in effect, maintained an effective interest rate of approximately 7.40%.

In December 2008, the Company settled the two interest rate swap contracts entered into during 2007 resulting in a cash payment by the
Company of $5.3 million. The pre-tax net unrealized loss within accumulated other comprehensive income associated with the cancelled interest rate swap contracts of $5.3 million is being amortized to interest expense over the original lives of the
contracts, $3.3 million of which was recognized in 2009 and $2.0 million of which will be amortized to interest expense over the next 9 months. The cancelled swap contracts were replaced with five interest rate swap contracts with a combined
notional amount of $93.5 million. All contracts expire on June 30, 2014 and, while in effect, maintain an effective interest rate on the Companys outstanding debt of approximately 4.95%.

The contracts were initiated to maintain compliance with debt requirements and to protect the Company against changes in the interest
payments associated with its variable-rate long-term debt, and therefore are considered cash flow hedges. As a result, as long as the swap contract is deemed highly effective, changes in the fair value of the swap contract are recorded as either an
asset (a gain position), or a liability (a loss position) on the balance sheet, with the offset recorded in accumulated other comprehensive income, a separate component of stockholders equity.

As principal is repaid on the debt, the combined notional amounts of the five interest rate swap contracts will be different than the
principal balance of the outstanding debt. If this difference is material, it can cause certain of the five interest rate swap contracts to be deemed ineffective. Due to voluntary principal payments made by the Company, two of the interest rate swap
contracts have been deemed ineffective. As a result, changes in the fair values of these ineffective contracts are recorded as a component of interest expense in the Companys statement of operations.

At December 31, 2009 and 2008, the fair value of the interest rate swap contracts resulted in a net unrealized gain and loss of $1.1
million and $1.4 million, respectively. The fair value of the interest rate swap contracts are found within Other Assets and Other Liabilities on the Companys balance sheet. For the year ended December 31, 2009, the amount of hedge
ineffectiveness of $0.2 million is presented in the Companys statement of operations as a component of interest expense. For the years ended December 31, 2008 and 2007, the amount of hedge ineffectiveness was immaterial.

12. FAIR VALUE MEASUREMENTS

The Fair Value Measurements and DisclosuresTopic of the FASB Accounting Standards Codification (ASC Topic 820), defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC Topic 820 also establishes a fair value hierarchy which requires an entity to maximize
the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1Quoted prices in active markets for identical assets or liabilities.



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Level 2Observable inputs other than Level 1 prices such as quoted prices for
similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the
assets or liabilities.

The Company uses quoted market prices for identical assets to measure the fair value of its
investments in money market funds and marketable securities and therefore considers all of the Companys money market funds and marketable securities as Level 1.

The Company has determined that its interest rate swaps are Level 2 in the fair value hierarchy discussed above. As discussed in Note 5 above, the Companys interest rate swaps are based on a LIBOR
rate. Fair value for the interest rate swaps are based on a model-derived valuation using the LIBOR rate, which is observable at commonly quoted intervals for the full term of the swap.

As discussed in Note 3 above and in accordance with the provisions of the Intangibles-Goodwill and OtherTopic of the FASB Accounting
Standards Codification (ASC Topic 350), goodwill with a carrying amount of $68.7 million was written off based on its implied fair value of $0, resulting in a non-cash impairment charge of $68.7 million ($54.3 million after-tax). The implied fair
value of the goodwill was determined using Level 3 inputs of the fair value hierarchy using a discounted cash flow analysis.

The fair values of the money market funds and marketable securities using Level 1 inputs on a recurring basis as of December 31, 2009 were $18.9 million and $6.0 million, respectively. The fair value of the interest rate swap contracts
using Level 2 inputs on a recurring basis as of December 31, 2009 was a gain position of $1.1 million.

13. QUARTERLY OPERATING
RESULTS (unaudited)

The unaudited operating results for the Company by quarter for 2009 and 2008 are as follows:



|                                     |  |                |         |   |         |   |              |  |             |        |  |   |       
|------------------------------------ |  | -------------- | ------- | - | ------- | - | ------------ |  | ----------- | ------ |  | - | ------
|                                     |  | Quarter Ended 
|                                     |  | March 31       |         |   | June 30 |   | September 30 |  | December 31
|                                     |  | (in thousands)
|2009                                 |  |                |         |   |         |   |              |  |             |        |  |   |       
|Service Revenue                      |  | $              | 38,798  |   |         | $ | 42,340       |  | $           | 43,453 |  | $ | 37,945
|Operating Income (Loss)              |  |                | (64,108 | ) |         |   | 5,336        |  |             | 5,240  |  |   | 3,128 
|Net Income (Loss)                    |  |                | (52,613 | ) |         |   | 2,094        |  |             | 1,719  |  |   | 656   
|Earnings (Loss) Per Share (Basic):   |  |                | (1.97   | ) |         |   | 0.08         |  |             | 0.07   |  |   | 0.03  
|Earnings (Loss) Per Share (Diluted): |  |                | (1.97   | ) |         |   | 0.08         |  |             | 0.07   |  |   | 0.03  
|                                     |  |                |         |  
|2008                                 |  |                |         |   |         |   |              |  |             |        |  |   |       
|Service Revenue                      |  | $              | 41,688  |   |         | $ | 42,758       |  | $           | 43,441 |  | $ | 39,720
|Operating Income                     |  |                | 2,853   |   |         |   | 6,300        |  |             | 6,905  |  |   | 5,572 
|Net Income                           |  |                | 731     |   |         |   | 2,771        |  |             | 3,283  |  |   | 2,657 
|Earnings Per Share (Basic):          |  |                | 0.02    |   |         |   | 0.09         |  |             | 0.11   |  |   | 0.09  
|Earnings Per Share (Diluted):        |  |                | 0.02    |   |         |   | 0.09         |  |             | 0.11   |  |   | 0.09  



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|ITEM 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|------- | ------------------------------------------------------------------------------------

During the years ended December 31, 2009 and 2008, there were no changes in, or disagreements with, accountants on accounting and
financial disclosure matters.



|ITEM 9A. | Controls and Procedures
|-------- | -----------------------



|(a) | Evaluation of disclosure controls and procedures.
|--- | -------------------------------------------------

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the
Securities Exchange Act of 1934, as amended (the Exchange Act). In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated,
can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its
judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Based
on managements evaluation, our chief executive officer and chief financial officer concluded that, as of December 31, 2009, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to
provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange
Commission rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.



|(b) | Changes in internal control over financial reporting.
|--- | -----------------------------------------------------

We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain
an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.

There were no changes in our internal control over financial reporting that occurred during the period covered by this Annual Report on Form
10-K that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



|(c) | Managements report on internal control over financial reporting.
|--- | -----------------------------------------------------------------

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act
Rule 13a-15(f). Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2009. Management reviewed the results of its assessment with our Audit Committee. The
effectiveness of our internal control over financial reporting as of December 31, 2009 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in its report which is included below.



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

NightHawk Radiology Holdings, Inc.

Scottsdale, Arizona

We have audited the internal control over financial reporting of NightHawk Radiology Holdings, Inc. and subsidiaries (the Company) as of December 31, 2009, based on criteria established
in Internal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. The Companys management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Managements Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the
Companys internal control over financial reporting based on our audit.

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

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

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to
future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2009, based on the criteria established in Internal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated
financial statements and financial statement schedule as of and for the year ended December 31, 2009 of the Company and our report dated February 22, 2010 expressed an unqualified opinion on those financial statements and the financial
statement schedule.

/s/ DELOITTE & TOUCHE LLP

Boise, Idaho

February 22, 2010



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|ITEM 9B. | Other Information
|-------- | -----------------

None.

PART III



|ITEM 10. | Directors, Executive Officers and Corporate Governance
|-------- | ------------------------------------------------------

Information required by Item 10 of Part III is included in our Proxy Statement relating to our 2010 Annual Meeting of Shareholders and is incorporated herein by reference.



|ITEM 11. | Executive Compensation
|-------- | ----------------------

Information required by Item 11 of Part III is included in our Proxy Statement relating to our 2010 Annual Meeting of Shareholders and is incorporated herein by reference.



|ITEM 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|-------- | ----------------------------------------------------------------------------------------------

Information required by Item 12 of Part III is included in our Proxy Statement relating to our 2010 Annual Meeting of Shareholders and
is incorporated herein by reference.



|ITEM 13. | Certain Relationships and Related Transactions and Director Independence
|-------- | ------------------------------------------------------------------------

Information required by Item 13 of Part III is included in our Proxy Statement relating to our 2009 Annual Meeting of Shareholders and
is incorporated herein by reference.



|ITEM 14. | Principal Accounting Fees and Services
|-------- | --------------------------------------

Information required by Item 14 of Part III is included in our Proxy Statement relating to our 2009 Annual Meeting of Shareholders and is incorporated herein by reference.



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PART IV



|ITEM 15. | Exhibits, Financial Statement Schedules
|-------- | ---------------------------------------



|(a) | The following documents are filed as part of this report:
|--- | ---------------------------------------------------------



| | 1) | Consolidated Financial Statements: See Index to Consolidated Financial Statements at Item 8 on page 41 of this report.
| | -- | ----------------------------------------------------------------------------------------------------------------------



| | 2) | Financial Statement Schedule: Schedule IIConsolidated Valuation and Qualifying Accounts
| | -- | ----------------------------------------------------------------------------------------

Financial statement schedules not listed above are omitted because they are not required or are not applicable, or the required information
is presented in the financial statements including the notes thereto. Captions and column headings have been omitted where not applicable.



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NightHawk Radiology Holdings, Inc.

SCHEDULE IICONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS



|                                |  |                              |  |                                       |   |  |                       |  |                        
|------------------------------- |  | ---------------------------- |  | ------------------------------------- | - |  | --------------------- |  | -----------------------
|                                |  | Balance atBeginningof Period |  | Charged(Credited) toCosts andExpenses |   |  | Deductions/Write-offs |  | Balance atEnd of Period
|Allowance for Doubtful Accounts |  |                              |  |                                       |   |  |                       |  |                        
|Year ended December 31, 2007    |  | 379,595                      |  | 378,687                               |   |  | 156,436               |  | 601,846                
|Year ended December 31, 2008    |  | 601,846                      |  | 1,301,827                             |   |  | 753,944               |  | 1,149,729              
|Year ended December 31, 2009    |  | 1,149,729                    |  | 788,385                               |   |  | 1,063,120             |  | 874,994                
|                                |  |                              |  |                                      
|                                |  | Balance atBeginningof Period |  | Charged(Credited) toCosts andExpenses |   |  | Deductions/Write-offs |  | Balance atEnd of Period
|Allowance for Sales Credits     |  |                              |  |                                       |   |  |                       |  |                        
|Year ended December 31, 2007    |  | 25,000                       |  | 25,000                                |   |  | 0                     |  | 50,000                 
|Year ended December 31, 2008    |  | 50,000                       |  | 50,000                                |   |  | 0                     |  | 100,000                
|Year ended December 31, 2009    |  | 100,000                      |  | (25,000                               | ) |  | 0                     |  | 75,000                 



|3) | Exhibits are incorporated herein by reference or are filed with this report as set forth below:
|-- | -----------------------------------------------------------------------------------------------

The exhibits to this report are listed in the Exhibit Index set forth below.



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EXHIBIT INDEX



|               |  |                                                                                                                                                                                                                                     
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                                                                         
|3.1(1)         |  | Form of Amended and Restated Certificate of Incorporation of the registrant.                                                                                                                                                        
|               | 
|3.2(1)         |  | Form of Amended and Restated Bylaws of the registrant.                                                                                                                                                                              
|               | 
|4.1(2)         |  | Form of registrants common stock certificate.                                                                                                                                                                                      
|               | 
|10.1(1)        |  | Form of Indemnification Agreement to be entered into between the registrant and its directors and officers.                                                                                                                         
|               | 
|10.2(1)*       |  | 2004 Stock Plan.                                                                                                                                                                                                                    
|               | 
|10.3(1)*       |  | Form of Stock Option Agreement under the 2004 Stock Plan.                                                                                                                                                                           
|               | 
|10.4(2)*       |  | 2006 Equity Incentive Plan.                                                                                                                                                                                                         
|               | 
|10.5(2)*       |  | Form of Stock Option Agreement under the 2006 Equity Incentive Plan.                                                                                                                                                                
|               | 
|10.6(1)        |  | Sublease Agreement, dated October 14, 2003, among Nighthawk Radiology Services, LLC, Commonwealth Funds Management Limited and BT Funds Management Limited for property in
Sydney, Australia.                                       
|               | 
|10.7(1)        |  | Sublease Agreement, dated October 1, 2004, among Nighthawk Radiology Services, LLC, Commonwealth Custodial Services Limited, Commonwealth Funds Management Limited and Investa
Properties Limited for property in Sydney, Australia.
|               | 
|10.8(1)        |  | Lease Agreement, dated September 1, 2004, between NightHawk Radiology AG and PSP Real Estate for property in Zurich, Switzerland.                                                                                                   
|               | 
|10.9(3)        |  | Lease Agreement, dated October 18, 2005, between Nighthawk Radiology Services, LLC and Miller Stauffer Properties, L.L.C. for property in Coeur dAlene, Idaho.                                                                     
|               | 
|10.10(4)       |  | Business Lease, dated December 1, 2005, between Nighthawk Services GmbH and PSP Management AG for property in Zurich, Switzerland.                                                                                                  
|               | 
|10.11(5)       |  | Membership Interest Purchase Agreement dated July 16, 2007 between the Company, SPR Holdings II, LLC, Midwest Physicians Services, LLC, and Emergency Radiology Services,
LLC.                                                      
|               | 
|10.12(6)       |  | Amended and Restated Credit Agreement dated July 10, 2007 between the Company, Morgan Stanley Senior Funding, Inc. and the Lenders thereto.                                                                                         
|               | 
|10.13(6)       |  | Amended and Restated Guaranty and Collateral Agreement dated July 10, 2007 between the Company and Morgan Stanley & Co. Incorporated, as Collateral Agent.                                                                          
|               | 
|10.14(6)**     |  | Administrative Support Services Agreement dated July 16, 2007 between Midwest Physician Services, LLC (a wholly-owned subsidiary of the Company) and St. Paul Radiology
P.A.                                                        
|               | 
|10.15(6)**     |  | Administrative Support Services Agreement dated July 16, 2007 between Midwest Physician Services, LLC (a wholly-owned subsidiary of the Company) and Midwest Radiology,
LLC.                                                        
|               | 
|10.16(7)*      |  | Employment Agreement, dated December 23, 2008, between the Company and David Engert.                                                                                                                                                
|               | 
|10.26(8)*      |  | Amended and Restated employment agreement, dated December 31, 2008, between the Company and Tim Murnane.                                                                                                                            
|               | 
|10.27(8)*      |  | Amended and Restated employment agreement, dated December 31, 2008, between the Company and David Sankaran.                                                                                                                         



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|               |  |                                                                                                                                                                                       
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                           
|10.28(9)       |  | Registration Rights Agreement, dated January 6, 2009, between the Company and Dr. Paul Berger, M.D. and Mr. Jon Berger.                                                               
|               | 
|10.29*(10)     |  | Employment Agreement, Employment Agreement between the Company and Dr. Timothy V. Myers dated April 6, 2009.                                                                          
|               | 
|10.30(11)      |  | Form of restricted stock unit agreement.                                                                                                                                              
|               | 
|10.31*         |  | Board of Directors Compensation Policy, adopted April 17, 2009, amended July 30, 2009.                                                                                                
|               | 
|10.32*(11)     |  | 2009 Performance-Based Incentive Compensation Program, adopted April 17, 2009.                                                                                                        
|               | 
|10.33*(12)     |  | Resignation letter of Paul E. Berger, M.D., dated June 8, 2009, resigning as Chairman and member of the NightHawk Radiology Holdings, Inc. Board of Directors, effective June 8,
2009.
|               | 
|10.34*(13)     |  | Letter Agreement between the Company and Mr. Jeff Terrill dated June 12, 2009.                                                                                                        
|               | 
|10.35(14)      |  | Sublease Agreement dated June 5, 2009 between the Company and eFunds Corporation.                                                                                                     
|               | 
|10.36*(15)     |  | Share Purchase Agreement between the Company and Dr. Paul E. Berger dated August 12, 2009.                                                                                            
|               | 
|10.37*(16)     |  | Employment Agreement between the Company and Mr. Paul Cartee dated August 12, 2009.                                                                                                   
|               | 
|10.38*(17)     |  | Annual Management Equity Incentive Compensation Program, adopted by the Compensation Committee on December 8, 2009.                                                                   
|               | 
|21.1(8)        |  | Subsidiaries of the registrant.                                                                                                                                                       
|               | 
|23.1           |  | Consent of Deloitte & Touche LLP.                                                                                                                                                     
|               | 
|24.1           |  | Power of Attorney (contained on the signature page hereto).                                                                                                                           
|               | 
|31.1           |  | Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.            
|               | 
|31.2           |  | Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.            
|               | 
|32.1           |  | Certification of Principal 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 of Principal 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. 333-128820) filed by the registrant on October 5, 2005, as amended.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Incorporated by reference to the Registration Statement on Form S-1 (No. 333-128820) filed by the registrant on January 24, 2006, as amended.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Incorporated by reference to the Registration Statement on Form S-1 (No. 333-128820) filed by the registrant on November 8, 2005, as amended.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Incorporated by reference to the Registration Statement on Form S-1 (No. 333-128820) filed by the registrant on December 22, 2005, as amended.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Incorporated by reference to Form 8-K (No. 000-51786) filed by the registrant on July 17, 2007.
|--- | -----------------------------------------------------------------------------------------------

|(6) | Incorporated by reference to the Registration Statement on Form 10-Q (No. 000-51786) filed by the registrant on August 1, 2007.
|--- | -------------------------------------------------------------------------------------------------------------------------------

|(7) | Incorporated by reference to Form 8-K (No. 000-51786) filed by the registrant on December 24, 2008.
|--- | ---------------------------------------------------------------------------------------------------

|(8) | Incorporated by reference to the Annual Report on Form 10-K (No. 000-51786) filed by the registrant on February 19, 2008.
|--- | -------------------------------------------------------------------------------------------------------------------------



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|(9) | Incorporated by reference to Form 8-K (No. 000-51786) filed by the registrant on January 8, 2009.
|--- | -------------------------------------------------------------------------------------------------

|(10) | Incorporated by reference to Form 8-K (No. 000-51786) filed by the registrant on April 14, 2009.
|---- | ------------------------------------------------------------------------------------------------

|(11) | Incorporated by reference to Form 8-K (No. 000-51786) filed by the registrant on April 22, 2009.
|---- | ------------------------------------------------------------------------------------------------

|(12) | Incorporated by reference to Form 8-K (No. 000-51786) filed by the registrant on June 10, 2009.
|---- | -----------------------------------------------------------------------------------------------

|(13) | Incorporated by reference to Form 8-K (No. 000-51786) filed by the registrant on June 17, 2009.
|---- | -----------------------------------------------------------------------------------------------

|(14) | Incorporated by reference to Form 10-Q (No. 000-51786) filed by the registrant on August 6, 2009.
|---- | -------------------------------------------------------------------------------------------------

|(15) | Incorporated by reference to Form 8-K (No. 000-51786) filed by the registrant on August 13, 2009.
|---- | -------------------------------------------------------------------------------------------------

|(16) | Incorporated by reference to Form 8-K (No. 000-51786) filed by the registrant on August 14, 2009.
|---- | -------------------------------------------------------------------------------------------------

|(17) | Incorporated by reference to Form 8-K (No. 000-51786) filed by the registrant on December 9, 2009.
|---- | --------------------------------------------------------------------------------------------------

|* | Indicates a management contract or compensatory plan or arrangement.
|- | --------------------------------------------------------------------

|** | Registrant has omitted portions of the referenced exhibit and filed such exhibit separately with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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SIGNATURES

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



NIGHTHAWK RADIOLOGY HOLDINGS, INC.By:

/s/    DAVID M.
ENGERTDavid M. Engert President and Chief Executive Officer


KNOW
ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David M. Sankaran and Paul E. Cartee and each of them, with full power of substitution and resubstitution and full power to act without the other,
as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file, any and all documents in
connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said
attorneys-in-fact and agents or any of them or their and his or her substitute or substitutes, may lawfully do or cause to be done by virtue thereof.

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



|                                                     |  |                                                                                              |  |                  
|---------------------------------------------------- |  | -------------------------------------------------------------------------------------------- |  | -----------------
|Signature                                            |  | Title                                                                                        |  | Date             
|                                                     |  |                                                                                             
|/s/    DAVID M.
ENGERT David M. Engert               |  | President, Chief Executive Officer and Director(Principal Executive Officer)                 |  | February 24, 2010
|                                                     |  |                                                                                             
|/s/    DAVID M.
SANKARAN David M. Sankaran           |  | Senior Vice President andChief Financial Officer(Principal Financial and Accounting Officer) |  | February 24, 2010
|                                                     |  |                                                                                             
|/s/    JEFF S.
TERRILL Jeff S. Terrill               |  | Director                                                                                     |  | February 24, 2010
|                                                     |  |                                                                                             
|/s/    DAVID J. BROPHY,
PH.D. David J. Brophy, Ph.D. |  | Director                                                                                     |  | February 24, 2010
|                                                     |  |                                                                                             
|/s/    PETER Y.
CHUNG Peter Y. Chung                 |  | Director                                                                                     |  | February 24, 2010
|                                                     |  |                                                                                             
|/s/    CHARLES R.
BLAND Charles R. Bland             |  | Director                                                                                     |  | February 24, 2010



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